By Dr. James M. Dahle, WCI Founder
I've had readers asking for more advice tailored to low earning doctors in high cost of living (HCOL) areas. I've given some general advice (and ranted a bit) three years ago in a post titled Financial Advice for Low-Income Doctors. I thought it would be useful to expand on that subject a bit.
You Can Have Anything You Want, But Not Everything
I often tell groups of docs that they can have anything they want, but not everything and not right now. For a highly paid doctor, you probably can have everything (within reason) that you want eventually.
But for a low earning doctor in a high cost of living area that simply isn't true. You've got to recognize that up front. Your decisions are going to be comparing what you want a lot with what you want most. Don't even bother thinking about stuff you only want a little.
Move!
I probably ought to get this out there early in the post. The best financial decision a doctor in a low-paying specialty in a high cost of living area can do is to move. Well, maybe marry a back surgeon. And then move. While I recognize this is not a great option for many, it should be seriously considered by all (the moving, not the marrying for money).
I'm continually astonished that there are any pediatricians or preventive medicine doctors at all in the Bay Area or Manhattan. By moving you are likely to get a higher salary, a lower cost of living, and a lower tax burden. There better be something you really like about that area if you're going to trade all that for it. The best part about having low-paid doctors leave an area? Those who are left behind can now demand better compensation! It works even better for high-paying doctors, as evidenced recently on the WCI Podcast about the urologist with a 7 figure income.
Should Medicine Be Your Hobby?
Here's another radical thought that should at least cross your mind — maybe medicine shouldn't be the primary provider of your income. The lower your income, the easier it is to learn how to do something else that will pay you more.
This was a serious issue for me as I built WCI. Not only was I in a relatively high-paying field (at least on an hourly basis), but I was in a solid partnership where I was making more than the average in my field. Every time I looked at what I could make doing something else it never made much sense to do it. That was part of the reason I kept working full-time while doing WCI full-time + on the side. I couldn't justify to myself (or my family), despite its potential, leaving a pretty good income on the table to pursue it. Now I suppose medicine is a well-paid hobby for me.
If you're a pediatrician making $150K a year, maybe pediatrics should be a well-paid hobby for you. Maybe you get into real estate or dry cleaning or plumbing or consulting or whatever. Don't kid yourself that all doctors make more than all (insert whatever career field you wish here). It just isn't true. I canyoneer with a gentleman who describes himself as a janitor. But it takes spending a few days with him before you realize this “janitor” has 200 employees. Maybe you should make your money as a janitor and see kids in clinic on the side. Or maybe you should send your spouse to work as an engineer or a software developer or whatever and YOU should be the one working part-time or doing the stay-at-home parent thing.
You're Not a “Rich Doctor” and Never Will Be
Living like a resident. This is an actual picture of the 2 bedroom duplex we lived in during residency, taken on a later trip. The oldest was 2 when we moved to a 3 bedroom townhouse.
One of the biggest obstacles for many physicians is overcoming the expectations of their friends, family, spouse, and even themselves with regard to their lifestyle. Society assumes because you're a doctor that you have a high income and that you are wealthy. Many people assume those two things go together, but regular readers of this blog know that is far from being true.
When you are making less than $170K and living in an expensive city you cannot pretend you're a one-percenter because you aren't. You might not even be a ten-percenter. If you're in the Bay Area, you're competing with dot-com millionaires for housing in good school districts. In Manhattan, it might be people working in financial services driving up the prices. Even in places with booming economies and a moderate cost of living (Denver, Salt Lake, Austin, etc.), this effect is true, although not as extreme.
While there are a few doctors in my neighborhood, there are plenty of C-suite executives, private equity folks, successful salespeople, and various entrepreneurs. But when you combine a low physician income with a high cost of living area and the ever-increasing cost of medical education, you've got a recipe for a middle-class life. You need to either accept this mathematical fact or make adjustments that actually change the math.
The Math Living in HCOL City
In case you aren't familiar with the math, this is the way it looks.
- Gross Income: $150K
- Taxes: $40K (huge variability here of course, but this figure is from Paycheck City – married, standard deduction, 2 kids, in California)
- Student loan payments: $39K ($300K at 5% on a 10 year plan)
- Mortgage: $43K ($800K 30 year mortgage at 3.5%)
That leaves $28K to live on, or about $2,333 a month. Note that there isn't any money allocated to retirement or college savings in that budget. Looks pretty desperate, huh?
