Let’s be real honest with ourselves for a moment. We can’t put it off any longer. We know we all need to get our financial lives in order, but so many of us aren’t quite sure where to begin.
Between the unpredictable schedule, the student loans, and bills coming at us everyday, it’s tough to stay on top of everything. How can you possibly begin to get your financial life in order when your medical career is dominating your life right now?
The answer is simple. One step at a time.
This day in age we are fortunate to have tools to help simplify the elusive process of organization. I’ve also learned multiple strategies from helping my clients navigate through finances over the years.
There isn’t any secret formula or quick fix. It’s a step-by-step approach to help you organize your thoughts, so you can organize your finances.
Use this guide to help you understand the items you can do today, which will ultimately set you up for financial success tomorrow. Hopefully, you’ve already knocked a few of these items out. If you’re just getting started, then this will be even more helpful.
1. Combine Your Accounts with Your Spouse
One of the first items you should take a look at is the number of accounts you have. You might think it’s easier to have separate accounts from your spouse. You may feel as if it provides you a little independence. Truthfully, you could be doing yourself a disservice.
Combining your accounts with your spouse isn’t the easiest of topics to discuss. There’s no shortage of opinions on the matter among personal finance gurus either. But why is the topic of combining finances so uneasy for some people?
While it may seem like a simple decision, it’s not as easy for some people to adjust to the thought of one account. For some, it may feel as if your spending is being “monitored” or as if you have to ask permission for spending on an item you want or need. You and your spouse probably handled finances completely on your own prior to getting married.
If you’re married, consider all the decisions you have to make together as a couple. Many of these decisions involve finances (whether we like it or not). It’s complicated enough without having the added pressure of discussing who is going to pay for a certain expense.
But combining accounts doesn’t have to be a negative experience. I think it’s an important step in the process of getting organized.
Combining Accounts Saves You Time
Combining your accounts can help streamline your life. Do you really need one more account to keep up with? I know I can barely remember to grab my cell phone and keys as I head out the door each day. Having separate accounts and tracking who pays for what just adds more time and energy to keeping up with finances.
If combining accounts is still a hot button topic among the two of you, then setup a time to check-in and have a regular discussion. You could also set expectations up in the beginning. For instance, you can establish guidelines such as not having to discuss a purchase as long as it’s not over $100. Or you could establish a category of spending for fun money.
However you decide to do it, combining your accounts is an important step to getting the two of you on the same financial page. And remember, it’s not locked in forever. You can update your “guidelines” for the account as you evolve as a couple.
2. Know How Much (and Who) You Owe
Facing debt head on can be one of the most overwhelming steps to understanding your financial picture. This is especially true for physicians who are averaging hundreds of thousands for student loan debt. But to get organized, you have to know exactly what you owe.
To establish a strategy to pay down debt, you have to look at it line by line. You may think you know the exact amounts or you’ve been afraid to look at your statements in detail. Either way, take time to get the exact numbers on paper.
Student Loan Debt
The first step is to write down what you owe for student loans. Many of you owe a combination of private and federal loans. You are probably so used to paying the minimums each month – or using a deferment – you’ve lost touch with how much you really owe.
For federal loans, you can login into www.studentloans.gov to enter your login information. From there, you will be able to see exactly what you owe in federal loans. If you are on a deferred payment schedule, you will be able to see the dates you have to begin paying.
For private loans, to confirm your accounts you will need to pull the most recent copy of your credit report. Not only is this a perfect opportunity to confirm, but a chance to monitor your credit report for information.
Remember, you’re entitled to one free credit report annually from each of the 3 credit bureaus. You will want to check your information with Equifax, Transunion, and Experian. Not only is this the right way to confirm your private loans, but you can monitor your credit score as well.
Once you’ve identified the student loans, it’s time to move onto any consumer debt you owe. Make a list of any and all other debt – this could be personal loans, lines of credit, credit cards, car loans, and/or friends and family members. It’s possible you’ve amassed quite a bit of consumer debt along the way.
List out each debt and list the interest rate and the amount you owe. Make notes of any special circumstances surrounding the repayments or conditions. Put it all on paper so there is no misunderstanding of how much you owe.
