Living like a resident is all about Frugality, Paying off Debt, Saving Money, Investing your Money, and becoming Financially Independent.

Physicians undergo a postgraduate training process where they hone their skills prior to becoming independent practitioners.  That training process is called residency, and the trainees are called residents. During that time, the resident physicians are paid an average salary that is similar to the average U.S salary of $56k annually. Once training is completed, then physicians make what we call “doctor money”. 

The term live like a resident is a reminder for physicians that during their training years (residency), they were able to live on an average U.S Salary, and therefore if they can maintain that lifestyle for just a little bit longer in the first few years of making “doctor money” this will allow them to pay off their debts, especially student loans in a relatively short time, and set themselves up for a better financial future. This is key as many physicians out of training, buy a new car, house, try to buy a new practice, i.e accumulate more debt on top of the mountain of debt that they accumulated during medical school and residency years. 

The common misunderstanding is that most physicians are rich, but in fact, they are not. They have a high income, but many have a high lifestyle and are living paycheck to paycheck.  That cycle needs to be broken. 

Living like a resident is not only for physicians, the principles outlined can be applied to any chosen career. 

I’m currently a resident physician at the time of writing this, I’m giving my take from that point of view.

Frugality

Frugality: The quality of being economical with money or food; thriftiness. ‘he scorned the finer things in life and valued frugality and simplicity’(Oxford)

Frugality is all about spending your money wisely. It does not mean cheap, and it certainly does not imply extreme couponing. You work hard for your money. Therefore you should think about what you are spending it on. 

Would you rather pay  $0.49 per lb or $0.65 per lb for bananas?

Looking at the numbers, a rational person would take that first option. However, what if I told you that the second banana was organic, would you still pay the higher premium?

These are the endless options that we face daily that sometimes we don’t think about.  It’s essential to stop and think, “What am I spending my money on? Is it worth it? Will it improve my life? Does it bring value to my life?”  If you can answer yes to all of these, then go ahead and buy it. Some will argue that an organic banana is better because pesticides are not used. Others will argue that the pesticide is only on the outside, and there’s a thick outer layer that prevents the pesticide from going inside so it’s not worth the money. These are personal choices, and there’s no dogma about which you should buy. I personally never buy organic bananas. Other fruits, such as berries, I will buy organic as I value them and think organic is better as they don’t have a thick peel that would prevent the pesticide from going inside. I would pay the higher premium for strawberries, but not the banana. These small choices make huge differences, as it’s estimated Americans spend an average of 10% percent of their disposable personal incomes on food.

Notice in the above example, not once did I mention cutting coupons, or going to five different stores to find the best price on one item. However, I do believe that you should know your groceries stores and know which ones provide the best price. These little changes have allowed me to  keep more money in my pocket.

This same line of thinking can be applied every time you go shopping. Do you need a $50 T-shirt? $200 sunglasses? $1K purse? Or are you buying these items to keep up with the Joneses? Find what you value, not what society and social media say you should value.

Paying off Debt

Paying off Debt: We live in a consumer economy, and many of us have debt. Whether it is student loans, credit cards, car payment, mortgage, payday loans, your goal should be to pay off your debt as soon as possible. Remember, these debts come with interest, i.e you are paying someone else to borrow their money. 

Prioritizing your debt is key. In general, the first debt you should be paying off is the Credit Card. When the average credit card interest rate is 19%, this highlights the urgency needed to pay off this debt.  Now, if you did a balance transfer and have 0% interest, then you can work on paying off other debt. Your goal should be to have a $0 balance on your credit card at the end of the month by paying it in full each month. If you can’t do that, then I would say you should not be using credit cards for the time being. Credit card companies make billions annually on your interest rates. 

I did not say credit cards are bad, however many people have a poor understanding of how they work and are drowning in credit card debt but still continue to use them. Using credit cards for mileage, points, and cashback is great. If you are continually carrying a balance on your card and not paying it off each month, then those interest fees that you are paying are not worth it for those perks.  

Once you pay off debt, the more money you will have to invest in yourself.

Saving Money

Saving Money: You need to have money to have any to save. If you are spending every dollar that you make, then the simple math says you won’t have anything to save. You need to find room between your take-home pay and your bills to start saving. Pay yourself first.  Your goal should be, once you get your paycheck, a minimum of 20% should be going into a savings account or an investment account. With electronic transfer, this is an easy process. For those who have impulse control and will spend it if they see it sitting in the same bank account, make it easy on yourself and set up two different accounts at different banks. For example, I have two bank accounts and a money market account. I have one bank account for all my bills, one bank account for my daily spending, and a money market account for investment. Setting up automatic transfers to your money market or savings account is like setting up automatic payments for your credit cards. Start small. For example, pick a date each month and have the money automatically move to that account. For example, you get paid twice a month, choosing the 10th of every month for $100 dollars to be automatically transferred to your other account so that it is out of sight and out of mind is ideal, and the key is, don’t bother looking at it. You will be surprised at the end of 6-12 months how much you were able to save without putting much effort into it or thinking about it.

In reality, the above does not work for everyone. Most Americans live paycheck to paycheck, and as we have seen with the skyrocketing unemployment numbers in COVID-19 times, people are a paycheck away from major disasters. This highlights the importance of having some type of savings. Your goal should be to build 3-6 months of emergency funds that could cover your monthly expenses. I’m not saying it’s easy – for many, it will take years.

Investing Your Money

Investing your money:  “If I were going to put money into an index fund in relatively equal amounts over a 20 or 30-year period, I would pick a fund (very low costs)” (Warren Buffett).

Investing is all about having your money work for you. You are sleeping, clubbing, reading, working out, all while your money is working for you. At one point, your money makes more on its own then you do at your day to day job. Warren Buffett, who made millions on picking individual stocks, recommends an index fund approach. Investing your money is not about a get rich quick approach, it’s about having your money work for you for 20-30 years until one day you wake up an accidental millionaire.

Obviously, there are a plethora of ways to invest that do not include the stock market. Real estate, precious metals, bitcoin, hard money loans, etc. You can do a combination of all those. However, the index fund approach allows you to invest on autopilot without ever thinking about it. The point is you should be investing. Having your money sitting in a checking account is not the way to go. 

Financial Independence (FI)

Financial Independence: “Find a job you enjoy doing, and you will never have to work a day in your life.” (Mark Twain)

Unfortunately, many of us are stuck in jobs that we do not like but stay because we need a paycheck. Imagine getting to the point where you have enough money and working is optional. That is Financial Independence. It’s not about having a million or ten million dollars in the bank. It’s about having enough money to sustain your way of life. It does not mean you need to have all of it today, but imagine if you had enough money to last you 2-3 years and you hate going to work every day. Guess what?  You can quit without the fear of where the next paycheck is coming from. You can leave and look for your ideal job, or start your own business, or go back to school, or switch industries. You may even take a pay cut for that ideal job because it is something you can do for the rest of your life. 

Financial Independence gives you the freedom to pursue your passion.

Frugality, Paying off Debt, Saving Money, Investing your Money, and becoming Financially Independent are all intertwined. You can do all of them at once. This is a mindset and a way of living. This is not a crash diet. If you follow these principles, your future self will be grateful.