Speaker 1 (00:03)
Welcome to the Physician Family Financial Advisors Podcast, where we turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security to last a lifetime. I'm Ben Utley.
Speaker 2 (00:14)
and I'm Nate Rennecke. Today's question is, should doctors have a budget?
Speaker 1 (00:19)
So Nate, you've been budgeting for like more than a decade. I'm hearing all about budgets all the time, more than I would hear if I was just a financial advisor. So, you know, what's up with this? Maybe we could start breaking it down by like, ⁓ you can just tell us listeners, you know, what is a budget?
Speaker 2 (00:39)
when people come to me and they want to do a budget, they seem to have a different idea every time about what exactly that is. So ⁓ simply put, a budget is just a plan for spending money. And that plan ⁓ can be used as a tool to control your day-to-day finances. So it's just a plan.
Speaker 1 (01:00)
So a plan for spending money and a tool. Last time I was at the hardware store, didn't see that particular tool and a plan for spending money sounds a little ominous. like, ⁓ how do people budget? Like how do you actually do it?
Speaker 2 (01:21)
Yeah, well, nowadays people use software. I there's all sorts of software out there. I feel like I've touched all the software for budgeting and then a new one pops up all the time. So there's a bunch of software out there, but at end of the day, the software is trying to accomplish the same thing that people have always tried to accomplish with a budget. And essentially, that is to start with how much money you make, subtract out.
all the things you spend money on and save money on. ⁓ And at the bottom, you know, you have a zero, no money left. So zero based budget. ⁓ And that is a way of deciding where you spend money. So some people decide based on their receipts. So they look back at their bank statements and they see their bills and that's how they decide on some categories. And then other categories.
⁓ It's open to what you want to do. So how much money you spend on restaurants is going to be different in every house. And a budget allows you to kind of put a stake in the ground. We are going to spend X dollars on this category. So you're choosing, you're deciding, you're making a plan.
Speaker 1 (02:41)
come on get real. Can you really do that? Can you put a steak hanger on a set? I'm only gonna go out to eat so many times, right?
Speaker 2 (02:47)
You know, ⁓ some people can and but most can't and this is like anything in life. This takes this is a behavioral issue ⁓ where a lot of people it's really tough for them to change their behaviors. But it gets ⁓ much harder as each person gets as new people enter the house. So when it's just you, you're single. You can spend the money the way that you want and you could decide when you're going out to eat. But then when you add
a spouse in there. Now you both have to be on board with the budget. And then kids, mean, they don't want to budget. They just want what they want. So you have to tell them no all the time, or you say yes and blow the budget up. it's pretty difficult.
Speaker 1 (03:30)
I got it. So, ⁓ know, you, you have been keeping a budget for a long time. You kept it in paper for years. ⁓ and then I think you're, ⁓ you're using YNAB like I am today too. ⁓ so I've got my reasons. I'm sure the listeners have the reasons they're thinking about having a budget. So why do you budget Nate? Like, what, do you get out of this, this, this exercise?
Speaker 2 (03:51)
The true answer is that you get control.
Speaker 1 (03:55)
huh.
Speaker 2 (03:58)
everything. You get control, you know, over your life really and exactly how you spend money. The other kind of factor in here is you can use it as a communication tool to discuss with the people in your house, mainly your spouse, how you spend money. But I have described myself in the past as a recovering budgeting addict because that control can get out of hand sometimes and you
in the worst days, you would find me at the gas station, not filling up my tank of gas because there wasn't enough in the budget, even though we had plenty of money to fill up our tank. But I'd only put $20 in it because that's what I had left in the budget for it. And that was just a strange way to control your money. And it just gets out of hand.
Speaker 1 (04:50)
So if I were an intern or resident, think squeaking out my last 20 bucks to fill up my tank might be a problem. But most of the folks that are listening to our show here are mid-career physicians. And 20 bucks for gas, that's just pales in comparison to the cost of having the nanny and filling up the nanny's car to drive kids around. So I guess the question I would have is why do doctors want a budget? Why are we hearing so much about budgets from people that come to us and people we serve?
Speaker 2 (05:18)
Mm-hmm.
Well, you know, what I found recently is that a big reason they want to put in the time to do a budget is that they want to feel comfortable with these big savings goals that they think they're going to have. So they need to save a lot for retirement. That's what they've been told. They've been told they're going to need to save a lot for college, is true. And they don't like the idea of running out of money on the things they want, they need, or they want to spend money on.
Speaker 1 (05:50)
So
they want to do.
Speaker 2 (05:53)
running out now, not being able to spend on any given thing in any given month like they want to.
Speaker 1 (06:02)
So if I save a bunch now, then I won't have a bunch to spend. I'm just going to live like I'm broke.
