By Dr. Jim Dahle, WCI FounderI saw an interesting tweet the other day which made me pause and think for a minute: 
A smartphone (and really any connection to the internet, including the free ones in public libraries) can connect you to everything you need to know to become wealthy. Everything. I mean, it's not a terribly complicated process or anything—it can be readily learned through blogs, Facebook groups, forums, podcasts, and books borrowed from libraries by anyone with a middle school level of education. All free for the taking.
How to Get Rich
For those who have forgotten the process of how to get rich, I'll reproduce it below:
- Make a lot of money
- Don't spend a lot of money
- Make your money work as hard as you do
- Protect your money from financial catastrophes like death, disability, illness, injury, fire, and liability
So why aren't more people wealthy? Despite having the same access to information as the elite (and more access than kings of 100 years ago), they don't use it. It's a choice really. You can choose to be wealthy or you can choose to be poor. Now, I know there's more to it than that. Being healthy, living in America, growing up on the right side of town, having the right skin color and gender, etc. are all advantages and make things easier. For the lower socioeconomic classes, becoming wealthy is still easier than it ever has been in the history of the world, although still markedly harder than it is for those born with the advantages available to the upper classes. For those who are reading this site (typically high-income professionals), there is no excuse. Not becoming rich for you is nearly 100% a choice.
Choice or Choices?
Now that's not entirely true. It's not a single choice. Like weight loss, your level of financial success is really the end result of a life-long series of small decisions. Decisions like:
- Will I go to college?
- What college will I attend?
- How will I pay for it?
- What career will I pursue?
- What job within that career will I take?
- Will I open a business?
- What state will I live in?
- Will I get married?
- Will I have children?
- Will I budget?
- How much of my income will I save?
- How will I invest my savings?
- How much will I spend on housing?
- Will I buy new cars or used cars?
- How will I pay for those cars?
- What kind of vacations will I take?
- Will I send my kids to private schools or public schools?
- How much of their college will I pay for?
- Will I hire a financial advisor or learn how to manage investments myself?
- How much will I pay for financial advice?
- How much of a priority will funding retirement accounts be for me?
The answers to these questions will all add up to the answer to the question of “Will you be rich?” Now I'm not talking about Elon Musk rich. I'm talking about reaching a point in your 40s or 50s where you can maintain your desired lifestyle without ever working again. If that's not “rich” for you, consider that half of Americans have less than $25K saved for retirement and then substitute in any word you like—comfortable, financially independent, wealthy, whatever.
A Case Study for Building Wealth
My spouse has been an attending for about eight months now, and I've been practicing law for two and a half years. Together we gross about $380,000 per year. I have about $180,000 remaining on my student loans, which I refinanced through a private company at a variable rate that sits at 3.3% for the moment and which will be completely repaid, at my current schedule, in 7 years. My spouse has about the same amount of debt, but it's a family loan at 0%. We have about $60,000 saved in taxable accounts now and are adding to that at a rate of about $10,000-12,000 per month (I wish that number were higher, but we live in a very high-tax, high cost-of-living city). Given where we live, a house for what we hope will be a growing family will cost at least $1.5 million, so it would take at least a couple of years before we are ready to buy…. The other option would be to start paying down our student loan debt as quickly as possible. I am against this as it would push buying a house (and the associated tax benefits) much further into the future, and there is always the possibility that home prices (and mortgage rates) will make buying a much more expensive proposition at that point. What do you think? Should we be aiming to buy a home? Is there an option we're missing?
Now I've removed some information (including some of this couple's questions) and changed some information to hide their identity, but the general gist of the email can be seen. This is a high-income couple living in a high-cost of living area. They are the classic HENRYs—High Earning, Not Rich Yet. They have made a few decisions (and most of them well) but have a lot of decisions ahead of them. The results of those decisions will have a profound effect on their ultimate accumulation of wealth. Let's look at the decisions they've made so far:
- Go to medical school. Generally a great decision for building wealth
- Go to law school. Also generally a great decision for building wealth.
- Keep student loans to a reasonable amount. Their student loan DTI ratio is < 1, my usual guideline.
- Refinance loans to a low, variable rate. If you're not going for PSLF, refinance your student loans.
- They decided to rent for a little bit as a new attending. Also a great decision.
- They are living like residents. Apparently not counting retirement funds, they're putting away 1/3 of their gross income.
- They live in a high-tax, high cost of living city. Not such a great decision.
- They're planning on holding student loans for 7-10 years due to low-interest rates. A questionable decision.
- They are planning to buy a house that costs 4 times their gross income. A very questionable decision.
Now let's consider their future decisions and their financial impact.
