[This article originally appeared as one of my regular columns in Physician's Money Digest (now MDMag.com) and is about the forces that encourage physicians to spend more than they should. The typical image that the lay public has of the financial situation of a physician is one of abounding wealth. However, the vast majority of physicians I interact with do not feel their situation merits that description. In fact, a large percentage of doctors are not wealthy by any reasonable measurement. I am no longer surprised when I meet physicians in their 50s or even 60s whose net worth is less than their salary. With ever-increasing educational costs, many doctors in their 30s and even 40s still have a negative net worth.]
Income Is Not Wealth
Few people, even among high-income professionals like doctors, ever read a book about personal finance or investing. The mainstream media often reinforces the idea that having a high income is the equivalent of being wealthy. Even the popular concept of “the 1%” is usually defined in terms of income, rather than real wealth. I hope this isn’t the first time you have learned this lesson, but income isn’t wealth. Wealth is defined by net worth, and net worth is built first by saving some portion of your income, then by investing it in some reasonable manner. Income is what you’re paid; wealth is what you have left.
Societal Expectations Are Against You
Your patients, your family, your friends, and probably even you have expectations of what your financial situation should look like. That is usually imagined in terms of what you spend—i.e. how large your house is, how nice your car is, where you vacation, how many toys you own, where your kids go to school, and what you do on your weekends. In fact, there are entire industries that wish to propagate this idea.
I was once asked to write for a magazine aimed at physicians. They asked me to write my first column on what I felt was my best financial tip for doctors. I told them my best tip was for new attending physicians to spend dramatically less than they earn by continuing to “live like a resident” for a few years after residency. They actually told me I could not write on that topic because they were afraid it would hurt their ability to sell ads to their advertisers, all of whom wished to sell expensive items to high-spending doctors. If you gauge how you spend on what you feel others expect you to spend due to your position or your income, then you are almost surely spending more money than you can while still becoming wealthy.
The Money Taboo
Society has a bit of a taboo about talking about money. However, that general taboo is nothing compared to what medical students experience from the time they start filling out medical school applications all the way through their careers. In most academic hospitals, any discussion of financial topics is looked down upon. You weren’t supposed to have gone into medicine for money. You try very hard to divorce the ability of your patients to pay for care from the care they actually receive.
Being called “a rich doctor” is actually an insult. This attitude bleeds over into our personal financial lives and leaves us vulnerable to our own natural tendencies to spend and also the tactics of unscrupulous financial professionals. Learn to fight against it! Learning how to properly manage your income will not make you a lesser doctor. In fact, it will increase your ability to practice medicine in any manner you see fit.
If you don’t like to use words like “wealthy” or “rich,” then how about “comfortable” or “financially independent?” There is little excuse for someone with an income of $150,000, $300,000, or even $500,000 to not reach financial independence by mid-career. But it is surprisingly common for physicians to end up working late into their 60s or even 70s not because they wish to, but because they have to in order to sustain their family’s ridiculously high rate of spending.
If You Wish to Stay Poor Despite Having a High Income, Be Sure to do the Following:
Debt
Run up as much debt as you can during medical school. You’ll be a doctor soon. You deserve to live like a doctor now.
Student Loans
Don’t be in any kind of hurry to pay back your student loans. Don’t worry about refinancing them or looking into governmental forgiveness programs.
Cars
Buy your cars on credit. Or better yet, lease them. Be sure to upgrade every couple of years.
Housing and Private School
Buy a big house in the best neighborhood. Then send your kids to private schools. Heck, why wait until you’ve finished residency? Using a “doctor loan” you can get a million dollar mortgage with nothing but an employment contract!
Advisors
Hire the first person who contacts you wanting to be your financial advisor. Ignore that nagging feeling in your gut that he cares more about his commission than your financial wellbeing. Gradually transfer 25-50% of your retirement to his retirement account over your career.
Investing
Don’t bother learning anything about investing. Money is your most easily renewable resource. If your investments don’t earn much, you can just see a few more patients.
