The Financial Sweet Spot for Doctors

Recently, I published an article titled Is The FIRE Movement Contributing to Physician Burnout? I firmly believe in the benefits of financial independence, but an overly frugal lifestyle may also expedite physician burnout. Physicians have a complicated relationship with money, and without an appropriate financial education, the use of money on either end of the monetary spectrum (i.e., overspending or over-frugality) may ultimately place doctors in unsustainable situations.

After I published the article above, I thought about what the ideal financial situations look like for physicians. Though we all differ in our financial journey, what does a realistic version of ‘the good life’ look like for the average physician? This week, we review physician financial priorities, where there is wiggle room, and what the financial sweet spot for doctors may look like.  

The Doctor’s Dilemma

For starters, it is important to understand the ‘doctor’s dilemma.’ I often write about this concept. However, at its core, what I mean is our interesting financial journey, which ultimately requires physicians to make intelligent decisions early in their careers if they wish to facilitate long-term prosperity.  

As many of you know, medical education is long and arduous. This often leaves us accumulating educational debt for the initial four years of our formal education. This is later followed by post-graduate training that can last between three to seven years or more, depending on the chosen specialty or the pursuit of additional fellowship training. During this time, there are often limited means to generate significant income enough to make a serious dent in one’s debt (student loans, credit card debt, etc.). Often, this facilitates nearly a decade’s worth of compounding interest accumulation on an already significant debt burden. 

Generally, doctors exit formal training in their late twenties to early thirties and reach their true income potential. This is often marred by the societal expectation of the ‘physician lifestyle.’ Six-figure incomes now fulfill physician’s delayed gratification. However, this is simultaneously the time when many in the physician finance niche (myself included) advocate for living below one’s means, saving, investing, and taking deliberate actions to get on sound financial footing, even at the expense of changing your lifestyle at all…but who wants to ‘live like a resident’ for longer than you must?

Herein lies the doctor’s dilemma: How can one reap the benefits of their hard-earned income without becoming beholden to their paycheck or living so overly frugal that the expectation of the ‘good life’ ultimately never manifests?  

Budget for Necessary Expenses

The first step in securing the financial ‘sweet spot’ is largely the simplest: creating a comprehensive and realistic budget. This is easier said than done. It can prove difficult to fully understand your financial pressures if you are unsure what money is coming in and where it is going. Doctors looking to reach financial prosperity should start by mastering the basics. Budgeting is arguably the most important of these fundamental ‘basics.’

A healthy budget is honest and transparent about all fixed and variable expenses. This will allow you to understand your fixed expenses as well as help you better understand where you may be overspending or where recurring payments may be eating away at your discretionary income. The purpose of this post is not to tell you how to budget but to make sure all doctors understand the importance of a thorough budget.

If you are looking for a place to start, we offer a FREE Microsoft Excel spreadsheet budget simply by subscribing to our email list. The email list can be found on the right-handed sidebar, or the bottom of this blog post. For those more interested in a budgeting app, check out The 5 Best Budgeting Apps for Doctors.  

Create an Emergency Fund

As part of answering this fundamental question, we must first address what I believe to be fundamental financial choices that will help one feel secure. Can you enjoy the good life if you anxiously believe a financial disaster lurks just around the corner? No.

The next step in reaching the financial sweet spot for doctors is to guard against the unexpected. Addressing this concern comes in two forms. The first is the creation of an emergency fund. I have advocated for this since The Motivated M.D. was founded in 2021. An emergency fund is a portion of money, generally three to six months’ worth of living expenses, housed in a liquid bank account so it is easily accessible in case of…well, an emergency.  

There is likely a blog post for another day that would discuss the utility of storing this money in a savings/checking account vs. in an investment account so it has a higher rate of return, but this is beside the point. The point is that you theoretically have enough money to live on if you suddenly lose your job, have a disaster befall your car or home, or have a short-term disability. You get the gist.  

If you want to find that ‘sweet spot,’ make sure you have a fund ready for the unexpected. If you wish to learn more, check out our post dedicated to all things Emergency Fund.  

Address Your Student Loans

Large student loan burdens have become a right of passage for most physicians exiting training. According to recent data, when combined with credit card debt and/or non-medical education student loans, the average medical student graduates with over $250,000 in debt. Debts of this magnitude need to be addressed, or they will continually erode one’s ability to generate wealth.  

As such, all physicians must create a plan. Generally, how student loans will be repaid is a required part of one’s financial plan. Be it Public Service Loan Forgiveness (PSLF), loan refinancing, or contractual negotiation of loan reimbursement, all options should be considered. I find it near impossible for a physician to reach that ‘sweet spot’ if they have not developed a fiscally responsible roadmap for their debt elimination.  

I would be remiss if I did not leave the disclaimer that, for the overwhelming majority of all graduating medical students, please consider all PSLF options first and foremost before choosing an alternative pathway for your loan repayment. For many, loan refinancing with a private lender may disqualify you from the PSLF program. Thus, it is not a decision that should be taken lightly.  

Early Asset Protection

I alluded to this earlier when discussing the importance of an emergency fund. Though an emergency fund does protect against unexpected expenses, other unforeseen events can threaten your financial security. These include your untimely death or injuries that make you unable to perform your duties as a physician. Though these are often difficult to discuss, protecting your assets with adequate term life and long-term disability insurance is a must.  

I often advocate for obtaining life and disability insurance policies while still in training (i.e., residency or fellowship). You will (likely) never be as young or healthy as you are while in training. As such, it is imperative that you obtain term life insurance and an ‘own-occupation’ long-term disability insurance policy as early as possible. These policies have many nuances, and you should learn from knowledgeable insurance agents to help you navigate this process. We have partnered with many reputable insurance agents specializing in physicians to help you navigate this process. 

