All millennial physicians had a lot to process over the last several weeks. The coronavirus rapidly spread across the United States leading to the worst financial crisis since 2008. No generation in history has had to deal with two major events that ravished the economy in a relatively short period of time. It started with the financial crisis of 2008, and now a coronavirus pandemic that once again threatens the financial future of many people. At this point no one knows the full impact this pandemic will have on the economy.
The current crisis presents a number of concerns for young physicians. The primary concern of many recent graduates, or early career physicians is taking care of patients and remaining safe. A big part of what happens to the economy over the next several months depends on the work of public health officials, hospital systems, and healthcare providers.
Understandably, financial well-being is not the primary concern for many. Most physicians make a big financial sacrifice early in life, forgoing the earnings of our early 20’s in favor of education. Once you navigate medical school successfully, you enter another period of low earnings in residency. There is no doubt that our career choice and the multiple financial crises altered the lives of young physicians permanently.
Financial Tips for a Recession
It wasn’t too long ago when I received the first paycheck I ever made as a physician. It was a big moment for me, I received $763.26 for doing the work that I loved. I even have the paycheck framed on my wall. After eight years of not making a single dollar and taking out a six-figure loan to fund my education, I finally felt like this was my time. There were many things I neglected over those eight years that I needed to address. Most of my friends and family who chose different career paths were buying houses, saving for retirement, and not driving an old car. My initial goal was simple, I just wanted to stop worrying about how to pay my monthly bills. Below are several strategies I used over the last three years to save money, pay debt, and improve my financial health.
Living with Family to get a Jump Start
The first choice which helped me immensely was selecting a residency program close to home which allowed me to move back in with parents for the first year. A goal of mine was to practice in the community I grew up in, and when that opportunity presented itself, I could not pass it up. It also allowed me to live rent free for one year to help pay for transportation, build a small emergency fund, and pay off the one private loan I took out for residency applications and travel. I realize this is not possible for everyone and my situation is unique, but if an option like this is available to you, consider it.
Secure Reliable Transportation
I started with selling my old Honda and looking for reliable transportation. I eventually settled on a Honda which I purchased used for $16,500. I know it seems pricy for a person with limited resources, but the investment felt worthwhile due to my expected commutes. I like Honda for their reliability, low cost maintenance, and fuel economy. The other car company that fits into this category is Toyota.
Have a Small emergency Fund
Next, I opened a high interest savings account with the goal of having $1,000 in it for emergencies. I wanted a small amount of cash available to cover any unforeseen expenses.
Develop Good Financial Habits and Protect Your Family
I focused on developing good financial habits, learning to save, and started thinking about how to invest a portion of my earnings in the next few years. Financial education became a big part of my study plan because it’s not taught in any medical school. I also secured own occupation disability insurance, and term life insurance. It’s important to protect yourself and your family in the event you are unable to do your job or pass away unexpectedly. This is even more important with the COVID-19 pandemic.
Housing Is a Major Expense
One of the keys to my success was low cost of living. I made the decision to move out of my parents house 2nd year. This required some significant out of pocket expenses including a security deposit, some furniture, and costs associated with setting up a new place. The biggest impact was related to the monthly rent payment. Although it was reasonable for the location it was still a significant portion of my monthly income. Finding ways to reduce your housing costs may be the single biggest benefit to your financial future.
From all my research, it was clear that index fund investing was the best method and produced reliable returns over time with minimal management on the investors part. The real decision was between opening a personal retirement account like a ROTH IRA or opening an employer sponsored account such as a 401k or 403b. Most advice you will find recommends the ROTH over the employer account given the eventual higher earnings and tax bracket most doctors will be in after completing residency. I have since found that it really depends on your individual situation. If you have a high student debt burden and want to reduce your adjusted gross income, or your employer matches contributions you may want to opt for the 401k or 403b. I settled on the employer-based retirement plan. I was able to select several low-fee index funds and was happy with the options provided. The automatic deductions made the process simple, and helped me reduce my adjusted gross income and thus my student loan payments.
This is a work in progress as the year is ongoing. I’ve been looking at the entire COVID-19 situation in terms of the potential benefits that may arise. If you are still in training or an early career physician, the most important financial asset you have is time. Over the span of a 30-year career the economy will fluctuate, with some bad years and some really great years. Things were bad in 2008, but if you made saving a priority, invested your money wisely, and paid off debt by 2018 you were doing really well. Unlike those who are looking to retire, or are retired we have an opportunity to invest heavily in a down market. I believe it’s a prime opportunity to lay the foundation for your financial future.
We also have the added benefit of some student loan relief which was not an area of focus in 2008. It looks like the economic stimulus will allow for no interest and no payments on direct or federally held loans for the next 6 months. If you are on REPAYE, PAYE, or PSLF you don’t need to do anything to qualify for the payment and interest freeze. It’s refreshing to see the federal government acknowledge the need to provide student loan relief after failing to consider the long term impact it would have in 2008.
We need to prepare ourselves for the next several months and continue to take the necessary steps to secure our financial future. We must believe in our own resiliency and capacity to grow during hardship. We’ve been through a recession before, and this is not likely to be the last.