Tag: investing

How To Save Money When Your Program Doesn’t Offer a 401k or 403b Match

Working like a dog, Eight days a week?

You’re working those 80 hour weeks (at least), and stoked to be putting some money on the positive side of the ledger after years of studying and taking out loans. Hooray!

Talking with your non-medical friends, you hear about employee sponsored retirement plans like a 401k or 403b (for tax-exempt organizations) and are looking forward to getting a match on your hard earned contributions – BUT WAIT.

NO SOUP MATCH FOR YOU!

In most cases, residency programs do not offer a match for retirement contributions. While conducting research for this post, I reluctantly stowed my righteous indignation (for all residents) after learning more about the regulatory process for 401k and 403b programs.

These employer sponsored investment options are means-tested, specifically meaning that there are onerous regulatory requirements to ensure that an adequate distribution of employees across income ranges are taking advantage of the programs. If there are a disproportionate amount of high-wage earners using employer sponsored retirement program relative to the rest of the workers, the employer can be penalized.

If your employer doesn’t offer a match, particularly for a 403b, it’s likely this is because there will be less administrative fees associated for the plan as it doesn’t need to be means-tested. In this case, you won’t get a match, but you also aren’t hit with more management fees.

For comparison, at the SurgeonSpouse’s non-medical employer, I pay $12/quarter in management and regulatory fees to Fidelity – not that bad, really. The company also shoulders some of the fees, and the choices I have for investment are not amazing – more target funds and less passive-indexing ETFs. Nevertheless, I do get up to 6% salary match on my contributions, so not complaining.

I Don’t Get a Contribution Match, What Should I Do?

While in residency, take a look at you income holistically – I’m going to take an educated guess that (if you’re a resident) you’re in the $55,000 to $70,000 range, depending on your Post Grad-Year. Based on this, you’re going to want to be thoughtful about how you deploy your income from housing to food to entertainment to savings. I get it, you gotta eat – and you should.

Here’s my recommendation – focus on personal retirement plan options, specifically the Individual Retirement Account, or IRA, as it’s usually known. This plan is similar to a 401k/403b in that it provides pre-tax (traditional) or post-tax (ROTH) contribution options, though that’s where many of the similarities end.

The contribution limits for an IRA are lower ($6,000 in tax year 2020) than an employer sponsored plan ($19,000 in tax year 2020) – but you have more flexibility for investment options. Nearly all well-known brokerage houses offer IRA accounts. I use Vanguard and recommend them for their low fee ETFs. Fidelity, TDAmeritrade, and others offer IRAs as well.

How Much Should I Contribute?

This is a very personal question and very much depends on your situation. Say you’re making $60,000 a year. If you do make the maximum IRA contribution, that’s 10% of your pre-tax income – and we haven’t even talked about taxes, housing, loan payments, and living costs.

My advice is that it’s important to begin saving and investing as soon as you can, but don’t eat less so you can save more – you can be thoughtful about how often you choose to eat out and take more affordable vacations, for example.

If you’re looking for a specifically number, set a goal per year and break that up into a contribution each month. Perhaps you want to save $2,000 or $4,000 a year – that’s $167 or $333 a month – not bad! Every year that you save, even something, will grow for the decades to come. Over the long run, the US market grows roughly 8% per year.

Why Contribute at All?

With a high-income on the horizon, it can be tempting to delay saving, but the power of time and compound interest is potent – even Warren Buffett noted it. There’s an apocryphal tale of Einstein & compound interest as well, either way – it’s not wrong. Basically, the more time your money has to grow, the more you will have years from now – with less work. Remember, IRAs don’t allow non-penalized withdrawals until you’re 59 and 1/2 – this is putting money away for the long term.

Image result for einstein compound interest

Additionally, getting into the habit of saving now will help set you and your family up for a comfortable, less-stressful future – particularly as you get closer to retirement.

Questions?

While a seemingly simple question, there are lots of things to consider between employer sponsored and employee retirement accounts. Let me know what questions you have in the comments!

Resources for Managing Finances and Life Advice

It’s hard for anyone to get where they are without some help and guidance. With today’s resources available view the world wide interwebs, there’s never a better time to educate yourself about personal finance and student loans. The financial advice you might be seeking also likely ends up going along with some sage life advice – good gems to collect along the way.

I’ve Googled and searched more terms than I can count and stumbled upon these blogs and sites that I’ve found incredibly helpful while navigating med school loans for my spouse and researching different investment portfolios and tax strategies.

Without further ado, here’s the list of blogs I check at least weekly for new content, and have used their posts countless of times for research.

