financial planning for doctors

Shattering the Doctor Car Illusion

Depending on the stage of your medical career, buy an affordable and reliable car that helps you get to where you need to go. Buying a high status doctor’s car has significant opportunity costs and can burden you with more loans and stand in the way of achieving other financial goals.

Arundhati Sampath

— 6 min read
Shattering the Doctor Car Illusion

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Defining the Doctor Car Perception

It is a common perception that doctors must drive an expensive car to exude success and show that they have ‘arrived’.  Cars are a marker of status and what better way to showcase one’s success in one’s chosen profession than drive a BMW, Mercedes or an Audi?

But are expensive new cars the best option for your finances? Does the perceived status of driving a fancy doctor’s car compensate for the many disadvantages of buying an expensive car, especially before getting your finances in tip-top shape?

Why Luxury Wheels Can Hurt Your Wallet

Many doctors start their careers in their late 20s after 8-10 years of a medical education, later than most other professions. New doctors often graduate with about $200,000 of medical school loans. In addition, doctors also have other important financial goals such as buying a home, saving up for retirement and building an emergency fund.    

Opportunity Cost

High end or luxury cars can cost anywhere from $40,000 to well over $100,000. However tempting as it may be to buy one of these, there is a huge opportunity cost to consider.

  • Opportunity cost 1 - Pay down student loans: For example, look at the calculation below.  Let us say you used the $40,000 you might put towards a luxury car to pay off a 100K student loan. It would save you $22.7K in interest payments and help you pay off a 15-year loan in 8 years, in almost half the time. (assuming a 4% interest rate).
  • Opportunity cost 2 - Invest the money: If you put this money in stocks, you would generate a 5-year return of $16K, assuming a 7% annual return.

There may therefore be better uses for your money than buying a luxury car before other savings or debt repayment goals have been accomplished.

Car Loans Can Add to Your Debt Burden

Buying an expensive car adds to your debt (if you take out a loan) and depletes cash that can be used for other purposes. 

Let us look at a scenario where a doctor with a $200K student loan is considering an additional car loan for a $40K vehicle. 

  • Car loan payments of $700: A 5-year car loan of $40,000 can add $737 to your monthly loan payments (at a 4% interest rate).
  • Student loan payments of $1400: A 15-year student loan of $200,000 can come with monthly payments of at least $1400.
  • Total loan payments of $2100: This means at least $2100 in monthly payments if you have both a car and student loan, which is a substantial debt burden. 

On the other hand, if you are a car enthusiast and you have paid off your loans and  your finances are in great shape, you could splurge on a more expensive car. But if cars are not your thing, it still may not be worth splurging on, even if your finances are good.  

High Total Cost of Ownership

  • Price of car: The most obvious cost of car ownership is the price you pay to acquire the car.  
  • Financing cost: If you take out a loan, you will pay interest on an already expensive car. There may also be other financing charges that the lender or dealer may charge.  
  • Maintenance & Fuel Efficiency:  At a minimum, car maintenance can cost at least $5000 over a 10-year period. Some car brands are more reliable and come with lower maintenance costs. Some of the more expensive cars cost more in maintenance as well. Do your research and identify good quality cars with low maintenance costs.
  • Depreciation: It is common for people to overlook depreciation when evaluating cost of car ownership. However, new cars typically lose 20% of their value in the first year and 15% per year afterwards. Therefore, be sure to factor in depreciation to the cost of the car.

Given all these financial drawbacks, how should a physician think about car buying?

Practical Car-Buying Guidance for Physicians: Doctor Cars at Every Career Stage

It helps to put car buying in the context of the stage you are in your career and the current shape of your finances.

Early-Career Physicians

Doctors tend to have high student loans when they are early in their careers. At this stage, they typically also have low savings levels and a low net worth. Many early-career physicians feel social pressure to adopt ‘doctor cars’ that signal prestige, yet often overlook the burden of added debt.

How to think about car buying for early career doctors

  • Buy a safe and reliable but inexpensive car at an earlier stage in your career. In fact, it is better to buy a used car in good condition. 
  • Here are some cars that are $5000 or less, including fuel-efficient Toyotas and Hondas from 2007 onwards.

Mid-Career Physicians 

As you reach mid-career, you have now paid off some of your loans, and are on track for achieving some of your main financial goals. You now have more savings and your net worth is building up nicely.

How to think about car buying for mid-career doctors

You might be able to spend a bit more on cars at this stage without going overboard. If you really want a new car, you might consider an affordable, fuel efficient car with relatively lower maintenance costs. Alternatively, it is worthwhile looking at gently used cars.

  • For example a 2015 Toyota Prius 5-D hatchback with an original MSRP of $31,000 costs $14,643. 
  • A Honda Accord EX-L Coupe 2D with an original MSRP of $29,729 costs $10,706.

Later-Career Physicians

At this stage, you have paid off most or even all of your student loans and have hopefully accumulated a high net worth.

How to think about car buying for mid-career doctors

  • Are you a car aficionado? If you are a car aficionado and this is really important to you, it may actually make sense to go for a more expensive car.
  • Alternative ways to splurge: However you may also consider alternative ways to enjoy your money – perhaps you want to use your wealth to splurge on travel or focus on interesting hobbies. 
  • Be intentional about car-buying: The important thing is to make a very intentional decision here and not buy an expensive car simply because that is what is expected of a successful doctor.

How to Buy an Affordable Car

Option 1: Buy a reliable used car

You can look up online marketplaces to find used cars that fit within your budget and match your criteria. There are car specific marketplaces such as Autolist or Autotrader. You can even buy from marketplaces such as Craigslist or Facebook Marketplace. But in these cases make sure to hire your own experienced mechanic to give the car a once-over and ensure that it meets safety and reliability standards.  Once you have completed a lot of your research, get quotes from multiple car dealers and prepare to negotiate extensively. You can also buy online from sites such as Carmax or Carvana. 

You should look up the market pricing of the car you are considering in Kelly Blue book or Edmunds. This will tell you if you are being quoted a higher price than the market prices. You should also look up the vehicle history report to look at data such as its prior ownership, title, mileage and accidents. 

If you want to make sure you are getting a good quality used car, you can buy a Certified Pre-Owned (CPO) vehicle. These are cars that have been inspected and repaired to match the manufacturer’s quality standards and come with a manufacturer-backed warranty.

Option 2: Buy an affordable new car

Find a reasonably priced car in your price range with good safety and reliability, fuel economy and interiors that fit your needs. Carefully scrutinize any extras that the dealership may charge you to ensure whether you really need these. Try to pay with cash if possible. Not only will you save on interest charges but there are also financing charges that dealerships may apply to make money off of you.

Conclusion

Buying a high status doctor’s car has significant opportunity costs and can burden you with more loans and stand in the way of achieving other financial goals. Depending on the stage of your career as a doctor, buy an affordable and reliable car that helps you get to where you need to go. Focus on paying off loans and getting your finances in shape before splurging on an expensive car. 

At Planwell, we are building a fully automated AI financial planner and advisor to help you make super personalized financial decisions such as how much house you can afford, while considering your lifestyle, retirement goals and other key factors. 

We will be launching the product very soon. Stay tuned for an update. In the meantime, check out our blog posts to help you plan your finances.

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