I would say it has become somewhat regular that I interact with someone outside of the healthcare sector and they assume I am rich… that I am ‘raking it in.’ Even for those that understand the nuances of healthcare, overwhelmingly the lay community just assumes doctors are rich. True, doctors and physicians as a profession make a consistently high income compared to the rest of the word. However, that blanket assumption misses the mark completely.
It has become more and more common that high income professionals, like doctors, still struggle to build wealth. Some even live paycheck to paycheck! It has steadily gotten harder and harder for our profession to create the generational wealth that felt almost certain when I was applying to medical school. Why is that? Here is the real reason why doctors don’t get rich: a closer look.
Table of Contents
[The article The Real Reason Why Doctors Don’t Get Rich: A Closer Look is sponsored by Forme Financial. Forme Financial is a wealth management firm built exclusively for physicians. They work with you to build a 360 degree view of your finances, everything from career advisory, insurance, and cash management, to estate planning, investing, and taxes. Their proprietary technology, including an iOS app, gives on-demand access to your full financial life, keeping you and your financial health and wellness a top priority. For a limited time, try them out for free with aComplimentary Wellness Review. Forme Financial will analyze your current finances and offer you potential opportunities to improve. Speak to a senior advisor to learn more.]
Myth v. Reality: Understanding doctor’s earnings
Ok, let’s start by first addressing a few myths about doctors’ salaries. So yes, it is true that doctors make a great living. However, not all doctors are driving sports cars and living in McMansions. The median annual salary for physicians and surgeons in the United States was $208,000 in 2020 according to the most recent data from the Bureau of Labor Statistics. However, this number can vary widely based on doctor specialty, practice location, and years of experience. For example, a primary care physician in a rural area may make significantly less than a subspecialist in a big city, or vice versa!
Extra expenses
Next, it is worth noting that doctors must pay for many things that other high-income earners do not. For starters, they have to pay for malpractice insurance, which can cost tens of thousands of dollars per year. Physicians also pay for a myriad of other insurance policies including tail coverage and umbrella insurance to further protect their biggest asset… their career. Additionally, if physicians own their own practice, they have to pay for their own health insurance and retirement savings, which can eat into their take home pay.
The high cost of becoming a doctor
Another real reason why doctors don’t get rich is the high cost of becoming a doctor. OK, let me stand up on my soapbox now and ramble a little bit about the high cost of physician education. Yes, it is an investment in your future. Yes, it will also likely culminate in a high-paying profession, but the debt to future income ratio is getting worse.
Mountains of educational debt
For starters, the average medical school debt for graduates in the United States is approximately $200,000 in 2020, according to the Association of American Medical Colleges. This amount of debt can take the average physician years, if not decades, to pay off. This is exacerbated even more when you factor in high interest rates.
Personally, I ended up refinancing my student loans to a private lender to improve my interest rates. I refinanced twice! That is all because my federal student loans had interest rates ranging from 6-7%! This can lead to hundreds of thousands of dollars more you payback. You can see why it is not uncommon for physicians who do not prioritize debt elimination to take 10 or 20 years to pay off their student loans. And don’t let the mean physician salary fool you, that means there are still plenty of physicians making less than $200,000 annually.
Actually ‘living like a resident’
No, I won’t stop there. It is not just the cost of tuition and fees that is expensive. Medical students also have to pay for living expenses which can also add up. Further, medical training can be lengthy, which means doctors are delayed in entering the workforce and earning a full-time income. During residency and fellowship, doctors may earn as little as $50,000 per year, which makes it difficult to pay off debt and invest for the future.
Take me for example, I was 33 years old when I finally graduated fellowship and started to make ‘doctor money.’ Now I may have a decent income, but I am also 10 or 15 years behind those who started working straight out of high school or college. Lest, we forget, those individuals likely did not take out $200,000 in medical education debt either. So, doctors’ often have a lot of catching up to do.
The economics of medical practice
Another real reason why doctors don’t get rich regards owning your own practice. Now I have less experience with owning a practice, but there are some real pros and cons to pursuing this. Today, the overwhelming majority of doctors are employees of healthcare systems. For those who choose to pursue owning their own practice, there are some real financial challenges.
The cost of business
Doctors who run their own practices have to pay for overhead costs, such as rent, utilities, and equipment. They also have to navigate the complicated world of insurance reimbursem*nts, which can be time-consuming and frustrating. Insurance companies often pay doctors less than the cost of providing care. This means doctors have to see more patients to make up the difference.
