So, you’re about to graduate from medical school, congratulations! What an amazing achievement. You will always look back at this time with pride and an incredible sense of achievement.
You may be dreaming of transitioning from the world of study and awkward loitering around the ward, to the world of a “proper” job, a sense of responsibility, your own patients and finally a regular pay cheque.
Beyond the amazing opportunity to make a positive impact on your future patients, your colleagues and the future of medicine, you have incredible financial opportunities too.
Medicine is well compensated. You will likely earn above average income within a few years and could fairly easily achieve financial freedom to do what you want, travel and make the world a better place with donations or charitable work.
It is easy to assume these privileges will be yours no matter what you do with your modest first pay cheques.
But the small choices you make with your money add up to define your financial future. You cannot, even on a doctor’s wage, have everything you want without planning for it. Many of your colleagues don’t understand this until they are nearing their desired retirement date.
Those of you with good financial intentions may have noticed financial planners sponsoring medical school events, graduation balls or sending you invitations to join their privileged group.
Doctors are usually time poor, and known for their ineptitude with money. We also tend to be a little too trusting, assuming other professions follow a similar ethical code to our own.
Be aware that these companies are interested in you because of your potential to pay them lots of money over the next forty years.
Be very careful who you get advice from – you should contact them (not the other way around) and pay for advice up front, rather than let them earn through commission or management fees, which is likely to cost you multiples more in the long-term.
An average adult’s full-time earnings were $82,752 in 2018. The average full-time intern earned around $70,000 in 2019, and earnings increase quickly over the first ten years. But many specialists end up with no idea where their high income goes, and lack the freedom and choice they desire in life.
Here is a step-by-step guide to getting your finances organised for a bright future.
Work Out Where Your Stand at the Start:
a. Student Loans
I want you to log in to your student loan accounts and work out how much you owe.
Many people bury their heads in the sand (OK, I did this) and try and avoid acknowledging how much debt they are in.
You are going to have to pay these off one day.
You need to work out how much you owe, how much interest you will be charged, and how much of your intern wage is going to go towards paying these off.
Whether to pay off your student loans aggressively is something to be considered carefully. Often, it is more beneficial to invest that extra money for a potentially greater return. But knowing how much you owe (and your net worth) will help you get a realistic grip of the situation. And this may stop you getting overexcited and splashing the cash about like a drunken gambler during your first year of work.
b. Bad debts
You may have built up some of these towards the end of medical school (ahem, OK, again I’m guilty!).
Credit and store cards are likely to be charging you a should-be-illegal interest rates of 20-30% so are going to be a top priority to pay off as soon as possible.
Pay off any debt with interest over 5% before investing.
c. Necessary Debts
Perhaps your already committed to a mortgage.
Now is a good time to review things. How much do you owe? Do you have any equity?
Was the property a good investment and will likely grow more equity over the years, off which you can leverage for further investments?
Are you being charged a competitive interest rate? Do you have offset accounts set up that your pay can go in to, and your savings stored in, in order to minimise interest paid?
The concept of good debt vs bad vs tolerable debt is really important. Read more about it here. No matter the debt, make sure you always make the necessary repayments (automate everything possible) to build a credit score.
d. Investment Debts
Maybe you’re well ahead of the pack and have already got investment loans.
Or perhaps you’ve made some ill-advised choices over the years.
Time to face up to the situation, whatever it is.
Similar to your principal place of residence, is this a good investment, can you manage the debt, what interest rate are you paying?
e. Your Expected Living Expenses
Hopefully these will be fairly low. Sit and work it all out. The amount to which you can control your regular living expenses will determine how much you are able to pay down debt, save and invest.
f. Work out your “Gap”
The gap between your income and expenses is going to define your future wealth. Even if its only a tiny amount at the moment, as long as it’s a surplus you’re on the right track.
The aim is to start with a small POSITIVE ‘Gap” and increase this every time you get a pay rise.
You can use this “Gap” to save up your emergency fund, pay down extra debt and then roll them into investing for the long-term.
2. Emergency Fund
Work out how much emergency fund you need, and work out how to save it up. What sort of emergencies can you see cropping up?
Car blowing up? Needing to fly interstate in case of a family emergency?
What if you’re sick and unable to work before building up sick leave allowance?
Most financial experts recommend 3-6 months expenses saved; this will take a while!
Start with a more achievable $1000-2000 depending on what emergencies seem possible to you.
Work out how quick you’re able to save this by setting some money aside each pay.
Consider whether you need income protection, life insurance or total permanent disability insurance at this stage. You will obviously need to have chosen the best indemnity insurance.
Do you have dependents? What would happen if you couldn’t work, or were permanently disabled?
Check what insurance is automatically included in your super, and whether this is appropriate for you and your stage of life.
Don’t cancel insurance unless you have carefully considered the long-term consequences. In 10 years time, you may have developed comorbidities preventing you from getting cover.
This is really tricky! If you already have a ten, twenty or forty year plan – write it down, work out what your relevant financial goals are and then work out how you are going to reach them over the prescribed time period.
If you have no idea, it is safe to assume you will want to do something with your life in the next twenty + years that is going to cost money!
You may want to buy a house, take time off to travel or work for free, pay off student loans or take time off to have children (and many doctors don’t end up qualifying for any paid parental leave).
Once you have paid off any high interest debts and got an emergency fund, the extra money freed up can be immediately redirected (by direct debit) to savings before it disappears.
It may seem the amount you can put aside is too small to be worthwhile.
It’s not, and you have to start, and will be surprised after a couple of years by the significant amount you’ve built up if you stick with it.
Surely I’m too young to think about this I can hear you moan!
I hate to break the bad news to you, but your years behind in starting to contribute given all those years in higher education.
At bare minimum, make sure you tick the box that means you contribute enough to get the maximum amount paid into your super account from your employer.
After your debts are paid off consider why you would make voluntary contributions.
Check out more super for interns here.
6. Buy your first car – or better, don’t
Consider whether you really need a car straight away, and what you should buy. Car’s are a big factor in your future financial success. Cars depreciate in value from the moment you purchase, the exact opposite to buying assets that increase in value to build wealth. A flash car early in your career is going to make a big dent in your financial future (far more than the cost of the car due to compounding).
7. Buy and read “The Barefoot Investor” by Scott Pape.
For a few, his advice is insultingly obvious. For most, its life changing.
Definitely the book your likely to be recommended by a doctor if asked for financial advice.
Worth buying a paper or kindle copy to refer back to over the years as your circumstances change.
It will have you organising your money and building investments automatically -which really is the secret!
I wish you all the best in your first year of practice.
I hope your patients are the right balance of interesting and challenging.
I hope you’re well supported by your superiors and peers.
Your learning curve will be sharp.
I hope you make the most of all the wonderful opportunities you encounter.
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Interns may want to sign up to the Intern Crash course – ten emails delivered once a week that cover the basics of what you need to know about finance when you start getting paid.