You’ve spent years in medical school, and at long last, you’ve achieved resident status. Getting to that first paycheck is a significant milestone, even if it’s marginal compared to what you’ll be earning after several years in practice.

Each paycheck needs to do a lot: chip away at student loan debt, cover overhead and daily incidentals, allow you to save for future retirement and set you up to make major purchases like a car or home. So, what to do? Build a budget strategically.

In this article, we’ll walk you through the 50-30-20 rule for budgeting, a simple yet effective tool to help you make the most of your paycheck, even a relatively small one, to set you up for a bright financial future.

The 50-30-20 Rule for Budgeting

Plenty of resources, including apps and software programs such as Rocket Money and You Need A Budget are available to help you build a budget. But a timeless, easy system comes courtesy of the 50/20/30 rule, which you can structure on your own using a simple spreadsheet.

The basic idea: split your paycheck in half and then divide one half into 20% and 30% segments. Once you have that divvied up, you begin allocating funds accordingly.

50% of Your Paycheck: Covering Essentials for Residents

Essentials include groceries, rent or mortgage payments, utility bills, gas and maintenance for your car or mass transit fees, and even personal grooming costs such as haircuts or dry cleaning bills.The more essentials you have, the more stretched your finances get, so a good way to help determine if an expense is essential is to determine if it’s more fixed or flexible. Beyond food, clothing, and shelter, however, essentials may also include necessary physician-specific expenses, including:

• Insurance (medical/dental/life/disability/professional liability)
• License management
• Associations and memberships
• Certifications
• Board fees

Additional resources on Offcall: An Early-Career Physician’s Guide to Buying a Home

30% of Your Paycheck: Managing Wants as a Medical Resident

Wants can include items like gym memberships, vacations, concert tickets, or splurges on non-essential items. The best way to determine if something is a want is to measure it through the perspective of: If it didn’t exist in the first place, would it meaningfully diminish your quality of life?

For instance, everyone has to eat, but we don’t have to go to sporting events. Sporting events are a want. Box seats are great when attending, but if you had to, you could sit in the general arena. Box seats are a want. You could even skip the live event entirely and catch it playing down at your favorite bar.

The wants category offers a helpful framework for intentional spending in order to build and maintain a quality of life that feels right. It also comes in handy if you’re looking to save more money since you can allocate less of it towards leisure and more towards obligations or future needs, bringing us to the final 20%.

20% of Your Paycheck: Savings and Debt Repayment Strategies

Saving is more than deciding not to spend any money. Rather, it’s a process of allocating your money towards specific, future-forward goals. For instance:

Retirement

Retirement investment accounts (like 401(k), 403(b) and 457) are offered through an employer. Although some experts recommend contributing 10-15% of your income, if you are able to swing it, you can pay more into retirement. Just make sure you contribute the maximum amount you are financially comfortable with. Once you’ve established this account, make sure you revisit your balances and accounts at least once a year to adjust your contribution to account for changes in employment or income.

• Additional resources on Offcall: 401(k) v. 403(b) vs. 457(b): Best Retirement Accounts for Physicians
• Additional resources on Offcall: Easy Investment Strategies for Cash-Strapped Medical Residents

Emergencies

Experts recommend having anywhere from three-to-six months saved up in an easily-accessible account to cover an unexpected, costly “some day” event. Contributing each month to a HYSA is one vehicle to help build your emergency fund.

• Additional resources on Offcall: How to Maximize Earning From Your Savings Account

Debt repayments, especially credit card debt

When paying off debt, you'll want to eliminate high-interest debt as soon as you can. To assess, look at the APR on each of your credit accounts or loans, excluding student loan debt. If you have one credit card with an APR of 9.9% and another with 15.5% you'll want to pay off the one with a 15.5% APR first as you'll save more money on interest over time. Ideally, with leftover funds you can make at least the minimum payments on the lower-interest card as well to pay off debt efficiently. Student loan debt and mortgages typically have lower interest rates, but are important to pay off over time as well.

• Additional resources on Offcall: Should Physicians Pay Off Debt or Start Investing Early?

Sample Budgets

Total earnings: $350,000/year ($29,167/month):

Total earnings: $65,000/year ($5,417/month):

Bottom Line

Now that you have the basics of the 50/30/20 Rule, it’s time to put it to work toward your financially savvy future. Tools like this one from NerdWallet can help you break down your paychecks according to this framework. And while “fun” likely doesn’t come to mind when considering a budget, you can still make the exercise engaging. After all, a budget tells you the story of your strengths and pain points as they pertain to your finances.

Join the Discussion

What questions do you have about budgeting if you are a resident? What do you wish you knew sooner in your career, perhaps during your residency, about managing money? Let us know in the comments below.