How Much of Your Salary to Save: Percentages Based on Stage of Life and Earnings
- Nisha Mehta, MD
- Aug 21
- 9 min read
Many doctors wonder where the balance between savings and spending should be as they cross over from survival mode into attending physician salaries. There are several rules of thumb to the question “How much of my salary do I need to be saving?” in the personal finance world, with a common being tied to the 50/30/20 budget. Here, we get into what percentage of a physician’s earnings we think that physicians should aim to save, with answers to frequently asked questions and caveats for situations often encountered by physicians in our online physician communities.
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TL;DR: How much of my physician salary should I aim to save?
While the seemingly obvious answer is that you should save as much as you can, we always caution against this mentality if it means that you don't enjoy your life and the fruits of your labor, and instead just end up accumulating a huge net worth but never using it. Therefore, it’s helpful to have more concrete goals, and then beat them if you can, but understand that the goals will at minimum get you to financial stability in retirement.
Directing 20% of your income towards savings is a really great, tried and true, method to retiring with enough to support yourself. We’ll discuss below where you may want to make adjustments, including in times where 20% just may not be possible, such as during training, and in other circumstances, like when you want to hit financial independence and potentially retire early, or when you are earning a particularly high salary.
The standard 50/30/20 budgeting rule in personal finance
This rule of thumb is often quoted, and a great starting place for thinking about your budget, regardless of stage of life.
The 50/30/20 principle for budget suggests allocating:
50% of your after-tax income to essential expenses, which include:
Rent or mortgage (including HOA fees and escrow)
Food
Transportation
Utilities
Minimum required payments on student loans and other loan payments
30% of your income to discretionary spending (nonessentials you enjoy), such as:
Dining out and entertainment
Hobbies, gadgets, and streaming services
Luxury purchases
Weekend getaways and vacations
20% of your income to saving or debt repayment, such as:
Contributing to tax-advantaged retirement accounts (401k, IRA, HSA, etc.)
Investing in taxable accounts once you’ve maximized your retirement accounts
Paying off credit card debt or personal loans
Related PSG resources:
YNAB (You Need a Budget) is an impressive app laser focused on budgets. It's not free, but reasonably priced, and many of our members swear by it.
Empower is a free tool that offers a host of features to help you track net worth and plan for retirement. Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.
Is that 20% of your gross income before taxes or your net income after taxes?
The classic 50/30/20 rule refers to 20% of your net income, after taxes and other deductions.
We do believe though, that most doctors can and should save 20% of their gross income whenever possible, given that average physician salaries are higher than average salaries in the general population, thus allowing you to save more while still living comfortably. This will in turn set you up for a comfortable retirement as well.
Does the 20% savings rate include the money you put in retirement?
Yes, absolutely. It includes any money that you are putting aside and not spending, including towards your emergency fund and savings accounts, your taxable accounts, and your retirement accounts. It even includes money that you’re using to pay down debt, as that is a net increase in your net worth, as noted in the 50/30/20 budget above.
When does this 20% savings rule not apply, and what is unique to physicians?
Physicians have a very unique financial pathway and trajectory, and also have varying levels of income and different goals for how long they want to work. Therefore, it’s important to break down these guidelines further to figure out what’s right for you.
How much should I save during residency or fellowship?
The answer here is really just whatever you can. Most residents and follows likely don't save 20% of their gross income. You may not have a lot left after essential expenses, especially if you’re living in a high cost of living area or have dependents such as a spouse or children that depend on your income. If possible, we suggest putting as much into your Roth IRA or your retirement accounts (especially if the employer offers matching, because that’s free money!) as possible.
How much should I save during early attending years?
There can be a lot of transition and family related expenses during this time, so we’d suggest 15-20% as a minimum, but if possible, try and save more. Remember, time in the market beats all other factors in terms of investing, so the more that’s invested early, the more that’s growing for you in the background for a longer period of time, which is the key to building wealth. If you can get to 20-30%, that’d be great.
If you live in a high cost of living area, cut yourself some slack, but don’t become complacent about it. Avoid dramatic levels of lifestyle creep and prioritize savings for those first few years. Remember, if you did it in residency, you likely can live on less than you think, so only spend or splurge on the things that will truly bring you happiness. In other words, be careful about trying to keep up with the Jones' for things you don’t really care about.
How much should I save during mid to late career attending years?
