9 Ways for Medical Students to Begin Building Wealth
Happy Match Day 2009! Hopefully you got into your choice of programs and can now relax and enjoy your last couple months as a med student. This post should help those of you who just matched and those of you who still have a couple years of school left to begin on your path towards a wealthy future!
Earn as Much Income as You Can
This is obviously easier said than done – the life of a medical student is not one filled with free time available to pick up a side job. The first couple of summers, however, could be spent working. Perhaps you could start a side business providing some service to your fellow students during the school year. Think about ways to earn income while you’re still a student. This is important because you likely won’t earn enough to pay any taxes on this income. Building a tax free rainy day fund during these years allows you to be more prepared for the future. Additionally, having a modest amount of earned income opens the door to many tax credits and benefits that wouldn’t be available otherwise.
Live Within Your Means
Yeah, you’ll likely one day earn more than three times what the average household income is. But today, you’re a poor student – live like one! Remember that the money you’re living off of will have to be paid back one day and it adds up quickly – I know from experience, unfortunately. I’ll talk more about frugality in future posts, but for now – just think about what you spend your money on.
If you need something, maybe buy a used one or find a good deal on it instead of purchasing the most convenient, new thing on the shelf. Do you really need a new laptop or can you upgrade your current one inexpensively? Thoughts like this will help you to not become burdened with loads of debt.
Save Everything You Can
As explained in the importance of compound interest post, starting early is the key to success. If you’re able to put away a couple grand each year into some sort of investment account, you’ll be way ahead of the game when it comes time to think about retiring. One such vehicle for putting this money to work is..
Open and Fund a Roth IRA Account
I’ll cover Roth IRA accounts in the future, but for now – trust me 
. You’re able to contribute up to $5000 of earned income in 2009 and contributing any part of that will help you immensely in the future.
Don’t Contribute to a 401(k) or 403(b)
Somewhat unexpected advice to avoid a tax advantaged method of investing, eh? The benefit of these plans is that they lower your taxable income for the year in which you contribute – this shouldn’t matter to you as a medical student since you’re likely not earning much in a year, anyway. Hence, the tax benefits are wasted and the money should rather be placed in a Roth IRA.
The one exception to this is if your employer offers a match. In that case, contribute enough to get the full match and no more.
File Your Taxes
Even if you only have a small amount of earned income and aren’t required to do so, be sure to file your taxes anyway! Read this post about why medical students should file taxes for more information!
Keep Track of your Financial Records
This is especially important during your last year of medical school. You’ll want to keep copies (digital is fine) of your bursar bills and payment dates so that you’ll be able to claim every cent possible toward the education tax credits. Not keeping track of this information may lead to confusion during tax time if your school doesn’t report payments properly on your 1098-T.
Talk to Your Financial Aid Office
If you have student loans, be sure to talk to your financial aid office semi-regularly or watch the news for information about consolidating loans. A few years ago, folks were consolidating at ridiculously low rates (well under 3% – the rate of inflation at the time which equates to free money, more or less). Unfortunately the Democrats killed those programs and you’re stuck with Consolidating with Direct Loans for now at decently high rates (~7% last I checked). Hopefully the old programs will come back soon!
Make Sure Your Credit and Insurance Histories are Correct
Lots of decisions will be made about you just based on your history of credit and insurance usage. Check out this post on how to check your financial records and make sure they are all accurate and up date. Doing this ensures you’ll have the best possible rates on everything you apply for.
Tags: Investing, medical student, personalfinance, retirement, Taxes
Related posts:
- A Crash Course on Car Insurance for Residents and Medical Students
- Compound Interest – The Eighth Wonder of the World
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