How Much Money Do Doctors Make & Why It Doesn’t Matter

Financial Planning for Doctors

If you haven’t purchased your copy of The Physician Philosopher’s Guide to Personal Finance, you can find it on Amazon.  The subtitle says it all, “The 20% of Personal Finance Doctors Need to Know to Get 80% of the Results.”  It has been downloaded over 1,000 times and maintains a 5-star review.  It was rated the #1 Free Money Management Book on Amazon during its promotional period.

One of the most common questions people often think about doctors, but are too afraid to say out loud is, “How much money do doctors make?”  I always find this question interesting, because people are curious how “rich” doctors must be.  Apparently, the disparity between wealth and income confuses more than just the physician community.  In today’s post, I’m going to tell you how much doctors make, and then I am going to proceed to tell you why that number doesn’t really matter.

Let’s dig in as we discuss physician incomes, our debt burden, and the personal finance failures that often lead to a high-earning physician living paycheck to paycheck.

How Much Money Do Doctors Make?

In the 2018 Medscape Physician Compensation Survey, the average physician salary is somewhere between $223,000 and $329,000.  This is self-reported, which means it might be artificially inflated.  However, it does give us a frame of reference:

If that link makes you log in, here is an image from the survey that shows each specialty’s income:

The reason for this very wide range is that some physicians (like a pediatrician or general internist) might earn $150,000 to $200,000.  Yet, other specialties earn north of $500,000 (e.g. plastic surgery).

According to the same Medscape survey, U.S. Physicians earn more money than physicians in all other surveyed countries except Canada, which apparently leads the pack.

Other sources show comparable salaries to the Medscape data.

Wealth and Income

Despite those very large numbers, many physicians are not actually wealthy.  (Note: Wealth = Assets – Debts)

Many physicians live paycheck to paycheck despite their high income.

The problem in medicine is no different than the problem in the NFL or NBA.  When the big checks start rolling in, the physician is as inclined as a professional athlete to spend every single penny.

Let me state something obvious. Winning at personal finance is not complicated.  Here are the steps:

  1. Earn a decent paycheck.  (In theory, the more the better.)
  2. Live a lifestyle that spends less money than you make.
  3. Save the difference between what you earn and what you spend and invest it in the market so that your money can earn more money.

Don’t put words in my mouth, though. Despite the simplicity of the three steps outlined above, personal finance is NOT easy.  In fact, it is really hard.

The reason isn’t the complex math, it is the behavioral finance behind it all that makes it difficult to do the right thing with our money.  Even low income earning physicians can be wealthy, if they know how.

Doing the Right Thing Isn’t Easy

The problem for most physicians (and many other people) is that we feel that we deserve to spend every dime of the money we make.  After all, we started behind the eight-ball by waiting to earn the first attending paycheck.

It starts with four years of undergrad.  After four more years in medical school, we finish with an average of $200,000 in student loans.  This debt gets to compound at 6-7% interest over three to eight more years spent in residency & fellowship.

By the time we finish all of our training, we have likely accumulated north of $300,000 in student loan and consumer debt. Even with student loan refinancing, this amount of debt takes its toll.

With a net worth that is about $300,000 less than a newborn baby without a penny to her name, you’d think this group of people would go and pay down their debt.

Instead, we use that big paycheck you witnessed above to buy even more debt in a house, cars, private school for the kids, and designer gadgets.

In turns out that spending less money than you make is about as easy for most Americans as eating healthy and exercising.  We all know that we should do these things, yet we don’t. It’s part of being human to know what we ought to do, and then to fail to do it.

Why Behavioral Finance Matters

This is why behavioral finance matters. We have to get the number one enemy – ourselves – out of the way.  We can do this by playing mind games and setting ourselves up for success.

Here is a practical example of what I mean.  Follow these three steps.

  1. Spend some time thinking and talking with loved ones about how you would design your ideal life.  If you don’t know how, then use these three questions.
  2. Figure out how much money you need to save annually to live the life you designed in step (1) by the age you want to retire.
  3. Automatically set your paycheck to be dumped into savings accounts until you get to this number.  Fill up your tax-advantaged space first (401K, 403B, governmental 457, HSA, and backdoor Roth IRA).  Send any remaining money you need to save to get to your goal in a taxable account.
  4. Live your lifestyle based on what is left.

Following the three steps above will get you to your goals.  And, if you automate your savings, then you will never see the paycheck in your bank account. There won’t be a temptation to spend it all because it’ll be broken into your savings account before you ever get to see it.

Not only does this get you out of your own way to save what needs to be saved, but it also makes you realize how much money you are allowed to currently live on.

You can’t spend a dime more unless you want to spend another day, week, month, or year away from that ideal life you designed in step 1.

Take Home

Physicians earn a lot of money, but it is all for naught if we don’t use it to build wealth.  If you know your “why,” or the reason behind your decision to save that money, then it becomes much easier to accomplish.

