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You don’t have to become a doctor to get rich

Posted on December 11, 2016January 30, 2021 by SmartMoneyMD

No, this isn't a cave. It's the inside of a septic tank! — No, this isn’t a cave. Hint: it does hold everything that leaves your home’s plumbing!

This post isn’t intended to deter future physicians of the world—the world already has a shortage of healthcare professionals and will continue to see a greater demand for all healthcare workers in the next decade.

This post also isn’t to condemn all of us doctors who entered this career path to make the world a better place. In fact, we can all live a happy and wealthy life as doctors. WCI and PoF are two great guys in the medical field who have publicly documented their trajectory in building a comfortable financial safety net relatively early into their careers. I’m sure that there are thousands of other like-minded doctors out there who are doing the same thing but aren’t as easily found since they don’t have a web footprint.

Those of you who are still building into your careers—medical students, residents, fellows, law students—can start getting prepared to become a rich doctor by riding the wave and getting psyched mentally.

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The background: there are a lot of rich people out there.

According to a report by Credit Suisse in 2015, there are 15.7 million millionaires in the United States alone. Last I checked, there were only roughly one million doctors (MD’s and DO’s) in the United States. What this means is that among the ranks of millionaires are plenty of other professions: lawyers, businessmen, CEOs, computer programmers, writers, politicians, and both professionals of the like.

Some of the wealthiest people whom I’ve met are everyday guys you would see on the street (On the flip side, I don’t take care of any celebrities or high profile people, so the likelihood that I would run into anyone else is slim!) These multi-millionaires include the general contractor who owns his mega-home inspection business, the professional blinds installer, the septic-tank installer, the concrete manager, the car dealer, and the loan dispersement agent for home mortgages.

Sam from Financial Samurai recently featured a janitor in San Francisco who was able to earn more than $271,000 a year! That’s more than what a starting Hospitalist can earn!

What does all of this have to do with me if I am already a doctor?

We can all learn from others who have succeed before us. My view is that we all inherently have traits that can help us get what we want. What traits do you need in order to be rich? Why, the same ones that got you where you are now!

Motivation. You have to want something badly enough. Most doctors worked relatively hard and long hours to get to where we are right now. That requires motivation, whether internal or external. If you want to be rich badly enough, you should be motivated enough to get there.

Resilience. You will fail. But we can learn from our failures. Figure out what set you back, and what you can do to avoid failing next time. In medicine, setbacks come in the form of patient adverse events, administrative snafus, illness amongst family and ourselves. But we have ways to learn what to do next time and bounce back stronger. In finance, you will take risks and you will lose money. But we still use these experiences to help make us stronger.

Flexibility. We have to adapt to situations, learn from our mistakes, and keep forging ahead. We cannot be too proud of ourselves, and understand that we are not correct all of the time. You have to ‘own up’ to your mistakes. That is how we learn and improve.

Acknowledgement of your limitations. Just because you are a doctor doesn’t mean that you are the smartest person in the room! It almost has no bearing to you getting rich either, if that is your goal! You do, however, possess unique skills that you can leverage to reach your goals.

What have you done recently with your skills to improve your financial situation?

(Photo courtesy of Flickr)

Why I haven’t started tracking my monthly expenses – and why I need to start

Posted on December 8, 2016January 30, 2021 by SmartMoneyMD

why-i-dont-track-expenses It almost seems like keeping tracking of your expenditures is a prerequisite for improving your financial self. For a blogger that writes about money and finance, not documenting expenditures is downright heresy. Well, I am guilty as charged.

I don’t track my monthly expenses.

There, I’ve said it. Now, how can someone be financially conscientious if they don’t even know how much goes out of their bank account monthly?

The beginning.

I wasn’t always like that. In medical school, I meticulously tracked my bank account and credit card statements. It was like checking daily I/O’s in pre renal patients on the floor…only easier. I essentially had no income other than my student loans. Sure, I tutored on occasion but I’d say that I earned less than $100 during my entire 4 years of medical school. The expenses were also easy to track:

rent payments
groceries
furniture from craigslist
occasional bar tab / restaurant meals
the new pair of shoes I bought

I sure as hell didn’t let my balance run close to zero before the next semester’s loan disbursements came.

