Cash flow can be a challenge for medical professionals who are either newly or a few years out of residency. Between paying back your student loans, trying to budget for everything else in your life, and boost your savings, you might often feel strapped for cash. Several clients describe this to me as the “disappearing paycheck” phenomenon. In other words, as soon as your paycheck hits your bank account, it immediately disappears.
It’s obvious that increasing your cash flow would prevent so many future financial headaches. So, what’s the best way to prevent the stressful “disappearing paycheck” situation from continuing to happen? How can you increase your cash flow and stop worrying about money during the day-to-day?
Where Are the Cash Flow Problems Coming From?
The first step you need to take is to figure out what’s causing your cash flow issues. It’s all too common to think that your hefty student loan payment, or unfortunately high rent is doing a number on your budget. While that might be true, it’s more likely that there are a few small expenses that are causing your cash to disappear the second it hits your account. A few examples might be:
- Your daily latte from the local Starbucks down the street
- Unnecessary subscription services
- Too-high cable bills that you may or may not use if you also pay for a streaming service
- Dinner and drinks out with friends every Friday after you get paid
I’m not saying that spending money on these things has to stop. Quite the opposite – I firmly believe that a budget that’s based in “lack” or restriction will only push you to make poor financial decisions farther down the line. So, don’t shame yourself while you take a hard look at your spending. Instead, look at expenses objectively and jot down what might be burning through your money so quickly.
Cut Expenses Where You Can
Now that you’ve made a list of your expenses, decide where trimming makes the most sense. In other words, you want to trim the expenses that are going to have the biggest impact. For example, if you pay $10/month for Netflix, and you hardly ever turn on your cable TV stations, you might be able to cut your $100+ TV bill. You might also be able to cancel other subscription services that just aren’t meeting your needs or adding value back into your life.
You can also tackle some of your bigger expenses. For example, you could:
- Shop around for auto insurance
- Refinancing or consolidating your student debt to reduce payments
- Finding a less expensive place to live
- Negotiating your utility bill
Tackling these larger expenses can create the wiggle room you need in your budget to free up cash flow and start meeting your other financial goals.
Automation is Key
Once you’re able to cut unnecessary expenses from your budget, or to reduce a few of your larger expenses significantly, you can start to automate your finances to improve your cash flow. Your paychecks are automated. You know when they’re coming, and you likely know how much they’ll be each month. If this is the case, automating other aspects of your money should be easy. Here are a few things you should look to automate:
If you can set your loan to autopay, you’ll never have to think about it. It will just be taken care of every month – there won’t be a question of whether or not you’re going to pay it. You can even set it to autopay more than is actually due in order to pay it down more quickly.
Next, you should automate your savings. This means a few different things:
- Automate contributions to your workplace retirement accounts including a 401(k) and HSA/FSA.
- Automate contributions to your cash savings account to build your emergency savings – even if it’s only a few hundred dollars each month while you get a handle on your student loans.
Any bills that can be automated should be automated. This includes your rent, utilities, credit card bills, and more. If it can be automatically deducted from your account, make sure that it is!Once the money that’s intended to go toward your goals is automated, you’ll know exactly how much is left over each paycheck. There’s no worrying whether or not you’ll have enough – you’ll just have to prioritize how it’s spent. Additionally, when you make spending decisions according to your values, you’re more likely to make spending choices that align with your values, and you won’t feel frustrated by financial scarcity. Instead, you’ll feel fulfilled and untempted to spend more outside of your budget.