The 20% Budget Rule: Part 2

Did you calculate your savings rate from Part 1? How close are you to a 20% savings rate?

Part 2 will include a basic comparison between two veterinarians so that you can see what the numbers will look like.  To keep this focused on just savings, we’re looking at after-tax income, and we’re not accounting for pre-tax retirement savings at this point. I am also not going to go over what you will be using these savings for: it can be an emergency fund, down payment on a home, retirement, college savings, real estate, vacation fund, all of the above, etc. There is no shortage of what you need savings for, so the important thing is to just get started.


Dr. A took a job that pays $75,000.  Her take home pay, after taxes and other pre-tax deductions, is $55,000 annually.  She is motivated to start saving ASAP right after graduation. Here are her calculations:

Annual take home pay: $55,000

Annual savings goal: $11,000 (20% of $55,000)

Annual debt repayment: $18,000 ($1,500 a month)- she is on track to pay off her loans in 10 years

What she has leftover: $26,000 ($2,166.67/month)

Now that she knows how much she can spend monthly and annually, she can now start considering how much she can actually afford at this point.  Can she afford to rent a place for $600 a month with a roommate? Probably.

How about that top of the line, 1 bedroom apartment with extra amenities that’s $1,200, where she can enjoy the space by herself?

Since she’s a new grad, she’s not quite sure how much her expenses will be. She decides to play it safe and go for the less expensive living arrangement by paying $600/month for rent.

This means she has $1,566.67 left every month.  She needs to use this for food, transportation, medical expenses, utilities, insurance, discretionary spending, etc.  She has her number, and since she’s determined to track her spending, she will make sure that her expenses are in line with her monthly spending plan.


What if we went about this the way most of us do?

Dr. B happens to work at the very same practice as Dr. A.  She was never introduced to personal finance topics, and she’s just wanting to finally enjoy a bit of income as a newly minted veterinarian. The only fixed part of her spending is her student loan debt.

Annual take home pay: $55,000

Annual savings goal: none

Annual debt repayment: $18,000

What she has leftover: $37,000 ($3,083/month)

If she has no savings goal or any plans to track her expenses, she will likely start spending money and crossing her fingers that she won’t run out.

Housing: $14,400 annually ($1,200/month) to rent. This is equivalent to nearly 20% of her gross salary.  A popular rule of thumb is to spend no more than 30% of your monthly income on rent, so this seems reasonable. This new place is chic with lots of nice amenities.

Transportation: $6,000 annually ($500/month): This includes financing a brand new car, gas, insurance.

Food: $6,000 ($500/month): She eats out a lot.  It’s way more convenient and it’s not fun cooking for one.  Don’t forget the latte factor.

Utilities: $3,000 ($250/month): Gas, electricity, water, phone/internet service, etc.

Travel: $3,000 annually: Between airfare, lodging, food, transportation, and tourist traps that seem to cost an arm and a leg, this can add up pretty quickly. All of her friends are getting married and she’s making plans to attend their weddings.

Pet care: $1,200 annually ($100/month): Between food, doggy daycare/boarding, veterinary fees at cost, etc, veterinarians are not immune to the costs of having a pet.

Entertainment: $2,400 ($200/month): Streaming services, movie tickets, concert tickets, sporting events, etc.  There are just so many things to enjoy in her new city.

Personal care: $2,400 ($200/month): Clothing, hair appointments, personal products, etc.

Charity/gifts: $2000 annually:  This includes donations and buying gifts for loved ones.  And remember: she’s got all of those weddings to attend, which will require gift giving.

Do these numbers surprise you at all? Apparently, this isn’t too far off from what a typical millennial spends annually.

You may have noticed that there are a number of categories that have not been included, such as disability and life insurance, as well as medical expenses and miscellaneous expenses that seem to pop up out of nowhere. Believe me, there are many, MANY ways to spend money, in every conceivable category you can think of, and a lot of them are not very fun ways to spend money, but they are necessary for financial health.

So how does Dr. B. fare?

If you add up all of her expenses, they equal $40,000.  Remember, after accounting for her debt payment, she had $37,000 to spend for the entire year.  She is in the red by $3,000.  I’m guessing this will probably go on her credit card, which is not the ideal way to start off your professional career.

Not only does she NOT save any money, she ends up spending more than she makes.  When you start with no financial goals and do not track your expenses, you can very easily find yourself in a similar situation.


Two veterinarians, same salary at the same practice, same debt load, very different outcomes when it comes to their balance sheets.

Dr. A prioritized savings.  All of her financial decisions were based on her paying herself first, then making sure that all of her other expenses were going to add up to no more than what she had left after paying down her debt and contributing to her savings.

Dr. B spent her money the way that many young adults do: you see what’s in your checking account and just hope that you’re not going to run out before you get your next paycheck.

I was a hybrid of Dr. A and Dr. B.  Right out of school, I really had no idea how I should go about allocating my income.  The only thing going for me was that I am terrible at spending money, which results in a higher savings rate by default. However, I did not think to track my spending or to have any sort of savings goal. There is no doubt that if I had followed Dr. A’s footsteps, I could have optimized my finances much earlier in life.

Building awareness is key.  Add in some basic financial literacy, and you’re well on your way to having a measure of control over your finances.

Stay tuned for Part 3, the last in this series!

Are you more like Dr. A or Dr. B? Have you found yourself switching over from one mindset to the other over time? Comment below!


  1. xrayvsn on July 25, 2018 at 11:56 am

    I didn’t budget either early on (to be honest I don’t now either because my living expenses are much lower than income and I know I don’t go overboard on things). But starting out a budget and paying yourself first (automatic savings) is the best bet to keep you out of trouble.

    • Financial Wellness DVM on July 26, 2018 at 1:36 am

      It’s amazing how much less you have to stress about money when you have that extra cushion!

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