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A fool-proof spending and saving plan for physicians

MDlinx Apr 10, 2024

As high earners with many competing expenses, physicians have to pay attention to the way they spend money. For many people, including myself, adhering to a strict budget can seem a bit daunting and restrictive. To overcome this mental barrier, start out with a spending plan that mirrors the “50-30-20 rule.” 

In other words, allocate money into three different buckets corresponding to a specific percentage of your income: things you have to buy, including bills and fixed expenses (50% of your income), things you want to buy (aka, discretionary spending; 30% of your income), and things you should buy in order to build wealth (20% of your income).


Category #1: Fixed expenses


Fixed expenses are things you have to buy—bills and other purchases you need to live and function in this world. This includes your monthly mortgage or rent payment, along with other bills, such as electricity, internet, student loans, childcare expenses, and so on. 

You can also denote this category to include things like groceries, gas, and different types of insurance. Include the minimum monthly payment on any other debts. For doctors in training, this category of fixed, necessary expenses can take up about 50% of your take-home pay. For attendings who are established in their career, the percentage may be much lower. 

Pro tip: If your fixed expenses add up to over 50% of your income, consider ways you can cut costs or increase your income.

When I was in training, this category took up the majority of my pay. In order to decrease costs, I lived with a roommate for the first couple years. Then I realized I could only cut expenses by so much, so I created a second source of income. As a resident physician with limited free time, I couldn’t get a second job, nor did I want to. Instead, I decided to monetize a hobby (blogging) and form partnerships with other  companies that would pay me to write columns and articles. 


Ask yourself if there are other costs you could cut back on or additional sources of revenue you can tap.


Category #2: Discretionary spending


This category is for your discretionary spending, aka non-necessities that increase your quality of life—things you want to buy. This should amount to about 30% of your take-home pay. 

These expenses can differ for each person, but for me they include entertainment (like weekend outings to the movies, sporting events, and restaurants), self-care (like personal grooming, hair appointments, and gym memberships), and incidentals (such as car maintenance, birthday gifts, and other unexpected expenses). 

This is also the area I dedicate to charitable giving—I donate about 10% of my income to my local church, who then uses the money for community projects and other charitable missions.


For many doctors, this discretionary spending category is where they splurge. They use their discretionary funds to finance a new car, pay for their kids private school tuition, enjoy family vacations, and etc. 

Pro tip: Be sure that you are crystal clear on what is a discretionary (optional) expense vs what is a fixed (mandatory) expense.

Many physicians feel that paying for private school, driving a luxury car with high monthly payment, or eating out at restaurants are examples of “mandatory” expenses, but this may not be the case. You need transportation, but do you need a brand-new luxury SUV? You need nutritious food, but do you have to buy groceries at that store or eat out at your city’s most expensive restaurants? 

Take a look at your spending patterns and ask yourself, “Is this necessary?” You may find that it’s not. Making this distinction will help you categorize expenses in the most optimal way. This category should amount to around 30% of your take-home pay.

But one thing to keep in mind: You may have room to spend a little more here if your fixed expenses category equaled less than 50% of your income. 

As a physician, you can afford many of the things you desire but not all at once. Prioritize what matters most to you and cut back on the rest.


Category #3: Wealth building


This category is for monetary growth and building wealth—things you should buy. It is the part of your take-home pay you use to increase your net worth and build financial security. 


This can be done in three main ways: saving, investing, and paying down debt.

In terms of saving, you can put a portion of this money into an emergency fund or a secondary savings account to use for unexpected expenses, a future car, an upcoming wedding, or a house down payment. In terms of investing, you can use a portion of money from this category to invest extra money in a backdoor Roth IRA or taxable account (beyond what you already contribute to the 401K or 403b plan at your job). 

In terms of paying down debt, you can use some of this money to pay extra on your student loans, your monthly mortgage, reduce your credit card debt, or pay off your car sooner rather than later. Instead of picking one of these three things, distribute 20% toward all three of these buckets. 

Pro tip: You can increase your net worth and set yourself up for success by either paying down debt, increasing your investments, or building up your savings. I do all three.

When I finished my training, I didn’t have a large emergency fund, so I spent the first several months working toward that goal.

Once I had several months of expenses set aside, I started using some of this money to pay extra on my student loans and invested more while still saving some on the side for larger upcoming purchases. You can do the same thing. 

The goal is to reserve at least 20% of your take-home pay to this category to ensure you have an adequate emergency fund, are investing for your future, and are prepared for any large expenses that may come your way.


What this means for you

Take some time to examine your spending habits to ensure they are in line with your savings goals. As physicians, our relatively high income can mean we may not realize we're spending too much on things we don't necessarily need. One way to avoid that is to divide your spending into these three buckets, ensuring you have at least 20% of your income set aside for wealth-building opportunities.


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