The 10% Rule: Limiting Lifestyle Creep - The Physician Philosopher

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? Trust me, it won’t be if you don’t apply The 10% Rule.

The problem is that the light we see at the end of training is that it is often blinding.  “I’ve put my life on hold for the past ten years.  I deserve nice things!”  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?“

It’s a complicated problem. Is living like a resident after training worth it?

Our human nature is bent towards rewards that have long been due.  The head tells us what those naturally inclined towards impressive amounts of frugality would do:  Use the increased pay-check directly to destroy debt and aggressively investing.  But our heart often pull us in the opposite direction to satisfy all of that delayed gratification from training.  Buy the big house, nice car, and designer gadgets.

Today, follow along as we discuss the rule that allowed my family to increase our net worth by $254,000 in just one year after training.  It is the same rule that allowed us to pay off $200,000 in student loans in 19 months.

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 for publications, education, or clinically related outcomes.

The 10% Rule is applied in these situations where you receive an increase in the amount you take home.

The 10% Rule:For every bump in pay, bonus, or unexpected money that you receive: 10% of the money goes towards lifestyle creep and the other 90% goes towards building wealth. 

For example, when my family went from making $6,000 per month in my (non-accredited) fellowship in regional anesthesia to making $17,000 as an attending physician I took ~10% of this post-tax raise (or ~$1,000) and I applied this money towards moderately frugal lifestyle creep.

Let’s be honest for a second. Lifestyle creep on most personal finance blogs is considered worse than one of the seven deadly sins. They’ll tell you, “nothing is worse than lifestyle creep!“

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!“

Honestly, this line of reasoning is ridiculous.  I don’t disagree that physicians (and other health care workers) are notoriously bad at spending too much money.  It is why the amount of money that doctors earn doesn’t matter. We traditionally have found a way to spend it all.

However, 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 our student loan 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 The Physician Philosopher, wealth without wellness is no good.  If we ignore the desires of our heart and deny our ability to enjoy anything, this places us in an uncomfortable disposition towards discontent.

Working everyday while we wait to FIRE is not healthy.  Sometimes there are reasons not to retire early.

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.  We will be just like the other large number of physicians who cannot retire despite earning millions of dollars during their career. That’s not a good place to be, either.

The purpose of the 10% rule is to allow our hearts to remain healthy while we build the financial muscle that produce 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: My 10% Rule Applied

This car stopped getting made in 2017. Should have waited, but the opportunity was ripe. Sat on the idea for four months before ordering. Unassuming sports sedan. Three car seats. 415 HP. Manual Transmission.

I think that one of the most helpful aspects of any advice is transparency.  I anticipate many asking how I decided to apply The 10% Rule after I finished training?

Well, let the truth be told, I did one of the most financially unintelligent things possible.  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 $11,000 and I let my lifestyle creep less than 10% ($1,000 per month in changes).

The car and golf are the only two things we changed about our lifestyle when we finished.

Before I get crucified by the personal finance community for being a heretic, I should also point out what I did with the other 90%.  We paid off our student loans ($200,000 in 19 months), increased our networth by $300,000 in just 18 months.  We also set ourselves on a path to financial independence in our mid-40s.

My wife and I sat down, went through the Three Kinder Questions to determine our big picture financial goals, and then made decisions.

Calling for my head?

I spend a lot of time discussing how more money will not make us happy, the power of contentment, and how experiences typically provide more joy than “things” like cars.

Am I a hypocrite?

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 (hopefully, while travel hacking with credit cards) 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 three kids in the back of my car (Daddy, Go FASTER!) and taking them to play golf with me.

Believer it or not, I don’t regret this decision.  No buyer’s remorse will be found here. Seriously. None.  But I am a car guy.

By the numbers, when we finished training we were investing in my family’s future and destroying debt with > 50% of our gross income.

Take Home

I think that a little bit of lifestyle creep after training is warranted, but we have to put some guard rails on what can become a dangerous habit.  And I suggest using 10% of any bonus or increase in pay to do just that.

The 10% Rule has allowed my family to find financial success.  Even after we did what most consider to be one of the biggest financial mistakes that one can make.

Am I crazy for using my 10% rule in this way?  What did you do when you experienced your big increase in pay after training?  How have you limited lifestyle creep?  

TPP