One of my goals of starting the LifeofaMedStudent website/blog was to hit on financial topics fairly regularly along with the usual medical education advice topics. One of my first posts (My Financial Awakening) tells the story of how I came to realize how uneducated I was in basic financial topics. Reading many books, blog posts, articles later – I feel I finally have a reasonable knowledge of my own financial picture. Part of that enlightenment was starting a budget to track literally every dollar in/out of our accounts. Not everyone agrees with the need for a budget, some even say “budgets aren’t sexy” or “budgets are for rookies” but I’m now a firm believer. It’s helped our family begin tracking our spending/expenses/savings immensely.
Why budget? The best reason I think is not to actually track every dollar, but more get an overall “flow” of your finances. As a medical student, this might be to simply minimize student loans while being able to plan for the next semester/year. As a resident, beginning to save for retirement gets one used to a “pay yourself” mindset and away from a mentality of living paycheck to paycheck. I think maxing out a ROTH IRA is a great goal for a resident but it takes a little work, and a budget is a good way to see it get done.
So long story short: Ever wonder what a resident physician’s budget looks like?
Here’s mine (family of 3 – wife at home raising daughter):
|Monthly (projected)||Yearly (projected)|
|Residency – W2||4,789.00||57,468.00|
|Moonlighting – 1099 (can vary a bit)||3,240.00||38,880.00|
|Mamo income (no expected Tax)||100.00||1,200.00|
|Residency – W2||979.00||11,748.00|
|Moonlighting – 1099 (30% reserved monthly)||972.00||11,664.00|
|Take home pay:||6,178.00||74,136.00|
|Home Security System||53.00||636.00|
|Disability policy – MetLife||70.00||840.00|
|Disability policy- Principle||65.00||780.00|
|Auto, other – State Farm||165.00||1,980.00|
|Whole Life Insurance – Lincoln||86.00||1,032.00|
|Term Life Insurance – Lincoln||40.00||480.00|
|Roth IRA (self/spousal)||916.70||11,000.40|
|Totals Per Month:|
|Financial improvement rate:||38.30%||38.30%|
- Residency is a paid via W2, taxes are taken out automatically. I claim 3 deductions (personal, wife, child).
- My moonlighting job (see: Moonlighting: The Cash Cow I Can’t Wait to Quit!) is paid via 1099 – taxes are not taken out. I save 30% of each check to a separate checking account where the taxes are then paid out of. Any left over is just a bonus at the end of the year. This income can fluctuate a bit but represents an average.
- “Mamo Income” is a catch all for any money that comes in not subject to taxes. It gets the title from the fact my grandmother “Mamo” still deposits $100/mo in my account which she’s done since freshman year of college. It’s my favorite $100 of the month! Christmas/birthday money also goes into there.
- Housing – We live in a 4bdroom, 2.5 bath house purchased in 2014 for $175,000 (See: Buy vs Rent – Why I bought a Home during Residency).
- Utilities – fairly self explanatory. I will say we keep the tempature in our house more comfortable (i.e. expensive) than many likely do.
- Insurance products – I have several which I feel are important. I have life insurance in a $350,000 whole life policy (significant roll over from a policy started by my parents, otherwise I wouldn’t recommend Whole Life), and a $1million term policy. I have two disability policies which would provide $2500/monthly each. I have had the Metlife policy since 4th year med school and added the Principle policy during my last year of residency. State farm is automobile coverage on our two vehicles and a few personal item policies including my wife’s wedding set.
- Financial improvement –
- I use a ROTH IRA for our retirement savings (self&spousal accounts via Vanguard). Why I choose a ROTH IRA over the Hospital 401K (with no match) is a post of it’s own, but the quick answer is for simplicity and the maximum contributions correlate well with a nice 10-15% gross savings rate for a family making $75-100k/year.
- We have only 3 sources of debt other than our mortgage: – student loans, a new heating/cooling system (major surprise purchase this past summer), and a car loan. I drive the $2500 dollar paid for beater but I’m happy to keep my wife in something significantly safer/nicer. As I transition to an attending, I plan to rarely, if ever, pay for something not in cash again. Thus I count anything toward retirement or paying down debt as “financial improvement.”