Insurance
Buy whatever insurance the salesman recommends rather than evaluating the possible financial catastrophes in your life and insuring well against them.
In short, living like you have a limitless supply of money is a good way to ensure that you will always have financial stress in your life. If you learn to carve out 20% or more of your gross income to build wealth each year throughout your career, you may find that you have financial and lifestyle options available to few of your peers. The irony in all this is that living on 80% of a physician income is still a ridiculously wealthy standard of living when compared to the average American, much less the average human being throughout the world. As I frequently tell medical students, “If you can’t live on $200,000 a year, you have a spending problem, not an earning problem.” Control your spending and spend a few hours each year learning about personal finance and investing and you will eventually become the rich doctor your family and friends think you are.
What have you done to ensure your spending is aligning with your financial goals? What pressures do you feel from family, friends, and the medical establishment to spend more? How do you resist them? Comment below!
Obviously if you do not save 10-20% of your income or live beyond your means, everything else is meaningless
By just reading white coat investor, bogle heads guide to investing, or bogles and malkiels books, you will know all there is to know to invest on your own
A course I took ages ago on the subject of finance was devoid of mds
The speaker said most make so much money that they are not interested in the subject
I think too many docs think they can beat the system, that is do better than the mkt averages, but do untrue
The situation that I found myself in that makes it much easier to avoid the stereotypical big doctor lifestyle is that I hang out with very few doctors. Most of my close friends do not work in medicine and have average incomes.
and DO NOT GET DIVORCED, financial suicide
I think this would be an interesting topic for a future article; specifically one related to prenuptual agreements and how well they stand up in court in the event of a divorce.
Marriage is a sunk cost. Gotta just cut your losses. 😉
when I first got out of residency in 08 I bought myself a nice BMW. Cost me close to 60k, paid it off within a few years. In 2011, I bought another luxury car for my father. He had a stroke in 2014 so he could no longer drive and so I sold the BMW for 17,500 (and used the money to buy dividend stocks) and took over the other luxury car. I didn’t realize until around 2012 that the concept of being wealthy and earning a high income are two completely different things. I had bought an expensive home, but still much less than what I can actually, afford (mortgage is about 12% of my after tax income). I started really investing in 2012. When I sold my BMW, I was so happy as maintenance and insurance were expensive. That plus I went from being wasteful to being frugal. I biked or took the bus to work. My wife took the bus (thankfully we have a good transit system where I live, so taking transit often times is even faster than driving… Same with biking apwith both being less stressful). We only have Netflix, took staycations, etc.
Now, I am 35 and have a net worth of over 1.6 million. I generate 36k a year in non working (dividend and rental) income (which keeps going up every month). And I did this all doing primary care, while my wife is an office assistant. I was speaking to my lawyer friend who bragged to me that he would one day “be in the top 1% of income earners and he would need to make x amount of money a year.” He spends like there is no tomorrow. Has a new Porsche. Was able to blow 1k on an NFL playoff game last year, etc.
Being financially free is a great feeling. Being able to hang up my stethoscope at any time is great. All the while I see my friends buy big houses, then buy nice furniture, art, etc to fill up those houses. Then they slave for their cars, and their houses and their kids education. And all for what? For status. Well, they can be slaves to all the companies I hold. They can go buy their nice cars and nice bags and nice houses. While they pay for my financial freedom. And hey, whose to say I won’t buy that Ferrari down the road?
You and Eric Tait seem to follow the same route.
That is a remarkable achievement. Can you give more detail as to how you accumulated such wealth doing primary care in 3 years? Your post seems to imply you didn’t save much from 2008-2012 (at least that’s the way I took it with your BMW and home purchases and your later realization of the importance of investing). Even with being frugal since 2012, achieving $1.6M seems near impossible in such a short span of time unless you had truly outsize investment returns, inheritance, or some other windfall.
