Of course, having a lot of money and spending a lot of money are not the same thing; in some ways, they’re the exact opposite. Every dollar you spend is a dollar that someone else now has and you don’t.
There are people who have a lot of money and can afford to spend a lot of money, but they’re not thirty-something physicians with six-figure student loan debt and a physician mortgage to match.
As Dr. Jim Dahle points out, for most of us, living reach means being poor. This post was originally published over at The White Coat Investor.
Living Rich Can Keep You Poor
Income Is Not Wealth
Few people, even among high-income professionals like doctors, ever read a book about personal finance or investing. The mainstream media often reinforces the idea that having a high income is the equivalent of being wealthy.
Even the popular concept of “the 1%” is usually defined in terms of income, rather than real wealth. I hope this isn’t the first time you have learned this lesson, but income isn’t wealth. Wealth is defined by net worth, and net worth is built first by saving some portion of your income, then by investing it in some reasonable manner. Income is what you’re paid; wealth is what you have left.
Societal Expectations Are Against You
Your patients, your family, your friends, and probably even you have expectations of what your financial situation should look like. That is usually imagined in terms of what you spend—i.e. how large your house is, how nice your car is, where you vacation, how many toys you own, where your kids go to school, and what you do on your weekends. In fact, there are entire industries that wish to propagate this idea.
I was once asked to write for a magazine aimed at physicians. They asked me to write my first column on what I felt was my best financial tip for doctors. I told them my best tip was for new attending physicians to spend dramatically less than they earn by continuing to “live like a resident” for a few years after residency.
If you gauge how you spend on what you feel others expect you to spend due to your position or your income, then you are almost surely spending more money than you can while still becoming wealthy.
The Money Taboo
Society has a bit of a taboo about talking about money. However, that general taboo is nothing compared to what medical students experience from the time they start filling out medical school applications all the way through their careers.
In most academic hospitals, any discussion of financial topics is looked down upon. You weren’t supposed to have gone into medicine for money. You try very hard to divorce the ability of your patients to pay for care from the care they actually receive.
Being called “a rich doctor” is actually an insult. This attitude bleeds over into our personal financial lives and leaves us vulnerable to our own natural tendencies to spend and also the tactics of unscrupulous financial professionals.
Learn to fight against it! Learning how to properly manage your income will not make you a lesser doctor. In fact, it will increase your ability to practice medicine in any manner you see fit.
If you don’t like to use words like “wealthy” or “rich,” then how about “comfortable” or “financially independent?” There is little excuse for someone with an income of $150,000, $300,000, or even $500,000 to not reach financial independence by mid-career. But it is surprisingly common for physicians to end up working late into their 60s or even 70s not because they wish to, but because they have to in order to sustain their family’s ridiculously high rate of spending.
If You Wish to Stay Poor Despite Having a High Income, Be Sure to do the Following:
Run up as much debt as you can during medical school. You’ll be a doctor soon. You deserve to live like a doctor now.
Buy your cars on credit. Or better yet, lease them. Be sure to upgrade every couple of years.
Housing and Private School
Buy a big house in the best neighborhood. Then send your kids to private schools. Heck, why wait until you’ve finished residency? Using a “doctor loan” you can get a million dollar mortgage with nothing but an employment contract!
Hire the first person who contacts you wanting to be your financial advisor. Ignore that nagging feeling in your gut that he cares more about his commission than your financial wellbeing. Gradually transfer 25-50% of your retirement to his retirement account over your career.
Don’t bother learning anything about investing. Money is your most easily renewable resource. If your investments don’t earn much, you can just see a few more patients.
Buy whatever insurance the salesman recommends rather than evaluating the possible financial catastrophes in your life and insuring well against them.
In short, living like you have a limitless supply of money is a good way to ensure that you will always have financial stress in your life. If you learn to carve out 20% or more of your gross income to build wealth each year throughout your career, you may find that you have financial and lifestyle options available to few of your peers.
The irony in all this is that living on 80% of a physician income is still a ridiculously wealthy standard of living when compared to the average American, much less the average human being throughout the world.
As I frequently tell medical students, “If you can’t live on $200,000 a year, you have a spending problem, not an earning problem.” Control your spending and spend a few hours each year learning about personal finance and investing and you will eventually become the rich doctor your family and friends think you are.
What have you done to ensure your spending is aligning with your financial goals? What pressures do you feel from family, friends, and the medical establishment to spend more? How do you resist them? Comment below!