Listen, there are a lot of people out there that think someone that makes a good salary never has to worry about money.
You make six figures! Of course you can afford it! Paying down your student loans will be no problem!
This applies doubly to doctors. We often don’t have time to learn about money, so we believe the common line- we’ve got it made.
But, that’s not always true, especially early in our career when we are setting up our lives and finances, while being targets for people in the finance and other industries. As we set up fancy lives, the price tag for everything goes up. We have all seen cost estimates not-so-subtly go up when a contractor hears there’s a doctor involved.
People feel entitled to charge us more because we’re making money… now. No one sees how many years of earnings and savings we have lost due to over 12+ years of postsecondary training, how much we pay in taxes, how much we pay to our student loans, or how far behind we are in retirement savings.
Oftentimes, we don’t either.
Many doctors fall for the societal line- you’re a doctor, you’ll be fine!
But I know many, many doctors that are not fine.
They work tirelessly and selflessly for decades, only to find that they are playing catch up in their 50’s and won’t be able to retire till their late 70’s. They play along with other people’s view of their wealth. They spend, they buy, they “support their economy” because everyone believes they should.
As an aside, saving your money and buying American stocks and bonds is also supporting the economy. Why don’t more people talk about that?
Where a $200k Salary Goes
Anyway, let’s get down to the numbers really fast and see where a doctor’s salary actually goes. Let’s take a hypothetical primary care doctor that makes $200k.
This article breaks down how much tax they would pay: Average of $23,999 in federal income tax, $15,300 in FICA tax, and then state and local taxes. An average New York resident earning a $200k salary will actually make $134,900 after taxes. A Tennessee resident would make $147,700 due to lower state and local taxes.
A New Yorker is paying over sixty five thousand dollars a year in taxes alone!
Student Loans and Mortgage
Now, let’s add to that the average student loan bill for a young doc these days: $2,500 a month or $30,00/year. So, after paying the brain mortgage (student loans), we’re down to $104,900. Let’s add the home mortgage- let’s say $3000 a month for a typical attending house or $36,000/year. Now we’re left with $68,900/year.
Insurance
Most doctors carry expensive disability insurance because our jobs are so technical and very small disabilities can exclude us from practicing. Plus, we need bigger life insurance policies to cover our debt in case of an early demise. Josh and I pay about $500/month in disability, car, and life insurance (that doesn’t include home insurance since it is escrowed). I think that’s on the lower end but let’s use that. So $6000/year in disability, car, and life insurance and we’re down to $62,900/year. If a doc is self employed, he or she is also paying malpractice insurance to the tune of something like $10k-20k a year, but I’ll leave that out for now. Edited to Add: I should include health insurance costs here. They are very variable but the average cost for a family in 2018 was $1,634/month or $19,608/year. So, now we are down to $43,292/year.
Basic Needs
Let’s add necessary expenses:
Groceries: $1000/mo or $12,000/year
Utilities: $400/month or 4,800/year
Daycare or private school: $2000/month or 24,000/year. (Private school is optional, but daycare usually isn’t).
Discretionary Spending or Saving
So, we’re left with $2,492/year with daycare/private school or $207.66/ month for discretionary spending or saving.
If we opt for public school or are able to eliminate the cost of daycare somehow, we will be left with $26,494 a year or $2,207.66 a month.
Is that privileged? Yes, definitely. But, does that make us Jeff Bezos? No, it definitely doesn’t.
$207.66 a month for discretionary spending or saving is incredibly tight. No wonder new parents with kids in daycare feel squeezed. For the attending without private school or daycare costs, $2,207/month is easy to spend on shopping, restaurants, home improvement, and entertainment, especially if we’re acting like we’re a high rolling billionaire.
It’s also easy to spend if we buy into the societal “doctor tax” and overpay for the sake of it.
Make Money Work for You
Don’t let anyone tell you that you can afford it without actually verifying that yourself. If we want to make faster progress or retire earlier than 65, we’ll have to really work at saving some money. Only when we save and invest our money does the money start working for us. Imagine a world where we won’t have to depend on a paycheck to pay our monthly expenses.
Imagine bringing in enough profits from your investments to cover all your living expenses. It is possible, if we get frugal start making more room in our budget to invest now.
There is nothing wrong with looking for a deal if you need to buy something. There is no badge awaiting those who pay full price.
If we get frugal, make a plan to pay down our debts or get them forgiven, start trying to build additional streams of income, and get wise about taking advantage of tax incentives, we can build a more stable financial future that gives us more choices. But, don’t let anyone tell you it’s easy or all in your head. If you feel trapped by your paycheck, it’s because you are.
But, you can get yourself out. It just takes some effort. You’ve got this!
As always, stay frugal y’all!
Disha
Here are some resources to get you started.
Frugal Hacks
Investing
Inspirational Interviews
Standard Disclaimer: Not meant as individualized financial or medical advice.