Unleashing the Power of Your Income

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By Dr. James M. Dahle, WCI Founder

The greatest wealth-building tool that most physicians have is their ability to turn their time into money at a very high rate. Physician incomes are typically in the top 1%-5% of households.

Data from the most recent Medscape salary survey shows the following:

Now, there will be lots of people out there willing to argue that $250,000 a year is just a middle-class salary. That simply isn't true, even if you live in California, New York, Hawaii, or Washington DC. It is still a top 5% salary in all of those locations. If you are making the average primary care income, you have a higher income than at least 19 out of 20 households in your state. It is even better if your spouse has some earnings.

This income is your greatest wealth-building tool. It's not your house. It certainly isn't your debt. If you're like most of us, you won't be getting any significant inheritance or it will come too late in the game to really change anything. If you want to become wealthy, you must use that income to build wealth.

One of the most interesting slides I've ever seen in a Medscape survey was only published in a single year, 2016. I use it all the time in presentations.

Doctor Net Worth

There is a lot of fascinating information there, but I want to focus on just one section: that section for those aged 65-69. For the most part, these are doctors who have been retired for a while, who have just retired, or who are on the cusp of retirement. What does the data show about their net worth? Remember net worth is everything you own minus everything you owe. It's the value of your home equity, your retirement accounts, your investments, your savings, your checking account, your cars, your clothing, and your recreational vehicles. The data shows the following about doctors aged 65-69:

  • 11% have a net worth of <$500,000
  • 14% have a net worth of $500,000-$1 million
  • 27% have a net worth of $1 million-$2 million
  • 34% have a net worth of $2 million-$5 million
  • 14% have a net worth of $5 million+

Astounding! That tells you that after 30+ years of physician paychecks, 25% of doctors are not yet millionaires. No wonder our Milestones to Millionaire podcast is so popular. Heck, there are a lot of doctors out there that have $500,000 just in their homes! I'm sure there are a lot of sad stories in that 11% number. Disabilities, divorces, and scams certainly exist. But there's no way that accounts for most of that segment of doctors. Consider the math. If you earn 8% a year on your investments and they compound for 30 years, how much do you have to save each year to reach each of these milestones (and remember this ignores your house and all your stuff):

  • $500,000: =PMT(8%,30,0,500000) = $4,413 per year ($368 per month)
  • $1 million: =PMT(8%,30,0,1000000) = $8,827 per year ($736 per month)
  • $2 million: =PMT(8%,30,0,2000000) = $17,655 per year ($1,471 per month)
  • $5 million: =PMT(8%,30,0,5000000) = $44,137 per year ($3,678 per month)

It is pretty hard to argue that any of those figures are overwhelmingly difficult to reach. You can get into multi-millionaire status without even maxing out a 401(k) each year. Even if you only make $244,000 (the average primary care income), you can live on $200,000 a year and still put $44,000 a year toward retirement.

Why do so few doctors do that? Why are they so desperately trying to find a side gig, build out a portfolio of rental homes, or hit a home run with a well-timed cryptocurrency “investment?” It is simply because they have not learned how to harness the power of their income. In short, they spend too much and save too little. Many of them are even living hand to mouth, paycheck to paycheck.

Incidentally, if you really want to get doctors fired up and talking about money, there are two guaranteed ways to do so. The first is to write a post about automobiles, and the second is to publish even a hypothetical budget. Criticisms and personal stories will come flying out of the woodwork, guaranteed.

The thing is, despite the fact that a physician's income is, at a minimum, a top 5% income that allows you to buy anything you want, it does not allow you to buy everything you want. You simply cannot do it all. You must prioritize and decide what matters most to you.