How to Make a High COLA Work
Okay. We've forgotten about getting rich, now we're just trying to have a reasonable middle-class life and a dignified retirement. But even to do that, we've got to change the math. We've already mentioned three ways to change the math. The first was to move. The second was to marry someone who makes more than you do. The third one was to get a new career so you can still afford to practice medicine. But there are more.
#1 Boost Your Income
I often hear doctors lament the fact that the average surgeon makes twice as much as the average family doc. What I never hear anyone lament, however, is that there are family doctors who make three times more than other family doctors. The intra-specialty variation in pay is far more impressive and fascinating to me than the inter-specialty variation. The New Jersey Family Doc who posted one of the comments that caused me to write this post noted how he had finally gotten his pay up to $190K. Well, there are family docs out there who start at a level of pay above that. Why do some get paid more? Lots of reasons (and methods for increasing it).
- Be a hospitalist
- Do urgent care
- Own the practice
- Hire advanced practice providers
- Hire employee physicians
- Take more call
- Cover a nursing home on the side
- Improve your payor mix
- Add a particularly well-reimbursing procedure–sigmoidoscopy, laceration repairs, I&Ds, vasectomy, OB, culposcopy, joint injections, botox
- Add evening or weekend hours to the clinic
- Shop around for a higher paying job every year or two (if nothing else it allows you to negotiate a raise)
#2 Cut Your Taxes
If my discretionary income was $2,333 a month you better believe I'd be an expert in the tax code and I wouldn't be paying a bloody red cent more than I needed to. I'm always amazed how many doctors have no idea what the difference is between a deduction and a credit, Schedule A and Schedule C, an allowance and an exemption, etc. If I were paying more than 20% in taxes on $150K in income, I'd be looking all over the place for that low hanging fruit. (In this hypothetical case, it's likely itemizing so I could deduct all that mortgage interest and state income taxes.)
#3 Get Rid of the Student Loans
This hypothetical doc is paying something like 33% of his gross income in student loan payments. Getting rid of that debt frees up a ton of income that can be spent or saved. How do you get rid of student loans? Ideally, you get them forgiven or have someone else pay them. If your salary is only $150K, $300K in forgiveness is like 3 years of net income. Are you SURE you can't find a job you can stand for a few years that qualifies for PSLF? If you're only making $150K anyway, the military, VA, or Indian Health Service may start to look more and more appealing.
But even if you're resigned to paying your loans off yourself, refinancing them to a 5-year variable loan and living like a medical student (not just a resident) until they're gone seems appropriate given the dramatic impact it will have on your financial life.
I favor the “scorched earth, gazelle intensity” approach to the “20-30 year payment plan” approach. The interest rate you get on the lengthy payment plan is so high that the payments aren't all that much lower anyway. Plus, even if you get IBR/PAYE/REPAYE forgiveness after 20-25 years of payments, that forgiveness is taxable at your marginal tax rate. So unless you've got some cash on the side, you're still going to be in debt even after getting that forgiveness. And don't think it's going away just because you retired. They garnish Social Security to make your payments.
#4 Get Housing Under Control
Perhaps the hardest thing about a HCOL area is that you feel like you need to buy a house ASAP because housing in that area has always appreciated at a good rate, but you can't buy anything and be anywhere near the rules of thumb that financial bloggers throw out (like my own “Keep your mortgage to less than 2X your gross income”). You're not going to get much of a house in the Bay Area for $300K. You might get an old 1000 square foot rancher in a bad part of town for twice that. But you've got to figure out something. It might be renting. It might be buying a duplex and renting out the other side. It might be living in a crummy part of town or having a long commute.
You might be able to stretch my rule of thumb a bit (perhaps to 3-4X gross income), but realize that comes with a longer working career and fewer luxuries (cars, vacations, etc.) along the way. There is a very real cost of spending that much of your income on housing.
Things You Cannot Do in VHCOL City
There are a few things that you simply cannot do if you are making <$200K and living in a high cost of living area.
- You cannot send your kids to private K-12 schools. You just can't. The math doesn't work. You need to live in a school district where the schools are at least okay. That might mean renting. So what. Do it.
