A Tale of Two Budgets – The White Coat Investor – Investing & Personal Finance for Doctors

We cleaned out the filing cabinet the other day. You wouldn’t believe some of the cool stuff you might find in your filing cabinet. Here’s something we found:

What is this? This is our actual written budget from March 2000, 17 years ago. What a riot! Remember having a “long-distance” bill? Remember newspapers?

Where were we at in life 17 years ago? Well, we had been married (and budgeting together) for 9 months. We lived in a condominium we owned which her parents had co-signed for. (Both clearly mistakes, thankfully only one couple paid the price for their mistake.) We had no children. I was an MS1 and my wife was 2 months out of college with a degree in athletic training and dramatically underemployed as a physical therapy aide. Our main income was my Health Professions Scholarship Program stipend of $973 a month. We were excited about that because it was an increase from $928 a month the year before!

On the left was the plan at the beginning of the month, on the right was what actually happened. Looks like we went out to eat one time that month, to the Margarita Grille, where we spent $19.87, and that pushed us over our $140 food budget by $2.59 for the month. It also looks like not only did we not save a thing that month, but we actually dipped into savings for a couple of hundred bucks.

There are a ton of financial lessons that can be learned from this budget. Let’s go through a few of them.

• # 1 When your income sucks, don’t buy a house. 47% of gross spent on housing was insane. No wonder we needed a co-signer.
• # 2 When you’re living on $19K a year, you’ve got to budget to the penny (and we did.)
• # 3 When you’re living on $19K a year, boosting your income, even a little, will have a much larger effect than scrimping some more.
• # 4 If you’re frugal, you may be able to live without government assistance even on a low income.
• # 5 The income tax code is very progressive. Check out that $60 tax bill for the month!
• # 6 Economy cars burn a lot less gas than Toyota Sequoias. Wish I could fill up for $15 now.
• # 7 You don’t have to be rich to give money away.

Fast Forward

17 years later, I took a look at our March 2017 budget. My how things have changed. Let’s just look at the various expenses:

• Mortgage $2,803 (Glad that’s gone.)
• Charity $3,705
• Taxes $23,478
• Utilities $514
• Insurance $1,804
• Long-term Savings $31,000
• Short-term Savings $2,500
• Trips and Travel $2,500
• Everything else $5,000

Amazing how much larger everything has become. We spend 4 times as much on housing, 10 times as much on insurance, and 391 times as much on taxes. We give more to charity, spend more, and save more.

[Update March 2020: It was interesting to go back and review this post for republication. Originally published in September 2017, now being republished in March 2020, our typical monthly expenses are a little higher, but mostly we just pay more in taxes, save more for retirement, and give more away. And of course, we spent a ton on a home renovation, but that is (hopefully) more of a one-time expense.]

Take-Home Messages

There are a few take-home messages from our more current budget that might be useful to you.

• # 1 Getting rid of even a low-interest rate, reasonably sized mortgage causes a dramatic reduction in required monthly cash flow.
• # 2 If you hemorrhage money like we now do, you’re going to need more than $1-2 Million to maintain your standard of living in retirement. Luckily, we save enough that that shouldn’t be a problem.
• # 3 Holding expenses relatively constant and dramatically increasing your income causes a dramatic increase in your savings rate as applied to your net income. Looks like a 62% of net (42% of gross) savings rate for us this month, and that assumes the short-term savings and trips and travel is money that is spent, not saved.
• 

  # 4 We have a very progressive tax code. In 2000, our effective tax was apparently less than 4%. In 2017, it was about 32%.

• # 5 If you take care of business early in your career, it is relatively easy to live the good life later. Notice what is missing from the budget — student loan payments, car payments, credit card payments, etc. In fact, by the time this article runs, there probably won’t even be a mortgage payment.

Lots of fun there. I hope you enjoyed that little romp through the filing cabinet as much as we did. If you’ve been budgeting for years, go pull out one of your old budgets. You’ll get a kick out of it. Remember that a budget is a written financial plan for success, not some constraining document keeping you from having fun.

What do you think? How has budgeting helped you in your life? How does your current budget compare to your previous ones? Comment below!