Category: finance

Your doctor car is a luxury item

Your doctor car is a luxury item

Most people look at their vehicles as a necessary expense.  Most cities do not have robust options for public transit, and the rest of the country is too vast for any other form of common transportation to be useful.  In contrast, I’ve met a smattering of diehard bicyclist fanatics who swear that leg-powered, two-wheeled transport can suffice even if you’re hauling lumber or a two-year-old child in a snowstorm.  These are the same people who appear to have exquisitely muscular physique, and claim that biking everywhere contributed to their abs of steel and plaque-less arteries.

Which came first, the biking or the toned abs? Should you just keep an extra set of heels and outfits at the office? What about a vanity kit, hairdryers, irons, and extra shower room too?

The majority of people will unlikely go against the grain of owning a car, but it’s still critical to be aware that what starts as a necessity often transforms into a luxury.  Our cars likely account for the top two or three expenses in our budget.

Going the fancy car route

Doctors have to look the part, right?  It is important to look the part in the physician’s parking lot at the hospital, and frankly, the barrier to ownership of a luxury vehicle isn’t actually that high.  Many of my colleagues also opt to lease vehicles in order to maintain the flexibility of having access to a new car and not worrying about the maintenance. 

A lease on a $90,000 SUV may only set you back roughly $1200 a month, or $40 a day.  Gas might run you $250 a month ($8.33/day), and insurance perhaps $2000 for six months ($11.11/day).  In total, this might cost $60/day.  While this amount may not be a huge dent to a Hospitalist earning $120/hour, remember that these purchases are made using post-tax dollars.  At an effective income tax rate of 30-40%, that $60/day may be costing you closer to $90+ of pretax dollars.

Is ownership of a luxury vehicle worth 10% of your ten-hour shift? 

The amount of detail you can analyze this situation is endless—most shift worker physicians are only posting 15-18 shifts (often less) a month.  This lease might actually eat into more than 15% of your monthly gross income.  Two of these leased vehicles would consume 30% of your income, just to get from A to B.

Keeping a beater until it no longer starts

In contrast, there are plenty of physicians who purchase a vehicle outright, and drive it until the car no longer works.  This might translate to a decade of use for the average non-technical car driver to maybe 15-20 years for the car hacker.

Modern safety features are optional.

Ownership might still cost you $30/day if you amortize the cost of maintenance through the life of the vehicle.  If you are unfortunate enough to buy a lemon that dies after year 7, you’ve effectively increased your daily cost of car ownership.

For the high net worth individual who needs umbrella insurance, there is a trade-off with owning an old beater.  While umbrella insurance itself is relatively inexpensive, the policies often require a certain amount of pre-existing coverage of your home and vehicles in order to pass underwriting and avoid gaps.  This additional amount of auto insurance coverage might be more than what you’d like to pay for an old car, but you have no other choice.

The moral of car ownership

It’s unlikely that your life circumstances allow you to circumvent car ownership completely.  Even as a high-income earning professional, you are likely still giving up 10% of your earnings to this luxury.  With teenage children, you’ll easily double the expense.  If this amount has no impact on your well-being, then look no further.  You needn’t worry about it.

However, the most important aspect of car ownership is realizing that it can and will sting your wallet.  If that sting is sufficient to disrupt your financial plan, then and only then should you analyze what to do to reduce the financial burden.  

What is your stance on ownership of a luxury vehicle?

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Do I need to establish a trust?

Do I need to establish a trust?

One of the more commonly pitched financial protection vehicles to high-income individuals is a trust, or living will.  It is essentially a document that lays out instructions to distribute your belongings to your heirs at the time of your demise. We briefly discussed an overview of this vehicle in a prior post, Do doctors need to establish a trust for their heirs?

In this post, we will review step-by-step how to decide whether you and your beneficiaries will benefit (get it?) from a trust.  Remember that there are essentially two goals of a trust: (1) to eliminate any ambiguity with distribution of your wealth when you are pushing up the daisies, and (2) to avoid probate court.  Why is probate court so bad? It really isn’t, but the process can delay the distribution of your estate by months and chew up a chunk of funds for legal fees. 