- You cannot buy a 7-figure house, even if the bank says they will loan you the money and you have a down payment.
- You cannot save nothing for retirement. Even if you have to start out at only 5% of your income and try to “save the raises” over the years, you cannot just neglect this. Maybe you can put it off for 5 years while you pay off the student loans, but that's it. No longer than that.
- You cannot drive a fancy car. The difference between a fancy car and a reliable 7-10-year-old car is about $6K per year. That $6K per year, invested at 8% over 35 years, grows to a million dollars. For a low earning doc in an HCOL area, that's the difference between retiring with nothing and retiring a millionaire.
- You cannot vacation big. You can vacation frequently, but you cannot do it expensively. No heli-skiing. No European trips. Renting a motorhome for a week is a big splurge you can't do every year. There are still road trips to Aunt Sally's and camping.
- You cannot pay for your children's college. You can probably help a little, but they need to understand that college is going to be primarily on them. They need guidance to choose an inexpensive school, maximize available scholarships, and work their way through their undergraduate educations.
- You cannot provide support for lots of extended family members. I once had a family practice colleague who had 5 or 6 other adults in the house (and a number of children), but she was the only one working. Doesn't work with the math above. You're not even going to get back to broke until you're 35 or 40; how can you support 5 other adults?
- You cannot skimp on budgeting. Things are going to be tight, and they're going to stay that way for a long time. A real budget, whether done on paper or using one of the handy new apps, is a necessity.
A Suggested Plan
Everyone's situation is a little different, but here's an example of a plan that could be followed by a low-income doc in a high cost of living area.
Step 1: Take a Higher Paying Job Than the Average One
Instead of $170K, maybe you now make $200K. At those income levels, even a little extra income makes a huge difference in reaching your financial goals.
Learn more here:
How to Double Your Income as a Primary Care Physician
4 Tips to Increase Your Primary Care Physician Income
Step 2: Get a 5-Year Student Loan Payoff Plan
You've got to get that monkey off your back. You really aren't done with med school until you've paid for it. The only exception is if you did a three-year residency and are going to get the loans forgiven via PSLF. Then you can have a seven-year plan. Otherwise, five years max. If you literally cannot afford to do that (and with some student loan burdens I've seen that is a possibility), then you need to either move or change employers to one that you will qualify for PSLF with.
So let's say our $200K earning doctor has $300K in student loans. What does the five-year plan look like? It looks like driving a Mazda 3 on two vacations a year and staying with family on both of them. It looks like a lot of spaghetti instead of eating out. It looks like only $10K going to retirement instead of $40K. Of course, you'll want to refinance the debt, and probably into a five-year variable loan. Perhaps you can get it down to 3-4%. At 3.5%, those payments are $66K a year, or $5,537 a month. That's a big payment, when your take-home might only be $144K, or $12,000 a month. But it's only five years. After that, that extra $66K a year can go somewhere else. $30K of it can be redirected to retirement savings (which will further lower your taxes) and you can spend the rest on a much-needed lifestyle upgrade.
Step 3: No Buying a Home Until the Student Loans Are Gone
That Mazda 3 is going to look pretty stupid in front of a fancy house anyway. But when it comes to buying a home, 5 years out of training, you're going to need to get a good deal on it. Take your time with this. Even small percentages of a large amount of money are significant sums. Getting $40K off the price of your house is like an extra year of retirement savings. Will you have to stretch beyond a mortgage of 2X gross income? Probably. But hopefully, you can keep it to 3X. If you save up a $100K down payment and get a 3X $200K mortgage, that gets you a $700K house. Is it your fancy dream house in the best school district? Assuredly not. But guess what? You chose to live in an expensive area over having a dream house. This is one of the consequences.
Step 4: Maximize Career Longevity
After five years of living (and maybe even working) like a resident, you now need to focus on longevity. You are going to need a full career, 35-40ish years. You probably had to use a 30-year mortgage to pay for the house. You also will need more retirement savings than your peers in a less costly location. So you need to pace yourself and avoid burnout. Let your money do as much of the heavy lifting as possible by giving it time.
Forget about retiring at 50 or even 55-60. It's not going to happen. Don't believe me? Run the numbers. Remember that you not only got the usual doctor later start, but your start was five years later than that because you had to direct such a large percentage of your income at those loans for five years after training. So let's say you get out of training at 32 and pay the loans off at 37. At that point maybe you have $60K for retirement. If your “number” is $3 Million, and you'll only be saving $40K a year toward it, at a 5% real return you'll be working and saving until age 67.
