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Easy strategies for doctors to maximize credit card benefits

Posted on November 28, 2018January 30, 2021 by SmartMoneyMD

We’ve all heard about credit card points and miles by now—put enough of your expenses on plastic and you’ll be flying first class airlines all the time, right? We are actually fortunate in American (sorry for those of you residing in, let’s say Japan, who still are stuck in a mostly cash-based society) to be able to have incredible amount of credit card options to squeeze out every penny.

While the discussion of credit card hacking is reserved for another day, the goal of using credit cards to purchase goods and services is to redeem a certain amount of cash back (maybe 1% to 5%) or other means for travel that would otherwise be significantly more expensive than paid for using cash. The beauty of this system rewards potentially high spenders such as doctors. Many credit cards also offer sign-on bonuses that can translate into several hundred to a thousand dollars of reward credit upon meeting a minimum spend. Doctors can use this to our advantage for purchases that we otherwise would have made anyway.

The amount that doctors are able to put onto credit cards also depends on whether we are employees of a hospital or owners of our own business. Business owners have the luxury of making purchases that are considered business expenses, so typically have more spending power than employed doctors. This can be thousands of dollars of business expenses that can be paid for using plastic in order to arbitrate a return.

How do credit card companies afford to offer free money?

There is no free lunch. All businesses that accept credit cards have to pay the issuing company a processing fee, or interchange fee, for each transaction. These fees actually vary depending upon the benefits that the credit card confers. For instance, a business will pay the credit card company a higher fee if a customer uses a 2% rebate credit card versus a 1% card. Interesting eh?

If you’re going to take a ride on this, pay with a credit card, and go through a shopping portal!

This is relatively clear for doctors who run their own offices and accept credit cards of their own. Someone is paying the price, so you might as well find a way to get the most out of it.

Personal expenses that doctors can use on credit cards

Aside from normal household spending, all doctors should be able to place a few big ticket items on credit cards. The following are a few examples:

Property taxes — When we purchase a home, we have the option to place our mortgage insurance into an escrow account for the lender to pay. If you can prepay it using a credit card, do it. This amounts to many thousands (tens of thousands) of dollars of expenses.
Auto insurance, property insurance, and umbrella insurance — These expenses typically all go to the same company. Prepay using plastic and get some green back.
Down payments on cars — If you end up purchasing a vehicle from a dealer or large sales company, you can often place the amount on plastic. I’ve done it before, twice.
Meeting expenses — If your employer provides you with CME monies, you can pay for using credit cards and submit the receipts for reimbursement. If there is a significant amount to be reimbursed, consider timing your credit card application to the purchases.
Utilities — Typically utility companies do not accept credit cards, although you can squeeze in your Internet and cable bills.

Business expenses for doctors

When you own a business, the sky is the limit for expenses. Make sure that you squeeze every penny to put your expenses on plastic:

Malpractice insurance — Some carriers will not accept credit cards, but many will.
Medications and supplies — These are big ticket items. Some specialties that use high dollar medications can truly rack up millions of points for these purchases. Don’t let this slip away!
Prepayment of business taxes — Most processors for taxes will have a surcharge for credit cards, but sometimes you can find a credit card that does have a higher return than the upfront cost of the transaction.
Utilities — Online advertisement, internet, cable, and shipping from your business can typically be placed on credit. This can also add up over time.

The skinny on credit cards

It is important to remember that playing the credit card “game” will by no means save you from poor financial decisions or help you reach financial independence sooner. The amount that you will arbitrage will be no more than a few thousand dollars a year, which will hardly accelerate your retirement goal. However, if you have to incur these expenses regardless of how you pay for them, you might as well take advantage of this opportunity.

How much do you play the credit card game?

One of my go-to business cards is the Chase Ink Business Preferred Card. The card offers 3x points on Internet charges, advertisement services, shipping, and travel. There is a minimum spend bonus of 80,000 points after a spend of $5,000. We may receive a referral fee from Chase if you sign up through my link—we do appreciate your help in support this website if you do decide to apply for this card!

