A Radical Financial Makeover
Yesterday I published a 20-day guideline for physicians who want to rein in their finances. It was rather benign. I have revised it to make it a little more radical.
For anyone who has truly committed themselves to a goal or process, they know that it rarely feels like a sacrifice. It’s often an act of love, something they are passionate about. While others are wondering how they could put themselves through the torture, they are gleaming on the inside.
So, for those who are passionate about financial freedom and a chance at early retirement, here is my revised 20-day radical financial makeover – tried, tested, and true.
DAY #1 Debt Planning
Start a spreadsheet and account for every dollar of debt you have outstanding. Write down the percentages in the next column.
DAY #2 Debt Payoff
The goal is to be debt free in the shortest time possible. You know what your take-home is and in the next few days you should be able to minimize your household expenses. Pick any strategy. Mine was to pay down the debt with the highest interest rate first.
Time to consolidate debt and figure out where you can get lower rates to pay off your outstanding debt balance. The goal is to never come into debt again.
Raid your savings in order to pay off debt. Whether you should raid your investments as well is a topic that will require more insight and has to do with your comfort level.
DAY #3 Housing
If you are single or a couple, you can get by with a studio apartment or even a micro-apartment. If you have kids then a 1-2 bedroom apartment will suffice. The goal is to have the lowest housing costs while living in the safest location closest to work – unless your work is location independent.
It can definitely make sense to buy a place in certain markets where rent and mortgages are on par. Ideally, put the least amount of money down.
DAY #4 Transportation
Sell all the cars. Plan on getting by on bicycle and public transportation. Go out and spend up to $10,000 on the nicest electric bike of your dreams with enough cargo space to carry the kids.
If you live in a city that’s not bike friendly then it might be best to locate your home even closer to work – let’s address that more tomorrow.
DAY #5 Living Location
Your place of living should be close to work during your wealth accumulation phase. You should be able to walk/bike to work as well as have access to the following locations in under 10 miles:
- grocery store
- public transport
DAY #6 Food
Switch to an all plant-based diet, mostly whole plants in order to avoid processed foods. Minimize added sugars, salts, oils. The point is to keep you healthy, skinny, and save you money on food.
You could prepare all your meals at home and still enjoy your coffee outside.
DAY #7 Decluttering
You moved into a studio so the decluttering probably happened during the move on day #3. Keep around a score of clothing items per person. Keep a couch and a bed. Get rid of the foo-foo stuff so that your space feels airy and open.
If you’re feeling earthy, make your own deodorant and moisturizer. You can even make your own toothpaste. In your bathroom you just need a few items. Your cleaning products can be nothing but vinegar and baking soda.
DAY #8 Entertainment
Entertainment is cheap because they get to advertise to you. When you are advertised to, you become unhappy – that’s the intention. Pay $10/month for a YouTube subscription or for a Netflix or Amazon subscription in order to consume your entertainment. The rest can come from the library.
Drinks with friends in the park or road beers on Amtrak can make for wonderful socials. Free concerts and even free museum nights are available in most cities.
DAY #9 Investment
Figure out your risk tolerance and how much time you want to spend researching your investment every day. Based on that, max out your retirement accounts to get the tax benefits.
Once your debt is paid off, it’s time to go all in with investing.
If you invest in assets which will grow over time then your net worth will become a self-perpetuating machine. $100k becomes $160k after 10 years if invested in passive index funds. $1 million becomes $1.6 million. $2 million becomes $3.3 million. $5 million becomes $8.2 million.
DAY #10 Simplification
Pay for a good financial adviser to keep you on track unless you have zero doubts in your savings, investment, and budgeting abilities.
DAY #11 Taxes
Keep good records throughout the year in order to maximize your itemized deductions and max out your retirement accounts, thereby minimizing taxes.
Don’t look towards intentional spending to decrease taxes such as property taxes and mortgage interest. These were designed to get you to spend – there is no real savings there.
DAY #12 Assets
Create a spreadsheet and keep a log of everything that’s an asset; a home and its equity, your expensive jewelry, savings, retirement investments and anything else of value.
DAY #13 Subscriptions
Cancel everything except for your home internet and cell phone. You can use companies like Ting to pay around $10/month for cell service. Get rid of the gym membership and the streaming music.
If you have other recurring monthly expenses such as health, life, disability insurances, it’s time to review these and determine if they are truly necessary.
DAY #14 Career Planning
Is your job sustainable? You should enjoy the work you do which earns you an income. If it isn’t then you have to leave it, start applying to other places because staying in a miserable job will only lead to burnout.
The more you enjoy what you do, the easier it is to pick up a few extra shifts and to make it to your goal unscathed. And if you are in a low paying job and can find something in line with your personality, I would advise you to switch to that.
DAY #15 Gadgetry
Gather up all gadgets in the house and sell them on Craigslist. A laptop and a cellphone should be adequate. Get rid of the speakers, TV, fancy blender, battery operated gadgets, tablets, iwatches, electric toothbrush, and anything else that’s not necessary.
DAY #16 Kitchen
Besides the fridge and a food processor, nothing else needs to plug into an outlet in the kitchen. You need a few pots and pans, a few plates, some cups, cutlery, 1 knife and a can opener. The simplest kitchens are the most pleasant to cook and bake in.
Microwaves and commercial ranges make for amazing commercials but there is no utility for the person who wants to achieve financial freedom.
DAY #17 Exercise
Your bike can be your best means for exercise. You can supplement it with walking, running and a few resistance exercises at home. Though you might have a huge passion for a particular sport, it might make sense to hibernate it for a while if it’s an expensive one, until your debt is paid off.
DAY #18 Asset Protection
It would be wise to discuss your risks with a professional who can advise you on what kind of insurance products you need. Then spend some time and assess how much risk you are exposing yourself to risk with your job, your practice style, your habits, investments, and personal information.
DAY #19 Net Worth
We know how much debt you have and how much you have in assets. Wealth is created either by paying down debt or increasing savings. Start a spreadsheet that will track your net worth. You can’t reach a goal effectively if you aren’t tracking your progress.
DAY #20 Retirement
You spent 19 days minimizing expenses, maximizing income and optimizing your debt-payoff strategy. How much do you need to live off of? How much is your investment strategy making you per year? The math (time-to-retirement calculator) should be straightforward from the information from those 2 questions. You are now X-years away from being financially free and have the option to do whatever you please with your free time.