What to do With Your Debt
Now that you have established exactly who and what you owe, your head is probably spinning with ideas on where to go from here.
There are several strategies in particular with student loan debt. You now know how much you owe for private loans, so it could be time to consider refinancing.
One of my favorite resources for refinancing student loans is using www.credible.com to compare offers from lenders. Credible.com is an easy resource to use to help you compare interest rates. You will know very quickly whether or not you can save money by refinancing your private loans.
For your federal loans, you may have PSLF eligibility requirements to meet or an income-based repayment plan you’re eligible for. There are several repayment plans to choose from, each with their own pros and cons.
If you’re not sure what the best strategy is for your debt repayment, this could be a perfect time to speak to a fee-only financial advisor. A fee-only advisor (especially one who works with physicians) can guide you to the best repayment plans for your situation.
The bottom line is, in order to figure out your debt repayment strategy, you have to know exactly who and what you owe. Getting this information together is essential to help organize your finances.
3. Defining Short-Term and Long-Term Financial Goals
When you chose to become a physician, most likely it was after establishing specific goals for yourself along the way. You set your sights on making the highest grades, attending a certain undergraduate school, and then finally being accepted into your medical school.
You didn’t get there overnight. You had to make sure you hit clear checkpoints to get to where you are today. It’s the same strategy with our financial goals. We have to figure out what financial milestones we want to hit, both in the short and long-term.
It sounds almost too easy but taking time to write out your short-term and long-term financial goals is a pivotal point to getting organized. Not only does it help you get your thoughts on paper, but it’s the critical first step in setting up your budget.
Examples of short-term goals could be paying off a specific amount of credit card debt or student loans by a defined date. It could be as simple as increasing your retirement account contribution by one or two percentage points. Another goal could be to establish and maintain a monthly budget.
You will probably find it pretty easy to setup several short-term goals. After all, how many times as we reminded ourselves we “should be doing something” or “we need to start doing X,Y,Z.” By putting your short-term goals in writing, you’re holding yourself accountable. It’s a great first-step to help lead you to think about what you want to accomplish with your finances.
There’s an added bonus too. By creating short-term goals, you are setting yourself up to be able to establish long-term goals.
Long-term goals can get a little trickier. This is where you may have trouble articulating or defining what it is you want to do with your money in the next several years. Sometimes it’s hard to know where you will be in the future – perhaps getting married, having children, buying a home – there are many unknowns.
And as physicians, you know you have a salary increase in your future (if you haven’t already) but it’s hard to understand how you will be impacted by this when you’re living on a rice and beans budget during residency.
But it’s important not to let the unknowns derail your long-term goal planning. There are several items you can tackle which will almost always be beneficial to you under any circumstances. For instance, paying off student loans within a defined number of years. Saving up a sizable down payment for a new home. Having clear benchmarks for retirement savings as you hit your milestone birthdays. All of these are ways you can assign real action to what you want to achieve.
As your life changes your goals will certainly change too. It’s part of it and there’s nothing you can do about the changes. The important thing to remember is the act of writing down your goals means you are doing something. You are giving yourself something tangible to work towards.
I Need Help Defining My Goals
If you are still struggling with how to define your goals, then here are three questions I like to ask my clients.
Where are we right now?
Where do we see ourselves in 5-10 years?
Then focus on a smaller bite of time (a stepping stone): Where do we want to be in three years?
Starting a conversation with your spouse (or yourself) using these three questions can help you define a real answer. Try to avoid vague answers to these questions, and put down specific, meaningful ideas which you will be proud to work towards.
By creating goals for yourself and writing them down, you will be well on your way to getting more organized with your finances. More importantly, you will know what you are working towards. Your money will begin to have a clear purpose.
4. Create a Budget You Will Actually Use
If you’ve listened to my podcasts or read any blog posts, then you know my love for talking budgets (and if this is your first time to my site – welcome!) Budgets are so important for financial success. Think of it as a tool for helping you set your financial goals in motion.
