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Category: lifestyle

Plateauing net worth and lifestyle inflation

Posted on May 6, 2019January 30, 2021 by SmartMoneyMD

Wealth accumulation can follow many trajectories, depending on discipline and external factors like stock market health or economic fluctuations. With a proper financial plan, doctors can stick to a game plan that should allow them to reach financial milestones rather predictably. The adage that wealth begets wealth certainly does hold true most of the time, but it doesn’t necessarily guarantee financial victory. One of the issues with wealth accumulation is that goals, needs, and desires rarely remain constant over time. Life happens, and sometimes that can derail even the most sound financial plans. Let’s take a look at the financial trajectory of a typical financially-conscientious physician:

The doctor in training and early career doctor
Many early career physicians are knee-deep in debt. Some of us venture even further into the red by purchasing a home or buying a big-ticket item on credit while on a resident’s salary. Fortunately any early career financial missteps can be righted with a lengthy enough career length. I find that this generation of physicians overall tends to be more aware of finances, possibly because of the negative changes in medicine. Doctors at this age will often start picking up financial books or talking to financial planners. Some of them will be directed to @WCI’s website and find out that it’s cool to be attuned to your bank accounts.
This is also the point where many doctors are able to dig out of a negative net worth when the financial strategies start working. I remember that the time my net worth became zero—I felt as happy as I did when I got accepted into medical school and residency!
When our financial strategies start working, we hope that it could continue indefinitely, but throughout our careers there are many factors that can disrupt the game plan.

Early mid career doctors

How long does the gravy train last? Will your net worth growth actually accelerate as you reduce debt? It should—your first $100,000 in net worth should be most difficult to achieve, while your second or third $100,000 ought to be easier. As more of your net worth becomes invested, it should grow by itself.
In practice, many mid career doctors end up plateauing their savings rate simply due to life changes or letting the reins loose a little too soon. This is where we are at most risk of a plateauing net worth.

Increasing costs for children — As we had mentioned on a previous article, we don’t always make rational decisions. Sometimes we may be more wiling to splurge on a high price tag for our family members but not necessarily for ourselves. Send your kids to private school, and the math equation changes.
Finding that “forever” home — Many doctors at this point will find a reason to get a bigger and more expensive house. Perhaps the second dog needs a larger yard or the kids need more room for themselves. The second mortgage will dig into your income twice as hard when the first home doesn’t sell.
Taking more lavish vacations — While there is nothing wrong with taking time off from work, many doctors end up overcompensating for having stressful careers through luxurious vacations. Throw in a few five-figure vacations a year, and you realize that it will chew up a chunk of a doctor’s salary.
Making poor financial choices intended to grow one’s net worth — This is where smart people can outsmart themselves. Commercial real estate, fast-food restaurants, family businesses…you name it, there are probably people who have dumped a chunk of change into ancillary investments. Some of these investments are going to flop. Each failed investment will extend your working career a little longer. Just make sure that you don’t make too many of them…

Frankly, any of these situations can happen to us. Many of these choices are made conscientiously, but they can have lasting effects on our net worth trajectory.

Is plateauing your net worth a bad thing?

Late career doctors

There really isn’t much other than catastrophic events or major economic recessions that could derail a well-executed financial plan for late career doctors. Conversely, there are instances at this age where doctors are presented with unexpected health issues or worse yet, death. I have seen a handful of doctors who were unable to enjoy the fruits of their labor due to health issues. You can take your money to the grave, but it might not do you too much good.

The conclusion to all of this? Plateauing can happen even with judicious financial planning simply due to changing needs and desires. What’s important for doctors to realize is that many of us are okay working a “full career” despite a early retirement being a hot trend. Just make sure that the lifestyle changes that you make don’t make you overextend into your golden years.

Doctors, side hustles, and your time

Posted on February 23, 2019January 30, 2021 by SmartMoneyMD

Thanks to the Internet, collaboration has never been so easy. If you need to learn about how to install a new irrigation system in your lawn, the resources are a few clicks away. You just need the time and motivation to make happen. On the medicine front, there has never been a time in the recent past (aside from a failed managed care push in the 1990’s) that doctors have been as disgruntled. Perhaps it’s due to the ease of communication, but I’ve never realized the momentum of doctors out there wanting to find their golden parachute outside of medicine.

