Finishing school, starting your residency, finding a job — these are your main priorities right now. And because the medical profession isn’t exactly known for its wealth of free time, chances are you haven’t looked into ways you can strengthen your financial future.
But there are a lot of important financial decisions to make when you’re just starting your career that can have a big impact down the road. You want to get it right, right now.
For example, the earlier you start saving for retirement, the more compound interest works in your favor. Earning interest on interest is a powerful facet of investing.
To help you know where to start your decision-making, we’ve put together five tips for recent graduates entering the medical field.
1. Take advantage of your employer benefits
As an employee, there are three big benefits you should take advantage of.
The first is your employer-offered retirement plan, such as a 401(k) or 403(b). This is important not just because it means you’re setting aside a specific amount per paycheck for retirement but also because investing that money means you can 1) grow it through the stock market and 2) reduce the impact inflation will have and thus maintain your future purchasing power.
Often, employers contribute a matching percentage amount to your 401(k), which is an extra incentive for you to sign up for your 401(k) and start contributing.
Here’s what you need to know about 401(k) plans if you’re just starting out.
The second benefit is a health savings account (HSA). HSAs are available when you are on a high-deductible health plan (HDHP), which many younger people are because they typically don’t have health problems that would necessitate a higher level of health insurance.
An HSA lets you set aside money to pay for qualified medical expenses, which is useful both now and in your retirement. If you contribute to your HSA using payroll deduction (aka pretax), you benefit by reducing your overall taxable income. If you contribute using after-tax dollars, you can deduct that amount when filing your tax return. In addition, any withdrawals you take from your HSA to pay for qualified medical expenses are tax-free.
Plus, employers often contribute a set amount to employee HSAs annually.
This blog dives more in depth into what HSAs are and explains why they are helpful in saving for retirement.
The third benefit to take advantage of is life insurance. Many employers offer a set amount (e.g., one or two times your salary) of life insurance at no cost to you. If you are married and/or have children, you will want to look into purchasing additional coverage.
2. Make sure you have adequate disability insurance
You might be thinking right now, looking into disability insurance seems like you’re getting way ahead of yourself. But because 1) you’ve gone through years and years of schooling and have taken on huge amounts of debt and 2) you’re expecting to earn a high income for at least the next three decades, disability insurance is a must-have for medical grads.
For example, you’ve dedicated a significant portion of your life to becoming a surgeon. One day, you’re driving to work. Another car runs a red light and hits you, and the accident injures one of your hands so that you’re no longer able to perform surgeries. Disability insurance protects the future income you would have earned continuing to practice as a surgeon.
Many employers in the medical field offer a certain amount of disability insurance at no cost to the employee, and you should absolutely take advantage of that benefit as soon as possible. However, that amount is likely not enough to fully support you were you to become disabled, making supplemental disability insurance a good idea.
Say you’re earning $240,000 a year. That works out to $20,000 per month. Generally, you want at least 65% of your income covered by disability insurance, so you’ll need $13,000 per month in coverage. Your employer offers $10,000 per month, but that amount is taxed at 40%, so in reality, you are covered for $6,000. That means you need to purchase a supplemental policy for the remaining $7,000 needed to equal the recommended $13,000.
Disability insurance can make a huge difference in the life of a medical professional, so it’s important to take the time to look at your needs and options.
3. Create a monthly budget
Balancing student loan payments with living a life actually worth living can make having a budget pretty valuable. You have rent, utilities, groceries, commuting costs and other monthly expenses. You also have entertainment expenses like going out to eat, or going to museums, concerts or the movie theater.
You don’t automatically have to go with your lowest possible student loan repayment amount. If you track your regular spending, compare it to your net income and factor in net positive things like employer commuter benefits, you can not only set a realistic monthly budget but also pinpoint a good monthly loan repayment amount.
4. Look into your student loan options
Student loans are your biggest source of debt right now, and that can seem overwhelming. The average medical school student graduated with $201,490 in loans in 2019 — that’s a big number and something students should prioritize managing. But there are quite a few options available to you, from loan forgiveness or assistance, to refinancing, to income-driven repayment.
To determine the best option for you, it’s important to answer questions like:
- Do I qualify for federal loan forgiveness programs, such as Public Service Loan Forgiveness, National Health Service Corps or Nurse Corps Loan Repayment Program?
- Do I qualify for a state-specific loan assistance program?
- Should I privately refinance?
- Could I benefit from income-driven repayment?
- How can I manage my income tax to maximize student loan savings?
- How can I make my payments affordable now without increasing the time I’m in debt?
It will take some time and research to answer these questions, which makes our fifth and final tip especially important.
5. Work with an advisor to plan effectively
You’ve got questions and concerns, but you don’t have a lot of time to ensure you’re making well-informed decisions. And that can be a huge burden on you.
Ultimately, it’s why working with a financial advisor can be hugely beneficial. Those in the medical field tend to earn high incomes but come out of school with significant debt, so getting on the right track now will set you up for even greater success later on.
An advisor can walk you through student loan options that apply to you, helping you save potentially thousands of dollars. They can help you create a budget. They can work with you on 401(k) and HSA contribution amounts. They can help you select and obtain supplemental insurance. When it comes down to it, they’ve got the knowledge and experience to save you time and give you peace of mind as you make some of the biggest financial decisions of your life.
Young medical professionals who are interested in a tech-forward advisory relationship can look into Avid.
Avid lets you manage your financial assets online while still working with an advisor to plan and track your progress toward your financial goals. Essentially, you have the backing of Wipfli Financial Advisors’ solid investment philosophy and advisory support, but you also have a proactive, tech-forward approach to the advisory experience. It’s a great solution for those with busy schedules who want to control how hands-on they are. It’s time to gain confidence knowing you’re on track to reach your financial goals.
Learn more at wipflifinancial.com/avid