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Category: lifestyle

How to make a doctor’s salary and still feel poor—and how to fix it

Posted on May 20, 2015April 20, 2016 by SmartMoneyMD

how to make a doctors salary and still be poor Despite earning a good six-figure salary, most doctors never become rich for several reasons:

The government penalizes big W2 incomes. That’s where most employed physicians earn their income. They spend a decade accumulating debt while earning a pittance of a stipend only to be hit by the upper federal income tax brackets. It would be better to earn a salary of $90,000 for ten years than to earn nothing for four years, $45,000 for four years, and then $240,000 for three years. Expensive states like New York, Massachusetts, or California will hit you with higher taxes, cost of daily living, and property costs.
You have less time time for your savings to accumulate.
Lifestyle creep.

That’s right. Lifestyle creep. It usually goes one way—up. And it’s much easier to adjust your lifestyle up to your salary than it is to adjust down. And doctors are prone to adjusting upward. Their jobs are stressful. Patients die. Patient sue. Insurance companies make absurd cuts in reimbursements. As professionals, they are expected by society to have wealth. Retail therapy is a common coping mechanism to justify the challenging career.

Imagine that a single physician earns $240,000 a year in W2 salary while living in Boston. Assuming roughly a 35% net federal and state income tax, she takes home $156,000 annually. A rough estimate of expenses might be:

$3500/month for a 1BR condo by City Hall.
$500/month for utilities, cable, internet. Maybe including cellphone bills.
$1400/month for food and restaurants
$1500/year for clothing
$6000/year for disability insurance
$22,000/year professional insurance, malpractice.
$7200/year for car lease (Mercedes)
$1200/year for car insurance
$5000/year gas
$5000/year vacation

That adds up to $112,700 in living expenses or $43,300 in leftover money for everything else. Note that I did not include miscellaneous expenses, hobbies, or other entertainment costs either. If she were to invest or save then entire amount annually, it would take over 20 years at this rate to accumulate over $1 million!

If you include family, kids, and education expenses, there really is not much left over to save. For a busy physician, there are limited hours to increase her income through her primary line of work or even branch into a second income stream. I know people who have done it, but personal time suffers.

The logical solution in this scenario is to cut the lifestyle creep. This is one variable that can be controlled immediately and positively impact your net worth immediately. There are plenty of people who do not earn doctor salaries who are rich. They accumulate net worth through diligent use of their money and time. Find out what maximizes your happiness. You might enjoy one fancy vacation per year but could do without the $80,000 gas-guzzling-money-pit vehicle. Or perhaps your recreation of choice is exercise—this is an activity that could be low cost and be beneficial to your health.

What are your interests that maximizes happiness? What lifestyle choices could you eliminate and still be content? Sound out below!

(Photo courtesy of Flickr)

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Do I need original Kohler parts for my Kohler toilet?

Posted on May 15, 2015May 14, 2015 by SmartMoneyMD

In our previous post on toilets, we discussed how to replace the Mansfield valve seal. In this article we discuss Kohler toilets. Future articles will further discuss the inner workings of the toilet and basic repairs.

Kohler brand toilets belong in the upper echelon [read: expensive] of toilets, along with Toto, Oxo, and some models of American Standard. Yes, these toilets are more expensive to purchase, but inevitably they will require maintenance nonetheless. Leaky water into the bowl, bad flush? It may be time to replace the fill valve or flapper.

Basic toilet maintenance and repair is one of the skills that can save you a lot of money. It’s not to be macho or cheap either—I’ve seen plumbers charge $50 to $160 an hour with a flat rate house call charge on top of that! I can’t think of too many low injury risk activities a doctor can do in her free time to earn/save $100 per hour post-tax.

Kohler toilets come with Kohler parts. Each model is referenced by a four-digit serial number either etched in the porcelain or ink stamped inside the tank:

The number usually starts with either a ‘3’ or a ‘4’. You can then search on the Kohler website your model number and find the list of parts that fits your toilet. Many Kohler toilet tank lids already have a label and diagram with the basic replacement parts.

