Contrary to popular belief, doctors are not filthy rich. In fact, finances are a huge stressor for many medical students, residents, and even attending physicians. Between the opportunity cost, raising cost of tuition, and increasing interest rates on student loans, it’s easy to see why becoming a doctor isn’t as financially favorable as it once was. For that reason, being smart about your finances from the beginning is essential.
The reason its key to get a grip on your finances from even your college days is the concept of the compounding effect. In short, interest compounds over time and can be used for good or bad. If you invest at a rate of 7% per year, that money doubles after 10 years. However, the reverse is true too. If you take out loans at 7%, that money too compounds with time. With the average graduating medical student carrying $200,000 in debt, it’s common sense why you want to pay that money off sooner than later.
You must personally take ownership of your own financial well-being. No one else will do this for you. My family was not wealthy and I had to pay for both college and medical school all on my own. But by practicing intelligent financial decisions and saving aggressively, I was able to keep my loans quite low and even pay them off shortly after graduating. Here are 5 common financial mistakes by pre-med and medical students.
1 | Pushing Off Financial Education
The first and most obvious mistake ties in with the common misconception that as a doctor, you’ll never have to worry about money again. For that reason, too many students figure they’ll worry about finances later. After all, they’ll be making good money, right?
Let’s say a medical student graduates with $300,000 in debt. That debt starts accruing interest the moment they take it out in medical school. While they’re making minimum payments in residency, it’s still accruing interest. By the time they’re an attending physician and making more aggressive payments on their student loans, that amount is closer to $400,000 – sometimes even more. The average primary care doctor is making $220,000 per year and the average specialist is making $330,000 per year. Not as much as most would have you believe.
At this point, you may think “so what!?” it’ll only take 2 or 3 years to pay off with such a large salary. If we look closer, that’s clearly not the case. You’ll be paying taxes, malpractice, and living expenses too. And don’t forget, you probably have a family at this point, which has its own set of expenses. Now you see why, particularly for primary care doctors, it’s not uncommon to be paying off student loans for a decade or more.
And the bad news is that these statistics are trending in an unfavorable direction. As tuition rises, student loan options are actually worsening. Federal subsidized loans are gone, and loan refinancing has less utility than it did before. Therefore, unless you have incredibly favorable loan terms, its best to minimize your loan burden.
For these reasons, I’m a strong advocate of educating yourself on financial basics even as a college student. Unfortunately, our modern education systems do not prioritize financial education, and as a result many students make mistakes that cost them a small fortune. Our personal finance videos and blog posts are a great place to start. If you’d like to read further, I highly recommend The White Coat Investor book, the Personal Finance subreddit, and a few other resources.
2 | Prioritizing Prestige Too Highly
Students, and often times their parents, prioritize the prestige of a program too far above other factors. I’ve gone over the relative importance of college prestige previously. Prestige in medical schools is arguably less important compared to college universities.
I’ve personally seen colleagues or helped clients from less competitive medical schools match into highly competitive residencies at highly desirable institutions. That isn’t to say that medical school prestige doesn’t matter, but it’s of secondary importance. The opportunities available (and the student making the most of those opportunities) is most important, and these opportunities are only weakly correlated with a medical school’s prestige. After a certain level, say Top 20 or 25, the relative importance of prestige drops even further.
I’d argue other factors are more important, including your fit in the school’s culture. Do you mesh well with other students and the faculty? Do you overall like the school and its location? What about the cost? Have they offered you any financial incentives and what is your out of pocket cost going to be? These factors will play a much greater role in your happiness, wellbeing, and long term success than the prestige of your institution.
3 | Not Practicing Self-Restraint
I remember during orientation week at my medical school, a lecturer presented on finance basics 101 for medical students. In it, she explained anything you pay for now is costing you 50% more due to the compounding effect of interest on your loans. Small expenses, like buying a $4 coffee every day at Starbucks, is actually costing you $6 in the long term, and doing it daily adds up quick. In her words, “skip the sexy coffee” and brew it yourself at home for a fraction of the cost.
While I agree with her logic, there’s a balance one must strike. Don’t be so frugal that you make yourself miserable.
