Debt is the Great Equalizer

10 Comments

1. This is so true! I’m sure there are so many people out there that on the surface appear to be doing great financially, i.e. fancy cars, big house, lavish dinners, maybe a yacht. But many of these probably also have a huge debt monster that follows them around constantly. And then there are some that might look a little less well off: old car, modest house, box lunches who might actually be doing just fine. I guess the age old saying holds true: You can’t judge a book by its cover!

   1. I believe you are talking about Stealth Wealth — I think that’s a great thing. Half the time I am out in public people would never identify me as a physician. Just a tired dad in a minivan. 🙂

   2. Yup, they seem great and day to day they may be, but that long term outlook is tough. One big accident or issue and they are in financial trouble.

2. We spend 20-25% of our take home income per year (one physician and one non-physician, both make about what your average lower-paid physician makes). We do everything we want to do and do not think our lives are dull, monk-like, or mundane–we travel internationally and domestically several times a year and see family and friends all the time. If we want to buy something, we buy it. I can’t imagine spending 70% of our income. Maybe for a pediatrician in a HCOL area who is the sole breadwinner for the household–but for most doctors I think a 50% savings/money towards debt goal is easily attainable, esp if you grow slowly into your income (and never fully grow into it) post residency.

   1. Anne — sounds like you two are doing a great job! I do agree that any physician ought to be able to live a decent lifestyle and retire well, barring the circumstance of low end salary and high cost of living. However there are other variables that impact the ability to “save” 50%+ per year. I think it depends on how you define save and how you define expenses, and what your goals are.

      I am just curious — kids or no kids? I can easily envision saving 50% of our combined salary if I had no kids. Daycare alone takes up over 10% of our income! That doesn’t cover the cost of saving for college, feeding, clothing, or doing other things with or for them. Outside of daycare none of our childcare expenses are not dramatic — even the activities we pay for are not adding up to hundreds (or thousands) of dollars a month. The house we live in is larger than it needs to be if we had 0 kids, and well within the range of a couple w/our income, but it certainly isn’t cheap.

      The total cost of children can add up significantly, even when no single decision is expensive.

      While college savings technically are still savings, it is not money to help my lifestyle now or help me retire, so it can also be viewed as a kid expense. If we include that probably ~18-20% of our total income is going towards kid stuff (this is excluding the bigger house). I could travel every month and have a couple Teslas and have more $ leftover every month if I didn’t have children. 🙂

      1. We don’t have children. But as we are currently spending 20-25% of our take home (so even less % of our gross), if we added 20% of our income as child related expenses, we would still be under the 50% mark.

         I have observed a number of doctors over the years and there are a few factors that keep their spending high and prevent them from getting ahead (and none of these factors is the presence of children). The first is that many doctors come from privileged backgrounds. I did not, and was raised by very hard working and resourceful parents who passed these qualities on to me. I had friends right out of training spend more on their house than I would ever consider. I would be embarrassed to buy a house that is 10x as expensive as the one my parents raised me in. My friends, who were raised in a more well-off environment, probably felt the opposite, and would be embarrassed to show their parents a house that is 5x cheaper than the one they were raised in. The second is that doctors, esp those married to other doctors, tend to have a social network consisting of other doctors/high earning professionals, and are always keeping up with them. My social network is not primarily doctors, and on average probably have 1/2 to 1/3 my household income. They are people I like, have common interests with, and love to be around. Your spending will tend to mirror those you spend time with. There are some other factors I’ve noticed but I’ve probably already written enough. Anyone who is clearing 200-300k + after taxes in an avg cost of living area who says they can’t save 50% because they have children…I have several friends with children who have a gross income in the 100-150k range who would happily give some lessons in how to do so for the right price

         1. Anne — I fully agree with many of your points, including the hedonic treadmill that many physicians run on after finishing training. Nor am I asking for or expecting empathy or sympathy related to child expenses. I am not on the treadmill — I could breakdown my own expenses for you and demonstrate that only we basically spend only 1/3 of our gross income on “lifestyle” related to things. That is not the same as having 50% available to “save” for retirement.