The amount you can save should in theory start to increase as you progress throughout your career. Many of your early career expenses will start to dissipate or decrease, such as student loan payments, mortgage payments, and early childcare expenses. In the meantime, hopefully, if you’re negotiating appropriately, growing your practice, and/or adding income streams (or if your savings start to work for you to generate income), your income will start to increase.
While you should definitely start enjoying the fruits of your labor more, at this point, you can hopefully also save more. Particularly if your salary increases because you grow your practice or become a private practice partner or add ancillary income streams or side gigs, 20% of $500,000 is more than 20% of $300,000, so even staying at the 20% rule should mean you’re saving more per year as you progress in your career.
What if I make a very high salary as a physician - do I still need to save 20%?
We would argue that it’s the easiest for the highest income physicians to save 20%, so you probably should. Do you need to? Not necessarily. As we see on our series on how much doctors make, there are some specialties or practice models where you may clear 7 figures in a year. 20% of that would be $200,000+ a year towards savings and investing, which will grow into a very significant net worth over time that far exceeds most people’s financial independence numbers if you continue to work until a retirement age. You’ll have to decide what you want your balance to be in terms of preserving the ability to cut back when you want, spend more when you want, and what you want retirement to look like.
What about if I want to retire early or just want to achieve financial independence earlier?
This is where things get trickier. If you plan on practicing well into your 60s or even later, the 20% rule is going to be more than enough for most physicians to hit their financial independence number and retire comfortably.
If you want to retire earlier (or retire particularly lavishly), common sense says that you’ll likely have to save much more at an earlier age, unless you have very high earnings where 20% still amounts to the number you want to achieve at the time you want to retire.
For physicians striving for early financial independence and potentially early retirement or FatFIRE (a lavish retirement), we’d suggest jumping up to 30% or more depending on your timeline and income.
What about if I have a late start to my career or a financial setback such as divorce?
You’re going to want to focus heavily on savings in this situation. Let’s say you did a long training where you didn’t graduate from fellowship until you were in your 40s. You’ll want to increase your savings rate significantly, possibly even into the 30s or 40s. Same goes if you have to start over for some reason or encounter a major financial loss, like a bad investment or a divorce.
Tips toward achieving your financial savings goals
Pay yourself first. Set aside your retirement and other savings first, before starting to spend your discretionary income or adding expenses past your essentials.
Automate your savings so that there’s no temptation to skip. This includes things like contributing to your retirement funds through your paycheck and setting up an automatic transfer to savings for the amount you’ve decided to save every month.
If you have a financial windfall, use some portion to boost your savings or investments. This will give you some flexibility if you have a hard month or period of time later without getting behind.
Make more money. Take on a side gig or create alternative income streams, or negotiate a better contract!
Avoid the temptation to have excessive lifestyle creep. Keep your discretionary spending within that 30% range so you don’t sacrifice your other financial goals.
Remember that small expenses add up, and spending habits are hard to break. I.e. be careful about changing to buying yourself a Starbucks every day instead of making your own coffee.
Keep your fixed expenses low. Buying a more expensive house or car may mean expensive monthly payments. Same with lots of country club memberships or other regular commitments. The less you have going towards necessary expenses, the more you can save.
Hire a financial advisor if you’re having a hard time achieving your goals. They can help you come up with a financial plan.
Conclusion
Doctors earn quite a bit of money, but can sometimes find that they’re not making progress towards the net worth that they want as quickly as they like, or in the worst case scenario, find that they don’t have the money to retire when they reach the age they want to retire at. This is an avoidable situation that can be prevented by being smart about budgeting and intentional savings. Once you automate this aspect of your life, you can sit back and enjoy your discretionary money without worrying about what you’re sacrificing in retirement.
Additional financial resources for physicians
Financial tools:
YNAB (You Need a Budget) is an impressive app laser focused on budgets. It's not free, but reasonably priced, and many of our members swear by it.
Empower is a free tool that offers a host of features to help you track net worth and plan for retirement. Empower Personal Wealth, LLC (“EPW”) compensates us for new leads. We are not an investment client of Empower Advisory Group, LLC.
Explore related PSG content:
If you’re a resident or fellow, check out our transition to practice guide, which includes a link to sign up for our free educational series of events we run every year.
Sign up for our PSG weekly newsletter, where we include announcements and registration for all our free events, including our financial grand rounds for physicians in all stages of their careers.