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What other methods have you diversified your income stream?
Tag: money
Why is there a gender inequality in residency salaries?!?
I was thumbing through Medscape’s most recent residency survey, and I was shocked to see that men reported a higher income than women in residency! No, I’m not a feminist, but my first thought at seeing a residency salary gender inequality was that there must be a variable that the survey didn’t control for…because that just doesn’t make sense. Gender inequality is a prevalent problem in the world, but the way medical training is set up, it does not seem plausible.
For those who don’t know, salaries for physicians in training is essentially fixed—you get raises for every subsequent year. There is no negotiation, because your salary is essentially a stipend that is predetermined by the hospital system that hires and trains you.
Medscape’s residency survey is just that—a survey. There are no controls or controlled variables like in clinical research. It is dangerous to make assumptions based on limited data. Why would the survey results show that men have a higher salary than women? Here are a few reasons I can think of:
Moonlighting. I knew many residents and fellows who decided to moonlight during their training. Pick up some shifts covering the emergency room or urgent care. Maybe a primary care outpatient clinic. Or even task handling for an internist office. Anything to pick up extra money. I knew both women and men who moonlighted during their training, but maybe men moonlight more?
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No stratification between PGY classes. In general the stipend increases as you advance in your residency. Are there still more men in residency than women? Do men typically enter medical professions that have a longer training duration than women?
Are there more men training in medicine? Even back when I was in medical school, there was a trend towards a 50/50 split between genders, with some years women edging men. Is it still the case?
What other reasons might men report a higher income than women in residency?
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Doctor Incomes in Graphical Format!
Where do you fit into the mix?
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How much disability insurance do you need if your spouse works?
The purpose of disability insurance is to ensure that your dependents are well-taken care of in case you are no longer able to work to support them. This is a real and unfortunately not rare situation. If you are a doctor and the sole breadwinner in your household, you have get disability. It doesn’t have to be much to begin with, but depending on your expenditures and net worth you still need some some coverage. I can only think of one reason why a doctor finishing her training would not need disability insurance:
You or your spouse is independently wealthy, and neither of your incomes are necessarily for you to sustain your living standards for the rest of your life.
I actually know plenty of people who are fortunate enough to be in this enviable situation. Most of these guys are pretty admirable too—many of them have taken financially unfavorable jobs for prestige, altruism, and other personal reasons. Chances are that you aren’t in this type of arrangement. If you ever (or when you do) reach financial independence, you can axe your disability because you are self-insured. You don’t have rely on anyone else for your existence. That’s a good milestone in your life to reach.
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What should you do if both you and your significant other has a job? Can you and should you lower the amount insured? Should you just insure the spouse with the higher income? Can you scrimp by without disability insurance for either spouse? Let’s look through each scenario and weigh in the pros/cons.
Neither spouse buys disability insurance.
This is not advisable. Simple example: You take a family trip to ski. Everyone takes a tumble. Your husband, the orthopedic surgeon, breaks his wrist in five places and ends his short but storied career as the premier should specialist in your area. You break a leg and shred through your intrinsic hand muscles. Technically you could still practice as a radiologist but can only go a tenth of your speed before injury. You have to take a 90% pay cut. Junior has to withdraw from his private elementary school and you have to give up your SoulCycle membership.
The higher earning spouse buys disability insurance only.
If the higher income spouse exceeds her counterpart by several fold, then perhaps this makes sense. Take, for instance, a nurse practitioner and his wife, the neurosurgeon. The nurse could buy up disability insurance—this might cost about $1,000 annually—but it might not make a difference. The cost of a $1,000 annually to have some insurance would not truly impact the savings power of the family. The loss of his income would also not really impact the bottom line of the family. The neurosurgeon should, however, buy up to the maximum amount until the family becomes financially independent. If I were in this situation, I’d forgo disability for the nurse and purchase for the neurosurgeon.
You might also like: How To Maximize Your Finances As A Two Physician Household.
The tougher situation is if the difference in income between both spouses is similar. At this point, it’d depend on how much the insurance would impact the bottom line in the family. Would the additional cost of disability insurance otherwise prevent junior from attending tennis camp every year? Would it slow down the family’s financial goals significantly (I would hope not).
Both spouses purchase disability insurance, but at an adjusted rate.
In some ways a two professional household has it easy–there are two incomes which are hopefully sizable. Double the firepower. Double (or even triple) the savings. Double the job security as well. If a family like this plays its cards right, it will likely reach financial independence must more quickly than most single income families.
Maybe a front-loaded schedule of disability insurance would go like this:
A more complex schedule would include the earning velocity of the household. High-income and high expenditure families should still purchase a relatively higher percentage of their incomes in disability even as they approach financial independence, because they have a large delta even towards the end of the journey. Lower expenditure households can drop off their coverage at a much higher rate since they have a larger buffer.
How much of your income is covered in your disability insurance?
