Financial Planning for Doctors

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Do you think that money can really buy you happiness? The results of the studies might shock you. There’s even some math to back up the study results!

I want you to spend money in a way that makes you happy. What that really means is for you to prioritize the things that make you the happiest.

Well, there might be some “things” that make you happy, but it’s usually spending time with your family and friends, or having memorable experiences that will bring you the most joy.

So…can money buy you happiness? Specifically in the form of income?

Raking in the Money

Yes, money can buy you happiness.

Everyone knows there is a certain amount of income that you need. A certain amount for your basic needs, and then some for a cushion and meeting the dreams.

It’s a fact that people with lower incomes have a lower level of long term satisfaction. That makes perfect sense. They’re constantly struggling, and that can wear a person down.

That kind of pressure tends to have a reverse effect on satisfaction levels.

According to surveys, the average amount of income that equates to happiness is approximately $75,000. However, the amount of income needed for satisfaction increases in the high cost of living areas.

Life Evaluation Point

Can money buy you happiness in San Francisco?

The comfort level in an average area of America is $75,000. San Francisco costs more than the average cost of an American city. It has a higher cost of living.

The poverty level in San Francisco for a family of four is $117,000.

The life evaluation point is typically an extra 20k than your basic needs. It allows you to bring your long term goals to fruition, because you have some money to play with.

Median Income

Can money buy you happiness on the median income?

Money can’t buy you a lot of happiness on the median income, which is between $55k and $60k.

The happiness factor is almost 200% higher than what the median income is for the vast majority of Americans.

My friend and collaborator, Ryan Inman, has a lot of experience working with hundreds of physicians, not to mention being married to one. They both worked while she was in training. They would spend one salary and save the other. That was something that worked out well. It was their “thing”, and a great example for everyone!

After they finished training and started receiving a new attending physician’s salary, Ryan reports that their happiness did increase.

He said that one of the reasons was that she wasn’t sleeping at the hospital every forth night! Another reason was that she had some time to rest and spend her hard-earned money. In medical school and residency all she had time for was working and sleeping!

Ryan felt like a salary of $100k was just about right them. However, they experienced the lifestyle inflation that happens to most new attending physicians.

Keep the median cost of living in mind, but also consider which part of the country you live in – it makes a difference!

I’m sure all you new attending physicians reading this are nodding your heads in agreement!

Ryan has a rule to share with new attending physicians who are in that transition phase.

Let’s see what it is….

Can Money Buy You Happiness?

It can feel like it when you get a large raise!

Ryan’s advice to new attending physicians is to give themselves a 50% raise.

You should give yourself a raise right after you become a new attending physician, when the major income increase hits. You should choose the path of Dr. EFI; not Dr. Jones. One that’s large enough to feel rewarded for all the years of hard work, and yet you’ll still have money to start planning for financial independence.

Start with doing something smart with the extra money like paying down your student loan debt, consumer debt, and auto loans.

Can money buy you happiness?

It can when you use it prudently, paying off student loans, and taking the weight of being in debt off your shoulders!

The 10% Rule

I teach something similar to Ryan. However, it depends more on your attending income rather than a 50% raise from your resident income.

Think about how much your take-home pay increases from your last training paycheck and your first paycheck as an attending physician…now take 10% of that.

An example is if you go up by $10k per month, you take $1k. That $1,000 is for The 10% Rule. You know what you get to use it for? Whatever you want! No strings attached.

With the other 90% (The other $9,000) – that is the part you do something smart with.

Can money make you happy?

The $1,000 in fun money can sure help!

Even with the other $9k being allocated in a sober and responsible manner, even that can be fun eventually! As you pay down your debt, there is more cash flow to enjoy!

This provides financial freedom, which can serve as your escape hatch from burnout should you need it!

Remember That Lamp?

It’s the one that you bought on sale. There was a last chance coupon. It made you feel good as you pictured the perfect spot for it in your living room.

Then time passed, and the lamp became just another ignored object in the house.

Maybe you remember this lamp because you dust it every week. However, it doesn’t give you the thrill that it once did.

Remember, the question is: can money buy you happiness?

It can at the time you buy some cool things. However, that type of satisfaction is fleeting.

It turns out that spending time with your loved ones will bring you true happiness (and memories forever more). That means if you are spending money on experiences with those loved ones, you’ll feel more happiness, than if you bought things.

Spend money on a vacation with your children will make you happier in the long-term, than spending the same amount towards a car or clothes!

Before a vacation, the anticipation builds before you go. After the vacation, there are so many memories. Even the little annoying things that happen become cherished stories years later.

That’s a very different experience than if you decide to take inventory of your “things”. You might remember how happy you were to buy something (like the lamp or buying a new car), but also consider how quickly you consigned it to a closet or storage.

Are you swiping your card to buy a few hours of satisfaction?

Soon, we forget all about the pleasure we felt when we paid for the lamp (can you say dopamine rush?).

Unfortunately, some people never recognize the treadmill that consumerism becomes. They don’t understand the hollowness that comes after the purchase, and the need to swipe the card again..

Perhaps most of all they don’t understand how advertising and marketing are affecting their choices…and ultimately their happiness.

By “them”I mean you, me, us…we have all been affected at sometime.

For some people, the process can become so addictive that they start hiding purchases.

Amazon

Have you heard of Amazon? These days that’s a ridiculous question. Everyone has either used or at least heard of the online retail giant.

Before Amazon took over the retail and delivery world, there were studies that suggested that you receive more satisfaction when you frequently make small purchases, instead of buying one large item.

