By Dr. James M. Dahle, WCI Founder
There is a classic story in Genesis where Esau trades his inheritance to his brother Jacob for a bowl of soup. It demonstrates the high cost of impatience and immediate gratification. A large part of personal finance is encouraging delayed gratification, because far too many people stink at it. However, doctors and other high-income professionals may be the world's experts on delayed gratification, generally putting off any significant earnings until their 30s. This leads many people to mistakenly assume that the physician financial blogosphere thinks they should put off spending and enjoyment for years and years and years in pursuit of a mythical comfortable retirement. The idea often shows up in a question such as:
“When can I start enjoying my money?”
Or a statement such as:
“Living like a resident is stupid when you might not even make it to retirement age.”
The Answer Is Now
I refute the premise of the question. If the question is
“When is it OK to start enjoying your money?”
the answer is right now. Yesterday. Years ago. You should be enjoying it all along. There are five important money activities in your life:
- Earning
- Saving
- Investing
- Spending
- Giving
You should learn to do them all well and learn to enjoy them all, whether the amounts are large or small.
However, if the question is really
“When is it OK to spend all my money without regard to my financial goals?”
the answer is never. And if the question is
“Will spending more money make me happier?”
the answer is, probably a little happier, but not as much as you think. And then you'll get used to it pretty quickly.
In Defense of Live Like a Resident
While I can't claim to have come up with the phrase, I have been telling physicians since the first month of this blog's existence to Live Like a Resident for 2-5 years after training. The idea behind Living Like a Resident is to actually get rich first before you get used to living like you're rich. It's an extremely reliable, reproducible method for physicians to kickstart their wealth-building activities without ever feeling deprived. Yes, it's simply delayed gratification packaged up into a phrase that is easily understood by doctors in training, but it works. Maybe it wouldn't have worked for Esau, but it'll work well for anyone willing to do it.
Here's how it works, at least in theory. A typical resident makes $55,000-$60,000 a year and pays a little money in taxes and perhaps saves a little for retirement. Perhaps the resident actually spends $50,000 a year. Then, after completing training, perhaps this doctor now makes $300,000 a year. If that resident will just continue to live that $50,000-a-year lifestyle, that frees up a LOT of income with which to build wealth. Without a doubt, that new attending will pay a lot more in taxes, probably more than was earned as a resident—perhaps $75,000 a year. But even after subtracting that out, there is still
$300,000 – $75,000 in taxes – $50,000 in living expenses = $175,000
to use to build wealth. It really doesn't matter what that $175,000 is used for. Some of it likely goes toward student loans. Maybe there is a private loan or credit loan or auto loan to take care of. Maybe some of it goes toward an emergency fund or a house down payment, especially in that first year. Some probably goes into investment accounts such as retirement accounts or HSAs. Maybe it goes toward buying a practice or buying into a partnership or surgical center. Who knows? It really doesn't matter. Every dollar of debt paid down increases your net worth just as much as every dollar invested.
In practice, it's a little different. Almost no one actually lives like a resident for very long after training. Most people give themselves at least a little raise. Maybe they buy a second cell phone or a second car, like we did back in 2006. Or they replace that car that somehow miraculously got them through residency. And maybe they go on an additional vacation every year. The truth is that most docs can give themselves a 50% lifestyle raise coming out of residency (50% would be huge in corporate America) and still get rid of their student loans, get into their dream house, and build a nice little starter nest egg—all in less than five years. A little lifestyle creep isn't going to kill them; it's the lifestyle explosion they need to avoid.
More information here:
What Does Live Like a Resident Really Mean?
The Average American Household Income
I'm flabbergasted every time I hear someone talk about how underpaid medical residents are. Sure, on an hourly basis, it's pretty crummy if it was just a job and not a paid apprenticeship. But it's like they don't even know that most dental residents don't receive a salary AND are still paying tuition. It's like they don't even know that the average American household lives just fine, their entire careers, on the equivalent of a single resident salary. That's right. Half of America lives on less than a resident salary. Live Like a Resident is not being sentenced to poverty. It's simply saying, “Hey, why don't you just live like everyone else for a couple of years even though you could spend more? It'll be worth it.”