Reasons why doctors are unhappy

The sky is the limit as to why doctors are becoming more pissed off at the healthcare system. Some of the more common changes contributing to this mentality include:

Lumping doctors into the generic “provider” category. We all saw it coming—allied health workers getting all lumped into a single category with the doctor. While support staff is critical to the function of a medical practice or hospital, there are philosophical, practical, and safety issues with blurring the distinctions among all of the healthcare workers who touch the patient. Something just doesn’t sit well when the call operator, IT guy, medical assistant, and scrub tech are all “providers” in the system.
Increasing work that’s not related to direct patient care. Yes, who actually likes doing online training modules on privacy acts? How about patient satisfaction improvement projects? Or who likes to chart an extra two hours every day to finish documenting all of the diabetics in their clinic? Some medical professions are also stuck going over labs that they’ve ordered and calling patients every evening after clinic. This is where burnout happens—doing all of the things that didn’t require twelve years of medical training.
Ever-narrowing salary range among all healthcare workers. Sure, doctors are still compensated near the top of the healthcare chain (right behind that of administration and C-suite folks), but it’s amazing how much the salary gap is narrowing between doctors and everyone else. We all understand that other healthcare workers are spending more for their rising cost of education, but anecdotal evidence tells me that it’s not that common for doctors to actually get raises over a career. At the same time, physician extenders are being given more autonomy and compensated more (Sorry guys, I’m not throwing anyone under the bus. The problem is with our healthcare system). Several of my colleagues have continually reported having stagnant wages while nearly doubling their clinical volumes over the past decade.

The emergence of the side gig

I’d imagine that the motivation to find a side gig partly stems from the broken healthcare system and the possibility of no longer relying on our day job to sustain a living. Many of these side gigs stem from our pre-existing background in medicine; some of them are completely unrelated. I know cardiologists who have ventured into the restaurant business, and a pediatrician who decided to open his coffee stand at a sporting stadium. All of these ventures are time consuming and take energy away from their families. It impresses me that some of these guys can do this despite having young families or jobs that eat up 65 hours a week.

Many of these ventures turn out to be quite successful. Some of these guys end up generating enough income to sustain their lives outside of clinical practice, which I assume is the hope for many doctors. We really don’t hear about the ones that end up remaining as hobbies.

Doctors shouldn’t have to find side gigs

Look, it doesn’t matter how you spin it. If you want to be the next Doctor Oz, that’s great. But if your goal during your entire working medical career in medicine is to find an out, something is wrong. The problem could be you. The problem could be the system. The problem could be you in the system, and maybe the side gig is your way out.
I have many colleagues who incessantly whine about how horrible their medical practice is. Maybe the hospital is only giving them an extra $3/hr for working overnight shifts. Maybe they are outspending their ability to earn from their day job.

Image courtesy of Flickr: https://flic.kr/p/rrssT6 — Famous person or not?

Make sure your side gig has a purpose

Doctors need to have a purpose, whether it’s to come up with the next great product or to cure cancer. If having a side gig allows you become a better doctor, then that by itself is enough of a reason to venture out. Just be sure that you’re not doing it simply because all of your coworkers are.

Choosing how to practice medicine 101 for new doctors

Posted on December 12, 2018January 30, 2021 by SmartMoneyMD

When I finished my training, I wish that I had known all of the options I could practice medicine. Most of us categorized our options as either “academic” practice or “private practice”, but in reality these two options only cover the tip of iceberg. Was my limited understanding a shortcoming of my medical training? Perhaps. I doubt that many medical schools back then actually had seminars on practicing medicine. Since nearly all of my attendings belonged on faculty or clinical faculty, it would have been nearly impossible for them to round up a bevy of doctors from all walks of the medical scene.

The following is a compilation of some of the more common ways that doctors can practice medicine. There are nuances in every category of medical practice that one would only truly understand after practicing in that venue, but here is a good introduction (along with my personal opinions):

Solo Practice
Solo practice medicine is unfortunately not as popular for a number of reasons, but it is still a viable form of medical practice. Generally speaking, one could either purchase a practice from a retiring physician or start from scratch. That means buying your own building or finding a lease, signing up for insurance plans, and going at it. There is always a learning curve to starting your own practice straight out of residency, but it could be done. Obviously some specialties in medicine may be more conducive to solo practice than others.

Pros:

You can call your own shots. That means taking all of the vacation you want. Or you can work 365 days a year if you’d like.