Lastly, I recommend obtaining an Umbrella insurance policy in addition to the insurance mentioned above. As the name implies, an umbrella policy covers ‘everything else.’ If you wish to learn more about umbrella insurance and what it covers, make sure to check out our prior post on umbrella insurance.  

If you want to find the financial sweet spot, ensure you and your family are cared for in case something happens. An emergency fund may help cover short-term disabilities, but the above insurance covers pretty much everything else.  

Minimize Fixed Costs

Another aspect of finding the financial sweet spot for doctors is to minimize your fixed expenses. If you followed one of the earlier recommendations and built a comprehensive budget, then you likely know what your fixed costs are and how much of your money is being siphoned to afford these. However, one can often implement certain financial strategies to save money and minimize fixed expenses.  

For starters, living in a low-cost-of-living geographic location can help save money. Living in a low-cost area will likely benefit your budget if you are not tied to a particular location for your training or career. Secondly, avoid unnecessary luxury expenses on things like housing and your automobile. Pursuing the McMansion and/or driving a luxury vehicle is not only unnecessary; they are taking significant bites out of your monthly expenses. A car is simply meant to get you from A to B safely; you do not need a six-figure vehicle to achieve this, nor should you suffer monthly payments as a result. The same applies to housing, be it renting or mortgage payments alike.  

For less expensive fixed costs, like streaming services, phone plans, and childcare, shop around as best you can and pick the deal that works for you and your budget. Minimizing fixed costs is important in offering your monthly budget some breathing room.    

Live Below Your Means

This goes without saying, but I will say it anyway. Make sure you are spending less than you make. This is simple but not easy for most. As I discussed previously regarding the doctor’s dilemma, physicians end up in a predicament where they are forced to either live below their means and avoid significant lifestyle creep or expand their lifestyle but suffer living paycheck to paycheck as they are beholden to their career.

There is a sweet spot between these two ends of the financial spectrum, but it requires one to live below one’s means. As you navigate your financial life, build your budget, and create your financial plan, make sure you target a sustainable lifestyle on less than you take home. 

Save Like You’ll Retire at 65

The article I alluded to at the top of this post discussed how a FIRE mentality may drive early career physicians to burnout. Though I remain an advocate for the pursuit of financial independence, no one said you have to sprint to that financial finish line. Not everyone needs to reach financial independence as soon as possible. For many wishing for a long, prosperous medical career, plan as such. Instead of subjecting yourself to overly frugal savings strategies, plan your savings to reflect your ideal retirement age.  

True, some wish to pursue FIRE as expeditiously as possible. That is fine for the motivated few, but it likely is not the best strategy for all. Instead, start your financial journey assuming you will indeed have a long and prosperous career and have your retirement savings plan reflect this. This will mean you likely save less than a FIRE-minded individual but enough to retire securely on a more ‘normalized’ timeline, and there is nothing wrong with that.  

To learn more, check out our post titled How Much Do Doctors Need For Retirement?  

The Financial Sweet Spot for Doctors

Ok, if you are a trooper and have made it this far in the article, let’s try to tackle the initial question. What does the financial sweet spot for doctors look like?  

Using the financial priorities listed above, we can start to get an idea of what steps must be taken to build a solid financial foundation and guard against the unexpected. For the average physician, it would likely look something like this:

Dr. Works-Hard’s Financial Sweet Spot

While in residency training, Dr. Works-Hard decides to educate herself on her finances. She subscribes to The Motivated M.D. and picks up a few of our recommended reads. Because of this, she uses our recommended insurance agents and purchases a term life insurance policy and an own-occupation long-term disability insurance policy before she completes her internal medicine residency.  

During her final year in residency, she scours the nation looking for an ideal area to practice hospitalist medicine. She negotiates a contract in a low-cost-of-living area and decides to rent for her first year as she learns about the housing market and her future needs. She doesn’t want to rush into anything until she knows this job is right for her in the long term. She creates a comprehensive budget and makes payments in a qualifying PSLF loan reimbursement plan to receive loan forgiveness after 120 qualifying payments. Of course, she started these during her residency.  

Now that she has a budget and an idea of her fixed expenses, she decides to put away a portion of money monthly to build up an emergency fund. Initially, she targets creating a fund of only three months’ worth of living expenses, with the plan to increase to six months’ worth of savings later. She also contacts her insurance agent and purchases an umbrella insurance policy.  

With her assets protected, she sits down and ponders what life would be like in retirement. What would her expenses be? Would her house be paid off? Would she travel often? Whose education would she pay for? 

With all of this in mind, she would make sure she is contributing enough to her retirement savings to reach the employer match, with plans to max it out once she determines how this affects her budget.  

She continues to drive the car she had in residency; even though it has more than 150,000 miles on it, it works just fine, and there is no need to replace it. Further, she is comfortable renting as she does not want to rush a home purchase until she feels confident that she is here to stay for the foreseeable future. 

With these simple strategies implemented, she is now in a much more appropriate financial position. The world is her oyster! She can increase her investments to meet her goals, save for a down-payment should she wish, work in vacation savings, determine how a family might effect her trajectory. All of these are made more achievable now that she resides in that ‘sweet spot.’ 

Take Home Points

Though it may not look like much of a financial sweet spot for physicians, it lives here. It involves building a comprehensive and transparent budget, living below your means, protecting your assets early, guarding against financial disaster, executing a sound debt elimination plan, prioritizing a regular retirement timeline, and making conscious decisions to minimize fixed expenses. Once you have achieved this, you can return to your financial plan and make changes as you see fit. Whether a home purchase, a new car, or an earlier retirement, all these things can be achieved from this financial sweet spot. However, I encourage all to start here if possible and adjust accordingly. As always…

Stay Motivated!

The Motivated M.D.

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