Financial advice for the first year pharmacist
Congratulations! After four years of hard work filled with sweat, and tears, you graduated from pharmacy school! You’re ready to conquer the world but what’s next?
Hopefully, you didn’t have a hard time passing your NAPLEX or MPJE exams. Now that you’re officially a pharmacist and started a job, how are you going to deal with your personal finance?
I was in the same shoes that you were in back when I graduated in 2011!
Note, this post is geared toward new practitioners, if you elected to pursue residency then what I am discussing may not apply to you yet! Maybe in a year or two.
First and foremost, in order to save yourself years of financial hardship, you need to have a sound financial plan.
Hopefully, you’ve secured a full-time job, you went from living like a college student with limited funds to now making on average a salary of $126,000 yearly. What are you going to do with all that money?
Unfortunately, of that $126,000 you need to pay about 20-30% to federal, state, Medicare, and social security taxes. Deducting those fees and you’re left with only about $88,000 take home pay.
Additionally, you also have deductions from your employer benefits-health insurance (or health savings account), for simplicity, let’s say it will cost you $100 per month (single). In reality, it may cost up to $100-$300 per month.
Dental and vision will probably be around $20. Other fees includes-flexible spend account, disability insurance, life insurance (some are covered by employer), 401 (k) (5% on average). Let’s round the number to $8,000. Now you’re down to $80,000 take-home pay.
Important note on 401 (k), you should try to at least contribute enough to match your employer’s matching program. As you eliminate your debt, it’s advised that you maximize your 401 (k) contribution in order to take advantage of compounding interest.
- $80,000 = around $6,600 per month
- Rent and utilities (in Texas)=$1,200 per month
- Cell Phone=$100
- Netflix, internet, TV=$100
- Student loans= $1,000 to $2,000 dependent on repayment plan
- Car payment and insurance=$400 (the average cost of car insurance is $1,426 per year, or $713 per six-month policy ($118.63 per month)
Altogether this amounts to $3,750 at this point.
We all need to eat, the average monthly grocery bill for a single person in America is $100. Therefore, I am using $400 as your grocery bill monthly.
Lastly, other miscellaneous items such as-date nights, weekend getaways, going to games, etc…Let’s allocate $500 here.
How much do you have left at the end of the month?
Finally, after all these expenses, you’re looking at having approximately $2,850 per month of discretionary income. Financial experts recommend you to save at least 10 to 20% of your take-home pay. So you need to save at least $660 to $1,320 per month.
If you can’t saving at least $660, then you’re over spending and you need to take a look at your spending habits.
More than likely you probably racked up a credit card balance from pharmacy school. It’s best to pay this off as soon as possible. After your credit card (s) are paid off, it’s best practice to only use as much as you can pay by the end of the month to avoid unnecessary expenses such as interest and late fees.
A good plan is to have a checking account to use for monthly bills and a savings account. It’s recommended that you automate the transfer of money to your savings account monthly. If you don’t see the money, you won’t be tempted to spend it!
Automatically paying your bills each month can save you from late fees and help improve your credit score. I always like to keep at least $1,000 to $2,000 cushion in my savings account just in case.
Your current bank is probably only offering very low interest rates. Nationally, this rate is around 0.10% to 0.25%. Once you’ve accumulated at least $1,000 to 2,000 in savings you might want to create an online savings account. Online savings account such as Ally and Sofi Money are offering interest rate ranging from 2.20% to 2.25% that is compounding daily.
Another good investment option that I used is to open a robo-advisor account such as Wealthfront or Betterment.
These options above are great for you to save money for your dream house down payment or to pay off your student loans.
After you’ve taken care of your credit card, it’s best to concentrate on paying off your student loan. There are many strategies for student loans such as a loan forgiveness plan or a standard repayment plan to choose from. It may seem like a daunting task, but know that if you have a good plan then you’re going to get it done!
One of the best ways to pay off your loan early is to refinance your loan to get a lower interest rate. For example, your loan may be charging you at least 6.5% in interest. Refinancing your loan can lower your interest to as low as 2.5%.
Whatever your student loan strategy is, the most important thing is to put in as much money as possible to pay off your loans sooner rather than latter!
The above example is just for your reference of course. Your situation may be different with a lot of variables in play here. Everyone is advocating a budget, but it is very hard to stick to your budget. You can use tools such as Mint to track your spending.
Overall, in my opinion, the most important thing about personal finance is having a plan. What is your plan? Do you want to pay off your student loan as fast as humanly possible? Do you want to delay paying off your loan but instead saving money to buy your house?
I think it is wise to delay big-ticket purchases and concentrate on paying of your loans as fast as possible.
The most important lesson I learned over the years is to live below your means, save as much as you can and take care of your liabilities.
After you paid off your student loans, think of the possibilities? You can invest your money and earn passive income from dividends and interest from low-cost index funds, real estate, and other options. You also want to consider a side hustle to boost your income.
I believe that every pharmacist can retire as a millionaire. All you need to do is start early and let your money do the work for you and of course, a good financial plan that set you up for success.