Category: Save Income

How the Financially Independent can plummet back to Financial Dependence

How the Financially Independent can plummet back to Financial Dependence

Merry Christmas everyone! I hope that everyone is having a safe and relaxing holiday with their families, whether that means opening presents in front of the cozy fireplace or watching films while eating Chinese food.

While I do feel envious of those in the blogosphere who have reached financial independence, I do realize that everyone is in a different situation and phase in our financial journeys. The financially precocious of this world have surely gotten a head start, but building up hoards of money isn’t the name of the game. We just need to be smart about what we put our labor towards and enjoy ourselves during the journey.  Doctors enter the workforce—money people call this the wealth accumulation phase–later in life, but we are fortunate to have good earning potential.  I’d pick compound interest over earning potential any day, but earning potential can get you pretty far in life.  Well, if you are a doctor who doesn’t have good financial firepower, I hope that you are still saving lives and healing people. ?

One aspect of financial savviness that I was skeptical about early in my financial readings was how  one can be confident that safe withdrawal rates can actually be safe? The financially bold were able to set their expenditures within a tight range, build up to a 3-4% safe withdrawal rate, minimize their tax burden, and tell off their employer a la Office Space style.

I see others simply working a “few extra years” with strong savings rates over 50% to build up additional buffer. Then there are the exceptional prodigious who actually develop additional income  after declaring financial independence.  There are many roads to Rome, as they say.

But out of the prominent few out there who are truly level-headed and are able to make unemotional financial decisions, how many out there with decent financial sense, make it to financial independence, and then fall back to financial ruin? Anything can happen in this world, and here are a few habits and life choices that can erode away your financial independence:

Rising Eating Habits

While food in general is much cheaper than what was available a decade ago, there are clearly more wallet-gouging options available now as well. Foodie cultures, microbreweries, organic foods, fad-diets, and Manuka honeys all contribute to increasing the cost of food.  Perhaps you have a dream to dine at every Michelin-starred restaurant you can get your hands on. Maybe your daughter decides to become vegan and your wife goes gluten-free, too.  Uncontrolled, the cost of food for a family of five can easily double or triple with selective eating.  If there is any redeeming aspect of rising food habits, it’s that we only have one stomach. No matter much you crank up your food expenditures, you probably aren’t going to undo years of prudent financial decisions that got you to financial independence.


Once you cut back on your job, you will undoubtedly have more time to jet set. Travel can get quite pricey, especially if you go heli-skiing or drink champagne in a glacier.  However, most people who can handle their finances well should be able curb their need to splurge on vacation. I consider vacations to be a possible financial sink, but the financially astute ought to be able to curb their expenses if the going gets tough.

Heli-skiing this area looks like fun but is going to cost a pretty penny.


The danger with spending on your kids is that they are your kids. Since you’re not spending on yourself, it is easy to convince yourself that you’re contributing to their success. Raising children can be economical but it can also destroy your ability to retire. Just because you thought you had planned out their public school trajectory by moving into a good (read: expensive) housing neighborhood doesn’t mean that your kids will actually go to public school. I’ve seen plenty of highly intelligent parents who, against practical judgment (and sometimes at the urging of their spouse), send their kids to private school. Think that the fifth grade couldn’t possibly get any more expensive when your daughter started attending a $25,000/year private school? Wait until she asks you for an iPhone X because all of her classmates have one too!  You’d better work a few extra years if that happens.


No one ever plans for divorce, but it happens to more than 40% of Americans. If you have children, you’d better believe that there is likely going to be legal influence on that constitutes child support. The toughest part about dividing up retirement savings exactly in half is that it may not be possible to divide up everything in half. I’ve seen some families in these situations forced to sell property at a loss simply to convert real estate to capital so that it could be divided more easily. Your spouse may not necessarily have the same financial goals as you do, and divorce may prohibit both sides from ending up in a good financial situation.

What other situations can whittle away your financial independence?

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Lifestyle creep and the 4% Rule

Lifestyle creep and the 4% Rule

If you’ve been keeping up with the online money blogging world, you’ve probably heard about the 4% Rule, or 3% (3.5%) rule for some. However flawed, it gives you a decent start on estimating how much to build up your nest egg before you start telling your managers at work how you really think about their Maserati while you’re stuck with a fifteen year-old Honda Civic.  Once you figure out how much you spend annually, you can estimate how long your money will last.

