How to burn through a $1 million salary

There is something about tragedies and victories that we all love to witness. The guy who was blessed with the silver spoon but squanders his way into poverty.  Or the waitress who finds her way to become a real estate mogul. Today we’re going to look into the financials of Joe, a surgeon I know who has experienced both the financial successes of being a high-earner and the dangers that come with a huge bankroll. While I don’t have exact numbers in this scenario, the overarching principles still apply.

Ahem. To keep Joe’s anonymity, let’s call him…Moe.

Moe, a vascular surgeon, had a relatively lengthy training path. He wanted to enter academics, and had matched at one of those 7-year general surgery residencies. Afterward, he spent an extra two years in fellowship before striking out in the real world. That’s already a crazy long time to train. Fortunately he saw the light and did not take an academic job.  I recall that his first job was with a hospital that lowballed his worth with a salary around $275,000 a year. That’s pretty insulting for a job that expects you to work a minimum of 70 hours a week and answer the phone during ungodly hours. Vascular surgeons fix dissecting aortic aneurysms, clean out carotids, and place dialysis shunts. These are serious plumbing jobs.

Gals (or guys) who work serious jobs need to have a nice place to live. So Moe bought a $750,000 home. He also leased two nice cars, and the wife and kids also had nice clothes. Thus far, an estimate of his big ticket recurring expenses included:

Fine details left out, but you get the point.

Moe had a monthly take-home salary of around $13,000. After the expenses above, he had roughly $3,500 left for everything else including gas, clothing, discretionary spendings…etc. Overall, not a bad salary, but he make quick work of his hard-earned cash. There was not much left over for savings.

After two years of indentured servitude at the hospital, Moe found a private practice job across the country and relocated his family there. Here’s an outside snapshot of some of his big-ticket expenses after 4 years when he made partnership.

This is how to kick your expenses into overdrive!

This is but a crude estimate of how one can blow through a huge bankroll. Note that there was no account for vehicle upkeep, clothing, routine home maintenance (lawn), malpractice, disability, and life insurances, or personal goods and toys for the kids. Given that the kids were in school, babysitting expenses are relatively modest, and mostly for evening hours.  Moe, by virtue of living in a very high cost of living area, is expected to have a take-home income of about $550,000 on a $1 million salary.

How sustainable are $400,000+ expenditures?

In this scenario, I’d expect Moe to still have about $100,000 of disposable income annually. It’s not horrible for most families, but it looks bad with a $1 million pretax income to start with. He is basically spending 80% of his post-tax income. Despite having a millionaire salary, Moe isn’t much of a millionaire with these expenditures. Interestingly, if he is able to maintain his line of work throughout a standard 30-year career, he’ll still make do.

The problem is that life happens. What if he can no longer work those 70+ hours a week? It may not necessarily be disability that prevents him from working.

Epilogue

Last I checked in with Moe, he did curb some of his lavish lifestyle habits. Gone were the ultra-elaborate vacations (replaced with still-luxurious vacations). He actually purchased a Honda Accord for his daily commutes to cut down on maintenance costs and gas for the AMG.  He was still paying off his first house, which is still on the rental market. The kids had even more (read: expensive) activities like tennis, baseball, and hockey.

Moe’s medical practice has been doing even better than before.  He still works about 70 hours a week, but he is now average about $3 million of pretax earnings a year! Talk about hard work and a bit of luck!

The moral of the story? Not everyone will be as fortunate and diligent as Moe. Don’t hedge your life savings on a strong offense. And by the way, some people do get lucky.

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  • $3 Milliion in earnings?!? I don’t know how that’s possible as a vascular surgeon, but spending $400,000 on $1.5 million after tax represents a great savings rate.

    On the other hand, I haven’t before heard of anyone earning that much as a surgeon. Not legally, anyway.

    Best,
    -PoF

    • Smart Money MD

      Our services alone will rarely generate that level of income (unless you are a high profile cash pay doc). But owning a surgical center, urgent care or ER will allow you do that. That’s why some ER docs actually make millions a year. $400k a year on doing shifts, and another $700k from owning their urgent care center with imaging.

      They never taught us that in medical school. But, it is more work with more risk and potential reward.

  • Smart Money MD

    You can only live it up so much after a certain income threshold. Doctors, in general, aren’t going to be able to own $10 million mansions, fly private, and have butlers. If you still have to put in your hours to earn a living, you’re not going to have the time to do much of anything else other than what you’d do anyway with an income half as much.

    He’s a car fanatic. He’d probably get a McLaren if given the choice. What I found interesting too is that you can actually get a used (2 yr) AMG SL63 for about $40k less than the new price. I agree that some of these cars aren’t meant for normal driving. One ER doc I once knew drove a Ferrari in bumper to bumper traffic on the 101 in SoCal. That car is not meant to be driven in second gear.

    I think that most of us at least have some semblance of moderation, but have different definitions of what moderation is. Some people consider a restaurant splurge to be a Michelin starred meal while others just view a nice steak to be a splurge.

    Thanks for stopping by!

  • Thanks for sharing SMMD. I’m with PoF – $3 million a year???!!! But I’m more amazed by the annual expense of $412k – Lifestyle inflation indeed! Glad to hear your friend can make it all work but I have no sympathy if I ever hear a sob story from a guy like that about how life is tough for a “poor” doctor…

    • Smart Money MD

      In his defense, his life is pretty “bad” compared to what most doctors 10-15 years out in practice. Rounding on the weekends, doing scheduled surgeries on Saturdays…etc. He does like his job.