Speaker 2 (06:06)
Yes, doctors have a fear of that because they lived like that for so long during residency and even undergrad.
Speaker 1 (06:16)
I've actually coined a phrase for this, Nate. I call it Resi-Dementia. It's the, it's this crazy thought that you still have to live like a resident even when you're not a resident.
Speaker 2 (06:25)
Yeah, and they're afraid of that and I can see why I mean those tough times for them ⁓ But their their answer to it is maybe a little misguided where I must budget Every dollar so that when these big savings goals hit me in the face. I still get to spend money on the things that I want ⁓ And usually, you know, another reason is that like I said people are telling them well This is what you and I call the blogosphere. This is the blogosphere all the
physician financing blogs out there, just pushing budgets on people like it is the Holy Grail. I wanna, so imagine for a moment that you just started making money. ⁓ real money, like not your first job at a college or anything, you really started in your first career and you hear that budgets is where you start with personal finance.
You know that everyone's been telling you that and you want to grab your personal finance by the horns. Yeah, better yet. You want to grab life by the horns. Yeah, you want to life.
Speaker 1 (07:33)
I've got more money than I've ever had before.
Speaker 2 (07:36)
Yes, and you decide, I'm in my mid to late 30s, I need to get on track, so I need to start budgeting. So you start looking around for how to do that. And you find maybe some videos about how to do YNAB, which you and I use. ⁓ You find videos on how to do it in Excel, whatever it may be. And you sit down after you get home from a job you work in 60 hours or more a week at. And as soon as you start, a baby starts crying in the background.
So you tend to your child, of course, right? And then you got to cook dinner and then before you know it, it's 10, 11 o'clock at night, you have a choice. Do I budget or do I go to bed?
Speaker 1 (08:13)
Don't forget the spouse.
Speaker 2 (08:15)
Yeah, don't forget the spas that you haven't seen all week. So then the next day, maybe I'll have a day off, but then you can get called in to work. So you don't get the budget then. And it's just time and time again, you never get to sit down and do this thing that really isn't very fun. And you're just doing it because you're told you have to, and you want to get on track with your finances. It breaks. Yeah, and you got halfway through, it's out the window because you're halfway through the month now and you didn't even really get to do a budget.
Speaker 1 (08:36)
breaks and then you feel like a door
Speaker 2 (08:45)
So you kind of wonder ⁓ how long before a person can get on track. Maybe that's just, I'll have a couple days eventually and I'll do the budget and then I'll be on track. Well, I actually can point out at least three people right now that we serve who they have been going through that cycle for over two years.
Speaker 1 (09:08)
So it's kind of like they're using their budget as a crutch that if I can just, if I can master this budget, then I can be a savings ninja, but they never master the budget. And so they never start saving. Is that kind of what I'm hearing?
Speaker 2 (09:19)
Exactly,
exactly. So two years later, they haven't started saving for college. That goal is now getting out of hand. They haven't started saving for retirement, maybe a little bit at work, but they haven't maxed out their backdoor Roth. They have it. They don't know how much they even need to save to accomplish their goals. And that's exactly what it is. It's a crutch to not start.
Speaker 1 (09:37)
I see. so if a budget is really kind of a crutch and to a certain extent an impediment, it's this thing is like, if I'm doing this thing and thinking I'm making headway, I'm not really making headway. Like, how do know how much to save?
Speaker 2 (09:50)
Mm-hmm. Yeah, well, it sounds backwards, but ⁓ the way you know how much to save is by ⁓ essentially having a savings mindset and doing it first. ⁓ There's kind of two things here. So first of all, the traditional way of doing this is just saving first and spending what's And the people who do that, they don't have to do a budget because just spend whatever they have. And physicians are used to this because they did that residency. Mm-hmm.
Right, they spend what they have, they live off what they have.
Speaker 1 (10:21)
But
now the lids off, Pandora's box is open, right? It's like the floodgates are here and finally real money has arrived and it's like, so no more scarcity for budgeting. ⁓ there's so much, like how do you actually know how much you need to save?
Speaker 2 (10:38)
Yeah, that's the second part, which is you have to have a plan, except ⁓ the plan can't be one that you have to audit every day, every week, every month, which is the budget. The plan should be a savings plan. So you can have a plan for college, which is you ⁓ decide on what your goal for college is, determine how much you need to invest every month, and you do that. You can have a plan for retirement, which is the same deal. Determine your goal.
determine how much you need to save to get there, and you do it. And then what's left over, ⁓ you can spend. And if at the end of the year or month, you literally have no money left, maybe then it's time to set aside time to do a budget, because you're running out of money. But in my experience, that has not been the case. In fact, doctors, ⁓ physician families, they still have money left over, and they're still deciding, what do I do with my extra money?
after they've saved everything they need for college and retirement. So, so that your plan dictates how much you save.
