Newly licensed clinical psychologist Shamin Ladhani, PsyD, passed up a number of higher-paying offers before accepting work at a nonprofit pain management center in Racine, Wis. Ladhani enjoys her job, and can't imagine not working in the public sector, yet newly married and weighed down by nearly $190,000 in student loans and credit card debt, she has trouble imagining a way to pay everything off, let alone buy a house.
"We're just beginning to put together some sort of financial plan, and my husband and I feel very clueless," she says. "We just don't know where to begin."
Ladhani is certainly not alone. A 2003 Doctorate Employment Survey conducted by APA's Research Office shows that 68 percent of recent doctorates in psychology hold at least some debt related to their graduate education, and that 24 percent owe more than $75,000. And that's not including the credit card debt many psychologists accrue during their postdoctoral assignments. The same survey also revealed that the median starting salary for new psychologists hovers around just $52,000 annually.
Some clinical psychologists make up the difference by taking on second and third jobs in research or teaching. Research psychologists may find paid side-gigs, perhaps as adjunct faculty at community colleges.
"It's absolutely maddening to hear all of the stuff they're doing, just to maintain their heads above water," says Guerda Nicolas, PhD, chair of APA's Committee of Early Career Psychologists, who often counsels new graduates on starting out in the field.
Early-career psychologists need not despair, however. By taking control of your finances and cutting out a few indulgences, experts say, you can achieve those big-picture goals, whether that means lifting yourself out of debt, buying your own home or traveling the world.
Here are seven steps toward financial freedom:
Step one: Create a budget, and stick to it. Figure out what income you have coming in, and what you must pay out each month for housing expenses, groceries, utilities, loans and the rest of your fixed costs, says Benjamin Tobias, a financial planner in Plantation, Fla. Tobias recommends investing in a money management software program like Money or Quicken to help record expenses and pay bills. Such software can give you a better idea of how much you can set aside for entertainment, eating out and savings and will help you figure out where adjustments can be made.
"This gives you the ability to look at your expenses and say, okay, I can afford to spend $50 less on entertainment and $50 less on clothing," says Tobias. "It takes the guesswork out of it."
Christopher Roos, a financial advisor with Smith Barney, recommends allocating close to 10 percent of your monthly income to student loans, and trying to keep housing costs, including your rent or mortgage, utilities and groceries at 30 to 40 percent of each month's take-home pay. About 15 percent should go to savings, he says. Experts also advise keeping three to six months worth of living expenses saved up in case of an emergency, such as a layoff or illness.
"If you can put 15 percent in savings and still put some food on the table, I think you're starting off on a good track," says Roos.
Step two: Write down your goals. Determine your goals for the next three, five and seven years, says Roos. For example, some psychologists might aim to pay off one quarter of their student loans in three years. Or maybe you'd like to save up enough for a down payment on a house in five. Once you've established your goals, the best way to achieve them, says Lynne Hornyak, PhD, is to put them in writing.
"Laying some of your goals out on a timeline is important so that you don't feel like you're being deprived of them or that they're never going to happen," says Hornyak, a Washington, D.C.-based practitioner who coaches clients on money matters.
Step three: Cut up your plastic. Credit cards often allow spending to spiral out of control, says Tobias. He recommends keeping only one credit card and using it for emergencies.
"What happens a lot with credit cards is that people want to continue a lifestyle that isn't going to be supported by their income," says Tobias. "Eventually, it can't work."
To avoid using credit, early-career psychologists may cut expenses by finding a roommate or living closer to work. Rachel Duzant, PsyD, a recent graduate of the Chicago School of Professional Psychology, says she clips coupons, brings her lunch to work every day and drives only when necessary in an effort to whittle down her student loans.
"I've had to put off a few things I'd like to do, but based on my calculations, I should be able to own my own home in about three years," Duzant says.
And when it comes to her credit card debt, Duzant employs a rule all financial experts advise--she's paying off the cards with the highest interest rate first. Credit cards, says Roos, often have much higher interest rates than student loans, and a high amount of credit card debt can jeopardize your lending status. Lenders consider student loan debt, however, as an investment in your future earning. So when it comes to choosing which debt to put more money toward each month, credit cards should almost always come first, say experts.
Step four: Make savings automatic. The advent of direct deposit allows beginning psychologists to send money straight into a mutual fund portfolio or savings account. Experts recommend setting up this type of automatic system for savings directly through your employer or bank, which eliminates the temptation of purchasing a new pair of shoes or the latest electronic gadget with your leftover funds each month.
"It's a lot easier to set that up and live on what's coming in, basically 15 percent less, if you can," says Roos.
Step five: Protect your credit by repaying responsibly. Find a loan payment plan that works with your budget and goals, say experts. A number of repayment options exist, such as graduated and income-contingent plans as well as loan consolidation or deferment, and the key is choosing one you can manage effectively each month.
"Paying back debt aggressively is a great idea, but not if you can't keep the lights on," says Roos.
Tobias recommends talking to your lender or researching options online. And be sure to submit your payments on time each month, Roos adds. One of the easiest ways to do this is by signing up for automatic deductions from your checking account. Late payments affect your credit history and might make it harder to get a loan when you're ready to buy a house, says Roos. And to get an idea of where your credit stands currently, he suggests requesting a free credit report annually at www.annualcreditreport.com.
Step six: Don't fret about retirement just yet. Unless retirement is a near-term priority, as is the case for many older early-career psychologists embarking on their second career, start small. If you're young and just starting your first job as a new psychologist, retirement should not top your savings plan, unless you can afford it. "It's more important not to go into more debt than it is to save for retirement," says Tobias.
But if your company offers a 50 percent to 100 percent retirement-matching program, absolutely take advantage of this and sock a small percentage of your income into this fund, says Tobias. It's money that you're just not getting in your salary, he says, and most of the time you won't even miss the little bit you contribute.
Step seven: Consult with colleagues. Keep in mind that you're not alone in your financial struggles and most likely many of your colleagues and peers were in the same boat at some point, or maybe still are, says Hornyak. She recommends asking colleagues, friends and family members for financial planning advice and about savings strategies that worked for them. Roos also recommends seeking the help of a trained financial planner, as needed. The Financial Planning Association offers online planner searches by location and specialty--budgeting and debt management, or retirement planning, for example--at www.fpanet.org.
In the end, Hornyak says, most people find a way to live fulfilling lives with what they have. With a new baby and a husband just starting graduate school, Nicole Ruzek, PhD, juggles all of her family responsibilities with a new job at a public institution in California. That's not to say she isn't concerned about her $90,000 in student loan debt. But she knows she'll pay it down, and feels rewarded at work and comfortable with her priorities.
"My financial strategy has been to focus on what matters most--career and family--and not worry too much about owning a home, taking lavish vacations or having the fanciest car," Ruzek says. "We do what we have to do, and we're pretty darned happy."