Month: June 2015

How To Become A Rich Doctor – Ride The Wave

How To Become A Rich Doctor – Ride The Wave

how to become a rich doctor ride the waveEasy money does not exist. It does not matter if you are an entrepreneur, lawyer, doctor, or TV personality, you still have to apply effort to generate income. The days of doctors opening up a practice and expecting millions of dollars rolling into your bank are over. I sadly discovered that I was 15 years too late coming into practice.

All is not lost if you’re just finishing your medical training just now. You can still become a rich doctor if you work hard, set realistic goals, and adapt as needed. That’s what I tell myself when I’m two hours behind in my clinic full of angry patients or when I keep hearing at my medical staff meetings that my department is STILL losing money even though I put in more hours at work than I ever have. The following are principles that I try to live by to grow my net worth as a doctor in the 21st century:

Do Not Let The Apparent Wealth of Your Peers Distract Your Goals

It does not matter if your co-resident owns a yacht or just bought the latest iWatch. You don’t know if they maxed out their credit lines to buy rent space at the dock for the boat that they use twice a year. She may belong to old money. It’s also not like that you will benefit from their apparent wealth or if you will magically become successful if you owned the same material wealth. One of our friends recently finished his radiology fellowship, drives a BMW 5-series, and also owns a $1+ million apartment in Manhattan. It is easy to be fixated on the success of others, but it is clear that a self-starting doctor in the first year of medical practice is not capable of living such luxury without the help of pre-existing wealth. It doesn’t happen in the third year of practice either.

Who cares if you drive a 1991 Honda Accord and your front desk lady drives a Lexus? As long as your car gets you to where you need to go safely, it does not matter. Once you build up a strong velocity of money, you can loosen the reins.

Focus on your goals. Don’t try to keep up with the Joneses.

Strategize and Build Alternative Streams of Income

Even if you score a killer job that pays you $300,000 a year, it will take years to build up enough wealth to buy substantial luxury. If you take home 55% of this salary and save 50% annually, you’d only have $412,500 after 5 years. Sure, you could work some investment magic on that amount, but you might also end up with less than what you put in. Not all of that is going to be disposable income if they are locked up in retirement accounts.

Build your income. At the workplace, this means learning how to streamline expenses, working harder, and building your worth as a doctor. Ride the wave. As you build your practice, your patient base will grow accordingly. Treat them well, and they will refer their friends to you. Instead of making $200,000 a year, you might earn $210,000. It’s not much, but it is also earned money. That is step number one.

 

[showads ad=responsive]

 

Don’t forget that the income wave can rise OR fall. Your reimbursements will go down. You may get deadbeat payors. Remind yourself that as a doctor, you still have job stability. That is  one of the few advantages that you traded off after 10 years of no/low income servitude to the medical profession. This is your primary income stream that you maintain in order to find alternative means to grow your net worth.

Think Like An Entrepreneur

Being employed as a doctor will allow you to have a comfortable lifestyle. If you want more than that, you will have to think BIG. The $5 million house with a 7 car garage in the “rich neighborhood” of town is probably not going to be owned by a doctor. Probably not a practicing doctor without alternative streams of income. This may include multiple streams of income:

  • Passive income – I consider this the best form of income. Money comes in while you sleep. You may have put in work previously, but it continually adds to your net worth. This may be in the form of royalties. If you are involved with investments, growth of your shares will also come passively. In the tech industry, passive income can from from a number of streams, whether it is through referral networks or endorsement fees.
  • Active income – The sky and your time is the limit. Real estate. REITs. Invited lectures. Perhaps you were a wine connoisseur before becoming a doctor. Maybe your dream job was to run a wine tasting company. You still can as a doctor. It can even provide ancillary income. Do you have other money generating hobbies? Perhaps you’ve always dabbled in photography. Do you want to run a wedding photography studio on the side?

You can generate income through any or all of the methods above. The greater number of income streams you have, the more stable your net worth growth can become.

