The Best Side Gig Is Spending Less – The White Coat Investor – Investing & Personal Finance for Doctors

I am amazed at how many physicians are excited at starting a side gig. Considering how high their income is already, it’s a little odd how much they are focused on increasing it, especially if the side income is even slightly more passive than their clinical job. There are entire blogs and large Facebook Groups dedicated to this subject and there is significant ongoing interest about the topic from many of this blog’s readers.

I’m hardly in a position to be critical, given that my “side gig” pays much better than my clinical income. In fact, maybe my side gig is partially responsible for this phenomenon! There is no doubt that it is easier to pay off debt, build wealth, and reach financial independence on a higher income.

Nevertheless, I think some pushback on this idea is appropriate. So let’s do that today with…

5 Reasons Why Spending Less Beats Earning More

It’s a bold assertion, but I think you’ll see the wisdom here, especially for someone who is already in the top 1-5% of earners.

# 1 More Free Time

It turns out there is no such thing as a truly passive side gig. It’s going to take some work, sometimes far more than you might think. In fact, most side gigs pay worse than a physician income! So you’re actually lowering your average hourly rate by engaging in a side gig. If you don’t bother with the side gig, you can use that free time to do whatever you want and many of those things may make you happier than working more. Of course, if you use that free time to go shopping or on expensive vacations, maybe you would have been better off starting a side gig instead!

# 2 A Penny Saved is Two Pennies Earned

I don’t know about you, but my marginal tax rate is 45.8% (okay, maybe about 45% since half of Medicare tax is deductible.) If I save one more dollar, I have $1 to spend. If I earn one more dollar, I have 55 cents to spend. It’s just math. If you’re already a high earner, you likely also have a high marginal tax rate.

But wait! There’s more. As your income goes up, you may even move into the next tax bracket where that additional income is taxed at even a higher rate thanks to our progressive tax system. You may also bump yourself out of some of the phaseout ranges and lose those tax breaks.

If you’re saving more, you’re likely putting at least some of that into tax-protected accounts like a 401(k) that come with further tax deductions. Maybe now your $1 saved is worth $1.45! Which is better, $0.55 or $1.45? I’ll let you decide, but if you multiply it out by $10,000, (i.e. $5,500 vs $14,500) it might make it a little easier decision.

# 3 Tithing Functions Just Like a Tax

If you’re a tithe-payer who pays on your gross income, you can tack that 10% right on to your marginal tax rate. Now instead of a 45% marginal tax rate, maybe you have a 55% marginal tax/tithing rate! (Okay, okay, you can probably deduct that contribution so it really only increases your marginal rate to 51% or so.)

# 4 You Buy Less

If you earn less and save more, you are likely buying less stuff. That means you get to spend less time, energy, and money buying, maintaining, and storing stuff. Buying less is also better for the planet. You want a simpler life, less clutter, and less guilt? Take up the classic side gig of spending less.

# 5 No False Starts

Lots of doctors try side gig after side gig. Let’s be honest, most of these flame out. Maybe it was doing insurance exams or medico-legal work. Maybe it was starting a for-profit blog or podcast. Yes, this blog has been successful, but I can list the bloggers I know with a six-figure blogging income on one hand. Maybe it was doing stump removal. I have no idea, but most new businesses fail. Save yourself the time, aggravation, and money by not even starting.

As a doctor or other high-income professional, you’ve already done very well in the income game. Before you try to generate more offense, at least take a quick look at the defensive side of the game and plug the holes in the dam. (How’s that for a mixed metaphor?)

 

 

What do you think? Which is better, generating more income or spending less? How does that change for a high-earner? Comment below!