When I hear someone say that they can't enjoy their money and build wealth, what are they saying about everyone else in America? That they're all terribly unhappy, impoverished serfs? Really? That's a serious lack of perspective.
You Can Have It All, Just Not Right Now
As near as I can tell, despite living like a resident (OK, a resident + 50%) for four years and then slowly growing into our income over another few years, we haven't missed out on anything. We didn't get to have it all immediately, but we got it all eventually. Consider the list:
- Big fancy doctor house. Check.
- Brand new expensive cars. Check.
- Bought the latest gadgets. Check.
- Provided every opportunity to our kids. Check.
- European vacations with the whole family. Check.
- Fancy kitchen remodel. Check.
- Eat out any time we want. Check.
- Fancy, brand new boat. Check.
- Go on vacation every month. Check.
- Drop night shifts/call. Check.
- Cut back on days at work. Check.
- Go heli-skiing. Check.
- Give lots of money to charity. Check.
- Be outrageously generous with family, friends, employees, etc. Check.
I don't get it. I don't feel like I missed out on anything. It turns out that a lot of that stuff is just as enjoyable in your 40s as it would be in your 30s. Did we get all that the year I finished residency? Of course not. But we got it eventually. Is it possible I could have died before I got all that? Of course. There are no guarantees in life. But if you live your 30s like you won't make it to 40, then 99% of the time you're going to be sharply regretting it in your 40s, 50s, 60s, and later.
More information here:
How Much This FI Physician Family Actually Spends in a Year
Learn from the Stoics
If you want to try to spend your way to happiness, I assure you that you can eventually try. However, chances are good it isn't going to work anyway. While there are ways to spend money that will make you happier (shared experiences with people you care about are usually at the top of the list), trust me when I say the law of diminishing returns will rapidly kick in. The Hedonic Treadmill is far more likely to make you less happy, not more happy, especially if you get on it too soon.
Some Practical Guidelines for Enjoying Your Money
Enough discussion of vague philosophy. Some people really like to have clear, concrete guidelines. Let me attempt to give you some.
#1 Spend Enough to Avoid Feeling Impoverished
This guideline applies even in medical school when you are living on loans. It's like successful dieting; if you're hungry, it's not going to work. You need to spend enough that you don't feel like you can't spend anything. Now you can use that to justify any amount of spending, but be honest with yourself and make sure you always spend just enough to make sure you don't feel impoverished.
#2 Live Like a Resident
A 2-5 year period of intense financial concentration after you finish training is wise. If you're an orthopedic surgeon making $700,000 with $110,000 in student loans, two years is probably plenty. If you're a PM&R doc making $190,000 with $400,000 in student loans, you're probably going to need to go a full five years unless you've got Public Service Loan Forgiveness doing a big chunk of the heavy lifting.
#3 Save 20% for Retirement
After the Live Like a Resident period, you still need to save something for retirement. You can never spend it all. My general guideline for attendings is to save 20% of your gross income for retirement. If you're going for a very early retirement, you'll likely need to save even more.
#4 Spend the Rest
Part of putting together a written financial plan is to determine how much needs to go toward each of your goals in any given month. Perhaps it's $5,000 for retirement, $1,000 for college, and $2,000 toward a short-term goal. Once you have paid yourself first, you should feel free to spend the rest on whatever you like.
#5 Paying Cash Shows You Can Afford It
My favorite gauge of whether I can afford something is whether I can pay cash for it while still meeting all of my other financial goals. If I have to borrow for something, or even if I consider borrowing for it to invest the difference, maybe I shouldn't buy it at all. It's a bit similar to the famous Jay-Z saying:
“If you can't buy it twice, you can't afford it.”
#6 Moderation in All Things
If you find yourself in an extreme position, where you are either spending nearly everything or saving nearly everything, perhaps you ought to reconsider your balance. Moderation in all things is a good motto to live by. It helps you to minimize the regret of spending too much and of saving too much.
