finance | Smart Money MD

Category: finance

The number one reason doctors need to be financially independent

Posted on May 26, 2018January 30, 2021 by SmartMoneyMD

Most doctors are goal-oriented, which is a useful trait (or personality quirk). Motivation helped get us through a decade of training, and to get to the next step. But putting in your A-game for more than a decade can be tiring if you’re not hypomanic. As I mentioned on a previous posting, once we escape from doctor survival mode it’s normal to let loose the reins and slow down.

You might also like: Getting out of debt is easy. Getting rich is not.

I consider anyone to be out of survival mode if she has accomplished most of the following goals:

Finished medical school, residency, and fellowship
Board certified (no more exams, at least in the interim)
No more high-interest student loan debt (>4%)
Gainfully employed or working with a steady income

Obviously there are many other financial goals that one might add onto the list such as buying a house, having enough to send your kids to school, or simply being financially independent. What’s more important in this checklist of goals is that we all need to enjoy the process as much as possible. YOLO. Leaving your kids with $10 million does you no good if you aren’t around [physically] to enjoy your hard earned sweat.

For most doctors out of financial survival mode, the timeline to further reach our goals tend to get relaxed. At this point in our careers, we typically feel comfortable with our clinical practice, we have a steady income, and most of us are still healthy. There is no longer an immediate urgency to reach the next step in our financial timeline, especially if college savings or another bigger goal requires five or more years to reach anyway. This has certainly been the case for me. It’s better to play the long game rather than sprinting.

Doctors need to remember that nothing lasts forever

That’s right. When the weather is fair, you ride the wave. Don’t expect the wave to carry you through your entire career, however. Bulls can transform into bears, as we’ve seen in 2018. The medical profession, while traditionally stable is fraught with transformations unfavorable to doctors. If you want to hear some unhappy people, go to @SERMO or the doctors’ lounge of your local hospital. 😉

Common complaints I hear and experience in my medical profession include:

Loss of autonomy – No, we’re not talking about rules preventing us from throwing scalpels in the operating room whenever things don’t go our way. Administrators tell us to improve our Press-Ganey scores when we actually have less control over of the numbers. The death blow comes with our salaries end up getting tied to these dubious numbers. By the way, we also have to chart more than ever without much noticeable improvement in outcomes. This is just the tip of the iceberg!
Medical insurance restrictions – Prior authorizations. Medical necessity. Painful. This falls under loss of autonomy.
Medical insurance reimbursement cuts – Doctors are seeing more patients than ever on their schedules, yet salaries don’t necessarily even grow with inflation. Some specialties have even seen salary cuts.
Electronic Health Record issues – No one wants to spend more of their life clicking around a poorly conceived UI on underpowered computers with way too many icons on the taskbar. ‘Nuff said.
Getting locked out of a market – Some health insurers won’t permit smaller medical groups or single-doctor practices from enrolled onto their insurance plans because larger groups bid for the same contract [read: willing to pay their doctors less for more work].
Being characterized as a provider – This hits a nerve with all doctors.

It is upsetting that I see more of my colleagues under some sort of squeeze, and none of it even has to do with the inherent intellectual challenges of being a doctor. How does one get out of this mess?

The key to job freedom is to become an administrator, just like this guy here.

Financial independence solves all of these problems

If you want to get out of the hamster cage, you cannot be beholden to the system. We practice medicine because we love to take care of people. We also do it to put food on the table. Once we have a suitable means sustain a healthy livelihood outside of our day job, the burden becomes lifted.

Think about it. Why do some of us go abroad to volunteer our skills? We do it because we get intrinsic satisfaction outside of a monetary payment. I find that it’s more fun to volunteer than to go to my day job.

If you know that you can walk away from the painful regulations of a broken medical system at any time, some of the daily burdens are no longer burdensome. You might even start considering your day job to be volunteer work that actually generates a salary! If you ever need the motivation achieve your financial goals, think of the negative changes that you’ve witness in our healthcare system even in the last several years. Use this as motivation to get yourself to financial freedom sooner.

