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4 Ways to Finish Your Medical Residency Without Falling Further into Debt

Upon graduating from medical school, most students have already accrued a significant amount of student loan debt. Entering into residency, one of the p...

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|Dec 28|magazine9 min read

Upon graduating from medical school, most students have already accrued a significant amount of student loan debt. Entering into residency, one of the primary concerns students have is incurring even more debt.

“What I see at the end of residency is just a need for cash – almost always,” said Chris Long, who specializes in financial planning for physicians. “Whether it’s preparing for boards, wanting to take a little time off before practice, relocation, all sorts of things … If you don’t have a plan to accumulate some savings or have a savings target by the end of residency, you’ll probably go further into debt.”

In order to combat this, Long established four ways residents can avoid accruing more debt who also don’t have the time to micromanage a complicated budget.

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1. Understand your cash flow using a monthly budget.

Instead of using online budgeting tools or apps, Long recommends a simple spreadsheet program such as Excel. Three things to list are your monthly take-home pay, fixed expenses and savings. BE sure to budget for things such as car, home maintenance and clothing. Always aim for a slight surplus at the end of each month.

2. Establish separate accounts to keep track of your spending and saving.

Long advises setting up two checking accounts and one savings account. From your budget worksheet, subtotal amounts for savings, discretionary and fixed expenses. When you get paid, pay yourself first by putting an allocated amount of money into savings. Then transfer your allocated discretionary amount into your discretionary checking account. Leave the rest in the other checking account. Many residency programs will allow you to split your direct deposit into multiple accounts.

The discretionary account should be your variable expense account, or what you use for groceries and the “fun expenses,” says Long. It is helpful to use a debit card linked to an online bank account so you can quickly see how much you have in this account, adds Long. Monitor your discretionary account balance and make spending decisions based on this balance until you get paid again. Don’t take from the surplus in your primary account or savings and avoid using credit cards.

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3. Use your other checking account for your “fixed” expenses and bills.

Surplus should build up in this account over time for things like car or house maintenance, clothing and seasonal variations in utility bills. According to Long, the idea is to avoid using credit cards and invading savings for these expenses when they occur.

4. Don’t rush to start investing.

If you don’t have a surplus at the end of each month without investments, then it is probably not wise to invest at this time. Start with managing your cash flow and then move into learning about investments.

“The first step always should be to create a budget that allows you to have some savings,” said Long. “People tend to underestimate how much they spend on eating out, groceries and these sorts of things. If they can actually save their target without dipping into their savings, then they can start discussing what they have access to in terms of IRAs and 401ks.”

Sourced from the American Medical Association.  

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