Living within your means

[The White Coat Investor]

We live a very middle class lifestyle. I did not think doctors were considered upper class--- we have never lived in an area where that's the case, or at least where I thought that was the case. I grew up with a dad wo was an ER doc in what he called "the golden age of medicine". And we never had a new car, I never had brand name anything, and we all went to public school.What is a doctor lifestyle? Is this stereotype still out there among doctors themselves? I know what my kids' classmates think but that's just not that important to me. I don't see people rolling in cash here on these boards-- no posts like "should we get the Ferrari or the mazerhati? I can't decide!" This board is not that place--- everyone here is very real, cautious, and frugal.

The description you lay out of middle class is pretty much exactly where we are. we have not lived in a house of more than 2000sq feet, our kids have never done private school (outside of preK), and we have 2 cars with over 150K miles on them. Our main car is almost paid for also and we plan to drive it for at least another decade or until it won't go anymore. Or until my dh or dad total it which is a real possibility. I'm not considering moving to the next post as being any kind of jump in lifestyle either. So mentally we are already "middle class"...

Maybe I misrepresented my initial post on this topic and sounded like I was whining that the big pot of gold at the end of training didn't land in my lap. I was indulging on a bit of "medicine sucks, and we would've been better off had I gone to work as a chemist and he'd been an engineer." Useless to think of that, but sometimes we all say "what if".

Like I said, we crunched numbers back when we decided we were going to take the military route. We chose military knowing the future of medicine was uncertain (universal healthcare) and that dh wanted to serve. I'm not blasé about money. I'm not thinking this will be easy.

To be honest I chafe a little at the implication that I thought we'd be living some wealthy lifestyle. It's just not the case but I can certainly see how my original post indicated that. However I'm not quite so vapid nor so naive. Posting on the iPhone that we can not afford (but you bet your ass I'll take on debt for that ) sometimes leads to posts that are disjointed and don't convey intention well.

One thing I am curious about... WCI do you have kids? I think I know nothing about you. Perhaps you are an über wealthy doctor way up there in salary approaching 7 figures a year though.

JOKING.

I also think... Perhaps tiptoeing in here a but--- that sometimes financial planner type people make financial planning the main focus of life and disallow for fun at all. Is it really so terrible to LIVE now? And maybe not have saved quite as much for retirement? Assuming your basics are saved for of course. I meet so many elderly people who have plenty of money but regret not traveling when they could. They regret not living a little bit more... But due to the depression they were constantly working and saving. So, I think there needs to be some balance. Life is nuanced. Not such a formula that I think some financial planners like to try to apply.

Absolutely there are benefits to being a military doctor. I've been there, done that. I know exactly how much hard work it takes to moonlight enough to make $50K while working for "the man" with a constant threat of deployment over your head. The BAH/BAS/Other allowances are all tax-free. An even bigger tax break is being able to eliminate state tax by claiming AK, FL, WA, NV etc. Tricare is also a nice benefit that is getting nicer all the time. No student loans is another great bonus. Having a very nice pension waiting for you is a huge benefit which allows you to save a far lower percentage of your money than a non-military doctor and still be okay. One of my civilian colleagues is a cardiologist who got out after 13 years thinking he'd be able to save all this money and make up for the loss of the pension. Well, he didn't save anything and then he got divorced. So he has no pension and no savings and will be working far longer than he wants to. It turns out the break even period on the military pension is usually less than 8 years into your service.

However, all that said, there's a big difference between $8-10K dropping into your checking account every month and $20-40K showing up there. Even paying 15 times more (seriously) in taxes and having additional expenses, there is still a lot more money sloshing around. You can save up for a new SUV in a couple of months. If you blow $10K on a vacation, you're not paying for it the rest of the year etc.

The funny thing about the term "middle class" is that EVERYONE and I mean EVERYONE thinks they're middle class. Nobody wants to be poor, and if you use terms like "rich" or "wealthy" instead of "comfortable" nobody wants to be thought of as rich either. It has this negative connotation of "filthy rich." I have two-physician couples making $600-800K who think of themselve as "middle class." But you know what? They're not. Take a look at the numbers.

10th % = $~15K
50th % = $50-55K
75th % = $90-95K
90th % = $145-$150K
95th % = $190-$195K
98th % = $250K

If you are generous and call the 10th percentile to the 90th percentile the "middle class", then you can see a military doctor is "middle class" and a typical civilian physician income of $200-400K is easily top 5%, and perhaps even top 1%. I'm sorry, but that's not middle class, even though your ER doc dad told you it was just like I tell my kids (3 of them, oldest was turning 6 when I left the military) it is. All these words are loaded due to societal expectations, but I'm trying to use them in their strict dictionary definitions. I certainly don't mean to imply anything about your or insult you. I'm not sure what your definition of "uber-rich" is, but I imagine I probably don't meet it. My income is quite typical for a civilian emergency doc.

