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Do I really need to be frugal?

Posted on May 3, 2015 by SmartMoneyMD

If I earn in the top 5% of all salaries in my country, do I really need to be frugal? As what I alluded to in a previous post, you need to spend less than you make in order to get ahead. It doesn’t matter whether you make $15,000 a year or $150,000 a year.

Frugality can be adjusted relative to your net income. But it can not be dismissed. A $7,000 TV set is definitely “affordable” to a doctor, but combine that with a $1000 weekly restaurant budget, $10,000 annual vacations, a new lease on a $60,000 car every three years, a $250 monthly cable and internet bill, and that $150,000 income doesn’t seem that much anymore. The key is to pick what your splurge items are, but restrict other miscellaneous luxuries.

I know a gastroenterologist who swears by his fancy German automobiles (all of which purchased new, and less than 5 years old), but lives in a modest home in a middle class neighborhood. Another doctor drives a 15-year old Chevrolet and brings his lunch to work daily but takes international vacations every year.

Develop a strict budget. Set your monthly allowable living expenses, recreational expenses, and investment percentage.
Make sure you have enough socked away for a rainy day. If you end up losing your job (that can happen to doctors), you may end up going through a period of unemployment, job search, and moving.
Develop a written financial goal. This allows you to stick with a game plan that can help you get to your retirement. I admit that I haven’t finalized mine either, but I do have a guideline set for my minimum monthly savings given my income.

Any other tips or suggestions? Please sound out below!

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Psychological impact of a rapid increase in income

Posted on May 1, 2015 by SmartMoneyMD

As someone who has gone through the American medical training process, I can confidently say that it is a miserably long process. Aside from the stress from many hours of studying, challenging hospital rotations, and constant testing and validation of your knowledge, you have no real income.

In residency, your compensation is arguably not commensurate with the amount of work done. Somehow after either residency or fellowship, your income rises at least a four-fold overnight. This increase is reflected on paper before taxes (you probably lose anywhere from 28% and upward after taxes), but this potential increase in quality of life far extends beyond its monetary face value. Here are a few considerations that went through my mind during my transformation:

You really aren’t rich [yet]. You are far behind in potential net worth than your college buddy who became a financial analyst.
You might never become rich if you don’t live within your means. The Millionaire Next Door
has a good precautionary tale of doctors growing into their income.
You will become rich if you plan out your investments, expenditures, and savings. It won’t happen overnight, but it can happen.
There is no free lunch in life. The reason why your income has grown is a result of the “lost” decade that you’ve invested to become a doctor. Your job has more emotional, mental, and cognitive toil than your aforementioned college friend financial analyst.
Burnout is a valid concern. Pace yourself.
Retail therapy can be a coping mechanism, albeit not always consistent with your retirement wishes. Hell, you deserve that $6,000 TV, right?

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Questions or comments? Sound out below!

Doctors are more than 10 years of income behind their peers

Posted on April 28, 2015January 30, 2021 by SmartMoneyMD

Think about it. You spend at least four years in college, four years in medical school, and between three to seven years in residency and fellowship to actually practice medicine. If you take a year off for research or work in between college and medical school, you add a few more years into the mix. I even had a few classmates who started medical school in their late 20’s or even early 30’s!

Thus, most doctors aren’t able to generate a six-figure salary until they are in their 30’s—at least ten years behind most other career choices. A recent thread on Corporette had a few anonymous posts on net worth. One stuck out in my mind:

“$1.7mil by 37. $120k annual earnings.”

This author is unlikely a doctor because a doctor is unlikely to be able to accumulate such net worth in the short amount of time (maybe 6 years). Actually, according to the American Medical Association, a significant number (41%) of doctors have less than $500,000 in savings. This includes the 35 year old newly minted electrophysiologist and the 66 year old general surgeon who is twice divorced with three mortgages and a taste in fine European gas guzzlers. That is scary.

As top income earners in their 30’s and beyond who spent their 20’s accumulating negative net worth, doctors lose the advantage of at least a decade of compound interest. For instance, $100 accumulating at an annual 5% compound interest will have $163 in 10 years. Add a few zeros into the mix, and you realize how quickly ten years can add up.

Sure, a doctor can catch up in time, but many doctors never catch up due to lifestyle creep. Don’t let that happen to you. Follow SmartMoneyMD and learn how to get your net worth in line.

Questions? Sound out below!

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Should I be content with my current salary?

Posted on April 20, 2015April 14, 2015 by SmartMoneyMD

It is common knowledge to seek out what typical starting salaries in your field are when you are looking for employment. Knowing what median salary for those 5+ years in you field is also helpful especially if you are seeking out long term employment.

