By Dr. Jim Dahle, WCI FounderI am amazed at how many physicians are excited at starting a side gig. Considering how high their income is already, it's a little odd how much they are focused on increasing it, especially if the side income is even slightly more passive than their clinical job. There are entire blogs and large Facebook Groups dedicated to this subject and there is significant ongoing interest about the topic from many of this blog's readers.
I'm hardly in a position to be critical, given that my “side gig” pays much better than my clinical income. In fact, maybe my side gig is partially responsible for this phenomenon! There is no doubt that it is easier to pay off debt, build wealth, and reach financial independence on a higher income.
Nevertheless, I think some pushback on this idea is appropriate. So let's do that today with . . .
5 Reasons Why Spending Less Beats Earning More
It's a bold assertion, but I think you'll see the wisdom here, especially for someone who is already in the top 1%-5% of earners.
#1 More Free Time
It turns out there is no such thing as a truly passive side gig. It's going to take some work, sometimes far more than you might think. In fact, most side gigs pay worse than a physician income! So you're actually lowering your average hourly rate by engaging in a side gig. If you don't bother with the side gig, you can use that free time to do whatever you want and many of those things may make you happier than working more. Of course, if you use that free time to go shopping or on expensive vacations, maybe you would have been better off starting a side gig instead!
#2 A Penny Saved Is Two Pennies Earned
I don't know about you, but my marginal tax rate is 45.8% (okay, maybe about 45% since half of Medicare tax is deductible.) If I save one more dollar, I have $1 to spend. If I earn one more dollar, I have 55 cents to spend. It's just math. If you're already a high earner, you likely also have a high marginal tax rate.
But wait! There's more. As your income goes up, you may even move into the next tax bracket where that additional income is taxed at even a higher rate thanks to our progressive tax system. You may also bump yourself out of some of the phaseout ranges and lose those tax breaks.
If you're saving more, you're likely putting at least some of that into tax-protected accounts like a 401(k) that come with further tax deductions. Maybe now your $1 saved is worth $1.45! Which is better, $0.55 or $1.45? I'll let you decide, but if you multiply it out by $10,000, (i.e. $5,500 vs $14,500) it might make it a little easier decision.
#3 Tithing Functions Just Like a Tax
If you're a tithe-payer who pays on your gross income, you can tack that 10% right on to your marginal tax rate. Now instead of a 45% marginal tax rate, maybe you have a 55% marginal tax/tithing rate! (Okay, okay, you can probably deduct that contribution so it really only increases your marginal rate to 51% or so.)
#4 You Buy Less
If you earn less and save more, you are likely buying less stuff. That means you get to spend less time, energy, and money buying, maintaining, and storing stuff. Buying less is also better for the planet. You want a simpler life, less clutter, and less guilt? Take up the classic side gig of spending less.
#5 No False Starts
Lots of doctors try side gig after side gig. Let's be honest, most of these flame out. Maybe it was doing insurance exams or medico-legal work. Maybe it was starting a for-profit blog or podcast. Yes, this blog has been successful, but I can list the bloggers I know with a six-figure blogging income on one hand. Maybe it was doing stump removal. I have no idea, but most new businesses fail. Save yourself the time, aggravation, and money by not even starting.
As a doctor or other high-income professional, you've already done very well in the income game. Before you try to generate more offense, at least take a quick look at the defensive side of the game and plug the holes in the dam. (How's that for a mixed metaphor?)
What do you think? Which is better, generating more income or spending less? How does that change for a high-earner?
It really depends on how your side gig is taxed. My side gig was investing in real estate and I pursued it so that I could replace my clinical income to be able to retire without being dependent on the stock market. My gross income is less than my clinical income was but my net is higher because of the tax advantages given to real estate. My marginal rate is about 17%.
Well, I cannot agree with this more. We are doctors at the end. I keep hearing how people are entrepreneurs. It saddens me because I’m pretty sure that was not on their med school application. Is medicine dysfunctional? Does it sometimes feel like a thankless job? Absolutely! If you’re absolutely miserable practicing medicine and it’s impacting the quality of your life as a human being- by all means get out to save your sanity… but to doing extra side gigs here and there just to get rich ? Well, you went to medicine for the wrong reasons….
If making 200k a year does not provide you peace of mind financially, I promise you making more will not bring you peace either.
I dont understand this logic. Why would being a good intentioned physician and wanting to make more money have to be mutually exclusive?
Not everyone is doing a “side gig” just for the money. I make far more than 200k/year with medicine. But I continue to work on at least one side gig and a couple other “side” ventures. Why? I can assure you it is not just to make money. I enjoy medicine. But I also enjoy learning new things and experiencing other things. I don’t feel like I am developing my full potential as a human if I just keep practicing medicine. I have so much more to give and learn. If that comes with the side benefit o f making extra money, then great. But if it just enriches my life or lives of others, then I consider it a success and a good reason to continue.
I agree that before looking at the earning side of the equation, the spending and savings side needs to be examined. Looking and finding more income without a good savings or financial plan will likely just lead to more unintentional spending without a great increase in happiness.
Regardless if through a side gig or savings or anything else, I think that our financial goals should align with our overall passion and purpose. Financial well being enhances our personal well being and I truly think can help make us a better doctor when aligned. Reaching financial independence without a passion or purpose seems empty.
Truth! The White coat investor hits it out of the park again.
Disha
If “side gig” was replaced by the old term “part time job”, I think the idea would lose much of its glamour. The way it is now, it normalizes the fact that many people cannot survive financially with one full time 40 hour a week job, which is a sad state of affairs.
It’s like people who use the word “invest” in reference to exercise equipment, stereo components, and other things that will most certainly be worth close to nothing after several years.