In summary, having an income of “only” $150K-$200K is hardly a death sentence. While you may not experience the “good life” of having money coming out of your ears like a higher-paid doc in a lower cost of living area who gets her finances under control early in her career, you're still going to be much better off than the average family, even in your expensive city. But becoming financially secure is going to require avoiding costly mistakes, making trade-offs with real consequences, and exercising more discipline than many of your med school classmates had to exercise.
What do you think? How can a low-income doc in a high cost of living area still reach financial success? Do you agree with these recommendations? Why or why not? Comment below!
Anecdotally, my impression is that lower-paid doctors in higher cost of living areas (men and women alike) tend to be married to or partnered with other high-earning professionals — other docs, or lawyers, or bankers, or tech types, etc. And they delay having children and/or have fewer children per family. This changes your math substantially for the better. In fact, I think the tendency for docs to marry other high-status professionals (whose jobs tend to cluster more in certain key big cities than medical jobs do), combined with the prevalence of women now taking more doctor and professional jobs, is what allows the pay to get so low to begin with in certain subspecialties in some regions. If Mr. is a hedge-fund weenie and Mrs. is a family doc, Mrs. isn’t going to be salary sensitive when taking the job she wants. If Mr. does peds and Mrs. is a high-octane corporate lawyer specializing in public M&A… ditto in reverse. But couples like that are far more likely to be found in NY and SF than KC (Kansas City), because the finance or corporate law job is far more likely to exist in NY or SF, than KC. And couples like that are far more likely to exist in 2017 than in 1967, which is why your parents and grandparents who were doctors in big cities didn’t have the same set of complaints.
Which brings me back to your first point: if you are in one of these subspecialties in a high cost of living are, **and you are the primary breadwinner** (which is what your numerical examples assume without stating explicitly), then you really need to think long and hard about moving, or at least tweaking the nature of your work to earn above the average in your field.
Excellent post, and excellent comment by Ben above.
One thing I would add is to avoid any mistakes with your investments. Most specialists can make pretty large investment mistakes and get away with it, but “low-income” physicians in high cost-of-living areas can’t afford to make these types of errors.
This includes maximizing your retirement accounts, investing in low-cost index funds, and minimizing trading in taxable accounts. These principles are pretty basic stuff if you spend the time to read about it. These tricks (nothing fancy like trying to be the next Warren Buffett) can increase your returns by 3-4% or more, which could be worth millions of dollars in retirement.
-WSP
Good post. I think this is a great reality check for those still in residency that won’t have a huge earning potential upon graduation. Look at the whole decision – living in the bay area will cost more than twice as much as living a couple of hours away. It might seem like a long drive to get where you want, but it takes a lot of 4 hour trips to add up to the additional decade of practice needed to reach financial independence. I’m blessed to have grown up in an area that is among the cheapest in the country, so I didn’t have to wrestle with this one personally. I think the final point here is the biggest help – while most on the board desire to reach FI at an early age – if you love what you do and can work until you are 70, it doesn’t much matter.
Great article. I would add to #1 – don’t work in academia
Great article.
At the risk of derailing the focus here, I would ask what exactly you mean when you say don’t get a mortgage more than 2x your gross income.
Do you mean the total cost of the house should be less than 2x your gross income, or that what you borrow (after downpayment) be less than 2x gross income?
Thanks for all you do!
It’s the latter, just a guideline as well
Great advice for everyone regardless of where you live. However, I do especially feel for the docs trying to make it in areas where $105,000 is the threshold for what’s considered “low-income.” (try typing in low income bay area in google).
I live in a high cost of living area, but have a good paying specialty and a spouse that works as well. It feels like we’re middle of the road here, but we’re okay with it and have learned to be grateful for it. Doesn’t mean we wouldn’t like to get ahead a little, but we’ve made a conscious decision not to work more in medicine to achieve it. Like you mentioned, we’re trying to make medicine a “well-paid hobby” for us by spending more of our time in other ventures.
Why is physician income so low in some HCOL areas? Is there a situation that isn’t allowing supply/demand to function? I have a few acquaintances who live in Manhattan…their opinion is that you are absolutely nuts for living anywhere else…so perhaps fundamental economic laws still hold true?
