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Saving Money. How Much is Enough? The 30% Rule

By Jimmy Turner, MD
The Physician Philosopher

The first time I witnessed the stress finances can cause in a relationship was when I saw a married couple have extremely different views on spending versus saving. The husband could not have been more frugal. He wanted to save a lot of money so that he could retire early.  The wife enjoyed spending the money that they made without a second thought.  This caused some major friction when they tried to determine how much of their income they should be saving for retirement.

They were doing well financially by most standards, but they still experienced an enormous amount of financial stress because they had different expectations when it came to money.

How much should you be saving for retirement?  Is it too much? Too little.  That’s where The 30% Rule can help us out.  

Let’s dive in.

WAR and the 30% Rule

Before we dive into The 30% Rule, let’s first talk about your Wealth Accumulation Rate (WAR).

In simple terms, your WAR is the % of your gross income spent toward building wealth.

The amount of money you are putting towards building wealth involves both the amount of money you are using to aggressively accumulate assets (savings rate towards investments) and destroying debt.

To calculate your WAR: Add your annual savings rate (hopefully at least 20%) and the amount of money you are putting toward mandatory debt (e.g. student loans, private loans, etc).

Wealth Accumulation Rate (WAR) =
% Gross Income paying down debt** + % Gross Income savings rate

For example, if 20% of your gross income went towards saving money for retirement and 20% of your income was going towards paying off student loans, this would result in a 40% WAR.

**Note:  You’ll notice that paying down non-mandatory debt like a mortgage or a car loan is not included in your WAR.  It has been pointed out that it should probably not include your consumer debt like that Tesla or buying more house than you can afford.

Why Should I Save 30% of My Income?

For the physician, the traditional 15% savings taught by many financial gurus will prevent most doctors from reaching financial independence even by a traditional retirement age of 60 to 65.

Let’s say that you make a gross income of $250,000 and you aim to be able to retire by age 55, and you want to spend $150,000 per year in retirement.

With a 15% savings rate, you will be saving $37,500 each year.  If you begin saving for retirement at age 30 with a plan to retire at 55, assuming a 5% real rate of return (i.e. 7% nominal return minus 2% inflation = 5% return), that $37,500 annual savings rate will turn into $1.88 million by age 55, which would provide $75,200 in today’s dollars assuming a 4% withdrawal rate.

That’s not enough for most doctors making $250,000 annually to maintain their lifestyle.

Even for a more typical retirement age of 60, the math doesn’t favor a 15% savings rate. Assuming the same rates of return above, a $37,500 annual savings rate will turn into $2.6 million, which would provide only $104,000 in today’s dollars assuming a 4% withdrawal rate.

What if, instead, you saved 30% of your gross income?  Well, you’d need $3.75 million to withdraw $150,000 each year.  If you started at age 30, with a 5% real return, you’d reach that number by age 55.

What would a 30% Savings Rate Look Like?

For someone making $250,000 gross per year, a 30% WAR would amount to $75,000 each year going towards paying off debt or investing.

Here is an example of what that might look like for a married couple:

  • Paying $24,000 in student loan debt each year
  • Maxing out your 403B/401K at 22,500 (any matching money goes towards your WAR, but it also increases your gross salary!)
  • $22,500 into your spouse’s 401K
  • $6,000 into a backdoor Roth IRA

Once that student loan debt is gone, that monthly payment would then be shifted into retirement savings.

If you are concerned about waiting too long to save the full 30% toward retirement, don’t forget The The 10% Rule for any bonuses or additional pay you make outside of your base income to help supplement your WAR.

Saving Money.  How Much Is Enough?  

The higher your WAR the better – as long as your life is tolerating it.  A high WAR is how people achieve FIRE.

However, aggressively building wealth to the extent that it negatively impacts your wellness may not be worth it. A WAR that is too high can negatively impact your life and relationships.

On the other hand, if your WAR isn’t high enough, your wellness will also be impacted as you fail to obtain financial independence by the age you want.  You may be stuck in a career you cannot afford to leave.

If the thought of saving stresses you out, then you need to figure out if you have a spending problem or a frugality problem.

That’s where The 30% Rule comes into play.  Is your WAR above or below 30%?

Less Than 30% Wealth Accumulation Rate

Let’s say that you are putting less than 30% of your gross income into your WAR and yet you are still feeling financial stress.

