October 12, 2020

Financial Basics

It's true. Financial literacy isn’t something that’s on the top of our medical school priorities, but once you start making the real doctor money, it becomes more important to increase our financial savvy. This is why we created this page that is intended for beginners. Remember: We are not financial advisors or attorneys, so always check information. Below we'll cover some helpful information on the following topics and link to additional resources.

Basic Priorities & Principles | Living like a Resident | Student Loans | Insurance

Basic Priorities

1. Be able to pay all your bills
Obviously. If you can’t pay your bills, no financial advice can save you. This is the most fundamental part of finances and one that we know you already know!

Note: Your ACEP member benefits include a partnership with Panacea Financial, a digital bank built for physicians, by physicians.

2. Have a general knowledge of your own numbers. Knowledge is power.
This means sitting down with all your monthly bills, credit cards, bank statements and making sure you KNOW how much you spend each month and how much you need to survive. This also gives you an idea of how much you have left over and then you can start thinking about what to do with it. This also includes things like understanding your personal financial priorities, what your own risk level tolerances are, and even knowing what your credit score is (and how to get a good one or keep a good one).

There are lots of ways to get financially organized.

3. Contribute to Savings
After your basic bills are paid, your first priority should be to have something in savings. Usually the first savings recommended is having an emergency fund of at least 3-6months of basic bills. I think COVID proved to those hesitant to start on this how necessary it was to have already established. We didn’t have time to work extra shifts, you either had one or you didn’t. We hope you start one. We also recommend you put it in a separate account, so you aren’t tempted to accidentally spend it (like on that ‘emergency’ brand new car or that house downpayment). Usually if its sitting there, it can earn you money in a high-yield savings account or in a money market fund. Once you have an emergency fund, you can decide if you want to start other savings for other future purchases, like a house, a car, an engagement ring, or a child’s college fund.

4. Reduce your Tax payments
That’s right! We want to pay as little as we can to Uncle Sam as possible. The best way to do this is to contribute to a Retirement Plan. Not only is this considered a savings you will get in the future but you don’t have to pay taxes on most money you contribute to a retirement plan. There are other ways to decrease your tax payments, but we won’t go into those here. Seek a professional if you need guidance.

5. Debt balancing/management
This is a difficult concept, but sometimes managing debt is smarter than paying it off immediately. For example, putting the extra $100 into an investment account with 10% return may be smarter than putting that $100 toward your student loan that is at 3%. Remember that this isn’t specific advice for you. This stuff can get hard to figure out, and can sometimes require a professional and a decision on your part on how badly you want to get out of debt. Debt management in general is a lot about comparing interest rates and making sure you prioritize the high interest debt. Once you know those numbers you will be able to decide easier if putting it toward your debt or other investments is smarter or not. We also need to say that debt management also includes small items like setting your bills to auto-pay so you don’t have a late payment.

MORE: Visit ACEP's FiscalRx financial planning page for related articles, podcasts and more.

Living Like a Resident

We have all heard this phrase a million times. But what does this really mean? Long story short, its all about living under your means. While this makes common sense to most of us, our means have drastically increased- so how do we apply this general pearl of wisdom?

Easy answer is give yourself one upgrade and then pretend for the first year as an attending that you are still a resident, at least financially. This helps give you time to get a handle on your finance basics or what your taxes will look like, while also helping you decide what your own financial priorities are. This is not the time to start investing like crazy in the stock market or buy a big house or payoff your entire student loan debt. Take some time!

MORE: Preparing for Life After Residency: A Financial Planning Primer (EMRA)

Retirement Basics

W2
Most folks get offered retirement contribution options through their employer. This means you are directly employed by the folks who pay you and the form you get in the mail come tax time is called a “W2.” As a general rule of thumb its worth it to contribute to whatever plan your employer is offering if they give an employer ‘match’. Its free money since they put some money into that retirement account to incentivize you to also do so.

1099
If you are not directly employed but rather are considered an ‘independent contractor’ as are many ER physicians, your retirement options are up to you individually, the sky is the limit. The negatives are you typically do not get an employer contribution for anything you choose.

MORE: How Independent Contractors Can Set Up Retirement Accounts (ACEP Now)

401K
These plans are usually the ones offered by employers with a ‘employer match’ and are decent accounts managed by large companies. These are tax deferred accounts, meaning you contribute money to them before taxes this year, and only pay taxes when you take out the money (when you are in retirement).

403B
Very similar to 401k but is usually a state or federal employee plan and is also tax deferred.

IRA
There are lots of different kinds of IRA plans. What kind you chose has a lot to do with which tax bracket you are in and how many other retirement or investment accounts you have.

  • Roth IRA - One of the most famous IRAs, however limited by salary (so open as a resident if you can)
  • SEP IRA - “separate IRA” is very common for folks who are 1099

There are many more retirement plans to choose from, consider doing your own research or speak to a financial advisor.

MORE: Dr. Jim Dahle, also know as The White Coat Investor, writes a regular column for ACEP Now where he tackles all sorts of financial planning and retirement questions.

Student Loans

Your ACEP membership offers a rate discount when refinancing your loans with SoFi.

Insurance

Consider this: Do Healthy Young Docs Really Need Life Insurance?

Your ACEP membership includes discounts through Hagan: Professional Liability, Long Term Care, Term Life, Disability Income, Group Auto and Home, Dental and Vision and more.