On one extreme, you don’t need to buy every new gadget that comes out. Your smart phone can last a few years. And do you really need new clothes? You’ll be rocking scrubs in the hospital most days, and no, the fancy scrubs you see all over social media are not necessary. The free ones you get from the hospital are fine, and you’ll be much more comfortable getting blood, excrement, and other goodies on the hospital scrubs anyway. On the other extreme, don’t be afraid to enjoy yourself and eat Korean BBQ every now and then. Pinching every penny to the point your happiness is significantly compromised is not a healthy long term solution either, even if your wallet is better padded initially.
Remember that it’s easier to be poor when you’re young. Practice simplicity and appreciation of what you have, rather than always longing for something new. Pick up a budgeting app and track your expenses. I recommend Mint and Personal Capital for their ease of use. Defer gratification, and understand that you can have the fancy Michelin star meals and designer clothes when you’re an attending physician, but they aren’t necessary right now.
Living in this manner has its own benefits – it will make it that much sweeter when you finally earn it and can afford these things. I know several colleagues who didn’t have to pay a dime in loans because their parents footed the bill. That’s great for them, but practicing my own self-restraint and delayed gratification was rewarding in its own way. First, I have the satisfaction of knowing that I earned and paid for my MD on my own merit, and that feeling of paying off the last of your student loans is hard to replace. And now I know I’ve made it, because I can get guac in my Chipotle bowl without sweating it.
4 | Misunderstanding “Scholarships” and Loan Forgiveness
Before committing to anything that has long lasting implications, it’s obviously very important you understand what you’re getting yourself into. This applies in two ways regarding medical school finances.
First, understand the different types of scholarships. No-strings-attached scholarships, like the Med School Insiders Annual Scholarship, are fantastic opportunities. These scholarships provide free money for tuition and related expenses, most commonly to students in financial need. Some focus on areas of study, like medicine, and others focus on your religious affiliation, region where you live or grew up, or even your writing chops.
But other “Scholarships” aren’t scholarships in the traditional sense. For example, the Health Professions Scholarship Program, or HPSP, are scholarships offered by the U.S. military. Other similar offerings can be found with the US Public Health Service or Indian Health Services. They pay for your medical school in exchange for a commitment. These are best suited for individuals whose career goal is to be a military doctor or rural primary care doctor. If your goals align with the commitment, more power to you. Otherwise, I recommend you exercise caution.
Second, understand the contingencies of various loan forgiveness programs. For example, the Public Service Loan Forgiveness Program, offered by the U.S. Government, has a complex mix of requirements. In it’s first year, of the 28,000 borrowers who submitted loan forgiveness applications, only 96 had their debt forgiven. That’s less than one percent.
5 | Cheaping Out in the Wrong Places
Purchasing a new PlayStation while forgoing quality foods in favor of cheaper fast food is not a good long term decision. Yet it’s surprisingly common to see pre-med and medical students cheap out in all the wrong places. Your health and wellbeing is the highest priority. As someone who has personally experienced significant medical issues, let me tell you that if you aren’t healthy, nothing else matters. I’m not saying to go treat yourself to concierge medicine and weekly massages, but prioritizing healthy exercise and dietary habits will have tremendous compounding effects long term.
The second most important aspect is your education. Missing an extra year or two because you failed to get into medical school the first time can cost you hundreds of thousands of dollars in career earnings. Yet so many students skimp out on test prep or admissions advising because they figure they’ll “see how it goes.” It’s not just a matter of wasting money on having to retake the MCAT or the monetary cost of applying to medical school once again. The opportunity cost is orders of magnitude larger.
Do it right and do it once. Be the strongest applicant you can be. By working on myself, achieving top scores, and bullet proofing my own application, I was able to not only get accepted to top institutions, but was even awarded merit-based full tuition scholarships that drastically reduced my loan burden. These scholarships are only offered to those who are the strongest of applicants. By bolstering your own application, you can optimize your chances to receive these lucrative scholarships as well.
Don’t expect to get into a strong medical school or match into your dream residency program if you haven’t adequately prepared and invested yourself in your own education. That means doing as best you can on the MCAT and optimizing your medical school or residency application the first time.
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