In some cases where your heirs might not have the money to pay the legal fees, a trust can allow you to set aside a certain amount of your estate to pay the legal fees.  The options can be endless.

Estate Tax

Right off the bat, if you have greater than $11.58 million or more in the year 2020 you probably need to establish a trust and enlist the advice of an estate professional.  This is a sizable amount, and it would save a lot of headaches if there were explicit instructions to distribute your wealth.  Additionally, many states impose estate taxes on a much smaller amount.  Check with your state’s limits to help decide if you’d benefit from a trust.

Step One: List your valuables

The first step is to decide what you have that is worthwhile to give.  This includes bank accounts, retirement accounts, real estate, and the various pieces of artwork that you collected while you were in Egypt.  The greater number of people and items that you have to distribute, the more likely a trust would prove helpful.  Think about it.  If you only needed to give everything to your spouse or single child, then there is usually not a huge need to establish a trust. 

Step Two: Eliminate accounts with POD options

Payment on death—this is essentially an option that many investment and bank accounts have that allows the owner to list a beneficiary to the account.  Sometimes these are listed as beneficiary options on your accounts.  By default, your beneficiary receives access to the account when the primary owner of the account expires.  There is no probate process needed to reassign ownership of a bank account to a beneficiary.

The accounts that you have listed in Step One that have a beneficiary option do not necessarily need to go into a trust.  What you are left with will help you decide whether it would be worthwhile to establish a trust.
For simple estates, most people are left with their primary home, their vehicles, and any other items of value that may not have a title or deed, like a painting or jewelry.  The big ticket item is usually the primary home.  

Alternative options to transfer ownership of property

Just like your investment and banking accounts, there are few options to transfer ownership of real estate without going through a trust.  As of 2020, the following states allow a form of “transfer on death” deeds on property:

  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Hawaii
  • Illinois
  • Indiana
  • Kansas
  • Maine
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • New Mexico
  • North Dakota
  • Ohio (similar concept in the form of an affidavit)
  • Oklahoma
  • Oregon
  • South Dakota
  • Texas
  • Utah
  • Virginia

There are states that also offer enhanced life estate deeds, also called Lady Bird Deeds:

  • Florida
  • Michigan
  • Texas
  • Vermont
  • West Virginia

If you do not live in any of these states, then this option is does not apply to you. A Lady Bird Deed is simply an equivalent to the payment on death forms that banks often provide.  While every state has different rules, you simply need to transfer your existing deed to the new deed and record it with the local government.  Many legal services will offer this option for no more than $100—if you do it yourself, your cost would only be your county’s recording fees and the cost of a notary.

Making the lives of others easier is not a bad thing

If you life in any of the above mentioned states and your primary household is the only big ticket item that you own, then you can still avoid probate court by updating the deed to your house.  

What is left can go into a trust

Personal artifacts and jewelry can certainly go into a trust, but you have to decide whether there is truly any benefit for doing so.  How many of these items are there, and how many people do you intend to distribute these items to?  Would it be possible to gift these items to them while you are still alive? 
Ultimately, you have to decide how much simpler you can make your heirs’ lives when you’re no longer around.  If that means establishing a trust to simplify the inheritance process, it would be worthwhile investment.

Do you have a living trust for your heirs?

All statements in this article and website are only opinions and should NOT be construed as professional advice.  Consult a tax planning professional if you are seeking help in the matters discussed in this post.

Trialing FIRE during a pandemic?

Trialing FIRE during a pandemic?

With the ongoing COVID-19 pandemic in Q1 and Q2 2020, many businesses have been forced to furlough or even lay off employees.  The government is slowly implementing rollouts to help medical practices weather any lost business, but none of this is likely to be sufficient to replace the revenue that was lost before worldwide economic disruption.  Many employed physicians are taking salary cuts, owing to the essential cessation of elective treatments and office visits until further notice.  The bottom line is that everyone is getting hit hard, except for maybe those essential businesses that are jam-packed with customers.

