Category: finance

Should I be content with my current salary?

Posted on 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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Top 8 ways I increased my net worth during residency

Posted on by SmartMoneyMD

Previously we discussed tips to supercharge your net worth during residency. The main aspect of your finances that you can truly control are your expenses. The following are some of the methods that helped me increase my net worth during rough times:

  1. I did not own a car. Fortunately I lived in a city where mass transit was somewhat reliable and I also lived close to my workplace. So I saved on car insurance, maintenance, and gas. In contrast, I did live in a high cost of living city, so rent was much more expensive than the average U.S. city. In retrospect, the higher cost of living area far exceeded what I saved by not owning a car. That being said, if I truly needed a car during residency, I would have sought out a 5+ year old used car on Craigslist, preferably from a grad student about to move out of the country and needing to sell immediately. High fuel efficiency would be emphasized, although one key component to saving is to minimize unnecessary driving trips.
  2. I maxed out my on-call allowances monthly. Our residency gave us approximately $10 for meals while on call. This was actually regulated through a meal card that contained roughly $100 a month. Maybe they assumed q3 call on a 30-day month. On days that I needed a meal, I would save on meal costs. Whatever was left over was used to purchase ancillary unhealthy snacks that I might have otherwise bought anyway. YMMV depending on how regulated your program is.
  3. I did not own any new furniture. My bed was given to me by a graduating medical student who bought it new but used it for less than one year (not sure why). My couch, desk, dining table, dresser, and corner table all came used via Craigslist. When I moved, I sold everything at a profit and more than doubled my initial investment after years of using the furniture (while maintaining it in good condition). I was quite fortunate in this regard—I doubt that I’d ever be able to replicate such bartering skills in the future.
  4. I found a Hispanic grocery store that sold dirt-cheap basic foods. Although I’m not sure how much pesticide I actually consumed from buying discount fruits and vegetables, it saved me a lot of money. Cuts of meats were also significantly cheaper than the average grocery store.
  5. I bought discounted food at Whole Paycheck. I discovered that said grocery store sold their blemished fruits at a deep discount and raided their selection every week. A bag of 6 fancy mangoes for $1.50! Or a 5lb bag of limes for $1.50! I once chatted with the fishmonger at the store and discovered that they discarded the fish heads and spines. I once bought 3 keta salmon heads/spines for $1. This is the same fish whose fillets sold for an obscene $28.99/lb. The fishmonger also did not fillet cleanly so the portions I purchased had significant amounts of meat. I used the bones to stew broth for ramen.
  6. I kept limited wardrobe. I don’t believe that I actually purchased any new clothing during residency, especially since I took care of my work clothes. This meant air drying dress shirts and ironing them myself.
  7. I cleaned my own apartment. That meant no housekeeper. Initially I thought that not having maid service as a resident was a no brainer, but it’s amazing how many of my colleagues were paying for a cleaner. It also helped that I did not have much furniture to begin with.
  8. I kept my restaurant tabs in check. I didn’t live in solitude but also kept a close eye on excess spending at fancy restaurants. Stressful jobs often lend themselves to retail therapy.

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Any other suggestions? Sound out below!

Do I have enough income to save and still live comfortably?

Posted on by SmartMoneyMD

As a greenhorn doctor, do you have enough earnings to sustain all of your financial goals? You sure do! Ultimately the equation only works if you spend less than you make. Aside from that, living within a modest budget should get you to your goals. Remember, your income is in the upper 5% of all household incomes in the United States, and likely much higher than that of many equivalent doctors elsewhere in the world. Sure, the CEO or random administrator at your neighborhood hospital probably earns more than you do and works less than you do with less liability, but that is life. You will still do fine until you come up with a killer application and strike it rich.

Let’s go through an example:

Suppose you have an annual salary of $200,000. Assuming that you contribute to your 401k completely ($18,000), you have a $182,000 taxable income. Suppose that you are in the 25% effective tax bracket (state and federal included). Your take-home income should be around $136,500. Let’s maximize the Roth IRA at $5,500.

You now have $131,000 for living expenses (rent, mortgage, food, vacations, recreation), insurance (disability, umbrella, life), loan repayments, and further investments. Suppose that you live on a generous $80,000. (Remember, you are a new doctor and lived on half that amount for the past 5+ years. You still have $51,000 left.

That amount should be used to eliminate your loans and place into further investments. If you assume that there is no appreciation or loss in your annual investments, you will have a hefty sum of $745,000 combining your 401k, Roth IRA, and taxable investments. That is not an insignificant number. Obviously there are many additional variables in the equation that can influence your final number (not all of the $$$ in your 401k belongs to you, you might get a raise, your expenditures can increase…etc), but the point is that you can still save, repay loans, and live comfortably on a doctor’s salary.

