By Dr. Disha Spath, WCI Ambassador
Doctors—and other people who are used to making a lot of money—often focus on increasing income in order to build wealth. And who can blame us? When it is so easy to trade our time and skills for big bucks, you can get caught up running on the hedonic treadmill of income production. Oftentimes, our spending and expectations grow alongside the increasing income, as well. But, there are certain times in life when we are reminded that the income we made so easily may not always be depended upon to support our families. The sudden drop in medical visits during the beginning of the COVID pandemic was one example of such a time for many physicians.
My revelation of this truth occurred a few years before that with an unpaid maternity leave.
Just five years ago, my life was a lot different. I had just graduated from residency, and my husband, an Army captain, had recently gotten out of the service due to medical issues. He enrolled in a master's program, and I went to work as a full-time hospitalist. He planned to stay at home with our son and to do his studies remotely.
“Sure, I’ve got this,” I thought. “Many families have lived on one doctor’s income. We can do this, too.”
So we bought the doctor house in Georgia for $350,000 and some reasonable cars (two Hondas) and achieved the American dream (?)—mortgage debt ($335,000 + $130,000 for a rental property we already owned), car debt ($40,000), and student loans debt ($237,000). All of that amounted to three-quarters of a million dollars in debt! After accounting for equity, we had a net worth of . . . wait for it . . . negative-$250,000.
The Cost of Maternity Leave
Of course, each of the above-mentioned debts produced a fixed cost every month that needed to be paid along with our living expenses. It was fine; we could afford to make the payments—as long as I was earning income. We were even maxing out our 401(k)s, paying a little extra to student loans every month, and building our emergency fund.
But, as soon as the income stopped on maternity leave, I was reminded of the cost of carrying a lot of fixed expenses and liabilities. We had very little breathing room. Sure, we had saved a nest egg in preparation for the maternity leave. But the payment pause on my student loans that I had expected during maternity leave didn’t get approved for some unknown bureaucratic reason and that put an unexpected strain on my family’s finances.
In this space of very little breathing room, scarcity, and fear, I spent my maternity leave trying to sew a couch cover while listening to The White Coat Investor book. As I listened, I realized the reason that I felt poor even though everyone else thought I was rich. You see, I had bigger plans. I dreamed of being free from living paycheck to paycheck.
I had also previously read Rich Dad, Poor Dad and had the framework in mind for making that happen. I dared to try to own my own time, to stop trading time for money, to work as little or as much as I wanted. Everyone else seemed to think a doctor’s income would be enough to have plenty of money on the side to invest. But the reality is that living the upper-middle-class doctor lifestyle on one internal medicine income often leaves very little extra money at the end of the month, especially when there is student loan debt in the picture.
We often end up shackled to our jobs and paycheck to make ends meet at the end of the month.
Making a Plan to Go from Broke to Millionaires
I realized that to achieve my dreams of early financial freedom, we would need to make more room between our income and our expenses. Being a new mom, I wasn’t willing to work more. I dreamed of more cuddle time with my baby. But I could certainly get better control of our expenses.
So, my husband, Josh, and I made a plan to turn things around quickly, before our kids were too cool to want to hang out with us. And turn things around we did.
We went from worse than broke to the double comma club in just five years. I now work only as much as I want to and have plenty of time to hang out with my babies. Here is the short version of how we did it:
- We collected all the data: First, Josh and I sat down and actually calculated our net worth (depressing!). This involved listing all our debts and assets, as mentioned above. We also made a plan to start tracking our spending. This meant really looking at every expense on our credit cards at the end of every month and tracking it on a spreadsheet (there are apps out there that will help with this, too, but spreadsheets worked best for my project manager hubby).
- We made a debt payoff plan: Then, we took a real hard look at which debts we wanted to keep carrying and which ones we wanted to pay off. We decided to pay off the cars and the student loans (I worked for a for-profit company prior to PSLF overhaul, so Public Service Loan Forgiveness was not an option). We decided to take the snowball method by going for the smallest of these loans first—the car loans. We put all extra money toward our smallest debt while making minimum payments on everything else. We refinanced my federal student loans with a private lender to lower the interest rate in the meantime.
- We made the “magic delta”: What’s the magic delta? It’s the difference between income and expenses. Creating and maintaining the magic delta is the source of wealth. Easier said than done. Josh increased our income by finishing his master's and going back to work. We decreased our expenses by moving closer to family so they could help us with childcare, selling our house and renting a smaller one for a bit (we made about $20,000 selling the house because of some DIY improvements we made), keeping a budget and slashing fixed expenses, and getting very selective about our daily spending habits. You can find more information about the specifics in my previous article here on WCI.
- We learned about finance and made a written financial plan: While we were working on our debt snowball, I really took a deep dive into personal finance. I took the time to read as many books as I could and listened to all the financial podcasts I could find. Soon, a unified theme began to emerge in my mind, and I began to understand the big picture. Both cars were paid off in about eight months and then the student loans got paid off in the subsequent 17 months (!!). Hubby and I took a CME trip to Hawaii to celebrate, and there, we took the time to dream and draft our written financial plan. In it, we described what we would do in the next phase.
- We executed: In the written plan, we decided to max out all the tax-advantaged retirement accounts available to us every year. Now that we had increased our magic delta by quite a lot, we could. We then saved up a down payment to buy our next doctor's house—one that was big enough but still allowed us to meet our 50% savings goals. After we bought the house, which was about 1,000 square feet bigger (and $130,000 more expensive than our first doctor home), we set up automated investments into a brokerage account and 529s. Along with equity investing, we also aimed to buy one income-producing rental property a year. We have been able to do so by careful leveraging and doing our due diligence. Creating a business for my writing and personal financial teaching hobby helped us create even more room for tax-advantaged investing and income.
In this way, we have decreased our expenses and liabilities and increased our income and investments over the last five years. I have steadily been increasing my income diversity, as well, by working as a primary care physician, a hospitalist, a freelance writer, a podcaster, a speaker, and now as your WCI Ambassador.
I just love that there are so many ways out there to build our financial freedom and that there are so many of you here excited about learning it and teaching it to others. I hope my story will help the WCI community, and I look forward to sharing the rest of our journey and to growing with you.
It’s totally possible for lower-income docs and other younger moms like me to create a financially stable future for our families. If we make a few right moves, we can make rapid progress. We just need to be a little bit more cognizant of the expense side of the equation and a little more creative.
For me, the goal of achieving rapid financial independence has taken a back seat to prioritizing financial flexibility. Some call this approach SlowFI. Recently my boys have been telling me that I am working too much and they would like to see me more. Thanks to a comfortable magic delta, I can cut back my clinical work hours without sacrificing our financial stability.
In fact, I have found that every time I've cut back clinical hours, I am usually able to make up the income lost in a smarter way that makes better use of my time and efforts. That’s the beauty of living below our means—it gives us the financial flexibility to prioritize exactly those things that are most important to us, so we can design a life that we are truly thrilled to live.
How long did it take you to get back to broke after training? What steps did you take? Have you found other ways to increase your income in a more time-efficient manner? Comment below!