For instance if you spend roughly $50,000 in today’s dollars annually, you’d need $50,000/0.04 = $1.25 million in today’s dollars to last at least 25 years. This has to be invested in some manner too to stave off inflation, and gold bars under the mattress doesn’t count.  Fair enough, but what happens after 25 years? We don’t have much data in the ill-referenced Trinity Study to extend beyond that, so some just adjust the percentage withdrawal rate more conservatively. With a 3% withdrawal rate at $50,000 annual expenditure, you’d need $1.67 million invested.

Lifestyle creep

“Lifestyle creep’s a bitch” -says somebody. I will claim it as my own if no one else does.

Living your entire twenties holed up studying and drowning in debt while your friends in banking enjoy their youth is the prime way to fuel your desire for lifestyle creep.  That’s what doctors go through.  Sprinkle in a few of your classmates who overextend their future self or have family money, and you’ve got a good (false) sense of how doctors should live.

You might also like: How to make a doctor’s salary and still feel poor—and how to fix it

Financial discipline can be an acquired skill, but like many behaviors in life it is highly influenced by our childhood. Not everyone can be like Mr. Money Mustache who grew up in an average Canadian household with “normal” expenses and discover that there is an alternative financial blueprint to life.  The majority of people I know who are financially conscientious have had some foundation in their younger days.  It could be as simple as mowing the lawn for an allowance or just seeing someone in the family struggle financially.  There has to be an exchange of work for money.  The ultra-savers at a young age typically are a subset of this group who use these fundamental principles and kick into overdrive. The rest of us without the head start of financial intelligence simply learn it the hard way—through experience and time.  We get into credit card debt or some financial ruin that triggers our brain to fix the problem.

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Doctors, on the other hand, might have never witnessed financial responsibility in their childhood or gotten themselves into financial ruin. Many doctors that I’ve known come from middle class families who had food on the table every night and family vacations every year.  By the time they start earning some money in residency, they will have acquired substantial borrowing ability from banks or predatory lenders.  We are prime victims for lifestyle creep.

I’ll be first to admit that I’m guilty of lifestyle creep.  After all, why shouldn’t we own at least one nice pair of Louboutin’s if we’re curing cancer every day? That is exactly how lifestyle creep catches you.  When I was a resident, I earned around $40,000 a year and spent 60% of my earnings living in a HCOL area. There wasn’t much left to repay my loans and live lavishly.  There was a lot of pent-up consumerism in me.  Once I got a real job I was tempted to live in a larger place, buy a nicer car, and upgrade my wardrobe. The problem with increasing your living expenses proportionally with your income is that you never make any headway towards your financial goals.

The doctor who owns this car can actually afford it. Doesn’t mean you can though.

Over the years, I’ve been slowly tracking my lifestyle creep. The brunt of the lifestyle creep comes from our mortgage, which in a way is a necessary evil. If you are obligated in your profession to stick around and work a certain number of years before you make any career changing decisions, it might be worthwhile to own a piece of America in the meantime. The other contributions to lifestyle creep end up being discretionary.

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

Between the end of fellowship to my first year of practice, I increased my living expenses by around $15,000 a year. This rate slowly crept up until it skyrocketed another $40,000 with mortgage expenses. Purchases like an overpriced refrigerator do not necessarily increase quality of life, but do dig into your savings rate. At some point, our earnings actually plateau and any lifestyle creep will start eating away at your magic number. If we hope to have any possibility of reaching our savings goals, we have to constantly reassess our expenses. If we can’t adjust down, then we’d better find a way to increase our earning potential

How often do you assess for lifestyle creep?

How important is an emergency fund?

How important is an emergency fund?

How much one should keep around in an emergency fund really depends on risk tolerance and how quickly one can access a big wad of cash for emergencies.  I tend to believe that those with high risk tolerances have probably never experienced a true emergency, or at least one that could seriously stress your wallet. Most of those financial bloggers out there who proclaim that they have $0 in their emergency funds are typically young without kids.  Sure, you should put your money to work for you, but sometimes you do get unlucky and stuff hits the fan.  The same analogy can be made with putting 100% of your investments in the stock market. Do you start panicking when your invested worth drops by 80%? What happens when junior gets diagnosed with pulmonary atresia, you get locked out of some insurance plans for a pre-existing condition?