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Any other questions or comments to add? Sound out below!

What is a jumbo loan and how it applies to doctors

Posted on by SmartMoneyMD

jumbo loan for mansionsAs a newly minted doctor, your many years of hard labor are now paying off. You have a salary, and you’re now itching to get the new house you’ve always dreaming of owning. Maybe it’s the million dollar home that your non-professional husband has been eyeing for the past decade. While there are many practical considerations of even getting a McMansion, one term that you should familiarize yourself with is jumbo loan. 

For most people, you will not be buying a house in cash. You will be taking out a loan, perhaps with a standard 20% down payment. So if you buy a $1 million home, you are asking for an $800,000 mortgage. Guess what, in most places in the United States, any loan greater than $417,000 becomes a jumbo loan.

A jumbo loan is simply a larger loan. If you live in a high cost of living area like California, New York, or Connecticut, you’ll probably need a jumbo loan anyway to afford the housing. Here is a list of top considerations for jumbo loans:

  1. You will have a higher interest rate. Large loans have higher risk, and thus you will likely have to pay an extra 0.5-1%.
  2. If your first job doesn’t work out or you don’t make partner and have to move, you’re out of luck. It’s going to be more difficult to sell an expensive house.
  3. Make sure that you can afford the higher monthly payment. Remember, you make more as an attending than as a resident, but you likely have greater expenses now.
  4. The value of your house can go down. Your mortgage can go underwater, and it would be difficult to refinance in the future.
  5. Pay attention to the private mortgage insurance (PMI) requirements. Before your McMansion accumulates equity, you will have to pay PMI. Certain lenders will allow you to terminate PMI after you achieve a certain amount of equity.

Any more suggestions? Sound out below!

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RVUs translate into payments for doctors

Posted on by SmartMoneyMD

We went over the basic categories that a doctor can be paid in the previous post (see How are doctors paid). If you decide to accept health insurance payments, understand that your reimbursements are usually based on relative value units (RVUs).

Each procedure or level of medical service a doctor provides is assigned a code for documentation (CPT). An RVU is then assigned to each CPT code. Reimbursement for each service is thus derived from a formula that is based from the RVU and the region in the country that you practice in:

Payment = GPCI(A + B + C)

A = physician work value

B = practice expense value

C = malpractice expense

GPCI = geographical practice cost index

The physician work value is a number derived from the difficulty and training required to perform a certain service. For instance, a cardiac bypass would have a higher value than an appendectomy, which would have a higher value than an in-office consultation for blood pressure management.

The practice expense value is quantifies the office costs needed for a physician to offer a service. For instance, there are costs to running an office (electricity, staffing…etc) to provide blood pressure checks. In contrast, an in-office stent procedure would have a higher practice expense value, since there are costs to maintaining a C-arm, equipment…etc.

The malpractice expense factor varies depending on the risk of malpractice and cost of coverage. Again, a cardiac procedure would have a higher value than an in-office consultation due to higher risks from the service.

The GPCI is a value to adjust for the cost of living that you are practicing medicine. For instance, the cost of living is higher in the Northeast compared to the Southeast, so the GPCI is higher in the Northeast. Note: even though the reimbursement may be higher in a certain region, this does not necessarily translate to equitable reimbursement. For instance, cost of living in Boston is about 35% higher than that of Charleston, SC. Your reimbursement in Boston may only be 15% higher.

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Stay tuned for future articles to beef up your financial knowledge and be smart with your money! Questions? Sound out below!

How doctors make money

Posted on by SmartMoneyMD

how doctors make moneyYou’ve just survived medical school, residency, and fellowship! Now you’re about to get your first job and are given a salary that you’ve only dreamed of for the past decade.

In actuality, you’ve been lowballed and are about to get churned and burned. How could you have prevented that?

Step one is to know how you are paid as a doctor. If you don’t know how you’re paid for your services, then you have no idea what you are worth.

