Life of a Frugal Resident: Living like a Starving Artist in Hollywood

Our beautifully frugal life

Every day, my wife and I express some gratitude for everything wonderful in our life. We live in a fairly nice house. Thanks to my frugality, all of my student loans are paid off. My wife’s law school loans will hopefully be forgiven in a few years through public service loan forgiveness (if it still exists). We recently welcomed a healthy baby girl to the world. And luckily I am fortunate to make enough money to support our current lifestyle while she takes an extended maternity leave.

Life is good, and we are grateful.

Writing my last article was a nice trip down memory lane. It was fun to reminisce and think back to my days in residency. While residency was tough at times, I definitely had my fair share of fun.

Yes, life is great now, but I was living it up back then too.

True Hollywood story

I did anesthesiology residency in Los Angeles. It’s the city to see and be seen by some of the world’s most beautiful people. On top of that, the hospital I worked at is world-famous for its high-profile celebrity clientele. (And if you were wondering, the answer is yes, some of these celebrities were my patients.)

Where I lived and worked was literally at the epicenter of the entertainment industry– the intersection of Beverly Hills and West Hollywood. Almost everybody was flashy, including a lot of the residents and interns! The doctors’ parking lot was perpetually filled with fancy cars like Beamers, Benz, and Bentleys.

Yeah, it was pretty gnarly! Was I fascinated and seduced by the Hollywood lifestyle? Of course! I had a lot of fun.

But I didn’t party like a rockstar. At least not all the time. And I certainly didn’t live the lifestyle of the rich and famous. My time in residency was one of the best times of my life. Yet I still managed to be financially disciplined and relatively frugal.

Growing up frugal

Being frugal has always come naturally to me. This is partly because I was raised by frugal parents. Throughout childhood, my parents would tell me things like “Money doesn’t grow on trees, you have to work hard to earn it.” And when I did receive money for earning good grades, they would tell me “Save your money! Don’t spend it all in one place.”

Being a good kid, I listened to my parents. Lessons like these laid the foundation for me to develop good habits for financial responsibility.

After graduating from medical school, I was finally making some serious cash. My residency paid a salary of about $54,000, which was close to the average median income. That was more money than I had ever made. For seven years (undergraduate and medical school), I was earning an income of zero. And I was mired in student loan debt. I had a six figure negative net worth and my five figure salary was not significantly more than minimum wage (when considering the amount of hours I worked).

 

Being a frugal grownup

Sure, I had a negative net worth, but I wasn’t concerned. I knew that I would eventually make enough money to eliminate my student loan debt. And if only I could live like a resident once I become a full-fledged attending, I should be able to pay it off relatively quickly. But that’s after residency. I was determined to start chipping away at my debt even sooner during residency. I didn’t want to wait.

Tackling student loan debt can be a daunting task. But you have to start somewhere. And in my opinion, the earlier the better.

During residency, I managed to start paying off my student loans, contribute the maximum to my employer 403b and Roth IRA, AND maintain a savings rate of almost 50% of my gross salary.

Here are some of the things that I did.

Reduce housing costs by living with friends

Housing is often one of the biggest expenses during residency. And in many high cost of loving areas (HCOLA), housing seems prohibitively expensive.

Graduating from medical school and matching to a top residency is quite an accomplishment. But that doesn’t give you free reign to splurge on a luxury high-rise condo overlooking the city. Some of my colleagues did exactly this. But I didn’t. I was determined to find something affordable. One of the best ways to reduce the cost of housing is to live with someone and split the cost.

During orientation, I befriended one of my co-residents and proposed the idea of sharing a two bedroom apartment together. I thought it was a good idea since we both shared similar interests and had compatible personalities.

I got very lucky. Not only did I save on housing, I also made a new best friend to share the highs and lows of residency with. We are still the best of friends today.

Sharing the apartment was a great deal. We only paid $850 each, which is a steal in a place like Los Angeles.

Live close to work, reduce transportation costs, enjoy a nice walk

Our apartment was in an excellent location. It was right across the street from the hospital. Every day, I would literally roll out of bed, brush my teeth, and walk straight to the hospital. The close proximity completely eliminated the transportation cost of commuting to work.

