Have you ever wanted to take that vacation overseas? Do you ever want to buy a house? Ever want to leave your job to start your own business? Do you need to take an unpaid internship to open doors in your career? How about leave a full-time healthcare job to begin a residency? I’m about to tell you how it’s possible. In fact, you probably already know everything I’m going to tell you. No life hacks, it’s simply about tracking your current finances.

One of the main limitations of pursuing all of the above mentioned goals is money. People simply don’t have the money, or don’t have an idea of whether it is financially feasible. My advice? START BUDGETING NOW. Budgeting is one of those things people say “Yeah, I should really start budgeting”. The only problem is that you’ve likely said it over and over for years now, and no action has taken place.

Why is it important? It gives you solid numbers and financial trends that shows you whether it is possible to take on an opportunity based on finances. You already know this, but let me explain how all of that financial information can be used through my personal example.

In my example, I wanted to develop my career in a residency program. As many know, there’s a steep pay cut when accepting a resident position. In fact, I took a 45% pay cut do my residency. Was I nervous? No. I’ve been budgeting and financial planning for 5 years now; I knew I could survive 12-months on a decreased wage. Here are ways my budgeting prepared me for this:

1. Budgeting showed me my personal cost of living.

I’ve used my budgeting spreadsheet for 5 years (linked at the end of this post), and my spreadsheet continually shows that I spend ~$35,000 per year to live my life comfortably. This includes rent, going out, gas, food, savings, groceries, investments, student loans, and vacations. For some reason, no matter if I was living in the Bay Area (expensive cost of living) or Central Valley (pretty cheap cost of living), I would somehow level out at ~$35,000. How? Maybe after all those years of budgeting, I just learned how to instinctually balance my fun and spending — I just know that’s been the average for years based on my spreadsheet data.

This year, I had to also account for the addition of my new physical therapy school loans. I would be looking at adding $12,000 to $24,000 dollars to my costs annually (some times my mood in paying my loans aggressively changes month to month). This showed me that for any future plans, I needed to make sure I make between $47,000 and $59,000 after taxes. Budgeting gave me this knowledge, which would help me plan my future.

I was able to hit the higher end of that range by working two jobs, but is that cost of living possible with resident salary? Public info states my residency pays $47,500 before taxes. That’s not enough for me to live comfortably based on estimates above, right? Correct, which leads me to the next way budgeting helped me in my decision to do a residency.

2. Budgeting showed me areas in my life I can cut back on to allow me other opportunities.

Because each category is tracked every month and every year, I can review my spending trends. Am I spending too much on take-out? Is my rent to income ratio too high? Can I cut back on groceries? All of this can be observed by budgeting year after year.

The biggest trends? Rent and going out were killing my money. I did not apply to any California residencies due to the cost of rent and living. By moving midwest or southeast for my residency, my rent would be more than halved. I would also be busy and away from my social circle, which would decrease my food and drinking bill. Additionally, groceries and gas are significantly cheaper in the Midwest/Southeast than in California (Oh dear sweet $2.40 per gallon of gas). Am I saying don’t do a residency in California? Absolutely not. There are a ton of great programs. Many of my friends are doing fine in their California residencies; we’re simply in different financial situations. That’s also not accounting for choosing a residency based on goals, specialty, and program specifics (not just finances).

After decreasing my estimated rent, food, and gas, my estimated comfortable cost of living went from $47,000-$59,000 after taxes to about $38,000-$51,000 after taxes. Things are looking a lot more doable, although I’m cutting it pretty close. Luckily, budgeting helped me give myself some more breathing room with finances explained in the next part.

(Fun fact: It cost me $14-$17 dollars per meal every time I get take-out (no beverage included), but it cost me $14-$17 dollars for the whole day (3-4 meals) if I cook all my meals…Cooking saves a ton of money compared to eating out people!)

3. Budgeting allowed me to predict how much I needed to save up for my future goals.

Here are my financial goals:

• Pay $12,000 – $24,000 dollars a year to my student loans
• Invest $10,000 per year in retirement funds and stocks
• Put $6,000-$12,000 a year to my savings for purchasing a home in the future.

I’m very proud and happy to say, even on residency salary, I’m right on track. This is because budgeting allowed me to develop an appropriate “Reserve Fund” to prepare myself for the decreased salary. It’s like my own financial aid (see the differences in my accounts below):

• Checking: Immediate spending money
• Emergency fund: Funds saved up in case emergency comes up or I’m out of work for 3-6 months.
• Savings: Savings for future purchases (home, car, jet skis, puppies, etc.)
• Reserve fund: Saved up money from prior jobs that I can slowly disperse during lower income jobs/opportunities.

Now that those are defined, I had to estimate how much it would cost me to live for a year in residency while being in the Midwest/Southeast. See my monthly estimates below:

• Gas: $150
• Take-out food: $100
• Groceries: $300
• Rent: $440 (if living with a roommate)
• Other (memberships, social events, clothes, social drinks): $200
• Total: $1,190 per month
• Total per year: $14,280
• Salary after taxes: $35,800 ($2,980/month)
• Salary after taxes minus total cost of living: $21,520 ($1,793/month)

Based on the above calculations, I had $1,793 to use on my retirement, my loans, and my home savings. Obviously with the decreased salary, I would consider hitting the minimum ranges of my goals a success. This means I would need at least $2,100 extra per month ($1,000 for loans, $600 for my retirement, $500 for my future home down-payment) in order to hit the minimums. That also means I am about $500 short per month based on my resident salary.

By doing those calculations prior, I was able to estimate that I would need about $5,000-$6,000 in my “Reserve Fund” to enable me to meet my monthly goals during residency year. So 3-4 months prior to my residency I made sure to save up that much from my prior job. Yes, it was hard, I was working 2 jobs totaling 60-70 hours a week, but I knew that’s what it took to be in good financial shape.

By being consistent with budgeting for the past years, I was able to plan all this within 30-60 minutes of number crunching and estimating.

Final Thoughts

That was just one single example in my life, but the same spreadsheet helped me with other things throughout my life such as taking nice overseas vacation, taking on unpaid internships that would help me in the future, travel around the US for networking events and continued education, and also start my own personal training business (now closed because it financially would not make sense to keep it open…according to the budgeting sheet).

Budgeting gives you solid numbers to plan for the future. It gives you a goal, and even more helpful as you budget over longer periods since you are able to observe and adapt to bad trends. The biggest takeaway is that you need to start now. You don’t need to do it my way, or use my spreadsheet, but some kind of system to track and plan is crucial in being able to assess your risk of taking on opportunities to better your life.

If you do want my spreadsheet, below is the FREE spreadsheet (links to the spreadsheet in video description) featured on the front page of Reddit with over 4,000 downloads so far.

 

Means and desires do not equal results — You now have the desire and resource, but ultimately you need to start. You will reach your life goals better once you are able to manage and adapt your spending habits by consistent budgeting.

Do you already budget? Do you do things way easier than I do? Feel free to comment.