First of all: yes, you need a budget. There’s no getting around it. Whether you’re entering medical school with outstanding student loans, debt free, or even with a bit of savings, you’re going to have to pay special attention to where, when, and how you’re spending your money over the next six years (and probably longer).
Getting started is the hardest part
Often the thing that prevents med students from developing a budget is the very first step: looking at their overall spending. It can be a painful process to look honestly at where your money is going (especially when you know that you’re going to have to cut back in some areas). But there are a few ways you can make the process of building a budget – and, more importantly, sticking to it – a little less stressful.
One way that MD Advisor Leah Aulenbach helps her clients get over that first hump is to skip the step of assigning a specific dollar amount to a category. “Trying to spend a certain amount each month in a particular category can be complicated,” Aulenbach says. “So instead I tell them to pay for everything with their credit card, and to look at their balance every two weeks—if you’re halfway through the month and you’re under the total you wanted to spend, perfect. If it’s more, then you’re going to have to tone things down for the next two weeks.” Sometimes a simple little trick like that can make all the difference; it’s all about finding a new perspective on your finances.
For medical students, in particular, finding that new perspective is important. School should be their priority, and every spare brain cell that is taken up with worrying about where your money is going works against it. You have enough stress in your life as it is—your budget should be easing it, not contributing to it.
The burrito exchange rate
One of Leah’s clients had a particularly unique way of forcing himself to see his finances in a new light. When he thought about the thing in his life that he couldn’t live without – the thing that really made him happy – he discovered it was…burritos. After a long night of studying, he energized himself with a burrito. While waiting for (and worrying about) exam results, he relaxed with a burrito. For him, the promise of a nice hot burrito got him through the day.
So, when it came to better understanding his spending habits and making hard choices about where his money should go, he started calculating the value of things he wanted in burritos. Think of it as a burrito exchange-rate. Would he be willing to trade ten burritos for a new pair of shoes? Was that weekend ski trip worth forty future burritos? Could he bear to give up five potential burritos for a night out on the town? It might seem silly, but this new context for understanding the “happiness cost” of the things in his life helped him to be more disciplined with his budget.
“He needed a unit of measurement for happiness,” says Aulenbach. “The truth is, you don’t have to be happy about your budget—but you can find what makes you happy within it. You’re going to have to spend money, there’s no getting around that. You just have to find out what those expenses are really worth to you.”
There are things in your life that you love (that may or may not be tasty Mexican delicacies), and, because you love them, they probably bring some small sense of peace and consistency to a life that has been thrown into upheaval by the pressures of your medical journey. So it’s not wrong to spend money on them. But, as you try to control your spending through a personalized budget, you have to free up money from elsewhere in order to accommodate them. “Your daily spending habits might seem inconsequential,” Aulenbach says. “But there are long-term consequences. Over time, having a couple lattes every day could go towards a down payment on your first home.”
Keeping your spending under control
Sticking to a budget is especially important when you’re spending money that you don’t have. “Your line of credit is going to have to last you all the way into residency, and probably practice, too, so you need to keep it under control from day one.”
Student lines of credit are available from all the big banks—and you can borrow quite a bit. The Scotia Professional® Student Plan, for instance, offers medical students a line of credit of up to $300,000 with an interest rate of prime minus 0.25% (3.70% as of June 2019). The Plan includes a chequing account and credit card fee waivers, and other benefits for medical students.
“I’ve seen medical students and residents push their student line of credit really close to the limit,” says Aulenbach. “They put themselves in a tough position—if they don’t make some dramatic changes, like take out additional loans, they won’t be able to finish residency, and definitely won’t be able to transition into practice.”
You’ll find, the further you get into med school, you’re faced with more and more fixed expenses; these are things that you have to spend money on—you just don’t have a choice. These fixed costs include things like tuition and books, and, later on, will include various application and exam fees, conferences, travelling for clerkship, and the potentially huge expense of interviewing for CaRMS. When you finally get to residency, odds are you won’t be making enough money to start paying off your debts in earnest. A smart budget – and the perspective to operate within it – is the tool you’re going to use to make it that far.
There’s no point in sugar-coating it:
It’s not easy. The reality is, you won’t be able to do everything you want. “It’s all about making hard decisions,” Aulenbach says. “But knowing what's most important to you, knowing how to say no to things that you don’t need, makes those decisions much easier.”
And if the thing that’s most important to you is a nice, hot burrito—well, you’re not alone.
A budget is just one part of your financial plan—to get a big picture view of your finances, and to develop a smart strategy for managing it all, you can connect with an MD advisor like Leah to chat about budgeting, burritos, or whatever else you’d like to learn more about.
Leah Aulenbach is a Financial Consultant at MD Management Limited.