For my toilet, Amazon sells the standard Kohler fill valve for $14.99. The flush valve is sold separately for $17.45, and the flapper is again separate for around $8.

In comparison, a Fluidmaster 400 flapper and fill valve kit is only $10.

Will another brand of parts fit my Kohler toilet?

Fortunately, yes. A commonly known aspect in plumbing is that Fluidmaster actually makes the parts for Kohler toilets. Sometimes they are rebranded and built to the specs for Kohler’s requests, but the innards are the same!

My Kohler toilet uses the Fluidmaster 400A fill valve despite having a Kohler cap:

Just realize that the argument for using an alternative brand will likely save you perhaps $15-30 in a single repair—you won’t be retiring early with an equipment swap, but I can think of two reasons to do this:

Good luck finding a Kohler fill valve at your neighborhood chain hardware store!
The more important reason is to learn how to deal with minor handiwork yourself. There are minimal tools required to repair your toilet, there is low risk of you hurting yourself in the process, and you can probably save $200 of post-tax income by doing this yourself. Sure, you might take 3 hours to do the repair your first time, but at least you learned. I replaced my fill valve in less than 10 minutes. The replacement of my Mansfield valve seal took 5 minutes.

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Comments or questions, please comment below on Smart Money MD!

How a UAW can become a Mustachian

Posted on May 11, 2015May 9, 2015 by SmartMoneyMD

Can the textbook definition of Under Acccumulator of Wealth (UAW) ever become a Mustachian? Stanley and Danko, in their The Millionaire Next Door, defines the UAW as someone who lives in luxury and makes life choices based on present desires over accumulating future net worth. In contrast, a Prodigious Accumulator of Wealth (PAW) is someone whose lifestyle choices are conducive to increasing net worth. A Mustachian by definition makes wise lifestyle choices similar to those of PAWs but with a focus on minimizing excess consumption, simplifying lifestyle needs, and possibly “retiring” early to free up time for learning.

A doctor in training is the epitome of a UAW. A premedical college student spends a large amount of time preparing for the MCAT, paying for review courses, and applying to and interviewing at large number of medical schools (read: expensive). After getting into a top medical school, she lives off of student loans (or a spouse), buys expensive “professional” clothing for rotations, and then spends more money applying to and interviewing for residency. The process continues through fellowship. If there is a family with kids, then expenses are compounded. After this decade long process the young doctor is likely knee deep in a six-figure debt, yet has to continue living under the guise of a wealthy professional: fancy car, house, expensive clothing to fit the degree, and nice vacations for the family.

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How can the UAW doctor dig out of debt, become a PAW, or better yet, a Mustachian? It can be done. Steps that I have taken to become a Mustachian include:

For a physician, these are small yet significant steps towards Mustachianism.

What changes have you made to become a Mustachian? Sound out below!

Should I marry my partner if he has debt?

Posted on May 6, 2015 by SmartMoneyMD

I am always surprised when I hear this question. Yes, there is something inherent wrong about asking this question with a straight face but apparently this is a serious question for many.

There is some merit in addressing the practical side of this question, however. I think the logical approach would be to explore the issue more thoroughly and determine if there is a solution:

How did you acquire this debt?

There is difference between consumer debt and educational debt. Consumer debt typically comes in the form of credit card debt, layaway items, and other means of borrowing money to for recreational items or vacations. I would be more forgiving of educational debt since most consumer debt is not intended to further your future self. After all, education debt is supposed to be an investment into your future, right? 😉

It also makes a difference if your educational debt was acquired from a degree in web design at a for-profit online “universities” or a medical degree at a reputable school. That helps us figure out how to eliminate debt. This brings us to our next question.

Do you have a plan to eliminate this debt?

