Want to have more? Spend less

These physicians aren't ashamed to buy a used pair of jeans or live in a less-than-tony neighborhood. They're well on their way to financial security.

By Robert Lowes
Senior Editor

Some physician families have lifestyles straight out of Neiman Marcus or Saks Fifth Avenue. Emergency physician Tom Benzoni and his FP wife Noreen O'Shea of Sioux City, IA, lean toward Goodwill.

O'Shea wears a plaid wool blazer with a velvet collar that her local Goodwill sold for $5. And when Benzoni changes the oil himself on a family car, he wears used blue jeans that he snatched up for $2.50.

"It embarrasses our kids when we shop at Goodwill, but why do I need to buy a $40 pair of jeans for dirty work?" asks Benzoni. He and his wife needn't feel embarrassed about the state of their finances, though. Between them, they save 15 percent of what they earn, and that's on top of giving away approximately 8 percent to charity. These two frugal doctors, both 45, say they're on track to retire in 10 years if they want to. And they've already funded college education accounts for each of their four children.

Benzoni and O'Shea are proof that if you spend significantly less than you earn and invest the difference, you can be rich. This formula for wealth is maddeningly simple, but you wouldn't know that judging by all the well-educated people who max out their credit cards and file for bankruptcy. Some of us obviously need to study what's obvious.

For starters, we can turn to two recent best-sellers, The Millionaire Next Door (Longstreet, 1996) by Thomas J. Stanley and William D. Danko, and Stanley's The Millionaire Mind (Andrews & McMeel, 2000). The authors report that the typical millionaire saves nearly 20 percent of his household income by pinching pennies. He's likely to buy inexpensive suits, resole his favorite shoes, drive an older car, and live in an older, conservative house. You can't tell he's sitting on a pot of gold, but he is.

Stanley and Danko also profile negative role models—high-income types who can't control their spending. With their yachts and oversized houses, they appear rich, but their net worth and pension plans are anemic. Physicians tend to fall into this camp, according to The Millionaire Next Door. "The concern with many in these households is with consuming, not investing."

But it's nothing congenital. Many physicians simply succumb to the pitfalls of being economic late-bloomers, say financial experts. They don't make "real" money until they finish residency training in their late 20s or early 30s. When they finally enter private practice, their income may quadruple overnight—but their money-management skills may lag behind.

"Their mentality changes from 'I can't afford anything,' to 'I can afford everything,' " says Mary McGrath, a financial planner and CPA with Cozad Asset Management in Champaign, IL. "That gets them into trouble. And since the world thinks doctors are wealthy, they often want to give the impression that they can afford the good things of life."

But, when it comes to handling money, physicians can be positive role models, too. Here are the stories of four physician households where the habits of the "millionaire mind" have taken root. Each invests 15 percent or more of their income—5 percent more than the average doctor household. They may inspire you.

Defying the stereotype: Doctors do have septic tanks

When Tom Benzoni and Noreen O'Shea moved to Sioux City in 1995, they saved themselves close to $75,000 right off the bat.

A realtor there tried to discourage them from considering a $185,000 house hooked up to a septic tank instead of a sewer line. "He said doctors don't live like that," recalls Benzoni. "Just four blocks to the east, where most doctors live, the same kind of houses had sewer lines, but cost 40 percent more."

Benzoni and O'Shea opted for the house with the septic tank. "It would have been goofy to base our decision on what people assumed about doctors," says Benzoni.

That attitude explains why the two doctors shop in local thrift stores. "Sometimes we'll break a pot lid," says O'Shea. "I think it's a waste of money to go out and buy a new pot. Instead, we'll look for a lid at Goodwill."

They don't believe in frugality for frugality's sake, though. Last summer, they splurged on a two-week family vacation in Ireland and England. They also own two horses, "but we don't buy the most expensive hay," jokes O'Shea.

Benzoni and O'Shea are trying to pass on their values about money to their children. "We give our kids a clothing allowance," says O'Shea. "I tell them they can spend $40 on a pair of jeans from the Gap, or get two pair at Target, or get five pair from Goodwill."

Making a toast to less expensive wine

If general surgeon Gary Edelman in suburban Atlanta invites you to join him and his domestic partner for a meal at a favorite restaurant, he may ask you to come to their house first for a bottle of wine. Why?

"The wine at the restaurant costs twice as much," says Edelman.

Such cost-control tactics explain why Edelman can invest 20 percent of his income in an IRA and various mutual funds. True, he doesn't have any children to support—not yet, anyway—but his relentless penny-pinching is instructive.

Whenever he uses his American Express card, he earns points toward cash bonuses. Last year, he redeemed the points for four $50 gift certificates to the Gap. He gave them away as Hanukkah and Christmas gifts.

Edelman likes to read murder mysteries and spy thrillers, but doesn't like to pay full price for them. He opts for best-sellers, which often sell at a 30 percent discount, or he waits several months until a book lands on a bargain table for $6 or $7. "I love going through the piles and finding treasures," says Edelman.

Even when he indulges himself big-time, there's an angle. His 2000 Mercedes-Benz C230 Kompressor and 1997 Toyota RAV4 sports utility vehicle both have four-cylinder engines—he won't buy a car with any other kind. "A four cylinder gets better gas mileage," he says.

Perhaps understandably, some family members kid Edelman about being cheap. "They think it's too much of a hassle to save a dollar," says Edelman. "But a dollar here and a dollar there add up."

"Going into debt only makes you look rich"

FP Birgit Houston and her husband Doug Robinson, a software engineer, in Hollis, NH, sock away as much as they can for their retirement fund and to put their three teenagers—two boys and a girl—through college. And unlike many affluent parents, they've resisted the temptation to indulge their children financially.

