For most hard-working resident physicians, paying rent and bills on time each month can feel like a minor miracle. Financial planning might consist of little more than turning student loan payments on auto-pay. While resident salaries do not leave much room for investing and saving, the years young doctors spend in residency represent an important time during which a few simple moves can help to set the groundwork for a more sound financial future.

The topic of financial planning for residents is vast mainly because people are increasingly entering medicine with a variety of financial backgrounds. One resident may have transitioned to medicine after working in finance for years, while another may have sailed straight from college or grad school into medical school. Some graduate med school debt free, due to generous family members or scholarships, though the vast majority of new residents have taken on hefty student loans to manage med schools’ increasingly staggering tuition bills.

Here we will broadly review some of the topics worth considering for residents who want to dip their toes into financial planning.

Student Loans

Graduating from medical school can mean the beginning of a long road to loan payoff for many. However, there are plenty of programs out there designed to help manage this burden.

The first step to take, if you haven’t already, is to take a hard look at all of the loans you have taken out (between undergrad, grad school, and medical school, or whichever combination applies).

For privately owned loans, which usually have much higher interest rates, the focus should be payoff first. Most residents should have a much smaller amount of private loans given the generous caps on federal loan borrowing for graduate students. The other main reason for reducing or eliminating privately held loans is that loan forgiveness programs virtually never apply to these.

For federally serviced loans, the most important first step is to figure out who your loan service provider is and give them a call. Make sure you have a good hour for both waiting on hold and getting all of the information and questions you need answered. Have a pen and paper handy, and keep the information you obtain for your records. Loan servicers are there to help figure out how to optimize their clients repayment, which works in your favor since all parties involved want loans to be paid regularly and without delinquency.

There are multiple different types of Income-Based repayment plans, with PAYE (pay as you earn) and IBR (income based repayment) being examples of the major sub-categories. These programs allow you to pay a fixed monthly fee based on your IRS-calculated yearly income (this is calculated based on your taxed earnings from the prior calendar year). These programs do require consolidation of all federal loans, which once again will require a conversation with your loan servicer.

Another important aspect of loan repayment is figuring out if you qualify for PSLF (public service loan forgiveness). If your hospital is a registered nonprofit 501c3 organization, you can apply each year to be enrolled in a program whereby 120 months of repayment during employment at a nonprofit will allow you to then have the subsequent balance of your loans forgiven. The important element to remember is that you must renew this qualification by having the HR department at your hospital attest to your 501c3 status and employment each year.

Savings

The well-known “30/30/30” rule, which dictates that 30% of your paycheck go to rent, 30% to bills, and 30% to savings (with the remaining 10% for spending) hardly makes sense for residents’ lives. Given that many residencies are in major cities with high rents, most residents find that after rent, loans, and bills each month there is not much left for saving. For some, dual-income households allow for a softer financial cushion, and the residency years can represent a time for meaningful savings and goal-oriented investing.

There are valuable savings accounts that are worth opening as early as possible even with smaller amounts of money. The Roth IRA is a retirement account for which contributions grow tax-free. The maximum amount that can be contributed per year is low ($6,000/year in 2019) but the advantages are many and the earlier it begins to grow, the better. Websites like Wealthfront.com or the client services representative at a bank you trust can help you learn more and get set up with an account.

Some hospitals offer 401 savings programs for residents. While matching programs tend to be rare, it is worth meeting with a representative at the organization that works with your hospital. Usually the opportunity to do so arises around the time of “re-enrollment” for benefits, which tends to be in the fall. Inquire with the HR department at your institution for more information.

Major Purchases

Maybe you just got married and have a nest egg to use as a down payment on a property. Maybe you saved smartly in the years before medical school and are looking to treat yourself to that luxury car now that you can affix MD plates. Some of us are in the position to make meaningful purchases that require more zeros than usual!

For those looking to buy a house during residency, the most important thing to keep in mind is that there are specific mortgage plans designed for people with advanced degrees and high lifetime earning potential. For doctors, this can translate to high mortgage amount flexibility and low down payments. Take the time to educate yourself and meet with mortgage brokers who are familiar with lending to physicians.

If you are considering a bigger-impact purchase, keep in mind that you should try to maintain an “emergency” fund even after your spending is complete. If you are in a position to keep at least $5,000 accessible in savings for unexpected events, you should. You won’t regret it.

Professional Financial Planning Advice

Regardless of where you fall on the wealth spectrum during your residency years, financial planning should be on your mind. While the days of financial stability and savings may feel far-off, there are key moves that can be made even during the leaner years to build a solid financial foundation. Obtaining sound financial advice from a financial advisor, wealth manager, accountant, or other financial professional is a good way to start. Establishing a relationship with a wealth management team is another step that can help you make informed decisions that are in your best financial interest.