Doctors, if you want to be able to help others with your skills, get yourself to financial independence sooner.

What motivates you to achieve financial independence?

Reasons Why Home Warranties Are Essential

Posted on May 16, 2018February 4, 2021 by SmartMoneyMD

This is a guest post by Jeff Broth, who specializes in exactly that—eventually most doctors will end up purchasing a home and will need at least the basics to help us make the right decisions to cover our roof. Incidentally I ended utilizing my home warranty on a few leaky windows in my home.

Home warranties can serve as useful ‘insurance and protection’ against the breakdown of home appliances and systems. The average lifespan of home appliances and their electro-mechanical components varies significantly. Consider for example that the average lifespan of air conditioning units (AC units) ranges between 8 years and 15 years. Various factors determine the longevity of appliances, notably how much they are used, the type of climate you are living in, and the quality of the appliances and systems that you purchased. The life expectancy of home systems and appliances is one of the major driving forces behind the explosive growth in the home warranty industry. Below is a listing of the estimated lifespan of home systems and appliances, based on industry-leading analysis:

Water Heaters – 10 – 11 Years
Washing Machines – 5 – 15 Years
Refrigerators – 9 – 13 Years
Microwave Ovens – 9 Years
Electric Ranges – 13 – 15 Years
Gas Ranges – 15 – 17 Years
Gas Ovens – 10 – 18 Years
Dryers – 13 Years
Dishwashers – 9 Years
Food Disposal Units – 12 Years
Compactors – 6 Years
Freezers – 10 – 20 Years

Be advised that several factors besides usage determine the longevity (life expectancy) of these systems and appliances. For example, proper care, maintenance, and usage can significantly enhance the lifespan of these systems. The quality of the materials used in maintaining and servicing these appliances can also have an impact. Generally, the fewer the number of working parts in a system, the longer it will last, ceteris paribus. As a new homeowner, you are generally protected against faulty systems and appliances by dint of the manufacturer’s warranty. This is applicable to the first year of ownership for an appliance/system.

After that, the manufacturer’s warranty typically expires, unless the appliance owner has purchased an extended warranty. Before a home warranty company selection is made, it is imperative that these companies are extensively reviewed and tested by industry-leading experts. It is difficult to gauge the quality of a home warranty provider if you don’t know what needs to be assessed. It’s not only the annual fees that matter, it’s the coverage and extended coverage, customer service, technical proficiency, timeliness and credibility that plays a big part in the decision-making process. The difference between home warranty coverage and the absence thereof could be tens of thousands of dollars in replacement/repair costs for major systems and appliances.

How Can a Home Warranty Help You?

Home warranties are designed to offer the protection that is needed to guard against system malfunctions, breakdowns, or replacement. The quality of a home warranty company determines the level of comprehensive coverage it provides to US homeowners. A group of top-quality home warranty providers consistently exceeds expectations. The top 5 home warranty companies for 2018 include the likes of: Select Home Warranty, Choice Home Warranty, Total Home Protection, American Home Guard, and Advanced Home Warranty. Evaluating the quality of one home warranty provider over another is an arduous undertaking.

It requires extensive analysis of the terms and conditions provided for home warranty coverage for these companies, the type of plans and costs associated there are. Perhaps the most important components of home warranty companies are trust, credibility, reputation, and client reviews. The reputation of a home warranty provider takes time to cultivate. When a company provides exceptional service to its clients, it garners a solid reputation in the industry. This is facilitated by way of positive client reviews on objective review sites like TrustPilot, with industry-leading appraisals through the Better Business Bureau (BBB).

What Can a Home Warranty Company Offer You?

