Don’t Let the Big Income Fool You

My recent article for the Ohio Pharmacists Association New Practitioner eXperience (NPX) Newsletter is all about trying to avoid being fooled by the big income pharmacists are blessed to have.  

Here’s an excerpt from that article:

According to the 2015 Salary Survey conducted by the Ohio Pharmacists Association, the average yearly salary for a pharmacist in Ohio is $121,388. In comparison, the median household income in Ohio between 2009-2013 was $48,308.

It is tempting for us to be lulled into the comfort of an income that is more than 2x the median household income. We worked hard to obtain that degree and should enjoy that income, right? Yes, of course we should enjoy the blessing we have been given but we also have a responsibility to manage that income wisely. It can be easy to become complacent with a six figure salary where your expenses slowly rise while time is ticking away with little to no progress made on other important financial goals such as eliminating debt, saving for retirement and having the ability to help others through giving.

Almost 1/5 (19%) of Americans spend more than they earn and 3/10 adults don’t save any portion of their household income for retirement. We, as a culture, often spend too much and don’t save enough. The result? Feeling like we are living paycheck to paycheck despite having a six-figure income.

The good news is that for pharmacists we have the hard part taken care of (the good income) and now we need to make sure we are doing the dirty work to manage the expenses side so we can win financially in the long run.

Here are three tips to help you on your journey to achieve financial freedom.

#1 – Get out of non-mortgage debt as soon as possible.

Getting completely out of debt is the ultimate goal, however, here I am specifically talking about non-mortgage debt. For pharmacists, the largest area in this bucket is likely to be student loans. According to the 2014 National Pharmacist Workforce Study, pharmacists within five years of graduation carry an average debt load of the $108,000. In 2004, that figure was just $42,000. A six-figure debt coming out of school is A LOT of debt.

There are two main reasons why I am a proponent of paying off debt as soon as possible coming out of school rather than making payments over 10+ years. First, you gain some momentum with early financial wins that will give you some breathing room and empower you that you can succeed long term with your personal finances. Second, it often forces you to get serious about making a budget to avoid adjusting your lifestyle up too much when you take that first job. What does minimum payments do for you on your student loans? For someone that isn’t disciplined, it may give him or her the impression they have more room in their monthly budget than they actually do if they were paying these loans off faster. The result? Often living up to a higher income by making a significant home purchase, buying nice cars, clothes, etc. because there is more cash flow ‘available’ on a month to month basis. There is nothing is wrong with enjoying some of your income but I’m convinced that the lifestyle you maintain in your first 5-7 years out of graduation will be close to the lifestyle you maintain in the long run. Therefore, if you make a commitment to pay off loans faster, you will be more likely to set a budget and keep your expenses down over the long run.

If you have low interest non-mortgage debt (e.g., student loan at 3%, car loan at 2%, etc.), there can be an argument made to pay minimum amounts on those loans to also focus on saving for retirement where you may have a higher return on your investments. However, if you, like I did, have many high interest rate loans (6-7%), I don’t think that argument carries much weight and would urge you to focus on getting out of debt before focusing heavily on achieving other financial goals (e.g., retirement savings, buying your dream house, etc.)

Why all the fuss about getting rid of debt? If not managed properly, it can hinder your ability to save for the future and give you the feeling of not making much momentum towards achieving your financial goals. For example, according to the 2015 Consumer Financial Literacy Survey, 58% of those paying off their own student loans or children’s loans noted being unable to establish emergency or retirement savings or purchase a car due to the financial commitment those loans required.

Read the rest here and then come back to this post and comment!

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