I'm Financially Strapped -- on $175,000 a Year!

Dennis Murray, MA

Disclosures

May 01, 2014

In This Article

Is All Spending Bad?

Not only isn't all spending bad, but in some cases taking on more debt can be a good thing because of the tax benefits associated with it, says Al Zdenek. Legitimate expenses, such as buying a house, saving for your kids' college education, and funding your retirement plans, should be at the top of your budget. And if you're having trouble managing your money, you certainly should create and stick to a budget.

What are some of the "legitimate" things you should be spending on? Here are the most important ones.

Mortgage Debt

Financial advisors agree that it's smart to buy a home. Not only will purchasing allow you to live "rent-free" after the loan is paid off, you'll get a tax deduction for the interest on the loan and your annual property taxes. (Although there's always the threat that some of these tax perks will disappear, it's not likely that they'll evaporate entirely.) "That said, don't buy more home than you need," advises Kathy Stepp. "Unlike a lot of other professionals who make similar salaries, doctors tend more to try to keep up with the Joneses, and this often gets them into trouble. We see a fair number of physicians carrying way too much mortgage debt."

Retirement Savings

As the old saying goes, "Pay yourself first." According to the Fidelity survey, most physicians are heeding this advice: Their average savings rate, from employer and employee contributions, is a healthy 14.9%.

If you're tempted to cut back in some area, think long and hard about mortgaging your future by skimping on your savings today. Not only do annual contributions to a retirement plan set the foundation for your golden years, they help to reduce your taxable income and, in turn, the amount you owe Uncle Sam.

The Friskels have taken that mandate seriously. Eric and his wife, Lesley, 44, a pediatric anesthesiologist, save a total of roughly $100,000 a year in their retirement plans, despite having about $650,000 in mortgage debt, including their principal residence and a vacation home. "I'm glad that we're saving so much," Eric says, "but at the same time, I'd like to get our loans paid off as soon as possible."

Insurance

At the top of your insurance pyramid should be adequate life insurance. Plain-vanilla term-life coverage is the cheapest because there's no investment component to it. The face value of the policy should be enough to cover your loved ones' major expenses (the balance of the mortgage and your kids' tuition costs, for instance) in the event that something untoward happens.

Get a good disability policy (for more, see Hidden Time Bombs in Your Disability Policy) and adequate property-and-casualty coverage as well, recommends Al Zdenek. "As you get older, you start accumulating things -- a primary home, a vacation home, jewelry, perhaps some art and other expensive collectibles -- so it's important to keep up with property-and-casualty insurance and regularly review your coverage."

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