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In residency, I slacked off slightly, but still kept tabs on my paycheck and expenses. I did not contribute to my 401k/403b during residency for several (perhaps unjustifiable reasons: (1) My rent consumed about 60-70% of my monthly stipend, (2) I thought that the investment options available sucked, (3) I used excess money to repay my student loans.

However, I made sure that at the beginning of the month that I would have enough to pay next month’s rent. I wasn’t married yet, so I didn’t have to contribute to my future spouse yet. (:-P).

The present and the problems.

As an attending, I did open a Personal Capital and Mint account. (referral link on the sidebar if you want to help out the website!). It’s a great asset management tool with cool pie graphs, line charts, and even an retirement planner. This is where some of the hassles emerged:

I had separate accounts for myself and my spouse. This means two different logins. Unfortunately, some of our joint accounts overlapped, it adding up both sides made it seem like we had more money than we actually did!
Many of the accounts did not synchronize well. I suppose that this comes in part from the ever-evolving security mechanisms in online vendors. I had a hell of a time with my employer’s 401k (ADP) and HSA accounts not synchronizing at all.
I buy many store gift cards. This is mainly a means to save some money and earn credit card points along the way. Once a year, my local grocery store sells $100 store cash cards for $90. I essentially buy hundreds (maybe even a thousand) dollars worth of grocery store credit at 10% off. I do the same with certain gas station cash cards whenever there is a sale. What this means is that all of my store category expenditures are front loaded. While I probably deplete the funds within a year, it does make it tricky to follow all of the expenses under Personal Capital.
I am lazy. If you simply click on “Expenses” in Personal Capital, you can get a YTD tally of all of your expenses. However, many of these transactions are erroneous categorized. Many of my bank transfers from my checking account to savings account defaults as a “check” and not necessarily a true expense. Some of the checks I write need to be edited for specificity. How long would it take to keep these numbers correct? Probably 10-15 minutes a month. Why don’t I do it? I can’t be bothered! I need automation!

The future.

The maintenance hassles in Personal Capital may only amount to 3 hours of my life my entire year. Probably not a huge deal to go through. I probably will have to contact the customer support staff to tweak the logins from time to time. It’ll be my New Year’s resolution.

What will I gain from it? For one, I’d have a better idea knowing how much I spend annually. MMM spends $25,000 annually for a family of 3. I’m pretty sure I spend at least $100,000 for a family of two. Wouldn’t it be nice to see how high earning doctors can still be budget conscious and tweak their savings rate?

How meticulously do you track your expenses?

(Photo courtesy of Flickr)

How to fund a Backdoor Roth IRA

Posted on December 5, 2016January 31, 2021 by SmartMoneyMD

It’s that time of year where we prepare for our routine investment account maintenance. For me, one task is reminding myself how to fund a Backdoor Roth IRA. I do this at the beginning of every year in January, so that I can put my funds into the market as soon as possible.

Here are the basic criteria and rationale to fund a Backdoor Roth IRA:

If your gross income exceeds $117,000 if filing single or $184,000 if filing married jointly, then you should proceed with a Backdoor Roth IRA. Otherwise, you can just contribute to a Roth IRA directly.
The Roth IRA offers another “bucket” to invest. You contribute post-tax dollars into this bucket, but there is no tax on any growth in the bucket whenever you take the money out.
This money can go to your heirs tax-free.
It’s not a huge amount ($5500 for 2016), but the amounts do add up throughout your working career, and the potential growth over time is valuable.
This works best if you don’t have any Traditional IRA funds already. The Roth IRA conversions will take into account what you have tax-deferred. If you have Traditional IRA funds, then you will be taxed on any earnings that you convert.

I have my Roth IRA account in E-Trade. It just happened to be there when I used to buy individual stocks. It has a decent web interface with decent market analysis posts under the “Research” headings. If you already have a Vanguard or TD Ameritrade accounts, those also work fine as well. My rule of thumb is to minimize the number of accounts you have across the board for simplicity. After a certain age, you start to forget things! ?

Step 1. Open a Traditional Non-Deductible IRA.

On E-Trade, I select ‘Open a New Account’. From there I select a Traditional IRA. I also keep a savings account on E-Trade, and when the time comes to fund a Roth IRA, I usually transfer funds from my outside bank accounts to my E-Trade Savings Account.

