Eight ways to take charge of your finances

After amassing $180,000 in student loan debt while pursuing his doctorate, Todd Hilmes, PsyD, felt so overwhelmed that he couldn't open his monthly loan statements. "I was definitely burying my head in the sand," says Hilmes, who earned his doctorate in 2011 and is now a clinical psychologist with the U.S. Department of Defense. "I was totally unprepared for what my options were when I started to repay it."

Hilmes is not alone. Research led by clinical psychologist and certified financial planner Brad Klontz, PsyD, of Lihue, Hawaii, has shown that compared with people in many other occupations, mental health professionals are more likely to have "money avoidant" attitudes, leading them to push aside their thoughts about money (Journal of Financial Planningopens in new window, 2012). He's also found that these money-avoidant attitudes negatively affect psychologists' financial health. In a survey of more than 250 professionals from a variety of fields, Klontz found that mental health professionals are significantly less likely than comparable professionals to pay off their credit cards each month, to have money set aside for emergencies, to follow a budget, to have adequate insurance and to feel comfortable with their financial status (Journal of Financial Therapyopens in new window, 2015).

He believes those characteristics were fostered in graduate school. "I was indoctrinated into the belief—as many of us were—that if you came into psychology to make money, you were in the wrong business," Klontz says. "Psychologists are just more likely to believe that money corrupts people, that there's virtue in living with less money and that we don't deserve a lot of money when others have less than us."

And such beliefs, he says, are associated with worse financial health, lower income and lower net worth than comparable professionals. How can students and early career psychologists better confront their financial issues? Klontz and other experts offer this advice:

Klontz encourages students and early career psychologists to use their cognitive-behavioral training on themselves to examine any anxiety they may have about money and their beliefs about it. For example, in questioning one's belief that money corrupts people, you may find several examples where this is true, but it is by far not universal. "There are also many examples of people who are incredibly wealthy and who do incredibly wonderful things for people," Klontz says.

If you're a prospective student, find out precisely how much money you'll need to borrow to earn your degree. Tally tuition and the many other associated costs of obtaining a graduate degree, such as meals and living expenses, says Eddy Ameen, PhD, who directs APA's Office on Early Psychologists. "It's those indirect costs that people don't always think about that can really derail folks financially, like how much is rent going to be if they go to school in a large metropolitan area like New York City as opposed to a place like Columbus, Ohio, where they're already living," he says.

It's also crucial to compare each institution's full financial aid package and find out whether it includes nonbillable scholarships and grants or if tuition is covered mostly through loans that must eventually be paid back, Ameen says. If you're an early career psychologist with educational loans, it's important to understand exactly how much you owe—including what you may have borrowed as an undergrad—and compare your options for repayment (see step 4).

Students should also seek to reduce the amount they'll need to borrow, explore opportunities for nonfederal grants and scholarships—for being a member of an underrepresented group, for example—and ask your department chair or advisor about additional funding prospects, Ameen says. "While the university might not advertise this, oftentimes the graduate program itself will have tuition remission or tuition waivers in exchange for taking on a graduate assistantship or working in a research lab, which are things that you'd likely already planned on doing in grad school anyway," he says. "The trick is knowing what and who to ask to get the right information."

Make sure that your payment plan reflects your individual needs, Hilmes says. Some early career psychologists who may not be eligible for loan forgiveness through their employers, for example, may choose to make sacrifices to pay off their debt as quickly as possible. But many new grads work in jobs that qualify for the federal government's Public Service Loan Forgiveness Program. After 120 consecutive monthly payments, the remaining balance on your Direct Loans is forgiven by the government. In addition, if your federal student loan payments are high compared to your income, new grads should consider applying for an income-driven repayment plan such as Pay as You Earn, Income-Based Repayment and Income-Contingent Repayment.

"Your first year out of grad school, your loan payment can be based on what you made your intern year, which for almost all students is very low," Hilmes says. Find out what options are available to you through the Federal Student Aid program at studentaid.govopens in new window. 

If you have never had a budget before, the best way to develop one is to track all of your expenses for 30 days, says Neal Van Zutphen, a certified financial planner with Intrinsic Wealth Counsel, Inc. in Tempe, Arizona. "Just as you would if a fitness trainer asked you to record all of your food intake for a month, use a small notepad and jot down every single thing you spend money on for a month," he says. Once you have your list of expenses, determine which ones are fixed or mandatory—such as your car payment, rent, phone, utilities and student loans—and which ones are discretionary, such as trips to the movies, new clothes or gourmet coffee. Van Zutphen reminds new grads to consider expenses that occur quarterly, semi-annually or annually, such as car insurance or membership fees, that they'll need to save a part of their income for when these bills come due. Then, add up all your expenses and subtract them from your net paycheck for the month. "Hopefully, you have more money than month left to go." If you're not a fan of the paper and pencil method, apps such as Mint and Personal Capital can also help with budget creation and tracking. Van Zutphen also recommends that psychologists of any age check out the U.S. Department of Labor's free resource on creating a budget and spending plan, "Savings Fitness: A Guide to Your Money and Your Financial Futureopens in new window."

One way to boost savings and better understand your relationship with money is to try an experiment that Van Zutphen refers to as "Crunch Month." For 30 days, only spend money on the absolute essentials, he says. "Cut out all Starbucks trips and any other discretionary expenses and see what happens," Van Zutphen suggests, noting that he's seen clients discover they can save between 20 percent and 40 percent of their net income. "One couple I worked with on this actually lost 10 pounds because they ate at home so much more," he says. While most clients eventually ease up on the Spartan lifestyle, he adds, they learn they can save a lot more than they originally thought they could.

Many early career psychologists may think it's best to put every dime they have now toward paying off their student loans, especially if they have a high interest rate, Klontz says. "But it's probably still going to take you 20 years to pay the loan off, and by then you're nearing 50 years old and just starting to save for retirement," he says. That's why it's critical to contribute as much as you can to a 401K or IRA as soon as you get a job. Klontz recommends putting around 10 percent of your salary toward retirement while you're also paying off student loans, or at least enough to contribute up to your employer's matching amount, if they offer one.

These experts can help you fine-tune your financial goals, whether you are saving for a home or thinking about starting a private practice. "An hour with a professional can set you up with everything you need to know for the next couple of years," Klontz says. "So, pay for the help."