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  • Mark Fonville, CFP®

What Physicians Need To Know About Budgeting

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