• Pay your(future)self first!

    • This is an important concept in personal finance that encourages you to automatically route specific amounts of money into specific accounts each paycheck. The money can go into a retirement account, emergency fund, or long term goal funds (such as buying a house). Some even call this the “golden rule”.

    • In other words, you pay yourself before you start paying for monthly expenses and discretionary purchases. By doing this, you are essentially securing your future and creating a cushion for unforeseen circumstances. A commonly encouraged amount to save is 20%, while more aggressive savers allot 50% into their savings.

    • i.e. For a $1,800 paycheck received every 2 weeks, $800 is automated to go into an online savings account, $100 into a 403b retirement account, and $100 into an emergency fund. Everything left over is for rent, groceries, etc.

  • Time value of money

    • Time value of money is a concept that money today is worth more than the same amount of money tomorrow because of its potential earning capacity. Because money can earn interest, any amount of money is worth more the sooner it is received. Let’s look at an example.

    • Shirley is 20 years old, and she puts in $2,000 every year until she retires at 65 years old into her retirement account. $2,000 x 45 years = $90,000. Shirley invested $90,000 into her retirement account assuming a 6% interest rate. At 65 years old, she would have $451,016

    • Louisa is a 30 years old. She didn’t put in any money in for retirement before because she didn’t know she should have. So she puts $2,571 every year until she retires at 65 years old into her retirement account. $2,571 x 35 years = ~$90,000. Louisa invested $90,000 into her retirement account assuming a 6% interest rate. At 65 years old, she would have $303,739

    • While both invested the same amount of money into the same type of retirement account with the same interest rate, Shirley will have almost $150,000 more at retirement because she started earlier, even though she contributed less annually. Louisa will never catch up to Shirley because of the interest rate that is compounding in value. That is the time value of money.

  • Delayed gratification

    • In a sense, you are already doing this. So your friend Bobby, the one that dropped out of premed, is now working as a software sales representative and making $90,000 a year for all the years you’ve been in medical school. Not to mention he’s about to get a promotion for being with the company for 4 years and start to make $105,000 a year for all the years you will be in residency. You’re already doing the math, right? (($90,000 x 4)+ (105,000x4)) = $780,000. And where are you by this time? Definitely in the negative, with the medical school loans and interest you have accumulated. Bobby is also getting married, set for a honeymoon in Hawaii, and coming back to a new house he just bought. You probably are still searching for your +1 to his wedding, which likely you can’t attend because your shelf exam is the next day. You definitely understand what is delayed gratification.

    • However, are you still buying that Starbucks coffee every day? Ordering Thai take out 3 times a week because you have no time to cook? Going out to the city the weekend after your shelf exam each time? Planning on getting that car once you graduate medical school?

    • You are not owed anything because you graduated medical school or residency. (Sorry!) Those would not be the times to reward yourself with a doctor car or doctor mansion. 

    • Delayed gratification is a mindset and skill in personal finance that refers to the ability to put off something now in order to gain something more rewarding later. The idea originally came from a psychology experiment known as “The Marshmallow Study” in which children were rewarded with more marshmallows if they waited out eating one. Delayed gratification is one of the biggest factors in accumulating wealth, as those who are wealthier tend to be more frugal and live below their means even though they can afford it.

  • Emergency fund

    • On the topic of savings and paying yourself first, an emergency fund is created to set money aside for unforeseen circumstances (i.e., loss of income, illness, major car/home repair) and to protect yourself from high interest debt options (such as credit card debt).

    • According to most financial planners, an emergency fund should cover at least 3-6 months worth of living expenses.

    • The funds should remain in a highly liquid account, such as a checking or savings account, so that it is easily accessible in times of need.

  • No credit card debt

    • If you can’t afford it, don’t buy it

    • Pay your credit cards off in full every month

    • Credit card debt has very high interest rates

    • If you do have credit card debt, start making dents and pay off the card debts that have the highest interest rates

2018. by Christie Ton with wix.com

Dr. Piggy Bank

  • Facebook Clean Grey
  • Twitter Clean Grey