Policies and regulations
Government policies and regulations also play a role in doctors’ finances. Medicare reimbursem*nt rates, for instance, are notoriously low. This means doctors who treat Medicare patients may not make as much as doctors who treat patients with private insurance. The Affordable Care Act has also had an impact on doctors’ incomes too. It has changed the way insurance companies reimburse doctors for care.
Corporate medicine
Corporate medicine is another trend that is affecting doctors’ earning potential. More and more hospitals and healthcare systems are being bought up by large corporations, which can lead to decreased autonomy and lower salaries for doctors.
The lifestyle of a doctor
Finally, it is worth talking a little bit about the lifestyle of a doctor and how it can keep them from getting rich. A physician’s lifestyle is another one of the real reasons why doctors don’t get rich. I wholly understand that this section can be self-induced, but it has become so pervasive in the medical community that it is worthy of addressing. Lifestyle creep, expensive tastes, and feeling you are ‘owed’ something…these are the behaviors that plague our profession.
Side gigs… or lack there of…
True, doctors often work long hours. These long hours can make it very difficult for a physician to find the time needed for a side hustle or side gig. This is important as generating and cultivating multiple streams of revenue can really boost your income. Additionally, the high-stress nature of the medical profession can lead to physician burnout, which can impact productivity and earning potential. Let’s face it, if you are too burnt out to work, you have ruined your most important asset… your profession!
The ‘golden handcuffs’
Lastly, doctors spending too much have almost become a cliché. Lifestyle inflation (or lifestyle creep as I often refer to it), means that as doctors earn more money, they spend more money. As I alluded to above, doctors feel pressure to keep up with their peers or to provide their families with a certain standard of living that they, or their community expects of them. This can lead to overspending and a lack of financial discipline. This behavior shackles doctors to their jobs…hence the label ‘golden handcuffs.’
Tips for doctors to improve their finances
It is becoming less and less common that doctors are viewed as a direct path to overnight riches… that’s because it isn’t! Becoming a doctor takes a decade. Becoming a doctor takes dedication, grit, and patience. It is also very expensive, and requires many to take on mountains of debt. Though it is not the quickest path to wealth, there are still a handful of steps doctors can take to improve their financial situation. I have compiled a short list, based on the content above, that offers a few good tips on how you can better build wealth as a doctor:
- Live below your means: Doctors should create a budget and stick to it. This can help them avoid lifestyle inflation and make sure they are living within their means…or below them!
- Pay off debt aggressively: Doctors should prioritize paying off their student loans as quickly as possible. This can free up more money for saving and investing in the future.
- Consider alternative income streams: While doctors may not have a lot of spare time, they can still explore alternative income streams. This could include consulting, real estate, speaking engagements, or blogging!
- Negotiate fees and salaries: Doctors should be willing to negotiate fees and salaries when possible. This can help them maximize their earning potential and ensure they are being fairly compensated for their time and expertise.
- Work with a financial planner: Doctors should consider working with a financial planner or broader financial services who understands the unique challenges and opportunities that come with being a doctor.
Want even more ways to improve your finances, here are 52 ways to improve your personal finances!
Take home points
Becoming a doctor is no simple path to wealth. In fact, it is long and arduous. It is a shame that many navigate this often decade long education, just to enter a career that no longer guarantees substantial or generational wealth. Even further, it is frustrating that there is a culture within the profession that compels many to drive, dress, and live like their colleagues. If only they knew how much debt their colleague had, or how much economic support they gained.
‘Becoming a doctor is no simple path to wealth’
Suffice to say, there are multiple factors that contribute to why doctors don’t get rich. While doctors make a good living, the high cost of education and training, the economics of medical practice, and the lifestyle of a doctor can all impact their earning potential. By understanding these factors and taking steps to improve their finances, doctors can set themselves up for long-term financial success. As always…
Stay motivated,
The Motivated M.D.
[The article The Real Reason Why Doctors Don’t Get Rich: A Closer Look is sponsored by Forme Financial. Forme Financial is a wealth management firm built exclusively for physicians. They work with you to build a 360 degree view of your finances, everything from career advisory, insurance, and cash management, to estate planning, investing, and taxes. Their proprietary technology, including an iOS app, gives on-demand access to your full financial life, keeping you and your financial health and wellness a top priority. For a limited time, try them out for free with aComplimentary Wellness Review. Forme Financial will analyze your current finances and offer you potential opportunities to improve. Speak to a senior advisor to learn more.]
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