I made another wonderful friend a few days ago, this time a young PA who started practicing less than a year ago. I got a chance to sit down over wine with her and talk a little about personal finances from the perspective of someone with a decade on her.
With her 20’s nearly behind her, as a healthcare professional it saddens me yet again that she never had any real financial education. The fact that she is a woman, living in a male dominated society, makes this a bit troubling. Money isn’t the answer but financial freedom can afford us many more options.
One of the reasons I have been hesitant to become a licensed financial adviser is because the responsibility is too great and everything that’s fun about personal finance would be replaced with fiduciary responsibilities and billing. Instead, I can spend my time sharing what I have learned with my healthcare professional friends and together come up with points for further education for both of us.
Personal Finances For A Physician Assistant
What are the main topics of personal finance for a PA? Well, it’s the same as for any healthcare professional. Someone could argue that since PA’s make less than physicians it’s not exactly the same. But I will add that PA’s can start practicing sooner than physicians and they have a lesser student loan burden when they start out.
Should PA’s earn the same as physicians? If they are doing the same work, absolutely! Medicine is a job. If it’s done the same by 2 different groups then they should be paid the same. Disagree? Leave comments below.
Back to our PA colleagues. So why bother talking about personal finance specific to PA’s in this post? Because PA’s don’t make shit. They earn a salary of somewhere around $100k which doesn’t go very far in our current society.
Being a healthcare professional and earning about half of what physicians earn can fuck with your head. You know you’re doing very similar work and you are able to prescribe medications and treat patients the same but somehow you feel different. I mention this because it’s a hurdle that my PA buddies have to overcome.
It’s terrible to start feeling inferior to physicians which is a common problem which I’ve observed personally. And it’s another huge problem to start comparing your lifestyle to that of physicians. Being surrounded by healthcare professionals means that you will often try to live up to their lifestyle standards which comes with a very expensive price tag.
Family docs do the same when comparing themselves to specialists. NP’s do it when comparing themselves to CRNA’s. It’s normal but it shouldn’t be limiting.
Focus On Income Or Spending?
What is it important to focus on first, the income or the spending? I lean towards the latter. Spending, curbed through budgeting, is far more powerful of a tool to become financially free than trying to control the income.
Income is always harder to control
My new PA friend is probably making somewhere in the $120k range, gross, before taxes. Even if she hustled hard and picked up a ton of overtime or found a better paying gig, I would guess that at best she could make $150k. After taxes and the extra workload, the additional $30k would likely not amount to much.
One of the most valuable things we have in this world is our time, assuming we enjoy living life. If we don’t then we’ll spend making ourselves and others miserable. The best way to appreciate this time is to spend it doing meaningful things – I doubt that overtime at work would be meaningful.
Spending & Budgeting
How do we spend our free time?
How do we spend our money?
Those are decent reflections of our priorities. It doesn’t mean that you don’t care about your family if you are spending all your time at work. Instead, it’s a good indication that you might not be living your life according to your values if your family is more important to you.
To get more overtime I have to look for extra shifts, risk more patient interactions, drive to work, budget my time that week to be able to work extra and change my workout and eating schedule around the extra work. There is a time and place to work overtime but it’s important to approach that strategically as opposed to just picking up whatever is available.
In my experience, overtime is one of the least effective ways to increase net worth, pay down debt, or reach financial independence.
Saying no to an urge to spend isn’t easy until you can put it into a context which is meaningful to you. Scrutinize each expense and ask yourself why. Ask enough why’s until you can’t think of another one.
Why do I need to spend this much on rent?
Why do I need to be in this neighborhood?
Why do I need a 1-bedroom?
Why do I need a yard?
Why would I feel sad if I didn’t have more windows?
Why can’t I live right next to work?
Why can’t I get a roommate?
Why do I want to own my own place?
Why do I think owning is better than renting?
Why is my happiness tied to my apartment?
Why was I happy in college when I had 3 roommates?
The purpose isn’t to deny yourself such things but to find out exactly why you want what you think you want. Then keep asking why’s until you can come up with a better alternative. If you ask enough why’s, you’ll find out where your insecurities lie and then can focus on reinforcing your strengths.