Cons:

Likely to require more involvement into the practice, including the business aspects of medicine.
May require many years of long hours before business will flourish.
Insurance company in certain markets may not allow individual doctors to enroll onto their plans if there are larger medical practices that are willing to take care of more medicine for less reimbursement.

Some work situations are more conducive to cross-country trips in the winter!

Group Private Practice
Most of my classmates who decided to go into the private sector ended up joining a medical group. These medical groups may be small, several-doctor organizations, or multi specialty behemoths. One of the perceived advantages of joining a large group is that they may better systems in place for benefits and that the patient volumes are more mature. Having multiple coworkers also means that you will have more opportunities to collaborate and dissent. Group practices may be able to allow doctors to achieve higher than average salaries for their field, given that there is likely some capitalistic motivation among the group’s members.

Academic Practice
Academic medicine is synonymous with working for a university with teaching or research opportunities. This may be the most “conservative” approach to many doctors’ first jobs since most of us trained at academic institutions (there are some training programs that are spin-offs of private practices). Many of my classmates simply opted to remain on faculty at the institutions that they trained at after finishing fellowship. There is familiarity with remaining at the institution that you spent the previous few years at.

Pros:

Familiarity with an institution that you’re already working at.
Good intellectual support system.
Likely cutting edge medicine.
Research support if you opt to conduct clinical/laboratory research.

Cons:

Excessive familiarity with the institution that you’re already working at.
Possibly poorly organized clinical support staff.
Likely cap on earning potential.

Managed Care Practice
In recent years, there has been an uprising of managed care organizations, or those that have certain arrangements with health insurance to provide care. Some healthcare systems like Kaiser Permanente have an insurance wing and a physician wing that work to cut costs and optimize care.
Pros:

Optimized healthcare system. Robust benefits program.
Stable and likely job security.

Cons:

Physicians may be subjected to assembly line care.
May have high volume of patients
May have restrictions on how you can practice medicine.
Not necessarily conducive to elective procedures.

Governmental / VA
In some ways, working at a VA is sort of like working at a managed care organization except that the VA may even be more slow to adjust to anything. Many of us who have worked in VA systems may have felt that the clinics and operating theaters functioned incredibly inefficiently. That being said, to each his own. Working for the government does have its perks in set working hours and mostly easy pace of life, plus the fact that you are taking care of our country’s veterans.
What comments do you have for each of the models of practicing medicine?

How I became rich by doing my job

Posted on December 1, 2018January 30, 2021 by SmartMoneyMD

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.

Having a life sized die cast aluminum sculpture of Sparky would not be considered boring

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.

You might also like: The key to physician success: it’s okay to be missing out

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:

Don’t you love it when you’re retired and the stock market moves like this?

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!

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A doctor’s account on the negative impact of commuting

Posted on October 6, 2018January 30, 2021 by SmartMoneyMD

As we get older, time becomes are more valuable commodity. I clearly remember that as a college student, I was more than willing to wait in line for over an hour simply to get a free sandwich promotion. Nowadays, I’m not even too interested in waiting 20 minutes to be seated at a restaurant. Our priorities evolve.

One interesting aspect of time that remains relatively unchanged over time is our tolerance of commutes. We commute to and from work almost daily, and whether or not we like it, we do it. We have gone through great lengths to even justify the commutes:

“There’s no way I’d want to live near the hospital I work”
“Junior needs to be in a good school district”
“There aren’t any good home options near the office”
“Housing near the clinic is too expensive”

Most of my colleagues commute at least one hour each day for work purposes. Those who have to commute between offices easily add on another 30-45 minutes to the schedule. One of the recent reports on average commutes shows that one hour expected for everyone living in the Northeast corridor or California, regardless of profession. That’s about five hours of commuting every week, or 240 hours on a 48 working week calendar! Ten days in the car! If you took public transit, you’d easily double that. If you took call on the weekends, you’d clock in another day in the car each year!

Commuters are essentially funding the audiobook and podcast industry by virtue of finding ways to occupy their time between the points A and B!

Commuting and your health

I used to sleep on the subway during my commute. I didn’t really have much of a choice. It was a vicious cycle where I lived far away from work, slept less because the commute was long, and ended up getting poor sleep on the train. By the time I got home, I was exhausted from work and the commute. After preparing slides for grand rounds and working on some research papers, any motivation to eat healthily or to hit the gym was essentially put on hold. We all know the ill effects of a sedentary lifestyle. There are zero health benefits of a long commute.