Do They Stay in This City/State?
Perhaps the best thing they can do for their financial situation is to move to a less expensive, lower-tax locale. The lawyer may end up taking a pay cut for doing that, but the doc is likely to get a raise so it will probably be a wash income-wise. But now they can buy a better house for $500K and perhaps even eliminate their state tax completely. In addition, many other costs go down (may no longer need a private school, food, transportation, parking, etc. may all go down.) Unfortunately, like joining the military to pay for med school, this isn't primarily a financial decision. They may be in that expensive city because they love living in big cities. Or they have family there. Or whatever. But if you're not really into Northern California or Boston or NYC or whatever, get out! It might mean working for 5-10 fewer years before retiring.
How Long Do They Continue to Live like a Resident?
This couple is saving well over 50% of their net income. That will give them an awesome jump start to their financial life and almost guarantee eventual financial success. However, how long they do it for also has a major effect on their ability to accumulate wealth. Living like a resident for 2 years is great. Living like a resident for 5 may give you the ability to retire a decade or so out of residency.
How Long Do They Drag These Loans Out?
While there is something to be said for borrowing at a low rate and investing in hopes of earning a higher rate, I find that the docs who seem to accumulate wealth the fastest don't seem to do that. They still invest, but they also pay off their student loans within 2-5 years—even the low-interest rate ones. You're really not done with med/law school until you've paid for it. So where does that money come from to both invest and pay off debt? From the lifestyle, i.e. living like a resident. I just don't see how someone who can save $12K a month expects $180K in student loans to last 7 years. I expect them to last 18 months. Maybe 3 years total when you include the doc's 0% family loan.
Family loans are great, but there's something about owing money to family that isn't very comfortable. As a senior college student, my parents once gave me their beater Geo in exchange for a $3K 0% interest note I was supposed to pay off as soon as I started making real money. I paid it off in September of my intern year. As Dave Ramsey says, “Thanksgiving dinner doesn't taste the same when you owe money to other people at the table.” While they may never say anything, every time you buy a car or go on a vacation, they're going to be wondering why you're not paying them back instead.
What About That House?
Let's get back to that $1.5 Million house. Buying that on a $380K income essentially guarantees they'll be house poor. Even if they had the cash to buy it outright, the maintenance costs (generally 1-2% of the home's value each year, although possibly less in really expensive places), property taxes, insurance, and furnishings are not insignificant.
Whether they actually buy a house that expensive and when they do so are two very big decisions with serious financial ramifications. Delaying the purchase may mean it has a higher purchase price and even a higher mortgage rate, but it also means they will be in a better financial position when they do so. The purchase of the house will basically end the “live like a resident” period for them. They'll be doing well to save 20% of their income after doing that. Even a 30-year 4% mortgage on $1.2 Million is $69K a year (18% of their gross) and that doesn't include taxes, insurance, maintenance, furnishings, upgrades, utilities, etc.
These are all decisions that we all have to make. How we make them will determine how wealthy we become. Now, don't get me wrong, the end goal isn't to die as the richest guy in the graveyard. But choices have consequences. Ignore them at your peril. As a high-income professional, all your friends, family, patients, partners, and clients assume you're rich. You might as well be rich. Given that you already have a high income, you become that way simply by managing that income well.
What do you think it takes to get rich? What have you done to choose “I will be wealthy”? What choices have you made that work against that goal? Comment below!
Also dont forget that the external pressures from around are trying to cut physician pay-whether articles by liberals claiming and clamoring for lower physician pay or computers and ai growing or states allowing nps to do the work of physicians.
I will be an outpt internist after residency next year and my goal is to work as many hours as I can to make as much as possible for these next 12 years. I feel somewhat safe that my income will hold up that long-but beyond that who knows!
I’m surprised how many docs I run into that feel like they need to make hay while the sun shines. I hope that fear is misplaced but worry it may not be.
I read an incredibly bilious and obtuse article stating that physician pay is too high on politico. It even had a rolls royce as its main image. These articles are coming up with increasing frequency from nytimes to politico to the atlantic.
Regarding wealth and ability i want to say this-
Personally I am biased to the studies showing poverty epigenetic changes and other factors affect education attainment. The kid w drug dealing parents or single mom unable to leave their neighborhoods for better places where their brothers are shot have a really hard time succeeding.
Or-if you havent-i recommend a book called The Unwinding by george packer. It discusses how poorly educated folks who have worked hard who have done what they can for their families are abused and taken advantage of by their employers and lose out and their children struggle too. These arent lazy blue collar workers. So it bega the question how easily they can move ahead in life. When youre working 2 jobs to make ends meet just when can you read stuff on the internet to meaningfully learn.
