We live and learn, or so the saying goes. Here are some finance ideas to consider in early career
As a wistful new medical school graduate, I remember walking around the Times Square in the middle of summer, basking in the sounds, lights and excitement of New York City. After wondering around the City, walking into the iconic Toys R Us in downtown New York (now closed), staring at people walking their babies in a pram, friends chatting over coffee at the off-street coffee shops, I remember simply soaking into the energy of it all.
It had been my dream, back in the days when I was a first year medical student in Asia, to eventually practice and live in the States. This is the first step: starting my residency here.
Looking back to those times, now, a dozen years later, there are many financial issues I wished I knew back then. Here is the highlight of 5 things I wished I knew, as I started work in the United States, and contributing to Uncle Sam’s coffers:
Contributing to Retirement Savings – 401K, 403b, IRAs…
Those were all foreign concepts to me when I was in early career. With a trained accountant as a father, you would think I would be well versed in such issues. However, as retirement savings are different in foreign countries, I knew nothing about the above. As a result, I did not contribute anything in the 3 years I lived in New York City (and ended up paying a lot in taxes as a result). If I could turn back time, I would have opened a Roth IRA and maxed out my retirement savings to reduce the taxes I owe. As for why Roth IRA – salary in early career is a lot lower than as an attending, and presumably, with reasonable investments and saving, one would hopefully have more income even in retirement compared to residency. I could have also opened a 403b as a medical resident, as I worked for an academic institute.
You can even open a Roth IRA when working part-time in high school and college. Remember to file your taxes even if you don’t earn enough money to pay taxes. Retirement calculators (assuming a return of 8% annually) shows that putting $1000 at the age of 15, it will grow to almost $50K once that teen reaches retirement age – even if no other money is added to that account. If that teen adds $1000 a year between ages of 15 to 20, that investment alone will grow to almost $250K at retirement age. More important,t this is a great way to learn about investing and finance. One I wished I knew in my 20s!
Open a 529 Savings Plan
I was married by the time I started my residency, and we were definitely planning on having kids – some day. Another way to reduce taxable income in most states that have income tax (as of writing in 2017: Alabama, Arizona, Arkansas, Colorado, Connecticut, DC, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts,Michigan, Minnessota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennslyvana, Rhode Island, South Carolina, Utah, Virginia, West Virginia, Wisconsin) – we could have gotten deductions for 10K per year for state income tax for this! Definitely didn’t know that I could open a 529 for a not-existent-yet child.
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Co-pays for health/dental is a lot lower as health and dental insurance coverage is tremendously better
Now, who really has time for dental and medical care as a resident, working 80+ hours a week? If I had known how much my husband and I would have as co-pays when I start my ‘real job’, we would have done a lot of preventive-type treatment when I was in residency. My spouse needed all 4 wisdom teeth taken out, as it was impacted and affecting nearby teeth. At that time, we decided only to remove the one that was causing the most problem: total costs: $100 co-pay. Total cost for removing the remainder 3 teeth: >3K as we no longer had dental coverage – OUCH!
Similarly, most health and dental plans cover maintenance type issues such as dermatology-related issues, some even have fairly good orthodontic plans.
Legal services coverage
Many resident unions and some big employers provide legal coverage as part of their benefits. For example, the committee of intern and residents (CIR) even provide legal services for writing wills, etc. They also provide post-residency job employment contract by a qualified lawyer for $400, which is substantially less than market rate.
Strongly consider applying for disability insurance in early career especially as a young professional. Apart from much better rates, you never know how things can change and affect your coverage. Worse still, there are some health issues that will prevent you from ever obtaining coverage, or the insurance rate is so high it is not tenable. For example, one of my friends who just started working this year was seen in ER for supraventricular tachycardia/SVT/fast heart rate, when he tried to get insured, his rates were substantially higher and excluded most heart issues: hypertension, myocardial infarction, etc. There are good disability insurance brokers out there who can help you shop for the best deals.
Some of the more experienced brokers could get special discounts. Some can help by submitting your profile without disclosing your personal identifiers, so you can get a rough idea about the rate and whether you will be denied coverage, without it appearing in your personal history. This is because if you have been denied coverage by one insurer, it is considered a red-flag and it will be much harder to pass muster with another company.
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