Medical professionals earn well, but they’re also saddled with heavy debt before receiving their first paycheck!
Whether you’re fresh out of medical school or a residency, trying to figure out how to maintain your financial security while paying off student loans and professional expenses can be tough. Proper planning is the only way to achieve long-term security and a comfortable lifestyle, both now and after retirement.
It’s not that difficult either, as long as you focus on these 7 core aspects of personal finance:
1. Start Saving Early
Retirement may be decades away, but you need to start saving for it as early as possible. It takes a substantial nest egg to retire in comfort, and time is your best ally in this regard. If you start investing and saving money now, there’s more time for it to multiply through compounded growth.An effective retirement planning strategy begins with understanding how much you will need, so define your financial goals and explore options that will help you reach them. Then, make automated savings a habit.
2. Get Used to Budgeting
You won’t be able to save money if you don’t know where you’re spending it. Break down your monthly expenses and set a budget for basic necessities, i.e. housing, food and transportation, student loan and other debt repayments, professional and household expenses, as well as entertainment.Add emergency and retirement savings to the budget, and stick to it. To help your nest egg keep pace with inflation, put at least 25% of your earnings into your IRA and other savings plans every month.
3. Plan Your Insurance
In addition to malpractice insurance, you need other kinds of coverage for financial protection. Premiums for life, disability and long-term care insurance cost very little compared to the benefits they offer, especially when you consider the impact a loss of earnings will have on your life.If you can’t afford whole life insurance, start with a term plan for now. Look for plans with effective risk management options for medical professionals, such as disability insurance with ‘own occupation’ features.
4. Manage Your Debt
Student loans, credit card debt and other financial obligations pose the largest threat to your economic goals. However, you can reduce this load by keeping track of expenses and creating a proper debt repayment strategy. Focus on high-interest loans first, and cut down expenses wherever you can.Monitoring your cash flow will help you manage your earnings more effectively, as well as save for your retirement. Remember, you’re investing in your future when you save money instead of spending it.
5. Leverage Tax Benefits
If you want to be financially secure after retirement, it’s a good idea to maximize your savings and make the most of tax breaks while you’re still young. Saving funds in an IRA is a great way to build a tax-advantaged nest egg for the future, especially when you pick the right type of account.Invest in retirement plans offered during your residency, or open a Roth IRA and make post-tax contributions that turn into a tax-free income source for retirement. Consider an SEP-IRA if you’re setting up your own practice.
6. Make Smart Investments
Making the right investments based on your goals is an essential step toward financial health. For instance, money market funds and CDs are the best choices if you want to purchase property in the next few years, but the stock market offers better long-term returns for your retirement plan.With a self directed IRA, you can allocate retirement funds exactly where you want. Diversify your portfolio to make the most of the long-term as well as short-term investments, and balance risk against gains.
7. Ask for Help
If you are unsure about the best way to manage debt, savings and expenses, consult a professional for guidance. Look for an advisor who works on a fee-only basis instead of commissions, and ask colleagues or family for recommendations as well.
You refer patients to a specialist when needed, so why not follow the same rule for your money? As a medical professional, you can’t be expected to become a financial planning expert too!