Financial implications of contractor work for doctors

Posted on November 24, 2018January 30, 2021 by SmartMoneyMD

Most doctors coming out of training have only experienced work as an employee. As residents and fellows, doctors are employees of a hospital or university. You receive a paycheck every few weeks, and at the beginning of a new calendar year your employer sends you a W2 form delineating your income. We use the W2 form to help file our annual taxes. Easy peasy.

Contract work is a different ballgame. Some companies or hospitals will opt to hire out contract physicians to cover certain lines of services. It may be temporary or intermittent services for a set amount of time. For the hospital, it is an easier way to deal with finding help without actually having to hire someone. It also sounds great as a doctor, since you work for yourself as a contractor, not the hospital. Some of us might have even gotten a taste of this line of work through moonlighting during our training. I remember that one of my classmates moonlighted in the emergency room during residency. He was paid $60 a hour, and received a check for $600 after finishing a ten-hour shift. No withheld taxes. As a resident, it was essentially free money.

But there are financial implications of being an independent contractor when you are in full-time medical practice. Let’s look at some of the considerations:

Employer taxes

We all have to pay into Uncle Sam’s system. Employers have to contribute to Social Security and Medicare taxes. For 2018, that roughly amounts to 7.65% for incomes up to $200,000. The employee also pays an equivalent amount out of his paycheck as well.

Independent contractors work for themselves, so they have to pay the employer portion of Social Security and Medicare taxes as well. This amount does not get taken out of the independent contractor’s paystub, the physician will need to allocate out this amount to pay Uncle Sam directly.

Personal taxes

If you work for yourself you also have to estimate and allocate the amount to pay quarterly. Most doctors are likely to have a federal and state tax bill in the six-figure range—by not handling prepayments properly you can end up footing a huge penalty. You will have to pay more attention to your bookkeeping as an independent contractor.

Benefits

Most large employers offer retirement plans like 401k/403b’s as well as basically disability and life insurance for its employees. These benefits do not come for free. As employees, we might not be able to perceive that there is a cost to offering these benefits. Those of us who operate our own practices will understand that health insurance consumes a sizable chunk of our income especially if our families are under our plans. Remember those patients who signed up Silver, Bronze, or Platinum Health Exchange plans? Their deductibles where through the roof, and yet their plans basically didn’t cover a cent of their surgeries while forcing you (the physician) to send these patients to collections. Just remember that you just might be that person too when you have to foot the entire health bill for your family.

Malpractice insurance

Malpractice is often covered for employed doctors. Hospital systems and multi specialty groups have enough doctors to negotiate better premiums for its doctors. As an independent contractor, you alone are responsible for your coverage. Some specialties like obstetrics, neurosurgery, and vascular surgery that perform higher risk surgeries will incur a greater out of pocket cost than for internal medicine. If you perform contract work, be prepared to pay for your own coverage.

As an independent contractor, you might have to consider insuring all of your employees, including the guy behind the fence…

Variable compensation

As an independent contractor, your pay might be dependent upon volume or surgeries that you perform. That volume might vary from season to season. You income may not likely be stable. You will have situations where your income might far exceed that of what you could otherwise make as an employee. Be prepared to deal with the rollercoaster of income, however.

The perks of contract work

Despite the additional legwork that you have to be conscientious of with being an independent contractor, there are also financial perks, namely certain tax advantages. Commuting between two offices? Dedicating part of your home to your business? There are certain tax strategies in being your own boss to reduce your tax burden.

Are you a points collector? Given that many of the listed expenses are big ticket items, you might be able to leverage a few percentage points back or business class airline tickets.

Conclusion

This list only brushes up on some of the salient points of being an independent contractor. There are doctors who have made a career out of it. It is a viable career option if you are able to find the right fit—you might just come out ahead.

Do you work as an independent contractor? What specialty do you belong in?

