Personal finance is definitely not the most exciting thing to learn about, however, once understood, is very rewarding and affects us all. Nurses have the opportunity to make great money, especially travel nurses. Healthcare is a steady field (unfortunately, there are always sick people) combined with licensed work (RN; not everyone is qualified) makes for a situation where salaries are very favorable. However, the problem is that not all of us have a business or finance background, and personal finance is not something that is taught in high school (although it should). Furthermore, we are left to learn on the fly and/or hopefully have had parents/family/mentors who have modeled good behaviors around money.
It is actually not unrealistic to make well over six figures when traveling, but the key is to be efficient with this money and keep the money you make. After all, no one wants to be making $100,000 a year and living paycheck to paycheck.
My fascination with personal finance stems from my seemingly crippling debt upon nursing school graduation. I HATE to feel like I owe anyone anything, so the fact that I could be indebted to Sallie Mae for years and years had me very anxious, to say the least. I also wanted to set myself on a good track for retirement because I definitely don’t want to work forever. Below are some of the first steps you should take to get your finances in order. Resources will be provided at the bottom for further reading.
1. Stop, Assess, Make a Budget
Essentially, there are only two ways to have more money. They are very simple.
- Make more money
- Spend less money
To a point, you can’t make any more money due to the limitations set out in front of you (e.g. wage cap, no overtime, not enough hours in the day). In nursing, we mostly work with hourly rates, meaning we trade hours for dollars. Sometimes, I use this analogy to see if it’s worth it to pick up that extra shift when I know that all I’ll be doing is catching up on some TV series.
When it comes to spending less money, it can be difficult but will have a much larger impact. It always seems like we can spend money much faster than we can make it, so by this logic it only makes sense to focus on this aspect more. You don’t have to totally cut out the frills (e.g. eating out, entertainment) nor does it have to be immediate. It may feel less of a struggle if this process is done gradually. A tactful way to do this is with a budget.
There are some great tools out there that help with this. The one that I’m most familiar with and have been using for about five years is Mint.com. Mint is free, has the ability to create and tweak budgets, and allows the synchronizing of all of your accounts so that you have a better picture of your overall financial situation and don’t need to input any transactions. Other options include YouNeedaBudget.com (YNAB) or Personal Capital.
Once you have a good idea of where your money is coming and going, you have the ability set goals and will have a better financial foundation.
2. Start an Emergency Fund
Travel nursing can be rewarding and exciting. However, it also has the potential to be nervewracking and unstable, especially when you’re coming down to the last minute to secure a new assignment. A way to combat these feelings of anxiety and promote strong financial health, it’s important to build an emergency fund so that you are secure in the worst case scenarios.
Emergency funds usually consist of anywhere between three to six months required expenses. This is why budgeting is an important first step (so that we know how much money we need to live). If you have high-interest debt like those from credit cards, it’s beneficial to save only one month of expenses and pay off those debts first, then proceed to save for the three-to-six-month fund. It’s also important to avoid carrying a balance on your credit cards. This fund will act as your “get out of jail free card” if you run into unplanned expenses because you won’t have to put any expenses that you can’t afford on your credit card. A credit card is NOT an emergency fund. Just to clarify: you can use credit cards, just don’t carry a balance past your due date because the interest can really be crippling.
When creating your fund, it’s important to have it available (i.e. cash). In order to have it accessible and separate from your other finances, it might be beneficial to start another account. A good option is Ally Bank, an online bank that has favorable interest rates on savings accounts. You can also set up recurring account transfers so that you can continue to fund your account automatically.
3. Enroll in Your Company’s Retirement Plan
There are many advantages to enrolling in your company’s retirement plan. The first being that it reduces your tax liability by siphoning money from your paychecks before taxes. Of course, there are specific rules to each product, but the general guidelines are that you should keep this money in the plan until retirement age. The longer your money has to grow in the market the better. If you withdraw funds early, you are bound to pay penalties and interest on the borrowed amounts.
