9 Reasons Doctors Aren't as Rich as You May Think

Many people think doctors are rich. While many physicians have high salaries, I can tell you firsthand that a lot of doctors are not as rich as everyone thinks. Here’s why:

1. Med School Debt. Like other young professionals, many doctors have student loans. But unlike undergrad, medical school is expensive. In fact, most med students take out at least $30,000, per semester of medical school. The average medical student loan debt is over $240,000 by the time we graduate and this balloons to over $300,000 by the time we finish training and account for the interest that has accrued. It’s a lot harder to become rich when you start off with a net worth of negative $200,000 or $300,000 after graduating from medical school.   

2. Prolonged Schooling. Doctors spend many years in school. Many of us start school at age 5 and don’t finish all the schooling and training needed to be a doctor until we are in our late 20s or 30s. Because of this prolonged schooling, doctors don’t start earning money until much later in life. While people in other professions have full time jobs with benefits and guaranteed salaries in their 20s, many doctors are living off of student loans. This means we can’t earn money, save money, or invest money in our twenties like many other people can. As a result, we have a delayed start to building our net worth.

3. Residency and Fellowship. After medical school we spend years in additional training working as residents physicians in which we are paid an average of $60,000 a year to work 60-80hours per week. In other words, we are full-time doctors, with full medical licenses getting paid a little more than minimum wage per hour. And this is mandatory. Every practicing physician must go through residency. The length of residency depends on the medical specialty, but it ranges from 3 to 7 years. Once residency ends, many physicians go through additional training called fellowship which means they spend another 1 to 3 years getting paid this lower rate.

4. Specialty Hierarchies. There are wide variations among physician salaries after residency. Pay can range from $120,000 a year to $600,000 a year and beyond. The amount of money a physician makes is heavily dependent on one’s primary medical specialty. Specialties that do more procedures (like surgery and radiology) tend to generate more RVUs (revenue value units) which results in higher insurance reimbursement rates than specialties that do fewer procedures like family medicine and pediatrics. Specialties like plastic surgery and dermatology that are more cash-based and offer cosmetic services tend to generate higher salaries as well.

5. Taxes. Once doctors finally finish training and start making higher salaries, they are often in the highest tax brackets. This means a large chunk of their earnings is deducted from their pay before it ever hits their bank account. Unlike many of the rich, who are able to shield a lot of their income from taxes by making real estate investments or business dedications, many doctors are employed as W-2 workers which is taxed at a higher rate. Along with higher tax rates, and fewer tax shields, doctors are often phased out of many of the subsidies that benefit the middle class and are ineligible for tax breaks and refunds enjoyed by the rest of the population.

6. Overspending from Delayed Gratification. After spending many years in school and training, doctors have a great deal of delayed gratification. Many of us want to buy a home, start a family, purchase a new car, take a nice vacation, and make other large purchases. After so much delay, it can be hard to resist the urge to do all of these things at once. Many physicians finance expenses, take out debt, and purchase things before they have all the money needed to do so. This exponentially increases the debt we already have and delays our ability to build wealth.

7. Mid-level Influx. Physicians cannot ignore the impact of mid-level providers. While nurse practitioners and physician assistants are valuable providers who can help increase access to care, they have been used by healthcare corporations as a cheaper alternative to care. Although physicians and mid-level providers are both immensely valuable, the influx of mid-levels has decreased the job options and lowered the pay range for some physicians. For example, instead of hiring two physicians to work in an urgent care, a company may instead hire one doctor and one mid-level provider.

8. Big City Saturation. Physician salaries vary widely in certain parts of the country, but not in the way one might think. In most jobs, people in larger cities get paid more to compensate for the higher cost of living. The opposite tends to be true in medicine. Because larger cities usually have more entertainment options and educational opportunities with large hospital systems that have more jobs for physicians in niche specialties, many doctors want to live in or near a major city. This creates physician oversaturation in these areas. Because the supply of doctors is so large in big cities, the demand for doctors in those areas decreases which results in lower salaries. As a result, doctors tend to get paid less when they move to larger cities. Along with taking a pay cut to live in a desirable area, many of these big cities often have a higher cost-of-living and tax rates which further decrease a physician’s take-home pay.

