By Dr. Jim Dahle, WCI FounderI received an email in 2022. I obscured some details to protect the innocent:
“My spouse is obsessed with White Coat Investor advice. My spouse listens to the podcast daily and researches the financial advice given. We are currently in residency. I stay at home with our four children so we live on a single resident income. Each year of residency, we have filled both our Roth IRA accounts and other retirement accounts that I cannot remember the names of. While doing this, we are on the WIC program, are shopping at the local food bank, and are being tight with money in other ways (such as not purchasing a new van even though we have the money set aside for it)—all for the sake of ‘living within our means' and ‘saving for retirement.' I know both of those are good things. My spouse’s biggest fear is inflating our lifestyle too much so that we can no longer enjoy the way we ‘used to live.'
Quite frankly, Dr. Dahle, I’m not enjoying the way we ARE living. I’m not a keep-up-with-the-Joneses person, but I loathe every time I step into the food bank or use my WIC card at the store knowing that we are putting money into retirement accounts. My spouse is likely to sign a contract for over half a million upon completing training. And if we do the contract negotiation correctly, the student loans will likely be paid off as part of the contract (we only have $150,000 due to our frugality during medical school).
My question is, how much would you actually save for retirement while in residency? If you had $40,000 in the bank, would you put it into accounts that lock it away until future years, or would you be willing to spend it during residency? Not all at once, mind you! But on groceries and babysitters and dates and vacations? I feel great guilt every time I overspend our budget (not that I ever overspend the entire monthly budget, just a specific category which then I have to cover with other categories which leaves them depleted for future months), even though I know that our pockets are quite deep for residents and getting deeper by the month. Our net worth increased by over $70,000 last year even though my spouse’s salary is only $60,000. I know it was in great part due to COVID government stimulus packages, but still!
We are currently not paying off student loans since all interest accumulation is being postponed by the government at this time. I’m sure you can tell I’m looking for an advocate here. But perhaps that is not what I will get. I would appreciate your honest opinion even if it does not coincide with my desires to spend more and inflate our lifestyle at least a bit.”
They're Going to Be Rich If I Can Keep Them Together
Without a doubt, these guys have got the X factor. It's not just the resident either. Any partner willing to even go along halfway with this sort of frugality has what it takes to be super, duper rich, too. Their biggest financial risk is divorce from being overly frugal. Here is how I replied. Let me know in the comments if I got it right.
“Congratulations! You guys are going to be very wealthy someday. You certainly have the X factor:
About 95% of docs need to spend less money. You two are NOT in that 95%.
Moderation in all things. The goal is to save lots of money but to do so without ever feeling deprived. Right now, you feel deprived, so you need to dial it back until you don't. Until BOTH of you don't. Just because he's doing the earning doesn't mean you don't get an equal say on what the proper level of spending is.
These posts might help:
You don't need to become rich as a resident. Save something, but maxing out all retirement accounts with a family of six on a single resident income? Come on, that's super duper hardcore and totally unnecessary.
Yes, I'll be your advocate. Go spend more money. You two will be fine in the long run; I have no doubt about it. Go blow some real money on a date this weekend to help the two of you get out of the scarcity mentality. While you're there, talk about when you're going to get that van . . .
Don't worry about your spending getting out of control and ruining your lives. I have met dozens—maybe even hundreds of people—like you (and me, frankly, as I don't spend very easily). I assure you that you are NEVER going to let your spending get out of control. You will spend your entire life dealing with the opposite problem and then your kids will fly first class everywhere they go after you die.”
5 Money Activities to Master
There are five money activities to master during your life:
- Earning
- Saving
- Investing
- Spending
- Giving
This couple has absolutely mastered #2. They can teach classes on it. They could write a best-selling book. There should be a monument with a sculpture of both of them on it placed in Washington DC. I suspect they're pretty good at #1 and excellent at #3, too. I bet they'll be good at #5. But you know what? They suck at #4 right now. I can't criticize too much; that's my weakness, too. But I'm getting better at it. Heck, we spent nearly $300,000 (not counting taxes and giving) in 2022, and we don't even have any payments. We must not be too bad at spending anymore. So, I just told them what I am constantly telling myself.
