The Definitive Guide on How Behavior and Finances Are Influenced

You may be curious what behavior and finance have to do with one another. Finances seem to be pretty straightforward, right? You earn money. You spend money. You save money. How hard can it be? But it turns out, there’s a lot more to finances than meets the eye.   

How we manage our finances can be directly related to our behaviors – behaviors we purposefully choose and others we might not even realize we have. 

We weren’t born ready to tackle the subject of personal finance right away. So have you ever stopped to ask yourself where your financial journey began? Were there clear moments that defined how you treat money today?

Today we are going deep. And by deep, I mean into the depths of what makes us who we are when it comes to money. We are going to look at the impact of certain behaviors on our finances and what we can do to make it a positive behavior instead.  

What’s interesting is if even if you’ve never learned about money or personal finances, there are multiple behaviors you can start to implement right away. Similar to how it takes days to create a new habit, you can do the same thing with a new learned behavior. 

Behaviors which can ultimately lead to a more positive view and treatment of your finances. Are you ready to dive in with me?

Behavior # 1 – Falling into the Trap of Lifestyle Inflation

I can feel the eye rolls from some of you already. If you know me, you know I talk a lot about lifestyle inflation and how it can quickly kill the dreams of physicians. Or, you may be new to us here at Financial Residency, and might not know what lifestyle inflation entails. Either way, I want you to understand how this behavior negatively impacts your finances. 

Definition of Lifestyle Inflation

Simply put, lifestyle inflation refers to the tendency of people to increase their spending as their earnings increase. Instead of the increase in income going towards financial goals such as retirement, paying off student loans, or paying down a mortgage, it goes towards more frivolous items.

These frivolous items can be things such as big vacations, luxury cars, hobbies, or vacation homes.

Now, we aren’t saying you can’t have nice items in your life or have dreams to work towards. However, we are saying in order to avoid lifestyle inflation, you need to have a balance in your finances. You need a plan you are working with in order to achieve financial goals. You’re not throwing caution to the wind and figuring out how to pay for things as you go along.

Physicians and Lifestyle Inflation

Physicians are especially vulnerable to the trappings of lifestyle inflation. Honestly, I can sympathize with how easy it would be to fall into this pattern of behavior.

You went years through undergraduate and medical school with hand-me-downs and squeezing your budget as tight as possible. Then you get into the residency program you wanted, pack all of your belongings up to move where you are told to, only to be making a fraction of what a physician earns. 

But then one day your financial circumstances change. You go from barely being able to make a rent payment, to earning more yearly than some of your friends earn in 5 years. The temptation to spend overwhelms you when you suddenly realize you can afford a nicer car or dinners out.

Lifestyle inflation is driven by an attitude of “I deserve this” and “I’ve worked hard for my money.” It’s true – you do work very hard for your career in medicine. It’s important to realize at some point you have to start telling your money where to go, instead of letting money drive your decisions. 

Lifestyle inflation is a real behavior. So much so that you’ll see it under other names and euphemisms, but no matter what you call it, it affects your finances the same. You will never be able to achieve the big financial milestones as long as you have this behavior in your life. 

Learning to Correct Lifestyle Inflation

Here’s one of the best parts about lifestyle inflation – with a little bit of focus, it can easily be corrected. If you’ve already identified yourself as having fallen into this trap, don’t worry. We can do things to help you eliminate lifestyle inflation and start achieving meaningful financial dreams. It’s a behavior which you can change starting today.

Give Yourself a 50% Raise

As a fee-only financial advisor, I work with many residents, physicians, and their spouses to create personal budgets they can actually live with. As I work with clients, I’ve seen the most success with those who incorporate a 50% raise into their lifestyle, as opposed to living off the full physician salary. Let me explain.

Most residents make between $50-$60k on an annual basis. Depending on where you live in the country, this can be a decent wage or can barely be enough to pay monthly rent. Either way, you learn to adapt and you figure out how to get by with the little amount you’re earning.

Then as an attending you can realistically expect to quadruple your income. But what if you gave your budget a 50% raise, based on your earnings as a resident? You’ve already learned to live on that amount (admittedly, it wasn’t fun I’m sure). But by budgeting 50% more you can still live a comfortable lifestyle and afford a few nicer things, yet you have a substantial amount left over each month to put towards your financial goals. 

