Live like a resident, he says.
Have you ever watched a movie a second time and not only appreciated the film more but also noticed nuances that you completely missed the first time around?
Or perhaps you didn’t see the show in its first run through the theater, but caught it later on? The movie (or television series, book, or blog post) still holds up, doesn’t it?
That’s the idea behind the Saturday Selection series. I’ll be sharing some of the best content curated from The White Coat Investor every other week. If the post is new to you, great! If not, you may pick up a pearl or two you missed the first time around.
This post originally appeared on The White Coat Investor.
Live Like a Resident
Some of the best financial advice ever given to me by a colleague is encompassed in these four words: “Live like a resident.” Simple, yet profound. There are really five pieces of advice encompassed in this short phrase.
# 1 When you are a resident, don’t live like an attending
It appalls me to see someone taking out just as many loans as a resident as they did in medical school. They might be special doctor loans to live off of, it might be a car loan for that car you now feel entitled too, it might be a big mortgage, or it might just be running up the credit card loans.
When you’re a resident, live like a resident.
You’ll make $40-$50K, which is the average household income of an American. These few short years give you perspective on how your patients live that you can carry with you for the rest of your life. Maxing out a $5,000 Roth IRA is a big deal when you only make $40,000 a year.
You’ll sometimes have to decide between an upgraded cell phone plan and taking a road trip. Believe it or not, living within your means doesn’t get any easier whether you make $40,000 or $400,000, you’re just moving bigger numbers around in your budget.
# 2 When you finish residency, don’t upgrade to an attending lifestyle
If you could live in a 2,000 square foot home in a mediocre neighborhood as a resident, you can still do it. Doing so allows you to do several things- First, you can pay off your student loans. Now that they’re all at 6.8% rather than the 1.9% my classmates refinanced at, paying them down quickly is much more important.
Second, you can get your portfolio jumpstarted. As we saw in a recent post on compound interest, the early years of saving are the most important because they lend more time to compounding.
Also, as can be seen given our current relatively low-yield/low-return environment, you’ll need to save more to retire comfortably compared to preceding generations. What better time to get started than right out of residency? It will be far harder to cut back your lifestyle later, than never to have upgraded it in the first place.
Third, you can save money fast for a down payment on a home. That gets you a little lower fees and interest rate than using a doctor mortgage loan.
# 3 Work hard
You’re probably coming out of a residency where you’ve gotten used to 60-90 hour weeks. As one of my emergency medicine colleagues recently said, “I just got done working 20 shifts a month for three years; Why can I now only work 14?” He figures if he only cuts back to 17 he gets an improved lifestyle and a few extra thousand a month, which will go a long way.
The marginal utility of money is much higher for him now than it will be in 20 years, and it will probably be worth it to him to trade more of his time for money now than later.
Working more has the added benefit of improving clinical skills and establishing business contacts with physicians and others. The learning curve is still steep for a year or two out of residency, so why not pretend you’re a fellow and just upgrade your lifestyle a little.
# 4 Five times the pay doesn’t equal five times the lifestyle
When you do upgrade your lifestyle, remember that 5 times the pay doesn’t equal 5 times the lifestyle. You will pay far more in taxes as an attending. You will have a lot more business and CME expenses also.
Many doctors in their first years out of residency will find more mouths to feed at their tables. Nicer cars burn more gas and cost more to repair. Bigger houses cost more to heat, insure, maintain, and furnish.
You’ll also need to get serious about saving for retirement. Bottom line? 5 times the salary probably only means you can double or triple your lifestyle. The longer you can delay upgrading, the more financial benefit you’ll see. Sure, you don’t want to delay gratification until you’re 90, but just holding on a little longer after residency can make a huge difference later.
# 5 Doctors Should Save More Than Non-Doctors
Remember that part of your salary is to make up for the fact that you spent over a decade of your life to train for your chosen profession. Your college roommates not only have lower loans, but they also have had more years for their savings to compound.
You will need to save a higher percentage of your income (and a much higher percentage of your net income) to get to the same place for retirement as them. Plus, on a relative basis, Social Security will make up for a much lower percentage of your retirement income than for a lower wage earner. Whereas they are likely to do okay with a 10-15% savings rate, you’ll probably need to save 20%-25% of your income. If your lifestyle upgrade encompasses those extra funds, you’ll never catch up.
So if you want to have the financial freedom to work fewer hours, retire early, explore lower-paying niches of your specialty, do medical mission work, or just have nicer stuff down the road, LIVE LIKE A RESIDENT during and for at least a few years after residency.
