Category: Save Income

June 2017 Smart Money MD Investment Update

Posted on by SmartMoneyMD

One of the tenants in maintaining the right financial trajectory is to reassess your plan routinely.  It doesn’t have to be weekly or even monthly—I review my financial goals at most quarterly.  The idea is that you can stay on top of your game plan without consuming yourself in minutiae that you cannot control.  Our end game is to acquire a substantial investment portfolio from which to draw from. When our investments become sizable, we will see huge swings during the daily shift of the stock markets. Sometimes these swings can means tens of thousands of dollars on a given day. If you’re checking your investment accounts daily, then you’re in for some serious stomach upset.

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Here is a list of the items on my checklist as I am assessing my financial trajectory.

Savings rate.

As always, your savings rate is a factor in your net worth that you can directly control.  You must spend less than you earn. The more that you are able to stash away early in your career, the more time your savings can work for you. When I was a resident, my savings rate averaged a meager 10-15% due to being in a HCOL area! I did not start my 401k/403b savings until fellowship when I realized that I could eventually consolidate my pre-tax accounts despite changing employers.

As we are able to generate more income, we are able to increase our savings rate once our earnings exceed our basic needs. I aim to save at least 50% of my post-tax income.

I’ve got mixed feelings about this number. In general, 50% sounds like a great number. But it all depends on how much your income is.  In my experience, it actually gets harder to increase your savings rate as your income increases.

You might also like: Stealth Wealth Revisited – This applies to doctors too!

Your savings rate slows down with increasing income partly because of higher taxes and lifestyle inflation. I’ve discussed this before, but I can’t go to work consistently wearing 10-year old clothing.  Gender also plays a huge role in clothing recycling too. You don’t even have to look in the medical profession either. When was the last time you saw your local news reporter recycling her clothing? Yes, news reporters do have their own clothing budget, but no matter how much they save on clothing, they inevitably will spend more than people in other fields.

As much as I want to be the rabbit in the financial game, being the turtle is fine as well.

For me, 50% is an achievable number. It could certainly be much higher, but that’s what I strive to hit. Every quarter, I look at my take-home pay and how much I end up spending. If I hit the 50% range, I am happy.

Asset allocation.

I then look at what happens to the amount that I save from my paycheck. Do I put some of it in a CD? Do I invest this in an index fund? Do I pay down my mortgage?

I still owe a serious chunk of change in my primary mortgage. More than I probably should be holding at my stage in my career. No matter. My current plan is to pay the expected amount, and assess as I go along whether to eliminate the mortgage completely. It all depends on job stability and what I could otherwise do with my savings.   The amount I put towards my mortgage should count towards my savings rate.

Since I am still early in my career, my primary investment vehicle is in the stock market. I keep my holdings simple through index funds, which are primarily held in the total stock market.  I try to contribute approximately 10% of my holdings into fixed assets such as CD’s, T-Bills, or bond funds, whichever I find to be most lucrative at the moment.  This means that I essentially go full-tilt into stock market.

Tax-loss harvesting? Not yet. Until I get a substantial amount of funds in play in the market, I do not plan to do any exchanges for tax advantages.

Long-term goals.

This bucket includes assessing my career goals. Do I want to look for a new job? Do I want to retire? How much longer should I be working? Based on the strategy of the wise Physician On Fire, going to a part-time status should be my next major career goal. This allows us to hedge against obsolescence, preserve earning power, and free up time to explore other interests.

My career trajectory is still a bit murky as I have had unpredictable levels of income over the past two years, which has made retirement planning a little tricky.  At my current course, I am hoping to cut down to part-time work over the next decade, hopefully within the next five years.  Can that be done? Perhaps. It all depends on the savings rate and asset allocation planning.

What is interesting in my checklist is that it’s really simple.  No fancy magic. It takes me about 30 minutes to log into my investment accounts and check in on what’s been happening to my earnings. I certainly don’t need an advisor [yet] to manage my earnings any time soon.

Where am I at in this financial checklist? I’m still staying the course. No lottery winnings yet, but slow and steady wins the race.

(Photo courtesy of Flickr)

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Welcome FutureProofMD readers!

Posted on by SmartMoneyMD

Hello everyone! I am grateful for FutureProofMD to feature one of our articles today discussing the prestige of medical schools, and whether they are worth the cost. As an overview, Smart Money MD is a physician-oriented financial and lifestyle website to help guide us through the complicated world of delayed gratification from medical training.  Once you become an attending, do you earn enough to power through any financial considerations? Or do you still have to watch what you spend?

