Trapped by the Appearance of Wealth...

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How to handle it

When it comes to finances, everyone has three options: Continue to spend and hope to make enough money forever to make up for it; buck the trend with conspicuous nonspending; or find good financial advice and create a solid, sustainable plan for your money.

Continuing to spend with disregard to the new reality can have harsh consequences. Katz tells about a physician who called and said, “I have a problem.” He told Katz he is 60 years old and still has a $185,000 mortgage on his house. He’s paid for his kids’ educations and put his wife through graduate school, but he only has a small amount to retire on. His total net worth is only $1,200,000—enough—to keep him and his family going for five to eight years at their current spending levels and have nothing left. Unless something changes, he’s very likely going to outlive his cash. “You’ve got a problem, says Katz, “if you have high debt because you’re spending, spending, spending.”

Some people resist the urge to prove they are successful. They may even take delight in bucking the trend, like they are thumbing their noses at the Joneses. Dalgleish says that although there is pressure to appear a part of the group, there’s always a one person exception. “There’s always someone who sticks out like a sore thumb. They make a statement that ‘I don’t have to appear successful.’ If two people drive a Cadillac, and another drives a Volkswagen, there’s a certain silent statement by the one in the Volkswagen. It’s almost mocking them.”

Physicians shouldn’t have to choose between looking financially successful and actually being solvent, however. These tips enable anyone to both live well and manage money well:

Start by saving up a cash reserve. The first basic rule of financial planning, according to Oliver, is to be cash rich. Have enough money to cover three to six months of expenses in a money market or in certificates of deposit (CDs). Start building up cash reserves. Think of it this way: Be balance sheet rich, not just income statement rich. A balance sheet shows what you own; an income statement shows money coming in and going out. People who are just income statement rich are not really wealthy. They may look like they have a lot of money, but if the income flow ever stops, the party is over.

Don’t try to be a do-it-yourself investor and a doctor at the same time. The pressure to look smart and successful extends into the investing arena. Many doctors like to do their own investing. “They think they are smarter than their investment advisor,” Katz says. “This is unrealistic unless you have time to study the market and the world economy, the dollar, and which sector you’re in. There’s no way a doctor can follow all that. I don’t care how bright they are.” The deceptive thing is that every investor wins sometimes. They may even do better than the gurus occasionally. In a bull market, everyone is a genius.

Choose good financial advisors early and carefully. Oliver warns, “When you’re just out of medical school, you’re going to be a dream prospect for banks to give you loans. That doesn’t mean you need to get those loans. Everybody is going to try to sell you something. Watch out for insurance agents. They try to sell you policies that encompass all aspects of insurance and investing. It’s going to make the insurance agent a lot of money.” Insurance is good for insurance; investing should be another matter. Oliver says, “Physicians are very intelligent people, but when it comes to investing, they don’t have the time to research it. The best salesperson gets them to do things. Very scary.” A professional advisor who provides family financial planning on a fee basis, not on commission for selling product, is the best bet. Listening to that person will probably ensure that the physician will do well and have enough money for short-term and long-term goals.

The sooner a doctor finds a good advisor, the better. In Oliver’s experience, “I’ll get physicians that are in their 40s to 50s. I’ll look at their portfolios, and they make very good income. They make terrible investment choices. If I get them right out of medical school, they can make better choices.” If you are just starting in practice, Ramirez says, “Don’t spend your signing bonus on TVs and furniture.” His warning to medical students and those coming out of school: “Sit down with an accountant. Before you spend, ask what will this [anything that might be financed] will cost you including interest. Make smart decisions.”

Forget hot tips and concentrate on conservative investments. Some physicians are easily taken by hot stock picks or get-rich schemes. Oliver had a respected physician in his upper 30s tell him that he had invested $150,000 in something, but he wasn’t quite sure what it was. Now it’s worth zero. This was a sure-fire scheme, according to a friend. Oliver recommends that doctors focus on safe, conservative investments. A doctor’s biggest asset is his or her earning capacity. “Doctors don’t need aggressive investments; they should just be stacking away money, year by year.”

Make a plan with the help of an advisor, and learn to live with it. It’s not about deprivation. It’s about spending intentionally by planning ahead. It’s reasonable to go out to dinner, have good wine. You can even have a nice car, but the doctor who buys two Mercedes SUVs and lives in a $2 million house, as Katz points out, may one day wonder, “I worked so hard and I make so much money, I don’t understand where it all goes?” The physician who can just buck the trend and do without some of the trappings of success for five, 10, or 15 years can end up with a lot more money than the big spenders could ever want.

Live more contentedly—on less

Professional Coach Bonnie Schaller counseled a man whose credit was so maxed out that everything he owned was in hock. “I just remember the pressure he was under because of the disparity of how he was living and how much money he actually had. He felt like he had to keep the lifestyle going or he’d have to admit he wasn’t as successful as people thought.” Schaller, who is based in Kent, Washington, says it’s easy for doctors to wrap their identity up in their career and their money, especially after all they have invested in their training. They want to look and spend like an important person.

When Schaller counsels people, she asks them to get creative. “We talk about how all those things are rather shallow anyway, and could they be creative? Would it be OK in the crowd that they work with to be a minimalist? It’s kind of in vogue now to live that kind of environmentally friendly lifestyle.” For example, on one hand, riding your bike to work might be looked on as cheap; on the other, people see it as reducing carbon emissions. A doctor might start thinking of himself as more of a benefactor or as a person who cares about other people. That may turn out to be just as important. It comes down to defining one’s identity? What are the trappings of that?

Living a lifestyle a person can’t really support in the long term is stressful. Schaller sometimes has her clients read The Millionaire Next Door, (MJF Books, 2003), the bestseller that talks about wealthy people living a frugal vs. people deeply in debt with millionaire written all over their outward appearances. Schaller asks physicians to think which person he or she would rather be.

It’s not 1960 anymore. Giving in to the pressure to look successful has nothing to do with how good a doctor anyone is. Finding and following sound financial advice can spend your money can allow physicians to spend money on things that are the most meaningful to them—not things that impress other people. It’s possible to enjoy one’s earnings and still be far ahead of those who trade long-term financial security for the temporary appearance of success. n

Sally Herigstad is a freelance writer based in Washington.