Don't Make These Money Mistakes after Graduating
"Debt Free by 33" Series
I'm *almost* done with my fellowship (yay!) - 6 months left! Now that I'm seriously looking for jobs, I realize that I will jump that next income bracket and it's really scary. The major thing on my mind is LOANS! I really want to pay them off as fast as I can. And everyone all around me is telling me that they will eventually be paid off over the years, over time. Well, no offense to those well-seasoned and much wiser than me folks, but I want to pay my loans off as quickly as possible so I can reach that coveted "financial independence" that everyone speaks about.
Residency is over, and if you’re the smart one that didn’t opt in an extra year of training in fellowship (ie: not me!), you’re ready for that attending salary.
First off, give yourself a pat on the back - those grueling hours of late night hospital calls, night float, rounds…done! Now that you have that attending money (and all that debt to show for it), DON’T do these five mistakes to keep yourself on track for paying off those loans as fast as possible (interest is not your friend…)
Defer payments on loans.
This is the WORST thing to do. Compound interest accumulates no matter if you’re paying off your loans or not, so why not contribute while you can? You’ll end up paying tens of thousands more, and extending your years to pay off the loan. For example, a $200,000 loan at 6.5% interest deferred for only 1 year can cost you an extra $13,000 on a 10 year repayment plan. Check out this loan calculator to calculate how much a deferment may cost you. Also, keep in mind that deferment also can make you temporarily ineligible for student loan forgiveness programs. Of course, extenuating circumstances CAN and DO happen, but try not to defer if you can help it.
Buy a house they can’t afford.
There’s so many residents that I know that have bought houses, and ended up paying for it later. Granted, personal finance is individualized, and having a spouse with a significant income can help offset some as well. Buying a house with that new income may seem like the best thing to do, but imagine the added mortgage on top of loan repayment. And if you qualified for income based repayment, your income has jumped a significant amount so keep in mind your loan repayment will also increase per month!
Buying a brand new luxury car.
Yes, those years of hard work should be rewarded, but buying something that depreciates in value once you drive it off the lot may not be the best decision. Why take out another loan to purchase a new car, and rather use that money towards paying down that medical education?
Not letting your money work for you.
So you heeded the first three bullet points above, and now you have this six figure income and some money left over per month after contributing towards retirement and loans…now what? Make your money work for you! Invest in it - but don’t invest blindly. Do your research, learn about investing, and learn about how to create a portfolio. Websites I like to help with increasing your investing knowledge: Investopedia, Physician on Fire, and White Coat Investor.
Leaving money on the table.
Admittedly, I have not started this process (perhaps I’m just avoiding it), but I know the need for negotiating one’s contract. I’ve been pouring over negotiation books, and this item comes up time and time again about not leaving free money on the table. Some tips I’ve surmised through my reading - know what you want versus what you need, prioritize your contract terms, and consider the basic principles of supply and demand. Do you have a unique set of skills that you can offer the practice? If salary is truly of utmost importance to you (ie: you don’t have a young family and your major goal is to pay off debt), then perhaps negotiate a higher base salary in exchange for fewer vacation weeks, or the ability to moonlight or work outside of the organization.
My favorites for learning about investing:
Popular blog almost always comes with a popular book. Learn the basics here and use the website for more in-depth discussions.
This is a good beginners book to get started. I really wish I read it during residency, or even during medical school, to prepare myself for the future. It teaches financial responsibility and the first steps towards managing your money and building wealth.
Any other good books I may be missing?
There’s a wealth of information out there, and it can get noisy. A part of me wants quick results with this debt repayment plan, but I know it takes time to decrease debt just as it takes time to build wealth.