That first attending paycheck doesn’t even seem real. $7,000? For one week?!?

I started out doing nothing but **locum tenens work** for nearly two years. As a locum, I was paid weekly, and nothing was withheld from my paycheck. Being paid hourly, I usually brought home between $6,000 and $8,000 a week, but if I had overtime or call shifts, I could see 5-figure checks. For one week! I didn’t make five figures in a three-month quarter as a resident.

What do you do with all that money? It depends. Being homeless for all intents and purposes, having rented out the only property I owned for much of that time, I didn’t have a whole lot to spend it on. Some travel, yes, and a few nice meals, but almost all of it just went to the bank and investments.

Those were **great habit-forming years**. How do you build good habits when you’re not in a situation like I was? Dr. James Turner has some ideas about physician lifestyle inflation and how to best avoid the damage it can inflict upon your finances. This post was originally published on The Physician Philosopher.

# Physician Lifestyle Inflation After The First Big Paycheck

Every year, I give a talk to my residents entitled “Investing 101.” They likely expect to sit down and learn the difference between stocks and bonds. Or maybe how to define a putt, call, or mutual fund. Instead, the first fifteen minutes are spent on an entirely different subject.

When the rubber meets the road, investing talks aren’t very helpful if there is no money to invest. See, doctors don’t have an investing problem, they have a spending problem and a lifestyle inflation problem. This is the big dilemma: lifestyle inflation.

**My Last Resident Paycheck & First Attending Paycheck**

One of the “hooks” I use to help my residents understand this problem is to first show them my last resident paycheck, where my monthly take home pay was around $3,500. I then show them my first attending paycheck, which resulted in a monthly take home of about $16,500.

Then, I wait.

The eyes start to open, the “*ooh’s & ahh’s*” start to come out as the residents wrap their mind around that number, which actually ends up being higher once I meet the social security wage base each year.

Then, finally, someone says, “*I can’t even imagine making that much money in a single month. That’s like five or six months of pay for us.*”

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**The Big Dilemma: Lifestyle Inflation**

Unfortunately, the residents only get to enjoy this amazement momentarily as I then spend some time crushing their dreams of buying the big house, buying the new car, private school for their kids, and the like.

Why? Because this started as an investment talk. You have to save money first, if you plan to have any money left to invest. Otherwise, the talk is pointless.

First, I show them what it’ll look like if they don’t save intentionally and spend the money how they want when they finish training.

Here is a common example that I use. If they want to have $4 million dollars for retirement by age 60, which allows for about $160,000 in annual spending in retirement based on the 4% rule, then they need to be saving about $4,500 per month (assuming that they graduate around age 32).

After a massive lifestyle inflation, this might not be possible.

The following big picture items swallow up that substantial attending paycheck they just witnessed. Let’s look at how much we would have left if we subtract all of the following from that $16,500 paycheck:

- $4,000 mortgage payment ($750,000 home at 4.5% – 30 year fixed)
- $3,000 student loan payment (paid off in ten years, because they didn’t use a student loan refinance ladder)
- $2,000 to daycare or private school for kids
- $1,200 car payments
- $1,650 to tithing/charity
- $500 for disability/life insurance

Notice that I didn’t mention anything about vacations, traveling, gas, groceries, utilities, cell phones, etc. That’s all in addition to the previous fixed expenses. Despite that, guess what your take home pay is after those large lifestyle decisions?

**Only $4,150**

**Only $4,150**

And, we just said that we needed to be saving about $4,500 per month to retire at age 60 if we started saving at age 32. Yikes. With that kind of lifestyle inflation, we aren’t going to make it.

Even without tithing/charitable giving, the take home would be $5,800. I don’t know too many doctors who can save $4,500 monthly and live on $1,300 per month for gas, groceries, cell phones, dining out, and vacation.

Remember, they were living on $3,500 a month as a resident.

*This, my friends, is The Big D**ilemma. *It is caused by lifestyle inflation.

**Related:**

**A Different Way**

Lifestyle inflation crushes any chance you have of financial success. You simply cannot do it after you finish training and hope to be able to retire at an age that would be acceptable to you.

