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Are You Rich?

Wealthy, Rich, Broke…

When it comes to the term rich most of us docs look at our income and think ourselves to be fairly well off, well to do. Whatever term you use that’s essentially how the rest of society views us docs… that we have high incomes, that we have cool toys and nice cars, gorgeous homes and private schooled kids. But rich and wealthy actually refer to something other than income. Slum rich is very common especially among the highly compensated employees. Many docs and lawyers, executives and engineers fall into this category.

The doc that makes $200k/yr and bleeds the money out to a multi-bedroom house, a nice import vehicle and student loans is not any better off, any richer or wealthier than the family of 4 making $30k/yr and buying nice shoes, fancy clothes and shades at the mall.

You might think that a paid off car or a paid off home has some future value. But if your mortgage payments are gonna suck your expenses for the next 30 years and you aren’t left with much by the end of the month then you are no richer than the $30k-4-person-household for those 30 years. As a doc you are handicapped with student loans and less accumulation years… the power of compounding is sort of wasted on you because you start at age 30.

Note, I’m not advocating that you become rich. But far more households have been able to achieve a higher net worth with far lower income than us docs. It’s partially due to the fact that many employees in the $150k+ income range start out later in life and carry far more debt. These are also individuals with more one-dimensional mindsets. They see their income as their pure source of potential wealth. Often these individuals have spent so many years training their mind in one field that it will take them well into their 50’s before they realize that it’s not what you make that matters but what you put to use – what you keep.

The money that you keep may be money that you reinvest into your own education and by that I don’t mean more medical education. Instead it’s educating yourself in developing interpersonal skills, personal finance skills, investment knowledge and entrepreneurial knowledge. Keeping what you earn is such a powerful and underutilized skill that many households start and end in poverty with annual incomes well into the $400k range.

If you have the fortune in a capitalist or socialist economy to earn a high income don’t squander it on a nicer car, a larger house or a few extra toys. Use your first few years and keep costs down… you started out as a resident so chances are you really aren’t spending all that much. It’s so much easier to utilize the power of inertia and stay on the same trajectory. Once you experience lifestyle inflation it’s so much harder to revert back to a more budgetary mindset.

Your First Few Steps out of Residency

  • Rent an affordable apartment, close to work, close to the grocery store and a library
  • Skip buying the nice car – and if you have to then pay $18,000 and buy that Audi A5 (or whatever) cash
  • Pay those student loans as aggressively as possible
  • Max out those tax-deferred accounts (401k, 401a, Keogh, Cash Balance Plans)
  • Learn to invest your money whether in real estate, stocks, mutual funds or businesses

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