Consider the following example review of Total Home Protection. This in-depth review provides assessments of the quality, credibility, and coverage offered by this home warranty provider. It lists the BBB rating, hours of operation, cancellation policy, premiums, deductibles, and coverage limits. Among others, Total Home Protection is highly rated on Google, is available across most every state, and provides affordable additional coverage options to clients. That it is not accredited by the BBB should be factored into the equation, and there is limited coverage available.

However, one should always bear in mind that up-and-coming companies should not be dismissed out of hand. Growth prospects and enhanced credibility are entirely possible over time. There are significant cost benefits to signing up for home warranty coverage with a reputable provider. Home systems and appliances are exceptionally expensive to replace, service, or repair. For a nominal annual fee and callout fee, homeowners can sleep easy at night knowing that the inner contents of their homes (systems and appliances) are protected against eventualities.

Why doctors need to do their own taxes at least once

Posted on May 6, 2018January 30, 2021 by SmartMoneyMD

For decades, I had been the DIY type. If the task at hand conferred low risk to my main career and if outsourcing the job was more expensive than what I could generate with my own career in the same amount of time, I was game. Tasks that I’ve tackled included changing the lightbulbs in my car, fixing a sensor in my hot water heater, replacing a fan in my furnace, and even repairing a chest freezer relay. I still consider myself the DIY type, except that with age and limited time I am more often faced with outsourcing tasks that I otherwise would have tackled years ago.

I don’t expect most doctors to be handy, techie, or even analytical outside of their careers. I’m willing to bet that most doctors don’t ever track their monthly expenses, let alone be able to draft out their financial plan. We are all capable of doing it, our jobs simply rob us of our brainpower. I need to unwind after a long day at work, and after a week of long days, the weekend simply can’t come soon enough. Sometimes the weekends are consumed by on-call emergencies. The last thing I really want to deal with in my limited free time is to fix an irrigation line or come up with strategic ways to increase my savings incrementally.

Grade school math and compulsiveness is all you need to file your taxes

Before tax software became mainstream, basic math and an incredible amount of persistence in reading about the U.S. tax code were all you needed to file your taxes. The biggest impediment was the time, energy, and motivation to thumb through pages of instructions not really knowing if you’ve interpreted the rules correctly. The challenges came when certain blanks were ambiguous–do you ask an accountant, check with a lawyer, or just fill in the numbers to the best of your abilities?

The game has changed with the Internet and tax software. You only need to follow basic instructions in order to file your taxes through tax software, and with some persistence with online forums you can easily become an advanced beginner to tax nuances. The beauty with tax software is that you can view changes to your filing dynamically and work backwards to figure out how each line on your 1040’s and Schedules are populated. Do that for a few years, and you’ve got the system down pat. Moreover, you’ll become less daunted when new tax rules are enacted.

All doctors should spend some time learning how to file their taxes

Even though all doctors should understand how to taxes are filed doesn’t mean that we need to be filing our taxes every single year of our lives. The principle of tax filing can be compared to learning the clotting cascade during medical school. You needed to learn it for your tests, but as an orthopedic surgeon you probably don’t need to be able to recite it by heart. However, even if you’re a bone doctor, you know that aspirin and direct clotting inhibitors work in different segments of the cascade.

Likewise, understanding how you file your taxes and what information is needed to file your taxes is helpful even if you have a tax accountant. You have to produce the tax documents for your accountant anyway, and it’d be a whole lot easier for your accountant to do your taxes if you already know what forms are needed. You’ll be more attuned to any changes in tax code, and you can even ask meaningful questions and confidently know that your accountant is doing the right thing for you by reviewing the results.

Start filing your own taxes in residency.

Even though you are chronically sleep deprived in residency, your tax status ought to be at its simplest—it would behoove you to try to file your taxes while the forms are still straightforward. Most medical residents will find themselves taking a standard tax deduction. Those who can itemize will likely have mortgage deductions, a working spouse, and children. Even then, residents are paid through a W2 as employees so income is easily reported.

