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Financial Rules for Physicians

If I could create a rule book for physicians then it would look something like this. I’m not preaching here, most of this is advice for my future self, should I be unfortunate enough to be reincarnated into the body of surgeon or a pediatrician. Financial rules for physicians has to be different than for the average high earner, such as an engineer. Our debt, career risk, and late start in life makes our finances unique.


1. Debt free by 40

Your student loans, say, $300k, and your mortgage, say, $700k, can all be paid off by age 40.

It would be easier on you if you didn’t have that hefty mortgage. Adding a mortgage on top of the heavy student loan burden is pure punishment.

If you’re earning $300k and probably pocketing somewhere around $175k/year, you should be able to pay down a little over a $1M of debt in a decade or so. Hence, debt free by age 40.


2. $500k by age 45

If you have $500k invested by age 45, this sum will grow to over $2M by the time you are 70. That’s without you adding a single penny to it.

The nice things about an investment portfolio is that it grows. And it compounds. $500k becomes $530k after a year of growth and the following year you’ll earn the same interest returns on $530k.

Your net worth will grow exponentially to a desired sum by the time you are ready to retire.


3. budgeting

You can achieve the same financial goals with more work and more time. But with a budgeting system like YNAB, you can shortcut the process.

With a budget, not a single dollar will go unaccounted. You’ll assign a job to every dollar and achieve every feasible financial goal. After all, it’s just math.

You’ll eventually switch to mental budgeting when you have more than enough money to live off of.


4. $50k emergency fund

Start accumulating your emergency fund right after residency. The hardest part won’t be accumulating it, rather, you’ll be tempted to raid it for all sorts of non-emergency reasons.

Your EF not only allows you to pay for financial emergencies like travel or repairs, it will also allow you to take care of others around you and it gives you a feeling of liquid security.


5. premarital agreement

If you don’t believe that divorce is possible then skip this section. Otherwise, consider signing a premarital agreement – and update it regularly.

If you didn’t sign one, sign a postmarital agreement. The whole purpose of these things is to let the 2 of you focus on the stuff that matters, such as who cheated on whom or who is more insensitive.

Finances can be used as weapons during a divorce. Division of assets isn’t best discussed when emotions are wild. Have that mature conversation when love is in the air and you’re mostly thinking about your next vacation destination.


6. Conservative investing

Lots of doctors out there take major risks with their hard-earned money. But investing is a skill that’s developed over many years, not learned from an online headline.

As physicians, you have a shorter income earning window. Risking your money on investments could backfire without adequate time to recover.

3-5% annual returns aren’t sexy.
5-10% sounds more enticing.
10-15% is where most doctors want to be.

If you’re willing to take the risk then step beyond that 5% range. But understand that with higher potential returns, you take on higher risk = higher potential loss.

Even an investment just as an index fund has some risk. But don’t keep all your money in cash unless you truly are 100% risk averse. Money held in cash can lose value over a few years. Consider a CD or a government bonds, at the very least.


7. Being priced out

I used to live in Palos Verdes and know doctors who still live there. I grew up with a lot of kids whose parents were worth 100’s of millions – not 10’s, but 100’s. Those families still live in PV.

I lived in West LA and San Diego as well. I knew engineers and execs and business owners who were clearing $1M a year. A physician who clears $175k/year is priced out.

Working overtime isn’t the solution. You’ll burn out and give up on other potential opportunities.

I rented a studio in San Diego for $800 when everyone said it’s impossible for find anything under $1,500. I spent as little as possible and made it work. But I was able to do it because I was a single dude and I still stuck out like a zit on the forehead. 

It’s human nature to perceive well-being, wealth, and financial prosperity in the context of how others live around them. Competing with 7-figure income households will leave most medical professionals

8. expert financial advice

Physicians earn a lot, spend a lot, and start out with a lot of debt. They are at high risk of burnout and getting sued.

Asset protection, investment planning, debt strategizing, and estate planning are really complicated topics.

Would you be willing to pay $200/month to a financial advisor in order to have a couple of extra million dollars in your bank account come retirement?

Who is telling you that you don’t need a financial advisor? Do they have the same level of financial knowledge as you and are they already financially successful?


9. burnout

Burnout is a real possibility for doctors. Hopefully it won’t happen to you but it doesn’t hurt to plan for it.

Find alternative income sources either within medicine or outside of your profession.

Create your network early and talk to others who are doing things other than medicine. This will help you get ideas. Having income outside of medicine will make you less dependent on your career.


10. Home ownership

Home ownership in the mainstream sense is a financial trap for medical professionals. What used to be a small niche for high earning individuals in the 1950’s is now a multimillion dollar business where realtors and underwriters target whales like medical professionals.

Your primary residence isn’t an investment and will not make you any more rich than if you invested your money wisely.


11. A job

Being a doctor is a job. You are licensed by a professional government body and you are paid by an employer. In fact, because you are a high-earning employee, you have even fewer rights than the minimum wage burger flipper.

Your employer will replace you if you start being an inconvenience to them. Should you get seriously sick, you’ll be shuffled through the same FMLA and disability bullshit which our patients have to suffer through.

Don’t confuse your profession for a higher calling or something magical. Don’t overestimate your job security either. A stripper can have a far higher job security, with far less job scrutiny, a lower tax burden, and a far higher hourly wage than you.


12. Tax loopholes

There are no tax loopholes. There are no tax tricks and if you’re an employed physician then you’ll pay among the highest tax rates in the US.

You can make major lifestyle decisions which can lower your taxes but there is no hidden tax break. You can move to a state with no income tax. You can work less, earn less, and keep more per hour.

Finally, you can go into business for yourself so that you can write off more on your Schedule C versus your Schedule A. I earn more as an independent contractor because I pay less in taxes and I get to pick the better shifts. 


13. Spending

Spending is like driving on US highways, few people have internal controls. People will spend up to what they earn much like they will speed up to the limit of getting a ticket.

Developing internal controls goes against human nature and make you stand out in your social group. It takes a lot of effort and energy to spend only $2,000/month when you’re earning $20,000/month.

The median household in the US lives a stupidly luxurious lifestyle and they earn <$60k/year. With some creativity and internal controls, you can spend far less than you earn, while living an even better lifestyle.

Your spending dictates both your savings rate and how much you’ll need to become financially independent. A low household spending is the most powerful superpower you can have in this video game of life.

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