By Dr. James M. Dahle, WCI Founder
Some of the best financial advice ever given to me by a colleague is encompassed in these four words: “Live like a resident.” Simple, yet profound. There are really five pieces of advice encompassed in this short phrase.
#1 When You Are a Resident, Don't Live Like an Attending
It appalls me to see someone taking out just as many loans as a resident as they did in medical school. They might be special doctor loans to live off of, it might be a car loan for that car you now feel entitled to, it might be a big mortgage, or it might just be running up the credit card loans. When you're a resident live like a resident. You'll make $60-$70K, which is about the average household income of an American. These few short years give you perspective on how your patients live that you can carry with you for the rest of your life. Maxing out a $6000 Roth IRA [2021] is a big deal when you only make $60,000 a year. You'll sometimes have to decide between an upgraded cell phone plan and taking a road trip. Believe it or not, living within your means doesn't get any easier whether you make $60,000 or $600,000; you're just moving bigger numbers around in your budget.
#2 When You Finish Residency, Don't Upgrade to an Attending Lifestyle
If you could live in a 2000 square foot home in a mediocre neighborhood as a resident, you can still do it. Doing so allows you to do several things. First, you can pay off your student loans. Second, you can get your portfolio jumpstarted. As we saw in this post on compound interest, the early years of saving are the most important because they lend more time to compounding. What better time to get started than right out of residency? It will be far harder to cut back your lifestyle later than never to have upgraded it in the first place. Third, you can save up a down payment on a home. That gets you a little lower fees and interest rate than using a doctor mortgage loan.
#3 Work Hard
Look, no hands!
You're probably coming out of a residency where you've gotten used to 60-90 hour weeks. As one of my emergency medicine colleagues said, “I just got done working 20 shifts a month for three years; why can I now only work 14?” He figures if he only cuts back to 17, he gets an improved lifestyle and a few extra thousand a month, which will go a long way. The marginal utility of money is much higher for him now than it will be in 20 years, and it will probably be worth it to him to trade more of his time for money now than later. Working more has the added benefit of improving clinical skills and establishing business contacts with physicians and others. The learning curve is still steep for a year or two out of residency, so why not pretend you're a fellow and just upgrade your lifestyle a little.
#4 Five Times the Pay Doesn't Equal Five Times the Lifestyle
When you do upgrade your lifestyle, remember that five times the pay doesn't equal five times the lifestyle. You will pay far more in taxes as an attending. You will have a lot more business and CME expenses also. Many doctors in their first years out of residency will find more mouths to feed at their tables. Nicer cars burn more gas and cost more to repair. Bigger houses cost more to heat, insure, maintain, and furnish. You'll also need to get serious about saving for retirement. Bottom line? Five times the salary probably only means you can double or triple your lifestyle. The longer you can delay upgrading, the more financial benefit you'll see. Sure, you don't want to delay gratification until you're 90, but just holding on a little longer after residency can make a huge difference later.
#5 Doctors Should Save More Than Non-Doctors
Remember that part of your salary is to make up for the fact that you spent over a decade of your life training for your chosen profession. Your college roommates not only have lower loans, but they also have had more years for their savings to compound. You will need to save a higher percentage of your income (and a much higher percentage of your net income) to get to the same place for retirement as them. Plus, on a relative basis, Social Security will make up for a much lower percentage of your retirement income than for a lower wage earner. Whereas they are likely to do okay with a 10%-15% savings rate, you'll probably need to save 20%-25% of your income. If your lifestyle upgrade encompasses those extra funds, you'll never catch up.
So, if you want to have the financial freedom to work fewer hours, retire early, explore lower-paying niches of your specialty, do medical mission work, or just have nicer stuff down the road, LIVE LIKE A RESIDENT during and for at least a few years after residency!
What do you think? Did you live like a resident for a few years after residency? Why or why not? How long did you do it for? Comment below!
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I’d suggest modifying the advice of living like a resident after starting out as an attending to only slightly upgrading your lifestyle for the first several years. If you spend 10 – 20,000 a year on fun stuff in your first years as an attending you’ll feel that your lifestyle is much better than as a resident but you can still save a huge amount. Pick the one thing that’s most important to you to splurge on and keep everything else in your budget at residency level.
That was my strategy and allowed me to pay off my med school loans in three years. I kept the same car and lived in a modest apartment but spent extra money to travel around the world.
Good luck on your site and I’ve been enjoying reading your entries so far.
Yes, you’re probably right. The truth is you can probably double your lifestyle and STILL get loans paid down and save up some money. But if you quadruple it you’ve shot yourself in the foot.
This is a nice idea, but it doesn’t really acknowledge the extent to which its feasibility is almost 100% dependent on when one has kids. Saying on survived in a small (in our case 800 SF) apartment in a crummy neighborhood so you can do it for a few years afterwards, too, doesn’t make as much sense when your kids are hitting school aged and you need a reasonable school district, and they are starting to need their own bedrooms, etc…. I would love to see more attention paid to how to handle this aspect of things!
