Investing Basics for Physicians: Budgeting Strategies to Kick-Start Your Investment Journey
By Jared Andreoli, CFP®, CSLP®
It’s true that physicians have the potential to earn a large salary. But along with it comes the challenge of managing finances while juggling a busy schedule. Even the basics of saving money for investing can be difficult.
My professional suggestion?
Start with the basics. Create a budget, don’t splurge on the latest shiny new toy, and learn how to save money wisely. Let’s go through the details together.
Create a Budget
To set aside money for investing, the first thing you need to do is create a budget.
Budgeting is all about understanding where your money goes and taking charge of it. Things that should be in your budget are housing, utilities (including streaming providers), student loan payments, insurance, food, gas, taxes, retirement savings, miscellaneous savings, and entertainment.
Follow these easy steps:
Track your income: List all incoming money, including your salary, bonuses, side hustles, etc.
Track your expenses: For 6 months, record everything you spend, categorized by fixed spending (rent/mortgage, car payments, student loans, etc.) and variable spending (entertainment, dining out). Budgeting apps are free and can help.
Choose a budgeting method: A common method is the 50/30/20 rule, where you assign 50% to needs, 30% to wants, and 20% to savings/investments.
Adjust the rule: The budgeting method you chose in the previous step is just a starting point. If your rent takes up more than 50%, adjust other categories.
Be consistent: Tracking expenses for 6 months can give you a solid understanding of where your money goes. Keep doing this consistently.
Remember, your budget should be flexible. Regularly review it, make any necessary adjustments, and don’t let a few mistakes deter you. The whole point is to be aware of your spending and take control of your finances.
Adjust to Your New Income Slowly
You might be tempted to splurge on high-ticket items like a fancy new car or a bigger house right after you complete your residency. But resist the urge—adjust to your new income slowly.
If you must get a new car, buy one you can afford to pay off in 3-4 years as opposed to interest-heavy 6-year car loans. Whether it’s a new car, a bigger house, or a fancy vacation, slowly build to that higher end; it could pay off later in life.
Save Wisely
Making prosperous investments is within reach, but it requires smart planning. Take a look at the strategies below for saving wisely:
Automate Your Savings: Automating your savings is like putting your finances on autopilot. Schedule recurring transfers from your checking account to your savings account every time you get paid. A good rule of thumb is to contribute at least 20% of your income to savings every month.
Build an Emergency Fund: The purpose of an emergency fund is to have cash on hand to cover life’s little emergencies without having to rely on a high-interest loan or dip into your long-term savings. Plan on having enough money in your emergency fund to cover 3-6 months of expenses.
Utilize Compound Growth: Compound growth accumulates momentum over time; it’s the magic that increases the amount of money you save. Compound interest allows you to grow your initial investment as well as earn returns on the interest that has accumulated. Think about it. Even when you’re asleep, your money still works for you.
Partner With a Financial Advisor: Sometimes new doctors struggle with time constraints when trying to deal with complex financial situations that include student loans and tax issues. Consulting with a financial advisor to answer your questions can be a wise choice.
Partner With a Professional
Whether you’re a new or seasoned physician, Simplicity Financial LLC is here to help. Our comprehensive financial planning services are designed to help you develop a financial road map to pursue your financial goals.
You can get started by scheduling a free consultation, or reaching out to me by email at jared.andreoli@simplicityfinancialllc.com or by calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.