nothing beats being financially independent and living off unearned income, but very few achieve that goal at ret age; usually lack of education
You should post on the concept of Consumption Smoothing. This is the idea that some of what happens with aging curve is that the young load up on debt to “pre-purchase” a basic level of need and then use their productive years paying back. The notion is that rather than live poor then live rich you try to live sustainably. My wife and I had two kids in Medical School and part of our financial plan did involve debt that many folks in forums like these frown on. But for us, getting a 2008 minivan in 2012 with a 5 year car loan was worth it because we had a family of 5 and were far from having the salary to save cash for that car. We adhere to the buy used and drive it to dust axioms, but we also are cognizant that TIMING is important and a low interest car loan let us get an asset that added value and reduced stress. I think many young doctors are implicitly using this rationale, and it isn’t necessarily wrong. We still save 20% and this is important to start early, but all consumer debt and house debt isn’t evil or irresponsible. Consumption smoothing can let people avoid the real stress of living like a resident with a family, or mitigate other individual circumstances to achieve balance. For some, this is a very valuable way to financially plan – we probably won’t ever have european vacations but we will have cars/house that can get us through a two career family with 3 small kids without adding stress. That is a trade we’re willing to make – less future disposable cash for more even spending across the working years.
I agree that consumption smoothing is ideal, but also keep in mind that the hedonic treadmill is real- i.e. a gradually increasing standard of living throughout your life is likely to keep you happier than a perfectly flat one. Certainly a decrease in standard of living is generally a bad thing. Also, there is a price to consumption smoothing- it’s called interest, and if it is too high, then you may never become financially independent. So moderation in all things.
I disagree somewhat with “Don’t be in any kind of hurry to pay back your student loans.” This is more of an individual issue and not so simple. What you probably mean is be smart about your loans, etc, and pay them off if high interest as part of an overall debt reduction strategy/wealth building. Some of us however are counting our lucky stars to have consolidated to very low interest rates due to sheer luck of graduating in those fortunate years. Of course I could accelerate my repayment (that whole debt snowball thing) but now that my borrower benefits for consecutive payments have kicked in, I’m down to 1.5% APR. I’m using that “extra money” instead to max out pre-tax, Roth backdoors, solo401k’s, etc.
As always, I enjoy your site and all your work you do toward educating those among our ranks. I’ve taken to directing residents and fellows directly to your site and your book. As regular readers know when talking to colleagues, it’s an uphill climb.
Pretty unusual for anyone to get 1-2% fixed loans anymore, although those who graduated about the time I did often had loans like that. Obviously you probably have better things to do with your money than to pay back 0% loans.
Alternate title: Living Poor Means Being Rich
At least now that we have gotten over that One Last Hurdle. 😉
Isn’t there a way to live between? I mean it doesn’t have to be black and white. I’d like to think there a certain things I can splurge on sometimes, but still live within my means and continue to be conscious of my spending.
I think so, as WCI has posted that as long as you are saving 20% (just for retirement, more if you are targeting other items), you should feel free to splurge on anything else that makes you happy.
I’ve personally chosen to lease cars (as poor a financial decision as I know it is) as my little form of splurging (it does help to be in a better paying specialty as there is more wiggle room to play with). I’m in the fortunate/unfortunate position where my wife is the one who likes to play the role of super-thrifty and I’m the one who needs to be reined in from time to time 🙂
The thing with a physician income is you can do anything you want, but not everything you want. If what you want is a leased car, or a wakeboat, or 3 international vacations a year, or to retire at 45 etc you can do it. But you can’t do all those things.
Moderation in all things.
Agree with the moderation theme coming through in many of the comments.
As I have indicated in prior post, I have accumulated over $8 million investment portfolio at the age of 54. I feel I have deprived myself or family of nothing. We drive Mercedes and Lexus vehicles.(as an aside, Lexus incredibly more reliable.) Live in a $600,000 home that is paid for. Owe nothing except for VISA bill from prior month. Take one nice vacation per year, and a few long weekends here and there. Typically fly business or first if flight over 4 hours, stay at the Ritz or Four Seasons.
The key is moderation. Spend some, save some. Enjoy the journey, any one of us could die tomorrow, or we could live to 90. Have to live for both scenarios.