Speaker 1 (11:39)
Right.
so the plan dictates how much I can say. But if I don't have a plan, I'm just like, I'm just saving everything, right? mean, I guess, you know, I'm looking at that. I'm thinking, okay, well, I'm supposed to save everything. When I get to go on vacation, when I get to buy a new car, you know, ⁓ I want to improve my house. How do I, how do I improve my house? like, if I'm not, you know, budgeting like is broken, it doesn't really work. And I don't have a plan and I'm saving everything then.
How do I know how much I can spend? Like, how does that work?
Speaker 2 (12:16)
Yeah, I wouldn't and I know you don't believe exactly what you just said, is about budgeting is broken because we budget, but we're also
Speaker 1 (12:24)
But it's we budget for control and yeah, you know, we have a fixed income. So You know like who's got time to sit down and do that for gosh like 20 30 minutes a day and then try to the spouse in and then if you'd you know, it's like You and I we were married to budgeting and to our wives So it's a it's a family thing, but I don't think that's a case with everybody that we serve, you know So I'm calling it broken
Speaker 2 (12:29)
But right. Yeah.
Yeah, okay. Well, and it's a system that works for some people. And so ⁓ there is another system that works better for physicians in my humble opinion, ⁓ which is the save first mentality like we talked about. then how much do how much do how much can I spend is this once this idea that once you've saved for long term goals, which for physicians usually is just college and retirement.
Once I say for these long-term goals, then I have short-term goals as well So I've knocked out the big the big ones retirement in college, but now it's like I'm just started making money Maybe I didn't want to buy a house or remodel or travel or buy a car and those get put on what we call the ⁓ wish list So the wish list is yes, it's yet another tool but a much easier tool
Speaker 1 (13:42)
you
Speaker 2 (13:48)
to digest for non-financial people. Usually there's at least one in every house, non-financial person, but they still should have a say on what you spend your money on. ⁓ And then it's also a tool to ⁓ not have to do in detail, squeeze every nickel type budgeting. Rather it's think about the big picture. What do we want after we have paid all our bills ⁓ naturally after just making payments and then ⁓ save for college retirement?
Speaker 1 (14:18)
So let me see if I got this correct. there's kind of like, I'm hearing three categories of money. There's the money that you gotta spend every month. That's like your mortgage, it's your groceries, it's your nanny bill, it's all that good stuff, right? That's some monthly stuff and it's kind of more or less the same. Then you got the money that you have to save, which, know, the amount of money you really, really need to save for college and retirement, however much that is. And then you got ⁓ extra money, right? So is that what the wish list is for, is to kind of figure out the extra money?
Speaker 2 (14:47)
Yeah, and you take your extra money and you essentially prioritize your wish list. So maybe you really want, you know what, maybe you really want to have another baby and you're going to have to take time off work. So you fund that first. And then at the bottom of the list is that nice car you want. And for a lot of people, the wish list reflects your values.
Speaker 1 (15:11)
and priorities in life. ⁓
Speaker 2 (15:17)
That's
right, yeah, we do encourage that.
Speaker 1 (15:19)
Take a nice vacay before we make babies. Make babies on the vacay, you know, but get the vacation done first, right?
Speaker 2 (15:25)
Yes, okay. So vacation first, then babies. But ⁓ you prioritize things. And ⁓ the thing that gets the priority on the list usually gets funded first. And if you have extra money, you move down the list.
Speaker 1 (15:37)
So like if, if, ⁓ if your wife comes to you and she's like, I want this thing, you're like, I don't really want that thing. You put it on the wishlist, right? And if you say, Hey, I want this thing. She's like, I don't really want that thing. You put it on the wishlist. And so it sounds to me like you can put things on the wishlist that each of you want. So you kind of feel heard and then maybe, push those priorities around to see like what really needs to be purchased next or what do we really want next? And maybe, ⁓
Maybe negotiate a little bit.
Speaker 2 (16:09)
Yeah, definitely. I I certainly have had many, many instances and talking with families where one spouse wants something for themselves and they should be able to get that, but not at the expense of what the whole house wants and needs. so those things go on the wishlist and eventually, know, physician with their income, they can have everything they want on that list. ⁓ They just don't get it all at once. I learned that.
Speaker 1 (16:36)
Call me crazy but that sounds a lot better than me being like the budget cop.
Speaker 2 (16:40)
Yes, exactly. And ⁓ I felt like that for years, the budget cop, and usually there's someone in the house that kind of gets that wrap or they just have to hold people accountable because nobody's interested. ⁓ But this way, you all agree you want to retire, right? Right. You all agree that you want the kids to go to college. Those are done. You know, there's no vacation that's more important than those things.
