Living Within Your Means in a World of Wants vs. Needs
In today’s America, many doctors are spending more money than they make. This often begins a trap of endless debt that can begin innocently enough with chiropractic school loans but escalates as the credit cards pile up. This leads to not living within your means – and it can cause stress and future financial hardship.
As you go over your budget, get real with your needs versus wants. Maslow’s Hierarchy of Needs (pictured right) is a great place to start. If you take Maslow’s philosophy to heart, you won’t feel denied or deprived when realizing which things in your life are unnecessary wants; it should feel liberating. If you have the surplus cash to afford a fancy vacation, and travel is important to you, go for it. But if that trip (a want) is going to sink you into debt or make it difficult for you to meet your needs, it is smarter to skip it or opt for a more modest travel option. 
A Bigger House, a Better Car
My basic definition of living within my means is to spend less than I make. For most people, that is difficult. When I go through a chiropractor’s budget and expenses, I always try to structure his financial plan so the chiropractor is not only not spending more than what’s coming in, but also a minimum of 10 percent of his income is going toward retirement. Put together a written retirement plan (ideally with the help of someone who can hold you accountable), so that you know what the impact will be on your life when you are ready to retire.
The house and the car are where most chiropractors live beyond their means. I see too many people paying as much as 50 percent of their take-home pay on their house and as much as 25 percent of their take-home pay on a car payment. For many people, walking into a car dealership with the expectation of taking on a loan for a new car is the norm. A monthly car payment is simply another bill to pay. It is the utter normalcy of this that blinds today’s consumers to the pitfalls of taking on a car loan. Besides the obvious perils of interest payments – you will pay an extra $130 per year for every $1,000 borrowed – it is tempting to purchase a more expensive car than you actually need when you don’t pay cash. This is understandable. The fact is, however, if you were actually forced to save $30,000 for a car, you would likely buy a less expensive model.
Budgeting with Buckets
Whether trying to save money or lose weight, there is no one-size-fits-all solution. However, as with dieting, sometimes the financial strategies that work best are a little offbeat, even fun. One of these effective savings strategies is the “bucket concept.” Rather than adhere to the traditional budgeting chore of writing down expenses and tracking them each month, the bucket concept suggests dividing spending into six categories and assigning a specific percentage to each bucket as follows:
- Allocate 50 percent for necessities, including groceries, mortgage payments, car payments, utilities, gas, Internet, cell phone bills, and anything else you “need.”
- Mark 10 percent for long-term savings to fund vacations, car repairs, house maintenance, clothing, and other items you may not necessarily need to spend money on each month.
- Put 10 percent into retirement accounts such as a 401(k) plan or IRAs.
- Spend 10 percent on activities or items you enjoy. Whether it’s dining out, a trip to the theater, or an afternoon of golf with friends, allow yourself to have a bucket in your budget for things that make you happy and enrich your life.
- Reserve 10 percent for education needs, such as paying off student loans, saving for your children’s college education, or continuing personal development.
- Donate 10 percent to charity.
When making allocations to each bucket, consider 100 percent of your total after-tax income. This means that in addition to income earned as a chiropractor, you also divide inheritances, year-end distributions, and even your tax refund into six categories. The key is that this money should never be commingled. The easiest way to fund each bucket is to open separate checking accounts and have the appropriate percentage of your paycheck deposited into each account.
In discussing the bucket concept with chiropractors, there are some common reactions. Most notably, many say they spend far more than 50 percent of their income on necessities. Naturally, you can adjust the percentages to reflect your own circumstances. For example, if you need 65 percent for necessities, you might drop education, charity, and long-term savings to 5 percent. However, I encourage you to at least reflect on the possibility of living on 50 percent of your income. Often, simply considering this idea can help people begin to prioritize expenses and think more proactively about how they’re spending money each month. In fact, quite a few clients have realized they were living in homes that were too expensive for them.
Debt is another issue that can throw a wrench into your ideal percentages. Many chiropractors live with debt from school loans as well as money borrowed to start a practice. If you have significant consumer debt, you may need to direct more than 50 percent to the necessities bucket in order to help dig out of the debt hole as soon as possible. However, once you’re out of debt, funding a long-term savings account can help you stay debt free. That is, as your long-term savings builds over time, you’ll have a cushion so you won’t have to use plastic to manage an unexpected car or home-repair bill. In that sense, long-term savings also can function as the traditional “emergency account.”
You may be surprised to learn that the most important part of this plan is to spend the fun money on a regular basis and not accumulate it for more than 90 days. The premise being that most budget plans fail because they create a spending plan that is too tight for comfort. Think of spending money on yourself as both a reward for saving and as a means of re-energizing your motivation to save more.
Research shows buying more gizmos or fabulous vacations doesn’t actually increase day-to-day happiness. And even though we all know deep down that money doesn’t buy happiness, don’t so many of us focus on the almighty dollar anyway! Even if your chiropractic practice has made millions, I encourage everyone to savor the things money can’t buy.
 “Fund Your IRA Every Year or How to Retire Wealthy by Driving Used Cars.” Muhlenkamp Memorandum Issue 34, April 1995.
 Rubin, Courtney. “At What Price Happiness? $75,000.” Inc. 9/7/10.