Anybody who has ever lived in Los Angeles knows how much of a pain it is to drive anywhere. The traffic is horrendous. There is no rush hour. It’s more like a rush all day. Traffic is only reasonable between the hours of 8:30 P.M. and 5:30 A.M. It can literally take forty five minutes just to drive five miles. While it sounds like an exaggeration, it’s a fact that any resident of L.A. would readily verify.

Walking to work was such an enjoyable luxury. In addition to NOT sitting in traffic, I was taking a nice stroll in the California sunshine each day I walked to work. It was simply beautiful.

Oh yeah, and there were plenty of cool things to do within walking distance of our apartment. Some of the city’s hottest restaurants and bars were near by. So convenient!

Start paying off student loans as soon as you can

After the grace period ended, I started paying off my student loans immediately. I knew that if I chose to forbear paying off student loans, I would be responsible for paying the accrued interest during forbearance. This can add up to a lot in the long run, especially since my interest rates were relatively high (up to 6.8%).

Coming out of medical school, I had about $127,000 in student loan debt. I didn’t have a lot of money saved up so I chose to make graduated payments that started low, but increased every two years. During the first two years I made payments of $427 per month, most of which went to paying the interest. My take home income each month was about $2,600, so payments of $427 were doable and this allowed me to save a larger portion of my paycheck.

Moonlight for extra cash

When I became a third year resident, my salary had increased and I started moonlighting. The extra money I earned allowed me to afford my graduated payments which were then increased to $1,110 a month.

I stayed at the same hospital for fellowship and by that time, I was making even more money by moonlighting and hustling aggressively. That year, I made $120,000 which was almost twice my fellowship stipend. Through a lot of hard work and front-loading the sacrifice, I was able to lower my student loan debt balance to below $100,000 by the time I finished my fellowship.

It took me only three years of working as an attending to completely pay off my student loan debt. Truth be told, I probably could have done it in one year as an attending if I was extremely frugal. But life happens and all of a sudden you’re paying for a down payment on a house, a wedding, and a luxurious honeymoon. Hey, a guy’s gotta live you know. 🙂

Invest in retirement accounts early and minimize taxes

Starting with my first paycheck in residency, I made regular contributions to my employer-provided 403b account. With the exception of my first year, I was able to max out my contributions. By the end of residency, I had contributed a total of $75,000. Without adding additional contributions, this account now has a balance of $120,000 after several years. Ahh the magic of compounding interest and years of having a bull market.

I also saved enough money to contribute post-tax dollars to a Roth IRA every year since my first year in residency. Even though I am a high income earner, I am still able to indirectly contribute $5,500 to this account by converting “back door” contributions. This account is an important part of my retirement plans because Roth money is the most valuable dollars you can have.

Reduce food expenses

My food expenses during residency were very minimal for several reasons.

First of all, the hospital provided an allowance of $200 per month on our “meal card”, which we were able to use at the hospital restaurant and cafeteria. Since the hospital catered to high-end clientele, the food was actually pretty good. And it wasn’t expensive either. A decent meal was about $10. The meal card provided roughly twenty meals every month.

I also went to quite a few dinners hosted by pharmaceutical reps. I had no shame. Plus it’s not like I would have been influenced by the reps to prescribe their medications. (As an anesthesiology resident, I didn’t prescribe anything anyway.) Dinners were usually held at the finest michelin-star caliber restaurants in Los Angeles. Such establishments included Melisse, CUT, Morton’s Steakhouse, Lawry’s, The Bazaar by Jose Andres, STK, Mastro’s, Arroyo Chophouse, BOA Steakhouse, Katana, Il Cielo, Fogo De Chao, Matsuhisa, and many more. It’s kind of funny because I can’t see myself eating at any of those restaurants (mostly steakhouses) anymore due to my current lifestyle preferences.

Follow your nose

And finally, I took full advantage of the abundance of free food throughout the hospital. Every week there was a “grand rounds” that served catered food for lunch. Every morning there seemed to be a healthy supply of bagels and fruit at the anesthesia office. And you can always count on the nurses to throw various potluck parties for any celebratory occasion (birthdays, new hires, retirements, etc.). If all else fails, free food can usually be found in the doctor’s lounge.

While I lived like a starving artist in Hollywood, I obviously never starved. 😉

Enjoy free entertainment

Throughout residency, I was adept at finding free or cheap entertainment. This wasn’t particularly hard for me because there’s so much to do in Los Angeles.