In my experience, open discussion about income (no matter if you’re a doctor, lawyer, or IT guy) also seems to be taboo as well. I suppose that not having open listings of salaries reduces price fixing, but it also prevents adequate knowledge of how much a specialty is “worth”. In order to know what is fair, you have to know how much you’re worth in order to negotiate. Thus it helps to understand how you bring in revenue for your employer. For a physician, that means understanding how you are paid (prior post) and RVUs (post).

A good starting reference for physicians also includes MGMA and AMGA, which release median data on your expected salaries given a certain amount of production. There is a hefty cost to these publications, although you could potential pitch in with several of your colleagues to pick up a copy, or check with a local academic institution that might have a copy in its libraries.

In most places of the country, physicians can still earn more for working harder (fee-for-service), but be aware if your market includes capitated contracts. That will limit the potential revenue you can bring into a practice.

Questions? Comments? See below!

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How much house can I buy on my salary?

Posted on April 19, 2015April 12, 2015 by SmartMoneyMD

As a high-income earning physician, you deserve a McMansion, right? How much house can you buy on your income?

Suppose that you are the average physician that we discussed in an earlier post. You are making $200,000 annually. According to this example, you have approximately $131,000 for living expenses and miscellaneous expenses.

Unless you will be paying for a house entirely with cash, you will likely take out a mortgage. In standard home loan mortgages, a down payment of 20% will usually afford you the lowest interest rate. For a $200,000 home, you will need to scrounge up $40,000 for a down payment, plus a few extra thousand dollars for miscellaneous home expenses such as moving expenses, furniture, and additional taxes.

In our example, if our new physician rents an apartment for the first year and lives a moderately lavish lifestyle, she will have $51,000 left for savings. That leaves plenty to put towards the down payment for If that entire amount is directed towards the down payment on a home, you can purchase a $255,000 home. If our doctor wishes to have a larger home (loan of greater than $417,000), she could take out a jumbo loan.

Now, I know plenty of doctors who live in homes <$250,000, but I would venture a guess that the majority of doctors buy much larger and more expensive homes. How can this be manageable? The truth is that everyone is in a different scenario. Perhaps those with the larger home have a higher income. Perhaps they already have savings from prior jobs, the spouse, family…etc. Perhaps they’ve overextended their income. After all, a large percentage of physicians do not have much savings!

Questions or comments? Sound out below!

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Physician non-compete laws state by state

Posted on April 18, 2015April 11, 2015 by SmartMoneyMD

We’ve previously discussed how to determine how much you are worth as a physician and RVUs. You are presented with a contract with a restrictive covenant, or non-compete clause. A restrictive covenant clause often stipulates that if you leave the hospital that recruited you, you may be prohibited from practicing in a certain geography from the hospital for a period of time. Essentially it prevents you from competing with the employer for the same group of patients.

The enforceability of these clauses vary by state. You should check with a legal counsel who is familiar with your state’s laws before you consider signing any contracts. At last that I had checked, the following states deem non-competes to be not enforceable:

Alabama
Arizona (maybe)
California
Delaware
Illinois
Iowa (maybe)
Massachusetts
Montana
North Dakota
Tennessee (maybe)
Texas (maybe)

Questions or any other suggestions to add? Sound out below!

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Step by step instructions to replace the Mansfield toilet flush valve seal

Posted on April 17, 2015April 8, 2015 by SmartMoneyMD

Step by step instructions to replace the Mansfield toilet flush valve seal (lifestyle, handiwork)

This is the third installment of basic handiwork tips for the busy professional. Prior tutorials include:

This repair job involves replacement of a flush valve seal in a toilet tank. This seal forms a barrier between a toilet flapper and the porcelain tank. After many years of water corrosion, the seal often deteriorates and results in water loss into the bowl. Often with additional corrosion the seal forms a vacuum and flushing becomes more difficult.

The toilet that I will be repairing is a 1.5gpf Mansfield #160 toilet. The flush mechanism is a vertical flush valve without a plunger:

Here is a picture of the valve seal that has decayed. The seal fits like a washer and can be removed relatively easily from the plastic flush valve tower. It can be purchased at a local hardware store (Lowe’s) for about $2.

Of note, Mansfield toilets must be fit using their own flush mechanisms since the tank often does not have a standard type fit.

Turn off the water supply to the toilet (valve is usually next to the toilet connecting into the wall).
Flush toilet to empty tank.
For the Mansfield toilet, turn the flush valve tower counterclockwise to unscrew it from the tank.
The flush valve seal can just be lifted from the tank and replaced with the new one.

That’s it! Comments or questions? Ask below!