The 20% Budget Rule: Part 3

Here we go: part 3 in the trilogy of the 20% budget rule. Catch Part 1 and Part 2 here if you haven’t done so already.

By the way, I have no idea how I stretched this idea out to 3 posts. I guess it’s because I had a lot to say about it.

If you haven’t figured it out by now, I’m pretty big into saving money. Why? Because outside of winning the lottery, receiving a large inheritance, being born into/marrying into money, or getting very lucky with your investments, increasing your savings rate is a tried and true method of increasing your net worth (the other tried and true method- make more income). So here are some final thoughts about setting aside that 20% of income towards savings:


Remember, increase your savings each time you get a bump in income. You’ll want to keep your savings rate at that 20% or higher, so you will need to adjust the actual amount to your higher income.

Want to do even better? Do a reverse 20%, where you use 20% of that raise towards income and save the remaining 80%.

This is one thing I’ve done consistently since getting married. Each time our income increased, we would accordingly set aside more money in savings. Nearly all of our bonus money went towards savings and debt repayment. This forced us to avoid an out of control lifestyle creep.

For those that have yet to see any significant bump in income, let me just warn you that lifestyle creep is real. Most people that see their income go up also ramp up their spending. That extra money tends to just fly out of your hands with very little control, and before you know it, you’ve become accustomed a certain lifestyle that will require more money.  This can lead to significant financial choices, such as upgrading your house or buying a new car. You feel justified to spend more because you have more. Having more things leads to more cost and maintenance (as well as taking up more of your mental space), which becomes this terrible feedback loop. Being on this hedonic treadmill doesn’t equate to more happiness.

By all means, enjoy life. Those who subscribe to the YOLO (you only live once) philosophy want to just live life to the fullest now, leaving it up to chance that things will work out in the end.  I am fully aware that life is short and our time here is not meant to be spent agonizing endlessly over worst case scenarios.

But I will always go back to this point of living within (or below) your means if you want to avoid the added stress of keeping up with your inflated lifestyle. Because if you’ve been adulting long enough, this stress is real and makes life less enjoyable. If you’re careful about keeping your savings rate steady, then you will be more confident about what you can afford, how much you can spend, and learning to be content with what you have.


Some people have gotten so caught up with their savings that they are eyeing an early retirement. They realized that if they save enough now, they can put in their 2 week notice years, decades (!) before typical retirement age. If you want to be in this boat, the best surefire way to do so is to increase your savings rate. Going from a 20% to a 40% savings rate beats pretty much any investment rate of return.

There are a subset of people that think of this as a game: how high can I go with my savings rate and still live comfortably? The great thing about being an ultra saver is that you’re so used to living on less that your magic retirement number is lower, which means that you can achieve this goal earlier in life.

As with anything, a seemingly positive experience can turn negative if you take it too far.  Your quest to save can be so consuming that your personal life starts to suffer.  So you need to always circle back to your true goals and your reason for wanting to increase your savings rate.  It should not be done to the point of depriving you of what you truly treasure in life and losing relationships that are important to you.


New grads have the advantage of working with a (relatively) clean slate. Sure, they will likely have a large amount of debt, but as mentioned in Part 2, they can create a simple budget based on knowing what they will earn and what they owe.

What if you’ve been in the workforce for a while and are in the middle of competing financial obligations? At this point, it is near impossible to start from scratch since you’re likely locked into large obligatory expenses, such as a mortgage.

Outside of earning more income, you will have to go through your spending and see where you can make changes. This may involve the process of cutting back after you’re already accustomed to a certain lifestyle.  You will need to prioritize.  You will hopefully start spending according to what you value, rather than wondering where the heck your money went halfway through the month.

Going from a student to a financially savvy veterinarian is not as big of a leap as going from a student to a practicing veterinarian who bought too much too soon, who then has to severely cut back because the math just doesn’t work anymore.  If you find yourself in the latter situation, take action.  Better late than never, because it’s going to hurt a lot worse if you decide to do nothing.


Maybe 20% is simply just too much for you at this time if you’re saving close to nothing.  That’s okay- it would actually make sense that it would be difficult to save 20% if you’re used to spending all of your money.

However, going from a 0% to a 20% savings rate is similar to those that try extreme dieting techniques. They may be able to lose that weight very quickly, but it’s not sustainable. You haven’t trained your body to endure that kind of stress. You haven’t done it long enough to make it a habit. The end result is that you quit and you end up right back where you started.

The other situation may be that you’re throwing every last penny towards debt repayment, with thoughts of snowballing this into pure savings/investing once you’re done paying off that debt.

In either situation, if you’re interested in saving money right now, start small. Try just 5%. Adjust your spending accordingly. See your account balance grow. Then try another 5%. Adjust your spending again. Try to maintain that level and see how comfortable you are. Check your account balance again and get motivated as you see that number climb up. Motivation leads to more action, and at this point, hopefully you’ll WANT to increase your savings rather than feeling like it’s a chore.

Baby steps. You’ll be more successful this way rather than taking a giant leap.


How I wish I had this mindset from the time I brought home my first paycheck as a veterinarian. This one concept of paying yourself first is so simple, yet so underutilized.

It’s so easy to get caught up in life and follow a particular path just because everyone else is doing it.  We live in a very consumer based society that does not promote saving money as a way of life. It’s not a sensational topic that will showcase new and shiny objects that we can ooh and aah over. In fact, if anything, you’ll be met with awkward silences and quizzical looks if you start raving about how you increased your savings rate last year and you’re looking to do even better this year.

(Unless you happen to be talking to me. In that case, I would give you a high five and a hug. And then we would talk about our journey towards financial independence and wonder why no one else seems remotely interested in this stuff.)

But by simply paying yourself first, you can have the best of both worlds- having the sense of security with money that is saved up properly AND the ability to spend money at the same time…you’re just more careful about the spending part because you’ve intentionally built that into your spending plan.


Have you been keeping your savings rate steady over time? Has it changed as more financial obligations have entered the picture? Comment below!


  1. xrayvsn on July 31, 2018 at 3:03 pm

    Nice wrap of the trilogy. Because docs start out later than most people, the normal 10-15% savings rate just doesn’t cut it if you want to retire at a decent level at normal retirement age. Jim Dahle of WCI suggests docs do a minimum of 20%. If you want to retire early really have to push that # up 30-50% would be a range most consider (some docs have even done the live on half challenge). The great thing is as the money starts coming in from investments, the amount you save starts exponentially getting higher and higher. Past 3 years I have had close to an 80% savings rate (which is amazing considering I’m in a high 6 fig salary). That has allowed my net worth to jump up dramatically over the past year even.

    • Financial Wellness DVM on July 31, 2018 at 11:36 pm

      Nice savings rate! I think that 20% is a good number to start with, and obviously everyone’s situation will be different on how high they can take their savings rate. Just knowing your own savings rate is pretty powerful; sometimes that’s enough to get someone to take action. Otherwise, it just seems like a random number if you’re not looking at it as a percentage of income.

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