Why it is nearly impossible for doctors to amass ultra wealth

I’ve been relatively quiet on the online frontier as of late, owing mostly to work-related insanity and also helping out family affected by the recent hurricanes. Fortunately, everyone is safe and recuperating from mother nature. It is also eye-opening to be reminded how dependent we are to electricity and modern amenities.

The online financial community tends to be a unique bunch. Very resourceful. Innovative. Self-sufficient, to say the least. Most of the modern world isn’t. Mr. Money Mustache is able to construct a fancy rental property out of materials harvested out of craigslist. The average American probably wouldn’t even think to own a generator (myself included) let alone know how to operate one.  Case in point. What happens when you lose electricity for two days? All of your food spoils. What happens when your local supermarket also loses electricity for two days? All of their perishables perish. Boy is it challenging to rebuild that infrastructure. Best of luck to those affected by the recent hurricanes…

Back to the finance world.

The curse of high income earners

High earning families can consider themselves blessed and cursed simultaneously.  High earners, by default, have a good velocity of income. Income is a good—it helps pay the mortgage, bills, vacations, and food.  Doctors, for instance, are the quintessential white-collared service worker. In exchange for a decade of subpar wages and long hours, we all will typically enjoy very comfortable wages and long hours.  I guess that this is a formula that isn’t necessarily a bad trade-off.  However, having a stable income and long hours actually prevents you from becoming wildly financially successful.

I know that we all have different ways to define success.  My view of success is more of a balance between being financially comfortable and having the health to enjoy it.  Fortunately most people in my profession will be able to achieve this.  However, we will never be able to buy this home in Malibu:

This average looking house will cost you a cool $8 million.

That’s right. How many Whipple surgeries would you have to do in order to afford this house? Answer: Not enough.

And that is the sad truth. Our level of ability ensures that we can enjoy a good living, but it also prevents us from reaching the extreme levels of wealth. No amount of hustle where your hustle translates into direct income will allow you to achieve this.

Let me reiterate.

If you have to exchange your time or expertise for money, you will never have the time or energy to amass insane amounts of wealth.

How to overcome the curse of high income earners.

There truly aren’t many secrets to success. If you want to own that chateau in Malibu, you have to come up with a plan and keep executing until you achieve it. You must also have luck (lots of it), but it’s all about creating opportunities.

  1. Motivation — You have to be motivated. The problem with motivation is that other aspects of your life will be sacrificed the more motivated you are, and the higher the goal that you wish to achieve. We’ve sacrificed a lot to become physicians, but that sacrifice actually had a clear cut timeline (medical school, residency, and fellowship). Most of us make this sacrifice in our twenties. This is a time in our lives where we might have the energy and ability to sacrifice family, friends, and health to reach those goals. Our goals may change as we get older. It’s a whole lot harder to come up with a plan to own a $22 million home in your thirties with a family to support when you earn $200,000 a year than if you were 22 years old with only a smile to your name. Think about it. The stakes are different, even though the challenges are the same. The blogger who earns over a $1 million a year probably started out with no career path. Where you start out can dictate how much motivation you can funnel into your goals.
  2. Realistic Income strategy — You have to come up with a plausible plan to hit that goal. If you want to afford an $8 million home, you won’t get there selling lemonade. You need to own a franchise of lemonade stands. Likewise, you need to develop a means for your income to be generated passively and reliably. What’s the secret to a reliable strategy? That, of course, is the million dollar question.
  3. Luck — You’ve got to have some luck. The beauty of luck is that the more frequently you put yourself out to risk, the more chances you’ll have to get that break. It all boils back down to how motivated you are to do it, and how much potential there is in your game plan.

What are your thoughts on amassing ultra wealth?

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  • PICU MD

    Good to have you back. I think I’ve posted this before in response to one of your posts, but this article really gives the numbers that back up your assertions here: http://www2.ucsc.edu/whorulesamerica/power/investment_manager.html

    Basically the 99-99.9% are people who work hard and get paid well (doctors, lawyers). Above that are the business owners and investors. Most of of us are in that lower group. The ones who get lucky or have a great idea and build a business and invest get into that top group.

    • Smart Money MD

      Thanks for following me! Sometimes life just gets in the way. Hoping to get back on the saddle!

  • Financing Medicine

    Good read! The curse of high income earners like you say is that you have to continue to work and nothing is passive. A benefit is that there is very little risk in accumulating, say, a $10M net worth. If you are trying to accumulate a 20 or 30M net worth building a business, you might have less than a 5% chance of getting there. On the other hand, I would consider it a near guarantee that any above average income physician can accumulate $10M if they are really smart about their finances from day 1.

    Also, the analysis of the top 1% that PICU MD posted is a really enlightening article that I’ve seen around on the internet for a few years.

    • Smart Money MD

      Thanks for stopping by! I think I read somewhere that the average amount of savings a doctor has at retirement is more around $2 million, but I do agree that you can probably accumulate $10M at the end of a full career if you’re smart about it.

      The problem is that there are also many specialties where you simply can’t earn enough to achieve that number. As PICUMD alluded, peds is a tough one. So is FM. So ironic that you can earn so much less than your counterpart who trained an equal or lesser amount of time than you, in potentially an “easier” field as well.

      • Financing Medicine

        Thanks for the quick reply! It is definitely harder in FM or peds. $3M to $4M (which is a monstrous amount of money to most of America) in retirement savings is very much possible possible in both fields based on how I’ve looked into it.

        That combined with the fact that you build relationships with people like few other fields makes FM and peds awesome jobs!

        • Smart Money MD

          On a side note, it is also a shame that many (most) doctors aren’t actually attuned to the income discrepancy between specialties. Sure, we should do what we like, but who knew that your decisions could significantly change your earning potential? 😉

          • Financing Medicine

            I actually had no idea that most don’t know the difference in reimbursement. Is that just from personal experience?

          • Smart Money MD

            What specialty are you in?

            Our entire medical education is based from taking care of people without regard to money. The only education in finance that I learned in medical school was seeing one of the ER docs drive into work in a $120k car!

          • Financing Medicine

            Still in college lol. I’d love to know what kind of car that was. One of the ER docs I worked with this summer drove an M5, which is awesome

          • Smart Money MD

            You can drive an M5 on much less than an ER doc’s salary. You’re ahead of the game just for even paying attention to finances. Bravo!

            You might want to review this: http://smartmoneymd.com/how-much-money-do-doctors-make/

          • Financing Medicine

            Thanks! I actually just wrote a post a few days ago about the cars an internal medicine doc can drive throughout his/her life. It was the most surprising thing I’ve ever seen when I analyzed it. Based of a combination of net worth (Financial Samurai’s 5% rule) and post-tax salary when you have no net worth, I have the internal medicine doc driving the price equivalent of an M5 at age 50 and a McLaren at age 65….

            It sounds crazy, but it’s actually completely sound logic and very thorough. I’m curious what you think. https://financingmedicine.com/2017/09/23/cars-the-low-income-doctor-can-afford/#more-374

            Also, these Disqus replies go to my gmail which I rarely use. That’s why I’m taking so long to respond

      • Financing Medicine

        Thanks for the reply! True, it is different for FM and peds. Based on how I’ve looked into it, I’d say $3M to $4M (which is a monstrous amount of money to most of America) in retirement savings is very much possible for both fields if you are really smart about your finances.

        This combined with the fact that you build relationships in primary care like few other fields, makes FM and peds awesome jobs!

        I may have already commented this btw