If you find yourself asking “When can I start to enjoy my money?” remember that the answer is either “right now” or “never” depending on what you mean by the question. But don't forget to loosen up the purse strings eventually. Your hearse won't have a trailer hitch, and if you don't fly first class, your heirs will.
What do you think? How would you answer the question? How and when did you decide to spend more and save less? If you lived like a resident, have you ever come to regret it? Comment below!
Great post!
Dentist here—for accuracy’s sake most dental residents are actually paid. 75%+ of dentists are general dentists whose 1-year general practice residency (GPR) is usually paid. Many states don’t even require the residency to start practicing out of school. Specialties of pediatric dentistry and oral surgery are also usually paid. It’s the specialties of orthodontics, endodontics, periodontics and prosthodontics that usually charge tuition.
Thanks for the correction/clarification.
What is the typical salary/stipend for a GPR?
Of course. I’m a long time WCI and appreciate your frequent dental shoutout! It’s about $60K nationally.
I gave a talk on dentistry as a career and compiled some data for it (attached below if you’re interested)
https://docs.google.com/spreadsheets/d/1G-b5VcDEtsxP_viCI5npLSoPL9Ua9AbkSmTGn53Sbu8/edit?usp=sharing
Overall very nice article, but I will say the remarks about resident salary fall a bit flat. With the current rates of inflation, that median salary you mentioned is not going as far as it used to. 40-60% of Americans are living paycheck to paycheck. Many families need economic impact payments or government assistance to get by these days. I don’t think it’s unreasonable for residents (or other low-/middle-class workers) to fight for better pay.
One can both fight for better pay and learn to live on the pay you actually get at the same time. As you know if you’ve read much of what I’ve written, I’m certainly a bit fan of trying to get paid more.
As an anecdote, in training I worked on a CHf service as a second year resident. This service also had NPs on it. I saw twice as many patients as the NPs, took call on the weekend and did nights. Those NPs made twice what I did, despite doing half the work and they did not do nights or weekends.
No, residents are not paid fairly for their work.
I agree with your last statement. To be fair though, interns are overpaid and senior residents are underpaid! The ratio of education to work changes throughout the course of the “apprenticeship” that is residency.
You have to be a little bit careful with the “pay residents more” argument. There are already too few residency slots for the number of med school grads. As they get paid more, there are likely to be fewer positions. Let’s take it to an extreme to illustrate the point. Imagine if only 25% of med school graduates matched, but they matched into $250K/year jobs. Is that better or worse than the current situation?
Law school grads and Big Law jobs would like to have a word.
I moonlighted during the last three years of residency. Instead of paying down my $67,000 in student loans (med school 1986-90), we spent all the money.
Back then, my 2nd year of residency salary was $25,000 and topped out at about $30,000 for the 4th year.
I remember making $80,000 in my last year as I had moonlighting lined up almost every weekend. We arrived in “attending world” in 1994 with a salary of $135,000. We paid extra on our loans then as we had only one child, but my wife borrowed another $30,000 for her MSW. It took us about 8 years to pay off $120,000.
Anyway, we didn’t exactly “live like a resident” as far as vacations. We did get married for “only” $10,000, but we have always liked our trips. We went to Bermuda for our honeymoon. From 1995 to 2005, we took trips to Jamaica, St.Martin, Aruba, Hawaii, Cape Cod, and Akumal, Mexico. Seemed like about two per year to somewhere for decades.
I do not regret these early vacations or any since. As you mentioned…one can die at any time. Clearly, we ended up with less of a retirement nest egg due to these decisions. The three biggest money pots we had after taxes and retirement funds were a big house, private school/college funding, and vacations. Each of these slowed down the savings rate.
Now, with me working less than half as much and making half as much, we are aware of our spending, but are certainly enjoying it. I’m not a big fan of leaving a million or two on the table. We will spend most of it.
I don’t buy it Huckleberry.
