By Dr. Jim Dahle, WCI FounderNot long ago, I had someone on the Milestones to Millionaire podcast who achieved a significant net worth milestone despite making a ton of financial mistakes. He had purchased unnecessary whole life insurance, spent some time day trading, and made similar mistakes. None of them seemed to slow him down much, however, because of what he had done right. They were simple but critical things. He had earned a lot of money (over seven figures a year at times) and saved something like 50% of it. It actually is pretty common—even the norm—on that podcast to have people who didn't optimize every little thing in their financial life but got the most important things right.
St. Peter famously said, “Love covereth a multitude of sins.” St. James said, “He that converteth a sinner from the error of his way . . . shall cover a multitude of sins.” Well, in physician personal finance, a high savings rate covers a multitude of sins.
You know, the savings rate. Take what you put away for retirement this year and divide it by your total income. That's your savings rate. Five percent is bad. Twenty percent is good. Thirty-five percent is career-shortening. Fifty percent is phenomenal.
Making a lot of money often comes with some downsides—difficult education, long years of training, hard work, ridiculous hours, onerous call, management of others, high taxes, liability, business risks. It may be worth it, but few get a really high income without doing most of those things.
Saving a lot of money only comes with one downside. You have to spend less.
Yeah, spending less can be a drag (at least below a certain amount). It can be a pain to shop for deals and carefully consider what you purchase. But look at what you don't have to do. You no longer have to optimize everything else, and soon enough, you'll be wealthy enough to not even have to earn and save all that much.
People Who Don't Save Enough
It's pretty easy to identify undersavers. They're worried about all kinds of things. They're looking for all kinds of financial tricks. Save more money, and all that stuff goes away.
- You no longer worry about which credit card to use to get the most miles, because you can just buy the ticket with cash.
- You no longer worry about what a safe withdrawal rate looks like, because you're not going to be anywhere near it in retirement.
- You no longer worry about how much leverage to use and how and when to pay off your debts . . . because you don't have any and don't need the leverage anyway.
- You no longer worry about your asset allocation. Any asset allocation is good enough.
- You don't need exotic investments. You can maintain a simple portfolio.
Are you worried about all that stuff? Save 1/3, 1/2, or even more of your income, and you won't worry about it for long.
More information here:
Saving for Your Future Stranger
How to Start Saving for Retirement
How to Save Money
I find it fascinating that saving money is such a controversial and personal thing. That's because saving money is just the flip side of spending money, and everybody wants to think they don't spend money in a bad way. Spending is very wrapped up in our values and who we really are. Plus, it can be addictive.
Yet I run into people who have no trouble whatsoever saving money and others who struggle and struggle to do so. Obviously, the more you make, the easier it is to save a large sum and even a larger percentage of that income. But even among people with similar incomes, some are savers and some are spenders.
Here are some tips to save money. You don't have to take them all. In fact, I would not expect that. But you need to take enough of them that you become at least enough of a saver to meet your financial goals.
- Don't live in a big house in an expensive part of town. While it's easier (and saves even more money) to never move into it, moving out of it into something smaller works, too.
- Move to a place with a lower cost of living. That might mean a new state, a more suburban or rural area, or just a new neighborhood. Keeping up with the Joneses is real. Find cheaper Joneses.
- Move to a state with lower state income taxes. A single doc in California making $400,000 in taxable income pays $34,000 in state tax. If they moved to Utah, they'd pay $19,000. If they moved to Nevada, they'd pay $0. That $34,000 earning 8% per year for 25 years grows to $2.5 million, more than many doctors have when they retire.
- Shop. Actually take the time to compare your car insurance, your home insurance, your cell phone plan, your prescriptions, and anything else you buy. Sure, it takes a lot of effort, but a penny saved may be two pennies earned depending on your tax rate.
- Look at your subscriptions: Netflix, Disney+, SiriusXM, Amazon Prime, Dollar Shave Club, Hulu, Paramount+, Spotify, the gym. It all adds up. Can you get rid of half of them? I bet you can.