That’s it. It’s actually the result of the economic curves. Everybody wants to be there for the same number of jobs and houses, so the jobs pay less and the houses cost more. In reality it’s not everybody, just proportionally more people than the market demands for employment/supplies with homes, which only need to be a little bit out of balance with equilibrium for it to dramatically impact prices.
Another big factor is that insurance payment’s don’t adjust for COL very well, so you receptionist gets paid 2x as much as the one in midwest and your rent is 4x as much, but your revenue payment is only 15% more. Even partner physicians will often make less AND work more. I have seen data from within my own specialty that shows metropolitan west coast partner MDs make 10-15% less and work 20% more hours than their midwestern and east coast counterparts. Pretty eye opening.
Economist like to use “utility level” to explain behavior (with the assumption that all people are rational and aware of their utility preferences – a big assumption but it makes the theory hold up).
So, if utility is a mix of income and the “other factors” (culture, neighborhood, ect) we can state that a Pediatrician would be indifferent (their utility levels equal) between living in NYC making $105,000 and enjoying the culture and living in Buffalo earning $250,000. You can then say that the culture in Buffalo is worth $0 (harsh, but makes the example easier) which means that they value living in NYC at $145,000 per year.
Potentially a useful thought exercise.
“One of the biggest obstacles for many physicians is overcoming the expectations of their friends, family, spouse, and even themselves with regard to their lifestyle.”
This should be on the masthead of your site! I still get grief from my mom who can’t understand why a surgeon drives my old hatchback and not a Mercedes.
And these damned family members have been excited about our income while we were still in school. 😛
My family’s the exact opposite, I’ve been broke so long they still worry about me and keep trying to give cash or buy me things 2 years out of residency. (combined parent income 50k)
Lifestyle creep is probably the biggest factor. I also whole heartedly agree with avoiding private school tuition. This would certainly make it hard to get ahead. In most circumstances it would make sense to instead move to an area where there are great public schools. This will also decrease the urge to “keep up” with high income families and instead focus on living below your means. Financial independence will be reached much faster this way. Great article.
So many physicians in our area seem like they’re living month-to-month, despite being established for many years and in their 40s or even 50s. One common theme among them is that they’re sending their kids to private schools that cost in the $20k-$40k/year range, *for each kid,* for pre-k through 12th grade. Some of these parents are literally spending seven figures of tuition before their kids apply to college or even think about grad school.
While financially not that great, they think this is worthed and are getting value in their eyes. How is this not justified? Their retirement is suffering but their kids are fully taken care of.
I certainly wish I went to private high school etc – may have made it to MIT etc and my life would have been different. Its great right now but I think I would have achieved more if those were my opportunities.
I try to embrace the maxim that “everybody has to do what’s right for them,” but those who think they are getting value by paying for private k-12 at the expense of their retirement are just wrong. It’s one thing if you have your other ducks in a row and opt for private school versus summering in the Hamptons but that’s not what we’re discussing.
I went to public school k-12 and went on to a top-three private undergrad. I sat next to kids who went to Philips Andover, etc and then went on to medical school with my prestigious BA and sat next to kids who graduated from state universities.
Private undergrad has been debated before on this site and you can make arguments on both sides but I think private k-12 is tougher to justify. Here’s the best argument I can make: kid #1 did great in public school but kid #2 is struggling and at risk of dropping out, etc then you make the sacrifice and pay to send them somewhere else.
Thats fine, but its a cultural thing I suppose. I grew up in a household where parents wouldn’t eat but would put food in kids mouth first. Once I have kids, they will take priority.
Since you mention “they are getting value by paying for private k-12 at the expense of their retirement are just wrong.” Well I think you are wrong. My father didn’t think about retirement account but did everything to provide for me. I come from very poor background so no I didn’t go to private school, but my father does mention this occasionally to me if he had a chance he would have put me through it.
“on this site” people worry about retirement account which is fine and makes sense, but I would sacrifice quite a bit including much of my “retirement” account to get my kids ahead (don’t have any yet but hopefully will). I am probably minority but not alone.
This is a tricky topic because the quality of schools varies so significantly. I lived in Potomac MD, where the local public schools are all in the “Top 100 in America” and my kids got to take 15 different AP classes (out of many more possible) and be in a national class music program. They went on to prestigious colleges and did great.
