How do I start saving money?
- When it comes to saving, use time to your advantage
- Start a pre-authorized contribution plan (PAC)
- Learn about compound interest
- Balance family, bills, debt and savings
- Adopt good financial habits
After investing so much time and money in your medical school journey, you are no doubt finding residency to be a life-changing start to your professional career.
If you’re part of a dual-income household, the investment decisions discussed here could be made with your spouse or partner, even if you don’t commingle assets.
Here are five common barriers that prevent resident physician households from saving money — and an easy way for you to overcome each one:
1. I just don’t have any time.
As a resident physician, you have a schedule packed with clinic, calls, studying and journal clubs. Who has time to deal with the financials?
Consider this: time will be on your side if you can set aside even a small amount of money regularly through a pre-authorized contribution plan (PAC).
Setting up a PAC means that the contributions to your savings will be made automatically (think “set it and forget it”), and the younger you are, the more you’ll benefit from the time you have to let your investment grow.
Even a small amount like $25 a month can accumulate to a large sum over time, as you can see in the example below. For other contribution amounts, use the MD Financial Management (MD) Compound growth calculator to see what you could achieve in savings.
If you save $25 a month for 30 years, assuming a 6% rate of return, you’ll accumulate over $16,000 from your small investment.
Total contributions: $9,000
Compounded returns: $16,113
Total value: $25,113
TIP: Build good financial habits to get your savings going.
2. I have a young and growing family to support.
Work-life balance is a challenge for any physician in training, and it’s even tougher for those who are working parents. Stretching a resident’s income to cover childcare and necessities can be a juggle, one that can lead to dropping the ball on saving.
Consider this: prioritize saving toward one family goal.
While you will no doubt have multiple goals with different time horizons, consider addressing one goal at a time. Depending on the makeup of your family, there may be financial benefits to addressing certain goals earlier than others because of the way that government grants, programs or limits work (for example, it’s more beneficial to make RESP contributions when your income is low). Determine what these are and who within the household should be contributing to which goals, for the maximum benefit of all.
3. I have huge debts to pay. Why try to save?
If you relied on loans or lines of credit through medical school, your debt may loom large compared with the size of the paycheque you earn in residency. This could be the case for a partner as well, so why save when you have so much to repay?
Consider this: save to start building your net worth.
Now that you earn income, setting aside savings is an important habit to develop, to start shifting your net worth to the “plus” side. What’s more, this could be more manageable if you have a partner who is contributing to the household income.
TIP: Rank your debt — from highest to lowest interest rate — so you can prioritize what to pay off first.
Loan repayment rules during residency differ from lender to lender and also depend on the type of loan or line of credit you have. For example, with the Scotia Professional® Student Plan line of credit you can access funds up to two-years post-residency after which you can convert to a revolving line of credit1. It’s always a good idea to quickly pay off consumer debt, such as credit card balances that have high interest rates.
A debt repayment plan is important, but so is establishing a savings base. And maybe it doesn’t have to be a choice of one over the other.
4. I’ll start saving when I’m earning “real money”!
You can expect your household income to increase within a short time as you progress in your medical career; why not wait until then to save?
Consider this: use your early earning years to adopt good financial habits.
Even if you are certain your income will increase in a few years, starting a savings plan while in residency can help you to prepare for the transition to practice and to learn the basics of investing. You’ll be better equipped to make financial decisions once you begin to practice, and you can adjust your savings proportionally as your earnings grow. This could mean increasing your savings, or — if there is more than one saver in the household — adjusting who contributes to which plans and goals.
For more information about getting started, please contact your MD Advisor or Scotiabank Advisor.
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* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager
1 While you remain in school and for 24 months after your residency program ends (the “Repayment Grace Period”) no payments will be required on your Scotia Professional Student Plan Line of Credit (the “Account”) so long as your balance does not exceed the credit limit on your Account but interest will continue to accrue during that Repayment Grace Period and is charged on any amount you borrow starting from the day you borrow until you pay that amount in full. See the Application Disclosure Statement we provide to you or speak with your Scotiabank Advisor for more information about the repayment grace period and how interest is charged to your Account.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.