14 Financial Sins

I’m at the Las Vegas airport waiting for my buddy to arrive. It’s the perfect time to bust out this financial sins post.

Our high incomes allow us to reach financial independence early but it requires some planning and disaster aversion. Keep in mind that we get a late start on that first high salary and we often start with a high negative net worth.

Financial sins are those financial decisions which compound over time to keep you poor. I never thought that I would find myself without a job as a physician – yet, here I am.

1. Buying too much house

In the Northwest neighborhood of Portland, Oregon, there are a lot of physician homes. Most are in the $800,000-$2,000,000 range. But in those same neighborhoods you can find $500,000 homes.

The cheaper ones are smaller, lower down the hill, and might not have the most ideal interior design.

An expensive house means more expensive renovations, higher property taxes, and more insurance. You’ll have to spend more to fill it with furniture and you’ll need more help to maintain it with gardeners and handymen, etc.

That expensive house early on can kill your ability to save and invest for retirement. Some homes will appreciate quite a bit and become and investment but most primary residences don’t make for great investments.

2. Not investing your money

It takes some research and knowledge in order to learn how to invest your money. But you don’t need to get very fancy in order to grow your savings.

Even a single-fund investing strategy can set you far ahead of your peers.

The downside to keeping too much of your money in cash is that you’ll have to deal with inflation. Though inflation isn’t a big deal over a couple of years, the investment returns you’ll miss out on are a big deal.

You can choose CD’s, TIPS, or treasury bonds. That’s if you want to stay on the very safe side of investing. On the other side are index funds, real estate, or a business.

3. Not knowing how much you need

How much money do you need saved and invested for retirement? Constantly working and saving might seem like the safe thing to do, but fuck, it’ll burn you out. And, what a waste of a life to just maximize that without having a plan in place!

Having a financial plan in place takes only a couple of hours per year. All you then have to do is hold yourself accountable to that plan.

Until 2012 I assumed I needed $6,000,000 for retirement. I retired in 2016 with $850,000 and it still seems like a good decision. Sure, more is can be better but at what cost?

4. Cashing out retirement plans

There are very few times when it makes sense to cash out your retirement plan. Almost all the other times we do it out of desperation or frustration with debt.

Cashing out your retirement plan means paying a 10% penalty and paying income taxes on that money – we’re talking over 50% for many physicians.

5. Becoming debt dependent

Banks will extend a ton of debt to medical professionals. Business loans, mortgages, HELOC’s, auto loans, personal loans, credit cards, and store cards.

There are even loans named after us – we are whales! Relying excessively on debt means you’ll delay financial freedom and you’ll always owe someone else money.

$100k of disposable income a year is really easy to have for a medical professional. Which means, it would take 3 years to pay down $300k of student loan debt.

6. Inadequate financial buffer

A financial buffer can be an emergency fund or cash that’s readily available in your checking account for unforeseen expenses.

Last year, when my medical board investigation started, I incurred a ton of legal cost and didn’t have enough money in my emergency fund to pay for it. I don’t want to be in that position again. 

You might lose your job due to addiction, health issues, burnout, or legal issues. Having a solid emergency fund means that you can worry less about your next paycheck.

This will give you enough time to make some financial changes in order to lock down your spending.

7. Saving too little

In #2 we talked about investing. In order to invest, you need to save. Medical professionals tend to save too little. Their household spending is often too high and they rely on their career longevity to have enough for retirement.

In their early attending years their income is sequestered by their student loan burden. Later, it’s the mortgage and fancy car – not to mention children.

Your savings rate is one of the best correlators of early financial independence and financial security. Show me a medical professional with a high savings rate and I’ll show you a household which can tolerate the worst economic downturns.

8. Expensive lifestyle

Much like an expensive house, a high spending habit has many far-reaching poor consequences. If you are used to spending a lot on dining out, services, travel, gadgets, and subscriptions, you’ll take that habit with you into retirement.

If you’re used to spending $10,000/month – a very conservative household budget for a physician – you’re going to want to have that much coming in even when you’re retired.

You won’t have the skills to lower your spending, should you burn out of medicine or want to switch careers.

It’s okay to be a big spender, but it’s better to prioritize saving and investing until you’ve hit your savings goal for retirement. After that, go wild.

9. Being under-insured

If, like most medical professionals, you are in the negative when you first start working, then you want to protect the your most valuable asset, your income. Skimping on the disability insurance will probably be fine for most of us. But should you be that unlucky person befallen with a disability, you won’t have any other options to fall back on.

Life insurance is another one, though it’s mostly for the loved ones you leave behind. Until your household is financially secure, you’ll need to carry that term life policy.

Auto and house insurance is another important one. Don’t under-insure for the sake of $20/month. Have enough insurance that should shit hit the fan, you’ll know that you income and savings will be safe and remain untouched.

I emailed my condo insurance policy to my financial advisor the other day and he pointed out that I’m quite under-insured. I need to address this immediately so it’s on my to-do list for November. Guess what, just last month, 3 adjacent condos got completely flooded by one upstairs neighbor. So it’s imperative to have adequate coverage. 

10. Believing your job is secure

There are 900,000 active medical licenses in the US at any given time.

12,000 malpractice claims were paid out by the courts in 2017. This doesn’t count the majority of the cases which settled out of court. And it doesn’t reflect the amount of stress and possible job loss because of the headache of litigation.

10,000 physicians are also investigated every year by various medical boards. 3,500 licensees will lose their license or have it be suspended or severely restricted every year.

Your job as a medical professional is quite secure when compared to other professions. But for having dedicated 15 years of your youth to become a physician, and with less than 1M physicians in the US, your job is not secure.

Developing your skills for alternative careers in medicine is a good way to build in some redundancy.

11. Not understanding your investments

Though it’s important to invest, it’s even more important to know when and how to invest.

A single-fund investing strategy is really easy in principle but will you sell out of fear if the market tanks?

There are amazing investment books out there which can teach you a lot about investing. And a financial advisor can check you, in case you panic during a market change.

12. not diversifying properly

Most medical professionals will under-diversify while some personal finance enthusiasts can over-diversify.

Having a mix of investments which don’t correlate can be a great way to build some diversity into your portfolio.

13. retirement planning too late

Most medical professionals will hustle to get their financial affairs in order sometime in their 50’s. Though most of us have enough income to make this a viable strategy, it’s far from efficient.

Start earlier so that you can have far more options.

14. Financial secrecy

We don’t like talking to others about our investments, debt, or financial problems. But talking about it can not only help us but help others.

It’s unlikely that your colleague will fuck you over just because they know the balance of your 401k. I had a close friend with whom I navigated early retirement and learned a lot about investing.

My second layer was my financial advisor. But my advisor can’t force me to make good decisions. That’s what my financial buddy was there for.