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The following is a guest post from Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.
Free Money Finance (FMF) had this post which went over an article from Yahoo that listed the worst paying jobs for doctors. The absolute worst paying position still brought in $175,000*.
Well, based on past posts at FMF and others I’ve seen online, some commenters argue that doctors still carry high debts because they “have to” live in the nicest neighborhoods, drive the best cars, and send their kids to expensive private schools. They also have student loans.
FMF’s post argued that even with liability insurance and student loans, a doctor should be able to build wealth quickly. I completely agree.
Let’s say a doctor has to spend 50% of his/her salary on insurance, taxes, and expenses like that. That would still leave the worst paid doctor with about $87,500 a year. I’ll also say that this hypothetical doctor has $150,000 in student loans as the average college debt for doctors was listed at $140,000.
Well, if I made $87,500 a year, I’d live and save a little off of $40,000 and put the other $47,500 towards my student loan debt. I’d be debt free in less than 4 years. Then I could send that extra towards my average $200,000 mortgage in Texas (paying it off in less than 5 years) or even add more to retirement savings.
This would mean that I could be completely debt free within 9 years of graduating and own a really nice house to boot. I’d also have $2 million saved for retirement within another 21 years if I could get an average return of at least 6%.
What about the nice car and expensive private schools?
Well, do you know what your doctor drives? I have no idea. That $40,000 a year budget could easily include a car payment of $350 a month (ours did). If I was a doctor, I’d drive whatever I’d like that could comfortably and consistently get me from Point A to Point B. I like the Toyota Prius, so I’d buy one of those with cash or use my awesome credit to get a low rate in the beginning when I’m strapped. I’d still have it bought outright within my first 2-3 years out of college.
I don’t have kids, but even if I did, the public schools where I live currently are one of the highest rated districts in Texas. My kids could go there. If they needed more mind stimulation, I could hire them a personal tutor or even afford to send them to private school with cash by the time they were in middle school. I might have to drive a worse car or retire on less or push back retirement a few more years, but I could remain debt free.
Some of you may argue that it is impossible to live on $40,000 a year. It’s not – we do it and live pretty happily. We make about $60,000 a year after taxes, insurance, and benefits. We save about 40% of that ($24,000) - 30% for retirement and 10% for shorter-term goals. We live on the other $36,000 a year. We have a pretty nice house (1750 sq.ft. 3 bedroom that was built in 2004), 2 cars, and even fun extras.
This article made me regret not liking science, math, or college enough to pursue a medical degree. 
*That $175,000 is an average and doesn’t take into account the doctors that make scraps working for charities or non-profits – please don’t yell at me for them. 
How about you, could you build wealth pretty quickly by taking home “just” $87,500 a year?
YAKEZIE SHORT CARNIVAL
Enjoy this personal finanance reading; stop by their sites to read more.
How to Create a Budget-Setting Goals at KNS Financial
How do you know if you are rich? at Living Financially Free Ministries
Crank Up Your Money Saving Goals With SmartyPig at Free From Broke
This is a good article and it really shows how unwise financial decisions can trap people of all income levels. As you have shown, once the student loans are taken care of, the rest should fall into place.
For some it will take longer – especially if they borrowed more, or it took longer for them to go into residency – but it is usually the choices made AFTER graduation that puts them in a bind!
Very true. One can get out of debt very quickly making that kind of income. However, the trapping of life are oh so tempting
@ Khaleef, yep, spot on. The decisions I made after starting my first real job formed the life I have now.
@Roshawn, I’m currently fighting the temptation to buy a second laptop just because of the convenience factor…I’m wondering if $400-$500 is probably a little too much to pay for the trappings of life. Thanks for the reminder.
[...] ‘Ol Me August 13, 2010, at 6:00 am Please also check out and comment on my guest post, No Debt if I Was a Doctor, at Barbara Friedberg Personal Finance today! [...]
I think the problem with most docs is the power of association. They see their peers driving nice cars and want that life.
It’s hard to not gloat!
Doctors also tend to work icky hours and there’s the whole blood factor. If I were trying to maximize income, I think I’d either take my undergrad degree and do a stint on Wallstreet or get a law degree. Blech.
I think the Prius is a good choice for someone in a “keeping up with the Joneses” profession because it’s not a symbol of being cheap, but of being environmentally conscious. You’re not driving a Lexus not because you can’t afford one but because you care about Mother Earth. It being a reasonably priced car is just a bonus.
Don’t forget the cost of daycare or not working for the years before a child can go to school.
We live on a little under half our income. We have lived on a lot less than half our current income, but we’re not now. I’m fine with that.
I do have to say that since getting real jobs we’ve been building wealth a lot quicker than we were when we were in graduate school, though we did manage to save 50K for a house downpayment by graduation.
@Moneymonk, yeah, I get that…but I think that a certain level of self-confidence allows a person to be happy without keeping up with their peers. I get funny looks when I talk about being proud of my budget, but usually I just ask “why the funny look”, they tell me, and then I get to explain personal finance stuff. I like it, lol.
@Nicole, the daycare thing is so true, but maybe that could be covered by the spouse? I could happily be a stay-at-home lady if hubby made $87,500 after taxes (hubby says the same thing…”If you could make that kind of cash, I could stay at home and game more, hahaha…”
Yeah, I loved how fast we could save when we both became gainfully employed a year after college. I was ecstatic!
I dunno, staying at home isn’t all that without a partner. If DH has to work I’d rather be at work too. A long-term goal that we have is to have enough saved to get dividend income to replace his income, since I really like my job and he’s more enh about his. That can happen a lot faster if we save his entire paycheck.
Engineering Position in todays economy are difficult to come by and this is made even more problematic given that prospective employers are becoming increasingly difficult to satisfy. Personally, I think that the global economy should see substantial improvements within the next sixyears and this should make everyones financial position easier to manage.
@Nicole, yeah, Mr. BFS and I will both work until we both can retire, but if he made enough that I wouldn’t be scared, my work could turn into full time blogging and volunteering.
@Somer, yes, the engineering positions that pop up in the next 6 years will totally effect my hypothetical doctor situation.
[...] Barbara Friedberg Personal Finance with No Debt if I Was a Doctor [...]
Thanks to Budgeting in the Fun Stuff for a terrific article & responding to the wonderful comments. All of your comments are greatly appreciated. So much of our spending decisions get down to values, regardless of occupation.
There are many docs who live well within or beneath their means, as well as those who go the other direction.
[...] Personal Finance had Crystal from Budgeting in the Fun Stuff write a guest post explaining why the average doctor shouldn’t have debt. This was a great post that showed that most people (from all income levels) are in debt because of [...]
It is true that a doctor could get out of debt that quickly, but many doctor’s like many people, are wrapped up in everything else and don’t possess the strength for delayed gratification.
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