How to Manage Your Debt and Have a Life, Too

By M. Shayne Ruffing, CLU, ChFC, AEP - NFP Securities, Inc.

From the first days of medical school through the first few years in practice, effective cash management can either make or break your checkbook, your psyche, and ultimately even your career. Let’s face it; the medical training process does an excellent job of preparing individuals to practice medicine, but it does not teach effective money management. In my eight years of working with resident physicians, I see consistent frustrations around cash management. For this article, I would like to review:

  • Definition of cash managment
  • Causes of difficulty
  • Cash allocation and priorities
  • Monitoring and upkeep of your personal plan

What is Cash Management?

Cash management is the pre-defined allocation of your income. First, look at all of your sources of income, and then look at everything that you “spend” money on each month. Some people refer to this as budgeting. It isn’t. A budget is a record that you keep of what you have spent. A cash allocation plan is something that you establish proactively, and then put into action.

What causes frustration and leads to failure?

  • End of the month planning
  • Lack of priorities
  • Undefined goals and purpose

A common cause of financial frustration is not understanding the “big picture.” To be effective, you must establish goals and priorities. If you pay bills as they come in and then save what’s left, someone else is dictating your success. To gain control, determine your financial priorities. You should be able to clearly articulate why you contribute the dollars you do each month, and how they are helping you achieve your goals. This is a cash allocation plan. Work with a financial planner to determine what it would take each month to accomplish all of your goals, given assumptions that you are comfortable with.

Developing a Cash Allocation Plan

Common components of a prudent allocation plan are:

  • Living Expenses
  • Retirement
  • Insurance Protection - Disability, life, home/auto
  • Cash/Emergency savings
  • Loan repayment

How much should go to each? First, what MUST go to living expenses? Let's assume that between your mortgage, food, and other expenses, you consume $2,200 per month. If your after tax income is $2,800, you have $600.00 left each month that can be allocated among your goals.

To determine your retirement needs: A financial planner can tell you exactly how much you should be contributing to retirement to reach your goals. On a resident’s salary, that number will not be immediately feasible in most cases, but it allows you to establish a benchmark. For example, if you should be contributing $1,000 per month to reach your goal, but can only contribute $250.00 per month, you are on track for achieving 25% of your retirement income!

How much towards insurance? Let’s assume you need $1,000 of supplemental disability insurance and $500,000 of term life insurance for you and your spouse. The total monthly cost for that might be $150.00 and is well worth the money.

Cash/Emergency Savings: In general, you should have no less than three months worth of living expenses in cash. If your expenses are $2,200/month, strive for a savings account balance of $7,000. Let’s plug in $200.00 per month to get to work towards that goal.

Loan Repayment: Try to consolidate your loans and defer payment until you complete your training. After your final grace period, begin a 30-year payment plan via a monthly bank draft. At the current rates of 3.5%-4.0%, you should reasonably be able to get an equivalent return in many types of savings or investment programs. See Cash Allocation Schedule for example.




Cash Allocation Schedule

Living Expenses

Cash/Emergency Savings



Loan Repayment


 Allocate $2,800/month      









Don’t forget!!

You must periodically review your progress. An ideal time is each July with your pay increase. Review last year's numbers, update your balances, and make minor changes to incorporate your increased salary based on your highest priority. If you take the time to establish and maintain a personal allocation plan, you will have the confidence throughout residency in knowing that every dollar you spend is working towards your goals as hard as you are. 

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