How to Budget as a Dentist

We all want to make good financial choices in our lives. We want to live within our means, but at the same time, we want to be able to enjoy the money we’ve earned and have enough savings to retire when that time comes. To strike this balance, it’s important to create a budget.

Whether you’re finishing residency, joining a dental practice, or establishing your own practice, your budget should reflect where you are now and also address your future financial goals.

According to the 2020 Medscape Physician Debt and Net Worth Report, only 18% of doctors have a formal written budget, while 49% have a “mental” budget. Thirty-three percent of the respondents said they have no budget at all. Not surprisingly, the same study revealed that only 43% of doctors currently live below their means. Where do you fall in this group?

Creating a budget isn’t something that most people prioritize. And as a dentist, your workdays are long and your free time is limited. Nevertheless, a budget will go a long way in setting you up for financial success. So instead of creating a detailed budget that might take hours to complete, let’s find a middle ground, by creating one that’s easy to follow and easy to stick to.

Let’s start with the model of a 50/30/20 budget.

The 50/30/20 budget is one in which you put your after-tax income into three buckets: Bucket 1 for needs; Bucket 2 for wants; and Bucket 3 for savings.

Let’s explore this further.

Bucket 1 includes your essential needs and should take up 50% of your budget. This money goes for all the things you must pay for, including your housing (like rent or mortgage), your car or lease payment, groceries, utilities, health care costs, and the minimum payment due on your debts.

Bucket 2 is for those things you want but don’t necessarily need. Maybe you’d like to take a nice vacation, upgrade your phone, or splurge on that sports car you’ve had your eye on. You work long hours and deserve to treat yourself every now and then, so let’s budget for it. Your “Wants Bucket” should take up no more than 30% of your after-tax income.

Bucket 3 is your “savings bucket,” and should take up 20% of your income. Money allocated here should go towards improving your financial situation and preparing for your future. Your savings bucket should include things like your retirement account contribution, additional investments, and emergency savings. This bucket might also include saving for your health insurance deductible (if you have a high deductible health insurance plan) and making extra payments on your debts.

In summary

While it’s important to stick to your “needs” and “wants” thresholds, there is no limit on how much you can put towards savings. Over time, you may find that you have the means to save more and invest more, which is certainly something to aspire to.

The 50/30/20 plan is a simple starting point that’s easy to build and easy to follow. More importantly, it will give you the peace of mind that you are on the right financial path. A promising dental career is in front of you. Let’s make sure that your budget and financial plans help you reach your full potential.