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Which accounts should I setup? What are good credit cards to start off with? How do I budget and what are the recommended %'s?
Managing your cash flow and budgeting is harder than it sounds. Why? You go from living off ramen noodles as a dental student to making six figures. You also need to pay off your student loans, save for a practice, and maybe buy a house. Oh you also need to save for retirement too. This makes managing cash flow tricky in the beginning, but the good news is once you automate your saving, the rest is easy. Skip to end for recordings and to schedule your new grad consult to review your student loans, budget, career path, and discounted disability insurance options.
Accounts:
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Checking (2) - Instead of using a budgeting software, I like the two-checking account method. The first account is used for your variable expenses (gas, groceries, fun money, vacations, etc). The second account is used for your fixed expenses (rent, car payment, insurances, student loan payments etc.). You can split your paystub between these two accounts and spend with confidence. A great way to use a credit card to earn points for your variable expenses. Simply track your credit card spending to the variable checking account balance.
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High Yield Savings - Typically an online only bank. They pay very competitive interest rates, are FDIC insured, and can easily move funds between accounts. Ally, Discover, American Express, and CIT Bank all have high yield savings products. For example, if your account earns 5% interest annually, a $40,000 account is earning $2,000 in annual interest!
Credit Cards - Use for everyday expenses as long as you are not overspending. I prefer a no annual fee card to start in order for you to find your preferred rewards vehicle (everyday cash back, travel, etc). Once you know this, you can look at a card with an annual fee if it checks the right boxes.
- Discover it Cash Back Card
- Blue Cash Everyday Card from American Express
- Chase Freedom Unlimited
- Bilt Credit Card (earn points on your rent) - Review here
- Read more here
Budget Allocation (Gross Pay)
- 25% - Taxes
- 25% - Everyday Expenses (groceries, gas, insurances, utilities, fun money, travel, etc.)
- 15% - Housing (rent or mortgage/property taxes)
- 35% - Savings (short to long term investing, practice purchase, student loan payments, emergency savings)
Budgeting Software:
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Simplifi by Quicken - Aggregator that brings in transactions, allows you to set goals, and categorize/monitor spending
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YNAB - Similar to Simplifi but different in that it has your budget only money that has come in. Teaches you to only allocate/spend dollars that you have been paid vs. allocating forecasted dollars.
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Excel - The original budgeting tool outside of pen and paper. Microsoft has plenty of templates that you can customize to your needs.
Credit Score Monitoring - There are quite a few options, but the goal should be to see what is on your report and then freezing/unfreezing your credit when necessary.
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Monitoring - There are a lot of different services out there including subscription options but Experian is a good place to start. It will show you your open lines of credit, loans, and estimated FICO score for free.
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Freezing/Unfreezing your credit - An underutilized option but this prevents loans being taken out in your name via identity theft when your credit is frozen. When you need to take out a loan, you will unfreeze your credit prior. You will freeze it will all 3 bureaus and an easy way to help prevent fraud.
Pitfalls to Avoid:
- Making big purchases right out of school (home, car etc.) should be done cautiously due to potential job change, income variables, and especially if your goal is to own a practice.
- Using a credit card without discipline will eat up your excess cash when you go to pay it off every month. Just because you earn points doesn't mean you need to buy it.
- Excess travel early on will add up throughout the year and affect your savings rate.
- Not paying attention to what you are spending your money on regarding recurring subscriptions will create "creep" on your recurring monthly expenses.
- Not automating your recurring savings
See below to watch our previously recorded webinars on student loans and other relevant topics for the graduating dentist:
Interested in a complimentary consultation tailored to your situation? Use the link below to schedule. Topics include: establishing your budget, student loans, career path, discounted disability insurance and more.
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