At some point within the last year, an obvious truth became suddenly apparent as I realized my 20+ year journey in school will soon come to an abrupt halt-I haven’t learned a thing about financial management, investments, or retirement savings. After all, the bittersweet field of science, especially in a doctorate/graduate level program, tends to be a consuming one, demanding most of its victim’s mental energy and focus. While us graduate students certainly must comply with these demands to become competent within our respective fields, it’s an awkward moment realizing that most of our old colleagues have obtained 4-5 years of experience practicing the art of employment and financial management while we’ve spent these valuable years building more debt and being cradled in the arms of our academic institutions.
This crude self-realization sparked an eager craving to stuff these voids with information from blogs and books that have been recommended to me. Though I’m still in the baby stages of this transitional journey, I’ve encountered several pieces of advice/knowledge that have helped me begin to narrow my long-term financial and retirement goals. Although my site certainly isn’t intended to become a business blog, I’d like to pass on a few tips and suggested readings to any students who happen to come across this and have a moment to ponder about real life.
First, I’d like to highly recommend you purchase or borrow “The White Coat Investor“ by James Dahle-a book that, despite its title, is an invaluable resource for anyone in any field looking to build a secure financial future. Its most direct audience, of course, are medical students who will journey through residency, making a modest salary until they become attending physicians. However, its major points can be echoed across all career paths, as it is, in fact, a book about what the heck to do with your hard-earned money. The promise is this-if you can strictly adhere to a few rather straightforward, low to no-risk guidelines, you can establish a secure and flexible retirement and become financially free. Who doesn’t want that?
While I won’t get into too many details (I’ll leave that to more credible sources), there are a few things I feel graduate students need to hear. If you’re like most students, you’ve likely never had a reliable stream of income-and no one would blame you. This, however, means that you haven’t been tasked with the responsibilities that come with having an income. Good for you! No money, no problems. But soon that role will come and, if you’re not careful, can easily turn into a constant uphill battle.
From what I’ve gathered so far, the best piece of advice I can offer is this: don’t grow into your income! Take utmost advantage of your already proven ability to survive on a “student income” (whether that be limited loans or parental help). Chances are you did just fine on a fraction of what you’ll soon be earning. Once the bucks start rolling in, you can probably increase your personal expenses by two to four times and still have excess cash to make wise decisions with.
The danger is that many graduates rejoice at their first paycheck, thinking it’s finally time to cash in on their seemingly endless years of study. They immediately put a down payment on their dream car, drastically upgrade their apartment, or worse, quickly purchase real estate for personal use. Their standard of living increases ten fold before they have a chance to truly realize it. Before long, they’ve effectively delayed and compromised a comfortable retirement, leaving little consideration for the volatile (and consequently, expensive) nature of their current personal lives.
Most advisors will tell you to save 10-20% of your income annually if you hope to live comfortably upon retirement, without having to make serious adjustments to your way of life. According to James Dahle, author of The White Coat Investor, the typical physician can retire comfortably on 25-50% of his or her preretirement income. One approach suggested by Dahle (who firmly advises at least 20% annual savings), is that you “pay yourself” this 20% immediately after receiving your paychecks. This money can then be spread across retirement accounts, such as Roth & Traditional 401(k)/403(b) and Roth IRA, and other relatively low-risk investments. These savings can be reasonably expected to grow at an annual rate of 3-7% after taxes, expenses and inflation are accounted for. While the lowest risk investments will naturally receive the lowest returns, they are also the most reliable. Saving responsibly and having a truly diversified and annually rebalanced investment portfolio consisting of majority low-cost index funds seems to be the surest route to financial success.
I’ll consider this post a success if I’ve encouraged (or confused) even one person into learning more about achieving a secure financial future. Once again, I strongly advise reading The White Coat Investor (if you know me personally, you can borrow it!). After each chapter includes a list of recommended reading if you wish to expand your knowledge in that chapter’s topic. You can also check out The White Coat Investor’s blog which contains much of the same useful information and is updated regularly.
A few other resources I would recommend reading (I’ll try to update this as I read more!):
If You Can: How Millenials Can Get Rich Slowly, by William J Bernstein
Investor’s Manifesto, by Willian J Bernstein
The Millionaire Next Door, by Thomas J. Stanley
Your Money and Your Brain, by Jason Zweig
Common Sense Investing, by Rick Van Ness
And a couple short and insightful dentist-specific reads I recently ran across by Reese Harper, CEO at DentistAdvisors.com:
Top 10 mistakes dentists make on their way to retirement
What dentists can learn from John Elway about investing
By Munir Gomaa