It’s true—money can’t buy happiness. It can, however, buy peace of mind and financial freedom with some careful planning. Personal finance is a journey, often an emotional one, especially since many new grads share the following scenario.
After studying hard—and living on ramen noodles for the past 8 years—you’ve graduated as a Doctor of Optometry. You’ve taken all three rounds of NBEO exams and passed. You’ve landed that dream job that comes with a juicy paycheck. Then, you are faced with the financial realities of being a practicing OD.
As an average new graduate optometrist, your student loan debt could be a whopping $267,000.1 Further, currently, home prices are sky high, and the cost of living is perpetually climbing. You understand how to keep others’ eyes healthy, but not your own bank account. This is not uncommon, as an average American education lacks even the most basic financial lessons.
New optometrists may respond to their newfound financial landscape with worry, avoidance, or obsession. I responded by developing a passion for personal finance and I’m excited to share what I’ve learned.
Budgeting made simple for optometrists
If the words “finance” and “budget” intimidate you, you are not alone. You may feel the need to educate yourself on everything there is to know before executing (we were all recently students, after all). While it is important to gather resources, the first step is just looking at it.
Pull up your banking app—do it right now! Take a deep breath and scroll. Where is your money going? Do you see any patterns? Does anything surprise you?
Following the 50-30-20 rule to manage money
Without judgment, get an idea of your spending. A good starting point is this: go to your favorite local coffee shop and review 3 months of spending. Add up categories for each month (groceries, restaurants, gym memberships, etc). What do those numbers average for each month?
A good rule-of-thumb is the 50-30-20 rule:2
- 50% of your budget should be spent on needs (housing, insurance, car payment, groceries, etc.)
- 30% should be spent on wants (dining out, hobbies, shopping)
- 20% should go towards long-term financial goals (saving and investing)
Now, this is the fun part: make a value-based budget. Make a list of things that you love to spend money on and things that you are neutral about. For example, I love to spend money on travel. I feel neutral about eating out for lunch daily. If I can pack a lunch 5 days a week, I could save up to $75 a week—that’s $300 for the month.
That could be a plane ticket or a hotel stay! Budgeting with your unique money values can take the edge off. It feels less restrictive and more exciting. After all, you are working towards your dream life. Financial circumstances ebb and flow. The best thing you can do for your long-term financial well-being is to continue to spend time on this. Every week, set a “money moment” for yourself.
Make it pleasant! Set aside an hour, maybe light some candles, put on your favorite sweatpants, and track your spending. You’ll be amazed at how much confidence this builds.
Take the quiz to find out how you manage money
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What Is Your Money Management Style?
Take this quiz to find out your money management style and pair this with tips from the article to stay on top of your finances!
Managing optometry student loan debt
Ah, student loan debt. This proverbial ball and chain is a necessary evil to fund your hopes and dreams. There’s no doubt that this is top of mind for almost all new graduate optometrists. The first step is to develop a loan repayment strategy. Two of the most popular strategies are the “debt avalanche” and the “debt snowball” methods.3
Utilizing the “avalanche” method, you would focus on paying off loans with the highest interest rate first resulting in less interest incurring over time.3 Conversely, using the “snowball” method, you would prioritize loans with the lowest balance first and work to pay off individual loans. With this method, the amount of total loan interest incurred over time is likely to have a higher increase than with the avalanche method.3
To determine which method is best for you, consider the following factors:
- Your debt-to-income ratio
- Other financial goals and obligations (mortgage, etc)
- Career goals such as buying into a practice
- If you are married, your spouse’s income
Additionally, experiment with this calculator, which will show you the amount of interest paid and the time it will take to pay off your loans with your planned monthly payments.
Public student loan forgiveness
First, look to see if you qualify for Public Student Loan Forgiveness (PSLF). Optometrists employed by a US federal, state, local, or tribal government or qualifying non-profit may be eligible. After making 120 qualifying monthly payments, your loans will be forgiven (tax-free!).4
This is the holy grail of student loan repayment strategies. Some students purposefully choose a path working for the VA for this major benefit. Also, if it all seems overwhelming, working with a financial planner may make this easier.
Income-based repayment plans
If you have federal student loans, there are two main strategies to tackle the debt. The federal government offers student loan forgiveness through the income-based repayment plans Pay-As-You-Earn (PAYE) and Saving-For-A-Valuable-Education (SAVE), previously known as REPAYE.5
Comparing the PAYE and SAVE plans
The differences are subtle. With a SAVE plan, the government will subsidize the interest. This means they will cover any interest that has accrued that exceeds your monthly payments. In plain English: if you are making payments towards your debt, your total loan balance will not go up.5
For the SAVE plan, the remaining balance will be forgiven after 20 years of payments for undergraduate loans and 25 years for graduate loans. The PAYE plan will forgive the remaining balance after 20 years of payments.6 An important note is that tax will be owed on the forgiven amount and this can be a LARGE sum.
