Why have a cash management plan? AKA a budget?!? So you don’t get job-locked!

UPDATE:  If you want to see my proposed CMP for a new graduate.  Check out this post

 

Why establish a Cash Management Plan (CMP)?

 

  • One word – Optionality

 

This term likely derived from the investment security named an “option,” which means we have a contract or option to buy or sell something at a certain price, but we don’t have to.  We are purchasing the option, but aren’t under any obligation to buy or sell anything.

 

I am using Optionality to mean our ability to choose to do something, or choose not to do something.  As a way to avoid being “stuck” at a job we don’t derive value from or being “stuck” in a house because we can’t afford to sell it, or even being “stuck” continuing to work because we didn’t save enough for retirement.

 

  • Optionality can be taken too far when it’s used to avoid all responsibility or risk – which obviously isn’t ideal
    • Here is a great 2017 Harvard Commencement speech by Mihir Desai that discusses the trouble with optionality, when taken to the extreme

 

I’m talking about the ability to take ownership of our lives and choose to live the life we want to live.  

 

My previous job was as the sole responsible manager of a retail pharmacy that filled >120,000 prescriptions per year.  The pharmacy was open 365 days a year and while I had a large company behind me; I had no corporate support for policies or day-to-day activities – it was all me!  

 

After a few years, I just couldn’t take it anymore.  Dealing with employee and customer complaints, drug shortages, insurance changes, sick calls, violent threats, angry doctors, angry patients, waking up in the middle of night with headaches I’d never experienced before… it was miserable!

 

I dreaded going to work and I found myself counting down the minutes until I didn’t feel guilty leaving my staff each day (I was salary, so no time clock would save me!).  Due to this guilt, I often stayed late because my staff was struggling with workload and I couldn’t bring myself to leave while they were overworked too.  There was a zero percent chance I could do this job for 30 more years – something had to change.

 

I missed working as a Clinical Pharmacist in a hospital and luckily for me a position I really wanted came open.  The big caveat??  The job paid ~10% less than my current one, no more potential for bonuses either.  I was making above average money for a pharmacist manager, but this job was hurting me – professionally and personally.  What should I do?  Can I afford this pay decrease to save my sanity?

 

Do you have a good enough handle on your finances that you could absorb a 10%+ pay cut and still keep most/all your current financial goals?

 

Thankfully, I had a Cash Management Plan (CMP) and knew exactly where my finances stood.  I also lived well below my means, on about 50% of gross income.  I have a plan for every dollar I earn, so this wasn’t as big a decision and it might have been for others.  I was willing sacrifice a few dollars to put myself in a much happier position.  Now I am in a position that does pay me less, but I am excited to work at and never stressed to the point of night terror.

 

The thing that really surprised me though?  Guess what the most common question or comment I got after I changed jobs…

 

“How could you afford it?” 

 

I was a manager at a large company, so this question came from other pharmacy leaders, nursing leaders, one physician leader.  This absolutely blew my mind, but maybe it shouldn’t have.  There are endless surveys showing how little money people have saved.  Some form of:

 

 

Check out this graph from Gobanking.com showing savings account amount by income level.  For the $75,000 and higher brackets – they likely all should have more than $10,000 saved in a savings account.

  • Percent of $75,000-$99,000 who have > $5,000 saved?   28%

 

  • Percent of $100,000-$149,000 who have >$5,00 saved?  35%

 

income_graph

 

What part of this graph do you fall into?

 

There are few things in this world that make you feel more secure, confident and powerful than understanding how you are spending your money.  It was this confidence and security that allowed me to make the positive change to earn less money and not have it negatively impact me and my family.

 

I’ve talked already about how much you need to save for retirement, but today I want to talk about the first step we need to take to start taking control of saving and spending.

 

Do you want to start taking control of your spending and start making positive progress in saving?

 

Start by taking a swing at filling out this chart below.  Its long, so I’ve also included the Excel file if you want to type it up on your own computer here (or you can get the .pdf here).   You’ll need a recent pay stub and to track down your current monthly bills.

 

Try filling out this chart below based on your monthly expenses.  If you only the yearly expenses, feel free to divide that number by 12 and add it below.  The first attempt doesn’t need to be 100% accurate.

 

Next week I’m going to provide a sample CMP for pharmacy students and/or new graduates who might not have a good handle on their budget values yet (or at least what they should be targeting for financial health).

 

Monthly Cash Management Plan (CMP)
1Monthly Earnings / Income 
2Job Income 
3  
4  
5Income taxes 
6Taxes – Federal, State, etc. 
7  
8  
9Total Income (Income minus taxes) 
10  
11Expenses 
12Retirement 
13Employer Retirement (401k or 403b) 
14Roth IRA 
15Taxable Investments for Retirement 
16Health-Savings Account 
17  
18Charity / Gifts 
19Chartiable Contributions 
20Gifts/Celebrations 
21  
22Housing 
23Mortgage/Rent 
24Property Taxes 
25Home Insurance 
26Home Utilities 
27  
28Transportation 
29Auto – Gas 
30Auto Insurance Premium 
31Umbrella Insurance Premium 
32Car Loan / Lease Payment 
33  
34Dependent Expenses 
35Child Support Payments 
36Children’s Education 
37  
38Lifestyle Normal Expenses 
39Cable Internet / Television 
40Miscellaneous Personal Expenses 
41Food / Groceries 
42Disability Insurance 
43Health Insurance 
44Cellphone 
45  
46  
477 Lifestyle Large Ticket – Prefund 
48Travel / Vacations 
49Home – Maintenance Fund 
50New Car Pre-fund 
51  
52  
538 Debts / Loans / Credit Cards, etc 
54Student Loan Payment 
55Credit Card Payment 
56  
57Monthly Total Income (line 9) 
58Monthly Total Expenses 
59Surplus – Cash Flow (line 57 minus line 58)

AKA PROFIT!

Free yourself from the shackles of disorganized spending and increase your optionality!

 

What do you think?  Do you have optionality in your life?  Are you in control of your finances?  I’d love to hear from you!  Leave a comment, follow me on Twitter, or add your email below.

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