What situations do you exchange money for more time?
The fundamental tenet in building wealth is to save more than you earn. Easy enough. At some point, there is a threshold in which you pull the trigger to exchange those hard-earned dollars for goods and services. Most of the us who espouse responsible financial practices have streamlined what goods we consider to be suitable for our needs. Yachts, McMansions, and other extravagant material wealth or experiences should be logically put in check until we’ve reached a certain financial stability. Cooking at home instead of hiring a private chef is another example (yes, I know a surgeon who does that). Fair enough.
What about services? Guys like @Mr1500 are pretty handy and have built bookshelves and flipped houses with their skillset. No need to spend hundreds of dollars at Home Goods for a particle board desk when you can build your own out of cedar. MMM is able to haul laundry machines on his bike. Strong-willed doctors like @PoF have the ability to bike to work instead of firing up our standard fossil fuel-consuming vehicles. You get your cardiovascular benefit while saving the environment. Win-win. Some of us were not meant to be tough, no matter how hard we try. Mending a skirt? Only under duress. Hiking down a canyon or starting a campfire? No way. Some of us are in careers that make us less inclined to become true masters of DIY or machoism. I work with plenty of neurosurgeons, and I don’t know a single one who bikes to work before an anticipated five-hour craniotomy case. (If you do, please send me a note!) However, I do know a neurosurgeon who would rather run marathons and bike on Peloton than to bike to work. Peloton subscriptions are not cheap either.
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Where is the cut-off? Is there a cost-savings benefit ratio that you look at before you start opening up the wallet? Most of us probably choose not to change our own oil in the car not only because we might not derive much pleasure from it but also because Jiffy Lube will do it for $29.99. For thirty bucks you can get your oil changes and keep your hands clean! I have two basic criteria to look at before I open up the checkbook:
Minimal risk and skill
First, the task has to be something that I don’t hate. I know some people who simply refuse to cook. Is it the smell, the difficulty, or just the risk of ruining the shellac? (Probably all of the above) That’s fine, but if you have a financial plan to get ahead in life you’d better have other ways to make up for the expenditures.
Secondly, I just look at how difficult the task is and the consequences if I mess up. For instance, I’m not an expert at baking cookies, but I’m pretty sure there is a low chance that I’d burn the house down if I tried. Check.
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If the task or service is often performed by many other people without much difficulty, then it is a good sign that I could reasonably attempt it myself.
Hourly rate
The hourly rate argument is a touchy subject. Many plumbers I know charge an hourly rate above that of many doctors. This doesn’t mean that you should go ahead and change out a broken water valve or toilet yourself in order to save a few Benjamins. But if the task or service meets the difficulty and skill requirement already, it might be worthwhile to tackle a project or service that could save you some money (especially if you have available time).
My experience at the Department of Motor Vehicles
My driver’s license came up for renewal recently, and I was tasked to step foot in a Department of Motor Vehicles office. There was an automated kiosk to get a number for line, and my number was 417. To my horror, the next customer in line was 333! It took another ten minutes before the next customer was called, and it was #289!
I had cancelled some of my afternoon patients and left work early to arrive at the DMV by 2pm. They close at 4pm. It was apparent that I was rolling the dice if I expected to be called up by closing time. There was no way that I be able to reschedule another surgery or clinic day to wait in line again. I ended up going straight to a commercial motor vehicle outlet, paying an extra $60 to renew my license, and left by 3pm.
The moral of this story? I need to get into the commercial DMV business.
What situations have you encountered where you decided to pull out the wallet to save time?
What percentage of your investments should be in a taxable account?
This is a ratio that I struggle with. Obviously the greater amount that one has in a tax-advantaged investment account, the less tax drag you’re going to pay for. With the current options of investment vehicles, one can potentially squirrel away a relatively hefty amount in a tax-advantaged account. Small business owners know what I’m talking about. So do managing partners in their practices. If you have several high-income ventures, you can shove away a solid six-figures in tax-deferred accounts.
When your earning velocity slows down, the tax-deferred amounts can be slowly withdrawn to fill up our lower tax brackets. For some physicians, this can mean shifting from a 50+% marginal tax (sometimes even effective tax) bracket down to something like a 10-15% effective bracket.
If you are able to do that, then you’re in an envious position. Some of us are just stuck in an employed position where we can only fill up the employee portion of our 401k space. Unfortunately we all know that saving only this amount will never be enough to a safe retirement, especially if you decide to hang up your hat early. I am in this very situation, and I end up putting most of my stock/fund investments in a taxable account.
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Over the years, I try to shove away as much as I can to catch up for the lost years of no income during schooling. I’d anticipate that eventually my tax-advantaged accounts will only amount to about 10% or less of my total investments. This is perhaps a much smaller percentage of what most people will have, but this also creates an interesting arrangement that I will have to consider later in life. There are considerations for putting your investments in a taxable account.
