Whining About Your Finances Won't Get You Anywhere

I’m always amazed how doctors can be so well educated yet cry like babies when they’re challenged about their personal finances. I’ve reviewed hundreds of physicians’ investment portfolios and discussed the mistakes they’re making with their money. Despite pointing out mistakes, some doctors just don’t get it and instead make excuses about why they aren’t better off financially.

Here are a few comments I received recently from physicians and the lessons you can learn from them:

“You make the numbers seem so simple. I am 12 years post residency and haven't been able to pay off my debt yet, which was about $125K”

My response: Many physicians graduating from residency come out with debt exceeding $250,000. While that’s not a small sum, I’m convinced that you can pay off $250,000 in student loans in less than 5 years after residency and still live a comfortable lifestyle. This doctor claims he can’t pay off half that amount in more than double the number of years! Let’s do some quick math. If he’s $125,000 in debt and he’s 12 years out of residency, he only has to pay $10,000 a year to pay it off in 12 years. That is easily achievable with a physician’s income—especially in this case because the physician I’m referring to has income of about $300,000 annually. On a personal note I had almost the same amount of debt when I graduated from residency and I paid it off in less than 1 year. I worked my butt off and picked up extra shifts. I ain’t no mathematical genius but I do know simple addition and subtraction. If I can succeed so can you. It’s all about the proper mindset. As Nike says, “Just do it.”

“I'm still paycheck to paycheck...Living expenses, food, car payments, auto, and home insurance; the basics eat up a sizable amount of that left over money...I have many colleagues in [medicine] who are still living paycheck to paycheck.”

My response: Anytime I hear “living paycheck to paycheck” from someone making a couple hundred thousand dollars in income, I wonder where the money is going. Basic living expenses, food, car payments, and insurance premiums should not eat up 100% of your after-tax income. If they do, then you’ve got a spending problem not an income problem—no different than what our government has. You need to hire Suze Orman. This physician goes on to say that he does not live lavishly but that he renovated his house and concludes that paying off loans is just not realistic to most doctors.

Wrong. What isn’t realistic is your definition of lavish. While you might consider the house upgrades to be necessary, I bet your retirement portfolio disagrees.

How about you try this: compare the price you paid for the last car you bought to the average annual contributions you are making to your retirement portfolio. If the price of the car exceeds your average annual contributions, then you’re spending too much.

“We do provide an ‘incredibly valuable service,’ but not more so than police officers, fire fighters, social workers, teachers, etc. Yes, our education lasts longer and we accrue more student loans, but I still don't agree that that justifies a disproportionately higher income. I, for one, am happy to pay my taxes.”

My response: Taxes are always a hot topic with doctors. No matter which part of the political spectrum you fall on, you simply cannot deny that taxes have gone up for many physicians after the 2013 tax law changes. Here’s how you can find out. Take the numbers on your 2012 income tax return and plug them in to your 2014 income tax return and see which year you paid more taxes. Then account for the higher Social Security taxes in 2014 versus 2012. The comment that we “accrue more student loans” than other professions is a huge understatement. Many residents are now graduating with $300,000+ in student debt. That combined with higher income taxes on these dreaded “rich” doctors and the fact that we start our careers in our 30s means that in my mind doctors are vastly underpaid.

Interestingly this doctor admits that he claims deductions on his income tax return even though he is “happy to pay my taxes.” That smells like hypocrisy to me. Any physician who is happy to pay more taxes should do the following (for those of you who want to pay less taxes, do the opposite):

1. Do not own any tax exempt investments like municipal bonds

2. Choose investments that pay only non-qualified dividends which are taxed at your highest rate

3. Sell any gains in taxable investment accounts in less than one year

4. Do not deduct any business expenses on your 1099 independent contractor income. This increases your income taxes and self-employment taxes.

5. Do not contribute any pretax money to a SEP IRA, 401K, or any other retirement plan

6. Do not fund a health savings account and do not deduct health insurance premiums

7. Do not report and deduct your student loan interest

8. Do not deduct mortgage interest, medical expenses, property taxes, or state income taxes on your federal tax return

Here’s what I want you to do. Go back to your 2012 tax return and transfer your numbers again to 2014. Then get rid of the above deductions and find out how much more in taxes you would pay. Then tell me you’re happy to pay them. Don’t just talk the talk. Walk the walk.

Setu Mazumdar, MD, CFP® is board certified in EM and he is the president of Physician Wealth Solutions.