There is a reason why some financial advisers and accountants specialize in working with physicians; we are among the highest paid employees – a very rare group, indeed. Unfortunately, a high earned income is detrimental to financial stability and I’ll outline a few reasons why below.
There are numerous ways we can build layers of stability into our financial lives. Financial stability has little to do with your net worth and it’s helpful to pay attention to all the other moving parts.
1. Relying on Income
When you are an employee and making $300,000+ a year then you rely on that income to come in month after month. A young attending only needs 2 pay cycles to immediately shift their financial mindset from a constipated resident to a balling attending.
A $2,000 bi-weekly paycheck was the norm for the resident in June and by September he cannot even fathom having paychecks smaller than $7,500.
We immediately adjust our financial calipers and lift self-imposed sanctions. Why should we limit ourselves to a $40,000 car when we can easily afford the $75,000? We no longer need to worry about running out of money if we shop at Neiman Marcus.
Solution: It’s helpful to develop the mindset that income doesn’t just have to come from a job. One can earn money doing many different things including investing, consulting, teaching, or building one’s own brand.
2. We Are Treated Differently
As a young attending physician my identity was highly contingent on my career. Everyone knew I was a physician and I’m sure I made it a point to throw it into every other sentence.
I got preferential treatment by wait staff, post office workers, family, and dates.
In return, I was expected to be professional, sophisticated, and not frugal. Frugality meant incompetence because if I was a real physician then I shouldn’t be worried about spending.
As physicians we spent our impressionable youth meeting and exceeding expectations. Want me to work, volunteer, teach, study for college exams, and study for the MCATs? Sure.
Our families depended on us more because we were the more capable, often confident individuals in our circle. Meeting those expectations meant a pat on the back.
Being a physician is about getting lots of pats on the back. We went into medicine because we were people-oriented, not scientist. Despite how others view us as scientist we thrive on positive feedback from our patients, nurses, and physician colleagues.
If you were a large bank and needed to strategize marketing, who would you bank on and market your debt vehicles to?
Physicians are targets of debt marketing. It’s made so easy for us that we can get 5%-down mortgages, massive business startup funding, and auto loans.
Unfortunately, there are jokes about us in most industries because doctors are known to be whales – among the few who are willing to get every last unnecessary option on a new car sale.
The CEO or president of a pharmaceutical company never has to worry about a personal lawsuit. The pharma company can manipulate the FDA however it likes to get a drug on the market, yet it’s the physician who gets sued if that medication causes complications.
The pharmacists can hide safely behind their software and refuse to fill 2 medications which are QT prolonging and let the physician deal with the consequences of that decision.
Solution: It’s not easy but it’s helpful to dissociate from the identity of being a physician. I realize that this isn’t a popular option for many but viewing medicine as simply a profession is a good start. In the long-run it might even protect you from blurring the lines of a j-o-b that’s highly regulated and a philanthropic endeavor.
3. We Forego Saving
Whether a young attending thinks that it’s time to enjoy their freedom from residency or whether they believe that there is plenty of time to save in the future, saving is put off into the future.
I have physician colleagues who write me and tell me that they are in their 50’s with $100k to their name. Some have lost the money in a divorce, others helped out family, and others are solely relying on job pensions.
For the Love of Medicine
It’s much more dangerous when you love what you do. If you love medicine, genuinely in love with the practice of medicine, then your blinders will be thick as fuck.
You’re going to be focusing on the day-to-day pleasures of seeing patients, of getting better at what you do, learning new techniques, reading medical journals, and talking shop with other physician nerds.
You’d do this shit for free, forever! Why do you need to save money? You’ll always be needed, you’ll always be in the same situation as you are now, jobs will be plentiful, and your employer and the medical boards will always treat you fairly.
Solution: I can’t overstate the feeling of independence and safety one gets from having adequate savings. Even with a high debt burden, it’s a good feeling to have a lot of money saved and invested.
4. Ignoring Taxes
“Hey Dr. Mo, how much money do you make a year?” … “$300,000″…
Obviously, I never made $300,000 – not even once in my ten years of practicing full-time medicine did I tickle that number in take-home pay.
We ignore taxes for the sake of convenience and also because it feels better telling ourselves that we earn $300k or $600k as opposed to $108,000.
The reality is that I made mostly around $125k a year. In the beginning it was closer to $100k and later it went up to $150k a year.
But I always compared myself to other physicians because I identified with making $300,000 a year. What I should have done is compare myself to my IT buddies and dentist buddies whose incomes were closer to $100k/year.
We don’t feel our taxes as high-earning salaried physicians. It’s something that disappears from our paychecks, automatically deducted by our employers and sent to federal and state revenue services.
For any physician who has switched to paying their own estimated taxes or who has started their own business, taxes are something you feel deep in the colon 4x a year – it’s quite lucid.
It is absurd to argue for progressive taxation for the purposes of smoothing income inequality. If all else is equal then it might work but physicians have the following factors which don’t really make for a fair playing field:
- high student debt load early in their life
- late start to their careers
- high risk of burnout
- high risk of lawsuits
- high cost to maintain licensure
Solution: Doing your own taxes, filing it using it a tax software and paying attention to how much you actually keep from your paycheck and how much goes to taxes is a great way to gain perspective. The next step is to do some tax-planning which is best done when you don’t your income as an employee.
