Author: SmartMoneyMD

How fancy appliances can dent your savings rate

Posted on by SmartMoneyMD

I was recently thinking about all of the financially foolish actions I have committed that violate the rules of good financial sense and realized that I could easily fill a year’s worth of material every Wednesday….

Let’s call it Wasteful Wednesdays…

Of course, the only role of noting financially irresponsible actions and purchases on a website that encourages good financial behavior is to provide examples of what not to do, and how easy it is to squander your earnings, no matter what you income levels are. There is no limit to how quickly you can exhaust your paycheck…

Notwithstanding my retirement-preventing expensive house purchase, let’s take a look at my kitchen appliances are probably adding year’s to my working career…

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The Refrigerator

Don’t worry, the paneling itself costs more than the average fridge

This Subzero fridge costs about $12,000 retail. It is built-in the wall so that it’s nearly impossible to change the water filter.  Since the fit is so snug next to your cabinets, you have to pay extra to make sure that your cabinet doors won’t block the refrigerator door from opening. Some people like to have the door blend into the cabinets to look cool. The fridge includes a built-in alarm to notify you that 5 seconds is too long to keep the fridge door open too (hey, we’ve got to be energy star compliant somehow!) And it depreciates in value faster than my car too. By the way, the freezer compartment is intentionally small to prevent me from storing unhealthy frozen foods (literally written in the owner’s manual). It is also the reason I own another freezer in the garage that I pay extra electricity to run so that I can store my ice cream from Costco.

Oven / Range

You pay extra for the red knobs

If you have to ask what brand this stove/oven is, you don’t deserve to know. I believe that this is another $10,000 drop in the bucket. That’s why there is a stone mode for you to make your own pizza at home. Does it make pizza taste better? You bet it does, only if you buy optional the $100 pizza stone kit. Hey, it’s saving you money every time you bake your own pizza instead of getting take-out. Ten dollars is worth saving, right? In case you’re worried, I actually saved money by owning a stove/oven single unit instead of two separate appliances.

 

The dishwasher

This dishwasher is made by the other Swedish company at non-Ikea like prices

This high-end Swedish Asko dishwasher supposedly will save you water and electricity every time you use it. Don’t be bothered that each cycle takes about 2 hours! Worried that a stainless steel or brushed nickel finish to your dishwasher won’t match your fridge? No problem, you can pay extra on top of the $1000 dishwasher to have a skin custom-made.

 

There you have it. Three kitchen appliances that could have easily covered the annual cost of living in the MMM household. And these aren’t even the top of the line models that you can buy! You can be sure that if any of these appliances break down, I will be the first to sell them for scrap parts and find replacements a tenth of the cost of these. Lesson learned: you can sink a lot of money in your kitchen.

 

What splurge appliances do you own?

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Earn some airline miles while investing in low-cost funds

Posted on by SmartMoneyMD

I like airline miles and fancy hotels just like everyone who has gotten themselves in this predicament. There are practical ways to redeem these perks (converting to cold hard cash), and highly luxurious ways of capitalizing on them (like flying in first class with your personal butler) that don’t actually save you money but simply allow you to travel and vacation in style.

In any case, those of us who are looking for low-fee ways to invest can choose low-fee funds from Fidelity while earning airline miles. If you are able to put $100,000 in a taxable investing account in Fidelity for at least 9 months, they will award you with 50,000 airline miles! They have offers for American, Delta, and United miles.

This can translate into at least one free domestic airline ticket (maybe $400) or something fancier if you are into that game (this may be a topic for future posts).

Fidelity lowered its index fund fees earlier this year to compete with Vanguard’s fees. The differences in savings are negligible over the long term, but worth noting:

Chart courtesy of Fidelity Investments

For instance, Fidelity’s S&P 500 index fund has an expense ratio of 0.045%, compared to Vanguard’s at 0.05%.

You can still receive a certain number of miles if you put in a smaller amount. I typically keep my taxable investments inside a Vanguard account, but given the recent change of lower fees with similar funds and airline mile perks, I plan to roll in some uninvested funds over the next year into my Fidelity account.

 

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Note: I do not have any financial interest in Fidelity or any of the airline affiliates. All of the links in this post are public links.

On being ill as a doctor

Posted on by SmartMoneyMD

While full of medical knowledge, doctors are still human. We get illnesses, aches, and pains, just like everyone else. One of the worse feelings about getting ill, is that we are still subject to the same rules, medications, and limitations that medicine has—there is no magic pill that I hide in my back pocket for a rainy day.