Personal finance isn’t complicated, but it sure is hard if you don’t get out of your own way. This is why behavioral finance matters.

We must realize that our income is not tied to our net worth if we do not use the money we earn to build wealth.  This will only happen when we figure out the important things first (e.g. our savings rate) before we spend what is left.

Otherwise, we are left spending the money we make and hoping that we will have enough left in the end to retire someday when we realize we want out.

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Is it easy for you to separate the ideas of income and wealth?  What are some ways that you help yourself out financially?  Do you automate your savings?  Have you figured out how much you need to save each year to get to your goals?  Leave a comment below.

TPP

29 thoughts on “How Much Money Do Doctors Make & Why It Doesn’t Matter”

  1. That was an interesting fact that US physicians make more than everyone except Canada. I actually thought Canadian physicians were typically underpaid compared to the US counterparts because of Healthcare being provided free to everyone through the government. I wonder if it takes into account currency exchange rates or if it is indeed absolute more earnings than the US.

    Another interesting fact is that survey of Millionaires often show that occupations considered low paying such as teachers often represent the top 3 jobs while physicians typically are not included in the top 3. It shows that income is not the final determinant of wealth but behavior is.

  2. My wife and I have been having these conversations about what we want life to be like now/later and how much to save.

    Setting up the savings goals and seeing what is left fundamentally altered how much we intend on spending on a home.

    By prioritizing a decent savings rate and working part time we came to a house budget that is far below our peers in the area we live in. But that is ok and I think we will be the happier for it.

  3. Great post! I’m thankful that we found the FIRE community before we got too far down the rabbit hole of consumption. You may remember that our focus is on knocking out our debt before we focus too much on investing. We’ve finished my law school loans and should finish Mr. TMG’s med school loans in a few years. Then, we’ll dump all of the extra money we’ve been putting on loans into investments. We live on substantially less than we make because of our debt payoff strategy, and I don’t anticipate that changing much once we’re finished.

  4. Great post! I completely agree, I think the concept of delayed gratification is such a foreign concept in today’s world. I think the important concept is to be able to effectively live on a budget and save money at any income level.
    My wife and I lived off a single income for 8 years (4 years of medical school and 4 years of residency). During this time we made ~40-45k a year and still were able to save money for a down payment, etc. Sure, we don’t have super expensive cars, toys etc, but we own our house.
    Great ideas about automating your savings and thus never tempting you to spend money you should be saving!

    • Thanks!

      Learning to live on a budget can be tough, but it is certainly the right thing to do. Once you have an idea, I think it’s okay to just track spending and reach your savings and givings goals. Whatever is left can be spent however we want if the big picture items are taken care of first.

  5. I think young physicians fall into the trap of spending debt too easily. In undergrad and medical school a lot of us are using debt to not only pay for tuition, but to also pay for living expenses. I know plenty of resident docs who were living the high life in a high rise condo in Los Angeles or in Santa Monica beach. They just get too comfortable with debt. To them, it’s like monopoly money. And “at some point” in their future life, they will eventually pay it off.

    This is dangerous. It’s not monopoly money. It’s real money and that debt just keeps growing and growing the longer you put it off and delay paying it.

    For many docs, this behavior carries over as they become young attendings.

    Very unhealthy behavior with respect to behavioral finance.

    Only the fortunate ones like us don’t fall into this trap. And hopefully we can help others not fall for into the behavior debt death trap as well.

  6. Buy growth stocks in your 401, then buy stocks in a private acct., Finally, buy a reasonable house, used cars, and send ur kids to public schools!

  7. As an old doc, I see the new ones come into town and be shown houses that are far more expensive than the one we bought when we were out of debt and after 5 years of practice. I tell new docs to buy cheap houses or rent– they can always move up, but an expensive house may force them to stay in a practice situation they are un. happy with. Also any luxury once sampled becomes a necessity, while moving to a larger, nicer hope makes one feel like life has gotten better

    • Completely agree. Bigger house = bigger expenses. We are finding this out all too well recently after moving. We waited two and a half years after finishing residency to move, and paid off our student loans before doing so.

      If we didn’t have that new cash flow, it would be a lot tighter and much more stressful financially.

  8. Great philosophy on savings until you squirrel away everything and die of cancer at 40 anyway, having enjoyed no worldly offerings. Gotta be a balance.

    • I’m not squirreling everything away. I live a great life, actually. I am married to the best woman I know, have three great kids, and a job that I (for the most part) love. We live in a wonderful neighborhood, just bought our forever home, and I drive a great car.

      We took all of these changes in step, and only after making smart financial decisions that allowed us to pay down $200,000 in 19 months while increasing our net worth by $250,000 in one year.

      Sounds like balance to me. Anyone that sees it differently, likely needs to learn the art of contentment.

  9. And, the most important variable in the equation to retire early is marriage!
    If you get married, stay married!
    If you are not sure, remain single!
    Live below your means.
    Never listen to those who say that debt is good for tax purposes!
    Live debt free and simply!