Plan Your Finances Intelligently

Asset preservation is a key component in building net worth. As a doctor or any high income generator, you have to make sure your finances are in line. This means getting out of debt. The hole you dug yourself into during college and medical school needs to be filled in. I paid off a six figure debt by the time I finished my first year of practice. You can too. Rule number two is to avoid getting into debt. This means you pay off your credit cards every month and make sure that you are not late in payments. Avoid frivolous purchases like the plague. Rent your house while you’re still deciding whether your job will last long term.

Track your investments, spending, and income. I use Personal Capital as an online tool to monitor my finances. From the spending standpoint, Personal Capital tracks all of your purchases and allows you to categorize them. You can monitor exactly how much you’ve spent with groceries, restaurants, entertainment, and other miscellaneous purchases in nice graphs. You can get a quick sense of which categories of spending you can cut back on.

From an investment standpoint, Personal Capital employs advisors (real humans) who can discuss with you how to strategize your portfolio. For portfolio management, they charge 0.89% for the first $1 million invested and a decreasing amount as your assets under management increases. I do not use their advisory services, mainly because my current investment options under my employer are relatively fixed, and my taxable investment amounts are still a pittance. It’s difficult for me to determine whether I’d actually ever have an advisor handle the majority of my investments because I feel that I spend the majority of my educational time allocated to finance. For the busy doctor who has little desire to educate herself (big mistake if you do no self-education), having a low-fee advisory service wouldn’t be the worst thing in the world. There are plenty of stupid things you can do with your hard earned cash.

Conclusion

You can still build a substantial amount of wealth as a doctor in the 21st century. It’s going to be a lot more challenging than what our predecessors went through, but you have more tools at your disposal. Remember that it still will require hand work and a strong desire to build your wealth.

What have you done to contribute to your net worth? How much of your effort in building net worth comes from your medical practice versus other sources of income?

 

[showads ad=responsive]

 

Do you want to get the latest Smart Money MD posts in you inbox?
Get the FREE Smart Money MD Financial Cheatsheet for signing up!

(Photo courtesy of Flickr)

Do you want to get the latest Smart Money MD posts in you inbox?
Get the FREE Smart Money MD Financial Cheatsheet for signing up!

Younger Doctors Are Wimps

Courtesy FlickrFull disclosure: I consider myself in the “younger” doctor category. The experiences and sentiment expressed in this entry are derived from what I’ve encountered during my training and now current job.

 

There, I’ve said it. My attending physicians said it to me when I was a medical student, resident, and fellow. My coworker who is 30 years my senior doesn’t openly call me a wimp, but we both know what goes on in his mind when I whine about taking call. It gets worse. When I was teaching my medical students, they seemed to elevate apathy to the next level—imagine combining laziness, entitlement, and cleverness together. You end up with someone who will only do what it takes to get the grades and advance to the next level. No more, sometimes less.

Maybe subsequent generations are always wimpier. Doctors in the 1970’s and 80’s were mostly men who belonged to single income households. Many surgeons operated from dawn to dusk and rarely saw their families. These doctors also generated serious amounts of income compared to doctors today. The incentive was good for them to work hard; you put in the hours and the money rolled in.

Times Have Changed.

Economic and social shifts in medicine over the past two to three decades have molded the experiences of doctors.

Economics of Being a Doctor

Reimbursements for professional services have either decreased or lagged behind inflation rates. Some surgical procedures in the 1980’s actually paid three times more than surgeries performed today (not even taking account of inflation). We are constantly pressured to see more patients to keep up with rising overhead costs while the complexity of documentation and regulations have made medical practice much more challenging. I make about forty mouse clicks and type several lines in the Electronic Health Record for every patient that I see in the office—thirty years ago the same could have been documented using one side of a 3”x5” index card! The very technology that was designed to improve communication and quality of care not only slows me down but also digs into my checkbook.  There are plenty of physicians who actually bankrupt their practices when they are unable to adapt to the changing financial aspects of medicine.

