Managing your personal finances can be challenging at any age and in any stage of your career but especially while in residency. Residents often earn very little—an average of $65,395 annually according to our 2024 Residents & Fellows Survey Report—while working long hours—an average of 64.7 per week.
This means you likely have to be conscious of your income, budgeting, and spending, but you have limited time to manage your finances. Understanding personal finance basics and being proactive with your planning can give you peace of mind as you navigate your training.
Getting your financial priorities in order can help you feel confident in your budget. Let’s look at three categories of finances and tips for prioritizing them.
Getting your priorities in order
Whether preparing for residency or already in your training, taking the time to prioritize your spending now can help you manage your money, debt, and other financial obligations in the years ahead. Here are the three categories of your finances that you should consider:
- Protect
- Plan
- Play
We recommend you prioritize your budgeting in this way. If you plan and play but fail to protect yourself and your assets, an unexpected medical issue or malpractice claim could have detrimental and lasting impacts on your financial health and stability.
1. Protect
Even with limited income, the most important aspect of your financial plan should be protection. You should consider the best ways to protect yourself, your family and your income with:
Insurance
Insurance is essential to ensuring you and your dependents are protected in the event of injury, malpractice claims, and even death.
- Health insurance will help you cover the costs of any routine doctor visits, injuries, and medical emergencies.
- Life insurance provides financial protection and support to your dependents in the event of your death. It may serve as a safety net to cover various expenses, such as mortgage payments, outstanding debts, children’s education, daily living costs and more.
- Disability insurance provides financial protection to individuals who are unable to work due to a disability. For most doctors, your ability to provide clinical services is the single greatest asset. Disability Insurance replaces a portion of your income, ensuring you can maintain your standard of living and meet financial obligations even if you are unable to practice medicine.
- Malpractice insurance covers expenses that arise should you face a claim and may assist with legal defense as well as fund payments in the case of a settlement.
- Homeowners/renters insurance protects your residence and/or your personal property.
- Auto insurance protects against financial losses in the event of an accident, theft, damage to your vehicle.
Asset protection
Protecting your assets will prevent you from losing your wealth in the event of a lawsuit. This may not be a high priority while in residency, but as you begin building wealth, you will want to consider protecting your assets. Options for doing so include:
- Domestic asset protection trusts
- Limited liability companies, or LLCs
- Alternate dispute resolution
- Prenuptial agreements
- Retirement plans such as a 401(k) or IRA
- Homestead exemptions
- Offshore trusts
Legal documents
Legal protections are essential to safeguarding your assets, ensuring your wishes are followed, and protecting your loved ones. These protections may include:
- A will dictates how your assets will be distributed after your death.
- A living will outlines your preferences for medical treatment if you become incapacitated and are unable to communicate your decisions.
- Powers of attorney gives someone the authority to make financial and legal (durable power of attorney) and healthcare (medical power of attorney) decisions on your behalf if you become incapacitated.
2. Plan
The next highest priority should be to plan. Thinking about long-term needs, retirement, and investment can set yourself up for success in the years to come. Some aspects of planning to consider include:
Cash flow planning
Cash flow planning is the process of monitoring and adjusting the amount of cash moving in (income) and out (expenses) to ensure you can properly support your spending needs and savings goals. This process often includes budgeting.
We break down the basics of budgeting for residents in our “Transitioning from School to Residency Guide.” Click here to access it.
Debt reduction
As a doctor, you likely have debt. Most doctors complete school with six-digit student debt. You may also have a mortgage, auto loan, credit card debt, and other types of debt. Managing your various payments and making a plan for repayment is an important aspect of planning out your financial future.
Work to pay off the highest-interest debt, like credit card debt, first. Loans with lower interest rates, like student loans, mortgages, and auto loans, can be paid overtime more slowly without accruing outrageous amounts of interest.
Investment strategy
Making strategic investments in stocks, bonds, real estate, and businesses can help you grow your wealth over time. Take time to understand these options and allocate funds to the ones that are right for you. Even if you aren’t able to make significant investments now, creating a long-term strategy will help you make the most of your income.
Tax strategy
Use a tax strategy to assess your financial situation and determine ways to reduce your tax liability. Consider working with a CPA to identify deductions, credits, and proper financial planning.
Estate planning
Estate planning is the process of organizing and managing your assets and financial affairs to ensure that your wishes are carried out after your death or in the event of your incapacitation, including how your assets will be distributed, who will manage your estate, and how to minimize taxes and legal complications for your heirs.
Estate planning includes some of the documents outlined in the Protect section, including wills and trusts, but is often a fuller picture of an individual’s wishes in the event of death or incapacitation. Creating a full estate plan is increasingly important as you grow your wealth and build a family.
3. Play
Now we’re at the fun part! After ensuring you and your family are protected and you have a clear financial plan moving forward, you can use the additional money to reward yourself for all of your hard work.
Travel
Residents often have limited vacation time. Traveling can provide residents with a break from the stress and demands of residency. While your vacations may not be extravagant during residency due to budget and time, even lower-cost trips can improve your mental health, reduce burnout, and enhance your overall well-being.
Luxury items
You’ve worked hard through years of school and now you’re continuing to work hard in your training. If you have had your eye on a luxury purse, an expensive pair of shoes, or the latest piece of technology, you may want to use your extra money to treat yourself.
Financial priorities in residency
While in residency, you’re juggling a lot—stress, long hours, learning, peer relationships, and more. When you are able to go home, you should be able to relax, unwind, and spend time with your loved ones.
Taking the time to prioritize your budgeting and spending can allow you to have peace of mind about your finances as you navigate the challenges of residency. Find more tips for budgeting, student loan strategy, homeownership, and more as a resident in our “Transitioning from School to Residency Guide.”
