Put your head down and do the work. This is the motto that medical students should have learned. Get through medical school and residency with a similarly positive attitude, and you will be fine. Skimp on the details if you’re short on time, but in the end you are still short-changing yourself. The unspoken assumption in medicine, however, is that as long as you work hard and don’t cut corners good karma will come your way. Be nice to your patients, treat them as if they were your mother, and you will achieve greatness.
You don’t have to be nice to get rich
If the rest of the world were sanctioned by the Hippocratic oath, then doctors would rule. Years ago when I interviewed for a job in the tech startup world, the second question I was asked (after how I intended to change the world) was how I could harness certain technologies to capture greater market share and profits for the company. The goal in startups is to generate enough momentum to continue through several rounds of funding, with the eventual hope that the technology becomes acquired by a larger company. The financial world is even more brutal—extract the maximum amount of profit out of your customers, gain market share, and get an annual bonus that could be more than twice your base salary.
We have too many options
Knowing not to invest too much of your earnings into alternative means is worth discussing. Having too many options can be detrimental. If given options, it is normal for analytical folks (most doctors) to spend too much time getting lost in the forest. A little bit of knowledge can be dangerous.
One of the more common financial decisions that doctors end up making is choosing between two potentially inconsequential outcomes:
- Repay loans vs save for mortgage down payment
- Repay loans vs invest
- Moving low-cost investments to other low-cost investments
Then there are bigger financial decisions that might turn out to make a larger impact on your financial future:
- Deciding to buy a nice house in an “A” school district in hopes of getting better resale value in 15 years.
- Contributing a decent chunk of potential retirement savings towards speculative real estate investments that might turn out to be amazing investments (or might not).
- Spending your free time with “side hustles” that focus on building ancillary income. It may result in a wildly successful business that could supplant your medical practice (or fail miserably).
Any financial decisions that we make, whether trivial or potentially financially impacting, consumes our time and energy. Unless choosing between a multitude of options is your cup of tea, we all have to remember that we could all benefit from putting our energy towards
Doctors can focus on the basics
Fortunately the formula for wealth can be a lot simpler for doctors, since society still is able to afford us relatively high incomes for demanding professions. The key is to avoid making too many long term financial decisions that chip away your earning power. As a recap, doctors can build their wealth by taking note of the following:
- Save a fixed amount of your earnings. Many people recommend saving 20% of your income, others more. I would like to save more than that, and gauge based on post-tax income if you can.
- Maximize your retirement accounts.
- Grow your expenses slowly as your net worth grows.
- If you decide that you have to find alternative investment schemes, don’t put all your eggs in one basket.
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I live a boring life, and my bank account shows it
At this point, people are expecting net worth graphs and numbers. If you are the numbers type, then here is a graph with arbitrary numbers but a similar trajectory that most doctors should be able to achieve:
The truth is that anyone with a solid six-figure income can build a stable net worth relatively quickly. Without any strategic tax wizardry, an average physician with a mediocre salary of $225,000 in Houston, TX may take home $181,000 in 2018 (effective tax rate of ~24%). Even after spending $100,000, she will have roughly $80,000 (36% savings rate with a post-tax numerator on a pretax denominator) to put away. With relatively conservative investment projections, she should be able to have at least $1 million after a decade of “boring investing”.
Not bad, right?
Most doctors ought to be able to build up at least a $1 million net worth after a decade of practice. If you haven’t reached that milestone already, consider making it one of your goals!