Managing your new paycheck as an associate veterinarian
Every college student knows how to live on the cheap. It's a simple matter of paring down to the bare essentials—like having a bike but no car. Or foregoing veggies to afford pizza (sorry, Mom). What many students don't know is how to effectively transition to living on the not-so-cheap—the grown-up salaries we step into as brand-new career professionals.
When I was 22 and finishing my second year of veterinary school, Dr. Jim Lloyd at Michigan State University tried to prepare me for the financial challenges ahead. He advised me to create a budget to fit a first-year veterinarian's salary (around $50,000). Compared to my income as a student, that seemed huge. I assured him I could make it work living off my current entertainment expenses of beer and pizza.
Dr. Lloyd reminded me that my school loans would have to fit in the budget, too, and suggested that someday I might actually want to get married. That would raise my cost of living exponentially, he said.Nice try, I thought, but I'll be earning real money by then. I mean, how hard can it be?
Moving every year is not too tough when you can deflate your bed, flip it over your shoulder, and walk to your next rental apartment. But once you graduate, it's time to grow up and settle down. For me, that meant buying some real furniture. In my first week as a veterinarian, I bought a brand new couch. It looked great. It made me feel great, too, until I realized I'd spent half my first paycheck before I'd even received it! That's when it dawned on me that if I was going to get ahead, I would have to learn to budget. If you're a new graduate, or will become one soon, you need to learn this too.
Creating a budget can be tricky, especially during a major life change such as starting a new career. That professional-sized paycheck can seem deceptively large. But along with your new life come new responsibilities: job-related expenses and school loan payments among the foremost. A little planning now can save you a lot of headaches—not to mention money—later. Here are some tips, based on my own experiences as a new associate and input from friends and mentors.
BE AGGRESSIVE IN REPAYING LOANS
In today's unpredictable financial markets, dependable returns on investments are scarce. You could put your money into a savings account, or even a CD. But earning 1 percent or 2 percent back isn't likely to fund your retirement—especially if you plan to spend it drinking piña coladas on the beach. So for those of us who like a predictable return on our money, even in these uncertain times, paying off high-interest rate school loans early makes sense. Every bit of your loan you pay off early saves you money.
Aggressively paying off school loans is not going to build your portfolio, but in the short term it will significantly lower your debt—at no risk to you. So let the economy straighten itself out while you concentrate on a sure thing. Before long, you'll have the opportunity to investigate more predictable investments. You'll have more money to invest, too.
PAY OFF HIGH-INTEREST LOANS FIRST
The biggest debt on the minds of most new graduates is school loans. Nobody likes long-term debt, and educational loans can certainly linger. There are many ways to pay off loans, though, and each person's situation is different. If you have a hefty credit card tab, focus on that first. After all, your credit card interest rate most likely dwarfs that of your school loan, and attacking high-interest loans first saves you the most money.
Say, for example, that you have an interest rate of 7 percent on your school loan and 14 percent on your credit card. Those unpaid credit card bills will add to your debt twice as fast as your school loan will. By aggressively paying down your credit card balance, you can essentially "earn back" your 14 percent interest payment. You would be hard-pressed to find that kind of return anywhere on the market.