Cutting Your Expenses Should You Have To Deal With A Financial Disaster
I am generally am an optimist, in the sense that I think things are going to be fine in the long-run. But I believe along the way there will be several challenges. When it comes to the career of medicine and especially finances, it’s important how you deal with those hiccups.
A simple example would be how different people dealt with the financial disasters in 2008. When housing prices and retirement accounts started to plummet, many panicked and sold their positions and thereby locked in major financial losses.
On the flip side, when housing prices in 2005 were nearing their peak some decided to capitalize on the potential profits by selling their home. Hiccups aren’t always negative, positive ones happen to us as well, it’s how we deal with them that makes a difference in the long-run.
What Can You Cut From Your Expenses
I hope that most of you have a good idea how much you are spending and how much you are saving most months. Without a realistic number in mind you can’t make effective decisions.
With your entire monthly budget in mind, what could you cut out or cut back on if your were forced to? Imagine that you:
- lost your job
- got fired
- had to cut back work drastically for health reasons
- lost a major part of your assets close to retirement
- needed to come up with a lot of money to help out a family member
Housing (save $1-3k/mo)
For many this has the least amount of wiggle room. If you have a mortgage you might be able to refinance it or have the bank agree to lower your monthly payment in lieu of adding to your principal every month.
You might be able to downsize your home either by selling it and moving into a cheaper home or renting out your primary residence and shacking up somewhere cheaper until your situation improves.
You might be able to rent out a portion of your property in order to lower your overall housing expenses. This might be a good time to think about an ADU or finishing your basement while you have the means to do so.
I figure most professionals can realize a savings of 25-40% in this category or $1,000-3,000 per month.
Utilities/Home Maintenance (save $200/mo)
Water, gas, electricity, internet, cable TV and home maintenance costs are usually more substantial when you own a home and less when you rent. The average professional household likely pays $600/month for a rental and $1,500-2,000 a month for home they own.
You can’t get rid of these costs completely but A/C’s can be used less, gardening can be done by yourself, TV services can be cancelled and you can get more frugal on water/gas/electricity consumption overall.
Automotive (save $500/mo)
Owning a car means car payments, maintenance, repairs, insurance, registration and gasoline/electricity costs. But there is also depreciation which can’t be ignored.
US statistics show that the average household has nearly $700/month of automotive expenses. This number seems really low for a professional households especially once kids of driving age come into play. And I’ve seen the doctor’s parking lot, there is $700 in just a rear right tire alone.
Some cars just have a lot less maintenance costs than others and will last a lot longer on the road. That kind of information is really easy to come by online these days. Selling expensive cars and buying used, reliable vehicles in cash would be a viable option.
Getting rid of comprehensive auto insurance and just opting for liability insurance would dramatically decrease insurance costs. If the vehicle is cheaper, then you are likely able to self-insure since the cost of replacement in case of total loss or major damage can be covered by your bank account instead of some big insurance company.
Preventative maintenance saves you a ton of money. It’s so much easier to sell a car if you can show to the potential buyer that you have done every possible maintenance on the car at the appropriate intervals. Also, if you’ve greased bushings, replaced filters, changed the oil and replaced tires regularly then it’s much less likely that you will need a costly transmission rebuild, an engine replacement or have to pay for major damages because of tire failure.
Hobbies (Save $200/mo)
From talking to my colleagues I guess only a few docs have expensive hobbies. It seems like surfing, mountain biking, traveling, weed, children, expensive liquor, car-racing, horses, fancy wines and marathoning/triathleting top the list.
This is the one category many will want to defend with their life. “How dare you! What’s the point of working and living if I can’t race my fucking purebred!?” Okay stinky, calm down, you and that goddamn horse of yours. I get it though, our hobbies are our escape from the drudgery of life. It’s a healthy way to create balance.
Food (Save $500/mo)
My buddy spends $1,500/month just on dining out. They are both amazing cooks so they spend another $800/month on groceries.
Eating out and buying fancy groceries can add up really quickly, especially with fancy grocery stores coming into fashion.
Most of us can skip the $3 Haas Avo’s. We can get $10 wine instead of the $25 bottle. You don’t need the $13 Oyster ‘shrooms. We can try making our own bread, make homemade pizza and churn our own butter (jk).
