Written By Travis Hornsby, CFA®, CFP®
Updated on July 23, 2026
I saw a blog post recently from a website popular with physicians that said consumption smoothing is stupid, and I beg to differ.
What is consumption smoothing? It’s an idea popular with economists that people who experience large income increases in their lives should live it up when they’re younger through borrowing and save more when they’re older to compensate.
I get why this theory sounds dumb to some folks. “Eat all the candy you want when you’re young and then eat healthier when you’re older” might sound completely unrealistic.
But in a world of online content that encourages extreme positions, the reality is that some amount of consumption smoothing is probably a great idea for anyone who will soon be earning at least twice as much income with a high degree of probability.
Let me explain.
Marginal utility and how it declines as you get richer
Diminishing marginal utility is another key economic concept. It basically says that dollars become worth less to you the more you earn.
That makes sense if you think about it. The first $20,000 might be spent on food and shelter. The next $20,000 might still be spent on needs, but the needs might be less acute than what you spent the first $20,000 on. Eventually, you start spending marginal dollars you earn on wants, and eventually, you might even struggle to figure out what to spend on because you’ve satisfied all your wants.
Money is really valuable when you’re young. It’s a lot less valuable when you’re older.
Time with kids is really valuable, too, if that applies to you. You only get that time when they’re in the home, and then that opportunity has passed, and you’re living alone (my mom reminds me often how tough this is emotionally, which I haven’t had to experience yet since my kids are still quite young).
So here’s a serious question. Let’s say your net worth is on track to be $10 million at age 65. Do you need all of that money? If not, then you’d want to figure out how much you’d actually need to retire, and realize that whatever the difference is between what you’re on track for and what you need is surplus that you can do whatever you want with.
Residents and fellows aren't buying Mercedes and yachts
One of the comments I’ve seen is that if you take out a few thousand a year in personal loans during residency, you’re an idiot because you’re probably blowing it buying a Mercedes.
I think that advice is insulting. Most residents and fellows I know (especially residents or fellows where both spouses work) would spend extra money in residency on childcare for date nights, an occasional cleaning service to feel calmer at home, a safer car instead of a clunker, slightly nicer vacations and the rare trip to a nice restaurant with a glass of wine or a cocktail.
How much would $10,000 of credit card debt per year during residency set you back?
Let’s make this concrete with real math, not vibes-based analysis.
Say you're a resident physician with $300,000 in student loan debt. Your spouse has none. You have a couple of kids. You're in a four-year residency, your spouse is a project manager making $80,000 a year, and you'll earn $300,000 a year as an attending once training ends. You have no Public Service Loan Forgiveness (PSLF) credit yet, and you file taxes separately.
Standing at the start of residency, you might feel hopeless: “I'm broke, I'm $300,000 in the hole, I'm screwed.”
Except that's not what the math says, for two reasons.
First, your student loan payments are calculated from your adjusted gross income (AGI), not your loan balance. If you finish medical school one year, the prior calendar year shows a $0 income. The next year shows maybe $30,000 or $40,000, because you only earned a resident salary for part of the year. The same part-year effect repeats when you move from residency to attending pay.
So on a plan like the Repayment Assistance Plan (RAP), your payments during training are rock-bottom cheap. They only jump once a full year of attending income shows up.
Second, if you're going for PSLF, you'll pay back a fraction of what you actually borrowed. The balance isn't the bill.
So let's run the numbers.
The baseline: Retire in 29 years
Say you need $150,000 a year to retire on, and you have maybe $10,000 in a bank account. You're pursuing PSLF on RAP and saving 15% of your income. Run those assumptions through a planning model, and it says you could retire in about 29 years.
How does the model define “could retire”? It uses the 4% rule: once 4% of your total assets covers your annual spending needs — around $3.9 million in this scenario — your portfolio can sustain you long term. That's an oversimplification, and you could use 3% to be conservative or 5% to be looser, but it's a reasonable benchmark.
Now for the test.
The stress test: $10,000 of new debt every year
The best way to do consumption smoothing is probably to not worry about saving very much during training.
But let's model something far more “irresponsible” than that.
What if you went into $10,000 of credit card or personal loan debt every single year of your four-year residency — not just skipping savings, but going the wrong direction on your assets?
At most, it sets you back one to two years on retirement, assuming you don’t adjust your savings rate as an attending at all.
But that assumption is exactly what consumption smoothing rejects. The whole idea is that you save more later, when each dollar costs you less in lifestyle. So what if you saved $55,000 a year for your first few years as an attending instead of the $30,000 to $40,000 the baseline assumed? You're back to retiring in year 29. The delay disappears entirely.
Four years of date nights, childcare and actual sleep during the hardest stretch of your career, in exchange for a modest savings bump you'll barely feel on an attending income. A lot of people would call that trade totally worth it.
But what about the risk of hedonic adaptation?
Critics of consumption smoothing say consumers can’t be trusted and that if they get a taste of the good life, they’ll never be able to go back to frugality later.
That’s not what we’re talking about here, though.
One example is if you start at the Budget Inn and then upgrade to Holiday Inn, you’ll feel good. But if you start at Holiday Inn, then go to Four Seasons, you’ll never be able to be happy staying at the Holiday Inn.
That’s ridiculous.
I love staying at the Holiday Inn, but I like staying at the Four Seasons more. And I can afford both. If I’m going on a business trip by myself, I’d probably stay at the Holiday Inn, and if I’m bringing the family, I’d probably stay at the Four Seasons because I can.
And here’s the thing: if I had taken out $10,000 of private loans during undergrad to live in a slightly better house than the dump we somewhat illegally fit five roommates into, I’d still be able to stay at the Four Seasons.
I’m able to live within my means, and the reality is (and it’s a reality shared by most high-income professionals) that I’ll probably already die with too much money when I’m six feet under.
Make consumption smoothing work with a plan based on math
Saying things like “you’re broke!” and “consumption smoothing is bad” can be helpful to hear if you’ve really got a major problem and you need a reality check.
But you’re reading this because you’re unique and not average. You’re way better informed than the average person, you make more than the average, and you have a way higher than average intelligence. You probably have a professional degree, and your SAT or ACT score would probably make the average American blush.
That means you’re more than capable of using math and, if needed, hiring a financial planner to help you have accountability so that consumption smoothing helps you and doesn’t turn into a temptation on the road to spending too much.
Financial planning is about living your best life, and it’s never a binary “do this or you’re screwed” that many personal finance talking heads like to preach.
If you want a balanced helper on the road to your rich life, check out SLP Wealth financial planning.
