How do people pay off debt during a 5-year residency?

[mew]

I'm a 4th year student who going through CaRMS right now. I will graduate with a bit over ~100k in debt from undergrad and med school combined, which I've read is around the median in Canada. I'm currently parallel planning between a 5-year specialty and FM. Between rising cost of living, residency costs, exam fees, and also general expenses (eg hobbies), how do people manage to make a dent in their debt over the course of a 5 year residency on a resident salary? I don't have family to financially support me. 

[blah1234]

It honestly depends on what kind of lifestyle you are leading as a resident. That being said I think many people don't have the ability to pay off their debt until they become staff. It's probably fine if you just prevent the debt from increasing and a resident salary is more than enough to live on for a single person. It's a stressful time and the incremental costs to maintain your sanity (e.g., takeout) are probably worth it instead of trying to push down your debt. As a staff the ability to pay back your debt quickly is pretty high.

[shikimate]

That's a great question, something I've been contemplating since your stage.

 first off, financial literacy is key. You should read up on FIRE, and join some FIRE groups of physician financial independent FB groups. Knowledge is strength. There are tons of free resources on personal finance. 

secondly,  financial health has 4 super important aspects (IMHO):

1) top line = your income/revenue. As a resident you'll earn a salary, so you have steady cash flow. But your ways of increasing income is limited. Nonetheless, many people find innovative ways to generate income outside of their salary. Some examples I've seen include tutoring, house hacking, etc. Don't feel discouraged if your income is not what you want to make/expect to make. Keep an eagle's eye for opportunities.

2) bottom line = your cost/expense.  As a resident, since you get a fixed salary, controlling cost is first and foremost. Lifestyle creep is a problem for some. They want to "celebrate" graduation by getting a new car, splurging on some fancy stuff etc. There's a saying "when you are a med student, live like an undergrad. When you are a resident, live like a med student. When you are staff, live like a resident", and your debt will soon be gone.

3) cash flow = your life blood! You want to get a good idea of present and future cash flow, where money come from, where they go. Make a habit of estimating unexpected expenses and disturbances to your cashflow (eg. let's say your car breaks down, or you get injured and have to rely on insurance etc) It's like ICU. Somebody with massive blood loss can get transfusion all you want, but without controlling source of bleeding, no amount of transfusion is helpful. Another example, somebody ties up a lot of money or borrowing power in investments or their house purchase. When they need cash for an emergency or for a good investment opportunity. They aren't able to use their own cash or borrow cash. This is like sequestration of erythrocytes, doesn't matter if your bone marrow is making zillion erythrocytes, if they're sequestered in bone marrow, doesn't help the peripheral blood flow. 

4) psychological. This is perhaps most important. It's not something money can buy or can be easily instilled (maybe in the future MUSK can install electrodes to achieve this). A lot of it is attitude, attitude, attitude! 

- Feel optimistic. You will be resident then staff. You have great earning potential and potential for success. Don't let small failures in life take you down a black hole. People go broke when they use gambling, alcohol, drugs or other things to cope with stress. It destroys one's health and wallet at the same time. 

- Feel disciplined/organized. Money will leave you when you don't pay attention to it. make good habits like tracking your income and spending. make a list of your financial goals, both short term and long term and always check back on them every 6 months see how you are doing. 

- Be patient. money rarely fall from the sky. So know that small differences add up. this is the key to saving and investing, same with paying off debt. If you just add a bit extra to your monthly debt payment, it might be small pain (Eg. one less food delivery per month), but with compound interest, it'll really add up with time. Understand the principle of compound interest, it's like the 9th wonder of the world. Start small when it comes to investing, don't put all your eggs in 1 basket hoping you'll hit a home run next week. Start somewhere safe and feel comfortable, then gradually go to more risky things with bigger payoffs.

 

[shikimate]

I don't know how much financial literacy / background / resource you have, but these are basic action plans I would start with:

1) join some Facebook groups on thrifty living, financial independence, physician finance etc. Ignore the chatter in there. Pay attention to big themes being discussed.