In this situation, you may need to build some financial resilience, though I recognize that certain life situations like living in a high-cost-of-living area to be near family prevent us from hitting this 30% number.

Life can be full of tough decisions, but if you are suffering from financial stress (not related to other happenings in your life) and you are at a less than 30% WAR, as a physician, it is possible that you need to find your frugal gene and express it.

Maybe, its time to make lifestyle changes if you are feeling financial stress with a WAR of less than 30%.

More Than the 30% Wealth Accumulation Rate

If, however, you are feeling the tight constraints of your budget and you are saving money at a WAR over 30% of your Gross Income, you may need to question the extent of your frugality. Is it cutting too deeply?

For example, the couple that I mentioned in the introduction:

Their WAR was likely much greater than 30%, and it was clearly negatively impacting their marriage. It simply isn’t worth it to pinch pennies with a high income if it negatively impacts your marriage.

Becoming Financially Independent and Retiring Early (FIRE) is important for many, but at what cost?

Who cares how big your bank account is if you aren’t enjoy life?

Take Home

It is worth mentioning that personal finance is personal. For reasons not covered in this post, you may feel the need to save more or less than 30% of your gross income.

However, calculating your WAR and using The 30% Rule can serve as a helpful rule of thumb for discussion and thought. You can either adjust your spending or adjust your WAR to improve your wealth and live the intentional life of your dreams.

44 Comments

  1. DocG

    Interesting. I think most of us reading these articles could use a gage to define over frugality. I could!

    Reply
    • ThePhysicianPhilosopher

      Thanks! I thought it was useful because I find in my conversations both in forums and in real life, people swing to both sides on the pendulum. I thought of this tool as a guide to a happy medium or at least a starting point for thoughtful discussion on the topic! Appreciate the comment!

      Reply
  2. Palmetto Millennial

    Nice post. I think it is good to reflect and see if you might be too extreme one way or the other.

    Reply
    • ThePhysicianPhilosopher

      Thanks! Appreciate you stopping by. That’s my focus, to make sure we don’t forget about our wellness while we are obtaining our wealth.

      Reply
  3. Barelybarefoot

    Interesting post TPP. I think folks might make their WAR % artificially inflated if they add paying down all debts to this. Perhaps it’s save, invest and paying down ‘good’ debt? Or debt that appreciates? Wouldn’t like them patting themselves on the back for buying that Tesla with 2.9% financing because $1200/mo going to paying down debt. Do I include extra mortgage payments in WAR? Or just payments to principal? IN worried I’m fudging my WAR%!

    Reply
    • ThePhysicianPhilosopher

      You know that is a really fair point!

      I suppose I should have specified “good debt” such as mortgage debt and student loan debt. Consumer debt certainly wasn’t the aim of calculating your WAR! Like all things, I guess it needs to be seen in the right light. I might go back and add a specification that it needs to be “good debt.”

      Thanks for stopping by!

      Reply
  4. Mark Dias

    Great article. Never thought of it that way but I know a lot of couples in the same situation, one spends, the other saves.

    Reply
    • ThePhysicianPhilosopher

      Thanks, Mark. It’s important to be on the same page. Otherwise, it can make things really tough.

      Reply
  5. Jim Wang

    The number 1 problem for retirees (really, all Americans) is that they haven’t saved enough, which is a tough problem to solve when you’re nearing retirement. WAR is a great way to think about it when you’re young and including debt service can be extremely motivating for those who have large student loan debts. I really like the idea of financial resilience. 🙂

    Reply
  6. Wealthy Doc

    I have never heard of this “rule” but it sounds great. Pay a third to the government. Invest a third. Spend the rest.

    Reply
  7. Dr. McFrugal

    In general, I think it can serve most Americans to be more frugal. At least more mindful of their spending. Unfortunately, most people don’t realize that more spending doesn’t necessarily lead to increased happiness. The best balance is to spend according to your values. That way you can freely spend on things that truly matter, and be frugal on things that don’t.

    Reply
    • ThePhysicianPhilosopher

      You are right. We have a spending problem. Most of us could stand to build some financial resilience.

      Reply
  8. Jon Sharpe

    I love your WAR acronym. It’s so clumsy to talk about savings rate plus paying down mortgage, etc… rate. WAR just rolls off the tongue.

    I’ll need to calculate my WAR, it’s probably close to 30%. My savings rate is just over 20% and I’m thinking that I’ve put at least another 10% towards extra mortgage payments.

