Yesterday (wrote this a few weeks ago) was my first day of Radiology. I was beyond excited to meet very friendly, intelligent people who are passionate about teaching and learning radiology. My cohort, class of 2019 includes 7 guys and 2 gals. I already know that we will have a fantastic 4 years together, training hard to become bad-ass radiologists, who can make awesome differential diagnoses and assist with medical decisions.
During our chit-chat, a common theme that pops up in personal finances is how in the world do we save on so little income? Truth is, it is a matter of perspective, we have quite a bit of income compared to most people in our town and thankfully the cost of living is quite low in our town. We are set up for success if we WANT to save/ increase our net worth.
A typical single income resident household with spouse and kids may have take home income like this.
-
Gross Pay $53,533.00
- assuming filing married with 6 exemptions
-
Monthly Gross Pay $4,461.08
-
Federal Withholding $184.79
-
Social Security $276.59
-
Medicare $64.69
-
Arizona $187.37
-
Monthly Net Pay$3,747.64
A goal budget may look like this table, allowing you to contribute 1k to ROTH IRA/ROTH 403b per month. This budget requires some creativity to make food budget for 4-5 people around $ 400, but it is totally doable. Our family of three eats organic, non-GMO whole foods as much as possible, and can still enjoy delicious balanced meals while staying under $300 on average. This budget also allows for spending on important things such as kids’ extracurricular activities.
| pgy2 monthly budget | |
| pgy2 income | 3,747.64 |
| utilities | -300 |
| gasoline | -50 |
| food | -400 |
| home insurance | -30 |
| med insurance premium | -167 |
| car insurance | -137 |
| mortgage | -925 |
| extra mortgage payment | -50 |
| property tax | -167 |
| HOA | -18 |
| Mini Wise Money’s painting/voice lessons | -200 |
| med insurance co pay | -30 |
| house maintenance | -50 |
| car maintenance | -30 |
| cc payment | -150 |
| Roth 403 B contribution | -1000 |
| pet | -30 |
| balance | 13.64 |
With this budget, a resident family can
- contribute $1000 post tax dollars to ROTH account (the cheapest ROTH you can ever buy as resident’s tax bracket is the lowest a doc will get in his/her life time)
- put $400 into your home equity
- invest $200 into your kid’s experiences/ skills
- pay credit card down $150 per month (presumably 0% interest revolving credit card debt)
That’s not too shabby. This family can increase their net wroth by $1550 per month at this savings rate. While the budget does not account for student loan payment, it does account for a substantial credit card payment.
If you have $400 or $1000 per month of payment in student loan, and you put money towards that instead of retirement, you are still increasing your net worth by the same amount.
As for putting money in ROTH or paying down student loan, I personally choose to pay off my student loan completely as a pgy1 before beginning to max out my ROTH IRA/403b accounts.
In the olden days, when student loan interests are 1-2%, leveraging student debt while investing for retirement was a no brainer. Unfortunately, since student debt is now snowballing at 7%, I find it too risky to be investing instead of paying off student loans. I also didn’t want to limit my job options as an attending by hoping for Public Service Loan Forgiveness and making minimum student loan payments.
The point is not that every family needs to be counting pennies, but rather that it IS POSSIBLE to save during residency even if you are a single income household. While my peers with families think there is no way to put any money away, I want to suggest that much can put away. And it is definitely not all or nothing. While increasing net worth by 1.5k per month or 18k per year is fantastic, saving anything, a few hundreds a month would be great too. The money that you save now, no matter how little, will work for you and your offspring FOREVER (until you spend it).
Time value of money is key. We have already dedicated at minimum 23 years (for general internists, 26 years for specialized radiologists) to training. We need to make our “limited” income work for us NOW. Don’t wait till you are done with fellowship/ residency before you start saving. Your hard earn money should work harder and longer than you do.
- What does your budget look like?
- What are your goals in building your net worth NOW?
- Where do you see potential sources of income that could be saved instead of spent now?