Getting started with budgeting as a resident is crucial but can feel intimidating, especially for those who haven't created or followed a budget before. The 50/30/20 budget is a useful tool for those beginning their budgeting journey and unsure where to start.

The 50: Needs

Needs encompass essential expenses such as rent, utilities, groceries, transportation, insurance, minimum loan payments, and childcare costs. These are the items you absolutely need to live and work. Keep in mind that some insurance, like health insurance, may already be deducted from your paycheck, so be sure not to double count this expense when creating your budget.

The 30: Wants

Wants are non-essential expenses, including dining out, travel, hobbies, shopping, and cosmetic services. What qualifies as a want versus a need can vary significantly from person to person and is often subjective. For example, purchasing new clothes might be a necessity if your current ones are worn out or if you need business casual attire for clinic. However, once you have enough to meet your needs, additional purchases may shift into the "want" category. By allocating 30% of your budget to wants, you can prioritize spending in a way that enhances your life without overspending.

The 20: Savings and Debt Paydown

A primary focus after medical school should be building an emergency fund if you don't already have one. Aim for 3-6 months' worth of expenses in a readily accessible account, such as a High Yield Savings Account (HYSA). This fund can help you avoid going into debt during emergencies, whether for car repairs, unexpected travel, or urgent vet visits. At a minimum, ensure you have enough cash to cover your highest deductible. For instance, if your medical insurance has a deductible of $1,200, have that amount readily available.

If you have high-interest debt (7% or greater), especially credit card debt, prioritizing its repayment should be a critical part of your budget. Focus on aggressively tackling high-interest debt.

Once you’ve established your emergency fund and have a plan for high-interest debt, consider saving for retirement. Ideally, aim to save 15% of your income for retirement; however, this may not always be realistic for a resident. While you can always increase your savings as an attending, there are compelling reasons to start saving during residency.

First, there is a maximum annual contribution limit for tax-advantaged retirement accounts. Although you might not reach that limit as a resident, you certainly will as an attending. Once you hit the caps on tax-advantaged accounts, any additional savings will need to go into taxable brokerage accounts. Maximizing contributions to these accounts while you’re young means more tax-advantaged funds available for you in retirement.

Second, starting your retirement savings early allows you to take advantage of compounding growth, making it easier to reach your long-term financial goals. Waiting to save a higher percentage later could mean missing out on crucial growth years.

Your approach to student loans will depend on your balance, interest rates, and lender. If you’re on income-based repayment and pursuing Public Service Loan Forgiveness (PSLF), you might not need to make extra payments. However, there may be situations where aggressively paying down loans is advisable.

Keep in mind that the 50/30/20 budget may not always be realistic based on your geographic location or personal circumstances. For example, a medical resident in a very high cost-of-living (VHCOL) city may face rent that consumes a significant portion of their income. Similarly, residents with children often encounter unavoidable childcare expenses. In these cases, allocating 50% of your income to needs may not suffice. While you can adjust the categories, aim to maintain at least 20% for savings and debt paydown whenever possible.

Creating a budget is only the first step. Find a method that works for you to stay accountable, whether through an Excel spreadsheet to track income and expenses or budgeting apps that automate the process. While many of these apps may require a fee, the time saved could make the cost worthwhile.