In some ways, the increased restrictions on how we practice medicine have led many doctors to limit the number of hours they actually spend working. Twenty to thirty years ago, internists typically ran outpatient clinics and saw their patients who end up being admitted into the hospital. A typical week may entail 35-40 hours of outpatient clinical care, another 2-3 hours of managing the business, and 2-5 hours caring for hospital inpatients. Now, the role of caring for inpatients has transitioned to that of Hospitalists—doctors who strictly work on a shift basis caring for inpatients. The doctor who was able to handle his business, hospital patients, and his clinic in 50 hours a week may need 60 hours to do the same thing AND get paid less. From an economic perspective, it is a no brainer to actually put in fewer hours. Yes, the healthcare system is way too complex to be explained solely by this reasoning, but from a practical sense, working less actually makes sense. Ironically, by working less, the new-age doctor by default becomes “wimpier”.

Social Changes in Medicine

One significant social shift in medicine is the increasing number of FEMALE doctors. Most medical schools enrolled nearly a 50/50 distribution of male to female students. What this also means is there has been an increasing number of dual income doctor households. A dual income doctor household confers two advantages: (1) higher earning potential and (2) diversification of income.  If one spouse’s job ends up being horrible and he loses his job, the family isn’t going to starve. A dual income household allows flexibility in how much each spouse needs to work. Instead of one spouse working 78 hours a week, you can have both spouses working 40 hours a week to generate an equivalent income. With an easier cash flow, neither working doctor spouse actually has to put as many hours in. With social change, there is now a higher potential to have two wimpy doctors in a household.

Wimpy Doctors Come Ahead Financially

Yes, younger doctors who put fewer hours are wimpy compared to prior generations of doctors. The earning power of younger doctors will unlikely ever compare to that of prior generations due to the nature of the healthcare system. However, the new generation of doctors are savvier. We are resourceful enough to learn the basics of managing our finances and know where and when to seek assistance. Our hours of work will be less, but we can take advantage of increased freedom to broaden our fund of knowledge, prepare ourselves financially, and have more time to our families. Dual income doctor families have an even greater advantage. With appropriate division of earning potential combined with an intelligent savings rate, a dual income doctor household can have a diversified means of building net worth and a higher likelihood of achieving financial independence.

Being wimpy wins.

What have you done to take advantage of the changing face of medicine to improve yourself financially?

[showads ad=responsive]

How To Increase Your Income As A Doctor

Doctors work hard to generate a high income. It takes years of training and a high price to become licensed, maintain certification, and be insured appropriately. Financially, a doctor is a decade behind her peers.  Due to the nature of our profession, we arguably have a more conservative lifestyle than our MBA counterparts who are likely to generate an even higher income. We’ve focused on growing our net worth through saving. Today we are going to focus on growing income to build our net worth.

Work Harder

If working harder is even possible for most doctors, this is one sure way to generate a higher income. For doctors on the clock like Hospitalists or Emergency Room Doctors, you will generate more income if you pick up a few shifts. Mind you, you are unlikely going to command a higher hourly rate for additional hours–in some cases an overnight shift may pay a marginally higher rate but that’s it. You will obviously be taxed at the marginal rate for extra time, but if that’s what it takes to earn more, so be it.

If you are fortunate enough to be a radiologist, there are plenty of locums and coverage opportunities abound. Many radiologists have a significant amount of vacation time, so if you get bored, you can take a per diem opportunity in another city, and even consider taking your family there for vacation while you work. I know several radiologists who generate enough income working several per diem opportunities throughout the year AND get to see another city. It all depends on how your wish to arrange your family life and free time.

For those of you in HMO practices, you are out of luck. You are probably already working a double time hustling through your day.  I have spoken to many colleagues in the Kaiser Permanente (KP) Health System, and I get mixed reports on how busy they are working. In general, KP compensates its doctors relatively well, with the assumption of a very busy clinical and surgical schedule. However, I have spoken to several endocrinologists who work for KP and appear to have light schedules.

Can anyone comment on your experiences with KP? Please shout out below in the comments!

Work Smarter

Income is certainly affected by how efficiently you accomplish your tasks, especially if your income depends on volume. Seek out ways to work smarter, starting with your commute. How long is your commute, and is it possible to live closer to work (either move closer or move your work closer to you). If you can shave off an hour of commute a day, your hourly rate (taking into account the time you wake up until the time you return back home at the end of the day) will be higher. You might not necessarily have more money in your pocket by saving time during commute, but you will be happier and have more energy for other tasks.

