• 4 Steps to Achieve Financial Wellness During Residency

    As you continue to advance in your medical career, it is critical not only to maintain your mental, physical and emotional health, but also your financial health. Nearly half of all graduating doctors already owe the amount of money it takes to buy a Ferrari. By following a few guiding principles outlined below, you can ensure your financial wellness during your residency and throughout your career.

    1. Protect your credit score

    A credit score provides a snapshot of your financial health to lenders anytime you need to make a purchase, like a car or a house. Many factors affect your credit score. Here are a few ways to improve it:

    • Pay all bills on time
    • Limit excess credit card debt while maintaining a high credit limit
    • Maintain a long credit history (i.e., don’t open and close new credit cards frequently)

    A high credit score can make you eligible for preferential interest rates, saving you thousands of dollars over the lifetime of a loan. Periodically check your score for free via credit bureaus like Experian, TransUnion or Equifax to make sure everything is in order.

    2. Optimize your cash flow

    The first step toward personal financial independence (or even running a business) is to optimize your cash flow. Simply put, this means you need to have more money coming in than you are spending. Throughout residency, your cash flow should be predictable with guaranteed monthly income and anticipated expenses, which you should try to minimize as comfortably as possible. A budget is the best way to visualize and manage your cash flow, and there are many apps that can link all of your financial accounts. My favorite is Personal Capital. Others include Mint and YNAB.

    By minimizing your expenses, you can develop a positive cash flow that you can use for other things. It’s important to build an emergency fund in case you have unexpected expenses. After that, use any extra money to further pay down your student loans, save for a vacation and/or invest.

    3. Invest

    We live in a time of market uncertainty and volatility due to the pandemic, inflation and other global events. Despite these challenges, investing your money is an excellent way to achieve positive cash flow. Small investments can compound and grow rapidly over years as you advance in your career. Contribute first to a retirement account, whether it’s offered through your hospital or a personal retirement account like a Roth IRA. Then set up a taxable brokerage account and create a simple portfolio of investments that will form the foundation of your financial growth. You can do this on your own through companies like Schwab, Fidelity, SoFi, E-Trade and others.

    As you invest, it’s easy to get caught up in hype stocks, which are sometimes as much of a gamble as going to Vegas. The S&P 500, which includes around 500 of the largest and best-known companies in the United States, has historically returned an average of approximately 8%. The reality is also that more than 85% of professional fund managers fail to beat their benchmarks (like the S&P 500) consistently over the long term. Save yourself unnecessary fees and invest in a foundation of low-cost index funds.

    If you want a truly hands-off approach, consider investments like Betterment or WealthFront, both of which automatically create portfolios of low-cost index funds based on your risk tolerance. Once you have that established, feel free to roll the dice with stocks you read about on Reddit or Twitter.

    4. Educate yourself

    The most important thing you can do to ensure financial wellness is to educate yourself. Many resources are available to get you started. Here are some of my favorites:

    • American Academy of Ophthalmic Executives (AAOE®) has great resources on personal finance and more.
    • Physician on FIRE: This blog is an excellent place to find resources geared toward financial independence.
    • The White Coat Investor: This blog is full of resources for all things related to personal finance. A book by the same name offers a basic overview of finance relevant for physicians.
    • Bogleheads: This site will teach you how to invest, with a focus on low-cost index funds. Remember that most professional, active investment managers do not beat the market over the long term.

    Residency is an exciting time with so much to learn. While you’re focusing on medicine and ophthalmology, take time to build the foundation of your financial future.

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    Viraj J. Mehta, MD, MBAViraj J. Mehta, MD, MBA, is an oculoplastics surgeon at Washington Eye Physicians and Surgeons in Washington, D.C., and joined the YO Info editorial board in 2020.