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If you guys haven’t already signed up for our mailing list, be sure to do so. You’ll get access to our FREE Financial Cheatsheet. You will also get special updates as well.

 

FPMD is smart to have started on his financial future early in his career!

Smart Money MD is an interactive online community.  Please do not hesitate to reach out if you have any questions or would like to see certain topics featured.

Enjoy!

Head over to the beginning to go through our articles!

I submitted my taxes!

Posted on by SmartMoneyMD

It’s a recurring problem. Every year in April I frantically file my taxes at the last moment.    Life doesn’t have to be a struggle to file taxes, but I allow it to be.  Call it delinquency.  I blame all of the institutions that are obligated to send me tax forms to file. They never send it at the same time.  It forces me to wait until I receive all of the paperwork before I can submit everything to Uncle Sam. My motivation to file my taxes waxes and wanes in an unpredictable frequency and amplitude.  You really have to catch me at my high point in order to get everything completed.

I file my own taxes.  Yes, most financial bloggers do. My taxes really aren’t that challenging, as the bulk of my income still comes from a W2.  That means I don’t get to fill out fancy deductions to save money after spending more money.  I started doing my own taxes during internship when I received real taxable income.  I remember that since half of my internship spanned the same calendar year as my 4th year medical school, I essentially paid no taxes.  I think I earned like $20k that year.  The tax software was also free, but I probably paid some amount to file my state taxes online.  I also learned to decrease my withholdings through my W4 that year too so I also came close to receiving no money back afterward.  I felt like a badass.

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Tax filing does become more complicated as we go through life.  Kids. Mortgages.  Tax lost harvesting.  Second homes.  Real estate deals.  Multi-state income.  Foreign transactions.  Trusts.  The redeeming aspect of complexity is the skillset is additive over time.  It is actually beneficial to start learning about taxes when you’re making little money and have either negative of low net worth.  You get through the filing process quickly and you learn.  Tax software like TaxACT and TurboTax allows you to get through the process as painlessly as possible.  Life isn’t as daunting as before the Internet age.  By the time you get five bank accounts, three 401k custodians, a handful of brokerage custodians, and a few real estate properties, you will have had (probably) many years of practice.  It might not be as challenging as jumping in headfirst into an eight-figure portfolio.

I’ve moved up in the world and no longer file 1040EZ forms!

As with most other people who choose to file their own taxes, I hope to minimize my tax burden as much as possible.  Jeremy from GoCurryCracker is a master at this.  I think I paid more taxes when I earned $20k a year than he does now earning a near six-figure income!  If you had the choice between earned income or passive income, passive income wins all the way in being more leniently taxed.  For W2 employees, the only deductions you really get are mortgage interest, property tax, and business expense deductions.  The business expense part is really a moot point unless you spend significant mounds of money on conferences and meals because these expenses have to exceed 2% of your income.  Generally speaking, on a $400,000 W2 salary you get to deduct business expenses that exceed $8000.  All meal costs are only deductible at 50% too.  I know plenty of doctors who spend more than that in unreimbursed expenses, but that’s somewhat lavish.  I’d say that one could spend roughly $8000 for 2 1/2 fancy meetings (yes, PoF, cringe). Some conference registration fees can easy run over $1000 plus additional mini-courses. Put that in an expensive resort area, and you’ve got hotel fees in the $300 range.  I probably attend one of these meetings a year, but really cringe at how expensive meals can be when there is limited access to grocery foods.

This year it took several hours to sort out my receipts and enter the data into TurboTax. I probably could have shaved off at least one hour had I known my poorly organized folder of receipts did not exceed 2% of my taxable income.  Lesson learned.

All in all, it wasn’t a bad year. I paid more tax than I would have liked, but that’s what you get if most of your income comes from your primary job and you’re still building wealth.  For 2017, I plan to implement the following changes to streamline my taxes:

1) Keep a running spreadsheet of meeting expenses. Fill out the blanks soon after the conferences so that expenses are still fresh in my mind. This will make the year’s end easier.

2) Make sure I keep track of my donations, especially to Goodwill. Ask for receipts so that I can clearly prove that my clothing drop-off is real.

