• Mark Fonville, CFP

What Physicians Need To Know About Budgeting


It is a complete myth that high-earners don't need to worry as much about budgeting and crafting a savings plan as lower-income earners. In fact, many times they have to think about it more.


With more wealth comes more complexity, making it important to build a plan that balances debts, current expenses, and future goals. Because of this added complexity, it’s extremely important to be deliberate about your budget.


Today our team wanted to tackle a topic we talk about a lot—how to budget for high-income earners. Physicians have a lot of moving pieces in their financial plan, which makes proper budgeting integral for financial success.


What makes a strong physician’s budget?

Let’s find out.

High-earners still need a budget


Deliberate planning allows you to maximize the potential of your earning power. But beyond enhancing your dollars, it also protects you. Without a budget, you run the risk of missing opportunities and creating financial problems that are much more difficult to correct than they are to avoid in the first place, like runaway debt.


You spent a lot of money and a lot of time earning your medical credentials. When you enter your career, it's only natural to want to reward yourself for all your hard work. It’s okay to enjoy your money, but do it in small doses.


We have met dozens of high-income doctors who didn't have a dime to their name because they became too accustomed to earning (and spending) their higher-income out of the gates.


Again, a simple but deliberate budget can help you tremendously here.

The difference in a physician's budget


To some degree, a budget is a budget.


Being a physician doesn’t change the fact that you still need to plan for the same things as most other professionals: housing, food, utilities, emergency funds, retirement, etc. But there are a few other things that doctors need to be especially conscious of.

Budget for Student Loans in The Early Years


If you are several years outside of medical school, you may have a large student loan balance considering the average debt for medical school graduates is over $250,000.


Debt management and repayment should be a big part of your financial plan. There are several ways to handle this. First, consider your options so you can outline your approach.


You may want to pay your loans off as quickly as possible and get them behind you. Again, deliberateness is key if this is your goal.

Unmindfully directing any leftover money to pay down the balance probably won’t work. With leftover money, you’ll always find somewhere to spend it, which could leave you empty at the end of the month. Instead, decide how much you can reasonably afford to use for debt payment and make it a line-item in your budget.


There are also several favorable repayment options for federal student loans that are based on your income. These income-driven (IDR) plans can significantly lower your monthly payments, but the payments will increase as your income increases. It may make sense to use one of these repayment options to match your payment with your income level.


There's also the possibility of having your student loans forgiven if you qualify. Public Service Loan Forgiveness (PSLF) is popular among physicians. The primary qualifications are that you have federal student loans, work for a 501(C)3, and make 10 years of qualifying payments. Any balance remaining at the end of the 10 years is forgiven, tax-free.


Note that payments made while on an IDR plan still qualify, so combining IDR and PSLF can be a huge value and presents an excellent planning opportunity.


You’ll never know the value of this opportunity if you don’t plan your budget, and you could miss the opportunity if you don’t budget for it.


Budget for Insurance


You will need different levels of insurance as you go through your training and career development like life insurance, disability insurance, and malpractice insurance. The level and type of insurance you need will change as you embark on different stages of your career. A resident might not need the same malpractice or disability insurance as an attending or someone running their own family practice.


Your coverage needs will likely depend on your income, cash flow, dependents/family responsibilities, debts, and more.


All of these require a strong plan and a professional to help guide you toward the right policies for you and your family.

Budget for Retirement


Most doctors remain in their field for a lengthy career. You may plan to do the same. After all, you studied and worked hard for it.


But, burnout occurs frequently for doctors, especially now days. That means you may find out that you want to retire earlier than you had anticipated. If so, you’ll want to be ready. This requires creating and sticking to a plan for spending and saving your money—starting now.

Make a plan for retirement contributions. Ask yourself the following questions,


  • What does your current retirement savings plan look like? Are you on track or do you have to play catch-up?

  • Are you maxing out your 401k, 457b, and IRAs?

  • What are your investment goals and how are those reflected in your portfolio?

  • What plan do you have to create tax free sources of income in retirement?


Time doesn’t stand still. By putting your budget and savings plan on the back burner, you give up the opportunity to benefit from time, compound interest, and sustaining good financial habits longer. Proper planning helps you get a sense of your cash flow needs in retirement so that you can define your target and set up your money in a way to reach it.


Align your budget with financial goals


It's no secret that people hate budgeting.


It can be tough to create and stick with, and often takes a lot of work. That’s partially because most people think of a budget as a set of rules that restrict financial freedom, but your budget doesn't have to be restrictive.


Reframe your budget in context with your other financial goals. When spending is tied with goals and larger intentions, it makes it easier to be consistent. It also helps you think of a budget as a tool for achieving your goals, rather than a set of limitations.


Understand the difference between needs, wants, and wishes. Your needs are typically your fixed expenses like housing, food, and transportation. You have control over these fixed expenses. For example, by buying a house with a smaller mortgage rather than a house with a larger one.


We recommend that you save 30%-50% of your income. I know what you’re thinking! That may seem like a lot, but with a proper budget, your higher income will allow for greater cash flow, especially if you start early.


If you burn out of your career, become ill, or some other unforeseen incident, you'll be glad that you stashed away savings.


For example, if your goal is to retire in 20 years and you make $300,000, your take-home will be approximately $215,000 for a married couple in Virginia with two kids. This means you'll want to consider saving anywhere from $64,500 per year (30% of your take-home) up to $107,500 (50% of your take-home).


That may seem steep, but it is very achievable with an intentional budget. You’ve worked are for your education and credentials and you owe it to yourself to make smart decisions now to ensure a secure financial future. Remember, financial success won’t happen without discipline and a budget.


Are you ready to take the next step and revamp your budget and get in track for retirement? Schedule a call with our team today.

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Covenant Wealth Advisors is a fee only financial planner and registered investment adviser with offices in Richmond, Va and Williamsburg, Va. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. *AUM as of June 30, 2018