Doctor Money: Physician Finance Habits You Should Start Right Now

Adopting the right personal finance habits can both help you improve your money management skills and set you on a path toward financial success early in your career. From navigating your medical school loan repayment options to paying your future self first, we’ve gathered some of the most effective habits that can help you improve your financial wellness.

Top 5 physician finance tips

Here are five of the most important financial tips that all doctors should know.

1. Create a student loan repayment plan

Creating a student loan repayment plan is an important step toward paying off your medical school debt. You have two different options, depending on which type of loan you took out:

• Federal student loan consolidation: With federal student loan consolidation, you’ll combine multiple federal loans into a single loan with the Department of Education. Federal consolidation will simplify how you pay your loan each month, but it won’t lower your interest rate. When you consolidate, your new interest rate is simply the weighted average of the rates of your pre-existing loans. Consolidating federal loans might be a good idea if you’d like to pay just one monthly payment and/or need to qualify for federal loan protections, forgiveness, and repayment options. If you’re planning to enroll in a federal repayment program, such as Income-Driven Repayment (IDR), you may need to consolidate your federal loans, learn more here.
• Private student loan refinancing: With private refinancing, you’ll consolidate your federal or private student loans via refinancing with a private lender. Each lender has different rules about eligibility, so it’s important to do your research to see if you qualify. Private refinancing  can also simplify your loan repayments and potentially give you a lower interest rate, though this will depend on your credit history and other financial factors. Note that if you’re also lengthening the repayment terms, your interest rate could go up. If you refinance qualifying federal student loans, you will no longer be eligible for certain federal benefits or programs and waive your right to future benefits or programs offered on those loans, which may include, but are not limited to, Public Service Loan Forgiveness, Income-Driven Repayment plans, forbearance, or certain forgiveness options granted to Parent Plus borrowers. Please carefully consider your options when refinancing federal student loans and consult studentaid.gov for the most current information.

2. Regularly track your finances

Making a habit of regularly tracking your finances can help you make informed financial and budgetary decisions. The following steps won’t take long and are perfect for busy doctors who want to keep an eye on their financial wellbeing:

• Keep tabs on your credit score: You can receive a free credit report every 12 months from each of the three major reporting bureaus (Experian, Equifax, and TransUnion) at annualcreditreport.com.
• Calculate your net worth: You can determine your net worth by calculating your assets minus your liabilities. Remember that net worth isn’t your salary – it’s the value of all of the assets you own. You can have a high salary but a low net worth if you spend most of what you make.
• Track your total cash flow: Tracking your after-tax income and expenses each month can give you a sense of how much you’re spending (see below).

3. Create and follow a budget

Creating and following a budget can encourage mindful spending and act as a powerful antidote against lifestyle creep – an issue common among new doctors who start spending beyond their means after finding themselves with significantly higher incomes than they had as residents. Continuing to live like a resident and following a budget can be smart tactics to avoid falling into this trap.

Here are a few tips on how to create a budget:

4. Begin investing

Start investing now to take advantage of the power of compound interest. Compound interest is when your money starts making its own money and is a valuable tool in combating inflation. There are a myriad of investing options, from low-cost index funds to maxing out your Roth IRA contribution.

5. Pay your future self first

Lastly, you’ll want to pay your future self first. This means putting money aside for things like an emergency fund and retirement savings. If you’re worried about having the willpower to save for your future, consider automating some of your savings. That way, a small portion of your paycheck can be allocated to your future self each month, no action required.

In summary

Adopting effective financial habits will help you maintain and improve your financial health and get you closer to achieving your financial goals. Even if you haven’t tried any of these before, there’s no better time to start than now.