Just as diversification in your portfolio is valuable, so is receiving income from uncorrelated, multiple streams of income. Physicians, unfortunately, might be some of the worst players when it comes to diversifying income. Some streams are more passive than others, but they are all useful, especially in times when something happens to an individual doctor's income or, as we saw in 2020, all doctors' incomes.
8 Risks of Relying on a Single Physician Income
Instead of developing multiple streams of income, the typical doctor spends 1-2 decades developing a single income source. It might be the equivalent of the Amazon River, but even so, it can dry up surprisingly rapidly. Think about all the things that could put an end to your professional income. Keep in mind that some of these can be insured against, but many cannot. Here's just a brief list off the top of my head:
# 1 Physical Disability
At least you can insure against disability. Far too many docs aren't insured against this, or more commonly, are underinsured. The insurance is also quite pricey.
# 2 Mental Disability
Although they seem to be getting better, many of us carry disability policies where mental illness is only covered for 2 years. After that, you're hosed.
# 3 Addiction
You always think it can't happen to you, but how many of us aren't aware of a physician or nurse we have worked with who had a drinking problem, a narcotic diversion problem, or a similar issue.
# 4 Malpractice
Depending on specialty, most of us can expect to be involved with a malpractice suit at least once in our career. But what if you had 3 cases in the same year? It is likely that you wouldn't be able to continue to get malpractice coverage. Or, if your malpractice is through a group, the insurance company may insist you be thrown out of the group or else the whole group's rates will go up. I know of at least one doc who was recently let go partly at the insistence of the malpractice insurance company. Think your disability policy will cover this? Think again.
# 5 Loss of Medical Staff Membership
I don't know about your contract, but for many docs, (including me) losing credentials/privileges at a hospital are grounds for termination of the employment contract and, thus, a physician's single greatest stream of income.
# 6 Inappropriate Relationships
Claims of sexual harassment or abuse of a patient, whether true or not, could terminate your income in a hurry. Even if eventually proven false, do you think your employer will let you work while they're being investigated? If you're self-employed, how many of your patients will leave the practice when your mug shot shows up on the front page?
# 7 Disruptive Physician Accusation
You might have thought throwing that instrument across the O.R. or chewing out that respiratory therapist didn't bother anyone, but, nowadays, it could rapidly lead to a loss of your job.
# 8 Decreasing Reimbursement
Imagine a family doctor who sees a lot of Medicare patients. Now imagine the 29% reimbursement cut actually going through. What kind of a private practice would actually survive a 29% cut in revenue? Nobody is going to practice for long for a negative income.
7 Benefits of Multiple Streams of Income
Besides being available to support you and your family in the event of one of the above financial catastrophes, the development of multiple streams of income provides seven other benefits:
# 1 Higher Income
Who couldn't use a few more bucks every month? Even if you don't need it to fuel your lifestyle, it could accelerate your path to financial independence or allow you to cut back on hours worked.
# 2 Lower Insurance Needs.
If you have streams of passive income that will provide for your loved ones in the event of your death, or you, in the event of disability, you can spend less money by dumping life and disability insurance.
# 3 Walkaway (aka FU) Money
Loss of your job as a physician often means an expensive relocation to another city due to non-compete agreements. It may also mean 6 months without income as you get a medical license, a DEA license, and/or go through the credentialing/privileging process. You may have to sell your house at a loss or even liquidate investments in a down market to tide you over through a period of lost income. Because of this, employers have an advantage over you in negotiations. But if you have multiple streams of income, you don't have to play by their rules and you retain negotiating advantage. This is your F-You money because it allows you to say “F-You” to the employer and walk away from the job. You know there will still be money coming in every month even without your main job.
# 4 Tax Advantages
Many streams of income are taxed at a lower rate than the income from your main job. Many types of investments and real estate offer advantages this way. A side business may also allow you tax deductions such as “business” trips, travel costs, and a home office.
# 5 Security
Additional income not only provides peace of mind, but it also means you need less money to retire on. If your side business provides you $3000 a month, and you need $7000 a month to live on in retirement, you may be able to retire 5 or 10 years earlier than you otherwise might. Instead of a $2.1 Million portfolio, you may only need $1.2 Million. This, of course, assumes you're willing to keep running the side business.
# 6 Professional Enjoyment and Development
The best additional streams of income are those that you enjoy. A hobby leveraged into an income may provide a welcome break from the daily grind of medical practice. Your medical knowledge and training may be valuable in more ways than just practicing medicine.