Mr. Money Mustache

One of the first FIRE bloggers I discovered – I started reading and talking about Mr. Money Mustache with colleagues when I worked at a startup a few years ago. MMM started out in software, similar to my own profession, and has now “retired” and pursues his own interests, many of which are quite lucrative.

While MMM’s frugalness takes it to the next level, it’s a great way to think about how your own life decisions affect your ability save and retire. I thought his post about commuting was particularly sobering.

The White Coat Investor

After I had been reading MMM, I started looking for more specific advice for those in the medical field. The White Coat Investor is an excellent resource for investing for more established physicians. Additionally, WCI also some great content regarding student loans and physician mortgages. Check it out!

Physician on FIRE

An anesthesiologist in the midwest, this blog is particularly focused on leveraging a high income profession to FIRE – financial independence and retire early. He has some great posts regarding investment portfolios, traveling, and how to successfully execute the back door ROTH contribution. With new posts all the time, I check out PoF nearly weekly for updates!

I’ll credit the above for helping navigate through decisions for med school loans and how to successfully stay on course for PSLF – Because there isn’t one great resource for medical students and early residents to use for financial decisions and PSLF, check out my guide to loans and PSLF!

There’s so much great content available on the web, leave a comment with your favorite resources and posts!

-SurgeonJourney

Budgeting and Financial Tools for the Win

The ol’ adage of “you can’t improve what you don’t measure” is certainly true in the financial health and literacy department. A big part of setting up a successful financial plan that fits your needs and circumstances starts with understanding where you are today.

This means seeing where money is coming in, where it’s going out, and how much you have as a surplus (or savings) each month. In a single metric to track your financial health, I’d likely point to using Net Worth.

What You Own – What You Owe = Net Worth

Lucky for you, dear reader, there’s never been a better time to create a monthly budget and track your net worth to make sure you can afford those Balenciaga’s (for those hype beasts out there, you know who you are) or a new vehicle or vacation plans.

There are a number of tools out there designed to help you keep track of your finances so you can see where you are today, and set budgets and goals for the future.

Types of Financial and Budgeting Tools

In most cases, the tools that you’ll want to use are web applications that integrate with the various banks, loans, and investing platforms that you have. They aggregate all the information collected from your different accounts and provide you with a holistic financial picture complete with a net worth calculation.

How do they do this? You will need to provide your login credentials to the tool or tools of your choice so that they can pull the appropriate transaction and balance information from each of your accounts.

For example, if you have a checking and savings account with Chase, and you have a ROTH IRA with Fidelity, you’ll provide your username and passwords for Chase and Fidelity to the online financial tool so that it can gather your information from each of these institutions respectively.

Concerns about security and sharing your data? It’s definitely something you should consider when choosing a tool, and also when using the internet in general. I’ve decided that I trust the financial tools that I use and understand the potential implications of sharing my usernames and passwords.

In any case, I’m going to take this moment to get on my soapbox and ask you to please, please, please, use a Password Manager and make sure you have a unique and random password for each and every account that you create. Yes, your dog is the cutest with the easiest name to remember, but that’s also incredibly easy for a nefarious individual to compromise.

Best Tools for Budgeting and Getting your Financial Picture

In order of which tools I prefer, here’s the SurgeonJourney Approved (TM) list of online and offline tools for tracking your finances.

  1. Personal Capital
  2. Mint
  3. A Spreadsheet
  4. YNAB – You Need a Budget

Why this list, you may ask? I’m going to go through each one to explain my pros and cons. While this is the definitive SurgeonJourney list of finance and budget tools, you may have a different tool of choice depending on your needs and priorities, like security, for example.

Personal Capital – The Investors Choice

I’ve been using Personal Capital for the last few years and I can’t say enough good things. It’s focused primarily on tracking investment performance and can also help with portfolio composition analysis. Because the tool is built so that you can get a clear picture of where your investments are and how they are performing, I check multiple times a week to see how my net worth is doing.

I should note that while I look at Personal Capital a few times a week, I don’t make changes to my investment plans based on day to day changes in the market – that is bad (I’ll dig into investing strategies in a future post!).

Pros for Personal Capital

  • Great investment analysis and tracking tools
  • Intuitive UI and functional desktop and mobile applications
  • The financial tools are provided free of charge because they want you to use their Wealth Management services
  • Because Personal Capital is trying to sell you a service by offering their wealth management advising, it’s less likely they’re trying to sell your data to marketing partners

Cons for Personal Capital

  • Budgeting tools and goal creation isn’t as robust as Mint
  • Transaction categories are limited and I’ve found automatic categorization to be less accurate than Mint
  • The financial institutions that are available to connect with are slightly more limited than Mint, though in practice this really isn’t an issue
  • Online tool requires that you share your financial account credentials with Personal Capital

While there are some draw backs, Personal Capital fits most of our needs and we have linked accounts from banking to investing to loans, even our house and cars. It’s a great way to get your complete financial picture in one holistic view.

