As COVID-19 continues to threaten the United States and the world, individuals in every profession have been challenged to examine their financial situation. At Fidelity Investments, we recently conducted a national survey asking people how current events have affected their opinions and behaviors when it comes to their money. The results showed that six in 10 Americans are concerned about household finances over the next 6 months. Unfortunately, we’ve seen that even health care professionals have not been financially spared, with salaries or benefits cut or, worse, furloughs and layoffs as hospital systems struggle. I work with many physicians, including gastroenterologists, in my role as a wealth planner for Fidelity Investments and have received quite a few questions related to shoring up family finances during these difficult times.
Luckily, the financial best practices that I share in “good” times ring true even in today’s world, with a few additions given the health and economic risks created by COVID-19.
1. Review your budget. It’s one thing to know that your budget is generally balanced (the dollars you spend are less than the dollars you earn). But it’s worth taking a closer look to see just where those dollars are going. In times of uncertainty, cutting back on expenses that aren’t necessary or don’t provide meaningful value to your life can be worthwhile. If you or your family have lost income because of the pandemic, you might consider these.
2. Tackle (or find relief from) student loan debt. Doctors today graduate medical school with a median debt of just under $195,000.1 Repaying these loans is daunting, particularly during the COVID-19 crisis. The recent passing of the CARES Act recognizes these difficult times: in fact, it automatically suspended required minimum loan payments and interest accrual on federal student loans until Sept. 30, 2020. This only applies to federal student loans, not private student loans. Beyond this period, if you are still struggling with payments, you may explore the possibility of refinancing, by taking out a lower-interest private loan and using that to pay off student loans (although this may extend the life of your loan). Borrowers could also consider other programs, such as REPAYE (Revised Pay As You Earn) through which your monthly payment tops out at 10% of your monthly income, or Public Service Loan Forgiveness (PSLF) if you work for a not-for-profit hospital or other qualifying employer. This program forgives the remaining balance on your direct loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer.
Additionally, borrowers could look for opportunities to reduce accrued interest, either by refinancing to a lower rate or making payments every 2 weeks rather than once each month.
3. Evaluate your emergency fund. It’s a good idea to keep 3-6 months’ of essential expenses in cash or cash-like investments. If you don’t yet have this 3- to 6-month cushion saved, now is a good time to work to reduce your expenses and stash away any extra cash.
4. Save early and often for retirement. You can borrow money to support many of life’s needs, from housing, to cars, to college. But you can’t borrow for retirement. That is why I encourage clients to put retirement savings at the top of the list, after accounting for day-to-day needs of their families. People often ask me whether it makes sense to continue saving for retirement, often a far-off goal for younger doctors, especially in these uncertain times. My answer? Yes. If you are able to save, continue to save: the earlier you begin to make contributions to your retirement account, and the longer you continue to do so, the more your retirement account(s) have the potential to grow over time.
Another question I receive is whether to take distributions from a retirement account early if you find yourself in a precarious financial situation because of the COVID-19 crisis. The CARES Act provides options allowing Americans to take a withdrawal or loan from a participating retirement plan if you, your spouse, or your dependent have a COVID-19 related illness or you’re experiencing a loss of income related to the COVID-19 pandemic. Try to look at alternative sources of income before tapping your hard-earned retirement savings. If you can find a way to continue saving and avoid drawing down your retirement accounts, your future self will thank you.