So, you are saying that high earners should grow into their income quickly? (Instead of slowly?). And you also advocate spending now… instead of saving???
Seems to me that most physicians/dentists would be happier and their lives more fulfilled with some moderate restraint… and a season of bridled lifestyle creep.
Dr T,
No. I’m not saying newly minted “White Coats” should grow into their income quickly. That was not my point at all.
We drove sensible cars (a Camry or an Altima or similar), bought an inexpensive home ($102K in 1994), and paid down our credit card debt to zero quickly. We took one vacation a year for the first few years. We counted CME trips as vacations. We paid extra on our student loans, we maximized our 401K.
My point was we could have done more to save early on and we would have a larger nest egg now. My post shows some mistakes. However, I do not regret the vacations. Overall, we could have been more restrained for sure.
There is a balance and while we did some things well, we could have saved more. I think living like a resident for a few years is a great idea and feel like we did to a degree. We certainly should have spent some of my moonlighting money on our loans.
We did not build our “dream home” until I had been working for about nine years and it was after we had no debt.
By all means, be more frugal the first few years. It’s a good idea.
Great article! One thing that I think is worth mentioning is managing expectations. Too often, physicians have a sense of FOMO based on what everyone else is doing or seems to be doing, how much money they seem to have or spend, etc. You never know someone else’s financial situation so its always best to eschew comparing your lifestyle to that of someone else. Determine your list of priorities. Do you want a sports car because you are a serious car enthusiast and plan to make a hobby out of it, or is it just another “lifestyle ornament?” For most physicians, serious (and I mean serious) wealth will elude them. Multiple vacation homes, car collections, yachts, watches that cost more than your entire education, regular Michelin-star dining – you probably won’t be able to have it all. So figure out what is meaningful in your life and spend accordingly. Some of us have trust funds and some of us are in debt up to our eyeballs. Compare yourself to only to a former version of yourself, not a high-rolling colleague.
I deal with a lot of Dr’s and NP’s who used to live like residents, but don’t any longer. I think a number of them succumb to the wishes of a spend happy spouse or a business which requires more overhead expenses than what are truly needed. We try to help them run a more efficient operation so they can take home more pay, but some just want to provide jobs.
“ Provided every opportunity to our kids. Check.”
If I remember right you used public schools. Many doctors spend huge amounts on private elementary school and beyond, trying to give every opportunity to their kids. Private school may not be worth it but the opportunity happens on the kids time scale — you can’t send them back to private school at age 22 after you’re already rich. The cost for 2-3 kids can be as high as pushing a new luxury car off a cliff each year repeated x 12 years.
Whether people should use public or private schools is a complicated question. For some people, there are no public schools. For some who value a religious education that is available only at private schools. The quality, local support, teacher turnover, class size, safety and other considerations vary widely for both public and private schools. Parents have to look at their circumstances, their priorities and their alternatives.
Private schools vary widely in cost. As with any other expense, parents considering expensive private schools must plan for the cost.
If you believe that private school tuition is as worthless as pushing a new luxury car off a cliff, then clearly you would not use private schools if you had a choice.
Some of us view luxury cars as a complete waste of money even if not pushed off a cliff.
If I was told all I could do with my money was pay tuition or buy a fancy new car every year, I would go with the private school if I thought it was, maybe, possibly, 1% better than public.
If I thought the private school was worse, I would accept that I had to buy the car. Then I would sell it to someone else before it left the lot. If possible, I would arrange this without ever visiting the dealer or seeing the car.
Everyone has to choose their priorities. For me, expensive cars are something actively to be avoided. Don’t get me started on expensive travel…
Just trying to use a memorable image to illustrate the cost, not saying private schools aren’t valuable. One of my co-workers sent all 3 children to the high end private in town ($35k/year now per child for elementary school) and is now still picking up extra night shifts in her 50s. Education is way more valuable than a nice car for sure. Those who are criticized in financial blogs for buying, say, a Tesla likely aren’t buying a brand new one yearly for 5-10 years in a row.
