How Doctors Can Save More and Do Less

I have spent a lot of time writing other posts lately, and I wanted to take a moment to add another chapter to my regularly scheduled content.  For the better half of 2024, I have been periodically writing posts that are individual articles that double as potential chapters to a future book.  I have coined this content series Doctor Money: A Personal Finance Guide for Physicians, as this is my current working title. 

The publishing of this post marks Chapter 8 of my work and the start of the back half of this potential book.  This week, we will focus on how doctors can automate their finances to remove their emotions and effortlessly save for many of their goals.  This is how doctors can save more and do less.  Learn how to automate many aspects of your savings, and you can accelerate your road to financial prosperity while freeing up more time. 

Doctor Money: A Personal Finance Guide for Physicians

Chapter 8: Automate Your Savings

This week, we will discuss how to automate your savings. Before we discuss each individual savings account, let us first highlight exactly what it means to ‘automate’ your savings. 

A Simple Concept

This is a simple concept for most visitors to my site, but it should nonetheless be reviewed.  When I talk about automating your savings, I mean using strategies and technology to easily transfer money into savings or investing accounts to remove the human element. 

In medicine, it is commonly agreed that ‘to err is human’.  Most healthcare professionals would agree that humans make mistakes.  A study by Johns Hopkins in 2016 found that medical errors may potentially be the third leading cause of death nationwide.  So yes, humans make mistakes.  This is the same for personal finances.

Be it the fact that humans are overconfident or that we let our emotions get in the way, humans are also notorious for being bad with their finances.  Now, this is not applicable to all, and largely, if you have made it to my website, you are likely an exception or looking to change your ways.  Either way, the more you can automate your finances to remove the human element, the better.  Using this mentality, we can navigate ways to save regularly and effortlessly. 

Saving money is simple but not easy.  Many individuals struggle to put money away regularly as they feel an urge to use it elsewhere.  Fight this temptation.  Let’s take the time to apply this strategy to some of the more common long-term needs.

Automate Your Retirement Savings

Retirement savings are likely the first that comes to mind for most individuals.  From the moment you start post-graduate education (internship and residency), this is seen as a physician’s first ‘real job.’  Though it often does not come with the attending salary, medical trainees are getting paid to perform a service, and hospitals provide retirement plans to these individuals. 

For many, putting money away is more difficult during this chapter of their training, as income is small, budgets are tight, and saving for retirement, statistically speaking, takes a larger bite.  However, so many residents fail to realize that the money saved early in their training is arguably the most important and has the potential to work the longest toward wealth accumulation. 

The Motivated Resident: An Example

In 2024, the current 401(k) contribution limits are $23,000.  Now, I understand the idea of a resident maxing out their retirement on a trainee salary is extreme.  Saving $23,000 when the national average unweighted resident salary in 2023, according to AAMC data, was $63,800.  That would mean that a resident maximizing their 401(k) contribution in 2024 would be saving roughly 36% of their income towards retirement.  Not an easy thing to do.  However, for the sake of argument, let’s say a particularly motivated resident decides to max out her contribution annually for a three-year residency. 

Assuming that the contribution limit remains at $23,000 (it normally increases each year), then a resident at the end of a three-year program would have saved $69,000.  Not bad!  The savings during residency alone, not including future savings as a high-income earning attending, over 30 years with a real rate of return at 6% would total nearly $400,00 ($396,300.89 to be exact).  Here is a graphical representation:

What you are meant to take away from this is that at the time of retirement, a resident who saved for retirement during a three-year residency would have nearly $400,000 more than a resident who did not. Remember, that is approximately $327,300 of free money, assuming real market returns over 30 years. So yes, saving this much during training is tough, but the potential rewards are colossal. 

Now, extrapolate that very same idea to a full 30-year career.  Let’s say this particular physician does nothing but max out her 401(k) for her three-decades-long career.  Literally doing only this, with an annual contribution of $23,000 annually ($1,917 monthly) and a real rate of return of 6%, will amass a nest egg of nearly $1,798,229.30!  That is doing nothing for your future other than maxing out one single retirement account and keeping it fully invested in the stock market. 

Here is the kicker: according to Investopedia, since adopting the S&P 500, the average annualized rate of return has been 10.26%.  Adjusted for inflation, that is still roughly 7.99%.  As you can see from the chart above, a real rate of return at 8% would create a nest egg of nearly $2,560,593.32.  For many physicians, depending on their lifestyle and spending, this is more than half needed to retire… doing literally nothing other than saving for retirement using an employer 401(k) as your solo vehicle.  This does not even factor in other savings or an employer match! 

The takeaway is that automating retirement savings is critical to future financial well-being. Even more, doing it early and often, even if it means sacrificing your lifestyle while you are a resident, can reap substantial rewards later in life. 

