As you make the transition into fellowship there are some important financial tasks you need to take care of before you leave residency. We have outlined the 5 main financial priorities as you transfer into fellowship. 

1. Build a budget

Moving into fellowship means you see a small bump in your paycheck (we know on rare occasions some make less in fellowship). The only difference from that “pay raise” is now you could be in a new city or state. Take advantage of this move to a new city to revisit your budget (or make a budget for the first time). 

If you have never budgeted before, the first step you need to do is look back at your past spending. We recommend downloading your last 3-6 months of bank statements and printing or uploading them to excel. Then highlight your fixed spending and variable spending in different colors. Below is a sample list of fixed expenses vs variable expenses. 

Fixed Expenses

Rent/mortgage Payments

Utilities

Phone bills

Groceries

Insurance Premiums

Car payments

Student loan payments

Other debt payments

Variable Expenses

Dining out

Amazon

Vacations

Subscriptions

Shopping

Entertainment

Car Maintained

Home improvement

If you have never made a budget before there are some applications and resources, you can use that to help. Below are some links to a few of the companies that are popular. Mint and You Need A Budget

Once you have outlined your current spending, you can create a projection on how you want to spend your future money. There are important decisions that need to be made as you move to a new city/state. Your goal with your future budget is to keep your fixed spending to no more than 50% of your take home (net/after taxes) pay. The majority of physicians overspend especially on big financial purchases, housing is at the top. Overspending is the reason 1 in 4 physicians 60 years old or over have less than $1 million in net worth. 

Are you moving from a low cost of living city to a high cost of living city? Then you need to keep your rent as reasonably low as possible but know that a larger portion of your budget will be taken up with housing expenses.

What are some things to consider If you are moving from a high cost of living city (HCOL) to a low cost of living city (LCOL)? Luckily for you this transition is much easier. Look for the equivalent housing you have now and see if it is achievable to find that housing in the new city. What we recommended is to keep the same level of living arrangement, not the same dollar amount. This way you can free up extra cash to invest or move to other financial goals. This is especially important if you have been neglecting your Roth IRA, retirement plans (and possible employer match) during residency. 

2. Residency retirement account

Most residency programs have retirement plans set up for you when you become a resident. Some automatically enroll you and therefore you contribute a portion of your paycheck every month whether you know it or not. If you are staying at the same training institution as your residency you won’t be able to do anything we talk about in this section until you graduate fellowship. If your fellowship is not at the same training institution as your residency you now have some important decisions to make on what to do with your resident employer provided retirement accounts (403b, 401k, 457 or Pension). Below is a quick list on what you can do with these accounts.



• Keep the money in your residency employers plan (easiest but sometime less optimal choice)
• Transfer your account to your new employer account, if allowed. 
• Convert into a Roth IRA (Please note you will pay taxes on any pre tax money that is rolled over to the Roth IRA)

The advice that is mostly given to new fellows is to convert your employer sponsored retirement plan from training into your Roth IRA during the first couple months of fellowship (you want to do this before Dec 31s). Here’s why: 

The money you roll over will be seen as income for tax purposes in the year you roll it over (i.e. if you roll it over in November/December of 2021, taxes will be due in April 2022). The calendar year with your last 6 months of residency and first 5/6 months of fellowship is the lowest tax bracket you could be in for the rest of your life. By paying taxes on the amount of your roll over now you will be saving yourself from having to pay taxes on that amount in retirement when you could be in a higher tax bracket.

If you do not have the extra cash to pay the taxes on a Roth conversion by April 15th, then you can consider leaving the funds in your residency retirement account or roll it into your fellowship retirement account. You can then re-consider the Roth conversion options in the next calendar year or when you graduate from fellowship. 

Note if you have not started retirement investing yet in training it is not too late to start. With your extra income from fellowship, you should look at investing in your Roth IRA. 

