Is Becoming a Doctor Worth It? Why Doctors Don’t Get Rich

I remember growing up during high school watching Bill Cosby play Dr. Cliff Huxtable on the Cosby Show. There was one particular episode where he deliberately dressed in shabby clothes when purchasing a new car.

He wanted to teach his kids that you shouldn’t ever dress like you’re wealthy when making large purchases in order to get the best deal.

As a doctor, he didn’t want to show up to the car lot in scrubs because society thinks all doctors are rich, right?

What may surprise you is that when a group of doctors were asked, “Are doctors rich?”, almost 70% claimed the public’s perception of their profession is false. Really?

Also, another study showed that only 54% of physicians would choose to enter medicine again as their committed career path.

Why is that? Could it be the cost of medical school or something else?

Is becoming a doctor still worth it?

One of the reasons people choose a career path in the medical profession is because of the high income potential (six figures).

And society thinks if you’re a medical doctor then you’re rich because they drive fancy cars, don expensive clothes, golf at exclusive private clubs, live in fancy neighborhoods, and send their kids to private schools.

But just because someone “looks” the part, are they really wealthy?

Even though doctors get out of training making good money, does that automatically ensure that they’re going to be rich? I don’t think so.

Having a good income and being rich are two different things.

What do you think?

Why Doctors Don’t Get Rich

I was pleasantly surprised to hear that my good friend, Dr. Tom Burns, recently authored a book, Why Doctors Don’t Get Rich: How YOU Can Create Freedom with Passive Income Investing.

The book begins with a story about how “his life was changed forever” twenty years ago after visiting a car wash.

He noticed a small pile of books and decided to purchase one due to the catchy title, Rich Dad Poor Dad by Robert Kiyosaki.

Little did he know that this book would later go on to become one of the best-selling personal finance books ever with an estimated 40 million copies in print worldwide.

Before reading the book, his career path was beginning to go like many other doctors:

working long hours
signs of burnout
disenchantment with the profession

Many doctors feel trapped and don’t know what to do. With high amounts of student loan debt, many feel stuck that they must continue to practice in order to tame a six-figure student loan bill and lead the lifestyle they’ve become accustomed to.

After applying Kiyosaki’s principles, Dr. Tom began to create the life for himself that most would die for. He’s learned to work less, travel more and still keep control of his life.

He also practices orthopedic surgery because he ENJOYS it, not because he needs the money.

How has he done this you might ask?

Two words: Passive Income

“My passive income pays for the life I WANT to live- not the one I HAVE to live.” – Tom Burns MD

Why Do We Need Rich Doctors?

Burns states that today, physicians are trapped in a profession they love but a business they HATE. Not good. He claims that doctors are never taught how to be rich but how to be poor instead.

How’s that?

Poor doctors spend what they make and while they live well enough, they can NEVER stop working. Through no fault of their own, their high-level education was designed to mold them into doctors, NOT make them rich.

To top it off, physician burnout is at an all-time high and hovers around 50%. This means that half of the doctors out there have wanted to quit practicing at one time or another – any maybe they still do.

(As a side note: I recently had a new Passive Investors Circle member tell me that after practicing as a hospitalist for ONLY six years, he was ready to quit. He stated that he felt he had NOT made the right choice with his career.)

The reasons doctors in the United States are burning out from clinical practice are:

high student loan repayment
increasing bureaucratic tasks
government requirements
high demand and too many hours at work
burdensome electronic medical records
decreasing reimbursements from insurance companies
lack of autonomy and control
decreased job satisfaction

Dr. Burns states that if doctors can’t dismantle the burdensome infrastructure and oversight that has infected medicine over the past 20 years, then we must reinvest ourselves. That’s the purpose behind his book.

He claims that rich medical practitioners are financially educated, enjoys freedom of choice, and lives life with purpose, passion and service.

One that is LESS dependent on income from work will have MORE latitude and control over how they practice. This helps to produce a more pleasant and caring environment for patients. You’ll still work within the same system, but you’ll be able to eliminate or alter conditions that negatively affect your time, income and your patients’ care and experience in the office.

Remember, it’s not all about money as it’s not the answer to everything but it can give you OPTIONS. If your goal is to exit medicine, then the principle Dr. Tom spells out in his book will help you get there.

It all starts with a transformation which begins in your mind.

Why Do You Want To Be Rich?

Just like finding your “WHY” you wanted to become a doctor, on your financial independence journey, you must also have a WHY to guide you – and it should be compelling.

Determining your unique and personal WHY is the most important step in your journey to financial independence.

My personal WHY and Dr. Tom’s is similar – we both love to travel. We want to be able to leave our practices and vacation for an extended period of time while not having to worry if the clinic is bringing in money or not.

I’ve always been envious of friends that have a career that allows them to work remotely or have employees that can run their business without them having to be there.

This allows them to be gone for months at a time and this was one of the driving forces to get me going in the search for passive income.

