Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

Earn the right to inflate your lifestyle

Live Free MD
Finance
January 14, 2018
Share
Tweet
Share

Recently, we learned how lifestyle inflation can be toxic.  In case you’re wondering, there is a time and place to inflate your lifestyle.  However, you can’t just do it whenever you want.  You have to earn it.  Here’s how it works.

The basics

If your goal is financial independence, I recommend that you live on half your income and save the rest.

This means that if you’re making around $50,000 per year, you allocate $25,000 to saving or paying off debt.  After a rough estimate of $5,000 in taxes, that leaves you $20,000 to spend on living expenses, otherwise known as your “lifestyle.”

The effect of higher incomes

If you have a higher income, such as $100,000 per year, your savings goal and taxes increase, but so does your allowable yearly spending.  Therefore, this is one way to earn an inflated lifestyle.

The chart below shows goal savings, estimate taxes, and allowable yearly spending for various income levels.  The estimated taxes are very rough estimates, based upon a married filling jointly couple maxing out their 401k’s.  Your taxes may vary significantly from these numbers based upon your individual circumstances. For example, Justin at Root of Good was able to pay close to $0 in taxes even with a household income of $150,000.

Notice that even at very high incomes, due to the high savings goals and much higher taxes, yearly allowable spending (“lifestyle”) does not actually increase in direct proportion to your income. Also note that if you earn a very high income but manage to spend less than the yearly allowable spending (i.e., you save >50% of your income), then you will reach financial independence that much sooner.

What happens when you reach financial independence?

If you carry on saving 50% of your income for approximately 17 years, you will have saved around 33x your yearly spending.  At that point, using the 3% rule, you will be financially independent.

For example, if your household income is $100,000 per year, and you save $50,000 per year for 17 years (while living on $40,000 per year, as above), you will have around $1.4 million (assuming a 5% rate of return).  $1.4 million is a little over 33x your yearly spending of $40,000 per year.  Congratulations!

Earning the right to inflate your lifestyle

At financial independence, you have a few options (actually, many options). If you are comfortable spending $40,000 per year for the rest of your life (adjusted for inflation), then you no longer have to work.  However, if you enjoy working and want to continue, then your nest egg will continue to grow.  As your nest egg grows, you will be earning the right to spend more and more per year.

For example, if you grow your nest egg from $1.4 million to $2 million, you have earned the right to inflate your lifestyle to $60,000 per year.  If you can grow it to $5 million, you have earned the right to inflate your lifestyle to $150,000 per year. 

Summary

ADVERTISEMENT

Lifestyle inflation becomes a problem when you haven’t actually earned the right to inflate your lifestyle.  However, if you find ways to increase your income (while still saving 50%), OR you have already reached financial independence, and your nest egg continues to grow, then feel free to increase your lifestyle accordingly.  In that case, you’ve earned it.

“Live Free MD” is a sports medicine physician who blogs at his self-titled site, Live Free MD.

Image credit: Shutterstock.com

Prev

A story of 2 torsions

January 13, 2018 Kevin 2
…
Next

Doctor-patient relationships would die without this one thing

January 14, 2018 Kevin 13
…

Tagged as: Practice Management

Post navigation

< Previous Post
A story of 2 torsions
Next Post >
Doctor-patient relationships would die without this one thing

ADVERTISEMENT

More by Live Free MD

  • Enjoy financial freedom by reaching the land of critical mass

    Live Free MD
  • Physicians: Get rid of car debt. Or, how to buy a car with cash.

    Live Free MD
  • Physicians: Don’t buy things you can’t afford

    Live Free MD

Related Posts

  • When it comes to lifestyle inflation, where do you draw the line?

    Ryan Inman
  • Can the Maternal CARE Act fail moms? 

    Sonal Patel, MD
  • Our patients matter, but at what cost to our families? 

    James A. Quinn, PA-C
  • Improve mental health by improving how we finance health care

    Steven Siegel, MD, PhD
  • Want to change medicine? Work in finance.