Summers were the best times for entertainment. Especially for free outdoor concerts. I remember going to Twilight Concerts at Santa Monica Pier on Thursdays, then chilling at The Bungalow or The Huntley afterward. Other Thursdays, we would go to Yamashiro Farmer’s Market to enjoy some good food, fun drinks, and a spectacular view perched high up in the Hollywood hills. Sometimes we would go to downtown L.A. for the Art Walk and food truck scene. Thursday is a happening day in Los Angeles throughout the summer and fall.

On Fridays, we would check out Jazz Night at the LACMA. And on Saturdays, the Getty museum would be free AND there would be an outdoor concert with either a live band or a DJ spinning some fresh beats.

It’s not what you know, it’s who you know

Los Angeles often lives up to the phrase “It’s not what you know, it’s who you know.” Back in the day, I knew quite a few well-connected people who would get me and my friends into comedy clubs, movie premiere parties, and night clubs for free. I would also be invited by friends who would host lavish parties at their residences.

There were plenty of outdoor activities to do as well. Hiking Runyon Canyon in the Hollywood hills. Running along the strand in Manhattan Beach. Walking through Third Street Promenade or Abbot Kinney. And people watching at The Grove. It wasn’t hard for me to find something that was both fun and free.

Yes, Los Angeles has a lot of fun things to do. But there are free sources of entertainment in every city!

Getting free furniture and discounted stuff

Just like now, I rarely bought anything in residency. And I might have been even more extreme back then. For instance, I took a free mattress from a woman in my apartment complex. She was giving it away because she didn’t want the hassle of taking it with her as she moved out. She said she barely used it. The mattress was a Tempur-pedic and looked new. I took it in, placed a mattress cover and sheets on it, and it was good to go. Prior to that, I was sleeping on the same futon that I had during my college and med school days.

To complete my apartment decor, I had an eclectic collection of items. This included older furniture that my parents would have donated anyway, some folding tables that I used as a desk, and large old-school (CRT) 50 inch big screen TV that some other person in the apartment complex was giving away. So yeahhh, my apartment was not glamorous by any stretch of the imagination. But as the saying goes “One person’s junk is another person’s treasure.”

Buy clothes on sale or secondhand

I also didn’t buy a lot of clothing. When I did, I tried to buy clothes that were on sale or at a discounted price.

Just a few miles from where I lived was an “It’s a Wrap!” store, which is essentially a secondhand clothing store that sells actual wardrobe from movie and TV sets. A lot of the clothes were barely worn (if at all) and were discounted up to 80% of retail price. The store was really cool and I bought a few nice shirts at a great price. It was fun to wear clothes and wonder if some A-list celebrity had previously worn them.

How does it all add up?

Some of you may be wondering how I was able to do all this. Let me break down the math:

• My salary was about $54,000
• I contributed the max (back then it was $16,500) to my 403b, so my adjusted gross taxable income was $37,500
• Based on these numbers, my effective tax rate was probably about 15%, resulting in a take home pay of $31,875
• I contributed $5,000 (the max at the time) of post-tax money to my Roth IRA, leaving me with only $26,875
• Because my rent was $850 x 12 months, this equals to $10,200 for the year, which left me with $16,675
• Don’t forget I paid $427 a month towards student loan repayments, which equaled to $5,124 a year, leaving me with around $11,551

Overall, I had $11,551 a year or about $963 dollars a month to pay for gas (minimal), utilities (not much), entertainment (usually free), clothes (close to nothing), and food (often free or included, but otherwise generally cheap).

In reality, I saved about half of this money each year.  Let’s conservatively say that I saved about $5,000 of the $11,551 each year.

That would mean that each year I saved that $5,000 + $5000 (Roth IRA) + $16,500 (403b) = $26,500 which is almost 50% of my gross salary!

Final thoughts

People often say “It’s easy for physicians (insert other high income professionals such as software engineers, actuaries, lawyers etc.) to live on half of their salary because they make a lot of money.” I totally get it. It’s true. I agree that it is very easy for a high income professional to have a high savings rate.

However, I would argue that most people who make an average median income in the United States have the ability to save about 50% of their income. I did it during my 4 years of residency and in a very high cost of living area while having a good time.

If I can do it, many other people can do it too.

You just might have to be a little creative: Party like a rockstar, but live like a starving artist.