October, 2017 | Smart Money MD

Month: October 2017

What situations do you exchange money for more time?

Posted on October 29, 2017January 30, 2021 by SmartMoneyMD

The fundamental tenet in building wealth is to save more than you earn. Easy enough. At some point, there is a threshold in which you pull the trigger to exchange those hard-earned dollars for goods and services. Most of the us who espouse responsible financial practices have streamlined what goods we consider to be suitable for our needs. Yachts, McMansions, and other extravagant material wealth or experiences should be logically put in check until we’ve reached a certain financial stability. Cooking at home instead of hiring a private chef is another example (yes, I know a surgeon who does that). Fair enough.

What about services? Guys like @Mr1500 are pretty handy and have built bookshelves and flipped houses with their skillset. No need to spend hundreds of dollars at Home Goods for a particle board desk when you can build your own out of cedar. MMM is able to haul laundry machines on his bike. Strong-willed doctors like @PoF have the ability to bike to work instead of firing up our standard fossil fuel-consuming vehicles. You get your cardiovascular benefit while saving the environment. Win-win. Some of us were not meant to be tough, no matter how hard we try. Mending a skirt? Only under duress. Hiking down a canyon or starting a campfire? No way. Some of us are in careers that make us less inclined to become true masters of DIY or machoism. I work with plenty of neurosurgeons, and I don’t know a single one who bikes to work before an anticipated five-hour craniotomy case. (If you do, please send me a note!) However, I do know a neurosurgeon who would rather run marathons and bike on Peloton than to bike to work. Peloton subscriptions are not cheap either.

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Where is the cut-off? Is there a cost-savings benefit ratio that you look at before you start opening up the wallet? Most of us probably choose not to change our own oil in the car not only because we might not derive much pleasure from it but also because Jiffy Lube will do it for $29.99. For thirty bucks you can get your oil changes and keep your hands clean! I have two basic criteria to look at before I open up the checkbook:

Minimal risk and skill

First, the task has to be something that I don’t hate. I know some people who simply refuse to cook. Is it the smell, the difficulty, or just the risk of ruining the shellac? (Probably all of the above) That’s fine, but if you have a financial plan to get ahead in life you’d better have other ways to make up for the expenditures.

Secondly, I just look at how difficult the task is and the consequences if I mess up. For instance, I’m not an expert at baking cookies, but I’m pretty sure there is a low chance that I’d burn the house down if I tried. Check.

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If the task or service is often performed by many other people without much difficulty, then it is a good sign that I could reasonably attempt it myself.

Hourly rate

The hourly rate argument is a touchy subject. Many plumbers I know charge an hourly rate above that of many doctors. This doesn’t mean that you should go ahead and change out a broken water valve or toilet yourself in order to save a few Benjamins. But if the task or service meets the difficulty and skill requirement already, it might be worthwhile to tackle a project or service that could save you some money (especially if you have available time).

My experience at the Department of Motor Vehicles

My driver’s license came up for renewal recently, and I was tasked to step foot in a Department of Motor Vehicles office. There was an automated kiosk to get a number for line, and my number was 417. To my horror, the next customer in line was 333! It took another ten minutes before the next customer was called, and it was #289!

If this isn’t a representation of reality, I don’t know what is!

I had cancelled some of my afternoon patients and left work early to arrive at the DMV by 2pm. They close at 4pm. It was apparent that I was rolling the dice if I expected to be called up by closing time. There was no way that I be able to reschedule another surgery or clinic day to wait in line again. I ended up going straight to a commercial motor vehicle outlet, paying an extra $60 to renew my license, and left by 3pm.

The moral of this story? I need to get into the commercial DMV business.

What situations have you encountered where you decided to pull out the wallet to save time?

How important is an emergency fund?

Posted on October 22, 2017January 30, 2021 by SmartMoneyMD

How much one should keep around in an emergency fund really depends on risk tolerance and how quickly one can access a big wad of cash for emergencies. I tend to believe that those with high risk tolerances have probably never experienced a true emergency, or at least one that could seriously stress your wallet. Most of those financial bloggers out there who proclaim that they have $0 in their emergency funds are typically young without kids. Sure, you should put your money to work for you, but sometimes you do get unlucky and stuff hits the fan. The same analogy can be made with putting 100% of your investments in the stock market. Do you start panicking when your invested worth drops by 80%? What happens when junior gets diagnosed with pulmonary atresia, you get locked out of some insurance plans for a pre-existing condition?

Uncommon events are uncommon, but someone will eventually represent the uncommon statistic. Sometimes life will suck for that statistic.

Point in fact: I encountered a major plumbing problem recently that clearly stressed my wallet.