My colleagues spent huge money sending their kids to private schools that actually had FEWER AP classes, FEWER sports teams, SMALLER music programs, and more JONESes to keep up with (kids with their own BMW, massive birthday parties, etc.)
Clearly I think we made a good decision.
I might feel differently if the local public school had gangs, violence, bad teachers, etc. But that might also by fixed by volunteering in class, moving to another area, etc.
So the real answer might be “it depends”
Great post. In some of these HCOL areas, being some sort of prestigious professional isn’t even impressive, it’s expected, a prerequisite for entry, so in the HCOL community even an above-average income doctor is still middle-class.
This is really high-density excellent advice, even for the low pay docs in a LCOL area.
I come from a family with very few college grads (neither parent), and had to learn to brush off the assumptions that I would have money to burn. After becoming debt-free, I decided to make my priority luxury travel, which means I have an average house and an average car. I had to recognize that having luxury travel/house/car was not realistic for my income without living paycheck-to-paycheck, sacrificing retirement savings, and servicing debt obligations, no thanks!
Don’t fool yourself to think that high earners in high cost areas are doing great either. They are just doing better than the low earners. The key is knowing what is coming in and being realistic about what is going out. If you don’t have a grasp of this then it is hard to know what you can spend.
Then determine what your goals are- Maxing out 401Ks should be top priority. Same with paying off student loans. The house should not be. The car definitely should not be. Impressing friends and families, well you should have gone into a high income field to really impress them (just kidding), but stop trying to impress them.
I like the idea of side hustles becoming primary jobs. There is no reason MD’s can’t do this also.
I started med school in a md/phd program, which I did not finish due to starting a family which made my wife and I start to go through the kind of analysis. Our numbers were not as sophisticated as what wci has on this site, but it quickly became clear that trying to live in a hcol area making $150 to $200k as an attending physician scientist would make it hard to have much cash to spare for retirement savings, college for kids, buying a house, etc. Obvioulsy the MSTP scholarship makes the med school loans a moot point, but there is the opportunity cost of lots of extra training for getting both degrees and then spending extra time as a post-doc after residency.
Anyway between how bad these numbers look and the stagnant NIH budget since Clinton was president, I’m so glad that I work in private practice in a relatively lcol area. Fretting about trying to keep grants in a declining funding environment while living in an expensive area (where many, although certainly not all, of the high power academic medical centers are located) just isn’t worth it.
A quick question for WCI- roughly speaking, for this article, what gross income did you have in mind to be considered low income? And at what number would high income begin? I am not picking an argument, just to have a frame of reference. A range would suffice.
To me
= 300 K = high income
<120 K = low income
I think I’d call $150K low income for a doc and $400K high income. But those numbers are fuzzy. I think the average doc is something like $225K these days.
I agree with the overall premise of the article- there are many moving parts in this equation. Flexibility helps, and being on the lookout for opportunities helps.
As for California being discussed here, there are so many opportunities in lower cost living areas, within 2-3 hours driving distance of higher cost living areas. And a Physician will have bargaining power like anything there. You can bargain not just on money, but on working conditions that can make a huge difference in quality of life.
800 k in Southern California or San Francisco Bay area will not buy you a house you want to live in, you need to start at 1.2-1.6 M, but 3-4k rent/month will get you the same house – why would anybody wanna buy that house, but people do. Living 2 hours away along the entire stretch of coast will get you where Physicians are in crazy demand, you can buy a decent house starting even at 400k-500k, and rent for less than 2k a month.
Within California, there is a big social stratification, almost like a caste system, based on where you live. These other “bad” parts of California have “California weather” almost 9 months a year, and they are within 2-3 hours of pretty much everywhere. Much less traffic in all these parts. Air pollution just as bad as the “good ” parts of California. Access to fresh fruits and vegetables that people dream of – all year long- farm stands everywhere. Excellent public and private schools everywhere. Low crime areas everywhere. Typically, a discussion about this topic goes along the lines of selective abstraction or cherry picking – highlighting bad things about one place vs. good things of the other, instead of using your own head and making your own decision.
Living in these parts would still not protect anyone from higher taxes, high competition in higher education for children, higher cost of higher education even in public universities, especially for Physicians who will never qualify for any programs.