Another perk that may be available to you is an employer matched contribution. This is essentially free money. Basically, your employer says has the opportunity to contribute to your retirement as well. For example, the 401(k) plan may be structured in a way that your employer offers 50% matching of the first 6% of your contributions meaning that you automatically have a 50% return right from the start! Sometimes there are vesting periods which basically refer to the length of time necessary to be with an employer in order to keep the contributions made by the employer. The contributions made by you are always yours though!
A great deal of power with retirement plans comes directly from the employer match. Make sure you are saving the required percentage to receive the maximum match amount by checking your plan information. If there’s no employer match with your plan, it might still be wise to use a small percentage (2-4%) any way to allow the compounded interest and the market work for you. If you change companies between assignments, there’s always the opportunity to “roll over” your old retirement plan into your new one as well.
4. Pay Down Your Debts
The debts we are most concerned about here are those greater than 4%. Obviously, the higher the interest rate is the greater the concern and more immediate the response. The goal is to use the remaining portion of your income as allocated in your budget to make the minimum payments on all of your loans and dump the remaining amount into the loan with the highest interest rate. When that loan is paid off, then you will use the money that you had budgeted to pay that loan and dump it into the loan with the next highest interest rate and so on. This is called the “avalanche method.” Another method exists where you attack the smallest loan amount in order to reduce the numbers of loans, called the “snowball method.” However, this method is will end up costing you more in the long run. A good website to help you formulate a plan/schedule is unbury.us.
In order to relieve the burden of interest, it would probably be a good idea to see if you can refinance your loans with a different servicer in order to reduce your interest rate and possibly consolidate your loans. When refinancing my school loans, I was able to refinance from an average weighted interest of nearly 8.5% down to 5.49%.
5. Contribute to an Individual Retirement Account (IRA)
After we’ve got a handle on our debts (which may take a while), the next step is to contribute to an IRA for the current tax year. You can also contribute for the previous tax year if it’s between January 1st and April 15th. Our goal here is to save up to 15% of your gross income until reaching the annual limit of $5,500.
There are two types of IRAs: Traditional and Roth. The main difference between these is when you pay the taxes on the money. Traditional IRAs have you pay the taxes when you start withdrawing the money during retirement. Meanwhile, Roth IRAs have you pay the taxes up front but do not require that you pay taxes on the money during retirement. You may need to do a little bit more research to see which product best fits your specific situation.
6. Save More for Retirement
When it comes to retirement, we want to save somewhere in the ballpark of 15-20% of our gross income before moving on to other goals. As much as I love nursing, I know my body won’t be able to do it forever so it’s important for me to know that my financial ducks are in a row when it’s time for me to throw in the towel.
After we’ve funded an IRA, we can circle back and increase our 401(k) contributions to exceed only that of our employer match and up to the limit ($18,500 in 2018) as our budget allows. Remember that this must be done from payroll deductions and cannot be funded with outside money.
7. Save for Other Goals
Think about what’s important to you and save for it. Vacations? A downpayment on a house? Early retirement? Take a few months off during the year? A new car? Whatever it is, it basically comes down to two options that we can pursue here: 1) early retirement or 2) more immediate goals.
The way that you save will depend on these goals. If it’s more short-term or under a five-year time frame, you’ll need to have the money accessible (i.e. savings accounts, CDs, or I Bonds). If your goal is further out than five years, then you can accept a bit more risk and can use a balanced index fund or a fund that uses a balance of stocks and bonds (percentage of stocks is usually 100 – [your age]).
This will obviously not all happen overnight and will take some time to get rolling. The important part is that you have a plan and have taken steps to improve your financial situation. Keep pushing forward and take time every once in a while to revisit your progress and make adjustments as time goes on. As you progress, also make sure you watch out for “lifestyle inflation” and use your money wisely as to not waste your hard-earned dollars.
For more information on the topic, the following may help:
The above guidelines have been adapted from a number of sources including reddit.com/r/personalfinance