Preparing to be financially fit: Five financial moves to make as a student pharmacist
Timothy Ulbrich, PharmD, is cofounder and CEO of Your Financial Pharmacist (YFP).
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It took me several years after graduating from pharmacy school and finishing my residency to start making good decisions to improve my financial situation. I had some bad spending habits, very little personal finance knowledge, and a boatload of student loan debt (about $200,000!). This resulted in some unfortunate financial mistakes early in my career.
A crucial pivot point came after reading The Millionaire Next Door by Tom Stanley, when I learned firsthand the difference between income and net worth. I, like many pharmacists, was making a great income, but I wasn’t translating that income into growing my assets and paying down debts. As a result, I was frustrated by the fact that, despite making a good income, I was not progressing financially.
It's never too early to start planning for financial success, and taking the right steps now can set you up for a bright financial future. Here are 5 financial moves to make as a student pharmacist.
1. Create solid financial goals.
One of the most important things you can do for your financial future is to create specific and measurable goals. This gives direction and priority to your spending. Building this muscle as a student pharmacist will help you when you’re working to build a strong financial foundation as a new practitioner.
While it’s important to consider short- and long-term goals, start by defining 3 short-term goals (i.e., goals for the next 12 months). Your goals should include the following components: the what (including a dollar amount!), the when (a date for completion), and the why. For example, you might set a goal to save $2,000 for a rainy day fund (the what) by December 31, 2023 (the when), so that you can protect your financial plan from an emergency and avoid taking on additional debt (the why). With this type of specificity, you can then determine what it will take per month to achieve this goal and whether or not it will fit within the budget.
2. Develop a budget.
Creating a budget is a fundamental step in achieving financial success. Many associate budgets with deprivation and sacrifice, but in reality a budget is simply a plan for how you will achieve your goals. By creating a budget, you can ensure that you are spending your money on the things that matter most to you while still working toward your financial goals.
While one budgeting method will never be the right one for everyone, I believe the zero-based budgeting technique yields the greatest results. With a zero-based budget, you give every single dollar you earn a job before the month begins. The goal is to spend your paycheck down (on paper) to $0 and to make sure your financial goals can be funded rather than hoping you have money left over at the end of the month.
You can learn more about the steps to complete a zero-based budget and download a free budget template by visiting this article on the Your Financial Pharmacist (YFP) website.
3. Set up an emergency fund.
Having an emergency fund is essential for financial stability. Life happens, and unexpected expenses can quickly derail your financial plan. Having a solid emergency fund can help you weather these unexpected events without having to resort to credit cards or other forms of debt.
The general recommendation is to have 3 to 6 months’ worth of essential expenses saved in a an account where the funds are readily accessible, such as a high-yield savings account or money market account. Considering the current rates of inflation and interest on high-yield savings accounts, avoid having your emergency fund sitting in a checking account that is earning zero (or close to zero) interest.
4. Develop a student loan payoff strategy.
“I wasn’t prepared to pay back pharmacy school loans,” “I didn’t understand all of my options,” or “I don’t know how to balance student loans with other financial goals.” That’s what I hear from many pharmacists; and that’s understandable, considering the median debt loan for the pharmacy class of 2022 was $160,000, according to the 2022 American Association of Colleges of Pharmacy Graduating Student Survey.
Considering the high debt load graduates carry, and the various loan repayment options available, it is important to have a solid strategy for tackling student loans. One plan of action to consider as a student pharmacist is to align your career path with your student loan repayment strategy. More specifically, those with federal student loans working for the federal government (e.g., FDA, NIH, VA) or a qualifying nonprofit e.g., a nonprofit hospital, academic institution) can pursue Public Service Loan Forgiveness that results in tax-free forgiveness on any remaining balance after 120 qualifying payments.
For more information about understanding your pharmacy school loans and the repayment options available, visit YFP’s guide to paying back pharmacy school loans.
5. Set up systems to avoid lifestyle creep.
Lifestyle creep is one of the biggest threats to a pharmacy graduate. This is when your expenses meet or exceed your income no matter how much you earn. With incomes starting out high, there is a tendency to get comfortable and maintain a certain lifestyle. This is currently exacerbated by inflation, elevated home prices, and rising interest rates.
Many pharmacists have recommended “living like a student” for the first few years following graduation. This is a great way to avoid upgrading your lifestyle and making large purchases too quickly. Furthermore, this helps provide the financial training wheels when going from very little income as a student or resident to a 6-figure salary.
Another strategy to combat lifestyle creep is to automate your contributions toward savings and investments so you never “see” certain money. If you can divert a percentage of income before it hits your checking account, you won’t be able to spend it.
Alternatively, increasing your savings in step with any raises is another great way to prevent lifestyle creep.
About YFP
Founded in 2015, YFP is on a mission to help pharmacists achieve financial freedom through fee-only, virtual comprehensive financial planning services. For more financial tips, resources, and information, check out YFP’s book, Seven Figure Pharmacist (use coupon code APHA at checkout for 15% off), visit the YFP website, or listen to the YFP Podcast.