Once your basic finances are organized, you are ready to add wealth building and wealth protection accounts to your finances.
1. Start an emergency fund.
Put this money in an FDIC-insured, high APY checking/savings account (where the bank pays you interest around 1.5-2.5%). Remember: This money is only for emergencies, not for investing. It’s recommended you save 3-6 months of pay into this account.
If buying a home is a good option for you (see home mortgage topic below), this type of high yield account is where you should also save your down payment money. (Some people, including resident/fellows, save this money in a RothIRA account because you can pull out the principal amount without a penalty, so this is a good option too).
2. Sign up for Term Life Insurance and Disability Insurance.
To start, click to see how I described it on this IG post. Remember to never sign up for WHOLE life insurance! In addition, you need to get disability insurance which is cheaper to sign up for during training or while in school discussed here, and umbrella insurance to protect you from any major lawsuits (malpractice insurance in not covered here). I will go more into details later on each of these insurances, but this is important to know for your to-do list.
3. Think About Your Mortgage vs. Rent.
Now that you understand how much money is coming in and how much is going out, you will often hear things such as “live below your means” and “live like a resident” and these are great concepts. I like to say your mortgage/rent should feel “freeing” instead of “crippling” and it should be affordable enough where you don’t have to think too much about it. It is a good idea to run the NYT rent/own calculator for your situation to see which is a better option for your cost of living area. I discussed this in a IG post here. It’s a good idea to only buy a home when you are financially ready; for example, you have 20% down saved in a high APY account, mortgage/costs are less than 2x your gross income, and you will stay in the home for more than 5-7 years.
4. Understand Tax-Sheltered and Retirement Accounts.
I will touch on these accounts in detail later, but the next steps are making sure that you are maximizing your 401K/403B match from your company/hospital (as a W-2 employee), or contributing to a solo 401K/SEP-IRA if you are an independent consultant or freelancer (1099 income). You should also contribute to a RothIRA (or backdoor RothIRA if you are over the income limit for you and your spouse). And two other great tax-advantaged accounts are using HSA (detailed here) as a retirement vehicle if your job offers it (triple tax advantaged) and making contributions to a 529 college savings plan if you have children.
5. Now let’s talk investing.
This one is easy. Yes, it is! We are lucky that technology is so advanced now and all you have to do is use a roboadvisor website that does everything for you, such as Wealthfront or Betterment, and invest your money via index funds. The costs are low and worth using to reach your financial goals. If you prefer doing it yourself, where you will get a little more returns than a roboadvisor, then the best broker to use is Vanguard. It takes some management on your end but is very doable, and you should purchase index funds with a focus on long-term growth. We will discuss this in greater detail in a future post.
And that’s it, that’s the entire gist of personal finance. It’s both loaded and also super easy if you take it step by step. Please let me know what you think, if this is manageable and helpful to you. I plan to discuss fun topics like side hustles, what to splurge on, and more serious topics like how to build wealth even if you are a first generation American/grad, how to balance helping your family with money, what questions to ask before getting married and other topics such as real estate investments and more. Thank you for reading along. Happy Planning!