Disabled but not quite disabled for doctors

Posted on November 17, 2018January 30, 2021 by SmartMoneyMD

Disability can be a devastating outcome to a doctor’s career and self-image. Think about it—you busted your butt to learn how to do a Whipple procedure, end up getting into a skiing accident that ends your career right there. No worries, because you purchased the appropriate coverage of own-occupation disability insurance, right?

Having disability insurance certainly provides a protective cushion, especially you are the sole breadwinner. This is a no brainer, and something that I think all new graduates ought to consider. One of the reasons why many of my coresidents (myself included) shied away from disability insurance during our training was that it did take up a moderate chunk of our income. At that point in our careers, every single dollar made a difference. Some of my colleagues were single without any dependents, so it was easier for them to convince themselves not to get insured. If they were not able to practice medicine, they could rot in the gutter somewhere without putting any family members in a dire financial situation.

The problem with disability insurance, too, is that it does grow with your income as you decide to increase coverage. If you don’t end up using it, the money is gone into the insurer’s pockets—but that is how insurance is supposed to work.

Enough about that.

What seems to fall into the grey zone is that if you become ailed with something that a medical or psychiatric diagnosis is unable to quantify. Let’s say you fall while rock climbing and fail to break any bones or tear any ligaments. None of the MRI’s or clinical exams reveal any damage, so you don’t get to invoke any of your insurance claims. However when you’re feeding that guide wire when placing that port or stent, something isn’t right. You can still do your job, but it seems that you’re having a much more difficult time accomplishing what you otherwise were able to do with ease.

Sometimes these hinderances are even more subtle. Maybe you tweaked your finger while playing basketball, started getting mild headaches whose only treatments include enough medications to put down a 300-lb wrestler, or simply just lose your stamina to power through an eight-hour cardiothoracic surgery. It could be all in your head, but the problems could also be real. Maybe it’s just a combination of age, genetics, and bad luck, sort of like those vague symptoms your patients with IBS have but you don’t really have any real suggestions to resolve them.

This is the realm that disability insurance isn’t going to cover. You’re not really disabled by any strict definition, and you’d better be sure that your insurer won’t be cutting you any checks when you’re still able to power through more surgeries than ever but just feel like crap doing it.

When you see fibers on your alternator belt but the car drives smoothly, you are working with a ticking time bomb

This is a problematic situation to be in, and I frankly am not sure what percentage of doctors remain in the workforce who are working in what they themselves consider to be suboptimal. I surmise that this number might be higher than we realize. Perhaps this percentage increases as doctors move past their prime and closer to normal retirement age.

How to cope with purgatory

What do you do if you aren’t 100% but function roughly at the cusp of where you think that you need to be to continue practicing medicine? At what point do you hang up your hat and cut your losses?

The easiest answer is to get yourself into a situation where you can walk away at any time without putting your family in a financial predicament in case you fall into purgatory. While there’s no need to live in fear every day agonizing over how to get to some magical net worth number, you can work towards achieving a sustainable lifestyle based on your I/O’s.

You’d want to find that sustainable situation while you are still able to function at 100% of your earning power. Focus on building your earning power while not completely squandering your hard-earned finances. This might simply mean moving a percentage of your paycheck to savings before you accidentally burn through it in one go. Run through the basic financial checklist on the Smart Money MD mailing list.

Heed the wake-up call

If you do find yourself working as your suboptimal self but are unable to leave your work situation financially, consider it to be a wake-up call. No matter what stage in your career you are in, remember that you can always crunch down your expenses just like what you is in residency.

Axe those car payments on your M5, sell the car, and get a used beater. Remember that driving that M5 doesn’t confer you any bragging rights. Nearly every single person in the hospital doctor’s parking lot can also afford that car. You aren’t as special as you think.

Your family will thank you for being diligent about your situation. Get them involved, and have them realize that it’s a group effort to make the financial ship run. No one can depend upon nice doctor incomes forever. I have seen doctors in their mid fifties turn their financial situation around.

Have you gotten yourself in a disabled buy not disabled situation?