Now, the advice above doesn't apply to everyone. As I said at the beginning, most doctors DO NOT have this problem. But if you do, recognize it for what it is and fix it. I got an email back a couple of days later:
“Thank you so much! Your response was even more thorough and helpful than I had anticipated. We had a lengthy discussion about finances after reading your email. It was so helpful to have someone in my corner; someone whose financial advice my spouse really respects. We are more on the same page about budgeting than we have been for a while. We came together on what is reasonable for both of us. And we’ll continue to have many more helpful discussions about finances, I’m sure! Thank you for the advice you gave/give—both in this email and all general White Coat Investor advice. We will continue to come together financially because of your work.”
There you have it folks. That's what winning at money looks like.
Well done. Simple, direct, supportive and not preachy. Would be curious to hear an update 1-2 years after finishing training.
Depending on student loan situation, which makes this impossible to answer very specifically, residents might try saving 5-10% of gross income, after appropriate emergency fund, and ensuring that credit cards are paid off each month. Start a good habit and possibly do Roth IRA/401k/403b, if it makes sense from loan repayment/holistic standpoint.
I find it very distasteful they are at food banks and using WIC when their net worth increased 70k in one year, or, setting aside a perhaps negative balance sheet, even making 60k in salary. That’s clearly not what these programs are for, and I know they know it.
As far as government resources go, I’m fine with people using what they qualify for. Med students, for instance, often have babies on Medicaid. They qualify even though they expect to have a lot of money later in life. One could also argue that programs like PSLF are not for doctors, but clearly they qualify for it and I’m fine with them using it. Don’t like it? Write the laws differently.
The food bank is another story. They generally will help anyone without asking them to prove their need. But how poor do you have to be to be able to access that resource guilt-free? That’s in the eye of the beholder. This particular case is obviously pretty extreme, that’s why it makes for such a great blog post. Most underspenders aren’t quite this bad, but the same principles apply.
A quick search finds that the 2023 WIC qualification requirement for a family of 6 is a gross income of under $74.5K, significantly more than the resident’s sole income of ~$60K. It seems this family is who the program is for, does it not? It’s not like this family is financially independent and drawing a low passive income for the sake of qualification for WIC, or some other exploitative scenario.
A lot of government “welfare” programs are a lot more generous than many people think or imagine. ACA subsidies are available at an income of $200K if you have six kids.
Currently food banks are at a breaking point with the costs of inflation and reduced donations. It is absolutely wrong for a doctor to be taking these resources away from people with no other options. Especially that this guy sends his wife to do the “shopping” so he doesn’t have to feel the guilt himself…
Have you ever worked or volunteered with a food bank? The vast majority of food banks DO NOT have a maximum income. I’m an attending, and the food bank has always been an available resource. Food banks are for everyone. Judgemental people like you are a barrier to people accessing these resources.
I’ve both volunteered at a food bank and been on their board. But I agree with Roger re: food banks.
One reason to not have income limits is to make it easier for people who need the food to access it. An example is people who need the food bank this week, but maybe they don’t on most other weeks. It makes no sense to add a bureaucracy to determine whether they qualify. This gives needed flexibility. And most food banks can’t afford added bureaucracy.
Our food bank was run entirely on a combination of actual food donations (mostly) and monetary donations from our small town and surrounding area. So yes, supplies were limited. Someone who takes food who doesn’t need it may be taking food from hungry kids and their families.
Took the words out of my mouth. Had similar experience volunteering with food banks and their limited resources.
Agree with Roger, I’ll see him and raise the question of “innocence.” Suggest they spend some money on legal advice to make sure any WIC application filed by either spouse complies with applicable law. For the inquiring spouse, just say no to it.
It’s unclear from the article: is this a 2 doctor couple? She says “we are currently in residency” followed by “I stay home with our 4 kids”.
It’s surprising to see someone super frugal as this person who already has 4 kids before even getting out of training. That’s a financially tough situation.
I think “we are currently in residency” is a lot like “we’re pregnant.” Well, one of you is! While they’re both experiences that have a serious affect on both members of the couple, technically they’re not true.
Those two programs are nowhere near the same. The ACA is not designed only for those in lower income situations. WIC is. All justifications aside I definitely see a big difference.