- “Credit card” – This not debt but catches all our day-to-day purchases that are paid off each month. I do not personally track individual purchases but very roughly the $2000 is broken down into $1000 essential purchases, $500 nonessential purchases, $500 in one time expenses (that there seems to be at least 1 of a month).
- Essential purchases include groceries, gas, etc
- Non-essential purchases include my amazon.com habit, eating out, entertainment, clothes, etc.
- The other $500 covers random non-reoccuring expenses – think house repairs, new car tires/brakes, etc.
- Most months we have extra savings from this last $500, occasionally big purchases we can be well over – but the average for the year is about $500.
- “Misc expenses” – Is any money that goes out that isn’t charged to the credit card. This is usually <$100 a month and mostly ATM withdrawals for occasional petty cash needs. It’s so small/rare, I do not “budget” for this but do keep track of it.
Totals for the month:
- Living expenses is the amount each month/year we spend that would need to be covered to be financially independent. It assumes all debt paid off and no need for life/disability insurance at that point (therefore in this example it’s basically just mortgage + credit card + utilities). To get an idea of how much we would need to sustain this lifestyle once reaching financial independence – the rule is generally 25x living expenses (for our current lifestyle then ~$40,000 x 25 = $1,000,000).
- Cash Savings is simply the net monthly/yearly of in vs out. This is currently kept in a savings account attached to our checking which will be morphed into our “emergency fund” for post-residency life.
- Financial improvement and rate is the amount of money monthly/yearly that goes to improving our financial picture. This includes paying down debt (other than the mortgage), retirement savings, and cash savings. This is my version of a “savings rate.” In my projected attending salary budget this section is much more complicated and includes 401k, Backdoor Roth IRAs, paying student loans, HSAs and 529s, etc, however as a resident I’ve kept it very simple.
And that is the my monthly budget. It fits our family, we are dedicating a significant portion of our income to improving our financial picture each month, and it’s simple enough I can update it monthly in about 30 minutes or less. Each end of the month, we go over how things are looking and make sure we are meeting our goals. It’s by no means perfect. With some increased attention to frugality I bet we could easily knock a couple hundred dollars off the “credit card” budget monthly. But the end result is we currently feel like we buy anything we need, and frequent things we want, while still meeting our financial goals for the remainder of residency.
So what do you think of my budget? Are you a budgeter yourself? Give your view of things in the comments section!
In a future post, I will also highlight #LifeofaMedStudent net worth and the importance of keeping track of this. You don’t know how much work you have to do financially, until you know where you are starting!
Update: Since this post was written a big change has happened! I lost my moonlighting job on fairly short (45 days) notice due to implementation of telemedicine for the position I was covering! This obviously was a significant change in my income, representing about 40% loss as indicated above. This will only effect me the last 5 months of residency until I start my attending job, however in that time period we will be moving and expect to have expenses with selling/buying/moving. We will therefor deal with this loss in 4 ways, including cutting down on frivolous spending:
- Our short term cash “savings” is enough to cover those 5 months of losing 40% of my income, and likely be enough to get us through the buying/selling/moving process. There would though, be little buffer for any further expenses, such as typical “emergency” fund issues – car problems, home repairs, etc.
- I will stop funding the Roth IRA in the first half of 2017 (but still fully fund in the back half of 2017 when making attending salary).
- #LifeofaMedStudent does make a small profit from sponsors, of which I had prior not budgeted for and simply immediately put towards debt in the past. This will also be used as a small buffer to get until July 2017.
- Worst case senerio: I have a taxable savings account that could be drawn down from if needed, though this would incur taxes on gains. Or instead I could open a new credit card with a 18mo 0% APR to simply get us through unexpected expenses these months. Neither of these worst case options appeals to me over simply increasing frugality further to make the budget balance.
Lawrence B. Keller, CFP at Physician Financial Services:
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF has been in the insurance and financial services industry since 1990. Unlike medicine, which has a standardized path that physicians must take to gain the education, training and experience requirements necessary to obtain board certification, the insurance and financial services industry does not. Working with an agent that is familiar with the underwriting of both disability and life insurance policies for physicians can all but guarantee a smooth underwriting process in which the desired outcome is likely. While he might not be a doctor’s first phone call regarding their insurance needs, he is often their last. www.physicianfinancialservices.com
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Disclosure: PFS is a paid sponsor of #LifeofaMedStudent and has a financial relationship with the site.