Wealth accumulation can follow many trajectories, depending on discipline and external factors like stock market health or economic fluctuations.  With a proper financial plan, doctors can stick to a game plan that should allow them to reach financial milestones rather predictably.  The adage that wealth begets wealth certainly does hold true most of the time, but it doesn’t necessarily guarantee financial victory.  One of the issues with wealth accumulation is that goals, needs, and desires rarely remain constant over time.  Life happens, and sometimes that can derail even the most sound financial plans.  Let’s take a look at the financial trajectory of a typical financially-conscientious physician.

The doctor in training and early career doctor

Many early career physicians are knee-deep in debt.  Some of us venture even further into the red by purchasing a home or buying a big-ticket item on credit while on a resident’s salary.  Fortunately, any early career financial missteps can be righted with a lengthy enough career length.  I find that this generation of physicians overall tends to be more aware of finances, possibly because of the negative changes in medicine.  Doctors at this age will often start picking up financial books or talking to financial planners.  Some of them will be directed to the White Coat Investor and find out that it’s cool to be attuned to your bank accounts.

This is also the point where many doctors are able to dig out of a negative net worth when the financial strategies start working.  I remember that the time my net worth became zero — I felt as happy as I did when I got accepted into medical school and residency!

When our financial strategies start working, we hope that it could continue indefinitely, but throughout our careers, there are many factors that can disrupt the game plan.

Early mid career doctors

How long does the gravy train last? Will your net worth growth actually accelerate as you reduce debt? It should — your first $100,000 in net worth should be most difficult to achieve, while your second or third $100,000 ought to be easier.  As more of your net worth becomes invested, it should grow by itself.

In practice, many mid-career doctors end up plateauing their savings rate simply due to life changes or letting the reins loose a little too soon.  This is where we are at most risk of a plateauing net worth.

1. Increasing costs for children. As we had mentioned on a previous article, we don’t always make rational decisions. Sometimes we may be more willing to splurge on a high price tag for our family members but not necessarily for ourselves.  Send your kids to private school, and the math equation changes.

2. Finding that “forever” home. Many doctors at this point will find a reason to get a bigger and more expensive house.  Perhaps the second dog needs a larger yard, or the kids need more room for themselves.  The second mortgage will dig into your income twice as hard when the first home doesn’t sell.

3. Taking more lavish vacations. While there is nothing wrong with taking time off from work, many doctors end up overcompensating for having stressful careers through luxurious vacations.  Throw in a few five-figure vacations a year, and you realize that it will chew up a chunk of a doctor’s salary.

4. Making poor financial choices intended to grow one’s net worth. This is where smart people can outsmart themselves.  Commercial real estate, fast-food restaurants, family businesses … you name it, there are probably people who have dumped a chunk of change into ancillary investments.  Some of these investments are going to flop.  Each failed investment will extend your working career a little longer. Just make sure that you don’t make too many of them.

Frankly, any of these situations can happen to us.  Many of these choices are made conscientiously, but they can have lasting effects on our net worth trajectory.

Late career doctors

There isn’t much other than catastrophic events or major economic recessions that could derail a well-executed financial plan for late career doctors.  Conversely, there are instances at this age where doctors are presented with unexpected health issues or worse yet, death.  I have seen a handful of doctors who were unable to enjoy the fruits of their labor due to health issues.  You can take your money to the grave, but it might not do you too much good.

The conclusion to all of this? Plateauing can happen even with judicious financial planning simply due to changing needs and desires.  What’s important for doctors to realize is that many of us are okay working a “full career” despite a early retirement being a hot trend.  Just make sure that the lifestyle changes that you make don’t make you overextend into your golden years.

“Smart Money, MD” is an ophthalmologist who blogs at the self-titled site, Smart Money MD.

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