Medical residents and fellows have always been in an interesting situation. They are embarking on the foothills of their career and obtaining the skills and knowledge they need to press forward. They are likely in the most idealistic mindset they’ll ever be in their career, and they’re networking with their future general practitioners and specialists; it’s an exciting time of life.

One twist is that they have to obtain $200,000+ of student debt. They also give up nearly a decade of real working capital for the working knowledge and skills to move forward with their medical career. Here are some practical tips on some common mistakes medical residents and fellows make, and how they can avoid these mistakes.

1. Failing to understand their student loans.

Student debt is such a hot topic right now, and for good reason; it’s crushing many young Americans. I think it’s important to understand the big picture of managing your student loans before getting to the granular details. From my experience, most people get lost in the details of various types of loans, and that information is confusing, so they give up on making a plan. I break down student loans for physicians into two simple phases: 1. Managing student loans; and, 2. Paying student loans.

Managing student loans is basically the process of choosing the right payment plan to minimize the monthly budgetary expense. The government loan program has some really good ways of handling this; however, some of these management methods can hurt you later. Oftentimes, your loans will still accrue and capitalize (the interest of the loan becomes capital or turns into excess debt of the loan, which, in turn, produces more interest) during this time. The trick is to find the route that best suits you and your family from a cash flow standpoint and start there.

Phase 2 is paying student loans, and it’s just like it sounds – developing a strategy to pay off the loans. For many, the thought of refinancing seems burdensome until they pay extra into a complicated pool of government loans. The payment phase usually occurs within the first couple of years after training.

2. Trying to live up to anyone else’s standards.

One thing that’s always made me cringe is when I hear, “But she’s a doctor, she can afford that,” or, “A doctor has to have a nice (insert material item).” Even during residency, the outside world thinks that doctors have the world handed to them; and this is the farthest thing from the truth! Doctors are regular humans with superhuman efforts and unbelievable sacrifices. A doctor shouldn’t let anyone else spend their money.

I could write for days on this topic, and I feel like I’ve probably seen it all here. I’ve seen medical students driving new BMWs, using student loan disbursements to pay the car payments, and justifying it with, “Hey, I’m gonna be a doctor.” If a physician lets someone else dictate their spending, lifestyle, or self-image, that person will likely never have control of their finances and never be satisfied.

3. Not talking about money wins and woes.

I’ve always joked that hospitals hosted more money-driven discussions than anywhere else. I think this occurs, mostly from attending to attending – possibly from attending to resident in a guiding/teaching kind of way. I think there’s sometimes a disconnect from resident to resident about truthful money conversations. I’m not talking about just being broke, either. When there’s a struggle – like making small salaries in residency and managing large amounts of student loans – talking about that struggle is cathartic. There’s no badge of honor for gritting through medical school, residency, and fellowship and not being honest and open.

Enrolling in PSLF (Public Student Loan Forgiveness program) is a money win (maybe… if it works!). The minimum payment on IBR (income-based repayment on student loans) being $0 and still counting as a qualified payment is a win. Paying rent late, eating Ramen noodles every night, looking through the couch for spare change to pay the nanny (we actually did this) is a woe. Just being open and honest and human is such a good thing, and medicine needs more good things.

4. Not having their own financial philosophy in place.

Residency isn’t the toughest financial time in a doctor’s financial life; it’s the first two to four years after training that’s the toughest and most critical to financial freedom. The first few years after training are when the physician’s lifestyle is developed. Mortgages, car loans, student loans, credit cards, etc. all take a toll on those first few paychecks. The lack of liquidity, and the lack of a plan will allow for more debt to creep in. Knowing what to do with money from a foundational level provides such clarity. Residency is the perfect time to define a financial philosophy.

Here’s a financial philosophy based on cash flow I came up with while my wife was finishing her fellowship, and I wish I had it when she started residency. I tell residents to get their spouse involved, and make it their own.

Paul’s financial philosophy during residency

1. Create a budget
2. Protect against unforeseen disasters
3. Develop liquid savings
4. Eliminate “bad” debt
5. Save 15% or more of income
6. Eliminate long-term debt
7. Celebrate

Setting these 5 things during residency and fellowship can make all the difference in getting started and keeping on the right path, financially speaking. The burden of financial stress can take a toll, and residency is already stressful enough. Keeping a spouse informed and aligned about intentions with money is crucial to any career path – especially medicine – with difficult workloads and rigid tasks and hours. Residents establishing themselves as leaders in their own financial matters will provide a framework for their colleagues. It’s important for residents to focus on the big picture because the minutia will derail their efforts to stay the course for which they originally set sail.

Paul Morton is an investment advisor, Midwest Private Client Group.

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