Healthcare (save $200/mo)
I have friends who are clinicians who are paying exorbitant fees to health insurance companies in order to have a PPO when one can get great deals still on good HMO’s. The Khan Academy has a very good free online course on health insurance, if you’re interested.
Just like your car, you can save quite a bit by performing preventative maintenance. Keep yourself in good health mentally and physically because statistically we’ll suffer for it if we don’t.
To cut costs immediately one could drop down to a higher deductible plan or opt for an HSA plan. For a family of 4 this could be a savings of $200/month.
socializing (save $500/mo)
I’ve personally had the hardest time with this one. I like to think that I’m someone who doesn’t care much about what others think of me but whenever it comes to spending in social settings I always feel the pressure to spend.
My personal social expenses are:
- Eating out
- Meetups with friends
- Date nights with my woman
I think it’s important to not let spending get in the way of socializing and spending quality time with friends and family. But some circles roll deeper than others. I have friends who spend quite a bit of dough on sushi and good Italian; too rich for my blood.
I think hobbies, socializing and food are the main categories where a household needs a budget. Car expenses, housing, traveling and healthcare come in at a close second but really, those are the top 3 loss-leaders.
This is a sensitive subject, I know. Some believe that life isn’t worth living if you can’t leave the country a few times a year, getting on a jet plane and city-hopping from hotel to hotel. They have a knife to their neck when you question their recent $10k-burning-man destination. Others prefer to travel in a car or camper.
But travel isn’t just for vacationing. We fly or drive long distances to visit family, attend conferences, take care of property we own in another state and partake in ceremonies for friends/family.
Airlines have tricked consumers into thinking that traveling isn’t all that expensive. I can get from the US to Southeast Asia for under $1,000. Wow what a deal! Yes, but there are quite a few other expenses to consider:
- Travel insurance
- Car parking
- Getting to/from airport
- Pet sitting
- Child care
- Buying things for the upcoming trip
- Car rental
- Foreign medical care
- Visiting a brothel
- Buying gifts
I think it goes without say that if push came to shove and you needed money then you would cut out elective spending first, travel falling into that category. Even that annual family visit could be cut back to a Skype-call if needed. Your mother can criticize you just as effectively over Skype as she can across a dining-table.
For those who travel for continuation credits or for conferences, CME’s could be done online and conference videos can be purchased for the same cost as the conference fee – minus the travel expenses.
Online/Digital Subscriptions (Save $100/mo)
Recurrent subscription fees are quickly becoming a new model revenue model for many companies. Companies are trying to push consumers to subscribe to their service by committing to a monthly subscription model. The reason for this is that most of us have so many monthly financial commitments already that we likely aren’t going to notice yet another one.
I expect in the next few years groceries, gasoline, utilities and clothing will be billed to you on a recurrent monthly basis. The longer you stay on your monthly plan the more you will get. As products become cheaper and cheaper to manufacture and as competition increases, companies need to look for new ways to part you with your money.
Companies also capitalize immensely by you either forgetting to unsubscribe from a service, unsubscribe untimely or not even bother because it’s too much trouble to do so.
You might have the following subscriptions already:
- Streaming movies
- Streaming music
- Audio books
- Online retailer subscriptions (Amazon)
- Medical websites/services
- Cable TV
- Software subscriptions
- News sources
- AAA for your car
- Car navigation/destination assists
- Pet insurance
I figure that a household of 4 with 2 professionals probably has $200-300/month in such expenses.
Playing the ‘Disaster’ Game
This is good practice because you are putting your expenses into perspective, assessing whether what you’re spending on is in line with your goals and values.
Should the worst happen you can refer to your budget and know exactly what you’re willing to cut out without adversely affecting the quality of your lifestyle.
The perspective you gain will come at a time when all sorts of shit is hitting the fan. When you’re emotionally drained at home, your work as a doctor stops being meaningful and you’re on the verge of burning out. Will you keep working your ass off to support a $10k/month lifestyle or will you cut your expenses and afford yourself a better quality of life?
One final thought. I set out to lower my overhead as much as possible back in 2012. By 2014 I thought I had mastered it and that there was absolutely nothing else to cut except for toilet paper. Much to my ass’s content I was able to get from $4,500 down to $1,500.