You did it! Congratulations! You’ve graduated, spent countless hours studying for Boards, and landed your first – real paying – job! Oh, wait, you did a residency?!? Well read this again in a year or two, but you’ll still find some helpful tips here today.
Let’s begin. In the world of finance, there are two types of people: spenders and savers. First, figure out which one you are and own up to it. Alright, now that we have addressed that you are a spender (just kidding, maybe) - own it! If you want to spend money, spend it. If you want to save money, save it. If you want to do both, then do both! I know plenty of people who save a good amount of money and still spend plenty of money on stuff that makes them happy. Everyone has that splurge item, or three – mine are food, spoiling Oban (the pup), and trips. And I don’t care what you say, I am still going to splurge on those items.
You need to save money, that’s no secret. You most likely have a house payment (your student loans). You probably also want to buy a house you can actually live in, so you need to save for that. And you probably want to (finally) enjoy the money that you are making. Here are the facts…
You get out of school and hypothetically make $100,000 – sure some retail can be $120,000 or more, residency is about $40,000-$50,000, and then you make $100,000 to $150,000. Let’s just use $100,000 (selfishly), because it makes my math easy, and it’s easy to break down the numbers for you to understand.
Have you met Uncle Sam? Well…Get ready. You’re about to be BFFL! There goes about 20-30% with federal, state, Medicare, social security off the top. So, your $100,000 just went down to $75,000 (25%, to split the difference) before you could touch it. Yay! Now you have deductions from your employer benefits – health insurance (about $100 per month if you are single), dental and vision insurance (maybe $20 per month), maybe an Health Savings Account or Flexible Spend Account, your disability insurance (some you pay for, and other employers pay it for you), life insurance, your 401(k) or 403(b) contributions (let’s say 5%). With all of that, let’s call it a clean $7,000. Now you’re down to $68,000, and we haven’t even paid rent!
At this point, we need to break it down to monthly numbers, otherwise, I will lose you if I haven’t already. Let’s break it down like this…
$68,000 = About $5,660 per month
Rent and Utilities (In Atlanta, not California) = $1,500 per month
Cell Phone = $100
Auto and Renters Insurance = $150
Netflix, Internet, TV = $100
Pet? = $50 (at least)
Student Loans = $1,500 (easily for many)
Car Payment = $260
That’s $3,660, and you don’t have any food or groceries! So, there is $2,000 left…
Groceries can easily be $100 per week ($400 per month) – I can’t believe how much I spend on groceries, but it does cost more to eat healthy.
You probably want to go do some fun stuff, right? Dinners, dates, weekend trip, concerts, games, etc. Easily a few hundred bucks a month. What’s a good number? Let’s say $400?
That leaves $1,200 per month of free cash flow. If you do not automate it, you will not save it, especially if you answered spender to my question at the beginning.
You should at least be saving between $500 to $1,000 per month. At least!
If you have a credit card payment or get into credit card debt, build up $1,000-$2,000 of cash savings and work like you-know-what to get out of it, ASAP. That is an anchor on your ship that is tough to pull up.
If you don’t have some of the bills listed above, those funds should be redistributed some to lifestyle (enjoy it), but you MUST consider saving more money each month. If you don’t have student loans, and you are not saving at least $2,000 per month, you either live in Manhattan, San Fran, you give a lot away, or you could have a BIG spending problem.
Consider creating three accounts – a checking (for bills) and a savings (for trips/fun stuff and unexpected expenses), and another completely separate savings at a totally different bank for your true savings. If you only have two accounts, that savings account is where most people go when they need money, which means it’s not really a savings account, right? It’s just an “I put the money here for a little longer than I had in my checking account” account.
I have worked with many pharmacists who are in a very similar situation, and the key is to have a system in place (not necessarily a budget, because people don’t stick to those long-term). If you have a system, you will likely save more, be out of debt sooner, and not feel guilty when you spend money. Without one, well, there’s a good chance it won’t look pretty when you are 60 or 65…
The best time to start planning is right when you get out of school before you get super busy, possibly overwhelmed, and put these strategies on the back burner. Let’s get together and set the groundwork today so you don’t have to work until you are 90! Email me at firstname.lastname@example.org to get started ASAP!