Learning to live and save based on the 50% raise concept is a behavior which directly impacts your finances. Not only that, it’ll improve your finances exponentially. Imagine the debt you can pay off, the significant down payment you can save, and the retirement nest egg you can build. 

Not only do you learn to live off the 50% raise, but it pushes you to focus on budgeting. You have to be more intentional with your money when you’re living off a set amount. We’ll discuss more about staying focused on budgeting later on. 

Focus on Experiences, Not Things

There’s no question you sacrifice a lot over the years to pursue your dream of medicine. I watched my wife Taylor miss out on several events with friends and family as she was working the long shifts and studying for exams. 

One way to remedy the behavior of lifestyle inflation is to focus on experiences with those you love instead. 

As your career progresses as an attending, hopefully your schedule allows you a little more predictability so you can enjoy more time with friends. If you spend more time focusing on connecting with your family and friends, then you won’t be as tempted to inflate your lifestyle. 

The high associated with purchasing a new item is a temporary, fleeting feeling. But deepening the connection with your loved ones or friends is priceless.  Spending a few dollars on coffee with a dear friend can be worth far more than spending hundreds on the latest gadget. 

Lifestyle Inflation doesn’t have to be the dream killer for you. It’s a behavior you can easily transition out of, starting with small changes and ultimately choosing to make wiser financial decisions. By  incorporating concepts such as the 50% raise and intentionally choosing to focus on experiences, you’ll rid your life of this negative behavior. 

Behavior #2 – Using a Budget

Another behavior which goes hand in hand with improving your finances is the concept of a budget. By concept, I don’t mean you “think about” putting a budget down on paper. I mean, you actually create, develop, and use one! Utilizing a budget will not only keep your lifestyle inflation tendencies in check, it’ll also help you with the concept of the 50% raise. 

When it comes to behavior and finances, nothing influences your outcomes more than sticking to a good, old-fashioned budget. 

Creating and implementing a monthly budget is a behavior which you have complete control over. But how do you incorporate this behavior so it’s second nature and not such a chore?

Believe it or not, you can learn to love budgets as much as I do (ok, perhaps I love them more than the average person, but still, you can learn not to hate them). Once you build a budget around your personal goals and dreams, then your budget will be a normal part of your life. 

How to Create a Budget

I spend a lot of time at Physician Wealth Services helping clients develop budgets they can use on a daily basis

The first step in creating a budget is to identify your financial goals. Take the time to think about what you want to accomplish in both the short and long-term. It could be paying off credit card debt, eliminating your student debt, saving to pay cash for a car, or building up your retirement plan. 

The second step is to identify the things which bring you the most happiness. Pinpoint the areas which you want to build your budget around. These could be things such as a safe place for your family to live, going out to eat with your friends at least once a month, or visiting your relatives in another city. 

The third step is the review of your current finances. Spend a month writing down all of your expenses and income. Take note of everything you and your household are spending money on. Don’t change anything about your spending habits, but make sure you can easily reference this information for later. 

Once you have your information for the month, it’s time to perform the analysis. First you need to look at all your entries and assign it the proper category. This could be “rent” or “loan payment,” etc. It’s important not to leave anything unassigned.

Once you have your categories revealed, rank them from most important to least important. Your rent and car payments will probably be at the top, since you need a place to live and a way to get to work. But what about your other items? Do you find your cell phone isn’t as important to you as being able to go out to eat? The order of importance is up to you, and you should start to see how you can change your budget to better fit your priorities.

Guidelines for a New Budget

Remember, you’ve already been thinking about which items in your budget are most important to you. But now it’s time start assigning numbers and priorities to your expenses.

I recommend a very simple formula for building your new budget when you’re an attending physician. I refer to it as the 50/25/25 rule, and it looks like the following:

50% of your take-home pay should go towards fixed expenses

25% should go towards variable expenses

25% of your take-home pay should be used towards savings


For residents, your budget might be closer to this:

70% of your take-home pay for fixed expenses

25%  towards variable expenses

5% of your take-home pay should be used towards savings


Fixed expenses are the ones which are probably not going to change from month to month. Items such as rent and mortgage, student loan payments, and car payments. The variable expenses are ones which could have a fluctuation in amounts, but are typically due each month. These are items such as utilities, cell phone bills, and perhaps insurance premiums. 

