Now or Later- The Money Trap

The first years out of residency are the most challenging by far.  For the first time in your life you have money to spend which can be intoxicating and change a person.  Compare it to the young sports rookies.  They are now in a league with large contracts and more money than they have ever had.  The media shows them spending on outlandish parties, cars and living in luxurious homes.   But are they considering their savings or future needs?   The reality is that by the time most of these players are out of the game they won’t have much at all to their names. Tragically we see the same occur far too often with medical residents. They too fall into the mental trap of living on the brink, spending 100% of what is earned.  Beginning a habit of impulsive spending right out of residency is the perfect storm for a long drawn out career, with the inability to retire.  So if you have been thinking to yourself about the large purchases you will make once you are out of your residency, stop!

Now is the time to live modestly, and within your means, in other words like a resident.  A certain percentage of your income is already spoken for in terms of taxes. In addition to your basic needs (food, clothing, shelter), there are potential business expenses, your children’s education (if you have them) and your retirement plans. When you look at the pie as a whole how much does that leave you for excessive spending on wants? If you are able to proverbially “stretch the buck” in the beginning of your practice you can look ahead to a future that will be much more comfortable than if you live the high life now.  This is probably the best financial advice you will ever receive.  Depending upon your specialty you have already been living on a modest budget for the last 3-7 years, what’s another few years?  Live today but plan for tomorrow. Here are some additional points to remember.

  •  With your new income placing you in the top 5% of wage earners you will now be  paying close to a 39% federal tax rate with varying state income taxes. This means  that the salary or guarantees in your contract are not even close to your take home  and may decrease in the future due to changing tax rates.
  •  A child born today will face college expenses upwards of $200,000 for an undergraduate degree
  • With the affordable Care act now a reality there is no telling how your income as a medical professional will be affected

The future is uncertain, living below your means and budgeting now while you are young is more important than ever.  If you want to have control over your destiny and take advantage of everything life has to offer dig in now, work hard and save. We all have dues to pay, but it’s up to you to decide if you want to pay them now or late into your old age. Remember, life is a marathon and not a sprint.

By: Kyle E. Musleh 
Vice President of Operations
Income Protection