    Ryan O’Keefe
  • For students with test stress, medical schools leave a void  

    Steve Blatt, MD

More in Finance

  • Physician practice ownership: risks, rewards, and reality

    Paul Morton, CFP
  • Smart asset protection strategies every doctor needs

    Paul Morton, CFP
  • Why taxing remittances harms families and global health care

    Dalia Saha, MD
  • A physician employment agreement term that often tricks physicians

    Dennis Hursh, Esq
  • Why hospital jobs are failing physicians: burnout, pay, and lost autonomy

    Justin Nabity, CFP
  • Decoding your medical bill: What those charges really mean

    Cheryl Spang
  • Most Popular

  • Past Week

    • Why pain doctors face unfair scrutiny and harsh penalties in California

      Kayvan Haddadan, MD | Physician
    • Love, birds, and fries: a story of innocence and connection

      Dr. Damane Zehra | Physician
    • How a doctor defied a hurricane to save a life

      Dharam Persaud-Sharma, MD, PhD | Physician
    • Why primary care needs better dermatology training

      Alex Siauw | Conditions
    • Why physician strikes are a form of hospice

      Patrick Hudson, MD | Physician
    • The overlooked power of billing in primary care

      Jerina Gani, MD, MPH | Physician
  • Past 6 Months

    • Why transgender health care needs urgent reform and inclusive practices

      Angela Rodriguez, MD | Conditions
    • COVID-19 was real: a doctor’s frontline account

      Randall S. Fong, MD | Conditions
    • Why primary care doctors are drowning in debt despite saving lives

      John Wei, MD | Physician
    • Confessions of a lipidologist in recovery: the infection we’ve ignored for 40 years

      Larry Kaskel, MD | Conditions
    • Why taxing remittances harms families and global health care

      Dalia Saha, MD | Finance
    • mRNA post vaccination syndrome: Is it real?

      Harry Oken, MD | Conditions
  • Recent Posts

    • How physicians can reclaim resilience through better sleep, nutrition, and exercise

      Kim Downey, PT & Shirish Sachdeva, PT, DPT & Ziya Altug, PT, DPT | Conditions
    • This isn’t burnout, it’s moral injury [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why heart and brain must work together for love

      Felicia Cummings, MD | Physician
    • Who are you outside of the white coat?

      Annia Raja, PhD | Conditions
    • How hospitals can prepare for CMS’s new patient safety rule

      Kim Adelman, PhD | Conditions
    • Physician practice ownership: risks, rewards, and reality

      Paul Morton, CFP | Finance

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

View 5 Comments >

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • Why pain doctors face unfair scrutiny and harsh penalties in California

      Kayvan Haddadan, MD | Physician
    • Love, birds, and fries: a story of innocence and connection

      Dr. Damane Zehra | Physician
    • How a doctor defied a hurricane to save a life

      Dharam Persaud-Sharma, MD, PhD | Physician
    • Why primary care needs better dermatology training

      Alex Siauw | Conditions
    • Why physician strikes are a form of hospice

      Patrick Hudson, MD | Physician
    • The overlooked power of billing in primary care

      Jerina Gani, MD, MPH | Physician
  • Past 6 Months

    • Why transgender health care needs urgent reform and inclusive practices

      Angela Rodriguez, MD | Conditions
    • COVID-19 was real: a doctor’s frontline account

      Randall S. Fong, MD | Conditions
    • Why primary care doctors are drowning in debt despite saving lives

      John Wei, MD | Physician
    • Confessions of a lipidologist in recovery: the infection we’ve ignored for 40 years

      Larry Kaskel, MD | Conditions
    • Why taxing remittances harms families and global health care

      Dalia Saha, MD | Finance
    • mRNA post vaccination syndrome: Is it real?

      Harry Oken, MD | Conditions
  • Recent Posts

    • How physicians can reclaim resilience through better sleep, nutrition, and exercise

      Kim Downey, PT & Shirish Sachdeva, PT, DPT & Ziya Altug, PT, DPT | Conditions
    • This isn’t burnout, it’s moral injury [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why heart and brain must work together for love

      Felicia Cummings, MD | Physician
    • Who are you outside of the white coat?

      Annia Raja, PhD | Conditions
    • How hospitals can prepare for CMS’s new patient safety rule

      Kim Adelman, PhD | Conditions
    • Physician practice ownership: risks, rewards, and reality

      Paul Morton, CFP | Finance

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Earn the right to inflate your lifestyle
5 comments

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...