Financial Foundations for Medical Residents: Budgeting, Risk Management, and Future Planning

Understand Your Cash Flows and Create a Budget

For many medical students entering residency, it’s their first experience in a full-time job. Transitioning from relying on loans to earning an income can feel like a significant step up. However, it’s easy to get carried away with spending after years of financial restraint.

One of the most important things a new resident (or even a medical student preparing for residency!) can do is create a budget.

Start with your income. If you're already receiving a paycheck, this should be straightforward. Be sure to consider how often you get paid—most commonly twice a month or every two weeks, which can result in two extra paychecks each year. Once you have a clear picture of your earnings, shift your focus to spending and saving.

A commonly recommended strategy is the 50/30/20 budget. While it may not fit every situation—particularly in high cost-of-living areas where rent consumes a large portion of a resident's salary—it serves as a solid starting point. You can find more details about the 50/30/20 budget in another post.

There are several budgeting apps available, either for free or for a small annual fee. Alternatively, a simple Excel spreadsheet can work just as well.

Understand Your Risk Exposure and How to Manage It

Risk management is crucial for young doctors and medical professionals. As a resident, it’s important to focus on key types of insurance: disability insurance, renters or homeowners insurance, auto insurance, and, if you have a family, life insurance.

Disability Insurance: This is vital for residents, as it protects you from the real risk of being unable to work due to a disability. Even if you qualify for government disability benefits, the process can be lengthy, and those benefits may not provide the same standard of living you had as a resident. While your program may offer a policy during residency, it’s often wise to secure your own. Look for a plan that is own-occupation, specialty-specific, and includes a future increase option.

Renters or Homeowners Insurance and Auto Insurance: While these may seem like obvious necessities, it’s essential to regularly review your policies to ensure you have adequate coverage.

Life Insurance: If you have a family, especially children, evaluating how much and what type of life insurance you need is critical. In most cases, a term life insurance policy is the best fit and most affordable option for residents.

Plan for the Future

Don’t fall into the trap of waiting until after residency to start saving for retirement. Beginning now helps you develop the habit of saving, even if you can’t set aside 15-20% right away. This habit will carry over when you become an attending, positioning you for better long-term financial health.

The money you save now has the greatest potential to grow, so it’s wise to maximize the time you have before retirement. If your program offers any matching contributions to your savings, be sure to take full advantage of the employer match.

Your overall financial situation will ultimately dictate how much you can save and the types of accounts you should use.