I have been thinking lately of the financial steps I took early in my career. Many of these steps I took without really having any guidance. I have also witnessed many of my classmates fall prey to easy credit offered by their financial institutions. Thus I thought I would provide a bare bones checklist for new professionals.
You are broke. Try not to put many things on credit. Many of my classmates had significant debt by the time we left medical school and that was in the 1990’s. The problem has compounded immensely. During this stage in your life, you have no money so live like a broke student.
Try not to increase your debt at this time. You are starting to earn an income. Thus you may start saving a small amount to pay off the debt. You might not be able to pay off all the debt from medical school but stop accumulating more debt by treating yourself or thinking you deserve shiny things. Furthermore, you should be so busy during this stage in your life that free time will involve getting some good rest instead.
Early Practice Years- Pay Off Debt By Saving 50% of Your Income
You have to pay off the debt now. Do not make it feel easy. Attack it aggressively. Start working a lot. Live like a poor student until all the debt is paid off. Any hospital rounds that give you free food, you are going. Anywhere they give you free food just go- think friends and family. Do not be too proud. You have no life style per se. You are broke and in debt. Now is a good time to get disability insurance. The main asset you need to protect is your ability to work. You likely do not have children at this time. If you do, you need to start thinking of term life insurance and that is it. Before you have children, work like crazy. You have no beautiful babies pulling at your heartstrings at this point. Work any chance that you get. Not only will you increase your clinical acumen by practicing full time but you will earn a lot of income as well. You are young and just went through full-time residency and medical school. You already know how to work hard. Do you know how to jet fuel your savings? Do not buy a car. Live close to where you work and where you can buy groceries. Be very efficient. Not buying a car will save you a lot of money. You need to up your game and save at least 50% of your income.
Save Money In Tax Shelter Accounts
Begin to put the maximum in tax sheltered accounts such as the RRSP in Canada. Often medical associations offer a matching contribution and this will also lower your taxes. Buy low fee broad based ETFs such as those offered at Vanguard. You are just beginning your working life, you can afford investing your ETF mainly in equities. You do not require a financial advisor. You barely have any money. Why the heck do you need a financial advisor? Learn to start saving. You are at the kindergarten stage of money management since you are likely still in debt.
Buying A House
Housing is a basic of life. Similar to food and clothing. It is not really an investment per se. But it is a very emotional topic. Everyone needs to figure out for themselves what it means to them. Pretending housing does not matter to you when it actually does, is not healthy. Sometimes it is just easier to work harder and buy a suitable house for yourself rather than justifying why you are correct to not buy one. People who are at peace with their choice generally do not have to waste energy justifying it to others.
However, forget about buying a dream house. And buying too much house will simply take away many options for investing. Buy a home in a good neighbourhood so that when you have children you do not have to incur extra expenses by sending them to private school. If you want to buy a larger home, or live in a high cost of living area, you might want to use the “house hacking” method. Live like a student before you have children and maybe even when the kids are young. You can live in the smallest unit of a multiplex. Some people live in the basement of the house while renting the upstairs for more income. Don’t worry, you will own the whole thing before you know it.
Minimize Large Expenditures
International travel is highly overrated. You might need some time off but if the local park or the great outdoors does not satisfy you, then your lifestyle will probably ratchet up pretty quickly. If you have to travel overseas, try learning how to travel hack with credit cards or learn to stay with friends. Using after-tax dollars to travel at this stage in your life is borderline insanity. It teaches you horrible habits that will always hamper your ability to save. If you have that much money laying around pay down your mortgage instead.
Free or Cheap Entertainment
Learn to really enjoy free entertainment. Use the local library as well as enjoy Netflix. You definitely should not have cable or waste much time on television. Also do not sign up for expensive gym memberships or expensive classes unless it is something you absolutely love. Expensive gym memberships do not make you exercise, most gym memberships are unused after a few months.
No More Debt
Do not go into debt for anything. If you can not afford it, do not buy it. The only thing you are allowed to go into debt for is your mortgage and try to pay this off in less than 15 years. Once your mortgage is paid off, your basic living expenses will be stable and low.
Save 25x Your Living Expenses
You may discover after a decade you could probably work less. You might have been able to save 25 times your living expenses. If you have children, you may want to start working part time. You could enjoy time with your young family while they are growing up. If you need more money in the future, you can always continue working part time. And those funds that you have been sticking into ETFs along the way can continue to grow. And that’s all you need to do. Very simple and very easy. Do not allow anyone else to talk to you into a more complicated plan. You simply do not need it.
After saving 25 x your living expenses, you can take your foot off the pedal. You figured out how to get this far, you do not need umpteen assurances. You will figure it out along the way. Money is not security. It is who you had to become to get to this stage that is the real wealth. No spreadsheet will save you if you are fearful of losing money. Do not allow money to have that power over you.