First Real Paycheck

A jar filled with hundred dollar bills

You’ve spent countless hours in the library, late nights working projects, and have lived more at the hospital/office than your home. After all this hard work and much delayed gratification you finally earn your first real paycheck! It is well deserved, so take a moment to give yourself a pat on the back. Now get over it and start thinking about the future. Ask yourself – now what?

Speaking from my own experience and those of my close colleagues, the moment you start earning a real paycheck there are a number of financial goals you need to start setting for yourself.

I may start to sound like a financial advisor (I am not), but all the advice in these sections are things I have pieced together and wish someone had laid out for me when I first started earning a high income. Delaying some of these goals and targets can be tempting, but it can also be very costly to you in the long run. The goal of some of the topics covered here are to highlight some of the pitfalls on the path to financial independence. I’ve highlighted the important ones and will take a more in depth look at each topic, but here’s some food for thought.

Student Loans

If like me you have student loans, now is the time to consider consolidating and refinancing your student loans. For many medical student loans the ability to defer payment ends with the end of your training. Even in the current rising interest rate environment it is worth evaluating whether refinancing your loans can lower your overall interest rate and make repayment a bit more convenient.

A small 0.25% change could save you thousands of dollars before the final loan payment is made so it is imperative you take the time to evaluate your options.

There are a number of student loan consolidation companies to choose from, but one that I personally found to be effective is SoFi. They have a convenient online interface, allow for ease of speaking with a professional, and are established leaders in the field.

Checking/Savings Account

You may have already set up a checking and savings account along the way, but if not, this is critical. In particular, try to determine your needs and goals. For instance, do you need a large national and/or international bank that has access to multiple ATMs throughout the country? If so the big banks like Bank of America, Citibank, and Wells Fargo may be good choices. Know that their sprawling empire and your ease of access to funds comes at a cost as these banks often have lower interest rates on the savings accounts and often have hidden fees for transfers, ATM usage, balance minimums, etc. One quick trick to eliminating many of these fees (but not all) is linking your paycheck via direct deposit to your account. On the other hand you have regional banks that provide great local service and typically offer higher interest rates on savings accounts, but have limited national and international reach.

Disability Insurance

While some folks may have already had exposure to disability insurance, now that you have a real paycheck, you unfortunately need to take steps to protect it. Nobody plans on being in a car accident, but it still happens. You’ll want to protect yourself and your family from misfortune with disability just in case. These policies are designed to pay you a portion of your income in the event you are unable to work and perform your job.

For certain occupations you may want to invest in an “own occupation” policy that will pay you even if you can find alternative work, but can’t perform in your own occupation (e.g. surgeon who fractured his/her wrist who can consult but no longer operate).

I’ll address some of the policies available and the nuances that can help make policies more valuable or appropriate for your needs in upcoming sections.

Life Insurance

Finally you’ll want to consider life insurance to help protect your family. This is a more individualized decision depending on whether you are single, married, have kids, etc. Effectively life insurance has two major varieties – term life insurance and whole life insurance. Term life insurance requires you to pay a premium, that guarantees to payout to your family in the event you pass away before the term expires (generally 65, but can be later). These policies tend to be lower cost compared to whole life policies because there is no guaranteed payout (i.e. if you live beyond the term limit).

Whole life insurance policies on the other hand cover you for your whole life, so as long as you pay your premiums, you will be paid the coverage amount whenever you pass away. There are some interesting tax consequences that are associated with whole life policies that also may be of interest for high-income earners. This topic is broad and we’ll devote some additional posts to discuss the details.

Take-Away Points

  1. Congrats on that paycheck of yours! Perhaps treat yourself a little for all the hard work you’ve put in.
  2. By the time your second paycheck comes around, you’ll want to regain your focus and look into the topics highlighted above.
  3. A few smart decisions early in your career can mean lots in terms of piece of mind, saving money, and early retirement for you in the future.
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