Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

Physicians: Don’t buy things you can’t afford

Live Free MD
Finance
February 20, 2018
Share
Tweet
Share

If you haven’t noticed, Americans love debt.  The average household has around $130,000 in total debt, including $50,000 in student loan debt, nearly $30,000 in auto loans, and $16,000 in credit card debt.

With an average credit card interest rate of 15%, that would be $2,400 in interest per year. With a student loan interest rate of 6.8%, that would be $3,500 in interest, and with a 3% auto loan, that would be nearly $1000 in interest.  In total, that’s almost $7,000 in interest per year.  Sounds like a great way to bury yourself in a hole that you can never escape from.  Goodbye, freedom.

Luckily, there’s a solution

The way out of this debt nightmare is to only buy stuff that you can afford.  How do you know if you can afford it?  Simple.  If you have the cash to buy it, then you can afford it.  If you don’t have the cash, then you can’t.  Here are the details.

Save for your freedom first

If you want to earn your freedom, remember that you can’t actually spend everything in your paycheck.  Depending upon how fast you want to earn your freedom, you should save anywhere from 20-50%.  I recommend 50%, but you may choose to be less aggressive.

When you get paid, before you do anything else, you need to take that 50% and either pay off your existing debt, establish an emergency fund, or save for retirement. Check out Don’t Put Your Shoes on Before Your Socks for a blueprint on how to prioritize these goals.

Do whatever you want with the rest

If you’ve saved your 50%, then you can do whatever you want with the rest.  Of course, you need to have some sort of plan, otherwise known as a budget. You can’t just blow all your money on bikes and not pay rent.  But there are otherwise no restrictions on this money.  You can spend it all and feel good about it.

The trick, of course, is that this is all the money you get.  If you run out before your next paycheck, then you can’t spend anything.  You should have an emergency fund for unexpected large expenses, but in general, if the money isn’t in your checking account, you can’t buy anything else.  Treat your credit card like a debit card, not a free money machine.

What about large purchases?

The same thing goes for big purchase items.  If you can’t buy your car with cash in your checking account, then you can’t afford it.  If you can’t immediately write a check for that $10,000 heli-skiing trip, then you can’t afford it.  Don’t even think about a purchase plan on the new iPhone X.  If you can’t give them ten $100 bills, then you can’t afford it.

Are there exceptions?

If I was completely consistent here, I’d also tell you to buy your house with cash and your education with cash.  While those are certainly laudable goals, a house and an education are not depreciating consumer assets.

Both an education and a house can pay future dividends.  Your education pays you dividends in the form of a marketable skill that brings in a paycheck, and a house owned free and clear pays you dividends in the form of free rent.

In that sense, a house and an education could be considered investments that may be justifiable to finance.  Just make sure that you keep your housing and educational costs as low as possible.  Do you really need a $150,000 bachelor’s degree in computer science from Stanford when a $50,000 degree from your state school will give you the same skills?  Do you really need a $500,000 house when a $200,000 house will keep you safe and dry? Choose carefully.

It’s really simple

ADVERTISEMENT

It doesn’t matter if you really want to buy something.  If you don’t have the money, you can’t afford it.  Don’t even think about pulling out that credit card unless you can immediately pay it off with what’s in your checking account.  Remember, you need to learn to suffer.  Maybe not forever, but at least until you earn your freedom.

“Live Free MD” is a sports medicine physician who blogs at his self-titled site, Live Free MD.

Image credit: Shutterstock.com

Prev

It's time to treat C. diff diarrhea

February 20, 2018 Kevin 0
…
Next

The miscalculated fear of an opioid crisis in Haiti

February 20, 2018 Kevin 2
…

Tagged as: Practice Management

Post navigation

< Previous Post
It's time to treat C. diff diarrhea
Next Post >
The miscalculated fear of an opioid crisis in Haiti

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

More by Live Free MD

  • Enjoy financial freedom by reaching the land of critical mass

    Live Free MD
  • Physicians: Get rid of car debt. Or, how to buy a car with cash.

    Live Free MD
  • Financial independence means nothing if you don’t have your health

    Live Free MD

Related Posts

  • Are patients using social media to attack physicians?

