Regardless of career or walk of life, the path to wealth is simple. Create, invest, and grow the margin. The margin is the difference what you make (increase your compensation) and what you spend (decrease your expenses). Therefore, you can create your margin in 2 ways:
- Make more money
- Spend less money
That’s it. Break everything down to its component parts and these are the only 2 strategies that you have to set a foundation to build wealth.
The 7 Step Basic Formula for Wealth as a Physician
And that is the most important step
We often get caught up in various investing strategies. This is important stuff. After all, if you don’t invest and grow your margin then you are not building wealth.
But, you can have the best investing plan. However, if you have not created a margin, you can’t put it into action. Investing in index funds versus cash-flowing real estate is a worthless debate if you have a 0% savings rate. And yet, this is the step that people often talk the least about.
Anyway, back to the 2 strategies to create your margin
Increase your compensation. Or decrease your expenditures.
Both are important variables in an important equation.
In general, your expenses are more in your control than your income
Whatever you do. Whether you are employed or in private practice. Whether your main source of income is a “job” or a side gig. Whatever it is, your income is generally set within a certain range. Once you set that range, it becomes less in your control (more on this later…)
But your expenses are always in your control. Now, sometimes it may not feel like they are in your control. And it is definitely a lot harder to reduce expenditures that are already there versus just minimizing expenses to begin with. That’s why a proactive budget is so important!
Budgeting Made So Simple A Surgeon Can Do It
But the cold, hard truth is that expenses are 100% in your control.
So, the easiest way to create your margin is to manage your expenses. Spend intentionally. But make sure you have a savings rate of at least 20% or more.
The biggest problem is that when you focus only on expenses, you can develop a scarcity mindset with money that can be very dangerous.
But this does lead to some problems
You start to think that every transaction is zero sum. You withhold even intentional spendings in your life. Ultimately, this doesn’t last and spending will explode and your finances will be hurt for it.
So, while managing your expenses is crucial to building wealth, it is not the only variable to be aware of.
In fact, I lied to you before
I implied earlier in this post that your income is not in your control. That’s a huge myth. And so many of us have bought into it. I definitely bought into it before I changed my money mindset and increased my financial education. Once I grew my abundance mentality, I realized just how false this is.
Too many of us set the range of our income. And we accept it. We don’t look or work to increase our compensation. Or if we do look to increase our compensation, we go about it in totally the wrong way.
Our income is never in a box. Money is not a zero-sum game.
To increase our compensation or income is a huge piece of the puzzle to building wealth.
To understand this, we first have to understand how individuals or businesses are compensated in our society. It’s actually quite simple.
How we are compensated in society
Please note, I am not saying that this is the right way for people to be compensated. I am merely stating how it is.
The less people that can offer the good or service that you offer, you more that you get paid.
The converse is also true: The more people that can offer the good or service that you offer, you less that you get paid.
This does not always make intuitive or ethical or rational or utilitarian sense. But that is the way things work. It explains why LeBron James is paid way more than a cardiologist. For better or worse, many people can diagnose and treat a heart murmur. Not many people can dunk a basketball. Even less can average over 30 points a game in the NBA.
Heck, it even explains why I, as a plastic surgeon, am paid much more than a primary care doctor. There are less people that do what I do in terms of reconstructive microsurgery. That certainly does not mean that my job is more important than a primary care physician. I am fortunate that my passion led me to such a position. But that is not always the case.
How to increase your compensation
Now that we know, for better or worse, how society compensates us, we can do something about it. Like anything, by knowing the rules, we can finally play the game.
How does this work clinically
Clinically is where most of us will look to increase our compensation. It’s where most of us make all or the majority of our money. So it makes sense.
In your job, think about what you do. What is your role? What tasks are your responsibility? How do you create value for your employer or your business?
The Easiest Way to Find Savings for Your Practice
Now, think about how many other people do that same thing or can do the same thing as you.
If the answer is “a lot,” then you want to change this.
In your current position, you have no leverage or power. If you ask for a raise or take more money our of your business as the owner, you’ll be in trouble. Your boss will just look for one of the many other people who can do your job and will do it for your current compensation. Or your business customers/patients will just go to one of the many other providers offering the same services for less. Either way, it’s not good for you.
So, you need to focus on altering or evolving or adding to what you offer. Make it more unique. Create more value. Build new skills. Move to a new area.
Ultimately…make it so that you are doing something that very few other people are doing.
I’ll use myself. When I was looking for my first job, I knew what average compensation was for a new plastic surgeon. This was an important part of knowing my value before entering into contract negotiations.
But I also knew that I was worth more money than this average salary. I knew that the value I brought was higher. At first, I knew this intrinsically. We all
should believe in ourselves. However, I needed to prove this.
So, I went through my training, my skills, and my accomplishments. I separated out those that few other plastic surgeons possessed or accomplished.
When I met with prospective jobs, I didn’t even mention that things that I could do that every plastic surgeon can do. What’s the point? I led with and emphasized what I could bring that very few or no one else could. This includes super microsurgery, robotic surgery, lymphedema surgery, and advanced research.
And that’s how I increased my potential compensation.
- Actively acquire new skills or accomplishments to add value in ways that few others can
- Highlight those unique skills that are rarely possessed
- Seek opportunities in need of these rare value-adding skills and accomplishments
- Negotiate aggressively
How this works non-clinically
You will likely not be surprised at all when I say that it pretty much works exactly try the same way non-clinically.
There is just one big difference. And that is: As physicians, we feel a lot more comfortable clinically than we do non-clinically.
Because of this, we are often more likely to take the risk of putting ourselves out there and acquiring new skills, advertising them, and seeking new opportunities. Imposter syndrome is real for doctors in medicine. It’s even more real in a field that we are not comfortable in…whatever that may be.
So the trick non-clinically is this: Just go for it.
Again, I’ll use myself as an example
Before starting this blog, I had never done anything like this. Never been on a podcast (honestly, I’d never listened to one). Heck, I actually didn’t know that much about personal finance when I started this blog.
But I did identify that I had a passion for helping other doctors improve their financial well-being. I also saw that there was a need for a younger voice who was actually going through this financial journey on their own. Plus I knew I was a good writer and had fun interacting with people.
So, I put myself in the arena and went for it. It was scary, but I am so happy I did it! And, it has increased my income and pushed me further on my path to financial freedom to boot.
You can do the same!
Looking for some ideas for clinical and non-clinical ways to increase your income and compensation? Start here!
- Physician Side Gigs to Make You Passive Money
- Doctors, How Do You Want To Make Your Money?
- Doctors & Dollars Episode Recap #11: Side Gig Showdown
- Finance Flash Go! Episode #29: Is a Physician Side Gig Right for You?!
- How to Make and Save Money as a Resident Physician
- Is It Stupid to Chase Passive Income as a Resident?
What do you think? How have you built your financial foundation? Do you want to increase your income? How have you do so? Let us know in the comments below!