5. False Sense of Security
During my ordeal with the medical board I thought I was alone until I started getting emails from those of you who have gotten annihilated by their own medical boards.
When I dealt with Kaiser Permanente’s deceitful HR as an Urgent Care doctor I thought I must have been the only one. With 4 physician suicides at this organization and other stories that have been shared with me in the recent past I am among the many and not the few.
Every year a few economists predict the end of the US or global economy. That’s a bit too radical for me and I have no desire to protect myself against societal collapse. But I am ready and willing to be prepared for an uncertain economy.
As physicians we have seen pensions disappear. We have seen HMO’s take over medicine, and are now seeing physician jobs going corporate.
The economy, too, is changing. The US has a lot of debt, there are competing foreign economies playing by their own rules, there are enemy states that are threatening global stability, and globalization is erasing country borders.
CD rates of 5-8% are gone. Average annual stock returns of 9% are less likely in the future. And real estate has been commoditized and hoarded by large corporations.
Solution: Most of us will do fine relying on our employers, the medical system, and the economy. If you’re that one person who got the shaft then it doesn’t matter much what the statistics were. By reading where others, such as myself, have gone wrong and felt economic pressure, you can protect yourself in ways that best fit your situation. For starters, income diversification is one, another is having multiple state medical licenses.
6. Financial Literacy Is Declining
As a personal finance enthusiast I am seeing financial literacy among my physician colleagues declining. There seems to be a 20-year delay in their knowledge.
The facts, data, and concepts of the late 90’s is what’s still believed to be a viable financial concept by many physicians. Day trading, for example, is alive and well among quite a few of my readers – fine if done as a full-time gig but disastrous otherwise. Holding excess money in cash and CD’s and ‘investing’ in real estate is also a favorite.
On the opposite end of the spectrum there are far too many early adopters of new investment strategies which I am guessing has to do with how effective marketing has become. One such recent trend has been real estate crowdfunding.
Undoubtedly we’ll see physicians piling into gold/silver when the next market shift occurs. This reactionary financial attitude is what threatens the financial future of physicians.
My patient who carries an extra 25 lbs thinks I exaggerate their future health outcome. So perhaps some readers will think that I exaggerate the financial ‘threat’ to physicians.
I am convinced that the majority of physicians will have more than enough saved up in their retirement accounts and will retire comfortably. But that’s not at all what this blog is about – for that kind of ideology I would advise reading the White Coat Investor.
This blog is about sustainability of medicine. Enjoying life. Having freedom and not be a prisoner to medicine or our paychecks. Suffering through 50 patient visits in the urgent care and dealing with grumpy unionized nurses and agro medical board investigators is not pleasant – life is way too fucking short to deal with that.
Solution: Learning about economy, personal finance, and investing is a good way to stay ahead of trends and helps a physician make better financial decisions. Our jobs are within the confines of a local economy which is bracketed by a global economy – it’s worth understanding it so that you aren’t fed fears and sold reprieve.
7. Losing Perspective on Value
The more resources a person has, the more money they make, the more secure their job feels, the more likely they are to lose perspective on the value of things.
Right now as you are reading this post you might be obsessed with buying a new house. You want that new house with that particular view in that particular part of town. You are shifting the value away from what you could have now and placing a potential future value on something else.
As physicians we deal with upset and grumpy people all the time. We also deal with human lives. All that stress and worry and fear makes us forget the value in something as simple as waking up without an alarm, enjoying a hot beverage, reading a book, followed by some good old exercise.
Solution: You don’t need a nice car or a big house to be happy. You don’t need $100k or even $50k/year to enjoy life. I’m not the first to realize this but at 40, I am among the younger medical professionals to recognize this.
8. Achieving Financial Stability
You can certainly achieve financial stability by working your ass off the next few decades, saving a ton of your earnings, and cutting your spending to match your passive retirement income.
To me that’s like achieving an ideal weight by eating roughage all day followed by using laxatives and eventually giving in to a gastric bypass. There are far more enjoyable and effective ways to achieve an ideal, healthy weight.
I know a handful of doctors who earn well past $800,000/year – it’s a whole different league to be in and I am certain that you aren’t going to be reading my blog if you are earning that kind of money. There are all sorts of other headaches to deal with when you earn that kind of money but there are also far more possibilities.
Financial Stability Tenets
Grasping economic concept. In order to become financially stable you must have an understanding of the current economy and some future economic trends. Or you can be the kind of person who can recognize that characteristic in a financial adviser and you have to be willing to give up control to that adviser.
Developing budgeting skills. Everyone will hit a time in their life when they are going to feel financially strapped. Without budgeting you’re leaving things up to chance or you’re going to suffer through those inevitable times.
Investing money. You are investing your money even if you are keeping it under your mattress – it’s just that you decided to invest in cash, in fiat currency, specifically, US currency.
Managing risk. I don’t own a car, the risk to my health, my budget, and the risk of getting into an accident with it isn’t worth it to me. The most important step is to recognize that there is a risk that you’re exposing yourself to and the next step is to address that risk. Insurance is only a very narrow manner in which we can manage risk but physicians also face income risk.