No matter how much money someone makes its always important to have a budget (MC Hammer blew $33 Million dollars and subsequently filed for bankruptcy). The time to develop a budget is not when you feel that you “need” one upon graduating residency, but its when you start managing your own money as a young adult. Knowing where each dollar is made and where each dollar is spent will give you the knowledge to live within your means and avoid financial hardship. Here are some reasons why doctors, residents, and even medical students need a budget
Become Financially Savvy
Forcing yourself to have a budget will allow you to realize where money is being spent. Too many doctors see their money go into their bank account and right out of it to auto pay or auto investing with a wealth management team. After years having the finances on autopilot its not uncommon for a physician to find out that they are spending an exorbitant amount of money on fees or areas they could simply cut back on. Knowing your own finances and where each dollar should go is the very beginning to becoming financially savvy and achieving all of your financial goals.
Banks are more than happy to give loans to doctors. They have a reason to be happy when most sources peg the default rate for doctors lower than the average population, around 1% or less. When you ask the bank for a loan their calculation is only based on what they feel you can pay back financially without defaulting, not what might be a healthy amount for you to borrow. Knowing how much money is earned and how much should be spent on essentials will keep overspending in check to a minimum. Spending more than you make is a long term recipe to file bankruptcy such as some of these physicians.
Reach Financial Goals
Having a budget is a great way to save for goals in the future. For example, knowing that your car is near the end of its lifespan it makes sense to start saving ahead of time to buy a new car without having to finance it. Setting aside money each month will make large goals seem obtainable such as buying a car, house, or planning to send your child through school. Having a budget breaks up huge tasks into monthly goals to meet in order to achieve this goal.
No one wants to have to work until their 70’s in order to pay for the lifestyle that they had in their 30-50’s. Setting a budget with retirement goals early can not only help you reach retirement but might also make you realize that by living more frugally you can retire much earlier than you thought. Reaching financial independence with the option to retire doesn’t mean that you have to stop practicing. It only means that you no longer HAVE to work in order to keep the same lifestyle that you currently have.
Making a budget that includes areas for building your net worth instead of spending money can over time lead to serious wealth building. Buying a house, renal properties, or other side businesses can all add some serious numbers to your net worth. More net worth means that you can choose to retire early or spend on more wants than you previously had been able to. This could include more time off from work to travel or spend time with friends to donating more money to charity. The road to success is often a long one and is a marathon, not a sprint. Take your time, make a budget, and plan for the unexpected.