I think there is a misconception out there that financial planning is somehow all about scrimping and saving now in hopes of some bright future down the road. I see it differently. I see it as a way to make sure you're spending your limited money (and our money is all limited, no matter how much we make) on those things that will bring us the most happiness and joy now and later. Moderation in all things. I recommend a typical civilian doc save 20% of his or her gross income and BLOW THE REST on whatever makes him or her happy. Obviously, however, sacrificing future happiness for current happiness isn't a good formula, and that's what supporting a lifestyle with debt, or not saving at all, is often (but not always) doing. As I frequently tell the medical students who come over for "dinner with a doc", if you can't live on $200K a year, you have a spending problem, not an earning problem. They all laugh because the truth of that statement is so obvious. But it isn't obvious at all to a couple 10 years out of residency, making two car payments, still paying on student loans, with a million dollar mortgage trying to figure out how to live on $400K a year. Oh, and I assure you the "doctor lifestyle" stereotype is very much alive and well. You lived it as a kid so you know it isn't quite what society thinks it is, although it is still a comfortable life. While you didn't have new cars, you probably never went to bed hungry, at least when you were behaving yourself.

[Chrisada]

I agree with WCI that the "doctor lifestyle" is very real. I grew up around doctors (my father was one) and all of our friends lived in 6,000 sq foot plus homes and drove very very expensive foreign cars, including Bentleys. We just met with a doc living in a million dollar house and who just bought a car for the nanny to drive (wife doesn't work BTW) . On another doctor wive's forum the women were talking about how their 10,000 + sq foot homes were just right and one how her DH's Aston Martin wasn't driven enough. It's VERY real.

DH and I are working hard not to get caught up in the lifestyle and already have a strong plan in place for a significant amount of savings and 401k. In fact, DH has been downright cheap in terms of our homes. On the other hand, we've worked hard and want to enjoy the nicer things and we've saved significantly. For us, it probably won't start to happen until about five years into attendinghood.


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[diggitydot]

Holy crap, C. That's crazy!

[peggyfromwastate]

Living within your means

I guess what I have observed on with the docs around us (civilian of course-- we've established military docs aren't in it for the money ) is that those who make the huge salaries to be able to afford the cars and luxuries are able to do a lot of cash-only surgeries, and worked like dogs for years and years to build their reputations to be sought after enough to charge these huge fees. But their ability to charge and collect is going down. It just is. And a lot of these guys who make around 800k -1 mil are just sort of... Well I won't say depressed, but not exactly fulfilled either. There are lots of regrets in life, and searching after money and reputation as a priority sometimes leaves voids in other areas. That's why I personally do like the "save 20% and do whatever else you want with the rest" philosophy-- except that after taxes... Well there's not an unlimited amount of money there!

Dh has trained enough in plastics to be certified and he also can do lots of other cash only procedures in his field of choice. But we are not thinking this will really be available in a meaningful way down the line (or as a moonlighting doc). Medicine is changing so much.

And really-- I still feel middle class bc we live in areas where the median income is way above our income--- the percentages aren't like those quoted for the country as a whole. And middle class people generally aren't worried about where their next meal comes from either. So the fact that my kids don't worry if they will be fed doesn't scream upper class... On a separate note often they do worry about what they will eat because I have no time to go shopping. But that's a separate issue.

This is a really interesting issue, and although I find it extremely depressing and have a raging headache I would like to thank WCI for laying it out there. Now I'm going to go drink the entire bottle of rum I have stashed away for just such an occasion as this.

Lol.

ETA: those of you who know me know I am totally kidding. I won't actually drink myself into oblivion!!! But I do kinda hate talking about money bc it's like a death spiral of never feeling like there is ever quite enough. It's sort of like how I feel about sleep. Just never quite enough... Nevertheless facing money issues is important. Just stuff for grown ups to worry about and dammit I don't want to be a grown up. Ya know????

[metroguy]

for savings, it depends on where you live. If you live in high COLA -like nyc, a doctor's salary does not go very far. in fact, lots of docs in nyc can't find jobs out of training and have to move away. if middle class life style is townhouse in a good area with a decent car--that's not happening in manhattan. a townhouse is 10+MM (not sure how much taxes are--probably in 800k range). most of the doctors fresh out of trainin- rent for few yrs. i'm not sure how many doctors have 2 bd room condos--(1.5+MM), but that require at least 2 income of a 'normal' doctor's salary.

[Vishenka69]

We both grew up in NYC and stayed there for all the training years. In PA now. In fact I can count on one hand the friends from med school and residency who have stayed.

I spent quite some time last night trying to figure out how we can save 20% of gross income and unles we pull kids from daycare or sell the house, I just don't see that happening. We do save about 25% of net. We also have no debt other than mortgage.

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[The White Coat Investor]

We both grew up in NYC and stayed there for all the training years. In PA now. In fact I can count on one hand the friends from med school and residency who have stayed.

I spent quite some time last night trying to figure out how we can save 20% of gross income and unles we pull kids from daycare or sell the house, I just don't see that happening. We do save about 25% of net. We also have no debt other than mortgage.

