Insulated groups of people tend to eventually push themselves to ridiculous extremes. This is easily seen with political parties. For instance, in my state the political parties have a caucus and convention system. It is not uncommon at all for the most extreme candidate to be favored at the convention, but then fail to be elected in the primary election because the overall party membership is far less extreme than those who are willing to spend days just to place their vote through a caucus and convention. It also occurs with groups of investors and forum participants. I sometimes see it on the Bogleheads forum where a significant percentage of forum members pooh-pooh any form of entrepreneurship and push for ever lower safe withdrawal rates. I witnessed it on the Reddit FIRE (Financial Independence/ Retire Early) sub in response to a post I wrote suggesting that perhaps the costs of early retirement weren't worth the benefits for some people. And I even see it here occasionally in the comments threads or on the forums, particularly in regard to your finances as a resident.
Resident Finances
I have seen some extremely impressive examples of financial discipline and acumen among residents who frequent the blog. For example, this post by Amanda Liu (RIP) who hit a net worth of $0 as an intern. More and more, I am seeing residents who are not only maxing out a Roth IRA, but also maxing out their 403(b). And maybe even a 457(b). Now, given a typical resident salary of $50K , and contribution limits of $5.5K, $18K, and $18K, you can see this requires a savings rate of 50-80%. That's extreme. One med student just emailed me with a plan to live on $60K a year for his first 10 years out of residency so he could be financially independent as early as possible. I even ran a post recently about a cool trick to start making REPAYE payments even earlier in order to maximize PSLF. Sometimes I worry that these sorts of examples, and our glorifying of them, will lead people to the wrong conclusion-i.e. that this sort of discipline and personal sacrifice is required to be financially successful as a physician. The truth of the matter is that it isn't required. Not even close. These folks are the “Early Retirement Extreme” folks of the physician financial world. If you're not familiar with the extreme early retirement community they are basically people trying to retire in their 20s and 30s primarily by virtue of living an extremely frugal life both before and after retiring. You know, going grocery shopping on your bicycle, making your own clothing, and reusing paper towels and ziploc bags.
Personal Finance is like bathwater- not too hot or too cold. Moderation is key.
The Importance of the First Year
The truth of the matter is that what you do in your first year as an attending will have a much larger effect on your personal finances than anything and everything you do as a resident. There is simply more raw material (i.e. income) to work with. By keeping your living standard somewhat similar to what it was as a resident, you should have a six figure amount each year with which to build wealth. That can be used to rapidly pay off your student loans, save up a down payment on your dream home, and max out your retirement accounts. Most readers will agree that my wife and I have been reasonably financially successful. Our “loans” were paid off 47 months out of residency, we were millionaires 7 years out of residency, and we should be financially independent by our mid 40s and now enjoy a lifestyle where we live in a 4400 sq ft mansion with a 100 mile view, go on vacation every month, buy automobiles brand new, and even purchase expensive toys from time to time. So what was our savings rate in residency? Well, in 2004, my first full year as a resident when my wife was working as a teacher, we saved 9%. The second year, after she was a stay at home mom, that dropped to 5%. Sure, the year I graduated (half of which I was an attending) that rate went up to 47%, but we still had a small upgrade in lifestyle that year including buying a town home, a second cell phone, and a second car. No ramen noodles. No reusing paper towels.
A Little Consumption Smoothing
Consumption smoothing is an important personal finance concept to understand. This is the idea that you keep your lifestyle the same throughout your entire life. You do this by borrowing money early on until your income is high enough to both support the lifestyle and pay off the previously taken out debt. I think it is generally a bad idea. I think you're probably better off with a slowly, but constantly increasing standard of living throughout your life, and I really dislike the idea of living on debt early on rather than learning to live within your means. Clearly, many residents take consumption smoothing too far by driving “attending cars”, living in “attending houses”, and borrowing to fund lifestyle choices as residents. However, it is probably just fine to consumption smooth a little. What I mean by a little is to have a little lower savings rate in residency and a little higher rate your first few years as an attending. Financial priorities for residents should be adequate disability and life insurance, some financial education, a smart student loan management plan, and some Roth savings. That's it. You don't need to be building home equity. You don't need to moonlight 8 days a month. You don't need to develop some complex asset allocation.
