High-income zero-based budgeting

By Alaina Trivax, WCI Columnist

During his hospital stay, my husband, Brandon, and I fantasized about what our lives would be like when he eventually became an attending. We would consider participating in paychecks – just one payday was more than our combined monthly income at the time. What would we even do with all this money? We imagine a life in which we have tons of money—and assume we’ll never spend it all.

Brandon is now a 3rd grade PMR employed in private practice and I am a secondary school teacher. We have two little boys.

We met before he started his internship and got married two years later. Back then, it was just us and our dog living in a small house in the Detroit suburbs. Between his residency salary and what I earn, we are very comfortable financially. We were all very conservative in our spending and didn’t have a big budget to begin with. We have some goals, including paying off our student loans, but we are very casual about our financial lives. It’s easy to think that we always have plenty of money and don’t need to operate from a tighter budget.

Of course, the joke was directed at us. After completing his residency, Brandon was awarded a one-year fellowship in brain injury medicine out of state. We quickly discovered that maintaining two families – without much extra income – was really stretching our finances. We started tracking our spending and got through the year by making some adjustments to our spending. We have been using the budget to guide our spending since he became an attending physician. Every month, we create a plan for every dollar we have available—all the money in our checking and savings accounts and our projected income for the month.

The life we ​​imagined to never be able to spend a lot of money has not become a reality. Fees started to add up quickly and we had to make adjustments.

Do you need such a tight budget to achieve your financial goals? Maybe. Maybe not. But hear me out – here’s how and why our budget plan works.

zero-based budgeting

We use a modified version of a budget from scratch, where all funds are assigned to a category for spending, saving, or investing. The goal is to get the budget to “zero” each month. In this format, all expense categories are listed and only funds currently available for expenditure are considered in these allocations. A certain amount of money is received for monthly and recurring expenses; variable costs are also budgeted. Future expenses, large or small, are planned and funds are set aside for these categories. Whether it’s your monthly cable bill or your December holiday gift giving, funds are allocated for these expenses.

There are many other budgeting formats—envelope systems, pay-as-you-go structures, and more. We use this model because it allows us to prioritize multiple goals: spending money intentionally while addressing our student loan debt.

In a typical zero-based budget, expected income doesn’t count. If there is not enough money to cover all expenses, funds are allocated in order of priority. Pay the electricity bill on the 5th and the car fare on the 17th? Guess we’re going to have to pay the electric bill first and start setting aside some money for the car – hopefully nothing else pops up. This strategy is helpful for people who are living paycheck to paycheck and are struggling to get by each month.

If you’re making money, hopefully this doesn’t sound like your current financial situation. Ideally, your bank balance should be liquid enough for a few months, along with some emergency savings and investment accounts. This financial triage and stress might be reminiscent of a medical school or residency experience; it was certainly something we experienced during our fellowship years at Brandon. The scratch-from-scratch budget format clearly shows where every dollar is going, which is helpful for those trying to settle large debts.

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Tip: Include Planned Income

This is where we break the rule: we consider not just the money in the bank account today, but any planned, predictable income for the month. From there, we worked out our expenses.

We use You Need a Budget, a web-based budgeting software, to track our income and expenses. To calculate our future earnings, I manually enter deposits for each of our paychecks at the beginning of the month. I will update the date once the check clears on payday. This allows me to ensure that every penny is being spent with purpose and in line with our financial plan.

too intense? I get it – we’re a little bit scrupulous about our finances.Here’s how it helps us

make the most of that money

Zero-Based Budgeting Techniques

We make a lot more money than we did in hospital, but where does it all go? Despite our belief that we’ll never be able to spend all our money, we’ve found that it’s actually quite easy to do. With two kids and a home to maintain, the increase in spending has crept in on us a bit. Compared to fellowship days with homemade hummus and date nights, we’re doing pretty well – but we’re still looking at the budget and like “how do we send these two kids to daycare?!” We try to keep The way we used to live, but small changes — increasing the grocery budget and allocating more money to eating out — add up. Planning ahead using this from-scratch budgeting model helps us stay in control so we can still meet our financial goals at the end of each month.

Entertainment expenses and donations allowed

My husband works hard to get to this level and earn the income he does. After years of training, it’s time to enjoy the results. We also use our budget to buy fun stuff. Brandon has been working hard to hone his golf game this past summer. He goes to the practice range every Wednesday afternoon, and he’s been picking up the training equipment and practicing at home. These are expenses we cannot afford in our lives, on hospitalization or scholarship income, but now that we have more money, we can make room for them. Planning these expenses in our monthly budget can sometimes mean limiting spending – maybe not buying all the new golf toys on the same day! — but also making sure our financial plans stay on track.

Know the limits and spend with confidence

Since Brandon has been working on his golf game, he decides he wants a home golf simulator. Obviously, they can be quite expensive — anywhere from a few thousand dollars to tens of thousands of dollars; the one he’s interested in is in the middle of that range. He looked at our spending plan and realized that the way we were buying was not making sense right now. Technically, we can afford it, but there’s a price to pay — and we’re not ready to rearrange our financial priorities to buy a golf simulator. Instead, he went a more DIY route and created his own simulator in our garage at a price we’d rather live with. It’s an expense that fits within our budget, and as long as we stick to the plan, we can be confident in our spending.

stay on the same page

Dr. Jim Dahle has often pointed out that divorce can be devastating to the economy. Having a plan for our money helps Brandon and I stay on the same page even when, or especially if, we have a lot of money. There’s no need to nitpick about small splurges and expenses. Most days of the week, he eats a tropical smoothie for lunch — no matter what. I had a great happy hour with my girlfriends – and couldn’t be happier for it. We certainly had our moments of stress about money, but I don’t think we ever really fought over it. Creating a budget can take some of the emotion away. When we have to say no to an expense, the budget makes the law, no one else. We want to stay on the same team.

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Worth a try?

Keeping tabs on our spending helps us continue to “live like residents” even as our income has increased. Still, it’s hard to say whether we’ll be using the system forever. We do this with a purpose – we have specific financial and lifestyle goals that we are working towards. We wanted to pay off Brandon’s medical school loans — but not just to pay them off; eliminating the debt would free up the cash flow we needed to buy a larger home that better suited our growing family.

I know I know. We’re a little intense. But I promise, using this modified version of budgeting from scratch has been very helpful for our finances and our relationships.

If you find you don’t have as much money as you think — or as much as you need — give this a try.

Have you found that using a budget, especially early in your career, can help you eventually build wealth? Why or why not? What kind of budget did you use? Comment below!

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