How to Live Within Your Means as a Doctor
Most residents and young doctors spend the early years of their careers working around the clock. Unfortunately, they aren’t necessarily compensated well for this time. However, within just a couple years, they will be making serious money, and the temptation to splurge is hard to resist. New cars, expensive homes and vacations can easily add up and leave even a high-earning doctor in debt. This article is an introduction to financial planning as a physician.
What is Lifestyle Inflation?
Lifestyle inflation, also known as lifestyle creep, occurs when your spending habits extend beyond what your income can support long-term. It usually starts as a gradual process, moving along at a steady, creeping pace. But habits compound, and before you know it, one day it may have a tight-fisted hold on your finances — and your entire life. Whenever you receive a raise or find a better-paying job, the temptation to take that extra money and splurge can be overwhelming. After all, you earned it, and you and your family deserve it.
But that’s not always how it works. Maybe you get that raise and decide to start eating out at nice restaurants more often and booking expensive trips because you can afford it now. Or maybe you buy higher quality makeup or specially brewed coffees. Eventually, all of those little expenses begin piling up, and the next thing you know, your new income isn’t able to keep up. Now, there’s nothing wrong with eating out or buying nice things. But when you begin letting those upgrades infiltrate your entire life and you don’t have a clear-cut plan for your finances, trouble is sure to follow.
How to Avoid Lifestyle Inflation
While it may be hard to identify the signs of lifestyle creep in your own finances on a day-to-day basis, there are many things to can do to avoid it altogether. From gaining a deep understanding of your money to just saying no to “keeping up with the Joneses”, here’s how to avoid lifestyle creep.
Understand your finances
One of the best ways you can avoid lifestyle creep and successfully get rich as a doctor, is by taking the time to understand your finances.
- How much do you make per month now?
- How much do you spend on essentials like electricity, mortgages, rent, or groceries?
- What % of your income goes into savings and retirement funds?
When you understand where your money goes and how much it’s needed in these different categories, it’s a lot easier to avoid spending money for its own sake.
Distinguish “wants” from “needs”
While you’re studying your finances and determining which monthly expenditures are essential, make sure to draw a line in the sand between your “wants” and “needs.” It can be easy to say that you need a new car, and perhaps you do, so that pay increase will be vitally helpful in helping you with that purchase. But if you “need” that new car because your own is lacking in features that you wish it had, take a minute to reflect on the purchase. If your current vehicle works for you and is in good condition, that’s probably more of a “want.” The same is true for grocery budgets, homes, and vacations. Don’t spend more than you need to satisfy a want that will likely change tomorrow.
Stick to a budget
As you finish determining the differences between “wants” and “needs,” you should next build yourself a budget. No matter how wealthy or poor a person is, the #1 personal finance tip is to budget. This doesn’t mean restrict yourself, instead is means to have an intention for your funds. Take your wants and needs and create a budget that you can monitor throughout the month to give yourself clear parameters on what you can spend and what you need to leave alone. Most importantly, when you’re making a budget be honest with yourself. Don’t set goals you know you won’t be able to meet, but also avoid giving yourself too much leeway with expenses you know you have a tendency of going overboard with. Give yourself a budget you can stick to, and your financial health will thank you.
Beware of social media
Social media for doctors can be a beautiful thing. It allows you to keep in contact with friends or family you don’t see often, keep up with your favorite celebrities, and get inspiration for that new paella dish you’ve been dying to make. But social media also comes with many aspects that can damage your mental health and finances. Typically, this comes in the form of jealous or inferior feelings that spring up when you want what other people have. Celebrities, family, and friends alike all want to share the best versions of themselves on social media, so they post the exotic vacations, the new purchases, and the regular brunch dates with coworkers. But just because Mary can afford a trip to Australia and Jack is purchasing a new car doesn’t mean that you have the funds to keep up with both — or either — of them.
Treat yourself (occasionally)
If you keep a close eye on your finances and carefully watch your spending habits to prevent lifestyle inflation, there’s nothing wrong with splurging — on a tropical getaway, a wardrobe upgrade, or that dream set of Callaway golf clubs. Just make sure that you save up to cover the expense before you make it. That way you won’t have to worry about your budget or your bank account because you’ve carefully prepared to cover its cost in advance.