The Two Keys To Our Financial Success

I blogged recently about what really matters when it comes to reaching your financial goals. I’d like to expand on a portion of that today. When I go to speaking engagements, I often include a slide entitled “How to Get Rich.” There are four steps on it:

  1. Make a lot of money
  2. Don’t spend a lot of money
  3. Make your money work as hard as you do
  4. Don’t lose your money (to creditors, disability, death etc.)

It is a very simple slide and the point of it is that getting rich is relatively simple, even if it isn’t easy. The key for most high-income professionals is to convert their high income into a high net worth. That is a little tricky for most, not only because they generally start with a negative net worth, but also because of the intense demands to spend and “act like a rich doctor” from their friends, co-workers, family, partner and even themselves. A few also get caught up in the resident to attending transition. Their gross income increased by five times and they assumed their spending could increase five times, when in reality, it could really only triple due to the progressive nature of the tax code, the need to start making student loan payments, and the need to start getting serious about retirement and college planning. (If they’re smart, they kept their lifestyle increase to double or less by “Living Like a Resident.”)

I like to joke with listeners that they’re “90% of the way there” by virtue of their high income, and they really need to just do the last 10%. But while playing a round of disc golf recently (if boating is my most expensive hobby, disc golf is probably the cheapest) I started thinking about percentages and what percentage of our financial success was really due to each of those four items on the slide. Here’s what I think it would look like if we assigned percentages:

  1. High Income 45%
  2. High Savings Rate 30%
  3. Smart Investing and Tax Reduction Techniques 20%
  4. Smart Asset Protection and Insurance Plan 5%

Increase Your Income

There is no doubt whatsoever that a monstrously large reason for our success is our high income. There are innumerable blogs out there expounding on the virtues of getting on a budget and doing more with your current income. There is no doubt that is important. To borrow a football analogy, most championship teams benefit from an excellent defense, and you will need one too. However, it is very rare for me to hear about people talking about ways to increase their income. If you’re sick of reusing ziplock bags and paper towels, perhaps it is time for you to spend a little more time on the offensive side of the equation. There are lots of different ways to increase income. However, the recipe for you is probably different than for anyone else, and perhaps that is why people spend so much time on the spending/budgeting side. Perhaps it would be easiest to use our own personal experience to demonstrate what we have done to increase income.

Getting Personal

Money matters, but not that much

Money matters, but not that much

Some might interpret this next section as a “humble-brag.” I don’t mean for it to come across that way, but I am most knowledgeable about my own life, and there are a lot of techniques that we have used that you can probably use. There are certainly plenty of physicians who are wealthier than we are and even some who have higher incomes than we have. That doesn’t bother me in the least, so I hope if your wealth or income happens to currently be lower than ours that it doesn’t bother you either. Like any post on this blog or any other, take what is useful for you and leave the rest.

The traditional income path for a physician is to have a negative income through college and medical school, then the average American household income during residency, and then a big jump to an attending level income which remains somewhat level, sometimes increasing a bit or lowering a bit, until retirement. Our income path looks dramatically different. Part of that is on purpose, and part of it is a result of the method I used to pay for medical school. But whatever the reason, it has allowed us to have many smaller income jumps rather than the one big one that most doctors experience. We have been in pretty much every tax bracket, from the 10% to the 39.6%. This has been beneficial as it forced us to grow into an attending income slower than the typical doctor. Here’s what our historical income chart looks like, going back as far as we have tax records for (back to 1998, the year before we got married.)


I’ve never compiled that data all in one place before, so it was pretty interesting for me to see. The main differences between our chart and that of most doctors is that we had an income in the med school years (working spouse and military stipend), the military years understate our income a little (1040 total income doesn’t include TSP contributions, tax-exempt income, or allowances), and of course the rather significant WCI income the last 3 years. I was actually really surprised to see that our income dropped compared to the year before on five separate occasions-

  • 1999- Started med school (worked less)
  • 2001- Spouse went back to school
  • 2005- Stay at home spouse
  • 2007- Fictional drop due to deployment- lots of untaxed income that year
  • 2011- In partnership track, mostly fictional due to a 2010 Roth conversion, but also worked less

However, the general trend is obviously impressively upward, and that is a result of a number of individual decisions we made as we went along (and probably a little luck.) Let’s detail them:

15 Income Increasing Decisions We Made

As an undergraduate, I realized that not only was mowing lawns really boring and hard work, but that it didn’t pay all that well either. I wanted something better (income increasing choice # 1).

