Why do doctors have a tough time budgeting their money, and what can they do about it?
Just as no one likes to diet, no one likes to budget—physicians in particular. And like the word diet, the word budget has come to have a bad reputation. When many people think of dieting, they think of cutting calories. Similarly, when people think of budgeting, they think of pinching pennies.
As physicians know, dieting is really about making healthy eating and lifestyle choices. Similarly, budgeting is about making knowledgeable spending and saving choices. “It’s intentional spending,” said Nathan A. Reineke, a budgeting and student loan specialist at Physician Family Financial Advisors, Eugene, OR, a firm that focuses on investing and budgeting for doctors.
So, what is intentional spending? “It’s making sure that every dollar you pay out is accounted for in some way—whether it goes to your mortgage, your utility bills, your student loans, your college savings fund for your kids, or to a new set of golf clubs,” Reineke told MDLinx. “At the end of the month, you should know where all your money went.”
Physicians can be particularly bad at this, he said. A surgeon may make $1 million a year, but at the end of the year, the surgeon can only identify where $500,000 was spent. What happened to the other $500,000? It was used up, certainly. But where?
Can you afford that Twinkie?
The problem physicians have is not that they’re bad with their money, Reineke explained. The problem is that they don’t have time to keep track of where it goes.
Interestingly, the pennywise physician who comes in at $2,000 under her monthly budget has the same problem as the prodigal physician who doesn’t know where that extra $2,000 went this month—it’s money that’s not accounted for.
“When someone is on a budget, I want to see every penny spent,” Reineke said. “There should be nothing left over.”
He goes back to the diet comparison: “To lose weight, a person might be on an 1,800-calorie-a-day diet. Every one of those calories should be accounted for. You don’t eat 1,600 calories a day and then have 200 calories ‘left over,’” Reineke said. “If you want to eat a Twinkie, eat a Twinkie—just know that it comes out of that 1,800 calories you have allotted in your day.”
Budgeting works the same as dieting. “Budgeting doesn’t mean you can’t spend your money on what you want,” he said. “If you want to buy an $80,000 luxury sports car, that’s OK. Just include it in your budget. Then, you’ll be able to make an educated decision on whether you can buy that car and reach your other financial goals at the same time.”
How it’s done
Ideally, you begin making a budget by counting your expenses every month. (Remember that saving isn’t a leftover—it’s included as an expense.) Soon, you’ll identify the amounts of your major expenses—mortgage, utility bills, grocery bills, student loans, college saving plans, investment plans, etc. Compare that to how much you earn in the month. Is there significant money unaccounted for?
If so, try counting up your other expenses for the month—gas, entertainment, dining out, taking the dog to the vet, and so on. Check your credit card statements, your checkbook, or save your paper receipts. Did you suddenly realize you’re spending $1,000 per month at restaurants or $250 a month just at Starbucks?
This is why you’re making a budget—to identify where all that money goes. Ultimately, this gives you the power to make smarter, more intentional spending decisions, Reineke explained.
Now, when you go to spend, first pay off those necessities—mortgage, utilities, student debt, investments, etc. If you consider that $80,000 luxury sports car to be a necessity, fine. Prioritize it in your budget by saving up a dedicated amount for it each month, Reineke said. When you’ve saved enough to go and buy it outright, you’ve budgeted wisely and spent intentionally.
Although this kind of budgeting is ideal, many physicians just don’t have the time to do it, he added. There is a simple, basic shortcut: Open an extra checking account dedicated solely to expenses. Transfer money from what’s now your income account to your spending account, and then pay all your bills and credit cards from that spending account. Soon, as you watch what goes into and comes out of that spending account, you’ll have at least a basic understanding of how much you spend each month.
Just don’t spend it all on Twinkies.