I have done all my own investments, never had an adviser. In retrospect, just basically followed kind of a Lazy Portfolio stance. Have allocation in indexed, low cost US equity, International Equity and US Fixed Income. Thats it, no weird financial products, real estate, ethanol plants, rentals, outpatient surgery centers, etc.
Agree with Kratos who posted previously, “there is nothing like financial independence.” Money is not everything, but financial independence is an incredibly empowering feeling.
If you come out of residency at 30 and get an 8% return on your investments, you only need to save $111K a year to get to $8M by 54. That’s very doable for many well-paid physicians or two physician couples while still having a very nice life.
But you’re not going to get there by saving $25K or by earning 4% after fees, taxes etc.
I think I agree but get a slightly different value? Did you use Excel?
=PMT(8%,24,0,-8000000) ?
=PMT(8%,24,0,8000000,1) =110947.86
I rounded up. Remember that last number in those functions changes depending on whether you make the payment at the beginning of the period or the end. I assumed the beginning. You probably assumed the end.
Congratulations! It is uplifting to hear about your success! Would you mind discussing how you think about your portfolio now? I’ve been hoping for that post you said you’d write. Are you becoming more conservative in your asset allocation as you are near retirement? Do you think about your portfolio as one big lump sum or do you think of it in parts? How did you handle the Great Recession? Thanks for your comments and thoughts.
Sam,
I would love to hear more details of your journey – if you are willing to share. How much did you make, save, invest etc. in and out of tax-deferred accounts. A guest post would be awesome if you and WCI can work it out. You have reached extraordinary wealth levels and others could certainly learn from your example.
Guidelines can be found here: https://www.whitecoatinvestor.com/contact/guest-post-policy/
I am flattered by all the comments from my fellow physicians regarding the amount of my investment portfolio. I would like to say that I had some magical investments that produced extraordinary returns resulting in $8 million dollar portfolio, but I would be lying.
As mentioned previously, this resulted from “boring” low cost Vanguard mutual funds, indexed to specific areas. If you believe in evidenced based practice of medicine/surgery, you have to believe in mutual funds which are based on a specific index. The evidence is clear and undeniable, passive investing in indexed funds beats active management over the long term. In addition, they do so at a fraction of the cost which is extremely important. As investors, we cannot control market returns or inflation, but we can control our costs which can be a drag on return.
Will try and write a guest post, or lengthy reply on the details, but I actually think you might all be bored. I found that accumulating the first million was very difficult, but after that each successive million came easier and sooner to the magic of compounding. As John Bogle famously said, “stay the course.”
Boring investing is good investing. Acquiring $8M is still fairly rare among physicians, even if you did it the slow way I preach on this site.
Sure, investing on your own in low cost indexed funds is a part of the reason your portfolio is $8 million, but I would think there is a lot more to it than low cost index funds. Even if you had active management and paid AUM fees it sounds to me that you would still have a net worth over $7million, that is still great and would be worthy of a guest post. I would imagine that you saved well over $100k a year by spending reasonably when you were younger.
Here are some questions that I would be interested in knowing:
Did you have student loan debt to pay off after training? What was your annual salary after residency? Did you do a fellowship? What is your specialty? Did you always have a Mercedes and a Lexus or did you drive beaters for while? Do you live in a big city (high cost) or rural (low cost) area? Did you buy a house at more than 2x salary? Did you buy a house immediately after training or did you rent for a few years?Is your current $600,000 home your original home purchase how much did you pay for your current home? Did you do a 15 year mortgage or 30 year? Did your kids go to private school? Did you receive an inheritance? Did your wife work too? Is your $8 million portfolio your net worth or just your investment portfolio? How much of your investments are in retirement vehicles as opposed to taxable accounts? Do you own your own practice? Were you staying at the Ritz and flying first class when your children were young?
