Take a Look At Your Financial SituationWhether or not you stick to a budget during medical school, once you’re finished it’s a good idea to sit down and look at what you owe, what you own, and what you expect to spend and earn. Creating a balance sheet that reflects your assets, liabilities, earnings, and expenses can be helpful in giving you a bird’s eye view of how much of your monthly income will be leftover to put towards your savings or additional debt payments. Keeping track of:
- Assets like vehicles, savings, or property
- Liabilities, such as your credit card debt or the money you owe on your student loans
- Income coming in (both before and after taxes)
- Expenses like rent, utilities, food, and leisure activities
Set Personal GoalsAre you planning to travel? Retire early? Start a family? No matter what your goals are, planning ahead can help you to get there. It can also give you a better idea of where your financial priorities are. For example, if you want to buy a home in a pricey area, it might be worthwhile to save more of your money for the down payment, and defer some of your student loan payments for later. When you prioritize your goals, you can make sure your savings plan lines up with them. Keep in mind that plans can sometimes change, so make sure to revisit your goals periodically to make sure they still line up with the things you value. And no matter which option you choose, it’s a good idea to have an emergency fund in case you wind up facing the unexpected.
Look at Your DebtDeciding whether to pay down debt or keep money in savings can often come down to the type of debt you have. Different kinds of debt can have different impacts on your finances and change your priorities in terms of what you want to pay down first. Some things you should keep in mind include:
- Whether your loan is public or private: student loans with the government can sometimes have special repayment terms or loan forgiveness options not available on loans you’ve taken out with a private lender.
- How much you owe: whether you have a large or small debt load can make a big impact on when you decide to start saving.
- Interest rates: looking at the interest rate on each source of debt can help you to prioritize loans to pay off first.
- The repayment terms: longer terms mean more interest, and can sometimes be adjusted to pay down loans more quickly.
- Minimum monthly payments: keep track of any payments you’re making on each of your loans, and how much of each one is interest.
Look at the Pros and ConsOnce you have a good understanding of your financial situation, taking a look at the pros and cons of each strategy can help you make a more informed decision. For example, if you’re focusing on paying down your loans/debt over saving: Pros:
- Saving money on interest
- Increasing the money you have available to spend once your loans are paid off
- Limiting your stress over your level of debt
- It might take longer to save money, which can mean delaying things like home ownership
- Making financial sacrifices (like vacations and other leisure spending) to put more of your money towards debt
- Saving early can earn you annual returns and help your money grow over time
- Money you save can go towards life goals like buying a car, a house, or an emergency fund
- Paying off your debt can take longer
- Paying additional interest on your debt over time can increase the amount you pay on the loan overall