Some optometrists strategize by making the lowest possible monthly payments for 20 years and then get the rest forgiven. It’s important to remember that interest is accruing during this time. If this is your chosen strategy, you should be setting aside an appropriate amount each month throughout these years to cover the “tax bomb” at the end of the rainbow.
Student loan refinancing
If you’re like me and 20 to 25 years of student loan debt feels gut-wrenching, you may want to look at student loan refinancing. This may be a good option to lower your interest rate and to pay off debt quicker. This is especially true if you are making extra monthly payments.
It is important to note that if you choose to refinance your student loan debt, you do not get certain protections that come with having your loans in the federal system. For example, if broad student loan forgiveness becomes law, you will not benefit. You will also have less options for income-based repayment or deferment in times of financial distress.
My personal plan
As someone who’s hustling (and moonlighting) to pay back my loans aggressively, I can tell you it’s hard work. To me, it will be worth it to be debt-free sooner. This does not mean I do not celebrate my progress along the way. On the contrary, after every $25,000 paid back, I will splurge on a vacation or nice dinner. This keeps me motivated.
To another optometrist, aggressive repayment may not be the right choice. Someone who has to pay for childcare monthly or is cold-starting a practice has a completely different financial landscape. Either way, keep your eye on the day the goal is to be student debt-free.
At the end of the day, personal finance is personal and it’s important to find the plan that makes the most financial sense to you.
Saving and investing tips for optometrists
What would happen if you put $0 towards savings/investments and $3,000 per month towards student loans? You may pay off your loans quicker but you will then be starting from scratch nearly a decade later. It’s important to take a holistic approach to your finances.
An emergency fund is a must
If you take one thing away from this article, it should be this: You NEED an emergency fund. This should be 3 to 6 months of your monthly expenses at minimum. Before you can even think about paying extra on your student loans or splurging on that vacation to Hawaii, pay yourself first.
Life comes at you fast: your car will break down, you’ll have a surprise visit to the emergency room, or at worst, you may lose your job. Having 3 to 6 months of breathing room is absolutely invaluable.7
Your emergency fund (and all savings, for that matter) should be kept in a high-yield savings account. The national average for average percentage yield (the interest you earn) on a regular savings account is 0.47% compared to the 4.5%+ that can be found with a high-yield savings account.8
Your checking account should be reserved for your monthly expenses only, with a little cushion to avoid overdraft fees. If you are keeping your life savings in your checking account, a standard savings account, or under your mattress, that money is losing value to inflation every year. Let your money work harder for you.
What should I be investing in?
In general, financial experts recommend investing 10 to 20% of your income.9 Your investments should be a healthy mix (aka diversified). This may include stocks, bonds, real estate, or other vehicles. Within your investments, a good ballpark for the percentage of stocks should be 100 to your age.10
Stocks are generally better investments for a younger person who is farther away from retirement. This is because they are higher risk and higher reward. More time in the market allows time for self-correction of turbulence. Bonds are generally better investments for people who are risk-averse or closer to retirement as they are generally lower risk and lower reward.
Don’t ignore your credit score
The credit score is the closest thing we have to a report card in adulthood. Some factors that affect that number include: credit usage, length of credit history, payment history, type of credit, and amounts owed. Having bad credit is no joke—it can lead to higher interest rates and fewer loan options.
This can severely limit your potential for financial growth. You can get a full credit report from each of the three credit bureaus (Equifax, TransUnion, and Experian) every 12 months for free. This means you can check your credit score three times per year without cost or penalty.11
So what is a good credit score, according to FICO?
- Very poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Excellent: 800 to 850
How to raise your credit score:
- You can’t have a good credit score until you, well, have credit. Debit cards are great, but they are not the best tool for building a healthy financial future. It’s best to get started with a credit card as early in adulthood as possible.
- Another key is to live below your means so that you can pay off your credit card—in full—every single month. For bonus points, you can pay it off twice per month (lower credit utilization). This ensures you are staying away from high-interest credit card debt (aka the sinkhole of misery).
- Another way to lower credit utilization and improve your credit score is to request that your bank raise your credit limit and not use it. This will improve the ratio of credit usage in your favor. The best part of using a credit card responsibly is the perks—cue free flights, cash back, airport lounge access, and more.
Final thoughts
After all this talk of investing, paying debt, and credit bureaus, you may be wondering…where’s the fun? The amazing part about harnessing your finances is the sense of freedom you gain.
If you know exactly where your money is going and how much you have to spend on fun things, the anxiety melts away. If you live below your means, pay yourself first, and celebrate your wins, you are on your way to financial freedom.