  10. I always told my residents to think about retirement the day you start practicing. You need to max out your retirement every year. Stay married to the same spouse. You can invest in fast cars, great houses or french art, but divorce will be your biggest hit to your pension. My observations have been that those who live in huge houses and drive great sports cars usually have the smallest net worth.

    • I just wrote a post about that last night. People constantly feel the need to compare themselves to others. In our consumerism world, that is a terrible habit because the people who “have” the most often also “have” the least. Big spending usually equates to a very small net worth.

      TPP

  11. It’s simpler than most admit to Avoid the truly ridiculous stuff(Ferrari’s etc). Save 20% of your income monthly. Invest in some age appropriate diversified stuff. Bear in mind that the public views us as well to do, so you are not really permitted to take advantage of taxpayer subsidies. Yes, you will probably have to pay tuition at a college. The only thing that really matters is not to get sick, shortening your career at the end. Yeah, avoid divorce. Most other things don’t matter much.

    • If you get the big stuff right, then you usually find financial success. The problem is that with each increased step in lifestyle inflation, it becomes more and more challenging to be “okay” with living more simply. It is much easier to just stay there after training, and slowly inflate the lifestyle once you can afford it and still meet your financial goals.

  12. Any of us whose parents or grandparents survived the depression and spoke about those difficult years, as mine did, made it clear that saving money, earning interest on that money and never over spending is critical to one’s lifelong solvency. The only issue this raised as I finished college was a lack of a credit rating. No real problem; just pay cash.

  13. The appetite for consumer goods having been suppressed for years, the beast is suddenly liberated by a large paycheck and becoming a better credit risk. Like a person wading into quicksand young Drs. find themselves even more mired in debt and some never get out. I know of people in their 60s who have made north of $300000/yr for 25 years but cannot write a $5000 check. They have nice homes, boats, kids in private colleges and belong to the country club.

  14. As with everything, the key to sustainable happiness lies in moderation. In medicine, we already don’t start earning a “real” salary until we are in our 30s. How long is it reasonable to delay gratification? Buy a nice house and a nice car. You deserve it. Take a nice vacation every year. Just don’t go hog wild. While we earn a good living, we are not the super wealthy. Also, learn to manage your own money. Don’t pay fees to financial advisors or brokers who don’t care about your money the way you do. With a basic amount of market knowledge, you can do just as well or better than any of these people. Only true wall street insiders whose primary goal is to get really rich can do better. If a broker who charges a 1% commission can’t beat the S&P 500 by 1% every year, you are just as well off putting everything yourself into an index fund and calling it a day.

  15. Elementary school teacher is a highly desirable job for young women; those whom can afford to do it disproportionately are married to high end men. No surprise many end up wealthy.

    Think Laura Bush.

  16. The skew in remuneration by specialty is largely a result of Medicare negotiations. If one looks at the percentage of our total population which has any lifetime encounter with a particular specialty will quickly show the absurdity of the disparities. For example, the percentages which encounter either an internist or a pediatrician in a lifetime, as opposed to those who see a plastic surgeon. There is simply no defense against such a view! And, length of training has no relevance here – many of us have trained for 5-7 years in a medical subspeciality, a period rivaling any of the other areas.

  17. I am surprised that specialty has such wide disparity. Particularly for a pediatrician $200k vs a plastic surgeon $500k. I figure more people are visiting ER docs, OB/GYN’s and pediatricians than plastic surgeons.

    However, I did read in the book American Plastic that many families (even some living in trailer parks) were using credit cards to pay for plastic surgery for their daughters to the tune of $7,000! Just insane. Instead of building wealth they were going into debt. It just goes to show that behavior and perception are more powerful than just about anything cause you can blow through just about any paycheck and end up in debt for any number of reasons.

  18. I feel Physicians (IM, FM, Ped etc.) are getting paid less as compared to compensation like 2 decades ago. EVEN A FRESH UNDERGRAD TODAY in CompSci IS MAKING $140-$150K starting salary. It is very stupid that doctors are paid so less as compared to the amount of time and money they spend in getting their degree. These Undergrads reach total earnings of $200K in first 3 three of their jobs with stick options etc.

    I think the main culprit is Wall Street. IT companies are listed there and are filthy rich today like Amazon and Google and can pay very good salaries to 21 year olds but most hospitals and medical practices are non profit or not listed on Wall Street to make the money to pay their employees. Moreover, Federal Reserve and all QEs are there to prop up the stock market. Moreover, the insurance companies are busy slashing payments to doctors and increasing profits for wall street to have more money for their CEOs.

    More people will stop choosing medicine as a career in future if the salaries are not fixed soon. Same is the situation with PhDs. B-School profs make it good but all others are paid really low. Avg B-School profs make close to 200K in starting salary and they are not even real doctors. Just publishing some BS papers that no one reads and add no value to society. But they add scam value to wall street.

    What a shame.

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