    David R. Stukus, MD
  • The risk physicians take when going on social media

    Anonymous
  • Beware of pseudoscience: The desperate need for physicians on social media

    Valerie A. Jones, MD
  • When physicians are cyberbullied: an interview with ZDoggMD

    Monique Tello, MD
  • Surprising and unlikely rewards of social media engagement by physicians

    Lisa Chan, MD
  • Physicians who don’t play the social media game may be left behind

    Xrayvsn, MD

More in Finance

  • The business lesson new doctors must unlearn

    Stanley Liu, MD
  • The hidden impact of denials on health care systems

    Diana Ortiz, JD
  • Why physicians are unlike the “average” investor

    David B. Mandell, JD, MBA
  • Signing bonuses and taxes: What physicians should know

    Shane Tenny, CFP
  • 5 steps to ride out a non-compete without uprooting your family

    Stanley Liu, MD
  • What every physician should know before buying into a medical practice

    Dennis Hursh, Esq
  • Most Popular

  • Past Week

    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why medical students are trading empathy for publications

      Vijay Rajput, MD | Education
    • Why does rifaximin cost 95 percent more in the U.S. than in Asia?

      Jai Kumar, MD, Brian Nohomovich, DO, PhD and Leonid Shamban, DO | Meds
    • Physician patriots: the forgotten founders who lit the torch of liberty

      Muhamad Aly Rifai, MD | Physician
    • How collaboration across medical disciplines and patient advocacy cured a rare disease [PODCAST]

      The Podcast by KevinMD | Podcast
    • Bird flu’s deadly return: Are we flying blind into the next pandemic?

      Tista S. Ghosh, MD, MPH | Conditions
  • Past 6 Months

    • What’s driving medical students away from primary care?

      ​​Vineeth Amba, MPH, Archita Goyal, and Wayne Altman, MD | Education
    • A faster path to becoming a doctor is possible—here’s how

      Ankit Jain | Education
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • Make cognitive testing as routine as a blood pressure check

      Joshua Baker and James Jackson, PsyD | Conditions
    • The broken health care system doesn’t have to break you

      Jessie Mahoney, MD | Physician
  • Recent Posts

    • How collaboration across medical disciplines and patient advocacy cured a rare disease [PODCAST]

      The Podcast by KevinMD | Podcast
    • 5 cancer myths that could delay your diagnosis or treatment

      Joseph Alvarnas, MD | Conditions
    • When bleeding disorders meet IVF: Navigating von Willebrand disease in fertility treatment

      Oluyemisi Famuyiwa, MD | Conditions
    • The hidden cost of becoming a doctor: a South Asian perspective

      Momeina Aslam | Education
    • Physician patriots: the forgotten founders who lit the torch of liberty

      Muhamad Aly Rifai, MD | Physician
    • The child within: a grown woman’s quiet grief

      Dr. Damane Zehra | Physician

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

View 5 Comments >

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why medical students are trading empathy for publications

      Vijay Rajput, MD | Education
    • Why does rifaximin cost 95 percent more in the U.S. than in Asia?

      Jai Kumar, MD, Brian Nohomovich, DO, PhD and Leonid Shamban, DO | Meds
    • Physician patriots: the forgotten founders who lit the torch of liberty

      Muhamad Aly Rifai, MD | Physician
    • How collaboration across medical disciplines and patient advocacy cured a rare disease [PODCAST]

      The Podcast by KevinMD | Podcast
    • Bird flu’s deadly return: Are we flying blind into the next pandemic?

      Tista S. Ghosh, MD, MPH | Conditions
  • Past 6 Months

    • What’s driving medical students away from primary care?

      ​​Vineeth Amba, MPH, Archita Goyal, and Wayne Altman, MD | Education
    • A faster path to becoming a doctor is possible—here’s how

      Ankit Jain | Education
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • Make cognitive testing as routine as a blood pressure check

      Joshua Baker and James Jackson, PsyD | Conditions
    • The broken health care system doesn’t have to break you

      Jessie Mahoney, MD | Physician
  • Recent Posts

    • How collaboration across medical disciplines and patient advocacy cured a rare disease [PODCAST]

      The Podcast by KevinMD | Podcast
    • 5 cancer myths that could delay your diagnosis or treatment

      Joseph Alvarnas, MD | Conditions
    • When bleeding disorders meet IVF: Navigating von Willebrand disease in fertility treatment

      Oluyemisi Famuyiwa, MD | Conditions
    • The hidden cost of becoming a doctor: a South Asian perspective

      Momeina Aslam | Education
    • Physician patriots: the forgotten founders who lit the torch of liberty

      Muhamad Aly Rifai, MD | Physician
    • The child within: a grown woman’s quiet grief

      Dr. Damane Zehra | Physician

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Physicians: Don’t buy things you can’t afford
5 comments

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...