Uncommon events are uncommon, but someone will eventually represent the uncommon statistic. Sometimes life will suck for that statistic.

Point in fact: I encountered a major plumbing problem recently that clearly stressed my wallet.

Without boring us with the details, we essentially had no running water in the house.  From start to finish, there was probably no access to water in the house for about five days.  No faucet water. No toilet water. No shower water.  This experience also served as a reminder how dependent we are to modern conveniences like electricity and plumbing.  I even had access to water while at work, but I was still miserable! In contrast, much of Puerto Rico still doesn’t have potable water or electricity after an entire month!

You might also like: Replacing the flammable vapor sensor in your hot water heater

This particular plumbing problem was clearly above my skillset.  I would have needed over $10,000 of plumbing equipment plus some serious experience to have fixed this myself.  I ended up calling upon some plumbers to get some quotes.

Wallet gouging expenses do hurt no matter how you put it.

Ouch. This is where an emergency fund would come in handy. Fortunately my plumber accepted credit cards at no additional charge, so I was able to use my credit line. Imagine, however, needing to come up with a check or that amount in cash.  That would definitely put a strain on anyone’s wallet.

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Ultimately, having immediate access to some cash can’t hurt. Because I am currently still in the earning stage of my financial career, I will most likely have at least biweekly access to some cash through my paycheck as a buffer. However, my emergency fund consists of a credit line on my credit cards. That’s probably not the ideal way to access cash, but the credit card companies also grant me with check writing capabilities as well in case I run into situations where credit cards won’t help. Will this protect from all financial disasters? Not even close, especially if zombies take over the world. But I think that it covers most of the situations that I would expect to encounter.

How do you handle your emergency funds?

Lifestyle Tips for the Wealthy – The High-Lo Way

When I was a poverty-stricken resident—I actually lived in a building that had mostly Section 8 units—I bought used items. These were basic hand-me-downs from prior trainees. Desks, chairs, floor lamps…all of the essential items that one might need to outfit a studio.  When I moved on, I actually was able to donate or even resell some of the items. It wasn’t a bad way to own cheap stuff, but the problem was that it was cheap stuff.

Interestingly, one can establish a micro-economy out of this situation. Take it from Financial Panther. There’s money to be had in reselling items that you’ve picked up for free.  If you sell a few $40 desks, you’ll eventually come up with additional spending money.  Look at the entire Goodwill network. They sell donated items, train workers, and do good for society.  It just takes a good eye and time.  Time was something I didn’t have, but I can envision many families with stay-at-home spouses carving out a niche business out of reselling.

Fast forward to the present.  I probably have some time to build up a micro-business in reselling low-dollar items, but is it worth a doctor’s time to do so? WCI recently wrote about trading time for money.  The doctor is the ultimate service worker. We get top dollar hourly rates for our services.  No more. No less. Our ability to build wealth is strictly limited by how much time we have.  And reselling furniture is a low-dollar proposition.  I suppose that it could be fun for a hobby, side business, or short-term hustling, but you’ve got to think bigger if you want to hit it big.  You have to earn your wealth passively if you don’t want to be restricted by time.

High-Lo items for self-use.

Instead of buying crappy used furniture, couldn’t you buy very nice used furniture? We do it with cars all the time, so why can’t we buy a used dining table?

You can. And it could save you some money.

I remember trying to sell a nicely veneered table on Craigslist.  I originally bought it at Costco a few years ago, but we were outgrowing its capacity.  I priced it about $100 less than what I paid for it originally and it sold within a week. Not bad. What was interesting was that I came across an ad for an estate sale in a fancy neighborhood.

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I visited the estate sale company website, and it had photos of sample items that were on sale. It looked fancy.  I decided to check out the sale on one of my free Saturdays and was pleasantly surprised.

You can definitely find furniture on the cheap at estate sales.  Obviously whether you decide to take advantage of these prices depends if you are okay with using other people’s things. That previously owner might have died from a heart attack or cancer—you’ll never know. Perhaps the owner decided to downsize and sell everything.