So I started talking to people I knew (income increasing choice # 2) and learned about an opportunity to be a tour guide on a train in Alaska.

So I applied for that (income increasing choice # 3) and the next summer was earning $7.60 an hour (plus tips and lots of overtime) 14 hours a day instead of $7 an hour for 8 hours a day.

I then realized that I could use half of my days off to work overtime and signed up (income increasing choice # 4) for as many of those extra trips as I could.

At the end of the summer, I returned to school for my senior year. I had a nice MCAT score and so I leveraged that into a part-time teaching gig (income increasing choice # 5) for Kaplan’s MCAT prep course.

Then I chose to apply for medical school (income increasing choice # 6), like many of you. While there was a huge up-front cost for this, I judged that it would be worth it given the increased income it would allow me to earn (plus I loved science and really wanted to help people just like the rest of you. Yes, I’ve read your med school application personal statements.)

My wife finished her undergraduate degree a few months after I started school, and began working full-time (income increasing choice # 7.) She worked for the next 4-5 years, even throughout her master’s degree.

I also worked during my fourth year of medical school (income increasing choice # 8.) During my internship, we were DINKs, and it sure felt like we had money coming out of our ears. We paid off a small debt and started investing. At the end of that year, we had our first child, and a big drop in income as my wife stopped working to stay home with her. By that point, we were only two years out from “the big bucks,” so we thought that with a decent emergency fund, frugal living, and now with no debt to service, that we could weather it.

In my PGY3 year, I did a little bit of moonlighting (income increasing choice # 9.) Then, after graduation, it was time to pay back the military for all those tuition payments and living stipends. My starting salary was a little bit tricky to determine with all the various special pays and allowances, but it was basically $120,000. Again, we felt like we had money coming out of our ears. Not only did we buy a second cell phone, but we also bought a second car. A year into my commitment, I headed off for a deployment. We were getting pretty smart about financial stuff at this point, and by the time I came back (knowing I never wanted to do that again), it was pretty clear that one of the best things we could do for our finances was to trade my time for money at a higher rate in the civilian world.

So I started right away moonlighting (income increasing choice # 10) at a local trauma center. All of that money, and half of what the military was paying me, went toward investments and a growing down payment fund for our “dream home.” A year after that I had a nice little bump in pay for making major rank, and started looking for jobs for my impending separation. At that point, I’d worked in an urgent care, a small community ED, a big academic center, and an inner-city trauma center and I had a pretty good idea of what kind of a group I was looking for. I wanted to be an owner of my practice, despite the risk of a corporate takeover–a real risk for small democratic groups in emergency medicine.

So I only looked at small democratic groups (income increasing choice # 11.) While my immediate income was less than I could have commanded from a corporate group, that investment would eventually pay off, not only in a higher income, but also in a career where I had more control–boosting longevity. 9 months later, it looked like I was on track to make partner. I was becoming more and more interested in online entrepreneurship and real estate investing. So we did both. One obviously eventually worked out a lot better than the other, but that was not initially obvious.

I tried a few online physician surveys (that didn’t work out well) and then eventually started The White Coat Investor in 2011 (income increasing choice # 12).

Meanwhile, I was plugging along at maximum pace to make partner as soon as possible (income increasing choice # 13.)

I made partner in 2012, and that came with a big boost in income, and by the end of 2013 it became clear that WCI had some potential. 2014 was the first time WCI made six figures, but I continued working full-time (income increasing choice # 14) because it was still quite clear that I could directly trade my time for money at a higher rate practicing medicine than doing anything else. By mid-2015, it seemed if I could dedicate a little more time to WCI we would soon start making money there than at the hospital. So I put in to reduce my hours, which didn’t actually take place until September 2016. I say “we” because all along the way we had options for Mrs. WCI to head on back to paid work, but it simply didn’t make financial sense for her to trade her time for money as a teacher when I could just pick up an extra shift or two and make as much as she would make in a month. We were far more economically productive with her playing a support role, which allowed me to dedicate an immense amount of time and energy into what had really become two full-time jobs at that point.

