Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

10 reasons why doctors spend too much money

James M. Dahle, MD
Finance
May 13, 2018
266 Shares
Share
Tweet
Share

Once every couple of years I have medical students from the local medical school over for dinner. At some point, the conversation usually turns to finance, and I commiserate with them about their loan burdens. I typically toss them a few pearls of wisdom, wish them good luck, and we move on to something else. They always think it’s funny when I say, “If you can’t live on $200K, you have a spending problem, not an earning problem.” Of course, that’s true, they think. They can’t even imagine why I would say such a thing since no doctor can possibly have trouble living on $200K. I almost never use that line when I’m talking to attendings, even though it is no less true. It comes across as preachy, and sometimes impossible. Why is that? Well, it’s because doctors spend too much money. I’ve spent a lot of time thinking about why that is and came up with ten reasons. Let’s talk about them.

1. Pent-up deferred gratification

Reason number one is that we deferred gratification for so long, that when we first start getting a real paycheck, instead of having a little lifestyle inflation, we have a lifestyle explosion. When you tell yourself the big money is coming for a decade or a decade and a half and then it finally arrives, well, it seems like time to buy a bunch of stuff you’ve been putting off for pretty much, well, forever.

2. Lack of understanding of our progressive tax code

Another issue is that docs don’t have much financial literacy. In particular, they don’t understand how the tax code works. They see that their salary after residency will go up by 5 or 6 times, so they assume they can spend 5-6 times as much as they did during residency. They forget that 1/4 to 1/3 of their earnings will go to the tax man. A 300% increase in net earnings is still great, but it is very different from a 500% increase. To make matters worse, doctors put off a bunch of things during their training (see # 1 above) and those things include saving up a down payment, starting retirement accounts, getting enough insurance in place, and paying off their loans. Add those things on to the tax bill, and all of a sudden their increased spending potential is really only 50-100%.

3. Societal and family expectations

Another major difficulty for doctors is that everyone else sees them as rich, even if their incredibly negative net worth actually ranks them as being some of the poorest people on the planet. Their parents, siblings, spouse, children, and physician partners all have expectations that their spending will be in keeping with their new position in life. Except their financial position hasn’t actually changed. They may also be hanging out in a circle of high-earning friends, and feel some pressure to keep up with the Joneses with regards to vacations, schooling, transportation, housing, recreation, and children’s activities.

4. A sense that money is their most renewable resource

Some doctors get this idea in their head that they can get $15,000, $20,000, $30,000 or even $40,000 every month for the rest of their life. They can’t ever foresee a period of time when their income could drop, or they might not be able to work. They have staked their entire financial plan on being able to work until the day they die. Sometimes, they add on a disability policy to protect that income, but they often cannot protect the entire wad. Plus, there are a lot of things that can cause your income to drop that can’t be insured against. Like complaints to the medical staff or medical board. And disability insurance only pays until your mid-60s anyway. At a certain point, they will need either savings or another source of income.

5. People spend what’s in the account

Doctor are people, just like everybody else. People spend what they can see. If there is $1,000 in the account, they figure they can spend $1,000. If there is $10,000 there, they spend $10,000. I mean, it’s not quite “I didn’t know I was out of money, there were still checks in the checkbook,” but sometimes it isn’t much better.

6. Not sure what to do when the retirement account is full

Some doctors don’t understand that they can save for retirement outside of their employer’s retirement account. And that might only allow for $18K a year, hardly enough to fund the desired retirement of most physicians, especially if they don’t start early or don’t invest it aggressively. Many doctors don’t even know about Backdoor Roth IRAs, Stealth IRAs, and Individual 401(k)s. And heaven forbid they invest in a taxable account. They’d rather buy whole life insurance like their “financial advisor” recommends.

7. Disconnected from middle class

Many doctors become disconnected from their middle-class roots, or never had middle-class roots in the first place. These are doctors who think that cars that have more than 50K miles on them aren’t reliable. Or that a $20K car is a beater. Or that the local state university can’t possibly provide a decent education, much less the local public schools. They must shop at Whole Foods, not Wal-mart. They can’t imagine flying coach on an overseas flight. I’m always amazed that the public schools are just fine according to people who don’t have the cash to send their kids to private school, but that apparently 95% of the country has terrible public schools if you ask doctors or their spouses. I’ve even been told that the public schools in towns I’ve lived in are “terrible” despite all objective evidence to the contrary. I’m told it is impossible to live on a resident salary, when fully half of the households in the country seem to be able to get by on less than that.

