As promised from the last post,
- Take a financial snapshot (debt & asset denoted as D & A) of where you are NOW
- D: Student loan balance and interest rate
- D: Private loan balance and interest rate
- D: Personal loan balance and interest rate
- D: Consumer debt (credit card) balance and interest rate
- D: Mortgage balance and interest rate
- D: Any other balance owed
- A: Retirement accounts balance and estimated/realistic annual return after tax
- A: Home equity
- A: Cars, boats, anything else you own of financial value
- A: Trust funds
- I recommend using an excel spread sheet to tabulate your debt and asset.
- Make a budget based on your monthly income and expenditure.
- How much money do you have after paying your monthly bills?
- Decide where to invest your money. Look at your list of debts & assets above. Putting one dollar into which category gives you the highest guaranteed after tax and/or tax-free return?
- Paying debt down guarantees return. The return is interest saved. Prioritize your debt by paying down the highest interest debt first.
- Some people choose to tackle the smallest balance debt first. The idea is that the emotional reward of have something paid off entirely can garner motivation. I don’t personally use this strategy, but others swear by it.
For most pgy’s with large student debt balances @ 5.4+%, paying student loan down produces highest guaranteed tax free return.
- Take regular financial snapshots. I recommend quarterly.
- Track your progress by writing down your debts and assets.
- It’s motivating to see your net worth grow, or your total debt diminish.
- You can re-evaluate how you allocate money using each snapshot.
- You can change your budget to accommodate new goals.
- If your net worth is decreasing, it’s time to re-strategize.
This may seem like quite a bit of work and most pgy’s have little energy or focus after leaving hospitals and clinics.
But building net worth is a lot easier than medicine. Starting now will save you much strife down the road. Most doctors love being doctors, but many are burnt out because of the monetary burden of debts and expenses.
I will unpack some of the above principles with steps in later posts.
To let me know which principle you are most eager to hear first. Comment below.