You Can Come Out Way Ahead By Working Harder Early In Your Career
You just turned 30 and finished your last year of family medicine residency. You start looking for work in an urgent care and aren’t terribly picky about where you live. You have $300,000 in student loan debt and you have enough energy and drive to want to pay off your debt early and save a lot early in your career.
You find a medical group (real example as of this writing, California) that starts you off at $230,000 in year 1. They have plenty of extra shifts available that you can pick up and they fully cover your malpractice, life insurance, disability insurance and they allow you to put away $53,000 every year (the current maximum that the IRS allows as an employee). You are also offered a $30,000 retention bonus ($20k after taxes) if you stay with the group for 3 years. You are also paid more for holidays and given annual bonuses which range in the $10,000-15,000 range. You won’t qualify for some of these until year 3, however.
Your urgent care shifts include afternoons/evenings and some weekends. Your salary is based on a 40 hour week but you are paid 25% more for every extra shift you pick up over the 40 hours. You start picking up every extra shift that you come across. Your hours now are closer to 70 hours a week. Because of the over-time and holiday pays you make $460,000 your first year (nearly $500,000 if you decided to cash out your vacation). Of this you set aside $53,000 in your tax-deferred accounts and you end up getting taxed on about $400,000, which means you will take home $250,000. You use $30,000 to live off of and you use the other $220,000 to pay down your student loans.
By the start of year 2 you have only $60,000 left on your student loans. You also have $53,000 saved. You work approximately the same hour the following year and because of annual salary raises you take home a little more. You pay off your student loans, which leaves you with about $190,000. You decide to live a little nicer, so you spend $40,000 on living expenses. So you invest $150,000 in a private brokerage account under the advice of a good financial adviser. And again, you again set aside your $53,000 in tax-deferred accounts.
By the start of year 3 you have invested $106,000 in your tax-deferred accounts. You have $150,000 invested in your taxable brokerage account. You have no debt left whatsoever. You continue to work like long hours and your salary goes up again slightly.
By year 4 you have $3600,000 invested in your taxable account, $159,000 in your tax-deferred account and you are still working a hectic schedule.
Year 5 starts and you cut back on your hours. You have now $782,000 invested. Here comes the juicy part. You have $782k invested which has accumulated interest and grown in value (hopefully). So, your actual value is nearly $900,000.
If in year 5 you drop down to even part-time, just enough to contribute the $53,000 and enough to maybe pay for a nice mortgage and you continue to do so for another 10 years you will likely have nearly $2,000,000 by year 15.
Of course, you could also just drop out of the rat race, work per diem just enough to pay for living expenses, maybe a mortgage and spend the rest of the time traveling. If you did that and invested your money well you could see the $900k grow to $1,300,000 by year 15. And likely have $1,600,000 by age 50.
I talked about money momentum before. Paying off debt early in your career and investing early can have radical effects on your final dollar amount. However, the sacrifice is several more years of hard work after residency. And don’t forget, you don’t have to work 70-80 hours, you could accomplish quite a lot by working even 50 or 60 hours.