2) read 1-2 basic books on financial attitude. Starts to get into the "groove" of being financially strong and literate. Common bestsellers include "The Wealthy Barber: The Common Sense Guide", "The Millionaire Next Door: The Surprising Secrets", "The Richest Man in Babylon"

-> I would especially recommend a glance at "The Millionaire Next Door". It shows 2 important concepts. Income /= wealth, and "high-income white-collar professionals are more likely to devote their income to luxury goods or status items, thus neglecting savings and investments."

3) once you feel more comfortable, read 1-2 more in depth books in personal finance. One recommendation from myself is "The Financial Navigator – Managing Your Success" by Tim Paziuk (disclaimer, I am a customer of his firm but does not derive any benefit from recommendation of his book). Another popular book is "Rich Dad Poor Dad". "Common Sense Investing" by Bogle is recommended by some people.

[rmorelan]

On 1/10/2022 at 7:21 PM, mew said:

I'm a 4th year student who going through CaRMS right now. I will graduate with a bit over ~100k in debt from undergrad and med school combined, which I've read is around the median in Canada. I'm currently parallel planning between a 5-year specialty and FM. Between rising cost of living, residency costs, exam fees, and also general expenses (eg hobbies), how do people manage to make a dent in their debt over the course of a 5 year residency on a resident salary? I don't have family to financially support me. 

sounds like my prior situation ha!

I mean the short answer is for many people - and most in some places  - they simply don't. Particularly in the first few years when the salary is relatively low, and there those wonderful expenses early on. For some you are just going to be in an expensive city as well and there is no way around the drain involved in that. 

Some things I did on a practical level (other than the usual budget and expense management). 

I learned to live solely on the residency salary from PGY1. As my salary when up I didn't dramatically change anything - extra money went directly into the LOC. That means all the boring stuff ha - I ate out very rarely, I lived in a not so great apartment for my residency, I never owned a car... (ha, I am staff now and I STILL don't own a car, I just rent one when needed). My rate of loan repaying increased as I increased in rank.

I used my tax credits to get a tax refund and then put all of that into the loans without thought. In the beginning that was quite a bit of money. 

I got my call stipends quarterly. Wasn't that much but you guessed it - right into the LOC.

Only really special thing I did was I did buy a house - I just didn't live in it, but rather rented it out covering costs. That was a gamble and required some very special alignment of things (known long term person there caring for the property amount other things).  The increase in property values was a nice addition. 

I love the advice of living like a resident and putting the rest into savings early on in your career - that is what I am still doing as staff here really. I am building a foundation here that I can branch off from (I mean covid isn't hurting that ironically - I cannot go anywhere really, and working is preferred to sitting around staring at the wall so my income is good and expenses are low). Being happy living well with in your means is the most important building block for an excellent financial future. So far that approach is working out well - if I keep it up for a bit well I should (hopefully) be set. 

People circumstances differ though - I didn't have any dependents, or special expenses.  Some do and realistically you won't be saving much or in fact many continue to build debit in residency in many cases. That is actually part of the reason your LOC is so high - for some that is very helpful during residency. 

As a counter point - to avoid what some feel as guilt about not paying for debit as quickly as they like, one day you will be staff. There is a real argument to putting it off until then (which is impacted by what specialty you are going into and your rate of expenses). You really do have to make sure stay both physically and mentally healthy during residency and survive the process. As much as I really HATE debit I have to logically understand that it is a tool to be used appropriately. 

 

 

 

Edited January 12, 2022 by rmorelan

[AndrewWithMedTax.ca]

Hi, my name is Andrew. I am part of the MedTax team here in Canada and can help with your question.

Generally, they don’t. Your income during residency is still relatively low compared to the hours you are working (since you are still learning.) It is common to increase debt during this period. Having a plan to repay your debt is a significant part of your financial plan, which would be monitored regularly to ensure your goals are being met.

If you have other questions, just reach out, and I will be happy to help.