Because teenagers are notorious for running up hefty long-distance telephone charges, Houston gives her kids prepaid calling cards from Costco (www.costco.com ) as birthday or holiday presents. A card good for 575 minutes costs $19.99, or approximately 3.5 cents a minute. "It's cheaper than what we'd pay our long-distance carrier," says Houston. "Plus, the cards teach our kids to budget their resources."

Another budgeting lesson boils down to the word "No."

"Sometimes when they've wanted to buy a new computer game that their friends have, I've said, 'I'm sorry, but we can't afford this,' " says Houston.

Keeping down household expenses is truly a family value. Houston and her husband buy groceries and paper supplies in bulk—20-pound bags of flour, foot-high tubes of Parmesan cheese, giant bales of toilet paper. Houston doesn't buy cosmetics from fancy department stores. "I can get them at a drugstore for two-thirds less," she says.

The family's weekly meal out is an exercise in frugality, too. They favor Chinese restaurants where they can share two main dishes supplemented by appetizers, soup, and rice. A typical bill for five runs between $30 and $35.

Other than $70,000 owed on their house, the couple is debt-free. They pay off their credit cards each month and haven't touched their home-equity line. "Going deep into debt only makes you look rich," says Houston.

This jogging doctor stops for pennies

Emergency physician Mary Wilger of Fort Wayne, IN, learned early on about the importance of stretching a dollar. Her father was a maintenance man; her mother, a medical technician. A typical meal for the family of 10 consisted of spaghetti topped with V8 juice and grated cheese.

"I never knew spaghetti could have meat in it until I was in high school," she says.

Wilger worked her way through medical school as a physician assistant. "It wasn't much of a life," she concedes, but the hard work allowed her to emerge from residency training in 1998 with only $60,000 in educational debt. She splurged on a new Honda CRV that year—her second car since 1987. "I'll drive it until it's undrivable," she says.

In 1999 Wilger bought a $148,000 house in a middle-class neighborhood. Some of her physician friends live in $500,000 homes bordering golf courses. "I just like to look at those houses," says Wilger.

She's treating herself to spaghetti with real sauce and meat these days, but she otherwise burns with a passion to economize. Her first commandment: Never buy clothes unless they're on sale. Wilger's greatest coup was finding a $60 suit—good enough for job interviews—marked down to $2 at a JCPenney warehouse.

Wilger's second commandment is this: If possible, buy it used. Her washer/dryer was 6 years old when she purchased it, and it's lasted another six years—so far. Used furniture also interests her. If need be, she reupholsters it herself.

Coming out ahead financially is never far from her mind. "When I'm out jogging, I stop and pick up pennies," she says.

All this scraping and scrimping has paid off. Wilger estimates that she channels between 20 and 23 percent of her income into a 401(k), IRAs, and mutual funds. She also tacks on an extra 50 percent to her monthly mortgage payment so she can emerge from debt sooner.

Last February, Wilger married pulmonologist Marc Nusholtz. He teases his bride about her thriftiness, but nonetheless goes to matinees with her instead of the more expensive evening shows. Wilger doesn't give much evidence that she'll change her ways. She regrets buying a copy of The Millionaire Next Door, for example.

"I should have borrowed it from the library," she says.

Spending out of control? Here are ways to shear expenses

Financial experts who specialize in counseling doctors say distorted values lie at the heart of overspending.

Chief among them, says Seattle financial adviser Paul Merriman, is the compulsion to acquire material goods for the sake of social status. "It's a question of competing and keeping score," says Merriman.

Another mistake is thinking that buying things for loved ones translates into love. "I suspect a lot of parents who don't spend much time with their kids overspend on them because they feel guilty," says Merriman.

Then there's the best-of-everything syndrome. "It's the house, the car, the vacation—everything is first class," says Todd Bramson, a financial adviser in Madison, WI.

With these insights in mind, take a look at the big-ticket items in your life, starting with housing. Doctors often buy more expensive homes than they should simply because banks are eager to loan them money, says financial adviser and CPA Mary McGrath in Champaign, IL. "They see doctors as good credit risks, and often won't ask them to put any money down."

When doctors fresh out of residency take on huge mortgages, they find it that much harder to pay down educational debt, adds Bramson. "Some doctors might be better off renting for a few years before they commit to a mortgage."

Is your recreation really worth what you pay for it? "I know doctors who buy a big vacation house on the lake—along with a big boat—and stay there only a couple of weeks each summer," says Bramson. "Or they pay $6,000 a year to belong to a country club, but only play four rounds of golf a year."

Are your cars too pricey? It's not only a matter of choosing a Ford Taurus over a Mercedes-Benz. It's a matter of choosing a used Taurus over a new one. If you wait for depreciation to take its toll, in two years a new car may come down in price by as much as 40 percent.

Private schooling for your kids also deserves a close look. Consider the long-term implications of enrolling a child in Acme Academy at $10,000 a year for six years. If you invest that money in a mutual fund yielding an 8 percent return, you'll be looking at a nest egg of about $300,000 in 25 years. Private schooling requires you to make sacrifices elsewhere, advises Mary McGrath. "You won't live in the same kind of house you otherwise would."

Big-ticket items aside, bear in mind that it does pay to sweat the small stuff. If you drink two fewer Starbucks lattes each month at $3 a cup and invest that java money, you'll have a cool $5,700 after 25 years based on an 8 percent return. Find ways to trim monthly expenses by $105, and you could enjoy an extra $100,000.

Envisioning your future nest egg will make economizing all that much easier. "I don't beat up on clients to cut their spending," says Paul Merriman. "I just try to get them to commit to investing more. If they make that commitment, budgeting happens by default."

Robert Lowes. Want to have more? Spend less.

Medical Economics

2002;9:108.