Where are these bad areas of California you speak of? I think of bad California as central valley merced, Fresno, Bakersfield ect… I these are not low traffic or anywhere close to low crime areas. I’m intriged to figure out what areas you are referring too
Hi RABBMD,
I said “bad”, not bad. I am not sure what you are looking for. Put some elbow grease into it. Pull up the map of California, and go county by county, and then school district by school district. Don’t dismiss anything based on a preconceived notion.
How do you qualify any area as “good” or “bad”? Where do people with money in any area live? Where do Physicians in these areas live? How do you find good neighborhoods anywhere? What are your own inclinations in life? And then you have to go take a look yourself.
This arbitrage isn’t for me to tell you what I think is right for you, it is for you to discover. Your life values & needs may be very different than mine, and this stuff takes time. Best.
We will be moving to central valley by fall, they gave hubby one of the highest offers to work, good benefits and the place is 1.5hrs from SFO, silicon valley, wine area and Yosemite. Safety issues are exxagerated.
Coming from Ohio (fellowship) where our tiny house is 150K in a very good school district, i got sticker shock at what 350K can get us California. But we are tropical fishies and will probably be less miserable in warmer weather.
I see a lot of fresh fruits every where there that I am probbaly not gonna miss our local Aldi so much. So yes, there are nice places in California with LCOL.
Way to go, Undoctored.
Now, schedule fun times and lots of them. Actually do the things the brochures show and talk about.
Otherwise, what’s the point of it all?
Wishing you and your family a lot of fun!
I’ve never understood paying California taxes to live anywhere but the best coastal parts of CA. Why live in Fontana instead of Tuscon?
Because “cost of living” is way cheaper inland than in the coast.
And taxes are fine if they are used to help the community 🙂
I agree with most of this. I don’t think it is quite so dire though. If a FP can reign in their spending they can still retire early: http://wealthydoc.com/blog/fp-from-residency-to-retirement-retire-at-55
This is sad, my hospital has started blocking WCI now 🙁
It’s in their best interest really. Without financially illiterate docs, who would be left to abuse? ?
One way to earn more without moving would be lokum tenens. Travel would be rough, but it would allow you to live in the city of your choice without sacrificing your earning potential. Need an understanding spouse if you have kids, but may be the best alternative for those who value living in the high cost areas.
This is one of the best articles I’ve seen in a long time. I hope a lot of med school students and residents will find it while there is still time to make an impression – you will certainly impact many families’ lives with the stark realities of making a choice to live in the “popular” place. One downside you didn’t mention – expect to have lots of company in your average house over the years. Friends and family will look at your house as a free “destination” spot.
I love the brutal honesty of this post. If you’re not rich, don’t act like you’re rich.
Great post James,
We are planning to move to a very HCOL area come June: silicon valley from the NY metro area. I will be a hospitalist and my spouse family medicine trained taking time off to watch our 2 little ones. 2 doctors have no business moving here unless 1 of them is in tech, haha! (sadly neither of us are). Have you seen the real estate prices its can literally make one swoon.
I am always thinking of ways to save on taxes but do not know much. Can you recommend any good tax books? And any medically savvy accountant in the bay area?
Thank you!
Recommended tax books can be found here: http://astore.amazon.com/whicoainv-20?_encoding=UTF8&node=68
Good luck! Hope this works out well for you to live on a single doctor income in the Bay Area. Hope your student loan burden is reasonable as that will probably have a bigger effect on your finances than changes you can make on your taxes.
Another consideration — if you are taking a low paying job in a HCOL area, get a job that maximizes your other benefits. Go out of your way to work IN academia.
The tuition benefits for some places can be enormous, even on the coasts. At my university you can get 8 free semesters of tuition at our university ($50k/year x 4 years per child at a respectable private university, so a $200k value) OR 40% of that number towards any other accredited university for 8 semesters. While you obviously have to work long enough at that university to get the benefit (that’s how they hook you), that’s a guaranteed $80k min of college funds per child, with no limit on the # of children.
Plus PSLF for your own loans. Not a bad little idea.
yeah my academic shop will pay 50% of the U’s tuition to any qualified college for 4 years for each kid.
and since my wife works here as well, 50+50 = 100.
academia isn’t as bad as some make it out. i don’t make that much less than my friends who work in the community except for the ones who get their tails kicked every shift.