If your six-figure debt was from medical school, then logically you should have relatively easy (albeit disciplined) means to get rid of it, because hopefully you will have a decent income. It would also be nice if you have thought out how you plan to eliminate this debt (i.e. which loans to repay first, how quickly you can repay them, and approximate time frame to do so.

Are you willing to eliminate this debt?

This is more important than the previous question. As long as you are willing to ask for help and modify your lifestyle as needed to cut the debt, you are salvageable! Are you also willing to prevent acquiring similar debt in the future?

Do you have habits that can contribute towards debt, and can you modify your lifestyle without sacrificing your happiness?

Loaded question, but if you had to ask the first one, you might as well ask this one.

Comments or suggestions? Comment below!

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Frugal vs cheap – doctor edition

Posted on May 5, 2015May 4, 2015 by SmartMoneyMD

There are many articles on the web that argue the differences between frugality and cheapness. One of my favorite summaries include one article by Mr. Money Mustache. Much of his ramblings are applicable to all walks of life.

For professionals such as doctors, there is a strong emphasis on presentability. If you want to be frugal, you have to make sure you don’t look cheap.

The rule of thumb on material wealth is to have enough to sustain happiness, but not in excess. The criterion for every person will be different, but as a doctor or high income professional you probably will have a more lenient threshold before you result in financial bankruptcy (but there are plenty of doctors that end up in financial ruin).

Clothing: This is where you can go buck wild with your expenditures. You have to look like a doctor right? Some frugal suggestions that I have been given and tried over the years include:

Men and women: air dry blouses, dress shirts, and dresses. Some dry clean only clothing can be hand washed or spot cleaned. Remember, you probably aren’t waddling in mud during the day. Press your own clothing.
Great resources for discount fashionable clothing include: Nordstrom Rack, Ross, and even Goodwill.

Cars: I’ve concluded that the appearance of a doctor’s car matters very little. I’ve seen internists with high-end German luxury cars, and vascular surgeons with 13 year old pickup trucks. The key is to have a reliable car that is well-maintained.

A new car will depreciate immediately it leaves the dealer’s lot. Most cars depreciate 40% over 3 years. By 5 years, the car will lose approximately 60% its original value. Fancy cars like the Mercedes AMG63 depreciate about 50-60% over 3 years. Think about it, there aren’t too many fancy toys that you buy for $100,000, plow through 15 miles/gal of premium gas, cost a ton to maintain, and be worth only $50,000 after 3 years.
Go for a reliable, used car. Get a fancier one once you cash in your first million, and maybe a fancier one once you become financially independent. (yes, high income people like to work with big numbers).

House:

Unless you entertain frequently, the size of your house is dependent upon your personal and family preferences. Make sure you don’t buy more house than you can chew (like taking out a jumbo mortgage before you are truly settled in your practice).
Profitability from buying a house will be limited to the market and also how long you plan to stay in the area.
Obviously if you have a family and kids, you will want to look at the appropriate school district to send your kids to school. I’ve met people who toil over what school districts are best, pay top dollar for a house in the area, and end up sending their kids to private school. Not the most financially brightest decision, I might say.

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Lifestyle: I would say that if your “frugal” lifestyle choices don’t disrupt others or embarrass you, your family, or others, go for it:

Opt for OTA television channels versus cable/satellite channels. You can save good deal of money long term by cutting the monthly fees, assuming that you aren’t a television junkie.
Exercising at a home gym, outdoors, or even through home chores can save you time and money over a gym membership.
Be careful about hypermiling. Yes, you can save on gas, but do you really want to piss off other drivers on the road? If no one is behind you, go on ahead. Otherwise, be wary of your surroundings (which you are anyway if you hypermile)
If you decide to bike to work or on errands, be mindful of the traffic around you. I’ve seen plenty of bikers using the main road (speed limit 55mph) with a Class I bike lane that is parallel to it. I guess those bikers like to be on the same road as a Hummer. I wouldn’t.

Comments or suggestions? Please sound out below!

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!