Doctors and the real estate itch

Posted on November 3, 2018January 30, 2021 by SmartMoneyMD

The grass is always greener on the other side. Humans are like that. For reasons that we can never consistently define, any situation other than the one that we are in has potential to be better. I guess we just like to compare ourselves to others and assume that there is a better life over the horizon. That doctors wish to get themselves in a better situation is nothing new. This mentality involving our own financial situation is painstakingly prevalent in the hospital, especially for those feeling the squeeze of healthcare’s devolution.

Everyone likes to hear about the next great investment, especially the one that brings in foolproof cash flow. In the spirit of jesting our colleagues, conversations involving some amazing breakthrough are almost always initiated by anesthesia, both in the operating room and in the doctor’s lounge. We love blaming anesthesia for everything, especially if there is any inkling that they had the foresight to pick a more lucrative and lifestyle friendly career than everyone else. 😛

Many of these anecdotes involve real estate investments, whether involving secondary rental income, medical spas, pain centers, crowdfunded commercial properties, or even car dealerships. Frankly, it all sounds good. You wire over a chunk of cash somewhere, and every quarter your bank account enjoys a nice infusion of positive numbers.

Real estate can be a great investment modality

If real estate investing weren’t lucrative, the ultra-rich barons who pay 8% effective income tax wouldn’t exist. One of the advantages of property investments in general is that you can leverage some serious funds compared to your initial bankroll, sort of like buying Microsoft stock twenty years ago borrowing simultaneously from a loan shark and on margin. With adequate insight, homework, and a little luck, one can piece together some decent returns and cash flow from real estate to keep your living expenses afloat. @PassiveIncomeMD has done just that–he has the remarkable ability to leverage his interest and expertise in activities that generate income.

There is clearly a psychological appeal of owning a physical entity, whether it is a building or simply a parking lot. For some people, having this entity generate cash flow produces a meaningful association that rings income. If we are employed by a hospital, our income arrives as a paycheck at set intervals. We do the work during a time interval, and are compensated for our time. There is a clear relationship between work and compensation. Investments through the stock market, on the other hand, mostly generate potential income through appreciation. There are certainly dividends that are distributed, but the bulk of growth comes through appreciation of the stock. Unless you decide to sell the investment, all of your profits remain theoretical. Not so with owning something physical.

If you own a medical office, you can collect rent from your tenants in addition to appreciation of the property. If structured properly, you can truly have an income stream that can replace your day job and allow you to receive the big payout when you do decide sell the property or leave it to your heirs.

Real estate can be a great way to lose a lot of money

Remember that just because there are doctors who have struck pay dirt in the real estate world doesn’t mean that you will. The 280 score on your USMLE Step 1 only translates to a high level of clinical synthesis. You still have to put in the time to succeed. Sometimes success involves luck. I have known physicians who extensively researched and purchased land intended to be divided up into residential subdivisions, only to find that urban development decided to expand in the opposite direction. I have known physicians who haphazardly purchased run-down homes thirty years ago in the most undesirable neighborhoods in New York, contribute nothing to improve the properties, and still see the values more than double!

Think big. Skyscraper, port, and exclusive shipping rights.

With the rising popularity of crowdfunding, we are now faced with opportunities to shine or to fall flat on our face. The good news is that many of the crowdfunding companies have distilled the data down to concise presentations and prospectuses—review the projections, decide if that is worth it for you, and wire the money over and relax!

Different strokes for different folks

If you compare the rate of real estate appreciation to the stock market using the rule of 72, the real estate investment will never win. For instance, one would expect a stock market investment to double in nine years if the market grew by 8% a year. Good luck finding a home that will double in value in the same amount of time! The value in real estate in this situation is that you can leverage a bigger investment than what you can likely pay for outright in cash, generate income flow, and potentially have certain tax advantages. Don’t forget that there is plenty of homework to do throughout the entire process.

