We all receive advice and remedies on various things from workouts and diets to how to raise our kids. I’ve come to realize that many people I am surrounded by suffer from one ailment or the other (or both): poor wealth or poor wellness. As the goal of this website is to help produce wellness at the same time that we are obtaining wealth, I will be writing a series of posts tackling The Ten Philosophies to a Moderately Frugal Life! Take these for what they are worth: suggestions, guidelines, and a source of reference.
Throughout the revelation of the Ten Philosophies, there will still be posts on the other topics covered on this site. All ten of these philosophies will be focused on maintaining a balance between wealth and wellness. Accomplishing one without the other is quite difficult and helping others obtain both is the goal of this website. So, let’s take a look today at the First Philosophy: The 10% Rule.
Maintaining Your Head and Your Heart
The time filled with the most financial mistakes for many medical professionals is likely just after training has finished. The light at the end of the tunnel has arrived. Your monthly pay-check has now doubled, tripled, or maybe more (my take home residency pay check was 1/5 of my attending take home paycheck). This all sounds like good news, right?
The problem is that with the light at the end of the tunnel is that it is often blinding. “I’ve put my life on hold for the past ten years. I deserve this!” Or maybe it sounds more like this, “All of the other people I work with have nice homes and nice cars, don’t I deserve the same?” (As an aside, just because people wear expensive clothes, drive nice cars, and have big homes doesn’t mean they are wealthy. In fact, all it means is that they spend a lot of money, which means they probably aren’t building wealth).
It’s a complicated problem. Our hearts tell us that we have delayed gratification long enough, and now it is our turn to enjoy the riches of the big step up! Our nature is bent towards rewards that have long been due. The head tells us (or should tell us) what those naturally inclined towards impressive amounts of frugality would do: Use the increased pay-check directly towards destroying debt and aggressively investing.
Is there a way to make the head and the heart agree? I think there is, it’s called The 10% Rule.
The 10% Rule Explained
There are going to be multiple times in life where you receive a bump in pay. This may be due to a large (or small) promotion. This may be due to a quarterly or annual bonus. It may be because you achieved an incentive milestone such as publications, education, or clinically related incentives often given out in academic medicine. The 10% Rule is applied in these situations where you receive an increase in the amount you take home.
The 10% Rule is as follows:
For every bump in pay or bonus you receive, you allow 10% of the amount towards lifestyle creep and then put the other 90% towards destroying debt or aggressively investing.
For example, when my family went from making $6,000 per month in my (non-accredited) fellowship to making $15,000 as an attending physician I took 10% of this raise (or $900) and I applied this money towards moderately frugal lifestyle creep. I must take a moment and say that lifestyle creep on most financially minded websites is considered worse than one of the seven deadly sins. Nothing is worse! It usually sounds something like this, “Never ever let your lifestyle creep after training! Otherwise, it’ll start to crawl, and then run, and then sprint away with all of your earnings! It’s a monster that, once fed, becomes uncontrollable!”
Personally, I think this is ridiculous. I don’t disagree that physicians (and other health care workers) are notoriously bad at spending money, but with a little training even the financial beast of lifestyle creep can be tamed.
The 10% Rule allows us to given 10% to the heart while we apply the other 90% towards wise financial decisions (destroying debt, investing in low-cost index funds, starting a backdoor Roth, saving for your kids 529, etc).
The Purpose of the 10% Rule
As explained previously on this website, wealth without wellness is not good. If we ignore the desires of our heart and simply deny our ability to enjoy anything, this places us in an uncomfortable disposition towards discontent. Likewise, if we ignore the head (and the financial riches that await us if we make simple, automatic, and disciplined financial decisions) we are destined for a long career and a terrible retirement. This also isn’t any good.
The purpose of the 10% rule is to allow our hearts to remain healthy while we build the financial muscle that is moderate frugality. The more you allow yourself an occasional break while remaining financially disciplined, the more wealth and wellness you’ll obtain. Simultaneously. This is the purpose of The 10% Rule.
Truth In Advertising
I think that one of the most helpful aspects of any advice is transparency. I anticipate many asking how exactly I decided to apply The 10% Rule after I finished training? Well, let the truth be told, I purchased one of the most financially unintelligent things that one can buy. I financed a car (not just any car, a Chevy SS) and bought a country club membership for golf. My take-home pay increased by $9,000 and I let my lifestyle creep 10% ($900 per month in changes).
I am six months out from training and nothing else has changed. We still live in our 1100 square foot starter home that costs $650 a month that we’ve lived in since medical school (and will continue to live in til loans are paid off). The car and golf are the only two things.
So, where does the other $8,000 per month go? Well, $4,000 goes straight towards medical school debt. $1500 goes towards my monthly 403B Roth contributions. $1100 goes into my three kids 529 plans. $1000 goes towards charitable giving (church tithe, organizations, people in need, etc). The rest gets saved (emergency fund, house down-payment, etc).
Honestly, I anticipate a bunch of people calling for my head for spending my money in this way. However, many of those same people love to travel and to spend money on expensive experiences that simply don’t bring me a lot of joy. That is what brings them joy. What brings me joy is putting my kids in the back of my car (it fits three car seats) and taking them to play golf with me. I don’t regret my financial decisions. No buyer’s remorse. Seriously. None. I am accomplishing putting away more than 20% of my AGI each year, putting another ~20% towards my medical school debt (started at $180,000 which will be paid off in two years utilizing the 90% of my bonuses not used in The 10% Rule). By the numbers, I am aggressively investing in my family’s future or destroying debt with 40% of my AGI.
What can I say? The 10% Rule has made both my heart and my head happy. I am on track to be able to retire in my mid 40s, can enjoy the lifestyle I currently live on, and haven’t regretted a second of it.
What do you think? Is the 10% Rule too much? What spending brings you happiness (travel? vacations?)? How do you tame your heart’s poor financial decisions?