Have you ever wondered, am I making the right moves?
Have you ever worried, gnashing your teeth over a financial decision?
I'm constantly reading and learning and growing. As a matter of fact, I was reading an article (which you can find here) and the article is titled I am A Financial Planner and Here Are The 11 Best Pieces Of Advice I Can Give You About Money. I was going through this list and I wanted to share each one of them with you and then we are going to make some revisions at the end.
Some of them were awesome, some of them I disagreed with, and others I think just simply don't apply to doctors.
In this article, I give my reactions to his article and what he missed out on that is specific to physicians and other white coats.
Is that fair? Alright. Let's go!
His Advice#1: Pay Yourself First
His first piece of advice which I love and I say this over and over again is "Pay Yourself First."
He talks about making automatic payments, automatic drafts. Often we talk about this in our world with 401(k)s and stuff like that. I think the whole point is setting aside money on a monthly basis to make it so that you can’t see it. This is the benefit of paying yourself first so its tucked away, it`s hidden away. That way you have a slush fund to dip into on a rainy day. I often call this the cash cushion fund.
If you are a resident or if you are a fellow and you are listening to this, this is something that you need to do. I don’t care if you are doing 50 dollars a month, 100 dollars a month, 600 dollars a month... you need to stock money away there at least up to$10,000, $15,000 or even $20,000.
Then and only then... you can think about investing outside of that in addition. This sets us up nicely for another point we are going to talk about here in a little bit.
His Advice#2: Focus On Income
Now the second point of the author was to focus on your income and what we talks about here is improving yourself. This is about the focus on your income.
For example, take a look at salary negotiations. Alternatively, find ways to make an extra $500 or $1,000 a month because it’s easier to do that than to cut monthly spending. Most of us struggle with cutting spending. It's simply easier to make more money and bank the extra.
So yeah... I agree. Absolutely! The more you can get in salary raises... the more you can help yourself by having moon lighting or locums or something like that. Absolutely making more money is a lot more easier to do than it is to cut your expenses. He is absolutely spot on and I have to agree with him on that.
His Advice#3: Invest In Yourself
His next nugget... invest in yourself before saving for retirement. What he is saying here is get additional certifications, get additional designations... more most business professionals and those looking to move ahead in the world... absolutely.
However, I think as a physicians you’ve already done this! While this is a good idea- I don't think this is a 'best' piece of advice. In my opinion, it doesn’t apply to you.
After all, you’ve invested hundreds of thousands of dollars in improving yourself. However... I would say, outside of your career- I would encourage everyone to invest in some courses.
If you want to get better at this specific area outside of medicine... whether it’s finance or whether it`s learning how to be a podcaster or whether it`s learning how to be a better speaker, I would encourage you to invest resources towards something like that which may help you to grow your practice or even start a new stream of income.
Anyhow, I don't really like this piece of advice specifically for physicians... You don’t need to get an MBA.... You don’t need to get another Ph.D. ... You’ve already got your MD or DO... You`re good!
His Advice#4: Entreprenuership Is The Best Path to Financial Independence
Point number four... entrepreneurship is the best path to financial independence. I absolutely 100% spot-on-agree with this.
In today`s world of assembly-line medicine, I can`t even tell you the number of physicians I have spoken with who are struggling with burnout. We also know how the mantra of so many hospitals is to do more with less. Maybe you've heard something like this..
"Oh yeah we will hire another doc six months from now. In the meantime, could you take this shift and that shift?"
Another month passes by...
Then, they are asking you to take on more shifts, and more shifts and next thing you know, you start to feel more tired and more tired and then finally... burn out.
The clock continues to tick. Time passes and time passes. They haven’t hired the new physician yet. Hmm, wonder what’s going on here.
The only way you can control this is by being an entrepreneur. This can take a lot of different forms. You don't have to start your own practice.
It could be through freelancing. It could be by starting your own practice.
In addition, consider this...
I have to tell you guys the best tax deductions... the best way to increase your income... the best way to have time freedom is... entrepreneurship.
His Advice#5: Live for Today, but Save for Tomorrow
Now the next point is; live for today but save for tomorrow.
Financial advisors and financial planners we on thrive on talking about tomorrow. I am certainly a planner. That’s my 8 to 5 gig. We just love talking about tomorrow (even though we have absolutely no idea what will happen). All the projections geek us out.
Anyhow, he talks about taking time to enjoy life and have vacations. Absolutely! That’s something that’s that should be part of the puzzle.
