Despite their high salaries, not all doctors are wealthy, and some live paycheck to paycheck. Here are 5 reasons why many doctors today are broke.
1 | Believing They Are Universally Smart
The first reason so many doctors are broke is that many doctors believe they are universally smart.
While most doctors have deep specialized knowledge, there’s a big difference between being smart in your profession and being smart with money.
A physician’s schooling is quite thorough when it comes to the human body, but med school doesn’t include a prerequisite class on how to handle finances.
Graduating medical school is a major feat and certainly demonstrates superior work ethic and cognitive abilities. But many new doctors believe these accomplishments transcend all aspects of life. If you’re smart enough to earn an MD, you’re certainly smart enough to handle your finances, but only once you properly and intentionally educate yourself.
The truth is doctors, especially traditional graduates, haven’t had an opportunity to manage large sums of money until they become fully trained attending physicians and start pulling in low to mid six figures in income. Prior to that, there was very little of it to manage.
Far too many aspiring doctors, and students in general, don’t take the time to learn financial basics, in part because it’s uncomfortable and seems like something they can figure out “later”, whenever that may be. Their poor spending habits and lack of investment knowledge carry over into their careers, causing many to make irresponsible decisions, which brings us to point number two.
2 | Overspending Too Soon
The second factor is overspending too soon, and this comes up at two points in training.
First, it’s natural to want to start spending more as soon as you get into residency and start making a little more money. After all, you’ve been a broke student for 8 or more years, and now you’re finally making a reasonable and reliable wage.
But that’s where young doctors get into trouble. Residency pays, but not nearly as much as you will be making once you become an attending physician. The average resident makes about $60K a year, and if you begin spending all of that money right away, thinking you’ll handle your loans once you become an attending, you delay paying off your medical school debt, which means the compounding effect through your student loan interest rate works against you.
Now that $250,000 in student loans has ballooned to over $350,000 by the time you finish residency. The compounding effect, which can be one of your greatest allies in your financial life, becomes an equally powerful enemy when working against you through debt.
But of course, pinching pennies is easier said than done, especially when you’re in residency and are surrounded by peers in different professions. They’ve been earning good money much longer than you have, and they can afford more luxurious lifestyles.
They may not be worried about indulging in fine dining or how much a hotel costs when traveling. Students in college and medical school are often confident they will resist the temptations, but the desire to keep up with your friends and family can be difficult to ignore, which causes many to overspend before they technically have the money to do so.
The same is true of attending physicians. As soon as those six-figure salaries come rolling in, many physicians go overboard with spending, trying to make up for lost time and to #treatyoself.
Now, I’m not suggesting you shouldn’t reward yourself for completing residency, but that reward shouldn’t be a Lamborghini. It’s best to continue living like a resident in your first few years after becoming an attending to pay off loans, put a downpayment on a home, and get your financial foundation built before loosening the pursestrings.
3 | Decreasing Salaries
Third, doctors continue to make less money than they did before. And this includes nearly all 44 medical specialties.
While physician compensation technically rose from $343k to $391k between 2017 and 2022, this rise does not keep up with inflation. The real average compensation in 2022 was less than $325k—a $20k decrease in purchasing power in only six years.
For doctors who are already spending to the limits of their salaries with huge mortgages, car payments, business costs, and other luxuries, a decreased salary can have a huge impact. You might be able to cut back by going on fewer vacations or eating out less frequently, but many accrued costs are locked in, such as a mortgage payment, car loan, or leased rental space for your practice.
Which leads us to the next reason many doctors are broke.
4 | Increasing Costs of Private Practice
In the past, running your own private practice was much simpler, but recent stricter guidelines and regulations have made it difficult for solo practices to keep up.
While regulations like the Health Insurance Privacy and Portability Act, or HIPAA, and mandatory Electronic Medical Records, or EMRs, are necessary to protect patients, they make costs higher for physicians who run their own private practice. These physicians need to spend their own money to set up and maintain EMRs as well as invest in security to ensure patient data is protected.
With the steep rise of inflation we’ve seen over the past couple of years, everything is more expensive, which means costs, such as business space, equipment, and even office supplies, have gone up for private practice physicians while salaries have not. 2013 to 2020 saw an annual inflation rate of anywhere from 0.7% to 2.3%. This skyrocketed to an annual inflation rate of 7.0% in 2021 and another 6.5% in 2022.
In fact, the cost of running a private practice has increased by almost 40% between 2001 and 2021.
These increased costs are exacerbated by another problem plaguing private practices; decreased reimbursement. While costs increased by almost 40%, Medicare reimbursement only increased by 11%.
When doctors see patients who are insured, the insurance companies pay the physicians for their time. For Medicare, the new proposed rules for 2023 would cut reimbursement by around 5%. When adjusting for inflation, Medicare reimbursement decreased by 20% in the last 20 years.
These costs add up, making it extremely difficult for physicians to thrive financially while running a private practice.
5 | Tuition Debt
Lastly, we can’t talk about a doctor’s finances without mentioning the exorbitant debt so many graduating physicians are left with.
It won’t shock you to hear that med school is expensive. Extremely expensive. The average cost of tuition for a single year is nearly $60k, with significant variance from school to school, and that’s before accounting for living expenses.
In-state applicants pay less than out-of-state applicants, and students at private schools typically pay more than students at public medical schools.
The astronomical costs mean the vast majority of students can’t pay for medical school out of their own pockets. And unless your family is part of the 1%, even with your parents footing the bill, it’s difficult to cover tuition, let alone rent, groceries, transportation, tech, social activities, exam fees, and application costs.
The average total student debt after college and med school is over $250k. But keep in mind that’s the average, which includes 27% of students who graduate with no debt at all. This means the vast majority of students leave medical school owing much more than $250k.
For some perspective, in 1978, the average debt for graduating MDs was $13,500, which, when adjusted for inflation, is a little over $60,000.
There are multiple ways to eventually repay these loans, but time and discipline are essential to ensure this money is paid off as quickly as possible.
Read our Student Loans 101 guide to learn how to reduce your loan burden in medical school and residency.
Is Becoming a Doctor Worth It?
So, from purely a financial perspective, is becoming a doctor worth it?
Doctors are some of the highest paid professionals out there. It’s one of the only professions where, if you apply yourself, you’re essentially guaranteed to make an average of low-to-mid six figures. A primary care physician’s average salary is about $255k. For a specialist, it’s over $400k.
However, while this is great money, it takes a huge investment of time and a massive opportunity cost to become a practicing physician—nearly a decade of schooling and training and hundreds of thousands of dollars. This means you’ll only start making those big bucks after residency—7 to 12 years after your peers who decided to become engineers or go into finance.
Now, while it’s true that you can make more money in other careers, it’s less of a guarantee. If you go into finance, there’s a wider spread in terms of how much you can make, but the money isn’t guaranteed unless you grind hard day in, day out.
The same is true of engineers. $100k a year is on the lower end of a starting salary for a computer programmer in San Francisco. However, in Idaho, the average salary for a computer programmer is about $65k. Yes, you could work for Apple, but that’s definitely not a guarantee.
You can also take home the big bucks in entrepreneurship, but it’s the riskiest of all the options.
Becoming a doctor is a secure, safe, and prestigious path, but each path comes with a trade-off. Your decision depends on your risk tolerance, priorities, and preferences.
If you’re an aspiring physician worried about becoming a broke doctor, put in the time as soon as possible to advance your financial education. Read books, learn from successful mentors, watch YouTube videos like the ones on the Med School Insiders channel, and follow our blog’s Personal Finance category.
