Skip to content 
Live on Half.
It’s not a suggestion or a recommendation. It’s a challenge. If you can find a way to meet this savings challenge, you will be rewarded handsomely.
How so? Living on half of your take-home pay, or to put it another way, saving and investing as much as you spend, should lead to financial independence (FI) in roughly 15 to 20 years.
Work becomes optional.
You can live the rest of your life on your own terms. That’s a reward that I feel makes certain sacrifices well worth it.
What kind of a sacrifice are we talking about? I’m so glad I asked! Altering the hypothetical physician’s budgets from a previous post on specialty choice, we can derive an annual spending budget for each of these four physicians with household incomes of $200,000, $300,000, $400,000, and $500,000 by giving them a 50% net savings rate. [Calculate your savings rate here]
The Live on Half Challenge
With a 50% net savings rate, representing 35% to 40% gross savings rates, these physicians are indeed financially independent in 14 to 19 years with a realistic range of real (inflation adjusted) returns from 2% to 6%.
On the lowest end of the spectrum, our physician families were spending $79,000 a year on a $200,000 salary, requiring just under $2 million to be financially independent, with 25 years of expenses saved after 14 to 18 years.
The biggest income producers were able to spend $171,900 every year, and would have their coveted FI status of $4.3 million in approximately 15 to 19 years.
The 7 to 12 month discrepancy can be explained by the fact the $10,000 529 contributions, which do not count towards retirement savings, become relatively smaller on a percentage basis as income increases, allowing slightly more spending as a percentage of take-home pay. I don’t want you to miss the forest for the trees, but I thought that was a point worth mentioning. I know my astute readers would call me out in the comments; it wouldn’t be the first time.
What other assumptions have I made? Besides the dumb one about my 401(k) vesting schedule? In order to make tax and net worth calculations, we must start with assumptions.
Each of these physicians is married with two children, filing jointly. We start keeping track when they have a net worth of zero, which is very likely at least a couple years after residency for most. They live in a middle-of-the road income tax state, and the stated income is total household income.
Upcoming Webinars
Real Estate Investing for Physicians
Hosted by Equity Multiple
Physician on Fire and EquityMultiple are teaming up to present an unscripted deep-dive into the ever-changing commercial real estate investing landscape. Join Dr. Nirav Shah, Dr. Jorge Sanchez, and EquityMultiple's Daniel Brereton as they explore the path to financial freedom through real estate investing.
When: September 19 | 9 am PT | 12 pm ET
Register Now
Physicians and pharmacists, Register with Incrowd for the opportunity to earn easy money with quick "microsurveys" tailored to your specialty.
The Live On Half Challenge for Physicians
I frequently refer to the benefits of being FI, and all of them can be yours if you accept the challenge and earn a solid living for fewer than two decades.
All you have to do is live with a budget of 60% to 340% more than the average American household, which spends about $50,000 a year. With an extra $29,000 to $120,000 to spend every year, you should be able to manage. You got through residency without spending more than $79,000 a year, didn’t you? I certainly hope so!
Our family of four manages to live quite well over the last year on less than $79,000. If we had a mortgage, our budget might have looked more like that of Dr. B. That’s OK. My in-demand specialty, along with a little geographic arbitrage makes me a Dr. C in terms of earning power. We also get much of our travel for next to nothing using clever travel rewards strategies.
I’ve written about what it means to be a frugal physician, which is what you will need to be if you are a Dr. A with a household income of $200,000. To keep your budget in check, focus on the big stuff. Your home. Your cars. Private schools. Second homes. Second wives.
If you’re a Dr. C or Dr. D, you’ve got $142,000 or $172,000 to spend each year. If you can’t figure out how to live on that measly sum, I’m afraid I can’t help you.
What About My Debt?!?
I’ll do you a solid. I called it the “Live on Half” challenge, not the “Save Half” challenge for a reason. You can spend half your paychecks, and we won’t count debt payments as spending. As long as the other half of that check is being used to retire debts, it’s being put to good use.
Consequentially, it might take you a bit longer to hit your FI target compared to the four featured physicians, but their stories started with a zero net worth. If you’re in the red, you’ll need a little time to dig out. That’s fine; take as much time as you need. As long as you’re Living on Half.