We are over $1.4million net worth almost $1.5 now. Wife is 41, I am 37. My plan has us at $8 million when my wife is 56 and I’ll be 51. We have 2 young kids that go to daycare, roughly 1900 per month. The plan is to have them go to public school for elementary and are saving $925 per month for college. We bought a home for 2x salary and own 2 “investment” properties, all debt is under 4.375%. Our cars are 2010 and 2011 Toyota and Honda, both are paid off. We go on 2 vacations per year to match up with the school year. We go out to eat at least 1 time per week, its hard to get out too much with little ones, 2 and 4 years old. Wife is fully bought-in partner at OBGYN group. We never fly first class or stay at the Ritz, hotwire treats us very well for hotels. I figured I had to share some to hear your story if you are up to it.
Sam Adams, I would like to know answers to all these questions as well.
You may not make it to 8 million at that age. What assumptions for growth and added capital are you making in your projections? You have a great start and a reasonable lifestyle though so even if I’m right you will be fine. 3M should be easy to hit and that provides nice cashflow ($10k/mo or so).
I use 3% inflation for all expenditures and 5% for college expenses. The growth rates on the investments was based on holdings in the accounts. We are at 100% equity right now and have accounts theoretically growing from 6.5% to 9.5%. I don’t plan to add bonds for a few more years, we are young and can deal with the stock exposure. I just made adjustments to have my growth rates range from 6% to 8%, that puts us at $7.4 million at that age. We have my wife stopping OB at 58 and doing only GYN at that point. We actually have my wifes income with a 0% growth rate, it actually goes down 5 years from now. What’s helping our plan is my business starting to make money and not increasing lifestyle a whole lot. We live in a great neighborhood, our house is too big for our family, and we could care less about driving corvettes, mercedes, BMWs.
In answer to a few of the questions asked…..
1. Finished residency with no school loans at all. Was lucky that schooling was paid for by my parents. Also did not attend expensive undergraduate or medical school. This was huge. The money I saved immediately after residency is the “work horse” of my portfolio via the magic of compound interest!
2. No I did not do fellowship.
3. Drove older vehicles, not beater, for first 8 years I believe. After that I have owned Porsche, Jeep, Mercedes and Lexus. As mentioned prior, Lexus vehicle is truly an investment. It will run forever with just routine care which translates in more money saving.
4. Live in medium size city, over 500,000 in the midwest entire career.
5. Bought smaller home, around 2500 square feet shortly after starting career. Lived there for 19 years. When purchased current home, used proceeds from paid for prior home and saved funds to pay for current home, so no mortgage.
6. No inheritance from wife or myself.
7. Children attended public schools.
8. Wife does work, but does not make “big” money.
9. $8 million is investment portfolio total, retirement accounts and taxable accounts. Why include house value, it won’t provide a source of income when I retire.
10. Private practice, same practice since residency. Many partners.
11. Majority of investment portfolio in taxable accounts.
Thats it in a nutshell. Nothing magical or mystical. Just saving along the way and spending along the way. I deprive myself or my family of nothing, within reason.
Amazing what a drag student loans can be eh?
Sam Adams, Can you tell me how much is your salary? and what percent of it you saved every year?
Thanks for sharing.
Great story. You downplay the difficulty but this is not easy stuff. To know what to do is not common. To actually carry it out for decades is even more rare! I also wonder about your thoughts on asset allocation? Do you agree with increasing your per cent of bonds as you age? I assume you have had a lot of equities. Also did you save a fixed per cent e.g. 25% of income or just add any bonuses etc to the pile? Thoughts on taxable account investments? (tax – managed vs index vs municipal bonds etc).
Was nearly 100% US and International Equity funds up until the last 10 year. Now around 60% US and International Equity, 40% fixed income.
I own no individual stocks, only funds. All my funds are low cost funds indexed to specific area of equity and fixed income. Fixed income allocation of taxable portfolio !00% tax-exempt funds, laddered in maturity from short-term to high-yield. The equity portion of taxable portfolio all indexed equity funds, with the exception of Vanguard Healthcare Fund. Owned healthcare fund since 1990 and I cannot part with it, as it has had spectacular returns over the years and is almost the goose that laid the golden egg in my portfolio.
