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Budgeting With a High Income

As a financial planner who works with attending physicians, I see one mistake consistently being made when it comes to personal finance:

Individuals who are able to live comfortably as a result of their income skip the process of building a budget.

More often than not, it’s not a decision they consciously made. A budget just wasn’t necessary because there was enough cash flow to cover all of their necessary expenses – with a little bit leftover. Here’s the thing, though: a budget does so much more than help you to keep track of your finances when times are tough.

It helps you to set financial goals, and move toward them with certainty. It helps you to prioritize your spending and to use your money in a way that lines up with your values and leaves you feeling happy and fulfilled. Let’s dive into why budgets are necessary, and how to create a high-income budget that allows you to enjoy the money you earn from your hard work now while still preparing for your future.

Reality Check Yourself

High income is incredibly deceptive. When you’re not worried about making rent every month, your higher-than-average income can trick you into thinking you’re doing really well financially. Unfortunately, having a high income isn’t an indicator of wealth. It’s an indicator that you have the potential for wealth. Net worth is the only true indicator of wealth – and most new attending physicians are in the red as a result of a mountain of student loan debt. Don’t fall into the trap of believing you don’t need a budget just because you feel like you’re financially stable.

You Can Get More Done With a Bigger Shovel

The huge benefit you have working for you when you have a higher income to budget with is that you can work faster to achieve your goals. However, you can’t do that unless you allocate your funds wisely! The truth is that you can get more done with a bigger shovel. When you have more funds to put toward savings and debt repayment, you have the ability to lay a strong financial foundation much more quickly than the vast majority of newly-graduated Americans.

New Attending

Are you a new attending physician? One of my favorite pieces of advice for physicians who are 5 years or less out of residency is to continue living on the same budget you lived on during residency – with a tiny bit of wiggle room. Don’t overspend just because you have a sudden influx of cash flow as a result of your new job. Here are a few ways you can keep costs low:

  • Resist the urge to go buy a big expensive house at this stage
  • Don’t purchase or lease a brand new vehicle. Pay with cash and get a used one
  • Don’t fall into a trap of believing you have to keep pace spending with your colleagues
  • Plan ahead for big expenses to avoid going into debt
  • Automate debt repayment and savings

Consider a Weekly Budget

My wife and I practice weekly budgeting instead of the more traditional monthly budgeting – and I think it works really well. I recommend my clients follow the same practice when possible. The truth is that monthly budgeting just gets too complicated. It’s too wide of a window to be able to predict your expenses. Going week-to-week allows you some flexibility in your variable expenses. I typically suggest you think of your budget in two separate categories:

  1. Variable expenses.
  2. Static expenses.

Static expenses are predictable – monthly rent, student loan payments, and your utility bill, are good examples. Variable expenses can be harder to predict – gas or transportation costs, groceries, or eating out, would be considered variable. To optimize cash flow when you’re sticking to a weekly budget, start by setting up two separate accounts – one for static expenses and another for variable expenses.

Every week, you can “pay” yourself (or you and your spouse or partner) with an automated transfer to your variable expense account, and adjust how you want to allocate those funds based on what comes up during the week. Your static expenses, debt payments, and savings contributions are all covered out of your static expense checking account – where your paycheck is deposited every two weeks.

This takes some of the frustration and overwhelm out of budgeting, and makes it easier for you to stay on track. It also gives you a little bit of wiggle room. As long as you’re still living relatively frugally, budgeting week-to-week helps you to adjust if you want to spend a little extra on dinner out with your significant other, or an event with friends on the weekend.

Don’t Go It Alone

Budgeting is something everyone should tackle early on in their financial lives to set themselves up for long-term success. But that doesn’t make the process any easier! At Deerfield Financial Advisors, we work with new attending physicians to track spending, set up a budget that works for them, and set both short and long term financial goals to work toward. Ready to dive in? Schedule a call with us today.