Money Matters Made Easy: Focus on Your Financial Future
OCTOBER 20, 2010
Laura Enderle, Assistant Editor
Money Matters Made Easy: Focus on Your Financial Future
For pharmacy students attempting to live frugally, everyday decisions can take on a peculiar weight: Should you eat rice and beans again or splurge on takeout? Take a trip to the mall or shop the closet instead? Haunt coffee shops or invest in a coffee maker?
The constant internal debate can be exhausting, with each choice seeming to put you one step closer to or further away from financial ruin.
Such debates—though crucial when cash flow is limited—can trap students into a habitually narrow, short-term perspective on money management. This can have consequences later, as immediate financial concerns shift to the back burner once you secure a full-time, salaried position.
To ensure a sound financial future, big-picture thinking is just as important as everyday spending. This is especially true for pharmacy students, whose earnings are likely to change drastically soon after “PharmD” is added to their list of credentials. Financial planners suggest a combination of long- and short-term strategies to conquer student loans, pay off credit card debt, save for major purchases, and manage living expenses—both now and in the future.
By learning basic personal finance skills, seeking guidance from an expert, and practicing consistency from the very beginning, pharmacy students and recent graduates can avoid financial pitfalls later in their careers.
Building Financial Literacy
Exercises prescribed by financial planners can seem simplistic on the surface, but they almost always reveal something unexpected—a phenomenon that Michelle A. Chui, PharmD, PhD, has witnessed firsthand in her work with pharmacy students.
In 2004, Dr. Chui launched a pilot program at Midwestern University’s College of Pharmacy to determine the benefits of a personal finance class designed especially for PharmD candidates. Her research revealed several commonly held misconceptions and provided strong support for incorporating financial training into the pharmacy school curriculum.
“Unlike most Americans, pharmacy graduates often begin their careers with significant debt, and with high salaries,” Dr. Chui wrote in a report published in the American Journal of Pharmaceutical Education. “Without the luxury of time and experience to become competent in handling personal finances, pharmacy graduates usually face a steep learning curve.”
In Dr. Chui’s experiment, a simple budgeting exercise became a revelatory experience for several of the program’s participants. In this assignment, students were asked to:
1. set specific, measurable financial goals;
2. create a budget to achieve goals based on current income;
3. create a budget to achieve goals based on an estimated postgraduate income of $100,000 (or $70,000, after payroll deductions).
Typical goals included paying off student loans, purchasing a car or house, and saving for retirement—targets most students expected to hit easily as soon as they began receiving regular paychecks commensurate with their degree.
According to Dr. Chui, this “grass is greener” mentality led many students to drastically overestimate the purchasing power of a $70,000 salary. “When completing their postgraduation budget, students invariably were surprised to find that, in spite of the generous salaries they would earn, they would not be able to achieve all of their original financial goals immediately after graduation,” she explained.
Other exercises were equally enlightening. Prior to completing a personal property inventory, many students considered themselves poor, only to find that the combined worth of their clothes, electronics, furniture, and household items suggested otherwise.
The assignment was meant to highlight the value of property insurance, but also helped dispel a persistent myth about postgraduate discretionary spending. Students who previously “longed for the days when they could spend money and purchase all of the items that they would want” were surprised at how much they already owned, Dr. Chui observed.
The benefits of financial education for pharmacists cannot be overstated, according to Dr. Chui, who is also an assistant professor at the University of Wisconsin-Madison School of Pharmacy. “Teaching students about conservative spending and aggressive saving may help pharmacists enjoy more independence and forethought in looking for the most rewarding work, derive greater job satisfaction, and even deliver better patient care,” she concluded.
Recognizing the benefits of financial training for all Americans, many high schools have been providing personal finance classes to their students since the recession began in 2008. Although the public’s renewed interest in mandatory financial education is good news for the graduating pharmacy students of 2020, 2021, and 2022, it does little to help this year’s graduates cope with the financial realities that await them.
Fortunately, there are plenty of ways to fill in the blanks. Not all PharmD candidates will have access to a personal finance course while in pharmacy school, but many schools do offer financial planning resources, such as one-time seminars or counseling sessions with a financial planner.
Staying connected to your school’s financial aid office, participating in campus career events, and taking advantage of any and all services offered are steps current students can and should take to get started on the path to financial literacy.
Fresh out of school and facing a 6-figure debt load, pharmacy school graduates are prime candidates for the services of a certified financial planner.
“One of the biggest mistakes you could make is to not consult a financial advisor,” said Terri Cullen, Editor-in-Chief of Finance and Leisure for HCPLive, Physician’s Money Digest, and MD Magazine, all sister publications of Pharmacy Times.