If you’ve never thought about why you want freedom then now is the time to do so. Your unique vision of a wealthy life will drive you to do the extra work now to reap the benefits in the future. Once the WHY is embedded in your subconscious, the HOW and WHAT will take care of themselves.

Are Doctors Rich?

If you’re the type that measures wealth by income, then you believe those that hold a medial degree are rich. Despite most doctors making good money, some never seem to get ahead.

Often, they fall prey to Parkinson’s Law which states that “expenses will rise to meet income.”

This means that the MORE we make, the MORE we tend to spend, creating an increase in consumption which then requires ongoing expenditures to maintain that lifestyle.

This is what eventually goes on to form the “golden handcuffs” of the highly paid physicians giving them a false sense of wealth and security early in their career.

Only later do they start to feel trapped.

Working for money does NOT make you rich in the first place. No matter what your rate of pay, if you have to work to make money, you’re simply a highly paid poor person ( I guess I still qualify 🙁 ).

As soon as you’re unable to work, your income stops.

If you’re happy and content with your lifestyle, work, family, and relationships, then you’re already wealthy. If you’re unsettled and unhappy or feel something is missing, you likely haven’t yet attained the wealth and happiness you dreamed of when you were younger.

Wealth is a state of mind and the freedom to make choices without financial constraints.

Get a Rich Education

Doctors have plenty of knowledge with more education under their belt than most other high-income professionals. If that’s the case, then why aren’t they all rich?

The answer is that they were taught to heal, NOT to be rich. Unfortunately our system wasn’t designed for that.

When you think about it, it’s actually pretty sad. We have one of the best medical education systems in the world but it never teaches us about what we all ultimately work for….money.

Unfortunately this produces doctors who can make a lot of money but don’t know what to do with it.

Knowledge is good and education is a vital component in the production of wealth. But your personal success depends on what you want to learn and where you get your information.

If you want the blueprint on how to be rich, you must get the “it” from people who’ve already attained wealth. The good news is that wisdom is more readily available to you than ever before. You just have to look for it.

Become a reader

Dr. Tom recommends we become an avid reader. Reading books and listening to podcasts has been the top way I stay on top of educating myself on a weekly basis.

Some of my favorite books are:

“President Harry Truman once said, “Not all readers are leaders, but all leaders are readers.” One of the reasons millionaires become millionaires is because of their constant desire to learn. To them, leadership books and biographies are much more important than the latest reality show or who got kicked off the island. When they have free time, they use it wisely—by reading.” – Dave Ramsey

Commit to reading at least a few pages of a success-oriented book each day.

Grow your network

We were made to be part of a community. Most of us spend more time around our colleagues and employees than we do our own families.

If we hang around doctors and nurses all day, we’ll begin to view our circumstances through that filter.

While there’s nothing wrong with that, if you want to break out of your current routine and play a bigger game, you’ll need to find a new group of people that stretches your capabilities.

“We are the average of the five people we spend the most time with.” – Jim Rohn

“Plans fail for lack of counsel, but with many advisers they succeed.” – Proverbs 15:22

Who you spend time with is who you will become. Makes you think about that doesn’t it! It’s important to surround yourself with positive people who are moving in the direction you want to go, and it’s equally important to AVOID negative people. Their attitudes, mindsets, and thought processes will become part of your own, so choose your network carefully.

One other thing to keep in mind is that a successful life is built on how much you SERVE others. Try to avoid categorizing people by what they can do for you. When you meet new people, think of how you can add value to their life.

When you’re networking, don’t walk into a room to see what you can get. Walk into a room to see what you can give.

It’s How You Make Money That Counts

How you make income is as important as how much income you make. Dr. Burns realized early on in training that a surgeon was paid based on the type of procedure performed and how many patients were seen. Also, the doctors that trained him appeared to be wealthy as well.

But something started to bother him from the beginning and grew over time. He started to realize that if he became a busy doctor, he’d make more money but it would require more and more of his time. Basically the more success he had the less time he’d have too. This sparked him to search for other options.

Cashflow Quadrant

It was a few years later when he learned about the Cashflow Quadrant from Robert Kiyosaki that everything fell into place.

He began to understand his anxiety over how he was making money and his ambition to find another way.

This quadrant highlights four income categories:

E – Employee (works for someone else)
S – Self-employed (works for himself)
B- Business owner (has people work for him)
I – Investor (has $$ work for him)

The employee and self-employed are on the left side of the quadrant where most of the world makes a living. The business owner and investor occupy the right side where true wealth and freedom are found.

At the time of first learning about this, Dr. Tom was in the S category and he quickly realized that if he didn’t at some point get out, he’d never achieve his dreams and goals.

How To Become a Rich Doctor

You should know by now that the way to building wealth is to get on the right side of the quadrant as quickly as possible.

We do this by making our money work for us instead of….

Trading time for money

Most people are paid by the hour. What about you? The production of active income (which is the highest taxed) requires time and is the way most of the world makes its money.