For 2017, the maximum amount that you can fund is $5500 if you are under age 50. Don’t forget to fund your spouse’s account the same way!

Step 2.

Let the funds clear and do nothing. I tried to jump to Step 3, and E-Trade gave me an error message. I remember sitting on this for about 1-2 weeks on E-Trade.

Step 3. Apply for a Roth IRA conversion.

On E-Trade, I usually go to the landing page for conversion: https://us.etrade.com/landing/Roth_Conversion I log in, and click through. Fidelity also has a similar mechanism. Since the funds that you have placed in your account have not been invested yet, you should still have $5500 (or $6500) that you funded previously. If you already have an existing Roth IRA with the custodian, you can select that account at this time and combine the funds together.

Afterward, you can either close your Traditional IRA or leave it empty for next year. E-Trade allows me to keep the account open. You can then decide how to invest the funds in your Roth IRA!

What other tips do you have for Backdoor Roth IRA’s?

Being a Doctor Could be A Guaranteed Way To Have A Stable Job

Posted on June 18, 2016January 30, 2021 by SmartMoneyMD

being a doctor could be a guaranteed way to have a stable job Ever since I started working harder to build my medical practice, I’ve found it more challenging to stay up to date in the digital world. I end up coming home tired, cranky, and famished on days that I don’t take the time to eat appropriately. I stand by my opinion that just as medical conferences are bad for your health, so is working too hard at your job.

I finally was able to catch up on one podcast in the car along the way between meetings by Joshua Sheats, of Radical Personal Finance fame. In the latest episode, Joshua debates the merits of being a doctor with Peter Steinberg, a urologist at Beth Israel in Boston.

Thought provoking discussions, I might say.

I haven’t followed the entire podcasts of Radical Personal Finance from the beginning, but I take it that Joshua (who is not a doctor) believes that becoming a doctor is not worth the cost.

I absolutely agree with Joshua.

To summarize, there is a huge cost in becoming a doctor: time, increased risk, sacrifice of financial growth through compound interest, and sacrifice of talent that could be used in other careers. I agree, to become a family physician or an ER doctor, you need to invest eleven years in your training. You’d be lucky to get a job earning $200,000 as a family physician. We practice in a risky field. Doctors get sued. Patients can and will have bad outcomes. We are more than 10 years behind our peers financially. Our job is hard. In the podcast, Joshua makes an analogy that a plumber can achieve financial independence by starting out early while apprenticing in grade and high school. This hypothetical plumber can earn $100,000 a year around age 20. Additionally, he’ll also learn the value of small business, tax laws, and common sense by working for himself. By age 30, he will have becoming financially independent and be able to do whatever he wants.

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Dr. Sternberg argued that despite the long years and hard work, being a doctor guarantees that you will be employable, have a high income, and have a meaningfully long career since most medical practice is not as taxing as, for example, being a laborer. More importantly, the plumber example that Joshua gave was extreme. What kind of plumber has his act together enough to map out his future starting at age 15? The average vocational worker may not necessarily have the organizational and foresight to become this successful. True.

How successful can a doctor who knows how to plumb be?

Fortunately for these guys, Smart Money MD is a board-certified doctor AND handy with plumbing. I’ve written about cleaning lime deposits from your toilet bowl, maintenance for Kohler toilets, and changing the flush valve in the Mansfield toilet. Plumbing is dirty work, but you can definitely command a high hourly rate. I would not be surprised that plumbers who run a moderately successful business have higher net worths than more doctors up until their early-mid 50’s.

Would I have been successful as a full-time plumber? Most likely. Would I have had a higher net worth as a plumber than I do now as a doctor? Definitely for now. Based on what I earn and the number of years I spent in training I’d need a total of 15 years after fellowship to catch up even with aggressive saving. Of course as a doctor, I’m obligated to have higher living expenses.

I agree with Dr. Steinberg that not all doctors are capable of having any other jobs. Most doctors I know majored in Biology, Chemistry, or other non-vocational subjects that would otherwise condemn them to an income range between $60,000 and perhaps $120,000 (if they’re lucky). Some doctors may not have had the exposure growing up to realize that one can earn a comfortable living as an electrician or plumber.

