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OPINION | SAVE YOURSELF: Doctor, heal thyself financially; self-pay before anything else

by Sarah Catherine Gutierrez | August 24, 2021 at 1:59 a.m.

Congratulations to all the physicians who are completing their training and starting new jobs. It can be an exhilarating month with those initial paychecks. For many the pay raise can feel like monopoly money. It can seem like enough money to satisfy just about any desire.

But many of the physicians who came before you have one note of caution: That money might not go quite as far as you imagine.

Importantly, a miscalculation could steer you off financial course for decades. More bluntly, you could find yourself in financial stress, and instead of going to work to be a doctor you might find yourself going to work to make enough money to keep your lifestyle running.

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You'll want to get this corrected right out of the gate. Waiting months -- after the home is bought, the kids are in private schools, and that new Tesla X is coasting out of the driveway -- means that spending and savings decisions are rooted in emotional commitments.

Where do people go wrong? Well, many don't understand how income taxation works in a marginal tax bracket system, for one. Take home pay from $60,000 to $500,000 is not linear. Taxes at $60,000 could look like just 15%-20% but be closer to 30%-35% at higher income levels. Then add in student loan payments and a hefty mortgage payment, it's easy to imagine how some new physicians find themselves in a paycheck-to-paycheck or debt spiral situation, even after their income jumps.

And no, this is not unique to physicians. The same holds true for executives, engineers, lawyers, bankers and other professionals who find themselves earning $250,000 a year, or more, at an early age.

There is a simple solution: Pay yourself first. It's absolutely my best advice I have to offer.

There are three simple steps to achieve this advice. If you follow them, you will be able to retire at a reasonable age and you will be able to pay off your student loans. You could go further and make a lifestyle budget for home, school, car and other big-ticket expenses, and that could help avoid major financial stress. Today let's focus on the steps to pay yourself first.

Step 1: Take a shot of whisky (optional). Figure out how much you need to save each year.

At minimum your savings rate should be around 20%. It might need to be more, especially if you have hefty student loan debt and/or if you are starting at this income level after age 30 with no savings. To get your savings rate, I recommend that you run a retirement calculator, and here is a simple one you can start with: Make sure you include a Social Security assumption and consider what you put into the percentage of current income you will need in retirement.

Remember that saving money is both adding money into retirement savings and reducing your lifestyle. A reduced lifestyle stretches your retirement dollars.

So if you are starting out in the calculator choosing a 20% savings rate then you might be able to get away with the assumption that you will need 75% of your current income in retirement (factoring in lower taxation of withdrawals). With a 25% savings rate maybe you only need 70% of your current income.

Let's assume in our scenario you are 30 years old and make $300,000 working for a non-profit hospital and have $300,000 in student loans. By my estimation you probably need to save 30% of your income, or $90,000 per year. (This is where the optional whisky shot comes in.)

Step 2: If you are reasonably sober, set up your retirement savings accounts to house those dollars.

Your retirement accounts should be prioritized in order of tax efficiency. For a refresher of why that is, refer back to paragraph 4. Consider your savings dollars as needing to fill the most important bucket before spilling over into the next one. Order matters here.

Bucket 1: Workplace retirement accounts. Total savings limit $19,500. Max out what your hospital, clinic or company offers. For some that will be $19,500 but for others it could be double that if there is an accompanying 457 plan. Not only do you get a much-needed tax deduction, but you probably also get a savings match for the win. $90,000 - $19,500 = $70,500 left to save.

Bucket 2: Health Savings Account (HSA). If you have a high deductible healthcare plan, you can save up to $7,200 for a family, invest the money for retirement and never spend out of it. With a triple tax deduction -- no income taxes on the front end or the back end and no capital gains tax -- it's a phenomenal retirement account. The only caveat is you need to use it on health expenses in retirement. Heads up -- your biggest spending in retirement is likely to be on healthcare. $70,500 - $7,200 = $63,300 left to save.

Bucket 3: Student loans. With student loans at a 6%+ interest rate, it absolutely makes sense to slay these suckers. If you are working for a non-profit hospital or clinic (e.g. Baptist Health, UAMS, Arkansas Children's or CARTI Cancer Center) then you likely get the benefit of participating in the Public Service Loan Forgiveness Program, or PSLF. Depending on a variety of factors, that payment could be approximately $2,000 per month or $24,000 per year. $63,300 - $24,000 = $39,300 left to save.

OR, if you are going into private practice or a for-profit company or clinic then you probably want to refinance this debt for payoff in 5 years (or less), resulting in a monthly payment around $5,000 or $60,000 per year. $63,300-$60,000 = $3,300 left to save.

The physician in our example would obviously choose the PSLF option and have potentially over $200,000 in loans forgiven assuming they were in the appropriate repayment program during training.

Bucket 4: Backdoor Roth (BDR). Our PSLF eligible doc has more money to deploy to savings. While she and her spouse can't explicitly fund Roth IRAs, they can pursue a backdoor Roth IRA (Tutorial here: This tutorial is for a Vanguard account, but it can be accomplished at Fidelity, Schwab or most major brokerage houses. If both spouses max that out in 2021 that's an additional $12,000. $39,300 - $12,000 = $27,300.

Bucket 5: Taxable brokerage investing. It has never been a better time to be a doctor opening up a brokerage account, funding it monthly, and investing in low fee, passive investments. Read more about that here: Opening an account with Vanguard, Fidelity, or Schwab is easy. In this case with $27,300 left to invest that would be $2,275 per month.

Step 3: Automate all these monthly bucket savings. Your workplace retirement plan will be automated from your paycheck. The HSA will be automated out of your paycheck. The student loan payment will be auto drafted from your checking account. For the Backdoor Roth you could automate transfers -- $1,000 per month for a couple/$500 if you're single -- from your checking account into a savings account and then do the BDR once per year. Then for the taxable brokerage account, please please please go the extra step and automate a transfer from your checking account to the brokerage account and arrange to have it auto invested.

If you have gotten this far into the column, then my diagnosis is that you like this stuff, maybe enough to read even more about it. If so, I recommend the books, blogs and podcasts of experts like the White Coat Investor, Physician on FIRE, Wealthy Mom MD, Nisha Mehta, and the Physician Philosopher. Dentists should check out the Gold Crown Podcast. Veterinarians, read Richer Life DVM. I also recommend local financial educator for Pharmacists, Joe Baker, and his great new book, Baker's Dirty Dozen: Principles for Financial Independence. Attorneys and non-medical professionals are also following many of these folks because the content is non-conflicted (they aren't selling financial products), high quality, and easy to follow.

It takes work, but if you take a more passive approach without this planning then you could end up not saving enough and not realize it. Unspent money in a checking account doesn't typically stay there for long. It cries and whines or calls out to spend it, and you'll probably oblige. That's why a pay yourself first system on day one of the new job is your best choice for financial freedom.

Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at

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