I brought on help at WCI (income increasing choice # 15), but the first thing I told Cindy was that she had to “more than pay for herself” or she wouldn’t be there very long. She admitted later that was really intimidating, but I had no doubt she would do it because # 1 I knew her and # 2 I could see money slipping through my fingers constantly with this thing due to how busy I was. There was plenty of low-hanging fruit to pick up.

Prepared Hands

At the beginning of 2016, Mrs. WCI and I set a goal to make a million dollars in a single year. We felt that was realistic, but quite doable, and we made it with room to spare. Funny how often that happens with goals. And that brings us up to where we are today- with far more income than we need, soon to be debt-free (couldn’t quite bring myself to pay off the mortgage before maxing out retirement accounts for the year), and having no difficulty exceeding all of our other financial goals. You think it’s tough to save $200-$300K a year? It isn’t when you make a million dollars. It’s darn easy, I assure you, even with the massive tax bill that comes along with it. Especially if you set your fixed lifestyle expenses (house, cars, insurance etc) back when you were making $200K as a pre-partner. And that’s the point- sometimes it is easier to make more money than to try to get more out of the money you’re making. Did all that “extra” income make a huge difference? Absolutely, but it also landed in “prepared hands” that knew what to do with it when it arrived. If your hands are prepared to wisely use an extra $100K, maybe that $100K will be more likely to find its way to those hands.

How You Can Increase Income

I hope those ideas of what we did to increase income are helpful to you. For you, it might mean relocating to somewhere that pays better. It might mean taking more call, working more shifts, asking for a raise, taking on new responsibilities, or finding new efficiencies in your practice. Perhaps it means gradually grooming your payor mix so there are fewer “no-pay” and Medicaid patients, and more traditional insurance and concierge payors. Maybe it will require another job- real estate flipping, operating a franchise, or running a website. Or perhaps it just means converting a bigger portion of your active income into passive income streams. But I’ll bet if you spend some time thinking about it, you can figure out a way to increase your income that is acceptable to you.

The Savings Rate

Your savings rate is simply the percentage of your gross income that goes toward building wealth. I usually count extra payments on student loans and mortgages, but not the payments due, but you can calculate it any way you like. I recommend attendings put at least 20% of their income toward retirement, with additional savings depending on your goals. Since residency, we’ve only been below that once and have often been far above it.

How much should you save

The chart is very random and probably requires some explanation. The denominator is gross income (carefully calculated even including investment income inside retirement accounts pre-2010, but just pulled from the tax records since) and the numerator is all savings, not just retirement savings. It’s pretty obvious where I came out of residency (still living like a resident) in 2006. Some years the numbers look higher than reality, and other years lower. For example, we bought a (to us) expensive vehicle in January 2009, so it looks like we saved a lot in 2008 and less than half as much in 2009, but in reality those two years were very similar. I’m not really sure what happened in 2011, but the numbers don’t lie. We contributed nearly $50K to retirement accounts that year, but our savings dropped by almost as much. I’m sure the severely negative cash flow on the unoccupied rental property and replacing two roofs that year had something to do with it.  Likewise the percentages aren’t climbing much the last couple of years despite a much higher income. We are spending a little more (new boat in 2015 and new car in 2016), but remember the denominator here is gross income. We’re paying a ton more in taxes than we used to thanks to the newer Obamacare taxes and the overall progressiveness of the tax system. At any rate, the point of the chart is that the numbers are pretty darn high all the way across the board.

Once you have a high income, the most important thing you can do with it is to carve out a big chunk of it and use it to build wealth. For most docs, first you get yourself back to broke. Then you catch up to your college roommates. Then you start feeling like you’re becoming wealthy. Then you hit financial independence. At some point in that process, you will probably feel like you need to loosen the pursestrings, and that’s fine. But doing it a year out of residency isn’t loosening the strings, it’s hacking the bottom off the bag.

Why are we rich? Because #1 we make a lot of money and # 2 we save a huge chunk of it. The rest is just details. If you want to get rich, I suggest you do what rich people do, and just about every one of them I know did the exact same two things we did to one extent or another. I know of very few people who became wealthy making less than $50K a year (in today’s dollars) and I can’t think of anyone who became wealthy with a single digit savings rate.

What do you think? What have you done to boost your income? What have you done to develop and maintain a high savings rate? Comment below!