401K and IRA also all indexed funds. Fixed income in these portfolios Vanguard total bond market. Also have ~5%(of total portfolio) holding in Vanguard REIT. REIT provides large dividend quarterly, so must hold in retirement vehicle.
Plan on just living off of dividends and capital gains mutual funds provide. I understand that with increasing interest rates share value of fixed income will likely decrease, but I will be indifferent to share value as I do not plan on having to liquidate shares. I suspect may have to liquidate if making big expenditure, though probably be infrequently.
Basically have followed the “lazy portfolio” model. All indexed, with various allocations. Allowed the magic of compounding to occur. Would suggest looking at all the varying “lazy portfolio” models and returns. Its very impressive.
How’d you like that 100% equity portfolio in 2000-2002? Was it hard to stay the course?
Didn’t like it at all! Nor did I like 2008-2009.
But you have to stay the course and remain diversified. We will all experience bear markets during retirement if we are lucky to live long enough.
I have 5.7Mill at Vanguard and 500k in other stuff. I plan to live off dividends and interest as well. I fully appreciate that the value of my bonds are going to take hit with rising rates but the income off them will rise. I also have reits (VNQ) in my tax deferred space. I am currently 63% equity mostly Vanguard indexes. I do own some Apple that I bought in 2008 that has too big a gain to sell. My questions for you 1) Do you plan to Roth convert any of your portfolio? 2) How much cash do you keep? I am working 3 days a week now doing just GYN. I may completely retire at 60. One reason I still work at all is to maintain health insurance. HaHa at the irony. I am trying to accumulate some cash now in anticipation.
Two points that you may find relevant.
1) The only thing worse than having to pay capital gains tax is not having to pay capital gains tax. If that Apple stock is a big chunk of your portfolio, I’d urge you to diversify a bit, even if it costs you some taxes.
2) You can afford health insurance with a $6M portfolio. It costs me <$1K a month for a family of 6. $12K*25=$274K portfolio to provide that benefit indefinitely. You should still have $200K a year in spendable income/assets above and beyond your health insurance costs.
WCI, I realize that I can afford health insurance but there are a lot more options if you still own a small business rather an unsubsidized Obamacare policy. I also use this as an excuse to not completely retire since I really do not want to. Apple is 3.6% of my liquid investment portfolio. It now pays a nice dividend so I will hang on to it for now. I may eventually gift some shares.
Thanks for the nuts and bolts response! Your first point is a big part of why we are striving to pay for as much of our kids education as possible. I don’t just consider my and my husband’s wealth. I think in terms of multigenerational wealth. I still hope you will consider a guest post someday. I am far more interested in how you think about your investments than the basic how to’s. Thanks again!
how many physicians can save 111 k/yr right out of residency, unless both are physicians
Certainly not the average one. But the average doc doesn’t retire with $8M either.
We have just finished our first year of practice. My wife is a professor who earns 70K a year. We are on track to save 150K this year. If you count the additional principle to our mortgage we will be saving >180K this year. It just depends on what you want in life like WCI states. We want to be financially independent in 10 years. We vacation on the cheap, drive 10 year old cars, in general just live frugal lives. We still eat out quite a bit 3 or 4 times a week but usually use groupons or go to deal nights when eating out. We are content currently and working towards a goal is very satisfying.
as a retired dentist, the stats say that less than 5% of dentists can retire at their present lifestyle
Probably the same holds true for physicians
would be nice to take a poll to see how well physicians are doing with regard to their ret plan wealth at or near retirement
the stats are truly a sad commentary on poor saving habits and poor investing
http://www.medscape.com/features/slideshow/compensation/2015/debt-and-net-worth
Not about dentists but compares the various specialties by net worth. Good to compare yourself to peers.
Great post, as I have said before, spending habits are the number one issue in creating wealth. Obviously it is best to avoid certain expenditures if possible, such as inappropriate insurance or investments, but any high-income earner’s financial success or failure will almost assuredly be directly related to their spending habits. My wife is an MD and we decided to buy a house we can truly afford and have 2 paid off cars (25,000 and 32,000) for over a year now. We celebrate with a nice dinner/weekend vacation pretty much every time our net worth increases another $100k. Those celebrations are becoming more frequent.
