One would think that doctors should have no trouble getting rich, given that our profession as a whole has higher earning power than most other professions. The path doesn’t take much more than above average intelligence, an incredible amount of hard work, and many years of education. The problem is that there is frequently a problem with converting a high income to high wealth. There are times in my career where I’ve thought that getting rich from being a doctor ought to be a slam dunk, but we are all human. Why can’t smokers quit smoking? Why do I love sugar so much? In reality, we all have to realize that no one is perfect. These are some of the reasons why doctors can’t be perfect about money:
Poor and inadequate investment choices.
I first contributed to a tax-deferred account in fellowship, which was a 403b. Mind you, I was already in my 30’s, and even had bought individual stocks in a taxable account years before investing in any tax-advantaged accounts. I didn’t max out my 403b account either, since I spent the rest of my money on living expenses and [fortunately] repaying some of my student loans. I was actually one of the more financially conscientious of my peers too, so I really felt good about myself then. Most of my coworkers eventually contributed a maximum to their 401k’s as attending physicians, and really felt proud that they were making great financial moves.
Some of them work at Kaiser Permanente, which does have a decent pension plan at retirement so perhaps everything will work out in the end for them. Everyone else without a pension will realize that their 401k’s won’t have enough to pay much of anything when they decide to call it quits.
Choosing a low-paying job in a high cost of living city.
I love geographical arbitrage as much as any online financial enthusiast, but sometimes it’s hard to justify moving to Minneapolis if your entire extended family lives in Philadelphia. Add in the fact that you consider the best Jewish deli in Minneapolis to be inferior to the any of the dozen pastrami vendors in Philly, you’re in trouble. Guess what? There’s also a dermatologist every few miles in the greater Philadelphia area, and there are also dozens of other dermatologists wanting to move to Philadelphia waiting to take the low-paying job offer that you’re reconsidering.
You get the point.
We all have to make choices that suit our lifestyles. If that means living in a higher cost of living area, then you will have to prioritize your expenses more astutely (or be like @PassiveIncomeMD and hustle in a crazy number of revenue streams).
Poor family choices (aka divorce)
I don’t recall ever reading any statistics that doctors have higher divorce rates than the average population, but I recall reading a study that surgeons and psychiatrists have the highest divorce rates among doctors. Obviously the doctors I’ve known who’ve had divorces (sometimes more than one) are the ones that stick to my mind as being on shaky financial ground. I don’t know any of these divorcees well enough to inquire about their financial situations, but I can’t imagine that paying alimony for three kids would be cheap. Sometimes the biggest blow in divorces that I’ve seen are disputes on the house or illiquid finances like retirement accounts. This can set your retirement dreams back by decades.
Believing that they are rich (when they are not).
I had classmates who “borrowed” from their future selves. Fancy international vacations during medical school. Nice car purchases to go along with a nice home during residency. New designer dresses every month. I’ve wondered for years whether I had been wrong to judge their financial decisions, but not everyone has a family who owns a diamond mining business.
Leverage works quite well in real estate, but not in selling your professional skills. At some point in your career you might not want to be operating ten hours a day or seeing fifty patients a day. If you leverage your skillset too much into the future, your bank account values may never catch up.
Lifestyle inflation that exceeds earning capability
Another group of my medical school classmates were incredibly cost-conscious during school. They ate ramen, supermarket spaghetti, moonlighted in the ER, and bought used clothing. They let loose the financial reins slightly during residency, but transformed into new people in their first job.
Mega mansion, three new Audis, designer clothing, and top-quality organic hired home chefs, all within the first year of her first job. Suddenly that old Crate & Barrel dining table is no longer adequate for breakfast. It’s not clear to me how a granite-topped dining table is any better than a wooden or glass one, unless you’re comparing yourself to Napoleon (who also ate from a granite-topped table).
This is an extreme case, but it doesn’t truly take much lifestyle inflation to exceed your earning capability. Just because you have a six-figure salary doesn’t mean that you can sustain six-figure expenses indefinitely. It takes quite a bit of financial reserve in order to generate out a six-figure annual bill when you stop practicing medicine.
Have you been guilty of any of these financial follies?