Something I have been considering is for someone planning on living a MMM lifestyle (basically spending well below what they make), I'm curious what the actual financial benefit of becoming a doctor is.
What assumptions should I use? I was thinking of comparing it to engineering, so something like:
- Spending of $25k/person/year
- Engineer starts at 60k, with 3% raises per year on average
- Medical debt of $200k after residency
- No student loans for undergrad for either
- 4 years of medical school followed by 4 years residency (making $50k/year)
I'm not sure what all there is reasonable. Ignoring inflation, investment compounding, and taxes for simple math. Also how do most med students pay their way for living expenses in med school? Not really sure how to calculate that. Is it common to take loans for that?
By the end of year 8, the engineer has made a total of around $600k in income. Engineer has spent a total of $200k which results in approximately a MMM $400k pretax net worth. Doctor has made $200k in residency, $200k in medical debt, and another $200k in living expenses, for a total of -$200k pretax net worth.
This puts the doctor/engineer at a $600k difference on Day 1 of the doctors career. Engineer is now making around $75k a year and we can pretend they never get a raise indefinitely. If the doctor makes $175k, using the basic assumptions (now is where ignoring taxes causes a lot of problem... oops), they will tie the engineer after 6 years post-residency, so at around age 35, their net worth will be the same then.
However, engineers net worth is $400k+6*(75k-25k) or around $700k already, which on $25k spending is 28x expenses, so they already could have FIREd.
----
The above is fairly crude math, how can I make it more accurate? One of the main problems is ignoring compounding - not a
huge deal for 4-8 years timeline but for 14+ it becomes a bigger factor. Ignoring taxes is fairly minor for the engineer (who with IRA/401k will only have a maximum taxable income of $51.5k, assuming single) but becomes a problem with the doctors much larger income. Clearly making $175k and spending $25k doesn't result in a net savings of $150k :-)
I'm also ignoring the per/hour earnings. I suspect most med students, residents, and doctors work considerably more hours/week on average than most engineers. Inflation can be ignored so long as all other calculations ignore it. I added some raises to the engineer early to signify early career growth (NOT inflation).
My eventual goal would be to convert all those assumptions into a formula you can input those assumptions and then spit out the "break even" age of the doctor/engineer (or whatever other career you prefer).