Month: November 2017

How doctors can diversify their income

How doctors can diversify their income

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What other methods have you diversified your income stream?

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Why is there a gender inequality in residency salaries?!?

Why is there a gender inequality in residency salaries?!?

I was thumbing through Medscape’s most recent residency survey, and I was shocked to see that men reported a higher income than women in residency!  No, I’m not a feminist, but my first thought at seeing a residency salary gender inequality was that there must be a variable that the survey didn’t control for…because that just doesn’t make sense. Gender inequality is a prevalent problem in the world, but the way medical training is set up, it does not seem plausible.

For those who don’t know, salaries for physicians in training is essentially fixed—you get raises for every subsequent year. There is no negotiation, because your salary is essentially a stipend that is predetermined by the hospital system that hires and trains you.

Medscape’s residency survey is just that—a survey. There are no controls or controlled variables like in clinical research. It is dangerous to make assumptions based on limited data. Why would the survey results show that men have a higher salary than women? Here are a few reasons I can think of:

Moonlighting. I knew many residents and fellows who decided to moonlight during their training. Pick up some shifts covering the emergency room or urgent care. Maybe a primary care outpatient clinic. Or even task handling for an internist office. Anything to pick up extra money. I knew both women and men who moonlighted during their training, but maybe men moonlight more?

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No stratification between PGY classes. In general the stipend increases as you advance in your residency. Are there still more men in residency than women? Do men typically enter medical professions that have a longer training duration than women?

Are there more men training in medicine? Even back when I was in medical school, there was a trend towards a 50/50 split between genders, with some years women edging men. Is it still the case?

What other reasons might men report a higher income than women in residency?

Did you feel that there was an income discrepancy between genders during your training?

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Creating Success in the Face of Adversity

We’ve all been there in every single stage of our career. Forgetting to study one of the chapters before your chemistry exam in high school. Going into your organic chemistry lab without preparing beforehand. Staying out a little too late before a medical school exam that you thought was going to be easy. Not matching at your first choice residency. Getting rejected on a job prospect. Getting paid less than a guy that you had to convince your administration to hire?

You probably get the point.

The guy who does everything by the book never gets a break.

Sometimes it seems like we never get a break. Thinking about the negative outcomes and situations that could have or should have gone in our favor impacts our psyche. Believe it or not, many of our shortcomings probably aren’t even in our control, yet these are the events in our lives that are most difficult to shed.

You might also like: How often do you leave work exhausted?

I’m a strong believer in turning misfortune into success. I probably spent the last fourteen years hearing variations of this blasé quip before I actually started believing it—yes, I am a very slow learner. We see and hear this all the time. Look at @PatFlynn. @JohnChow. These are guys that fell flat on their butts and were able to build up empires of financial success and balanced lifestyle.  Sure, these are the mega-success stories. Your story doesn’t have to be in the front headlines to qualify as a success.

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I had a classmate who did everything by the book in order to become a Dermatologist—this specialty is one of the most competitive areas in medicine—but still couldn’t match into a residency. I don’t remember how many times she ended up applying but she is now a successful Dermatologist. If you want it badly enough, you can [probably] make it happen.

We can all develop our own success stories.  All it takes is the desire to find success. Really. If you want it badly enough, you can get there. Fortunately there is no shortage of failures in life to learn from. Work at it long enough and you might find your own strategy to be a winner. Here’s mine:

Rejection

Something bad happens. Let’s say you get rejected from Harvard. Okay, you are a slow learner, so by the time you actually figure out how to reflect on this failure, you’ve already been rejected twice. Hey, I’ve seen it happen.

Look, you worked hard and yet you still failed. The world is still against you. If only you can conquer that demon fighting you every step of the way. Blow out some steam.

Reflection

Why are you upset with this instance of failure? Why did you want go to Harvard so badly anyway? Ego? Fame? Fortune? How would your life be different if you had succeeded?  Would your life be complete? Would that have guaranteed that you would have met your future wife? Is this the next step in your game plan for a successful career? Knowing why the setback was disappointing can help you figure out the next step.