For those who are just starting out you have to realize this is a long process, a 50% gain on a 10k portfolio is nothing compared to a 5% gain on a $2million portfolio. You may have to save more and spend less (than friends/colleagues) to get there but it will happen if you are persistent. If you don’t have a net worth over $1 million 15 years out of residency then something is surely wrong as you should have that 8-12 years out.
That’s an interesting idea for rewards. I’m going to have to mull that over a bit, but I think I really like it.
Just finishing fellowship last year, I am 1 year into “living like a resident”. We have been pummeling my student loans. Put a large bonus all towards the bottom line. Wife stays at home. The soft pressure to spend, to have a luxury car, and a great big house is constant and comes from everywhere, especially, colleagues. Everybody sees our house (about 1x my annual salary) and that we are still driving the same cars we were when I was an intern 7 years ago and they wonder what we’re doing wrong (or at least I feel like they think that). According to the MMM savings calculation (http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/) the first year out we’ve put 71% towards improving our financial situation and have lived off the other 29%. It’s an interesting feeling to know that you are doing the right thing but still feel inadequate as you try to compare yourself to the Jones’. I write this because it’s often mentioned flippantly to live like a resident but it’s pretty difficult at times. That’s mostly a lack of perspective and feeling sorry for ourselves but it is a feeling that comes quite often.
It’s easier if you remember it’s only temporary. The plan isn’t to live like a resident forever.
It depends mostly on your thinking and on your social reference groups. Continuing to read has helped me (e.g. Millionaire next door). Also having friends who are lower middle class or lower income helps keep things in perspectives. We vacationed in rural China last Summer. It highlighted the difference in resources that we take for granted here. On world standard we are all rich here. Also, several studies showed that more material wealth and spending at this level will not increase your quality of life. Lastly, the average doctor has less wealth than they should and more debt than is needed. Don’t be average! Keep up the great work and perspective – which is not easy.
You are comparing yourselves to the wrong “Jones”! Read or reread Stanley’s The Millionaire Next Door. You are far ahead of us coming out of residency, although fairly we set a pretty low bar with some of our stupid early mistakes which you are both avoiding so far. Aspire to WCI, Ken, Hatton, and Sam (The Beer Guy) Adams above. These are your Jones’ and you are on track. Slowly liberalize your spending by 5-10% over the next couple of years especially when income increases. Living like a resident offers more than just financial reward. You are learning a great deal about yourselves personally and how you interact as a couple whether you realize it yet or not. Congratulations on your choices and success so far! Best wishes!
Thanks for the mention Dr Mom. DrO I have a net worth of 6.2mill but I have never flown first class or owned a Louis Vuitton purse. I was able to stop OB at 56 because of early savings and avoiding lifestyle creep.
Congrats on your success!
I wonder if the pressure to “live like an attending” varies by specialty? I’m in psychiatry and I don’t feel there’s any pressure at all. I live in the same neighborhood I did as a resident (I’m a year out), and there are several other psychiatrists in my neighborhood and we all send our kids to the same public school. We did buy a house rather than continue renting, but it’s a modest house that I love and plan on being in . . . well, forever. Most of our friends are either just out of residency or not in the medical field so there’s no pressure there. I feel like we’ve always had a good standard of living, even as newlyweds in college and in med school and into residency. So maintaining that same standard of living (but having the student loans paid off) doesn’t feel like a sacrifice at all. We have everything we need and most of the things we want and it’s a good life. Scratch that, it’s such an awesome life that sometimes I want to pinch myself to make sure it’s real, and I’m not even joking.
I remember feeling like that as a resident, then again as a military attending, then again as a civilian attending, then again as a partner and even a little bit now. In some ways, it’s pretty ridiculous that some of our colleagues struggle living on $200-400K, no?
