The Basics of Solid Finances For Female FITs
June 22, 2016 | Olivia Hung, MD
Whenever our Women in Cardiology group gets together, we always end up talking about rotations, careers and family. But what about financial matters? Most women who file for bankruptcy do so because of divorce, serious medical problems, or a job loss – in other words, when they lose their source of income. While female cardiology fellows-in-training are at very low risk of losing their income source (after all, a residency or fellowship offers outstanding job security), we do have our own questions and worries with respect to daily expenses, debt, investments, retirement and lifestyle.
Women especially can feel squeezed from all sides: medical education frequently puts us in six figure debt; extensive medical training delays our ability to start paying down debt and saving for future goals; the time window for bearing children coincides with career building and maximizing earning potential; and women have longer life expectancies, resulting in the need for a larger nest egg after retirement. Having solid finances now can help us develop peace of mind and confidence in planning for the future. Let’s all make sure we have taken the basic steps towards securing our financial future:
- Take stock. Where are you now and where do you want to be in the future? What are your financial goals and how confident are you about achieving them? Why do you feel the way you do?
- Know where your money is going. Understanding cash flow and budgeting forms the basis of rock-solid finances. If you have no idea how much money is coming in and how much is going out, then how are you to plan for the next steps? There are a variety of budgeting styles and philosophies – find one that works for you, that you feel comfortable using regularly but not compulsively, and that will allow you to understand how your money is flowing in and out of your bank accounts.
- Save for a rainy day. An emergency fund is crucial to your financial independence. An online savings account is an ideal place to house an emergency fund because it is liquid, is protected against loss (stable valuation, FDIC insurance), has minimal fees and earns some interest (currently about 1.00 percent at Ally and Synchrony vs. 0.01 percent at traditional brick and mortar banks). Another option worth considering is a money market account with a large investment company such as Fidelity, with investments in “safe” areas like municipal bonds. Aim for three months of living expenses initially (if you spend $2,000 a month, plan to save $6,000) because this is roughly the amount of time it takes for long-term disability to kick in, or for you to find another job.
- Protect yourself against catastrophic losses. Remember that insurance is designed to protect you against catastrophic losses. If you win a $1.5 billion Powerball jackpot, then you likely do not need insurance. For everyone else, there are five major types of insurance to consider: health, disability, life, liability and property.
- Health: The necessity of this should be obvious from our experiences in the health care system. Generally we do not have to think about it because we have employer-paid health insurance. Things to consider, though, include dental and vision insurance, as well as sufficient health insurance for your loved ones who may not have employer-sponsored plans, and long-term care for elderly family members. Additionally, it may be useful to know the basics of Medicare, Medicaid and the exchanges, as we will likely encounter questions about them during our training and careers.
- Disability: Often overlooked and underappreciated, disability insurance protects against income loss due to long-term disability (lasting >90 days). Women are at a huge disadvantage here, as the premiums may be as much as 40 percent higher than for our male counterparts due of insurer concerns over pregnancy, mental illness and longer lifespans. But as we have the potential to generate considerable incomes, we should have a plan for how to protect those incomes. Most residency and fellowship programs provide some basic disability insurance. Evaluate whether the basic plan is sufficient for your situation, or whether you would benefit from supplemental individual disability insurance.
- Life: Unlike disability insurance, life insurance gives you absolutely no benefit. The money instead goes to your designated loved ones. If you are the primary earner in your family, this is a critical issue, but because of our high lifetime earning potential, it is important for everyone to consider obtaining life insurance, except possibly those individuals who are single and have no dependents. Furthermore, the key is to apply for it while you are young and healthy – your premiums will be lowest then, and can be locked in at that low rate.
- Liability: Malpractice insurance is often discussed during job searches and contract negotiations. Personal liability insurance is considered when we pay for auto/home/renter’s insurance; as we earn more and accumulate more assets, supplemental umbrella insurance should definitely be considered.
- Property: Most of us have had to obtain insurance to drive a car, rent an apartment, or buy a house. In addition to the liability component, there are also property considerations (e.g., comprehensive and collision for autos; fire, flood and earthquake for homes). Adjust this insurance to match your emergency fund. For example, if you have $2,000 saved, then your deductibles should not exceed $2,000. If you can afford to buy another vehicle, then you may not need comprehensive or collision as a part of your auto insurance.
Once you’ve protected yourself financially, you can focus on paring down debt and building your assets.
This post was authored by Olivia Hung, MD, a fellow in training at Emory University Hospital in Atlanta, Georgia.