Your financial choices during residency pave the way for a prosperous future. Therefore, it’s critical to manage your funds without delay. You may progressively pay off your student debt by creating a workable budget that you can stick to and monitoring your spending patterns.
Being a resident is a rewarding step on the path to becoming a licensed doctor. You have reached an extraordinary new stage in your profession and life—specialty training—thanks to your dedication and enthusiasm for medicine. In residency, you get greater self-assurance and responsibility, and most of all, you begin to receive a paycheck. You should be able to admit, treat, and discharge patients.
Let’s take a closer look at tips for budgeting during your residency so you can start your financial future NOW.
- Examine your pay and costs
Start by having a precise understanding of your income and outgoings. Examine your paychecks to determine your precise monthly take-home pay after paying employment insurance, federal and provincial taxes, and Canadian Pension Plan/Quebec Pension Plan premiums.
Make a note of all of your spending, both necessary and optional, and then analyze your bank statements after determining your income. Determining which costs are variable and which are fixed is also useful.
Your minimum monthly student loan payments, your rent, utilities, groceries, transportation, and any prescriptions you may be taking are all essential expenses. Examples of non-essential expenses include entertainment, gym dues, and eating out. With this knowledge, you can start creating a budget to assist you to decide where you want to spend money and where you want to save it.
- Set up a budget
To determine the minimal amount of money you’ll need to set away each month to pay your necessary living needs, start by adding up your critical expenses.
Subtract the amount for necessary costs from your total monthly income once you get that figure. Your ability to save and put money aside will depend on how much money is left over. In general, it’s advised to save 20% of your salary for emergencies, but if you’re preparing for a significant purchase like a wedding or home, you may want to save even more.
These kinds of expensive life events frequently coincide with the move from medical school to residency for many doctors, which results in their taking on extra debt. This is just another justification for why making and following a budget is a smart method to have a crystal-clear strategy for your financial future. If you’re ready to get started on creating a plan, get in touch with our team now!
Next, your leftover cash will either be a sizable sum, depending on your pay and savings objectives, or not much. Whatever the amount, determine if you’d rather spend it on shopping, entertainment, or socializing with friends, and then set realistic spending limits.
- Make a strategy for debt
You’ll save time, worry, and money if you have a strategy for paying off your debt following residency. Knowing how much you can reasonably afford to pay off each month by looking out the principle and interest rates on your loan can help you. In the long term, even paying an extra 10% on top of the minimum payment might save you thousands of dollars in interest and hasten the repayment of your debt. Typically, the interest rate is expressed as an annual percentage rate, which essentially represents the amount of interest that is paid over the course of a year.
A professional line of credit (LOC) now has a standard rate of prime minus 0.25% (pro tip: call your financial adviser to confirm that your bank is offering this rate). How can you make the most of this knowledge? If you are unable to make interest payments and must use additional funds from your LOC to cover the interest, compound interest will have the greatest negative financial effects. This becomes a problem in medical school because you aren’t likely to have a source of income and must rely entirely on your LOC. Once you are a resident, put as much money as you can on your LOC to reduce the total daily interest that is accumulated against you.
Consolidating your debt is a good idea wherever you can. A penny saved is a penny earned, after all. Putting “all their eggs in one basket”—the lender with the lowest interest rate—is advised for anyone who has numerous sorts of debt. It will be in your best interest in the long term to transfer all of your debts as soon as feasible to your LOC. Regularly review your budget to identify any places where you may reduce your expenditure. You may deduct 10% of your monthly budget for video games or a beauty subscription box to pay off your loans, for instance. Alternatively, you might be able to reduce your monthly meal expenses by preparing more meals at home. Even a rough strategy can help you move forward and prevent future financial setbacks that you hadn’t planned on. Cutting back on your expenditures may need some inventiveness and sacrifice in the near term.
- Automate your payments
It’s beneficial to streamline as many elements of your life as you can while you’re in residency, particularly your money. Start by setting up automated online bill payments for your loans and utilities whenever it is feasible. The risk of late penalties in the event that you forget or are late on a payment will be eliminated because you won’t have to remember to write and send cheques. Next, set up an automated transfer into your savings account or utilize the savings tools offered by your bank to be encouraged to save a specified portion of your monthly income. You won’t miss having the money and will have a pleasant surprise waiting for you if you start this saving practice sooner rather than later.
Budgeting is a lot of work, but remember that you’re not alone. Every successful doctor has been in your shoes at some time in their career. You’ll save a ton of time, money, and worry by making a plan in advance for your financial future. If you take these suggestions into account, you’ll be well on your way to success, achieving your financial objectives while also making a difference in the world.
MedTax is available to help you with any challenges so that you may start with healthy budgeting routines. We want your job to succeed and your personal decisions to be the best they can be. To learn more about how our experts can help you, click here.
