When it comes to preparing for the future, we are all told to save, save, save. But opinions differ as to how much you need to save in order to achieve financial independence. Additionally, every person deals with money differently; some tend to be more frugal while others have no qualms about spending freely. As the preferred financial advisors for doctors in Canyon County, we’re here to tell you about the 30% rule to help you save big.
Your own spending habits, and that of your partner’s, have a great deal of influence over how you feel about finances. As you evaluate your financial future, consider using the 30% rule as a benchmark to help you evaluate you path to financial independence without sacrificing your well-being or relationships.
The 30% Rule
First, evaluate where you are at now. How much of your income are you putting towards accumulating wealth?
When we talk about accumulating wealth, we are referring to both SAVING for the future and PAYING OFF DEBT. If those two metrics add up to 30% or more of your gross income, you are passing the 30% rule.
The “30% Rule” is a helpful guideline to consider as you evaluate how much money to invest in your future. It is also a great evaluation tool if you are feeling stressed or bogged down by your finances. If you are experiencing financial stress, calculate your rate of wealth accumulation and consider which group you fall into.
Are you investing more than 30%?
Some people are able to invest more than 30% into accumulating wealth without sacrificing their wellbeing. However, if you are currently over the 30% mark and feeling stressed about your finances, it may be time to re-evaluate. First and foremost, ensure that your frugality is not negatively affecting your wellbeing or relationships. If it is, consider lowering your savings rate and finding a middle ground between saving for the future and living in the present. It is simply not worth it to over-save for the future at the expense of present quality of life.
Are you investing less than 30%?
On the other hand, many may find that they are contributing less than 30% towards savings/paying off debt. This also calls for a self-evaluation. Every situation will be different; however, 30% is an achievable goal for many individuals and families.
If you are in this category and are feeling the toll of financial stress, it is likely that you need to tighten your financial belt and start putting more money into savings. Evaluate your spending, and more specifically, consider your largest expenses (i.e. house, car). Do you need to downsize? Maybe buy a less-flashy car? Meet with a planner to discuss how you can allocate your money appropriately into savings in order to increase your overall wealth accumulation rate.
Please note that the 30% rule is a guideline. If you are behind schedule on saving for financial independence, 30% may not be enough. If you got an early start, a smaller amount may be sufficient.
As you consider your financial situation, remember your long-term goal of achieving financial independence. Strive to find a balance between saving for the future and maintaining peace inwardly and within your relationships. We have found that the 30% rule is one of the best wealth management tips for doctors in Canyon County and everywhere else.
Some Information Adapted from https://thephysicianphilosopher.com/third-decree-30-rule/