8. Don’t realize just how much must be saved for retirement/college

Some doctors spend too much because no one ever told them they need to save 20% of their gross income for retirement. They simply haven’t run the numbers and realized that they need to save a massive chunk of their income if they actually want to meet their financial goals. Even at the State U, college is expensive stuff, but that’s nothing compared to retirement. Most physicians will need a multi-million dollar nest egg to maintain their standard of living after retirement. That doesn’t just magically appear at the end of 30 years thanks to the miracle of compound interest. A big chunk of it actually has to come from brute force savings.

9. Don’t understand that doctors aren’t all the same

Sometimes doctors think that just because they went to medical school with somebody that they should be in the same socioeconomic class. Guess what? There’s a big difference between your possible lifestyle when you’re an academic pediatrician making $150,000 and a plastic surgeon making $750,000. That surgeon can make all kinds of financial mistakes and waste all kinds of money and still come out smelling like a rose. If that pediatrician tries to live like the surgeon, it isn’t going to end well. Even high-end doctors fall into this trap. They know they’re in the 1%, but they forget that the 1% encompasses a very wide range of incomes. Too seldom do we look at those who make less than we do and feel gratitude for our income because we’re too busy enviously looking at those who make more than we do.

10. They think spending brings happiness

Sometimes doctors and other high-earners fall into the trap of thinking that they can spend their way toward happiness. That bigger house and nicer car will surely make us happier, right? The next step after realizing stuff doesn’t make them happy is to start seeking experiences. They travel the world and take up all kinds of crazy new hobbies. But in the end, there are really only three things we need to be happy, and none of them cost much money:

  1. Someone to love
  2. Something to do
  3. Something to look forward to

I mean if there is some thing or some experience that you can buy that you think is going to make you happier, and you can afford it, then go buy it. But pay careful attention to how much happiness you actually get from it and adjust future spending accordingly. Many of my favorite vacations and trips are the cheapest ones. And I can assure you I’m no happier driving my wife’s 2016 Sequoia than my 2005 Sequoia, even if hers does get the boat up the hill a little faster. You can never get enough of what you don’t need.

James M. Dahle is the author of The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing and blogs at the White Coat Investor. He is the creator of Fire Your Financial Advisor!, a high-quality 12 module course with a little over 7 hours of videos and screencasts, a pre-test, section quizzes with answer explanations, and a final exam. The goal is to take a high income professional from square one, teach them financial literacy and help them write their own financial plan.

Image credit: Shutterstock.com

Prev

Physician burnout shouldn't be linked to resilience

May 12, 2018 Kevin 10
…
Next

Comfort in my final hours

May 13, 2018 Kevin 3
…

Tagged as: Practice Management

Post navigation

< Previous Post
Physician burnout shouldn't be linked to resilience
Next Post >
Comfort in my final hours

More by James M. Dahle, MD

  • 8 ways to go broke as a doctor

    James M. Dahle, MD
  • How physicians can retire early: 7 steps to follow

    James M. Dahle, MD
  • A physician’s defense of active income

    James M. Dahle, MD

Related Posts

  • 3 reasons why smart doctors fail big exams

    Steve Blatt, MD
  • 3 reasons why doctors don’t unionize

    Baird Brightman, PhD
  • Why do doctors who hate being doctors still practice?

    Kristin Puhl, MD
  • Doctors: It’s time to unionize

    Thomas D. Guastavino, MD
  • When doctors are right

    Sophia Zilber
  • We’re doctors. We signed the book.

    Jonathan Peters, MD

More in Finance

  • Secure your future today: the essential guide to disability and life insurance for physicians and professionals

    Set for Life Insurance & The Podcast by KevinMD
  • A tiny step to reduce physician burnout

    Dennis Hursh, Esq
  • Why a business education is essential for financial stability and cutting-edge medical care

    Curtis G. Graham, MD
  • The myth of wealthy doctors: Why business education is vital for every physician

    Randall S. Fong, MD
  • Revolutionizing health care: lessons from Michael Jordan’s partnership with Nike

    Chris Grant
  • Mastering the art of transition: essential tips for leaving your medical career behind and pursuing a new path

    Amanda Hill, JD
  • Most Popular

  • Past Week

    • The power of coaching for physicians: transforming thoughts, changing lives

      Kim Downey, PT | Conditions
    • The hidden factor in physician burnout: How the climate crisis is contributing to the erosion of well-being

      Elizabeth Cerceo, MD | Physician
    • Why affirmative action is crucial for health equity and social justice in medicine

      Katrina Gipson, MD, MPH | Policy
    • Unlocking the secrets of cancer conferences: an end-of-life counselor’s journey among pharmaceutical giants

      Althea Halchuck, EJD | Conditions
    • Why doctors aren’t to blame for the U.S. opioid crisis [PODCAST]

      The Podcast by KevinMD | Podcast
    • Nose-brain connection: The surprising link between allergies and mental health revealed

      Kara Wada, MD | Conditions
  • Past 6 Months

    • It’s time to replace the 0 to 10 pain intensity scale with a better measure

      Mark Sullivan, MD and Jane Ballantyne, MD | Conditions
    • “Is your surgeon really skilled? The hidden threat to public safety in medicine.

