After a decade or more of being broke, a new attending may feel overwhelmed with the sudden surge of cash. When those big paychecks start rolling in you might be tempted to start splurging on luxury items.
No one would blame you for being tempted. Self deprivation has its limits and most physicians spend their twenties watching their non-medical friends earn and spend way more than they do. Now it’s your turn to drive that Mercedes, buy that vacation home and fly first class, right?
I’d suggest that there is a better type of luxury item. Like other luxuries, these are out of reach for the average American. They may not be flashy status symbols, but they certainly add to your pleasure and comfort. Here are some luxuries that your physician income can afford you.
Knock Out Student Loans
The average medical student graduates with ~$200,000 in student loans. You could refinance and slowly pay them off over the next decade. You could hope to qualify for Public Service Loan Forgiveness. Or you could do what I did which was work hard, live below my means and pay off $225,000 in loans in 2 years.
I have never once regretted getting that albatross off from around my neck ASAP. While I paid off my last student loan at age 30, many of my colleagues in their 40s are still dutifully making their minimum payments each month. Eliminating that debt was one of the best gifts I ever gave myself. Why not treat yourself to the gift that keeps on giving?
Pre-funding Roth IRA
The majority of Americans don’t take advantage of an IRA. In fact, one TIAA survey found that only 33% of Americans have an IRA and only 18% of Americans actively contribute. 82% of your fellow Americans aren’t going to contribute a penny to an IRA in 2019!
One of the luxuries your physician income can afford you is to fully fund your backdoor Roth IRA at the beginning of the year. Every January 2nd my wife and I max out our Roths. Sending thousands of tax-free dollars to my future self sure sounds luxurious to me!
Using HSA as an Extra Retirement Account
A health savings account may be the best retirement account of them all. There is no income limit, the contributions are tax-deductible, the money grows tax-free and when you withdrawal the money you don’t have to pay taxes (if you use it for health expenses).
Most people will have to tap into their HSA for big healthcare expenses, but your physician income affords you the option of leaving that money undisturbed to grow for decades.
The personal finance community will debate the merits of prepaying your mortgage until the end of time. Historical data would suggest that you are better off taking those extra principal payments and investing them in the stock market. Although that might be true, one of the luxuries of your high income is that you can afford to pay off your mortgage early (even if the math can’t justify it).
How many shifts a month go to paying for your house? How would your attitude towards work change if your biggest bill was eliminated? How much less money stress would you experience with that sudden bump in extra cash every month? How luxurious!
Most parents worry about how they are going to afford college for their children. Most students will have to rely on student loans, while some parents will be able to afford to cash flow the tuition payments.
You know what’s even better than busting your hump in your 50s to afford college tuition? Having already saved enough for college by megaloading a 529 account. In 2019 the limits for a 529 are either $15,000/child/year. You also have the option of a $75,000 lump sum that covers 5 years of contributions.
My youngest child will start college when I’m 53. My goal is to have enough saved in everyone’s 529 that I could afford to retire the day I move him into his freshman dorm. Paying for college will be my last financial hurdle to achieving financial independence.
This may sound like sacrilege to my fellow workaholics, but some physicians actually use their high income to cut back their work hours. After pre-paying your mortgage and pre-saving for your kids’ educations you will suddenly find yourself with more cash than you know what to do with. Why not use this as an opportunity to start cutting back?
I’m probably not the best person to get advice on work/life balance from (I’ll leave that to Physician on FIRE and Crispy Doc), but eventually I will use this income to get out of working nights, weekends and holidays. Once I achieve morbidly obese FIRE I will even cut out my easy side hustles. Can you think of a better luxury than that?
Cancelling insurance policies
The main purpose of disability and life insurance is to replace lost income that you or your dependents is counting on. After years of working and saving, you will eventually become financially independent. Once you no longer need to work for financial reasons the final luxury is cancelling these insurance policies. I’m not there yet, but eventually I will be able to save thousands a year on insurance premiums.
Lap of Luxury
Most luxury items provide fleeting pleasure. Your big dumb house will end up owning you. Your sports car will lose its luster. The country club membership will become a money pit.
There are some luxury items that keep getting better with age. You will never regret being debt free or being able to cut back your work hours because you achieved financial independence. I’m not saying you have to live like a monk. There is plenty of room in a physician’s budget to have fun. Just remember that there are some luxuries that are truly priceless.
What do you think? Which of these luxury items is your favorite? Looking back, is there any splurges you regret spending money on as a new attending? Share your thoughts and comments below.
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