Benefits of Living Like a Resident
Some of the best financial advice I ever heard was, “live like a resident.” It’s simple but profound, and actually contains five pieces of advice in one short phrase.
Don’t live like an attending when you’re a resident.
A lot of medical students are appalled to see that the loans they took out to afford medical school continue to snowball when they become residents. You may be able to take out loans to pay for a car or a big mortgage, or rack up credit card debt, but you should be realistic about your earnings and try to live as a resident. During your residency, you’ll make around $60,000 a year, about average for an American family. These years give you a better sense of how patients live, and you can keep the lessons for the rest of your life. Maxing out a Roth IRA (with a cap of $6,000 in 2021)is a big deal if you earn just $60,000 a year. You may have to decide between upgrading your cell phone plan and taking a vacation. Remember that living within your means doesn’t get any simpler when you make $600,000, you’ll just be moving larger amounts around in your budget.
After your residency, don’t upgrade to an attending lifestyle.
If you are living in a 2000-square-foot home in a mediocre neighborhood as a resident, you can continue to do so as an attending. This way, you can pay off your student loans, jumpstart your investment portfolio, and accomplish a variety of other things. The sooner you start saving, the more time you have to compound. It’s never too late to start saving right out of residency. You may even save up for a down payment on a house. That gets you a lower interest rate when taking a resident physician home loan.
Working hard is key to success.
You’re probably used to working 60 to 90 hours a week at a residency. One emergency medicine doctor wondered why he had to work 20 shifts a month for three years but now only 14. He believed it would be worth the sacrifice to work more shifts for a little bit more money a month in order to have a better quality of life. In addition to a higher marginal utility of money, he’s also willing to sacrifice more time for money as a result of his current monetary situation. Working more will also improve your clinical skills and create business connections with doctors and others. Although it is still difficult to master after one or two years out of residency, why not pretend to be a fellow and just get a little bit better?
Getting quintuple pay doesn’t mean you live a 5X lifestyle.
Five times the pay doesn’t imply five times the lifestyle. You will pay much more in taxes as a result of your elevated income. You will have to spend more on business and CME classes as a result. Many physicians struggle to feed more mouths at their tables in their first years out of residency. Better cars burn more fuel and cost more to repair. Bigger houses cost more to heat, insure, maintain, and decorate. Retirement savings will also have to be taken seriously. Working longer after residency will have a greater financial benefit. You can certainly make changes to your lifestyle, but consider only doubling or tripling your cost of living when your salary jumps up. Holding off just a little longer after residency will make a huge difference later.
Save big
Your salary compensates you for your lengthy education and training, since you have spent more than a decade preparing to be a doctor. Your college roommates who didn’t go into medicine may have accrued a much larger portfolio already than you. That means you need to save a greater percentage of your income (and a greater portion of your net income) to reach the same retirement goal as them. In addition, on a relative basis, Social Security will compensate for a much smaller proportion of your retirement revenue than for a worker who earns less. Aim for saving at least 20% of your paycheck so you can retire with confidence.
Working less and retiring early are two examples of how living like a resident can provide financial freedom. In addition to these benefits, living like a resident can also provide the opportunity to explore less popular areas of one’s field of expertise, participate in medical missions, or purchase nicer things in the future.
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