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how to become a rich doctor ride the wave Easy 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.

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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?

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(Photo courtesy of Flickr)

Full 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?

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How To Become A Rich Doctor – Ride The Wave

Younger Doctors Are Wimps