How to build the perfect physician budget
Key Takeaways
Doctors are human, and humans need budgets. However, budgets are not one-size-fits-all. Physicians have a specific set of financial circumstances that make their budgeting more nuanced. They’re high-earners, but doctors also tend to have larger expenses, service more student loan debt, and pay higher taxes, for example.
Moreover, each physician’s financial circumstances are different. For example, housing costs for a Montana-based doctor are going to be lower than those for a doctor in New Jersey. If crafting or improving your budget is a priority, we recommend using this principle-based approach, then customizing to your needs. We’ve also included links to real physician budgets, if you’d like to see the gritty-gritty percentages of how doctors have budgeted their money.
Here are 6 steps to creating a better physician budget.
Step 1: Determine your priority
Merriam Webster defines priority as “something given or meriting attention before competing alternatives.” Something, not things. Singular. Before you begin crafting a budget, we recommend that you (and your significant other, if applicable) determine a singular financial priority.
Possibilities may include early retirement, financial independence, both (in the form of FIRE), eliminating student loan debt, or saving for college, for example. By determining a priority, you’re determining where you’ll put the bulk of your savings.
If you decide it’s early retirement, that doesn’t mean you ignore the rest. You are simply deciding what is most important to you. Need help figuring that out? Start here.
Step 2: Determine what you’re spending
What gets measured gets managed. This includes your money. For 2-3 months, log every dollar that comes in and every dollar that goes out. We don’t care how you do it, just do it. Build your own high-powered Excel spreadsheet, download a Microsoft budget template, use a free service like Mint (just keep in mind they’ll use your data), or use a paid service like QuickBooks.
There are 2 categories of expenses, fixed and variable. Your leading fixed expenses are likely to be the Big 3: housing, food, and transportation. Physicians are also likely to have these standouts: disability, malpractice, and personal liability insurance, as well as student loans.
Variable expenses may include things such as dining out, discretionary shopping, and entertainment. These are harder to pin down, but easier to control. You can scale back on restaurants, but not on your mortgage payment. The idea here is to get as good of an estimate as you can. Mint excels at bucketing and tracking variable expenses.
When tracking, try to avoid outlier months that are going to jack up your spending. These typically include months containing major holidays or vacations.
Step 3: Identify savings opportunities
Surgeons, fetch your scalpels. It’s time to start slashing. While you need housing, food, and transportation, there are ways to save money on all three. On the housing front, you might be able to save by renting in a less-swanky location. If you’re a homeowner, you might be able to free up some monthly funds in the near future by making some extra mortgage payments to eliminate PMI. Saving on food costs may be a matter of paying closer attention to sales and coupon offers, as well as shopping at more affordable grocery stores. On the transportation front, city-based physicians may want to rely on mass transit. Those who need cars can opt for used, instead of financing a vehicle’s depreciation with a lease, or monthly financing payments. Check out our car-buying guide.
Savings are easier to identify in your variable spending. After tracking your income and expenditures for 3 months, you’ll begin to see where you can scale back. These are some money-wasters you can eliminate right away. Lowering your variable spending might mean washing your own car, having fewer restaurant meals, or eliminating an unused streaming service, for example. It could also mean sticking with an older smartphone that’s paid off rather than opting for the latest model. Controlling your variable spending is more often a matter of creating better financial habits. Here’s a money habit guide to get you started.