3) Consider switching tax filing software. TurboTax is great. It’s also the most expensive of the bunch. The amount that we truly save is probably negligible ($20-$30) total, but it might create a good review of what is available.

What other pointers have you learned while filing your own taxes?

How to waste money by trying to save money

Posted on by SmartMoneyMD

All of us who are cost conscious have been there.  You believe that you can save a few bucks by cutting corners only to realize that your frugal tendencies didn’t save you anything.  Perhaps it even cost you more money. Don’t do it.

I’m a sucker for discounted bakery items at the grocery store.  Day-old donuts at a deep discount.  I’m in.  I buy six nearly stale donuts for $1.99.  Fresh ones are 69 cents each.  This means that I need to eat three of the six discounted donuts to justify the cost of fresh ones.  Stupid.  If I eat all six of the donuts, I come out ahead financially.  My arteries? Not so much.  Most recently I fell for the discount donut trap and only ate about 3 donuts before tossing the box.  I don’t even think that I was happy afterward.  These grocery store donuts are mediocre at best even when fresh.  And each one of these packs in a jaw-dropping 14 grams of fat apiece!

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Lesson learned: If you want a good donut, just go to Krispy Kreme, spend $1.10 for an awesome donut and go on with you day. You’re going to consume 14 grams of fat either way.

Big ticket items can really become money pits.

We all know that “luxury” items like swimming pools, boats, and time-shares are money pits.  Moe, the doctor who spends a $1 million salary, once told me his monthly pool maintenance costs (water, heat, pool guy) costs several hundred dollars a month!  What about items that you purchase to actually save money?

I’m becoming more and more skeptical about expensive maintenance equipment like riding lawnmowers, weed eaters, drills, and chainsaws.  I don’t expect that most of my readers will ever deal with serious manual labor, but this is a clear example of how trying to save money can actually cost you more. Let’s say that you decided to hang up a flood lamp in the front of your garage.  You have no tools, but there is a sale at Costco for a flood lamp so you buy it. You know that power tools can be expensive, so you go to Harbor Freight Tools to buy a drill.  The drill costs $50.  You buy discounted drill bits for $6.  For $56 and 30 minutes of your time, you can have a great working flood lamp. Wrong.  Since you’re an amateur handyman, you don’t realize that your house is made out of stucco, and your cheap drill bits are useless.  You go back to Harbor Freight and buy masonry bits for $19.99.  You spend another hour trying to drill and mount your flood lamp.

Total cost: <$75.

Total time spent installing light: 4 hours including agony and driving to and from the hardware store. You might not ever use the drill any more after this ordeal. Moreover, you probably didn’t even do a great job installing that light.

Solution: If you aren’t much of a handyman, just find a handyman, pay him his rate to install the light for you.

This little guy paired with an inexperienced operator has ruined many a hedge…

Do it yourself is overrated if you know nothing about what you’re trying to accomplish.

Do you want a family practitioner biopsy something that looks like a melanoma? That’s right. You probably don’t want your Dermatologist installing your hot water heater either. You have to realize that not everyone has the time or interest in dealing with unthinkable chores.  And that is okay.  We all specialize in a profession so that we can offer our services for a fee commensurate with our training.  If you don’t want to mow your lawn in a crappy manner to save a few hundred bucks, either hire someone to do it or get rid of your lawn.

Every person has different interests and strengths.  As doctors, we all have different strengths outside of medicine as well.  The plastic surgeon who is an expert woodworker is going to fare better customizing a desk for his daughter in college than the Radiologist  who is an expert painter. What should the Radiologist do? Send his daughter off to college with an Ikea desk and a custom painting if he wants to contribute something unique.

How much DIY do you accomplish?

Note: I haven’t purchased a box of discounted half-stale donuts in 4 weeks! Hopefully I can keep that streak alive!

Welcome ScrubNotes Visitors!

Posted on by SmartMoneyMD

Hello everyone! I am grateful for ScrubNotes to feature one of our articles today discussing the prestige of medical schools, and whether they are worth the cost. As an overview, Smart Money MD is a physician-oriented financial and lifestyle website to help guide us through the complicated world of delayed gratification from medical training.  Once you become an attending, do you earn enough to power through any financial considerations? Or do you still have to watch what you spend?

[showads ad=responsive]

If you guys haven’t already signed up for our mailing list, be sure to do so. You’ll get access to our FREE Financial Cheatsheet. You will also get special updates as well.

