3 Things Doctors Must Do If Expenses Are Too High

Too many doctors find themselves in golden handcuffs. This happens when, despite a high income, doctors accrue expenses that equal or exceed their income. And no matter how hard it might seem to be able to spend up to the high of a salary (especially when you are still in training), it is not uncommon.

Unfortunately (and counter to what popular culture), excessive spending is associated with minimal to no improvement in overall happiness and can be associated with burnout in doctors. And more over, losing control of your spending completely hampers your ability to grow wealth, achieve financial freedom, practice medicine and live life on your own terms.

Let’s remember the simple equation to build wealth: create and invest the margin between what you earn and what you spend.

If you have no margin at all because you spend too much (i.e. your expenses are too high), then you can’t even start on this path.

So, what can doctors do if their expenses are too high?

This is a question that I get all the time.

Of course, the easiest way to reduce the risk of high expenses is to just not accrue them in the first place. This is why that transition from being a trainee to becoming an attending is so important. Doctors are prone to delayed gratification. And if one isn’t careful, it’s easy to rack up huge recurring expenses right after becoming an attending that follow you the rest of your life and impede your ability to grow your financial well-being.

Unfortunately, the advice to just not accrue big expenses in the first place is a bit like the advice Andy gave in The Office when he asserted the safest way to practice safe sex is abstinence. It doesn’t do much practical good if you already find yourself as one of the doctors with excessive expenses.

Thankfully, however, there are strategies you can use and steps you can take if you find yourself in this situation.

Here are the 3 that are highest yield in my book…

1. Define your needs and your wants

This is simple but not easy. It seems simple because if you were to look at another person’s situation and go through their spending, we could categorize needs versus wants very easily. Because it’s not our spending.

But then you look at your own. And things become more challenging. THat’s exactly why this is the first step.

If your expenses are too high, take your last month’s bank and credit card statements and go through each expenses one by one. If you have a partner, this needs to be done together. With each expense, categorize it as a need or a want on a separate sheet of paper.

Definitions of needs versus wants may seem personal. But they are really not. Needs are things you can’t live without. Wants are things you don’t want to live without – but could if you needed to. See how that works? It’s common that, as time goes on, wants start to feel like needs. Because we accommodate to them. Weekly spa trips stop feeling like a luxury and starts feeling like a necessity. Private school for your kids…this is probably the most common want that I see mixed up with as a need.

But, guess what?

If your expenses as a doctor are too high to create a savings rate of at least 20% of your gross income, you need to make some tough choices. And that is what this exercise will make you do.

If you don’t make the tough choices, you will be in for a brutal wake up later when you are forced to work way longer and more than you want through burnout and/or other personal issues. Or when you have to scale back drastically upon retiring.

Each is a very bad situation. So make the hard choices now.

Start cutting out expenses from your wants list. Do it with impunity. Because, by definition, you don’t need them.

An inside tip

Is there a specific want that is just really pulling at you? But can’t make it work out to have it as a expense and still save as much as you need to reach financial freedom?

Buy a cash-flowing asset using your savings. Something like a cash-flowing investment property.

Then, use the cash flow to buy you want, like a fancy car. After you buy the want, you still have a cash-flowing asset that is helping you reach your financial freedom goal!

2. Increase your savings rate progressively

Doctors generally don’t need to cut all of their expenses at once. This is an advantage we have due to the relatively stability of our work and our high pay.

Again, these are the exact reasons some doctors get fooled into thinking they don’t have to save at all. But they are wrong, even if they are still saving money for their kids. And doing that is exactly how they end up needing to read this post.

Regardless, this strategy is a way to make the whole saving process less painful. As humans, we accommodate. Like I said above, we accommodate to luxury. But we also accommodate to everything else in life…like temperature.

Get into a cold pool and it feels freezing at first due to the difference in temperature between the water and our body. But stay for a bit and it slowly becomes comfortable. Because our bodies accommodate to it.

And this is exactly how Selenid and I increased our savings rate

It was a but of a different situation but analogous all the same.

We were still in NYC living on my resident salary when we started our financial comeback story. Our savings rate had been 0%. Or more accurately it had actually been negative since we took out credit card debt. Either way, we determine that we had to create some savings rate. Given our low income, reaching 20% off the bat would be hard.

So we made it a goal that we would increase our savings rate from 0% to 1% in the first month. Then, the following month, we would increase it to 2%. And on and on.

We got up to probably 4-5% before we hit the ceiling of what was possible with my resident salary. But it set the stage and created the habit so that when I started my attending job, creating a much larger savings rate was easy.

If you are one of the doctors whose expenses are just too high, I recommend this approach

Build your savings rate in increments. You don’t need to go from 0% to 20% in one fell swoop. But you do need to move along and not procrastinate.

So try to create a margin of 5% the first month. Then 10% and so on. Adjust to what you are tolerate and accommodate.

The water will feel cold at first. But after a while you’ll notice your life really hasn’t changed much on its face. And now you have a savings rate to start investing to create your own path to financial freedom.

3. Budget (at least for a year)

You probably could have guessed this was coming. This is the natural extension of figuring out your needs and wants and then progressively growing your savings rate.

The reason that a budget is necessary is because it is the tool that will keep you on track with your spending and saving.

Even with our savings rate and progression in net worth above $1 million with 4 years of finishing training, Selenid and I still budget.

There is a ton of software you can use to track spending but we still enjoy the old fashion way using an Excel sheet like this one.

I don’t necessarily think you always have to budget (although it doesn’t hurt). But if you find yourself in the situation of having your expenses be way too high to successfully reach financial freedom, you need to at least to this for one year.

After that period of time, your habits and spending mechanisms should be automated enough that you can back off a bit. Although I still recommend you occasionally check in on your spending.

None of this is fun, but neither is working past when you want to

Spending is always a hot button issue.

Some people want you to be extremely frugal and save way more than you could possibly ever need in your life. Others say to spend it all and die with zero because you can’t take it with you.

I’m not advocating for either of those extremes. And that’s not even what this post is about.

This post is for those doctors who have expenses that are too high. Either because they haven’t created a financial plan and don’t know their financial goals. Or because they got on the hedonic treadmill and don’t know how to get off.

Either way, the price to pay for this situation is a huge one. It means working the rest of your life to cover your expenses. It means money controls you instead of the other way around.

If you are in this situation, you need to take these 3 drastic steps. It will feel hard at first. But the pay off is worth it. I know because I experienced it. Once I stopped worrying about others’ images of what a plastic surgeon should look like and started my path to financial freedom via my written financial plan, my burnout ameliorated and I became a better doctor and happier person.

You can too!

Here are some additional resources to help create and invest your savings rate on the path to financial freedom:

What do you think? Why do doctors accrue such high expenses? What should we do about it? How do you control your spending? Let me know in the comments below!