I disagree with most of this comment and think it entirely misses the point. “Part-time job” implies that one does not have an additional full time job. Side gig can mean part time job if you want it to, but if you already work 50 hours a week, it probably is more analogous to a passion project or just some additional income for whatever personal reason. Perhaps if some of those people that can’t “survive” (which seems like an extreme choice of words…they can’t “survive”?) on 40 hours a week took the advice to spend less, they might be better off. My wife is a dentist that brings her lunch 4 days a week. Her hourly staff goes out to eat every day. Without getting political about it, people will spend their money on what they want to, but fewer have the willpower to see the bigger picture.
I do agree that those who use words like “invest” for highly depreciable assets are unwittingly demonstrating their lack of understanding of finance and accounting. I also agree that as a society we should do a better job of educating the majority on financial matters, including the idea that one should use minimum-pay/minimum-skill jobs to gain work experience and references early in life, rather than rely on the lowest of pay scales to support an entire family.
How would you “get political about it”?
Are you suggesting that persons with one political view or another have certain views on money? Poppycock. Maybe your brain is being poisoned by Fox News, IDK.
How’s that for political? LOL! 😉
To be fair, some people are on straight salaried jobs and have to side gig if they want more earned income. Some find their hourly rate on side gigs is higher than their day jobs but would not want to do it full time.
I would add to “buy less stuff” “do less travel”. Cutting even one plane flight dramatically reduces your carbon footprint. Opting for fewer trips and much shorter distances not only saves money but is far gentler to our planet. Less time and effort spent planning travel. Less need for all the expenses that come with it. No need for any special clothes or gear that would be purchased for the trip. Eliminating one family trip to Europe will cut costs by a very large figure.
There is a difference between a side gig job and truly passive income. Investments, whether real estate or mutual funds, are passive income. Investing in a business that you do not run is passive income.
Investing in a business that you run is a side gig. Depending on the business, it may generate a lot more income than practicing medicine. For most, nowhere close.
Hey thanks! You have given this 60+ yo retired doc another reason to track down this awesome “coastlines of the world” TV series to watch rather than even consider taking trips involving air travel to see several of these places in person. Just didn’t have time back when I forst saw it to fully pursue either.
The term “side gig” is pretty annoying. It’s a second (or third) job. I tried this for about a year and the loss of my free time just wasn’t worth it even though my hourly rate was very high. Diminishing marginal utility of more money and all… Not wanting to buy a lot of crap goes a long, long way.
But social media (this site includes) tells me that if I start a blog, invest in real estate, buy the right stocks, create a venture capital firm, whatever, then I can retire from the stresses of medicine and make even more income way faster.
Actually I think you were just in an online conference about exactly this. Along with a pretty big number of other side gig physician influencers.
Well said
Yeah that online “conference” was so… Sketchy. I appreciat the content here because it’s nuanced and high quality and I was surprised to see WCI talking at the same one as people selling life coaching to physicians or what sure looked like start up scams.
This criticism is a bit harsh. The summit was well-intentioned. And very helpful to those who want to start something similar but do not how to or where to look for mentorship and support. As with all things online, take what you need and ignore the rest.
The enthusiasm around the summit was telling. It garnered so much more interest than something similar on index investing would.
And WCI being part of it is only natural. He epitomizes the successful physician entrepreneur. But he’s never made it out to be a walk in the park. In fact, his line, somewhere on this website, saying, “Medicine is the cash cow”- comes to mind.
well said.
I watched large parts of that conference and got some great ideas and inspiration.
In my mind the message boiled down to don’t wait for perfect, start now, on whatever you’re interested in. I have several side gigs, passion projects, whatever you want to call them, where I feel I can make a contribution beyond medicine, and I am happy to spend time on them. maybe one day they will make money, maybe never, still enjoyable all the same.
i will say however, that some of these sorts of events are like a self-licking ice cream cone, where the same people interview each other, over and over. LOL!
And I am not referring to WCI, who’s media empire provides extreme value. 👍🏼🤓
Thanks for the feedback. Obviously speaking at a conference or online summit doesn’t mean you endorse the message of every other speaker at said conference.
Absolutely agree there. Lots of legitimate people were there and we’ll spoken, and in hindsight the timing was at a period of peak physician job insecurity during the first wave of Covid when many people were in need of alternative ideas and something they could do with the usually bedrock sound medicine jobs looking very unstable.
Yes, the most black-swanny part of this downturn was that in the midst of a health care crisis, the incomes of health care workers would drop so impressively. It certainly made a lot of people (including me) grateful for their non-clinical income.
Just have to chime in…a pandemic is *not* a black swan event. A black swan is something that people think does not exist. If something is entirely predictable, that we know exists, has happened many times before, and we all know will happen again at some point in time…it is a white swan (even if you did not recognize it as such).
I think the most black swanny part of all this is that physician incomes dropped in a pandemic.
I agree completely with the article. As with any article, it is not wrong just because it doesn’t address the entire picture or every possible situation. I am just about to start working as an attending, going to make a ton of money clinically, going to live on 20% gross income, be net zero net worth in 9 months, renting primary residence and not buying, driving a 13 year old camry with 105k miles, tithe, AND also have a stay at home wife who has energy and interest which is untapped. I am also completely energized by learning about real estate investing, and wife is also getting into the idea. So why not pay some extra for a course, pay for some babysitting, and see if it is a fit? Especially given that we could be looking at accelerating our financial freedom from 12-15 years based on index fund approach to maybe 5-7 years with more “active” investments. Worst case scenario is we are still completely great financially and we got to work together as a couple and grow together.
This might be one of my favorite articles that you have written. So simple, and so true.
Glad you liked it.