Month: January 2016

Should I pay off my student loans or invest?

Student loans and investments are prevalent topics in the financial world, as most of us have or know people who incurred student loan debt at some point during our education. Whether or not you should repay your student loans quickly once you become financially able is commonly debated. I know some physicians who still have student loan debt after being in practice for fifteen years. Is that financially prudent?

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There is a psychological benefit to debt repayment.

Dave Ramsey calls this the “debt snowball”. His intended audience seems to be people who are drowning in recurrent credit card debt, bartering their leveraged homes through reverse mortgages, and doubling down their vehicles with title loans. I hope that no respectable professional ever comes close to these financial situations. However, there is validity in the psychological benefit of having no debt.

Everyone is different. I know that I don’t like carrying debt no matter how low the interest rate is (maybe except for 0% interest loans). If you know that you’ll sleep better at night after repaying off your debts, do it. Interest rate arbitrage is not worth losing sleep over.

If you operate solely through numbers and know that you have enough discipline to leverage your low interest debt to win big through investments, by all means do it. Be sure to justify your effort through your hourly rate. This leads me to the second point:

Are you actually going to invest your disposable income?

Suppose you have an extra $2000 a month of disposable income after your living expenses. Most people would likely keep the money in a savings account and use it for discretionary spending (read: nice summer vacation in the Seychelles). Others would consider saving for a downpayment on a new home.

How likely would you redirect these funds to repayment of your student debts? How about investing in your favorite funds or stocks? The problem with investing your excess cash is the time commitment and discipline that you need to make the appropriate choices. Admittedly, this is not difficult—much easier than studying for your USMLE Step 1—but you still need to allocate time to do it.

Alternatively, will you throw this money into a Roboadvisor service like at Motif or Personal Capital? How certain are you that you will actually beat the interest rate of any of your outstanding loans after taxes?

Pick the option that suits your needs.

One of the worst financial moves in this situation would be to have absolutely no plan. Your plan does not even have to be financially sound, but if you are in debt you should figure out when and how you intend to get yourself out. My suggestion is that if you absolutely have no clue what to do, pay off your student loans as long as you have the means. This can be as little as several hundred dollars extra per month or as much as tens of thousands a month. Keep doing it until you decide otherwise. Who knows, you might be out of debt by the time you figure out a plan!

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Conferences are bad for your health

Conferences Are Bad For Your HealthI love going to conferences. If you’re not in the clinic, hospital, or operating room, it means that you’re not dealing with patient care of administrative issues. Conferences are sort of like a mini-break from your daily routine even though you are still involved with something in your specialty. Furthermore, it is an opportunity to catch up with old colleagues, learn about the exciting new developments in your field, and interact with thought leaders in your field. I’d say that overall they are a great way to vacation without feeling guilty about not working your day job.

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Conferences aren’t healthy for you.

Most of us spend our days at meetings sitting. I’ve been to intense medical courses that have lectures from 7am until 10:45pm! And we all know that inactivity increases cardiac risk factors. Not only are you sitting, you might even be taking notes and focusing on the lectures. As far as I can recall, having to pay attention is mentally taxing. 

 

We network with our colleagues during refreshment breaks and speaking to vendors. I am always aware of my plans for the day, and stay relatively busy meeting with colleagues. This is also mentally taxing. Most of us have our clinic and hospital routines in motor memory, and can operate on autopilot most of the day. Not so in a meeting situation. We are out of our routine, and no matter how savvy or upbeat you are, you will be mentally and physically tired at the end of a meeting day.

We eat more during conferences.

I rarely have time to eat during my work days. If I am lucky, I can get a granola bar or yogurt in between patients. Combine a low caloric consumption with dashing around dealing with patient issues and you have an automatic weight loss system.  Not so at meetings and conferences.

Food is plentiful at meetings. There are at least three full meals each day—sometimes more if there are snacks during breaks. This food is often catered, tasty but probably unhealthy. It is just sitting in front of you. Sometimes the food is even free for the taking. I probably consume at least twice the number of calories during meetings than during a typical workday.

We often punish at the end of a conference day with fancy dinners. Think steak soaked in butter, or seafood soaked in butter. Have a few beers or glasses of wine to wash down the fat. There is serious caloric intake at these dinners, especially if you are fortunate enough to attend a sponsored dinner.

We don’t exercise as much during conferences.

Since we are out of our rhythm, sitting all day, and eating big meals, we don’t necessarily find the time to exercise. Psychologically, we “aren’t working” during meetings, so it is considered a mini-vacation. Mental and physical fatigue from sitting through hours of lectures further discourage us from hitting the gym or exercising.

