No brakes on family spending

Despite declining income, many physicians haven't tightened their belts. Here's where their money is going.

By Dennis Murray
Senior Editor

For many physicians, it seems, a leaner wallet hasn't led to a leaner lifestyle. Since 1997, doctors' total median family income has dropped $20,000—from $200,000 to $180,000, according to our latest Financial Survey. That represents a 10 percent decrease. Despite that—and the stock market's dismal performance last year—43 percent of doctors report they spent more in 2000 than in 1999, while 29 percent spent about the same amount. Of those who say their spending rose, the median increase was $10,000 apiece.

For many, the extra security of two breadwinners in the family makes the difference in rocky times like these. "My wife's job allows us to maintain our comfortable lifestyle," says a California internist and father of two. "Without her contribution, we'd be forced to cut back."

For physician households with one income, however, a protracted slump in the stock market, coupled with a continued squeeze from third-party payers, may soon spell trouble—if it hasn't already. "Doctors who can't get their spending under control may have to work harder or longer," says Mark Balasa, a CPA and financial adviser in Schaumburg, IL.

Not all the news is bad. A third of doctors are currently debt-free. Among those who owe, the median amount is $190,000. That's $15,000 less than in 1997 and just $23,500 more than in 1992, based on our surveys from those years.

Taxes and mortgages make up the lion's share of expenses

Where does the money that doctors spend go? After taxes on income and property, mortgages or rent eat up the largest chunk. One in three physicians spends at least 20 percent of gross income for housing. Doctors 39 or younger take the biggest hit: Nearly one in five spends a minimum of 30 percent of family income on a mortgage or rent.

In Washington state, an ob/gyn's home mortgage accounted for 40 percent of her family's $170,000 income in 2000. "Yet we still managed to invest 10 percent, and donate another 10 percent to charity," she proudly states.

Older doctors seem to be retiring their housing debts earlier than they once did: Those 60 or older reported spending a median of 4 percent on housing in 2000, compared with 14 percent in 1992. Most, in fact, indicated that their primary homes are paid off. Kids' educations are a big expense, too. Physicians 50 to 59 spend 10 percent of their annual family income on schooling. That's the highest percentage among the age groups we sampled. One physician who's nearing 60 spends $70,000 a year, about 25 percent of his income, on college educations for three children.

"That's a lot of money, but the kids are talented and he wants them to remain in the private schools they're currently enrolled in," says his financial planner, Karen C. Altfest of New York City. "He's close to retirement age, but we may have to recommend that he work a few more years."

In 1992, physicians in their 50s reported spending a higher proportion of income on education: nearly 15 percent. These days, more older doctors say they're sending their kids to public schools instead of private colleges that can cost two or three times as much.

As for other expenses, a typical doctor spends about 5 percent of income on vacations and 5 percent on nonbusiness insurance premiums (auto, homeowners, life, etc.). That's pretty much in keeping with the results of our 1992 survey. (We didn't survey doctors about these expenses in 1997.)

This time around, we asked about life insurance and found that almost nine in 10 doctors have coverage, with a median total face value of $500,000. The coverage of choice: term insurance, which makes up two-thirds of the value of the typical doctor's life insurance portfolio. The youngest and oldest of your colleagues are the least likely to be insured. Presumably that's because many young doctors have yet to start a family, and many older physicians have enough assets to make life insurance unnecessary.

Physicians save, but also splurge

Despite the bills they contend with, doctors manage to invest a median of 10 percent of their total family income. One in three socks away at least 20 percent, and one in 20 plows in an incredible 50 percent or more. Nevertheless, even prodigious savers balance their long-term financial goals with short-term gratification by splurging on something special. Among the items physicians lavished on themselves in 2000 were a small plane ($45,000), a Corvette ($40,000), fine wine ($10,000), a home theater system ($9,000), a laptop computer ($4,000), and a hot tub ($2,500). Physicians of more modest tastes and budgets listed a fence ($800), a chain saw ($550), a new suit ($500), and a lamp ($300) as their most extravagant purchase in 2000.

Cars are a common indulgence. Nearly 40 percent of physician households have three or more vehicles, and 16 percent have four or more. An overwhelming majority of doctors own their autos rather than lease them, and the median price of their most expensive vehicle was $30,000—enough for a low-end Audi, BMW, or Volvo. Almost 80 percent of physicians plan to keep this particular car for five years or longer, which makes sense financially, because cars depreciate rapidly during their first few years in service.

Not everyone splurges without guilt. Says a female FP in Alabama who dropped $8,500 on a trip to Europe: "I need to work harder and take fewer vacations." The physician, who's single, spent $20,000 on recreation and vacations in 2000.

Other physicians are coming to share that FP's sobering realization about overspending. "My wife and I need to simplify our lifestyle," says a cardiologist in Hawaii, who notes that they spent 20 percent more in 2000 than in 1999, while their income fell 5 percent. "And in my practice, I need to reduce the amount I spend on supplies and freeze salaries, including my own." A 40-ish family physician in Kansas vows to "reduce spending on our kids' education, increase savings, and pay down revolving debt."

Several financial advisers report that doctors have been pulling in their horns in recent months and rethinking major projects. "A couple of our clients wanted to expand or renovate their offices, but they've put those plans on hold," says CPA Robert Baldassari of McLean, VA. "They've spent enough already and are reluctant to go into debt."

When both spouses are doctors

According to our latest Financial Survey, two-doctor households earn a median of $70,000 more than households with one physician ($250,000 vs $180,000). However, doctor couples carry $75,000 more in debt ($265,000 vs $190,000), the bulk of which is home mortgages.

Two-doctor couples pay 25 percent more tax on income and property than one-doctor households, and 20 percent more in mortgages or rent. Not surprisingly, therefore, two-physician households estimate the value of their homes to be 22 percent greater than those of single-physician families ($365,000 vs $300,000).

"Our biggest expenses in 2000 were for child care and housekeeping, which together accounted for about 15 percent of our gross income," says Jo Buyske, a general surgeon in Philadelphia. Buyske and her husband, thoracic surgeon Joseph S. Friedberg, have four children younger than 8. "To balance this cost, we're taking less extravagant vacations and are more apt to go for Vietnamese food than haute cuisine."

Two-doctor couples aren't likely to cave under their debt loads, though. Of the 43 percent whose income rose in 2000, more than one in four enjoyed increases of 30 percent or more; barely one in six single-physician households could make the same claim.

The strong income that two-physician families earn allows them to save and invest 15 percent—that's 50 percent more than households with one doctor. Yet the typical doctor couple spends only $2,000 more on a big splurge than the typical one-physician family, and many physician couples say they make only modest purchases. Nor are such couples more likely to outspend single-doctor households when buying their most expensive cars. These high earners seem able to exhibit some restraint, with an eye toward the future.

"Even though our total income was down 20 percent in 2000, we didn't have to change our lifestyle," says Raj Patel, a general surgeon who practices in Troy, NY, with his wife, Vina, an internist. "We weren't big spenders to begin with."

Who increased their spending

Roughly half of female physicians, two-doctor households, and high earners say their families spent more in 2000 than they did in 1999.

Family income

 

Dennis Murray. Financial Survey: No brakes on family spending. Medical Economics 2002;1:75.