Can you work more efficiently at work? If you are able to see a few more patients in your clinic by working smarter, you can increase your income. Can you motivate your staff to work more efficiently? Healthcare is a team occupation and efficiency has to run from the top down to make the process better. This includes your front desk, billing staff, medical staff, and the doctor. If you own your practice or are a partner, you can increase your income by optimizing revenue by optimizing your business.

If you are salaried, can you negotiate a higher salary? Start by figuring out the range of income in your specialty. Figure out how much revenue you generate from your practice, and your operational expenses. Then find out how much of that you actually receive as income. You employer may be taking a bigger cut out of your revenue than you realize.

Ancillary Income

You can boost your income through side hustles in your free time. Income outside of your profession is going to be more challenging to come by, but still possible. The challenge is that your ancillary income stream doesn’t come from what you spent a decade of your life working towards. If you’re not working as a doctor, your earning potential will have to come from your knowledge outside of your profession.

Real Estate

I know several physicians who dabble in real estate. Some own commercial real estate; others with residential. All of them like the leverage risk and find real estate to be an income-generating hobby. In fact, real estate is a great opportunity if you have the knowledge, interest, and time to dedicate to the profession. Plenty of professionals have had career changes to real estate once they discovered that it was a field that interested in it and also made them money.

I have seen surgeons invest in surgical centers and Internists investing in Urgent Care facilities. These facilities are still medical related, so a doctor may be more able to manage and run them better than simply an office building.

Technology

A second option can involve tech. The technology sector is a field where hard work, luck, and connections can generate serious coin. Many doctors I know are familiar with technology and opt to spend their time with venture capital. Perhaps you have an idea to develop healthcare software. Or you wish to develop your own electronic health record system. Maybe you like to write. How about blogging? All of these options have potential to generate ancillary income for a doctor, but all of them require time. This is time that is spent away from your family or time that could be used to unwind after a tough carotid endarterecomy.

Service and Education

I know doctors who are involved with pharmaceuticals and run the lecture circuits. Honorariums can certainly supplement your income. You may be labeled as an industry pawn, but who cares? You’re still getting paid.

I have colleagues that volunteer their time with residents and medical students. Most of these are pro bono, but I know a few who have been able to establish a side business in tutoring or application essay coaching for both medical and college students.  Not a bad idea either; if you’ve made it far enough to be a doctor, then you hopefully did well on your MCAT, SAT/ACTs, or USMLEs.

Conclusion

Despite stressful jobs and tough work hours, doctors still have plenty of opportunities to increase their income. Time is essentially your only constraint. There are several venture opportunities that I have been exploring, and I will document for you all if they become fruitful.

[showads ad=responsive]

What side hustles have you embarked upon? Have any of them been successful enough for you to switch careers?

How To Maximize Your Finances As A Two Physician Household

Previously we discussed the Pros/Cons of a Two Physician Household and the Complexities of a Two Physician Household. Today we will discuss tips on maximizing your finances in a two physician household.

Recently I have been seeing more families where both spouses are doctors. I don’t recall seeing any rising statistic of this phenomenon, but I suppose that many of these couples meet during their training. Medical professionals are busy—many spend their waking hours in the hospital or doing medical-related activities. They tend to meet at the workplace and hit it off. Spouses in the medical professional also understand the stresses and long hours in medicine. In theory, similar lifestyles should be more compatible. We’ve already discussed the pros/cons of this arrangement.

In this article, we will discuss tips on maximizing the one advantage of a two physician family: high earning potential.

Two Working Physicians Can Generate ALMOST Twice the Income

Two working physicians do not equate to double the income. Federal and state taxes will eat into this couple’s earnings. The income of one doctor will likely bring up the family’s federal marginal tax rate to nearly the highest bracket. This effectively puts the bulk of the second doctor’s income in the highest marginal tax bracket, which is upwards of 39%. Throw in state taxes and half of the second income is taken by Uncle Sam. If you live in tax heavy states like California, Hawaii, New York, or Connecticut, you might lose more than 50% of your income to taxes.