The savings category is for your contributions towards your emergency fund or retirement (if you have already funded your emergency fund). 

These formulas don’t leave much room for wasteful spending and unnecessary purchases. This means you will need to get on the phone and negotiate your way to lower expenses if you need to. It also means you need to cut out spending (or greatly reduce) what you paying on items which don’t hold a lot of value to you. 

As you can tell, in order to change the behavior of budgeting, you’ll have to put specific actions into place. Living with a budget doesn’t come naturally for everyone – and that’s ok. But once you give yourself time to adapt (and adjust as necessary) then budgeting will get easier for you. It’ll no longer feel like a constraint, but rather a tool to help you achieve your goals. 

Using a budget means your have a behavior with a positive impact on your finances, whereas not using one will have a negative impact on your finances. 

Behavior #3 – Getting Organized and Staying Organized

Organization is another one of those learned behaviors. It seems being organized is much easier for some than others. But even though you aren’t wired like Marie Kondo, doesn’t mean you have to practice the behavior of being unorganized.

Benjamin Franklin once said “For every minute spent in organizing, an hour is earned” – wouldn’t you love to gain hours in your week?

Being organized is a key behavior when it comes to accomplishing your financial goals. It’s more than having a few folders labeled and stashed in a filing cabinet. It’s creating a system for you and your family so your financial information is at your fingertips.

When your medical career takes center stage, it can be easy to let your important papers and documents take a back seat. But creating a system you can use every day will benefit you in multiple ways. 

What are some habits you can start doing right away in order to help you create a behavior of organization? Here are a few things I recommend for you:

  • Combining your accounts with your spouse
  • Make a complete list of every debt you owe
  • Negotiate to lower your monthly expenses
  • Setup sinking funds to save for your specific goals
  • Decide which professional services you will use
  • Contribute to your retirement funds
  • Use financial apps to stay connected to your finances
  • Review all of your policies (life insurance, disability, homeowner’s insurance. etc.)
  • Find a specific place to file all important financial documents

Notice how not all the actions are related to filing paperwork. There are times you only need to review your information or make phone calls to get adjustments to your policies. But when you get in the habit of staying organized, then you change your behavior towards money. 

When you get organized, you no longer have to live in fear because you know where everything is located. Being organized is a positive behavior that can lead to less fear with our finances.

Behavior #4 – When Fear is the Biggest Factor

The behavior of fear has more of an influence on your finances than you may realize. Not only does fear directly impact what you do with your money, but it also affects what you don’t do with it. Let me explain a bit further. 

Different Forms of Fear

The reason why fear is such a common influence is that everybody has them. 

When it comes to fear and money, there are several ways fear can creep into our decisions. You may not even connect the fact your current attitudes about money are being driven by fears you’ve developed. It’s not always as obvious as being scared of heights or tight spaces. 

Here are a few different ways we can experience fear:

  • You fear you will never earn enough money
  • You fear discussing finances with your spouse
  • You don’t want to face the amount of debt you owe
  • You’re afraid of the impact to your relationship with your spouse if they become the breadwinner
  • You’re afraid you’ll create a budget that sucks and will give up after two days

The list goes on and on, but the point is the same. Fear creeps into so many areas of our lives and creates a negative behavior with our finances. 

Learn to Navigate through Your Fears

The very first step to getting rid of the grip which fear can have is to acknowledge the fear. Whether you do this by saying it out loud, calling your friend, or writing it down. It’s ok if you can’t articulate it word for word, you can start by acknowledging it. 

One of the best ways to work through fears is to educate yourself. We hear it time and time again – “knowledge is power” and it really is true. If you arm yourself with education and insights on what you fear most, then chances are when the fear creeps back in you can immediately put it to rest. 

Let’s work through an example. Let’s say you owe $150,000 in medical school debt, which is a very realistic scenario for many of you reading this. This amount of debt can be fear inducing to anyone. It causes you anxiety to even think of the overall number, much less sit down and tackle it head on. The fear of facing this debt is impacting your ability to create a plan.  

But once you realize this fear is paralyzing you, there are things you can do to work through this and create a plan of action. 