Without boring us with the details, we essentially had no running water in the house. From start to finish, there was probably no access to water in the house for about five days. No faucet water. No toilet water. No shower water. This experience also served as a reminder how dependent we are to modern conveniences like electricity and plumbing. I even had access to water while at work, but I was still miserable! In contrast, much of Puerto Rico still doesn’t have potable water or electricity after an entire month!

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This particular plumbing problem was clearly above my skillset. I would have needed over $10,000 of plumbing equipment plus some serious experience to have fixed this myself. I ended up calling upon some plumbers to get some quotes.

Wallet gouging expenses do hurt no matter how you put it.

Ouch. This is where an emergency fund would come in handy. Fortunately my plumber accepted credit cards at no additional charge, so I was able to use my credit line. Imagine, however, needing to come up with a check or that amount in cash. That would definitely put a strain on anyone’s wallet.

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Ultimately, having immediate access to some cash can’t hurt. Because I am currently still in the earning stage of my financial career, I will most likely have at least biweekly access to some cash through my paycheck as a buffer. However, my emergency fund consists of a credit line on my credit cards. That’s probably not the ideal way to access cash, but the credit card companies also grant me with check writing capabilities as well in case I run into situations where credit cards won’t help. Will this protect from all financial disasters? Not even close, especially if zombies take over the world. But I think that it covers most of the situations that I would expect to encounter.

How do you handle your emergency funds?

What percentage of your investments should be in a taxable account?

Posted on October 18, 2017January 30, 2021 by SmartMoneyMD

This is a ratio that I struggle with. Obviously the greater amount that one has in a tax-advantaged investment account, the less tax drag you’re going to pay for. With the current options of investment vehicles, one can potentially squirrel away a relatively hefty amount in a tax-advantaged account. Small business owners know what I’m talking about. So do managing partners in their practices. If you have several high-income ventures, you can shove away a solid six-figures in tax-deferred accounts.

When your earning velocity slows down, the tax-deferred amounts can be slowly withdrawn to fill up our lower tax brackets. For some physicians, this can mean shifting from a 50+% marginal tax (sometimes even effective tax) bracket down to something like a 10-15% effective bracket.

If you are able to do that, then you’re in an envious position. Some of us are just stuck in an employed position where we can only fill up the employee portion of our 401k space. Unfortunately we all know that saving only this amount will never be enough to a safe retirement, especially if you decide to hang up your hat early. I am in this very situation, and I end up putting most of my stock/fund investments in a taxable account.

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Over the years, I try to shove away as much as I can to catch up for the lost years of no income during schooling. I’d anticipate that eventually my tax-advantaged accounts will only amount to about 10% or less of my total investments. This is perhaps a much smaller percentage of what most people will have, but this also creates an interesting arrangement that I will have to consider later in life. There are considerations for putting your investments in a taxable account.

Disadvantages:

Tax drag during investing years. Investment vehicles will need to be tax efficient, as dividends and interest that gets kicked out is taxed. Funds with high loads or high levels of activity will kick out taxable events.
Liability. Unlike investments in your 401k, tax-sheltered accounts, or (shudder) cash-value investments, your debtors can access your investments in a taxable account. You need to protect it appropriately. Umbrella insurance is the key word.
You will likely have less of this to invest. You are investing your post-tax income in this vehicle. In some ways, this isn’t really a huge disadvantage, but it does seem that way because Uncle Sam has already taken away what you can put into this vehicle. He will also continue to take away from it through further taxes on growth.

Advantages:

During withdrawal years, income is treated only as capital gains taxes, which is lower than traditional income. You can really combine this with your tax-deferred account withdrawals to minimize your tax burden during retirement.
No maximum amount that you can invest. The sky is the limit.
No minimum that you have to withdraw either.
Tax loss harvesting. If you end up with a loss in a particular category, you can sell it, and purchase similar funds at the lower rate.

Whenever I do go through the pros and cons of taxable accounts, I do feel a little bit more at ease. It’s not bad that we have many options to grow our wealth. After all, the true secret to building wealth is saving more than you spend.

How much of your investments belong in taxable accounts?

Five things I wish I knew about finance before going into medicine

Posted on October 15, 2017February 2, 2021 by SmartMoneyMD

Over the years as I speak with premed college students and medical students, I keep hearing the same recurring questions. Most of these are related to the clinical or career decisions. What grades do I need? How many honors did you get? Rarely do I get questions about being able to afford that Lamborghini after becoming a plastic surgeon, or more practically, whether they would even be able to buy a house or raise a family at age 30.