I don’t think it’s the best piece of advice for many physicians.
I would rather you be an entrepreneur. I would rather you focus on increasing your income. I would rather you avoid burnout. I would rather you be debt free. I would rather that you have time freedom.
Then, as all of this comes together... enjoying vacations, spending more time on charitable causes, etc, etc.
His Advice#6: Track Your Spending
His next piece of advice is to track your spending. He suggests of to sign up for Mint.com or use the envelope method or some way to track your spending.
I absolutely think that that tracking spending is important. However...
I do think that some people get a little crazy about it. You know what... to be completely honest with you... I am not super strict about budgeting (unless cash flow is a big issue).
The best action physician can take is to really focus on one category.
Above all else, you want to know the flow, right? You want to know what you spend overall- not necessarily have to look at your computer every day or every week to check in.
As previously mentioned, you can use Mint or what we use here at my office E-Money Advisor.
Know the Flow
What do I mean by that is check your total spending once every couple of months. Here's what you need to keep in mind
How much is the bottom line of what you are spending versus the net amount that`s coming in after taxes? Are you saving? Are you not saving? You don’t need a track every penny.
What I would encourage doctors to do is to think of only one category that maybe the spending gets a little out of control.
I will tell you for me and my wife we’ve been investing more and more money into our businesses. We are taking some risks. We are being entrepreneurs and it’s made the budget tighter. I asked my wife in order to help out with this. For us, that meant let's find some ways to enjoy life but... to maybe start eliminating it a little bit, to limit the amount we are spending on fun.
In order to do that, we take out a certain amount of monthly cash. For us, that's about 125 or 150 bucks a month that either of us can use for whatever the heck we want. Whether it is going to a concert, getting a massage, or going out to eat because those are the expenses that can really add up.
That’s a limitation . Think bout... when you are out of cash... you are done!
I would encourage you to definitely track your spending and also I would encourage you to focus on one part of your budget. Alright?
His Advice#7: Don't Buy a Home
Alright, seventh piece of advice. The last piece of advice we talked about; tracking your spending.
Now, this one I disagree with.
He says, "Don’t buy a home!" Of course, this is the American dream, right?
He is right on that it can be a good way to royally screw up your finances and he is absolutely right. A house is illiquid. No doubt... a home is tough to sell. It is expensive and it is immobile.
And I think what I would re-phrase this to be, "Don’t buy a home while in residency".
I was actually speaking with a physician just the other day sweetest people, kind kind people. What they did... they bought a home in residency, then they moved after she was in practice, and then they bought a home in their new place and then they ended up getting kind of burned out in the area and made another change and now they bought a third home.
One of these they are renting, but the other two have significant interest owed. The other one has a big mortgage on it. The third one, of course, they are occupying.
This is where the rubber hits the road.
Please.. Don’t buy a home while on residency.
The bottom line is if you know you are going to be in the area for super long time and it is reasonably priced, go for it. For example, think mid-west rather than the coasts.
Just go for it if you know that you know that you know that you are going to be there for an extended period of time.
Now, let's look at another circumstance.
Let's say that you are in San Francisco where homes are costing $800,000 to $900,000 in the blink of an eye and when you underwrite the possible loan- there's no doubt that you’re going to get hit with PMI (private mortgage insurance).
In this case, maybe you need to wait to save up that 20 percent down. The worst case scenario is that you've practiced the discipline of savings before you buy that house and now you have a big, fat, juicy cash cushion. In the meantime, hopefully prices come down. If they didn't, you may need to continue the discipline of savings and stack up that cash.
All of that being said, in my humble opinion, buying a home is the right thing to do.
The Key that I think The Author of This Original Article & Mr. Money Moustache misses in their arguments is that rents can go up. They can go up a lot.
Consider that in comparison, mortgages do not.
Yes, certainly, a property tax can change... but it is not the same increases that can happen when you rent.
In addition- consider this... you are building equity every month you stay in your house. Maybe it's not a whole lot initially, but 10 years in, your principal payment is getting to be significant. Even if your house doesn't appreciate... you can walk away with something at the end of the day.
So, I really disagree with him on that point.
His Advice#8: Take Free Money
But this next one I love I love I love it. Take free money, oh gush this is so right. If you guys do have retirement plan and if your employer matches your contribution take that free money. So for example if they are matching 55 cents on a dollar for your first three percent of income, so for example if you are making 200 k and they are matching 50 cents on three percent debt. About 3000 dollars a year they will give you just for participating. Or they might even be a dollar for dollar. So it`s like a 50 percent return. It`s like a 100 percent return just for participating on the thing. No brainer, absolutely, that’s huge.
