Investing a small amount of money in med school

[sbridge514]

Hi everyone,

 

Sorry if this question has already been asked --here goes:

 

I am a fourth year medical student who has taken a paid research year between third and fourth year. Because my research stipend exceeds my living expenses, I am trying to save up as much of my extra money as possible.

 

In the past, I have been terrible with money (including getting myself into tons of credit card debt, which I was able to consolidate into a low-interest private loan through my bank and am slowly paying off) and I want to put some money away at the end of the year before I spend it all.

 

I think I will be looking at ~$4K to save and invest at the end of my research year. For a small amount of money like this, what recommendations do you have for investing? I have zero financial knowledge so any advice is appreciated!

 

Thanks!

[Kamban]

How much is the interest rate for the credit card consolidated loan.

Why not pay some of it. Other option is to use the $4K towards a Roth.

[Hatton]

You might need to keep the 4K as an emergency fund.  Are your credit cards paid off?

[MrsIMDoc]

I also did the extra research year and I had about $10000 "extra".  I used the money to buy a used car after my car had trouble, pay for interviews fourth year (this can be pricey), pay to move across the country, and had enough money to pay for my first month of rent during residency.  Remember that you likely will not get paid until 2-3 weeks into residency.  If it is possible try to avoid taking out any more loans for interviews/relocation and instead use this money.

Therefore, with $4000 I would either pay off the credit card debt or use it as an emergency fund and not invest it. If however you have family support and they are planning to help you with all of the above expenses then maybe you could invest it.

[The White Coat Investor]

I agree. You're going to need that money soon. The only "investing" I'd do with it would be to put it in a high yield savings account.

But if you want to stick it in a Roth IRA and invest it in a Target Retirement fund, that's totally reasonable as long as it is considered earned income (i.e. you paid taxes, including payroll taxes, on it.)

Obviously paying down debt and minimizing future debt is also a great use for a little extra cash.

[canadianoutlaw]

agree with the prior posters' comments re emergency fund, credit card debt, and living/residency expenses. Depending on your prior financial experiences, would also just mention that there is value in "dipping your toe in the water" with regards to retirement accounts, saving, etc, by opening a Roth and putting some of that hard earned $$ for the experience/exposure

[Craigy]

Forget about "emergency fund," payoff as much credit car debt as you can.

Once that's paid off, keep it in savings until you are able to payoff your credit cards in full at the end of each month.

[MrsIMDoc]

One other piece of advice I wish someone had told me before I started my fellowship: Look into how your income is reported. When I received this research fellowship I was told it would be "scholarship funds" and no one mentioned that I would have to pay taxes on this scholarship.  However my school then hit me with a 1099 miscellaneous for $15000 (1/2 of the year).  I had not budgeted for taxes at the time because I was told it was a scholarship.  I had absolutely no understanding of the tax code or what a 1099 form meant.  I ended up going to one of those free tax services for low income people and that was an interesting learning experience where I ultimately ended up just paying the maximum in taxes.

I did a quick google search for "1099 income fellowship" and found that this is still an issue for grad students.  I am still not sure if I paid too much in taxes back then but I did not want to break a law and did not have any financial guidance.   Either way I would recommend looking into whether you will be receiving a 1099 or W2 for your scholarship and try to budget for your taxes before you start investing.