Budgeting Tips for Low-Income Doctors in a High Cost of Living Areas

Doctors and Physicians heal the wounds of their patients. If there is any way they need treatment, it can be in financial literacy. Finance and medical professions are poles apart. A key area of financial planning is budgeting.

Since the disastrous events of coronavirus last year, many practices are struggling to find their way back into the routine. Medical practices are at the farthest point to return to a point of pre-pandemic. Physicians and Doctors with low income in high cost of living areas are exposed to great financial risks.  Financial planning and budgeting can help you survive the difficult times of economic recession.

Let’s briefly take a glance at the budgeting process before we jump into the details of budgeting.

Define the Scope of Budget

Defining the scope of a budget means aligning your financial goals with budgeting. If you want to improve the medical practice equipment, it will need investment. You may also be planning to save for personal expenses such as a house renovation. Keep your financial goals in mind before preparing the budgets.

For clarity, keep the business financial goals separate from your personal financial ones. It will help you smoothly run the practice without compromising on your lifestyle. Remember, your financial success at practice will eventually affect you and your family’s financial well-being.

Choose the Right Budgeting Method

Perhaps you are a detailed-oriented person naturally, a line-by-line budgeting technique evaluating expenses in detail would suit you. Perhaps you don’t like to go into that much detail and keep your interest in summarized form only.

Choosing the right budgeting method can help you achieve effective results. For example, zero-based budgeting calls for wise and calculated spending for each penny earned. It means every expense at your medical practice should make sense. A formal 50-30-20 budgeting method would want you to categorize your spending into necessities, savings, and wants.

Learn to Analyze the Budgeting

Who knows the importance of follow-ups better than a physician? Analyzing budgets is a similar process to that as well.

Variance analysis is comparing actual performance against the standards or targets. Ideally, you’ll aim to achieve a positive variance in budgets. A negative variance will disclose the shortcomings and let you evaluate the causes of inefficiencies.

Control and Review of Budgeting

Once you identify the variances in budgets, it’s time to take corrective measures. Reviewing the budgets means identifying areas of improvement. Variances will inevitably identify inefficiencies in operations.

Budgeting reviews will also help you to understand the expense categories. You’ll learn to differentiate between variable, fixed, and overhead expenses.

You can take control of every budget in a similar method. It will increase your medical practice efficiency and eventually lead to increased revenues.

Align Budgeting Process with your Medical Practice Goals

It means harnessing the benefits of financial planning and budgeting. For example, compare your quarterly variable expenses such as utility bills for the same period of the previous year. Identify the differences and take corrective measures.

Let’s say, you identified a 1% variance in a particular revenue stream. 1% can be $100 or $500 monthly depending on the total revenue. Convert it to annual variance, and factor it for the next 10 years. You’ll know how much you would’ve missed without a budgeting method.

Now that you have grasped the idea of budgeting and its fundamentals, let’s discuss some practical ways of improving your medical practice with budgeting.

Here is a 5-step road-map for low-income doctors and medical practices in a high-cost area of living to practically harness the benefits of Budgeting.

Learn to Differentiate between Wants and Needs

It is often the case in our lives that we fail to distinguish between wants and needs. Honestly, our professional lives are no exceptions to this ignorance as well.

Let’s say, you want to increase the revenue stream of your medical practice, who wouldn’t? For that, you need an extra MRI machine to purchase. It seems you have been outsourcing the MRI scans to a nearby lab, and someone just came with an idea to install a new MRI machine.

Budgeting implies an important aspect of financial forecasts. A buy v lease projection will reveal whether you actually NEED that MRI machine or not. One step ahead, it may reveal whether the return on investment will match or exceed your business’s total ROI or not.

A Proportional budget or a 50 (needs) – 30 (wants) – 20 (savings) budget is a great tool to identify and control the after-tax income. The practice will help you achieve future financial goals through savings. Once you identify the wants and needs clearly, it will be your guilt-free spending.

Think of Relocating to a Cheaper Place

Relocating is not a simple process, neither it is an easy decision. If your medical practice is in a high cost of living area, and your average income is categorized low, it suits you. Before you make the final decision on relocating to a cheaper place, consider the following key questions.

  • Will you be able to retain your current patients?
  • What is the competition in the new point of relocation?
  • What are the total costs if you decide to relocate to a new point?
  • How long will it take to cover the investment for relocation?
  • Will your staff willingly accept the decision? How will it affect your staffing needs in a new workplace?

The best option for you will be to consult an advisor. It will reduce the costs of relocation to a new point. The advisors will help you understand the demographic and competition analysis as well. Your goal should be to reduce the real estate costs without a compromise on the revenue.

Diversify your Income Sources

Low-income doctors with medical practices in high cost of living areas will inevitably struggle to increase revenue streams. They carry the burden of heavy student loans, taxes, and higher business costs. An effective way of reducing costs and increasing the after-tax profits is to increase the income streams.

Doctors and Physicians can increase their income by expanding services or figuring out alternative non-medical revenue streams.

Here are a few quick ideas for you to increase your total income.

Medical Practices – Alternative Sources of Income

  • Introduce new ancillary services at your medical practice: Physical Therapy, Allergy Therapy, Medical Spa, Weight Loss Services.
  • Increasing Lab practices and facilities.
  • Consider in-house dispensing services.
  • Partnering with another medical practice for sessions or emergencies.
  • Expanding counseling services.

Non- Clinical: Alternative Sources of Income

  • Counseling and Coaching – Sports teams, Youngsters.
  • Teaching and Lecturing.
  • Investments in real estate, stocks, or side business.

You can consider any other side hustle that can increase your clinical and non-clinical revenue. Diversification of income will help you reduce the burden of debts. It will also help you create emergency funds to reduce over-reliance on loans.

Paying off your Student Loan

Paying off medical student loans can take years of hard work. It depends on your career stage, income, and loan scheme. You can plan to pay off your student loan early, it will not incur you any penalty. It will also help you increase your net income.

Here are a few quick tips for you to pay off your medical student loan faster.

Start Making Repayments Early

This advice is for young doctors. You may find it hard but try starting repayments of your medical student loan as early as possible. Some doctors leave it until they become attending physicians, but it wouldn’t help the cause at all.

Refinance Your Student Loan

Consider refinancing your student loan. Particularly, if you have other high-interest debts as well. Refinancing can save your total interest costs with debt consolidation.

Switch to Income-Driven Repayment Plan

Low-income doctors living in high-cost areas of the business should consider this option. Consider opting for a federal income-driven repayment plan for your student loans. The drawback with this option is it will prolong your repayment tenure.

Live within the means – for a few more years

It simply means to continue living a disciplined life as you already are. Spend less and save more. Contribute more towards your student loan repayment, there is no penalty on early repayments on it.

Tax Planning – Reducing the Tax Bill

Tax planning can be stressful for many business owners. It’s not just the year-end settlement but an ongoing practice to manage your tax bill. The IRS allows you to reduce the tax liability in several legitimate ways. Low-income doctors should plan ahead of time to create an effective strategy for tax management.

Here are a few quick tips for you to reduce your medical practice’s tax bill.

  • Take qualified business income deductions.
  • Apply for tax credits when and wherever applicable.
  • Contribute more towards the employee contribution plans and adjust the employee remunerations against it.
  • Adjust the depreciation methods for newly purchased equipment and machinery.
  • Adjust your medical practice’s income and expense timings to fit-in the right tax slab.
  • Write-off bad debts of your business to reduce taxable income.

Budgeting is a great financial tool for any business. It’s a must-have planning tool for low-income doctors. It can increase your operational efficiency as well as lower your expenses when used effectively.

Contact an expert advisor today for more information on retirement planning for physicians. Sometimes a fresh perspective from a trusted source is all you need. Feel free to call us at 561-705-2005 or email us at Michael@AskWealthCare.com


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