Timothy Ulbrich, PharmD, is cofounder and CEO of Your Financial Pharmacist.
Disclaimer: The information in this article is provided to you for your informational purposes only and is not intended to provide, and should not be relied on for, investment or any other advice. Read our full disclaimer here.
Unless you’re a financial nerd like myself, there aren’t many people out there who are fans of budgeting. Some feel that budgeting is restrictive, takes up too much time, or is even scary—who really wants to take a look at how much they are spending? As a student pharmacist who likely isn’t bringing home a high income, it may even feel pointless. But budgeting as a student will help you get control of the money you do have and will set you up for success once you start making that pharmacist salary you’ve been dreaming of. Plus, with the average student loan debt load at graduation soaring to over $170,000,1 getting in the habit of budgeting before you have to start making those student loan payments is probably a good move.
So, how do you budget?
While one budgeting method will never be the right one for everyone, the team at Your Financial Pharmacist (YFP) believes that the zero-based budgeting technique can yield the greatest results. With a zero-based budget, you assign every single dollar you earn from a job before the month begins. The goal is to spend (on paper) your paycheck down to $0 and to make sure your financial goals can be funded, rather than hoping you have money left over at the end of the month.
Ready to see how it works? Download our free budgeting template at yourfinancialpharmacist.com/budget and follow along with the 5 simple steps below.
Step #1: Determine your take-home pay
Your take-home pay is the amount you have each month to cover your expenses and put toward your financial goals. This is the amount that shows up on your paycheck every pay period after taxes, health care premiums, retirement contributions, and any other deductions withdrawn from your gross pay. For student pharmacists, take-home pay would include loan disbursement money plus any earned income.
Step #2: Account for necessary expenses
For simplicity, let’s include the following as necessary expenses: housing, transportation, food (don’t include eating out here), utilities, insurance premiums if applicable (i.e., life, disability), and minimum payments on your debts (i.e., credit cards). You may also include donations if you view it as a necessary expense.
Step #3: Determine how much to spend on discretionary expenses
Think of discretionary expenses as those that are “nice to have,” but in a true financial emergency could be cut. These include eating out, trips for coffee, vacations, clothing expenses beyond the bare minimum, extra payments on debt, etc. It’s very easy to justify any one of these as an “essential” expense, so be honest with yourself when evaluating this category. If you don’t know how much you spend on these types of expenses in a month, review your past month’s banking or credit card statement(s).
Step #4: Calculate your disposable income
Your disposable income is calculated by subtracting your essential and discretionary expenses from your take-home pay. That number is the amount you have to put toward other financial goals (i.e., building an emergency fund, making a down payment on a home, etc.). For example, as a pharmacist, if you had a monthly take-home pay of $7,000 with necessary expenses of $3,000 and discretionary expenses of $2,000, you would have $2,000 of disposable income to put toward other goals.
Step #5: Allocating disposable income to goals
This is where the magic happens. Allocate your disposable income to your financial goals. If the amount of disposable income available isn’t enough to allow you to meet those goals or results in a deficit, go back to the discretionary areas in step 3 and see if you can make some cuts. Once you have completed Step 5, you should have “spent” your entire income, meaning that every dollar has been assigned, resulting in a $0 balance.
Prepare now for life as a new practitioner
Getting a good grasp on budgeting as a student will help prepare you as you transition to a new practitioner and start making a higher salary (and likely have higher bills, too!) I encourage you to start budgeting now. If you need help tracking your spending or want to explore other budgeting tools and apps, check out Mint, Mvelopes, EveryDollar, or You Need a Budget.
About YFP
Founded in 2015, YFP is on a mission to help pharmacists achieve financial freedom through fee-only, virtual comprehensive financial planning services. For more financial tips, resources, and information, check out YFP’s book, Seven Figure Pharmacist (use coupon code APHA at checkout for 15% off), visit the YFP website, or listen to the YFP Podcast.
References
- American Association of Colleges of Pharmacy. American Association of Colleges of Pharmacy graduating student survey: 2021 national summary report. American Association of Colleges of Pharmacy. www.aacp.org/sites/default/files/2021-07/2021-gss-national-summary-report.pdf