Your reply was good. Knowing the little I know about relationships, this couple likely won’t make it. Such big differences in this department likely imply big differences in other aspects of life and a communication breakdown. Often such big differences are insurmountable. Easier to be with someone much more similar to you. Couple counseling might be a good start to see if the gap can be filled, will take lots of work. Best of luck to them.
Pretty gross to be taking WIC when you are putting money in a retirement account. This is the type of person who thinks FIRE means screwing over anyone especially those who have less. Let’s not even start about having four kids when you can’t afford to. This is the consequence of placing your bank account balance over your life.
Have you ever worked or volunteered with a food bank? The vast majority of food banks DO NOT have a maximum income. I’m an attending, and the food bank has always been an available resource. Food banks are for everyone. Judgemental people like you are a barrier to people accessing these resources.
You’re really not going to like the multimillionaires getting ACA subsidies in early retirement if WIC + saving for retirement bothers you.
So you get to decide who can afford to have kids and who cannot? And how will you enforce your enlightened understanding of reproduction on the rest of us?
Have you ever worked or volunteered with a food bank? The vast majority of food banks DO NOT have a maximum income. I’m an attending, and the food bank has always been an available resource. Food banks are for everyone. Judgemental people like you are a barrier to people accessing these resources.
I don’t have any issue with this family legally partaking in government programs that provide support.
There are so many scenarios where someone can say that government programs are unfair, or wasteful, or helping people that do not need help. Yes, this family can afford food but they accept government support to help them with their food. budget. What about other examples? Wealthy doctors get loan forgiveness through PSLF. I invest in real estate despite being wealthy and I get tax breaks from the government for doing so. Wealthy oil companies with billions in profits get government support for oil production.
There are all kinds of government programs that hand out money. Some of these programs are good, some not so much. Personally, I learn about the programs that exist and I follow through on those programs when they can help me. I also give a six-figure sum to charitable causes every year, but that is also by choice.
It’s funny, the writer was so careful to not used gendered pronouns, and yet it seems that Jim and all of the commenters are assuming there is a husband who is a resident and a wife who is home with the kids. I had assumed the opposite. And there are other kinds of couples too.
Who cares? The point is underspending.
North: It is a mixture of a finance post and a relationship post, so, it would seem to matter to some. If it doesn’t matter to you, then feel free to not comment.
Kevin: Jim does say “Just because he’s doing the earning doesn’t mean you don’t get an equal say on what the proper level of spending is.” But you’re right, it could be deliberate obfuscation.
I can only find two uses of gender, and neither came from Jim. One came from a commenter with a traditionally female name, and one from a commenter who only provided initials. Furthermore, the writer “being careful to not use gendered pronouns” might just be Jim obscuring details to protect the innocent, as was in his disclaimer.
Bear in mind only one person who has commented ever knew the gender of the individuals in the post and he has forgotten it. It’s not relevant to the point at hand. Which is your point isn’t it?
Anyone else think this couple needs some counseling?
But back to the time period in question to the original email (investing in residency). I just looked at our portfolio progression over a similar time frame. One of us worked full-time during med school (graduated with no debt), low cost area, no kids, and made about $120k-140k combined during a 4 year residency. Invested in 2 Roths and some tax deferred space. Also had some in taxable (in retrospect, should have probably done 403b’s instead, arg!). Started off at $60k and ended at about $250k. Felt like we also “lived it up” with some nice driving and camping vacations.
I admire the candor with the writer shared their concerns, expressing loathing (their words) while using food banks and WIC. And they were seeking counselling — from Dr. Dahle, with encouraging followup. They will likely pay all the assistance they are using now by multiples via taxes. I like to think that, having utilized charitable resources, they will remember the generosity of others by modeling it themselves and donate to those very causes.
This is a frank projection on my part, having grown up in modest means and benefiting from charity, and considering it a privilege to give back.
Spending is so weird, so psychologically based and perhaps not always logical. We were very frugal as residents and after graduation as young, highly paid professionals, diligently saving and investing, leading to deca millionaire status as the years went by.
However, relatively speaking, we are still frugal. I spent a six figure sum earlier today finalizing our annual donations to charity, but we decided to pass on an expensive dinner that would have cost us an extra $640. It felt too expensive compared to a very nice alternative. It turned out our dinner out this evening was excellent, for a fraction of the cost.