# 7 Opportunity to be With Spouse, Children, or Friends
Many people find it rewarding to have a business where they can work with family, or teach their children the value of work. Many streams of income can be cultivated from home, where you can watch young children, or be interrupted frequently by them, while still earning money.
Alternative Streams of Income for Doctors
The sky is the limit, but some alternative income ideas are better than others. Stanley and Danko in The Millionaire Next Door are quick to point out that millionaires allocate their time, energy, and money efficiently, in ways conducive to building wealth. That means that a millionaire is much more likely to spend Saturday mornings checking on his rental property rather than cruising garage sales looking to add to his garden gnome collection. Robert Kiyosaki of Rich Dad Poor Dad fame likes to emphasize the benefits of a passive income. The books aren't exactly a prescription for wealth, but he makes two excellent points. The first is that a stream of income that provides money when you're sleeping is preferable to one that requires you to work. The second is that passive income often enjoys much better tax treatment than the income from your professional work. Here are some income streams that are fairly common among physicians:
# 1 Moonlighting
A second job with another employer could provide income or be leveraged into a full-time job in the event of loss of your mainstream income. A clinic-based internist might pick up shifts as a hospitalist, for instance. Opening a cosmetic procedure clinic one day a week, like one of my partners did, might also provide a valuable all-cash stream of income.
# 2 Endorsing Products or Supplements
You've all seen the doctors who recommend various products out there. You don't really think they're doing that for free, do you?
# 3 Speaking and Teaching Opportunities
Developing your reputation and skills as a speaker may allow you to give CME seminars for pay, or at least a cheap vacation. Look at those brochures you get in the mail for various CME conferences. It's the same two dozen speakers at all the conferences in your specialty. Become one of them.
# 4 Book Royalties
While most physician authors recommend against writing books purely for money, it can provide an additional small stream of income as the royalties come in year after year. Even quick articles for throw-away journals can provide significant income.
# 5 Online Entrepreneurship
I obviously know a thing or two about this one. The White Coat Investor was a business from its first week. My initial financial goal was to be making $1,000 a month within 2 years of starting. I barely made it, which is better than most blogs ever do. Now it provides partial or complete financial support to 10 other families and has helped build the businesses of hundreds of the “good guys” in the financial services industry. Blogging, podcasting, and videocasting all have potential to create a stream of income. I guarantee it won't be very passive, but the sky is the limit when a medium can infinitely scale. Many doctors have found success teaching online courses, coaching, or consulting. Online entrepreneurs make money by selling ads, selling their own products, selling the products of others, and selling their time as speakers, writers, consultants, or coaches.
# 6 Your Portfolio
Stocks, bonds, and mutual funds provide dividends and interest on a regular basis. While these are generally reinvested, they are still an additional source of income you could use if you needed to. Dividends and long-term capital gains are taxed at 15% in a taxable account and not at all in a tax-protected account. The best part about portfolio income is that it is very, very passive.
# 7 Investment Real Estate
There are a plethora of tax write-offs available to real estate investors. They aren't quite so generous for those with a high clinical income, but they still exist. As a general rule, rental income tends to be a lot more stable than many kinds of income, and sometimes properties even appreciate, allowing for significant capital gains. Just remember that, compared to a stock/bond portfolio, rental real estate tends to be more of a second job than an investment, even if a property manager is involved. But the more of that work that is outsourced, the more passive the income becomes until, eventually, it is like your portfolio income.
# 8 Expert Witness
Both the prosecution and the defense in a malpractice trial need expert witnesses. These guys often make several times more per hour testifying than they do practicing medicine. Even just reviewing potential cases may earn you income. Don't forget your ethical standards when engaging in this type of work. I suggest you stick to your own specialty and do defense work only. We've got enough docs out there already willing to sell out their colleagues for a few bucks.
# 9 Consulting Work
One of my partners is the medical expert at a business. No one else at the medically-related business has a medical background, so he is the go-to guy when they actually need expertise.
# 10 Medical Equipment
Another of my partners has owned a very profitable medical equipment company. Most of the products are his own inventions.
# 11 Pharmaceutical Trials
Part of the reason drugs are so expensive is the drug companies have to prove to the FDA that they work. They have to pay people to run these trials. You could be one of those people.
