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The Physician Philosopher Podcast

TPP 83: Do Doctors Need Budgets?

Budgets are not for everybody, but there are ways around creating and sticking to a strict budget. Whether you love budgeting or hate it, you have to know where your money is coming from and where it is going. Today’s thought is this: however you handle your money, you must know what is coming in, what is going out, and review it consistently.

Larry Keller

Is Budgeting Right for You?

Both Lisha and I have had our battles with budgeting. Budgets are like the Yankees and the Cowboys, you either love them or hate them! While Lisha loves talking about investing, behavioral finance, and school loans, budgeting is her least favorite topic of all time. A budget is essentially a guide to how we spend our money every month. It is supposed to structure things so that you don’t end the month without enough money and aren’t spending more than you have. There are a lot of great budgeting apps to help you figure this out.

A budget is a very structured and organized way to reach your financial goals. You must know what you are bringing in, and where it is all going. It is great if you are detail-oriented and organized, but if you aren’t, it can bring up feelings of failure every time you spend more than you are supposed to, or don’t reach your goals

We tried a budget when we were planning on getting married because money is one thing that can make marriage hard. We had to write down numbers for a monthly budget and stick to it. The main thing I remember from that experience is that every month I screwed it up. Something always came up and it was never right. The budget was causing the financial stress for us that it was supposed to relieve. 

Budget and Mindset

After creating and using budgets I realize now that mindset has a lot to do with whether budgeting will be successful for you. The budget caused a lot of anxiety and I focused on the failures. I felt failure from not reaching goals, failure to only spend a certain amount, and failure to thrive with the budget. It created problems in my marriage, and we would point fingers at each other’s spending causing a lot of tension around money.

A budget can be restrictive and can cause you to beat yourself for those failures you believe are happening. If you can change your mindset, and instead of trying to avoid the failures, dig into them and change your way of doing things, a budget can be successful for you. I would beat myself up and tell myself how terrible I was doing because I would go over the budgeted amount and have to pull from savings. I changed my circumstances and found another way, but maybe if I had changed my mindset back then I would’ve been able to make a budget work for me. If you can get past being detail-oriented and view your budget as a guide and adjust as you go, you can accomplish the zero-dollar budget to reach your financial goals. Money is 20% numbers and 80% behavior. Knowing your behavior can go a long way in being financially successful

Budget Alternatives – Cash Flow Plan

Lisha and I don’t have a budget, but we know where our money is going every month. If budgeting doesn’t work for you, there are other options. We both use a spending or cash flow plan to manage our money because budgeting for me was like trying to fit a square peg into a round hole. A cash flow plan’s concept is to have money at the end of the month to spend and enjoy life with. You can create an organized and structured way to reach your financial goals first and then add in the extra things. 

Lisha has her cash flow set up to meet her financial goals up front by creating three buckets. Her buckets include things I have to buy, things I want to buy, and things I should buy. Things I have to buy include rent, electricity, insurance, etc. Things I want to buy are things like dinner out, concerts, etc., and things I should buy include savings and investing. 

At the start of the month, she set up automatic withdrawals because she can’t be trusted to do them herself. She has put systems in place to make it easy to achieve her goals. If she can put something on auto, she does. Some things, like her retirement savings, are taken out before her check even hits the bank. She also keeps her wealth-building accounts in a different bank to make sure she doesn’t touch it. 

It sounds like a lot of work to set it all up, but once you do, it is always there unless you change it. Think of these automations as guardrails to make sure you are putting the money where you want it to end up. Once a month you need to review your spending and adjust as needed. Look at the things that are reoccurring and confirm you are still using them, see if your interests have changed and you no longer want to purchase something, etc. Everything leftover is your cash flow money that you will use to do fun things and accomplish anything else you want to. The difference in a budget is that it is very forward-looking, and most times doesn’t consider your interest and lifestyle changes that will inevitably happen.

Budgeting, Life Changes, and Sources of Income

When you are a medical student your budgeting options will be a lot different from when you start residency, and when you become an attending, your budgeting options are even more different. In medical school, you barely have any budget options while you try to make ends meet. As a resident, I was dipping into my savings account and pinching pennies as bills came up. A budget would’ve been extremely helpful if I could’ve figured it out then! My life is very different now. I very rarely spend more money than I make, but my non-clinical side income fluctuates and can be adjusted based on what my family needs at that time, so I always have a backup.

Lisha has gone through financial changes as well. When she decided having a roommate wasn’t what she wanted anymore she had to comb through her finances and really dig deep to figure out what she could afford. The numbers got very tight, and she sought out additional sources of income instead of cutting out things that aligned with her beliefs, such as tithing 10% of her income. She monetized her blog and started writing articles and selling them. This additional source of income allowed her to rent a nicer apartment and continue to create the financial life she wants instead of building debt. 

Is a Budget or a Cash Flow Plan Better?

Is a budget or a cash flow plan better for you? It really depends on your financial goals and your personality. If you are a detail-oriented person who can stay on top of your budget without feeling like a failure every time things don’t go as planned, a budget will work great for you. If you are more like us, a cash flow plan may be the better option! Whichever way you choose, remember to pay your future self first and automate everything you can. However you handle your money, you must know what is coming in and what is going out, and review it consistently. Start before you’re ready, start by starting, start now!

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TPP

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