Many of you reading this right now may be tempted to skip over the “Budget” section. But stay with me here, there are multiple ways of creating a budget that will work for you, your family, and your situation. I don’t subscribe to a one-size-fits-all approach.
Start with Your Goals and Priorities
Remember earlier when I advised you to write down your short-term and long-term goals? Here is where the information will shape your budget.
The problem with budgets for most people is they fail to capture the goals and priorities you are working towards. But since you’ve established your goals already, you can make sure your new budget reflects what you’ve identified as important.
In addition to the short and long-term goals you’ve named, you want to put thought into your priorities. What are the things which make you happy and you would like included in your spending or saving? It’s ok if you aren’t currently able to spend money on these items. Go ahead and identify what you would like to incorporate into your financial plans.
Name specific items that bring happiness and joy and you would like to find a way to fund. Examples of these items could be the annual beach vacation with your family, your weekly trips to the coffee shop, or your passion for gardening. Perhaps you’re looking for a way to incorporate more charitable giving in your financial plans.
No one can tell you what you have to spend your money on each week. It’s important to create a budget where you are allowed to spend money on items that mean the most to you.
The Review of Your Spending
Now that you have your goals and priorities clearly identified, it’s time to review and analyze your current spending.
Take one month (starting as soon as possible) and write down every expense coming out of your account. And by everything, I mean everything. No expense is too small to be included. You can complete this step by setting up a spreadsheet, downloading an app, or using pen and paper. You can make it as high (or low) tech as you wish. You want to be able to capture, record, and assess this information quickly.
After you’ve recorded everything for a month, go ahead and make another section for known expenses which don’t always occur every month. These are the items which you know you have to pay on an annual, semi-annual, or quarterly basis. Items like insurance premiums, HOA dues, Amazon Prime membership, or school registration fees are all good examples of this type of expense.
The Review and Ranking
You now have all of your financial goals and your expenses in one place. It’s time for the analysis. This will either be your favorite part of the process or the most frustrating. But remember, you can’t make any changes if you don’t face the facts head on.
You are going to assign a category next to every single expense you had throughout the past month. You will also do this for the items you identified as occasional expenses.
In the same manner, which you accounted for every dollar you spent within the month, you need to assign a category to every single item. The categories could be mortgage or rent, credit card debt, student loan payments, and eating out to name a few.
It’s ok to get creative with your category names. Don’t worry if it seems like you have too many different categories right now. The important thing is to assign every expense so it can fall into one of these buckets. Avoid using the “unassigned” category – every item falls into some type of expense.
Once you have everything identified, it’s time to rank your categories. Refer to your list of priorities and arrange the categories from top to bottom, based on your priorities. For example, you will probably have rent or mortgage at the top because it’s important to pay those on time and you don’t want to live on the streets. You may find you have a new cell phone at the bottom of your priority list, even though you have a large bill you have to pay each month towards a plan.
Easy Formula to Use for Budgeting
Now that you have your expenses identified, you can start to establish how much spending you should have for each category. If you ranked something really low or high, make sure it’s correctly reflected in your spending.
Sometimes we need a little extra help to know if we are on the right path with our budget. One of the questions I receive the most from clients is exactly how much should go towards the broad categories. An easy formula to provide a few guidelines is this:
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
Think of your fixed expenses as your mortgage or rent payments, insurance premiums, utilities, and other items that you have to pay on a monthly basis.
Variable expenses are items that you know you have to pay regularly, but you don’t always know the exact amount. For instance, dining out, gas, and groceries are typically variable expenses.
Overall, you want to create a budget that covers all of your important expenses, reflects your priorities, and helps you achieve your financial goals. Once you’ve created this budget, ask yourself if it’s helped you with these areas.
Establishing a budget can seem overwhelming, and frankly, it takes quite a bit of motivation to get it done. But once you’ve established your budget, you will have truly taken a step in the right direction to organize your finances. You really can’t achieve your financial goals without knowing where your money is being spent and telling each dollar where to go.
5. Setup Sinking Funds
Once you have created the budget which works for you, there is one more step to help automate your process even further. You can use sinking funds to help you manage your expenses so an unexpected home repair or trip to the emergency room doesn’t ruin your budget.
