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Ten Financial Tips for Residents


The opinions expressed in this article are provided as guidelines. Kaplan Management and Medical Management disclaims any liability or responsibility for the consequences of any actions taken in reliance on these statements or opinions.

The duties of residency rarely allow time for pleasure reading, much less in-depth research in any subject other than medicine. Little time is available to learn about subjects such as investing, budgeting, or financial planning.  The following list should help you to understand which activities you may want to consider as a House Staff Physician

1.  Consider buying a house

Interest from a house mortgage can be a substantial tax deduction. Keep in mind however that a house includes upkeep expenses that an apartment or rental house does not incur. Additionally, you may have to sell your home after the completion of residency.  Housing markets and mortgage rates can vary drastically, and three to five years often does not return even the best planned home investment.  Consider this option carefully before choosing a home as an investment tool.

2.  Start a moonlighting business.

Many programs allow residents to moonlight both as a source of extra income and as an educational opportunity.  The income earned from this experience can often be taken as an "independent contractor" from which no taxes are deducted.  The independent contractor status allows you to open a moonlighting business and report your income on a Schedule C for tax purposes. This means that you can subtract business expenses such as scrubs, textbooks, car mileage, and office supplies used exclusively for your business. However, you must put aside money yourself for the dreaded end-of-year income tax. This includes a hefty self-employment tax. To compound the matter, after the first year you will be responsible for payment of taxes quarterly. Look into this carefully before becoming an independent contractor.

3.  Get a copy of your credit report and study it.

Your credit report is the document that will make or break your application for virtually any type of credit—mortgage, car loans, and credit cards. See the reference list for addresses to obtain your report. If you do find incorrect information, you can request that the credit-reporting bureau investigate the information. Even if the negative information proves correct, you have the right to insert a brief commentary about the entry.

4.  Make a budget.

New residents revel in the one thing they have been denied for so long: a salary. However, it is often far from a bonanza, and financial management is a key to surviving this rough period. Start with a list of your fixed expenses—mortgage or rent, utilities, loan payments, car payments, insurance, savings, etc. Then add in your "luxuries"—credit card payments and other non-necessities. The total is what you need to earn. If what you need to earn exceeds what you bring home, now is the time to pare down expenses. 

5.  Build an emergency fund.

An emergency fund is just that, a fund only to be used during genuine emergencies of the family. When you enter private practice, the common figure is between three months to one year of net salary. For residents, a more reasonable figure is three months. If you have disability insurance, your minimum savings should be whatever living expenses you would incur until the policy payments start otherwise your elimination period of your policy.

6.  Purchase an Own-Occupation "Specialty Specific" disability policy.

Training for a career in medicine or dentistry takes a big commitment. Long hours, personal sacrifices and right now planning for your financial future may seem overwhelming.  If you are just starting its not to early to start thinking about protecting your future income.  In fact, there is no a better time for you to purchase a disability policy then now.  Since disability policies are based on your situation at the time of your application, you have the opportunity to put yourself in the best position and lock in a policy based on your current age, health and you obtain many other benefits.  

7.  Choose mutual funds rated five stars by Morningstar.

Morningstar Reports (www.morningstar.com) is one of several respected mutual fund-rating companies. It ranks funds from one star (the worst) to five stars (the best) based on return. Several other rankings can also be found elsewhere on the web, including Value Line (www.valueline.com). For your IRAs and investments (with all that extra money you are saving), highly-ranked mutual funds are the way to go. Rarely do residents have the time to thoroughly research companies and monitor them if they directly invest in stocks, so take the advice of the experts.

8.  Open an IRA for both yourself and your spouse now.

An IRA (Individual Retirement Account) is an account to which you may contribute a small amount each year and allow it to grow tax-deferred. Perhaps one of the best places to set up an IRA is in a mutual fund company. One flavor of IRA is a Roth IRA, established in tax year 1998. Unlike a traditional IRA, which is usually tax deductible initially (subject to limitations) but later taxed when the funds become retirement income, the Roth IRA is NOT initially tax deductible. So why bother? When you retire, the Roth IRA money is tax-free. This translates into thousands of tax-free dollars when you retire. You can contribute up to $2,000 for each spouse for each tax year (total of $4,000 a year) to your IRA. You have until you file taxes for a particular year to make an IRA contribution. Unfortunately, the Roth IRA has specific income limitations that you will undoubtedly exceed after residency. Therefore, save now for maximum return later.  You may also want to obtain a HSA qualified health plan so you may put more money away for your retirement. 

9.  Purchase a term life insurance policy.

A quick way to get confused is to visit an insurance agent and try to learn about the different types of insurance.  Try to reduce things to the simplest terms. Most residents need life insurance, but not an investment vehicle.  This means a simple term policy.  If you die, your beneficiaries get paid.  Term is usually the least expensive, but this can vary based on the options you add.  Be sure to obtain quotes from several companies.  You may want to use a broker who represents most or all insurance companies thus you will obtain a survey of the least expensive companies based on financial rating and size. 

10.  Carefully consider forbearance on your student loans.

Some loans allow repayment to be deferred until after residency, but lenders are increasingly requiring repayment to begin during residency, even in internship, due to federal constraints. This puts a huge drain on already limited financial resources. Some lenders allow borrowers to forbear their loans while in residency. This means they take the interest you are accruing and add it to the principal. You do have the option to pay off the accruing interest monthly. If your loans do go into repayment during residency, you may qualify for a tax deduction of the interest paid on your student loans.

Taking control of your finances is a large task, made worse by the limited salary and lack of free time during residency.  Residency is often the first real job many physicians have, and the financial habits developed during this time can have a huge impact on future financial actions. Taking the time to learn the basics of money management and sticking to them can pay off handsomely in the years to come.  You may also want to choose unbiased advisors who will present you with solutions to your problems and not just sell you a product or service.  It is always best to find advisors who specialize in their particular field such as; an attorney, an accountant (CPA), an insurance broker, and an investment advisor.

Credit Report Information:

www.tuc.com - Trans Union Reporting Company

www.experian.com - Experian Credit Company

www.equifax.com - Equifax credit reporting


Ernst & Young's Personal Financial Planning Guide by Robert Garner, et al. ISBN 0471-16484-4
Kiplinger's Practical Guide to Your Money by Ted Miller. ISBN 0-938721-54-2
Personal Finance for Dummies by Eric Tyson. ISBN 0-7645-5013-6


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Kiplinger's Personal Finance




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Last modified: June 13, 2012