How would your life change if you earned an extra $100,000 a year?

I’m sure all of us have either wondered or openly discussed the prospects of having a higher income.  We’d actually be able to “afford” those outfits that the celebrities sport or cruise into the hospital parking lot with that dream car.  On a smaller scale, perhaps we could choose to have more meals out in restaurants or splurge on a nice vacation that would otherwise be lengthen your working career.

Interestingly, being a physician actually awards us the experience of incremental income growth over many arduous years. We start out in debt during college and medical school, build up to a positive but meager resident income, incur a potentially lower income as a fellow (Yes, this can happen!), and finally a decent but questionably delayed higher income.  How does that affect the psyche? Let’s take a look:


The guy who becomes unleashed

We’ve all seen this.  There are people in medical school who always seem up for a round of drinks at the bar or a hedonistic winter vacation.  Obviously these guys are either funding their lifestyle through family money, a spouse, or loans.  Once they secure a solid five-figure income during residency, they spend as if they had a six-figure income with a seven-figure net worth.  The expenditures grow at every step of the trajectory.  The present lifestyle is essentially supported by future income.  Can this be sustainable? Absolutely if the future self makes good on his earnings.  I know a guy who did just that.  He is doing fine, but working like there is no tomorrow.

Ironically, this model of lifestyle represents much of our society.  That is why there is so much consumer debt and how credit card companies survive. If this guy earns another $100,000, I frankly don’t think that he’d change much of anything to his lifestyle.  He is already on a mortgaged lifestyle.  A pretax increase of $100,000 in income may only mean another $55,000 of post-tax take at the higher federal and state marginal tax brackets.  This welcome addition might mean additional frivolous purchases in someone with already frivolous spending habits. Nothing else.

The ultra spender can pick up one of these the first year she has a salary bump.

The ultra-saver

I think that most financial bloggers out there are in this camp.  The debt-adverse, ultra-saving, crazy bunch prefers to stash away everything towards retirement.  This camp of doctors were frugal during medical school, residency, and are still living the conservative lifestyle.  These guys just like watching their Personal Capital accounts build up, gloat when their investment accounts actually increase after several years of retirement with 4% spending, and take extended month-long family vacations since they are not beholden to any boss after retirement.

You could imagine that a windfall of an extra $100,000 might not impact the habits of this camp either.  This extra income is going straight to the bank or index fund of the ultra saver.  Give it some ten years, and the bank of ultra-saver will have an extra $1,000,000.  If invested prudently, this additional income can shave off a few years of your working career, or fund some great charities.  Either way, the lifestyle of the ultra-saver doctor isn’t going to change with a salary bump of $100,000.

I wished that I could be in this camp, but I’ve unfortunately been tainted with a moderate desire for materialism, overpriced foods, and luxury.  😃

Ultra savers log into their Personal Capital accounts several times a day!

The average middle of the pack doctor

Most doctors are in this boat.  They have a higher-than-average income compared to the rest of society, but they aren’t in the ultra-celebrity net worth range.  A salary bump will likely have an immediately positive impact on her lifestyle.  It can be used to pay down some student loan debt, contribute to a mortgage downpayment, or fund a well-deserved vacation.

An extra $100,000 income can be used as a temporary patch for an immediate need.  After a few years, your lifestyle will either transition to a higher baseline, but it’s unlikely to make a significant impact on happiness, lifestyle, or your hobbies.  There will be a new steady state, but the steady state will still be in the same tier as the doctor of ten years prior.


The percentage change in income is what counts.

In all three scenarios, an increase of income didn’t really change much of anything.  For the average doctor, a $100,000 salary income could represent anywhere between a 10% increase in income to a whopping 100% increase in income (I do feel sorry for those doctors out of training who slave at a $100,000 income).  Either way it’s not enough to quit your day job. How much would it have to change to make a meaningful difference? 500%? 1000%? Either way, most doctors aren’t going to reach that level of change.

To this end, doctors need to realize that any narrow range of income that they may fall under may not necessarily impact their lifestyle in a significant way.  A Hospitalist can double her shifts to bump up her income from $200,000 to $400,000, but working harder would be best suited if there was a goal in mind.  Do you want to retire earlier? Do you want to buy a nice stove? Is it worth the stress of putting in the extra shifts? Figure these questions out, and you’ll be a happier person.

How much of a salary change would it take to change your lifestyle?

(Photos 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!

    Your post made me think of 2 random things I’ve seen/read:
    1. On the more humorous side: is Chris Rock talking about being rich and being wealthy. (for the faint hearted hold your ears!) I think many doctors can be rich. Few are wealthy. I think there are even fewer who are wealthy w/o sports althletes incomes. I was reading about PoF donating 100k on his 41st birthday. That’s wealth. I’m sure he doesn’t have the net worth of Shaq but that’s pretty impressive.

    2. This was initially written in the aftermath of the housing crisis and then posted with an update. It makes a big distinction between those of us who get paid well for what we do (Physicians) and those who make their money from finance who get to that stratospheric wealth. Basically, the 0.1% make the 1% look poor.

    These both go to your point that in the scheme of things $100,000 buys you some better things and maybe some flexibility but not necessarily a better life.