If both spouses are employed, then both will also be responsible for payroll taxes (FICA). That is another chunk up to the first $118,500 earned in 2015. If only one spouse were able to generate the income of both, then they will only have to pay for it through the working spouse. Double ouch.

Two Working Physicians Have HIGHER Expenses

With two working physician spouses, you double nearly all of the work expenses. This includes disability, umbrella, and malpractice insurances (serious money). You double the commuting costs, wear on your vehicle, and wear on the individual. Both individuals also need to maintain work clothing. The costs add up.

Maximize Net Worth Growth By Controlling Expenses

I do know a surgeon and internal medicine sub specialist family who brings in upwards of $1.3 million annually net. Both of them spend most of their waking hours (weekdays and weekends) involved with work related activities. They are machines. Every aspect of daily life that they do is outsourced. The AMG dealership goes to his office to switch out his car for maintenance and leaves a loaner. They have a personal chef deliver healthy dinners twice a week at a cost of around $120 a meal. You won’t see either of them cleaning the lime off of their toilets. Vacations are extravagant and extreme. The surgeon once worked up until 9pm one evening, and went straight to the airport for an international flight for vacation.

This is fine if you can generate serious coin like this couple, but most doctors cannot afford this type of lifestyle.  The way a two doctor family gets ahead financially is the same as with anyone else: controlling costs.

A two physician family where each spouse makes $150,000 a year ($300,000 combined) has plenty of options to grow their net worth:

  1. A significant portion of this family’s income should be directed towards debt and investments. If this family has consumer debt, this has to be eliminated immediately, followed by educational/student loan debt. Half of one’s spouse’s paycheck can be used for living expenses while everything else can be directed towards building net worth.
  2. Control transportation costs. A two doctor family will have double the commute. Make sure that you aren’t throwing potential savings away leasing a Mexican-made German luxury gas guzzler every 3 years. If you work in the same hospital or location, consider car-sharing if both work schedules are amenable to it.
  3. Don’t buy more house than you need.
  4. Think twice before you send your toddler to private school. While the merits of sending your toddler or 5-year old to private school can be debated in another article, it will eat into your net worth. Is it worth it? You decide.
  5. Be careful about dubious investment opportunities. It seems like many doctors I’ve spoken to are tempted by the prospects of easy money. I’ve been tempted too. Want to buy gold? How about this plot of land that your patient says has natural gas underneath that could be fracked? How about buying some real estate shared on an investment property your co-worker “has the in on”? The truth is that there is no easy money. Your earning potential as a doctor took a decade of blood and sweat to establish. Unless you can predict the future, don’t bet on a get-rich-quick scheme anyone tells you.
  6. Likewise, be wary of certain investment products pitched to you by your insurance agent. There are plenty of investment strategies like Banking on Yourself and combination insurance-investment vehicles that are clever. Many of these sound better than they really are. Make sure that you are informed about the benefits and conditions that each vehicle entails before you sign up. You can lose a lot of money if you don’t understand what you’re getting into.
  7. One spouse can consider negotiating a 4-day work week with his employer if it can make your life easier. Having a free day to run errands, pick up the kids from school, or just veg out. If you can grow your net worth by saving on daycare or minor chores, you are even get to save post-tax dollars.

The list serves as a mere guideline to follow. As you build up your net worth and F-You Money towards Financial Independence, each step will matter less.

[showads ad=responsive]

 

What money saving measures have you or your spouse implemented? Do you have any tips for two-physician households? Comment below!

Doctors Need A Four Day Work Week

doctors need a four day work weekWorking in the healthcare industry is hard. Stress hits you in all levels. Burnout rates are high. Job satisfaction has slowly declined over the past 20 years due to a number of external factors beyond the practice of medicine.

Take, for instance, the daily work of an intensive care unit (ICU) nurse. Patients in the ICU are sick. Many of them die. The nurse is responsible for monitoring these patients for health changes. He is responsible for changing the bed sheets, cleaning ventilator tubing, cleaning the patient, and changing dressings. This job is physically demanding and tough on your feet, back, and arms. It is emotionally and psychologically draining due to the degree of illness you are surrounded by. It is demoralizing when you make mistakes or are yelled at. The fluorescent lights in the hospital are depressing. They do burnout. For the level of shit that nurses deal with, I am grateful that nurses are available to help us out. 