The next time your anesthesia team brags about their next great extracurricular financial venture, don’t discount their success. Chances are that they have actually done their homework. You just have to decide whether taking the leap into their ancillary ventures will work for you.

Have you chosen to invest in real estate?

Should doctors worry about medical school debt?

Posted on October 27, 2018January 30, 2021 by SmartMoneyMD

There is a wide range of debt among medical school graduates. Family situation, school selection, and geographical location are some of the more common variables that impact the ultimate cost of “M.D.” (or D.O.) after your name. How quickly one eliminates the debt subsequently depends on I/O’s–your earning firepower subtracted by expenditures. There are quite a number of financially efficient doctors who opt for lower cost schools in low cost of living areas who end up choosing highly compensated specialties with very short training periods (read: emergency medicine) who emerge from their decade of school rocking enviable salaries. These groups will be able to repay their loans without much difficulty.

The rest of us without the financial foresight and fortune will fare differently. Most of us likely made our career decisions mostly by choosing what interested us. Frankly, that is how we should decide to choose our careers anyway, but unfortunately money doesn’t necessarily follow passion. If any of you graduated from a medical school with annual fees of $70,000 and are now $300,000 in the hole with a family medicine degree, you are at a financial disadvantage from your peers.

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

The average medical school graduate in 2018 will finish with roughly $200,000 in debt. This essentially amounts to a first mortgage, or a second mortgage if you got suckered into buying a home during medical school or residency. No matter how you spin it, that is a hefty chunk of change when the investment in your medical knowledge needs to be converted into practical financial firepower.

Basic strategies to repay student loan debt

There are plenty of resources from financially savvy graduates to optimize your student loan debt. Consolidating your high interest loans into a lower one is helpful. Making sure you are repaying the highest interest loans first is another fundamental principle. Those who are creative can also create a system for public student loan forgiveness (PSLF) while working for governmental type positions.

The premise with PSLF is that you have to be employed by qualified employers while making minimum repayments for a total of 120 months, or a decade. Some doctors have clearly made use of this program, but ten years is gamble to have your loans forgiven. The ideal scenario for PSLF borrowers include:

Extended training schedule such as neurosurgery (7-10 years) or advanced cardiology (7-8 years) where you are in residency or fellowship with “low” pay. Make sure you match into a qualifying program first.
Family with dependents but non-working spouse so that expense burden is high but income is low.
All loans have to qualify for PSLF.
High debt burden. Like $500,000 in debt.
This is a close second to the real thing, but is it really a justifiable purchase?

In these situations, doctors could find a means to stay on faculty for several years after training to complete the PSLF process. There is a calculator on the governmental student loans website to estimate the amount that you’d save.

Why PSLF isn’t for everyone

There are quite a few contingencies that make PSLF a viable option. If you fall under the ideal demographic, go for it. You deserve all that you have worked hard for. Unfortunately, most doctors don’t.

The biggest issues with this program is that you are tied to working for certain hospital systems that receive certain funding from the government. It’s great if you plan on working there anyway, but there is a good chance that there are more lucrative options elsewhere. Sometimes it’s not possible to predict what’s going to happen nine years down the road.

Even with debt burden, you might be saving less than you’d think with PSLF. Maybe 30-40% of your loans will get forgiven. This might amount to $100,000 out of a $300,000 loan over the course of ten years. It sure feels great beating the system, but $100,000 in ten years amounts to roughly $833 a month. Compare that to repayment the old-fashioned way with aggressive repayment, the difference would be even less when you are limiting interest growth.

Why student loans are only a bump in the road for doctors

Fortunately doctors have good financial firepower. All of us ought to be able to repay our loans relatively quickly with the appropriate discipline. You might have to extend your delayed gratification briefly but it will pay off.

Suppose that Doctor A finishes with $200,000 in student loan debt, but he is starting his new job that pays $200,000. Assuming a very generous buffer that the first $100,000 of that income will go towards taxes and tax-deferred retirement savings, he will still have $100,000 to live from. Not long ago, Doctor A only had maybe $40,000 of living income from his $60,000 residency salary. If he continued with living expenditures of $40,000 annually, he’d still have $60,000 of that post-tax attending income to put towards loans. At this rate, he’d be student loan free a little more than three years out of training!

