Doctors are well-known six-figure earners among their patients. The average family physician pulls in roughly $175,000 annually, according to PayScale. The downside of this reality is that there is a trap inherent to six-figure salaries. It is a trap that doctors can easily fall into if they do not make a concerted effort to avoid it. The trap is one of borrowing from the future.
A good way to think of borrowing from the future is to look at government spending. Whenever the federal government adds to deficit spending, they are relying on future generations to pay back both the principal and interest. They are borrowing from the future in hopes that successive generations will be able to foot the bill. Doctors do something similar, but on a smaller and more personal scale.
It’s a Lot of Money
The temptation to fall into the borrowing trap can begin as early as residency. Earning $50K per year while having virtually no living expenses gives residents a lot of disposable income. Those who are not careful can immediately start spending without any thought for the future. Many do. They pursue that luxurious lifestyle they have been dreaming of despite having hundreds of thousands of dollars in student debt hanging over their heads.
There is nothing wrong with spending as a resident or during the first couple of years of practice. But spending should not be a pursuit in and of itself. If you truly want to avoid borrowing from the future, you need to start thinking about the future the moment you start earning a paycheck.
A 401(k) Is Not Good Enough
Our culture makes it harder for workers in every industry to provide for their future needs by continuing to spread the myth that a 401(k) is sufficient. It’s not. A 401(k) is especially weak for doctors who establish high-end lifestyles early in their careers. They get into such a habit of spending that their 401(k) plans will never be able to support their spending at retirement.
A good way to address the 401(k) conundrum is to limit contributions. Put only a minimal amount in a 401(k), then take the rest of the money you are setting aside for retirement and put it in other investments. Your average 401(k) concentrates on safe investments, like mutual funds. They are not going to make you rich. Diversifying to include things like property, commodities, and precious metals will do a lot more to secure your retirement.
The Desire for Instant Gratification
Finally, the generally strong economy we have experienced over the last 100 years has created an American culture that all but survives on instant gratification. This is unfortunate because delayed gratification is a much more financially sound strategy.
It’s easy for a young doctor to spend on credit. After all, earning a six-figure salary makes it pretty easy to pay those monthly loans and credit card bills. But do you realize that every purchase made on credit costs you more money by way of interest? You might consider sitting down and calculating just how much you’re paying to service your credit debt.
Delayed gratification costs less in the long run. It also acts as a reminder that you don’t need to buy everything you think you need. If you want to avoid borrowing against the future, commit to paying cash and avoid credit whenever possible.
The inherent trap of a six-figure income is borrowing against the future. You wouldn’t think that’s the case given how much money six-figures represents, but far too many doctors fall into the trap. Don’t be one of them.