Budgeting

The first step to creating wealth is to take control of your money. Creating a budget and sticking to it will help you to manage your income and expenses. Aim to always keep your expenses below your income.  This will leave you with some disposable income which you can allocate towards savings and investments.

  • There are two types of expenses: fixed and variable.

Fixed expenses are usually monthly or annual expenses that stay the same (fixed). They typically include things like rent/mortgage payments, car premiums, insurance premiums, medical aid, loan repayments, cellphone subscription, internet, etc. You should be careful not to over-commit to fixed costs since they usually involve a contractual obligation, making it difficult to cut or change at a later stage.

Variable expenses, on the other hand, usually vary from month to month. They are easier to control since you can choose how to spend your money. Examples of variable costs include food/groceries, fuel, entertainment, clothing, and personal care costs.

  • If you don't need it, then you shouldn't buy it.

This is a wise principle to live by, but it does not mean that you cannot spend some of your hard-earned money on spoiling yourself. It just means that you should put a limit (budget) on your entertainment or “self-spoil” amount and ensure that you stick to it. Self-discipline is key when it comes to budgeting.

What if your income increases?

As a doctor, your income will likely increase as you gain experience and further your education. The temptation might be to prematurely expand your lifestyle and thereby increase your expenses. However, if you truly want your money to grow, you should use compound growth to your advantage by always saving at least 15% of your total monthly income, or more where possible. This can take the form of a savings account, investments, retirement annuity, etc. By including this in your budget you will be taking your first steps toward financial freedom.

  • Most importantly: create a realistic budget and stick to it!

You can use Microsoft Excel to create a budget. There are also templates that you can download online. Choose the template that works for you. If you prefer using an application, there are options for that too. An example of a budgeting application would be 22Seven.

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