            And while you say you have “observed” a number of doctors expenses, unless they are truly opening your finances up to you, it’s hard for you or me or anyone to know. Doctor’s are quite good at keeping up appearances even when things are falling apart around them — it’s almost part of our training. MANY of the doctors I know with kids who have trouble with expenses are in that position almost entirely because keeping up with the Joneses relates to kid expenses — fancy private schools or fancy house in good public schools, fancy summer camps, nicer clothes or expensive tutors and sports, a desire to save a lot for their kids college without regard to their own retirement, etc. A doctor without kids can still blow through $300k/year, but I personally would have a MUCH harder time spending my income on myself for than on the things I provide my kids. If we never had kids but had the same spending habits, I would likely be able to retire in 5-10 years, or less, because we would have been saving a lot more the past 8 years and earning a lot more.

            You should also acknowledge a few things.
            1) In this country, many families of 5 making $100k are not saving much, or are saving very little. For many, if their income goes up dramatically (such as a doctor finishing training), they are at high risk of jumping on the treadmill. I expect many would save more for themselves and for their kids, but many of your friends will also spend more as well. I don’t consider that “bad” in any way. However it’s denying reality to think that if your friends doubled their income that all the money would immediately go to investment accounts. Maybe a few would, but unless all your friends are Mr. Money Mustache adherents, it’s unlikely most would do so.
            2) There is a dramatic disposable income drop with a two-income household with kids compared to having no kids or one-income with one parent at home. Not only the childcare expenses, which on their own are 15% of our income for 3 kids, but the extra penalty married people pay in medicare/SS taxes as having 2 earners instead of 1. This also of course overlooks the income penalty often faced by women for having kids, as many go part-time (as my wife did) to maintain family harmony, or those who are discriminated against in the workplace (depending on where you work) and lose job advancement and income generation because of having kids
            3) That of course completely ignores the fact that housing, clothing, food, healthcare, entertainment, travel, and every other expense goes up when you have children.
            4) It doesn’t take being on the hedonic treadmill to have high expenses. Our mortgage is less than twice our income — considered quite good by doctor or non-doctor standards. Our cars are old/used and paid off. We don’t take the kids on fancy trips and buy them organic peanut butter. Our 1 year old is wearing almost entirely hand me down clothing from his older brothers. Our oldest is in public school, and his younger brothers will follow him.
            4) You are definitely making gross generalizations based on your personal experiences. My father is a physician and my parents live a few miles from me. My house costs less than what his is worth now. He sent me and my 2 brothers to all private elementary/high schools, but we also bought groceries at Walmart and the places where you bag your own groceries and had fancy dinners out to Wendy’s and occasionally Red Lobster when we lived it up. My father taught me investing at a young age, hates the idea of keeping up with the Joneses, and is clear his priority was education and family and not impressing anyone.
            5) There are plenty of generational differences as well. Those graduating from med school right now have a median of $200k/debt — they are learning to be more frugal right away because they start off with a huge debt burden. Those graduating in the recent recession had to be more resourceful because jobs were harder to come by.

            1. I don’t doubt the temptation to spend more increases when you have children. Most people *do* spend more as they make more, yes. My point is that you don’t need to, kids or no kids. Once you get beyond a certain threshold, you are just buying more stuff, or more expensive stuff. We spend less than 10% of our gross income on lifestyle related to things–I was raised to buy secondhand, go without, be resourceful, and those habits stuck. I am quite aware of the points you made, but I maintain that the decision to spend more as you make more is just that, a decision. I could drive a Tesla and travel first class, but I don’t (except when I get a free upgrade :). But after years of good financial decision making and discipline, I will just be told that I have done well with saving/investing because I don’t have children. The fact that we contribute generously to our nieces/nephews’ educational funds, that we help support extended family and will likely be the ones to increase that support in the future (that expectation naturally falls on the child free) is not even noticed by the people who say that they can’t save enough because of their children. And I will add that women get discriminated against if they have children and if they don’t have children. In many parts of the country (and world), women are expected to stay at home and have babies. If you do only one of those things (have babies) but don’t want to stay at home, yes, you may lose out on promotions or at the very least not be able to or willing to work as much, so you will lose out on pay. But if you choose (or it just happens) that you do neither of those things, society will look down on you. I have been asked point blank by senior doctors why I don’t have children. Since I don’t think that discussing the future implications of world overpopulation is prudent in the hospital, I stumble through it and am looked at like I have 5 heads. I have a few childfree male colleagues and asked them if they have received the same questioning–they have not. (Although there is good research out there that shows that having children is beneficial to a male’s pay and career). And while I don’t know whether not having children has affected my pay, I certainly know that there are people at my work who think I should work *all* the undesirable days and stay late so they can go home. People without children often forget that those without still have a family and a life. Those that get discriminated the most against, in my experience, are single women without children. But that’s a separate discussion. The original tenant is that living on 50% of a doctor’s pay would be a mundane, monk-like existence. I maintain that in most instances (take home greater than 200-300k), avg cost of living, lack of extenuating circumstances like a special needs child who needs specialized, RTC care, that is not true. A family of 5 *can* live a full, happy life on a meager 100-150k of spending a year.

