When you decided to go to medical school, you didn’t choose the easiest career path. The enormous efforts you invested put a strain on your personal finances, and you have likely accumulated considerable debt.
To lay the foundation of a successful career, it’s essential that you have a budget and a sound financial plan, from your first year in medical school, during your residency, and when you start your practice.
Medical school
Medical school is expensive and few students can make it through while working part time. Without substantial help from their parents, most students must rely on government loans and bursaries and lending products from financial institutions. In both cases, interest charges must be paid. So it’s important to make a budget that will cover your expenses without piling up needless debt.
For students: 3 keys
- Make a detailed and realistic budget … and stick to it.
- Limit your debts by borrowing only the amounts you need.
- Avoid spending based on your estimated future income.
Caroline and her student debt
Caroline is starting her first year of medical school and according to her budget, she needs $30,000 per year to pay for her education and support herself. Each year, she will receive a $5,000 loan and a $5,500 bursary from the government and will borrow $19,500 against her student line of credit from a financial institution to cover her expenses. After completing her education, Caroline will have to pay back $104,028.
| Year | Bursary | Student loan | Student line of credit | TOTAL (including 3% interest) |
|---|---|---|---|---|
| 1 | $5,500 | $5,000 | $19,500 | $25,085 |
| 2 | $11,000 | $10,000 | $39,000 | $50,773 |
| 3 | $16,500 | $15,000 | $58,500 | $77,081 |
| 4 | $22,000 | $20,000 | $78,000 | $104,028 |
Residency
The residency period is an important time for medical students because they finally receive a salary, which will increase each year according to the salary scale provided by the FMRQ.
At this stage, it’s important to update your budget to include this annual income. Any surpluses can be used to pay off part of your debt or to save, according to your goals and your risk tolerance.
For residents : 2 keys
- Continue to limit your use of credit, despite your new income.
- Use surpluses to start saving or paying off your debt.
Finally, a salary for Caroline!
Caroline’s training continues with five years of residency during which her salary will gradually increase. If her budget expenditures remain the same, she will have an annual surplus, after deductions for taxes and social contributions.
Caroline can use this annual surplus to:
– Start paying back her student debt, beginning with the loans that have the highest interest rate. Note that student loan interest is tax deductible.
– Accumulate tax-free savings in an RRSP or a TFSA.
Start of practice
The priority at this stage should be to finish paying off all your debts. This calls for a final repayment plan. With higher annual income, many options are available. By adopting a disciplined approach and paying off your debts as quickly as possible, you will soon be able to reap all the benefits of a doctor’s life. The long path to get there will now seem like a good investment!
We’re here to assist you with your financial decisions at each stage of your career. Our Wealth Management Advisors can help you make the right choices.
If you have been in practice for a few years (or will be starting soon) and you would like answers to your questions on managing your student debt and your credit line, financial organization of your practice, medical billing, or insurance taxation, register now for our New Practice Weekend, which will take place from June 3 to 5, 2016. Held in beautiful surroundings, this weekend will be facilitated by our wealth management and tax experts, who will provide you with a wealth of valuable information to help you make the right decisions from the start!