However, nurses are almost always contracted on a hourly rate. A standard work week is 40 hours, which can consist of four 10-hour shifts. I have seen options for three 12-hours shifts per week. Yes, shifts can last longer than you expect due to sign-outs and ten-hour shifts can become 11 or even 12 hours. That is the reality of medicine. You want to deliver good care. If you were the patient, you would be thankful that your healthcare worker stays longer to make sure appropriate care is handed off.

Doctors Are Likely To Burnout Even More

The one perk of being an hourly worker is that if you end up taking additional shifts beyond your designated time, you can potentially receive overtime pay. That’s right. Time and a half. You might argue that cleaning up an incontinent patient’s shit is worth more than time and a half, but at least there is additional compensation. Some doctors are paid according to shifts like Hospitalists and Emergency Room Physicians, but they are unlikely to receive a higher hourly rate for extra shifts.

Most doctors are compensated by the amount of care they deliver. That is stratified by the number of patients they care for, and the acuity of the diseases treated. It doesn’t matter how long it takes a doctor to care of the patient; they still get paid the same amount.*  With the evolution of the American healthcare system, doctors are compensated less while having to deal with ever increasing regulations that are often not even pertinent to healthcare. Sermo is a good reference forum for doctors to bitch about their problems. It is depressing to see what our profession now has to deal with.

In addition to decreasing compensation, doctors still have to deal with the usual stresses of the workplace. We deal with sick patients who sometimes die. We deal with family members and overbearing parents whose children are in the hospital. We deal with questionable lawyers who advertise on late night television who promise to sue doctors when modern medicine fails to prolong lives or cure all ailments.

Keeping a Sane Work Week May Be A Solution for Doctors 

While financial independence may be the ultimate solution to eliminate physician burnout, restricting the number of hours you spend with work may be a temporary solution. One of the best advice I’ve received from several retired doctors was that keeping a four day workweek was one of the best lifestyle decisions they’ve made. Yes, some employers don’t allow this. You might not make as much money. Sometimes working less will prevent you from advancing your career.

But it can make you much happier. I recently experimented with taking one day off a week at the expense of a slightly lower income. I am much happier now. The typical day in the hospital is stressful. Patients, no matter how informed, have questions. Patients are sick. Some misinformed patients are hostile. It is amazing how many personalities exist, and no matter how nice you are, you will be verbally abused by unreasonable patients.

Having a four-day week gives me a break from those stresses. I can actually take care of chores at home and run errands. I avoid losing an hour of my life commuting to and from work. Again, I do have a lower income than the majority of my peers and nearly all of my colleagues in the same field, but I still have enough to sustain a reasonable lifestyle. It will likely take me longer to achieve my F-You Money stash, but it is a sane balance.

Do you cut back on your hours at work to allow for more time with your family? What has your experience been at work? Sound out below!

 

[showads ad=responsive]

 

*This is true for the most part, although some billing methods allow for doctors to bill for the amount of time spent to care for a patient to account for those complex cases that require additional discussion. I do find that time-based billing to be somewhat impractical since you end up having to spend a very long time before you can code for high level cases.

(Photo courtesy of Flickr)

What is Financial Independence And How Does That Apply To Doctors?

We all build careers for two reasons: (1) We have a strong passion for a particular cause and wish to devote our time to it, or (2) We need to obtain money to sustain our families and living standards.  I would suspect that the majority of us in the workforce belong to the latter category.  Most people work to build income to establish a certain standard of living. Some people have lifestyles that exceed that of their earning ability. Others try to save during their working careers to have enough to retire.

Financial Independence is a term that has been circulating in the online finance community to loosely define a favorable financial situation that allows one to be free from the typical career.

Financial Independence = Early Retirement?