Application

Flip the switch. The failure now becomes a challenge. What do you truly wish to accomplish? It may take numerous attempts to even figure out what you want in life. Then figure out what to do to reach that goal. Perhaps Harvard wasn’t the best idea if you hoped to build up a nest egg to quit your job by age 26 to roam the world. Going into a fast-paced IT environment would have probably  been the better option. Regroup. Make a new game plan and go for it. Maybe there is something that you’re really good at?

Failure

You’re going to keep losing. Don’t forget about that. However, at some point you will get in a win. That is what counts. Delayed gratification makes the victory so much sweeter. You started with being a Harvard reject. Then you transitioned as an IT consultant while starting your own sprocket business in the evenings.  You find your niche in building sprockets for water heaters. You sell your patent to the plumbing industry and become an industry giant overnight. Easy peasy, right?

The moral of the story is as simple as how you make it to be—if you are hungry enough in this world, you will be fed.

What was the last time you made success out of failure?

How much disability insurance do you need if your spouse works?

How much disability insurance do you need if your spouse works?

The purpose of disability insurance is to ensure that your dependents are well-taken care of in case you are no longer able to work to support them. This is a real and unfortunately not rare situation. If you are a doctor and the sole breadwinner in your household, you have get disability.  It doesn’t have to be much to begin with, but depending on your expenditures and net worth you still need some some coverage.  I can only think of one reason why a doctor finishing her training would not need disability insurance:

You or your spouse is independently wealthy, and neither of your incomes are necessarily for you to sustain your living standards for the rest of your life.

I actually know plenty of people who are fortunate enough to be in this enviable situation.  Most of these guys are pretty admirable too—many of them have taken financially unfavorable jobs for prestige, altruism, and other personal reasons.  Chances are that you aren’t in this type of arrangement. If you ever (or when you do) reach financial independence, you can axe your disability because you are self-insured. You don’t have rely on anyone else for your existence. That’s a good milestone in your life to reach.

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What should you do if both you and your significant other has a job? Can you and should you lower the amount insured? Should you just insure the spouse with the higher income? Can you scrimp by without disability insurance for either spouse? Let’s look through each scenario and weigh in the pros/cons.

Neither spouse buys disability insurance.

This is not advisable. Simple example: You take a family trip to ski. Everyone takes a tumble. Your husband, the orthopedic surgeon, breaks his wrist in five places and ends his short but storied career as the premier should specialist in your area.  You break a leg and shred through your intrinsic hand muscles. Technically you could still practice as a radiologist but can only go a tenth of your speed before injury. You have to take a 90% pay cut. Junior has to withdraw from his private elementary school and you have to give up your SoulCycle membership.

The higher earning spouse buys disability insurance only.

If the higher income spouse exceeds her counterpart by several fold, then perhaps this makes sense. Take, for instance, a nurse practitioner and his wife, the neurosurgeon. The nurse could buy up disability insurance—this might cost about $1,000 annually—but it might not make a difference.  The cost of a $1,000 annually to have some insurance would not truly impact the savings power of the family. The loss of his income would also not really impact the bottom line of the family.  The neurosurgeon should, however, buy up to the maximum amount until the family becomes financially independent.  If I were in this situation, I’d forgo disability for the nurse and purchase for the neurosurgeon.

You might also like: How To Maximize Your Finances As A Two Physician Household.

The tougher situation is if the difference in income between both spouses is similar. At this point, it’d depend on how much the insurance would impact the bottom line in the family.  Would the additional cost of disability insurance otherwise prevent junior from attending tennis camp every year? Would it slow down the family’s financial goals significantly (I would hope not).

Both spouses purchase disability insurance, but at an adjusted rate.

In some ways a two professional household has it easy–there are two incomes which are hopefully sizable.  Double the firepower. Double (or even triple) the savings. Double the job security as well. If a family like this plays its cards right, it will likely reach financial independence must more quickly than most single income families.

Maybe a front-loaded schedule of disability insurance would go like this:

A more complex schedule would include the earning velocity of the household.  High-income and high expenditure families should still purchase a relatively higher percentage of their incomes in disability even as they approach financial independence, because they have a large delta even towards the end of the journey.  Lower expenditure households can drop off their coverage at a much higher rate since they have a larger buffer.

