Doctors have undoubtedly paid their dues. Physicians entering their first year of practice have spent a total of 41,760 hours becoming doctors – 6,400 hours acquiring their Bachelor’s Degree, 15,360 hours attending medical school and 20,000 hours in residency.
Aspiring doctors not only sacrifice an enormous amount of time but also pay a massive financial price in the form of student loans.
In 2018, the average student debt of first-year physicians was $234,910 consisting of $196,520 in medical school debt $38,390 in undergrad debt. It’s no wonder that once doctors start making real money, they start rewarding themselves. They reward themselves and their families for the years of sacrifice and financial strains they suffered to get to that point.
For example, when doctors start making $200,000 a year, some of them begin to splurge. They move into the biggest houses in the best neighborhoods, buy the nicest cars for themselves and their spouses and put their kids into the best schools. Even saddled with high amounts of debt, physicians who eventually make upwards of $350,000 a year like anesthesiologists and orthopedic surgeons can maintain this type of lifestyle. But from a long-term financial perspective, that’s all many of these doctors are doing is maintaining.
Doctors are rich but not wealthy.
Their income is limited to the number of hours they work. They work because they have to work. They have to maintain their lifestyles, but when it comes near retirement time, many of them find themselves behind the curve and having to work beyond what they had originally planned.
Many rich people like doctors realize that when they stop working; although their income will stop their expenses won’t.
Many doctors try to avoid problems at retirement by trying to plan at the beginning of their careers. Unfortunately, many of them find little time to explore the different investing options available to them. They often opt for what is simple and the least time consuming – trusting their retirement to a financial adviser.
But what many physicians don’t realize is that financial advisers know doctors have little time and prey on this. They know that many doctors don’t monitor their accounts so as long as their account balances stay slightly ahead of inflation. In turn, they can churn doctor accounts to generate fees, often without consequence.
A doctor friend of mine recently had me look over his managed Merrill Lynch trading account. I was shocked! In the ten years, Merrill Lynch has been managing his account; he has earned an average of 2% a year. Average inflation for the past ten years was 1.95%. He barely made enough to cover inflation. His account showed a lot of activity though – but nothing to show for it. No surprise there.
Unless a doctor learns to generate passive income while they’re working and sleeping, they will always be trading time for money.
Generating passive income is a skill Ultra-High-Net-Worth Investors (“UHNWIs”) have mastered. But aren’t doctors already wealthy? For many doctors, the answer is not even close. UHNWIs are investors with investable assets of AT LEAST $30 million. That figure is investable assets, not net worth.
So, how do doctors become UHNWIs? Follow their example by investing in alternative investments.
Instead of relying on financial planners who are biased towards volatile Wall Street products, the wealthy prefer alternative assets like real estate. Alternative assets are shielded from Wall Street volatility and are recession-resistant.
Putting aside a portion of your earned income into income-producing alternative assets that you can grow and reinvest over time is a winning formula. This formula allows someone who makes $100,000 a year to achieve the type of true wealth that another person who makes $300,000 a year doesn’t achieve because they end up spending everything that they make.
Here’s the ultimate secret of UHNWIs:
- They’re not too proud to defer to the expertise of others if it will make them money and save them time.
- They prefer to invest in private investment funds instead of exhausting hours and hours of performing due diligence and financial analysis on their own.
- They will, instead, spend the minimal time required to evaluate the managers/principals of a particular opportunity and if their personal investment strategies and philosophy line up with those of the fund and the managers, they will have no problem committing capital.
- They sit back and reap the income while someone else does the work. With little extra time, I’m sure this is something that would appeal to many doctors.
Doctors can become better investors by following the path of the wealthy who do things differently than the rich.
While the rich accumulate toys and things that depreciate, the wealthy accumulate assets that provide an income stream as well as appreciates in value.
The wealthy even approach debt differently than the rich. The rich go into debt to support their spending habits and lifestyles. The wealthy use debt as leverage to multiply their income-producing assets.
The wealthy also invest differently by deferring to private fund managers and not financial advisers.
The lesson here is that unless doctors generate passive income streams, they will always be a slave to money.
The ultimate goal should be to have your passive income exceed your earned income so that when you reach that point in time, work will become optional and you work only if you want to. This is when you experience true financial freedom.