“This is a nice idea, but it doesn’t really acknowledge the extent to which its feasibility is almost 100% dependent on when one has kids. Saying on survived in a small (in our case 800 SF) apartment in a crummy neighborhood”
This is one reason to consider relocating. I managed to put myself, my wife (primarily stay-at-home), and four kids through residency, including two kids through braces and buying one a car. You learn to pinch pennies quickly. We pretty much wrote off residency interviews in places like Seattle and Irvine because they were simply unaffordable on our budget and moved to middle America, where we’ve managed to hold down a 2700 square foot home in a nicer but less populated suburb with pretty decent public schools.
Now that I’m an attending, I’m taking a job a little further out, driving against traffic, and bringing home federal loan repayment, holding onto my moonlighting gig, and for two years, investing heavily in getting student loans off my back. I figure it’s a two year investment towards getting my life off to a good start. There will be more time for backpacking and solitude thereafter.
Yes, having a few extra mouths to feed, clothe, and house makes a huge difference. But the point of not growing into your income all at once is still valid.
@WCI: Fair enough!
I suppose I’m just mourning that I’m not in a position to do more of this – and wondering about other suggestions targeted more towards my situation. In particular, the discussion of skewing long work hours early struck me as pretty much 180 degrees away from the other women-physicians-with-kids, who are constantly trying to find ways to deal with the fact that the time they most need to limit their hours (when kids are under 5y) are the times the system expects you to work the most hours (and for the least pay).
Do you think there are any suggestions you would have aimed especially at people who have kids earlier in their careers (or get through residency a little older – in my case, I did an MD/PhD) and/or the spouse who is the physician is the mother, not the father?
In hindsight, every single one of these rules is absolutely right on. The trouble is convincing my then 27 year old self to actually do these things. For me, it took until I was 33 years old to finally fully realize the wisdom of the above advice and I learned it the hard way.
I did all the wrong things financially from day 1 of medical school. Went to an out of state, more expensive medical school, borrowed the max amount each year to live off of. Bought a house during medical school 2 years before the 2008 disaster (fortunately the bank lost most of the money on that one since we didn’t put much of anything down, but it ruined my wife’s credit for 7 years). Did not start saving during residency. Did not refinance my high interest rate student loans in residency. Bought 2 new cars during residency (still driving 1 of them 9 years later). As soon as I got a job as an attending, we bought a big, old house that needed full restoration and took on the project mostly ourselves. The house is worth a lot more now and we have a lot of equity in it and really like it, but if I would have instead saved aggressively and paid off student loans and delayed our upgraded lifestyle for a few years, I’d be in a lot better financial position right now.
I’m just now finally getting a good handle on our debt, savings, investments, etc. Thanks to this website mostly! I don’t regret anything necessarily, because I now know very well how not to make the same mistakes again. But, things could have certainly been a lot different right now had I known to follow the above rules!
Sorry to hear of your situation. It’s not uncommon unfortunately.
WCI, you should do a post on pros and cons of buying v/s renting a place to live. It will be nice to see what doctors think about this.
You mean a post like this:
https://www.whitecoatinvestor.com/10-reasons-why-residents-shouldnt-buy-a-house/
This was good. But i was hoping that you did a comprehensive review from an attendings perspective. Not a residents.
It’ll be in this month’s newsletter. Make sure you’re signed up.
First let me say, we love your site! My husband is in his first year of residency in one of the most expensive cities in the nation (our modest 750 sq ft apartment is $3400/mo). I work full-time, but even with two incomes we are far from comfortable. I’ve been saving for retirement since my early 20s, but it is starting to feel like we can’t afford to keep it up. Do you have any advice for those of us already locked into our pricey residency locations? We planned to start a family in the next year and it seems financially impossible.
If you’re locked in, you’re locked in. Why would you be able to change that?
I guess you could get really creative and have you move somewhere else and have him take in roommates, but that might make it a little tricky to get the family started so I don’t think I could recommend that. I think most in your situation suffer through, endure the consequences of the choices they’ve made, and are a lot more careful at the next career crossroads.
It’s honestly beyond me why people live and take jobs in places like that when they have other options because of exactly what you have discovered this year. Maybe you didn’t have other options, I don’t know, but it’s tough to live in places like that as an attending, much less a resident.
Maybe this post will help:
https://www.whitecoatinvestor.com/financial-success-in-a-high-cost-of-living-area/
I think we only had 1000 square feet when we started our family and there were five of us in 1600 square feet for a while, so I’m not sure I’d put off a family due to the apartment size. The child care is a major issue however since it sounds like you’ll need to keep working full time.
If you’re actually still saving money you can stop that. What you save as a resident usually pales in comparison to what you can save as an attending. Maybe that would allow you to start the family or cut back a bit or pay child care, I don’t know without knowing more about your budget.
Thanks, I appreciate the suggestions!
I hope you are not in NYC- you can certainly get a somewhat cheaper place!!
Probably, this advice should be accompanied with one little sub-title – Don’t buy a house too soon.
How soon? 3-7 years- every one is different. May be until you are sure that this is where you will live for at least 10 years. Or may be until you have money for 20% down? That’ll also teach you how hard it is to save money.