The Ideal Lifestyle
Everyone has a vision of a perfect life – I would venture a guess that it doesn’t involve having hundreds of thousands of dollars of debt, nor working the beautiful morning away under the OR lights.
It’s a common notion that once we are full-fledged professionals, we should be aiming to live the lifestyle that we deserve or that we want. After all, we have been working our asses off to get to this point.
I would argue that we actually never had the time or the opportunity in life to verbalize and visualize our ideal lifestyles. Even worse, many of us don’t think it’s achievable, even healthcare professionals! It’s not part of our vocabulary and there is no mental grammar to define something like that.
In fact, it’s so undefined that only those who try out different lifestyles end up figuring out exactly what it is that they want. The rest of us are often living the lives we think we should be living, sometimes too afraid to try something else.
Many of us think it’s impossible to have a lifestyle of perpetual travel. Or to live without a car. We think the only way to have financial security is to have zero debt or to own a home. Many of us think we need millions in the bank or even one lonely million. We believe that the only way we can have a safe retirement is to have money invested in some sort of index fund, mutual funds, stock, bonds or real estate. And that we are only financially independent if we can fulfill some 4% rule.
As a general rule, all the above statements are incorrect. Do you love what you do? Do you believe that you are competent enough to always earn some sort of income even until age 80? Then I can assure you that you can live an amazing lifestyle and have an amazing retirement without ever saving more than a few thousand dollars. Pay off the debt, work part-time or per diem, make just enough to live off of, keep a little money aside as an emergency fund, work extra just to pay for upcoming planned expenses and live wherever the fuck you want. Boom! 1-paragraph retirement plan! You’re welcome.
Debt
When it comes to debt, student loans are often the biggest financial commitment for PA’s. With around $100,000-150,000, the monthly minimum payments would be somewhere around $1,000-1,500/month.
When a new-graduate PA is taking home around $6,000/month, having to pay 25% of it towards student loans for the next 10+ years can be a demoralizing financial situation.
Accelerating Debt Payoff
And then there is the never-ending battle of ‘saving vs. debt payoff’. I don’t believe there is a right answer. If the idea of being debt-free early in your life appeals to you then you are perfectly fine putting all your money towards paying off debt.
However, if an accelerated debt payoff means that you’re gonna add $500 extra a month then you’re better off investing that $500. That extra sum is too insignificant to make a meaningful difference.
Instead, if you can pay $3,000/month towards your student loans, it would be worthwhile to skip contributing to your retirement/savings for the next 4 years until it’s all paid off. Of course, you should be confirming this advice with your financial adviser to really consider each and every factor – but that’s what I say.
The Value Of Being Debt Free
I don’t know what the phenomenon is, but when you’re in debt, it’s much easier to get into more debt. Adding to that the mentality that a mortgage isn’t ‘really debt’, quite a few physician assistants will add $400,000 to their $150,000 and pretty much lock themselves into their jobs for the next 3-4 decades.
When you’re debt free you can choose to work however much you want and you can work pretty much any job you want. Your financial obligations are controlled by you and not a bank – it’s a very powerful position to be in.
How To Attack The Debt
If I was a young 30 yo PA making $120k then I would be trying to pay off as much of my debt as soon as possible and I would avoid any further debt.
I would just set enough aside towards retirement which could lower my taxable income. Hopefully my job would have something other than a 401k such as a Money Purchase Plan. But if not, then I would at least set aside that $18,000 a year, thereby lowering my taxable income to $102,000.
I would be left with around $5,000 a month of take-home income. And so while I’m stashing away that $18,000 every year (or $1,500/month) into my 401k, I would take $3,000 every month and throw it at my student loan balance of $140,000.
If I can refinance the student loans into something lower, even better. If not, I would attack the highest percentage ones first and work my way towards the ones with the lowest interest rates.
Any windfall money would go straight towards paying off debt. I would take tax returns and throw it at the SL’s. I’d also avoid moving a lot or buying a home or vacationing luxuriously until I made a significant dent in the student loans.