As a new veterinary graduate starting your career, life can be overwhelming. You have just spent four intense years of your life preparing for this moment, not to mention all of those years of education and experience to get you into vet school. You are more than ready to finally practice as a full-fledged DVM.
In the hustle and bustle of graduating, moving, and finally learning the ropes as a practicing veterinarian, there are bound to be certain tasks that get put on the backburner. Do you know what usually gets placed WAY down the priority list? Your money management plan.
I get it. As veterinarians, we’re not primed to think about money and our financial health. It certainly wasn’t the promise of a high income that attracted us to this field. Instead, it was our incredible drive and passion to serve our patients and clients to the best of our ability.
Take it from someone who has been there and done that: it doesn’t take long before you realize that you can no longer ignore the elephant in the room. Our personal money situation affects so many of our decisions going forward, big and small. Having significant student loan debt and/or credit card debt will no doubt make an impact on your finances sooner rather than later. Making decisions about the best way to repay debt can be confusing and time-consuming, and unfortunately, the complexity of the situation can deter us from making quick decisions.
However, there is one quick money habit you can start RIGHT NOW that will set up a great foundation for your future self.
Why not commit to paying yourself first by taking 20% of each paycheck and putting that in a savings account?
The 20% comes from a popular budgeting method called the 50/30/20 rule. These percentages serve as guidelines for what you should allocate towards needs (50%), wants (30%), and savings (20%). Due to a number of factors (such as projected decrease of Social Security benefits, lack of pensions, student debt, increasing costs of education and healthcare, etc), 20% is widely considered a good savings goal. I have written an entire series about the 20% Budget Rule, which you can read in depth here.
What if, for a variety of reasons, you can’t do 20%? Then start with 10%. Or whatever percentage works for you. The key is to start.
This is, by far, one of the easiest ways you can jumpstart your savings and build a fantastic habit. Simply calculate 20% of your take-home pay (or whichever percentage you think fits best with your current situation), then set up an automatic transfer from your checking account to your savings account. You learn to live with what you have leftover.
For some people, this is about as advanced as they ever need to get when it comes to budgeting. As long as they’re responsible with the rest of their finances, they don’t have to worry about meticulously tracking their expenses and getting on a detailed budgeting plan.
Starting this habit will steer you away from living a paycheck to paycheck lifestyle (or worse, the “going into debt” lifestyle). No vet ever imagines living paycheck to paycheck, especially considering that you have a professional degree, but you would be surprised at how easily this can happen to anyone, even very high-income professionals.
WHY NEW GRADS HAVE IT BEST
Here are a few reasons why, despite all of your student debt, you are actually well positioned to achieve financial success.
- You’re getting your biggest pay increase ever: Sure, you’ll be getting pay increases and bonuses as you go further into your career. But how can you beat the huge pay increase from being a broke student who is borrowing more and more money every year to finally earning income as a veterinarian? Use this opportunity to set the right tone from the very beginning.
- Your income will only grow from here: As mentioned, you can expect your income to rise in the future (this will be significant if you’re an intern or resident). Don’t underestimate your earning potential.
- You can be better prepare for transitions: Who stays at their first job until retirement? This just doesn’t happen anymore, and we need to be aware that our career will always be in some state of flux and transition. Your future may involve cutting back your hours, pursuing a different path within veterinary medicine, or leaving vet med altogether. By setting yourself up financially, you can better prepare and ride through these transitions.
- You haven’t succumbed to lifestyle inflation (yet): It’s human nature to spend what you have. It is also human nature to acclimate to your new level of spending and convince yourself that you need to spend more in order to be happy. You have every right to spend money- that’s one of its main purposes! But by paying yourself first, you’re protecting yourself against some natural human tendencies that tend to get us into financial trouble.
- You have time on your side: Once you move some of these savings into investments, you’ll see the true gift of compounding, which can be best appreciated when you’re looking at a long time horizon. Make sure you take advantage of
timebeing on your side.
