A good budget for a doctor might incorporate less spending than you think. Just because you make a lot of money doesn’t mean you should spend it all.
Instead, you should save more than average to maintain your lifestyle and reach financial independence.
Here are the top tips for doctors to create a budget that works.
Doctor Budget Guidelines
Even doctors need budgets. You might think that’s not the case, but even high-income people can be or go broke
The key is to know where you must spend your money and how to reach your financial goals.
Here are some simple guidelines to help create your doctor’s budget.
1. Start Your Budget Journey
The key is to start your budget; it doesn’t matter how messy it looks or how well the first month goes.
It could take a few months of trial and error before you get in a groove and feel good about your budget. But you won’t know until you start.
2. Minimize Fixed Expenses
The key to a successful budget is minimizing your fixed expenses. That’s why physician mortgages can be tricky. If they commit a large percentage of their income to fixed expenses, such as a mortgage, student loan debt, and expensive cars, before you know it, you have little disposable income.
To avoid this, minimize these expenses. This way, you have more flexibility should you need money fast or want to splurge on a purchase. You won’t find yourself digging out the credit cards and getting in over your head in debt.
The larger the percentage of your income you must pay each month, the harder it is to handle what life throws your way, including job loss.
3. Start Saving for Retirement
From the start, save for retirement. Ideally, you’ll put away 20% of your income for it. This way, it becomes a habit long before you’re an established doctor and closer to retirement.
If you wait to save, you may experience lifestyle inflation, where you increase your lifestyle to meet your income. It’s easy to slip into an expensive lifestyle and have little to no money saved for retirement.
Don’t let this happen to you. Instead, immediately put 20% of your income aside for retirement and continue until you’re ready to retire. You’ll be glad you did.
How Much Is Too Much: Trading Time for Your Money
When considering your spending and creating a budget, it helps to imagine how much you’d have to work to pay for an item.
In other words, how much time must you trade to pay for the purchase? This works best with large purchases, like a car. Let’s say you fall in love with a $75,000 car. You figure you make more than enough, so why not?
Instead, consider how many months of work it would take to pay for that car in full. Don’t look at the car payment and how it fits your budget. Instead, focus on the car’s total cost and the time you’d trade for it. Let’s say you make $20,000 a month. So you’d trade almost four months to pay for the car.
This makes you look at things a little differently, providing a new perspective on the matter.
Saving Rates for Doctors
Savings rates for doctors are just as important as for anyone else. Your savings rate is the amount of money you have left at the end of the month after paying bills and spending money.
The less money you spend, the higher your saving rate is and the easier it is to reach financial independence (FI). For the average person to reach FI, you’ll need 25 times your annual spending, so the less you spend each year and the more you save, the faster you’ll get there.
Setting up a Smart Budget as a Doctor
Doctors need budgets that work for them. You should focus on saving and not spending, especially since your cost of living will likely be higher than someone with a lower income. If your goal is to reach FI, consider these steps.
Incorporate Doctoral Student Loans Into a Budget
Getting out of student debt is an important budgeting goal, so including your doctoral student loans is imperative. However, rather than including only the minimum payments, focus on how you can pay them off faster.
Are you eligible for public service loan forgiveness or an income-based repayment plan? The standard repayment will get you out of student loan debt the fastest, but it’s not always feasible.
Work with the numbers and see how much of your student loan debt you can pay off to reduce interest costs and have more money allocated for savings.
Live Within Your Means to Accommodate Your Loans
Your student loans shouldn’t run your entire financial life but should be a factor, especially while the balances are high.
To get them under control, live within your means. This might sound easy, but if you take inventory of your current spending, you might be surprised at what you learn! Consider finding ways to cut back on excessive spending.
Refinance Your Student Loans if You Need To
If you can’t get out of the heavy burden of your student loans, refinance them. This works best if you have great credit and qualify for more attractive rates. If you can lower your rate by a percentage point or two, you may be able to pay more principal on your loans, paying the balance down faster.
Track and Understand Monthly Spending
Tracking and understanding your monthly spending is imperative. But, unfortunately, many of us spend more than we think or need to.
This may take some time, but take it slow. Pull your bank and credit card statements for the last six to twelve months and see where you stand. This can take a while to do, so start with one or two areas first and work your way up. Don’t overwhelm yourself with too much information; find the areas with the most excessive spending and begin there.
Set Realistic Budget Totals for Categories of Expenses
Many of us have a number in our minds that we spend in certain categories, only to find out we spend much more. Grocery and clothing purchases are common high-spending areas.
