As a greenhorn doctor, do you have enough earnings to sustain all of your financial goals? You sure do! Ultimately the equation only works if you spend less than you make. Aside from that, living within a modest budget should get you to your goals. Remember, your income is in the upper 5% of all household incomes in the United States, and likely much higher than that of many equivalent doctors elsewhere in the world. Sure, the CEO or random administrator at your neighborhood hospital probably earns more than you do and works less than you do with less liability, but that is life. You will still do fine until you come up with a killer application and strike it rich.
Let’s go through an example:
Suppose you have an annual salary of $200,000. Assuming that you contribute to your 401k completely ($18,000), you have a $182,000 taxable income. Suppose that you are in the 25% effective tax bracket (state and federal included). Your take-home income should be around $136,500. Let’s maximize the Roth IRA at $5,500.
You now have $131,000 for living expenses (rent, mortgage, food, vacations, recreation), insurance (disability, umbrella, life), loan repayments, and further investments. Suppose that you live on a generous $80,000. (Remember, you are a new doctor and lived on half that amount for the past 5+ years. You still have $51,000 left.
That amount should be used to eliminate your loans and place into further investments. If you assume that there is no appreciation or loss in your annual investments, you will have a hefty sum of $745,000 combining your 401k, Roth IRA, and taxable investments. That is not an insignificant number. Obviously there are many additional variables in the equation that can influence your final number (not all of the $$$ in your 401k belongs to you, you might get a raise, your expenditures can increase…etc), but the point is that you can still save, repay loans, and live comfortably on a doctor’s salary.
Any other questions or comments to add? Sound out below!