Financial Independence Early Retirement, or FIRE basically means that if you quit your day job or other conventional means of income, you still have enough to survive. There are many different interpretations to this rule, but for most of the “FIRE” online community, this means retirement. Income to sustain a living can come passively through investment vehicles like dividends or through other income like real estate rentals or asset appreciation. Those who are in the FIRE category base their financial status on the Trinity Study, which projects a certain sustainability of living based on your assets. In the broadest sense, you can withdraw approximately 4% of your investable assets each year and expect to have enough to last 25 years. Without going into the flaws and shortcomings of that study, you can also extrapolate that in bear markets or down economies, you may wish to withdraw less to sustain the longevity of your income, and vise versa in good economic times.

The first step in calculating how to achieve FIRE is to know how much you spend annually. There are online forums and calculators (like the FIREcalc) that help give you a sense of where to start and when you should be able to achieve Financial Independence.

This magical number is going to vary widely depending on your spending habits. If you send your kids to private school, take luxury vacations, or buy organic groceries at full price, you will need a larger nest egg to achieve FIRE.

Financial Independence = F-You Money?

What if FIRE is not achievable given your income, investment percentage, and spending habits? Perhaps you could define Financial Independence as having enough net worth to be able to walk away from your job without having to starve your family. That amount is F-You Money. Your nest egg is substantial enough to sustain a happy living arrangement for a certain period of time. You can’t walk away from everything yet, but you have the luxury to explore alternative means of income. This can be from consulting, managing side projects, or even per diem jobs.

How much do you need to have F-You Money? A year’s worth of living expenses? Five years? There’s no magic number, but I would still consider this number to be big. In my case, I am still trying to reach my peak earning potential for my career and build up savings that I should have accumulated during the lost years of medical training. I do not have kids yet, so I expect that my expenses will continue to rise over the next decade before I can scale back my spending.

If 25x your annual spending, as defined by the Trinity Study equates to Financial Independence, I would consider F-You Money to be at least 10x annual spending, maybe 15x. This is a good number to strive for.

How Does Financial Independence Relate to Doctors?

On paper, every doctor should be able to achieve financial independence given their earning potential.  I would expect all doctors to be financially independent, even with a moderately lavish lifestyle, by the time they retire at 65 years of age.  Unfortunately, that is not the case, and this is one of my motivations to operate this website. Doctors are traditionally bad at business and investing. They have been programmed to focus singularly on their profession and nothing else. Moreover, I have met plenty of doctors who are disgruntled with their profession, but begrudgingly continue because they don’t have a choice.

We do have a choice. Doctors should be able to obtain F-You Money and FIRE if they manage their income, investments, and savings appropriately. Yes, we’re a decade behind our peers, but as long as we are capable of practicing our profession, we can catch up. By achieving Financial Independence, we provide ourselves with the option of practicing medicine the way we wish to, and without the burden of having to worry about getting our bills paid or uprooting our family when our hospital fires all of their doctors.

Take Action Now

Assess what you can do to get one step closer to Financial Independence. Does that mean taking an extra ER shift at the hospital and putting that towards your debt or investments? How about finding ways to grow your net worth without increasing your income? Make a list of goals and what you can do to achieve them. Tackle that list day by day. I’m certainly doing it. And I plan to get that F-You Money and achieve Financial Independence.

What steps have you taken to achieve your financial goals?

[showads ad=responsive]

Why You Should Rent Instead of Buying a Home

Should I buy a house in medical school? What about residency? What if I stay in the same area for both medical school and residency?

I heard all of these questions during my training. I even went to lectures on this matter sponsored by “financial advisors for physicians”. Those lectures were educational too. No money for a down payment? No problem! You can even take out a Doctor Loan! Buying a home while you have a temporary job like residency always seems enticing, but there aren’t too many good reasons why you should do so. Buying a home for your first job may not necessarily be a great idea either. Here’s why:

You Need More Money Up Front to Own a Home Than To Rent

Traditional loans require a deposit around 20% to obtain the best interest rate. Yes, there are Doctor Loans that require no mortgage insurance or deposit depending on how much you have in your bank account. You will still pay for it. If you don’t pay for it up front, you will pay for it in monthly increments in your mortgage payments. Unless you had a job prior to medical school or have family help (or are independently wealthy), it’s unlikely that you actually have enough to put down for a decent house that you’d want to live in. I certainly didn’t. I also had no stable income during medical school either and a three to four figure bank account balance.