You can make a change and alter your conference routine.

It’s not too late to make lifestyle modifications! The next time you plan to attend a conference, allocate some time to exercise! It could be at the hotel gym, on a jogging path around your conference center, or even just a simple exercise video in your room.

Control your caloric intake! Just because you can financially afford the $15 slice of coconut cake doesn’t mean that your gut can! Remember that your waist will grow along with the size of your wallet.

Don’t forget to have a good time at your meetings! Consider it a mini-vacation, but make sure that you maintain some of your routine to keep your body healthy!

(Photo courtesy of Sebastiaan ter Burg)

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How a dysfunctional residency trained me to run a department

Ideal jobs are rare. If you find one, you’d better do your best to keep it. Likewise, there are very few ideal residency programs. Everyone who I’ve spoken to has a list of reasons why their residency or fellowship program is the worst in the world. I get that. This is a painful time in our lives. My experience was no different. We encountered numerous inefficiencies in the department that hindered our education and experience. It wasn’t until several years later that I realized that this experience actually helped prepare me to run a department.

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There is often a silver lining in the midst of despair.

I had the unfortunate (or fortunate) opportunity of having to fire staff during residency. Not one, but two members who had been working at the hospital for over 15 years. Everyone knew that they were disruptive, but this impacted mostly the residents. Many generations of trainees had attempted to rid of the inefficient staff, but there was always a hurdle that prevented us from doing so.  As transient workers in the hospital (residents and fellows), we knew that our pain was finite. Most trainees gave up after seeing the logistical nightmares in dealing with departmental protocol. If you worked with union employees, you are fighting against a brick wall.  Let me tell you, it is nearly impossible to fire union workers.

Somehow my class succeeded. It took several years, hundreds of hours of documentation, and probably fifty hours of meetings, but we fired the deadweight and hired better staff. We left a better legacy for those after us and essentially forgot about the pain that we endured.

What I did not realize was that the process that we went through to discharge staff during residency is no different in any business or medical practice. I now run a department using those same skills that I honed during the painful years of residency.

The following is a list of core applicable principles that I discovered during residency that still apply to managing a practice:

  1. Everything is political. Yelling, screaming, and demands never fly in the course of business.
  2. Everything can be negotiated. It does not matter what the terms are. Life is not a multiple choice test.
  3. Running a business boils down to profits and losses. If you don’t make a profit in a line of service, then you must correct that or risk going out of business.
  4. Negotiate upon what your perceived value is. In this regard, you have to grow your value and prove that you deserve what you are asking for.
  5. Expect to fail. If you don’t fail, then you won’t learn from your mistakes.

I can write a book about my mistakes (I might do just that!), but hopefully the principles above will serve as a good start for you to build yourself into a leader.

What other tips do you have to become a leader?

Do Doctors Need To Have A Business Degree?

One skill that is not emphasized and rarely even mentioned in our medical training is that medical practice is still a business. What this means is that even if you practice good medicine, you may still not earn enough to pay the rent if you are unable to manage your finances. How are you expected to run a medical business when you spent the last decade of your life learning how to practice medicine?

You could stay at a university. Universities often pay you a flat salary with a production bonus. You don’t have to worry about paying your staff.  Or you just join a medical practice and hope for the best.  Sadly, that is how the majority of us end up.

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It doesn’t have to be this way. We can learn about the business of medicine. One recommendation that I have heard is that doctors should obtain a business degree to help them with their medical business. Is that really a good idea?

A Business Degree Can Strengthen Your Medical Practice.

Sure, a Masters in Business Administration (MBA) will give you credibility. I have one colleague who obtained his MBA the same time as his Bachelor’s Degree in college, while another obtained his MBA during medical school. It certainly sounds more impressive to have an MD, MBA after your name. In general, the rigors of formally learning about business and finance will provide you with fundamental knowledge to run your practice. This will translate into greater profits for the rest of your medical career. If your practice is small enough, you may not even need a practice manager if you can run the books yourself. Even if you have a crew of business associates running the practice, you are more equipped to deal with issues if you have the background.

You can either take time off from your medical education to obtain an MBA, or you could even obtain an executive MBA while still practicing medicine. It all depends on how motivated you are and how well you can multitask.

A Business Degree Can Delay Your Earnings.

Most respectable business degrees require a two-year commitment. That means two extra years of potentially expensive tuition and delayed peak earnings from the practice of medicine. Even an executive MBA will require additional time off on weekends and evenings away from your family.