               1. Anne, sorry I missed this response. DDD’s response just popped up and I saw yours.

                  I don’t mean to imply lack of children is the only reason you are a supersaver. If you’re spending less than 10% of a 400kish income then that’s phenomenal — in the range of Mr. Money Mustache. Your mindset and personal habits drive many, many things and it sounds like you have a frugal/saving mindset, which I fully agree with and appreciate. I definitely commend the help you provide your family — you are clearly doing well and sharing that with your family is laudable.

                  I believe you are the one who said I should be able to save 50% of my income, but I think a lot of this depends on what you are defining as saving. If you make $200k/year and spend $100k, you are not saving 50%. Taxes eat up 20-25% right away (more or less, depending on location).

                  We are saving >25% of our income (though the “real” # depends how how you define savings). I am likely going to push that # up soon — check out my post planned for next week. But I do not believe I am failing at savings right now, nor did I say I live a mundane existence — I live a blessed life, and anyone living in poverty would think I’m living a beyond extravagant lifestyle. But I believe I said that it does not take an extravagant lifestyle to prevent a 50% savings rate (or something to that effect), and I could live truly fancy if I had no kids, and do so without impacting my savings rate.

                  Daycare costs alone are ~13% (roughly) of our income right now; that is not a “lifestyle” expense in the traditional sense, nor is it keeping up with the Joneses, but that’s a huge some of money. If the kids were out of daycare and I put that towards personal savings we would be well over 40%. In reality when they are out of daycare I will probably put 50% of it to savings (somewhere), and give us room to travel a bit more with the other 50%.

                  If I took the money spent on the OTHER cost of kids — food, basic activities (not many), minivan (instead of sedan), larger house with good public schools that was still < 2x our income (instead of small house with bad schools), even cheap/used clothing, etc. -- and gave 75% to nieces/nephews/charity I would still be giving away a large sum, and still come out ahead. We don't buy our kids fancy/expensive stuff, though my wife refuses to buy generic Cheerios for them because she claims there's a taste difference. 🙂 The amount of hand-me-down underwear our second child has already used would meet your approval (though the oldest does get the new underwear to be passed down). I do think it's arguing a bit with math to say that kids vs. no kids can't have a big impact, even without keeping up with the Joneses or the inherent gender biases in the workplace. Those things do make it far worse of course and are magnified when you go from 2 people to 4-5 people. I recognize and accept that not everything we do is the most economical thing in the world, but I don't consider all of that wasteful. I don't think I would drive a Tesla if I didn't have kids -- I am a natural saver so would probably just be putting a lot more in the bank and take a few more trips with my wife. It still wouldn't come close to the cost of kids. We do have room to be more economical with things NOT related to kids; those things do not take up a large portion of our income, though they are still worth addressing. However I picked enough fights with my wife over the thermostat that I had to back off on that one. 🙂

3. Anne, These were some great comments. It is interesting how it all works. I was raised to save but also to enjoy money, so cutting back on spending has always been harder for me. Now, after years of practice, it is not so bad (though I still spend some cash on beer and food).

   Spending 20-25% is quite incredible. I do not think children is what hurts people. I think it is keeping up with the Jones’s. For example at my current gig 2 of my colleagues drive Teslas. I really don’t want a Tesla, but seeing them drive it makes me at least consider the dream. I think this can be extrapolated to so many things.

Comments are closed.