St. Peter famously said, “love covers a multitude of sins.” The physician finance correlate is that a physician income covers a multitude of errors. But it can't cover them all up. You've got to at least do a few things right. You've got enough income to do anything you want, but not everything. Let me give you some examples.
A physician cannot choose to pay for undergraduate at an expensive institution with loans, get married, have two kids, have a stay at home spouse, borrow the entire cost of medical school including living expenses, go into a low-paying pediatric subspecialty, defer the loans during residency and fellowship, then spend 3 years at an academic center before becoming a hospital employee at a non-501(c)3 in order to spend more time with the kids. Meanwhile buying a fancy physician home in a high cost of living area, get two nice cars on credit, have three more kids during training, put them all in private schools, vacation in Amsterdam, buy a boat, retire early, and choose a high-cost “financial advisor” who sells them lousy investments. It just cannot be done. There's isn't enough income to cover all those choices. You might be able to do about a third of them and still be financially successful. Let me show you what that looks like:
Expensive UndergraduateInexpensive undergraduate school Borrow Undergraduate expenseswork through college Get married as undergradDelay marriage for a couple of years into med school Stay at home spousespouse works for a couple of years to pay med school living expenses
- Kids born in
- Choose low-paying Pediatric subspecialty
- Loans in
defermentREPAYE during residency and fellowship
- Stay on as faculty for
34 years and get PSLF before taking employee job
- Buy a
fancy physician2X gross salary home in highmoderate cost of living area with good public schools
twoone nice car on credit and one beater
- Have two kids during
medical schoolresidency and the other three as an attending
- Put kids in
- Vacation in
a boatmountain bikes
earlyat 63 High-pricedlow-cost advisor who gives badgood advice
That modified plan probably works out fine. You still get to practice the specialty you want. You still get the lifestyle and family you desire. But the numbers work. As a doctor, you don't get a pass on math.
I don't know why, but I see this huge divergence in physicians. Really, I could probably divide them up into four segments. These segments, however, aren't all the same size.
Doctors Who Get It Right
At the top is a group of docs who make all or nearly all of these big financial decisions “right” (in a financially optimal way.) This might be 5% of doctors, although it might feel like more if you spend too much time on sites like this one. Maybe this is what their choices look like:
- Work their way through undergraduate
- Chose Anesthesia
- Got married as a resident to a successful realtor
- Had two kids as an attending
- Refinanced private loans as a resident, did PAYE/MFS for direct loans and refinanced them with attending contract in hand
- Joined lucrative private practice in low cost of living area
- Stomped out $150K in student loans in first year out of residency
- Kids in public schools
- Vacation using miles and credit card reward points
- Learn to love hiking
- Became a do it yourself investor
- Realized she was financially independent at 40
Doctors Who Get It Mostly Right
- Borrowed a few thousand for undergraduate
- Chose Internal Medicine
- Got married as an MS3 to a nurse
- Had two kids in residency, and one as an attending
- Deferred loans during residency
- Worked as a hospitalist but lived like a resident for 3 years to pay off loans, then joined a private group with minimal call
- Went to a moderate cost of living area, but put the kids in public schools
- Take an expensive vacation every couple of years, but none for the first 5 years out of residency
- Borrowed for one car, bought the other cash
- Bought a boat, but not until the first million was in the bank at 45
- Fired their initial “financial advisor” and hired a real one a couple of years after residency
- Cut back to halftime at 55 and work until 65
These docs do just fine. They have nice happy, healthy careers, families, and lives. They pay for their grandkids' educations and endow chairs at their alma maters.
Doctors Who Get It Right Enough
The third group is surprisingly small. I can't quite figure out why it is so small. Maybe it is 15% of doctors. These are the ones who get it just right. Barely. They do just enough things right to keep the ship from floundering. Never super successful, but they get everything they really want out of life and still end up without a financial catastrophe.
- Borrowed $50K for undergraduate
- Chose academic neurology
- Married a pediatrician with $400K in student loans
- Had a surprise kid in medical school and had to borrow the cost of child care. Two more in residency, extending her residency by six months.
- Enrolled in IBR, but not until PGY3 year
- Ended up getting PSLF, but not much was left to be forgiven
- Stayed in high cost of living area after training
- Bought a 3X house right out of residency
- Go heli-skiing once a year
- Drive his and hers Audis
- Pay a 1% AUM advisor for a reasonable investing plan
- Both work into their 60s and then enjoy a comfortable, upper-middle-class retirement in Arizona
I think the reason this group is so rare is that it is a very thin razor. Very few people can get it just right. You either fall onto one side of the knife-edge ridge or the other. Let's take a look at the other side of the ridge.
Doctors in Chronic Financial Trouble
The fourth group lives on a financial glacier, covered with crevasses with thin snow bridges across them. Their financial life is a veritable minefield. They do a few things right every now and then, but they get the big things wrong. They struggle financially throughout their lives, work harder and longer than they wish, and end up living mostly off Social Security in their short, sad retirements. Maybe one version of this story looks like this:
- Had a first career as a teacher
- Went back to medical school before the undergrad loans were ever paid off
- Got married during medical school to an attorney, but not before racking up $550K in student loans and credit card debt.
- Chose family practice
- Got divorced in residency after having one kid. Got lousy deal on alimony.
- Stayed in high cost of living area
- Got married again to a business owner. Business always needed an injection of cash, so no retirement savings at all in 30s and 40s.
- In-laws moved into your basement
- Major burn out episode in 40s and practice failed. Worked as hospitalist for a couple of years, then as an employee of another doc.
- Got divorced again due to in-law issues
- Have a car payment for entire life
- Continued to use the same commissioned salesman as a financial advisor. Lost thousands in whole life insurance premiums and high-cost mutual funds sold at the bottom of bear markets
- Still paying student loans well into 50s
- End up working until they become disabled at 64 and have to start taking Social Security early
- Rent an apartment with a roommate and four cats and kids won't come visit due to cat allergies
This sort of scenario is entirely too common. Perhaps 20% or even more of doctors. Look around you. You'll see them. The details change, but the bottom line is that they made too many financial errors/expensive choices to overcome with their income.
Choices have consequences. Doctors don't get a pass on math. While a physician income can cover a multitude of financial “sins”, it cannot cover them all.
Get as many things right as you can so that you can afford to make your desired “less than financially optimal” choices. Avoid the unforced errors. Start early. Fail quickly. Don't beat yourself up over past mistakes. You don't have to get them all right to end up very successful. But you do need to get some of them right!
What do you think? Why do we look at all of our choices in isolation and not realize that what we lose in some areas of our lives we must make up in other areas? Comment below!