One of the ways you can work through your fear of facing this debt is to create a budget with a focus on paying it off in a specific number of years. Another option is to work with a trusted fee-only financial advisor to help you create a plan. Either way, you’re taking action and facing your fear. 

Everyone has fears, and the behavior driven by fear can have a direct influence on our finances. The difference is, we can acknowledge these fears and choose to change our reaction to them. By doing so, we can positively approach our finances – instead of being scared to make certain decisions.

Behavior #5 – Allowing Past Mistakes to Dominate Your Future

I’ve seen a lot of personality types as I’ve advised physicians and their families over the years. And one thing I’ve noticed is sometimes a past financial mistake can end up haunting a client for a long time.

Here’s a reminder for all of us – no one is perfect and we all make mistakes. We all know this to be true, yet somehow we expect our behaviors, decisions, choices – and everything in between – to be perfect and give us perfect results. When our choices don’t yield the results we want, then we start blaming ourselves.

Let’s say you made a financial decision you’re having a hard time undoing. Something such as purchasing a car which has a ridiculously high monthly payment. You purchased it as a resident believing one day as an attending you’ll be able to pay it off quickly.

This behavior of blame can start to affect your ability to make decisions. It can lead to a lack of confidence with your other decisions. 

But if you can recognize you made a mistake in the past, and then leave it there, it can allow you to move on and begin making better financial decisions. 

Behavior #6 – Developing Emotional Intelligence

I’m in a unique position because not only am I a fee-only financial advisor, but I’m also a Certified Life Planner.  I help clients focus on their life plans and dreams, in addition to their finances. After all, life isn’t only about money, but it helps when you can use it to put towards your own dreams. 

Having this dual role has allowed me to understand how our emotional intelligence can have a big impact on our life and finances. You may be curious to know exactly what emotional intelligence means when it comes to behavior and finances. 

How to Define Emotional Intelligence

Emotional intelligence involves two parts. First, it’s your ability to process emotions. These are both your emotions, and the emotions of others. The second part of the equation is taking these emotions and using them to make decisions

Benefits of Higher Emotional Intelligence

So how exactly does a higher emotional intelligence affect my behavior and finances? I’m glad you asked because I’m learning how these things go hand in hand and this is what I’ve observed.

Developing a higher emotional Intelligence allows you the ability to build trust. That trust builds its own bonds. As you improve your emotional intelligence, you will be able to connect and listen better. Can you see how this could help you with your finances?

By being a better listener, think of the more positive money conversations you could have with your partner. Imagine the better lessons and tools you could teach your kids by connecting on a more meaningful level. Being a better listener will allow you to work with your fee-only advisor in a more productive way too.

Increasing your Positivity

If there is one indicator of your emotional intelligence, then it has to be positivity. The amazing thing is, you can train yourself to be more positive. It definitely takes a little extra effort, but being more positive is a behavior which can impact your life and your finances. 

When I need a little help focusing on my positivity, I ask myself the following two questions:

What wins did I have today?

What fun or cool thing happened in my day?

With these questions, you’re forcing yourself to look at the positive aspect of your daily life. You are learning a positive behavior. 

No, being positive may not be directly tied to your bank account. But it can make it easier for you to focus on the little financial wins you can have along the way. When you’re frustrated because your medical school debt still seems insurmountable, you can focus on how much you have paid off and how great it will feel when the debt is gone.

Behavior # 7 – Furthering your Education

It may be hard for you to accept the fact that you will continue to need education. After all, you’ve certainly spent your entire adult life learning and training for your career in medicine. What further education could you need?

If you want to influence your behavior with finances, you are going to have to expand your knowledge. But one thing I promise – there’s no need for all-night study sessions and constant memorization. Instead, we will focus on a slow and steady approach.

One of the best things you can do to improve your finances is to improve your knowledge on the subject. In today’s world, we have so much information right at our fingertips, making it easier to incorporate new things into our daily lives. 

The hardest part of learning will be finding information from financial experts who you can trust. Trust me when I tell you there are a ton of opinions on almost every financial subject. It’s easy to get overwhelmed when you have to sift through all the choices. But soon, you’ll begin to figure out whose opinion matters the most to you, and whose financial advice is most sound.

Educate yourself by listening to podcasts (I happen to know of a great one for physicians who are striving to learn about money). Read blogs from advisors you trust, watch You-Tube videos from experts. The choices are endless, making it easy to choose how you want to receive your information. 