Because nothing will tie you down and make you miserable like buying a house where you don’t want to live. And being an accidental landlord is not always fun.
Jim, thanks for all the work that you do. Great blog, podcast, email newsletter, etc.
I haven’t felt the need to post before, but some of the quasi-negative comments above prompted me to, especially involving children. Let me tell you, it IS possible.
I am nearly 2 years out of Orthopedics residency and have 6 children; the oldest turns 11 this year and the youngest is almost 6 months. 3 of them were born during residency. Since graduating, I’ve paid off all ~$70K of my student loans and have put ~$70K toward retirement. Had I found WCI sooner, my situation would be different, but I’m determined to catch up now. Yes, I am in Ortho, but I’m also in the military, so the paycheck is comparatively slim. It is possible if you just make a conscious decision that your eventual freedom is far more important than stuff. And for what its worth, an environment that emphasizes material possessions will usually produce children that won’t be a blessing to you anyway… Rent an inexpensive house, drive used vehicles, shop at thrift stores, don’t eat out, and still remind yourself every day how privileged you are compared to the rest of the world. And, as a bonus, if you involve your children in all this, you will cultivate their hearts and minds rather than merely meeting their physical needs.
Just one year into my attending status, and my husband is a fellow, we made a huge lifestyle change from living in a big city paying 2500 on rent and 4000/mo on childcare and moved into a town 80 miles from his fellowship where my in-laws live and moved in with them so that I am paying my 150,000 debt in 12 months on my attending part-time salary, getting more time with our kids, and just my husband suffers making the drive daily for fellowship. While living with family may sound crazy to many, it is allowing us help with childcare while permitting me to crush my student debt each month and as I see my student loans drop exponentially each month, it is super satisfying. I tell everyone on here, pay your debt, make a goal to do it in MONTHS not YEARS. It is so worth it!
You’re not the first to knock out a huge student loan in your first year out. It takes 4 years for a military HPSP doc to pay off her debt, so you’re beating that by 3 years!
Another thing to consider is the overall trend in how we as a country pay for healthcare. Regardless of where you fall on the spectrum, it’s fair to say that the environment is not going to get any easier in terms of physician salaries.
Hi doc.
I am an IMG soon starting my FM residency in USA. I have met several people who have scared me by saying that FP routinely spend 50 to 60 hours in hospital even after residency and get paid below 200k for the rest of their lives. Some say that FP get only one to two weeks of paid vacation per year .
Are these true?
Do FP get paid so less for so much work and very little vacation?
Anyone please guide me about their work and life as FP?
It’s highly variable. Some are paid under $200K. Others who run a practice efficiently with APCs under them may make $400K+. Some work 60 hours a week, others work half-time. If you want more than 1-2 weeks of paid vacation a year, don’t sign a contract that only provides 1-2 weeks of paid vacation a year.
Hello, thank you for the great info you provide on this website! I have read your book and started some of the recommended books. I’m currently a first year med student and have a scholarship. My partner works and we currently have 10,000 in student loan debt and a 7,000 car loan. I’m confused as to where to begin. Do we pay off all of our loans first, then save? Or do we try to do both? With savings do we start with Roth IRA then progress? Would you suggest saving for every car from now on? We don’t have employment met retirement contributions. I apologize for all the questions but I would really appreciate your help!
If you truly don’t need any more money to complete your education (including residency interviews and moving costs to residency) then it would be reasonable to start paying off those loans. You can either start with the smaller one or the highest interest one. If you have earned income, consider Roth IRA contributions as well.
Yes, I would stop buying cars on credit.
When we finished training we did buy a house. But it was not a doctor house. We paid in part with long commutes. Our neighborhood was largely schoolteachers. This meant that there were no keeping up with the Joneses problems and our kids friends came from educated middle class families. No one was buying expensive cars or taking fancy vacations.
Instead of living like a resident for a few years, consider living like a teacher or professor for your life. Such people live good comfortable lives. Raise and educate their kids, save for retirement. All on incomes a fraction of what doctors make. If they can do it so can docs.
This is such a wise comment. The upgraded lifestyle will not make you happy. Happiness comes from connection, which comes from *joyful application of attention* — be it to friends, family, work, whatever. The extra money you get as a doc is a blessing, and can serve a real purpose (kids wanting for nothing, safe, comfortable cars, a cushy and early retirement) but it is not the goal. The lifestyle expansion is not the goal. Living a life that has high percentage of joyful application of attention is the goal.
Here’s to 10 years! I agree the advice is just as it was 3 years ago. It’s funny, when I give personal finance talks to residents I steal these pearls. Although, I usually strikethrough the 5 times the salary to 3 times. Peds residents in my are are getting in the mid 5 figures but making in the low 100s after graduation. I also feel like these days personal finance is less forgiving. With the loan debts rising and salaries not keeping pace with inflation its harder to earn yourself out of a bad situation.
Good job personalizing and adjusting. It could be adjusted the other way for back and plastic surgeons I suppose.
I meant to post that comment to the post “The Impact of Mutual Fund Fees” 6/12/2012. I have too many tabs open, sorry.