Can you rise to the challenge? If so, tell me about it. If not, what’s holding you back?
Upcoming Webinars
Real Estate Investing for Physicians: Navigating Challenges and Opportunities in Today’s Market
Hosted by DLP Capital
Explore the demand for rental housing in today's unaffordable housing market and how DLP Capital navigates economic challenges. Join Jorge Sanchez, M.D., Nirav Shah, M.D., and Nick Stonestreet for insights on multifamily investments and DLP's approach to consistent returns.
When: September 27 | 8 am PT | 11 am ET
Register Now
79 thoughts on “The Live on Half Challenge”
I recently decided to make my employEE 401K contribution from my partnership as a Roth contribution this year (for some diversification). If gross was 40K this month, then the 20.5K came out of that, how would you put that in your spreadsheet (which I have adopted). I’m thinking of listing the 40K as salary, then the 20.5 as a “post-tax” investment? Thanks, I live and die by this spreadsheet. Thanks
am not sure in which country you pay 15 % federal income tax on 320k of income
even with the recent tax cuts federally, my federal taxes still hit 20% with the generous income breaks for giving money away which we do regularly- still appreciate the reminder to live simply- helps others simply live
It’s been a while since I made those calculations, kurdog, but I just ran numbers through Turbotax Taxcaster.
Assume $320k income for a married couple filing jointly, with two kids.
Also assume two $19,000 deductions for 401(k) and/or 457(b) contributions. Could be from one person in a single-income household as ours has been, or one for each spouse.
With no other deductions for HSA or itemized deductions, I get a 14.5% federal income tax rate at $46,499.
I don’t make this stuff up, I promise!
-PoF
I did that for the first 20 years of my practice, then Obamacare hit, and destroyed the independent primary care practice environment; I took a 60% income hit, which only meant I had to tighten the belt just a bit to live on 40% vs 50% of my ‘income’ from before. However, the subsequent years have mostly been a string of broken promises by partners or managers or nurse practitioners, so my income is currently in the negative despite a 75 hour work-week and great clinical reputation. Obviously I need to go to ‘direct pay’ and get out of the gaming-the-insurance racket, and hopefully can pull that off.
Anyway, the point is – my “living on half” didn’t get me an easy retirement…..BUT it may be the way I at least survived Obamacare without having to become an ’employee’ and do four-minute 99211’s spent lateralling every problem to my employer’s specialty-clinics for a Stark-evading cut of the action.
So the advice is good – “live below your means” – because sometimes your ‘means’ can unexpectedly change.
I meant four minute 99214’s – score one for autocorrect….
Well, at least it didn’t autocorrect to 90210.
Ouch. That’s a harsh cautionary tale.
Direct primary care sounds like a victory for both the physician and patient.
Best,
-PoF
We did this years ago. Took some convincing of my husband coming out of long neurosurgery residency, but not escalating spending and paying off those loans early was very wise. I always worked part time as a pediatrician /pediatric ER which brought many looking down at me commentary over the years, but was worth it for our children and our sanity as a two-physician household. Our marriage sadly ended after 27 years together, but we both are doing well. He is still working at 58 by choice and I decided to retire at 55 except for part-time non-clinical work and volunteer clinical work which is rewarding. Getting a graduate degree basically for fun. We were lucky to get long-term care insurance inexpensively starting after residency, which is now paid off, as is life insurance and our kids both used their 529 plans including grad school. I have a mortgage at 2.375% rate so my accountant says worth not paying off due to the primary home mortgage interest tax deduction and keeping that principal money invested at a higher rate. The hardest thing honestly is the stigma of being financially independent now and only “working” by choice. People ask me what I do? I have no trouble keeping busy.
Hi there,
I really enjoy reading your articles. I am finishing fellowship this year and your site has been great for helping plot out my path to FI.
A quick question, in your spreadsheet, can you tell me why the “take home pay” is calculated as “post tax income – pre tax spending/savings?” Did I misunderstand something? Shouldn’t those be deducted before you calculate the taxes owed?
Congrats on finishing up your fellowship, Dr. Tsao. Less than 2 months to go!
It might have been more logical to display the pre-tax spending / savings above the taxes paid, but I assure you, the taxes were calculated appropriately with pre-tax investments deducted. Takehome pay represents your paycheck after taxes and pre-tax investments have been taken out.