Advice For the Minority
The vast majority of doctors, and even residents, aren't saving enough money and aren't paying enough attention to their finances. So this post is for the tiny minority that is trying to do it all at once. Unless you hate being a doctor (or other high income professional) there is no reason you need to rush this process. Patience is a virtue. You will eventually have millions in savings. You will eventually be able to supply your every need and most of your reasonable wants. You will eventually be debt-free. You will eventually own the house of your dreams. Don't kill yourself to rush the process. It doesn't do you any good to be financially independent three years earlier if you have already molded your life into exactly what you want it to look like. Moderation in all things.
What does moderation look like specifically? It looks like this:
- Saving 20% of your gross income throughout your attending years for retirement
- Having your student loans paid off within 5 years of residency graduation
- Paying off your house within 20 years of residency graduation
- Reaching financial independence (savings equal to 25 times expenses) at some time in your 50s
- Never feeling financially deprived
Don't get me wrong. I appreciate your enthusiasm for the process. I'm totally impressed with your dedication and discipline. You will someday be able to either spend, give, or leave behind gobs of money. But look inside yourself and make sure your financial habits are bringing you and those you care about real happiness, and not just financial independence.
What do you think? Have you found yourself inappropriately going to extremes? How do you fight against that tendency? Should you fight against that tendency? Comment below!
Thanks for the post WCI, now I don’t feel quite so bad about all my choices. ? I would like to make a few points:
1. You can do a lot of small things right but if you screw up a big thing it will set you back(renovation way over budget!), or for others divorce.
2. The second big thing is children and education. You can easily blow a budget with private schools, tutors, summer camps, sports leagues, etc.. without even trying.
Just reiteration: thanks for this post. I can breath again. I’m exactly Mr. Moderate not Mr. Money Mustache.
I like a recent theme I’m seeing around the interwebs of focusing on process over goals. I think it fits here. Install the right processes (i.e. set up your financial plan https://www.bogleheads.org/wiki/Financial_planning) in your life, and then get on with living. What is the ‘good life’ for you? Only you can decide (no need to get into debates).
To me, good process is like a computer operating system. Ideally, you forget it’s there and you are just busy enjoying what you can DO with the computer. Financial extremists are like the IT technophiles endlessly fiddling with overclocking their CPU, hacking the OS, and supercooling their gaming machine. If that’s where you get your kicks, that’s cool (there’s a community for you). But success for most people is a functional computer that doesn’t crash. Decide what matters to you, take care and set up a rational plan, and then get busy enjoying your life.
Agree with moderation being important. I agree with WCI that for most people living like a resident ad infinitum is not the goal. Some people, those of the FIRE variety, may choose to do so but that certainly doesn’t reflect the mainstream.
I’ll share my own experience since I graduated residency in 2011. I had roughly 220k in student loan debt at that time. No other debt but that was plenty. I had no other savings except for a few grand in my checking account and a small 401k from years prior to my medical career. Since 2011 I worked full-time plus extra as much as I could without exceeding my limits so as to avoid burnout. I took breaks when appropriate. I maxed out my 401k and backdoor Roths every year. We lived in our residency apartment until 2014 and didn’t replace one of our cars till 2016. I only started paying off my loans aggressively in 2012 when I got tired of having them hang over my head and then paid them off in full in about 2.5 years.
We have gradually upgraded our lifestyle but not excessively and never at the expense of our financial goals. We have been able to take several trips both domestic and international. We make the occasional luxury purchase, e.g. a MacBook Pro or perhaps a nice handbag for the wife. We’ve also enrolled our daughter in a somewhat expensive private school. Our yearly expenses at this point are about 110-115k.
I’m sure there are folks here that would look at that and say that’s way too much to spend on living expenses. But let me share what we have achieved. A savings rate of around 37-40% of gross. Paid off student loans. Furthermore we will pay off our mortgage and achieve a net worth of >1M this year.