Try out Personal Capital

Mint – The Budgeting Incumbent and Intuit Behemoth

Before I started using Personal Capital, I was on team Mint for years. It’s one of the original financial aggregation tools to gain broad appeal and does an excellent job with account integration. It’s primarily a budgeting and goal setting tool and it excels at both of those tasks.

It has a friendly interface and solid web and mobile applications, making it easy to track your finances. You can even set alerts for low balances and also it will track when bills are due.

Pros for Mint

  • Excellent budgeting and goals tools, this is what I started with to set up my monthly spending and savings plans
  • Great integrations with a plethora of accounts from banking to wealth management and more
  • Bill tracking and payment through Mint if desired
  • Free credit score provided quarterly

Cons for Mint

  • Investment tracking is a feature, but not as robust as Personal Capital
  • Investment charts still use Flash and won’t display for most users with modern browsers (like Chrome)
  • You are the product, as in your data is most definitely sold and shared with marketing partners of Mint and Intuit
  • Online tool requires that you share your financial account credentials with Mint

Given that I’ve shifted our focus to investing, I would recommend Mint after Personal Capital. If you are just starting out with budgeting and setting goals, give Mint a shot. I will say that be aware that the information you provide to Mint is absolutely shared with partners. While the offers you will receive are tailored to you based on your accounts and spending habits, it’s up to you whether that’s worth it to you.

Try out Mint

A Spreadsheet – The Manual Option

For full control and complete customization, consider using Google Sheets or Microsoft Excel (don’t use Numbers, just don’t) to keep track of your finances. It’s definitely not the easiest and it’s probably the most time consuming, but going through the exercise of crafting a spreadsheet budget will help you become intimately familiar with your finances.

Additionally, building the discipline to enter your transactions and tracking your investments manually will have you more attuned to your spending than most. Do what works for you.

Pros for Spreadsheets

  • Infinite customization, very flexible to fit the format and needs of your financial picture
  • Templates are available online to help you get started
  • You can keep all your account information private, you don’t need to share credentials to gather transactions and balances
  • Most banking and investment accounts offer the option to download transactions to spreadsheet, making it easier to move transactions into your budget and tracking sheet
  • The self satisfaction of creating and maintaining your own spreadsheet shouldn’t be underestimated

Cons for Spreasheets

  • Very manual, you’ll need to have the time and discipline to enter in transactions and investments monthly
  • Charts and graphs will need to be created manually
  • No automated investing and savings recommendations

While there’s a big time investment to making your own financial tracking spreadsheet, you’ll have a deep understanding of your spending and saving habits after you do this for a few months. There are some great resources to create your own if you’re interested! I’ll be posting some resources I like to use in the future.

Try out a Spreadsheet

YNAB – The Alternative, but also Great, Budgeting Tool

I’ll admit, I tried really hard to use You Need a Budget, and I just didn’t get it. It’s probably because I seek immediate gratification (I know, #millennial, sue me) and the logic of YNAB didn’t make sense to me; but I don’t want my experience to stop you. I’ve had friends use YNAB to great success and it can really help with wrangling expenses and debt if that is something your struggling with.

The idea is that you allocate every dollar in each month to a job. Whether it’s for groceries or a car payment or entertainment, every dollar should have a purpose and be put to use. That way, you don’t need to check whether you have enough for X expenditure, because you’ve carefully budgeted all your income and expenses for the month.

Pros for YNAB

  • Amazing budgeting tool, website has helpful tutorials to get started
  • Great for getting out of the paycheck to paycheck cycle, or paying down debt
  • Builds budgeting and spending discipline

Cons for YNAB

  • No investment tracking, for budgeting only
  • Budgeting paradigm might not work for everyone
  • YNAB isn’t free, but this may also help make sure you use the tool

Perhaps I didn’t give YNAB enough of a chance, but again, don’t let me stop you from trying out YNAB. It can really work wonders and I do recommend you giving it a shot to see whether it works for you or not.

Try out YNAB

It’s Not the Tool, It’s How You Use It

In the end, it’s not what you use, it’s how you use it, or whatever that old saying is. Understanding your earning and spending habits is critical to building a healthy financial foundation for your future. This can start while you’re in medical school and building the skills and discipline for budgeting and saving can never start soon enough.

By the time you’re an attending, you might earn a high income, but without the spending and saving habits you develop early – making $300,000 and living paycheck to paycheck isn’t where you want to be. Use investing and budgeting tools to start early and stay ahead of the game.

I’ve suggested a few tools above, let me know in the comments which ones you’ve tried and what works best for you!

-SurgeonJourney