A Tale of 4 Physicians: The Impact of Lifestyle on Financial Independence

January 12, 2021

In January of 2016, a week after this website was launched, I first published the original Tale of 4 Physicians. This short post became the basis for a series of posts as I explored how changes in life situations and lifestyles affected the ability of these 4 physicians to attain financial independence.

Five years have now passed since the world met Drs. Anderson, Benson, Carlson, and Dahlgren, and it’s time to change things up a bit and expand upon their stories.

To make their financial lives more relatable, these early-career doctors are now paying down student loan debt, spending a bit more, but also earning a bit more as they’ve increased their household incomes by $40,000 as compared to five years ago.

In terms of taxes, they’re now paying a bit less than they were in 2016. The Tax Cut and Jobs Act lowered their tax rates and gave them access to the Child Tax Credit that was previously only available to those who earned less.

Let’s see what the future holds for these doctors, who, when reimagined in 2021, are burdened with student loan debt, earning and spending a bit more than before, and paying lower tax rates.

These 4 physicians have a lot in common with one another. They are early in their careers, married, and they each have two children that are past the daycare stage but living at home. Their net worth is close to zero as the little bit of assets they’ve saved up is offset by their debts.

Their household incomes, whether from a single, strong income or as part of a dual-income household, are identical at $340,000, and as employed physicians, they have access to a 401(k) with a match plus profit sharing, and a 457(b).

They choose a high-deductible health insurance plan, the premiums of which are partially paid by their employer with the rest coming out pre-tax from their paychecks. They can therefore contribute to a Health Savings Account (HSA).

Although they earn too much to contribute directly to a Roth IRA, they’ve been reading Physician on FIRE and know everything there is to know about the backdoor Roth IRA, making annual contributions if there’s enough money left over to do so.

Where do they differ?

This tale shows the impact of lifestyle, and by lifestyle, I’m not talking about the choice to be an ovo-lacto vegetarian or ultimate frisbee fanatic. I’m talking about money — how much each household spends, in particular.

We’ll take a look at how various levels of annual expenses allow these doctors to save for retirement and how long it will take them to become financially independent as a result of their spending choices.

Meet the 4 Physicians

The Budgets of the 4 Physicians

Dr. A

Dr. Anderson is relatively frugal. While expenses of $120,000 a year may not seem frugal to the average American household earning about half of what her household spends, the good Dr. A doesn’t know many physicians that practice the fiscal restraint that she does.

Her mortgage is $2,500 a month, which affords her family a nice home in a relatively low cost of living area. The next biggest expense is her student loan payment at $2,000 a month. She was able to refinance to a fixed rate of about 3% for a 10-year term, although she’s jealous of her colleagues with variable rates than floated down to well under 1%.

Most of their vacations are spent close to home, and if they venture out further, they usually visit family and friends, keeping the travel budget very reasonable at $4,000 a year.

Their $5,000 in giving includes both gifts to individuals and charitable giving. They’ve also got a sinking fund to cover the occasional expense like a new vehicle or possibly an RV one day.

Health insurance premiums are partially covered by her employer, and the remainder of her premium comes out of her paychecks pre-tax, so it’s not reflected in this line item budget.

Similarly, the $7,200 she contributes to an HSA and the $10,000 a year in 529 contributions are considered investments rather than spending, and they’re not a part of the spending budget.

This is what a typical year might look like for Dr. Anderson and her higher spending colleagues. The exact numbers ebb and flow a bit from year to year, but her lifestyle costs her family about $120,000 annually.

Dr. B

Dr. Benson doesn’t know how people can live like Dr. Anderson. He didn’t spend “six years of evil medical school” to be called Mr. Evil or to live like a resident as an attending.

On the other hand, Dr. Benson understands that it’s important to save for the future while living a little, and has a lifestyle that has his family spending a bit less than half of his annual salary.

Since finishing residency, they’ve upgraded their vehicles. They wanted to fit in when they bought a nice home in an upscale neighborhood in an otherwise average cost of living area.

When you move into a nicer home in a higher-end neighborhood, everything costs a little more than it did before. In some cases, it’s because the costs are simply higher. It costs more to heat and cool a larger home. The property taxes are based on the home’s value. The same is true of home insurance.

In other ways, spending seems to increase based on osmosis. When everyone around you is golfing or skiing most weekends, you’re more likely to do the same. It’s easy to see how Dr. Benson’s family could easily spend 1/3 more than Dr. Anderson’s family, and that’s exactly what they do.

Their expenses average $160,000 a year.

Dr. C

Dr. Carlson doesn’t think her family’s living all that grand, but in a high cost of living area, $200,000 a year is not enough to let them live like kings and queens.

Don’t get me wrong; they’ve got it pretty good. Their home, purchased with 20% down for $850,000 a couple of years ago is now worth nearly a million dollars. They upgraded from Toyota to Lexus, and they take an international vacation most years.

Dr. Carlson’s kids aren’t hurting, either. The family’s $5,000 education budget gives them private piano, guitar, and tennis lessons.

They still manage to set aside $4,000 a year into a sinking fund for future big-ticket items while realizing that it’s probably not enough.

They’re saving for their kids’ college education in a 529 Plan, but there’s not enough income to do that while still maxing out all tax-advantaged retirement accounts. While she makes a very solid income, she struggles to stretch the money as far as she’d like, especially while paying down about $200,000 in student loan debt like her colleagues, at a clip of $2,000 a month.

Dr. D

Dr. Dahlgren went to medical school with champagne wishes and caviar dreams. He should have gone to business school instead.

It was not easy to delay gratification for all those years, and now he’s making up for lost time. His college buddies who went on to get their law degrees and MBAs have been living the country club lifestyle, and now it’s time for him and his family to join them.

He doesn’t want to live paycheck to paycheck, and he stashes a little money away in his 401(k) but not nearly enough to max it out or take full advantage of the company match.

Dr. Dahlgren’s home was worth over a million dollars when he bought it; waterfront doesn’t come cheap. Between the luxury auto lease, the equestrian lessons for his kids, and the frequent dining out, there’s not much left for a sinking fund, but he does set aside a few thousand dollars a year.

He figures he’ll start saving more for retirement and that next big purchase with increased patient volumes in the future. That was the plan all along, but extra shifts were hard to come by in 2020 with elective procedures down across the board.

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Follow the Money

With household incomes of $340,000, these families are able to live well. Two of the four families are able to max out all available tax-advantaged retirement accounts while also saving for their children’s future college educations.