Commuting and your wallet

It is an interesting exercise to calculate your average hourly wage from the moment that you start the day in preparing to get to work until you get home after work. If you get up at 5:50am to get ready for work and step back home at 7pm, your workday is essentially 13 hours. If you are only getting paid for 8 hours, you’re essentially “working” 62.5% more than what is reflected on your paycheck. If you end up bringing charts home to finish after you put your kids to bed, you’re adding to the work hours too. For each hour of “unproductive” commute, you are discounting your services by 12.5% on an eight-hour workday.

No commute, no net worth, but happy as hell.

How these numbers actually reflect your finances ultimately depends on how much you value your time. The premise goes back to the promotional sandwich experience in college. When you have no net worth, are living life on a loan, and have no active earning power, your time isn’t worth much. One would expect that our value on time will increase in an “S” shaped curve over time. If you are early in your career, you might have to bite the bullet and take these onerous commutes until you reach a position to negotiate a more favorable situation. Once you have reached fatFIRE, are earning a solid six-figure doctor income, and need to take your kids to their baseball game by 5 o’clock, it’s time to find a way to reduce that commute.

You might also like: A financial plan for busy people

Move the goalpost as your priorities evolve

I’m a big fan of moving the goalpost. I still have commute times on par with the rest of the country, but part of my financial plan includes cutting down on the commute times. It’s all about how much we’re willing to put up with. If you are progressing towards financial freedom, you ought to have less willingness to tolerate long commutes. It’s simply not worth your time to sit in the car. By shortening your commute, you are essentially increasing your hourly wage while working less.

We all should have reducing commute times on our financial plans.

The key to physician success: it’s okay to be missing out

Posted on September 1, 2018January 30, 2021 by SmartMoneyMD

It’s human nature to be social. The collective sensation of being in a group or organization helps us belong. We see this in school, where kids band together for activities. We see this in the doctor’s lounge, where the anesthesia guys chat about the latest hospital gossip. Occasionally we see the loners who shed the collective mentality and shine through their own path. If these novel beliefs are compelling enough for the masses to adopt, then the long wolfs become mainstream.

There has been a push over the last year in the online physician community to venture into seemingly radical pursuits, like trying to retire early. Other more tempered pursuits seem to revolve around doctors finding self-sustaining means to escape medicine itself. Multilevel marketing, real estate, side hustles, and other income-producing hobbies are the rage. I am always amazed at how motivated my peers are. The irony is that sometimes it seems like more effort is put towards pursuing something outside of medicine. Nearly all of the side hustles that I’ve encountered don’t require having gone through the pain, time, and intelligence of medical training.

I had a classmate in medical school who finished his medical degree and a year of internship before joining a huge medical consulting firm. I never really knew why he did that, since medical school isn’t exactly a walk in the park for most people. Unless he ends up in the C-suite of a major hospital or healthcare behemoth, it is difficult to justify the financial advantages of the career route that he chose. Fast forward to today. He’s not exactly in the C-suite, but he has a similar income trajectory as most doctors his age and a much greater potential to impact healthcare that most of us will never even dream of doing. Go big or go home, as one might say.

Dare to be normal

Most people would prefer to live according to their own terms, and blend into the crowd. This applies to doctors as well. Some of us are workaholics; some of us want to do the minimum amount possible. But average is still somewhere in the middle. I only know a handful of doctors who actually love booking elective surgical cases the Friday after Thanksgiving or rounding on patients every weekend. Everyone else just wants to be able to play a round of golf on their off-days, and take their families out on a road trip in a nice U.S.-made German-branded SUV.

Not missing out on this would mean more inches to your belt.

Not every doctor wishes to own a dozen homes, a private jet, or a Maybach. On the other end of the spectrum, most doctors aren’t going to want to pack up their medical practice, travel the world for weeks at a time, and homeschool their children. It’s okay to teach your kids about World War I by renting an AirBNB in Sarajevo, but a textbook will probably do just fine.

It’s important for practicing doctors to focus on what is important to their family and careers. There is a lot of noise in the online community with anecdotes of doctors who are able to build an escape route out of envious medical careers that most people would only dream of being in. There is nothing wrong with being a doctor working 55 hours a week, taking call every fourth weekend, and earning a comfortable living.