      Gene Uzawa Dorio, MD | Physician
    • Breaking point: the 5 reasons American doctors are dreaming of walking away from medicine

      Amol Shrikhande, MD | Physician
    • Revolutionize your practice: the value-based care model that reduces physician burnout

      Chandravadan Patel, MD | Physician
    • Unveiling the hidden damage: the secretive world of medical boards

      Alan Lindemann, MD | Physician
    • Breaking the cycle of racism in health care: a call for anti-racist action

      Tomi Mitchell, MD | Policy
  • Recent Posts

    • A pediatrician’s journey into integrative medicine [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why allowing yourself to embrace discomfort is necessary for personal growth

      Jillian Rigert, MD, DMD | Physician
    • Unconventional health care, flawed studies, and biases: Navigating the complexities for optimal well-being

      Kara Wada, MD | Physician
    • Urgent innovation needed to address growing mental health crisis among children and families

      Monika Roots, MD | Conditions
    • The importance of listening in health care: a mother’s journey advocating for children with chronic Lyme disease

      Cheryl Lazarus | Conditions
    • Medical errors and the power of apologies [PODCAST]

      The Podcast by KevinMD | Podcast

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

View 4 Comments >

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

CME Spotlights

From MedPage Today

Latest News

  • UnitedHealthcare in the Hot Seat Over GI Procedure 'Advance Notification' Policy
  • Genetic Risk Score Predicts Hypertensive Disorders of Pregnancy
  • FDA Warns on Certain Forms of Compounded Semaglutide
  • Fired COVID Whistleblower Doesn't Want to Settle His Case
  • Video of ACOG Presenter Being Slapped Goes Viral

Meeting Coverage

  • TAR-200 Led to High Complete Response Rates in BCG-Unresponsive Bladder Cancer
  • More Success for CAR T-Cell Therapy in Rheumatic Disease
  • Trial Shows RA Can Be Stopped at Preclinical Stage
  • Tenapanor Improves Abdominal Symptoms in Patients With IBS-C
  • Benefits Found for Hand OA Drug Treatments
  • Most Popular

  • Past Week

    • The power of coaching for physicians: transforming thoughts, changing lives

      Kim Downey, PT | Conditions
    • The hidden factor in physician burnout: How the climate crisis is contributing to the erosion of well-being

      Elizabeth Cerceo, MD | Physician
    • Why affirmative action is crucial for health equity and social justice in medicine

      Katrina Gipson, MD, MPH | Policy
    • Unlocking the secrets of cancer conferences: an end-of-life counselor’s journey among pharmaceutical giants

      Althea Halchuck, EJD | Conditions
    • Why doctors aren’t to blame for the U.S. opioid crisis [PODCAST]

      The Podcast by KevinMD | Podcast
    • Nose-brain connection: The surprising link between allergies and mental health revealed

      Kara Wada, MD | Conditions
  • Past 6 Months

    • It’s time to replace the 0 to 10 pain intensity scale with a better measure

      Mark Sullivan, MD and Jane Ballantyne, MD | Conditions
    • “Is your surgeon really skilled? The hidden threat to public safety in medicine.

      Gene Uzawa Dorio, MD | Physician
    • Breaking point: the 5 reasons American doctors are dreaming of walking away from medicine

      Amol Shrikhande, MD | Physician
    • Revolutionize your practice: the value-based care model that reduces physician burnout

      Chandravadan Patel, MD | Physician
    • Unveiling the hidden damage: the secretive world of medical boards

      Alan Lindemann, MD | Physician
    • Breaking the cycle of racism in health care: a call for anti-racist action

      Tomi Mitchell, MD | Policy
  • Recent Posts

    • A pediatrician’s journey into integrative medicine [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why allowing yourself to embrace discomfort is necessary for personal growth

      Jillian Rigert, MD, DMD | Physician
    • Unconventional health care, flawed studies, and biases: Navigating the complexities for optimal well-being

      Kara Wada, MD | Physician
    • Urgent innovation needed to address growing mental health crisis among children and families

      Monika Roots, MD | Conditions
    • The importance of listening in health care: a mother’s journey advocating for children with chronic Lyme disease

      Cheryl Lazarus | Conditions
    • Medical errors and the power of apologies [PODCAST]

      The Podcast by KevinMD | Podcast

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

10 reasons why doctors spend too much money
4 comments

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...