Doctors and dentists often find themselves on very different $Lifeline trajectories than friends and family members who don't work in health care. While many folks in their early 20s might be earning real money at their first jobs or getting married, you might still be in school. Your friends might be buying houses while you're still working through a low-paying residency. And once you're an M.D. or D.D.S., it can be very tempting to treat that high salary you've worked so hard for like it's a jackpot.
Use these three tips to balance responsible spending and saving so that you can earn more Return on Life (ROL) throughout your career.
1. Set a Budget and Pay Yourself First.
Your weeknights of ramen cups and PB&J might be over. But spending without discipline can create a whole new set of problems. According to the American Medical Association, the average medical student leaves school with around $200,000 in loan debt. While paying off loans as soon as possible is often a good strategy, these payments should not come at the expense of contributions to retirement, investing, and savings accounts. "Treating yourself" to a new car or a home theatre upgrade can also be counterproductive: new doctors and dentists are also carrying, on average, around $5,000 in credit card debt.
Paying your future self as soon as your paycheck hits your account is often a good way to start managing debt and building wealth. Set up automatic contributions to your financial accounts, and automatic payments towards loans and debts. Aim these contributions towards realistic annual targets, like reducing your student loan debt by X%, or hitting the maximum allowable contribution for your 401(k). Make a discretionary budget for the remainder of your monthly paycheck so you're not reaching for your credit card more than you should.
2. Avoid Lifestyle Creep.
If they compare themselves to peers who started earning right out of college and their older medical colleagues, young doctors and dentists might feel pressured to "keep up with the Joneses." This is the path towards mortgages, vehicles, and vacations that you can't really afford.
That is, you can't afford it all yet.
Your day in the sun -- and in literal tropical sunshine -- will arrive soon enough. But don't let FOMO throw off your financial plan or keep you from enjoying this stage of your life and career. Seize opportunities to learn at work and grow as a person. Rather than rushing into the house you feel you "should have," take time to think about what getting a high ROL from your home really means to you. Budget for vacations you can afford, even if it's a quick weekend with friends or cross-country trip to see family members. Spending and saving on your terms, and not someone else's, will put you in a position to succeed in ways that make your life and work more fulfilling.
3. Start Now.
Extra years of school and delayed earnings lead many young doctors and dentists to put off their larger financial planning. Some might think that they have too much debt and not enough money to start making any meaningful plans. Others might be so relieved to have the means to pay their bills and have a little fun every month that they don’t realize the importance of putting their money to work as early as possible.
When you’re following a Life-Centered Financial Plan, it’s not just your money that compounds and grows. Our process can also help you increase your personal and professional options, as well as your opportunities to live and work the way that you want. Schedule a time to talk and let’s make a plan that balances enjoying the year ahead with securing your long-term future.