His Advice#9: Live Below Your Means
Number nine. Live well below your means. And you know I think this one is hard now as a physician you’ve sacrificed so much already. Right I mean you’ve been making $50,000-$60,000 dollars as a resident, as a fellow and now you start making a bunch of money and the temptation is to utilize that money. And you know what life is short maybe you are planning on working for a super long time but if you want to retire in your fifties or early sixties or possibly you want to move out of medicine then you have to live like a resident. So I would say living well below your means meaning live like a resident and what I do mean by this is going over the whole budgeting thing. But really more about an attitude you guys. More about an attitude kind of can it hurt me or help me. To really think before you buy something do I really need that new land more or do I really need that new car. Can I just hold on to what I have so I can have more cash flow and retire sooner? So great advice but I would say live like a resident or something doctors could relate to better.
His Advice#10: Avoid Debt At All Cost
Now his next one I absolutely disagree with again here. He says avoid debt at all cost. So he is saying he is tired a word or something. He is saying good debt or bad debt, tax deductible, not tax deductible and I disagree with that I think there is good debt and bad debt. I mean at the end of the day would you rather have consumer debt or would you… credit cards, 25 percent or would you have tax deductible mortgage that rather cost 5 or 6. Absolutely you will pick the mortgage every day of the week if you want to focus on a debt you focus on that crapy high percentage debt and I think debt does have a purpose. Obviously there is cash flow issues but if you have a business and your business is going great and ?? you might want to refinance in your business. Put some more money in there and that can be an ok thing as long as you can pay it off and it`s short term in nature unless you are buying a particular asset like a home that appreciates in value. So I just agree with him on that point. But no doubt a lot of people have questions about debt and you have to be careful, absolutely.
His Advice#11: Work With a Financial Planner
Now his last point was self-serving and he admits it that is a work with a financial planner. And of course I could pontificate on this, obviously I am prejudiced as well but I want to eliminate that from the list. Obviously I do think working with a financial planner is important but I don’t think is the best piece of advice for somebody. I think it ties it all together but....
Here is what I like to do you guys. I like to make a few points out here.
My Revised List Of Best Pieces of Advice
- Pay Yourself First
- Focus On Your Income
- Cheap Policies and Cheap Coverage
- Entrepreneurship Is The Best Path to Financial Independence
- It's Not What You Make... It's What You Keep
- Track Your Spending
- Don't Buy A House While In Residency
- Take Free Money
- Live Well Below Your Means
- Focus On Only One Debt
- Building Your Practice- Generate Your Own Patients and Referrals
- BONUS: Own Your Building
I want to keep pay yourself first- that’s awesome. Focus on your income- that’s awesome!
But we are going to take out his #3 about
"Investing in self before saving for retirement".
Instead what I like to focus on here is disability income and life insurance policies.
You need to have cheap policies and cheap coverage. Unfortunately, there are a lot of agents up that have what I call "Cadillac Escalade" policies.
What I mean by this is that they are trying to sell EVERYTHING on these policies- they include the moon, the sun, the stars, and the sun. You're rolling on 20s with the blinging rims and all the trimmings. What sucks is that it is going to cost you an arm AND a leg to do so.
Here's the question I'd like you to consider...
Are all of these EXTRAS above and beyond the normal policy necessary? I say NO. ABSOLUTELY NOT!
I think this is a huge mistake a lot of physicians make.
I would rather you guys have cheap stuff so that you can have better cash flow.
In addition, if your debts are paid off and the majority of your working years are behind you. Why have these policies any more? It's worth getting rid of these puppies at a certain point!!
And then we have
"Live for Today, but also Save for Tomorrow."We are going to take that off the list.
Right now we have pay yourself first, focus on your income, have cheap insurance policies, number four; entrepreneurship, number five; I am going to add in here...
It`s Not What You Make... It's What You Keep.
I will tell you guys working with over a hundred different clients in my "other" life as an advisor... I will tell you that it doesn’t matter for many people how much money that they make.
Simply... if you are a spender, you are not saving much. Perhaps, your lack of savings could endanger your future. Your dreams of an awesome retirement may be slipping from your grasp.
Case Study of a Spender
As a matter of fact I have a friend, he is bringing in $500,000 to $600,000 a year. That's great! What a fantastic income!
