Budgeting For Doctors

Wake Up and Smell the Shoebox: 5 Steps to Measure Physician Family Spending

Last week, one of my readers took me to task on a post about why I hate Quicken. So today I'm going to show you a simple, powerful way to get a grip on how much money you spend to support your standard of living. I call it the Shoebox Exercise. Follow these steps to get some idea about how much money you're spending each month to support your family.

Step 1: Get a shoebox!

Just about any shoebox will do, but make sure it's big enough to hold a standard #10 envelope and some crumpled up papers.

Step 2: Seize the day.

You'll be doing the Shoebox Exercise for a 30-day period, but not all 30-day periods are created equal. Try to pick a 30-day period that does not contain a major money-spending holiday (like the 4th of July if you often travel then, or Christmas or Hanukkah if you give big gifts or make large donations). Sure, it's important to measure this kind of spending too, but just trust me here. The Shoebox Exercise goes much more smoothly if you don't start during these holiday period. In fact, May is a great month to begin. It's after tax season, but before summer begins. Make it a specific month-long period, like "May 13th through June 13th".

Step 3: Engage the family.

let everybody know that you're going to be measuring your spending for one full month, beginning on your chosen day, and ask the whole family to join in. That means mom, dad, and all the people who mom and dad support like kids and extended famly if you're responsible for them, too. Make sure everyone knows that you're only measuring spending, not asking them to budget or to spend less. You just want to get an idea about how much money is going out the door in a quasi-average month.

Step 4: Just do it!

OK, I couldn't resist a shoe-based slogan to kick off the Shoebox Exercise, but you need to start the exercise, and don't stop until 30 days have passed. In a place where veryone can find it (like on top of the fridge, in the center fo the kitchen table, or near a doorway everybody uses), place the shoebox with the lid off.

Every day when you check the mail or receive a bill, put the bill in the shoebox. If you get a credit card statement or a bank statement, put it in the shoebox, too.

If you're an ATM user, put your ATM slip in your pocket, take it home with you, and on the slip, write a little note that tells how you spent the cash. Put the ATM slip in the box, too.

If you make online purchases and receive email receipts, print them out and put them in the box.

Step 5: Empty the box.

At the end of the month-long period, dump the box out on the kitchen table. Grab the first piece of paper you see and, on a clean sheet of paper, write down the total of how much you spent. For example, if you're looking at a credit card statement, total up the items that fall in your date range, but don't deduct any payments you made. Repeat this exercise for every item in the box. Total your month's worth of expenenses at the bottom of the page.

When you empty the box, it's best to have all of your family members gathered around you, and participating in this step of the exercise. Why? Because you want them involved in the process long before you get to the grand total, just to make sure there's a forum to discuss any issues that may come up after you've done the math.

Now What?

If the Shoebox Exercise seems a little simplistic, then you're reading this correctly. It IS simplistic. But it's also very powerful. I can promise you that if you've never done something like this before, you'll gain more insight into how you handle money than you've ever had before.

It works, but only if you work it. So get yourself a shebox, gather your family, and get smart about your spending. And yes, you can tell everybody it was my idea to buy a new pair of shoes so that you could get the box they came in. ;)

Ignore This Car Buying Advice... PLEASE!

Over the past decade, clients have asked me for advice about how to buy a car: what to buy, how to finance it, when to sell, how to negotiate the deal. But they almost always completely ignore the very best advice I can give on the subject, and I have no idea why that's the case.

I've decided to take this in stride, and today I'm going to try something completely different. I'm going to give you the worst advice I can possibly give about buying a car. Ready? Here goes...

  • Don't buy a car, lease one. Leasing is the smartest way to go and saves you the most money over the long haul.
  • Get a brand new car. Do not consider, not even for a moment, the thought of buying a used car. Used cars are a BAD DEAL.
  • Don't negotiate the sales price, and make sure to work with only one dealer. Never, ever shop around.
  • Never pay cash. Finance the car through the dealership. Don't waste your time with low rate loans offered by credit unions, and never use a tax-advantaged home equity line of credit to finance your car.
  • Listen to what the salesperson says about the vehicle's safety record, and don't do your own research into the crash test reports on the vehicle before you buy.
  • Always trade in your old vehicle. Never try to sell it yourself.
  • Trade it in every year. Driving a car for more than five years is a really bad idea.

If you're crazy enough to actually buy a used car, make sure not to take it to a mechanic. There is no such thing as a great mechanics, and you can't build a long term relationship with one you can trust, even if you tried.

Please ignore everything in this post, or at least do exactly the opposite!

Need to waste some time? Try Quicken.

Physicians who do business with me know I don't mince words. So I'll just come right out and tell you: I hate Quicken.