Consulting a financial planner is especially important for graduates who are married or plan to marry partners with significant loan debt, according to Cullen. “A financial planner will assess your current debts and obligations, and help you plan for future financial goals,” she said.
Finding a match can be challenging, but not impossible. Cullen suggests choosing a financial planner who charges a flat fee, rather than commissions, “so you know you’re getting objective advice.” The process is similar to the one you would follow to find a physician or therapist— friends and family are a valuable resource for recommendations.
Online tools offered by the National Association of Personal Financial Advisors (http://phrmcyt. ms/ati3H9) or the Garrett Planning Network (http://phrmcyt.ms/cUHLav) can also help beginners find a fee-only planner in their area.
Once a list of prospective planners has been identified, it’s time to interview and vet candidates. The Certified Financial Planner Board of Standards offers a checklist of interview questions (http://phrmcyt.ms/bWaLmg) to ask, and the Financial Industry Regulatory Agency’s Web site (http://phrmcyt.ms/a7FUHo) lets users investigate disciplinary actions, customer disputes, or criminal charges filed against financial advisors.
“You also should follow up on references, asking your advisor to provide names of clients whose backgrounds are similar to your own,” said Cullen. For this reason, graduates who have already secured employment may also want to consider pursuing membership in a professional association to build relationships with other pharmacists.
Associations can provide a network of support to help new practitioners jump financial hurdles, such as finding a financial planner, early in their careers. The American Pharmacists Association’s New Practitioner Network works with the Financial Planning Association to offer financial planning resources to members.
“Finally, and perhaps most importantly,” Cullen said, “consider how comfortable you feel discussing your finances with the advisor.”
Do-it-Yourself Digital Finance
The phrase “financial planning” may strike fear into the hearts of new practitioners everywhere, but it needn’t be drudgery. Combined with professional advice, several free and creative Webbased tools can make financial planning less tedious, more efficient, and even somewhat fun.
The unparalleled power of Mint.com (www. mint.com) to automatically track, analyze, and display your daily spending habits in rainbow pie charts is unsettling at first. Once you get past the shock of finding that a substantial percentage of your income went to out-of-network ATM fees, this award-winning tool can change the way you think about money.
The service links securely to all your accounts, helps you set and manage goals and budgets, and discover opportunities for savings—all through an inviting, user-friendly interface. A new community feature, Mint Answers, lets users ask questions and receive answers from professionals and other Mint members.
For those less willing to cede total control to sites such as Mint, Google Docs (www.docs. google.com) is a more private option. Equipped with a free Google account, users can track expenditures using a custom form created from a Google Docs spreadsheet.
The form’s fields can be as complex or as basic as necessity dictates, with the option to create multiple choice questions to identify spending categories. The saved tracking document can be accessed and shared through any device connected to the Web or downloaded as an Excel chart, making Google Docs a convenient solution for manual, mobile tracking.
Other niche sites deliver more specific services that can be mixed and matched to help techsavvy students and recent graduates perform a variety of personal finance tasks online.
• Bankrate (www.bankrate.com) provides free rate information from more than 4800 financial institutions on mortgages, credit cards, automobile loans, checking and ATM fees, and online banking fees.
• BillMonk (www.billmonk.com) offers a peaceful alternative to splitting the check, enabling users to monitor, pay off, and cash in the IOUs that often accumulate between graduate students.
• Abogo (abogo.cnt.org) can help pharmacy graduates evaluate job offers by calcu-lating the cost of transportation in a given area. It accounts for variable regional factors—such as the availability and cost of public transit, the cost of car ownership, and current gas prices—to give an accurate estimate.
• LearnVest (www.learnvest.com) is a personal finance site and community designed especially for women. Founded by Harvard grad Alexa von Tobel in 2006, LearnVest provides comprehensive financial checklists, tools, and lessons designed to help women manage finances throughout each stage in their lives.
• Plantly (www.plantly.com), in beta as of this writing, is billed as a “risk-aware investment tool” designed for “non-financial people.” Based on their answers to 4 simple questions, Plantly helps users choose an investment strategy from among 180 different plans. Subscription is currently private, but aspiring users can sign up now to receive invites as soon as the service goes public.
Students enrolled in Midwestern University’s personal finance program learned more than how to balance a budget or conduct a personal property inventory.
They learned how to challenge their assumptions about financial management. Making sound financial decisions takes more than just common sense—it requires careful, long-term planning and continuous assessment.
Whether pharmacy students and recent graduates begin with the do-it-yourself route or seek counsel from a certified financial planner right away, taking the initiative to make use of available tools and resources is an essential first step toward financial freedom.
Laura Enderle, assistant editor