Financing as a resident physician can be like diagnosing a patient with vague symptoms—stressful, overwhelming, and difficult to navigate, with so much to lose if mistakes are made. In fact, 54% of physicians on Sermo say they don’t have enough financial advice and support to make these decisions, and an overwhelming 75% of physicians would recommend a financial advisor to physicians starting their career.
From earning a median starting income of approximately $65,000 to $70,000 a year to maintaining everyday expenses while simultaneously tackling exorbitant student loan repayments and a need for long-term financial stability, many residents struggle to pay bills, let alone save for their futures. Add in that there’s little financial training received during medical school, making it no wonder so many physicians feel financially trapped.
This guide explores financial planning for resident physicians and offers practical tips and resources from the Sermo physician network to ensure physicians leave with everything needed to establish a healthy financial start today.
This article is for educational purposes and should not be considered a substitute for personal financial advice. Consult a registered financial advisor for personalized advice.
Understanding your financial landscape as a physician
Resident physicians can’t formulate a plan if they don’t know what they have to work with. 30% of physicians surveyed on Sermo said their biggest challenge is in terms of planning for retirement. This is a great starting point.
As a resident, your initial income is dependent upon specialty, geographic location and year in residency. As residency seniority is gained, more income is earned. Keep in mind, your income should cover basic expenses like rent, as well as savings and investments.
Medical graduates are typically in debt of over $200,000. AAMC reports that almost 73% of all medical school graduates have educational debt. A Sermo poll reports that just over half (51%) of the respondents understand the different types of loan options they have, with 27% choosing standard repayment plans.
As a physician, your career may face financial ups and downs over time. According to a General Practitioner from Sermo, ”Economic stability for doctors is a problem today that has increased with the pandemic; that’s why many of us are looking for other income options.” Understanding where your incomes and expenses go monthly is the first step to managing them well.
Another General Practitioner sums up financial health well by stating, “Financial health means keeping your finances in balance and securing them for the long term. This includes regularly reviewing your income and expenses and planning accordingly. An important part is building up an emergency fund that covers at least three to six months’ salary. You should also avoid unnecessary debt or pay it off quickly. Long-term financial goals such as investing in ETFs or retirement planning are crucial for building wealth and securing your financial future. Ultimately, financial health means keeping control of your money and being prepared for all situations in life.”
Financial planning strategies for resident physicians
Financial planning is more than just budgeting—it’s about managing your finances in a way that supports your current life with an eye towards the future.
Create a realistic monthly budget
Budgeting is part of understanding your financial landscape. This means that you can appropriately prioritize essential income expenditures, understand where and how you can save, and ensure that you stay on the right path. The earlier you build this habit, the better. An Oncologist on Sermo explains, “One should start financial planning from the beginning of their job and seek a financial planner’s assistance.”
Create a loan repayment plan
You don’t have to be saddled with student loans throughout your medical career. With a variety of repayment options, it’s easier than expected to find compliance.
Typically, federal, income-driven repayment options are best as they determine monthly payments based on your real income. PAYE (Pay As You Earn), SAVE (Saving on a Valuable Education) plan – which replaced the previous REPAYE plan in 2023 and improves upon it, including better interest subsidies and lower discretionary income percentages – and IBR (Income-Based Repayment) plans lower payments relative to income, which is a benefit for early-career professionals in medicine. PAYE is still available for some borrowers, but it’s not available to new borrowers as of July 2024. New borrowers must choose between SAVE or IBR.
SAVE is the best of the three as it offers interest subsidies that lower affordable payments during residency when discretionary income is at its lowest.
There’s also PSLF (Public Service Loan Forgiveness), which will forgive your loan amount after 120 qualifying payments with full-time employment at any qualifying non-profit or governmental position. Since this option has so many qualifying payments that must be made in succession, it’s a good choice to set up automatic payments to ensure you are never late or miss a payment.
For those who want a temporary solution with multiple federal loans, consolidation through a federal lender can help lower the amount of loans you’re actively paying, as well as lower minimum monthly payments. If you consolidate eligible federal loans through a Direct Consolidation Loan, you remain eligible for PSLF. However, a potential downside is that any payments made before consolidation generally won’t count toward forgiveness unless they were made on Direct Loans, so if you plan on remaining in the not-for-profit sector or governmental job for the foreseeable future, keep this in mind as you choose. If you want a lower interest rate, refinancing through a private lender is an option, but this will waive all federal protections and eligibility for all repayment programs.
Deferment and forbearance are temporary options for extreme circumstances when you cannot make any payments; however, both options will continue to accrue interest, meaning even if payments are not made at that time, it will increase how much debt you’ll pay in the long run. Only use these options if necessary and for the shortest amount of time.
