Many people graduating from residencies and fellowships now find themselves getting paid more than ever before. While that’s great news, especially when it comes to your paycheck, it also presents several personal finance challenges if you’re not intentional.
This is an exciting position to be in because, if you’re reading this, you’re likely at least somewhat interested in making smart money decisions with your new paycheck. And that’s even better news than your new paycheck because the steps you take in the first few years after graduating from residency or fellowship can make a huge difference in your personal finances and fulfillment over the long term.
Below you will find three simple financial tips you can implement today to position you for a bright financial future.
- Temporarily Avoid Big Purchases
Many new doctors are tempted to make large purchases when they receive their first big salary. Some go so far as to buy things they can’t afford and get on a payment plan, because they can afford the minimum monthly payments. However, these payments at least prevent doctors from saving and investing money, and at most start building interest.
We recommend avoiding shopping sprees and high-ticket items, especially during the initial shock of your salary change. Take the time to buy items with full cash instead of payments.
Also, consider avoiding buying a brand new car. Instead, continue to drive what you currently drive for a little while longer while you build a strong financial foundation. If you do want an upgrade, consider making a modest upgrade and saving the luxury purchase for the future. When purchasing, consider following the advice of many financial advisors and start with a pre-owned car instead of a new one right away.
In essence, with large purchases, new doctors and dentists will benefit in the long term from slowly moving up the “lifestyle ladder” rather than immediately beginning to live a life of luxury, especially if those luxury purchases come with high interest loans and additional monthly payments.
- Stick to a Monthly Budget
If you haven’t already, now’s the time to create a monthly budget. Start small and simple by tracking your income and spending for a few months and getting your regular bills organized.
To organize your regular bills, write down all of your monthly or quarterly payments. Include when they are due, how much they are, and what payment method you use for them. To help, many people use a spreadsheet or budgeting software or apps. Getting organized will enable you to avoid any penalties for missed payments, and give you an idea of how much you’re really spending.
To track monthly payments, simply look at where your money actually goes. What are you buying every month? After each month, ask yourself whether you are spending more than needed on any categories? This exercise will make you even more mindful of your spending. After just a few months, many doctors and dentists find themselves much more intentional with their spending.
After a few of months of budgeting and getting organized, many people realize that they overspend in certain areas and decide to switch things up. This also gives them the ability to allocate extra money toward paying down high-interest loans.
- Start Paying Down High-Interest Debt
When it comes to paying student loans and other forms of debt, there are a couple of main methodologies. Some people advise the debt snowball method, where someone pays their smallest debt down first, and then uses the minimum payment of that and rolls it into their next smallest debt.
If you’re a looking for an alternative, consider the avalanche method, which is similar. Instead of paying the lowest debt first, pay the debt with the highest interest rate first. This will help you pay less over the long haul, as you continually negate the interest from your debt.
If you find yourself with a great deal of debt with high interest rates, you may benefit from consolidating your loans into one with a lower rate and then starting your debt elimination plan.
At DOC2DOC Lending, we specialize in helping dentists, medical doctors, and practice owners with business and even personal financing. Give us a call to see how we can help you, too.