I personally like to use sinking funds for my own budgeting purposes. I also advise clients to do the exact same thing. It allows you to set aside money so you can be prepared for the bigger expenses we inevitably get hit with.
What is a Sinking Fund?
A sinking fund is simply an account you set up and contributes to for a specific expense. You usually contribute to a sinking fund by depositing a certain amount of money on a consistent basis.
For example, you could have a sinking fund for holiday spending. If you know you spend $1000 on gifts each year, then you could create a sinking fund and deposit $41 from your bi-weekly paycheck. Then, when the holidays roll around, you can withdraw the cash you’ve saved and spend it accordingly.
Sinking funds are a perfect way to help keep your budget on track. It also helps keep your spending in check if you tend to overspend. Are you worried that having multiple sinking funds will be too difficult to manage? With today’s online banking, it makes it super easy to set up these accounts. You can label them with any name you like. You can also set up automatic transfers so the money comes out when it’s best for your budget.
You don’t have to limit a sinking fund to emergencies either. You can use them to set aside dollars for vacations, kids activities, or new golf clubs.
Make your life (and finances) a lot easier by setting up sinking funds. If you want to organize your finances, then making sure your money is allocated to a specific account will help you stay within your budget.
6. Negotiate Your Way to Lower Expenses
Whether you’re barely scraping by or have money leftover each month, one financial truth remains the same. You shouldn’t overpay for items when you don’t have to.
It’s easy to overpay for our services. As busy physicians, it’s hard to find time to sit down to analyze places to save. But it really doesn’t take a lot of time to find quick, painless ways to cut down on expenses. One of the best ways is by negotiating your monthly rates for services.
List Your Obligations
Grab your list of expenses which require you to sign a contract or automatically come out of your checking account each month. Examples of these are insurance premiums, cell phone service, satellite and cable service, and so on.
Pick one or two services to start with (or better yet, set aside a few hours in one day) and start calling. If you have a specific agent you can contact, then send an email or call. Let them know you are shopping around for prices and you want to find ways to get a more competitive price. You can go through your detailed billing and you uncover hidden expenses you didn’t even realize you were paying for.
Once you have lowered your expenses, revisit your list of goals and priorities. Can the additional $25, $50, or $100 you’re saving go towards something else you identified? How much of a difference would one of those amounts make towards paying off your debt each month?
Analyze Your Subscriptions
Let’s take a moment and talk about subscription services. These are the regular-scheduled items that are automatically deducted from your account and magically show up on your doorstep each month. There’s a subscription for everything you can think of, but it’s definitely not free.
If you want clothes, music, dog food, skincare, or toys delivered on a regular basis, then there is a subscription service for it. Make sure you are accounting for this in your monthly spending. Two or three subscriptions can start to add up and make a dent in your spending.
I personally don’t think all subscriptions are budget-busters. If it’s an item you use and it saves you time, then it’s probably worth keeping around.
However, if you’re looking for a quick way to cut down on expenses, then cutting out your subscriptions may be a painless way to cut back. Plus, you can usually do it right online, which makes it even easier to organize your finances.
Between lowering your monthly bills and cutting out unnecessary subscriptions, the money you save can add up quickly. Soon you’ll be able to put more towards your goals and help fund the items you ranked high on your priority list.
7. Decide Where You Need Help
You may think when you organize your finances and establish a budget it automatically means cutting out all extra spending from your life. It actually means the opposite. It’s deciding on what takes priority in your life and you are pointing your money towards your priorities.
Along with cutting down on expenses, you need to decide what is worth paying for and brings value to your life. What may seem frivolous to some people, could be an essential for your household.
An example of this is if you need additional help on the home front. For instance, if you work irregular hours (not uncommon since you’re on call all the time and work crazy hours) then you can’t keep up with a normal cleaning routine. It could be helpful to you to have a regular cleaning service so you’re not completely embarrassed when someone drops by.