Can it be different? Yes, it can.

It simply requires residents/fellows finishing training to make intentional decisions based on what they want. They need to figure out their monthly savings requirements and how quickly they want to pay down their debt FIRST.

Then, they need to build a lifestyle that allows them to reach these goals.

**How much do I need to save?**

How does this work?

If you follow the formula listed below, we can figure out how much you should be saving each month based on their individual goals. Ideally, this will be done prior to finishing training.

- Determine the age at which you’d like to be able to retire. Use the Kinder Questions, if you haven’t figured this out yet.
- Then, determine how much you would like to be able to spend in retirement annually. (This assumes, of course, that you are debt free – hopefully through refinancing your student loans). If you are debt free, spending in retirement should only account for travel, food, leisure, utilities, taxes, health care, etc.
- Multiply the annual spending from number 2 by 25 for a typical retirement at age 60-65. Multiply by 30 for an early retirement (to be conservative).
- Then, you get to do some fun excel sheet math using the future value function, which is explained below. Plug in your anticipated monthly savings rate to see how close you are to getting to the number you need to retire when you want.

**The Cold Hard Math: Future Functions Formula**

- Plug this into excel –> =FV(6%/12, N, [pmt],[pv],1)
- For “N”, plug in the number of months that you are from your anticipated retirement age you determined in number 1 above.
- [PMT] is the amount of monthly savings. For excel to make sense of things, it needs to be negative. So, if you are saving $5,000 per month you need to put in -5,000.
- [PV] is the present value of your savings accounts. Again, plug in a negative number. If you have $50,000 in savings it should be inputted as “-50,000.”

Here is an example. Let’s say that we determine you can save $5,500

Let’s further say that, including your employer’s 401K match and backdoor Roth IRA contribution, you think they will be able to save $5,500 per month.

How much would you have in 28 years (336 months) assuming they have nothing saved and will receive 6% compounding interest? Well, plugging that into excel, it would look like this:

*=FV(6%/12, 336, -5500,0,1) = $4,801,343*

That’s more than enough! What if you wanted to retire by age 55 (23 years, or 276 months).

*=FV(6%/12, 276, -5500,0,1) = $3,273,669*

Now, they aren’t quite making it. This number would only allow for $120,000 in annual spending. So, if you wanted to retire by 55 and be able to spend $160,000 in retirement, you would need to be saving more each month.

**Take Home**

The point is this. The attending paycheck does seem quite large until we inflate our lifestyle to the point where we cannot save or pay down debt.

Instead of being a typical American and letting lifestyle inflation determine our savings rate while we hope that we have enough left to save for retirement after that point – We should do just the opposite. First, use a backwards budget to determine the savings rate required to retire by the age you want.

Then, build a lifestyle with what is left. Pay your future self first, and your current self last.

**Has lifestyle inflation gotten the best of you? Your colleagues or friends? Tell us the most egregious examples you’ve seen or what you’ve found works well to combat it!**

Great post! A must read for everyone wishing to “adult”, ie everyone. Hopefully we can get this in the hands and heads of all high-school, college, and grad school students “just in time!”

Subscribe to get more great content like this, an awesome spreadsheet, and more!Great post!

Minor nitpick on the FV calculation in “The Cold Hard Math” section:

The approximation 6%/12=0.5% for the monthly rate is almost correct, but not 100% accurate. This leads to [(1+0.5%)^12]-1=6.17% return per year.

The correct rate is POWER(1+6%,1/12)-1, ie:

=FV(POWER(1+6%,1/12)-1, 336, -5500,0,1), which is $4,668,540 instead of $4,801,343

This is an excellent post and something that needs to be taught in high school or college. I have vague plans of teaching a personal finance class at one of the local colleges if I get bored in retirement. This is a subject that will almost certainly not be in the text book, but it will be in my class. It’s not just a problem for doctors, either.

True! Living paycheck to paycheck is a way of life for many, regardless of the size of the paycheck.

Cheers!

-PoF