As long as you have a fairly high income, let’s say 250-300k or more, you can live relatively well and still have accomplish what you want financially in terms of retirement, kids’ college education funds, etc. And when I say relatively well I mean a lifestyle comfortably above what would pass as a middle-class lifestyle.
We may not be on par with some folks in the Bogleheads forums and we may not achieve FIRE ten years after training but I’m happy with our pace.
Sounds like you’re doing great to me.
Thanks for a great comment. Please keep posting to help balance the extreme saving comments. It helps encourage readers who aren’t of the frugality mindset to understand their path can be just as successful.
Thanks for the support.
I honestly feel the key to financial success is to live frugally but only to the point where you don’t feel deprived. That is key. For some people that’s spending 60k a year and for some it’s twice that. Obviously there’s a limit before you start hurting your financial goals. It’s also the key to avoiding burnout both in your career and in attaining financial goals.
I also like Ramit Sethi’s advice of saving mercilessly on things that don’t matter to you and spending lavishly on things you love. That nugget has held us in good stead. For example, my wife and I decided that rather than buying a bunch of small gifts throughout the year for various occasions, e.g. birthdays, anniversaries, Valentine’s Day, etc. we would buy each other one big gift annually. We’ve found this to be much more satisfying.
Another example is buying a Keurig to avoid frequent Starbucks purchases. We just don’t miss Starbucks enough to spend several hundred dollars a year on coffee. A few hundred bucks may not be much but saving like this in various areas of life makes a significant difference. The key here is to cut out or limit things you don’t care about much but on which you spend a fair amount of money. This really does add up. There’s a temptation to spend much more freely on small frequent purchases that you would think twice about in residency. If you can avoid that temptation it goes a long way and allows you to spend on stuff you really love but may feel guilty about buying.
Totally agree. Maximally frugal right up to the point where you feel deprived, especially during school, residency, and your first five years out. Then hopefully you’re debt free except a mortgage and rapidly building wealth and can loosen up a bit.
My response is going to be an anathema to many of the respondents to this blog. I have no idea how much money that I spend annually. I could probably backtrack and make a guess, but it is certainly multiples of the $60-70k others have offered here.
What I do not is that I have no debt, my net worth is building nicely, I maximize all possible-tax-deferred space and at least add an additional $5k per month (often more) to the taxable account. My major expenses seem to be related to my high school kids, as we tend to over-indulge them. I do not suffer from drinking crappy wine or skanky beer and do enjoy a nice vacation or three every year and will not apologize for doing so. Oh, and I could walk away from work tomorrow.
What? You can live the “good life” without having to save 70% of your income every year and still reach financial independence? Say it isn’t so! 🙂
It is important to learn to spend wisely. This kind of statement is usually meant to say – don’t spend money, but I mean it just like that.
I am seconding what Ghostface Killah and Vagabond MD are saying. I love WCI’s example of Heli-skiing. Spend on experiences and memories – this is spending not just your money but your time wisely too.
I completed training in 2004, and I just turned 45. I have never worked more than 3 or 4 days a week since 2006 when we moved west (34 hours these days). I take about 7-8 weeks off every year, in addition to traveling on long weekends as well. Between mid-November and mid-February, we are more on vacation than me being at work. And then there will be spring break in April, and then most of the summer is free.
We splurged on a brand new Class B Conversion van in 2008. We have never used it to camp but the traveling in it is so much more fun than any car or van, it’s like you have a room with you.
We have taken road trips all over Western United States. No rock climbing, or skiing, or anything fancy, just sitting on beaches, short hikes, visiting national parks, Zoos, museums, aquariums, historical and cultural places, trying local foods etc. We tried a cruise once to Alaska, and have been to Canada a few times. We visit east coast to visit family each year and combine that with visiting places on the east coast – Boston, Washington DC, New York, Florida, Atlanta and many more – never took our van that far.
We have 3 children and they always travel with us. Our last baby is a little fussy and we are not doing longer flights at this time, but we plan International trips once she is a little older.
