Giving Yourself Options Out Of Residency – Even If You Don’t Capitalize On Them
It’s wonderful having options even if we never take advantage of those opportunities. For example, I want to go live abroad for a few years and though I may never end up doing it, it’s important to me that I design my life in such a way that the opportunity is viable in the future.
Few residents are focused on trying to get out of medicine having just recently gotten their feet wet. However, they may have other aspirations in healthcare, some of which may not earn them enough to sport a fancy lifestyle. Wouldn’t it be wonderful to have that option available? The premise of this site is that you can create more options for yourself in the future and enjoy a high quality lifestyle now.
In this post I want to talk about what it would take for a resident to build a financially secure future through strategic money and lifestyle management.
The 4 factors towards achieving financial security right after residency are:
- Income
- Debt
- Budgeting
- Investing
1. Income
Without the high income which physicians get to enjoy it would be really hard to build financial security quickly. Those who earn less than $50k/year would need decades to achieve what physicians can enjoy in a handful of years.
Ideally, the resident would take advantage of their income as early as residency, though I realize that most don’t have enough time on their hands to become competent attendings and worry about their finances.
Working Extra
Few professions have the ability to earn extra for working more shifts. My buddies in ortho can pick up extra shifts at nearby hospitals taking call. A high-risk obstetrician friend of mine takes call at 3 different hospitals at the same time. In my medical group, my full-time pay entails four 10-hour shifts a week. I am able to more than double my salary by working double those hours.
A base income of $200k/year is incredibly easy to achieve for the average physician. With a little searching, this number could be $300k/year for a full-time schedule.
Adding a few hours a week of overtime should take that number closer to $400k/year. Combine that with cashing out vacations and $400k/year for a family medicine physician is incredibly easy to come by.
Sustainability
I didn’t realize this when I was younger but it’s really hard sustaining 80-hour work weeks for long. I have always been a very high energy person and at nearly 40, I can still keep up with the pace of residents but not their work hours.
Taking overnight call or working 80 hour weeks means that I will need another week to recover from that. My advice to young attendings is to treat the ability to work more as a finite commodity – use it wisely to achieve your financial goals but realize that it will get depleted eventually. By the time you are feeling the pressure of the extra hours it’s time to cut back.
2. Debt
I have realized something about debt and physicians, it’s a commitment thing. Some are willing to put their entire focus on getting rid of their student loan debt with the goal of avoiding all future debt.
Others are okay carrying their debt for a few years longer if it means that they don’t have to nitpick their budget. Doesn’t mean that this latter group can’t succeed financially, it’s just that they won’t really achieve things much faster than a traditional physician household.
If you can commit to getting rid of your debt then the income and budgeting factors will naturally fall into place. It’s like studying for board exams, you know exactly what you need to do. You can achieve it all in the last 2 weeks before the test or you can take 3 months to prepare for the test.
Commit to paying off debt and $500k can be paid off in as little as 3 years by a physician taking home $200k/year – if not faster.
Understanding debt
I didn’t appreciate how important it is to understand the debt which we’re trying to pay back. I saw the balance of my debt and just started paying as aggressively as I could but didn’t pay attention to the interest rate or if I was paying towards interest or principal.
Companies which earn their money by issuing student loans to physicians pay top dollar to financial engineers who make sure that the loan note will generate the most profit from the physician possible.
Even my financial advisers back in the day never bothered to ask me if my student loan payments were optimized to paying off the debt. They saw the 2.75% interest rate and my other outstanding debt and ignored it. It took a year for me to realize that my minimum student loan payments were covering only a portion of the debt interest, meaning that my principal was going up month after month.
Tabulate All DebT
Don’t ignore some debt for others. Debt is debt for the young physician and the goal is to get rid of all debt possible. The cars, student loans, credit card balance and the mortgage are debts which should be tabulated and addressed.
Coming up with a good debt payoff strategy has more to do with your personality and comfort level than with any formula. Sure, there might be a $1-2k savings choosing one method over another. But that will likely represent way less than 1% of savings – so choose based on your comfort.
I was ignoring my student loans, thinking that my minimum payment was making a dent. Wrong. But thankfully I realized that I could make a far bigger difference by getting one single personal line of credit to delete 3 different credit cards. By doing so I only had a mortgage, 2 student loans, 2 other credit cards and 1 auto loan.
I got rid of the car and so got rid of the auto loan. I paid off the other credit cards while making the minimum payments on my personal line of credit. Then I started focusing on the personal line of credit and paid that off.
The mortgage eventually disappeared after I sold the condo. Then the student loan disappeared after sending damn near every dollar I made towards the balance.
