Post-Match Fourth Year is a time of impending change, and there is no better time for a soon-to-be physician to learn the basics of personal finance and get their financial house in order before residency.
There are a lot of things you can do, but here are my top 5:
1. Learn the basics of personal finance and make a student loan action plan
There’s some core information that every functioning adult simply needs to know.
The are many resources for the former and very, very few that are comprehensive enough to make sure you’re doing the latter correctly. You can do both with my book, which includes chapters on the psychology of money, how interest works, taxes, and retirement at the level a new intern should understand. It’s available in print and ebook (Amazon, Apple Books), and the full text is available cost-free and advertisement-free (i.e. completely free) right here.
Early steps will almost always involve federal consolidation after graduation, and you will not forbear/defer your loans.
2. File your Taxes
The deadline was extended to May 17 if you haven’t already, but if you don’t owe taxes, you can file at any time without penalty. So do it! Your taxes are used to determine your student loan payments in income-driven repayment plans like PAYE, REPAYE, and IBR.
3. Consider what kind of insurance you need
If you are married and especially if you have kids, you simply need life insurance. The policies for life and disability insurance that you get from your employer are usually not large enough to provide for dependents and aren’t portable. Getting insured while young and healthy locks in future security. No one enjoys spending money on something they hope to never use, but that’s the nature of insurance.
If you own a home, you’ll need home owner’s insurance, and if you rent an apartment, you’ll need renter’s insurance.
You’ll definitely need auto insurance if you own a car, and need to make sure that the personal liability benefits are high (replacing the car is the cheap part; paying for healthcare and property damage, not so much).
At some point before the end of training, you’ll also want umbrella insurance, which is a cheap liability policy-of-last-resort in the rare event that you are on the hook for more than the limits on your home or auto policy (these cost around a few hundred a year for 1 mil policy but do require robust underlying home and auto policies).
Ignorance may be bliss, but insuring against catastrophe will help you sleep better.
4. Learn about and consider purchasing disability insurance
See my longer article about buying a DI policy during medical school. A post-match fourth-year student is eligible to buy a small doctor policy that is portable to all future jobs and can scale with future income increases. Any disability policy must be purchased through an agent, and it may be worth it to contact one now and see if a policy is affordable to you now. You may have access to different discounts at different points of training, and a good agent can walk you through all of your options, the benefits and costs of specific “riders,” and be available to you as your situation changes.
You want to purchase a policy as early as it’s affordable for you but not later than your final year of training. I partner with the fine folks at Pattern.
5. Get at least a vague handle on budgeting
It can be really helpful to use a service like YNAB or Mint to create a real bonafide budget to follow, especially if you’ve ever carried credit card debt, want to be more purposeful in your spending, or need to save up for some big purchases. But I know not everyone is going to do that. What’s easier for many people is to determine your reverse budget.
You figure your actual take-home pay (your paycheck after taxes and any retirement, FSA/HSA contributions, etc). Then, determine your fixed expenses, which are the things that happen no matter what like rent and student loan payments, and your mandatory variable expenses (e.g. utilities). The last category is the hardest because they may change month to month, so estimate high, not low. Note that you’ll want a 3-month emergency fund, and any retirement contributions that receive a match from your employer should also be considered mandatory. The difference between what you bring in and the costs you know you’ll need to account for is the maximum amount of money you can “spend” every month.
You should, of course, spend less, and you’ll need to if you want to afford things like travel, but you should never spend more unless you’ve already saved up for it. Figuring out how to plan for the big stuff as well as get deeper insights about your current spending habits are two of the big benefits of software like YNAB. You might consider setting up different folders in your savings account (or even different savings accounts) in order to hold money for special purchases like a wedding or vehicle. Then you can plan for those big-ticket items as an amortized monthly expense.
One key to making budgeting easier mentally and psychologically is a big gap between your income and your expenses. That’s why choosing wisely for the big fixed expenses like housing and transportation is so critical.