It comes down to what kind of payment plan fits into your financial plans—immediate and long-term—and know that it’s possible even while starting your career. A General Practitioner on Sermo explains, ”When it comes to debt management, it’s important to prioritize paying off high-interest debt and consider consolidating debt into a single loan with a lower interest rate. Diversifying investments across different asset classes and regularly contributing to retirement accounts like a 401(k) or IRA offers tax and compound interest benefits. Defining short- and long-term financial goals, seeking the advice of a financial advisor for personalized guidance, and regularly reviewing and adjusting your financial plan are key steps.”.
Managing student loans doesn’t have to be overwhelming, but it’s important to understand all the options early on.
Save for retirement
Contributing just $50 to $100 per month to a 401(k) or Roth IRA can make a huge difference down the line due to compound interest. Physician retirement planning needs are different for everyone, so it’s critical to start early and most effectively. Since 57% of Sermo poll respondents have a financial plan in place for their families, investing is a common tool, with 30% investing in the stock market.
Get insured sooner rather than later
Your earning potential is your most valuable financial asset. Disability insurance provides a supplemental income stream should you be unable to work through a job-related injury or occupational hazard. Obtaining insurance is paramount to ensuring you do not risk your present and future financial health. With career earnings potentially exceeding 5 million dollars, the earlier you can obtain disability insurance, the better. The earlier it is secured, the lower the premiums, and it will be available for your potential career earnings.
Malpractice insurance is usually covered by hospitals for practicing physicians through the hospital for which they work. If you’re moonlighting or taking side jobs, personal malpractice insurance would apply to protect those ventures. But the largest concern financially for residents is overspending—too much insurance coverage, which bankrupts your budget, or not enough insurance coverage, which leaves you liable for a financial disaster. It’s essential to find that happy medium to ensure a successful medical career and financial stability.
Build an emergency fund
Without a spare nest egg for surprise weigh station fees and moving expenses, your finances will be compromised. Ensure this fund is kept in separate savings so it’s not accessible in checking in a hurry. Aim for three months of expenses in a high-yield savings account. If three months is too overwhelming, try for one month and build up your savings over time.
Budgeting basics for resident physicians
A fifth (18%) of surveyed physicians on Sermo said that lack of a budget is one of the financial mistakes they are most concerned about. Budgeting does not have to mean cutting everything you enjoy; it means spending with purpose.
Track every single expense
Knowledge is power. It would help to get a budgeting app, like YNAB or Mint, to track every dollar and ensure you are prepared by identifying and grouping your expenses. A General Practitioner explains, “Managing your financial health and planning is crucial to achieving stability and meeting your long-term goals. First, it’s essential to create a budget to track your income and expenses, which will allow you to identify spending patterns and areas where you can save. Establishing an emergency fund that covers 3 to 6 months of expenses is critical to managing unexpected costs. Automating transfers to your savings account ensures consistent savings.”
Set spending limits
Make category budgets for rent, food, transit, insurance, and recreational activities, and try to stick to them as closely as possible. A Radiologist from the USA explains, “Save with purpose, be it early retirement, a large purchase, more freedom, etc. Admit to certain things being expenditures and not investments, like a house.”
Purchase necessities, not luxuries
While it may be exciting to upgrade your apartment or get a leased car, avoid lifestyle inflation when you’re not financially stable.
Use cash or debit for essentials
Avoid racking up high-interest debt on credit cards. Don’t take a credit card out with you for daily purchases. Handing over cash or swiping your debit card for purchases will get your wallet to think twice about spending.
Establish and enhance your financial literacy
You’ve spent years in school achieving your dream. It’s important to have financial planning to effectively keep expenses manageable, all needs covered, and the future prepared for. Here are your key takeaways from this guide:
- Don’t wait: start budgeting and saving now, even on a resident’s salary. Learning to live within your means and setting aside even small amounts can build strong financial habits and compound long-term gains.
- Loan repayment isn’t black and white: understand and strategically manage your student loans. Choosing the right repayment plan, exploring forgiveness programs like PSLF, and avoiding high-interest debt can save thousands.
- Insurance is non-negotiable: protect your future with essential insurance. Disability and term life insurance are critical safeguards for physicians in training, ensuring financial stability in case of unexpected events.
- Leverage your community: peers in residency and professionals along your journey can guide you with words of advice and referrals to specialists.
It’s just as important to be financially educated as it is to be medically well. By considering a handful of factors during medical residency, the future will be far less financially burdensome down the line. You don’t need to go through it alone to create a strategy for investment, retirement, or debt repayment.
