Concrete measures you can take RIGHT NOW to float to Financial Independence
When I’m asked about finances from busy health care professionals, especially the younger ones who’ve recently finished training and are now practicing at my hospital, I get one or two questions that seem to represent a consensus. “I don’t have time” fill-in-the blank.
….. to budget
….. to save in 9 different accounts
….. to manage an investment portfolio (Urgh- I always hated those two words investment portfolio. Who am I, Thurston Howell from Gilligan’s Island?)
……to get my student loans under control
The added anxiety regarding how to handle our money is that this is the first time we are making a serious paycheck, at least it was for me. As Type-A personalities, we don’t want to F-it up, infact we want to knock it out of the park.
The other question and/or complaint was often “this is too complicated, I don’t trust myself to manage my money”.
My very empathetic answer actually turned into a somewhat “entry-level power point” presentation on how to manage money for my new colleagues. I would always preface it by saying “yeah – you’re welcome – because you are benefitting from all of my mistakes” (hehehe insert hug emoji here).
For you who are starting out, this is very simple and for you who are “seasoned professionals” it can serve as a reminder or atta – girl or “health check- am I on the right path?” to F.I.
Track your net worth
Wealth begins and ends with your net worth.
You will not get to your destination if you don’t know what direction you’re driving.
Awareness of your net worth is a true reality check.
Take the time today, or the next chance you get to reconcile ALL of your debts and ALL of your assets. Then, update it often. Trust me, this will keep you in the mentality of saying to yourself “stop acting rich” hehehe. It will keep you motivated. If you’re already past this step, play around with your budget and do what I call a couple of “what if’s”. See if you can add a little here and a little there to significantly lower your debt. It can be extremely rewarding (insert dopamine drip here) to see your debt go down and concomitant net worth go up. Knowing your exact net worth makes you think long and hard before purchasing big items or going on expensive vacations. Either I would get a visceral feeling of “YES! Let’s do this!” or “No, what you talkin’ about Willis” type-of feeling. Try it! Please post below if you’ve had these moments.
Follow the Pareto Principle
“80% will and 20% know-how”
Mind set is really important. Start by “being cheap”. Get into the “I’m not paying that” mentality. Get rid of the notion that you have to pay full price for EVERYTHING, instead get in the mood (in my Barry White singing voice) by reading a few books (Millionaire Next Door/Simple Path to Wealth/7 Money Mantras), listening to a podcast (ChooseF.I./Afford Anything/Hippocratic Hustle) or searching a Blog for a topic you’re interested in learning more about (Physician on FIRE/ Our Next Life/Mr. Money Mustache).
50/30/20 Rule
Divide up your money the Elizabeth Warren way. I can’t tell you how I wish I had found this earlier (insert earnest crying emoji here)! How STUPID I was in the beginning of my debt snowball. Before I read All Your Worth – I regularly paid my very low interest rate student loans (I’m talking a high 4-figure amount) before I would pay off a small amount of credit card debt. (with my Homer Simpson face). It just highlighted the fact that my money was out of balance – so DON’T be like me, get your money in balance by using the 50/30/20 Rule.
“That which is measured improves” – Karl Pearson
Start a budget
As the old adage states, follow what you are bringing in and what you are taking out. The greatest advantage to me using a budget is that irregular expenses don’t turn into emergencies and stress-related melt-downs. No more beating yourself up for being short this month because you forgot that your society dues and little Suzie’s deposit for Field Hockey are both due next Saturday. Some call this forecasting, others refer to this as filling up your “rainy-day” buckets.
Forecasting – the act of serially putting money aside in your budget (every month or every two weeks, etc.) to fill up the “buckets” for infrequent and/or sometimes of unforeseen bills.
If you budget efficiently – you will NOT need an emergency fund because you will be budgeting all year long for uncommon and unforeseen expenses. As you get used to it, you will tailor it to your own unique needs. YNAB was a game-changer for me. A budget can be liberating for you. It’s only restrictive if you make it that way. It keeps you in reality and gives you a sense of scarcity. If you spend X amount of dollars on Take-out because it saves you precious time, then budget for it and don’t look back.
Let it go, let it work, don’t think too much into it.
Save, Save, Save
I am motioning in sign language here, or in my Lil’ Kim voice “lemme give it to you in Spanish”
The easiest way for you as a physician to get to F.I. is to put your savings and your debt payments on auto-pilot. Yes, debt is categorized as “savings” (you can read more about it in All Your Worth or taking an online class with YNAB (they are free).
Research has shown that if you link your savings to a specific goal, you may reach it earlier. F.I. is too broad of a goal specifically, so link the savings account to “highest interest student loan” or “next rental property” or “new roof”, etc. Pay down your debt, perhaps with a debt snowball, my favorite is PowerPay.org. Up your automatic deposits into all your savings avenues. Start with tax-advantaged accounts first (which are usually retirement accounts) and put away as much as you can.
Then and only when your debts are paid off (minus the mortgage) in my opinion, start to REALLY pay yourself and open up a brokerage account. Stack as much paper as you can. You are pushing for squirreling away 50% of your income. I know, this hurts, but nothing worth anything is easy right?
Do a Life-Hack
Not for the faint of heart, but consider doing a few “life-hacks”. Rent out part of your property to AirBnB. Get a roommate if feasible or refinance your mortgage to a lower interest rate. Consider buying expensive items not used often with a friend, a colleague or neighbor – we’ve done this once with a power-washer. Use credit card rewards points to your advantage, but be careful not to spend more if utilizing this hack. There are plenty of websites and Blogs dedicated to this very subject so I will refer to the experts on this one, Travel Miles 101 is a good one. Look up your State’s tax breaks for home improvement write-offs or car write-offs.
For example, my Dad recently took advantage of a government program to re-landscape his yard (garden for the Europeans amongst us) to save water. Make a concerted effort to lower your food budget and by all means make your own avocado toast (insert LMAO emoji here).
I would be remiss if I didn’t mention the most important Life-Hack; your time!!!
Utilize your time properly. It may seem counter-intuitive, but consider giving up some added work responsibilities you currently have to make mental space for putting efforts into managing your finances. Especially if you are not getting paid or getting paid very little for it. This really worked for me!
When I relinquished many of the unpaid/lowly paid admin tasks, it freed up more time than I had imagined it would for me to stay on top of my finances. Don’t forget that there’s the time you spend prepping for these tasks, follow-up conversations and emails. etc. You can then focus on real concrete ways in which to increase your net worth and get more traction on your financial goals.
Never Spend Your Bonus!
Finally, this is one of our most impactful tools in our tool box! It can make the difference you need to get ahead of your goals. More on this later, I have an entire post dedicated to utilizing it, but for now, just throw it in a high-interest savings account until we meet again.