Disrupting the routine
Many physicians are being furloughed by their employers simply because there isn’t enough work to be done.  Are people having fewer hospital admissions?  While the real answer to this conundrum probably isn’t too straightforward, this change has been tough both financially and psychologically.  Just ask anyone who recently retired from their jobs after several decades of grinding away.  How do they fill their time? How many hobbies can one simply adopt and how can someone just switch gears suddenly? 

We can always play pretend until the real thing happens

Getting furloughed is a huge problem if you are dependent upon your job for income and survival.  Just speak to anyone who has ever been laid off and has a family to feed and debt to be repaid.  For this reason alone, all new medical graduates should strive to build a financial buffer in case income stream is disrupted.  This also means that even if their first job out of residency doesn’t live up to their expectations, they need to strategize a Plan B while maximizing their savings.  It is always best to develop good financial habits before financial turmoil.

Transitioning to early retirement
If you have been furloughed and are nearing financial independence, now is the best time to test the waters.  You’ve saved up your entire career thus far, but how are you going to pay your bills? There are plenty of options to withdraw from your net worth, but ultimately it depends on how you can minimize your tax bill:

  • Early withdrawal from 401k or IRAs
  • Cash out dividends only
  • Sell stocks or bonds
  • Real estate income 

This is not a one-size-fit-all game plan. Some people have a spouse who may have income or provide health insurance coverage.  But if you are furloughed, now is the time to assess your exit strategy.  
Pandemic simply an impetus to improve financially?The fortunate aspect of being in the medical field is that we are always needed.  Broken bones need to be repaired.  Heart disease needs to be treated.  The bulk of healthcare will re-emerge when the dust settles.  We might end up practicing medicine in an entirely different manner, our incomes might go down, but we still possess a useful still.

Those doctors who are furloughed or taking a pay cut during the pandemic will hopefully be brought back and be busier than before.  But just remember that getting your job back is no excuse to ignore your finances.  Consider all of this a wake-up call.  Use this opportunity to get yourself in a stronger financial situation. 

Furloughed physicians during the COVID-19 pandemic

Furloughed physicians during the COVID-19 pandemic

Unemployment is at its relative peak in recent U.S. history, as of March 2020.  Non-essential businesses are being asked by local governments to close.  Most restaurants have closed their dining areas and resorted to delivery and carry-out orders only.  Those who are fortunate enough to work at home can remain employed.  Hospital-based physicians, on the other hand, are now in critically short supply.  Several New York City medical schools are now allowing some of its medical students to graduate early simply to help out on the wards.  Current critical care and emergency room physicians, as well as critical nursing staff are stretched thin—many of working longer shifts and spending less time with their families.  

Some physicians have self-quarantined from their families to minimize risk of disease transmission.  Imagine showering the hospital at the end of your shift before going home or having a part of your home cordoned off.  Critical times call for critical measures.

The opposite side of the spectrum
Now there are plenty of physicians who are not on the front lines, namely those who work in elective treatment settings.  You guys know who you are, and there’s no denying the facts:

  • Family practice physicians who specialize in medical spas, and laser fat removal.
  • Anesthesiologists who run infusion clinics—think plasma or vitamin infusions, not disease-altering treatments like chemotherapy or immunomodulators.
  • LASIK surgeons
  • Plastic surgeons specializing in purely cosmetic treatments.
  • Dermatologists who specialize in boutique, cosmetic practices.
  • Otolaryngologists who specialize in cosmetic rhinoplasty. 
  • Physicians who run CBD or medical marijuana dispensaries (elective or non-elective depending on your opinion).

If there are any physicians out there who have medical businesses that are considered elective or non-essential that I’ve left out, please mention in the comments?

These are the medical businesses that are likely to be closed at this point.  As healthcare workers, we need to do our part in conserving supplies and personal protective equipment (PPE) for those who need it.  Patients also need to be aware that by not seeking non-essential services, they are helping out the social distancing goal.