Case in point: I am currently fighting through a severe bout of “pinkeye”, or viral conjunctivitis. This is the same highly contagious red eye disease that your five-year old gets.  I picked it up likely over the holidays or from a patient or coworker.

In the most severe form.

imagine that these are your eyes except that they are also swollen shut

In ophthalmic terms, this means pre auricular nodes, chemosis, bilaterally, eyelid edema, 4+ injection…the works. My right eye has been swollen shut, and I’m currently in day 8 of this debilitating condition with no end in sight. I’ve been forced to take off the past five days from work, and nearly reaching short-term disability status (how embarrassing!). These conditions can last a whole month.

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Boy has it been miserable. I’ve been in pain and blurry most of the week, and taking the usual concoction of medications that are given—all of these are simply treatments to help reduce severity of the disease, but does not shorten the clinical course.  Add to the ocular symptoms the usual set of symptoms we experience from a head cold: headache, nasal congestion, fatigue—you’ve got one miserable camper. What this means is that I will have to let this evil virus run its course.

Talk about disrupting productivity.

Then your mind plays tricks on you. Certain uncommon, but possible sequela of getting pinkeye can permanently disrupt one’s vision. How will I end up? Will I have to invoke the disability insurance that I hoped I’d never have to use? Will I have to downgrade my lifestyle (fortunately for being on a mission to reach FIRE, I have been tweaking my financial self).

But hey, on the bright side, I get to stay at home, with a hot coffee in my hands, a box of tissues on one side, and a furry feline friend on the other: 

Mandated time off isn’t bad at all!

 

(Stock photo above courtesy of Flickr)

You don’t have to become a doctor to get rich

Posted on by SmartMoneyMD
No, this isn't a cave. It's the inside of a septic tank!
No, this isn’t a cave. Hint: it does hold everything that leaves your home’s plumbing!

This post isn’t intended to deter future physicians of the world—the world already has a shortage of healthcare professionals and will continue to see a greater demand for all healthcare workers in the next decade.

This post also isn’t to condemn all of us doctors who entered this career path to make the world a better place. In fact, we can all live a happy and wealthy life as doctors. WCI and PoF are two great guys in the medical field who have publicly documented their trajectory in building a comfortable financial safety net relatively early into their careers. I’m sure that there are thousands of other like-minded doctors out there who are doing the same thing but aren’t as easily found since they don’t have a web footprint.

Those of you who are still building into your careers—medical students, residents, fellows, law students—can start getting prepared to become a rich doctor by riding the wave and getting psyched mentally.

 

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The background: there are a lot of rich people out there. 

According to a report by Credit Suisse in 2015, there are 15.7 million millionaires in the United States alone. Last I checked, there were only roughly one million doctors (MD’s and DO’s) in the United States. What this means is that among the ranks of millionaires are plenty of other professions: lawyers, businessmen, CEOs, computer programmers, writers, politicians, and both professionals of the like.

Some of the wealthiest people whom I’ve met are everyday guys you would see on the street (On the flip side, I don’t take care of any celebrities or high profile people, so the likelihood that I would run into anyone else is slim!) These multi-millionaires include the general contractor who owns his mega-home inspection business, the professional blinds installer, the septic-tank installer, the concrete manager, the car dealer, and the loan dispersement agent for home mortgages.

Sam from Financial Samurai recently featured a janitor in San Francisco who was able to earn more than $271,000 a year! That’s more than what a starting Hospitalist can earn!

What does all of this have to do with me if I am already a doctor?

We can all learn from others who have succeed before us. My view is that we all inherently have traits that can help us get what we want. What traits do you need in order to be rich? Why, the same ones that got you where you are now!

Motivation. You have to want something badly enough. Most doctors worked relatively hard and long hours to get to where we are right now. That requires motivation, whether internal or external. If you want to be rich badly enough, you should be motivated enough to get there.

Resilience. You will fail. But we can learn from our failures. Figure out what set you back, and what you can do to avoid failing next time. In medicine, setbacks come in the form of patient adverse events, administrative snafus, illness amongst family and ourselves. But we have ways to learn what to do next time and bounce back stronger.  In finance, you will take risks and you will lose money. But we still use these experiences to help make us stronger.

Flexibility. We have to adapt to situations, learn from our mistakes, and keep forging ahead. We cannot be too proud of ourselves, and understand that we are not correct all of the time. You have to ‘own up’ to your mistakes. That is how we learn and improve.

Acknowledgement of your limitations. Just because you are a doctor doesn’t mean that you are the smartest person in the room! It almost has no bearing to you getting rich either, if that is your goal! You do, however, possess unique skills that you can leverage to reach your goals.

What have you done recently with your skills to improve your financial situation?

