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 a self-reported survey of more than 13,000 physicians and 29 specialties, doctors were asked how much money they make annually. The answer:
This comes from the 2022 Medscape Physician Compensation Survey where the average physician salary is between $260,000 and $368,000. The reason for this wide-ranging average is that some physicians (e.g. primary care physicians) might earn ~ $200,000. Yet, other specialties earn north of $500,000 (e.g. plastic surgery).
Wealth and Income
I commonly ask audiences when I provide lectures, “What does it mean to be wealthy?” Usually, people respond with income thresholds (e.g. “Someone who makes more than $150,000).
Despite this notion, many physicians are not actually wealthy despite earning the multiple six-figure numbers mentioned above. (Remember, Wealth = Assets – Debts). A case in point is that despite a high income, 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 sudden increase in monthly income increases after training, most people have a similar reaction – they spend it all.
This isn’t unique to physicians. For example, Shaq spent $1 million of his signing bonus in a single day. Physicians are as inclined as professional athletes to spend every single penny.
This psychological phenomenon has a name. It is called the Diderot Effect, and it affects entertainers, professional athletes, and physicians alike.
Why Physicians Spend All of Their Money
In 1765, Denis Diderot was a well-known French philosopher and author of encyclopedias.
Despite his fame, he was on the brink of poverty. It was at this time that Catherine the Great, the Russian empress and lover of books, heard of Diderot’s plight. Having a soft spot for authors, she decided to buy his library for what amounted to about $150,000 in today’s dollars.
With a daughter who was soon to be married, Diderot was over the moon. Now, he could afford to give his daughter the wedding she deserved. Yet, Catherine the Great didn’t just provide money. She also gifted Diderot a scarlet robe.
This scarlet robe would serve as a Trojan horse in Diderot’s financial life.
As he looked at himself in the mirror wearing a robe befitting a prince, he noticed the remainder of his surroundings. His furniture was now out of place. Someone who owned a scarlet robe could not sit on such lowly chairs. The old rug was not nice enough either. The feet of someone wearing a scarlet robe should walk only on a rug from Damascus!
In the end, Diderot’s brush with fortune and fame (and a scarlet robe) led to what is now called the Diderot Effect. It is this same effect that haunts anyone who experiences a rapid rise in fame or fortune today.
In fact, Diderot would later go on to warn others of “the contamination of sudden wealth” in his essay called “Regrets on Parting with My Old Dressing Gown.”
Money is Simple, But It Isn’t Easy
While the sudden accumulation of wealth that occurs between training and becoming an attending physician makes the “right” financial decisions difficult, this doesn’t make personal finance complicated.
Truthfully, personal finance is simple. Here are the steps:
- Earn a decent paycheck (all doctors make good money).
- Protect your income through own-occupation disability insurance (ideally through a Guaranteed Standard Issue plan in training – reach out to us at Attend if you don’t know what this means).
- Spend less money than you make.
- Use the difference between what you earn and what you make to build wealth.
Don’t put words in my mouth, though. Despite the simplicity of the four 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, many of us spent our twenties missing weddings, funerals, and vacations to create our career. In addition to this, we started behind the eight-ball by waiting until our 30s at the earliest to earn our first attending paycheck.
After four more in medical school, 76% of us finish with student loans that average to more than $200,000 in debt. This debt compounds at 6-7% interest over three to eight more years spent in residency and/or fellowship.
By the time we finish all of our training, many have accumulated north of $300,000 in student loan and consumer debt.
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 aggressively pay down their debt.
Instead, we use that big paycheck like Denis Diderot to buy even more debt in a house, cars, private school for the kids, and designer gadgets and gizmos.
It turns out that spending less money than you make is not as easy at it seems. 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.
Behavioral Finance Matters
This is why behavioral finance matters. We have to get the number one enemy – ourselves – out of the way. Here are 5 practical steps to get started on that journey:
- 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.
- Take care of your asset protection & emergency fund.
- Figure out how much money you need to save annually to live the life you designed in step (1).
- Automatically set your paycheck to be dumped into savings accounts until you get to the amount you need to retire by the age you want. Fill up your tax-advantaged space first (401K, 403B, governmental 457, HSA, backdoor Roth IRA, etc). Send any remaining money you need to save to get to your goal in a taxable account.
- Spend every other dime with zero regret.
Following the 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 and – if you do – it won’t be there long. This prevents the temptation to spend it all like Diderot because it’ll be broken into your savings account before you even notice.
Not only does this get you out of your own way to save what needs to be saved, but it also helps you realize how much money you have to live on after your financial goals are met first.
Physicians earn a lot of money, but it is all for naught if we don’t use it to build wealth.
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. If you know your “why,” or the reason behind your decision to save that money, then it becomes much easier to accomplish.
We must realize that our high physician income will not lead to a high 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.
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.