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The transition from medical school to residency can be a challenging task, especially with limited income to cover living expenses and other needs. With long hours and a demanding workload, residents often feel overwhelmed and added financial stress doesn’t help.
New residents face challenges adjusting to their new salaries, budgeting, covering expenses, and taking advantage of employee benefits. We wanted to talk with physicians who have been there before to share tips on how to overcome these.
Here are insights and personal experiences from Disha Spath, MD, CEO and Founder of The Frugal Physician, Nii Darko, DO, MBA, FACS, Host of Docs Outside the Box Podcast, and Leif Dahleen, MD, Physician on FIRE, about salaries, budgets, expenses and benefits.
For many residents, their training may be the first time they have had a salary. How should residents think about their salary and budget?
DS: Residency is a great time to start tracking expenses. While the salary isn’t as high as attending salaries, it is still around the average national salary. It is the first time many of us have made a real salary.
If a resident can get a good understanding of their necessary expenses at this time, they can use it as a baseline to devise a reasonable budget when income increases as an attending. If they can get in the habit of saving a small percentage of their salary for retirement in a Roth IRA, that training will really put them ahead of the game as an attending when it comes to wealth building.
LD: Hopefully, it’s enough to get by. Depending on where you live and whether or not you’re supporting anyone besides yourself, that may or may not be the case.
Either way, you’re going to have to get by on this amount of money for at least a few years, unless moonlighting opportunities present themselves and you actually have the time and energy to take advantage of them.
Residency is a great time to “live (and spend) like a resident” and not a good time to go into debt, especially credit card debt, with the assumption that you can easily pay it off when you become an attending physician. Circumstances change, you’ve probably got major student loan debt, and there’s no good reason to dig that hole any deeper. Live within your means; it’s not like you have a lot of time to go out and spend extravagantly, anyway.
ND: Budgeting your salary as a medical resident can seem daunting, especially if this is your first job ever. Look at it this way, it’s an important step in taking control of your finances and giving you the peace of mind you need during this challenging time. Here’s some tips to keep in mind:
- Determine your monthly income
- Create a budget
- Prioritize saving
- Look for ways to cut costs
- Keep track of your spending
Check out this clip from Episode 303 of Docs Outside the Box for more insight into your new salary as resident salary.
Sometimes, a resident doesn’t receive their first paycheck until several weeks after the move. What is the best suggestion for paying for living expenses during this time of no income?
DS: Hopefully, they will have read this article and planned ahead for this time! The resident should have saved some money for these few weeks. If not, leaning on family is ok. Try not to go into credit card debt, but if it’s necessary, treat it like a fire and pay it off as soon as the first check hits the bank.
LD: This shouldn’t come as a surprise, so it’s obviously wise to have some money set aside to cover your expenses as you make that transition. The money can come from working a bit between medical school and residency, taking out more student loans than necessary as a fourth-year student, borrowing from friends or family, or even from a short-term lender that treats physicians fairly.
ND: It’s important to understand the timeline for when you will receive your first paycheck and make a plan for potential gaps in income. Heads up: the biggest expense will most likely be housing, as you will have to pay a security deposit and the first month’s rent. You may have to set aside money from what’s left of student loans or savings. Consider asking for help from family if possible. If you know they are planning gifts for graduation, it doesn’t hurt to ask them to make it cash gifts.
We live in a gig economy nowadays, so don’t sleep on freelance gigs (i.e Uber / Lyft) as a means to earn additional income during the gap period. If you’re really in a bind, you can consider applying for a personal loan or credit card with a low-interest rate as a backup option. Many medical schools offer these loans. However, it’s important to use these resources responsibly and avoid accumulating too much debt.
What should all residents know about benefits offered by their residency programs? What should they take advantage of?
DS: Residents can often get a very reasonable disability insurance policy during residency, and there is often an option to extend that into attending-hood. If the policy is a true own-occupation policy (one that will cover the resident if they cannot perform their specific job, irrespective of whether they can work in a different field) then it would be a good idea to keep it. Similarly, if they can get a reasonable life insurance policy as a resident, it will likely be more economical given your younger age and hopefully less medical issues.
Residency is a great time to start a Roth IRA, along with any other 401k/403b offered by the residency, if you have any leftover money at the end of each month to get a head start on saving for retirement.
Student loans are another large topic to be addressed. If your program offers any free debt counseling, I’d take that. Consider starting to make loan payments via an income-driven plan in residency, instead of forbearance, to get credit for those payments via Public Service Loan Forgiveness. Due to your lower salary, the payments will be much lower than any other time in your career.
LD: Certainly, one should know what the benefits package entails, and that’s going to vary from place to place. Health insurance is paramount, and there will likely be some additional insurance coverage offered. Group disability insurance is usually a poor substitute for having your own true, own-occupation, long-term disability insurance policy, and such coverage is usually cheaper to obtain while in residency.
If you’re lucky enough to have a 401(k) plan with a match, do whatever you can to get that free money. If you have to take on debt to earn an instant 100% return, that’s going to work out in your favor 100% of the time.
ND: Residency is not just a job. It’s an experience that will help you succeed professionally and personally. Your residency has benefits that you should investigate as soon as day one.
Residency programs offer health insurance to their residents, which can help you stay healthy and save on medical expenses. Take advantage of your program’s retirement savings plans (e.g., 401(k) or 403(b)), as they can help you build wealth in the future. Do not forget about the educational opportunities like conferences, workshops, and seminars that can help advance your career. Be sure to visit the Human Resources department and ask them what other benefits you’re eligible to receive.
Read more about the transition to residency
We spoke to Disha, Nii, and Leif about other topics surrounding the transition to residency. Check out:
Find more residency-specific guides on our Resources page, or check out one of these:
