More Money Margin. A Physician Spending Plan

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More Money Margin. A Physician Spending Plan.

Wait what? Budgeting money? That sounds boring. No, painful. I’m a doctor after all, and I deserve it. The house, the car, the vacation, whatever. My credit card still works right? How much is enough, for now, for later, for retirement? I keep hearing about all these different insurance things and wonder if they are necessary? Regardless of whether talking about limits and margin with money makes you want to fight me. Or that it makes you want to snooze because you think that is boring and unnecessary. Stick around for the rest of the episode to hear how aligning your priorities and your finances can allow you to pursue your wellness today.

In this post, I will be covering the second part in the series on margin, moving from time to money. We will cover why margin with money is helpful and yes, even talk about budgeting. Priorities and planning don’t have to be such a downer when you realize they allow you to live your life with intentionality and in line with your priorities. Your continued engagement with this podcast has been encouraging to me, and please continue sharing with other physicians and students in your life. And speaking of sharing with others, for those of you who work with residents and fellows, there is a free webinar I am doing soon called Financial Wellness in Training. In it, I will cover a lot of the topics from today with more of the why behind them. More specifics about different types of retirement and investing accounts, disability insurance, basic concepts around student loans. The link to register is in the show notes.

Money Matters in Medical School

So for me, my journey with money in medicine started back in medical school. You fill out all the FAFSA forms, register for classes, and then you get this financial aid award. An award, what an honor. Awards are free, right? Well not this one. It says here is the money. It is a loan, these are the terms in a big named document called the Master Promissory Note, and here you go. You kind of have an idea from tuition, fees, typical expenses for different things, and living expenses. You can take all of the money, or you can specify you want less, but then that’s pretty much what you get for the semester. There were some ways to give back a little extra if you took too much, but you had to do that in a certain timeframe. I was thankful to be accepted to my in-state medical school. But when your home state was at least $100 million behind on support for the university, then your medical school tuition, despite being the cheapest that I was able to get, was still the fifth-highest state school tuition in the nation at that time. So naturally loans for school force a certain amount of planning, well at least they should.

In college, I was blessed with a few scholarships and generous assistance from my parents, but now in medical school, I was taking out these huge loans. Wow that’s a lot of money. But that’s just what you do, right? I hear of a few people working during medical school, but for the most part, med school is your job, you are working hard studying, preparing, and caring for patients. So figuring out what I needed for finances, I realized that in my situation, I was able to take less than the maximum offered in terms of my loans. I had roommates each year. I used the public transportation card that was already included in my semester fees. My parents generously let me borrow one of their cars for awhile on some of the rotations. And yet, even making a spending plan for the semester so I didn’t run out, the money keeps coming in. I didn’t quite comprehend the psychology of all these loans, the weight. The size of these loans and the amount of time that they sit there growing, four years, allows you to become immune to how big it really is, and then when you enter repayment, you are like, what, the income based payment in residency probably doesn’t even cover the interest accruing?

Finally Getting Paid…A Little

So then, out of med school, I enter residency and repayment, my loans are all federal, I don’t know to consolidate and skip my grace period, but I at least am started on an income-driven repayment plan and get on the public service loan forgiveness pathway. And yes, my income-based payments do not even cover the interest accruing, and as I saw in med school, the balance just continues to rise.

But now as a resident, there is a paycheck coming in, sweet. But where does it all need to go? Thankfully, I found a reasonable apartment to rent in residency, and I attended the orientation session on our benefits package, health insurance and retirement options. As an aside, budgeting is another way of saying making a spending plan, cash flow planning, whatever you want to call it, but it is the same thing. Tithing and giving outside myself was a priority, and I knew to try to save some as well. Giving helps fight the illusion of control, saying that whatever I am giving to is of higher priority than what I could otherwise spend that particular money on. It doesn’t mean those other goals aren’t important, but it may mean it takes a little longer to get there, whether a vacation, retirement, or some other savings goal. It’s again about priorities and planning. So on the savings side in residency, having just learned about the ROTH IRA and 403b at that orientation session, I tried to take advantage, especially as some of those could reduce my income for the loan payments.

Emergency Funding

Beyond just the giving and saving for retirement, I tried to build up an emergency fund, what I eventually learned should be in the range of 3–6 months of expenses. Some people some would say you could use credit card with no interest for a particular time frame. Others would say if you have some equity in your home you could take out a Home Equity Line of Credit (HELOC). Or that if you have a taxable account to sell some of your holdings. But those come with their own delays or risks, high interest rates on credit cards, time delays, or facing undesirable capital gains consequences. So there is room for differences of opinion, but having 3–6 months of expenses in a high yield savings account or something similar allows you that hedge, some margin. For a large medical bill, car repair, air conditioning unit. Or perhaps, an unexpected furlough or drop in patient volumes when say a pandemic totally reshapes and affects the landscape of medical practice. That money in your emergency fund is not “sitting around doing nothing” especially in what is a low interest rate environment at the time of recording. No, it is self-insurance for yourself, money with a job, hard at work, just not focused on the rate of return.

Creating a Budget or Spending Plan

Speaking of giving money a job, let’s take a moment to talk about the mechanics of planning. The nuts and bolts of making your budget. Wait, wait, wait. Making your spending plan, how to spend your money. The difference may seem small to many, but I think that for me, staying on budget sounds more restrictive than, this is a plan for how I, and now my family, spends money. It is saying this is the job for this money, and if it is gifts for others or vacation, we are going to enjoy those things together. So back to the specifics. This can be done on paper, on a spreadsheet, or using a particular program. I previously used Quicken and now use You Need a Budget (YNAB). There are lots of other digital options out there as well, try a couple and then just get moving forward. More money coming in than going out creates that margin to move forward on your financial goals, even if that means paying off credit card debt or getting that emergency fund started. It could also be moving towards financial independence, whether you want to retire early or just have goals for where you want to be financially when you do retire. Seeking to maintain some of that margin allows you to align your financial goals with your values and priorities.

Housing

Some of the categories you will have to include, starting with housing. In residency, I rented before and after marriage, knowing we might end up moving. I have heard 3 to 5 years of appreciation of a home typically equals about the costs of buying and selling a home. We didn’t know where life would have us in the long run, and life hasn’t been the straight road we thought it would be. we rented an apartment longer than we might have, going on six years now, prioritizing income-based loan payments and side savings in case loan forgiveness doesnt work out. I have colleagues who bought in residency and were very happy with their decision, but this is part of personal finance being personal.

What Are You Driving?

So housing is one thing, then there is transportation category in your spending plan. You can choose where you want to be, but in residency and early career, this may be where you hold on to a vehicle a little longer, not get the brand new version, or not go for the big splurge right away. You may have something else you want to prioritize more than that early on. When I started residency, I had some money saved up for a car, and I paid cash for a Ford Focus that was four years old and 80,000 miles at the time. It has had its issues, but it has been paid off since the beginning. No car payment. I disagree with Dave Ramsey and others who would say no debt at all. Like I said earlier, med school is just not something you can cash flow. Working a regular job that would cover tuition just wasn’t happening for me. But I personally try to limit things I would take on debt for. This would be for a house and education, again both within reason. Yes, I know people do this often for business opportunities, but that hasn’t been my background previously and there are many other physician entrepreneurs who can speak on this if you are considering these opportunities.

Credit Cards vs Cash

I use credit cards like cash, paying them off every month. And like I tell my patients with their healthy habits, “no shame” if you haven’t used credit cards in the ways that you had hoped, just take that next step forward. Credit card debt, if there, should then be one of your highest priority “savings goals”. You essentially are getting a guaranteed return of whatever the interest rate would have been. 15–24% or whatever the terms of your card are. All of this doesn’t mean you cant choose to splurge on something, but you have less margin going into those decisions if you are in residency or have a lower income or if you have large commitments already established that would be even more difficult to change.

Disability Insurance

True own-occupation disability insurance also needs to be on your list. The portable, take it with you kind of policy. Yes, it isn’t cheap, but there is the ability to purchase some while you are in training and add a ‘future purchase option’ rider among others. These additional riders include, but are not limited to, partial disability and cost of living adjustments. Getting a policy in residency or fellowship often allows you to have a guaranteed standard issue policy where they don’t look at your underlying medical history, just whether you have been denied for insurance previously. Which means that for medical students, typically without an income to protect, you probably don’t need this type of insurance. Term life insurance is separate and something to consider if someone is depending on you or your future income, like a partner, child, or other family member, just not disability insurance until residency. There are 6 companies as of this recording that offer true own occupation disability policies, and an independent agent will allow you to comparison shop them. There is a link to one in the show notes, but there are multiple options out there.

Rounding Out Insurance Options

And while we are on insurance, disability is expensive because it gets used. Cancer, car accidents, extended illness, lots of things can cause disability. Also, most policies have a 90 day waiting period, so that is something for the emergency fund we talked about earlier. Insuring your vehicle, particularly for liability is also important, since even if you are just a resident, if you are in an accident and someone figures out you are a physician, all the more likely that you might need to use that policy. Also home or renters insurance, umbrella for additional liability above the limits of your home or auto policy. These all are things worth looking into.

Margin and Choices

Again, creating margin in your budget is important for these things. You may look at discretionary items, whether dining out, tv subscriptions you have, vacations or otherwise. It is not because having all this insurance is so fun, but because life happens, and having these things in place maintains your ability to pursue your other goals when these things come up. It also means that if one of these discretionary things brings you a lot of joy, you pick something and plan around it, rather than realizing you have no money left for your car insurance because you spent it on dinner last week.

What about Student Loans?

