As physicians advance in their careers, they can expect their take-home pay to increase. However, that extra money doesn't necessarily translate into increased savings.
In a recent column on lies we tell ourselves when investing for retirement, I mentioned that as your income improves, your lifestyle choices may become more expensive as well.
A nicer car befitting your station as a respected physician isn’t necessarily a bad thing, nor is a bigger house or nicer office space as your income gradually improves. My point in the earlier column was that earning more doesn’t always equate to having “extra” funds to set aside—a common misconception for investors planning to save more in some distant future.
But it’s also perfectly natural, and even healthy, to engage in some measure of lifestyle improvement over the course of your life and career. The key is to be aware of this trend as you budget and save, and to be honest with yourself about what your current and future priorities are.
Earnings and Spending
Part of the reason most economic experts decry “lifestyle creep” is because of the difference in control most people have over two key components of their financial situation: earning and spending. Depending on the type of medicine you practice and the type of practice you’re a part of, your earnings may fluctuate a bit from year to year, but they’re unlikely to have the kind of substantial swings professionals in sales jobs or other professions may see. A typical physician earing curve peaks when the physician is in their late 40s or early 50s. Unless you’re in some sort of fee-for-service arrangement, you’re likely to have significantly more control over your spending on a daily, weekly, and monthly basis than on your income. Curbing spending, then, in favor of saving, is often a more promising avenue than simply trying to earn more.
Spending, though, has its positive and negative aspects. Spending just to spend, buying new and better products and services just because we can, and spending beyond our means are all hazards. Spending also has a multiplier effect that encourages additional spending. It’s the old story of trying to “keep up with the Joneses.” Not spending at all, however, can be discouraging. The austerity that comes from drastic saving, when it comes at the expense of current joy, can make saving for retirement seem like a slog at best. Who wants to engage in a slog for their entire career? Life is happening right now all around us, and living like a pauper now for some theoretical enjoyment once you’re retired doesn’t sound like a panacea.
Find Your Balance
The key, then, is the find the right balance for you. It won’t be simple. There are too many factors at play to simply plug numbers into a spreadsheet, measure the daily happiness of having X dollars to spend every month, and then assess that measurement against the future benefit of having a secure retirement.
To help find your balance, stick to the basics: Set your financial goals after a great deal of thought and planning; build a great budget and stick to it; and consider both short-term happiness and your future.