Avoid New Debt
A new attending will be presented more opportunities to take on new debt than anyone else I can think of. You will be offered shitty refinance options and credit cards. 0% auto loans and equity lines of credit on your property.
When the economy tanks and hardly anyone is able to get a loan, physicians will still be among the ideal clients. You want a personal line of credit? Not a problem. You want $300k to start your own practice? Here ya go. How about consolidating your student loans into your mortgage? Great.
3. Budgeting
There is efficient budgeting and there is the kind of budgeting that most people do with their money. In the former, every single dollar has a job and purpose to get your closer to your financial goals. This isn’t some mushy gushy shit I’m talking about – literally, that’s an actual budgeting strategy – it’s the YNAB method.
Every dollar that comes in gets a task assigned to it. Should any spending opportunity come up later in the month, you look to your budget categories and spend according to what you laid out – no more second-guessing yourself.
Practice Your Skills
It takes a lot of practice to successfully adopt any budgeting strategy. Again, choose whichever makes sense to you and start practicing it. The more of that budgeting strategy you enact, the better you will become.
Budgeting is meant to maximize how far a dollar can stretch. It’s not just about paying bills – that’s not budgeting, that’s just paying bills.
When you improve your budgeting skills then you are constantly evaluating what matters most to you. Is the item you are paying for more important to you or the money which you parted with for that item/experience? Budgeting will help you reevaluate your priorities and define the value you assign to things in life.
What’s the value of a personal vehicle? It costs $20k to buy and $5,000/year to maintain. How about buying a cheaper vehicle? How about driving less? There is some savings there. But if you can drive less then why can’t you stop driving altogether? How about continuing with the $5,000/year of driving expenses without the $20,000 upfront expense? Suddenly, you will consider leveraging Uber and Turo to help you save money.
4. Investing
The longer you can spend in the investing game, the higher the chances that you will walk away with a lot more than you started out with. At worst, you’ll lose a little of what you invested, at best you will be up quite a bit. And, somewhere in the middle, your money will at least have retained its value because you avoided inflation.
Losing Money Investing
It doesn’t sound enticing when you hear “at worst, you’ll lose 10-15%”, but many professionals lose far in excess of that due to their overconfidence in their investing abilities.
Don’t lose your money… that’s solid advice. When you invest, your goal should be NOT to lose your money. My cohort usually is preoccupied with how they can get the highest return and often focus less on preserving their capital.
Risk. It really comes down to risk… and risk tolerance… but more risk. Each investment option will have its own level of risk. Putting money in a savings accounts has risk. Keeping money in your wallet or in a safe in your home also has risks. Risk is unavoidable… but I’m grateful that risk exists! If it wasn’t for risk then we wouldn’t have the opportunity to grow our wealth.
You can lose your money if you take on excess risk which your level of income, lifestyle, and timing cannot bear. Let’s address each of these factors as it relates to risk:
- income
- lifestyle
- timing
Income risk. If you are taking home $200k a year then it may not be all that serious for you to dabble in a few riskier investments. I don’t mean that you should go gamble in Las Vegas – though your income actually might be able to get you even out of that pickle.
The more earning-power you have, the more likely it is that you can recover from serious investing mistakes, often brought on by taking on excess risk. Each of us may have to try out various investment options to feel out their risk profile. Those risk assessment calculators only go so far but are a decent starting point.
If you invest $10k and find out that it was a terrible investment, could you earn that $10k back by working some extra shifts? This is an incredibly powerful tool to have at your disposal though of course, you might burn out if you utilize it in excess.
Lifestyle risk. If you have a financially fragile lifestyle, meaning, you have multiple businesses that operate on margin, you have multiple dependents and are financially stretched to the max, then exposing yourself to even smaller investing risks could wipe you out.
Timing risk. The longer you can stay in the market the better chance you have of taking advantage of the many bull markets, which outnumber the bear markets, thankfully.
Longer time in the market also means you will learn more investing skills. You will develop a better understanding of your risk gauge as well. And you will have the opportunity to take your investments out once you’re closer to an age when you may not be able to generate any more income.
With longer timing in the market, you have a far better chance of recovering from a loss and waiting for your assets to recover before cashing them out or rolling them over into even less risky investments.
Psyche Of Investing
I was chatting with a friend the other day and brought up the idea of not have her index fund dividends automatically reinvested and instead allow it to flow into an account.
The purpose of this is to witness that account grow without much effort on her part. With her $375k invested, she would likely see nearly $2,000 accumulate every 3 months in that settlement account. Witnessing the power of invested money can be very useful for more visual observers, like her.
Invest in order to decouple from the job-income mentality. Invest in order to generate an income that’s far less reliant on your time and effort.