By Dr. James M. Dahle, WCI Founder
There are many roads to Dublin. There are many pathways to reaching your financial goals and becoming wealthy. However, financially successful doctors generally take one of three pathways to success. I'm going to discuss them from the easiest and most frequently used to the most difficult and least frequently used.
Before we get into them, however, you need to realize that a great deal of the arguments in physician financial forums and Facebook groups are simply disagreements between people who are on different pathways. One pathway is not necessarily better than others, but there are significant differences between them. Like with most things in life, FIT MATTERS. You need to find the pathway that fits you best.
#1 The Standard Physician Wealth Pathway
For lack of a better term, we'll call the first one “The Standard Pathway.” It is the pathway I discussed in my first book, The White Coat Investor: A Doctor's Guide to Personal Finance and Investing. In fact, it was the pathway my wife and I were on for at least the first six years out of residency.
The path is very simple. First, you live like a resident for 2-5 years out of training. This allows you to get your net worth back to zero and beyond very quickly. You pay off your student loans, catch up to your college roommates with regards to retirement savings, and save up a down payment for your dream house. After that point, you make sure 20%+ of your gross income is going toward retirement savings, and you invest it into a straightforward, broadly-diversified, low-cost, blend of index funds in retirement accounts when possible—and in a taxable account when not possible.
This pathway is so easy it is almost laughable. While there are no guarantees in life, this is about as close as you can come. Combining a physician's income with an adequate savings rate and a reasonable investing plan should ensure that every doctor retires a multi-millionaire.
Katie and I became millionaires seven years out of residency doing nothing but this. Seriously. That's all we did. Any doctor can do what we did. The first million was primarily brute force savings, although there were some minor contributions from debt paydown, property appreciation, and investment gains. I have no doubt whatsoever that, if we had simply stayed on this pathway, we would now be multimillionaires and on track for financial independence by about 50.
#2 The Real Estate Pathway to Wealth
There are a lot of docs that are into real estate. The majority on this pathway prefer being active investors, owning their own properties directly, but it is also possible to do it with passive investments—including private syndications, funds, and REITs. This is generally a faster pathway to financial independence than “The Standard Physician Wealth Pathway” for four reasons:
- You put more work into it, and you are compensated for that work.
- You are more likely to use leveraged investments, which usually boosts returns if used in moderation.
- You are more likely to take on additional risks, which usually boosts returns.
- Real estate receives some pretty sweet tax deductions (primarily depreciation), ESPECIALLY if you or your spouse can qualify for Real Estate Professional (REP) status.
Going down this pathway doesn't excuse you from living like a resident or not maintaining a high savings rate. It is also going to require you to acquire a more complicated body of knowledge and new skills. But lots of docs who have gone this route have realized that if you put the same amount of intelligence, work, and effort into a financial services or real estate career that you put into medicine, you are likely to make a lot more money.
I don't blame doctors for entering this pathway. It's tough to know at 22 who you would be and what you would want from life at 32, much less 42. We all change, and medicine is worse than most careers at locking you into something for decades. But let's not kid ourselves—many of those who qualify for REP status probably made a mistake choosing to go to medical school. However, there is a continuum, and with good systems or passive investments, you can limit the amount of time or effort that goes into this second career.
Many readers don't know that I had plans to build a local real estate empire if The White Coat Investor didn't work out financially. I'm serious about that. I'm not going to do it now (it turns out that I don't really like being a landlord and I'm not all that good at it), but there's nothing wrong with the pathway.
#3 The Entrepreneurial Pathway
While real estate is somewhat entrepreneurial, there are so many properties in the world that you don't need to recreate the wheel. You can simply learn from others and copy what they did and expect to be about as successful in the long run. People are always going to need somewhere to live, and somebody is always going to need to own those apartment buildings. The pathway is very reproducible, at least over decades.
That's not the case for many other types of entrepreneurial pursuits. A few doctors take this pathway to wealth, developing a product or service that becomes a rapidly growing and profitable business. It can happen very quickly, but more likely, they worked for years to become an overnight success. There is a huge bias here, too, that makes this appear easier than it is. You know a few docs who developed an implantable device company that sold for millions. But you've never heard of the dozens who tried and failed.
People look at successful online businesses like The White Coat Investor and see that it started out as a blog and, well, blogging just doesn't look that hard. They look around at other blogs they read and see that they're all pretty successful. What they don't realize is that there are dozens of blogs they never saw that were not successful. People see YouTube influencers, and it doesn't look that hard. But they never saw the ones who quit before they ever had 1,000 subscribers.
All that aside, if you do find yourself on this pathway, it can be a pretty amazing ride, opening up doors you never thought possible. Perhaps you will reach rapid financial independence. Perhaps you will give away more money than you ever spend. Who knows? The sky is the limit. I can remember running the numbers back in 2010 or 2011 and I could basically predict the ceiling on my wealth from being a physician. I found the existence of that ceiling a little bit depressing, even though it was likely more than I would ever spend. If you do, too, perhaps this pathway is right for you.
Which Pathway Do You Take?
Now it's your turn. You get to decide what pathway to put yourself on. In fact, there's nothing keeping you from being on two or even three pathways all at once. It's your life, your money, and your decision. But let's put some numbers to it. What percentage of docs do you think are on each pathway? I'd guess it looks about like this:
- Not on a pathway at all: 50% of doctors
- On The Standard Pathway: 45% of doctors
- On The Real Estate Pathway: 4.5% of doctors
- On the Entrepreneurial Pathway: 0.5% of doctors
I'd be happy if I could get that 50% of doctors that aren't on a pathway toward building wealth onto a pathway, any pathway. In fact, it has become part of my life's work. But which pathway? I really don't care. Put yourself on the one that's right for you.
What do you think? Agree? Disagree? What pathway(s) are you on? Which do you think is best? Why? Sound off below!