- Stop buying stuff.
It's my favorite Saturday Night Live skit of all time. Because it's so true. What can you stop buying? Restaurant meals. Take out. Airplane tickets. Concert tickets. Cars. Toys. Clothes. Alcohol. Expensive teams and activities for your kids. Do you have to stop buying it all? Probably not. Do you have to stop buying some of it? Probably.
- Look at the big rocks. Housing and transportation are big rocks in many households. In physician families, the big rocks may be private school. Or maybe a nanny or other household help. Or health insurance. Is there another way that is almost as good but dramatically cheaper? Probably. You could do public school or get Grandma or a neighbor to watch the kids or use a health sharing ministry or a high deductible health plan.
- Learn to be content with inexpensive things and inexpensive activities. Downhill skiing is a lot of fun. But it's not cheap, especially when it involves the whole family . . . in another state . . . with a helicopter. OK, even without the helicopter, it's expensive. Going to the library isn't, though. There is lots of other stuff that is fun but which is not a good financial decision: four-wheeling, boating, snowmobiling, owning a small plane. Just don't do that stuff if you want to save money.
- Earn interest. Don't pay it. The problem with spending money is that you often spend money you don't have. And that leads to interest. And interest starts eating up all of your income. The US government paid 8% of its income in interest in 2022. That looks pretty good compared to a lot of households. But some of us pay 0%. My kids know that interest is something you should earn, not pay. Do yours?
- Actually calculate your savings rate and share it with an accountability partner. Mathematician Karl Pearson said, “That which is measured improves. That which is measured and reported improves exponentially.” I agree.
Save a bunch of money if for no other reason than it'll allow you to make a whole bunch of other financial mistakes while still being successful.
What do you think? What's your savings rate? What mistakes has it bailed you out of?
A straightforward, common sense post. IMO, your Savings Rate is the most important aspect of investing, and in most cases, it’s the one over which you have the most control. “Live like a Resident” is a strategy that most high income professionals can implement from ‘Day 1’ to get off to a good start. After that, staying disciplined and remaining true to your plan will work wonders if you maintain a high savings rate. Over time compounding will work its magic if you’re patient and don’t overthink or overcomplicate things. As Jim has written before, the financial steps you take in your first few years as an Attending are hugely important, and often foreshadow how financially well off you end up being many years later.
If you keep a high savings rate and only buy investments that you understand, chances are high that you’ll be financially successful over the long run.
Just a random observation that it’s interesting a lot of saving predisposition seems to be innate. I remember my piggy bank in elementary school from where I kept all my coins. My brother spent his cash on candy immediately. My coins were saved into $50+ in Penny and dime increments. My brother I don’t think even had a piggy bank haha. And I’m the poster who at age 40 has spent less than $20k lifetime on car purchases.
Or you can buy two expensive planes ( one a Jetprop) and a 38 foot diesel pusher RV and a humongous hangar. Made so much profit with hangar paid for other expenses which are deductions if yo EARN ENOUGH. Tax rate in Nevada not zero. Beach front house has tripled what with Covid crisis and I can rent it out at 1500 a night for enough to pay state real estate taxes my supercars, a -991 Acura NSX has doubled in value despite 100 000 miles on it. My Porsche Carrera GT has tripled in value as one of last three sold I got it for only 475,000. 3 Bagger there and hangar 4 bagger and had I not become disabled would have made another million go home in akee las vegas but timing bad. Still need to sell boat dock. 2.7 million beach front in Oxnard has more than doubled and I expect it to continue to outperform as the very rich in LA see their houses slide en masse into ocean or at least that’s the risk! That, fires and overprices kept me out of Newport or Malibu. By bye Pakistan Verdes I love you 💕. Planes paid for themselves. Told accountants I used it 100% for work but they didn’t listen so when I was audited , auditor agreed and I got 6,000 back. With Jetprop plane I could live in Nevada and save enough to buy beach house in California. While benefiting from deductions and making 300,000 on hangar which is cheap when bought directly from city running airport.
