Transforming Your Financial Life
Here is the milder version of my financial makeover plan for a physician. The radical version can be found on this page.
To me, it’s all about freedom. Yes, it’s a sacrifice but it doesn’t mean that you have to suffer. I retired in my late 30’s from medicine and moved to Spain because of this financial makeover plan.
Day #1 – Debt Assessment
Most of us may not even know how much debt we have. There are spreadsheets (link to download) you can download or you can just make your own.
Consider the following debt categories:
- private loans
- credit cards
- student loans
- money you owe to family
- cosigned loans
Day #2 – Debt Payoff
Come up with a plan to pay down your debt. Lenders depend on us to make minimum payments to make them richer.
This is a good time to think about restructuring your debt. Consolidating or negotiating rates is good practice.
Sending every last dollar that’s disposable income towards your debt will compound to make a huge difference. And keeping yourself debt-free after this, that’s just as important.
Day #3 – Housing
Is your housing situation in line with your financial goals? Renting is not throwing your money away.
When looking for a home it’s best to have a place that’s close to the following main locales, ideally within biking or walking distance:
- grocery store
- public transportation
- parks or places to hike/walk
For extra credit, try to figure out if your primary residence is an asset or a liability or perhaps something in between.
Day #4 – Transportation
Can you get by without a ca? How about just 1 car? Do you have a gas guzzler or something economic?
Day #5 – Living Location
Most physicians have been priced out of major cities. They are great places to build wealth, but not great places to live in.
Day #6 – Food
Food has become a multibillion dollar industry and it’s sucking as much $2,000/month out of some household budgets. We need fruits, veggies, some grain, and legumes to enjoy an incredibly healthy diet.
It’s time to start preparing meals at home which can be a ton of fun, using mostly plants. Start putting that money you save on dining out towards your debt repayment.
Day #7 – Clutter
It’s been a week, we got a lot accomplished. Time for a little house cleaning and life decluttering. Get rid of whatever you don’t need in the next few months.
The more you own, the more you’ll want to spend.
Craigslist is a fantastic peer-to-peer tool to get rid of what you don’t need and give it to someone who needs it. It’s safe, nobody will murder you.
Day #8 – Entertainment
Hobbies, sports, exercise, vacations, travel, collections, theater, arts, movies, concerts, and festivals. Sometimes these are only meant to distract us from a difficult career in medicine.
Replacing these with hiking, outdoor rock climbing, or just hanging out with good friends for a cup of coffee can save you a lot of money.
In early retirement you can spend all of your disposable income on entertainment.
Day #9 – Investing
An investment is anything that you put time or money into, in hopes of it returning more of either resource for you in the future.
I invest in low-cost passive mutual funds (index funds) because they match my low-risk profile. They don’t need a whole lot of coddling and they help me increase my net worth.
For those who are more into real estate, you can invest your money into rental income properties or invest in courses, books, or other teaching material to make you a better real estate investor.
Day #10 – Simplification
Today we are going to simplify your financial life. Let’s get rid of all those credit cards which you aren’t using and are just one more way for your identity to be hacked. Get rid of those reward point credit cards, they are only a way to encourage you to spend more.
Start budgeting with YNAB. It’s important that you know where every dollar comes from and where it goes. YNAB is the only effective way I know how.
If you have old retirement accounts then consolidate them by rolling them over into other IRA’s. Close your extra checking and savings accounts. You can keep your savings account in your brokerage account.
Day #11 – Taxes
Let’s minimize your taxes today.
- Maximize deductions
- Decrease your taxable income
We can maximize deductions by putting every last penny we can into tax-deductible retirement accounts and by maximizing our itemized deductions.
If you earn most of your money from securities investments, real estate, or your own business then you’ll drastically reduce your IRS contributions.
Day #12 – Assets
Let’s tabulate your assets, your savings, checking account balance, retirement accounts. And determine if you are on track to vest in any pensions or cash balance plans.
You might have a trust coming from future/current family inheritances. Also account for the equity you have in your business, cars, and home.
Day #13 – Subscriptions
It’s time to look at all of your monthly subscriptions.
- cell phone
- online memberships
- annual credit card fees.
Lost track of everything? Close all of your bank accounts and credit cards and you’ll know which auto-debits will get cancelled.
Day #14 – Career
Is your career a sustainable one? Does it nurture or torture your soul practicing it? Are our hours wearing you down? Is the management toxic or the workload insurmountable?
Day #15 – Gadgets
An old iPhone 5 will do all the work a newer one can do. Tablets aren’t necessary and though bluetooth headphones are convenient, they aren’t necessary. Except for a flashlight and your cell phone, nothing in the house needs batteries – if you have them, get rid of them.
Also, this is the time to minimize all future gadget purchases. You don’t need a Roomba, you don’t need a heated shower mirror, you don’t need a watch that connects to your phone. Your glasses don’t need a camera, you don’t need a digital stethoscope and you don’t need a fancy refrigerator or washer/dryer with digital display.
Day #16 – Kitchen
Let’s attack your kitchen. Except for a food processor and the fridge, you don’t need anything that plugs into the wall. Bold statement, I know. This is coming from an avid baker and someone who spends quite a bit of time in the kitchen cooking.
Keep the can opener, spatula, cutlery, one knife, a few plates, some cups and get rid of the bowls. You can use your glass tupperware for bowls. 4-5 pots and pans can help you prepare damn near anything at home.
The more things you own and see around you, the more of your attention is taken up. It’s an overload of input which our minds rarely cope well with.
Day #17 – Exercise
This is a good time to address exercise. We already got you a bicycle on day #4. So that should be the majority of your cardiovascular exercise. And we had you move somewhere where you can get around on foot, on Day #5.
In order to get you some resistance exercises all you will need are some resistance bands and this incredibly durable and adjustable dumbbell set.
Day #18 – Protection
Let’s protect your assets today.
We need to make sure you have
- life insurance if you have dependents
- disability insurance
- an umbrella policy
- homeowner’s insurance
- adequate auto policy
Consider freezing your credit reports, changing your passwords to more secure strings of characters, adding 2-factor authentication to online accounts where available and yes, discussing a prenuptial or postnuptial with your partner.
Day #19 – Net Worth
What’s your net worth? That’s all the assets you own minus all your debts.
It’s one of the most potent measurements to track. It can help you get rid of the conundrum of how much debt you have, whether you should pay down low-interest student loan debt, or if you need to save more for retirement.
Day #20 – Retirement
Today is the final day of your 20-day financial transformation. Let’s see when you can break free from the job/income bondage.
The more you invest, the faster your money will grow. You will get to $100k, $500k, and $1 million in no time.
Once you are financially independent, you can work whenever you want, work whatever job you want even outside of medicine and take off to travel at your leisure.