Are the ancillary physicians unemployed?
Physician business owners who care for non-urgent conditions are experiencing a dip in business across the board, if they aren’t completely closed for business.  This means no income and tough decisions whether to furlough staff or lay them off completely.  There are certain governmental acts like the CARES Act to help out small businesses, but there is still is substantial financial sting for everyone. We currently do not know the extent that COVID-19 will impact businesses.

You might also like: Financial serenity in the midst of turmoil

Physicians who are employed by hospitals or medical groups are experiencing financial woes as well.  Some hospitals are covering the physician’s salaries despite the decrease in business.  Others are reducing salaries accordingly or coercing its physicians to “cash out” their PTO.  Some groups have even closed departments until further notice and laying off all of its employees.  Ouch.

Early retirement would be nice right now.

How to survive financially without income
Now would have been a great time to be financially independent.  Your medical practice was simply a source for ancillary income, and now you can realize early retirement. End of story.
Most of us do not have the luxury to call it quits.  Some of us still have loans, mortgages, child tuition, and other bills to pay.  Now is best time to reassess our savings, expenses, and modify our financial strategy. Are you having difficulty making payments?  Can you end your lease on your luxury vehicle early? What about consolidating some bills using those zero-percentage interest balance transfer offers you get every week? These are decisions that I hope no doctor or high-income professional will ever have to make, but an economic crisis is a good enough reason to try to improve our financial situation. Once the dust settles, we will be in a better spot than before.

What financial strategies are you implementing to weather the financial downturn?

Financial serenity in the midst of turmoil

Financial serenity in the midst of turmoil

As of March 2020, the COVID-19 pandemic is still ramping up in the United States.  Testing measures are slowly ramping up, so we’ll be expecting more of a jump in affected individuals over the next few weeks.  It’s important for all of us to do our part and limit the rate of transmission so our healthcare facilities do not become overwhelmed.

Obviously the stock market and economy is taking a nosedive.  Some people might even say that it’s a bottomless pit.  Will it be the worst in history? Does that even matter?  The healthcare sector will always need doctors, but this doesn’t mean that our incomes won’t take a beating.  Many of us still have loans, mortgages, and bills to pay.  The 10% drop in our investments will hopefully recover by the time we retire, but the red down arrows on our statements still hurts.  However, now is the time for us to reassess our financial plan and ensure that we are making appropriate choices.

Focus on what you can control
Remember, I’s and O’s—that’s all there is to it. Renal function, net worth…it’s one of the same.  You can control how much you spend.  This is where having a recurring monthly lawn bill of $1000 (yes, that is more common than you think), cellphone and internet bill of $600, and $150 per dog grooming bill is going to start hurting you.  Sure, it is doable if you have multiple income streams from your rental properties, but what if your tenants start to default on rent? What if your plastic surgery aesthetic center drops its volume by 90%?

Find peace in world of turmoil.

This is where ultra-savers butt heads with the ultra-earners.  There are people who would prefer to clip coupons rather than find ways to increase income to get rich.  Guess what? You could do both.  Sometimes there are no coupons in the weekly mail, but there is someone waiting to give you their money.  When no one is waiting to give you their money, clipping coupons is the only option.
Now is a good time to assess what our expenses are and decide how modifying them would impact our daily lives or our financial future.  I dislike nitpicking on details that might not make a long-term difference, but many of us are also working in the front lines are also at greatest risk of developing illness from our jobs.  If we are sick and can’t do our jobs we will not have an income.  It would behoove us to reduce our recurring costs in the short-term if that will provide a sturdier financial buffer.

Stick to your financial plan
When a large percentage of your investments go to pot, it’s normal to want to change the plan.  However, selling your stocks at the bottom of the market or selling your real estate in a buyer’s market is the easiest way to lose the long game.  There is no reason to sell low unless you are cash-strapped and have no other way to pay your bills.  The more level-headed approach when there is global financial downturn is to review your financial plan.  Now is the time to rebalance your portfolio if the change exceeds your thresholds.  If you don’t have a financial plan, now is the best time to create one!  If your tenants are asking for deferred payments, figure out what is reasonable in order to make the situation work.  You don’t want them to default, but you also don’t want to go bankrupt being a nice guy. 

