Smart Money MD

This is the last post in my series on how to boost your net worth without having to increase you income.

• Introduction
• Do not have more house than you really need
• Save on Groceries and Control Your Restaurant Expenses
• Maintain your professional clothing yourself
• Analyze fixed costs and destroy them – utilities, phone bill

Recurrent costs are expenses that we often subscribe to but may not necessarily be aware of. I often forget about certain monthly bills that I set to pay automatically. It should be good habit to reassess our needs to cut costs. Some recurring bills include:

• Electricity bills
• Gas bills
• Sewage/HOA bills
• Garbage disposal fees
• car payments
• rent/mortgage
• property tax
• vehicle registration and insurance
• internet bills
• cable/satellite bills
• online subscription services: Pandora, Evernote, web server, Netflix, Hulu, Amazon Prime
• magazine subscriptions
• country club fees
• golf course fees
• telephone bills

Utilities (electricity, HOA, gas, sewage, trash)

These costs are mandatory, but you can still trim off the fees by paying attention to your usage. Basic supply line fees and taxes can’t be avoided, but decreasing consumption strategically will cut your bill with minimal disruption to your lifestyle. The majority of our electricity usage comes from our refrigerator, light bulbs, washer/dryer use, and air conditioning. Changing out your incandescent bulbs to CFLs or even LEDs will cut use dramatically. Insulation and increasing thermal mass of your house will help keep temperatures more stable through the day and decrease heating and cooling costs. Many modern homes aren’t designed to take advantage of the sun and the environment (which is a shame), but if you are able to find a home that has strategically placed windows (south facing windows if you are in the northern hemisphere), you can take advantage of the sun. You can track the electricity use of your appliances using a Kill-A-Watt meter. It’s surprising to see how much electricity certain appliances use. I found that my 40” LED television hardly drew any power while off, but consumed about 0.65kWh of electricity in 5 days of 1-3 hours of use. Find your appliances that have excessive phantom electricity draw and eliminate them! Options to decrease gas usage is more limited to decreasing your heat in the winter—obviously not an extremely popular option for many people to keep their homes much colder than comfortable. Again, the solution is actually to thermal insulate your home and increase thermal mass. If you can design your own home, look into Trombe walls and take advantage of the sun.

Cellphone bills

There has been an open battle among the big cellular companies and their offers to slash bills. If you are out of contract with your mainstream carrier, consider tracking your use and try some of reassess with alternative companies like Airvoice, FreedomPop, Ting, or Virgin Mobile. I was able to save at least $25 a month using Airvoice.

Internet bill

This is also a no brainer. Since the internet market is monopolized by a handful of companies, it is relatively easy to price shop. Use WhiteFence. If you live in a rural area, then your options will be more limited. Don’t be afraid to cut your provider in favor of a cheaper option.

Get cable along with Internet? Consider bundling if you must have cable or satellite, but you’d be better off cutting the cable. Likewise, if you find yourself too busy to use your Netflix subscription or online streaming memberships, considering cutting them.

Conclusion

Make it a habit to reassess your recurring costs annually. If there are services that you are not using, consider canceling. Be sure to check if you are spending too much on utilities, cellphone, or internet. I was surprised to find that many of my coworkers pay over $200 a month for bundled cable/internet!  Is premium television worth $2400 a year in after tax dollars?

What suggestions to you have to cut fixed costs? Comment below!

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Despite earning a good six-figure salary, most doctors never become rich for several reasons:

1. The government penalizes big W2 incomes. That’s where most employed physicians earn their income. They spend a decade accumulating debt while earning a pittance of a stipend only to be hit by the upper federal income tax brackets. It would be better to earn a salary of $90,000 for ten years than to earn nothing for four years, $45,000 for four years, and then $240,000 for three years. Expensive states like New York, Massachusetts, or California will hit you with higher taxes, cost of daily living, and property costs.
2. You have less time time for your savings to accumulate.
3. Lifestyle creep.

That’s right. Lifestyle creep. It usually goes one way—up. And it’s much easier to adjust your lifestyle up to your salary than it is to adjust down. And doctors are prone to adjusting upward. Their jobs are stressful.  Patients die. Patient sue. Insurance companies make absurd cuts in reimbursements. As professionals, they are expected by society to have wealth.  Retail therapy is a common coping mechanism to justify the challenging career.

Imagine that a single physician earns $240,000 a year in W2 salary while living in Boston. Assuming roughly a 35% net federal and state income tax, she takes home $156,000 annually. A rough estimate of expenses might be:

• $3500/month for a 1BR condo by City Hall.
• $500/month for utilities, cable, internet. Maybe including cellphone bills.
• $1400/month for food and restaurants
• $1500/year for clothing
• $6000/year for disability insurance
• $22,000/year professional insurance, malpractice.
• $7200/year for car lease (Mercedes)
• $1200/year for car insurance
• $5000/year gas
• $5000/year vacation

That adds up to $112,700 in living expenses or $43,300 in leftover money for everything else.  Note that I did not include miscellaneous expenses, hobbies, or other entertainment costs either.  If she were to invest or save then entire amount annually, it would take over 20 years at this rate to accumulate over $1 million!

If you include family, kids, and education expenses, there really is not much left over to save. For a busy physician, there are limited hours to increase her income through her primary line of work or even branch into a second income stream. I know people who have done it, but personal time suffers.

The logical solution in this scenario is to cut the lifestyle creep. This is one variable that can be controlled immediately and positively impact your net worth immediately. There are plenty of people who do not earn doctor salaries who are rich. They accumulate net worth through diligent use of their money and time. Find out what maximizes your happiness. You might enjoy one fancy vacation per year but could do without the $80,000 gas-guzzling-money-pit vehicle. Or perhaps your recreation of choice is exercise—this is an activity that could be low cost and be beneficial to your health.

What are your interests that maximizes happiness? What lifestyle choices could you eliminate and still be content? Sound out below!

(Photo courtesy of Flickr)

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