Wow — you sure they will cover 50% for each parent at the U for each child? I am fairly sure my place won’t do that if both work for the U.
They used to cover 50% for our faculty but they lowered it to 40% before I joined (only for the new hires after a certain date. The faculty on board from before that change still get 50%).
I am a newish prof. at a UC on the coast. We do not get help with tuition. I thought tuition assistance was de rigueur for universities, but it turns out it isn’t. Not sure if this is a public/private distinction.
Bummer.
Nice “reality check” post. Being an optometrist, those income numbers are pretty similar to my profession. Thankfully those student loan numbers are not! 100K is what most OD’s come out of school with, which is very feasible to pay off in 5 years. But even then a lot of my colleagues fall into the same lifestyle inflation problem early on and are satisfied with making minimum payments for 20+ years.
But the idea is the same: if the numbers don’t work, you need to make a change. That can mean moving, spending less or making more.
I believe average OD debt is higher than 100k. Many ODs have 250k debt, not including undergrad. Combined with modest incomes, optometry has one of the very worst debt:income ratios of all health professions.
Great post! I’ve requested this post in the past given that I work with peds residents. I’m lucky enough to be in a decently paid subspecialty of pediatrics in a HCOL are (NYC suburbs). There’s a journal article in Pediatrics looking at the ROI on doing fellowships and only a few of them (Thankfully, critical care is one of them) are “worth” doing.
My suggestions are:
1. Most HCOL areas have neighborhoods with good public schools. Live in those neighborhoods and save on the private school tuition.
2. Pediatrics as a field tends to be somewhat self-sacrificing. Most prof societies advocate for their doctors. The AAP advocates for children. There is an altruistic streak in the field that often draws people not as concerned with money. While I think there’s nothing wrong with altruism you have to make smart choices and advocate for yourself financially.
3. Also for pediatricians, salaries vary pretty widely, especially in subspecialty. Sometimes there can be a 50-100k difference between taking a job in an academic setting vs. a community hospital. The choice can be tough, since for subspecialists we’ve all trained in the academic ivory tower. However, when you go into practice, practicing in a more academic setting will yield you lower salaries. (This only applies to the HCOL areas. For my friends out in the middle of the country they make good money and still see interesting cases).
4. For peds subspecialists there’s a lot of information asymmetry when it comes to salaries. I never knew what an intensivist made until I started looking for jobs. I think it’s important to ask about salaries so you know what you’re getting into.
Great informative article. I live in the SF Bay Area. A Doc with a 225k income can live in a . condo costing
750k in a decent school district. Not plush by any means. Drive a Suburu not a Lexus. Eat out at a Mexican
or Chinese restaurant a couple times a month. No private school because tuition is 30k plus per child or maybe
16k at a Catholic School. You pick the city in Europe, Asia and South America and rent a VRBO for a month
at $3500. With air fare and misc. the vacation will cost you 8k. If you’re a 1099 contract employee you can
plug 52k in a solo 401(k) but health cost for family per Kaiser is 24k a year. A decent life-style without a lot
of bells and whistles. Still better than a high school biology teacher in the same area earning 70k per year. A
computer engineer makes about 160k for long hours and dismissed in his/her late 40’s because they don’t
have the latest skills. Obviously, come up with an app. and sell it to Google and live the fancy life.
Well I’m in a low paying specialty (FP) in an expensive west coast city. Spouse doesn’t work. One kid and another on the way. We bought a 1.3 million dollar townhouse in 2011 now worth 1.6m. Our net worth is 2.7m. My “side job” is investing; it generates right now 50k of dividend income for us which will surely grow over the years due to compounding. I’m 37, she’s 33. One paid off luxury SUV that is six years old. Biking and taking public transit which is actually faster than driving. We take staycations and vacations close to home. Spending time with loved ones is more important than the location. We definitely will not send our kids to private school.
It’s certainly possible to be wealthy in a low paying specialty in a high cost city. You just have to learn how to invest, and agree with not wanting everything at once. I could buy a Bentley or a Ferrari with cash, but I’m not going to be like my 75 year old colleague who is still working 5 days a week (and just ought a boat) because he barely has 2 million in net worth.
Great work. How did you get shared with investing and what kind of investments did you pursue?