Graduating from optometry school often means a considerable leap in income. So what can you do with your newfound salary
? We sit down with Dr. Matt Geller, OD, Adam Cmejla, CFP, and Gary Topple, CPA to discuss how you can manage your money and still have fun.
One of the first things to consider is what it means to live within your means. While it may be a cliche phrase, it’s important to consider how you would like to live day to day. Some folks may choose to continue renting a cheap apartment, sticking with their old car, and continuing to pay down mounds of student loan debt while stocking up for retirement. Ultimately, your saving habits will dictate your spending habits.
A general rule of thumb to keep in mind is that you want to be saving, on the low end, 15% of your gross income. Working for a practice, you may opt for a 401K, a simple IRA, a Roth IRA, or a traditional IRA (if the employer has the options available to you). Electing to save in tax-deferred vehicles like retirement accounts can help to build your savings more quickly due to compounding interest.
Albert Einstein once claimed that one of the greatest wonders of the world is the rule of compounding interest. The rule dictates that money will grow exponentially over time, and if you’d like to learn how long it may take your money to double by investing take the rate of return you receive on your investment, divide it into 72, and the answer is the number of years it will take. For example, if you earn 9% on your investment, divided into 72, your money will double every 8 years. With that said, make sure that you understand what you’re investing in and that you are working with someone or something to help educate you.
“You don’t want to cannibalize tomorrow to enjoy today.”
Learning these habits early will help to establish a healthy financial portfolio that will develop for you. Adam provided three important financial tips that his grandparents swear by:
- Bust your butt
- Satisfy your debts in a timely and responsible manner
- Play hard and give back
With these tips at the front of his mind, he has met countless clients who live by following them but in the wrong order: 1, 3, 2. They work hard, they play hard, and they save what they have left. By operating in the order above, and saving properly, you will earn the privilege of playing hard. “You don’t want to cannibalize tomorrow to enjoy today.”
Working with an advisor that genuinely cares about you, that you trust, and that you have a good relationship with means you can work together to reach your financial goals. Great advisors are able to provide tough love and help keep you on track as you manage your newfound salary!