You might need help with landscaping, additional child care options, or paying a little extra for grocery delivery. The point is, you have to decide where you could use extra help so you can be a better spouse, parent, physician, or whatever you want to accomplish.
Another area could use extra help could be with your finances. Hiring a service, such as a fee-only financial advisor, can help you organize your finances. A fee-only financial advisor helps you pinpoint your goals and works with you to make sure you’re working towards them.
Part of getting organized with finances is deciding what service brings the most value to your life. If something costs extra but saves you time or allows you to work smarter, then it’s probably worth keeping.
8. Contributing to Retirement
As physicians – after the long years of education and training – you’ll be primed to potentially earn a very high income. This will put you in an advantaged position to begin to save for retirement (if you haven’t started already). Once you have your budget established, you need to carefully review your retirement savings plan.
Saving for retirement has two benefits: the first and most obvious is being able to set you and your family up for an excellent future. As much as you love practicing medicine, you may not envision yourself practicing into your 80’s.
The second benefit saving for retirement provides is the tax benefit. You will need all the help you can get to reduce your tax burden. Saving for retirement is a great way to accomplish both savings as well as reducing the amount of tax you might have to pay.
Saving for retirement through work
If your place of employment offers a retirement contribution option, then you need to research and begin contributing as soon as possible.
You may be fortunate to have access to a pension through work, but a pension plan is becoming less and less common. There’s a good chance your hospital provides a 401k or 403(b) plan. Even if you don’t have a company match, it’s important to take advantage of the account.
One of the biggest benefits to saving through your workplace is you will never miss the money being set aside. It’s hard to miss something you never see! You will lower the amount of taxable income for the year and you will grow your nest egg at the same time.
If you haven’t begun contributing to a workplace account, then take a few moments to complete the paperwork. You can start with a very small percentage and work your way up as your salary increases.
Other Ways to Save for Retirement
Working with a fee-only financial advisor can help you establish a clear savings plan. There are several other ways you can beef up your savings while reducing your taxes. Working with a professional can help you figure out which type of savings could benefit you the most. You will find out if you could possibly benefit from different IRA accounts or certain real estate investments, for example.
Refer back to your list of long-term goals and priorities. Where did saving for retirement rank on this list? It’s tempting to put off saving for something which seems so far in the future, but it’s true that starting as early as possible will yield you the most benefit.
9. Financial Apps to Help You Achieve Your Goals
If there’s one thing I love it’s technology to help make our lives easier. Can you even imagine your life without a cell phone these days? Or how long everything took to get things done before personal computers came along?
Fortunately, there are several tools to make it easier to organize your finances. No, they may not be as ground-breaking as a cell phone or personal computer, but there are several apps and web-sites which make your daily financial life just a tad easier.
I’m a big fan of Tiller money. I use this service to track all of my monthly expenses. It’s a way to look at your budget every day in a google doc. If you’re worried about spending too much time trying to figure out how to create a budget, don’t worry. There are templates you can use and you can see examples of what other people have put together.
If you’re looking for a way to track your expenses but something which is responsive to your goals, then you should try Tiller money.
The Acorns app is a fantastic option for those of you looking to start small with investing.
The Acorns app is free to download, but there are paid plans you can try as well. You link your bank account or credit card. You then authorize the app to round up your daily purchases. Those bits of change are used to buy shares in investment funds of your choice. The idea is the little acorns of savings will grow to become a mighty oak one day.
Acorns is a simple way to get started with investing. This is a great option for those who don’t have a lot of extra to set aside. You can use this to establish your emergency fund, fund your holiday shopping at the end of the year – you will be able to find a good use to put the money towards.
If you’re uneasy about letting apps and websites having access to your financial data, then check out TD Ameritrade. Or if you consider yourself to be beyond the beginning stages of investing, then TD Ameritrade is a good choice.
With this site, you will be able to make small investments and trades or you can go even bigger. You do have to setup a minimum of $2,000 in your account. Again, this isn’t ideal for beginners but it’s a good way to ramp up your own investment strategies.
10. Other Hacks to Help You Save Money
In addition to apps to help you organize your finances and invest your money, you probably like to hear of ways to save money too, right? One of the simplest ways to save money each month is by analyzing your cell phone bill and getting out of the expensive plan you’re probably on.