Another extra expense – our children are in a private school that we thought had a much better environment than highly competitive environment in public schools where we live.
I learned how to write books in free time and wrote two- mainly for my children and their friends to read, they liked how I tell stories. I never had time or skills to market them, mostly they take a lot of time.
I got rid of 40 lbs of extra weight that I had accumulated during training, and never gained any back, with plenty of time to exercise. The blood pressure normalized, and HDL rose steadily.
Now, I am getting involved with coaching Physicians and Physician organizations about how to beat burnout. This work is picking up, and I will transition as it happens. I will be speaking at American College of Hospital Executives on the topic, next month in Chicago.
The work in Medicine is so much fun – every day is nothing less than amazing. Helping other humans suffer less, and getting paid for that – why would I give up this kind of work ever? It adds so much meaning to my existence. I don’t have to travel to exotic mysterious places to find meaning in life, just listening to my next patient is enough.
We save too – about 35-45% of gross each year. This gives a lot of flexibility if needed. Savings are on autopilot as far as thinking about investing goes – 401k, RA’s, HSA, 529, and a little in iBonds. I haven’t done rebalancing – need to do that this year.
I have benefited along the way with wonderful teachers e.g. WCI added HSA to out portfolio, and made a solid case for me to buy Disability Insurance.
Retire early has no meaning for me. Financial Independence is fuzzy too as I can’t figure out what would be a good number to declare FI. I feel so free most of the time. This is life, there is nothing that I am saving to do later.
Super wise. Amazing how wonderful practicing medicine is when you’re not trying to do it 60-80-100-120 hours a week eh?
Working 60-80-100-120 hours a week has to come from inner scripts we follow without realizing what we are doing. And culture of medicine. And lack of good role models & mentorship too.
To meet a clear goal, such as to pay off a loan, it makes sense for short period of time, but after that, it is just a silly race.
These are primitive scripts from childhood. More mature approach about them takes mentors, openness to learning, thinking and then actively pursuing – all take time and effort.
WCI, you are a mentor, a role model, and a teacher.
BTW, last week, I had the very first experience of meeting another Physician who already knew about you. He is finishing up his Residency and came to meet us because he is exploring jobs.
First time huh. Bummer. I’ll try to find some more!
Hey, Congratulations are in order! It shows organic growth. Your hard work is bearing fruit.
Extreme is always better!!! You can’t run a good cult without it!
I think all the Mustachian-types should spend a year living in rural Africa learning that frugality isn’t a competition.
It’s a choice available to people with the money to make such choices.
Moderation is like auto pilot investing – boring.
Thinks of two extremes – either you work yourself to death “because I am so passionate about it”, or no work “I hate my work with all my guts” – both teams have passionate followers, but work 30-40 hours a week, 44-46 weeks a year? – *Yawn*
“Wanna lose 40 lbs in 3 to 4 years?” – nobody’s interested. That business will die in 3 to 4 months.
But all the crazy ideas about food, diet, exercise – people are making a killing selling completely useless and potentially harmful ideas.
You can’t run a 24 hours news TV channel on moderation, or even a Youtube channel.
Most people will actively oppose even hearing about moderation.
Unless something titillates Nucleus Accumbens or squeezes the juices from Amygdala, it is hard to get attention.
You sir can become the president…. wait wait… some one already beat you to it
Great points.
“work 30-40 hours a week, 44-46 weeks a year? ”
I would love to have that schedule, but I don’t think it is available to cardiologists. You certainly can’t run a private practice that way, and I don’t know of any employers (e.g., hospitals) who offer it. If anyone knows of such opportunities, please post.
This article is about saving less/spending more to improve quality of life, but most physicians I know don’t need that encouragement, they need moderation in their work load (work less/play more). Teslas, new kitchens, luxury hotels–meh. More time off–priceless.
Why would it not be possible? Is the patient load too much, reimbursement too low, etc…Just wondering what structurally makes that so? Maybe partners wont let it happen? Obviously it may come with decreased pay, but it seems odd to be impossible.
