A Guide to Money in Residency

Written by: Corey Janoff

As a physician, financial planning starts in residency, or even medical school. It is important to establish good financial habits to set yourself up for financial success once you become an attending. This guide to money in residency will touch on many of the areas of your financial plan that you will want to be thinking of while still in residency.

Without further ado, let’s dive into the money topics you should get a handle on while in residency!

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Student Loans

The first order of business in residency is to get a game plan for your student loans. If you don’t have student loans, feel free to scroll down.

The average medical student graduates with over $200,000 in medical school student loan debt that they will be carrying along to residency. That balance will likely increase to over $250,000 by the time you are done with your medical training, due to accumulated interest.

Unless your student loan balance is small and you plan to pay it off quickly, I generally encourage everyone in residency to enroll in the PSLF Program in case you decide to pursue Public Service Loan Forgiveness.

Related Podcast: PSLF – What Doctors Need to Know.

Public Service Loan Forgiveness (PSLF) is where you make qualifying student loan payments while working for a qualifying non-profit or government employer, after 10 years of payments, your remaining federal student loan balance will be forgiven.

For some doctors, PSLF can save them hundreds of thousands of dollars.

The key is to make sure you are meeting all of the requirements. In short:

Your loans must be Direct loans.
You must work for a qualifying employer – government or non-profit. You can confirm your employer qualifies by filing the Employment Certification Form each year. Believe it or not, almost every hospital is considered a non-profit.
You must be on a qualifying repayment plan – IBR/PAYE/REPAYE or 10-year Standard.
You must make 120 monthly payments.

The first step is to consolidate your loans into Federal Direct Loans and enroll in one of the qualifying payment plans.

There have been and continue to be constant changes with eligibility of loans and employers that qualify, so be sure to look at the PSLF limited waiver rules to see if you can get previously ineligible payments counted.

Every small income-based student loan payment you make during residency is a $3,000 payment you avoid making in practice. The sooner you start paying on those student loans, the sooner you can potentially have them forgiven.

If you don’t end up working for a qualifying employer after residency, and therefore lose out on PSLF eligibility, that’s fine. You can explore options for paying them off in practice, or refinance your student loans to a lower interest rate.

Rent or Buy a Home in Residency?

In short, do not buy a home during residency. The cost of short-term home ownership often exceeds the cost of renting. Most residents don’t plan to live in the same home for more than five years, which makes renting more attractive from a financial perspective.

I understand you feel like you’re “throwing your money away at rent” when you could be building equity in a home. I can tell you from experience though, your primary residence is not an investment, but rather an expense. If you can recoup all the costs you put into it when you go to sell, consider yourself lucky.

Long-term, owning a home tends to be better than renting, but you’re not in residency long-term.

Of course, there are exceptions. Maybe you plan to stay in the same city when you’re done with training, because your spouse works there, and you’ve already established your roots. Those scenarios can be assessed on a case-by-case basis.

Important Insurances for Medical Residents

Medical/Auto/Home/Umbrella/Malpractice

There are the usual insurances, such as medical insurance and car insurance that everyone should have. Homeowners insurance if you own a home. Malpractice insurance should be covered by your residency program.

One insurance that is often overlooked is umbrella liability insurance, which provides additional liability protection on top of your car & home insurance. This is usually relevant in the event of a lawsuit.

For example, you get in a car accident, you are at fault, the person you hit sues you for more than your car insurance covers. In that scenario, the excess liability comes out of your pocket, unless you have an umbrella policy to absorb the excess liability.

Get umbrella liability insurance through the same company you get your auto and home insurance through. Inexpensive and well worth it for the cost.

Disability Insurance

Physician disability insurance is crucial to secure as early as possible. Specifically, you want an own-occupation disability insurance policy, that protect you if you can do the specific job duties of your specialty.

Your income is the key ingredient to making your financial world work. As long as you depend on your income, it is important to protect it as best as possible.

For more direction on where and how to secure a good own occupation disability insurance policy during residency, meet with one of our financial advisors.

Life Insurance

If you have a spouse, children, or anyone who depends on you financially, it is wise to secure life insurance now during residency if you don’t already have it. Get more than you think you need, because you can always reduce it later as your assets accumulate.

