The number one thing that we see blocking young veterinarians from financial freedom is this — you don’t know where your money goes! Many of you will begin your career as a veterinarian, start earning “big kid” money after years of surviving on student loans, and think you are set! Not so fast… by now you’ve hopefully realized that those student loans aren’t going anywhere, and yes, you are expected to pay them back.
So how do you go about doing this?
Step 1: Know Where Your Money Goes
The first step in crafting any kind of financial plan is to get a lay of the land, which requires you to answer these four basic questions:
- How much do you need to Live on per month (from housing to insurance, to Netflix)?
- How much do you want to Give to the people and causes that are important in your life?
- How much do you Owe in student loans and/or taxes?
- How much do you need to save and Grow to accomplish your goals?
If you can answer these Live, Give, Owe, Grow questions, then you are already miles ahead of most young veterinarians attempting to make sense of their money. The next step is implementation; no matter how much money you make, you must track your spending. There are many apps and websites that make this part really easy, but you must know what’s coming in each month, and what’s going out (cash flow!).
Step 2: Owe and Grow the “Smart Way”
Once you have answered the four questions and have an understanding of your monthly cash flow, you can now get to work on implementing financial habits… and as a veterinarian, there are specific tools that can help you work smarter, not harder.
Student Loans are no joke. According to the AVMA1, the average student loan debt for veterinary school graduates (including those with $0 in debt) was $143,757.82. And if we assume an interest rate of 5%, then the average veterinarian has to pay nearly $7,200 per year before even making a dent!
Because of this massive challenge many of you face, you need to know your options. (We believe it’s very important that you work with a professional and/or contact the AVMA for guidance in this area.) For all of the below plans, you must have federal student loans, and we recommend visiting StudentLoans.gov
to see if your loans are eligible:
- Income–Based Repayment (IBR): For new borrowers on or after July 1, 2014, your monthly payment is capped at 10% of your discretionary income (15% for borrowers before July 1, 2014), and offers loan forgiveness after making regular payments for 20 years.
- Pay As You Earn (PAYE): Payments are calculated as 10% of your monthly income, and offers loan forgiveness after making regular payments for 20 years. You must not have taken a federal loan prior to October 1, 2007 nor received a disbursement of a Direct Loan after October 1, 2011.
- Revised Pay As You Earn (REPAYE): Payments are capped at 10% of your discretionary income, and offers loan forgiveness after making regular payments for 20 years (and 25 years for loans taken for graduate school).
- Income–Contingent Repayment (ICR): This is the only income–driven plan that allows Parent PLUS loans. Payments are the lesser of 20% of discretionary income or the standard payment on a 12–year payment schedule. The ICR plan offers loan forgiveness after making regular payments for 25 years.
- Public Service Loan Forgiveness (PSLF): If you work in a role that qualifies as a public service, then you may be eligible for income–driven payments which may be forgiven after only 10 years of regular payments.
Don’t Get Bitten By Taxes
Just because your student loans are forgiven doesn’t mean you won’t pay anything. If you have federal student loans forgiven under one of the above plans, then you will pay ordinary income taxes on the balance of the loan in the year it’s forgiven (with the exception of PSLF…this loan forgiveness is not taxed as income).
Use tax–advantaged accounts to save for the long–term. Just like your debt, it’s important to know your options for saving and growing your wealth. Here are some options to consider:
- If you work as an employee, consider participating in your employer’s 401(k) Plan (especially if they will match your contributions!).
- If you are self–employed, meet with a professional to weigh the pros and cons of opening your own retirement accounts (SEP–IRA, Simple IRA, Roth IRA or Traditional IRA… or perhaps even a solo–K). This is all to get you moving in the right direction.
- Know you have options, and work with a professional to start saving the smart way.
Step 3: Have a Plan & Roll with the Punches
As you start your career and begin to make financial decisions for your future, you need to have a plan! Without one, you’re more likely to get lost in financial confusion and fall behind on your most important goals. Each quarter, consider writing down your financial goals, and the next action step you are going to take to accomplish them. If your goal is to be debt–free, take action to get on the right repayment plan for you. If your goal is to travel annually, make sure you save enough each month to take that trip! Don’t wait for life to happen to you. Be proactive, and roll with the punches.
That’s it! Three easy steps to kick start your veterinary career with some financial peace of mind. Do not overwhelm yourself trying to do everything at once. Start simple.
Good luck! +