Where I do disagree with Dr. Steinberg is that not all doctors actually would be better off financially as doctors. Think of the lower income physicians. These doctors’ income ranges are very close to that of many vocational specialties. Some of them choose these specialties because they are misinformed, unsure what they want to do with their lives (more common than you’d think), or ideally because they like it. There are likely more lower income physicians than the higher income ones. The argument for being a doctor is also easier if you are one of those high income doctors (likely urologists!).

Would I have become a doctor? It depends on what I would have been otherwise. Software developer? I would have been equally or more challenged as a software developer. A plumber? I probably would not be as happy if I were a plumber, mainly because I am not sure that it is as intellectually stimulating as being a doctor. The grass is likely greener on the other side, but if I were a plumber, I’d probably wonder what life would be like if I were a doctor…

Fortunately I already am a doctor, so I’d have some more flexibility becoming a plumber if I really wanted…

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(Photo courtesy of Flickr)

How much money do doctors really have?

Posted on April 24, 2016December 16, 2016 by SmartMoneyMD

Previously, we discussed examples of how much wealth an average doctor with aggressive saving strategy can will have after working for five years. There were a few comments that the saving strategy was indeed a bit aggressive, but I think that it is clearly doable. Part of the strategy is to become a good doctor, work hard and hustle, and learning to diversify your income stream.

Medscape recently released a survey on physician net worth, and it provides an interesting snapshot of our profession. Head over to Medscape to read all the details. One graph that I found interesting was the stratification of physician net worth by age:

medscape physician net worth by age

I think this survey reveals a few findings that are reassuring and expected from the profession. The “Under 28” category is not surprising. Most of us are still in residency, and either have a zero or negative net worth. I’m surprised that 4% of the respondents actually had over $1 million in net worth. This demographic has inherited money or other unusual windfall.

Under the age 28-34 category, 12% of respondents already have over half a million dollars in net worth! I’d expect these doctors were unlikely to have incurred student loan debt and have entered specialties with relatively short training periods and moderate to high salaries, such as Emergency Medicine or Internal Medicine. Assuming that the average Emergency Room doctor finishes a 3-year residency at age 28, she will start earning at least $300,000 her first few years on the job. Very few other medical specialties will be able to command such a high salary early on in their working careers in such relatively short amount of training.

What is reassuring is that 12% of doctors before age 40 actually become millionaires. You don’t even really need a working spouse to reach this threshold if you are prudent with your earnings. The White Coat Investor was able to do it with aggressive saving, smart investing, and diversification of income. Imagine that you are a Hospitalist earning a flat $250,000 annually. At age 40, you will have worked 10 years, and $2.5 million in pretax dollars. At a 30% effective tax rate, you have taken $1.75 million home after taxes. If you are very conservative and spend on $50,000 a year, you will definitely have at least $1 million in the bank. Even if you aren’t a frugal, you should still have $1 million in the bank.

Doctors should be able to do well overall.

Based on the Medscape survey results, doctors are still very well off compared to the general population. The sole reason for this is that we as a profession have a good offense in the form of high income. Even if we may not control our expenses as well as we should, we can still survive. About a third of the survey respondents close to retirement age (60-64) reported a net worth above $2 million. Not bad. The other two-thirds of the group have less. While I don’t anticipate seeing doctors out on the streets, we should be able to do better given our 30+ year high earning career. You can take control of your earnings, spendings, and let your money work hard for you.

(Photo courtesy of Medscape)

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How much time should I spend managing my finances?

Posted on April 18, 2016December 16, 2016 by SmartMoneyMD

how much time should i spend learning finance I spent about eight to ten hours per day studying for my USMLE Step 1. I believe that I did this for about a month of my life. Prior to that, I was probably reviewing the material about five hours a week in addition to studying for my classes. I don’t think that I’ve ever worked that hard in my entire life trying to learn something from a book. Several of my internship rotations were similarly life-consuming, like my general surgery months. I think I was salaried at like $24.40 an hour before taxes, or $50,752 a year. This was good money, except that I worked at least 80 hours a week for more than six months of the year. I think there was a two week period that I spent 252 hours in the hospital! The hospital sure got a great deal having residents putting in central lines, tapping effusions, and pulling JP drains at near-minimum wage. We got an education in return. This lifestyle was absolutely horrible for my health.

But, boy was I good at random medical knowledge. Bezoars? I bet you didn’t know that there were three categories of them. How about George Gershwin’s GBM? Piece of cake.