It doesn’t matter if you’re a CEO, software engineer, emergency medicine physician or grocery clerk, you don’t get paid unless you give your effort and time to a prescribed task. I understand that we’ll all do what we must to provide for our families, but the cost can be HIGH.

TIME is our most precious commodity and we only have a limited amount to give. Once its gone, we never get it back.

So, the million dollar question is:

How do we solve this problem?

Passive Income of course.

If you want a life where you have true financial freedom then you must develop some level of passive income. This is income that comes in whether you work or not and does not require your physical input or time.

When you control your time, you control your life.

As high income earners, we have a huge advantage. We have the opportunity to turn excess cash into perpetual passive income. This is money produced on a recurring basis without physical or mental effort.

This is how the wealthy produce their fortunes. They don’t work for money. Money works for them – 24/7. It’s the magic formula for financial freedom which in turn creates rich doctors.

Cash Flow Is King

“Never take your eyes off the cash flow because it’s the lifeblood of business.” – Sir Richard Branson

The secret to being rich is controlling your cash flow. Value that is tied up in non-liquid assets can’t be used until released.

Some people tend to only focus on growing their net worth. While it’s good to have a high net worth, you also need money to live on.

Whatever vehicle(s) you choose to invest in, if the cash flow replaces your living expenses, then you’re free.

One of the ways we’re doing this is by investing in passive syndications. Most doctors have some degree of discretionary income to invest which can be placed into real estate in a passive manner (syndications) that requires no time from an already busy schedule.

The partners do the work, you provide the investment. If things go right, you’ll receive regular income based on the performance of the investment. Remember, the goal is create cash flow you don’t have to work for.

The Velocity of Money

As you start to develop cash flow, there will come a point at which you’ll have all of your personal expenses covered.

Then what?

You can’t just let that cash sit around and do nothing. Inflation attacks idle cash and money will lose value if it doesn’t stay in motion.

This is known as the concept of the velocity of money. As you gain some financial freedom, utilize what you’ve learned to keep your money moving. Money is a fabulous employee (doesn’t talk back!) and it will gladly work around the clock for you.

The higher the velocity of your money, the faster it grows and the sooner you’ll reach your goals.

While it’s always good to have cash readily available to handle emergencies or take quick advantage of investment opportunities, idle cash does NOT make you money. At a minimum, put those accessible funds into something whose value will keep up with inflation. This will keep your cash position safe as it continues to grow your wealth.

Keep More of Your Money

Most of the high-income earners I know mainly focus on making more money instead of KEEPING more of the money they have now in their pocket. Taxes are and will continue to be your biggest expense. The more you pay, the less you have available for your personal needs.

On the other hand, the less tax you pay, the more money you keep for yourself, which provides an immediate financial return.

So the question is, “How do we legally pay less tax?”

Partner with the Government

Partner with the government?

Yes, you read that correctly.

The U.S. Tax Code is a guide filled with incentives that the government wants to give us, the tax payers. We just have to pay attention and play by their rules.

When it comes to housing, there are tax incentives for those who are willing to take the risk of building homes and apartments.

The U.S. government rewards those that take this risk by offering them deductions such as one of their most magical gifts, depreciation.

If you own real estate, the government assumes it will deteriorate and lose value over time. The IRS typically allows you to write off some of that value when completing your yearly tax returns. For a residential property, the depreciation is calculated over a 27.5 year period; for commercial real estate, it’s spread out over 39 years.

1031 Exchange

Other beneficial tax breaks are available in real estate than can bring taxable income down, even to zero in some cases. For example, if arranged properly, you can defer 100% of your taxes on a property sale if you utilize a 1031 tax exchange.

This section of the tax code allows you to sell your property and defer the tax payment if you re-invest the proceeds into a property with value that is greater than or equal to the property you sold.

Doctors and Taxes

Let’s revisit the Cashflow Quadrant. Most doctors make their income on the left side of the quadrant which ties their hands from a tax standpoint. The way we make our income also influences the amount of tax we pay.

In general, those in the Employee and Self-employed quadrants pay a higher percentage of taxes on their income than those in the Business Owner and Investor quadrants.

As doctors, most of our income is derived from salary either paid from revenues or paid by our employers. This puts us in the E or S quadrant which is the most HIGHLY taxed income category.

This is W-2 income and additional taxes such as Social Security and Medicare are layered on top of the federal rate. Taxes are generally lower in the B and I quadrants and often Social Security and Medicare taxes do NOT apply.

Even though as a W-2 employee your options maybe limited, there is something else to consider. If you’re able to file as a “real estate professional,” you’re allowed to offset ordinary income from your medical practice with passive losses from your real estate.

You must qualify for this designation and there are strict requirements established by the IRS. Consult your CPA or tax attorney for more advice.

Imagine keeping 80-100% of your income and how that might change your lifestyle. You could buy more, do more and work less. That’s the benefit of understanding money, taxes and investments.

That’s how you become a rich doctor. Knowledge of the tax laws and acquiring expert advisors will help you do that.