Speaker 1 (17:02)
absolutely yeah
Speaker 2 (17:08)
And, ⁓ but then after that, starts to, you know, the lines get a little bit blurrier. And so you essentially move down the list as money becomes available. And if you're not getting to those goals fast enough, then you wouldn't, usually what I see is people naturally try to spend less money in their day-to-day lives on things that don't matter as much to them. And then they have more money at the end of the month to apply to their wish list.
Speaker 1 (17:35)
I see. So it sounds like you've got like your, your everyday money that you, that you spend, you know, you can figure out how much that is, right? You just, ⁓ you know, you total up how much you spend on your credit card or a checking account, come pretty close. And then, you know, you do some planning to figure out how much you need to save for college and save for retirement and hopefully save some taxes while you're doing that. And then, then you've got like your kind of really want to spend here now kind of money. Hopefully there's, there's money left over. What if there's like.
What there's like a lot of money left over on the wishlist? Like there's just like, whoa, we bought the car, we went on the vacation, we've still got a whole bunch of money left over. What happens then?
Speaker 2 (18:13)
Yeah, this happens way more often than young physicians imagine that it's going to happen. usually
Speaker 1 (18:19)
You get your residential going on, right? You think you're never going to have money again.
Speaker 2 (18:23)
Yep. And they think you're never, they're never going to be able to fill up their emergency fund or buy that car or whatever it may be. And then sure enough, 18 months later, they have extra money. So, in that case, you have a few options. One, can, let's just imagine your wishlist is completely empty, which that doesn't really happen, but it's mostly empty. Now it's time to make some really good and powerful choices with your extra money. You can get ahead on college.
take less risk in your plan. ⁓ You can ⁓ adjust your goals, let's say, retire earlier, ⁓ save or the take less risk thing. ⁓ And then you can, there's one more, what has it been?
Speaker 1 (19:08)
Yeah. Yeah. Well, let's say I'm, ⁓ you know, I'm that hard working doc and I'm making all that, all that buck edge. got extra money, right? But I'm burning out. COVID is just eating me alive. My colleagues are dropping like flies and the nursing staff is leaving me. I, I don't want out, but I don't want to work so hard. So I guess one thing I could do is I might be able to scale back a little bit. I might be, mean, if I'm a shift worker, I can definitely scale back. If I'm a partner. ⁓
It's a whole different story, but I could scale back and work less and have less money that I know that I don't need, right? Cause I got retirement in college covered. I got my daily bills covered. So I now know how much extra money I truly have and I could scale back and ⁓ maybe spend a little me time, maybe get a little sleep, ⁓ maybe spend a little more time with my kids in the morning before they go off to school. So I think that's the...
That's the ultimate is being able to have the flexibility to be able to drop back a little bit or not work so dang hard. Maybe that way it ⁓ makes your ability to practice last longer.
Speaker 2 (20:19)
Right.
Speaker 1 (20:20)
The payoff
for having control so so neat you know kind of what's the bottom line here so do you think doctor should have a budget?
Speaker 2 (20:28)
I think that if you're a person that has to ask that question, it is not worth your time if you're a physician. So do I think they need one? No. Do I think the people who already have one, I, would I tell them to stop? No, it's a, it's a decent tool to use. But for someone, for a physician who doesn't already have one, doesn't already speak the language,
I would ask them to adopt the wish list and to get on track, start saving as soon as possible rather than fiddling around in a Excel spreadsheet or YNAB. Get a plan. ⁓
Speaker 1 (21:07)
Yeah, get a plan, right? Get a plan.
Well, I would love to hear what the listeners have to say about budgeting. ⁓ have you, have you tried a budget? Have you tried software like YNAB? need a budget. have you tried the pencil and paper thing? how's it going when you talk with your spouse about money? ⁓ have you talked with your kids about budgeting or are you teaching them about it? Like, do you love your budget? Do you hate your budget? ⁓ do you agree with what we have to say? Are you totally disagree? I want to hear from you. So, ⁓
You can record a question with us at physicianfamilypodcast.com. You can email us real easily. It's podcast at physicianfamily.com. Or you can ask a question on our answer line. It's voicemail. Just leave a voicemail at 503-308-8733. Again, leave us voicemail at 503-308-8733.
Speaker 2 (21:57)
Thank you for listening to the Physician Family Financial Advisors Podcast. Is there a question you would like answered on our next show? Go to PhysicianFamily.com to record your question. While you're there, sign up for our newsletter and gain access to tools you can use to turn worries about taxes, investing, and extra money into a lifelong feeling of financial security. That's PhysicianFamily.com.