What if a business degree isn’t even applicable to your medical practice? That can certainly be the case. One of the most valuable aspects of business school is that you are given an intensive environment to network with your future colleagues. This can translate into future business deals. That doesn’t seem like what you’d actually need as a physician. Having friends who run Fortune 500 companies does not necessarily help you negotiate with Medicare to reimburse your for your services.

Likewise, even if you are better equipped to run your medical practice, you may not necessarily have the time to do it if you intend to be a full-time clinician. Your business manager, chief operating officer, or finance officer will still have to run the business.

Do you Want to Run A Hospital?

What a business degree does do is give you a title of credibility to enter the administrative side of medicine. If you wanted to join the administrative staff of your hospital or become Chief Medical Officer, an MBA will definitively improve your chances of being voted in. Does it matter where you obtain that business degree? Unlikely. I have seen plenty of hospital administrators will online business degrees or executive MBA’s. Skeptics might even say that the material you learn in business school is somewhat related only peripherally to the role of a hospital administrator.

What this also means is that you become an administrator, you will unlikely continue practicing medicine on a full-time basis. In this case, would you have needed to go through residency? Maybe not.

Do you have or plan to obtain an MBA?

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Grow your value in order to advance your career

One of the tenants of becoming a successful doctor is the three A’s. These are fundamental steps into order to prosper. However, to develop your career further, you have to grow your value. What this means is that in order to be marketable in your profession, you have to have a skill to offer. This essentially means that you need to figure out what your job description is and fully maximize your ability to fulfill that niche. Do it better than anyone else around who might be vying for that position and you become a superstar.

How can I grow my value?

As a doctor, you need to practice good, ethical medicine. Take care of your patients (as much as they let you). That is the foundation to build upon.

Identify your role models. Children learn from their parents and caretakers. Professionals learn from their seniors and others who have taken the same footsteps. There is never going to be a single ideal role model. Someone who can help you develop your clinical or research skills is not likely going to teach you how to run a medical practice. Likewise, a role model for a particular skill may even be someone from a competing practice who is willing to show you the ropes.

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Your accomplishments must be made known. It does not matter if you are the best diagnostician in the world if no one knows who you are. Many good deeds go unnoticed all of the time. You don’t have to boast your successes, but they must be publicized to promote your value. If you made a diagnosis or cure that others missed, casually introduce the topic in conversion with your coworkers or managers. In order for you to move the chain, your peers have to respect your clinical, managerial, and leadership abilities. Make a case for everything you excel in.

Be firm but reasonable. This goes for job promotions, equipment needs, staffing needs. Everything. You must keep a level head in negotiation. People tend to ignore crazy people even if they are right. If you are getting paid at the 10th percentile of your specialty’s salary range and you are doing 90th percentile work, you need to gather enough data to present to your case. Collect your RVUs, staff utilization, expenses, and show that you are being undervalued. If you are the more qualified surgeon in the state but have inadequate nursing staff, make your case. Perhaps you need to show that most doctors in your specialty require a certain number and skill of staff, and that you could make more money if you have better staff.

You must have a goal.

Growing your value is ultimately useless if you have no finish line. You won’t really know what you are working for if you don’t have a goal in mind. Whether the goal is to achieve a certain annual income or giving yourself enough time to exercise every day, have your sights set on something.  After that, map out your plan to increase your self worth to achieve that goal.

To recap:

  1. Choose a goal. Short-term and long-term.
  2. Map out the qualities and achievements that you need to accomplish to reach that goal.
  3. Start growing your value. Make yourself a desired commodity.
  4. Work hard to get there. Hustle.

 

What have you done to grow your value?

Exchanging Freedom For Income – Is it Worth It?

exchanging time for money is it worth itI’ve previously discussed strategies to become rich as a doctor. The formula is somewhat straightforward in that you have to hustle and discover your value. Unfortunately doctor incomes vary quite a bit among specialties, and even dramatically within a specialty.

For instance, Internist income can range from $160,000 a year for strictly outpatient care to $200,000-$300,000 in Hospitalist care, and even in the $400,000’s if you opt for locums positions on top of a full-time job. The trade-off from increasing income in this situation is that you are exchanging your time and skill set for money.

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Is it worthwhile to exchange time for money?

Obviously it depends on your needs and expectations. Most workers on Wall Street and businessmen would argue that if you are still young and have no dependents, it is to your advantage to build your net worth as quickly as possible. Many engineers turned early retirement bloggers did the same during their twenties have have since accumulated enough wealth to retire in their thirties. As a doctor, you exchanged your youth for earning potential later in life. The advantage that you have is that your hourly rate ought to be higher than that of an average software engineer so you could build your net worth more quickly.