- You don’t have as many financial obligations: If you are like the majority of new veterinary graduates, then you are a relatively young adult with little to no assets to your name. Your financial obligations likely do not include owning a home (mortgage, property tax, insurance, maintenance, etc), having children, owning more than one car, owning other property, owning your own business, caring for an elderly parent, or many of the other financial obligations that come with age (if you’re a non-traditional student who is already in the thick of “adulting,” you can relate to this!). By paying yourself first, you will be putting yourself in a better position to take care of future financial obligations.
THIS IS JUST STEP ONE
Remember, paying yourself first is the very first step, the simplest step. You don’t want your cash to sit in your savings account indefinitely, earning abysmally
Think of your savings account as one big bucket of money and potential. Very soon, you should be directing this cash to other financial buckets for specific purposes. Here are some of the many uses for your savings, which are more fully outlined in this post:
- Build your emergency fund
high interestdebt payment (for example, credit card debt)
- Contribute extra to your student loans if you decide on paying down your student loans in full
- Contribute more to your retirement accounts
- Save for specific goals, such as a wedding or a down payment on a home
How you want to actually use this money will be completely up to you, your current financial situation, and your financial goals. As you move through different stages of life, your needs and wants will change, and you will need to adjust your money accordingly to reach those goals. There are periods when you may need to set aside more than 20%. Or maybe in your situation, 20% is overkill and you can get away with setting aside less. The more attuned you are with your cash flow and how that fits into an overall financial plan, the better you can adjust your savings rate.
Starting this important habit NOW will give you the flexibility to act when you want to move forward with your financial plans. That way, when you feel like you’re ready to plan for your wedding, start an IRA, or put an offer on that house, you don’t have to start from ground zero. You have already started building your savings, so now you can be more targeted and focused on how you want to use your money.
A WORD ABOUT YOUR STUDENT LOANS
Starting your savings habit does NOT mean you get to ignore your student loans. You should absolutely make sure you’re on the best plan possible for your situation. This is a task that should be done ASAP after graduation in order to maximize and optimize your student loan payments. So get started with your savings habit, and in the meantime, make sure to devote extra time to get a solid PLAN when it comes to your student loans. Check out my Student Loan Advice page for some fantastic resources. You can also browse through my blog posts that focus on student loans.
BONUS TIP FOR NEW GRADS
As mentioned, your 20% savings should be calculated using your take-home (also referred to as post-tax) pay. You also have the ability to save pre-tax if your employer offers a retirement account plan.
If your workplace offers a retirement plan AND they offer to match any portion of your contributions, CONTRIBUTE UP TO THE MATCH as the bare minimum. This match is free money that will grow tax-deferred for decades. This will also lower your adjusted gross income on your taxes, so you will end up paying less in taxes overall by contributing to your workplace retirement account.
Not contributing to retirement as a new graduate was one of my top 5 financial mistakes, so don’t repeat what I did. Instead of ignoring your benefits package, make sure you understand the benefits that are offered to you . If they happen to involve a retirement match, then you can make a very easy money move with little effort.
Eventually maxing out all available retirement accounts AND saving 20% of your
Click here to read more about workplace retirement accounts.
Click here to read more about individual retirement accounts (IRA).
WHAT IF YOU’RE NOT A NEW GRADUATE?
Have you been out of school for a while, but you still feel stuck when it comes to your finances?
That’s pretty normal. It’s not as though thinking or talking about money is encouraged in our day-to-day lives.
What I want to tell you is that it’s not too late. I, personally, was not great at managing my own money for a long time. But anyone can implement a savings habit right now.
By incorporating this one smart money habit ASAP, you will give yourself flexibility and options down the line. The money that you save will be primed to help you out when you’re ready to make specific financial goals.
You have sacrificed a lot of time and money to get into the position you’re in today. Make sure you embrace your new, income-producing self so that your money is working for (not against!) you.
Are there any other quick, smart money moves that you’re making as a new graduate? For those that have been out of school for a while, do you have any additional advice? Comment below!