One of my big financial regrets is not having had a good plan for my money when I started my first attending job. My salary increased by about 150%, and I wanted to be sure I made the most of it. Finding the right balance of saving and splurging (or taking care of things I had put off for years because of I couldn’t afford it), was pretty stressful for me.
At the time, personal finance blogs, let alone physician personal finance blogs, weren’t nearly as easy to find as they are now.
I thought it might be interesting to apply a few of the doctor blogger financial rules of thumb to my first attending year, and see how I did. Since I did not have as much student debt as seems to be typical these days, I also will see how these numbers might look for a PCP just starting out with 6-figure student debt.
The Financial rule
The White Coat Investor is the big daddy of physician financial blogs. He started his blog in 2011, and has written a book, started a forum, a podcast, a Facebook group, and even held a convention (with CME!).
He advises everyone to “live like a resident” for the first 2-5 years out of residency. You are already used to working hard and living on a smaller salary, so it’s less of a sacrifice to put off inflating your lifestyle for a few more years. He has a few posts addressing this, but this one lists the simple rules right off the bat.
He suggests increasing your spending by just a tad– no more than 50%, saving 20-25% of your pretax income for retirement, and using the rest of your income to pay off student debt and/or save for future expenses like a house. He suggests that your attending salary may be 5 times your resident salary, which I think still works in Emergency Medicine (which is his field).
REviewing my numbers
I thought it might be interesting to apply his suggestions to my own behavior as a new attending. Especially since, as a PCP, my salary certainly did not go up 5 times when I left residency.
My husband has asked that I not share all of our financial numbers, so what you will see are numbers adjusted for inflation to 2019 dollars.
The calendar year before I graduated, the last full year of residency, my spending for the year was about $48,198 (in 2019 dollars). My new position came with a salary (adjusted to 2019 dollars) of $141,500.
Using the WCI advice, on graduation and starting my new job, I should have kept my spending the same, at $4016 a month; if I felt I deserved to live a little larger with my pay raise, I could spend a bit more, but certainly no more than no more than $6024 a month.
Also, I should have saved $28,300-$35,375 a year for retirement, or $2358-2948 a month.
Just these two expenses, obviously with large ranges, would have run me a minimum of $6374 a month, and maximum of $8972 a month.
Considering that I brought in $7158 a month, I think I would have found WCI’s advice less than helpful. I certainly couldn’t inflate my lifestyle “moderately” by 50% and also save 25% of my income for retirement. That would have been more than I made.
Living with the same costs as I did as a resident, trying to save “just” 20% of my pretax salary would leave me with a surplus of only $784 a month. Now, I wouldn’t turn down an extra $700 per month, but that wouldn’t be a sufficient amount to pay down typical student debt, or to save up for a house down-payment.
how do these numbers stack up for a new graduate?
In my first post looking at financial rules of thumb, I assumed that a new graduate would have the typical medical school debt of $192,000, and would refinance those loans at 3%. That comes out to a monthly payment of $1854.
If you are stuck with such a large financial obligation, I think you would have a pretty hard time following the WCI rule of thumb.
Saving 20-25% of your salary for retirement, plus paying off your student loans (26% of your salary), and also paying taxes, will likely leave you less to live on than your resident salary. Unless you had been living on much less than your salary as a resident (if you are, good for you!), you would actually need to reduce your costs of living as an attending to follow this rule of thumb.
Some ways around this would be to arrange for loan forgiveness, either through PSLF (Public Service Loan Forgiveness), or through an incentive from an employer; or to reduce contributions to your retirement accounts until your loans are paid off or your income rises (which it should).
Overall, though, I’m not sure that following this rule is as manageable for a newly minted PCP as it would be for the new ER attending.
What do you think about this sort of “rule?” Do you think it shows PCPs make too little? Or residents too much?