One of my favorite hacks I started using is the Google Fi service. In case you aren’t familiar with what Google Fi is, it’s a wireless cell phone service. Yes, that’s right – Google is also in the business of being a cellphone carrier.
Google Fi uses other cell phone carrier’s networks. It works with the 4G network so it gives you the support you need for your talking and texting.
One of the reasons I personally use Google Fi is the month-to-month flexibility. You aren’t locked into a specific contract like you are with most other carriers. You can change your plan each month if you like. You can find a plan with unlimited talk and text or you can pay for what you use.
If you need multiple lines, there are several options to fit your budget. Whether it’s only you or everyone in your family, you can get service from as little as $20 per month.
11. Checkups For Your Policies
It’s hard to organize your finances without talking about a couple of big items – long-term disability and term life insurance. Physicians are in an especially unique position of needing these two items as soon as residency has been completed (if not sooner). When you find yourself trying to get organized, you definitely want to take time to review these policies.
Here at financialresidency.com, we spend a lot of time discussing disability insurance for physicians. If I had to guess, many of you purchased policies during your residency or shortly thereafter. We won’t discuss all the ins and outs of disability insurance in this post, but it’s important to take the time to review.
Once a year, you need to sit down and go through your policy details. If you’ve experienced any big life changes, then you might need to update your policy. Moving out of state, changing practices, and having children are all ways your policy could be impacted.
There are many riders which you can adjust without having to go through any medical underwriting. All these changes can impact the cost of your disability insurance.
Evaluate Your Term Life Insurance
The same is true for your term life insurance policy. You want to visit the policy once a year to make sure it still provides the coverage you need, should the worst happen. If you’ve had children or paid off your mortgage, then you will need to adjust your policy.
As you get older, your term life insurance can be adjusted. If your children are finished with college and you have set aside a significant amount in savings, then it’s time to discuss how much term life you really need. Hopefully, when you’re older, your savings accounts will be well-funded. This will free up money for you to spend on other items besides term life insurance.
It’s easy to let disability and term life insurance fall to the bottom of the list of priorities. You hurry and get your policies setup and then forget about them as life happens. Disability and term life insurance may not be the most exciting topics to go through each year, but they are important to physicians. Go ahead and add it to your calendar to review each year.
If you’re concerned you may be paying too much or you might not have the right coverage in place, you can use a service like policygenius.com to help. This website has several resources for information on life insurance (and other products). You can also get free quotes and compare rates side by side.
What Happens When You Aren’t Organized
The tips provided here are designed to help you organize your finances. The intent of all of these is to provide you with clear, actionable steps you can take to move your finances in a positive direction. It’s not going to happen overnight, but little by little, it will happen. Many of you know reading this know you should be taking steps to be more proactive with your finances, but it’s hard to know where to start.
Have you stopped to ask yourself what happens if you continue to leave your finances unorganized? If you operate on a strategy of hope that one day you’ll get it figured out?
When you aren’t organized, you waste a lot of time and energy. Think of the number of times your thoughts race through your mind when it comes to finances. Think of the amount of energy you waste feeling guilty because you haven’t set up a particular account or paid off a certain bill.
When you aren’t organized you end up wasting money. You could waste money by overpaying for a service you could negotiate down or paying a late-fee on a missed payment.
When your finances are organized, it frees your mind up to focus on other areas of your life. When you know that every dollar of your paycheck is being accounted for, you can spend your time focused on improving other areas of your life. As physicians, you’re often so focused on your patients lives that you forget to focus on yours.
Organize Your Finances – The Rest Will Follow
We all know money doesn’t define who we are. But like it or not, it’s a big part of our lives. Getting your finances organized means gaining control over a major aspect of your life. I’m excited to share these tips with you because I personally know how rewarding it is to accomplish these items.
Hopefully, you’ve already started on these in some form or fashion. But if you haven’t, then there’s no better time than right now to get started.
Get your finances a jumpstart. Grab the “Get Organized Checklist” right here.