Avoid lifestyle inflation is the best advice I can give new dentists and the key to financial success in the future. But what is it? Simply put, it is avoiding spending more money as you make more money.
Live Like a Resident
This term comes from the White Coat Investor. Physicians in residency get paid about what the average American family makes; around $63,000. That should be enough money to live on. When physicians and dentists start a job after training, they will get paid more. Sometimes a lot more. Living like a resident means continue to live on about $63,000 a year until your student loans are paid off. Even if you make $120, 150, 200, 250,000 dollars. All the excess should go towards student loans. Well not all of the excess. Uncle Sam will take his share for sure.
Can you get a small raise?
It’s possible if you are too strict about this you might go crazy. So giving yourself a little raise may help. For instance, living off of $75,000 or even $85,000 may satisfy your craving to spend a little more without overspending and giving in to lifestyle inflation. Stick to a strict budget. If you throw all of that extra money at your student loans then you can pay them off quickly.
Lifestyle inflation temptations
You just graduated from Dental School, you have a job and are a “doctor” now. Therefore, a BMW is in order right? You are a dentist now and you need to look like one. Wrong. Decent transportation can be had for fairly cheap. Don’t worry about what others think you are supposed to drive. Above all, worry about those student loans.
A nice house in the nicest neighborhood is deserved right? You can’t live among “average” income earners. You are a dentist and need to have a house like one. Wrong again. Getting a modest house in a modest neighborhood is just fine while you are tackling your debt.
Fancy vacations and country club memberships are what dentists do right? Well, hopefully not for a while. You can do plenty of things and go plenty of places inexpensively. For instance, Take vacations by driving to many wonderful places around you. Golf at the city course. Play tennis at the free courts all around your city. There are plenty of places to go and plenty of things to do that don’t cost much.
I know several dentists and doctors that gave into lifestyle inflation shortly after training. And for most, it never stopped. Nice cars, houses, vacations and country club memberships were normal. Let me give you two examples of them.
What can happen if you give in to Life style inflation:
One is a general dentist is sunny California. That’s where he wanted to live. Cost of living be damned. Nice houses, a Bentley, fancy vacations were his thing. What happened? Around age 50 it all came crashing down. He didn’t own those houses or cars; he had borrowed money for them. Making the payments wasn’t possible any more and therefore he was having to put all of his dental equipment and supplies on credit cards because he was having a hard time paying his staff. As a result, he is now 62 years old and has no savings.
Similarly, I know a 68 year old dentist who is my friends father. I recently told him about my desire to be financially independent by age 52. He asked me how that was possible. I explained to him what I have learned from all of the books I have read and the White Coat Investor and Boglehead philosophies. He had no idea about this mindset and has spent all of the money he has ever earned. He fell victim to lifestyle inflation and so his income has had to support it his lifestyle. Because of this, he has nothing saved for retirement and will either have to work until he dies or move in with kids.
Both of these stories are sad and unnecessary. On a dentist’s income, you shouldn’t have to work past age 60 if you play your finances right. First you may have to make some changes to make more money. You may have to move to a different state, or be an owner of a practice or both. Avoiding lifestyle inflation is a must. You will have to have a budget and a written financial plan. However, if you do all of these things, you will be financially successful.
For other resources, the Physician of Fire has a great post that gives hypothetical situations of what can happen if you do or don’t give in to lifestyle inflation. Read it here.
I encourage everyone reading this to avoid lifestyle inflation, pay down debt very aggressively, become financially literate and have a written financial plan and save at least 20-25% of your income. If you do, you will be able to
retire become financially independent and have work be optional someday.
-Debt Free DDS
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*Nothing on my website is professional or legal advice. I am only sharing information that I have learned and it may or may not be accurate. I am not liable for any problems you may have by following this advice. Please do further research and get professional and/or legal advice about any of these topics. This post likely contains affiliate links. This site could be paid for clicks or purchases made through these links.