Farm out your taxes to an accountant once you become rich

That’s right. You don’t have to be condemned to filing your own taxes forever…unless you love working through the tax code. Many doctors will have real estate investments, multiple income streams through dividends and stocks, and more complex business deductions. You can still figure out how each one of these variables fit into the tax returns, but at some point in your life you won’t have as much time to dedicate to this.

There’s no shame in farming out your taxes to your accountant, as long as you have a fundamental grasp on how the forms are completed.

Have you filed your taxes yourself before? If not, take the leap and start!

Five Reasons Why Doctors Fail At Getting Rich

Posted on April 29, 2018January 30, 2021 by SmartMoneyMD

One would think that doctors should have no trouble getting rich, given that our profession as a whole has higher earning power than most other professions. The path doesn’t take much more than above average intelligence, an incredible amount of hard work, and many years of education. The problem is that there is frequently a problem with converting a high income to high wealth. There are times in my career where I’ve thought that getting rich from being a doctor ought to be a slam dunk, but we are all human. Why can’t smokers quit smoking? Why do I love sugar so much? In reality, we all have to realize that no one is perfect. These are some of the reasons why doctors can’t be perfect about money:

Poor and inadequate investment choices.

I first contributed to a tax-deferred account in fellowship, which was a 403b. Mind you, I was already in my 30’s, and even had bought individual stocks in a taxable account years before investing in any tax-advantaged accounts. I didn’t max out my 403b account either, since I spent the rest of my money on living expenses and [fortunately] repaying some of my student loans. I was actually one of the more financially conscientious of my peers too, so I really felt good about myself then. Most of my coworkers eventually contributed a maximum to their 401k’s as attending physicians, and really felt proud that they were making great financial moves.

Some of them work at Kaiser Permanente, which does have a decent pension plan at retirement so perhaps everything will work out in the end for them. Everyone else without a pension will realize that their 401k’s won’t have enough to pay much of anything when they decide to call it quits.

Choosing a low-paying job in a high cost of living city.

I love geographical arbitrage as much as any online financial enthusiast, but sometimes it’s hard to justify moving to Minneapolis if your entire extended family lives in Philadelphia. Add in the fact that you consider the best Jewish deli in Minneapolis to be inferior to the any of the dozen pastrami vendors in Philly, you’re in trouble. Guess what? There’s also a dermatologist every few miles in the greater Philadelphia area, and there are also dozens of other dermatologists wanting to move to Philadelphia waiting to take the low-paying job offer that you’re reconsidering.

You get the point.

We all have to make choices that suit our lifestyles. If that means living in a higher cost of living area, then you will have to prioritize your expenses more astutely (or be like @PassiveIncomeMD and hustle in a crazy number of revenue streams).

Poor family choices (aka divorce)

I don’t recall ever reading any statistics that doctors have higher divorce rates than the average population, but I recall reading a study that surgeons and psychiatrists have the highest divorce rates among doctors. Obviously the doctors I’ve known who’ve had divorces (sometimes more than one) are the ones that stick to my mind as being on shaky financial ground. I don’t know any of these divorcees well enough to inquire about their financial situations, but I can’t imagine that paying alimony for three kids would be cheap. Sometimes the biggest blow in divorces that I’ve seen are disputes on the house or illiquid finances like retirement accounts. This can set your retirement dreams back by decades.

Believing that they are rich (when they are not).

I had classmates who “borrowed” from their future selves. Fancy international vacations during medical school. Nice car purchases to go along with a nice home during residency. New designer dresses every month. I’ve wondered for years whether I had been wrong to judge their financial decisions, but not everyone has a family who owns a diamond mining business.

Leverage works quite well in real estate, but not in selling your professional skills. At some point in your career you might not want to be operating ten hours a day or seeing fifty patients a day. If you leverage your skillset too much into the future, your bank account values may never catch up.

Lifestyle inflation that exceeds earning capability

Another group of my medical school classmates were incredibly cost-conscious during school. They ate ramen, supermarket spaghetti, moonlighted in the ER, and bought used clothing. They let loose the financial reins slightly during residency, but transformed into new people in their first job.