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[PoF: If you truly “live like a resident,” you can probably save up to 75% of your takehome pay. I challenge physicians to live on half, which is not only living better than a resident, but will also allow you to be financially independent in 15 to 20 years from a net worth of zero.]
What do you think? Did you live like a resident for a few years after residency? Why or why not? How long did you do it for? Comment below!
20 thoughts on “Live Like a Resident”
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I’m not a “real” doctor (chemistry Ph.D. instead) but your same lessons fit very well with the transition from graduate school to a much higher income job. A 400% raise vs the small grad school stipend is common so if you “only” double your spending, you’re saving about 50% of your new higher income.
This is what I did and it didn’t feel like a sacrifice to be saving 50%…..it felt like the massive lifestyle increase it was! You don’t get many opportunities like this so it’s important not to waste it. I’m convinced this is one reason so many scientists end up pretty wealthy even on much lower salaries than physicians.
A Ph.D. counts as doctor in my book. My uncle was a tree doctor with a Ph.D. in forestry. Smart play on living twice as good as a grad student and still living on half.
Question for everyone more experienced: Regarding the 20-25% savings rate…should I calculate that percentage on our base gross salary (gross $246,000) or our gross salary after working overtime ($373,000)?
I am new to the PoF and have been humbled after facing my latest spending report, which was inspired by the 4 Physician posts.
To my extended family and friends I am considered frugal, a tight ass with my budget and smart with investing (3-fund portfolio thanks to the Bogleheads). But after comparing my spending to the 4 Physicians, we were astonished with our near $200,000 in spending. My wife and I are facing the music making efforts to reduce spending. For 2017, our savings rate is 16.8% of our total gross income.
Stay tuned… I’ve got a post due Tuesday about a family spending $200,000 a year in a similar fashion.
I like to calculate net savings rate — percent of takehome pay, because it looks better 🙂 My suggestion is to do your best to live on half your takehome pay, but that’s not always possible. You’re well above 20% now, though.
I think you deserve SOME increase in lifestyle when becoming an attending. I mean, why work so hard to achieve so much if you’re not going to reap the benefits of what you sow. I’m not saying to go into hock or anything buying a Maserati. I’m just saying that taking a reasonable vacation, or going out for a nice dinner every now and then to keep you sane is not a bad idea.
The other thing to keep in mind is that there are some things you can only do at certain stages in your life. Say you’re 30, newly married, out of residency/fellowship etc. and thinking about kids. You want to go on a safari to Africa. If you don’t do this trip now, it’s going to be awfully hard to do it until your kids are older and can go with you.
I do wholeheartedly agree that you should not live like an attending while a resident. I also think it’s key to realize that as a resident when looking at a given salary, the lifestyle you think you can afford on that salary will be much less than what you actually will be able to afford in reality.
I imagine there is a lot of social pressure to ‘upgrade’ that lifestyle. I see this in my world of the DoD. Lots of newly retired folks coming off active duty with a nice pension. Add in a nice six figure salary with the Government or as a contractor and now they are making more than the could imagine. All of a sudden they feel compelled to upgrade the house and car.
Hats off to all those doctors out there putting up those weekly hours at work. Much respect!
The longer you hold off on the niceties of life, the better off you are! Lifestyle inflation is VERY expensive over the longterm. The biggest key to our early retirement last year was banking our raises early in our careers. For us it was … live like an MBA!
I was just looking at my budget, and since I started working I’ve been saving an average of 75% of my earnings. I’ve definitely lived like a resident for my first almost two years of work, and I’m hoping to keep doing so for a while longer. I find it far more satisfying to pay off debt and accumulate savings than I would to buy a house (although that is in the plan in the next few years) or have a fancy car (never in the plan).
Also, I agree entirely with Tonya’s comment above; I have no desire to keep working at the level I worked at as a resident!
I agree with you guys. I certainly didn’t work as much as a resident my first 4 years as an attending. I didn’t even spend like one. But I limited my lifestyle increase to maybe a resident and a half, and that made all the difference. Think of it as a concept rather than a hard guideline. The goal is to not grow into your attending income right away and use the difference between your lifestyle and your income to build wealth.
I agree with everything but the work harder tip. I mean holy shit that is a LOT of time at work. I would want nothing more than to not work as much and take care of myself and my health more. But I think you can do that without spending a lot! 🙂
I’m sure it seems like a lot of time to a non-physician, but when you’ve done that for the last 5-7 years, it doesn’t seem like all that much. At any rate, it’s all a continuum. You could just spend a year or two moving from the 80 hours a week you did as a resident to the 50 you’re doing as an attending. In the meantime, you’ve banked a lot of extra cash.