Keeping Your Budget in Check

Whether you’re a new attending juggling high pay with even higher student loans, or a soon-to-be resident after Match Day—understanding how much rent you can safely afford is crucial to keeping your finances in check.

The rules that follow should give you an anchoring point to start from so that you don’t let elevated costs in a new city derail your financial goals.

Let’s dive into a practical budget breakdown—focusing on an approach using the well-known 30% Rule.

Laying the Foundation—The 30% Rule

Rules of thumb can be simplistic, but they are also jam-packed with the wisdom of the crowd. One of those often-cited rules is spending no more than 30% of your gross monthly income on rent.

It’s a quick, back-of-the-envelope calculation meant to keep you from overspending on housing, a pillar of the Fixed Cost category we’ll later talk about. For example, if your gross monthly income is $6,000, then you’d cap your rent at around $1,800.

• Why 30%? Originally tied to housing program qualifications, this ratio simply ensures you have enough leftover income to cover other essentials—like utilities, student loans, groceries, and transportation—without drowning in rent.

Strengths and Shortcomings

• Strengths: The 30% guideline is easy to remember, fosters good financial discipline, and helps avoid overextending yourself.

• Shortcomings: The rule doesn’t account for local cost-of-living variations. A new attending in a major metro can sometimes handle a slightly higher rent, while a resident in the same city might struggle under the “rule” if their salary is at the lower end of the scale.

The 4 Categories of Spending

Ramit Sethi, author of I Will Teach You To Be Rich, encourages individuals to think of their budgets in different buckets:

• Fixed costs

• Investments

• Savings

• Guilt-free spending

Using this method can be appealing to busy professionals who need simplicity in their finances.

1. Fixed Costs (50–60% of Net Income)

According to this method, fixed costs include:

• Rent or mortgage

• Utilities

• Subscriptions

• Car payments

• Insurance

• Continuing education or licensing

A recommended target is to keep these costs at 50–60% of your net (take-home) pay.

Physicians often have recurring professional costs (not covered by employer)—board certifications, conference fees, malpractice insurance for private practice, etc. Be sure to factor these into your fixed expense bucket.

2. Savings Goals (5-10%)

If you’re saving for a big purchase, you’ll want to create a monthly drip of funds going towards savings targets.

3. Investments (10%+)

This means setting up automated transfers to retirement or brokerage accounts right after each paycheck hits.

4. Guilt-Free Spending (20–30%)

Whatever remains after covering the former categories is your “guilt-free” bucket.

This is where you get to spend on things you genuinely enjoy—whether that’s dining out, travel, or a new hobby you’d like to pick up.

Putting It All Together

The method we described emphasizes investing and saving before you spend on anything else—”Pay yourself first.”

If you’re a new attending making substantially more than you did as a resident, it’s crucial to maintain discipline during that income jump.

Lifestyle inflation affects the best of us.

Real-World Example: Dr. Lee’s Dilemma

Dr. Lee, a new attending, has an annual gross salary of $200,000 (about $16,700 per month). Following the 30% rule gives her $5,000 for housing. She’s tempted to rent a $4,800 luxury apartment—within the 30% threshold—but she also has $180,000 in student loans, plus she hopes to start investing aggressively.

Using the approach we shared today, Dr. Lee calculates her net income (after taxes, health insurance, and retirement contributions) at about $11,000 monthly.

Keeping total fixed costs (including rent, car payment, insurance, and loan minimums) under 60% of net means she should stay around $6,600 for all fixed expenses. If $4,800 goes to rent, that leaves $1,800 for all other fixed costs—cutting it close, especially with a large student loan payment.

Ultimately, she decides to find a $3,500 place to ensure she can invest the difference and build her emergency fund faster.

Conclusion

By considering the 30% Rule alongside Ramit’s framework for “Categories of Spending”, you can create a budget that’s not only feasible but also allows for the occasional splurge—guilt-free.

Action Items

1. Calculate Your Total Fixed Costs: Include rent, student loan payments, subscriptions, and professional fees. Identify if these are under 50–60% of your net pay; consider reducing them if they exceed the threshold.

2. Apply the 30% Rule as a Starting Point: Remember it’s a guideline, not a law. Adjust based on your unique debt load and cost of living.

3. Automate Savings & Investments: Set up monthly transfers to your HYSA, 403(b), Roth IRA, or brokerage so you “pay yourself first” before other expenses.

Meme of the Week

Best,

M&H