How to retain more of your hard-earned money

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I have never known a doctor who wasn’t interested in bringing more money into their home. There are so many reasons for this that can range from paying off large loans to the costs of having children (nannies, sitters, private schools, college, weddings, etc.) to the growing sense that your employer undervalues you.

Regardless of your reason, most of you will attempt to fill this void by working harder or by adding a side gig. This response is a result of the work ethic that has been instilled into you during your training and has been further entrenched by employment-based compensation models that reward increased productivity. If you want more money in your home, your mindset is that you have to earn it.

Your employer understands these needs and is prepared to address them. The subject of compensation most commonly comes up with your first or second contract extension, whose timing correlates with your enlarging household financial needs. First, your employer will note that they are constrained by federal laws to keep your compensation within a fair market range and thus can’t change your productivity-based compensation formula. It would be unfair to your fellow employed doctors, and it would place both of you at risk of penalties for breaking federal laws about physician compensation.

But in anticipation of this conundrum, they will offer a menu of extra income options in exchange for additional professional services that you perform for their corporation. These can include productivity bonuses, quality bonuses, medical directorships, mid-level supervision, hospital call, research, and leadership-governance roles. Each of these additional opportunities will help support your employer’s enterprise and will be added to your current patent care workload. This is the easiest route that most of you will take for adding income to your home. It’s convenient and simply channels the additional income through your current paycheck. Having done this myself, I can warn you that the additional W-2 income will net you less than you expect after you account for the higher federal and state taxes.

In considering the subject of adding more dollars to your household, it’s important to organize your opportunities into three groups. There is active income (main job and side work), passive income, and retained income. The first two are the most common sources for doctors to “earn” more money. There are many experts and professionals who are dedicated to helping you grow your household income in these ways. This blog post is not about providing you with another version of active or passive income that requires more of your time and energy.

Rather, I want to illuminate the most important and most neglected option, which is retained income. This approach will preserve your time and energy, which is an important distinction.

Driven physicians often overlook this because you have a work more-earn more mentality. The power of retained income is that you don’t have to add any more work to your load; rather you simply have to pro-actively manage the flow of your hard-earned dollars. When you do this, your household magically can keep more of what you have earned.

Since nearly 95 percent of you receive your pay as a direct deposit, you have no idea what happens to your earned income as your gross compensation is gradually reduced through a series of government, corporate, and personal filters that ultimately lead to your take-home pay. All you see is a large deposit, and the rest is fuzzy math that you would prefer to leave to someone else.

There is a space between the dollars you earn from any source and the money that ultimately lands in your household. This is the world of retained income. Retained income represents the dollars you can put back into your household after you manage the flow of your earned dollars.

Doctors who own their own business (PC) are very familiar with this space, but the growing legion of employed doctors are unaware of it. I want to change that because I believe keeping more of what you earn is far better for your well-being than working harder.

Your first step is to understand that if you are employed, you can hold onto your small business superpowers like doctors who are in private practice. There is now a version of a professional corporation that does not involve private practice; rather, your PC can serve as a business envelope for your professional services that can be parsed out to any employer in a professional services agreement, otherwise known as employment lite. This progressive employment model will allow you to receive your earned income through your PC-small business while continuing your employment in the same job.

Choosing which entity will receive your income is the most important decision you will make regarding retained income. Receiving it through a PC multiplies your options for income retention, while receiving it as an individual (W-2) significantly reduces your options by relegating them to a shrinking menu of tax-advantaged individual programs that include tax-deferred investments like IRA’s and 401(K) plans or tax-free accounts such as Roth IRA and Roth 401(K) plans and 529 education plans. Owning a small business-PC opens the door for forming tax-wise individualized benefits, tax-advantaged retirement accounts with larger ceilings, and combined individual and business cash-flow strategies.

If you believe your decision to be employed keeps you from forming a PC, you are wrong. The wise modern doctor can both form their own small business-PC and remain employed via an employment lite contract that helps you hold onto more of your earnings.

This progressive approach to modern employment helped me retain over $70,000 of income annually and can do the same for you. As you seek to grow your income, working smarter is much better for you than working harder.

Tod Stillson is a family physician and founder, of SimpliMD and can be reached at Dr. Incorporated. Follow him on Facebook and Twitter @DrInc9, on his regular YouTube and podcast episodes, a blog called The Truth, or join his Facebook community for doctors, Every Doctor Is A Business. Reach out to him for professional agency services at SimpliMD. He is the author of Doctor Incorporated: Stop the Insanity of Traditional Employment and Preserve Your Professional Autonomy. Book a free business coaching appointment with Dr. Stillson to discuss whether a professional micro-corporation would be helpful for you.