Michael Brooks, MD
Personal Finance in Residency
Upon starting residency, many are faced with managing their finances for the first time. From the issues of budgeting, investments, taxes and more, the average new physician’s familiarity with these life skills is minimal. I am a radiologist, not a financial professional, yet I believe through dedicated study and personal interest anyone can feel adequate in these matters. Hopefully after these brief words, you may be inspired to improve your own financial literacy.
Similar to professional athletes or entertainers, those in our profession will experience a sudden increase in income. By practicing various skills of wealth management on a resident’s salary, any mistakes made will be of vastly smaller consequence with valuable lessons learned. As with compound interest rates, nothing beats starting early.
In my case as with many others, I made a point to read, “The White Coat Investor” by James Dahle, MD. This quality book and blog are targeted to physician-specific needs and challenges. From Dahle’s works and “The Bogleheads’ Guide to Investing,” you can prepare a strong foundation. Further recommended reading from these sources are many, but to summarize several — live within your means.
Every journey begins with a humble first step. A monthly budget is an easy way to track your spending and identify areas of strength and weakness. Living expenses and loans will consume most of a modest salary, yet with basic budgeting the average resident should have the opportunity to practice saving for retirement. For the beginner not exceeding the income limitation, a Roth IRA is the leading option. This fund initiates the process of investment evaluation and selection with the unique benefit of no taxes due upon withdrawal in retirement.
Regarding investing, seasons change. Though some try and claim to predict the future, none can. Many choose to trust the alphabet soup of financial advisors to actively manage their investments. Occasionally these men and women outperform the market; however, consistency over time is rare at best. Combined with high annual fees regardless of performance and frequent conflicts of interests, paying a “professional” is not as sure a path to maximize your wealth as it may seem. It is well worth the time to interview and find a neutral, quality advisor to pay for a financial plan now or when specific challenges arise.
Important also is the concept of indexing: broad asset diversification within a single fund mirroring the overall market trend with minimal fees and mitigated risk. This correlates with my and many others’ philosophy, and is a powerful tool in the hand of experienced and novice investors alike.
Practice makes perfect (or at least, better). I highly recommend taking ownership over your own taxes while the process remains straightforward and simple. Through your medical training you will have at least six years to create good habits, among them — accurate recordkeeping and filing.
After over a decade of hard work for a meagre salary and debt, you will be overdue for compensation upon completion of training. Yet, if you can resist the urge to splurge and stay mindful of your long-term financial goals, financial independence and freedom will be your reward. This starts by eliminating debt and resisting its rapid expansion.
Do not assume you are incapable of understanding or handling your own finances. Having studied and retained the nuances of science and medicine for over a decade, this is within your grasp. As with any skill, aptitude and confidence are grown through diligent practice. By creating a habit of “continuing financial education,” you — and you alone — can take ownership of your future.