I asked those same clinical questions when I was in their shoes. By all accounts, my mentors guided me well. I became a competent physician (I think). However, no one ever told me that it was a bad idea to spend 80% of my income on rent (yes, you can do that). Now that I’m getting my finances back in order, it’s time to reflect on what I consider are the important finances that I should have asked or educated myself prior to venturing into the medical field:

Invest in a Roth IRA. Time is on your side. I remember back in college one of my classmates raved about the Roth IRA. He must be rocking his finances now if he already knew what a Roth was back then. In fact, he told me his parents basically matched his Roth contributions so that he was making good financial decisions early in his working career. I, unfortunately, did not have that luxury. I didn’t start a Roth IRA until residency, and even then, I think I didn’t even contribute one of the years because I was short on cash. Post-tax growth is an amazing vehicle, even if you aren’t actually contributing a huge amount each year.
Invest in a 401k/403b account. Again, the premise on these investments is that the earlier you have funds in them, the longer the funds have to grow. I did not invest in a single 401k during my training because my hospitals did not offer a match. Was it a bad move? In retrospect, I probably should have invested, although I am not sure if my hospitals offered low-cost funds either. This may eventually amount to a low six-figure amount by the time I’d be withdrawing from this account. The toughest part about investing in a 401k when you have a mid-five figure salary is that you’re really not deferring a significant amount of income tax compared to what you otherwise would have as an attending. However, you do have to realize that many people out there remain in a five-figure salary throughout their entire working careers. Those people should still definitely invest in a 401k.
Understand where you will likely end up financially. This is broader concept. You are unlikely going to be killing it on your income when you’re done, and you need to get into the mindset that there will still be delayed gratification after your income increases by several fold. There are many steps that you have to take before you stabilize your finances, especially if you are in debt or have a family.
Life-altering events do happen. You are not going to be immune from financially life-altering events. Disease. Injury. Natural disasters (Yup I know a doctor in Puerto Rico who still hasn’t gotten his life back together yet). Prepare yourself appropriately and insure yourself appropriately. If you have but a few pennies in your savings, you might be in trouble.
Be prepared for the long haul. You still have a career ahead of you. Don’t hustle to the level that you’d jeopardize your health. Figure out what you really want out of life. Is the money? Is it the fame? It’s okay to set a plan, execute, and modify.

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This covers the tip of the iceberg, but it will get you started. Many of these are basic principles, but you can start building upon them.

Somewhere over some snow-capped mountains

How often do you leave work exhausted?

Posted on October 8, 2017January 30, 2021 by SmartMoneyMD

I’ve written about physician burnout before, and it continues to be a prevalent issue in our profession. The Happy Philosopher highlights many of these issues on his website, and I continue to be an avid follower of his wisdom. Truth is that we all have our ways to deal with the ups and downs of our jobs, and one of the issues plaguing us is that we care about our jobs.

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More often than not, I end the workday in the office exhausted. Ironically, the clinical work is rarely the challenge—it’s the environment that we work within. Sometimes problems arise from the myriad of personalities from the front desk to the back office. Other occasions the headaches come of the onerous regulations of the insurance companies. And of course, we don’t want to forget about that extra meeting someone in administration decides to squeeze in just to take away that hour and half of your life.

How do doctors deal with exhaustion and stress?

Apathy

We all know someone in every profession who fits into this category. These folks just go along with whatever rules are dished out to them. As someone with moderate compulsivity, I have been guilty of trying “reform” the apathetic into sharing my beliefs. You can correctly assume how well these initiatives turned out. Over the years, I think that I’ve come to understand better why we are all prone to apathy. It’s simply a path of lesser resistance. I’m sure that many people who appear to be apathetic were once energetic, young, visionaries who succumbed to failures of our system to effect a change. Most importantly, if you start becoming apathetic, you might have a good shot at reducing your work-related exhaustion.

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Resistance

Some of us are perennially disgruntled. There are doctors at my staff meetings who always raise their hands and interject, sometimes only for the sake of interruption and stirring up controversy. Many of these disruptive comments are warranted, however. When you put together a group of high functioning professionals in a room, there is always a good chance that someone will be able to identify something to fix or a problem with something the hospital or administration proposes. Frankly, I’d imagine that putting up resistance will eventually wear you down and exacerbate any ongoing stress. Anecdotally, many of these personality types either have secondary family conflicts that arise because of stress at work.

Some people are born to become party poopers.

Problem Resolution

This is the personality type that I admire the most. These gals seem to have a positive spin on even the most negative situations. Hospital going bankrupt? No problem! Let’s cut the budget in the doctor’s lounge, and work a little harder! I do see doctors who have an endless amount of energy. They are likely hypomanic, their spouses are angels to allow them to focus their energies on work, and they do get stuff done.

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I find myself cycling through all three of these personality modes. It really depends on what the issue I’m faced with, and whether I decide it is worth fighting for. I typically consider myself a positive person, so I tend to look for a way to find a compromise. If I ever become more apathetic than not, that will certainly be a sign that I need to hang up my hat. Until then, I plan to stick to the plan. Get my fair share of compensation at work, save as much as I can in the process, and enjoy the journey. Some exhaustion never hurt anyone, right?

How do you deal with exhaustion from work?