There are two ways to have more breathing room in our budget: We can either earn more or spend less.
When we choose to earn more, we are presuming that we can actually find more patients to cram into our already overloaded schedule, or find more space in the calendar to add extra shifts or take more call. In order to increase our income, most of us will need to see more patients. Are there more patients to see? We could work our day off, add an extra hour each work day, open the office in the evening, skip our vacation, see patients on Saturday, work a weekend locums assignment, moonlight, or add a new service to increase our income.
Increasing income, however, also means increasing taxes and other expenses. For every new dollar earned, we will likely pay 40% of it in taxes at the marginal tax rate. That means for every hundred dollars we need to increase our take home pay, we will need to earn $170 before taxes. This doesn’t take into consideration the other factors involved with working more hours like giving up some precious and scarce free time, or having the office staff work more (and get paid more).
The option of spending less is a far better solution. To overcome a deficit of $100 in our family budget, reducing spending by $100 over one or more of our expense categories will balance the budget without increasing the tax bill.
Many will read this and say, “But I don’t have anything to cut. That’s why I need more money.”
Often when I hear this, the person saying it doesn’t keep a budget or track their spending. In this situation, they really don’t know if they have something to cut because they aren’t paying attention to where their money is being spent. The simple exercise of recording everything spent for a month or two can be very eye-opening. Often there are many things that could be cut back on without even noticing a change.
When we begin to pay attention to where our money is being spent, we will notice some interesting things: “I spent more on my daily lattes than I spent on gas for my car last month.” “I didn’t realize how much I spent eating out for lunch every day. I’m going to pack a few more lunches and maybe even lose a few pounds.” “I had no idea how much those premium TV channels were costing me. I don’t even watch them.” “I forgot I have two gym memberships. I don’t even use one of them anymore.” “I could have spent half of what I just spent on that vacation and had just as much fun.”
Earned income is taxed more than any other kind of income and is the most inefficient way to increase your available cash. Cutting back spending is extremely efficient. Thankfully, the government hasn’t found a way to tax spending decreases yet.
There is an old saying “A penny saved is a penny earned.” But I say “A penny saved is better than a penny earned. The penny saved is not taxed.”
Which would you prefer for the same $100 return, working longer hours to earn an extra $170, or tracking your expenses and finding where you could shave $100 off your spending?
Don’t work harder, most doctors already work too hard. Physician burnout is at an all-time high. Before you go out and look for opportunities to moonlight and increase your income, think about ways you can accomplish the same effect by decreasing your spending. Then maybe you could afford to take an extra day off now and then.
DR. CORY S. FAWCETT
Find more helpful information from Dr. Cory S. Fawcett by following his blog at DrCorySFawcett.com or by reading one of his books in The Doctors Guide Series.