Dr. Typical

[Ravenclaw]

I thought this was a good little article...
http://www.pmdnet.com/Article.cfm?ID=55 ... N=97515871

[PrincessFiona]

Can you post it so that we don't have to..login?

hmm, that's odd. I didn't have to log in yesterday.

[PrincessFiona]

I tried twice...i'm just too lazy to register...though I suppose it's no big deal

[SuzySunshine]

That is weird I didn't have to login yesterday either.

[Ravenclaw]

Very weird? It came up for me yesterday too and I wasn't even registered. I just registered so here's the text from the article:

Avoid the Money Mistakes of Dr. Typical

(from the April 2004 edition of PMD)

Brock Barnes, CFP

According to Dr. Thomas Stanley and Dr. William D. Danko, authors of The Millionaire Next Door (Longstreet Press; 1996), physicians are among the highest wage earners in the United States, yet they only make up 9% of millionaires. Why aren't more physicians millionaires? It's simple: Most nonmillionaire physicians spend what they make. These physicians have really nice stuff, but are basically broke. I refer to these physicians as Dr. Typical. A physician-friend of mine says it just right, "I am the highest-paid broke friend you have."

Dr. Typical's Sad Tale

Dr. Typical starts medical school excited about medicine. Dr. Typical tends to borrow more money than needed, knowing one day there will be a big fat paycheck waiting.

He graduates from medical school and begins his residency, earning a salary of $35,000 a year. Since he is working at least 80 hours per week, he decides it's time to enjoy life and starts buying luxuries such as a home theater system, furniture, and a random vacation. How does he pay for all of this? He uses credit cards frequently and justifies this debt because the big fat paycheck is just around the corner.

Finally, the big fat paycheck of $180,000 arrives, meaning after taxes he brings home $11,000 per month. What is the first thing he does? He buys a $300,000 house and leases a luxury car, plus he has $120,000 in student loans and $10,000 in credit card bills. His monthly combined debt payments are around $6500. Quickly, most of his paycheck is gone, and he hasn't joined the country club, paid the utilities, hired a yard service, or bought any food. So, endeavors like retirement, emergency funds, or debt elimination don't quite fit into the budget.

Dr. Typical doesn't ever build any wealth and is broke the rest of his life. He is forced to work the rest of his life because he cannot afford to retire.

Better Budget Adjustment

If you relate to Dr. Typical at all and want to build wealth, then the Dr. Typical mentality must stop, and there must be a willingness to change. After a commitment to change has occurred, the physician must then commit to making smart financial decisions. This requires diligence and hard work. A budget is the first thing that must be addressed, and then you can tackle issues like retirement, college, insurance, and estate planning.

If you are committed to change, there are two major options available for physicians:

*
Do all of your financial planning yourself. The great thing about this option is that you care more about your finances than anyone. If you have 20 hours every month to devote solely to studying different investment, insurance, estate, and tax-planning issues, then hire yourself.
*
Hire a financial planner to advise you. Warning: Not all financial planners are created equal. The last thing you want to do is hire a financial planner whose only desire is to sell you financial products. You don't need to be sold; you need advice. However, advice alone isn't good enough. You need advice from intelligent people who understand physician nuances and can help you design and implement a plan.

When selecting a planner, be sure to interview them before hiring. Ask questions about experience, compensation structure, credentials, and references. Ask how many physicians they work with, and choose someone who can help you the most.

Brock Barnes is founder of Strategic Wealth Management. He has built wealth for himself and is committed to teaching, advising, and encouraging others how to build real wealth. He is a registered representative with Multi-Financial Securities Corporation SIPC, NASD. He welcomes questions or comments at 806-793-2584.

[PrincessFiona]

Good article. We do fall into that category a little bit, but not because we were buying luxuries during residency/fellowship....we spent a lot on moving/kids/etc.