It’s interesting, for sure. I think part of it may be the background you come from? My mom stayed home with myself and my 5 siblings and my dad’s a professor so while we had our basic needs met, if you wanted much else, you got a job and earned it. So I learned how to work, and how to be happy with what I had. Private schools, luxury vehicles, hey-even my own room!, those were not ever part of my life. But I also didn’t feel deprived or frustrated with my situation. I’m actually pretty happy with the way I was raised and rather than worrying about having too little money now, I worry a lot about how to raise my son well because we have WAY more wealth than my parents ever did. And I don’t want him to be a spoiled and entitled adult.
Do you have an extate plan?
If so, could you outline it for us especially if you plan to leave bequests for your heirs with maximal tax efficiency.
Do you have LTC coverage.
Any thoughts or comments would be appreciated.
Thanks
Have a funny story to share about living within our means. Been an attending for ~ 3 years now, graduated with ~$120,000 in student loans.
During the first 3 years, we decided to save some money and live in a one bedroom apartment. One day the toilet broke and the plumber came to fix it. He could not understand why we were living in such a tiny place and asked us point blank what was going on. So we just said oh doctors don’t earn as much as before, student loans and medical malpractice.
Funny thing is in 3 years, our net worth has gone from negative $120,000 to half a million.
One good thing about physicians living beyond their means is that you have someone to take your
call !!!!
I sometimes wonder if I am promoting the demise of our healthcare system by encouraging financial independence among physicians.
Well, I wouldn’t worry too much about that. There seem to still be tens of thousands of financially misbehaving physicians out there!
Plus, I could probably retire financially now but I have no intention of ever retiring. I’m only in my 40’s and may live another 50 years. I use my brain, am treated well, help people, stay challenged and make good money. What else could you ask for!
conversely living poor (creatively and happily) does mean being rich (sooner)!
I’m currently in my 3rd year of medical school and find this article to be very interesting.
I’m saddled in debt because of undergrad, grad school and now medical school. Looking at $400k in student loans when all is said and done.
Curious as to what you’d advise for someone in my position who won’t be seeing any type of paycheck for many years.
I don’t have any consumer debt except for a car which I purchased used because required for getting to my clinical rotations otherwise never owed a car until now because lived in major cities.
I should note that I’m also 30yr old single and looking to improve my financial situation.
Let’s see I have about $870k in life insurance because got it young when the cost was very cheap.
I do have some investments but nothing major under $3k in total in stocks, ETFs, Gold, etc.
Have always been interested in living the good life from a young age, because I saw what happened when my Dad lost his job and how our family situation changed when I was in high school and never returned to our solid upper-middle class level. My Dad is definitely a saver and never knew how much income family had until time to apply to college and financial aid and thought wow Dad has been holding out on us but actually that’s a good thing he saved and helped get through tough times.
My Mom on the other hand is a spender and does insurance/tupperware and is very good at it because grew up and she had the tupperware van. So I get a mix of both things from my parents, I save and don’t like to spend on things people would consider nominal but then I do splurge from time to time.
Medicine will always come first for me and not in it for the money. But I believe in living a good life, perhaps not keeping up with the Jones’ but setting the pace to be honest. This doesn’t mean living beyond my means rather expanding my means. I have a website which brings in some income each month, I’ve written some ebooks and get royalties from Amazon Kindle but nothing to brag about.
I’ve always told people I plan to make my money outside of medicine. And growing up in the internet and information age belief that is quite possible.
So working to expand my website and start making enough money that is equivalent to a regular salary so I can have my side business take care of all my student loans, then use extra income to invest more into stocks, Roth IRA, investments and start investing in real estate too.
As you can tell I’m not the typical medical person, I take into consideration my financial future and know that to live the life I want being wealthy will be necessary but I don’t plan on living beyond my means instead will expand my means to be comfortable and not have any worries.
What would I advise? Minimize your debt as much as possible at this point and decide during residency if you’re going to pay it back (in which case you should usually refinance it) or get it forgiven (in which case you should not refinance it.) I agree that other sources of income are helpful for everyone, including docs.