Some of us will earn less but also have less debt. The converse could be true. Most doctors ought to be able to repay their student loans within the first five years into medical practice regardless of their income. It all depends on how motivated you are in eliminating this debt. Five years of controlled financial prudence is a small price to pay for what could amount to a thirty year medical career.

We should all pay attention to our medical school debt, but don’t let it consume your life.

Losing sight of the forest amidst the trees

Posted on October 20, 2018January 30, 2021 by SmartMoneyMD

Some of us like to micromanage. Obviously this trait is useful only for certain tasks that you need to accomplish. Managing money can take some attention to detail, but fortunately many issues work themselves out if you follow broad principles. How much you should micromanage your daily expenditures really depends on your own tolerance and your individual financial situation. We’ve all seen discussions about the cost of daily artisanal cups of coffee at the local barista, or cost savings from cancelling cable/satellite television. If you are in a dire financial predicament with limited earning potential and wildly out of control costs, there is merit to pinching every penny. If you are a neurosurgeon paying three mortgages, alimony, and a car lease every three years, foregoing that Blue Bottle coffee might not be the most effective means to put you ahead financially.

All of us face these decisions daily. Some of us just simply have bigger numbers. One of the surgeons I work with was eying a new “weekender” car. He knew that vehicles, especially high-end ones, depreciate significantly during the first few year. He was on the market for a preowned weekender, and eventually found one. Interestingly, it took him over a month of researching the regional dealers to find the right model. Savings: $35,000!

The new model would have cost roughly $120,000, and he was able to score a three-year old equivalent for $85,000! Let’s say that he spent an hour every evening research the car for a month. He “saved” $1167 post-tax dollars per day by opting for the used car. Not a bad savings rate, but one could argue that this has similar fallacies to negotiating with your cable company every year to cut your monthly rate from $120/month to $85/month. You’re still spending money, and a whole lot of it too. Another one of my coworkers had a similar internal struggle with getting solar panels for his house.

How much is micromanagement of your time worth?

Did the coworker who agonized over a weekender car actually make a financially prudent decision despite saving so much? What about the guy who put down big bucks for solar panels that might take a decade to recuperate the initial investment costs? Who knows, maybe the $85,000 car only amounted to less than 10% of his annual salary. I suspect that he justified the purchase in the end based on how much enjoyment he derived from researching cars and achieving the end result. He still enjoyed the forest despite focusing on individual trees.

Different strokes for different folks. I constantly face the dilemma of buying discounted donuts that neither my waistline nor arteries should have to deal with. All in the name of saving $2. Apparently these trivial decisions are important to my psyche.

Most recently my family (myself included) decided to stop putting up with the irregularities of the heating and cooling in our house. In the summer, the living room is typically freezing from air conditioning while the upstairs rooms are like saunas. The opposite is true in the winter. In America, this problem stems mostly from our homes being too large and that it’s prohibitively expensive to route the ductwork with dampers to direct airflow in standard homes. The real solution to the problem is to zone each room in the house separately, or simply to custom-build a new home.

One of the common workarounds to cold or hot rooms is to install a thermostat with remote sensors in different parts of the home. This doesn’t solve the problem of overheating or overcooling certain areas of the house but it ought to make the room that you are situated in more comfortable. After one weekend of reading all of the reviews on the market on smart thermostats, I pulled the trigger and made the upgrade. All in, I invested maybe four hours of reading plus another thirty minutes of installation, we now have a smart thermostat!

The breakdown:

Projected cost of HVAC tech	Actual DIY cost
$600	$200 for thermostat
Half day off of work to wait for serviceman	<5 hours on weekend

Satisfaction of a warm home during the winter: Priceless!

