Balancing disposable income and savings as a physician

May 14, 2015

From a daily Starbucks to a high-end BMW, spending to the point of inadequate savings is dangerous to your financial health.

I'm frequently asked about the wisdom of someone buying an expensive car, or really nice clothes, or an extravagant vacation.

My answer is that as long as someone is saving enough, I have no opinion on where they choose to spend their disposable income. We all have different luxuries that are meaningful to us, and no one is better than another. For example, we know that leasing a new car every two years to three years "costs" more than keeping a car for many years-but so what? If your discretionary income matches a real enjoyment of that frequent new car, go for it!

So, what is saving "enough"? This is a very important part of the financial planning process and follow-up. The end goal of saving enough is to have enough investment capital and other income in order to reproduce your lifestyle expenses once you stop working. If you spend $100,000 a year at age 55, you should save enough to be able to spend that for decades after retirement with little chance of running out of money.

Related:Balancing today's spending against saving for tomorrow

There are some rough rules of thumb to consider. If you are saving at a young age, a 20-percent steady allotment is almost certain to bring you financial security later on. If you are older and have not been saving at this rate, you need some help in calculating your financial goals. If they are realistic, figure out a future savings rate to keep things in line and enjoy the non-saved funds however you like. If you are shaky on reaching your goals, you need to consider spending less or working longer.

If you are close to retirement and you find that you don't have enough money, get some help in evaluating tools such as reverse mortgages and immediate annuities.

I'd close by saying that if you do not fit into the category of "saving enough," then there are a great many things that you may be buying that may be unwise. From a daily Starbucks to a high-end BMW, spending to the point of inadequate savings is dangerous to your financial health.