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There’s a financial secret that most of us end up learning the hard way, although it’s pretty obvious. The secret is that as you make more money, your cost of living increases, too.
This isn’t always accurate if you have extreme willpower and can live frugally. But you’ve probably noticed that it becomes easy to try to keep up with the Jones’.
As a physician, you’re expected to have a certain lifestyle. If you don’t “look” the part of a successful doctor, it can impact your practice negatively. Going overboard is dangerous to your finances, though.
The good news is there are other secrets you don’t have to learn the hard way. These expert tips are geared for physicians to help them budget while still enjoying the fruits of their hard work.
1. Set Your Main Goals
First, you have to decide what your priorities are. Are you content with your current lifestyle, or are you still in the process of buying a home, a new car, or paying for an education?
Your main goals could be to become financially independent, pay off your student loans, or plan for retirement. Wherever your priorities are, that’s where your main financial focus will go.
Pro tip: Always create goals that are measurable and assign a date to them. For instance, don’t say “Financially independent.” Be specific and say, “All my debt will be paid off by (insert a reasonable date).”
2. Evaluate Your Current Expenses
Make a list of all your current bills and expenses. This is important because you may have money going out that you don’t even realize is disappearing.
A lot of physicians hire accountants or have an office manager to take care of their finances. While this is efficient in general, you have to stay up-to-date on what is coming in and going out.
The easiest way to track your expenses is to look over your last two or three months’ bank statements. Separate all of the debits in your account by categories such as home and auto expenses, healthcare, food, fuel, etc. If you see anything that is unnecessary, cancel it as soon as possible.
3. Budget for Protection
Yes, you’re trying to cut spending, but you’re also protecting your finances. For that reason, you should budget in for unexpected events.
As a physician, you likely already have healthcare coverage. Check your policy to see if there are any gaps, such as maternity or dental, that you think you’ll need and talk to your agent about getting those included.
Doctors usually don’t get paid if they’re not working. Disability insurance is a wise investment to protect your assets in the event of an accident or health condition that keeps you from being able to work.
4. Build a Portfolio
Your time is valuable. It’s not always easy to meet with a financial advisor to learn how to invest your money.
There are lots of apps today that take care of that problem. From your phone, in between patients, you can invest in stocks or bonds and play the market.
Apps like Robinhood and Acorns are quickly becoming some of the go-to portfolio-building options for beginning and expert investors. As you learn more about investing, you can work towards your original financial goals.
5. Set a Spending Cap
Here’s the hard part. Now that you know exactly what your expenses are and where your money has been going, it’s time to get to the nitty-gritty.
You’ve listed out your main bills and budgeted for asset protection through insurance. You know how to build your portfolio. It’s time to set caps on unnecessary spending.
List your frivolous expenses and decide how much you can allocate to each category. These could be things like home improvement, car washes, and eating out or coffee runs.
Whatever you’re cutting back on, that money can go toward those goals you created.
6. Set a Monthly Goal
Go back and look at those goals you wrote out in number one. For each of your priorities, set a target of how you want to work toward them each month.
This could be as simple as investing a certain amount into your stocks or paying double on a student loan payment.
Check in on your milestones every few months to see how you’re doing on reaching your goal by the date you originally set. You might find that you can adjust that date to hit your target sooner!
7. Keep an Eye on Your Credit
A lot of physicians assume that because they make a lot of money, their credit scores are fine. But the more debt you accumulate, the higher your debt-to-income ratio becomes, dropping your FICO score.
One good way of keeping track of your overall financial picture is to watch your credit score and the factors that determine it. If your score drops suddenly because you’ve used your credit cards too much, it’s time to cut back spending again.
On the opposite note, if your score goes way up, you might want to look into refinancing an older loan for a lower interest rate.
Conclusion
No matter how hands-on or -off you are with your finances, you need to have goals and a budget. It’s no secret that emergencies can happen. When they do, you don’t want to be blindsided by your economic picture.
Take the savvy financial path and start budgeting for your future today with these tips.
You may also like: Your Guide to Project Budgeting in 2021
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