James Dahle is a practicing emergency physician and author of The White Coat Investor, a blog, book and podcast dedicated to teaching personal finance to physicians. The 43-year-old talked to us about how he budgets.
This interview was edited for length and clarity.
What makes budgeting as a doctor different?
Cash flow gets a lot more interesting. You have a big income but you also tend to have big expenses such as student loan payments. There's a lot of money moving around, which a lot of times dwarfs what you're spending on your living expenses. For example, your student loan payment might be three or four times your rent payment. That can make it challenging.
Taxes are also a huge expense — like a third of your income — so that might dwarf your living expenses as well. I used to be worried about a cell phone bill that went up by $20 [but that seems like a small expense when] a third of your money is going to taxes. It almost seems like it doesn't matter. Otherwise, doctors are people too. They make the same errors other people make. They have the same problems. They fail to budget just as often.
How do doctors manage student loans while saving for retirement?
The idea is live on the amount of income you had as a resident, which these days is about $60,000 a year, while earning as an attending physician, which might be $200,000 or $300,000. And then you take the difference between those two and use it to knock out your loans very rapidly. The problem is, if you don't do that, you end up dragging them out for 10 or 15 years.
My first real paycheck, I was 31 years old. Lots of people come out of college 10 years earlier than that and start earning. If you don't go to college, maybe 15 years earlier than that. So doctors get a late start and you come out with this big debt and that takes up a huge place in your financial life and absolutely does delay retirement savings. If people don't take that debt and snuff it out quickly, they may find they're 45, 50, before they ever start saving anything significantly for retirement.
How did being a military doctor affect your earnings?
The military has a program called the Health Professions Scholarship Program. It's completely misnamed. They call it a scholarship. It's not a scholarship in any sense of the word. It's a contract. They pay for your tuition and books and equipment and they give you a living stipend. When I was in school, it was about $900 a month. I think now it's about $2,300 a month throughout medical school. They basically pay for everything. Then when you come out, you owe them time. You go through the residency, usually a military residency, and then after you finish your residency, you owe them four years. A year for a year. They pay for four years of med school, you owe them four years of contracted service and then they basically just pay you less than you're worth in the civilian world. So they get all their money back. They got a doctor discount, basically just by paying upfront. (Editor's Note: The Air Force did not respond to request for comment on its compensation structure for military physicians.)
You're active duty. Uniform everyday. They say jump, you say "how high" and when they say "go to Iraq", you go to Iraq. When I was on active duty in 2006 to 2010, a typical deployment was six months out of every 20 months. And we had it easy. I was in the Air Force. The Navy guys were going for nine months at a time. The Army docs were going up to 15 months at a time.
The nice thing about it was there was an end date. Four years after med school, I had it paid off. I actually benefited from the fact that the military doesn't pay doctors very well. Rather than having the experience most doctors have where they go from the residency income to their attending income all in one fell swoop, I had a lot of smaller raises. So I had a few opportunities to avoid growing all the way into my income. But a lot of doctors, particularly emergency room doctors, they basically only have one change in income and if they blow that opportunity to grow wealth, they never really do.
What leads doctors to miss that opportunity?
There are no business or personal finance or investing classes in medical school. They just don't exist. They're getting started in a few schools, but they're still very rare and there's this attitude that the money will take care of itself. It's not an automatic process. You have to be intentional about it and do something with your income besides the natural thing, which is to spend it all on housing and cars and vacations.
Are you a spender or a saver?
I'm certainly a saver without a doubt and done very well because of it. I think the average doctor is not. The average doctor is more of a spender. It's not that they don't save anything. Most doctors save some money, but they're not saving near as much as they should be. My general recommendation for them is that 20% of their gross income is for retirement.
We all think if we have more income, we will somehow be wealthier. But the truth is, we look at the checking account, we see what's in there, we spend it. That's just the natural human thing to. Doctors do the same things as everybody else. Sometimes they're worse because they feel like there's this societal expectation that they'll have a nice house and nice cars, vacations, et cetera.
What insurance do you have?
Professional liability, to protect me from malpractice lawsuits. Personal liability, to protect me from personal lawsuits. Term life insurance, to provide for my family if I go. Although I'll likely cancel soon, as I am now financially independent. The point of having life insurance is you use it until you become financially independent and then you don't need it anymore.
Disability insurance is already canceled. Doctors who are not yet financially independent need to have disability insurance. Their greatest asset is their ability to earn money and it should be insured. Health insurance, to protect against the high potential costs of injury or illness. Homeowners, auto and boat policies to protect against loss.
- See the the best disability insurance companies for doctors.
What tools do you use to budget?
I'm neither a baby boomer on pencil and paper, nor am I a millennial on an app. I use Excel. My wife and I, when we got married in the late '90s, we just made a spreadsheet and we've modified it every month since then, but it's basically the same spreadsheet.
How has your approach to budgeting changed over the years?
When we were poor medical students we had to watch literally every cent. We always had an allowance for ourselves that we could spend. But literally it might have been $20 for the whole month. As we've made more money, we got a lot more lax about how tight we budget. We still track what we spend and we still make sure we're spending less than we earn. But we don't save receipts like we used to. We look at what's on the credit card, what's in the bank account. We're just less uptight about it.
I think a really good way to think about budgeting is as training wheels. What you're doing with the budget is training yourself to not spend all your money. And once you kind of train yourself, you almost grow out of a budget. You won't spend more than you're making because you're used to not spending more than you're making. The process of budgeting is really helpful but eventually most successful budgeters grow out of it.
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Image: Phillip Blackowl