9. Lack of Financial Literacy. Despite our intelligence and skill when it comes to medicine, many physicians are never taught about money. Physicians spend years in school, often without ever having a salaried job, then go through residency where they are overworked and underpaid. They then finish training with a massive pay increase and zero guidance on what to do with their money. Many physicians spend too much too soon, and fail to save or invest enough of their income to build wealth over time. Unfortunately, many who doctors who seek professional help by hiring a financial advisor are often taken advantage of. Many are charged high prices for bad advice and are often tricked into purchasing inefficient financial products or investing money in subpar ways which further delays their journey to building wealth. 

Thus, doctors aren’t as rich you may think. Some of it is our own fault, some of it is a system failure that impacts us greatly.   

Tell me, what are some reasons you think doctors aren’t as rich as everyone thinks? Do you have any ideas on what we should do to overcome these hurdles?

5 Truths Every Resident Needs To Know

July 1st is just around the corner and for those who are new to medicine or unfamiliar with residency life, July is the start of the new resident physician year. A resident physician is a doctor who graduated from medical school and is getting specialized training in his or her field of choice while still seeing patients. Residents are doctors who are still actively learning (like a student in school) while they are also working and earning money.

Besides experience, the main difference between a resident physician and a regular physician (like an attending physician who is done with his/her specialized training) is that resident physicians work a lot more and get paid a lot less. I’m still a resident myself, so as you can imagine, it’s a busy time in our lives. There are a lot of things we have to worry about, but finances shouldn’t be one of them. Here are 5 money-related truths every resident physician, and young professional with high earning potential, needs to know:

1. You are not guaranteed to be rich. Just because you are a doctor and will have a high salary, does NOT mean you don’t need a plan for your finances. Most people who make more money, get into more debt. Your time as a resident is not an excuse for poor money management and credit card accumulation. Many doctors’ net worth is not nearly as high as it should be considering how much they get paid. Make some financial goals for yourself now and try to avoid some common pitfalls. Learning a few finance basics as a resident can go a long way.

2. Spend less. Save more. Minimize debt. Things can be challenging during residency so try to live below your means or at least avoid living above your means. You don’t have to have a detailed budget but creating a basic spending plan to prevent yourself from accumulating [more] debt during training might be helpful. Save money in an emergency fund so that small, unexpected expenses like a car repair, urgent trip back home, or new cell phone doesn’t derail your budget or financial goals. Vacations can serve as a much-needed break from the stress of residency, but try to pay for them in cash by saving a couple hundred dollars from each paycheck. If you can, invest some money in index mutual funds via your work retirement plan or your own Roth IRA. The goal in residency is to keep your head above water financially and avoid getting into more debt. 

3. Have a plan for your student loans. Choosing to “deal with it later” is NOT a plan. Read about the different student loan repayment options and choose one, likely an income-driven repayment plan, so that your payments are affordable in residency. Most residency programs qualify for public service loan forgiveness so take a couple minutes out of your day and sign up for this free program so that you have an option for your student loans to be forgiven after 10 years. When choosing a student loan plan recognize that the optimal student loan plan for you as resident may change when you become an attending. That’s okay. Just figure out the best federal repayment plan for you now, likely PAYE or Re-PAYE and consider hiring a company like Student Loan Advice or Student Loan Tax Experts once you finish training so they can run the numbers for you and help you determine the best repayment plan for you as an attending.

4. You need Insurance. As a resident physician, there’s a good chance you have health insurance from your employer that is either free or low cost, but health insurance isn’t all the insurance you need. Every resident physician needs long-term disability insurance. You may get a small amount through your residency program but that is unlikely to provide enough coverage. Most residents and attendings will need to purchase an additional individual long-term disability insurance policy. If you have a spouse, kids, or family members that you support financially, you may also need to purchase term life insurance. If you have a side business, you may also need extra liability insurance coverage. Figure out all of the insurances you need and make sure you get them.

5. Think twice before you buy a house. Owning a home can be a major milestone and lifelong dream, but it may not be wise to do so in residency. You cannot just compare the monthly mortgage price to the monthly rent price and make your decision. There are additional fees and costs associated with home ownership that can be challenging to deal with as a resident. Do what is best for your family, but make sure you consider all of the pros/cons of buying a home before you make the decision to rent vs buy.

