The 7 Step Basic Formula for Wealth as a Physician

In a refreshing take on physician wealth-building, Dr. Jordan Frey from The Prudent Plastic Surgeon cuts through the noise and offers a simple, no-nonsense approach to financial independence. Drawing from his own experience, Dr. Frey reveals the core steps that can lead to a comfortable retirement, even without a passion for personal finance.

The path to wealth for a physician is actually pretty simple. Now mind you, this doesn’t make it easy. But it is simple.

And with this said, I have to admit that I am guilty.

Just like a lot of blogs, I’ve been guilty of going into the weeds. I am here to apologize. To my own surprise, I’ve discovered that I really enjoy personal finance. So…I like the weeds. But what I don’t want to do is give the impression that building wealth as a physician is difficult or requires going into the weeds.

Building wealth as a physician and especially being able to retire comfortably on your terms as a physician do not require immense knowledge, studying, or even passion for personal finance.

Keep it simple and be consistent. You will reach financial freedom.

Let me repeat, you do not need to be like me.

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Building physician wealth via the no nonsense approach

I’m going to list out the steps sequentially:

1. Choose a specialty that you like
2. Find a job that you like
3. Save 20% of your pre-tax income (If you can do this as a trainee, great! But definitely you need to do this as an attending)
4. Pay off student debt within 5 years
5. Invest in broadly diversified stock, bond, and/or real estate index funds (maximize tax advantaged accounts first)
6. Work for 25-30 years
7. Enjoy life knowing you have a secure financial plan (in other words, your overall well-being will improve now that you’ve cared for your financial well-being)

That truly is it.

Is this really all we actually need to do?

Yes!

As a physician, you will be making income in the top 1-2% of the country. By saving at least 20% of your income, you create a stock pile of “seed” money.

You can then use this “seed” money to stop any interest that is working against you (by paying off debt quickly and aggressively) and start getting interest to work for you (by investing in index funds).

By investing in index funds, you are approximating the market without relying on a crystal ball to predict the stock market. This has been shown to be impossible time and again.

By doing this for 25-30 years, you are using the magic of compound interest to build a nest egg large enough for you to live comfortable on during your retirement.

This should be incorporated into a written financial plan to help keep you on the course.

Even before you reach the point of retirement, I am willing to bet that you will find yourself feeling better and even enjoying your work as a doctor more. Once I came up with a plan, I found that I was able to focus on patients more along with the reasons that I went into medicine and love plastic surgery.

Financial well-being improved my overall well-being and helped make me a better doctor.

The same will happen to you.

What about steps 1 and 2?

I am by no way inventing this strategy with this post. Many others have discussed and advocated for it, helping me in the process.

However, most descriptions of this investment strategy start at step #3.

But I actually think that steps #1 and 2 are pretty much necessary and required to be successful with the following steps.

Why?

Well, if you are stuck in a specialty or job that you don’t like or enjoy, you will be hard pressed to stay and work for 25-30 years. That just doesn’t seem palatable.

This is why a lot of doctors pursue Fast FIRE, or an accelerated path to financial independence so they can stop working as physicians. To each is own and I will never judge anyone that feels this way.

However, my hope is to help physicians achieve financial well-being in order to practice on their own terms. A majority of financially free doctors would be able to implement real change in the healthcare system to patients’ benefits.

Therefore, I really emphasize steps #1 and 2.

The argument against this basic formula for physician wealth

Of course there are detractors of this basic approach.

There are those who argue that index funds do not give as high of a return as other vehicles like real estate. Many say that you should not pay off debt quickly and instead invest the money for a greater return – a form of arbitrage.

Then, as mentioned above, there are the group of Fast FIRE advocates. They favor advanced wealth building strategies to get to financial independence (FI) as soon as possible. Usually it is because they want to be out of medicine. But there are many other reasons, all valid, as well.

The last and most valid reason is if you are later in your career and do not have enough saved for your retirement. At this point, you may need to be more active in your pursuit of an adequate nest egg.

But the bottom line is that if you are early in your career, want to just do your work as a doctor, enjoy your life, and set yourself up for financial success, these strategies are just not necessary.

Save 20% of your income and invest in index funds throughout your working career. The earlier you start, the better.

Why don’t I just follow this strategy?

It’s true. I don’t just follow this strategy.

I love my specialty and my job. I’m paying off my debt aggressively. I invest in index funds of stocks, bonds, and real estate through REITs.

Yet I also invest actively in real estate with a goal of creating large cash flow and taking advantage of tax benefits. I created a physician side gig with this blog and my course.

It’s like I said, I really love this stuff. I find it interesting and fulfilling. It’s also become something that my wife likes as well. So it’s another hobby/interest for us to share and bond over.

And I like the idea of being able to practice medicine because I want to, not because I have to. I’ve always found I’m happier when I’m doing something because I want to, not because I have to.

Ok, fair enough. Now give me an example of how this basic strategy works

First, a few assumptions.

• You are graduating training and becoming an attending at age 32, like me.
• Your income is the physician average from the 2020 Doximity compensation report of $383,340
• You have a student debt to income ratio of 1:1 (similar to my situation)
• Your index fund investments will make 5% after tax, after inflation in return
• You plan to work for 30 years, until age 62

With an income of $383,340, you will save $76,668 each year with a 20% savings rate.

Let’s say you really pay off loans aggressively by putting all of your savings rate towards loan repayment. You will then pay off your loans in about 5 years ($76,668 x 5 years = $383,340).

Now, after 5 years, you put all of your savings into index funds according to your asset allocation and rebalance yearly. In 25 years, your nest egg will be:

=FV(5%, 25, -$76,668, 0, 0)
= $3,659,121

With a 4% average yearly withdrawal rate in retirement, this nest egg will give you an annual “salary” of $146,365 in retirement!

Now, everyone’s expenses are different and people may have various estimates of what they will need in retirement. But you can certainly live a very comfortable life with over $146,000 a year.

Now, imagine what you could do with a savings rate of 41%. That’s what mine is right now. After figuring out this math, it became a lot easier to save more!

Aside from saving, you can also increase your income through feasible physician side gigs.

For instance, you can sign up for medical survey companies like these ones that I use and start getting paid right now for your medical expertise!

As you can see, no matter your situation, building physician wealth is well within your grasp.