It is alarmingly easy to spend your entire salary. New car payments, that big doctor house mortgage, private schools, country club dues, and student loans can get out of control fast. It can be very helpful to track your spending and budget — you might be surprised to find that much of your money is going toward frivolous things that don’t help you reach your goals. You might also find that what you thought was a reasonable lifestyle is more expensive that you realized. There are numerous budgeting apps available (even good old pen and paper will work), but you need to track your spending.
Sorting your spending into percentages of fixed and variable expense categories will give you a map of where money is going. After you’ve done that, you can set up a budget for you and your family. It can be very specific, you can use envelops, different bank accounts, a weekly spending-cap, whatever works well for you. You just have to do it. There are many recommendations on the appropriate percentages for savings and expenses. This is important for each person to determine for themselves, but in general your home should be less than/equal to 20 - 35% of your budget and target retirement savings should be 20% or greater. If you can lower your expenses and increase your savings, of course, you will be better off!
A helpful budgeting concept is the notion of “paying yourself first”. This means putting money away for the future first (ex. savings or retirement) instead of waiting to see what‘s leftover. This requires planning and discipline. If you have money automatically set to leave your account on payday, then you won’t ever miss it. You may choose to set up an automatic transfer to your savings account for a downpayment on a house, or you may be putting extra away for retirement, or paying extra toward your debts. All of those uses of your money will help you build wealth.
Saving for retirement is covered in another blog post, but it should be one of your top priorities, as you are starting to save about ten years behind someone who didn’t choose a career in medicine. If you have an employer-based retirement account with a match, you should be contributing the minimum amount to get the full match, otherwise you’re leaving money on the table. You should also plan on maxing out all tax-advantaged retirement accounts available to you, and it is likely that you will need to save in taxable investment accounts in order to meet your retirement goal.
Another priority to help you avoid financial catastrophe is setting up an emergency fund. This is approximately 3 - 6 months of expenses placed in a liquid account (ex. high interest savings or money market fund). This timeframe is recommended because it is the usual waiting or elimination period for a long-term disability policy. If for some reason you are unable to work or you have a minor emergency (car repair or appliance breakdown), you will be able to dip into that savings and avoid high interest personal loans or credit cards.
Of the things you have to worry about once you finish training, don’t let financial ruin be one of them. If you live well below your means for a while after training and put the rest of the money toward building wealth (investment accounts, retirement, debt elimination, and emergency fund) you will be well on your way to a strong financial future. There are of course tomes dedicated to these topics, and there are many different versions of this advice. I hope this serves as a primer that will spark an interest to research this topic and find strategies that lead to your financial success.