“You will have $2500/month for your living expenses”, the financial advisor tells me. That seems like excessive. What would I do with all that money?
With slight embarrassment, I can say $2500 can easily disappear.
Living is expensive (duhh). Rent, utilities, school expenses, gas, and groceries can make me feel as if I just left Vegas – where did my money go?
While I’m not the gambling type, you could say I failed to play my cards correctly.
I began medical school knowing that my minimum living expenses would be about $1200 per month. I rounded that to $1300 in the case of unseen expenses.
But how was I reaching the 2K mark?
Easily actually. Eating out, subscriptions for (useless) school resources, gifts, online shopping – my nonexistent budget was making my future self-cry.
Move forward about a year and my monthly expenses are at $1100/month.
How did I make such a dramatic change?
Importance of Financial Literacy:
I won’t bore you with the intricacies of stocks and bonds. Perhaps in a later post.
Still, it’s critical we understand money. We leverage much of our life and time on our education. We pay the price with our loan payments (and all-nighters).
I jokingly call this “red money”.
Regardless of where you go to medical school, “red money” will be part of your medical journey. Some states have it better than others. While most things are bigger in Texas, our loan payments are thankfully not one of them.
If you have a large portion (or all) of medical school paid for you then you immediately should send flowers to your family and/or scholarship providers. They’re saving you tens (even hundreds) of thousands of dollars.
For perspective, if you graduate with the typical debt of over $180,000 (2015) and pay the full monthly payments (~ $2000) then you’ll pay almost $250,000 after 10 years.
Unfortunately, most residents can’t afford 2k a month on their loan payments. They’re excellent alternatives such as Income-Based-Repayment where you have smaller payments as a resident and larger sums as an attending.
This is a great option to have, but you will end up paying more in interest. Thus that $250,000 can easily turn into over $300,000 – almost twice what you initially borrowed.
You will pay two green dollars for every red one you borrow. Let that sink in.
Importance of Accountability:
So now you understand the importance of watchful spending.
If you go crazy you’ll find yourself in a 2 for 1 deal. The only problem is that the bank is making $2 for every $1 mistake you make. Choose wisely.
Am I now going to suggest budget? Yes.
While there’s no right or wrong way to do it, budgeting is essential – especially when the money is not really yours.
My favorite tool is Mint.com.
If you’re not someone to manually enter what you spend then Mint is for you.
If you lie to yourself about how unhealthy your spending habits are, Mint is for you.
If you need a slap in the face after too many “stress relieving Friday nights”, Mint is for you.
Mint is an amazing tool, allowing you to sync all your accounts: checking, savings (what’s left anyways), investments, credit cards, and loans.
All your accounts can be now visible on one screen.
Mint also can sort your individual transactions into categories (groceries, coffee, rent, etc.). Now you can see how much you’re spending on each category per month.
Take a deep breath and open your account – you’ll likely hide your wallet after seeing your expenses.
Defining Your Budget:
You spend too much. Perfect, at least you have a visual now.
If you don’t then go treat yourself to something free.:D
Now back to the spender – you have some work to do.
Use the budget tab in Mint to set monthly constraints for each category. How much will you spend on coffee, eating out, Uber rides, etc.?
Once you form a budget that seems reasonable, sync Mint.com to your phone and email. Anytime you go over – or nearing your limit – you will get an alert.
As important as it is to save money, it’s equally important to make the change in small steps. Cutting out expensive (yet worthless) crap from your life may likely leaving you to feel – well like crap. Like the tortoise, slow and steady wins the race.
Continue to Reevaluate:
You set a budget, high-five. Now, are you sticking to it? If not then I want my high-five back. If so, you deserve another one.
Spend weekly and monthly sessions (5-10 minutes) to assess how you’re doing on your budget. What categories did you improve on? Which are you still spending money on?
Again ask yourself if said item is worth twice what you paid for it. If not then you overpaid, and are less likely to in the future.
There may not be any such things a free meal, but there sure is a meal which is twice as expensive. Spend wisely, my friends.
Hope you enjoyed this post! If so hit the like button below! I love talking about finances so expect similar posts in the future.
If there is something specific you’d like me to address in a future blog post, comment below or email me at [email protected]
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Until next time…