How much of your income is covered in your disability insurance?

Lifestyle creep and the 4% Rule

Lifestyle creep and the 4% Rule

If you’ve been keeping up with the online money blogging world, you’ve probably heard about the 4% Rule, or 3% (3.5%) rule for some. However flawed, it gives you a decent start on estimating how much to build up your nest egg before you start telling your managers at work how you really think about their Maserati while you’re stuck with a fifteen year-old Honda Civic.  Once you figure out how much you spend annually, you can estimate how long your money will last.

For instance if you spend roughly $50,000 in today’s dollars annually, you’d need $50,000/0.04 = $1.25 million in today’s dollars to last at least 25 years. This has to be invested in some manner too to stave off inflation, and gold bars under the mattress doesn’t count.  Fair enough, but what happens after 25 years? We don’t have much data in the ill-referenced Trinity Study to extend beyond that, so some just adjust the percentage withdrawal rate more conservatively. With a 3% withdrawal rate at $50,000 annual expenditure, you’d need $1.67 million invested.

Lifestyle creep

“Lifestyle creep’s a bitch” -says somebody. I will claim it as my own if no one else does.

Living your entire twenties holed up studying and drowning in debt while your friends in banking enjoy their youth is the prime way to fuel your desire for lifestyle creep.  That’s what doctors go through.  Sprinkle in a few of your classmates who overextend their future self or have family money, and you’ve got a good (false) sense of how doctors should live.

You might also like: How to make a doctor’s salary and still feel poor—and how to fix it

Financial discipline can be an acquired skill, but like many behaviors in life it is highly influenced by our childhood. Not everyone can be like Mr. Money Mustache who grew up in an average Canadian household with “normal” expenses and discover that there is an alternative financial blueprint to life.  The majority of people I know who are financially conscientious have had some foundation in their younger days.  It could be as simple as mowing the lawn for an allowance or just seeing someone in the family struggle financially.  There has to be an exchange of work for money.  The ultra-savers at a young age typically are a subset of this group who use these fundamental principles and kick into overdrive. The rest of us without the head start of financial intelligence simply learn it the hard way—through experience and time.  We get into credit card debt or some financial ruin that triggers our brain to fix the problem.

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Doctors, on the other hand, might have never witnessed financial responsibility in their childhood or gotten themselves into financial ruin. Many doctors that I’ve known come from middle class families who had food on the table every night and family vacations every year.  By the time they start earning some money in residency, they will have acquired substantial borrowing ability from banks or predatory lenders.  We are prime victims for lifestyle creep.

I’ll be first to admit that I’m guilty of lifestyle creep.  After all, why shouldn’t we own at least one nice pair of Louboutin’s if we’re curing cancer every day? That is exactly how lifestyle creep catches you.  When I was a resident, I earned around $40,000 a year and spent 60% of my earnings living in a HCOL area. There wasn’t much left to repay my loans and live lavishly.  There was a lot of pent-up consumerism in me.  Once I got a real job I was tempted to live in a larger place, buy a nicer car, and upgrade my wardrobe. The problem with increasing your living expenses proportionally with your income is that you never make any headway towards your financial goals.

The doctor who owns this car can actually afford it. Doesn’t mean you can though.

Over the years, I’ve been slowly tracking my lifestyle creep. The brunt of the lifestyle creep comes from our mortgage, which in a way is a necessary evil. If you are obligated in your profession to stick around and work a certain number of years before you make any career changing decisions, it might be worthwhile to own a piece of America in the meantime. The other contributions to lifestyle creep end up being discretionary.

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Between the end of fellowship to my first year of practice, I increased my living expenses by around $15,000 a year. This rate slowly crept up until it skyrocketed another $40,000 with mortgage expenses. Purchases like an overpriced refrigerator do not necessarily increase quality of life, but do dig into your savings rate. At some point, our earnings actually plateau and any lifestyle creep will start eating away at your magic number. If we hope to have any possibility of reaching our savings goals, we have to constantly reassess our expenses. If we can’t adjust down, then we’d better find a way to increase our earning potential

How often do you assess for lifestyle creep?