Budgeting

Lifestyle Creep and the Anti-Budget

Whenever someone hears about budgeting it can trigger feelings of dread and despair for some. Depending on people's spending style a budget can be not only helpful but necessary to get things on track towards your goals. For others who may be naturally frugal a budget can sometimes free them to spend on things they'd enjoy. The key behind it all is knowing where your money is going and avoiding unintentional lifestyle creep as much as possible. Lifestyle creep being the idea that when you move from residency or fellowship to your first attending job you feel the need spend all the increase in income you're receiving. Years of delayed gratification, burnout and increasing dissatisfaction with medicine as a whole lends itself to increased spending. As we'll go over below there are a number of ways to approach this in as pain-free a way as possible.

The Basics of Budgeting

First things first: budgeting. It's not the most thrilling part of life, but for many it's essential. Setting up a budget allows you to understand where your money is going, how much you’re saving, and what you’re spending on. It doesn’t have to be complicated. For those who feel the idea of budgeting every dollar you have is too painful you can take the anti-budget approach. Start with your take-home pay, subtract your fixed expenses (think rent, loans, insurance, donations), and then allocate funds for your variable expenses (groceries, etc), savings and investments. What's left is yours to play with as you've first made sure to pay yourself (savings, investments).

The 10% Rule

As your income grows, it’s tempting to start splurging on all those shiny things you’ve been eyeing. One approach is to allow yourself a 10% increase in discretionary spending with each significant pay bump. This way, you get to enjoy the fruits of your labor without going overboard. Say your income jumps by $10,000. Instead of upgrading your entire lifestyle, you increase your yearly fun money by $1,000. This approach gives you a structured way to enjoy your earnings while still prioritizing your financial health and future freedom.

Why Avoiding Lifestyle Creep Matters

Many feel the need to keep up appearances or that they deserve a certain standard of living after all their hard work. But here's the deal: every dollar you don't spend on upgrading your lifestyle is a dollar that can be invested in your future. Whether it’s paying off student loans faster, saving for a dream vacation, or building your retirement nest egg, the power of compound interest is on your side. The earlier and more wisely you invest, the greater the rewards. Play around with a compound interest calculator here to see how powerful small savings now can be over a few decades.

Investor Policy Statement

You need to do enough research to feel you have a basic grasp of the main points of investing and then create an investor policy statement outlining how you're going to approach your personal finance journey. It’s not just about saving money; it’s about investing it (if you need a refresher read this book). Consider maxing out your tax-advantaged accounts like a 401(k) or an IRA before funneling cash into a personal brokerage account. These accounts offer tax benefits that can significantly enhance your investment growth over time. It's good to review your statement periodically to ensure it still matches with your goals and then the most important part...you need to follow it. When the market dips or fear is spreading regarding the economy it can be easy to get blown in a different direction if you're not sticking to your plan and reminding yourself that you're investing for the long-term and you can weather some storms. 

The Bottom Line

Navigating through the different stages of your medical career brings its own set of financial challenges and opportunities. By embracing a strategic approach to budgeting and consciously avoiding lifestyle creep, you can ensure that your hard-earned money works for you, paving the way for a secure and fulfilling future. Remember, it’s not about depriving yourself but about making informed decisions that align with your long-term goals and happiness.