3. Know your fellowship benefits

At orientation for your fellowship, you need to make sure you pay close attention to the retirement benefits options offered at your new institution. If you did not focus on your retirement as a resident there is no better time to start. Below are the important questions you need to know about your plan.

1. How soon can you enroll into the retirement plan? Is there a waiting period for new hires? 
2. What retirement plans are available for you to invest in?
3. Does your employer match your contribution? Is there a vesting period on the match?
4. Does the plan offer a Roth or after-tax contribution?
5. How good are the investment options in the new plan?

The most important rule of thumb to follow when you are investing is always invest, at least, the minimum amount to get the full match (if there is a match).. If you do not do that you are leaving part of your salary on the table. If your new employer does not have a match, then you need to consider your options of investing in a Roth IRA or your employer 403b (you can certainly do both should your cash flow allow).

4. Update your student loan plan

Any time you have a change in your employment is a good time to revisit your student loan plan. You need to have a concrete plan in place to avoid mistakes that could cost you thousands to hundreds of thousands. A clear plan is especially helpful when life changes occur, such as moving states, changes in relationship status, increased income, extended training time and subspecialty career path. If you are going to pursue Public Service Loan Forgiveness (PSLF) you need to make sure you are following the below checklist as you change employers. 

1. Is the new employer a 501c3?
2. Make sure you get the employment certification form filled out (if you didn’t do this while in residency you need to do this before you leave your current employer)- we recommend filling out this form each year 
3. Call your student loan servicer each year and confirm the number of qualifying payments (something they don’t have the correct number)
4. Confirm you have no late or missing payments with your servicer as well

5. Disability Insurance changes

Before you leave your residency, you need to make sure you have received every discount available to you prior to leaving that institution. Some residency programs (especially larger programs) have special or discounted rates (which could be as much as 30-40%) for your disability insurance. Before you leave your institution, you need to confirm you have the best option available to you right now. Just because you already have disability insurance in place does not mean there are not better options available to you. Reviewing your options will make you aware of changes that could be beneficial.

For example, maybe you moved from a state like California (the most expensive state to buy disability insurance) to Texas. It is likely your monthly premiums would be less expensive. Even if you bought your policy a couple years prior. 

Just like the recommendation to look at special discounts or plans prior to leaving your residency hospital you need to see if your fellowship institution has discounts available as well. There is no reason to continue overpaying for insurance when you do not need to. A broker that is doing what is right for you should make sure they review all these changes and get the best rate possible for you. 

6. How do I find my first job?

Because you have been consumed with work, learning, and becoming the best physician possible; you may not have put much thought into your first ‘in-practice’ job. Many graduating residents/fellows do limited work on lining up their future jobs until the spring of the year they graduate. The earlier you can start preparing the more likely you are to obtain the position you sought.  The reality is less than 50% of physicians renew their contract with the first employer they signed with out of training. This is usually because most young physicians delay their job search and take the first offer, they get late in the spring of their final year of training. Below are 3 tips to help you line up your dream job before the final months of training

• Start networking early:
• If you know where you want to live and practice after training, you need to start building contacts in that area for employers and positions. 
• Use your preexisting network or program to see if they have connections. Your Program Director and other attendings can be great resources to help expand your network. 
• Determine how you are going to practice medicine 
• You need to know if you want to work in private practice, small group or large hospital setting. You need to choose if you want to be a W2 employee or a 1099 contractor. (Know that your student loans and retirement/other benefits will be affected by the career path you choose)
• Reach out to your peers to determine pay scale and job environment
• Most young physicians do not use their current network to help them understand the job environment around them. The one greatest return on your investment (and easiest action item to do) is to ask your old residency and fellowship colleagues about their current job responsibilities and income. The easiest way to make sure you are paid a fair wage is to know what others make in your specialty in the jobs you are applying for. 

Please note that if you are feeling overwhelmed with this transition, we are happy to help guide you through this big change. Our best advice is usually during years of transition. The move from residency and fellowship may not feel like a big change but it can be a great stepping stone to good financial education and choices.