In general, there are several fundamental categories of reimbursement for services. Know them:

  1. Fee-for-service. This has been the traditional reimbursement scheme. The doctor or her medical group makes an agreement with the insurance companies to accept a certain rate for each type of service rendered. This scale is often determined as a percentage of Medicare rates (i.e. 80% Medicare or 125% Medicare). Obviously this does create a market in which larger practices or lowest bidders may be awarded contracts.
  2. Capitated care. A medical group receives a lump sum payment for care of a sole patient population with the same insurance. Example: NaiveDoc Medical Group agrees to care for all individuals with RipOff insurance. The RipOff insurance company agrees to pay NaiveDoc $30 for each person who carries RipOff insurance. There are 100 individuals who have enrolled. NaiveDoc gets a lump sum of $3,000 from RipOff insurance. If no one with RipOff insurance sees any doctors, NaiveDoc has just gotten “free money” and gets to do whatever they wish with the payment (i.e. pay administration). Suppose one patient with RipOff insurance gets ill and is seen by a NaiveDoc provider every week for a year. NaiveDoc will have to decide how to distribute its reimbursement among the providers. In a captitated care model, you can run out of money quickly if you agree to care for a large group of very sick people.
  3. Pay for performance. Pay the doctor according to how great her patient reviews are. Does not seem promising.
  4. Cash pay. The patient pays the doctor a set fee schedule for services rendered. Definitely cuts out the middleman (insurance company and its administrators). In general, this is difficult to implement on a large scale. Your patient has to have a certain income level to be able to afford the doctor’s care.

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That’s it. Stay tuned for future tips to become a well-rounded doctor! Questions? Sound out below!

How I paid off $148,260 in student loan debt my first year in practice

Posted on by SmartMoneyMD

How I paid off $148260 loan debt my first year in practiceIt can be done. I did not think it could be accomplished. My net worth looked horrible during my first year of medical school.  It looked even worse after 3 years of accrued interest during fourth year medical school when I was burning through my loans for my residency interviews. During residency and fellowship my mid 5-figure salary tempered the immediate pain of debt, but my net worth was still decidedly negative.  At this time, I decided to take control of my debt and kick its ass. By the end of my first year of medical practice, that debt was gone.

Background:

Like many other aspiring doctors, I did not consider the price tag involved with getting a medical degree. I worked hard, and went to the best medical school that accepted me to become a super doctor. I had about $230 in my bank account when I enrolled, and my mother gave me $50 of “emergency money” in case I got into trouble. The tuition alone per year was around $50,000. With room and board, annual expenses were beyond $60,000. I even received a solid 5-figure scholarship to attend medical school. The rest of my expenses came out of governmental and private loans.

Debt:

According to my loan statements, I had the following principal loan amounts:

  • Federal Subsidized Stafford Loans: $17,000 @ 6.8%
  • Federal Unsubsidized Stafford Loans: $89,260. The majority was at 6.8%, with some at 4.75%, and about $10,000 at 2.8%
  • Federal Perkins loan: $23,000 @ 5%
  • University private loan: $19,000 @ 10%

The total principal loan debt amounted to $148,260. Including the years of interest accruing, I paid close to $190,000 in total.

Smart Money Tips to destroy your loans (simple in principle but challenging in practice):

  1. Track how much is going in and leaving your bank account. You must spend less than you earn. Only then will you be able to take control of your debt. This means no credit card debt, pawn shop dealings, and no payday loans.
  2. Live way below your means. With six-figure debts, you really have to make frugal decisions. MMM calls it “hair on fire debt”. For me, that meant limiting $5 lattes, excessive restaurant and bar expenses, and frivolous materialistic purchases. No yachts, new cars, fancy clothing, or accessories. I kept a respectable appearance for a physician but did not have any sign of wealth to flaunt. I brought my lunch to work, and ate dinner at home. I bought discount groceries and chose to eat what I considered inexpensive yet still healthy.
  3. Funnel what you have left over to your loans, high interest loans first. Dave Ramsey refers to debt snowballing and eliminating the smallest debt first to achieve a psychological victory–B.S. With turbocharged debt elimination for doctors and professionals, we want to pay the least amount of interest. Period.

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That’s it. Three fundamental principles. In my five years of training, I commanded a $50,000 annual stipend. After taxes and living expenses, I was able to fund about $15,000-$17,000 annually toward my debt. I lived quite comfortably, although I was fortunate that I did not have extra mouths to feed. You can still sustain a family of four easily on that income, although you may have less leftover to contribute to loans. When I became an attending physician, my housing expenses decreased slightly since I moved to a lower cost of living area. I maintained a similar quality of living and chipped away the rest of the debt. By the end of my first year in practice, all of my student debt was paid off!

Bonus Tip:

  1. Contribute to your Roth IRA fully if you can. I only funded it two out of five years. In retrospect, I wished that I contributed every year. There is a fine line between paying down a loan versus investing, but having a tax-drag free vehicle that you carry throughout your entire working career vs chipping away at a relatively low interest loan is a no brainer. For a simple interest loan at 5%, 6.8%, or even 10%, funding the Roth IRA is the better option if you know that your income will increase significantly within the next few years.

Good luck to those who were in my shoes! If you have any questions, sound out below!