Would never send my kids to k-12 private school – it’s a waste if the local schools are good, presuming it’s not done for religious reasons. But the “private schools or a luxury car” discussion is a false choice – why do either? We gave our kids the gift of going to the best (and “right for them”) colleges they could, and paid for them completely. By saving since they were little, we funded it while still getting to way-past FI by my 50’s. It can be done with planning, still taking extended expensive vacations, etc.
Would never send my kids to k-12 private school – it’s a waste if the local schools are good, presuming it’s not done for religious reasons. But the “private schools or a luxury car” discussion is a false choice – why do either? We gave our kids the gift of going to the best (and “right for them”) colleges they could, and paid for them completely. By saving since they were little, we funded it while still getting to way-past FI by my 50’s. It can be done with planning, still taking extended expensive vacations, etc.
Private school gets complicated in HCOL areas. In the North East often good school districts have houses that cost more and higher property taxes so many people chose to live in cheaper neighborhoods and then send their kids to private school vs. living in an area with better schools and going public.
One thing I notice at least in peds is that the resident salaries have risen faster than attending salaries especially in pediatrics. For example, my hospital in NY pays about 77k for a PGY3 resident and a new grad pediatrician makes around 130-150k. Back when I was in training about 20 years ago residents made about 40k in this area and pediatricians started at 100-120k. I think this makes the transition to attending harder since it’s not as big of jump as you’d expect.
I’m amazed that attendings stay there and take $130K jobs when there are jobs paying twice as much out there. Per Medscape this year, the average general pediatrician makes $244K. That means half of them make more.
https://www.medscape.com/slideshow/2022-compensation-overview-6015043?icd=ssl_login_success_221012#3
I get that a few people are trapped in life circumstances (spouse makes $600K there, have to stay there to take care of aging parents etc) and cannot leave a geographic area. But for twice the pay, most logical people would and that should be enough to put serious upward pressure on salaries like $130K for a physician. It’s hard for me to understand how jobs/salaries like that persist.
You should write a post or do a segment on pay negotiation. My guess is that very few physicians in that position are appropriately valuing their contributions, advocating for raises over time (not through protesting or unionizing) but by actively keeping a portfolio of personal work data -time and contributions – and then comparing that with pay for similar positions in other localities, etc. Physicians aren’t taught to negotiate and many shy away from such situations about re-evaluating their contract that they may deem “confrontational.” However, in order to leverage better pay you have to be at least willing to search for other jobs and consider moving, and many people are not for various reasons.
You mean like these?
https://www.whitecoatinvestor.com/contract-negotiation-ten-tips-from-the-trenches/
https://www.whitecoatinvestor.com/3-negotiation-tips/
https://www.whitecoatinvestor.com/what-physicians-need-to-know-about-contract-negotiation-podcast-133/
https://www.whitecoatinvestor.com/anatomy-of-a-complex-physician-contract-negotiation/
Totally agree with you that it is an important skill. A better method in my opinion than diving into the details of time and contributions is to simply get a better offer elsewhere and ask them to beat it or match it. People do this all the time in the tech world. It’s truly the strongest BATNA (best alternative to a negotiated agreement) that you can have.
I agree with you that it is surprising that they can staff a department paying far below average salaries. Are academic types who spend much of their time doing unfunded research?
Medscape reports averages. For compensation figures, the averages are often above the median drawn off by a small number of people with exceptionally high incomes. Probably the peds median is below the average.
About 5 yrs post residency I got involved in volunteering in humanitarian medical missions. Secular, non-religious first Philippines then slowly others, Laos, Cambodia, Myanmar. I started once annually but evolved to taking all my vacations volunteering ;When I started using all my sick time PTO to volunteer, I knew it was time to retire to a full time volunteer MD. I’ve never regretted it…. Its not for everyone I know…. but for myself, it is the best use of the time I have left in this world…. the people I’ve met are extraordinary.
That sounds like it would make a great guest post:
https://www.whitecoatinvestor.com/contact/guest-post-policy/
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