The Story of Denis Diderot and Physician Wealth

Author: This article was written by Dr. Jimmy Turner, Founder of Money Meets Medicine and author of The Physician Philosopher’s Guide to Personal Finance.

Many people outside medicine wonder, “How much money do doctors make?”  It’s a common question inside of medicine, too, where physicians search out data (e.g. MGMA) to try to find out how much their colleagues are making. It is easy to be enamored with the question.

Yet, I always find this question interesting. Why do we spend so much time wondering how much income doctors make? Instead, a better focus might be on the disparity between wealth and income. Don’t worry, though. We can still look into how much doctors make, but then we will talk about why it doesn’t matter for most physicians.

How Much Money Do Doctors Make?

Let’s dig in as we discuss physician incomes, our debt burden, and the personal finance failures that often lead to a high-earning physician living paycheck to paycheck. In a self-reported survey from Medscape of more than 7,000 physicians and 29+ specialties, doctors were asked how much money they make annually.

Here is the answer:

Source: Medscape Physician Compensation Report July 2024:Bigger Checks, Yet Doctors Still See an Underpaid Profession

On average, PCPs earn on average around $270,000 while specialists earn around $385,000. To most in medicine, this discrepancy is not surprising as most specialists perform procedures, which usually result in higher compensation.

Yet, despite this high income as it relates to the average Jane or Joe, more than 60% of physicians think they are underpaid. This could be a result of increasing executive compensation that seems astronomical compared to the rise in physician compensation. It could be due to a rise in inflation and a resulting feeling that our money doesn’t stretch as far as it used to in prior years.

Regardless, physicians are high-earners. Yet, despite this, physician wealth is surprisingly low compared to our high net worth. This is because wealth and income are not the same.

Wealth and Income

I commonly ask audiences when I provide lectures, “What does it mean to be wealthy?”  Usually, people respond with income thresholds (e.g. “Someone who makes more than $150,000”). The best surrogate for wealth is Net Worth. Said differently, Wealth = Assets – Debts.

This misunderstanding can be seen in the data. When we look at physicians’ net worth, doctors are not as wealthy as their multiple six-figure numbers might suggest. A case in point is that despite a high income, one survey showed that 61% of physicians had less than $2 million in net worth (including their home’s net worth), and 40% had less than $1 million.

But wait! How old were these doctors? The answer is that 57% were over the age of 50, yet only 39% had a net worth of $2 million or more. This may seem adequate, yet a $2 million portfolio would only provide $80,000 per year in retirement assuming a traditional 4% withdrawal rate.

In order to understand how this happens, we need to discuss a man named Denis Diderot.

The Diderot Effect

Denis Diderot was a well-known French philosopher and author in the 1700s. Despite his fame, Diderot was on the brink of poverty. It was at this time that Catherine the Great, the Russian empress and lover of books, heard of Diderot’s plight. Having a soft spot for authors, she bought all of his works.

With a daughter who was soon to be married, Diderot was over the moon. Now, he could afford to give his daughter the wedding she deserved. Yet, Catherine the Great didn’t just provide money.  She also gifted Diderot a scarlet robe.

This scarlet robe would serve as a Trojan horse in Diderot’s financial life.

As he looked at himself in the mirror wearing a robe befitting a prince, he noticed the remainder of his surroundings. His furniture was now out of place. Someone who owned a scarlet robe could not sit on such lowly chairs. The old rug was inadequate, too. The feet of someone wearing a scarlet robe should walk only on a rug from Damascus!

In short order, Diderot became suddenly wealthy, and just as suddenly he went broke. This is why the experience of experiencing financial ruin after a sudden rise in available funds is now known as the Diderot Effect. It is a psychological phenomenon that explains why most lottery winners go broke. And how Shaq spent $1 million of his signing bonus in a single day.

Physicians are human and, therefore, are just as inclined as professional athletes and entertainers to experience the Diderot Effect when they experience a sudden jump in income following training. Yet, this is only part of the disparity between income and net worth.

Money is Simple, But It Isn’t Easy

In truth, personal finance is simple. Here are the steps:

1. Earn a decent paycheck (all doctors make good money as shown above).
2. Protect your income through own-occupation disability insurance until you are financially independent.
3. Spend less money than you make.
4. Use the difference between your income and spending to invest toward your financial goals.

Despite the simplicity of the four steps outlined above, personal finance is NOT easy. In fact, it is really hard.

The reason isn’t the complex math, it is the behavioral finance behind it all that makes it difficult to do the right thing with our money.  Even lower-income-earning physicians can be wealthy if they know how.

Doing the Right Thing Isn’t Easy

One of the problems for physicians is that we feel we deserve to spend the money we worked so hard to earn.  After all, many of us spent our twenties missing weddings, funerals, and vacations to create our careers.

Spending is just part of the story. In addition to spending habits, doctors start behind the eight-ball by waiting until our 30s at the earliest to earn our first attending paycheck, and have the ability to start investing or paying down the average $200,000 in student loan debt more than 75% of doctors carry.

With a net worth that is often $300,000 less than a newborn baby without a penny to her name, you’d think this group of people would aggressively pay down their debt. Instead, we use that big paycheck like Denis Diderot to buy even more debt in a house, cars, private school for the kids, and designer gadgets and gizmos.

It turns out that spending less money than we make is not as easy at it seems.  We all know that we should do these things, yet we don’t. It’s part of being human to know what we ought to do, and then to fail to do it.

Behavioral Finance Matters

This is why behavioral finance matters. We have to get the number one enemy – ourselves – out of the way.  Here are 5 practical steps to get started on that journey:

1. Spend some time thinking and talking with loved ones about how you would design your ideal life.  If you don’t know how, then use The 3 Kinder Questions.
2. Protect your #1 asset when you are young, your income.
3. Figure out how much money you need to save annually to live the life you designed in step (1).
4. Automate your investing so that you are saving as much as you need to be financially independent by the age you want. Fill up your tax-advantaged space first (401K, 403B, governmental 457, HSA, backdoor Roth IRA, etc).  Send any remaining money you need to save to get to your goal in a taxable account.
5. Spend every other dime with zero regret. Let your inner Denis Diderot go wild!

Following the steps above will get you to your goals.  And, if you automate your savings, then you will never see the paycheck in your bank account. This prevents the temptation to spend it all like Diderot until all of your goals are intentionally accomplished first.

Not only does this get you out of your own way to save what needs to be saved, but it also helps you realize how much money you have to live on after your financial goals are met first.