Starting At Zero

Writing this website, responding to comments and emails, and participating in internet forums makes me a bit insulated to what's really going on out there sometimes. That's one reason I really like going out and meeting real docs where they're at financially. I returned yesterday (I wrote this piece in April) from Tucson, where I had the chance to meet a lot of readers and actually speak to my residency program. It was fun to meet new people and renew friendships with those who had given so much to me. The week before I was in Boise, speaking to the Ada County Medical Society, also a great group of docs. But you quickly realize there is a serious selection bias in the docs who arrive at this site. Those who arrive here are not only very interested in financial stuff, but they are also more knowledgeable about it, even without me, than the average doctor. This post, however, is not for you guys. It's for the other guys.

Credit Cards Are Not For Credit!

I've written before, but not for years, about how credit cards are not for credit. You're not supposed to actually carry a balance on them. Well, unless you're somehow taking advantage of a 0% for 18 months kind of deal and could pay it off at any time. Credit cards are for convenience, and maybe also for rewards. And perhaps for a true cheapskate with a massive portfolio, to help him spend a little more money than he would otherwise. But one month of carrying a balance on those suckers pretty much wipes out the rewards for the entire year. If you've carried a balance on a credit card, or paid a credit card fee in the last, say, 3-5 years, credit cards are not for you. Cut em up and throw them away! Heck, even if you are having difficulty saving 20% of your gross income you should get rid of your credit cards.

So what triggered this? Well, I gave a talk to the residents and some of the feedback afterward from one of the attendings was, “The only additional thing I wish you had covered was to tell them not to use credit cards.” I thought to myself, “I have to actually say that? That isn't a given?” I just always took that as a given. Of course, you're not stupid enough to carry a balance on a credit card, are you? Are you? Well, it turns out that lots of people are. QUIT DOING THAT! That's personal finance 101.

A Bit on FMG Immigrant Families

I had a great chat with a resident who was doing some incredible things. She was a refugee from a war-torn country whose family had lived in several different third world countries. Now, half the family had made it to the US, including her parents with advanced degrees working in menial labor jobs. Despite being an FMG (Foreign Medical Graduate), she had matched into a particularly prestigious residency program and had been given awards for her exceptional ability to relate well to patients. And she was truly as nice as she sounds. So nice, in fact, that she was partially supporting her parents and siblings with her residency income and doing all she could to help the other siblings to legally immigrate. However, these efforts caused her to live beyond her means and rack up some serious credit card debt. Now, in the end she'll be fine, because she doesn't have the usual $200K in student loans to go with it. But we had a long chat about the importance of pulling people up to where you are, rather than trying to push them from below. Due to the debt, this resident had a lower net worth than all of her family members, including those living in a third world country! Just like most attendings will make plenty of money to be able to put 20% toward retirement, pay off their loans, and buy a fancy wakeboat (eventually), she will be able to save for retirement, pay off her (relatively minor on an attending salary) debt, and assist her family. But it is important to have your own financial house in order before you try to help someone else. It's the same reason retirement savings is a bigger priority than college savings. You'd rather have your kids work their way through college than have to support you in your golden years.

The Medscape Debt Survey

Medscape just came out this week (again, this was written in April) with their annual physician compensation survey. Part 2 of that survey shows a bunch of interesting stuff. The net worth chart is particularly interesting. Thanks to regular commenter Toshi for helping make the images more readable.

It wasn't so surprising to see that 94% of docs under 28 have a net worth under $500K, nor even that 65% of those 35-39 had less than $500K (although I wish that number were a lot lower). I did find it surprising to find that number never dropped below 10%. At any age, at least 1 out of 10 docs has a net worth under $500K. That's terrible. Heck, it's still 30% at 45-49!

I also found it depressing to see that only 50% of docs over 50 are millionaires. Remember this is net worth- home equity, savings account, checking account, retirement accounts, other investments etc. That's terrible. While I don't expect every doc to be a millionaire at 40, I don't think 50 is a particularly high hurdle. I think $2 Million is a reasonable number for a doc to retire on (that's an income of $80K a year plus Social Security), but when you look at docs at retirement type ages (60+) you see a quarter of doctors still don't have that, and that includes their home equity! Take away the home equity, and that number would be even higher! I was, however, surprised by just how many 70+ docs had more than $5 Million-about 18%. I don't know if that is a reflection of “The Golden Age of Medicine,” or simply due to the fact that they were able to invest throughout the 80s and 90s. But clearly, there are still some docs out there who became very wealthy.

Physician Expenses

Moving beyond the net worth chart, we see one on physician expenses.

2/3 of docs have a mortgage. Okay, no biggie. But 38% have a car loan?!? WTH? Quit buying cars on credit! If you can't afford to buy the car with cash, you can't afford the car. You make $15-50K A MONTH! You should be able to save up for a BRAND NEW CAR in 2-3 months. I could buy a couple of reasonable used ones every month with discretionary cash flow. There's no reason 38% of docs ought to have a car loan. But get this! It gets worse. There's ANOTHER 17% who are LEASING their car. That's a significant majority of doctors who aren't driving a paid-off car. I can barely even write the word “paid-off” because it implies that you had payments at some time.

Who Has Student Loans?

So this was a funny graph.

It turns out emergency docs have more student loans than anyone else. 37% of emergency docs haven't paid off their loans. We're the big losers in the house of medicine. How embarrassing. Only 16% of pulmonologists still have student loans. On average, the numbers seemed to be in the 27% range. I expect that will go up every year for the next few years with the crazy debt burdens young docs now have. 41% still have student debt at 40, and 11% still have it at 50. [Update: Even more embarrassing is that EM's still are the top of the list in 2017! – Ed]

Who's Building Wealth?

One of the questions asked about spending habits. While it was good to see that 61% “live within their means and had little debt” it was a bit depressing to see that only 24% checked the box that they “live below their means, people would be surprised at how much money I have.” I wonder if that percentage would have been higher without the second phrase, since most people, including doctors, don't think they're rich. (That question was asked in 2012- only 11% of doc think they're rich.)

How Do Docs Lose Money?

77% of docs didn't have significant financial losses in 2014. That's good since stocks, bonds, and real estate were all up. 6% of docs still managed to lose a lot of money in the stock market despite the fact that just buying all the stocks would have provided a 12.6% return. However, most losses seemed to be due to divorce and practice issues. Fear your spouse more than your patient!

Investment Mistakes

It turns out that, at least by self-report, endocrinologists are the best investors (least likely to make an investing mistake) and anesthesiologists are the worst.

55% of docs claim to have never made an investing mistake. Hard to put that together with the net worth numbers though, since it seems most docs are at least making the mistake of not investing enough! Given the people who email me, I find it highly unlikely that 55% of docs haven't made any mistakes. Chances are, they simply don't know about their mistakes! At any rate, 28% acknowledge making a mistake investing in the stock market, 14% in real estate, and 14% in another investment. You can count me into at least the first two categories! No surprise, since emergency docs are the 6th worst investors.

If you don't know much about personal finance and investing, know that the first goal for most doctors is to get back to a net worth of zero. It will be far easier to do that if you don't have any credit card debt and if you “go nuts” on your student loans for your first year or two out of residency.

What do you think? Are you surprised how many doctors carry a balance on their credit cards? Are you an immigrant supporting multiple family members? What is that like? Are you surprised by the physician net worth numbers? Why or why not? Comment below!