By Stephanie Stoup, Wipfli Financial Advisors, LLC
As a new physician, you’re in a unique position of entering a high-paying field with — very likely — a hefty amount of student loan debt. It’s going to be a balancing act to manage your income and prioritize paying down debt, paying monthly bills, saving for retirement and having spending money left over.
How do you manage it all effectively? How do you ensure what actions you take now early in your career set you up for success long term?
It all comes down to creating the right plan — in this case, a budget.
Here’s how to create a budget in three easy steps:
1. Identify your goals
Before you launch straight into creating a budget, it’s important to determine your short-term priorities and long-term goals. It’s pretty universal for physicians to want to pay off their student loans, but you might also want to start saving for a down payment on a house, for your kids’ college or for retirement. Short-term priorities may include ensuring you can take a nice vacation later this year.
We recommend identifying your top goals so you can then create a more effective budget.
2. Choose a student loan repayment plan
Because your student loans may be quite significant, planning ahead for the type of repayment or forgiveness plan you want to be on will go a long way to decreasing your monthly payment or reducing the total loan amount you have to pay back. Below are three options to look into:
Income-driven repayment (IDR): IDR is different from your typical standard 10-year payment because it’s based off your income, which is lower when you’re just starting out in your career and thus decreases your payments to a more manageable amount. Click here to learn how to choose the best IDR plan for you.
Public Service Loan Forgiveness (PSLF): If you work for an eligible government agency or nonprofit, you can make 10 years of qualifying payments while on an IDR plan and then have your remaining federal student loan balance forgiven. Click here to learn more about PSLF.
National Health Service Corps (NHSC): NHSC provides up to $50,000 toward your student loans in exchange for two years working in a health professional shortage area (HPSA). Click here to learn more about NHSC.
3. Analyze your cash flow
Once you’ve set your goals and selected your student loan repayment plan, you can begin creating your budget. First, determine what your income is, including income from any other sources outside your salary as a physician, and write that number down.
Then start listing your expenses. These include fixed spending costs such as your rent/mortgage, car payment, utilities and monthly student loan payment, as well as the variable expenses you incur when you do fun stuff like go out to eat or to the movies. Try to be realistic in how often you have variable expenses. As a new physician, you might be too busy to go to the movies very often, but long hours often mean more money spent on takeout.
Next comes your goals. What do you want to start saving toward, and how much per month do you need to contribute to reach that goal? Don’t forget to look into your employee benefits as well as any executive benefits you may have. If your goal is to save for retirement, you can actually save more money by contributing pre-tax dollars to an employer-offered 401(k). Investing early on in your career allows you to take advantage of compounding interest, putting your money to work. The ability to earn money on your contributions is powerful, so this should be a priority in your budgeting.
Want more ideas on how to save? We dive into some key financial planning opportunities in our article on 5 tips for recent medical graduates.
Once you have all your numbers written down, it’s time to subtract your expenses from your income. Getting a positive number left over means you have more cash to put toward savings or variable expenses, but getting a negative number means you need to actually cut monthly spending. Your goal should be to get to net zero, which means you’re maximizing savings, income and spending. Getting your budget zeroed out will let you know your true monthly spending amount so you can focus on meeting it (and more importantly not surpassing it).
From budgeting strategies to financial planning
The longer you stick to a budget, the easier it gets. Plus, developing personal budgeting methods and habits early helps you stay on track to achieve your goals. Things will change over time, of course. Getting married, buying a house, raising children — all of these common life goals bring big changes to your budget. You’ll also start making more and more as your career progresses.
It can help to add other planning tools so you can make adjustments and plan for your future. For example, Avid’s financial planning tools make it easy for you to start investing. You have direct access to modify your investment account online while working with an advisor to plan and track your progress toward your financial goals. For physicians who don’t have many hours in the day to spend on financial planning, it can be an efficient way to make important life transitions while staying on track to meet your most important goals. Click here to learn more about Avid.
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Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services.
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