Consider for yourself the true purpose of money: to allow you to live and to support your happiness. The “correct” financial decision from the “having more money is always better” perspective is always to pick that which costs the least amount of money or saves you the most. But most people don’t live and can’t live their lives exclusively in the service of accumulating dollars and cents. If that were the case, you may not have chosen the profession you did. Many physicians certainly wouldn’t have become doctors in the first place, and many of those that would still wouldn’t have picked their specialties, some of which are considerably underpaid.
Consider that a few years of forbearance might cost that average-ish $200k borrower around $36,000 in unpaid capitalized interest during training and an extra $2,000 in annual interest over the long term: a considerable sum. Like a nice new car paid in cash. But that amount could also be the difference between doing residency in a place that you love and that excites you instead of a place that doesn’t; the difference between coming home to a relaxing evening in a place that you like after a long day at work or coming home after a long commute to a hovel. In many cases, the forbearance vs. loans decision won’t hinge on these macro choices, but in others, you really have to sit down and think about your priorities. Residency can be hard enough as it is. If your future job has solid earning potential, who is to say taking a hit of tens of thousands of dollars is a categorically wrong choice?
(Forgive the upcoming cliché barrage)
Live like a student now or live like a student later. Live like a resident now or live like a resident later. Sometimes that can actually be true. How will your future self feel about your current self’s decisions?
It depends on how you maximize utility. Some people are prodigious savers and get great satisfaction from putting money away for the future. That’s great (it really is). But even if you have a hard time being thrifty, you should at least acknowledge that your future self already has plenty of things to pay for, including hopefully a long and healthy retirement. Don’t forget that a penny saved is actually more than a penny earned (thanks to taxes).
But if spending some money now brings you great joy, I don’t want to be a miser and imply that you can’t spend some in an otherwise reasonable matter. Just don’t forget that it’s much easier to grow into your income than it is to deflate your lifestyle. Anyone can spend more money.
But it’s very very hard to get off the hedonic treadmill.
In addition to eventually dealing with your student loans, there are several other things your money should also be earmarked for in the short term:
- Paying off any outstanding credit card debt. High-interest credit card debt is a financial emergency.
- An emergency fund (3-6 months of expenses in a safe place, say a free interest-bearing online savings account.
- Paying off any high-interest personal loans or other debt.
Appropriate insurance (disability, life) when you can afford it; get it while you’re young. Generally, it’s good to get this before finishing residency. If you have children or a spouse that relies on you, you need life insurance, period.