About 46% of medical students expect to leave school with a debt of over $100,000.1 For new in practice physicians, setting up a debt repayment plan – and tracking where money is being spent – is a crucial step toward financial well-being.
Now that you’re finally making an income, consider these four tips to get on track with your finances:
Take advantage of student-loan forgiveness programs
Physicians who choose to work in certain under served communities in Canada can apply for the federal student-loan forgiveness program. The Canada Student Loan Forgiveness for Family Doctors and Nurses program will forgive the federal portion of an outstanding student loan, up to $8,000 per year for a maximum of five years, or $40,000.
Maximize tax deductions/credits
On your income tax return, you can deduct membership dues for your province’s college fees as well as union dues for your residency association.
You can claim federal and provincial non-refundable tax credits on your tuition, as well as your student loan interest.
Note: The federal government eliminated the education and textbook credits, starting January 1, 2017 but you can carry forward unused education and textbook amounts from years prior to 2017.
Understand cash flow and how to manage it
If you want to pay off your student debt, you’ll need to analyze your cash flow and make a plan. An MD Advisor can help you create a budget that accounts for short- and long-term goals, including a debt repayment strategy. A budget can help you manage cash flow to cover fixed and variable expenses, and potentially uncover opportunities to pay down debt faster.
Pay yourself first
Consider a “pay yourself first strategy” and set up a pre-authorized contribution (PAC) plan to pay down debt or invest. Treating your debt payments or savings like bill payments helps you be disciplined about achieving your financial goals.
Once you’ve set up a plan to address your debt, making an RRSP contribution might make sense. This kind of investing can trigger a tax refund. Then you can use that refund to pay down debt. Or, depending on your income, it might make more sense to save in a tax-free savings account (TFSA). Investment earnings in the TFSA can grow on a tax-free basis, and you can withdraw the funds any time without penalty.
By saving and investing early, you can benefit from the potential power of compounding. Investing early also gives you a chance to get more comfortable with personal finance and to start building your investment knowledge.
1 MD Physician Loyalty Survey December 2015 and June 2016 (combined)