Don’t make the mistake of making budgets so low that they are impossible to meet just because they look good on paper. Instead, make your budget totals realistic so you can reach your goals. You can always go back and adjust these goals once you’ve made initial progress.
Make Cuts in Your Expenses Where You Can
See where you can cut back that doesn’t feel like a complete sacrifice. Start small by cutting back in areas you know won’t hurt. For example, if you find your clothing spending is on the high side, cut back. Identify any impulse-buying tendencies and target those as well! You can also go through any subscriptions or memberships and cancel those you don’t need.
Create a United Front With Your Partner
A budget doesn’t work unless you and your partner agree. So first, be transparent with one another about your financial goals and overall spending. Then, discuss where you can cut back together and separately.
Don’t make one person feel bad for spending or not having the same goals. Instead, find a middle ground where both of you can meet and feel good about your finances.
Prime Budgeting Examples for Doctors
Everyone has different budgeting needs, but here are a few examples to get you started on what might look like a good budget to reach your financial goals.
Resident Doctors Budget Example
Let’s say you make $50,000 ($4,167 per month) a year as a resident. Your budget might look something like this:
- Housing costs: $1,000
- Taxes: $400
- Utilities: $250
- Insurance: $200
- Student loan payments: $200
- Retirement savings: $400
- Food: $500
- Gas: $350
- Miscellaneous savings: $400
- Miscellaneous spending: $467
Attending Doctors Budget Example One
Attending doctors may be in a better position to save a large portion of their income for retirement or other financial goals.
Here’s a quick example of an attending doctor that makes $150k per year.
- Housing costs: $2,000
- Taxes: $2,500
- Utilities: $500
- Insurance: $400
- Student loan payments: $1,250
- Retirement savings: $2,500
- Food: $1,000
- Ga: $450
- Miscellaneous savings: $1,250
- Miscellaneous spending: $650
Attending Doctors Budget Example Two
Here’s another quick example of an attending doctor’s budget, this one with higher spending habits but still enough to save. This example is based on an attending doctor with a $300k salary.
- Housing costs: $3,000
- Taxes: $5,800
- Utilities: $575
- Insurance: $500
- Student loan payments: $1,250
- Retirement savings: $5,000
- Food: $1,000
- Gas: $450
- Miscellaneous savings: $2,750
- Miscellaneous spending: $4,675
A Poor Budget Example for Doctors
A poor example of a budget for doctors is any budget that has you spending more than you make.
In addition, it’s not a good budget if you don’t save money for retirement, a house, a car, or any other savings goals.
Your budget should focus on the future, helping you reach your financial goal and allowing you to retire with peace of mind.
The 50/50 Budgeting Rule
Any time you get a bonus, a raise, or a tax refund, save 50% of it. This way, you aren’t automatically spending everything you make. It’s easy to experience lifestyle inflation when spending everything you make, but it doesn’t help you in the long run.
Instead, make it a rule to save 50% of your higher earnings, whether it’s a one-time bonus or an ongoing raise. If you receive a raise, be sure to save 50% of your monthly income.
For example, if you get a $12,000 raise, that’s $1,000 a month. While you could easily buy a car that takes up the $1,000 raise, you should instead increase your savings by $500, spending only half of the higher income.
Frequently Asked Questions
Budgeting for doctors may feel more complicated because you make more money, have higher
student debt, and are more likely to spend more money. Here are some frequently asked questions from physicians like you.
What Is the Average Starting Pay for a Doctor?
There’s a myth that doctors make hundreds of thousands of dollars right out of med school, but they don’t. The average salary of a resident is $64,327.
What Is the Typical Monthly Payment for Student Loan Debt as a Doctor?
For a med school grad to pay off their student loans in 10 years (the standard repayment period), they must pay $2,280 monthly. That’s not feasible for most doctors, and that is why so many doctors take 20 to 25 years to pay off their debt.
Are There Tools or Apps to Help Doctors With Budgeting?
There are many budgeting apps for doctors (or anyone) that can help you get control of your finances. Mint and YNAB (You Need a Budget) are two popular budgeting app options.
Creating Budgets for Doctors – The Bottom Line
A doctor’s budget might look different than expected. Making a lot of money doesn’t mean you have a free pass to spend irresponsibly or impulsively.
Doctors must be just as responsible with their money as everyone else, with a much higher savings rate than someone that makes less money. Use these tips to get started on your budget!