Interest is a powerful motivator

How much you enjoy a task ultimately is contingent upon how much we actually rely on that task for our existence. Doctors gripe about having the see that final add-on patient for the day, but are perfectly willing to volunteer for charity missions. If we expect compensation, then the expectations change.

You might also like: Doctors need to transform their careers into hobbies

I was able to justify digging through spiderwebs in my furnace to put in a new thermostat, even though I only expected to enjoy a warmer house in the winter as a result. If I were tasked to service furnaces as a career, I probably wouldn’t enjoy digging through decades of dust as much.

Did I lose sight of the forest in my quest to replace the thermostat? I’d like to think not, but it might be helpful to consider what we are hoping to achieve each next time we decide to embark on any tasks that can ultimately affect our financial outcome.

A doctor’s account on the negative impact of commuting

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

As we get older, time becomes are more valuable commodity. I clearly remember that as a college student, I was more than willing to wait in line for over an hour simply to get a free sandwich promotion. Nowadays, I’m not even too interested in waiting 20 minutes to be seated at a restaurant. Our priorities evolve.

One interesting aspect of time that remains relatively unchanged over time is our tolerance of commutes. We commute to and from work almost daily, and whether or not we like it, we do it. We have gone through great lengths to even justify the commutes:

“There’s no way I’d want to live near the hospital I work”
“Junior needs to be in a good school district”
“There aren’t any good home options near the office”
“Housing near the clinic is too expensive”

Most of my colleagues commute at least one hour each day for work purposes. Those who have to commute between offices easily add on another 30-45 minutes to the schedule. One of the recent reports on average commutes shows that one hour expected for everyone living in the Northeast corridor or California, regardless of profession. That’s about five hours of commuting every week, or 240 hours on a 48 working week calendar! Ten days in the car! If you took public transit, you’d easily double that. If you took call on the weekends, you’d clock in another day in the car each year!

Commuters are essentially funding the audiobook and podcast industry by virtue of finding ways to occupy their time between the points A and B!

Commuting and your health

I used to sleep on the subway during my commute. I didn’t really have much of a choice. It was a vicious cycle where I lived far away from work, slept less because the commute was long, and ended up getting poor sleep on the train. By the time I got home, I was exhausted from work and the commute. After preparing slides for grand rounds and working on some research papers, any motivation to eat healthily or to hit the gym was essentially put on hold. We all know the ill effects of a sedentary lifestyle. There are zero health benefits of a long commute.

Commuting and your wallet

It is an interesting exercise to calculate your average hourly wage from the moment that you start the day in preparing to get to work until you get home after work. If you get up at 5:50am to get ready for work and step back home at 7pm, your workday is essentially 13 hours. If you are only getting paid for 8 hours, you’re essentially “working” 62.5% more than what is reflected on your paycheck. If you end up bringing charts home to finish after you put your kids to bed, you’re adding to the work hours too. For each hour of “unproductive” commute, you are discounting your services by 12.5% on an eight-hour workday.

No commute, no net worth, but happy as hell.

How these numbers actually reflect your finances ultimately depends on how much you value your time. The premise goes back to the promotional sandwich experience in college. When you have no net worth, are living life on a loan, and have no active earning power, your time isn’t worth much. One would expect that our value on time will increase in an “S” shaped curve over time. If you are early in your career, you might have to bite the bullet and take these onerous commutes until you reach a position to negotiate a more favorable situation. Once you have reached fatFIRE, are earning a solid six-figure doctor income, and need to take your kids to their baseball game by 5 o’clock, it’s time to find a way to reduce that commute.

You might also like: A financial plan for busy people

Move the goalpost as your priorities evolve

I’m a big fan of moving the goalpost. I still have commute times on par with the rest of the country, but part of my financial plan includes cutting down on the commute times. It’s all about how much we’re willing to put up with. If you are progressing towards financial freedom, you ought to have less willingness to tolerate long commutes. It’s simply not worth your time to sit in the car. By shortening your commute, you are essentially increasing your hourly wage while working less.

We all should have reducing commute times on our financial plans.