Here are three reasons why:

  1. It's accounting software. Accounting is the time-honored art of rendering financial history in it's most favorable light. But making your family's financial history "pretty" won't change anything about the transactions you see in Quicken. You wouldn't drive a car by looking in the rearview mirror, and you can't drive your family toward financial security by looking at the money you've already spent.
  2. It doesn't work. Sure, it will download your mortgage balance, it will show you what you've already spent on your Pottery Barn Mastercard, and it will track every wiggle and hiccup in your brokerage account, but it doesn't really "work". The work of building, maintaining and enjoying financial security happens long before you make a purchase, or take out a mortgage, or buy a stock. The work is in choosing the higher payments of a 15-year note instead of a 30-year mortgage. The work is in walking past the Poverty Barn and into Target. The work is building an investment strategy that's so solid you don't need to track it every day.
  3. It isn't "quick." It takes time to buy the software, install the software, download or input the transactions, and reconcile what the software says with what the bank statement says. It takes time to make sense of the gobbledy gook that comes out of the software (aka "reports"). And it takes a bunch of time to argue about who spent what, and why. This time could be better spent as quality time for family, caring for patients, or getting some sleep or exercise.

Oh, and there's one more reason I hate Quicken: it rhymes with chicken.

To achieve financial securitythe kind of financial security that can last a lifetimeyou'll need to do more than count the money you've already spent. You'll need to think differently and act differently with the money you have now and the money you will have in the future. And this takes more than a key stroke. It takes courage.

Paper or plastic? Kids, cards and credit

A surgeon client recently asked me one of the best questions I've heard so far this year: "When should I give my kid a credit card?" As a parent, you want your child to have every advantage that will allow them to compete in and contribute to their community and their world. You know that credit is part of living in the modern economy, and you know it's important to establish and maintain an excellent credit history. So naturally, you want your child to get an early start on their credit history, and build it responsibly.

But do kids and credit mix?

Let's consider what your child will need to know before they can use a credit card responsibly.

  • Good citizenship: They need to be able to understand honor a legal agreement, since a card holder enters into a legal agreement with the card issuer, promising to repay their debt in a timely fashion.
  • Higher math skills: They need to know that compound interest is a double-edged sword, and that it cuts both ways.
  • Strong sense of time: They need to comprehend the balance between their near term wants and the long term consequences that come from the use of credit.

As the parent of a credit-wielding youth, you need to be prepared, too. Here are some questions for you to consider:

  • Am I prepared to rescue my child from a credit crisis? And if you said, "Yes, I am," then are you prepared to rescue them repeatedly? Usually people (adults and children) who abuse credit cards will do so time and time again.
  • Am I prepared to allow my child to learn a hard lesson? One of the ways your child will grow and prosper is to learn from their own mistakes. But the mistakes that come from mismanaging a credit card - including bankruptcy - can have far reaching consequences.
  • What will they buy? What items or services do your children really need, and is a credit card the only way they can acquire these goods?

The best advice I can give with regard to kids and credit is to educate early and often.

  • If you have young children, begin by talking to them about making and honoring agreements. Reinforce the concepts of honoring your word, and following through. Teach them the value of money, and how it can help and harm them and the people they know.
  • If you have elementary-aged children, discuss credit with them, and use familiar phrases and analogies. For instance, borrowing money is much like renting a video. The interest on the principal is like rent, and you are actually "renting money."
  • If you have kids in middle school, become the First International Bank of Mom and Dad. Allow them to borrow from you in managable amounts for acceptable purchases. Make sure to charge interest at a high enough rate that they will feel the sting at repayment. If they fail to repay in a timely fashion, be a responsible creditor, raising their interest rate next time, repossessing ill-gotten booty, or even refusing to grant credit next time they need it. Hold the line so that they will learn from the experience (better you than the real-life creditors they will encounter).
  • If you have kids in high school, teach your child how to read the terms of a credit card application. Help them to understand the depth and scope of the borrower-creditor relationship. Let them look at your credit card statement and have them run a calculation about how how long it would take to repay your balance if you merely paid the minimum balance.

These stages of learning are crucial. Once your kids leave your house and enter college, it's "game on." They will be approached by creditors in virtually every venue, enticing them to sign up for a credit card, often with onerous terms. If they're armed with the facts, your children can avoid an expensive lesson in college, and beyond.

Save or Sorry?: Seven Ways to Build Your Bank Account Painlessly | Lifetime.com quotes W. Ben Utley, CFP®

Author Susan Davis writes that if you put 10% of your pretax, gross income into savings, you will have nothing to worry about at retirement. She quotes Certified Financial Planner® W. Ben Utley as saying. "Saving 10 cents on every dollar is not that hard, once you get used to it."