Doctor Employed Full-time Priorities
Once you begin full-time employment, you finally receive a decent salary, commensurate with your skills. You are also in position to begin paying back debts and put away more money into qualified retirement plans. The latter has an added benefit—it reduces your taxable income each year, which in turn reduces your tax bill.
Your most likely priorities are:
- Follow a well-formulated financial plan instead of making ad hoc, impulsive financial decisions
- Increase the size of your rainy-day or emergency fund to 3-6 months of earnings
- Consider increasing disability insurance coverage to cover higher earnings
- Ensure your life insurance coverage is appropriate. If you couldn’t afford a satisfactory amount of coverage as a trainee, now is the time to close that gap. Keep in mind that insurance agents, who are compensated by commission, have an incentive to convince you to buy a lot of insurance. Get the amount you need--no more or less
- Ensure your malpractice insurance is appropriate and in force (it most likely will be covered by your employer, but make sure you find out)
- Make sure you have appropriate property and casualty insurance for your home and auto, including umbrella insurance with sufficient limits to protect your assets
- Set up college savings plan(s) for your child(ren) (as relevant)
- Don’t over-extend or over-consume—budget properly and live within your means. The more excess cash your household generates, the sooner you can pay back debt, fully fund retirement plans, contribute to children’s college savings plans, and approach financial independence. Understand the relationship between your budget and your net worth (your nest egg)
- Avoid conspicuous consumption statements such as a new sportscar if you have significant student or mortgage debt.
- Continue re-paying student loans, making choices that preserve your ability to qualify for Public Service Loan Forgiveness (PSLF), as relevant. If you’re not pursuing PSLF, focus on paying off the loans with the highest interest rates first. (If you are relying on PSLF, your repayment strategy is to make the smallest payments you can for ten years and have the rest forgiven).
- If you have some extra cash, should you pay off debts or invest? Which debts should be paid off first?
- Purchase a primary home. This gives you an asset and potentially some tax deductions. Here are typical Mortgage Loan Application Requirements.
- Accumulate diverse assets, across all asset classes (stocks, bonds, cash, real estate)
- Consider expanding your investments for additional diversification. For example, purchase a rental property
- Stay the course with your passive investments. Don’t be swayed by market fads or bubbles
- Don’t be distracted by an impulse to "keep up with the Joneses." It doesn’t matter what your peers are up to financially. Their lives and priorities are different than yours. Don’t over-extend your household in an effort to compete with anyone else
- As you accumulate more assets, consider estate planning and asset protections
- Don’t leave a lot of cash in an unproductive checking account when it could be directed to a higher yielding savings account, certificate of deposit, real estate, or stock investment
- Make financial decisions collaboratively with your partner/spouse. Open communication is crucial to the financial well-being and unity of your family
- Understand the roles of various advisors/brokers/agents and decide whether you wish to manage your own investments (DIY) or whether you prefer to find an advisor to whom you can outsource some or all financial decisions. My recommendation is that you pursue as much self-sufficiency as possible as that gives you more control over your assets, reduces reliance on inept or dishonest advisors, and allows you to avoid paying some fees. If you opt to use an advisor, take a look at the Advisor Evaluation Template.
If you have dependents, refer to the guidelines, above, for Residents/Fellows with Dependents. These are all likely to apply to you as well: you'll likely need life insurance and it may be a good idea to set up 529 college savings plans for your children. It is also important to draft a Will and other relevant estate planning documents. Good communication with spouse/partner is a must for constructive financial decisions.