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A $150,000 salary — to most Americans, that would sound pretty good. To many people worldwide, that salary is unattainable.

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But to a typical physician and the average reader of personal finance blogs geared toward the high-income professional, a $150,000 a year salary is nothing special — in fact, some would consider it to be “low income,” proving that everything is relative.

Dr. Jim Dahle decided to entertain a request to help those with a good-but-not-great income build wealth. It’s important to note that the $150,000 could be combined household income, and that makes it a figure that is much more attainable to dual-income households, even without any advanced degrees on the wall.

This post was originally published on The White Coat Investor.

 

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How to Build Wealth on a $150,000 Salary

 

Q. I had an idea for an article you might consider writing in the future. Many of your readers are likely optometrists, nurse practitioners, pharmacists, etc. where the salary might be about $80-140K. With a stay at home spouse or a spouse with an average job they might be earning $150-175K at maximum, all cylinders firing. Plus the debt load is really not that much different than MDs other than the compounding residency period is shorter or absent.


A.
 I write for people with a wide variety of incomes. Some have a seven-figure income. Others a low six-figure income. There are a few readers who make even less and like to heckle me for not writing anything specifically for them.

I generally refer those folks to the internet where surely there is a financial blogger writing with them in mind. My target audience is high-income professionals including folks like ODs, NPs, and pharmacists. I’d love to read an article with tips, goals, strategies, and expectations, for the doctor that doesn’t start out with — or will likely never reach — a $200K salary. Or when both spouses already work but still don’t pull in that kind of money, yet have child care, student loans, mortgage, etc. to pay for.

 

I’ve written similar posts in the past for folks with lower incomes including these:

Most of the stuff written in those posts is going to apply to this situation. But let’s see if we can come up with something new and interesting to write and read today.

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Even on a Lower Income, You Don’t Get a Pass on Math

 

The first point worth making here is simply that you don’t get a pass on math. Whatever your income is and whatever your debt is, that’s what you have to work with. There’s no magic answer here. Nobody cares that you’ve dedicated your life to the healing of the sick and injured. You’ve got to make the numbers work.

Just like it doesn’t make sense for a physician to borrow $800K for medical school, it doesn’t make sense for a nurse practitioner or an optometrist to borrow $400K. If you’ve done that, you’re up a nasty creek without a paddle and are going to need some extreme solutions like Public Service Loan Forgiveness, perhaps even one of the IDR forgiveness programs, and maybe living like a student for a very long time.

I’m sorry to be the bearer of this news, but the truth is you made this decision when you decided to borrow that much to pay for a degree that pays that little. The good news is all three of the degrees mentioned above probably have a better income-to-debt ratio than veterinarians or attorneys!

With a lower income or a lower income-to-debt ratio, your road is simply going to be longer and harder. Instead of becoming financially independent in 20 years, it may take 25. But the principles are all the same.

 

Don’t Overestimate the Difficulty of Doubling Your Income

 

Change jobs, ask for a raise, work overtime, start a side hustle, go into business for yourself, get a second job, send a spouse to work, find an investment you can add value to (websites, real estate etc.), marry someone with a great job or whatever. Lots of options.

My PA was convinced it was impossible for her family to double its income. I disagree. Lots of people say it can’t be done. Those of us who have done it (multiple times for some of us) just smile and nod.

Yes, there may be sacrifice involved, but nobody said it was going to be easy.Here’s another issue people struggle with. I had this discussion with one of my PAs the other day. In my experience, people routinely overestimate the difficulty of doubling their income. The lower your income, the easier it is to double it.

If you lose a $400K job, it can be pretty tricky to find another job that pays as much. But if you lose a $30K job? You can go deliver pizzas and make that. If you’re struggling due to a relatively low income, you probably spend too much money like most of us, but you also may simply need to boost income.

 

 

Less Debt and an Earlier Start Help

 

Here’s the other thing. Yes, PAs and NPs get paid less than docs. But they also start getting paychecks a lot sooner. PA school is two years. Med school is four. That’s two more years of not getting paid.

But wait, there’s more! A physician makes something similar to minimum wage for another 3-7 years. So that’s a delay in earnings of at least 5 years. The typical physician or dentist also has twice as much debt. Yes, I know SOME non-physicians rack up that much debt, but on average, they have less.

Let’s look at the classic example that shows up in lots of personal finance books. Let’s imagine you invest $10K a year for 10 years at 10%, then let it ride for another 20 years. Then, let’s consider someone who waits 10 years to start investing and invests $10K a year for the last 20 years.