Automate Your Investments

We discussed the benefits of investing early and often when talking about retirement. However, for many high-income healthcare professionals, investing in more than just one’s employer retirement plan will be commonplace. For individuals looking to build an even larger nest egg at retirement or looking to retire early and/or pursue financial independence, retire early (FIRE); often, additional investment strategies will need to be employed. 

This will often take the form of performing a backdoor Roth IRA, a spousal Roth IRA, real estate investing, personal investment accounts, and so on.  There are so many vehicles to house your income and make your money work for you during your career.  However, I often think of it this way. 

Many personal finance sites recommend saving at least 20% of your salary annually.  According to the latest Medscape Physician Compensation Report for 2024, the average physician salary was approximately $363,000 ($277,000 for primary care and $394,000 for specialists).  If we use this data to explore potential savings and future investment returns, 20% of the average physician income in 2023 ($363,000) would be $72,600.  This means one would need to save (and invest) $72,600 annually to live up to the average savings recommendation of 20%.

The Motivated Attending: Example Continued

Let’s continue the example we used above. This physician is now an attending, making $363,000 (the average physician salary listed above).

If the 401(k) contribution limit remains at $23,000 (which it will not, but I am trying to be overly simple), she would still have $49,000 left to save and invest annually after maxing out her employer retirement contribution.  She would have to employ other avenues to invest this money using some of the abovementioned investment vehicles. 

However, if she practiced this advice and invested $72,600 annually over what remained of her 30-year career (27 years following residency), including her $69,000 from residency savings, then assuming a real rate of return at 6%, by the end of her career she would have accrued a wealth of $4,957,780.46.  If she is lucky and benefits from an 8% real rate of return, then she would have nearly $6,892,842.02. 

These are colossal numbers, more than enough for a comfortable retirement.  Remember, these calculations do not factor in employer contributions.  Even more, imagine if you saved more than 20% or experienced a stronger economy.  This is what is achievable when you combine the earning power of physicians with the wonders of automated contributions and compounding interest. 

Automate Your Personal Savings

OK, now that we have highlighted the importance of automating your retirement savings and investments, let’s briefly talk about how this same concept can be applied to the rest of your savings. Regarding personal savings, there are options to automate this as well. Be it saving for your budget, creating an emergency fund, or having a rainy-day fund, this can be automated, too.

Though online banks and apps often offer options to automatically transfer money from your checking account to your savings account, you can also have your employer direct deposit into your savings separately from your checking account. 

This can be a great option for individuals who often struggle to personally save money.  Often, this only requires a brief phone call or updating a form for the financial department at your place of employment.  From here, you get to dictate how much of your take-home pay you wish to have directly deposited into your checking vs. your savings.  This is a great way to further increase your financial cushion for those looking to have backup funds or guard against unexpected expenses. 

Automate Your 529 Savings

The last large savings I can foresee is for your children’s education. The cost of education in the United States remains on the rise, and by the time your children reach college age, it may be as much as $250,000 for many four-year public schools. This is another aspect of your savings that needs to be addressed early. 529 savings plans are among the most common savings vehicles for your children’s future education. 

Since these savings are so important, automated savings is another avenue to utilize.  My children’s 529 has an option to ‘auto contribute.’  Since my checking account is already linked for contributions, I can set it up so that it automatically withdrawals from my checking account and contributes a predetermined portion into my 529 monthly or annually.  This can be another great way to automatically prioritize your children’s education and remove the human element.  All you need to do is determine how much you think you need for their education and how many years you have to save until they are of college age.   

Automate Your Short- and Medium-term Financial Goals

Lastly, you will inevitably have future short- and medium-term goals that will require savings.  Be it the downpayment for a home, a car, or a vacation, these expenses come up.   To be clear, this is separate from unexpected needs that largely benefit from an emergency fund.  However, short- and medium-term financial goals are still important.  These are easily addressed by automatically transferring money from your checking account to your savings account or automatically saving any bonuses or supplemental income.  Make sure to apply the same principles used for retirement and investment savings to your other financial goals, too.

How Doctors Can Save More and Do Less

As you can see, making your savings automatic can save you time and help you effortlessly accumulate wealth.  For many of the examples above, the benefit of automatic contributions is that you largely never see the money before it is deducted, and thus more easily tolerated.  Out of sight, out of mind, right?

So many of our long-term savings can be hindered by our short-term wants.  Do yourself a favor and set your finances up to remove ‘you’ from the equation.  This way, you are always on track to meet your savings goals while limiting the physical and mental effort needed to get there.  Set it and forget it! 

Also, make sure to check out the rest of our Doctor Money Personal Finance Book (in progress) by clicking here!

As always…

Stay motivated!

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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