Financial Preparedness, Retirement

5 Essential Financial Moves for Residents | Number 3 of 5: Handle Spending, Saving and Investing Wisely

June 01, 2017

Spending_saving_investing_wisely.pngMany residents are focused on saving: 25 percent are very concerned about having enough for retirement, 21 percent about funding college expenses for their children and 19 percent about providing for elderly parents, according to the AMA Insurance report.

But most residents I know don’t have the time for complicated online budgeting tools. It’s important to keep it simple.

What you need to do: Establish a realistic budget

Assuming you aren’t living paycheck to paycheck, prioritize protecting what you have, building an emergency fund, paying off highest interest rate debt and saving for your retirement through work. Here are some things you need to consider:

Mortgage: If you are looking to buy a home, try not to exceed 15 percent of your gross income on a mortgage. Otherwise, it can be difficult to meet your retirement goals. 

Children: Kids are wonderful but expensive. If you’re planning to start a family, make sure to figure these expenses into your saving plans instead of putting everything toward retirement.

Options for retirement plans: Know which plan(s) make the most sense for your goals:

  • Matched contributions. Many employers provide qualified retirement plans (e.g., 401k or 403b) with matched contributions. Take advantage of this extra savings unless you absolutely require cash flow for a major life event. If you have a 403b Roth option, it usually makes sense to use it because employer plans offer more creditor protection than IRAs.
  • Roth IRA. A Roth IRA can also be a good place to save and offers flexibility. While the primary purpose is retirement, funds can be accessed for goals that could develop down the road. You can elect to withdraw an amount equal to your contributions without tax penalty. If you pull out earnings before retirement, you’d pay a penalty. If the use of your funds isn’t clear at this point, consider this option.
  • Unmatched Traditional 403b v. Roth IRA. If these are your two options, my choice would be to first invest in the Roth IRA up to the $5,500 annual contribution limit. Then if you have additional savings to put away, you’re allowed to contribute up to $18,000 in the 403b in 2017.

Allan Phillips is a Certified Financial Planner™ with Taylor Wealth Solutions, author of The Guide to Income Protection for Medical Residents, Fellows and New Practicing Physicians and a member of the AMAI Physicians Financial Partners program.

Read financial move No. 4

Taylor Wealth Solutions is not affiliated with the AMA. Taylor Wealth Solutions offers insurance products through Taylor Financial Corp.  Securities offered through Taylor Securities, Inc. (member FINRA/SIPC)  

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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