Build Wealth for a Lifetime with Thrift

SEPTEMBER 16, 2008
Robert M. Doroghazi

If you are looking for a magical formula to get rich, this article will disappoint you. If you are looking for a glamorous investment, this article will terribly disappoint you. If you appreciate commonsense practical advice that is almost guaranteed to build wealth, then read on.

Investing is a three-step process. First you must make money. Then you must not spend it. Only then do you have money to invest. It is only through thrift that you will ever have any capital for investment. Therefore, the most important factor in building wealth is thrift.

Save to Invest More

Thrift is the variable over which you have the most control. You could try to increase your income to generate more investment capital. In a practical sense, unless you change jobs or accept a significant change in your lifestyle (eg, see more patients or take more calls), it would be difficult or impossible to increase your income. You can increase your wealth by increasing the return on your investment. This should certainly be one of your long-term goals, but it requires very hard work over several years.

The best investors are the best savers. Say a physician saves and then invests $15,000. They receive a 10% return and have $16,500 at the end of the first year. Say another physician is less thrifty with their money and saves only $10,000, but hits an investment grand slam and realizes a 25% return. At the end of the first year, they have $12,500. It is almost impossible for even world-class investing to overcome poor saving habits.

How much should you save? Until recently, the average American saved 10% of their income. I think a physician-in-training should save 20%, with the goal of having a 20% down payment for a home. An established physician making a solid six-figure income should be able to save at least one third, preferably one half, of their after-tax income. I did it, so I know it is possible.

Ignore Social Pressure

How much you spend can be changed both drastically and instantaneously. You can spend less—much less—starting right now, today. Yet arrogance and ego are in constant conflict with thrift. An especially vulnerable time in a physician's financial life is when they complete training and go into practice. Income can quadruple in an instant. Things that were previously only a dream suddenly become a necessity.

This situation can be further complicated by social pressure. Some people feel that a physician should live in a home, drive a car, and wear a suit or watch commensurate with their status and position. I prefer to impress people with my character, my accomplishments, or my charitable donations rather than the home I live in or the car I drive. Are people who judge you only by how you dress really worthy of your respect?

If there is only one lesson you learn here, I suggest the following. If you can say, "This is too expensive, I cannot afford this," you have taken the first step toward a lifetime of financial security.

Robert M. Doroghazi, MD, FACC, graduated from the University of Chicago, Ptizker School of Medicine, and completed his medical internship and residency at the Massachusetts General Hospital. He retired last year after 23 years of practice with the Missouri Cardiovascular Specialists in Columbia, Mo. He authored The Physician's Guide to Investing, A Practical Approach to Building Wealth (Humana Press; 2005). This book can be purchased at Many of the themes for this article are taken from the work of James Turk, who writes for the Freemarket Gold & Money Report.

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