Easy money does not exist. It does not matter if you are an entrepreneur, lawyer, doctor, or TV personality, you still have to apply effort to generate income. The days of doctors opening up a practice and expecting millions of dollars rolling into your bank are over. I sadly discovered that I was 15 years too late coming into practice.
All is not lost if you’re just finishing your medical training just now. You can still become a rich doctor if you work hard, set realistic goals, and adapt as needed. That’s what I tell myself when I’m two hours behind in my clinic full of angry patients or when I keep hearing at my medical staff meetings that my department is STILL losing money even though I put in more hours at work than I ever have. The following are principles that I try to live by to grow my net worth as a doctor in the 21st century:
Do Not Let The Apparent Wealth of Your Peers Distract Your Goals
It does not matter if your co-resident owns a yacht or just bought the latest iWatch. You don’t know if they maxed out their credit lines to buy rent space at the dock for the boat that they use twice a year. She may belong to old money. It’s also not like that you will benefit from their apparent wealth or if you will magically become successful if you owned the same material wealth. One of our friends recently finished his radiology fellowship, drives a BMW 5-series, and also owns a $1+ million apartment in Manhattan. It is easy to be fixated on the success of others, but it is clear that a self-starting doctor in the first year of medical practice is not capable of living such luxury without the help of pre-existing wealth. It doesn’t happen in the third year of practice either.
Who cares if you drive a 1991 Honda Accord and your front desk lady drives a Lexus? As long as your car gets you to where you need to go safely, it does not matter. Once you build up a strong velocity of money, you can loosen the reins.
Focus on your goals. Don’t try to keep up with the Joneses.
Strategize and Build Alternative Streams of Income
Even if you score a killer job that pays you $300,000 a year, it will take years to build up enough wealth to buy substantial luxury. If you take home 55% of this salary and save 50% annually, you’d only have $412,500 after 5 years. Sure, you could work some investment magic on that amount, but you might also end up with less than what you put in. Not all of that is going to be disposable income if they are locked up in retirement accounts.
Build your income. At the workplace, this means learning how to streamline expenses, working harder, and building your worth as a doctor. Ride the wave. As you build your practice, your patient base will grow accordingly. Treat them well, and they will refer their friends to you. Instead of making $200,000 a year, you might earn $210,000. It’s not much, but it is also earned money. That is step number one.
Don’t forget that the income wave can rise OR fall. Your reimbursements will go down. You may get deadbeat payors. Remind yourself that as a doctor, you still have job stability. That is one of the few advantages that you traded off after 10 years of no/low income servitude to the medical profession. This is your primary income stream that you maintain in order to find alternative means to grow your net worth.
Think Like An Entrepreneur
Being employed as a doctor will allow you to have a comfortable lifestyle. If you want more than that, you will have to think BIG. The $5 million house with a 7 car garage in the “rich neighborhood” of town is probably not going to be owned by a doctor. Probably not a practicing doctor without alternative streams of income. This may include multiple streams of income:
- Passive income – I consider this the best form of income. Money comes in while you sleep. You may have put in work previously, but it continually adds to your net worth. This may be in the form of royalties. If you are involved with investments, growth of your shares will also come passively. In the tech industry, passive income can from from a number of streams, whether it is through referral networks or endorsement fees.
- Active income – The sky and your time is the limit. Real estate. REITs. Invited lectures. Perhaps you were a wine connoisseur before becoming a doctor. Maybe your dream job was to run a wine tasting company. You still can as a doctor. It can even provide ancillary income. Do you have other money generating hobbies? Perhaps you’ve always dabbled in photography. Do you want to run a wedding photography studio on the side?
You can generate income through any or all of the methods above. The greater number of income streams you have, the more stable your net worth growth can become.
Plan Your Finances Intelligently
Asset preservation is a key component in building net worth. As a doctor or any high income generator, you have to make sure your finances are in line. This means getting out of debt. The hole you dug yourself into during college and medical school needs to be filled in. I paid off a six figure debt by the time I finished my first year of practice. You can too. Rule number two is to avoid getting into debt. This means you pay off your credit cards every month and make sure that you are not late in payments. Avoid frivolous purchases like the plague. Rent your house while you’re still deciding whether your job will last long term.
Track your investments, spending, and income. I use Personal Capital as an online tool to monitor my finances. From the spending standpoint, Personal Capital tracks all of your purchases and allows you to categorize them. You can monitor exactly how much you’ve spent with groceries, restaurants, entertainment, and other miscellaneous purchases in nice graphs. You can get a quick sense of which categories of spending you can cut back on.
From an investment standpoint, Personal Capital employs advisors (real humans) who can discuss with you how to strategize your portfolio. For portfolio management, they charge 0.89% for the first $1 million invested and a decreasing amount as your assets under management increases. I do not use their advisory services, mainly because my current investment options under my employer are relatively fixed, and my taxable investment amounts are still a pittance. It’s difficult for me to determine whether I’d actually ever have an advisor handle the majority of my investments because I feel that I spend the majority of my educational time allocated to finance. For the busy doctor who has little desire to educate herself (big mistake if you do no self-education), having a low-fee advisory service wouldn’t be the worst thing in the world. There are plenty of stupid things you can do with your hard earned cash.
You can still build a substantial amount of wealth as a doctor in the 21st century. It’s going to be a lot more challenging than what our predecessors went through, but you have more tools at your disposal. Remember that it still will require hand work and a strong desire to build your wealth.
What have you done to contribute to your net worth? How much of your effort in building net worth comes from your medical practice versus other sources of income?
(Photo courtesy of Flickr)