Best,
-PoF
i was struggling to save half of my income. but then realized I have been living on 41% of my income. The rest of the $$$ went toward debt reduction and mortgage. Awesome post PoF this have made my day.
OK. This is kind of cool that I get the last word! I guess I will post another thought here too.
One observation that the “required nest egg” is between 2M and 4M for all of these characters. I think that may be another “ballpark” idea when a doctor is trying to figure out their “Number.” The answer is likely in that bracket if they are reasonably frugal.
Indeed. It’s a much better ballpark than using something like replacing 70% or 80% of your income, an oft-quoted figure that is usually way off for high earners and others with high savings rates.
I went back and ran some of my numbers. If I focus just on employment income and ignore complex investing and other stuff I’m closest to BetterCheck. I have been maxing out the 403(b), 457, back door Roth, state tax credit for 529, and another 60K or so in taxable accounts so it looks a lot like that B column in your spreadsheet. We reached FI in 15-16 years so that is real life validation of this. I would definitely recommend this route to others. A lot of medical doctors start out in their early thirties. This puts them at FI in their later 40’s. That is the perfect time. It then allows you to reassess and possibly make changes if needed due to aging, chronic work stress, regulatory changes, changing family priorities, etc.
Great article. The standard advice of saving 10-15% won’t cut it for a doctor who starts earning later in life and still wants to retire early. I didn’t keep great track of my savings rate over the years. I spent about 10K a month my whole career. Initially I had student loans to pay and retirement accounts to fund and a mortgage. Later I had tuition, health bills, travel etc. We aren’t good at creating or following a detailed budget. The 10K was about 6K needs and 4K wants. The nature of the wants and needs changed but didn’t go up much over 18 years. We invested any money over the 10K. That includes interest, dividends, bonuses, consulting fees etc. and I have no idea what percentage that worked out to over the years. I bet it is about a third of gross though. At least. And we are FI now.
It is also interesting that your assumptions are different and more complex than MMM but he got to the same 16-17 years until FI if you save 50% of take home pay.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
I chuckled to myself when reading the part about focusing on the big things: the house, the cars, private schools, second homes, and second wives. I’m sure you see a whole lot of conspicuous consumption in these areas among your MD cohort. When growing up at the law firm I would hear on a weekly basis the same sage advice from different senior partners: “the key to building wealth is one house, one wife.” Inevitably the persons dishing out this advice had learned the hard way that it was true because they had at least two houses and were on wife #2 (if not #3), and therefore were probably destined to die at the desk at age 72 (if lucky enough to survive that long on 80-hour work-weeks and zero exercise).
Been living on less than 50% for greater than a decade now…before it was cool and trendy 😉
All the cool kids are doing it these days. You, sir, are a trend setter.
Best,
-PoF
I was reminded that, “Hey, we really do live on less than half” when Mrs. SSC took a 6 figure paycut for her teaching gig. Instead of being tight, we were stilla ble to invest $3k/month even the 3 months she got no paycheck. Now that she’s getting a smaller paycheck, we can essentially put the whole thing toward savings and double our savings to ~$6k/month.
I don’t feel like we’re uncomfortable or living on a tight budget, we just don’t spend much. Like you correctly pointed out, anyone on those types of salaries that can’t live on half is just making problems for themselves.
I know of a couple of different colleagues with both spouses bringing in 6 figure incomes and they live paycheck to paycheck on the brink of economic collapse every month. They have nice cars, take loads of nice trips and do things like buy fudge off of Etsy (didn’t even know that was a thing…). For me, I’d rather have WAY more free time in a couple more years to spend with the kids, than their financial entrapments. 🙂
I doubt that Etsy fudge holds a candle to Mackinac Island fudge. OTOH, Etsy fudge doesn’t require a ferry trip.
Great job on the savings rate, coffee sippers!
Cheers!
-PoF
This is exactly how Ms. FP and I are planning to treat our income. Given our projected salaries, there’s really no excuse for us not to save half our income unless we actively aim for lifestyle inflation. Like you pointed out, if your average person is spending 50k a year, then spending even 75k or 100k a year is living baller. For most medical professionals, there really isn’t any reason you can’t save half.
Wanna be a baller, shot caller… 20 inch blades on the Impala.
