I'm Struggling to Live on $160,000 a Year: MD Lament

Dennis G. Murray, MA


June 03, 2011

In This Article

How to Regroup -- Before It's too Late

If you are a physician with a big mortgage and a slew of outstanding loans, you've got to get disciplined in a hurry and get smarter about how you spend your money. Otherwise, the debt can pile up fast and it is going to take even more effort to right the ship later on. "An annual income of $160,000 may sound like a lot," Bob Doran says, "but when you back out taxes and expenses, you're not going to be living high on the hog if you're trying to raise a family. So the sooner you can get disciplined about money and develop good habits, the better."

There are a number of ways that you can pay down debt or increase the amount you save. First, if you have an older mortgage that you have not refinanced, you're leaving money on the table. Interest rates are at historic lows, and a reduction of even 1% can shave hundreds off your monthly bill. If you have multiple student loans, reexamine those as well. You may be able to bundle them and refinance them at a lower rate. That is something that a lot of doctors don't take advantage of but should, White says, even it means stretching out the term of the loan to free up more cash.

"The main focus should be on paying down the school loans first," Doran says. "Once the balance shrinks and hopefully your income rises, you can redirect some of those dollars to your retirement funds."

Be Determined About Saving

It's easy to let your savings slide when money is tight. But doing so is a penny wise, pound foolish strategy. If you contribute to a SEP IRA (as a medical practice owner) or a 401(k) plan (as an employee), you will reduce your taxable income, which will in turn reduce the amount you owe Uncle Sam. Doctors in debt can find all sorts of excuses notto save, but financial planners agree that laying the groundwork now for retirement is one of the most important things you can do.

"I have people tell me all the time, 'I can't afford to invest,'" Doran says. "I tell them, 'You can't afford not to. Yes, if you invest 10% to 15% right off the bat, you're going to feel it. So start with 3%, then increase the percentage gradually as your debt shrinks and your income increases.' Eventually, you get used to living on what you bring home."

Matthew Kelley agrees: "If you pay yourself first and save before you spend, it's a lot easier. You don't notice it as much." He advises you to set aside a percentage of your income to invest in your retirement and rainy day funds, and have these amounts automatically deducted from your paycheck or checking account.

This brings us to the topic of budgets. Should you have one if you don't already? When it comes to high-earners like doctors, financial pros are divided on the topic. Some say if you take care of the big areas -- mortgage and school loan interest, education costs, insurance, etc. -- you won't have to pinch pennies in other areas, like cable TV or groceries. Cory White, for one, recommends a Website called Mint.com, which pulls all of your accounts together (credit cards, debit cards, private loans, etc.), tracks each transaction, and divvies the monies up into separate categories, so you can see with a few clicks where your money is going. The site is free and it takes about an hour to register, plus roughly 15 to 30 minutes a week to monitor it.