Too many doctors find themselves in golden handcuffs. This happens when, despite a high income, doctors accrue expenses that equal or exceed their income. And no matter how hard it might seem to be able to spend up to the limit of a salary (especially when you are still in training), it is not uncommon.

Unfortunately (and counter to what popular culture says), excessive spending is associated with minimal to no improvement in overall happiness and can be associated with burnout in doctors. And moreover, losing control of your spending completely hampers your ability to grow wealth, achieve financial freedom, practice medicine, and live life on your own terms. 

Let’s remember the simple equation to build wealth: create and invest the margin between what you earn and what you spend.

If you have no margin at all because you spend too much (i.e., your expenses are too high), then you can’t even start on this path. This is why being careful during that transition from being a trainee to becoming an attending is so important. Doctors are prone to delayed gratification. And if you’re not careful, it’s easy to rack up huge recurring expenses right after becoming an attending that follow you for the rest of your life and impede your ability to grow your financial well-being.

Of course, the easiest way to reduce the risk of high expenses is to just not accrue them in the first place. Unfortunately, that truism doesn’t do much good if you already find yourself as one of the doctors with excessive expenses. Thankfully, however, there are strategies you can use and steps you can take if you do find yourself in this situation.

1) Define your needs and your wants.

If your expenses are too high, take your last month’s bank and credit card statements and go through each expense one by one. If you have a partner, this needs to be done together. With each expense, categorize it as a need or a want on a separate sheet of paper. 

Definitions of needs versus wants may seem personal. But they are really not. Needs are things you can’t live without. Wants are things you don’t want to live without — but could if you needed to. See how that works? It’s common that as time goes on, wants start to feel like needs. Because we accommodate them. Weekly spa trips stop feeling like a luxury and start feeling like a necessity. Private school for your kids … this is probably the most common want that I see get confused as a need.

But if your expenses as a doctor are too high to create a savings rate of at least 20% of your gross income, you need to make some tough choices. Because if you don’t make those choices, you will be in for a brutal wakeup call later when you are forced to work for way longer than you want, or when you have to scale back drastically upon retiring. 

Luckily, there are tips for dealing with this. Say there’s a specific want that is just really pulling at you, but you can’t make it work to have it as an expense and still save as much as you need to reach financial freedom. The solution? Buy a cash-flowing asset using your savings — like an investment property. Then, use the cash flow to buy your want, like a fancy car. After you buy the want, you still have a cash-flowing asset that is helping you reach your financial freedom goal!

2) Increase your savings rate progressively.

Doctors generally don’t need to cut all of our expenses at once. This is an advantage we have due to the relative stability of our work and our high pay. 

Still, cutting expenses is a way to make the whole saving process less painful. As humans, we accommodate. Like I said above, we acclimate to luxury. But we also acclimate to everything else in life … like temperature. Get into a cold pool and it feels freezing at first due to the difference in temperature between the water and our body. But stay for a bit and it slowly becomes comfortable. Because our bodies acclimate to it.

And this is exactly how my wife Selenid and I increased our savings rate. It was a bit of a different situation but analogous all the same. We were still living on my resident salary when we started our financial comeback story. Our savings rate had been 0%. Or more accurately, it had been negative since we took out credit card debt. 

So, we determined that we had to create some savings rate. Given our low income, reaching 20% off the bat would be hard. So we made it a goal that we would increase our savings rate from 0% to 1% in the first month. Then the following month, we would increase it to 2%. And on and on. We got up to probably 4-5% before we hit the ceiling of what was possible with my resident salary. But it set the stage and created the habit so that when I started my attending job, creating a much larger savings rate was easy.

If you are one of the doctors whose expenses are just too high, I recommend this approach. Build your savings rate in increments. You don’t need to go from 0% to 20% in one fell swoop. But you do need to move along and not procrastinate. So try to create a margin of 5% the first month. Then 10% and so on. Adjust to what you can tolerate and accommodate.

The water will feel cold at first. But after a while you’ll notice your life really hasn’t changed much on its face. And now you have a savings rate to start investing to create your own path to financial freedom.

3) Budget (at least for a year).

You probably could have guessed this was coming. This is the natural extension of figuring out your needs and wants and then progressively growing your savings rate. 

The reason that a budget is necessary is because it is the tool that will keep you on track with your spending and saving.

Even with our savings rate and progression in net worth above $1 million nowadays, Selenid and I still budget. There is a ton of software you can use to track spending, but we still enjoy the old-fashioned way of using an Excel sheet.

I don’t necessarily think you always have to budget (although it doesn’t hurt). But if you find yourself in the situation of having your expenses be way too high to successfully reach financial freedom, you need to do so for at least one year.

After that period of time, your habits and spending mechanisms should be automated enough that you can back off a bit. Although I still recommend you occasionally check in on your spending.

None of this is fun, but neither is working past when you want to.

Spending is always a hot button issue. Some people want you to be extremely frugal and save way more than you could possibly ever need in your life. Others say to spend it all and die with zero because you can’t take it with you.

I’m not advocating either of those extremes. And that’s not even what this article is about. This article is for those doctors who have expenses that are too high — either because they haven’t created a financial plan and don’t know their financial goals, or because they got on the hedonic treadmill and don’t know how to get off.

Either way, the price to pay for this situation is a huge one. It means working the rest of your life to cover your expenses. It means money controls you instead of the other way around.

If you are in this situation, you need to take these three drastic steps. It will feel hard at first. But the payoff is worth it. I know because I’ve experienced it. Once I stopped worrying about others’ images of what a plastic surgeon should look like and started my path to financial freedom via my written financial plan, my burnout ameliorated and I became a better doctor and happier person. And you can too!

What do you consider 'needs' versus 'wants'? Share in the comments!

Jordan Frey, MD is a plastic surgeon in Buffalo, NY at Erie County Medical Center and the University of Buffalo. His clinical focus is on breast reconstruction and complex microsurgery. He is also the founder of The Prudent Plastic Surgeon, one of the fastest growing finance blogs. There, he shares his journey to financial well-being with a goal of helping all physicians reach financial freedom, practicing on their own terms.

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