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Advice for the Resident Physician: Creating Your Personalized Emergency Fund

You’re in medical residency, both stressed and elated at the same time. Getting sleep, finding time to eat, and determining who is and isn’t sick (does a bad case of drama count?) are among the limitless challenges you face. 

In many ways you expected these challenges. Your professors, friends, and every article you read has prepared you for this. You WILL change the world. But like those patients that arrive at the ER at 7am, you too will face unexpected circumstances along the way. 

What happens if you have a medical emergency? How about the landlord increasing your rent by 10%? Or better yet, your car (making an unwieldy sound) pulls into the mechanic only to find a $2,200 bill to rebuild the transmission. How do you address this type of emergency?

Spoiler Alert! (the answer is an emergency savings fund)

The Importance of an Emergency Savings Fund

Assume for a moment that there are two alternate realities you can view simultaneously. Both include you being in residency, averaging less than 6 hours of sleep, working with some patients that are overly difficult, and dealing with the worst-case-scenario more often than you’d like (i.e. more times than zero). 

Our first reality is one in which you have an emergency fund to cover unexpected expenses. The second reality is one in which you don’t have an emergency fund. The following scenarios then take place:

  • You broke your wrist while helping a friend move into their apartment
  • Someone ran a red light and landed your car in the body shop for 2 weeks
  • Death of a close family member. You need to travel across country to attend the funeral
  • Your landlord has decided to sell the building. You’re required to find a new apartment in 2 months, as well as come up with the first and last month plus security deposit

Under which reality will you best deal with these issues? As a graduate with a medical degree, you clearly know the answer to this question. 

An emergency savings does more, however, than just provide a resource during a time of need. As a resident, it also gives you a sense of ease. This is recognized in your mannerism and in the way that you communicate to patients and fellow staff. It reduces your stress in an environment that provides enough dosage daily. This reduced stress also conveys itself in the confidence you portray to your team, and the confidence you portray in yourself overall. 

Funding an emergency savings is as important to your mental wellness as it is to your financial wellness. 

How Much Should a Resident Physician Have?

Dave Ramsey and Suze Orman have a lot to say about emergency savings funds. The consensus between them is to maintain 3-12 months in cash, based on your fixed monthly expenses.1,2

Fixed monthly expenses are those that you could not go without. Rent, utilities, and loan payments are examples. 

Let’s say for example that your fixed expenses are around $2,500, assuming you enrolled in an Income-Driven Repayment plan to reduce the monthly minimum for your student loans. According to Dave and Suze, you should have between $7,500 and $30,000 in an emergency fund. That’s quite a range, one that’s difficult to digest given its vague application.

Let’s instead focus on building an emergency savings fund that is specific to your situation, not one that is suited for a televised broadcast to the general public.

Determining the Amount of Your Personalized Emergency Savings Fund

Your emergency savings should be as personal to you as the rest of your finances. Complete the following steps to determine the amount of your personalized emergency savings fund:

1. Calculate your monthly fixed expenses based on the following:

  • Mortgage or rent
  • Utility bills (electric, phone, cable, etc.)
  • Property and auto tax (if applicable)
  • Renters insurance
  • Auto insurance
  • Lease or car loan payment
  • Student loan payments
  • Life and disability insurance
  • Food (eating to live, not living to eat)

Multiply your monthly fixed expense by 6. This number is represented as “A”


2. Next you need to determine your risk of job loss on a scale of 10% to 100%, using increments of 10%. Remember that although job loss as a resident is rare, it is a possibility. To cover for the optimism bias, add 10% to your chosen probability.

This number is represented as “B”


3. Locate your medical coverage policy and identify your annual deductible. Add $250 to amount to offset emergency room co-pay, coinsurance, prescription, etc.

This number is represented as “C”


4. Locate your auto insurance policy and identify your semi-annual premium and policy deductible.

This number is represented as “D”


5. Lastly, calculate your personalized emergency savings fund via (A x B) + C + D 

For example:

Jon’s personalized emergency savings fund is $5,650. We get this by the following calculation: ($15,000 x 0.20) + $1,600 + $1,050

The Best Account(s) for Your Emergency Savings Fund

The best place for these funds is in an account that doesn’t carry a risk of loss. If invested in the investment market (stocks or bonds), and your personal financial crisis coincides with an economic financial crisis, you’ll find yourself in a tough position.

Online banks are generally the best source for higher interest rates, and identifying a bank that suits your needs can be relatively easy. Check out bankrate.com for example. There, you can compare the best online savings account rates, minimums, and overall ratings. 

The goal, all things being equal, is to achieve the highest yield on your savings account. A rate of 1.1% vs 2.1% may not sound like a big difference on $5,650 for example, but every penny counts as a resident physician. 

In summary

Residency requires much more than coffee, sleepless nights, and relentless determination. It also requires a solid foundation in your personal financial well-being. 

Having emergency savings doesn’t mean you have to have 3, 6, or even 12 months of cash on hand. It does mean that you need to have some savings to fall back on in case life throws you a curve ball, and life always throws you a curve ball. 

The best way to prepare for this is by creating an emergency savings strategy that meets your specific needs. Your needs are not like others. Your needs are specific and personalized. So too should your financial plan, and every financial plan needs to start with a proper amount of savings.

This article was written by Jeffrey Stewart, CFP®, CRPC ®, and published by Lucid Wealth Planning. Our mission is to empower people that improve the lives of others, helping them to change the world for the better. We provide financial, behavioral, and educational resources to medical professionals, academics, and others that have chosen a career dedicated to improving the lives of others. We do this by offering personalized comprehensive financial planning and investment management with emphasis on ESG sustainability.

If you'd like to learn more, please explore our site at www.LucidWealthPlanning.com, or contact Jeffrey Stewart directly using the link below:

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