The problem for us has been post-training. It IS hard to resist overspending...moreso for dh than for me, actually. One of the problems that he has is that he is already spending his *bonus* that will come in sep/oct as well as his settle-up (if there is one) that would come in aug/sept. Paying off consumer debt doesn't seem 'sexy' enough, I guess...and I understand that...I really do...but dh is compulsive about amazon.de and I can't seem to unhook him. He works hard and often expresses the feeling that he needs 'something' to bring him 'joy' in his life after all of this work, work, work. He gives me the whole "yes, family brings me joy" blah, blah, blah speech....but I honestly think he's looking for some sort of fulfillment that he doesn't experience professionally after all of the years of hard work and investment. He does often express that medicine isn't what he thought it would be and there is a part of me that thinks this is his way to make it 'worthwhile' for himself.

More info than you wanted to know.

kris

[Sheherezade]

I think the productivity pay sounds difficult. DH worked on commission in architecture/cunstruction before going back to med school. He made good money on the tax returns...but it was crazy to budget. It's strange to have money "expected" and taxes to pay quarterly on untaxed income. It's confusing and difficult. I think it makes it much easier to overspend. I know my DH was always spending money he'd "made" but hadn't received yet.

Isn't there a way that the bank cound set up an account that automatically takes X% of the paycheck out and puts it into an account ONLY for taxes, sort of like a Christmas fund for the IRS? But I suppose that depends on direct deposit and it sounds like lots of places aren't doing that?

[PrincessFiona]

We're lucky in that we don't pay taxes on money that we don't have yet....the group system here pays the docs basically for 10 of their paychecks. If they meet their productivity requirements then they get those two extra checks about a month after the end of the fiscal year. If not...they don't. If they have an overage...say they actually earn more than their productivity, the extra check is a little higher. Then, a month later, they pay out the system bonus...taxes are taken from those checks at that time.

Problem is, dh is now always calculating what his productivity 'could' be and he's not satisified with 'just' getting his regular pay....he wants to earn as much as he can. I do understand that feeling...

Paying back debt that you feel you have nothing to show for us a very difficult thing psychologically. I think it is why I would advocate for those of you still in the process to think long and hard before taking out those loans. Even school loans are difficult because although..yes...they have their medical degree and can therefore work..it still feels intangible...if that makes sense.

Our consumer debt/physician loans were for things like board exams, moves, car repairs, children related things, etc...we didn't buy plasma tvs, nice furniture, etc...and so when it comes to paying that back we admittedly hold back a little...instead of just paying the suckers off or down considerably come bonus time, we just tend to keep paying double the minimum payment and indulge in lifestyle things right now. It's a bad policy, but it's an easy trap to fall into because it's human to want to be able to own some fun things now that we're done.

kris

I hear everyone on the difficulty of budgeting. As others have mentioned, I have found for myself is that there can be a bit of catch-22 to working more/earning more. I do pretty lucrative consulting work on top of my regular job and the more hours I work, the more I earn. Therein lies the problem. Although I basically like the work I do sometimes get frustrated with working extra hours and so then I buy something to motivate myself (thank god I don't like electronics, in my case its usually clothes) and then I feel like I should work more hours at which point I start to feel increasingly unhappy. I have really had to discipline myself not to work too much. In some professions, the money is great and its flow is endless provided you keep on working . . . but, the one thing that is absolutely finite is the hours of your life. Its different for everyone, but dh and I have found that we are WAY happier making somewhat less money but having a relaxed lifestyle, long vacations, more time for each other, family, etc.

BTDT on the quarterly taxes for my consulting business. It was tough because the cycle of projects, billing, income would usually not fit within the quarterly payment schedule.

Like Tracy suggested, I took a certain % out of each check and set it aside no matter what. It helped but it is hard having uncertain income, no matter the amount.

[Ravenclaw]

Yeah even though we don't have to worry about it now, I can see how once we do get a real paycheck, we might feel like we deserve nice things after all the hard work and sacrifices...

[DCJenn]

Which is why, while I was on a business trip, my husband traded in his paid off BMW for a nearly new BMW M3.

Yowza...that hurt the budget. Finally I was able to convince him to get rid of it and we now have ONE car, less per month in payments, less for insurance AND we can afford more house as a result.

Jenn