spending plan

My residency spending plan: a new way to think about budgeting

 

As a young professional with many competing expenses, it is paramount for me to prioritize my spending. However, adhering to a strict budget can seem a bit daunting and restrictive. To get over this anxiety, I started out with a spending plan that mirrors the “50-30-20 rule” by allocating money into 3 different buckets: things I have to buy, things I want to buy, and things I should buy. Let me explain.

Category #1: Things I Have to Buy 

This category is for my fixed expenses. It includes the bills and necessary purchases I must make to survive. This includes my monthly rent and other bills (like electricity, internet, water, and sewage). I also use this category to pay for groceries, gas, and different types of medical insurance (i.e. vision, dental, and disability). For young adults just starting out in their careers, this category of fixed, necessary expenses can take up about 50% of your take-home pay. For young professionals established in their career, it may be a much lower percentage. For me, this amounts to about 45% of my take-home pay. 


Pro Tip: If your fixed expenses add up to over 50% of your income, consider ways you can cut costs or increase your income. I tried to do both. In order to decrease costs, I decided to live with a roommate. This not only lowered my monthly rent payment, but it also allowed me to split many other bills, which substantially lowered my living expenses. Along with decreasing costs, I also created a second source of income. As a resident physician with limited free time, I couldn’t get a second job, nor did I want to. Instead, I decided to turn something I love (blogging) into a second source of income by monetizing my blog and accepting paying offers to write for other platforms. Whether you enjoy writing or have another area of interest, think about what you love to do and consider different ways you can turn your hobby into a second source of income. 

Category #2: Things I Want to Buy 

 
bills and coins out of woman wallet.jpg

This category is for my discretionary spending “aka” non-necessities that increase my quality of life. These expenses can differ for each person but for me they include: entertainment (like weekend outings to the movies, sporting events, and restaurants), self-care (like personal grooming, hair appointments, and gym memberships), and incidentals (such car maintenance, birthday gifts, and other unexpected expenses). This is also the area I dedicate to giving. As a Christian I try my best to give to the less fortunate and donate to organizations that do the same. 

Pro Tip: Everyone’s list of discretionary spending may vary. I choose to drive an older car and spend extra money on entertainment and self-care. You may, instead, choose to drive a much nicer car and opt for a car payment. The items you choose to purchase can differ from mine. The goal is to keep your discretionary spending to about 20-30% of your take-home pay. Mine is 25%.

Category #3: Things I Should Buy 

This category is for monetary growth. It is the part of my take-home pay I use to increase my net worth and build financial security. This can be done in a variety of ways, but I use this section of my budget to save, invest, and pay down debt. For example, I put a certain percentage of money into an emergency fund and secondary savings account (which I will use for unexpected expenses, a future vacation, a house down payment, etc). I also allot a portion of money from this category to invest in my employer-sponsored retirement account (which is a 403b retirement savings plan through which I invest in a combination of stocks and bonds). Lastly, I use this category of money to pay down student loans and credit card debt. 

Pro Tip: You can increase your net worth by either paying down debt or increasing your investments. I do both. The goal is to reserve at least 20% of your take-home pay to this category to ensure you have an adequate emergency fund and are saving enough money for retirement. Since I was unable to work during my time in medical school and incurred some credit card debt when I moved to another state, I am allotting about 30% of my budget to this category to “catch up.” However, your exact percentage may differ from mine. You may need to start off by allocating a much smaller amount to this category and increasing the percentage over time.


Generally speaking: the amount you allot to these 3 categories may vary. The important thing is to make sure you have a portion of your budget reserved for all 3 areas.

Tell me, was this helpful? What percentage of your check do you have allocated to these 3 areas?



 

Yes I’m a Doctor, yes I still live on a budget: 4 steps I took to change my spending habits

 
piggy bank and coins.png

To the outside world, I’m a rich doctor who can buy what I want. In reality, I’m a sleep-deprived resident physician struggling to keep my head above water. No one told me life would be like this, at least not before I started taking out tens of thousands of dollars in student loans each semester, but I digress. The point is that even [future] high-income earners like myself need to have a budget. Without one, our money disappears faster than a post-call resident leaving the hospital. 

Unfortunately, realizing I needed a budget and actually creating one were two different things. Like a diabetic struggling to shed those unwanted pounds, it takes time to actually move from one step to another. Coming to terms with the fact that I work super hard and still can’t afford all the things I crave is its own beast that has taken me several attempts to tackle. Just in case some of you are in the same boat, let me shed some light on my own come-to-Jesus moment.

Step 1: I had to let go of my pride and accept that I was spending too much money. 

I’m almost ashamed to admit, but a few years ago I didn’t think a budget was necessary. I thought they were for poor people living paycheck to paycheck. Now that I’m a doctor living paycheck to paycheck I have a lot more sympathy (and humility too). It wasn’t until 6 months ago that I finally let go of my pride and began to accept that my habits needed to change. I was tired of running out of money at the end of each month. I was tired of relying on my credit cards for basic living expenses or holding my breath every time I had to pay for an oil change. 

Step 2: I had to sit down and actually write down my budget.

Honestly, I think the only reason I finally sat down and tried to make a budget was because I had this incredible distaste for debt. I had heard horror stories of older doctors whose student loan burden was sapping all of the happiness they once had with their jobs. It’s as if their lack of financial independence had turned the job they once loved into one they despised. I didn’t want that to happen to me. I wanted to know that my bills were paid on time each month and that my credit card debt was getting smaller and smaller. I wanted to make sure all my bases were covered. Creating a budget was one of the first steps I took to get on the right track. 

Step 3: I had to download a budget app to track my spending, and actually check it. 

Sounds simple, but for me, this was not an easy feat. The anxiety I had even thinking about opening Mint.com is one I cannot even begin to describe. But...I got through it. Slowly but surely I began to look at the numbers. I saw how much money I was actually spending on food each week. How my impromptu trips to the mall resulted in unnecessary clothes and holes in my budget. How the Uber rides, overpriced drinks, and club fees from weekend shenanigans added up to much more than I anticipated. I finally opened the app, stared at the numbers on the screen, and faced the fact that my spending was out of control. 

I was barely staying afloat and knew I had to do better. I couldn’t use the fact that I was a med student living on loans as an excuse. The spending habits I had wouldn’t magically change once I started getting paid as a resident physician or even as an attending physician. I needed to get rid of the bad behavior now, so that when I do experience an increase in pay in the future, I don’t just squander my wealth. 

Step 4: I had to put boundaries in place and stick to them. 

calculator and chart.png

It wasn’t enough for me to track my spending each month. I needed to put some protections in place to “save me from myself.” I opened mint.com and set up budget notifications that send an alert to my phone whenever I’m nearing my weekly allotment for food or entertainment. For example, if I limit myself to $100 every two weeks for transportation, the app will send me an alert whenever my Uber rides approach the $80 mark. That way I know when I need to forgo that weekend party invitation and maybe host a game night at my place instead. I was well-intentioned before, but setting boundaries through budget apps and spending notifications has really challenged me to stick to my goals.

Full disclosure, I am still a work in progress. There are times I ignore those alerts only to face regret when I log into my bank account afterwards. Thankfully, those times happen a lot less frequently than they used to. When it comes to my spending habits, I am far from perfect. I still struggle, but by simply making these 4steps my spending habits have improved exponentially. 

Tell me, what steps have you taken to improve your spending habits? What was it like when you first tried to make a budget?