Holla!
-PoF
Geez, what a tough first world problem for physicians. 🙂
We saved more than half of our take home for a long time now and it is paying off handsomely. Our lifestyle is moderate and we don’t need to spend a lot of money to enjoy life. I think that’s the biggest benefit to living on half.
Man, you can do pretty well living on half of those salaries. We generally put away 70% of our income as we cut expenses from 80k to 40k a year. Even though we are traveling a lot more now, our expenses have been dropping since I left work, and should end up sub 40k.
Our 40K lifestyle this year includes 2 trips to Costa Rica, a 2 week trip to Colorado, a 2 week road trip to Nova Scotia, and we live in a nice sized house (in Connecticut) with a hot tub and a pool. We also eat and drink very well 🙂 This feels pretty luxurious to me, and I can’t really think of what more I need to spend money on.
I just ran my numbers out of curiosity. We live on around 20% of take home salary, give around 20% and save around 60%. It has worked very well for my family and hasn’t really slowed our race to FI very much at all. It has also provided many wonderful opportunities to bless others along the way and watch my children grow up to be generous and caring individuals.
When I was in residency, my wife and I always talked about how we would be able to give once I was an attending, but we decided that the financial pressure to spend more would probably not change much once I got a “real” job. So we resolved to live on around 70% of my take home, save 5% and give 20% of gross salary during the last two years of residency. We kept the giving the same and are now saving a lot more and spending a moderate amount more as an attending.
“Live on half” is the dream! We’re getting close and I like getting motivation and inspiration from others that are making it work!
Or second husbands!
I’m a year out from finishing my medical training, and I’ve managed to live on 1/3 of my income for the past year. That will go up next year when I buy a condo/house, but the increased spending will hopefully be offset by my income going up and the equity in my home.
When I look at my colleagues who are spending much more than me, I realize that the big difference isn’t what we’re spending money on, but rather how much we’re willing to spend on individual things. I buy $15 bottles of wine, where they spend $50, and I drive a $20,000 car, where they drive $100,000 (or more) cars. My life isn’t significantly less comfortable than theirs, but my investment accounts are definitely growing at a faster rate.
I noticed the same thing with my colleagues early on and I’ve tried to avoid falling into the same trap. I wish I could say it’s been easy, but to be honest, it’s a constant struggle. Thankfully there are sites like this and communities of folks trying to live this way to serve as reminders.
Housing is the main thing in my area that would blow up most people’s attempt to live like this. Unfortunately with family close by, the idea of moving and geographic arbitrage doesn’t seem realistic to me. Still, trying to stay the course…
Challenge accepted PoF! I’m an anesthesiologist in the Midwest recently out of residency hoping to follow your advice and achieve FIRE. Great site!
Thanks, Dr. P! With your earning power, particularly in the midwest, you should have no trouble meeting the challenge.
Cheers!
-PoF
We lived on half (or more) of our salaries for over a decade…and it definitely paid off! Now we’re sitting on a couple million!
It never even felt like a sacrifice. We just lived life and had a nice time! 50% is like a magic number…once you hit that level, it’s like a rocket ship to net worth growth!
If you enjoy a salary like these four physicians, any hurdles to living on half are self-created. It’s easy to live far better than the average American while setting yourself up for a glorious future.
Cheers!
-PoF
Nicely done PoF, as a former engineer and business man, I love a good spreadsheet! Now, the only problem is that you forgot the line items for travel soccer, piano lessons, Tae Kwon Do lessons, braces, and allergy immunotherapy sublingual drops…lol!
Love the challenge although right now, we are nowhere close. We are between 25%-35% gross. Things will improve significantly in a few years when the kids are “on their own.”
Thank you Jon. At 35% gross, you’re doing as well as our Dr. D, who is indeed living on half! We’ve resisted travel soccer and tae kwon do, but have already shelled out for orthodontics, piano lessons, and travel swim. I realize our boys’ expenses are going to go up significantly before they go down. How about auto insurance for a sixteen-year old driver? That will be downright scary.
Cheers!
-PoF
How do you factor retirement contributions? They muddy up the equation.We save 40% of after tax income but contribute max to my husbands 403b and 457. As a County employee 10% of my gross salary is used to fund my vested pension. On top of that I max out my 457. Sometimes I feel like I am not saving enough because it’s all automated but when I run the numbers I realize we are doing okay.
