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    Simple finance for pharmacy graduates


    Robert A. Gibson, RPh, MSFS
    As graduation nears for many new pharmacists, I am happy to report that you are likely to be making a six-figure salary. Unfortunately, you will also have a six-figure debt. I have helped many new graduates set their priorities and get financially organized — a necessity because, believe me, the money supply is not endless. So I've compiled a list of the most common financial mistakes that new graduates make. While these seem like common-sense tips, you'd be amazed how many new pharmacists make the top three mistakes.

    1. Minimizing debt

    First, minimize your debt, which carries the highest interest rate. Credit cards are the worst, with some at an annual percentage rate of 20%. Try to resist opening new credit-card accounts; you know, the ones promising instant 10% savings if you open an account. The "big-box" stores love these; they know that when you use them, you'll spend a ton more.

    Also, if at all possible, pay off your credit-card bills each month. I had a client once who had a $15,000 credit-card bill at 18% interest. It was almost impossible for this young person to pay the minimum payment. Another young graduate was paying extra on his student loans and paying the minimum on his credit-card bills. The student loans were at a 5% interest rate and the credit cards were at 18%. He should have worried less about the student loans and worried more about his credit cards.

    2. Choosing your first car

    Second, be very selective about your first car. A car is one of the most expensive purchases that you will make, but cars are depreciating assets. Cars depreciate as soon as you drive them off the lot, and they don't stop depreciating.

    A new graduate who became my client had bought three Land Rovers. Her debt was tremendous (not to mention the fact that her insurance payments were outrageous), and she eventually had to sell two of the Land Rovers at a loss just to achieve economic stability.

    If you have a decent reliable car, hold onto it. Take your time before buying, and then buy something that won't guzzle gas or have a high insurance premium. Do your research before you hit the lot, and if you can find a good used vehicle, get that first. Also, consider a three-year loan on a new car. The payments are higher, but you can save substantially on interest payments.

    3. Planning for retirement

    Third, don't put off retirement planning. Retirement is the furthest thing from the minds of most new graduates, but it sneaks up on you fast. Would you be shocked if I told you that you will need more than $1 million saved before retirement if you want to continue to enjoy the lifestyle to which you've become accustomed? If you start early, it is very possible for you to reach this goal.

    Some employers are even willing to help you. Many employers are willing to match a certain portion of your contribution. If you don't take advantage of their generosity, you effectively are giving away free money.

    Another advantage to contributing to your employer's qualified plan is that your money is tax-deferred as it grows, and your current contributions are an above-the-line deduction. In basic terms, you could get a huge tax break.

    I once helped a new graduate who was not contributing to her 401(k) at all. Her employer was willing to match 5%, so not only was she leaving free money on the table, but she wasn't taking full advantage of a current tax break either. This was very foolish. You should always contribute at least the amount that your employer is willing to match.

    So set your goals, make yourself a budget, and remember the first rule of finance: "You can't spend more than you make."

    ROBERT A. GIBSON is a fee-only financial planner in Harrisonburg, Va. He specializes in education and retirement planning. Contact him at
    or 540-432-6415.