While it may sound surprising for an established physician to be living paycheck to paycheck, it’s hardly rare. Overall, nearly 10 percent of U.S. workers making $100,000 or more live in this fashion, according to a 2017 Harris Poll. Circumstances particular to physicians—namely student debt, a late start to saving, and an eventual a big jump in pay—may boost the risk of long-term financial distress.
With an average of $200,000 debt from the get-go, many physicians begin their careers at a financial disadvantage. Then, living off of a relatively low salary during residency not only makes it harder to repay loans, but it also can set doctors up for feeling wealthier than they are once their incomes increase.
“There’s a tendency for people to want to buy the big house right away or get a Tesla. They feel rich all of a sudden, so they start taking away from their cash flow,” says Andrew Musbach, co-founder and financial advisor with MD Wealth Management. “Then as it gets closer to wanting to retire, they realize how far away they are. And at that point they’ve already developed habits and a lifestyle that are hard to cut back,” he says.
While many physicians understandably feel that they deserve to live a lifestyle commensurate with how hard they’ve worked, successful budgets are determined not by the size of one’s salary but by income in the context of his or her goals, such as buying a house or paying for children’s education.
“They might think they’re saving enough by maxing out retirement accounts, but what they don’t realize is that to fund their lifestyle they’re going to have to save a lot more,” Musbach says. “What they also miss is that their timeline is crunched because it’s a late start by 10 years.”
Another common misconception held by physicians is that once they are done with training, the money they will be earning will ensure they can pay back any debt. However, that reasoning doesn’t account for compound interest, notes Nisha Mehta, MD, a radiologist and physician advocate.
“Unfortunately, the lack of financial knowledge also means that they are more vulnerable to bad financial advice, which can lead to a lack of focus on paying down debt,” Mehta says. “This, combined with the lifestyle inflation that many experience when they transition out of training, can be dangerous.”
It’s never too late
Ideally, physicians should begin their financial planning (or at least learn about pitfalls) as early as possible, there are ways to ease financial strain at any career stage. “There’s this pervasive belief that unless you start early, you’ll never catch up,” says Bonnie Koo, MD, a dermatologist and author of Wealthy Mom MD. “There is nothing you can do to change the compound interest equation. It takes a lot of time for investments to grow. But then you have to be open to other methods of building wealth,” she says.
Continue reading on page 2...