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NYC and the San Francisco Bay area are in a class of their own. If living there is a priority, it'll cost you somewhere else in your financial life, probably in several other places. It'll mean a smaller place to live, or no early retirement, or no private school, or fewer nice vacations etc. It's not that docs can't live in NYC (I'm sure lots of New Yorkers would love to have a 6 figure salary), they just can't live as well there as they can elsewhere and they're competing with a lot more high income folks (and some VERY high income folks) for the nice houses in the nice neighborhoods. That's why all your friends left. They just didn't value being in Manhattan as highly as you might and weren't willing to make the sacrifices necessary to live there. Out West we see it a lot more with Californians moving to Nevada, Utah, Arizona etc. They drive into town, see what nice houses are selling for and say "Only $400K?, I'll take two."

Frankly, I'm kind of surprised that there isn't a severe physician shortage in these high cost of living areas. But I guess they're nice in their own way. I'd hate it if everyone wanted to live where I live so I'm glad people are willing to jam themselves into huge urban centers.

If you're saving 25% of net, you're probably good enough. It's just a rule of thumb. Run your own numbers to see if/when you'll reach your financial goals.

[MAPPLEBUM]

A couple questions.

1) I've been thinking a lot about how people (or is it just WCI?) say if you can't live below your means as a resident you prob won't after training. So what exactly is ' living below your means'? Do you have to be chucking money back every month for retirement or do student loan payments count? A good % of our income goes to loans, mostly for personal reasons. But if we REALLY wanted to we could reduce our loan payments and put the remaining in savings. Is that the only way we'd be considered living below our means?

2) As many of you know I have multiple part time teaching jobs. One of them offers a 403(b) so at the start of the new year I opened the account. I opted for a certain sum to come out of each paycheck, based on retirement calculators. The problem is if I'm not there one day, or don't work enough hours, I don't reach that sum and $0 is contributed to the 403(b). It sort of works out since those are usually weeks I need the money in my pocket, but of course that thwarts the whole "pay yourself first" mandate. But I'll just say it. Since January I've only had two paychecks go towards the 403(b)! (twice monthly checks) I know what the answer is, I should probably half the amount contributed each paycheck so I'm at least contributing regularly but haven't yet been able to make myself do it. That's the answer, right? Is there some other option I'm not seeing?

[SuzySunshine]

I'm by no means the expert but to me living below your means means no new debt - saving if you can but paying off debt first if you need to. If you can pay all of your bills and not take on new debt I think you're living within your means.

[Sheherezade]

If you can make more of it go towards retirement, then do it. Only you can know that -

We did contribute to retirement plans in residency and fellowship. The money from that time has grown and it's now a nice surprise to add in to our retirement funds. It is a small percentage, though. You just can't put that much aside when you are living on limited funds.

I'm a strong believer in making sure you are still HAPPY before you start power saving. Yes, we can all cut back. Honestly though, if I gave up morning coffee with my two year old at Dunkin Donuts a few times a week while my husband was working basically 24/7 in fellowship, we would have been divorced. Did I need to put that $200-300 bucks a year towards bagels and coffee? No - but it was a worthwhile investment in SANITY. It helped me cope, which helped him cope, which got us where we are. If we'd divorced, I'd be much more poor and so would he.

So - if you CAN, put more towards retirement and you will be happy you did later. If it will make your life suck, then don't. You will make most of your retirement contributions later in life anyway.

Survival is the name of the game, baby.

[The White Coat Investor]

A couple questions.

1) I've been thinking a lot about how people (or is it just WCI?) say if you can't live below your means as a resident you prob won't after training. So what exactly is ' living below your means'? Do you have to be chucking money back every month for retirement or do student loan payments count? A good % of our income goes to loans, mostly for personal reasons. But if we REALLY wanted to we could reduce our loan payments and put the remaining in savings. Is that the only way we'd be considered living below our means?

2) As many of you know I have multiple part time teaching jobs. One of them offers a 403(b) so at the start of the new year I opened the account. I opted for a certain sum to come out of each paycheck, based on retirement calculators. The problem is if I'm not there one day, or don't work enough hours, I don't reach that sum and $0 is contributed to the 403(b). It sort of works out since those are usually weeks I need the money in my pocket, but of course that thwarts the whole "pay yourself first" mandate. But I'll just say it. Since January I've only had two paychecks go towards the 403(b)! (twice monthly checks) I know what the answer is, I should probably half the amount contributed each paycheck so I'm at least contributing regularly but haven't yet been able to make myself do it. That's the answer, right? Is there some other option I'm not seeing?

It's all a continuum of course, and we're all a little different. There's no set definition of living below your means other than not going further into debt. Some physician families with a monstrous student loan burden couldn't actually pull that off even if they threw half their income at their loans. They'd still be going further into debt.

The point is that it is very difficult for a med student to imagine going through $50K a year and having nothing to show for it, although residents and spouses don't think that's so weird at all. Likewise, it is very difficult for a resident to imagine going through $250K a year and having nothing to show for it. But I know docs who have gone through 20+ years of physician level paychecks and still have essentially nothing to show for it. That's what you're trying to avoid.

Of course the amount of money I save as an attending absolutely dwarfs what I saved as a resident. But the habit is far more important than the amount of money, so good on you for spending the time and effort to worry about this stuff. Just the fact that you're worried is a great sign.