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Since then, I’ve grown utterly lazy. I clock in an easy 55 hours a week. Some of my colleagues in the ER only do 34 hours a week and earn quite a bit more than I do. Is it time to kick back and relax?

Strengthen your knowledge outside of medicine.

I’ve said this before, and I’ll say it again. The disadvantage of being highly knowledgeable in a particular subject means that you are less likely to be knowledgeable in other topics. To disprove the stereotypes that doctors or other highly trained professionals don’t know anything outside of their fields, I suggest that you learn about something outside of your profession.

Anything.

Hiking, sports, photography, finance…whatever. Find a designated time each week to find something you enjoy and learn about it. You’ll be doing this same stuff when you’re retired. If you decide to retire early, then you’d better be prepared to do this for a longer time. Carve some of the time you waste looking through Facebook each day and improve your fund of knowledge. Your future self will thank you later.

How much time do I need to study finance?

Answer: a whole lot less time that it takes for you to do your primary job, unless you are in the financial world yourself.

Most people will figure out quickly how much they love or hate reviewing financial history. If you love it, you’ve found yourself a new hobby. Otherwise, you’re out of luck. Fortunately, one could become relatively fluent in a subject without having to go into profound detail. Think Cliff’s Notes. I remember that I went through review books and summary outlines to learn particular subjects in school. I aced those tests. Did I actually understand the material well? I doubt it. Ironically, I actually synthesized the concepts years later. Yes, I do believe that condensed knowledge can still be absorbed; it just might take longer.

Fortunately, you have time. Commit to learning something about finance, whether it be terminology or principles. If you really hate it, spend an hour on this subject for every five hours you spend with your CME (continuing medical education). If you really like it, ramp up your efforts. Set aside one hour a week to read some newsletters, financial handouts, books, or blogs (like this one!). Your public library has a wealth of resources.

Does gender play a role in financial knowledge?

Gender can place you at a disadvantage with finance. I’ve gone through plenty of finance blogs and books—I think that we can all agree that this a male-dominated niche. Most of the commenters on early retirement websites are male. I don’t think that men are more financially savvy than women either—look at Suze Orman—but I believe that there needs to be more of a female voice in finance.

The medical profession has traditionally been male-dominated but this is changing as well. My medical school class had 54% women. I suspect that the percentage will begin to grow. What this means is that it will be more likely that women will transition to being a breadwinner in a medical professional household. There will continue to be a need for understanding how to maximize our hard-earned dollars.

How do I get started?

Reading this website is a good first step. Eliminate your student loans. Become good at your job. Find the hunger. Live up to the stereotype and become a rich doctor.

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(Photo courtesy of Flickr)

A Strong Offense Will Make You Richer

Posted on March 19, 2016 by SmartMoneyMD

Sports metaphors are great if you understand the sport that is being referenced. Unfortunately I have limited understanding of many sports metaphors, but offense and defense are two terms that seem obvious enough to me.

I have been told by numerous finance-oriented people that a strong offense will definitely win over a strong defense. I agree with that statement. In general a higher income will help you overcome many frugality shortcomings.

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Case in point: extreme savers often promote their own incredibly high savings rate. Crazy numbers like 60%, 70%, or even 90% of their post-tax income. They argue that this has allowed them to retire by the time you were halfway through medical school. What is downplayed is that your savings rate becomes less impressive the greater your income becomes. It sure as hell easier to save 50% of a $250,000 income than 50% of a $50,000 income.

Increase your income.

Saving money is fine and dandy, but wouldn’t it be even better if you could crank up your earning potential? There are financial bloggers out there approximately my age who have over twice my net worth but have jobs that generate less than half of my income as a physician. According to my calculations, it will take me about five more years to over take their net worth at my income rate and spending. Overall there are two learning points that I can glean from this comparison:

Compound interest is your friend. The sooner you can enter the workforce and start building your nest egg, the longer your money can work for you.
A high earning potential and rate can eventually compensate for the lack of compound interest.

Since most of my readers have spent a decade of our lives training to be in the medical field, there really isn’t much turning back.

What you can do for yourself is to figure out how to become a rich doctor and have that army of earnings work their compound interest magic. You’ve worked hard getting to where you are at, and it’s time to reap some benefits.

Have you considered how you can improve your financial offense?