I love waiting in line so that I can spend more on a handbag

Mega mansion, three new Audis, designer clothing, and top-quality organic hired home chefs, all within the first year of her first job. Suddenly that old Crate & Barrel dining table is no longer adequate for breakfast. It’s not clear to me how a granite-topped dining table is any better than a wooden or glass one, unless you’re comparing yourself to Napoleon (who also ate from a granite-topped table).

This is an extreme case, but it doesn’t truly take much lifestyle inflation to exceed your earning capability. Just because you have a six-figure salary doesn’t mean that you can sustain six-figure expenses indefinitely. It takes quite a bit of financial reserve in order to generate out a six-figure annual bill when you stop practicing medicine.

Have you been guilty of any of these financial follies?

Rethinking the 529 Savings Plans – Do I really need it?

Posted on April 15, 2018January 30, 2021 by SmartMoneyMD

When I was growing up, 529 education plans did not exist. My parents had to save up extra money if they wanted to fund my college education. That didn’t really happen, simply because the price of college was outside of our family budget. Ultimately it didn’t really matter since our fair country is built upon credit—I was able to borrow for college and medical school, albeit at interest rates much higher than what you’d get with a mortgage or a car. Maybe the easy credit in this country contributed to the housing crisis a decade ago. Who knows?

My car dealer allowed me to walk off his car lot with zero down payment on a 5-year loan at 0% interest! If college tuition were only like that…

The back story

529 Plans are great in that it allows families to receive some state tax benefits while providing a tax-free vehicle to invest in education expenses. You can essentially deduct a set amount of your 529 contributions from your state taxes–this varies according to state rules. This amount can also grow tax-free as you invest within the account. States like South Carolina allow you to deduct the full amount that you contribute from your state taxes, whereas California gives you no deduction. If you are fortunate enough to live in a high-tax state with a great custodian and investment options, you can build up a pretty penny to fund your kids’ education.

Even if your state doesn’t have great investment options in its 529 program, you can even invest through other states’ plans. You won’t get the state tax deduction, but your investments can still grow tax-free if used for education.

Since your money can only grow if it is invested, one of the power moves with 529 investing is that you can fund up to 5-years of contributions ($70,000 as of 2018) at once while avoiding the federal gift tax penalty. If you include your husband in the mix, that’s $140,000 of contributions towards the 529 at once! You can rinse and repeat in 5 years to maximize the time that your investments stay in the market. By the time Junior is applying for college, you’ll have hopefully stashed $210,000 in the bucket plus investment gains. That’s more suited to fund an expensive private school education. And you can do that with every single child you open a 529 for—the child doesn’t even have to be yours!

The caveat

There are two considerations when trying to invest big bucks into an educational fund: (1) what if your educational needs exceed the amount in the account when you need it, or (2) what if Junior opts to forego higher education?

College and graduate school expenses have no upper limit. The longer you remain in school, the more money you’re going to spend. College alone cost me over $120,000 decades ago, and medical school racked up another $200,000. With rising education costs, there is a good chance that your 529 will not have enough to fund a private school education, even if the stock market is on a tear. I prefer to view education not only as a financial investment in one’s future, but also as a privilege—you apply and are accepted. I’d be willing to borrow some money to enroll in a great school, but not a fly-by-night online school. If your 529 investments made any money, then you’ve come out ahead.

If Junior doesn’t go to college, all is not lost. You can easily transfer the savings bank to another family member, relative, or friend who still has potential for higher education. You can even cash out of the 529 if you’d like, but you’d be on the hook for any tax liabilities on the gains. In this case, just hope that Junior has found her calling in life and won’t be asking mom and dad for handouts or a place to crash while in between jobs.

Should you even risk having to cash out of a 529 Plan?