I’d say you’re doing better than OK, MrsYTF!
The savings calculator I put together takes those contributions into account. They go in both the numerator and denominator. In other words, it counts as income, but you’ve saved 100% of it.
Cheers!
-PoF
Very nicely laid out with the numbers summary. The numbers look reasonable to hit yet the human mind finds a cunning way to get in the way of the math.
This year we should be approaching 60% savings so can relate to what is doable, without too much difficulty. It has not always been this way so also understand the behavior of those spendy doctors…
Questions for you – what is the match and profit sharing line item? And why does it stay constant despite large salary differences across the physicians? You may have gone over this in previous posts, just curious. Always interested to understand how other industries put together total compensation packages.
You’re killing it with the 60% savings rate!
I based the match and profit sharing to what my hospital does. Every full-time employed physician with an income that meets or exceeds the IRS Employee compensation limit for calculating contributions, which is $265,000, gets a “profit share” (from a non-profit hospital system) of 6% of $265,000 = $15,900 a year, and if you max out the 401(k), another 2% of $265,000 = $5,300. That adds up to $21,200 but I rounded down to an even $20,000.
Cheers!
-PoF
When I read the title I thought you were writing about the book The Power of Half by Salwen. If you haven’t read it yet, I think you’ll really like it.
Instead of saving half, though, they give away half of their stuff and half of their money. It won’t get them to FI as quickly, but they still benefit from the simplicity, prioritizing, and teamwork.
Interesting, Julie. I am probably going to end up giving away about half our stuff, and I give away half of this blog’s revenue.
Best,
-PoF
Great calculations. The beauty of the living on half approach is that everybody with a 6-figure salary can do it without that much sacrifice. Probably the colleagues wouldn’t even notice the difference between a guy who spends $142k per year or one who blows through his entire $290 net salary every year. No need to go full-MMM, and you have a comfortable life and a pretty easy path to FI! On top of that, one can do some more “geographic arbitrage” upon retirement, i.e., move to a cheaper location with lower taxes and stretch the retirement dollars even more!
Yes, ERN, meeting the challenge while living in a high cost of living area can cause you to overshoot if you plan to “downgrade” to a lower cost area, which is probably not a downgrade in lifestyle at all. Great point!
Best,
-PoF
Smart phrasing – I like the “Live on Half” challenge…it puts the emphasis on all the money we have at our disposal, rather than the money/spending we’re “giving up” by saving. Very nice framing of a powerful message.
The ability to live on half really gets fairly easy once income is in the upper quartile (where most physician incomes comfortably reside), so it really is just a matter of forgoing some luxuries in the short-run in exchange for outstanding freedom and satisfaction over the long-run.
Thanks for linking to the spending article on FinanciaLibre, and thanks as always for great work!
And thank you for providing a nicely detailed reference article. What you say about those of us in the upper quartile is so true, but I would guess most would scoff at the notion of actually saving half. Hence, the challenge.
Cheers!
-PoF
We live on half currently if debt payments are counted in the mix – the goal is to save/invest half as our debt falls off.
This is definitely do-able – just takes awhile to burn the changes in.
You’re getting it done, AE. Just wait until those loans are retired. Then the money will really start to pile up!
Best,
-PoF
If you want to retire early living on half is really key. It’s also quite doable, we do so with a much lower income then a doctor. Simply remove the stuff you don’t really need/value from your spending and if you make at least as much as the average American, 50k you should be able to come close. For those who have yet to reach that paycheck level it’s time to hustle to get there.
Good points, FTF. The challenge becomes more challenging at lower incomes, but there are lots of examples of people doing it. Keep up the good work!
-PoF
I’m in NYC living on less than half my salary. Like you said, being able to still spend $30,000 more than the average American household makes it pretty easy. Most of my expenses go to rent ($3,350 for a 1 bedroom apartment!) and food. On the other side, some of the great things about NYC include (1) no car; (2) tons of cheap/free entertainment and (3) access to lots of cheap services (it barely costs anything to have someone else do my laundry).
Good for you, BLI! It’s not often you hear someone talk about the ways NYC can be particularly affordable. Way to see the glass half full!
Beset,
-PoF