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There are also consequences for a rapid growth of salaried income. Your marginal tax rates will be high, much more than if that income came from capital gains. As a service worker, you incur high amounts of stress when working harder. You have to ask yourself these questions. If you have clearly defined timelines and goals to hustle, it may be worthwhile to make this compromise. Just make sure you don’t inflate your lifestyle along with your income.

 

How do the ultra-wealthy get rich?

Unless your skills command an outrageously high compensation (like Taylor Swift or most professional athletes), you still don’t have enough hours in a day to generate business-mogul money. This is the wealth it takes to own skyscrapers, rent out an entire nightclub for a party, or frequently charter private jets for travel.

The fact is that you don’t need to have a stock ticker under your name to generate this wealth. The wealthy build their worth through other people’s time. If you are really successful, you build wealth through other people’s money (OPM). A multi-millionaire owner of a junk metal recycling company hires out hourly service workers to get the job done. The billionaire cellphone charging cable maker has multiple factories of workers churning out simple widgets.

Medicine has some corollaries to this rapid wealth generation phenomenon through pharmaceutical development, electronic medical records, and medical device development. Billionaire Patrick Soon-Shiong is a prime example of a medical doctor who catapulted his wealth first through drug development and subsequently in venture capital, ancillary investments, and healthcare data mining. Being a one trick pony is great, but using that trick to fuel further ventures is the key to sustain financial success.

How does that apply to me as a lowly doctor?

Treat your primary occupation as your buffer to venture into other revenue streams. If you want to work harder and longer hours as doctor, that is fine too. However, alternative income streams outside of medicine can potentially help you pay your bills if you end up not practicing medicine (downtime between job switches).

I have been exploring alternative income means outside of medicine. Obviously none of them have come to self sufficient fruition, so I still am keeping my day job in the meantime. ? However I will be documenting more of this in the future when I receive more results.

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(Photo courtesy of Christopher Dombres)

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Don’t Forget To Contribute To Your Roth IRA!

I like to consider my options for investing in stock and mutual funds as buckets: taxable, tax-deferred, and tax-advantaged. The one bucket that is most misunderstood by high-income earners is the Roth IRA.

What is a Roth IRA?

The Roth IRA is an individual retirement account that allows your investments to grow tax free. This means that if you put $5,000 into the account and it grows to $10,000 by the time you withdraw the funds, you pay no taxes. That’s right. If $5,000 grows to $5,000,000 within the Roth IRA, you still don’t have to pay taxes on the gains upon withdrawal!

Obviously there are a few stipulations regarding the Roth IRA. You can only contribute up to the annual limit, which is $5,500 for 2015 ($6,500 if you are over age 55). The amount that you do contribute to the Roth IRA must come from after-tax dollars, meaning that there is no federal tax deductions allowed from investing in this vehicle.

To invest in a Roth IRA, simply choose a custodian to hold your investments. Most banks and brokers offer IRA/Roth IRA contributions. I use E*Trade, but Fidelity, Vanguard, ScotTrade, and dozens of other online brokers all offer IRAs. You can even open accounts at most of these brokers without ever needing to speak to a person!

Isn’t There an Income Limit To Qualify For A Roth IRA?

Yes and no. Technically the phase-out for a direct Roth IRA contribution starts at $112,000 for single filers and $178,000 for married couples.  However, it is well-known that you can bypass this limit.  You can contribute to a Traditional (Non-Deductible) IRA, and then make a Roth IRA conversion.

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Typically, I go through the following steps:

  1. Contribute the maximum IRA limit into a Traditional IRA through my custodian.
  2. Wait a week or two, and then submit a request to convert the Traditional IRA to a Roth IRA. I have never had any funds in a Traditional IRA at the end of the year, so I do not have to pay taxes on any conversions.
  3. Whenever I file my taxes, I submit Form 8606 to document the Traditional to Roth IRA conversion.

I have had multiple financial advisors pitch me their ability to help me invest in a Roth IRA no matter what my income is, as long as I agree to enlist their “professional services”. Fortunately for you that now that you’ve read this blog post, you won’t fall prey to bogus sales tactics.

Why should I even care about a Roth IRA if I can only contribute $5,500 a year?

It is true that the contribution limit for Roth IRA is minuscule compared to the expected amount that you should invest given that you are a high-income earner. Understand that your investment portfolio should consist of as many buckets as possible to diversify your options. As a doctor, you should have enough disposable investment income to maximize all of your buckets that you end up having to invest the rest in a taxable account. A Roth IRA is more advantageous than a taxable account. You don’t get taxed on the gains if you withdraw after 59 1/2 years old.

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