Disadvantages:
- Tax drag during investing years. Investment vehicles will need to be tax efficient, as dividends and interest that gets kicked out is taxed. Funds with high loads or high levels of activity will kick out taxable events.
- Liability. Unlike investments in your 401k, tax-sheltered accounts, or (shudder) cash-value investments, your debtors can access your investments in a taxable account. You need to protect it appropriately. Umbrella insurance is the key word.
- You will likely have less of this to invest. You are investing your post-tax income in this vehicle. In some ways, this isn’t really a huge disadvantage, but it does seem that way because Uncle Sam has already taken away what you can put into this vehicle. He will also continue to take away from it through further taxes on growth.
Advantages:
- During withdrawal years, income is treated only as capital gains taxes, which is lower than traditional income. You can really combine this with your tax-deferred account withdrawals to minimize your tax burden during retirement.
- No maximum amount that you can invest. The sky is the limit.
- No minimum that you have to withdraw either.
- Tax loss harvesting. If you end up with a loss in a particular category, you can sell it, and purchase similar funds at the lower rate.
Whenever I do go through the pros and cons of taxable accounts, I do feel a little bit more at ease. It’s not bad that we have many options to grow our wealth. After all, the true secret to building wealth is saving more than you spend.
How much of your investments belong in taxable accounts?
Why it is nearly impossible for doctors to amass ultra wealth
I’ve been relatively quiet on the online frontier as of late, owing mostly to work-related insanity and also helping out family affected by the recent hurricanes. Fortunately, everyone is safe and recuperating from mother nature. It is also eye-opening to be reminded how dependent we are to electricity and modern amenities.
The online financial community tends to be a unique bunch. Very resourceful. Innovative. Self-sufficient, to say the least. Most of the modern world isn’t. Mr. Money Mustache is able to construct a fancy rental property out of materials harvested out of craigslist. The average American probably wouldn’t even think to own a generator (myself included) let alone know how to operate one. Case in point. What happens when you lose electricity for two days? All of your food spoils. What happens when your local supermarket also loses electricity for two days? All of their perishables perish. Boy is it challenging to rebuild that infrastructure. Best of luck to those affected by the recent hurricanes…
Back to the finance world.
The curse of high income earners
High earning families can consider themselves blessed and cursed simultaneously. High earners, by default, have a good velocity of income. Income is a good—it helps pay the mortgage, bills, vacations, and food. Doctors, for instance, are the quintessential white-collared service worker. In exchange for a decade of subpar wages and long hours, we all will typically enjoy very comfortable wages and long hours. I guess that this is a formula that isn’t necessarily a bad trade-off. However, having a stable income and long hours actually prevents you from becoming wildly financially successful.
I know that we all have different ways to define success. My view of success is more of a balance between being financially comfortable and having the health to enjoy it. Fortunately most people in my profession will be able to achieve this. However, we will never be able to buy this home in Malibu:
That’s right. How many Whipple surgeries would you have to do in order to afford this house? Answer: Not enough.
And that is the sad truth. Our level of ability ensures that we can enjoy a good living, but it also prevents us from reaching the extreme levels of wealth. No amount of hustle where your hustle translates into direct income will allow you to achieve this.
Let me reiterate.
If you have to exchange your time or expertise for money, you will never have the time or energy to amass insane amounts of wealth.
How to overcome the curse of high income earners.
There truly aren’t many secrets to success. If you want to own that chateau in Malibu, you have to come up with a plan and keep executing until you achieve it. You must also have luck (lots of it), but it’s all about creating opportunities.
- Motivation — You have to be motivated. The problem with motivation is that other aspects of your life will be sacrificed the more motivated you are, and the higher the goal that you wish to achieve. We’ve sacrificed a lot to become physicians, but that sacrifice actually had a clear cut timeline (medical school, residency, and fellowship). Most of us make this sacrifice in our twenties. This is a time in our lives where we might have the energy and ability to sacrifice family, friends, and health to reach those goals. Our goals may change as we get older. It’s a whole lot harder to come up with a plan to own a $22 million home in your thirties with a family to support when you earn $200,000 a year than if you were 22 years old with only a smile to your name. Think about it. The stakes are different, even though the challenges are the same. The blogger who earns over a $1 million a year probably started out with no career path. Where you start out can dictate how much motivation you can funnel into your goals.
- Realistic Income strategy — You have to come up with a plausible plan to hit that goal. If you want to afford an $8 million home, you won’t get there selling lemonade. You need to own a franchise of lemonade stands. Likewise, you need to develop a means for your income to be generated passively and reliably. What’s the secret to a reliable strategy? That, of course, is the million dollar question.
- Luck — You’ve got to have some luck. The beauty of luck is that the more frequently you put yourself out to risk, the more chances you’ll have to get that break. It all boils back down to how motivated you are to do it, and how much potential there is in your game plan.
What are your thoughts on amassing ultra wealth?