    I like your 10% rule as well. I call the “best financial hack your not using.” For me, any “extra” money that comes along gets allocated three ways. First 1/3 for extra mortgage payments. Second 1/3 for college savings. Third 1/3 for spending. Same idea and it works very well.

    Nice article!

    Reply
    • ThePhysicianPhilosopher

      Thanks! I think that getting people to think about this stuff is important. Whatever tool allows them to do that and make smart financial decisions is what I am all about.

      Thanks for the encouragement!

      Reply
  9. Young and the Invested

    Great post with discussion on WAR. I’d not heard the term before but understood the concept immediately.

    My wife and I are attempting to accumulate wealth while we’re young and our expenses are low. She’s in her final year of residency and will begin practicing this coming summer. We’d like to buy our first place together in the next two to theee years and understand that requires a healthy savings/WAR rate.

    In the meantime, we’re managing to max out our retirement accounts and allowing compounding interest to do the heavy lifting for our retirement needs.

    Reply
    • ThePhysicianPhilosopher

      The decision to buy a house is a really big deal. It’s the biggest decision that impacts most physicians’ financial situation the most. Using the first two to three years to get things in order before that decision is almost always a great idea. I don’t know anyone who regretted waiting to buy a house later, but do know a bunch who wish they had waited til farther out from training.

      Keep your WAR up, fill up the retirement accounts, and pay down your debt. You’ll thank yourself later.

      Reply
      • AHM

        Good read. I have never heard of WAR before.
        I have a question. Should I include contributions to my children’s 529 college savings accounts as part of the 30% WAR?
        Thank you.

        Reply
  10. Mark

    That is about right. I like your term WAR. 30%. I was doing 40% for many years, but I never made close to 250K. Probably would have had I not had to go on disability. Great post.

    Reply
    • ThePhysicianPhilosopher

      That’s awesome, Mark.

      If I did the math, I think our WAR for the first 15 months after finishing training was around the same (40%). We lived on about 20%, paid 30% in taxes, and tithed about 10%.

      It’s helped us accumulate our net worth rather quickly.

      Reply
  11. Rogue Dad, M.D.

    I would say I’m just a shade under 30%, with a goal of being slightly higher. I think 30% is a great target.

    The Physician on Fire challenge of living on half of our take home pay isn’t possible because half our take home pay currently goes to daycare and mortgage payments.

    Reply
    • ThePhysicianPhilosopher

      I feel ya. That’s definitely a challenge. We send a large chunk towards loans and day care each month, too.

      It’s all about making intentional goals! Whatever tool helps us get there is one I can support.

      Reply
  12. Principal F.I.

    I love the WAR concept! We are putting extra money to work (after maxing all the typical withholdings) by splitting it between taxable accounts and paying off our mortgage more quickly. This is the balance we chose between the age old debate of pay down mortgage or invest. However, it was always felt slightly off to include the extra principal paydown in savings rate. WAR takes that ambiguity away. Now, I can confidently say our WAR is approaching 50% without feeling like I’m being a bit inaccurate!

    Reply
    • ThePhysicianPhilosopher

      Glad it is helpful! I think it’s a great way to think about things so long as we don’t use it to inflate our mortgage to unnecessary levels just to raise our WAR 😉

      Reply
  13. Midwest md

    I’m going to have my spouse read this!

    Reply
  14. Lordosis

    Why lump them together? It has been shown that 20% towards retirement is a good level for a physician starting in their 30s. That should hold true no matter what their income or debt is. However a newly minted physician with 1MM in debt vs one with no debt there is a huge difference in how much they need to put towards their loans. If you are that deep in debt and you only put 10% you might be servicing that debt your whole career depending on your salary. I like the idea of paying it off on a time table better. Mortgage is no longer then 15 years. Student loans gone by 5 years. This way you have to make a budget and stick to it.
    Anyways just my opinion.
    Welcome to the WCI network!

    Reply
    • ThePhysicianPhilosopher

      I love opinions!

      I’m actually a fan of timelines for paying off big ticket items, too.

      That doesn’t answer the question of how much of your income should be going towards wise financial decisions.

      I’d argue that it might be flipped, though. Maybe the new grad puts 20% towards debt and 10% towards retirement. Or, if they are really upside down, they may just contribute to matching in their 401k (say 5% of their salary) and put 25% towards the loans.

