Many doctors today find themselves living paycheck to paycheck. They make a good income but just never seem to get caught up. Non-doctors see us as rich. But many of us are just broke on a larger salary. The whole reason I wrote my book stemmed from a conversation with a doctor who was struggling to make ends meet on a $450,000 a year income. That should never happen.
The national average income is around $50,000. If a doctor is earning 9x the national average, and is struggling to pay their bills, it is not because they don’t make enough money. Breaking the paycheck to paycheck lifestyle is not about making more money, it is about spending less. Everyone that I have worked with who lives paycheck to paycheck has a lot of fat they can cut from their spending. The problem is, they are unwilling to make the cuts that will end the cycle.
Many of the things doctors put into their monthly spending plan are expendable. But many luxury items are now being thought of as necessities. The following are some of the things I have heard doctors place in the necessity category: Premium channels on their cable TV plan, cable TV, a gym membership, a second gym membership, extra workout classes at the gym, the latest iPhone as soon as it comes out, private school for the kids, a boat, a motorhome, destination vacations, new cars, leased cars, extra cars, cars for their children, land line and cell phones, cell phones for all the kids, a second home, a vacation home, a dream home, a private airplane, expensive wine, eating out, a maid, a cook, a nanny. I’m sure you could think of many more.
Why have nonessential things gained such a prominent place in our spending plan? When did things become so important? Isn’t it people and relationships that are important? Remember when your children were young and they liked to play with the box that their Christmas present came in more than they liked to play with the toy that was in the box. Stuff doesn’t make us happy.
It is so discouraging to show someone how they can end the cycle of living paycheck to paycheck only to find them unwilling to make any changes. They would rather keep up the financial stress and strain than give up something they have previously decided is necessary. The fear of missing out may be the downfall of their financial future. Attaining financial peace in the home is way more important than having and maintaining stuff.
One family, who didn’t have any money to save toward their children’s college education, despite having a very large income, told me they were not planning on having their children go to college, they would teach them to be entrepreneurs instead. Well, what if the child decides to become a doctor, or a nurse, or an engineer? Spending all your money now and not saving any for the future has its downside.
In order to break away from the paycheck to paycheck lifestyle, you will need to do three things.
1. Make an accurate spending plan.
2. Make spending cuts to generate breathing room. You will not be able to make a change unless you change something.
3. Let money accumulate in your bank account. You cannot spend all your income every pay period. You also can’t keep bringing your bank account back down to zero every pay period. Just because there is money in the account, doesn’t mean you should spend it. Until you develop a cushion, you will not break this cycle.
Once you put these three steps into practice, living paycheck to paycheck will cease. You will be living within your income, and your savings will begin to grow.
You must conquer whatever dogma statement is holding you back:
“My kids MUST attend private school.”
“I won’t live in that neighborhood full of renters.”
“Apartments are for medical students.”
“Renting is throwing away money.”
“We must buy a house right away.”
“But this is our DREAM home.”
“I love expensive cars.”
“Leasing will always keep me driving a new car.”
“If I rent a house, I can’t paint it the color I want.”
“But I need that Hawaii vacation to unwind.”
“I’m stretching out my low-interest loans for maximum leverage.”
“The home mortgage is my last great tax write off.”
“The boat is needed to relax.”
“I don’t need to pay off my student loans.”
“I’m using my loans to leverage my investments.”
“I’d rather invest than pay off my debt.”
We all have our little pet reasons for not making cuts in our spending. But those of us with higher than average incomes have many places where we can cut our spending.
If you are making $400,000 a year and you tell someone who is making $200,000 a year that there is nothing in the budget to cut, they would be hysterically laughing. If they can live on $200,000, then so can you.
If you are making $200,000 a year and you tell someone who is making $100,000 a year that there is nothing in the budget to cut, they would be hysterically laughing. If they can live on $100,000, then so can you.
If you are making $100,000 a year and you tell someone who is making $50,000 a year that there is nothing in the budget to cut, they would be hysterically laughing. If they can live on $50,000, then so can you.
I’m sure you can see the pattern here. There is always something that can be cut to provide the breathing room you need to end the paycheck to paycheck cycle, since there is always someone who seems to be able to get by on less than you. These cuts are not permanent. Once you have ended the cycle, you will be able to add back some of your luxuries. But, once the cycle has ended, pay attention to your spending plan. Have fun spending your money within a good plan, and you will never go back to living paycheck to paycheck. Living on less than you make, and saving the difference will build your savings account allowing you to be prepared for the unexpected like a job loss, a major injury creating an interruption in your income, a major purchase, and retirement. Taking action to stop living paycheck to paycheck isn’t difficult, you just need to start. The sooner you start, the sooner you will be free from the bondage of not enough money to make ends meet.
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, results misery.”
– Charles Dickens
Spending less than you earn creates happiness. Spending more than you earn brings misery. Begin to end your paycheck to paycheck lifestyle now.
Cory Fawcett is a general surgeon and can be reached at his self-titled site, Dr. Cory S. Fawcett. He is the author of The Doctors Guide to Starting Your Practice Right, The Doctors Guide to Eliminating Debt, and The Doctors Guide to Smart Career Alternatives and Retirement.
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