And then there are the loan payments. First private loans, refinance them into a lower rate if you can. For federal loans, depending on your debt and your income, you may need a ‘partial financial hardship’ to qualify for certain income based plans. Those of you who are married may need to look at married filing jointly vs separately as you go for Public Service Loan forgiveness, while those of you with higher incomes relative to your debt level may need to consider refinancing as well. However, making the wrong move can be disastrous for your personal finances and often with no ability to go back. One example would be refinancing federal loans when you work for a nonprofit institution in residency and beyond and would otherwise potentially qualify for PSLF. I ran the numbers myself going through it and stayed on PAYE for my payments, including a couple years of married filing separately (MFS). By doing so, the loan payments decreased by excluding my wife’s salary which outweighed the increase in taxes from filing separately. This would not have been possible in the REPAYE program, and it didn’t make sense based on her income and mine once I had a full year out of residency. Complicated, definitely, but for significantly less than a typical income based payment after training, StudentLoanAdvice is a company that specializes in helping you walk through your options for your loans. This particular opportunity wasn’t there when I was making those calculations. It could help bring clarity to the decision, particularly if these calculations or spreadsheets aren’t your thing.

These are some of the nuts and bolts of different things I have learned about making a spending plan for me, and this is not financial advice. However, I hope this spurs you to consider some of the big categories in your own budget.

Planning and Priorities

But now to the why?? Why do you want this financial margin, and what can you do with it? For me, margin meant I could cut to 0.85 FTE when I was burned out. It meant that when my wife, who is a nurse, wanted to go supplemental status to care for our daughter and greatly decrease her hours at work, she could. And having shared those decisions as a couple, we both are able to stay engaged personally at home AND professionally at work with colleagues and patients. My wife also has the flexibility to pick up additional shifts as she wants, which means more daddy-daughter days, but our household budget with shared finances is not dependent on those extra shifts.

Being married, we have chosen to do shared finances. We talk budget categories regularly and where some may need to increase over time (especially with a kid and changing life seasons). We also have a certain amount of “fun money” that has allowed us to have a lunch out with friends, or say invest in a podcasting setup. By doing this, we can do some of these fun other things without having to worry about where we need to put that in the budget.

We have also figured out some extra margin in our budget gives us the flexibility to get something new for our place, either a new decoration or a new microwave when that one breaks. It also gives flexibility to do other things in line with our priorities. My wife and I both have prioritized giving, but my wife has helped me see more of the tangible needs of others around me. And so, if a friend has a new child or a colleague has a significant illness or there is a chance to bring someone a meal, we have the opportunity to meet that need. We have been on the receiving end of assistance and meals in the past as well, and it is a big encouragement.

Some of your priorities will look different than mine, but this is part of how I have processed ours. We didn’t get into how much to save and where, but know that just because we didn’t cover it here, number one, it is definitely important, and number two, we will come back to it more in future episodes.

Earning and Options

So one side is the spending, which I had significantly more experience managing in med school and beyond. The other side of the equation is the earning. This could include your main gig, W2, 1099, private practice or otherwise, other business opportunties or investments whether stock market, real estate or others. You could also be starting your own business, and some other physicians are doing great work in coaching and providing value to budding physician entrepreneurs. Know that your current job does’t have to be your forever job. Market rates for a particular specialty vary regionally and the cost of living and other considerations come into play, whether you are going for PSLF and need to be at a non profit. Lots of factors can affect your earning potential even within your own specialty. As an employed physician, I have a regular salary with an occasional additional amount that I earned above the base maybe once or twice a year. In making a spending plan, I didn’t expect those additional amounts, treating “bonus as bonus”. This has created additional margin for me on the inflow side of planning.

Take Action

So as we wrap up today’s discussion of margin in finances, if you dont have a spending plan, go make a budget. It may be you start by looking back at the past 3 to 6 months to see where spending has been. Look back a year as well for some of those episodic expenses as well, birthdays, holidays, annual insurance payments. If you do have a budget, look at whether your spending aligns with your priorities. Then I want you to pick a next step that needs to happen to move toward financial wellness for you.

• Freeing up margin by considering what may not be essential could allow you to eliminate that credit card debt, save more for retirement, give more to others, or go on that nicer vacation guilt free because you saved up for it.
• Or is your next step in your financial wellness to sit down with your department head and discuss how are you’ve been out performing your contract and how your base salary needs to be increased based on your production?
• Or is it that you need to apply for similar positions in your area so that you have other offers to better renegotiate your current position or that you have the flexibility to be able to move jobs to you increase your salary?
• Or does it mean scheduling a student loan consult with today’s sponsor StudentLoanAdvice at the link in the show notes?

Final Charge

Whatever your next step is, knowing where your money is and where it’s going and creating margin financially gives you more options to pursue wellness for yourself, whether a particular goal you have in the short term or some other use for it that aligns with your priorities. Find the time, decide what to do with it, and create the financial margin to make it happen.