You got through residency without spending more than $79,000 a year, didn’t you? I certainly hope so! With an extra $29,000 to $120,000 to spend every year, you should be able to manage. I frequently refer to the benefits of being FI, and all of them can be yours if you accept the challenge and earn a solid living for fewer than two decades.Īll you have to do is live with a budget of 60% to 340% more than the average American household, which spends about $50,000 a year. Learn to Avoid the Top 5 Mistakes Doctors Make With Disability Insurance! The Live On Half Challenge for Physicians
They live in a middle-of-the road income tax state, and the stated income is total household income. We start keeping track when they have a net worth of zero, which is very likely at least a couple years after residency for most. What other assumptions have I made? Besides the dumb one about my 401(k) vesting schedule? In order to make tax and net worth calculations, we must start with assumptions.Įach of these physicians is married with two children, filing jointly. I know my astute readers would call me out in the comments it wouldn’t be the first time. I don’t want you to miss the forest for the trees, but I thought that was a point worth mentioning. The 7 to 12 month discrepancy can be explained by the fact the $10,000 529 contributions, which do not count towards retirement savings, become relatively smaller on a percentage basis as income increases, allowing slightly more spending as a percentage of take-home pay. The biggest income producers were able to spend $171,900 every year, and would have their coveted FI status of $4.3 million in approximately 15 to 19 years. On the lowest end of the spectrum, our physician families were spending $79,000 a year on a $200,000 salary, requiring just under $2 million to be financially independent, with 25 years of expenses saved after 14 to 18 years. With a 50% net savings rate, representing 35% to 40% gross savings rates, these physicians are indeed financially independent in 14 to 19 years with a realistic range of real (inflation adjusted) returns from 2% to 6%. What kind of a sacrifice are we talking about? I’m so glad I asked! Altering the hypothetical physician’s budgets from a previous post on specialty choice, we can derive an annual spending budget for each of these four physicians with household incomes of $200,000, $300,000, $400,000, and $500,000 by giving them a 50% net savings rate. That’s a reward that I feel makes certain sacrifices well worth it. You can live the rest of your life on your own terms.
How so? Living on half of your take-home pay, or to put it another way, saving and investing as much as you spend, should lead to financial independence (FI) in roughly 15 to 20 years. If you can find a way to meet this savings challenge, you will be rewarded handsomely. It’s not a suggestion or a recommendation.
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