Smart Money MD is an interactive online community.  Please do not hesitate to reach out if you have any questions or would like to see certain topics featured.

Enjoy!

Head over to the beginning to go through our articles!

Building wealth – Don’t sweat the small stuff unless you should

Posted on by SmartMoneyMD

Back when I was a resident, I lived in a high cost of living area. About one and a half of my paychecks went towards my monthly rent.  I know this sounds crazy as a resident earning about $50,000 a year, but that was my situation.  I probably paid more than what most of my readers pay for their mortgages on an entire house! This wasn’t a nice pad either with a Sub-Zero fridge or Toto toilet either—I lived in a roach-infested studio where the amount of heat I got in the winter was controlled by the building’s superintendent.  But, the trade-off for such an expensive unit was that I felt safe living there…most of the time.

With a skewed budget like that, I did pay close attention to my budget even though I wasn’t attuned to the finer aspects of finance. Cheap cellphone providers weren’t in style yet, so I shopped around frequently if my phone company decided to jack up their rates.  Likewise, I spent a few hours every year on the phone with my Internet provider, threatening to leave their company if they wouldn’t keep my bill the same.

I sweat the small stuff.

Most doctors have some sort of compulsive behavior in their blood.  All financial bloggers DEFINITELY have compulsivity in their fabric too (Yes, if you like spending your weekends plotting out your dividends from your stock market funds, you have compulsive behavior!).  As a busy resident, the time I spent sweating the small stuff could have been probably better allocated to sleeping, studying, or even socializing.  But, I was very aware that my budget had a narrow range before I needed to break out the awesome balance transfer checks that tempted me.

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So lowering my Internet bill from $80 a month to $29.99 a month was worth negotiating for an hour or two each year with the frustrating service representatives.  So was fighting through extra crowds of customers at the cheaper ethnic supermarket.

Total savings of getting your feet stepped on at the supermarket: probably $15 a week.

The savings do add up. And for most families, the $50,000 a year resident stipend could easily feed a family of four.  Saving a few thousand dollars of post-tax dollars a year could help fuel your Roth IRA, 529, or emergency fund. That is a practical use of time and money for that budget.

Once your life gets busier and you begin to command a higher price for your services, the small stuff might actually become too small for your time.  You might not want to drive an extra two miles and wait in line for gas at Costco to save ten cents a gallon.  Do you risk your child’s well-being by using the babysitter who is $1 an hour cheaper? What about $5 cheaper? Or $10?

Pinch hard enough and it might go into your veins!

The decisions become more complicated as more variables come into play.  If you are justifying a minuscule cost savings in exchange for time already in your limited schedule, then it’s probably not worth it.  For instance, if you have to round for 4 hours on Saturday and Sunday morning, then you probably would not want to raise your blood pressure on the phone with a Comcast agent trying to lower your Internet/TV bill.

On the other hand, if you typically spend your weekends building furniture or at the local park with your kids, you could probably spare an hour a year to save $1000 on your Internet bill.  It wouldn’t really matter if you otherwise had a salary of $50,000 or $500,000. I would venture a guess that even some people I know with a $5,000,000 net worth would still be willing to argue with a phone rep to save a grand.

Some people will sweat the small stuff no matter what situation they are in.

Another consideration on savings depends on how much your job allows you to earn more for working more.  If you are an ER doctor, you could probably fill in a few extra shifts and earn a few extra thousand bucks.  You might end up deciding that it’s easier for you to just go to work to earn more rather than going out of your way to save on gas or groceries.  If you really like money and are willing to sacrifice time your time, you could do BOTH.

Whatever your threshold for pinching pennies, make sure you actually have a threshold.  At some point, you have to decide what makes you happy.  Sure, that high sugar, high calorie Starbucks latte might cost $6, but you could swing it a few times a year if it can help you get you through your clinic.

You might also like: Money Does Buy Happiness

What is your threshold for saving a buck?

(Photo courtesy of Flickr)

What should doctors do if their jobs are not a good fit?

Posted on by SmartMoneyMD

We’ve all seen it. Some of us have experienced it.  The rest of us WILL experience it.  You take your dream job after your training, and it turns out that the dream job was really a dream.  Perhaps your q2 call schedule turned out to be tougher than you had anticipated.  Maybe your hospital ends up being short on doctors so you end up taking more shifts than you’d prefer to. And no, you don’t get overtime pay as a doctor! You get the same rate as you would otherwise. I’ve known a few unfortunate doctors who actually end up taking new jobs and finding themselves in another similarly unfavorable situation. What gives? Is the world out to get you?