This situation is more of a judgment call. How much tax savings are you gaining through a 529 plan? The savings would be any state tax reduction plus tax drag compared to investing in a taxable account. If your state had a 6% marginal income tax rate and you invested a lump sum of $70,000 to cover five years worth of contribution, you’d reduce your state tax burden by $4,200. Is this pocket change?

You’d really have to think about it, and whether saving that amount over five years would make a difference to lock your investments into education. It would be worth it to some people but I definitely have colleagues who would rather have more flexibility with their money.

This guy never got a 529 plan, but clearly is doing just fine!

When you are ready to use the money, investment gains within the 529 are protected from the marginal investment tax rates. For high-income earners, this is 20%. You might be able to save another $4k or so of long-term capital tax gains.

If you are a high-income earner and do not live in a state that offers any tax advantages, you should consider what advantages a 529 would have for you–do you want your kids to have a means to fund for college? Should they fend for themselves? Would you serve them better if you took that same amount and funded a real estate venture that can provide cash flow to fund college and have the flexibility in case your children aren’t destined to be college-bound?

Do you have a 529 Plan for your children?

Where to invest for short-term gains

Posted on April 8, 2018January 30, 2021 by SmartMoneyMD

As long as we are in our earning years, our investment strategy should target the long game. Get rich quick, buying and selling, and IPO schemes are only great for excitement and anecdotes over cocktails. If you hedge your future on gambling, you are betting against the house.

The name of the game in short-term gains ultimately lies in liquidity. This is your pot of funds that allow you to have immediate or near-immediate access. This is sort of like your emergency fund stash. Some people are against keeping any sort of emergency fund, citing that credit cards or lines of credit will allow some flexibility in a pinch.

I sort of keep my emergency fund stash in the same pot as my short-term fund storage bin. This is a set amount of money that I keep around that might come in handy somewhere in the 3-9 month range. These are funds that I might need for a big ticket purchase, like a deposit for a mortgage, tax payment, or sizable investment. Now as with any smart investor, you don’t ever want to keep too much money lying around that’s not working for you. You work hard enough in your day job. It’s your money’s turn to make more money.

Time is on your side if you can get your dollars working for you.

In my book, short-term investments simply need to have decent liquidity and safety. You don’t want to end up losing half of your money due to volatility by the time you need to withdraw it for other uses. This only leaves conservative investments like money market accounts, CD’s, and bonds.

Money Market Accounts

By default, I keep all of my in-limbo funds in my money market account. I get FDIC protection, debit withdrawals or even check writing. This is just money that I’d otherwise transfer to my checking account to pay the bills, only that there is a slightly higher interest rate (approximately 1% these days in high-interest MMAs). Hey, 1% is not much but better than nothing. In the grand scheme of things, unless you’re keeping a sizable chunk of money in the savings account what else you do with your money probably isn’t going to affect your retirement.

CD’s

This is another form of financial security that banks and credit unions offer. It’s essentially a way for the financial institution to have cash on hand in its books for lending, negotiation, or even borrowing. For the investor, CD’s offer a risk-free means to get a set rate of return. In 2018, the interest rate is roughly twice that of a MMA. The only downside is that you have to lock up the money for a fixed period of time.

Treasury bills

Treasury bills, or T-bills, are financial securities that are sold by the U.S. government. While I studied hard for my high school AP U.S. History exam, I’ll be first to admit that I frankly do not have enough political or economic interest to evaluate how the government decides to use these funds. What is important for me is that these securities are backed by the U.S. government. This means that T-bills are safer investments than bank accounts themselves because those funds are also backed by the government. If the government ends up defaulting on its T-bills, then we’d all have bigger concerns to worry about than losing our investment.

Most recently, you can purchase T-bills that mature in 3,6, or 9 month intervals at an interest rate nearly at 2% annually. That is probably the best deal you can get for short-term, essentially no-risk investments. You can purchase them through the U.S. government directly at http://treasurydirect.gov, or through your broker. I’ve purchased mine through Fidelity. These rates are currently much better than what you’d otherwise get from a bank CD.