Would you buy this mattress for $50 not knowing who had used it before? 😉

In any case, buying used household items isn’t for the weak. There were large-scale items like dining sets, beds, desks, lamps, and rugs. The amount of small items available was overwhelming. There were forks, dishware, trinkets, paintings, soap, shampoo—I guess that anything in the house was fair game.

I ended up not buying anything simply because I didn’t really need anything. However I probably would have purchased a nice dining set with buffet station. I think it was listed for $800, but something similar at a furniture store would have cost maybe $3000!

Insane what you can find used.

How often do you purchase used items?

(Image courtesy of Flickr)

Guest Post: These Student Loan Startups are Helping Medical Professionals

Editor’s Note: The following is a guest post by James Fisher, who is a freelance writer with interests in finance. He is looking to become a CPA in the future.  James is a sponsored writer, and may have links to services that he may have relationships with.

An astounding seven out of ten college graduates leave school saddled with student loan debt. For medical students, that number is even higher, and so is their debt load. The average debt load of a medical student entering their residency typically exceeds $100,000. For student loan balances that high, having the best interest rate available is not just a good idea for down the road, it is something graduates need to pay attention to right away. Student loan refinance rates can vary wildly from less than 2.25% to more than 25%, and it can be confusing to go to individual lenders in an attempt to compare their rates and other terms. Luckily, there are several startup companies that are focusing on helping student loan borrowers compare and contrast loan refinancing options, particularly those with high debt loads such as medical professionals.



One of the best-known of the refinancing comparison websites is Credible. After filling out a Credible application, borrowers get to compare personalized loan offers, although as with other comparison sites no offer is definite until the borrower has applied with that specific lender and received a final approval offer. Credible doesn’t charge for its service (but neither do the other companies on this list) and doesn’t ding your credit score for checking offers. Credible has been featured on MarketWatch, VentureBeat, and USA Today. Borrowers who want to find a lower interest rate but don’t have great credit, or haven’t yet established sufficient credit history, can apply with Credible along with a cosigner to increase their chances of getting competitive offers from lender partners. For those borrowers utilizing a cosigner, they should check with the individual lender partners to find out how many payments are necessary before a cosigner can be released.



LendEDU is another loan comparison company that works with various lender partners to find borrowers a rate that saves them money. It has been described as a for student loan borrowers. Even though the company was only brought off the ground in 2014, it receives significant media attention. The company has been discussed on CNBC and written about in numerous publications, including Forbes and The Huffington Post. LendEDU works with a network of “Student Loan Refinancing Partners” to help borrowers compare interest rates and essential terms from many lenders. It starts with a short and free application which is filled out online, after which the borrower receives up to a dozen different student loan and refinancing offers. Since LendEDU doesn’t need a hard hit to the borrower’s credit report, there’s no damage to credit scores, and applicants can compare rates from SoFi, College Ave, Citizens Bank, Sallie Mae, and many other lenders – all at once, and all from their computer screen. Borrowers will be pleased to know that with a short application and a soft inquiry to their credit report, lenders’ offers can be customized to the applicant. Nonetheless, no offer is set in stone until the borrower applies individually.



SimpleTuition is a student loan comparison site by LendingTree, the website well-known for comparing mortgage rates. And while LendingTree offers loan comparisons for just about any type of loan except student loans, that’s where its progeny, SimpleTuition, picks up the slack. College graduates with either federal loans, private loans, or a mixture of both, can use the well-designed website to learn about multiple student loan refinancing lenders. While this company doesn’t provide the same vetting process for the borrower as the previous two (their application is more of a quick questionnaire) this site is a good place to get a very general idea of what private lenders are out there. The downside to this approach is that by not performing a soft pull on the borrower’s credit report, SimpleTuition is unable to personalize the lenders they promote or give potential applicants much of an idea of what rates and terms they will qualify for. However, SimpleTuition is a good website to go to in order to get helpful information on different kinds of loans and even repayment methods. For borrowers looking for more personalized offers without having to apply with individual lenders, check out LendEDU and Credible.


Post mortem by SMMD: I agree with the author that these aforementioned services are worthwhile for the graduating doctor to be aware of, but we should focus on a fundamental debt repayment strategy. Many of my colleagues use SoFi for their refinancing to rid of high interest governmental loans. The rest can be (YMMV) as simple as not upgrading your home/car/other-expensive-item when you start making real money. 