It turns out that you adapt more easily to the larger item. You quickly become apathetic towards your new car or house.

However, you don’t adapt to one small purchase, when you have a continuous stream of items coming your way.

A long time ago, that may have been true, but now that buying anything on Amazon, and having it delivered in a day is the norm…we may be apathetic towards even non-stop deliveries!

Eventually, we’ll become indifferent to those, too.

Anticipation is Making Me Wait…

It has been shown that when you anticipate a purchase, it provides you with more happiness.

For example, my family needs a dining room table. I waited 13 months fighting the good fight on a table that we will only use once or twice per year. We didn’t buy one originally because it didn’t seem necessary. However, this year we’re hosting Christmas and we started looking to buy a table.

My friend who trains refugees on how to build tables so that they can start their own business. This is the person I turned to make this new dining room table.

The process will take four months.

In our current consumerist culture that now seems like forever (or maybe just an extremely rare experience). Hopefully, as the work progresses, the craftsmen provide me with pictures that I can share them with my family. This increases our anticipation, and we get to imagine how the table will look in our house.

We could have just driven over to the local furniture store, picked out a table and paid to have it delivered. But, compare the two processes, and ask yourself which way you could buy a table that would increase your pleasure in the purchase.

Amazon may be good at inducing dopamine, but they aren’t so good at providing you with long-termed sustained happiness! Giving to other people is a sure-fire way to produce happiness with money, and in this case we get to have an experience with the table being built at the same time.

Experiences Count

The thing is that I could be buying a table, and not one that he really values. However, that’s not really the case here. The table is something that we “need” as a prop for hosting a holiday dinner.

My family will have a story to tell about having the table built (perhaps the story will be told to future generations as the table is handed down), which already makes the purchase and build of the table special and unique.

However, the table will also feature holiday meals for years to come. My children will have special memories about gathering for extended family dinners at that table.

Can money buy you happiness? In this case yes, because the table will feature in many memories!

Choosing to have the table built, and follow the progress has made buying this “thing” into an experience…and many more!

Holding Out

Let me tell you something about Ryan. He is well aware of the tips and tricks of consumerism, so he has never bought into overspending (pun intended).

Yet, when buying things on Amazon, he is known to put an object that he desires into the cart and save it for later (a couple of days). This is his way to let the excitement of selecting an item recede.

His wife says that sometimes he’ll even forget he saved it!

He said that recently, he came across another book to read. He has a reading list, and this would be one of several waiting to be read. His strategy is to put the book in the cart (that was three months ago).

The cart trick helps Ryan, and you could adopt his habit, too!

You can save it for later and the interesting thing is when you go back, and enough time has passed you can ask yourself some questions:

  • Did I wait long enought to know that I really need this?
  • Will this purchase make me happy?
  • Should I spend money on this thing?
  • Is there something else I’d rather spend money on?

If you have an Amazon spending problem saving to the cart may just be the thing for you!

Can Money Buy You Happiness in Other Ways?

A way that money can buy you (and others) happiness is spending it on other people.

You could tithe to your church, or another charity. It’s been proven through various studies that when you are able to do nice things for someone else it also lifts you up!

Time is money.

Where are we without time? It’s the most precious resource that any of us have.

Ryan and I agree that we want to spend as much time with our families as possible. We define wealth in time.

Ryan told me that he doesn’t give a lot of money, but he’ll give a lot of time. It excites him to help small businesses, so they can reach out to more people. He’ll even get excited when he is working with other people, helping them to understand how to restructure a product that benefits hundreds of other people.

He is spreading his expertise.

Have you ever you dropped a rock in the pond, and watch the ripples spread out? That is the invigorating effect of helping!

It seems that friends are divided into two groups. When you ask them for help for instance with moving, you might get a couple of varying responses:

  • They’ll offer you money to help pay for the moving truck.
  • They’ll spend the entire day lugging your heavy boxes around!

Which one do you appreciate more?

Since Ryan and I both equate time with money, we would both appreciate the friend who gave their time (which equals money).

They are also serving up some companionship making a difficult task a lot more palatable!

Take Home: Can money buy happiness?

We believe it can if you are using it the right way, and in the right spirit!

In our view is happiness comes from:

  • Experiences over most material objects
  • Spending money on other people
  • Buying smaller more frequently
  • Delay your purchases

Can money buy happiness? Let us know what you think!
Leave a comment below.

TPP

3 thoughts on “Can Money Buy You Happiness?”

  1. Money can buy a lot of things, including things that give you happiness. It’s a tricky balance to use money to purchase things that make us happy vs using money to define our happiness.

    For me, I love buying experiences. That’s what my wife and I enjoy, more than buying stuff. There’s nothing wrong with buying stuff, but I definitely like your point about buying experiences.

    Great discussion, as always!
    -Brent Lacey
    http://www.TheScopeOfPractice.com

  2. Just to be clear here, it’s not the money that leads to the happiness you’re describing. For physicians, we’re all pretty much above the threshold for which further income doesn’t increase our happiness. I repeat, in medicine further income doesn’t increase our happiness! The evidence is pretty clear here.

    The “happiness” that comes from material purchases is transient and self-limited. This also is not the way to be happier! (Which you seem to agree with)

    What you describe as ways to increase your happiness are simple.
    – Do things you love
    – Be generous and kind
    – Live more simply
    – Delay immediate gratification.

    It’s not neurosurgery, but it takes a change in mindset and practice. You don’t need significant wealth to do those things. Work on them now, and enjoy the real return on investment that your greater happiness will bring!

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