That said-my dad grew up in poverty in india in a village. This is a place where electricity was available maybe twice a day at set hours where no one owned a car in the 50s-60s. His parents knew education was the only ticket out. He studied everyday graduated from the top engineering school there came here for a phd in engineeriny then an mba at a top 10 and made himself into something special. All the while also supporting his brother and sister and as a result they followed the same educational path-phds in computer science and engineering and are doing well. As a result my cousins are surgeons, mit engineers working for google, and investment bankers, and im a physician as well.
Its hard for me to reconcile what i know to be severe problems of poverty leading to struggles w success vs the obvious poverty of my parents and their actual success.
Ive noticed as well that poor immigrant families from certain regions-europe and asia -have greater success than other groups. If economics was the only factor then why are some groups doing better?
I always thought it was because culturally some groups value education more but i dont know this is the case.
Also Im not sure about whether one can simply say reading stuff online makes someone richer. You have to have the support structure to succeed. Maybe this structure is not income related just that being rich helps make it easier.
My parents are middle income immigrants who lived in a village. They succeeded
It’s simply that both luck and hard work/good decisions play a role. The only disagreement anyone in this comments section has is how big each role is. Someone who tends to lean left politically sees luck playing the bigger role and someone who leans right sees hard work/good decisions as the main factor. But I don’t think any reasonable person would say that either of those has no role at all.
Hi WCI, great article! One of the “choices” I’m trying to make soon is whether or not to lock in the gains in my TSP. It’s up 24% in the past 12 months and, along with the S&P 500, has done nothing but climb for the past 7 years (since I joined the Army and started utilizing it). I’m learning more about this, and your website has been extremely informational and helpful. I don’t like the idea of selling and trying to “time” the market so to speak, however, since the TSP is tax deferred (I also have about 45% of my money in the TSP Roth option), I’m wondering if you think it would be prudent to move the money from the C,S funds into the F or G fund under the assumption that all good things must come to an end and there will be a correction/crash. This is where I feel like it goes against all Boglehead’s and prudent stuff I read says to do, but on the other hand, it feels good to consider locking in such great gains to buy back in later. What are your thoughts? Thanks!
So, going forward, are you going to invest according to a written plan or according to how things feel? Because I can tell you which one usually has more success in the long run.
The problem with market timing is you have to be right not once, but twice. And it’s tough to be right just once.
WCI, thanks, that’s what I need to hear. I feel like if someone asked me the same question I’d tell them to hold it and not jump in and out. I do have an IPS (thanks to your other posts on that) and you’re right, I’d be going against the investing philosophy I wrote I would follow in there. I guess there’s just this tendency to think I can “get away with it” but I needed to hear your answer. Thanks!
If you think it’s tough to stay the course when the market is going up, imagine what it will be like when it falls.
I hear this all of the time, but do you have to be completely right? If you sell some now you are protecting some of the gain you have had. It doesn’t matter if things keep going up for years, if you protected that gain, and you sleep better, you were “right”.
Maybe a big difference is whether or not you are still able to make active contributions. I still have 15 – 20 years at this point of monthly contributions. Seems like I can afford to take some current gains of the table. I haven’t hit the button, but I sure do think about it.
cd :O)
If you’re feeling a need to “lock in some gains” I think you should do it permanently, i.e. a permanent reduction in your stock:bond ratio. You’ve probably got a portfolio that is more aggressive than you can handle. You want to have your asset allocation at the point where you would equally regret missing out on additional gains if the market continues up and regret not being more conservative and avoiding additional losses if the market goes down.
2 years after living on a salary attending.
1. Buying a $42000 car on cash year +1. BAD. (Car was for wife’s and baby)
2. Staying with the same 8 yr old car for myself on year +2. GOOD
3. Buying a 300k house on year +2. I think GOOD as it is nowhere as expensive like other attendings with similar salaries.
4. 10k yearly vacations year +2 split in many weeks. Big BAD financially but best investment in terms of happiness. And I am being conservative on that 10k estimate, I do not want to know the exact number.
5. Maxing out 403b, 529s, Roths, full emergency fund, insurance coverage. GOOD.
“hard work/good decisions as the main factor” as in one of WCI’s comments. 100% agree.
I absolutely love this blog post! In fact, I loved it so much that I wrote about it in my latest blog post entitled Read Rockstar Finance Articles Daily to Increase Your Financial Knowledge!
https://www.peerlessmoneymentor.com/archives/4530
Thanks for the shoutout!
Welcome
Move now. Geographic arbitrage is their biggest over/under to not over mortgage their future selves and opens up access to FIRE insurance.