Let's go back to our five categories of doctor wealth above and consider what kind of decisions those doctors might have made. If we pause and consider the “big” financial decisions that doctors make in their lives that could have a significant impact on their wealth accumulation, we might come up with a list like this:

  1. Practice a specialty with lower average pay “because it is what I love to do”
  2. Take a job that pays below average in your specialty “because I like the people I work with”
  3. Live in a high cost of living area “because my family is here”
  4. Support a non-working spouse “because my spouse supported me during college and med school”
  5. Live in an expensive house “in a safe neighborhood with good schools”
  6. Place kids in private school “because what matters more than their education?”
  7. Churn new cars every three years “for safety and reliability”
  8. Take out extra student loans and drag them out for a long time afterward “because surely I can earn more than 5% on my investments and nobody really ‘lives like a resident‘ anyway; that's just a white coat investor thing”
  9. Hire out a lot of services “because my time is too valuable to clean house, mow lawn, repair cars, watch kids, or plan vacations”

Let's take these big decisions and put them up against our five categories of physician wealth. How many of each of these “less effective” financial decisions does each category of doctor typically make? There's no data on this, but we can speculate. Before we get there, why not go down that list and count up how many of them you check off personally? Then compare yourself to this chart below:

  • Doctor A (< $500,000 in net worth at retirement): 6-9 “less effective” decisions
  • Doctor B ($500,000-$1 million in net worth at retirement): 5-6 “less effective” decisions
  • Doctor C ($1 million-$2 million in net worth at retirement): 3-5 “less effective” decisions
  • Doctor D ($2 million-$5 million in net worth at retirement): 2-4 “less effective” decisions
  • Doctor E ($5 million in net worth at retirement): 1-2 “less effective” decisions

“Less effective” is an unwieldy term. I thought about using the word “wrong,” but “wrong” really doesn't encapsulate what I am trying to say. It's not wrong to do any of this. It's just wrong to do all of it. My point is not that you cannot do any of these things. You certainly can do some of them and be financially successful. But you cannot do all of them wrong and be surprised that you end up living paycheck to paycheck for decades and then have nothing left to show for all those years of work.

unleashing the power

Some in the medical personal finance community shame each other for wearing expensive scrubs, sending out cookies to Twitter pals, or buying a round of shots for colleagues. But that's not really the problem, is it? In fact, for at least three of those categories, there really isn't a problem at all. Plenty of Americans retire on “just a million” dollars and have perfectly happy, comfortable retirements. They get some money from Social Security and take some money from investments each year, play some golf, visit the grandkids, and go on a cruise every now and then. But for two of those categories—and about 25% of doctors—there is a problem, and it has serious impacts on your financial life and your retirement. You simply cannot make ineffective choices in the majority of these decisions and expect to build significant wealth.

Practically speaking, what does this mean? We're not talking about the gastroenterologist married to the cardiologist living in a $500,000 home in a medium-sized city in Iowa here. We're talking about the primary doctor in California, aren't we? Or the academic doc in New York. Or the military doctor in the DC area. Or the associate dentist in Seattle.

Let's say you are a primary doctor from California and really want to stay there to be around your family and enjoy the sweet weather. How can you still build wealth? Let's look at the decisions. Two of them are already made:

  1. Specialty Choice: Low Paying
  2. Job:
  3. COL: High
  4. Spouse:
  5. House:
  6. School:
  7. Cars:
  8. Student loans:
  9. Hiring out:

There are still seven decisions you can make that will have significant effects. If you get most of those “right,” you can still build lots of wealth. Maybe your decisions look like this:

  1. Specialty Choice: Low Paying
  2. Job: Took an academic job for seven years and then opened a DPC private practice and worked hard to maximize its revenue, getting it up to $300,000 a year
  3. COL: High
  4. Spouse: Spouse takes a job making $70,000 a year and you save most of it
  5. House: Bought a $750,000 house instead of a $2 million house
  6. School: Put the kids in a private elementary and a public junior high and high school
  7. Cars: Drive 10-15-year-old Honda and Toyota sedans
  8. Student loans: Took advantage of PSLF at that academic job
  9. Hiring out: Hired a house cleaner, mow our own lawn, and found a good local mechanic to look after those sedans

How many “less effective” decisions does that add up to? Three or 3 1/2, depending on how you count. Is this doc going to be OK? Probably, they'll be just fine. They are not going to win any pissing contests on the WCI Forum, retire at 45, or endow a chair at their medical school, but with careful planning and budgeting, they're going to have a pretty nice financial life before and during retirement.

