Back to Basics

Recently, I was giving a presentation about basic financial well-being to a group of anesthesia residents.  As often happens in these discussions, several residents asked about budgeting.

What is the first thing that comes to mind when you hear the term budgeting?  Does it conjure images of eating ramen and mac and cheese?  Or of sacrificing all fun and enjoyment from your life?  Why do we immediately think about deprivation?

What if we saw budgeting as understanding our monthly cash flow instead?  Or that we are saving to give our future self amazing options? Or that by understanding this fundamental principle, we could use our income to build wealth, pay off debt and buy our time back?

Isn’t that a more fruitful mindset than one of scarcity and sacrifice?

Cash flow is one of, if not the most important, fundamentals in financial planning.  At the most basic, we understand our income from all sources – earned income, investment income, income from parents and so on.

Once we grasp our income, we turn our attention to our spending.  There is a great framework talking about different uses for money – giving or charity, insurance, paying off debt, saving, investing, and then finally, (at the very very end) consumer purchases.

How many people do you know that view money in this light?  How many wealthy people think about money and how it serves their lives?  Quite a difference, right?

What if whenever we received a raise, a bonus, or other cash windfalls, we first thought about building wealth and buying our time back?

How much faster would we get to the point where our decisions were not based primarily on financial impact? Isn’t this the ultimate freedom?  To spend our time and attention on the people and activities that are most valuable to us?

The way to get there is to return to basics.  To understand what cash is coming in and where we are spending it.

For the residents and other trainees reading who are on a fixed income, understanding your cash flow and budgeting your expenses is crucial to staying out of debt and building habits now that start your wealth building.

I know residents who live off their credit cards, have nothing saved, and ignore their student loans (mostly because I WAS that resident!).

I also know residents who max out their ROTH IRA contributions, make monthly student loan payments, and have no consumer debt.  These residents also use their credit card miles to fund their vacations during training!

For those of you who have paid off your consumer debt and student loan debt, you likely do not need to budget in the traditional sense – by tracking every dollar. But there still is incredible value in understanding your cash flow, particularly your spending.

For one, there are times when income can and does disappear seemingly overnight.  Think back to the early days of COVID.  Most of us had clinical work drop by 60-80%.  And the corresponding drop in income was just as steep.

Understanding your spending allows you to reduce the discretionary areas quickly when necessary.  Think about an injury or disability where you aren’t working for a bit.  Or having another child where one partner stays home for an extended time.

An even more significant benefit of tracking your spending is aligning your spending with your values.  Show me how you spend your time and how you spend your money, and I will tell you what you value.  It’s all laid out in your calendar and your credit card statement!

I recommend reviewing your spending for one month and asking for each purchase, “Does this align with our values?” I’m not telling you not to spend on fun or frivolous things. Instead, this is a chance to align your spending with your values.  To be intentional.  And isn’t that what we are shooting for? To live intentionally?

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