Find out what makes the situation unpleasant to you. 

Everyone is different.  I have friends who are okay with taking two to three weeks off a year and working holidays.  I have others who cringe at taking no less than six weeks.  I have friends who are okay with spending their weekends rounding (their spouses and kids are apparently okay with it as well) instead of hanging out at home or taking a road trip.

Common issues that I’ve seen my colleagues complain about include:

  • Call schedule too onerous.
  • Pay is too low.
  • Patients are too sick.
  • Patients are too healthy.
  • Job is too boring.
  • Location of the practice/hospital is too remote.
  • Senior partners abuse them.
  • Too many satellite locations.
  • Partnership track too unfavorable (they find out two-three years into employment).
  • Work hours too long (many outpatient specialties are open on weekends)

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Whatever situation that makes your life unpleasant, you need to identify what needs to change in order for you to be happy.  As doctors, we are great at shutting out unpleasant memories.  It would be a shame for you to seek out a new opportunity only to have the same problems that you encountered in a previous job.

You might have problem if you sleep here more frequently than in your own bed.

Try to remedy the unpleasant situations at your current job first.

Look, most people don’t like to move, especially if they have established friends and family in a particular area.  Some of us have strong religious ties to a location.  Even most financially independent early retirees with school-aged children choose to stick around most of the time (That’s you Justin @RootOfGood and @RetireBy40).  It would behoove you to talk to your coworkers, managers, administrators, and bosses to determine if any of your gripes can be resolved amicably.  I’ve discovered that in negotiation, you have to figure out what you bring to the table in order to justify your worth.

You might also like: How are doctors paid?

If you are the world’s expert on melanoma, you probably will have more negotiating power than even the most skilled orthopedic surgeon.  Even then, the negotiating power has to align with what your employer needs.  A private practice Dermatology practice may prefer to have a proficient and friendly general Dermatologist over the world’s smartest melanoma guru.

Not all of us will have that magical ace up our sleeves for improving our work/life situation, but it is definitely financially advantageous for most people to keep the same job if possible.  This is mostly because of the effort and potential lost income that comes from job changes.

If you end up moving to another state, you will need to apply for a new medical license, get credentialed on insurance plans, and potentially spend months without income if you end your prior job prematurely.

You need to figure out an exit plan.

If all else fails and you find that your current situation cannot be rectified, you will have to find greener pastures.  But wait, you shouldn’t just march into your boss’s office and give her the middle finger! You need a backup plan. It is easier and less stressful to find alternative opportunities if you have an existing job.  Once you’ve made the decision to make the switch, plan out your next steps:

  1. Look for opportunities nearby. Perhaps in the same city or nearby regions. Then look elsewhere in the same state, if you would prefer minimize your move.  You already have an active medical license in your state, so that is the easiest route to take if you decide to change jobs. Be sure to check if your existing practice has restrictive covenants.
  2. Check with your colleagues elsewhere who might have some leads on potential opportunities. An potential opportunity might crop up that you might otherwise not know about.
  3. Look at your professional society job bulletins for opportunities.  Given that there are so many postings, it can be confusing if you are not locked into a particular region.  Try to narrow down opportunities that might suit you, and check them out. Make sure that you have an updated CV, clean up your online profiles, and go at it. You might find yourself looking for over a year for the right fit. That is okay, if you are able to maintain you current job.
  4. As with any profession, the more people you speak to, the more that you will learn about the profession. You will develop a better understanding of what is important to your lifestyle and what the critical questions to ask a practice or hospital.  You are also more marketable as a doctor if you have already been in practice for several years.
  5. Don’t be afraid! Many doctors in this situation are primary breadwinners in the household. They may have kids, a stay-at-home spouse, and no ancillary income. If you have been playing your cards appropriate, you should have an emergency fund and have been living below your means!

You might also like: How to burn through a $1 million salary

Go for it.

It is not easy to pull the trigger. A new job means a potentially big move. Take a breath, don’t fret. You are still (hopefully) an able-bodied doctor with good earning potential.  Don’t be worried that you might make a mistake.  We all do. Don’t be afraid to keep your head high, regroup if you have to, and keep whittling away. Good luck!

Any tips for the job hunter?

(Photo courtesy of Flickr)