Now is also the time to negotiate with your creditors too, especially if you are a small business owner.  If you own your medical practice, now is the time to see what your landlord can do for you in times of financial crisis.  As a doctor, you are likely going to be the most reliable tenant the landlord will have.  They should do whatever they can in order to help you out.  Likewise, now is the time to see what loans you can defer, what vendors you can postpone payments (electronic health record, maintenance…etc). 

Ride the wave

The winner is always the last person standing.  Remember that these economic troughs will eventually become a peak.  The game plan is to outlast the trough.  

Stay safe everyone!

The real financial cost of taking research years in medical school

The real financial cost of taking research years in medical school

About 15% of my medical school class decided to take at least one research year during medical school.  This was in addition to the 8% of the class who enrolled as MD/PhD candidates, the five who already held PhD degrees before enrolling in medical school, and another two that I know of who ended up obtaining a PhD after medical school.  Roughly another 3% spent extra time during residency or fellowship to conduct research.  Based on these figures, one could conclude that my medical school was heavily research oriented.

The majority of medical schools don’t graduate students with such high frequency of extended academic training, and most medical students aren’t going to be interested in a career in research either.  There are plenty of doctors who have a PhD degree who also practice strictly clinical medicine, and many who hold many research grants without ever holding any additional advanced research degrees.  
What isn’t really a surprise but often gets neglected when future doctors make career decisions is how their financial future is impacted by extending their education.

Time is money
We all understand that the longer that we have investments into the market, the more likely it will have time to grow.  This finding has been modeled repeatedly in the financial world—if you invest while in your twenties, you will likely have a greater net worth than your counterpart to only starts in their thirties even if she can save twice as much.  We frontload our Roth IRAs and 401ks for the same reason.
Delaying your career by a few years will likely shorten your overall working career.  All things being equal, this might cut out a few years of your peak income.  This could be perhaps a quarter million dollars for every “lost” year for internists or double that for high-income specialists.  If you consider inflation adjustment, then the absolute difference will be even more.

The argument for taking additional time
Obviously one’s career shouldn’t only be about getting ahead financially, although we’ve all made choices to help improve our own situation in life one way or another.  Ultimately, it is you alone who will determine what you consider to be successful.  

Many students at top research medical centers opt to take additional time to conduct research

Taking a research year during medical school has many benefits, the most important of which is to have dedicated time to reflect what the essence of a particular field has to offer.  There is often limited time during clinical rotations to explore subjects in depth, as we are subjected to tests, presentations, and simply reading condensed summaries on topics at hand.  With limited direction and time, medical students essentially make career-impacting decisions.  I have plenty of coworkers and students who decided to pursue other specialties after spending a year conducting research in another.  What’s the ROI on spending a year to decide what to do with the rest of your life?

Priceless.

Dedicated research in a particular field will also strengthen one’s application for residency.  For some students, this might determine whether they’d enter a high-paying competitive specialty.  In this case, there is a financial advantage to taking additional time to make a career choice.

The bottom line

Clearly there are many roads to Rome.  The end goal in life shouldn’t be to have the biggest bank account either. For such a complex profession such as medicine, the path is not always going to be clear.  The advice that I give my medical students is that we should all be aware of the financial ramifications of our decisions, but we’re also in the business of improving lives.  If it takes an extra year or two for a future doctor to identify what she will be comfortable with doing for the rest of her career, then so be it.

What are your thoughts on taking research years in medicine?

The one thing I wish I knew when I took my first job

The one thing I wish I knew when I took my first job

If only we could move backwards in time.  We could right all of our wrongs, and never make a mistake in life.  