# 12 Recreation Physician
Camps, ski resorts, cruise ships, airlines, expeditions, etc all may have need for part-time or full-time medical expertise. Part of the compensation may be taxable income, or it may simply be opportunities. For example, I work at a ski resort a few days each winter. I ski and a P.A. sees the patients. If the P.A. needs me, I can be there in 5 or 10 minutes. If they don't, I get a free day of skiing in for my family and friends. At the end of the day, I sign 4 or 5 charts. Sure, it's not much money (perhaps the equivalent of $100-200 a day in lift tickets and meal discounts), but it's still an income. When engaging in this type of work, look carefully at the liability issues.
# 13 Buy a Surgical or Imaging Center
Be careful with this one. Many doctors list this as one of the dumbest financial moves they ever made while others consider it their greatest investment.
# 14 E-Bay
Selling stuff you're not even using on eBay or Amazon can be surprisingly profitable. Not only do you get tax-free income, but you can spend less on housing and utilities because you don't have to store all that stuff anymore. Many people that start out selling on the internet just to get rid of their junk find it is so easy they open a side business doing it.
# 15 Spouse's Job
Okay, seems a little strange. But it might be the most important alternative stream of income in your arsenal, and it is completely passive to you!
I'm sure there are many more streams of income out there developed by other physicians. Your only limit is your own creativity. But as reimbursement continues to decrease in the future, you would be well-advised to develop a few of these along the way. There's nothing out there that says your main job has to be your only job.
What do you think? What kind of alternative income ideas have helped you diversify? Do you have other ideas to help docs diversify their income?
Dr. White Coat,
What do you do in terms of tapping multiple streams?
And on a more specific note, I understand the ER docs work some of the lowest hrs due to shift work and limited/no call when compared to other specialties. Do you find that ER docs, as such, can take up more outside income opportunities compared to other physicians? How many do you find doing that?
I have a portfolio, a rental property, this blog, have moonlighted in the past and am doing some freelance writing work.
You’re right that emergency medicine and other shift work specialties work very well with developing other streams of income. I know a doc that consults with an insurance company, one that owns a medical equipment business, a financial planner, an EMS director, and many writers.
Two words: passive income.
Physicians, especially PCP, should also look at adding ancillary diagnostic and therapeutic procedures. Incontinence therapies especially. As a gynecologist, I’ve tried showing my PCP colleagues some simple screening methods and counseling that could increase reimbursements, but none seen interested.
Diversifying can mean something as simple as treating a condition you used to refer out.
I tried finding a place for training for myself as a PCP but I couldn’t find anything specific for IM and the NP that does it wasn’t interested in a shadow.
I hired a health care consultant that specializes in creating bladder centers for primary care physicians.
She provides two main services:
1. Consulting
a.Advisory: she assists you in
getting machines, negotiates
price for you, and arranges
training.
b. Consultant: she trains you on
how to incorporate a screening
program, reached you treatment
algorithms, and scripts
conversations on how to
convince patient to do
treatment.
c. She trains your receptionists,
nurses, and a clinical liaison to
go out and market for you.
Provides marketing materials,
etc.
2. Equipment/employee leasing:
-she leases you a trained
employee that can operate the
equipment.
-this is a cheaper start up, but you
lose some potential revenue.
I went with 1c, which is the most expensive ($$$), with the most upfront fees, but I doubled my yearly take home revenue the first year, in spite of her fee, the cost of equipment, marketing materials, and hiring new staff (3 new employees). I have referred 3 people and they went with #2 and are happy they don’t have to worry about equipment maintenance or training/retaining staff.
The added revenue resulted in me being able to hire more nurses. I now have an LPN per room. They do all the paperwork. I just practice medicine. Haven’t used a computer in years (except to sign notes and labs). Less than 10 minutes per day.
Let me know if you are interested in her number.
Thanks for posting this. This and other posts of yours have helped me to start thinking about this very topic. I think it’s absolutely important for physicians today to start thinking about how to create multiple streams of side passive income. It takes the pressure off of your day jobs and allows you to focus more on why you went into medicine in the first place.
Personally, I’ve decided to do something about it and even created a blog so people can follow along and learn from my successes and failures. I call it
Passive Income, M.D.
Feel free to visit by clicking my name above and let me know what you think. Thanks WC Investor.
I know this is an old post. Could you point me in the right direction? I am a new surgeon and have opportunity to “proctor” for a company an do a couple other side gigs. It’s not a ton of money, but its not miniscule. My question has to do with how I go about maxing out the advantage. At the current time, if I made, say $1000 doing this, it would be taxed at my highest tax rate. Where does an EIN (employer identification number) come in to play? Can I do that, use a separate account, and pay separate taxes at the lowest rate, and then just invest the entire thing into a separate retirement account? I did a search of your website and a couple others and have read a lot of articles that describe what side gigs are available and different options, but I can’t seem to find where they talk about how to actually manage the money that comes in. Thanks.