  • Contributes for first 10 years then never again: =FV(10%,20,0,-FV(10%,10,-10000,0,1),1) = $1.18M
  • Doesn’t contribute for first 10 years, then contributes for last 20: =FV(10%,20,-10000,0,1) = $630K

 

Despite contributing twice as much, the late contributor ends up with half as much money. An early start matters. In addition, a lower earner can typically shelter more of their savings in tax-protected retirement accounts.

 

Solve Child Care and Spending Problems

I also find it interesting to see somebody bring up one of their expenses as if that’s the entire issue. Sometimes it’s health insurance (especially with early retirees). Sometimes it’s child care. Sometimes it’s rent or a mortgage payment.

But money is fungible. You can buy health insurance by not buying something else. You can buy child care by not buying something else. Need child care? Drive a beater and live in a dumpy house in a dumpy neighborhood.

I mean, you’re making $150K/year here, 2 1/2 to 3 times the average American household. Go find some of those people, figure out what they’re doing to make ends meet, and copy them. It’ll likely involve fewer vacations, avoiding debt, eating out less, buying cheaper groceries, putting the kids in fewer activities, and driving a dumpier car.

Now, one thing that IS unique about child care occurs with a two-earner family. You have to really evaluate what that lower earner is being paid AFTER paying for child care, taxes, maybe tithing, work-related expenses, and the additional money you can save by having someone economizing at home. Lots of people aren’t interested in working when they realize they’re doing it for $2 an hour. Great, be a stay at home parent. Child care issue solved.

There are other ways to solve the child care issue too. Move closer to family. Find a neighbor. Move your mother-in-law to your place. Don’t have kids. Lots of options. None of them easy, but paying off your debt, doubling your income, and getting rich aren’t easy either.

 
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Own a Business

 

Another dilemma faced by these lower earning professionals is they’re almost always employees. An employee, by definition, is never paid what they’re worth.

If I’m an employer and hiring you increases my income by $100K, there’s no sense in paying you $100K. There would be nothing left for profit and no sense in me going to all that effort. I have to pay you less than you can generate, so I pay you $80K and keep the $20K profit. It must be so, at least in the long-run, if the business is to survive.

If you want that other $20K, you need to own stuff. There are PAs and NPs who own clinics. There are ODs who own their own office. There are pharmacists who own their pharmacy. Sometimes you own a business that has nothing to do with your main profession such as a website or real estate.

But, as a general rule, those with high incomes and high net worths own stuff. Try to own businesses when possible. When the business does well, you get to keep all the profit.

 

Don’t Live Like a Physician

 

This may seem obvious, but if you’re a PA making $100K, you can’t live like a physician making $200K. A pre-partner physician can’t live like the partners. Anyone with student loans can’t live like someone that doesn’t have them. Anyone who wants to actually become financially independent can’t spend as much as someone who isn’t saving for retirement. You don’t get a pass on math.

 

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What do you think? What financial tips do you have for the PAs, NPs, ODs, and pharmacists out there? How did you build wealth despite a lower income?

10 thoughts on “How to Build Wealth on a $150,000 Salary”

  1. Great post! I ended up saving up a seven figure net worth despite doing my training (7 years) in NYC and then leveraging geographic arbitrage but saving almost all of my income as an academic attending on a salary of $160-$180K for 5 years. Maybe I couldn’t go out to all of the restaurants in NYC (didn’t have time) and I certainly didn’t buy a big house when I started as an attending (rented a 1,000 sq ft loft apartment which I loved!) but I could also quit after my boss asked for a soul crushing amount of service time. And I haven’t looked back since! Just to say that there are ways to make it happen-and you don’t have to be miserable in the process!

    Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. I know a lot of these posts on the WCI network generate a lot of hate and pushback (i.e. how to live as a “low wage” physician). I think the big issue is that when you look at the MD finance blog space there aren’t people in that situation pursing FIRE. Not to diminish your or Jims efforts but the most prominent people in the MD finance/FIRE space are all high income fields (anesthesia, rads, em) and often live in low cost of living areas. For a pediatrician in NYC who is breaking even on 150k they look at the anesthesiologist making 350k and say sure, if I had that salary and my current lifestyle sure I could fire in 5-10 years. That goes into a whole other topic of why do pediatricians make $150k. I think if there are examples of FIRE of MDs in peds/family med especially living on the coasts that would provide some motivation for these folks. keep up the good work…

    Reply
    • If it is inspiring or helpful, I am a full time er doc on a low salary 150k which is pretax and deductions in a high cost of living area of the country ie avg house cost if 600k. I am looking at FIRE or more likely move to part time in 5 years or after 7 years of full time work (paid off student loans this year and recovering…more financially but a little physically:)… from 2 babies in 3 years even without a maternity leave for one of them). I think it takes a different outlook to be honest and focus more on frugality. My partner is working very limited hours right now so we can avoid child care as much as possible and all their income goes into retirement.