Educating yourself is a behavior that you can control. It is an action you can take to improve yourself and your attitude towards finance. The more you can learn about financial matters, then the better prepared you will be to make the easy (and tough) financial decisions. 

Finances are a part of life, there’s no way around it. Why not enrich your knowledge on the subject so you can begin to get clarity on steps you should personally take?

Behavior # 8 – Limiting Beliefs

In order to change your financial future, you need to step back into the past for a moment. For some of you, this can be a rather tough subject. For others, it may be a fun trip down memory lane. Whatever the case, it’s important to know how the foundation was laid in ourselves all those years ago. Many of our current behaviors towards finances are unknowingly influenced by how we were raised.

Here’s a question for you – how were you raised with money? Think back to the habits your parent or parents taught you. Did your family talk openly about money or was it a taboo subject? Did you watch your family have to pinch pennies or spend like it was going out of style? If you were raised in a single-parent home, how did this affect the financial situation? 

How you were raised with money has a major impact on your attitude towards finances today. Whether you realize it or not, it can be a limiting belief. If you recognize these attitudes and behaviors that were instilled in you, then you can decide which ones you want to continue to use. Or you can change the financial trajectory for your family and incorporate new positive behaviors. 

How Your Spouse was Raised

If you’ve ever had an argument with your spouse about finances (and who hasn’t?) then it could be helpful to know it’s not always your fault. If you’ve wondered why your spouse reacts to money differently than you, then you should discuss with them how their family treated money.

The same questions you asked yourself about growing up should be used to discuss your spouse’s views. If your spouse was raised in a family where everyone spent without any regards to saving for the future, then it can certainly show up in your spouse as an adult. If your spouse was raised in a family who never discussed finances and it was a secretive matter, then it would be hard to expect your spouse to be comfortable discussing finances as easily with you now. 

It’s not as if these can’t be overcome, but it might take extra work to overcome the behaviors we’ve been around all of our lives. 

The older we get, the more the cliche “I’m becoming just like my parents” seems to come true. But one aspect we don’t have to emulate necessarily from our parents is how we view money. Both you and your spouse can choose to react to finances differently versus the way you were raised

The Data Behind Behaviors and Finances

I see many of the behaviors we’ve discussed time and time again with my clients. But what I find really fascinating is the data behind connecting behaviors and finances. Admittedly it was tough to find a lot of research correlating behavior and finances, especially the psychological aspect. But more research is being performed on this subject. 

Sarah Fallaw, Owner of DataPoints and Author of The Next Millionaire Next Door, studies millionaires and the characteristics making them more susceptible to achieving their financial status. She’s also studied the habits and attitudes specifically for Physicians who are millionaires. 

Sarah’s research looked at behaviors that allowed people to build wealth over time—regardless of their income or age.

DataPoints also studies what behaviors will lead a new attending physician to become a physician millionaire.

After extensive studying, here are the behaviors and common traits that were found among the physician millionaires:

-Being disciplined with your finances (living below your means, having a budget or spending plan, spending and saving with your long-term goals in mind)

-Being aware of what is happening with your finances and accounts

-Avoid being influenced by what other people are doing

-Planning your finances; create a financial plan

-Desire to become financially independent

Now you have a scientific reason to use a budget – the data supports the concept of using one and ultimately becoming a millionaire. Also notice how defining your goals and having something to work towards is extremely important. You’re not out there, spending aimlessly. Instead, you’re creating a plan and giving yourself something to work towards. 

The other interesting point from this research is how doable all of these actions are. These are behaviors that you can start using today. There’s nothing on this list which you can’t start doing today. These are relatively simple concepts and we shouldn’t try to make this too complicated for ourselves. 

Behavior and Finances – Making the Connection

It’s interesting to see how so many of the financial decisions we make are based on behaviors we’ve learned. Some of these behaviors were ingrained in us as kids. Others were habits we picked up somewhere along the way. No matter how the behaviors came into our lives, we can choose to change them if they aren’t leading us in a positive direction. 

All of this information tells us how easy it is for us to start making positive changes with our finances. Making positive changes doesn’t have to be super complex. We can recognize these current behaviors and choose to act in a new way or continue with the same habits. Either way, the choice is yours.