It’s funny what a swift punch in the gut can do to a person. In my last post, I talked about my student loan financial epiphany of $300,000. I also talked about how it led me to doing something that I thought I would never do… read a book about finance! I learned the basics of personal finance, which I think is one of the more important first steps in taking control of your finances. Now that I had some basic knowledge, I felt prepared to start my planning.
The first thing I did was to calculate my net worth. I listed my assets and subtracted my liabilities. In my case it was pretty easy. For my assets, I had about $1,500 in savings and about $17,000 in my residency 401(k). My liabilities were a credit card balance of about $5,000 and student loans near $300,000. Putting everything together, my net worth after graduating residency was -$286,500 (I’m leaving out other assets, such as my car and other personal property, to keep things simple). Although I did have a high student loan burden, I was fortunate in that my consumer debt wasn’t too terrible and that my car was already fully paid. I also got married shortly after graduating residency. Luckily, I (we) didn’t have to take on any more debt in terms of paying for the wedding and my wife (also a physician) had no student loans or consumer debt. But I (we) did inherit a home mortgage loan of $390,000 with monthly payments of about $2,500.
After gathering this preliminary data, my next step was to set a few financial goals. Generally speaking, I wanted to pay off all of my loans ASAP. Specifically, I wanted to pay off my credit card debt in two months and my student loans in five years. I also wanted to build up an emergency fund by the end of six months. I also had other long-term goals, but for now I just want to focus on the short-term stuff.
With these financial goals in place, next up was budgeting. First let me preface this by saying that my financial circumstances (dual physician income) makes it possible to be so aggressive in making these goals. But that’s why they call it “personal” finance in the first place. The underlying principles are universal… the specifics will vary from person to person. With that caveat out of the way, we can get into the budget. This was a bit tricky at first. I had not started work yet so I was unsure of what my monthly income would be. For the purpose of starting a preliminary budget, I just doubled what my wife’s monthly income was ($9,000) which would put our estimated joint income at $18,000. Based on rough estimates, our total monthly expenses would be around $5,000, leaving a net of $13,000 a month.
That’s it for now. I’ve purposefully kept the numbers and details simple to keep the post short. In actuality, calculating your net worth and monthly budget can be kind of a grind. But it’s necessary in order for you to come up with a plan to meet your goals, which I’ll talk about more in my next post.
Thanks for reading!