By Josh Lantz, CRPC® and Katherine Vessenes, JD, CFP®, RFC
What if there was a way you could pay down your debt faster, jump start your retirement savings, or put your kids through private school?
How soon would you want to know about it? Right away, of course!
In today’s gig economy all of those things are possible, and doctors are in a great position to take advantage of these opportunities. However, most doctors are unaware of the power of the gig economy. Never has there been a time like this with so many ways for doctors to make extra income.
For those of you not familiar with the term, the gig economy is the environment where short- term, independent employment is readily available. Think side income or independent contractor. Some call it the “side hustle."
Before we get into the many side gig options for doctors, we need to start with a very important, and we’ll even go as far to say life changing, question: what is your hourly rate? How much is your time and expertise worth on an hourly basis?
What is your hourly rate?
Okay, maybe it doesn’t seem that life changing, but hear us out. Do you know your number? Most doctors wouldn’t top of mind. Some of you might start pulling out your smart phone to calculate your rate. The question isn’t can you calculate the rate; the question is do you know it.
The difference matters. A doctor who knows their hourly rate top of mind can make completely different decisions than a doctor who does not. These decisions impact all of your purchases and your financial choices—in fact they impact every area of your financial life.
Let’s say for example you make $300,000 per year and work 40 hours a week with 4 weeks off each year. Take $300,000 dollars divided by 40 hours x 48 weeks for an hourly rate of $156.25 per hour. Then take that number less your effective tax rate. In this case $156.25 less 30% for a total of $109.38 per hour.
What is a smart trade?
Say you’re trying to make a decision about whether to hire someone to mow your lawn or to do it yourself. The teen down the street offers to mow your lawn for $25 dollars and it will take him one hour.
If you didn’t live in a gig economy, you might decide to save some money by mowing the lawn yourself, thinking you are saving $25. But in fact, it actually costs you $84.38 to mow your own lawn. If you worked that hour, and earned $109.38, and used $25 of that earning to pay for the mowing, you would be ahead $84.38. If you mow the lawn yourself, you save only $25.
The good news: there are many different ways doctors can work an extra hour instead of breaking a sweat and smelling like lawn clippings afterwards.
In other words, if you can work another hour and receive $109.38 dollars instead of mowing the lawn and it only saves you $25 dollars, do you take that trade?
Now you might be thinking this seems pretty basic, but have you thought through all of the things in your life that can be outsourced for less than your hourly rate? Most doctors have not.
What can you delegate to free up your time?
Here’s a few common examples of things doctors can delegate:
· Lawn care
· Home Cleaning
· Financial Planning
· Tax preparation
· Investment Management
· Automobile maintenance
· Home repair
· Grocery shopping
· Dog walking
Of course, you might enjoy walking your dog and cooking dinner, but that’s not the point. The point is how do you make extra income to pay off your debts faster, jump start retirement savings, or accomplish something else financially that you’ve been hoping for.
Added benefit of lower taxes
Most side gigs are done as an independent contractor. This simply means you receive self-employment income where the taxes are not withheld as 1099 contractor. This is different than the W2 income you receive as an employee, where your taxes are deducted from your pay check.
Many doctors are somewhat hesitant to receive this type of income because it makes your taxes more complicated. They might be concerned about whether they should incorporate. They also might be concerned about how to file their taxes. What you should know, while these things are important, they are easy to do with the help of a professional. If you have questions about them, please let us know and we’ll help you out on what to do.
Under the new tax code, this independent contractor income is frequently taxed less than your employee income. Congress has created a new 20% deduction for qualified business income. This means, in many cases, 20% of your side income is tax free! While the details of how this new deduction works is beyond the scope of this article, just know that you’d likely pay less taxes on contractor income than employee income, and in some cases, all the income could be tax free.
Side gigs for doctors
You may be wondering what your options are for extra income. Here are some common examples of side gigs for doctors:
· Locum work/moonlighting
· Author a book
· Create a medical smartphone app
· Medical Consulting
· CME content writer/teacher
· Online education for MCAT prep courses
· Medical directorships at nursing homes or medical spas
· Health and wellness blogging
· Disability Insurance Reviews
· Health Insurance Reviews
· Urgent care shifts
· Expert witness
Applying the Math to Your Situation
Now going back to where this started. Let’s say you’d like to pay off debt sooner, jump start retirement savings, or accomplish another financial goal.
Look at the activities that you are currently doing which could be delegated to free up your time. What in your life could someone else do for you that could free you up to do what you are really good at like practicing medicine or dentistry?
Once you have a tally of how many hours that would free up, next find a side gig that fits in your schedule and that you’d enjoy.
We’ve seen this represent $10,000 to $100,000 of extra income for doctors. That’s money that you wouldn’t have had otherwise. Even one extra shift per month brings in $1,200 to $2,000 for many of our clients.
If you would like some help sorting through your hourly rate, what you can delegate, the tax consequences and making the most of the gig economy, please let us know. We are here to help! For our existing clients, send us an email and we will tackle these topics in our next meeting.
If you are a doctor who is looking for help, we would be delighted to meet you, too. Please know we never charge for an initial meeting. We just see it as a chance to get to know you and answer any questions you may have.
Feel free to contact us at: 888-256-6855, or email us at email@example.com
Josh Lantz, CRPC® is a Chief Investment Officer (CIO) and advisor at MD Financial working with hundreds of doctors across the country to plan, prosper, and protect their wealth. He can be reached at Josh@mdfinancialadvisors.com. Katherine Vessenes, JD, CFP®, RFC is founder of MD Financial, a concierge financial planning and wealth management firm for physicians and dentists across the country. She can be reached at 952-388-6317 or Katherine@mdfinancialadvisors.com.