I have been hit hard by being hit by Aston Martin that struck my NSX. But luckily had two disability policies before accident in 2008 and finally quitting after getting third group policy totaling 21,000 a month. Wife collects 2 or 3, 000. It she was in ‘84 Olympics and is high risk as are all women who run track at her level. Risk is amputation of her previously fractured ankle as opposed to pain although that is starting but not yet Chief complaint.
Kids went to very expensive boarding schools in Ojai or Monterrey but last couple years schools were nice enough to drop charges entirely knowing my circumstances. Hospitals weren’t nice and unilaterally offed me (Ely Nevada despite my dropping their rates of overdoses for Methadone by Huge Amount as well as deaths. So do t fret. I always believe d in living hard and playing hard and my gun case and contents have tripled and my wife’s jewels have done better than that. Anyway we are approaching 5 million in savings despite my having to retire at 55. Hard for me to travel, almost died last time, in hospital and intubated twice, doctor thought he was seeing ghost when I went in to see him last year. Will get nothing from fathers estate as he remarried and I’m sure they eliminated me despite fact I sent grandmother to make nice with her son rather than live with me, but keeping out of that mess made me a doctor. My wife to intelligent to be Doctor, instead is Neurosurgical nurse and OB nurse and resisted attempts by Stanford and Northwestern to change her mind. All three kids have had all college costs covered by 529 plans and houses in QPRTS. Their educations still cost as much as 1/3rd total savings. House up 4 plus million and retirement at almost 5 million and we took kids everywhere except adult vacations so they have traveled more than I have. Love flying and may get floatplane as speed less important now. And cabin on blue river stream or place in Europe or both if we rent out CA beach house. Costs so high on house-little to no taxes that way. Kids making out well. Number 2 at 450,000 a year working her ass off with little brother way over 100k. I. Expect the three of them will exceed my annual income of 2.5 million gross a year soon. Tried to set up 500,000 a year Chair in pain management but Stanford wouldn’t return calls or cooperate. Oh well.
Bro, you gotta lay off the cocaine a little…
I was exhausted after reading this. All I did was buy 100 Bitcoin when I was in high school, hodl’d and just sold 1/2 my bag at new ATH for $5M less LT cap gains. Will hodl the other 50 BTC until it reaches $1M each (in about 10 years when I’m 45 y/o) and that’ll be worth $50M before taxes… Oh Well
Congratulations! Glad it has worked out so well for you. Hope you’re right about future performance too.
Does this also mean that reaching the money irrelevance stage covers a multitude of sins? And how do you balance not needing to worry about money with breaking the long-developed habits that have gotten you there in the first place?
What’s to balance? Not worrying about money = breaking the habits.
It’s okay not to spend on stuff you don’t care about, but it’s a shame to deny yourself something that would make your life better that you can afford.
Another one for your list of things you don’t worry about, admittedly more for the older folks who have worked a while: Medicare Part B premium, Medicare supplement premium, and Part D cost increases, because they are a modest percentage of your Social Security cola.
Great article.
However I do think there’s too much focus on the numerator and nor enough on the denominator of one’s savings rate. When everyone talks about “living like a resident,” the automatic assumption is, “spend like you’re living on 50k a year,” rather than “keep working 80 hours a week”
It’s so incredibly easy for us as physicians to moonlight our way to an extra 100k than to cut coupons and save 50k a year.
Higher income also allows you to increase your savings rate. Plus, if you work more you have less time to spend.
I’d love more posts about heli-skiing…or more subtle references!
I’m amazed as I go around in person how many people want to hear more about that. Our COO Brett keeps talking about doing a WCI heliskiing conference. Not sure it would pencil out in any way, but it would sure be fun!