In medical school, you probably won’t learn anything about wealth building, let alone any secrets. That’s because of the massive and misguided ancient taboo about money in medicine, dating back to Hippocrates.
This is a big problem. Seeing why isn’t hard for most doctors: Just look at my story of how I ended up burned out with medicine while I was still in training. Ironically enough, I alleviated my burnout and became a better doctor only when I started thinking about money and my financial well-being.
That’s when I realized that while we don’t get into medicine for the money, we still need to make sure we are financially healthy. Being a good doctor may even depend on it. They are not mutually exclusive.
That’s why I strongly believe that financial education should be tied into medical education. Since that is not the current reality, let’s review the top seven secrets to wealth building that medical school won’t teach you!
1. Being a doctor doesn’t make you rich
I’m not going to get into the discussion here about if doctors are fairly compensated. That’s a nuanced argument. Especially when you get into the differences in pay between specialties.
However, regardless of your specialty, you make in the top 1% of income in the U.S. and the world as a physician. So, you are a highly-paid individual. And that is why 99% of people, including doctors, believe that being a doctor makes you rich.
That’s why everyone told me that “everything was going to be amazing” when I finished training — because my salary was increasing. But they didn’t recognize the enormous debt I had, or my poor financial habits to live up to the “doctor image.” That’s what led to a huge discordance in how I felt in my situation and thought I should feel. And that led to burnout.
The point is: just being a doctor will not make you wealthy, and certainly is not enough to make you financially free, which is the real goal.
It takes more, like saving.
2. Saving money is the foundation of your wealth
It’s not sexy. At all. Which is perhaps why no one really talks about it.
If I ask 100 doctors either after or just before completing training what they are going to do with their growing paycheck, I’ll bet less than five will answer “save.”
But saving is essential, even for doctors. It’s so important that I actually argue that doctors should save for themselves before saving for their kids!
The next question then becomes: How much do we need to save? The answer is personal. But saving 20% of your pre-tax, gross income is an excellent rule of thumb. In fact, if I could impart one nugget of financial knowledge on doctors, that would be it: save 20% of your income. Do that and you are ahead of the game.
3. Investing isn’t risky, not investing is
I’ve met way too many doctors who aced the savings part of the wealth-building equation but then just stop there. They save six or seven figures, but they don’t invest it. It just sits in a savings account or a money market fund.
Why? Because they are worried about the risk of investing the money and losing it.
You can’t really blame them. We get no formal personal finance or investing education. As a result, doctors often become too conservative. Psychologically, a loss hurts way more than a win feels good. So, we do everything to avoid losing our hard-earned money.
The problem is that by not investing, our money doesn’t grow. In fact, by not investing, our money actually loses purchasing power due to the sapping effect of inflation. So really, the biggest risk to doctors’ wealth-building is often not investing, rather than investing and losing some money.
However, not all “investing” is the same…
4. Bad investments usually seem more exciting than the good ones
The way you should actually invest your money is quite boring:
- Determine your asset allocation
- Use your savings to buy index funds according to your asset allocation
- Re-balance your investments back to your desired asset allocation once a year
- Otherwise, ignore your investments and live your life
For some background, index funds are collections of stocks or bonds (usually) that represent either the entire or most of the overall stock (or bond) market. And investing in the overall market passively with index funds has been shown to beat strategies that involve trying to time the market or pick individual stocks (active investing) 80% of the time. Plus, passive investing accrues less fees and taxes. So, win-win!
Despite these facts, other investments that are riskier — like any of these — usually seem a lot more fun and exciting and sexy. Why? Well, because they may offer some potential huge upside with ultra-low probability or because they are hyped up by someone who doesn’t understand them or has an incentive to sell them.
So, in general, you want to avoid any of the investments pitched to you in the doctors’ lounge!
5. You can do it yourself
Look, investing very successfully is pretty simple. And it’s not time consuming. So, any doctor can do it themselves. I do it and it takes me maybe 5-10 minutes each year to rebalance my investments. That’s it.
However, the overwhelming consensus in medicine is that you need to have a “money person” (e.g., financial advisor), simply because so many other physicians have one. The reason is often just because they have not had a finance education and investing seems too risky or complicated. But, the reality is that it is not, and you can do it very well on your own.
But you don’t have to. You can get help, just be careful to find someone who is going to give you good advice for a fair price.
6. You are worth (a lot) more than you think
I believe most physicians make less than they are worth, but I don’t have any hard data to support this. However, the fact remains that if any employed physician (including myself) went into private practice or a PC employment lite model, they would make more money. The tradeoff for that extra income is having to manage more aspects of the practice. But the point remains.
As a result of this, and the fact that it’s difficult to determine your value, most physicians also believe they are worth less than they are. Another reason for this is that doctors are notoriously tight lipped about their compensation with colleagues. This makes no sense. It only hurts our profession.
Bottom line: you are worth a lot. You deserve to receive appropriate compensation. So spend some time using these strategies to actually determine your value as a doctor. Then use your findings to negotiate a better deal or to serve as motivation to find a better setting for your practice!
7. A lot of people will pay you for your brain
As physicians, we tend to think our value is limited to clinical settings. Whether that is caring for patients, training others, doing clinical or basic research, or something similar.
However, the reality is that we are highly trained, highly educated individuals. And even better, a lot of people are interested in our area of expertise. This cross over means that companies are willing to pay — a lot — for our opinions and expertise.
So, whether through medical surveys, consulting, or any other side gigs for doctors, one of the biggest wealth-building secrets is to diversify your income outside of clinical medicine.
I can say with certainty, you won’t learn these secrets to wealth building in medical school!
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder of The Prudent Plastic Surgeon.
Looking to improve your financial well-being? Check out Frey’s online course, Graduating to Success, a comprehensive and interactive 12-module course that helps doctors achieve personal, professional, and financial success during and after their transition from trainee to attending. Or read his best-selling book, Money Matters in Medicine.