Becoming a doctor helped and hurt my ability to build wealth

I just graduated from medical school and will begin my first job as a doctor in a few weeks. Yay! Unfortunately, I am not about to hit the jackpot or start making the salary people google online, just yet.

Although it is true that doctors make a high income, we have to complete residency first. This is a period of 3-7 years in which we are paid a government salary of around $60,000 while working 80 hours a week--not exactly the best lifestyle. In fact, there are several ways in which going to medical school and becoming a physician helped AND hurt my ability to build wealth.

Ways it helped me build wealth:

1.) I will have a high income. Most doctors make at least $200,000 a year, once they finish residency training. Since everyone needs access to physicians and reliable health care, doctors have a high level of job security as well. Mathematically speaking, it is much easier to pay off debt, save for retirement, and build wealth with a high income, especially when it is virtually guaranteed.

2.) It gives me access to exclusive perks and profitable investment opportunities. Some lucrative real estate deals, such as large multifamily homes and syndications (in which people combine their money to invest in an apartment building), are only available to people who have a high net worth and/or make at least $200,000 a year. Many physicians qualify for these deals. Doctors are also favored by banks (since we have a high income and rarely default on loans). As a result, we have the ability to purchase homes with no down payment or private mortgage insurance and are exempt from paying some of the added fees associated with the home-buying process.

3.) Many people in my network have a high net worth. As a physician, I completed medical school and thus know at least hundreds of other doctors and high net worth individuals that were once classmates or colleagues in the hospital. Having friends and associates who are well-educated and also earn a high salary is advantageous. There is a greater chance that people within my social circle have a high net worth. Not only does this give doctors like myself greater insight on how to build wealth, but it also increases the number of people with whom I can share ideas, pitch investment opportunities, and depend on for various levels of support.

Ways it hurt my ability to build wealth:

1.)   I could not work in medical school. As a medical student, I went to class all day then went home to study all that material at night while also trying to squeeze in time at the gym, cook dinner, and maintain some semblance of a social life. Just in case some of us could miraculously do all of this with time to spare, the administration forbid us from working. That’s right. I gave my word that I wouldn’t work a job and would instead focus all of my energy and attention on medical school. This is well intentioned, but the simple fact is that medical school is 4 years long. That’s 4 years of my life that I couldn’t work, 4 years in which I didn't contribute to retirement accounts and work the magic of compound interest, 4 years that I was unable to save up for a car or a down payment on a home, and 4 years of potential wealth building and lucrative investments that I missed out on.

2.)   I have less time to establish additional streams of income. Unlike many of jobs that require their employees to work 8-9 hours a day with nights and weekends off, med school and residency (our first 3-7 years as a physician) are the complete opposite. We often work 12-hour days, have several periods in which we work night shifts for weeks at a time, and are often scheduled to work holidays like Thanksgiving and Christmas that most other professions get off. While I absolutely love medicine, it monopolizes my time. Because I work so much, I have less time to devote to passion projects, side hustles, and the creation of additional revenue streams. People typically build wealth by actively investing their money or creating a lucrative business. Both of these avenues require a substantial amount of time and can be difficult to pursue when the vast majority of my time is spent working in medicine.

3.)   I acquired lots of debt. Perhaps the biggest reason going to medical school hurt my ability to build wealth is all the student loan debt I accumulated. The average medical student has $200,000 in federal student loan debt and unfortunately, I was not an exception to this rule. In case it isn’t obvious, having $200,000 worth of debt at a 6% interest rate that started accumulating well before I could even finish medical school is not a winning formula for wealth creation. Plus, there is a good chance I may accumulate even more debt from a [future] wedding, have increased monthly expenses from having kids, buy a newer car, or finally give up apartment-style living to purchase a home. Either way you spin it, having increased monthly expenses with a high debt burden can make building wealth quite challenging.

Overall:

As someone who wants to build wealth, I recognize the ways my love for medicine has impacted my ability to reach financial freedom in a timely manner. Nevertheless, I don’t regret anything. With good money management, I can overcome the obstacles set before me and still reach my financial goals. Even with its disadvantages, I’m glad I choose to go into medicine.