We recently had a lecture by Skylight Financial Group during our weekly #EMConf didactics about Common Money Mistakes and how to avoid them. Dr. Fujita have summarized the most important points here in this post:
Spend less than you make:
We’ve all sat through lectures telling us to have a budget. And yes, it's important, but a budget is more than just buying less. It's a way to understand where your money is going, so that you have enough left for the things that are important to you. Here are a few ways to get started:
Identify every recurring payment on your credit card/bank statement: I can’t count how many things I’ve signed up for because “it's only $10 a month”. Neflix, Hulu, Disney +, Audible, Spotify, gym memberships…once Panera even convinced me to buy a monthly coffee subscription. These add up fast! Keep the ones that add value to your life, and get rid of the rest.
Be aware that purchases may have additional costs, and figure out how to avoid these: Are there taxes? Shipping costs? Maintenance expenses? Interest? Are they billing you for extras you weren’t aware of? If so, can you afford those too? Sometimes you can minimize these costs by waiting for a tax holiday, making your purchase in a state with lower taxes, picking items up in store, paying in full, or negotiating lower fees.
Find cheaper ways to buy the things you need: negotiate, buy used, find deals, use promo codes, wait for a sale, join loyalty programs. Channel your inner broke college student to find the best price.
And yes, sometimes you do just have to prioritize. It’s easy to overlook how much the little things (snacks, coffee, takeout) add up. There’s nothing wrong with doing these things, but you need to plan for these expenses.
Prepare for setbacks:
Our entire profession is based on unexpected things happening, and we all know these things cost.
Have an emergency fund: I can’t overstate the importance of this! You need to have 3-6 months of expenses saved and accessible!
Have the insurance you need: disability insurance, life insurance, car/home insurance (Ben Wurst wrote a great article about this a few months ago, so I won’t rehash it here).
Have a plan:
No one makes it to residency without clear goals, and personal finance is the same. Here are a few things to consider when making financial plans.
Make informed decisions: know the basics, it's okay to get help from a professional but you should be able to understand what they are recommending. And read the fine print.
Pay yourself first! Save something – it doesn’t have to be a lot, but do it automatically. Whether you are building your emergency fund, or contributing to your retirement plan have this set up to withdraw regularly (I prefer on payday).
Calculate how to pay back the least amount possible: paying your debt strategically can save you money as well as your credit score. We’ll talk about student loans in the future, but the concept is the same for any debt – minimize your interest, pay the highest interest debt first, and did I mention – HAVE AN EMERGENCY FUND so you don’t have to go into more debt.
Understand employer benefits: a lot of our salary is paid in benefits. Make sure you are taking advantage by getting the most out of your 401K match, FSA, insurance, and educational stipend.
Involve your significant other: money is one of the top reasons for divorce. Be sure that your partner is on the same page as you, and set them up for success – have a will with updated beneficiaries.