Large income doesn’t always result in greater wealth

Meet the doctors: Dr. Emily Carter and Dr. Carlos Martinez.

Dr. Carter is a primary care doctor, and Dr. Martinez is an allergist. Both doctors are committed to their medical careers. Dr. Carter earns about $180,000 a year, while Dr. Martinez earns about $400,000 a year. However, Dr. Carter is taking a proactive approach to her financial security, thinking early on about taxes, investing, and time. Dr. Martinez is enjoying his larger income early in his career, saving a smaller amount relative to his income.

The power of saving and budgeting

Recognizing the significance of budgeting, Dr. Carter allocates 25% of her annual income to savings and investments, amounting to $45,000 annually. On the other hand, Dr. Martinez sets aside only 10% of his income, equivalent to $40,000 annually, for savings and investments.

Strategic investment allocation

Both doctors understand the significance of investing their savings to facilitate wealth accumulation. Dr. Carter commits to investing her $45,000 at the beginning of each year, while Dr. Martinez invests his $40,000 annually.

Assuming an average annual investment return of 8%, let’s examine the growth of their investments over a decade:

Dr. Carter’s Total Investment: $45,000 × 10 = $450,000

Dr. Martinez’s Total Investment: $40,000 × 10 = $400,000

Tax efficiency: Maximizing returns

Dr. Carter acknowledges the impact of taxes on investments and seeks tax-efficient avenues for her investments. This strategic approach helps her minimize tax liabilities. Meanwhile, Dr. Martinez, despite his higher income, doesn’t optimize his investments from a tax perspective, resulting in comparatively higher tax payments.

Bridging the gap: the magic of compound interest

At the ten-year mark, Dr. Carter’s total investment of $450,000 grew to approximately $874,822, with an average annual return of 8%. Dr. Martinez’s total investment of $400,000 has grown to approximately $735,603, under the same investment returns.

Although Dr. Martinez’s initial investment was smaller, Dr. Carter’s dedicated savings and tax-efficient strategies allowed her investments to flourish.

The acceleration phase

Here comes the turning point. Dr. Carter, with her disciplined approach and strategic investment mindset, decides to escalate her investment contributions. She increases her annual investment to $55,000 (30% of her income), while Dr. Martinez maintains his 10% investment rate.

Assuming the same 8% annual return, let’s examine the trajectory over the subsequent ten years:

Dr. Carter’s Total Investment (Years 11-20): $55,000 × 10 + $450,000 = $1,000,000

Dr. Martinez’s Total Investment (Years 11-20): $40,000 × 10 + $400,000 = $800,000

Income isn’t the sole determinant of financial success. Through calculated financial decisions, prudent investment choices, and tax optimization, Dr. Carter, a primary care physician, became wealthier than her specialist colleague, Dr. Martinez, despite the initial discrepancy in income.

Amarish Dave is a board-certified neurologist with over 20 years of experience in both neurology and active stock investing. In addition to his medical career, he holds a background in business from the University of Michigan and has successfully passed the SIE exam administered by FINRA. Dr. Dave is founder,, a website dedicated to educating doctors at all stages of their careers, ranging from residents to retirement, about financial planning.

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