I work about 4 days/wk myself, I wouldnt mind crushing it a bit more now and much less later, but I was pretty burned out after residency/fellowship and the lighter load really helped make it tolerable. 4-4.5 days would probably be about perfect now, my schedule usually gets very busy from now until August, than much slower Sep-Jan, so its not steady but seasonal.
In private practice, most of the overhead is fixed, so reduced workload would have exaggerated effect on compensation, but that isn’t the reason it’s unlikely to work. You need to be available to your patients and the referring docs. If not, they will use someone who is.
I suppose it does work in large groups for cardiologists who are near retirement if the partners are willing to allow it. It wouldn’t matter if your practice withered if you were winding it down anyway.
However, 75% of cardiologists are now employees. I browse the job boards from time to time and I don’t see hospitals offering 3-4 day workweeks. In cardiology, the “good life” is one weekend call every sixth (rare), but that usually means you are absolutely hammered when on call. I prefer my current 1/4 weekends with moderate work load.
I’d be interested in more details about your arrangement. You must not take care of chronic illnesses with recurring office visits/hospitalizations/phone work?
I am glad you made some changes already and you are feeling better.
At this point, if you think it is utterly impossible to have a better schedule, then it is – because it is you who has to make these changes.
However, if you are here talking about it, it seems that you are willing to try. And people are here trying to help you.
How would you like us to support you in that next step?
Im in plastics and yes, I dont go to the hospital or take care of sick people, etc…so totally different.
While it does sound magnitudes more difficult, I bet there is a way it can be done. Obviously you wouldnt want to have a shrinking practice, but you could probably find a better balance. I dont know how the private practice part works for you guys having to be reliant on referrals, but the trick there is right sizing and not overbuilding so your fixed costs arent egregious and you start in on margin sooner. Easier said than done.
My friend in pp that does take care of chronic things while they do take call, make their schedules work better for them, though that meant the risk of leaving their group and starting a single practice. You’re in control, but also at risk.
Again, dont know if that is a reality in this day and age, but you would think the pendulum will swing to favor pp pretty soon, especially as it seems CMS wakes up to gaming of the system more quickly lately.
Agree. It’s the schedule (days per week and PTO) that is the issue for me. EM appears to have a definite advantage here.
Shift work is an advantage as long as you don’t have to do nights. Early in my career I worked as an intensivist before hospitalists/intensivists were widespread, but I had to work about 9 night shifts a month (out of 18-20 total). That made me feel generally unwell and foggy, though I didn’t realize the extent of it until I quit and then began to feel brighter and more alive.
Amen to that! I knew it would be great, but I had no idea how great. Hard for me to tell how much is not working the overnight and how much is working fewer shifts a month.
Thank you for this post! I’m in the middle of my first year as an attending and I find myself constantly checking to see if I’m being savvy in planning my finances. I saved a lot during med school and residency. I was able to pay off a small private student loan within the first three months, and for my larger federal student loan (~100k), I am doing PSLF. I have a traditional IRA that I opened during residency in which I rolled in my pre-tax retirement earnings from a prior employment. I am currently maxing out my 457b. No kids, no car loan, but I am wanting to save to buy a house within the next 2-5 years. In your opinion, what would be the next step in investing? I was given advice about opening a mutual fund, but if you have advice on other accounts I should max out first, I would appreciate any advice!
I wish you would have asked 2 months ago. I would have told you to convert that entire IRA to a Roth IRA. Last year would have been a great time since half your income would have been at a resident level. You’ll be in a higher bracket this year.
You mention a 457b but nothing else from your employer. It is unlikely your employer is providing a 457b and no other retirement account. Go talk to HR to see what other options you have.
You also need to learn about the Backdoor Roth IRA. Your tax-deferred traditional IRA is going to cause you an issue, but it is probably easily worked around.
If you are eligible to use an HSA, do that.
If you have even more money and on track for PSLF, then it’s time to either save up a downpayment for a house or start investing in taxable.
Sounds like you’re doing just fine, but that doesn’t mean you can’t make a few improvements around the edges.