Live Like a Resident (or College Student) Part 1

Live like a resident

“Live like a resident” is a phrase coined by Dr. Jim Dahle of The White Coat Investor. This is the advice he gives to young physicians about how they should live the first few years after they leave training. This is perfect advice for physicians, because they understand exactly what that phrase means. And if they are smart, they will recognize what this advice will do for their long term financial health. But I am not writing to a bunch of physicians. I am writing primarily to my kids and grandkids. So I need to explain exactly what this phrase means before I change it to “Live like a college student”.

Medical Residency

Life is hard as a resident. To become a Radiologist, I had to receive 5 years of additional training after Medical School. I got my dream assignment as a Radiology resident at Madigan Army Medical Center. My first year was spent as a Transitional Intern. This meant I rotated every month or two to a different service in the hospital as one of the interns on that service. I spent months learning on the job in General Surgery, other surgical specialties, Pediatrics, OB/GYN, Family Practice, Emergency Medicine, ICU, CCU, etc. This was a brutal year of long hours, staying at the hospital overnight every few nights, staying late to complete charts and round on patients, etc. Looking back on this year, I later realized I was experiencing Seasonal Affective Disorder, a form of mild depression related to never seeing the sun for what seemed like months at a time in the dismal Washington winter exacerbated by always being at the hospital.

I spent the next four years as a Radiology Resident. These years were better than internship, but were still very challenging. I had morning conference at 7am and the workday often wouldn’t end until 5 or 6 at night. I had to stay overnight in the hospital about once a week during the weekdays and about once a month on the weekend. And the time that wasn’t spent in the hospital was supposed to be spent studying. There is a lot to learn. There have been laws put in place that limit the number of hours a resident can work because at some hospitals and in some specialties, working over 100 hours a week used to be the norm. I never had to put those kinds of hours in, but I was at the hospital or studying most of my waking hours.

But at least I got paid well as a physician, right? Wrong. During internship and residency, the salary is pretty small. My salary was better than most residents because of the military system, and my salary was higher than the median household income in the United States. My hourly wage was pathetic, however, when you consider how many hours I was working every week.

Delayed gratification

This is one of the reasons it can be difficult for physicians to build wealth - because we get such a late start on the wealth building process. We have to earn a bachelors degree, then four years of medical school, then between three and five years of residency, and then possibly a fellowship for a year or two. I also served a mission for two years so I didn’t graduate from residency and start making a physician salary until I was 34 years old. That is a late start to a career and a late start to building wealth. I hope that my kids will have a very large nest egg in place by the time they are 34.

All of this time in medical training either borrowing money during medical school or just barely making ends meet during residency causes delayed gratification. Physicians in training are looking forward to the time when they finish residency as the time they can finally start to live. Therefore, it is understandable that many physicians make a few big financial mistakes as soon as they start seeing their big salary. A new attending physician will often buy a big house and lease an expensive car. Unfortunately, most physicians already have a few hundred thousand dollars in student loan debt by this time, but delaying gratification gets old when you have been doing it for so long. Lisa and I did not have the big student loan debt (just indentured servitude to the Army to pay off) but we definitely felt like it was time for us to spend some money after graduating from residency at the age of 34. We built a big new house in Georgia. I leased a Honda Accord (this was actually quite a big step up from my 13 year old Plymouth Neon). We occasionally went out to a restaurant. We bought soaps from Bath n Body. We felt entitled to spend money and we acted accordingly, although we were actually pretty tame compared to most physicians, in part because we were making a lot less money than normal Radiologists since the military controlled our salary.

Life in Georgia after residency

So back to the point of this post. What if we had decided to continue to “Live Like a Resident” during our 3 years in Georgia. Instead of putting a large amount of our monthly salary into our big Georgia house in the form of a mortgage payment (our mortgage payment in Georgia was bigger than it is now in Colorado), homeowners insurance, new furniture to fill the new house, lawn care on our acre lot including $700 every few months for new pine straw; what if we had decided to rent an adequate house for those 3 years instead? We would have saved tens of thousands of dollars - not to mention the over $100,000 dollars we lost in home value after the 2008 crash and the tens of thousands of dollars we paid as transaction fees to sell the big house in 2010. What if I had decided to continue driving the Plymouth Neon or another beater for a few more years? What if we didn’t eat out at restaurants as much? What if we had continued to use soap from Target? What if we didn’t make all the other little decisions that contributed to lifestyle creep, resulting in us spending almost all of the money we made even though it was more than double what we had been making as a resident?

What if we had decided to “Live Like a Resident” instead and invested the difference in our salary? What would be the result if we had invested $40,000 a year for 3 years (instead of spending it) and let that grow until retirement at age 60? This would be worth $126,000 after the 3 years when I was 37 (at 5% annual interest). This would grow to $387,000 23 years later at age 60. This might seem like a lot of money to some, but the actual value of living like a resident is far more impactful on net worth because it would have changed our state of mind. We would have been more focused on building wealth instead of spending it. As additional raises came over the years, we would have been able to allow our lifestyle to increase, while still probably maintaining that $40,000 annual investment. In that situation, investing $40,000/year from age 34 to age 60 would have grown into over $2,044,000.

This is the introduction and background regarding this topic. The next post will address the application.