As a resident, you make approximately $50,000 pretax. While many families with children live off of $50,000, there is obviously a limit to the amount of house you can purchase and have enough for living expenses. Obviously if you have a working spouse, the circumstances change…

Mortgage Interest Deduction is Less Than You Think

Mortgage deduction sounds great in theory, but remember that any deduction requires you to pay money up front. You have to SPEND money to SAVE money. Tax deductions treat a certain percentage of monies you’ve paid as untaxed income. Tax laws allow you to deduction mortgage interest from your income. So if you pay $10,000 in mortgage interest in one year and are in the 25% marginal federal tax bracket, you “save” $2,500. In other words, you still pay $10,000 in mortgage interest but at the end of the tax season, the government taxes your income as though you earned $10,000 less on your income.

Additionally, you must itemize your deductions if you wish to be eligible for a mortgage interest tax deduction! I certainly did not itemize my tax returns during my entire residency or fellowship due to limited expenses and income! By not itemizing, I actually saved even more money through TurboTax/TaxACT since it was free.

As a full-time physician, mortgage interest deductions make a little more sense simply because you are in a higher tax bracket. I still consider this more of a perk rather than a reason to own a home.

Home Ownership Has Upkeep Costs

If you rented a home, your landlord is responsible for most of the maintenance costs (unless your landlord is an asshole and puts conditionals on certain home appliances). Stuff breaks. Appliances need maintenance. Air filters need to be changed.

If you owned your home, you or your spouse is responsible for it. If you don’t know how to fix your toilet, tough luck. You hire your friendly neighborhood plumber* who hits you with a $100 house call fee and $130/hour rate on a job that takes him 32 minutes but he still bills you for the full hour. Don’t forget the 3x markup price on parts and a miscellaneous charge for shop items. Oh, and if you really knew how to fix it yourself, it’d only take you a trip to the local hardware store and 10 minutes of your time.

There are fees for lawn care, cleaning, maintenance, property taxes, and home association fees. Even if you can outsource all of the basic tasks, you will still have to deal with the hassle of calling for help. As a renter, you don’t have to worry about this. If you are a busy medical student, resident, or have any busy career, you want to minimize tasks outside of your work life.

Your Money Is Tied Down in Your House

Equity in your house is illiquid unless you have a buyer. Even with a buyer, it may still take weeks to months to even close unless you have a cash offer. The problem with equity in real estate for medical trainees and young doctors is that their jobs may be transient. Medical school and residency only spans a set period of time. Most doctors do not stay at their first jobs forever either. Professionals who are early in their careers cannot afford to have equity tied down in real estate if they have to move.

Real estate value cycles. If the housing market is down when you need to move, you either have to sell at a loss or hold onto the home until the next housing peak. If you rent, the money that isn’t tied down can be used to invest elsewhere.

Example

The benefits of renting vary depending upon locale. For example, homes in one neighborhood in my town are selling for approximately $350,000. Rent for a similar unit goes for around $1800 a month. The Price-to-Rent ratio is roughly 15.4, which means that the cost of renting is equal to that of owning.

Assuming a 30-year mortgage at 3.5% interest with 20% down and closing costs rolled into the mortgage, this is what I estimate:

Rent

Own

$1900 monthly rent $1304 monthly mortgage
$4830 annual property tax
$10,500 closing costs on first year
$3500 annual maintenance
$1853 monthly payments with taxes, insurance, and mortgage insurance

So based on this projection, owning this home can possibly save you around $47 a month at the expense of tying down a portion of your money and dealing with home ownership. Obviously if you can cut down your annual maintenance costs, you will save even more. The breakeven point for a house in this price range will be at least 3-4 years. Remember, most markets have at least a 6% seller fee.

Conclusion

While I know many intelligent medical students and residents who own homes, most of them have no business owning one. Many of them have spouses who stay at home to take care of the kids, so they often have limited income. After 3 years of residency, some end up moving to a different city and either rent or put up their home for sale. Those that stay in the area even move simply to live in a larger home. It does not seem worthwhile to go through the hassle of home ownership with such a busy day job.

Did you own a home during medical school? What benefits did you find in home ownership? Sound out below!

[showads ad=responsive]