Today on the Finance Flash Go! podcast, we are discussing what is included in our savings rate.

As I’ve shared before, the formula for wealth as a physician is quite simple. And a savings rate of at least 20% is pretty much mandatory.

Let's give an example:

We can determine that we would need to save $50,000/year for 30 years assuming a very conservative 5% return to live on $120,000 annually in retirement.

If your annual gross income is $250,000, 20% of your gross income is equal to the necessary $50,000/year. This salary is right around the median (actually a bit below) average physician income in 2020.

So just about every physician should be able to do this, and really even do a lot more.

I see and receive a lot of questions about what should be included in your savings rate. Basically, people asking, “Does X count towards my savings rate?”

I have pretty strong feelings about what does and does not count. And the reason I feel strong is because I base it on (what I think is) a pretty simple definition.

If you are setting aside any money from your gross pay (your paycheck or self-employed earnings), that counts towards your savings rate.

Based on my definition, it really doesn’t matter what you are saving that money for. Money is fungible. Each dollar can be used interchangeably to buy things or build wealth in any way.

This includes debt payments! Each $1 of debt that I pay off increases our net worth by $1. So of course it counts towards our savings rate!

Please enjoy the Finance Flash Go podcast! We plan to release a new episode every weekday answering important finance questions. If you ever want to submit a question to our podcast, send an e-mail to [email protected], and please be sure to check out Jordan Frey’s blog prudentplasticsurgeon.com where he gives great financial advice.

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