The Key to Physician Financial Success

November 24, 2014
Steven Podnos, MD, CFP

One important skill that helped you become a physician can also help you become financially successful. Unfortunately, many forget it after residency.

Becoming a physician involved a great deal of delayed gratification.  It meant studying instead of partying in college.  It meant long, hard days and nights in medical school and residency while your peers were living full regular lives with work and family.  It probably meant assuming significant debt along the way. 

That acceptance of delayed gratification made it possible for you to achieve the success of becoming a practicing physician. 

What many physicians fail to understand, however, is that delayed gratification is not just critical for professional success, it's also critical for financial success.

Surprisingly, many physicians seem to lose their tolerance of delaying their "wants" early in practice.  Perhaps they have been denying themselves for too long, and they can't help but indulge. Very often I see young physicians buying cars and homes that are just too expensive as they leave residency.

Delayed gratification financially means living well below your means.  It means saving at least 20 percent to 40 percent of your annual income right from the start.  It means avoiding debt vigorously. 

As a concrete example, a rough rule of thumb in buying a home is that the annual cost should not exceed 25 percent to 35 percent of your annual income.  The young physician should make this 25 percent to 35 percent of not their income, but of their income left after saving 20 percent to 40 percent.  Buying or leasing an expensive car as you enter practice is a poor prognostic sign of achieving success.

Delayed gratification in what you do with your savings is also important.  It means having disciplined non-emotional investing habits.  It means buying and holding many asset classes for decades.  It means buying those asset classes that are unpopular with new savings.  Buying the stocks that are on TV is a bad prognostic sign.

The physician families I work with (and my own) that started out saving aggressively from day one in practice find themselves in good shape after 20 years.  They have the financial strength to have no debt, and the ability to live well below their means.  In the current environment of decreasing income and job insecurity, they sleep better at night than most of their peers.

So, just continue the same excellent behavior of delayed gratification that allowed you to become a physician.  You'll like the results.