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You have finally completed your training and are now practicing as a physician, dentist or veterinarian. Congratulations! Your years of hard work in school and training are finally paying off — literally.
Receiving a substantial paycheck after years of less income can be very exciting, but this significant jump in pay can come with challenges. Lifestyle creep is one of these challenges.
What is lifestyle creep?
The term “lifestyle creep” refers to increased spending as a result of increased income. As one earns more money, there is a tendency to spend money on more or nicer things without realizing how these expenses add up.
This behavior can ramp up gradually until you are spending more than you can afford. Though spending your hard-earned money can feel rewarding, letting it become out of control can have detrimental effects on your financial health and long-term goals.
Why is lifestyle creep common for doctors?
Sudden income increase
Doctors have unique financial life cycles because of their lengthy education and training. These are periods of low or no pay — the average medical resident pay was just over $59,000 in 2021 — but once completed, their income can increase by two or three times — the average physician salary was $208,000 in 2020.
Lack of financial knowledge
Doctors spend years in training, yet often receive very little financial training. According to a study published by American Journal of Perinatology, more than 90% of resident physicians feel that they are unable to handle their finances.
This lack of knowledge means many doctors enter their careers with no idea what to do with their substantial paycheck. Young professionals with low financial literacy may put off saving for retirement or long-term goals because they feel these milestones are a long way off.
Despite the hindrances that lack of knowledge may bring, it is never too late to learn personal finance principles and strategies that can improve your quality of life.
How to avoid lifestyle creep
Lifestyle creep can be an easy trap to fall into, especially as a new doctor, but that doesn’t mean it is inevitable. Creating a plan and sticking to it can help you spend more consciously. Here are some strategies that may work for you:
- Create a monthly budget. A budget is a basic but invaluable tool when improving your financial management. Consider using the 50/30/20 rule where 50% of your income goes to necessities, 30% goes to savings and/or debt repayment, and 20% goes to discretionary spending.
- Look at your expenses. Some individuals who experience lifestyle creep do not see the effects of this risky behavior because they just aren’t looking at their finances. Taking a look at the things you regularly spend or splurge on can help you find areas that could be cut back on and help you get in a better financial situation.
- Consider your debt. Many doctors begin their careers with high debt loads, which they can be paying off years, even decades, after the end of their training. Some doctors elect to tackle this burden aggressively, while others pay it off slowly. Determine what strategy works best for you and make a plan for paying it off.
- Set long-term goals. Especially early in practice, it can be easy to focus on immediate satisfaction, but don’t forget to make a plan for the long-term. Need an emergency fund? Want to purchase a new car? These are all things we recommend you start planning for now.
- Automate your savings and investments. Doctors are busy as it is, and it can be easy to forget to stick to your goals. Setting up automatic transfers to your savings and investments can help you reduce your spending, while setting you up for success in the future without any extra stress on you.
Managing your personal finances
If you have found yourself spending more than you should, you are able to take control of your situation at any moment! Our recommended steps can help you get your spending under control, but a financial advisor can give you clear guidance that caters to your unique situation.
If a financial advisor could help you get on the right track, our Build Your Team program can get you connected to a trusted expert completely for free! Visit our Build Your Team page to learn more.
For other personal finance tips, visit our Resources page or check out one of our curated articles below:
