By Dr. James M. Dahle, WCI Founder
Anyone who has been around the physician financial blogosphere has probably heard someone cite the “one house, one spouse” rule of thumb. In 2015, I expanded the rule with a blog post called One House, One Spouse, One Job. We've run that post again at least once since then. While the intentions behind a rule of thumb like that are good and while the rule is mostly accurate, there are exceptions to it. It can even be offensive to some people (although not as offensive as a similar rule of thumb—”If it flies, floats, or flirts, rent it, don't buy it!”).
Today, we're going to talk about the exceptions to the One House, One Spouse, One Job Rule.
The meaning behind the “One House” rule is that swapping houses is expensive. The typical round-trip cost of selling one house and buying another is in the 15% range. Meaning if you sell a $500,000 house and buy another $500,000 house, the total cost of that change is about $75,000. Costs include realtor fees, repairs, attorney fees, title fees, loan fees, upgrades, and more. Add in moving costs for a big move, and the sum is likely even higher. Note that $75,000 is more than many physicians save for retirement in a year, and $75,000 compounded at 8% for 3o years is $755,000. Lots of people (including more than 12% of physicians) retire on less than that.
The rule also refers to the costs of purchasing multiple homes, including timeshares. If you think maintaining just one house is expensive, try to maintain two or three. Too many docs think of second homes as investments, but the second homes are acting far more like a consumption item than an investment.
Exceptions to the One House Rule
There are exceptions to the rule, of course. One is simple geographic arbitrage. If you realize that earning $200,000 a year while living in a California house worth $2 million and paying California taxes is not helping you build wealth, you might choose to move to Nevada or Texas, earn $300,000 a year, live in a $500,000 house, and pay no state income taxes. Hard to argue you should stick to “one house” in a situation like that.
Here's another exception. What if you live far from your job and have a nasty commute? Time and time again, studies have shown that commuting reduces happiness more than just about anything else. While it may cost you some money, you're likely to be dramatically happier if you cut that commute in half.
Maybe your neighborhood has become dangerous, maybe you have kids that would benefit from a better school district, or maybe you have come into a large inheritance and want to upgrade your lifestyle. Moving to a different house would make sense in those situations.
Even a second home isn't necessarily a terrible financial decision, assuming you can afford it. If it dramatically increases your happiness, why not buy it? The goal isn't to be the richest doc in the graveyard.
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The “One Spouse” rule is simply a reflection that divorce is really expensive. Typically, divorcing docs end up cutting their income and assets in half. Do that two or three times, and it's easy to see why 12% of docs in their 60s have a net worth under $500,000. The misogynistic (but also cleverly rhyming) version of this rule is “It's Cheaper to Keep Her.” Date nights, vacations, and marriage counseling are expensive, but they're a whole lot cheaper than divorce. I have often told doctors that date night is the best asset protection move out there, as they are far more likely to lose wealth to their spouse than their patients.
The rule also reflects the fact that, statistically speaking, married people tend to build more wealth than single people, as long as they stay married. That likely reflects the effects of sharing costs and having two people working together toward a goal, whether or not both of them are actually working for pay. Naturally, if both ARE earning, it's a no-brainer that two incomes and one house will financially outperform one income and one house most of the time, despite the higher tax bill and household expenses.
Exceptions to the One Spouse Rule
“One Spouse” may be the most offensive part of the rule of thumb. Lots of people are single, like being single, and plan to stay single. Maybe they are aromantic or asexual. Maybe they like to play the field. Maybe they simply don't want to put their assets at risk of divorce. Maybe they just haven't met “the one” yet. Perhaps they are already divorced or widowed. To suggest they MUST have a spouse to build wealth is absurd.
Likewise, imagine someone in a toxic or even abusive marriage. To suggest they should stay put because of the One Spouse rule is obviously silly (and potentially dangerous).
Then, there are people who are polyamorous, polygynous, or polyandrous. If two people can build more wealth than one, what about two, three, or four? I don't know of a study that has ever looked at this, other than this one from Tanzania, which suggests it is at least possible among the very poor.
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The “One Job” portion of this rule simply points out that changing jobs can be expensive. This is particularly true when you own your job. I have two good friends who had to go through an EM sweat equity partnership track twice when they changed to our group. That cost them some money (although they'll both likely come out ahead in the long run). It's even worse if you have to close one practice and open another. You may end up fire-selling your equipment and furniture at one place and buying it all again at the new place. Or having to buy and outfit a new building (see transaction costs above). Or contracting with payors again. It takes a while to fill back up your clinical or surgical schedule, too.
Exceptions to the One Job Rule
Exceptions to this rule are becoming more and more common. The trend away from physician and dentist practice ownership and toward employment continues at a rapid pace. Only 26% of physicians now own their own practice. It's been less than 10% of doctors in my specialty of emergency medicine for some time now. Some democratic partnerships are now having trouble hiring because young doctors are so afraid that the partnership won't exist a year or two from now when they make partner.
When you are an employee (or a hospital-based independent contractor), the cost of changing jobs (especially within the same local area) is dramatically less than when you are a practice owner. In fact, in many professions, changing jobs actually increases your income. It is standard practice in the tech world to change jobs every 2-5 years. In medicine, changing jobs too frequently was once viewed as a black mark by credentialing committees. I suspect that this viewpoint is slowly fading away.
If you are an employee and haven't interviewed for another job in the last two or three years, there's a good chance that you're being underpaid. You don't have to actually change jobs to get higher pay; simply having a legit job offer in hand dramatically improves your bargaining position when it's time for a raise. At my hospital, it seems to be the main—if not the only—way nurses, techs, and clerks ever get a raise. Lots of them apply for other jobs with no intention whatsoever of leaving their current job. I suspect medicine will soon be the same way.
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Every rule of thumb has exceptions. That doesn't make the rule useless, but remember that you can take what you find useful and leave the rest.
What do you think? What other exceptions to the One House, One Spouse, One Job rule can you think of? Comment below!