Even if you are single with no children, if you plan to get married and have kids one day, it could be wise to use your age and health to your advantage and lock in some favorable rates today. Think of it as a future planning tool.

The ability to get life and disability insurance is based on health. The cost is based on age and health. Rarely do people get younger and healthier over time, so if you think you will need it one day, it could be wise to secure now.

Lock in an inexpensive term life insurance policy (forget about any type of permanent policy at this point). Do it through a company that allows you to convert it to a permanent policy at any time regardless of health changes. You may never use that conversion privilege, but having the option available to you is powerful.

Emergency Savings

A general money rule of thumb is to maintain 3-6 months of living expenses in a savings account. While this can be challenging for residents, especially in more expensive cities, do your best to get to that level and maintain it.

If you don’t have an adequate emergency reserve, you could find yourself living paycheck to paycheck and any emergency expenses end up on a credit card with a high interest rate.

High interest rate debt creates an uphill battle for you to dig out of, so it’s best to avoid it if possible.

For money you do have saved up and plan to keep as an emergency reserve savings as a resident, online high-interest savings accounts are an attractive place to keep these funds as they typically have much higher interest rates than brick-and-mortar banks.

Budgeting as a Resident

Live within your means. It is easier said than done, of course, but you can do it! In residency, your income is equivalent to the median household in America. You should be able to make ends meet regarding money coming in and going out.

I’ve worked with residents in every major city in America, and I promise you it is possible to pay rent, pay your bills, take the occasional vacation, and even save a little money too.

The biggest thing you can do is keep your housing costs reasonable in relation to your earnings. Once in practice, I advise that a maximum of 20% of your income goes to housing. You might need to stretch that a little in residency (maybe 1/3 of income max).

Beyond that, simply be realistic about what you can and can’t afford. You’re not a big shot attending doctor yet. You’re a resident. Live like one. Eat top ramen and spaghetti. Go hiking for a fun outing (it’s free). Pretend like you’re still in college or med school, but with a tiny bit more spending money, and life will be good.

Investing Strategies During Residency

I don’t expect residents to invest anything. I would like to see you max out a Roth IRA each year ($6,500 as of 2023), if possible.

If you’re married and your combined income is over the Roth IRA eligibility limit, or you file taxes separately, you will have to do the Backdoor Roth IRA instead.

If you can stay out of credit card debt, maintain an emergency reserve, and max out your Roth IRA every year during residency, you’re doing great. Any investing beyond that is only accelerating your path towards financial independence.

Assuming you’re maxing out your Roth IRA and have the ability to invest more, try contributing to your 403b retirement plan at work, if available to residents. Ideally you make Roth contributions to your 403b as well during residency.

Roth means the money goes in after you pay income taxes on your earnings, and qualified withdrawals in retirement from the account are tax free.

Unless you have a spouse earning a decent income, or family helping you out, it’s unlikely you will be able to max out a 403b and a Roth IRA during residency, but if you are, kudos to you. From there, open up a taxable brokerage account and start putting money into that. Be sure to tax-loss harvest anytime the market goes down.

Related Podcast: Back to Basics – Investing 101

Moonlight for Extra Income in Residency

If you’re hungry to get ahead, or simply hungry and want to eat more, moonlighting might be a good option for you to earn extra money. Not all residents have the opportunity to moonlight, but it’s definitely something to look into.

If you can make $1,000 per shift from moonlighting, work an extra 1-2 shifts per month and you’re boosting your income quite a bit for a resident!

Use that money to fund your Roth IRA, increase your 403b retirement contributions, pay off debt, save for a future home down payment…the possibilities are endless.

Work hard now to set yourself up for financial freedom later.

Guide to Money in Residency Summary

Residency is a unique time. You’re working your butt off. It’s likely your first real full-time job where you earn real income. Now is the time to establish good financial habits that will carry with you the rest of your life.

Figure out a plan for your student loans. Renting a home is likely the optimal financial decision, as frustrating as that may be. Get own occupation disability insurance, and possibly term life insurance. Build up and maintain an emergency reserve. Live within your means. Max out a Roth IRA.

Anything more than that to accelerate your financial goals is added bonus.

For guidance with these topics or other questions you have with regards to your money in residency, reach out to one of our financial planners and we would be happy to help.

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