Back to the basics – Attending edition

It’s the beginning of a new academic year.  For those in the medical profession, that means advancement in your training or the beginning of a new job.  Either way, there is a change in your routine. Several of my colleagues who decided to choose a profession that requires an extra decade of training are now finally starting their first “real” jobs.  I feel bad for them, but perhaps they will earn it back in the long run.  I figure that now is a good time to go over some financial assessments that new graduations should consider.  Perhaps my friends will actually read this and take heed of some useful advice when they embark on their first jobs.

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Track all of your financial holdings.

You need to make sure that you are able to log onto all of your bank, retirement, and investment accounts. Update any mailing addresses if you recently moved. Open a Personal Capital account. Make sure you update any loan and mortgage accounts as well. I’ve recently become a big fan of electronic statements—it’ll cut down on what you have to move around if you’re still settling into a new home. Automate any bill payments too. I had compulsively reviewed my receipts prior to paying my bills, but realized that I have almost never found any discrepancies (other than a sushi restaurant adding an extra $10 tip!). Save yourself a few minutes each month by automating your bills. Once you get busier, you’ll find that it’s quite easy to forget to pay your bills.

 Decide whether to consolidate your retirement accounts.

If your prior employers offered matching contributions to your retirement, you probably already have at least one retirement account already. Chances are that your new employer probably will go through a different custodian. That might mean that you won’t be able to contribute more to your old accounts. Decide whether it is worth your time and energy to keep your accounts separate. Most custodians will be willing to accept roll-overs. I ended up keeping my 403b from fellowship open since I had good options on Fidelity, and I still had active accounts with them.

Make sure you have disability insurance.

As we get older and play our financial cards appropriately, disability insurance will matter less. However, it would be wise to buy disability insurance when you start out on your first job. You never know what might happen. The several thousand dollars a year in insurance premiums will be worth it if you are unlucky enough to become disabled early in your career.

Get yourself some life insurance if there’s anyone who will be dependent upon your income. That includes children or spouses. If your spouse earns more than you do and you don’t have any kids yet, perhaps you could delay for a little bit. Depends on how much income you will have starting out.

Don’t go crazy upgrading your lifestyle…yet.

That includes furniture, cars, and your home.  I kept my beaten-up desk from medical school for several years after I started my first job until some college student needed it.  Eventually you will want nicer stuff, but don’t upgrade all at once. Plenty of doctors who play their cards right will be able to buy boats and expensive cars (::cough::WCI), but they went through many years of abstinence before letting loose.

Many years of tape and water stains weathered down this particleboard desk top!

That’s it. Simple and nothing earth shattering. I know that most people starting out their first jobs will have limited brainpower and time to dedicate to this. It’s certainly helped me out over the years as I build upon my core knowledge and common sense.

Hacking your energy consumption

As I get busier in my career, I become less inclined to micromanage my lifestyle in order to save a few dollars. I see this in my coworkers. They don’t bother with coupons, discounts, or even budget car maintenance.  There is a fine balance between micromanaging and laissez faire.  If you let things slide too much, the dollars will eventually add up.  Do you cut back on daily Starbucks breakfasts and drinks? What about groceries at Whole Foods?  Do you get take-out dinners twice a week because you’re too busy to cook?  How much money are you actually saving?
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Likewise, there’s little point trying to save a few bucks on small dollar items if it’ll take you too much time to figure out the most economical strategy.  Electricity is one cost that I have yet to find the motivation to optimize.  It’s a fixed cost by the local utilities.  It’s not like you can turn off your refrigerator.
Come the Kill-A-Watt power meter.  I came across this little gadget at the local public library.  You can also find it online for approximately $20. It measures current, voltage, and total power consumption of any appliance that you’d plug into it. Engineers can totally geek out on it.
Handy little guy will read your power consumption! Geek out.
This device is most useful for identifying vampire appliances that might be sucking up the power in your home.  I played around with it and actually found out that my little upright freezer in the garage actually consumes more electricity than my fridge in the kitchen!
This little guy consumes more electricity than my full-sized refrigerator!
Not a bad find. I’ll have to figure out a way to replace the freezer with a more energy-efficient chest freezer.
Have you tried out any energy saving devices?