Building A Budget For Intern Year

Many doctors go straight through school, meaning that they haven’t had to live off of their salary, ever. This suggests that they may need (want) some guidance in figuring out how to live off their first salary, once they are receiving their first paycheck in internship.

It’s always better to have a plan. Or, as people periodically tell me, failing to plan is planning to fail.

I’ve written about a budget for intern year before, in some very wordy posts. I thought I might recap those posts with a few words, and a few tables.

I am much taken with the 50/30/20 budget, put forth by Elizabeth Warren and her daughter Amelia Tyagi a number of years ago (see All Your Worth).

In it, they recommend spending your money in the following proportions; this is, they say, the best way to have a budget you can live with. For those who say this can’t be done and that their goals are unreasonable, I suggest you read their book. They most certainly recognize that not everyone can follow the 50/30/20 plan without making changes in their lives.

Following this plan, 50% of your money should go towards the necessities in life: somewhere to live, commuting costs, food to eat, etc. Included in here are all the things you have to pay for, including insurance, minimum debt payments, etc.

30% of your money can go to the fun stuff, the luxuries (big and small). Eating out, new clothes, concerts, the newest phone, a vacation. Whatever your heart desires.

That leaves 20% of your money to build wealth. This can look like: saving for retirement, building an emergency fund, paying off debt (more than the minimum requirement).

Planning a budget on these proportions isn’t required, but it builds in a lot of safety, and humanity. You can pay for the needful, and still have money available for some treats, so you don’t feel you are grinding away just to get by. The 20% to build wealth helps you get out from under debt, or to get ahead.

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A few years ago, I looked at resident salaries around the country, based on data I could find. Overall, I don’t think the average 1st year salary has changed much; it appears to be $60,000 a year.

Of course, some programs pay more, some pay less. The cost of living can vary wildly in different parts of the country. This is not even mentioning the effects of state and local taxes on income, which also vary.

I strongly recommend using a paycheck calculator (I use the one from Smart Asset) to plug in your salary and your location, and then use that estimate to figure out how much you are likely to take home every month (or fortnight).

My examples below are based on someone with a take home salary of $4000 per month.

Using the 50/30/20 rule, they should be spending $2000 a month on necessities, $1200 a month on wants (treats) and $800 a month on wealth-building.

Here are some sample budgets that an intern might follow:

The Saver’s Budget

As you can see, our intern has a great deal on rent (they are staying in their med school apartment with multiple roommates) and don’t pay for a car. Utilities are split with their roommates. They are living pretty lean, and funneling the money left over from their “needs” and “wants” categories into savings. However, they do enjoy some nicer groceries, and go out with their classmates, take some vacations, can revamp their wardrobe with more professional clothes, and can start giving to charity.

They may be pinching pennies now, but their standard of living might be the same or better than as a senior medical student; and they will have a nice fund of money saved up by the end of the year. I recommend a separate account, like my secret savings account. This may be helpful if they are finishing a transitional year and are moving to a new city for their specialty program. Alternatively, if they ran up credit card debt in school, this extra savings may be used this year to pay off a credit card loan; freeing up money later in residency for other purposes.

A Spender’s Budget

This intern wanted to live on their own, finally, and have a car they can rely on. Maybe they just didn’t run the numbers before signing their lease. Whatever the case, they are spending quite a bit more than 50% on their necessities.

To make up for this, they are cutting back on their wants. Their budgets for going out and vacation/travel are much tighter. They have less money for giving to others. However, if they value having their own place, they may find that the sacrifice is worth it.

They are still saving 20% of their income, with a plan to make a good start on an emergency fund before changing focus to saving for retirement and putting money aside for future car issues).

The Goldilocks Budget

This intern wanted to stick to the 50/30/20 plan religiously. They may be sharing an apartment with one person, or may live alone in a low cost of living (LCOL) location. They have a car, with all those associated costs.

They also have a generous budget to go out and socialize, travel for vacation, be generous with others (friends, family, and charity). If they choose to travel more, or buy expensive clothes to wear on dates, there is room to cut back elsewhere.

If you find this post a little later in the year, and you have already locked yourself into spending 90 to 100% of your budget, please do not throw in the towel. There is always a chance to Correct Course; if not this year, then in time for your second year of residency.

Do you have a budget? Does it work for you?