It’s Never Too Early

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Over the past 20 years, I have had the opportunity to work with thousands of different financial situations, encompassing many different practice and income models, as well as many different demographics. I don’t claim to have “seen it all,” but I have certainly seen a lot.

In all this time, two things remain true with saving and investing:

  • I have never had anyone say they regretted saving money.
  • I have had many people say they wished they had started saving earlier.

The reality is the earlier you begin to prepare for something, particularly when it comes to saving and investing, the higher your likelihood of success and security.

While it may seem trivial, there is a clearly identifiable success pattern that often starts with $50 per month to a savings account during internship, evolves to $500 per month into a retirement plan throughout training, and then matures to $5,000 per month into savings and investment programs once established in practice.

It is difficult on a house-staff budget, but it is not impossible in most situations. The following is intended to provide broad guidance. Please recognize that while many residency situations are similar, all have unique characteristics, and this article is intended to provide informative guidance to a wide range of readers.

Don’t get fancy or creative until you have at least one month of living expenses saved in cash.

Here are three pearls to get you on the right track:

Discipline

As a resident, savings will rarely happen if you do not make it a priority. Identify a budget, pick an amount you feel you should be able to save, and set up a monthly bank draft from your checking into your savings. Start conservatively (small) and get used to the change. Gradually increase every three months. Allocate this initially to cash savings. Don’t get fancy or creative until you have at least one month of living expenses saved in cash.

As you develop a reserve of cash, allocate a portion of your money to funding a Roth IRA or your house staff 403(b) program, depending on your tax situation. If you need help figuring this out, seek a CPA or financial planner who understands residency, as well as the financial implications of medical training.

Asset Allocation

There are limitless resources dedicated to understanding investing, investment management, portfolio modeling, and every mundane or esoteric aspect of the financial markets. If you are new to investing with limited dollars, skip them all and find a target date fund. These are available in most retirement plans such as 403(b) and 401(k)s, IRAs, and Roth IRAs with most major investment sponsors and also for non-retirement investments. These types of funds provide diversification, professional management, and require no maintenance. If using this approach, choose one target fund with an appropriate date and put 100 percent of that account into that fund. Do not mix-and-match target funds for diversification. You will make a complete mess.

Account Structure

There are many types of accounts to use when developing a savings and investment program. To keep this simple, as well as broadly applicable, I recommend using a simple savings account for savings. If your bank offers a money market account or high yield account that is liquid (money is available when you want it), and offers a higher interest rate than a common savings account, use that one. Remember this is not typically much money, so do not overthink it. In most cases, ease of use is as important as the specific type of account.

As you get beyond cash savings, consider investing in retirement accounts first, and fully fund them before looking for non-retirement investments accounts. Most GME programs offer or sponsor a 403(b) or 401(k) plan that will allow you to invest up to $18,000 per year (in 2015) often in a pre-tax or post-tax (Roth) environment. You may also choose to use an individual Roth IRA for the tax benefits of paying taxes now at house staff tax rates, and making withdrawals later in life at attending tax rates.

If you are moonlighting and have 1099/self-employment income, look at the advantages of using a SEP IRA to put aside approximately 25 percent of your moonlighting income on a pre-tax basis, reducing your federal, state (if applicable), and self-employment tax liability. Following training, you can combine this with other retirement plans of the same tax status to streamline your portfolio.

This article will likely be ready at the perfect time to put it to use.  New interns will be receiving their first paychecks, house staff who are advancing in post graduate year will receive a nominal increase in pay, and residents and fellows who are completing their training will be transitioning to a real paycheck.

Make effective use of the new dollars: Pay yourself first. Pay everyone else after.

I wish you the very best in your endeavors.

M. Shayne Ruffing, CLU, ChFC, AEP

M. Shayne Ruffing, CLU, ChFC, AEP

Managing Director, Integrated WealthCare, 866.694.6292, shayne.ruffing@integratedwealthcare.com, www.IntegratedWealthCare.com
M. Shayne Ruffing, CLU, ChFC, AEP

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