Residency and fellowship place you in a unique financial position. You're still in the learning phase of your career, and while you're earning a salary, it's likely much lower than what you'll make as an attending physician. At the same time, student loan payments may be starting, adding another layer of financial responsibility.
Knowing your future income will likely be significantly higher can make it tempting to spend more now. However, lifestyle inflation can be difficult to reverse. Establishing smart financial habits early and finding practical ways to save money can help create a stronger financial foundation long before your first attending paycheck arrives.
Know what you're working with financially
It's easy to look at your annual salary as a whole and make assumptions about what your paycheck will look like. Then it arrives, and you're left with less than you expected.
Federal income tax, state income tax (where applicable), Social Security, Medicare, retirement contributions, and benefit deductions can all have an impact on your take-home pay.
Most residents fall into a tax bracket where a meaningful portion of each paycheck will go toward taxes and deductions. Exactly how much depends on factors such as your total income, filing status, state of residence, retirement contributions, and benefit elections.
If you're eligible to contribute to a 401(k) or 403(b), doing so may reduce your take-home pay today, but it can also lower your taxable income total and boost long-term retirement savings. Depending on your circumstances, you may also qualify for student loan interest deductions when filing your income taxes.
Taking all this into account, using your first few paychecks as a baseline for what your monthly income will be can help you create a more realistic budget than estimating one based on your full salary. Seeing your cash flow more clearly can help you make better spending, saving, and debt repayment decisions.
Create a budget that works
Once you understand your monthly cash flow, it's time to create a budget that reflects reality.
Living frugally doesn't always mean choosing the cheapest option in every situation. As a busy resident or fellow, your time also has value. Sometimes spending a little more in one area can free up time and energy, which can be worth far more than the actual expense.
A good budget starts with fixed expenses, including:
- Rent or mortgage payments
- Utilities
- Car payments and insurance
- Student loan payments
Next, account for variable necessities such as:
- Groceries
- Gas and transportation
- Clothing
- Professional supplies
- Household essentials
Finally, allocate funds for discretionary spending:
- Dining out
- Entertainment
- Travel
- Hobbies
- Coffee runs and convenience purchases
- Special treats or rewards
This final category is also where saving money becomes a deliberate part of your plan. Putting a small amount into savings, even a few dollars, can help build financial confidence and establish habits that will benefit you throughout your career.
General money saving advice for residents and fellows
Small financial decisions repeated consistently can have a surprisingly large impact. If you're looking for practical ways to save money while maintaining a demanding schedule, consider:
- Using public transportation or carpooling when possible
- Making coffee at home and taking it with you
- Packing lunch a few days a week
- Taking advantage of resident/healthcare worker discounts
- Sharing streaming costs with family or roommates when appropriate
- Prepping meals on weekends
- Borrowing books and audio books from your library
- Using credit card points responsibly
- Combining errands to reduce fuel costs
- Keeping backup supplies at the hospital to avoid expensive convenience purchases
Manage your student loan strategically
If student loan repayment begins during residency or fellowship, it's important to understand your options.
This might mean researching eligibility for programs like Public Service Loan Forgiveness (PSLF) or choosing a repayment strategy that better aligns with your current financial situation.
One option to consider is an income-driven repayment (IDR) plan. IDR plans calculate federal student loan payments based on your income and family size rather than the total amount you owe.
Payments will increase as your income grows, but not before, helping your repayment obligations better align with your current earnings.
Protect your future income
Saving money is important, but protecting your ability to earn an income can be just as critical.
Residents are often underinsured despite their biggest asset being their future earning potential.
Disability insurance provides income protection if you're unable to work due to a covered illness or injury. Benefits can help cover essential expenses and maintain financial stability during a difficult time.
You might be surprised to learn that purchasing disability insurance during residency can provide access to discounts and policy features that may not be available to you as an attending physician. In addition, many policies include future purchase options that allow coverage to increase as income grows without requiring additional medical underwriting.
Build your financial foundation while in training
Residency and fellowship are demanding years, but they're also an opportunity to establish financial habits that can shape your future.
Understanding your tax bracket, creating a realistic budget, managing student loans strategically, and building consistent saving habits can help position you for long-term financial success. The goal isn't perfection. It's creating a sustainable plan that works while you're still in training.
If you have questions about budgeting, student loans, disability insurance, or building a financial plan as a physician, reach out to Physician Financial Group. Our team can help you develop a strategy tailored to your goals, career path, and financial situation.
Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. This material is intended for general use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial representative for guidance and information that is specific to your individual situation. 9188334.1 (Exp. 10/28)