      Reply
  4. Interesting post. It is true that there can be extra work a person can do to earn extra income. With Physicians just out of training, the common advice is to live as residents a little longer, say for the first 5 years or so. There are many websites and blogs about frugal living. One benefit to the Covid pandemic for many people is the fewer opportunities to spend discretionary income. Less eating out, less quick get away trips or vacations, no cruises, less theater and concerts, less in home entertaining, far fewer spontaneous shopping trips (except Amazon!). Basically, what I am saying is that most of us could get by on less and save/invest the rest. In addition, there should be an emphasis at exploring side gigs also. Now all we have to do is to continue the saving behaviors when Covid – 19 is in the rear view mirror.

    Reply
  5. I’m not a doctor, make only $165k/year, and spent 11.25 of the last 12 years in the SF Bay area, yet I have managed to accumulate $1.5 million by age 39 including $500k in taxable and $1Mil in tax-deferred. No debt. No rental properties (yet). No inheritances. No tricks.
    And I had $80,000 in student loans a decade ago that are now gone. FI is a mindset not a process. My FI # is $2Million, but I may keep going a bit past that.

    Reply
    • We need you to write the follow-up post, J.

      Strong work!

      Yes, most doctors make more $, but most of us also have a negative net worth as we start our 30s. There’s a lot to be said for having a 5 to 10 year head start on the career path in many other fields.

      Cheers!
      -PoF

      Reply
    • How were you able to do this? Once you take out taxes, $165,000 equals $99,000 in annual take-home pay (at 40% taxation rate, which is about what I pay) or $110,550 in annual take-home pay (at a 33% tax rate, which I also see commonly posted).

      At a 40% tax rate, $99,000 in take-home pay over 12 years totals $1,118,000 million. At a 33% tax rate, $110,550 totals $1,326,600 over 12 years. And that would be the complete take-home pay.

      How did you turn the above numbers into $1.5 million without tricks? I’m seriously interested.

      Reply
      • I actually made less than $165,000 most years and less than $60,000/year in the years 2003-2008. Yet, I maxed out the 401k pre/tax and Roth IRA contributions every year from 2004-2005, and from 2008-2020. I was in grad school for portions of 2006-2008. $350,000+ of the net worth came from appreciation of a condo I bought in 2011 and sold in 2018 in San Francisco. About $150,000 of the gains in my Roth IRA came from buying and selling Amazon and Apple stocks on the open market. My employer has a very high 401k match % which alone has constituted about $140,000 in matches over the years as well. One way I was able to do all this was not having a wife or children. Not the plan/ideal personal state, but certainly helped with the financial wealth building.

        Reply
  6. All very good points from a numbers standpoint but an individual’s life rarely fits a spreadsheet. Think this is why posts like this sometimes frustrates people.

    We all start from a different place and have different definitions of success.

    What I observe is that some folks get upset when someone else makes financial independence a priority in their lives and makes the hard choices they wish they could make.

    For example, I am well aware that I could be in the FIRE crowd with my job as an anesthesiologist. Many people have done it.

    However, FI isn’t enough of a priority for me to make the changes in my life that would be required to achieve FI. We are not going to move to a lower cost of living city, We could downsize our home but then we would not have the space to host large family gatherings. I could send my children to public school but there are consequences of that decision as well.

    I really enjoy following the online FIRE crowd and did participate some for a while but I found that by getting more involved at work(finding meaning in the work as a physician) and running our own race it hasn’t been as much of an issue as I though it would have been 5-7 years ago.

    Can someone be FIRE at a salary of $150k and less, absolutely. But it needs to be a priority and guide most of their decisions.

    Your biggest pearl is be an owner. From my interactions with the independently wealthy crowd, they all owned something that appreciated greatly, kinda like your website 🙂

    Great post as always.
    Dr. in Debt.

    Reply

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