However, there's more...
Both of his kids go to private school. On top of that, he doesn't have 1 home. He doesn't have 2 homes.... he has 3 homes.
And none of those are rented!
Despite these issues, there's even more...
He takes trips across the country... at least twice a month. He's having fun and he's closing deals, but there's something missing.
To add insult to injury, he isn't contributing to his retirement plan and he is up to his eyeballs in debt. It's so sad to see... every month seems to be a struggle.
He is not saving a penny. He is heading for cash flow that barely floats his lifestyle. I wonder if he's ever going to be able to retire.
I would encourage you to really focus on the lesson here; it`s not what you make it`s what you keep.
The most successful person in my family was my Aunt Margaret. Aunt Margaret and her husband Uncle Phil had lived a simple life.
They had regular blue collar jobs. She was a secretary for Pabst. He worked for Union Pacific. They didn't have management positions or cushy retirement plans or were loaded with benefits.
However, what they did do... they did saved and saved and saved and saved some more. Their goal in life was to enjoy retirement, to make a legacy... to become millionaires and they did it many times over because they understood the principle...
It`s Not What You Make... It's What You Keep.
Alright, the next piece of advice- I agree with this one- we`ve got track spending absolutely.
Then... his next piece of advice- don’t buy a house and I want to add in residency.
Number eight: take free money- absolutely! Love that one.
Number nine: live well below your means.
We are adding number ten here...
Focus on only one debt.
One mistake I see over and over for physicians or even non-physicians is people spreading extra payments on debt- which in itself is awesome- but they are doing it across a whole bunch of DIFFERENT debts.
What you want to do to have more cash flow quickly is to focus lesser on only one debt.
That’s right, only one! Laser-like focus. Pay one puppy off and then pick the next highest debt to do it again. Use the payment from the last paid-off debt PLUS the minimum payment for the current debt this way you will super speed up the payments and cash flow can get better and better.
And then number eleven....
"Working with A Financial Advisor". Let's eliminate that one. Is it important?
Absolutely! Because of course every physician reading this should be working with me (insert eye-rolling here)...
But no, seriously. I love helping physicians and I love my job, but I have to be honest here- even more important is generating more revenue and more income and not being dependent on Medicare/Medicaid or referrals.
I want to add in this one which I am talking more and more about; I want you to be prepared to generate your own patients to not rely on referrals.
I want you to think about building your practice. I don’t care if you are in private practice or not because most physicians today are on productivity bonuses. This means it’s all about the patients that you are seeing, the patients that you re bringing in.
On top of that, as we get to this systems where you have more and more hospitals which is more and more competitive and they are asking more and more of doctors. Well what if you actually had some sort of celebrity? What if you are able to have people come to you that knew you, knew your philosophy.
I really think you guys this is something that we are going to need to work on. To be prepared to generate your own patients to not solely rely on referrals. Take eat what you kill kind of more mentality and the best way to do that you guys is to celebritize yourself. So we hold a system on that, I have a whole webinar about that class and training on that kind of specific information.
BONUS: Dave's Advice# 12- Buy Your Building
Dude! You made it this far- that's awesome!
As a bonus piece of advice that wasn't included in the audio version, I'd like to share with you another piece of advice...
Buy Your Building
By far, the most successful, the most prosperous physicians that I know bought or had partnership with other physicians for the building that they practiced in or the surgery center that they did surgeries in.
In retirement, they literally walked away with $1 million of $2 million or even $3 million in equity.
This way you not only have your investment accounts, you not only have your house debt, not only the cash in the bank, but a fourth leg of the chair.
I have a physician client and her husband who own a building on the outskirts of downtown Portland- within a mere 10 years- they have already built $1.5 million dollars in equity.
That's not even including the value of the practice!
WHAT I DON'T SUGGEST DOING.... buying real estate that you cannot personally see and touch. The larger REITs and investment schemes can work out great, but they aren't wealth creation strategies.
You've got to instead... buy your building.
If you liked this advice...
if this advice struck a cord with you... there's so much more to learn!
So anyhow those are eleven points I would love to hear from you....
What do you think, what are some of the biggest financial lessons that you’ve learned?
What are the best pieces of financial advice you've passed on your kids and onto your family?
Dave Denniston can be contacted at (800) 548-1820 or at [email protected]
Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.
The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation.
Neither United Planners nor its financial professionals render legal or tax advice. We work with you and your tax and legal counsel to assist you with your tax and estate plan.