Smart Money MD

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.

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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.

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)