      When my wife and I finished, our WAR was around 50% until our loans were gone. And the vast majority ($10,000) was going towards loans.

      Thanks for the comment!

      Reply
  15. Mark Senger

    Silly question, but when you calculate your WAR %, I assume the debt payment amount you calculate is on top of your regular monthly payment for mortgage, student loans, etc..

    Reply
    • ThePhysicianPhilosopher

      Hey Mark, ideally this would be money spent towards good debt. So, I certainly think money towards paying off student loans should count. When you first start out, you might realize to get to your goals it requires a WAR of 40% and 30% of it is going towards student loans.

      Mortgages are tougher. They can artificially raise your WAR even if it isn’t good for you.

      Things that should not count towards your WAR include bad debt like car loans, credit cards, etc.

      Reply
  16. DR. PARTNER

    If I participate in profit sharing which is going towards maxing the 401k.. does this money get included in my gross?

    Reply
    • ThePhysicianPhilosopher

      Yes, any benefit you get from your employer counts towards your gross income. (Which is what it should have been to begin with instead of AGI)

      Reply
  17. Xrayvsn

    Love the acronym. Fighting debt really is a WAR and every bit helps.

    It is a battle that can be won, especially with physician incomes.

    Reply
  18. Andrew Wilner, MD

    Nice article.

    I might quibble that a car loan (or lease) is not necessarily “bad debt” if you need the car. Cars, even basic ones, can be quite pricey these days, and dumping $30,000 to $50,000 to purchase a family car ties up all that cash. Would you reconsider?

    Reply
    • ThePhysicianPhilosopher

      If that’s the “one thing” someone wants to spend Their 10% Rule on I think that’s fine…. But I’ll never call car debt “good” debt because it is almost always unnecessary on an attending physician salary. Even if your version of a junk car is $10k, that’s still pretty easy to pay off.

      What I am trying to avoid is encouraging anyone to consider a $50k financed car a good decision just to increase their wealth building numbers when they work towards paying it off.

      Reply
  19. TiredSuperheroine

    Thank you! I like your WAR calc and this is exactly the answer I was seeking in my post on financial goals for 2020!

    We are on track. ????

    Reply
  20. Aussie Doc

    Thanks for this. I think in the early years most physicians interested in their finances want to know how much to save so this is very helpful. 30% of my gross would be around 50% of my tax free pay. Is this the same for you? That’s a tough target, I’m not hitting it yet but maybe in the next year or two

    Reply
    • ThePhysicianPhilosopher

      Hey Aussie Doc, my philosophy on this has changed a bit. I follow a 50/20/30 rule where the target is still 30% but it is a target in between take home and gross.

      You calculate your take home pay for this method by adding your take home pay plus any retirement contributions made before you get your take home.

      So, if your take home pay is 10,000 and you contribute 1625 per month towards your 401k, this would be 11625. 30% of that is around $3500 which would be your monthly target.

      Reply
  21. AHM

    Good read. I have never heard of WAR before.
    I have a question. Should I include contributions to my children’s 529 college savings accounts as part of the 30% WAR?
    Thank you.

    Reply
  22. Bernard Tawfik

    Jimmy,

    Great to see you are doing so well. I read WCI a lot and this is the 2nd time he has directed me to one of your articles, this on the 30% WAR rule.
    Great articles and I think this is very cool. I just wanted to say hi.

    I am practicing academic medical oncologist at University of New Mexico in Albuqueurque, NM. What are you doing these days?

    Reply
    • Jimmy Turner, MD

      Great to hear from you, Bernard! I am still at Wake. On faculty now as a regional anesthesiologist and running The Physician Philosopher with the rest of my time!

      Really good to hear from you, and hope you are doing well!

      Reply
  23. Dr. Joe

    I think WAR is generally reasonable.

    However , where the money goes needs to be considered. At retirement, qualified plans ( profit sharing, 401k, etc) are taxed as ordinary income and profits in after tax accounts are taxed as capital gains.

    So, a dollar in a pension could represent only 60 cents of after tax dollars while a dollar in an after tax account might be 80 cents or more.

    Reply
    • Jimmy Turner, MD

      Depends on what you think about your taxes now compared to where they will be in retirement. I bet both of our crystal balls are broken on that one 😀

      Probably best to hedge bets and have a mixture of pre-tax and post-tax money.

      Jimmy / TPP

      Reply

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