First off, congratulations to you! Given the average student debt for ODs is approximately $180,000, paying off your education loans took a lot of hard work and discipline. Make this financial milestone a memorable one by first treating yourself to something you were previously reluctant to spend money on, maybe a nice vacation or gear for a new hobby you’ve wanted to try.
Now that you paid off this mountain of debt, you’ve begun brainstorming the myriad ways you can spend (save, or donate) all this extra income you’ve unlocked. We’ve heard the saying “live like a student” even after graduation. While everyone has different priorities and financial goals, paying off student debt shouldn’t automatically segue to spending money like a celebrity. In this article we’ll discuss some ideas on how to allocate all this extra cash flow, while staying on track towards your personal and financial goals.
Max out retirement accounts
This one might sound obvious but only 13% of people actually hit the maximum contribution limit in their 401k accounts each year. In 2018, the average contribution was only $6,850, while the maximum limit allowed was $18,500.
For high income (and highly taxed) earners like ODs, reaching the maximum on your pretax retirement accounts shouldn’t be a problem, especially once the student loans are gone.
In addition to workplace retirement accounts (eg. 401k/403b), one can also have a traditional IRA and/or Roth IRA account as well. Optometrists however may find themselves “ineligible” to contribute directly to a Roth IRA (see phase out limits beginning with modified adjusted gross income > $124K for single, or > $196K married filing joint).
While a traditional IRA does not have income limits to contribute, there are income limits for tax deductible contributions. The primary purpose of a traditional IRA is its utility as a pre-tax bucket to lower taxable income. The traditional IRA may not be so appealing if you’re still paying taxes on the contributions (with taxation likely occurring again as you withdraw during retirement!). Researching the backdoor Roth IRA can be a great solution in this predicament.
Optometrists who are self-employed or independent contractors can also open an Individual 401k or SEP-IRA.
Pay off other high-interest debt
By high interest debt, we’re primarily talking about credit card debt, as average interest rates range between 15 and 19%. With average US credit card balance being $5,700, tackling the credit cards can be a good next step after paying off student debt.
This can also be a good opportunity to reevaluate which card(s) you choose moving forward, considering the sign-on bonuses, 0% balance transfers, and cash-back/travel rewards of all those card offers on the market.
Start an emergency fund
We’ve heard that it’s important to have a “3 to 6 month” emergency fund should an unforeseen event take place. Pretending the student loan payment still exists and instead putting this money into a high-yield savings or money market account can be a good place to start. Whether it's an unexpected home/vehicle expense, medical expenses (particularly in our current situation), or just general living expenses in between jobs, having an emergency fund can help increase net worth while also providing peace of mind.
Donate to charity
If you haven’t already, now could be a great time to consider adding a charitable contribution(s) to your monthly budget. As high income earners, ODs are in a great position to share their resources and/or skill set with those in need. This could be a combination of your time and/or money, and looks different for everyone.
Websites such as givewell.org are designed to curate and promote the most effective charities that save/improve the most lives on a per dollar basis. If tracking the allocation of funds is a priority for you when donating, resources like this can be referenced when deciding on where you’ll feel most comfortable giving your money. If you want to set up recurring monthly donations, larger organizations usually make that easy. If you want to vary where you're giving your money each month, identify issues that are important to you and seek out groups or individuals working for change.
Whether it's due to #givingtuesday or just end-of-year tax preparation, approximately 1/3 of all charitable contributions occur in December of each year.
Reevaluate your practice setting/work schedule
It is not uncommon for ODs to change jobs several times before landing on their dream career path. Did you take that extra part time job just for the additional income? Are you passionate and fulfilled in this practice setting? Do you want to be working Saturdays long term? These are some questions you may be asking yourself, and what better time to pivot on your career path than now?
Without the financial burden of student loans, ODs are better able to pick and choose their ideal practice setting and work schedule. Maybe now is the time to cut back on clinical hours to pursue other passions within (or external to) the optometric profession. The optometric profession has also never had more non-clinical career opportunities available to ODs than now.
Relish your accomplishments!
Arriving at this financial milestone took a lot of dedication and hard work. Take a moment to bask in your accomplishment. Don’t hesitate to celebrate! Once you’ve broken free from student debt, it is important to continue spending and saving with intention, keeping yourself on track to achieving your personal and financial goals.