It would be nice to relive certain time points in our lives to make a better choice.  Perhaps in the end none of this makes a difference, but many doctors do wish that they made different decisions when taking their first jobs.  That is typically a point in our lives where our choices can impact everything else in our lives.  At this point doctors have the least amount of money they will ever have but are the youngest that they will ever be in their working careers.  Many will have young families to support and are making decisions to move their family across the entire country.  
To this end, I wanted to recap some of the salient points I give to new graduates when they are choosing their first jobs, and hopefully stop them from making the mistakes that I made.  

Assess availability of colleagues
Some people in the world are built to tackle challenges alone.  Most of us perform better if there is backup.  This is where mentorship and colleagues come into play.  Medicine is an interesting career path where it is unusual that physicians have peak knowledge, experience, and stamina altogether straight out of training.  Every specialty is unique and will vary on how much experience and age come into play.

Don’t you just hate it when someone eats your food?

Young doctors will have to prioritize what is important to them when taking a new job.  For some of us, taking a lower paying job within a multi-doctor department may be a better option than to take a much higher paying job inheriting a practice from a solo physician.  Having the ability to grow along with your colleagues or mentors is an intangible perk that we have to weigh against everything else. 

Assess peak earning potential
Most physicians advise new graduates to assess the peak earning potential of a job as a key factor rather than starting salary.  There are two sides of this coin.  Logically, the bulk of a physician’s career will be spent in the peak earning timeframe so being able to earn a high amount for a long period of time will maximize the chance of greater overall earnings.  The calculation falls apart in two scenarios:

  1. Part of the compensation package is tied to a pension — This is commonly seen in the Kaiser Permanente (KP) system, where physicians are paid a highly competitive starting salary but have little room to grow their incomes.  The compensation package at KP is tied to a generous pension that takes into affect after a certain length of employment.  The purpose of any pension is to relieve the burden of the employee to save for retirement by having a guaranteed lifetime income.  For some people, it’s a huge benefit. For others, the pension is a set of golden handcuffs.  You can leave the system “early” but will not be able to maximally reap the benefits of being in the system longer.
  2. Physicians wanting to FIRE — It’s always better to front load your earnings if you want to maximize the amount of time that it will grow.  If your working career is only going to be ten years, then it doesn’t make financial sense to take a job where you are compensated pennies for the first five years and start making big bucks for the next five years. FIRE tends to be in the minority but it is important to consider the consequences of your income trajectory.  Anecdotally, front loading earnings is exactly how engineers and other early retirees have been able to hang up their hats at age 30.  Compound interest and time in the market pays off no matter what.

The coin could even land on its side! Life still happens, and I have certainly known doctors who made what is seemingly the best decision to maximize their salaries only to find out that their spouses hate the city that they moved to.  

Location, location, location
Every single one of us has a must-have whether or not we are aware.  It could be a Saks 5th Ave, a Costco, or a simply good hair salon.  For most people, location matters.  If you choose to move your family out to the Yukon for a seven-figure job, you’d better have a game plan to get them out if curling or ice fishing isn’t your family’s favorite sport. Don’t get blindsided by other enticements.  You are in it for the long haul, so you need to make sure your choice makes sense.  You can still make mistakes even if you make the best choice possible given what you know.

The ultimate dealbreaker
The biggest regret that I had when choosing my first job was that I didn’t negotiate enough.  Remember that everything is negotiable, even if you are told otherwise.  Sometimes larger institutions have boilerplate contracts, so they may not be inclined make modifications to the contracts simply because it would require work from their contract attorneys.  Whether or not you can convince the other party to modify their contract to your liking will ultimately depend on how badly the potential employer needs you. 
There is a fine line with asking for what you feel you deserve and also asking for something that is unreasonable for the other party too.  I’ve seen new graduates both shortchanging themselves and also overestimating their own abilities.  If there are other doctors vying for the same job, then your potential employer has the upper hand.    However if you are the only candidate on the docket, you might have more leverage than you realize. 
The moral of the story? Don’t be afraid to ask, and make sure you have a good justification on why you deserve what you are asking for. 

What other questions should you have asked during your first job?