Let's go through another example. Let's make this one an associate dentist in Salt Lake City.

  1. Specialty Choice: Low Paying
  2. Job: Low Paying
  3. COL: Moderately High
  4. Spouse: Not Working
  5. House: $1 million
  6. School: Public 
  7. Cars: One older sedan and a new Tesla
  8. Student loans: $400,000
  9. Hiring out: Just a lawn service

That's not looking so good, eh? That's 6 1/2 less effective decisions. This doc could easily become a severe under-accumulator of wealth. Let's say the doc gets together with the spouse, and they decide to make some changes. They decide to move to a small town that is not so saturated with dentists and open a practice. Yes, they will need to take out a big practice loan, but within a year or two, they have already doubled their income and could even 4X it if they keep working hard. The spouse works part-time as the practice manager, further increasing income. They swap that Tesla for an F-150 that fits in better in the small town, and they start hammering those student loans as fast as they can. They even get a little lawn tractor and teach their now 11-year-old how to use it. How have they turned things around?

  1. Specialty Choice: Low Paying
  2. Job: High Paying
  3. COL: Low
  4. Spouse: Working
  5. House: $350,000
  6. School: Public 
  7. Cars: One older sedan and a used F-150
  8. Student loans: $150,000 and falling fast
  9. Hiring out: Nothing

Yes, there's some geographic arbitrage there, but that's hardly the only change that was made. This couple is not going to have any trouble at all retiring comfortably. They might even become deca-millionaires.

Now let's look at a sample (hypothetical but very realistic) budget for a 35-year-old doc and his wife who cares for their two kids full-time. What advice do you have for them?


  • Annual Salary: $210,000
  • Effective tax rate: 24%
  • Monthly after-tax income: $13,300

Monthly Expenses

  • Mortgage (3.5%, 30 year, $650,000): $2,900
  • Home insurance: $100
  • Property tax: $500
  • Electricity: $200
  • Water: $100
  • Natural gas: $100
  • Cell phones: $100
  • Disability insurance ($12,500 benefit): $500
  • Life insurance: $100
  • Auto insurance: $100
  • Car payment (one car paid off): $400
  • Student loan payment ($250,000, 10 year, 5% fixed): $2,700
  • Gasoline: $500
  • Groceries: $1,500
  • Eating out: $500
  • Clothing: $500
  • Kids activities: $500
  • Entertainment: $300
  • Vacation: $1,000
  • Health insurance/health care: $700
  • Total spending: $13,300

This couple is spending everything they make. No savings at all. What are their choices? Let's look at the decision list from above and characterize their situation:

  1. Specialty Choice: Low Paying
  2. Job: Low Paying
  3. COL: High
  4. Spouse: Not Working
  5. House: $750,000 on an income of $210,000
  6. School: N/A 
  7. Cars: One older sedan and a newer SUV on credit
  8. Student loans: $250,000 on a 10-year plan
  9. Hiring out: Nothing

That's 5 1/2. That's all it takes to be living paycheck to paycheck. Yes, those student loans will eventually be paid off. And maybe, just maybe, this couple will redirect that savings to retirement savings. The late start will hurt, but $2,700 a month—even starting at age 45—should still get them to millionaire status. But in reality, those first five decisions have pretty much boxed in this couple. Something has to give. Geographic arbitrage might be the best option, but at a minimum, there needs to be an ongoing job search here for one or both of them. Perhaps some extreme budgeting in the variable expense categories could find $1,000-$2,000 a month to invest.

Your income is your greatest wealth-building tool. Don't squander it. You can have anything you want but not everything. Choose carefully, my friends.

What do you think? What advice do you have for doctors living paycheck to paycheck? Have you ever been in that situation? Why? How did you get out of it? Comment below!

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