The important message here, relative to the young couple struggling with financial decisions, both my spouse and I were on the same page with our dining decision, and we were both happy with the outcome. The process of collaboration when making family financial decisions is even more important than the outcome.
Yup, doing it together matters more than anything else.
I laughed when you said “These two are going to be rich, if I can keep them together. I laughed because it’s TRUE. That’s my weakness too – #4. And still is. I struggle with spending. I was obsessed with saving due to a childhood of scarcity. You nailed it!
The only thing I would add is saving for retirement is a long term goal done over many years or even decades. Some years you need to pivot. If 1-2 years you need to simply break even or finish with a small deficit that’s totally okay! Their first years income will more then catch them up. Once both couple accept that reality life will be less stressful.
As a sidebar this is a sobering testament to out current state of healthcare- that becoming a doctor will guarantee ‘being rich’. No question of brainpower, skills, etc. The AMA has done a masterful job of restricting doctor training to insure that medicine remains an uber lucrative career regardless of talent. One reason (among many) we waste the most of GDP on healthcare with declining international rankings. JMHO
I think you should read this article:
https://www.whitecoatinvestor.com/why-us-doctors-get-paid-more/
We had the opposite strategy than the typical WCI “live like a resident” philosophy. However, we’re a two physician household who did not have any student loans, so this approach may not work for everyone.
I spent every dollar I earned in residency. My wife was a saver and saved about 60k by the end of residency, our finances were separate at that point. I wasn’t aware of pre-tax retirement accounts and how they worked as a resident. In our first few years as attendings, we never tracked our expenses and took nice trips/went to expensive restaurants etc. The first few years as attending were used to satisfy all the deprivations of the many preceding years. In retrospect, this was absolutely the right strategy for us because we were young with lots of free time and no childcare responsibilities. We made many wonderful memories together in these years. We did not make any large financial commitments like buying a home, boat, hiring a financial advisor etc etc. during these years. Just spent on simple pleasures like travel and saved the rest without worrying too much about it.
We became serious about saving and investing about 4 years after becoming attendings. Now about 10 years out of residency and just crossed the $3 million mark at age 40. So I think its possible to become relatively wealthy without extreme austerity when just starting out since this is such a long-term game. If one were to look at the compound interest formula P(1+r)^t, one would realize that t=time is the most important variable and small variations in P will likely not matter in the long run.
So what was your overall savings rate those first few years? I bet it was pretty good.
Also, keep in mind it ISN’T a long term game for everyone due to burnout, career interests, disability, family responsibilities etc. Some people really do need to hit FI in fewer than 20 years and “wasting” the first 5 could be a colossal mistake for those folks. Plus, if you’re really spending it all as a new attending, it’s pretty darn tough to cut back later. I’m convinced that many of the 25% of docs in their 60s that still aren’t millionaires took your recommended approach.
I’m not necessarily recommending my approach to anyone since everyone is so different. My point is that if one can avoid stupid and costly mistakes then there is plenty of money left to enjoy simple things like good food and travel. My baseline quality of life during residency was so poor that what I recall as “splurging” post-residency is probably just a normal lifestyle for most people.
Even after living a not-too-frugal post-residency life, I’m sure our savings rate was easily 40ish%. I’ve closely tracked our numbers since 2019 and our savings as a percentage of post-tax income is close to 70% and about 55% as a percentage of gross income.
Overall I’m in complete agreement with your advise to this couple, and to the physician community more broadly about not dramatically inflating lifestyle post-residency. However, there is plenty of room to enjoy a good life which many people in the FIRE mindset seem to miss because they are so honed in on achieving FIRE.
I rest my case. You avoided the “lifestyle explosion” I warn against when I say “live like a resident” and financially benefitted from it. Sure, you had a nice raise coming out of residency. Join the club. One can argue how big that raise should be, but clearly if you were still saving 40% yours wasn’t “too big.”
Dual physician couples = a different financial world from most doctors, assuming both are willing to work.
There is absolutely nothing wrong with using a government program for which you qualify.
Physicians put far more into the system than they will ever hope to receive, so good for him that he is able to use what politicians put into play.
Hate the game, not the playa.