How to Prepare for the Financial Impact of Transitioning to Residency

Transitioning from med school to internship is challenging in many regards. The financial impact is certainly part of that. There are countless expenses to plan for and enough unknowns to stress out even the most level-headed persons.

One of the hardest parts of the transition is the income gap. There will be many months between your last loan disbursement and your first paycheck so it’s essential to build a plan around potential upcoming expenses. However, creating a cash flow plan isn’t easy and when most expenses are estimates, it’s even more challenging.

So this post is a quick breakdown walking through what you need to know to prepare for the transition.

Write Down Potential Expenses

The first step toward financial clarity during this time starts with writing down expected expenses. The reason you want to do this is so you can start planning your cash flow. Since you have plenty of other things to worry about right now, here’s a quick list of a few typical expenses that I’ve gathered from conversations with residents over the years:

Living, personal & career-related expenses

  • Groceries
  • Rent (including deposit)
  • Cost of housing reservation
  • Subscriptions
  • Phone
  • Car registration (in new state)
  • Parking fees
  • Car insurance
  • Moving truck
  • Gasoline
  • Packing supplies
  • Storage unit(s)
  • Furniture
  • Gym membership
  • Cost of living adjustments if moving to a new city
  • Disability insurance
  • Travel to visit family (during those limited breaks)
  • Scrubs and other work-related expenses
  • Step 3 Exam fee

While this isn’t an exclusive list, it’s a starting point. After going through the exercise and getting a rough idea of upcoming expenses and listing out their costs, even if you don’t have the savings necessary at this time and end up resorting to using a credit card, it’s better to know the “bad” than to be surprised by it.

The Importance of Estimating Costs

The best way to maintain focus and have good mental health in relation to your money during this time is to do everything you can to know what’s coming. Depending on your school and new employer, the gap between your last loan payout and your first paycheck can be several months. But having an idea of future expenses allows you to begin building a plan around bridging that gap. Then when you match, you’ll already have so much information written out which then makes it easier to begin filling in the real numbers.

Those real numbers are then the beginning of a financial plan, which is essential during this critical time.

The Moving Cost Tax Deduction

Moving is costly, but luckily the IRS recognizes this and offers a tax break to transitioning students so long as they meet two key requirements:

Distance requirement - If you’re not staying in your college city, you’ll most likely qualify for the distance requirement. To receive the deduction, the new job must be greater than 50 miles away from your home during med school.

Work requirement - To meet the work requirement, residents must work 39 full-time weeks in the first 12 months after moving. Depending on the timing of your move and the start of your internship, you may need to plan ahead for this requirement so you don’t spend several weeks in the new location before starting the job and miss the deduction.

Moving expenses must be considered “reasonable” to qualify and would include things such as gas, packing, accommodation, storage costs, address changes, and more. The most important thing to do if you plan to take the deduction is to keep your receipts and any other records of moving costs on file so you have a backup in case the deduction is questioned by the IRS.

Tips for Managing the Transition

While this post is primarily focused on the financial side of the transition, these are a few extra tips I’ve picked up along the way that might help as well:

Plan ahead - Outside of financial planning, it’s important to think about your future lifestyle while planning the move. Whether you’re just starting a family or you have a furry friend tagging along for the journey, these pieces of your lifestyle will have an influence on your cost of living and housing options. For example, you may want to search for housing closer to your place of work to cut down on your commute. Or maybe housing that includes a gym or fitness center to reduce the friction between staying healthy and active. And depending on your city, the cost of housing may be so high that renting is your only option for a few years. Overall, there are many personal considerations to take into account, and planning ahead can help ensure those needs are met.

Don’t be too hard on yourself - You’re going through a big life transition while absorbing and applying one of the most difficult curriculums in the world, so make room to take care of your mental health. Mistakes will be made, money can add stress to the equation, but don’t feel bad if it’s overwhelming. You’re not alone and many of your peers are feeling the same way.

Ask questions - One of the best ways to reduce the stress around the transition is to simply ask questions. Whether it be the people you met while interviewing, classmates, or people you meet after the move, chances are that someone has the answers you’re looking for. If you have questions, other residents likely do as well - don’t suppress them because they’re too “basic” or seemingly irrelevant.

The Takeaway

There’s a lot to think about, it’s a stressful time, and money can get tight. However, this steady descent into negative net worth is about to change trajectory. You’re one step closer to the end and by taking the time to plan ahead for potential expenses & writing them down, you can begin to relieve some of the stress and anxiety that comes with the transition.

Financial snapshot

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A quick look at what we can do when working together:

Urgent Matters

Addressing the most important areas in your life first

Retirement & Investing

Creating a plan for existing & future investment goals

Cash Flow

Getting a clear understanding of where your money's going

Debt & Savings

Paying off & saving for college and other life liabilities

Contract Review

Taking a closer look at your benefits and payscale

Insurance Analysis

Reviewing any policies & providing a path forward

For Medical students and physicians in training, we offer an In-Training Financial Strategy Session for $700, providing a 60-minute consultation with Ronnie to address your top financial concerns. The service includes a targeted review of your financial situation and a follow-up email with personalized advice and actionable steps.