 

(Photo courtesy of Flickr)

Why I haven’t started tracking my monthly expenses – and why I need to start

Posted on by SmartMoneyMD

why-i-dont-track-expensesIt almost seems like keeping tracking of your expenditures is a prerequisite for improving your financial self. For a blogger that writes about money and finance, not documenting expenditures is downright heresy. Well, I am guilty as charged.

I don’t track my monthly expenses.

There, I’ve said it. Now, how can someone be financially conscientious if they don’t even know how much goes out of their bank account monthly?

 

The beginning.

I wasn’t always like that. In medical school, I meticulously tracked my bank account and credit card statements. It was like checking daily I/O’s in pre renal patients on the floor…only easier. I essentially had no income other than my student loans. Sure, I tutored on occasion but I’d say that I earned less than $100 during my entire 4 years of medical school. The expenses were also easy to track:

  • rent payments
  • groceries
  • furniture from craigslist
  • occasional bar tab / restaurant meals
  • the new pair of shoes I bought

I sure as hell didn’t let my balance run close to zero before the next semester’s loan disbursements came.

 

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In residency, I slacked off slightly, but still kept tabs on my paycheck and expenses. I did not contribute to my 401k/403b during residency for several (perhaps unjustifiable reasons: (1) My rent consumed about 60-70% of my monthly stipend, (2) I thought that the investment options available sucked, (3) I used excess money to repay my student loans.

However, I made sure that at the beginning of the month that I would have enough to pay next month’s rent. I wasn’t married yet, so I didn’t have to contribute to my future spouse yet. (:-P).

The present and the problems.

As an attending, I did open a Personal Capital and Mint account. (referral link on the sidebar if you want to help out the website!). It’s a great asset management tool with cool pie graphs, line charts, and even an retirement planner. This is where some of the hassles emerged:

  1. I had separate accounts for myself and my spouse. This means two different logins. Unfortunately, some of our joint accounts overlapped, it adding up both sides made it seem like we had more money than we actually did!
  2. Many of the accounts did not synchronize well. I suppose that this comes in part from the ever-evolving security mechanisms in online vendors. I had a hell of a time with my employer’s 401k (ADP) and HSA accounts not synchronizing at all.
  3. I buy many store gift cards. This is mainly a means to save some money and earn credit card points along the way. Once a year, my local grocery store sells $100 store cash cards for $90. I essentially buy hundreds (maybe even a thousand) dollars worth of grocery store credit at 10% off. I do the same with certain gas station cash cards whenever there is a sale. What this means is that all of my store category expenditures are front loaded. While I probably deplete the funds within a year, it does make it tricky to follow all of the expenses under Personal Capital.
  4. I am lazy. If you simply click on “Expenses” in Personal Capital, you can get a YTD tally of all of your expenses. However, many of these transactions are erroneous categorized. Many of my bank transfers from my checking account to savings account defaults as a “check” and not necessarily a true expense. Some of the checks I write need to be edited for specificity. How long would it take to keep these numbers correct? Probably 10-15 minutes a month. Why don’t I do it? I can’t be bothered! I need automation!

 

The future.

The maintenance hassles in Personal Capital may only amount to 3 hours of my life my entire year. Probably not a huge deal to go through. I probably will have to contact the customer support staff to tweak the logins from time to time. It’ll be my New Year’s resolution.

What will I gain from it? For one, I’d have a better idea knowing how much I spend annually. MMM spends $25,000 annually for a family of 3. I’m pretty sure I spend at least $100,000 for a family of two. Wouldn’t it be nice to see how high earning doctors can still be budget conscious and tweak their savings rate?

How meticulously do you track your expenses?

(Photo courtesy of Flickr)

How to fund a Backdoor Roth IRA

How to fund a Backdoor Roth IRA

Posted on by SmartMoneyMD

It’s that time of year where we prepare for our routine investment account maintenance. For me, one task is reminding myself how to fund a Backdoor Roth IRA. I do this at the beginning of every year in January, so that I can put my funds into the market as soon as possible.

Here are the basic criteria and rationale to fund a Backdoor Roth IRA:

  1. If your gross income exceeds $117,000 if filing single or $184,000 if filing married jointly, then you should proceed with a Backdoor Roth IRA. Otherwise, you can just contribute to a Roth IRA directly.
  2. The Roth IRA offers another “bucket” to invest. You contribute post-tax dollars into this bucket, but there is no tax on any growth in the bucket whenever you take the money out.
  3. This money can go to your heirs tax-free.
  4. It’s not a huge amount ($5500 for 2016), but the amounts do add up throughout your working career, and the potential growth over time is valuable.
  5. This works best if you don’t have any Traditional IRA funds already. The Roth IRA conversions will take into account what you have tax-deferred. If you have Traditional IRA funds, then you will be taxed on any earnings that you convert.