There is nothing wrong with being out of the loop

Fear of missing out, or FOMO, can be self defeating. It doesn’t matter what your colleague down the hall is doing with the latest real estate craze. You might be missing out on the biggest financial opportunity of the day, but you could also be missing out on the biggest flop. Just because your roommate quit her stable job as a gastroenterologist to join a startup doesn’t mean that you need to find some radical way to prove yourself. The key to success is to keep your head in the game. You are already a physician. You have a better income and lifestyle than many other professionals. Don’t sabotage it. Hone your plan for a successful career and follow it.

Who has better spending power, doctors or executives?

Posted on August 25, 2018January 30, 2021 by SmartMoneyMD

The general consensus among physicians who have a solid grasp on their finances is that they are realistic about their earnings and expenses. Ins and outs. Just like in nephrology, except a net positive in your finances is considered a win. One would expect that doctors ought to be generally conservative in their expenditures, since medicine is a generally conservative profession. But life is unpredictable, and that’s why there are so many physicians in their 50’s who still have unpaid medical student loans.

One of my guilty pleasures includes consuming stories on Refinery29, an online media outlet. Last week, I came across an article that outlines the weekly expenses of a high-income non-physician (executive director) family in Los Angeles. That’s right, down to the monthly car leases that all of the FIRE crowd cringes at. Head over if you’d like to pour through the details.

In summary, this household earns pretax combined income of $1.5 million at the age that many doctors are still getting lowball offers on their second jobs.

Acknowledge credit when deserved

Bravo!

We should all be impressed by the earning power of this couple. Some of us are secretly jealous of the relatively “normal” work hours compared to that of the average physician. You also have to realize that there are also far fewer high income opportunities like this compared to Hospitalist jobs, so not everyone can be a $1.5 million household living in the OC. There is undoubtedly blood, sweat, and tears that numbers simply cannot depict.

Big numbers make us uncomfortable

Big expenses tend to accompany big incomes. When I started earning a salary as a resident, I felt simultaneously rich and poor. There was a biweekly deposit in my checking account, but all of my student loans went into repayment mode. The ones I deferred started accruing interest, so I had expenses that did not exist previously. I was no longer eligible for student subsidized housing, so my living expenses also increased. I experienced the same transition as an attending. Do I still want to live in distressed living quarters in the questionably safe neighborhood around the hospitals? Do I want an apartment or a condominium? How about a detached house that affords a yard to enjoy? Now that I have a yard, I need a lawnmower and maybe a lawn guy. It’s interesting to see how lifestyle inflation self perpetuates.

I like my dining room ceilings to be decked out in gold

That’s one aspect that the financially independent crowd has successfully detached itself from. But big numbers may actually be less shocking that they appear. One of the line items on this expense report is the holiday expense:

Christmas shopping: $7,500

Did they mean $750 or $7,500? To take it into perspective, one of the doctors at the local hospital once declared that he spent $2,000 for Christmas activities since he had relatives from abroad visiting that year. As a hospitalist, his income was approximately $250,000. His holiday expenses were 0.08% of his pretax income. In comparison, the $7,500 Christmas shopping expenses only constitute 0.05% of a $1.5 million income! The executive director family actually spent a smaller percentage of their pretax income than the doctor!

Time to get critical

What the author of this article doesn’t mention is how long they have enjoyed the earning power. A neurosurgeon who earns $600,000 a year at age 34 is in a more precarious financial situation if he was only earning $60,000 a year ago as a resident. Given the career trajectory of executive directors, it is safe to assume that they have enjoyed at least several years worth of high earnings at age 34. Based on their numbers, it’s not clear how much total net worth they even have to their names. Are they millionaires yet? How much are they actually saving each year, and is it enough?

Assuming that the healthy earning potential continues throughout their working careers, this executive director family will do just fine. If they work until age 65, they will likely become multi-millionaires. If they wanted to quit their jobs at age 40 and move to Belize, they would still be fine if their expenses are reduced significantly.

Is there a moral to the story?

It is human nature to judge. As a physician who will unlikely ever experience the earning power of this executive director household, it is difficult to imagine how my life would be any happier with bigger numbers. When I showed this article to several of my colleagues who do have incomes in this range, they laughed at the fact that they only wished that they had the time to even spend their earnings.

Maybe it is better to strive to become an executive director with a C-suite rather than a neurosurgeon working 90 hour weeks?