Short-term Investment Strategy

Before purchasing T-bills, I had only purchased bank CD’s in a ladder so that I’d have certain amounts maturing as I needed the money. It was a convenient means to improve my passive earnings since it was easy to open CD’s at banks that offered high rates. I was too lazy to open an account on treasurydirect.gov. Then I realized that I needed to be strategic to minimize my tax burden as well.

T-bills are not subject to state taxes. Sure, everything else is taxed at your federal marginal tax bracket, but if you live in a high income tax state like California, you could save up to 10% on state taxes. For a 9-month T-bill investment of $10,000 at 2% discount, you’d gain roughly $150 before income taxes. If you were to buy a CD at the same rate while living in California, you could end up paying an extra $15 in state taxes when you’re at the top tax bracket (you will be as a doctor).

Is $15 worth your time to open a T-bill? You can decide. If you are drowning in cash flow from your multi-unit apartment rentals you probably can’t be bothered to mess with the low-end T-bill investments. On the other hand, if you are stashing $300,000 for an upcoming mortgage in 9 months, a T-bill isn’t a bad way to grow some interest while you wait. It’ll buy more than a few espressos at your local barista.

Getting out of debt is easy. Getting rich is not

Posted on March 18, 2018January 30, 2021 by SmartMoneyMD

Financial success is built upon establishing goals and achieving them. We call this the financial plan. This plan is similar to any other blueprint that we create—there should be some concrete achievable goals, a timeline, and an action plan to how to meet the milestones during the process.

The challenge in creating a sound financial plan is to identify what we hope to achieve as the end product. My earliest financial goals had been rudimentary:

“Get rich”

“Become a rich doctor”

Over time, the goals end up becoming loftier:

“Earn $1 million”

“Earn $10 million”

The problem with these statements is exactly how college admission essays are graded a ‘3’ out of five points—they have an endpoint, but the story isn’t very well-developed. I was throwing out great ideas, but none of the goals were concrete. Some of these goals probably weren’t achievable in one full career.

You might also like: How I paid off $148,260 in student loan debt my first year in practice

As I reflect on all of the goals, mini-victories, and long-term financial visions I’ve tackled, perhaps the easiest one that I’ve achieved has actually been getting out of debt. Why?

Goals have to be concrete, with an achievable timeline, and plan in order to succeed.

It turns out that getting out of debt meets those requirements handily. The concrete aspect of getting out of debt was to achieve a net worth of zero, a quantifiable amount on the family balance sheets. The plan for getting out of debt involved reducing my living expenses as much as possible while building up a strong financial offense. Transitioning from a medical fellow to an attending physician is probably one of the only times in a doctor’s life that her earning power easily more than doubles. That’s impressive financial offense. The timeline to getting out of debt for a medical resident transitioning into attending level work is essentially immaterial. As long as your expenses do not increase proportionally with your income, you have a clear-cut formula to get out of debt. Easy peasy.

Getting rich is not easy.

Of course once the income increases, so do the expenses. It’s psychological. Some of us have that innate ability to live on minimal expenses, but it can be tough to sustain especially if you have an income that is several times higher than that of the average household. For this reason alone, many high income professionals never become “rich”. We simply spend too much to become “rich”.

More challenging is how you define “being rich”. In the broadest sense, we are already rich if we are high-income professionals. Some people don’t consider being “rich” until they have a better lifestyle, house, and wealth than most people they know..quite the slippery slope. Some others keep changing how they define “rich”. You simply cannot become rich if you don’t have a set definition of it.

Becoming rich shouldn’t be your goal.

As I became more well-versed in my financial knowledge, I realized that “becoming rich” shouldn’t be my goal. It’s too vague. You’ll never reach a vague goal. What’s more important is to identify a quantifiable lifestyle to achieve with quantifiable measures of wealth.

What is your next goal after getting out of debt?