I have my Roth IRA account in E-Trade. It just happened to be there when I used to buy individual stocks. It has a decent web interface with decent market analysis posts under the “Research” headings.  If you already have a Vanguard or TD Ameritrade accounts, those also work fine as well. My rule of thumb is to minimize the number of accounts you have across the board for simplicity. After a certain age, you start to forget things! ?

 

Step 1. Open a Traditional Non-Deductible IRA.

On E-Trade, I select ‘Open a New Account’. From there I select a Traditional IRA. I also keep a savings account on E-Trade, and when the time comes to fund a Roth IRA, I usually transfer funds from my outside bank accounts to my E-Trade Savings Account.

For 2017, the maximum amount that you can fund is $5500 if you are under age 50. Don’t forget to fund your spouse’s account the same way!

Step 2.

Let the funds clear and do nothing. I tried to jump to Step 3, and E-Trade gave me an error message. I remember sitting on this for about 1-2 weeks on E-Trade.

 

Step 3. Apply for a Roth IRA conversion.  

On E-Trade, I usually go to the landing page for conversion: https://us.etrade.com/landing/Roth_Conversion I log in, and click through. Fidelity also has a similar mechanism. Since the funds that you have placed in your account have not been invested yet, you should still have $5500 (or $6500) that you funded previously.  If you already have an existing Roth IRA with the custodian, you can select that account at this time and combine the funds together.

Afterward, you can either close your Traditional IRA or leave it empty for next year. E-Trade allows me to keep the account open. You can then decide how to invest the funds in your Roth IRA!

What other tips do you have for Backdoor Roth IRA’s? 

Becoming a rich doctor: having the winning mindset.

Posted on by SmartMoneyMD

mindset of a rich doctorI don’t have a bone with pick with the wealthy, but wealth can help you and your heirs get ahead in life.  Tennis lessons. Music tutors. Private schools with other like-minded peers. Connections that can get you into high places. Wealth is not a bad thing.

 

Most physicians in the United States are considered “wealthy” too. Not Sultan-of-Brunei wealthy, but comfortable-upper-middle-class wealthy. We have a relatively good earning potential despite the length of training we incur.  Despite the similarly long number of years we spend perfecting our trade, there is still a wide income range across medical specialties. Some doctors will definitely become “wealthy” faster than others.

I previously wrote about becoming a rich doctor through building a strong offense through multiple income sources. I think that these remain strong tenants in maximizing our worth, but the appropriate mindset allows you to keep what you earn and build your wealth through passive means.

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A winning mindset to wealth should include retention of wealth.

 

You keep what you don’t spend. This is part one of the winning mindset. Whatever you retain can be used to work for you. Your army of millions of pennies can be put to work with almost no effort in an interest bearing fund. If you want more potential for reward with higher risk, use a P2P lending mechanism or simply the index market. If you want to  manage your financial minions actively, you can invest in other means like real estate. No matter what you do, you still need to be able to retain that wealth to grow for you.

Understand what you really need to be happy.

 

We all have material desires to a certain degree. The goal in wealth accumulation and financial freedom is not to restrict these desires, but to actually assess what we actually need. Having that nice $120,000 AMG in the garage does you no good if you only drive it on the weekend and still pay thousands of dollars a year for maintenance. Could you have done without it, and turned that $120,000 into $240,000 in 7 years?

I see plenty of wealthy people, especially doctors and lawyers, who seem unhappy. Are they unhappy that their jobs consume so much of their life but they are loathe to quit because it pays so well? Are they unhappy that the other partners in their practice make so much more money than they do? Are they just unhappy people?

Clearly the lack of money is unlikely the cause of their unhappiness. This is a situation that you don’t want to get yourself into. Most of us really have never thought about what actually makes us happy. It doesn’t really matter either if you’re a hotshot neurosurgeon or a physician’s assistant—if you don’t really have a strong grasp on your needs, you will spend down your income and risk being unhappy in the process.

How to figure out your key to happiness.

 

What do you actually need to get you through the day? Does that daily Starbucks coffee actually make you happy, or does that just get you through a 10-hour workday? Would you be happier if you got to ride your bike to work everyday? Do you prefer to spend your day tending to your garden? Typically that core set of needs will not cost you millions. MMM is able to pare down his family spendings down to $25,000 a year. Where is your number?

What is your magic list of happiness?

(Photo courtesy of Flickr)