How to Make a Personal Budget

It's a familiar trap for physicians.

Years of piling on medical school debt leads to pent-up spending demands when the training ends and, pretty soon, you're again living beyond your means.

"You get out, get on the hamster wheel, get the Mercedes, and you can't get off the 60-hour-week wheel," says Bryan Glick, a family practice physician near Phoenix who two years ago decided to open a concierge practice after completing his residency.

Today he's focused intently on building the practice, in part for his own long-term financial security. Like so many other busy professionals, however, he hasn't spent much time on his own household's bottom line.

"When I was out of residency, we did a budget, but we've gotten away from that being so busy with the practice," says Glick, who is building the practice with his wife, Shantel, a physician's assistant.

Regardless of your business model, the way you take care of your household budget can seal - or steal - your long-term financial success.

As a former internist who now runs a financial advisory firm catering to physicians and dentists, Joel Greenwald has seen the spectrum firsthand.

"I have a client who is a single woman who saved diligently. She didn't feel like she was depriving herself. She just gravitated to more inexpensive vacations like camping and wasn't extravagant," said Greenwald, cofounder of Sterling Retirement Resources in the Minneapolis area. "There was another couple that came to me several years ago and I told them their spending wasn't sustainable because he was winding down his hours, but they were still spending like they did before. They just came back in and, sure enough, he's now 70 years old and still working, and they'll be living on basically just Social Security in retirement."

The good news, say Greenwald and other financial experts: With a solid paycheck and relative career stability, most physicians won't need to reuse aluminum foil in order to make a budget work.

Budget basics

You may already have tried this drill. Save receipts or start tracking spending through an online service such as www.mint.com or www.geezeo.com, or with software such as Quicken. There's also a world of mobile apps that will let you scan or enter receipt data on the fly. Mint has a mobile version for the iPhone and Android. Other popular apps include Xpense Tracker, iXpenseIt, and Expensify. The key is actually finding something you'll commit to keeping up, says Scott Steinberg, chief executive officer of Tech Savvy Global.

"With most of these applications you can set up separate accounts for your practice and personal expenses, but security is always a big concern, and realistically this isn't something most people want to spend a lot of time doing."

If that describes you, ask your attorney or financial adviser to recommend an experienced and trustworthy bookkeeper who can go through your expenses and start categorizing them for you. Another option is the National Association of Professional Organizers (www.napo.net). The website lets you search by location for organizers who specialize in personal financial organization.

Susan Rose, an organizer in Chicago, charges $60 per hour, and can organize a morass of financial records as well as do bill paying and maintenance of records.

"It's not a character flaw to pay someone to do this if it's drudgery to you," says Rose. "People are busy and it's all about spending time the way you want to spend time."

Next steps

A lot of people track their expenses for awhile, and stop there. This is a big mistake because you will have wasted your time and gotten little more than learning you spent more than you make for a few months.

To really make a budget that will pay off, you need to gather your spending data and then really spend some time analyzing it with yourself and anyone you're sharing your expenses with, says Susan Bradley, a financial planner and founder of the Sudden Money Institute, which offers coaching for major financial transitions.

Among her clients are wealthy heirs and the NFL Players Association, the football league's union. She helps athletes handle multi-million-dollar contracts, as well as the financial aftermath that takes effect when their playing days end.

Athletes are different than doctors, in that once doctors come into affluence their careers tend to last much longer, she says, but there are similarities.

"They're also older and typically more mature at the start of their careers," she says. "But the culture is similar. There's a strong sense of entitlement that can be their undoing."

Tel Franklin, a primary-care physician in Monterey, Calif., agrees.

"A lot of young physicians feel they've had enough delayed gratification. They want the golden goose," he says. "And you've got to get on track with your partner because nothing is more costly than divorce."

Starting out, Franklin's biggest surprise was the impact of taxes on his take-home pay, and that's very common, says Bradley.

Once you have a solid handle on your living expenses, set that aside and look at gross pay, both for yourself and your spouse or significant other.

Now subtract payroll taxes such as Social Security and Medicare, and federal and state income taxes.

Say your household brings in $150,000 annually. You might have roughly $120,000 after those taxes, depending on where you live and how many deductions you can claim.

If you have $250,000 in total income, you might have about $190,000. And at $350,000, you might have $252,000. (Remember, your numbers will vary widely by your state taxes and deductions).

Now take off what you want to be able to save every year. If you're strapped with med school debt and making closer to the $150,000 level, that might only be 10 percent, or even less, but it's important to commit to a target you can work toward, advisers say.

Toward the top end of the pay scale, you need to aim higher, even if you also have loan repayments to make, says Bradley.

Households earning $350,000 or more should be shooting for allocating about 50 to 60 percent of that to taxes and savings (with debt payments until they cease) and living on the remainder, she says. It's up to you if you want to lump more taxes into the tax category.

That may sound draconian, but remember that physicians typically get a late start on savings, she said. Even Social Security benefits can only be maximized if you have 35 years of significant income.

Now that both you and your partner have a realistic idea of exactly what income you have and want to keep, it's easier to divide what's left, Bradley said. Allocate your spending categories according to your joint (or compromised) priorities, and then see where the disconnects are in your actual spending log that need to be addressed.

The payoff

Once you have a budget that realistically gets you to your savings goals, the payoff can be better marital communication as well as personal peace of mind, Bradley says.

"Physicians often face aggressive spending pressure, so they need to sit down with themselves or their spouse if they have one and have a conversation about expectations," she says. "Living outside your means does not bring happiness."

Whether you spend from one common account or keep separate finances with your partner, it's crucial to have an overall game plan for your money that uses the budgeting information to set the tone for your overall financial health, Bradley and other experts say.

In that conversation, talk frankly about whether the spending patterns you've just identified match each of your top priorities. If they don't, have a realistic conversation about how to cut back in certain areas so you can devote more to longer-term goals. Then, every few months, review whether your day-to-day spending is changing to reflect those goals.

Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at editor@physicianspractice.com.

This article originally appeared in the October 2011 issue of Physicians Practice.