The White Coat Investor Network[Editor's Note: This republished WCI Network post comes from The Physician Philosopher and is about a frequent topic on this site — physician spending. Enjoy TPPs simple steps for building real wealth and intentional happiness.]

One of the most common questions people often think about doctors, but are too afraid to say out loud is, “How much money do doctors make?”  I always find this question interesting, because people are curious how “rich” doctors must be.  Apparently, the disparity between wealth and income confuses more than just the physician community.  In today’s post, I’m going to tell you how much doctors make, and then I am going to proceed to tell you why that number doesn’t really matter.

Let’s dig in as we discuss physician incomes, our debt burden, and the personal finance failures that often lead to a high-earning physician living paycheck to paycheck.

How Much Money Do Doctors Make?

In the 2018 Medscape Physician Compensation Survey, the average physician salary is somewhere between $223,000 and $329,000.  This is self-reported, which means it might be artificially inflated.  However, it does give us a frame of reference:

If that link makes you log in, here is an image from the survey that shows each specialty’s income:

The reason for this very wide range is that some physicians (like a pediatrician or general internist) might earn $150,000 to $200,000.  Yet, other specialties earn north of $500,000 (e.g. plastic surgery).

According to the same Medscape survey, U.S. Physicians earn more money than physicians in all other surveyed countries except Canada, which apparently leads the pack.

Other sources show comparable salaries to the Medscape data.

Wealth and Income

Despite those very large numbers, many physicians are not actually wealthy.  (Note: Wealth = Assets – Debts). Many physicians live paycheck to paycheck despite their high income.

The problem in medicine is no different than the problem in the NFL or NBA.  When the big checks start rolling in – like Shaq who spent $1million of his signing bonus in a single day – physicians are as inclined as a professional athlete to spend every single penny.

Let me state something obvious. Winning at personal finance is not complicated.  Here are the steps:

  1. Earn a decent paycheck.  (In theory, the more the better.)
  2. Spend less money than you make.
  3. Save the difference between what you earn and what you spend and invest it in the market so that your money can earn more money.

Don’t put words in my mouth, though. Despite the simplicity of the three steps outlined above, personal finance is NOT easy.  In fact, it is really hard.

The reason isn’t the complex math, it is the behavioral finance behind it all that makes it difficult to do the right thing with our money.  Even low income earning physicians can be wealthy — if they know how.

Doing the Right Thing Isn’t Easy

The problem for most physicians (and many other people) is that we feel that we deserve to spend every dime of the money we make.  After all, we started behind the eight-ball by waiting to earn the first attending paycheck.

It starts with four years of undergrad.  After four more years in medical school, we finish with an average of $200,000 in student loans.  This debt gets to compound at 6-7% interest over three to eight more years spent in residency & fellowship.

By the time we finish all of our training, we have likely accumulated north of $300,000 in student loan and consumer debt. Even using a student loan refinance ladder, this amount of debt takes its toll.

With a net worth that is about $300,000 less than a newborn baby without a penny to her name, you’d think this group of people would go and pay down their debt.

physician income

Instead, we use that big paycheck you witnessed above to buy even more debt in a house, cars, private school for the kids, and designer gadgets.

In turns out that spending less money than you make is about as easy for most Americans as eating healthy and exercising.  We all know that we should do these things, yet we don’t. It’s part of being human to know what we ought to do, and then to fail to do it.

Why Behavioral Finance Matters

This is why behavioral finance matters. We have to get the number one enemy – ourselves – out of the way.  We can do this by playing mind games and setting ourselves up for success.

Here is a practical example of what I mean.  Follow these three steps.

  1. Spend some time thinking and talking with loved ones about how you would design your ideal life.  If you don’t know how, then use these three questions.
  2. Figure out how much money you need to save annually to live the life you designed in step (1) by the age you want to retire.
  3. Automatically set your paycheck to be dumped into savings accounts until you get to this number.  Fill up your tax-advantaged space first (401K, 403B, governmental 457, HSA, and backdoor Roth IRA).  Send any remaining money you need to save to get to your goal in a taxable account.
  4. Live your lifestyle based on what is left.

Following the four steps above will get you to your goals.  And, if you automate your savings, then you will never see the paycheck in your bank account. There won’t be a temptation to spend it all because it’ll be broken into your savings account before you ever get to see it.

Not only does this get you out of your own way to save what needs to be saved, but it also makes you realize how much money you are allowed to currently live on.

You can’t spend a dime more unless you want to spend another day, week, month, or year away from that ideal life you designed in step 1.

Take Home

Physicians earn a lot of money, but it is all for naught if we don’t use it to build wealth.  If you know your “why,” or the reason behind your decision to save that money, then it becomes much easier to accomplish.

Personal finance isn’t complicated, but it sure is hard if you don’t get out of your own way. This is why behavioral finance matters (and why I’ve written a series of posts on behavioral finance topics).

We must realize that our income is not tied to our net worth if we do not use the money we earn to build wealth.  This will only happen when we figure out the important things first (e.g. our savings rate) before we spend what is left.

Otherwise, we are left spending the money we make and hoping that we will have enough left in the end to retire someday when we realize we want out.

Is it easy for you to separate the ideas of income and wealth?  What are some ways that you help yourself out financially?  Do you automate your savings?  Have you figured out how much you need to save each year to get to your goals?  Leave a comment below.

Subscribe to The Physician Philosopher Blog