Month: March 2015

Develop your financial knowledge while in school and in residency

I wished that I cared more about finance during medical school. It always seemed like there was something else more important (i.e. USMLE, tests, clerkships…etc). Most students felt that way. Those who came from financially independent families surely didn’t care. It was also taboo to even discuss these matters. After all, we’re in the business of saving lives, right?

Sort of.

What I’ve realize from practicing medicine is that excelling in medicine only gets you so far in life. You still have to be able to translate the blood and tears we suffered through all these years into that German luxury auto that you’ve always wanted. And no one teaches you that.

The key advantage of being a young, poor, student is time. Time to gain experience. In finance, you get compound interest. As far as getting yourself there, learn to be financially competent. Take some time to study about finance. An hour a month, perhaps. Make time. When the financial advisors start preying on you during residency, you will be prepared. Learn the vocabulary. Read my high yield financial outline for the busy student. Every initiative you take to educate yourself in finance or business is an investment into your future self.


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Getting your finances in order after residency

The AMA recently published a bullet point listing of basic do’s and don’ts for young doctors going out into practice.

The recommendation to avoid or eliminate credit card debt needs to emphasized. I could easily count with two hands the number of classmates in my medical school who overtly carry credit card debt. As a potential high income earner, you are targeted by credit card companies because you have good credit and are approved easily for loans.

Additionally, here are some soft recommendations for the new grads as well:

  1. Be careful about buying a new house when you get your first job. Now that your income has increased significantly, it is easy to increase your expenses as well.  You don’t want to buy more house that you can afford. If you job does not work out and you have to relocate, you will be stuck with a huge mortgage as well.
  2. Add to that Roth IRA. You want to diversify. Pre and post-tax investments.
  3. Do your homework before committing to a financial advisor. Watch out insurance salesmen. While you need to be adequately insured, make sure what investment vehicles that you truly need before you buy. I’ve been pitched whole life insurance several times before. It might make sense for some people, but it certainly does not if you have $400,000 in student loans that you need to repay or if you have credit card debt.

Any other suggestions or questions? Sound out below!


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Doctors must achieve a baseline level of financial competency

As doctors, we don’t need to be financial gurus (a la Bill Bernstein), but we must establish a baseline level of financial competency.

This doesn’t even mean that you have to like finance, numbers, or even money. Our medical licensure mandates a certain number CME credits to stay current; the same is true for our financial knowledge. It really doesn’t take much time either. You also don’t need to know everything in detail, just the basics and enough to make educated decisions, hold a conversation with your tax advisor, or money manager.

Start slowly. Sign up for our monthly newsletter. Pick up a book. Read two hours a month. Increase as needed. It’s not a race, but the more time you spend on the subject, the better off you will be. Trust us.


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Basics of job hunting for the new doctor

Job hunting for the new doctor requires diligence

Unless we decide to open up our own medical practice, most of us end up seeking out employment after a decade of medical training. There are fundamental questions that we should ask ourselves, our family, and our potential employer before agreeing on employment. This will be the first of several entries dedicated to the greenhorn doctor.

While these suggestions are written from the perspective of a medical doctor, they are applicable to most medical professions (dentristy, nursing, physician assistants…etc) and even to other professions.

1. Geography. Do we need to live close to our extended family? Do you need to be in California? Do you want to pay for $4/gal gasoline? Do you need family help for childcare? In some ways, being tied to a certain region can make subsequent decision making easier. As we probably have already experienced during training, being near family and friends can determine the difference between happiness and misery.

2.  Do you want to conduct research? Traditionally, research opportunities have been tied down to large university settings, but many hospitals and medical practices have their own research departments. This question has become less clear cut over the years. Obviously if you wanted to conduct advanced basic science or obscure research, you’d want to stick with a university setting.

3. Realize that perfect jobs rarely exist. Your dream career job might exist, but maybe you have to move Alaska to do so! (Nothing wrong with Alaska)

4. Realize that even though you may be a scientist, clinician, or healthcare worker, finances dictate our existence (to a certain extent). Make sure that you are getting compensated adequately for your level of education and time. (More on this topic in future posts).

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5. Travel. If you are taking a travelling nursing position, consider the importance of family and how often you will need to travel, and how you travel (do you drive, do you fly, or take a ferry?). Such opportunities may be exciting initially, but may burn you out after years of it.

6. Realize that experience belies every opportunity. It might take two or ten jobs before you find a perfect one. In the process of finding a perfect career, you will make mistakes but you will also learn from them.

Questions? Sound out below!

Miscellaneous Itemized Deductions may be worth less than you realize

You have to spend money to save money

One common phrase that we hear professionals say in passing is, “Oh, you can deduct that expense.”

What does that exactly mean? Generally, that means that you can count the amount that you spend against your taxable income, effectively lowering the amount by a certain amount. This amount is almost never equal to the amount that you spend. It does not mean that you are getting free money either. You have to spend money in order to lower your tax bill.

The most common category of miscellaneous itemized deductions used by a salaried doctor include unreimbursed job expenses. The amount that you can deduct must EXCEED 2% of your adjusted gross income. Let’s look at an example:

Bob earns $50,000 salary as an internal medicine resident. He spends $3,000 on meeting expenses that are unreimbursed by his program. Two percent of his $50,000 is $1,000. Bob can only deduct $2,000 of the $3,000 that he spent.

As a single filer with a salary of $50,000, Bob is in the 25% marginal federal tax bracket. That means he “saved” about $500 of federal taxes (25% of $2,000), but he had to spend $3,000 to do so.

If Bob didn’t go to the meeting, he would have “kept” $2,250.

The argument goes both ways. Itemized deductions are valuable especially for high-income earners with high business expenses. The more you spend on business expenses, the more that you can deduct. The bottom line is that you have to spend money in order to save money. There is no free lunch, but you can have a discount if you do buy it.*

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*Only a figure of speech. Meal deductions are also reduced by 50% in deductions. The argument is that you have to eat anyway, whether or not you are on business.

Pay your student loan interest while your salary is still low

pay off student loan interest

Tax season is in full season, and it is timely to go over a few pointers to help everyone out.

For most medical students and residents, student loans remain in deferment or forbearance. This means that you aren’t obligated to make any monthly repayments. It also means that interest accrues and compounds during that time. It also means that your mid-6 figure loan debt continues to grow.

Ideally, you should try to make monthly payments whether it is on a 15 or 30 year repayment plan, to keep the magic of compounding from working against you. Financially, you ought to repay at least $2,500 annually in student loan interest for a tax deduction at the end of the year. It only works before you attain attending status, because there is an income limit that you will exceed after training. For 2012 and 2013, phaseout for student loan deduction begins at $60k for a single filer and $125k for a joint filing. In 2014, it starts at $65k and $130k, respectively. If your annual adjusted gross income (AGI) exceeds the limit, then there will be no deduction for payment of loan interest.

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Use a Roth IRA to diversify your retirement savings

Include the Roth IRA into your retirement strategy

The Roth IRA (individual retirement account) is another form of a retirement account that allows you to withdraw your retirement earnings tax free. Enough has already been written about it online. I recommend everyone read the summary on the Wikipedia page.

The essence of a Roth IRA is that the money you place in the account has already been taxed at your current federal and state income levels. Any earnings made are withdrawn tax free. There are federal income limits on contributing to the Roth IRA, but there are ways around it. I recommend reading Harry Sit’s summary on his blog: He already has a well-written summary on the process.

The premise of contributing using post-tax dollars allows you to diversify your savings and future dollars.

If you have questions, ask below!

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