RJ
For $1K a year, I wouldn’t do a thing. I’d pay the taxes and either spend the money or invest it in a taxable account.
For $10K a year, I’d probably go through the hassle of getting an EIN (free and easy)
https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
and open an individual 401(k) and put 20% of net earnings in it (so about $2K if you made $10K)
https://www.whitecoatinvestor.com/where-to-open-your-solo-401k/
But you’ll still pay your marginal tax rate on the other $8K.
Great. That is very helpful. So I gather you can only protect 20% on the side hustle? I would probably get anywhere between 4-10K per year doing this. Another option I have is to put it into a work account and I won’t pay any taxes on it but I can only use it for work related expenses such as meeting travel, computer, etc. I wonder if that would be a better and easier option then as it would be completely tax protected.
Thanks
RJ
Why wouldn’t you pay taxes on it? I’m not sure you understand how the tax code works. Even if you leave it in your sole proprietorship’s checking account you still owe taxes on it. I mean, if you spend it all on legitimate work expenses, then sure, you don’t pay any taxes on it. But what’s the point of working in a business that makes no profit?
That’s a good question that I don’t necessarily know the answer to. I work at an academic center and I can have the checks made out to my employer care of me and it gets deposited in an account that I can use for work related expenses such as research and meeting travel etc.
Being newer to personal finance, this is my first time reading this post and it may be one of my favorites!
Since beginning my financial education about 8 months ago, I’ve developed 5+ stream of income. None come anywhere close to my main physician income. But they hit all of the advantages discussed above.
https://prudentplasticsurgeon.com/physician-passive-income/
Another less tangible benefit is that through these streams of income, I’ve been able to explore my entrepreneurial side which was completely dormant before this.
And I think it’s important to note that I’ve done this while being a full time surgeon. It has not diminished my practice or my love of medicine one bit. Quite the opposite in that it has allows me to focus more on what I really love about medicine…patient care!
Thanks for a great post!
Reminder: as Ryan above 3 years ago was advised all these extra income streams are taxed (the profits above expenses anyway) at/ above your highest current tax rate (unless something happens and you lose other income streams). These are cushions for loss of main incomes and options for an often interesting but sometimes dead end or even money loss change of pace. However the best way to be able to retire early/ work less/ have F-U money re your main occupation (and ability/ time to start side hustles!) is to live well below your income (and don’t divorce) so a drop is bearable, and money can be stashed toward retirement or side businesses/ investments, etc. We are just like factory workers- no knowing how long medical reimbursements will stay at current levels or if they will drop or rise. Please don’t grow into your income or get into long term mortgages/ expensive marriages or lifestyles that count on rising income and eventually working until your 70s (if you are able) to maintain them. Plenty of $20/hour 1970 US$ auto workers are on disability or working $12/ hour 2020 US$ service jobs when they had expected to have a $70,000 pension with health coverage from GM by now. You know we docs (well us nonsurgeons 😉 and non administrators) are making less inflation adjusted money than docs did 30-50-70 years ago. Make sure you don’t NEED a side hustle to avoid painful lifestyle changes.
One more additional stream not oft mentioned would be part-time service in the Guard or Reserve. A lot of hoops to jump through to get in, but lots of rewards on the other side. Plus they have excellent loan repayment options, something like $40k/year of service in loan repayment, though this changes every few years depending on the needs of the service.
Thinking of my spouse as a source of passive income is a new and novel concept to me. Given how much I value passive sources of income, this is a very good development and likely to do wonders for our relationship.
Her income does dwarf any of my current sources of passive income. Excellent work, spouse!
Kind of funny to think of it that way, but I bet it is most common “passive” income out there.
I definitely have a WCI addiction- luckily doesn’t affect my one stream of income 🙂
Not practical.
Can you tell us how much your WCI makes?
Are you asking do I know or will I tell you? The answer to the first is yes, the answer to the second is no.
If by practical you mean will I provide a blueprint to recreating my own business, then I guess I won’t be writing any practical posts on this subject.
Selling on Ebay is NOT tax free!
Once you hit 20k in total sales (including shipping ) Ebay sends the IRS a tax form !
It’s really easy to sell 20k worth of stuff
As long as your basis on what you’re selling is less than you bought that stuff for, you still won’t owe taxes. I agree it might be easier to keep it below $20K though!