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Making Effective Financial Decisions

Some financial decisions are worth spending a lot of time on while others are better made quickly so that you can move on. This is especially true for healthcare professionals who earn an hourly wage of $100+. Effective financial decisions shouldn’t take weeks/months to make.


Holding Cash


Q: Should you hold on to more cash until the right opportunity comes along or should you invest your cash in order to prevent inflation effects? 

There is nothing wrong with holding cash for a couple of years. Sure, inflation has negative effects on the value of your cash. However, it can make sense to hold cash for a while if you have multiple effective financial decisions to choose from.

As long as you are proactively looking for such investments, leave the cash aside and don’t worry.

Pitfall: Avoid constantly cashing in your investments because you want to “lock in a gain”. Such timing strategies don’t work and this current 2017 bull-market is a great example.


Checking vs Savings


Q: Should you move some of your money into a savings account or keep all your money in a checking account?

The easy answer is that you should always go with a checking account. Savings accounts offer no value, and haven’t offered any value for nearly a decade.

Effective financial decisions aren’t always about earning the highest dollars possible. They should be efficient as well.

The few pennies extra that you might earn on your cash is nullified by the potential fees and complicated access that you’ll have to your money.

Pitfall: If you know that you will be holding tens of thousands in cash, you might as well invest it in a CD.


Credit Card Rewards


Q: Should you start opening a bunch of credit cards and churn them to get reward points for travel or otherwise? 

The time and headache you will spend to earn $500-$1,000 worth of travel will not be justified. Not only will you have to spend money in order to get those points but you will also expose yourself to credit fraud.

I recommend that the average healthcare professional have a perpetual freeze on your credit report. This is quite hard to do when you’re always applying for credit cards.

Effective financial decisions may mean having to forgo extra earnings.


Paying Down Debt vs. Saving


Q: Should I pay off my credit cards and student loans or should I be saving and investing? 

The reason this question comes up so much is because there is no universal answer. No healthcare professional would ask the question if the math was obvious – but it isn’t.

In general, pay off your credit cards, max out your tax-deductible retirement accounts, and then start attacking your student loans. There are some benefits to having a mortgage.

If any part of you would feel elated with the concept of being debt-free then ignore all the math and attack the shit out of your debt while still maximizing your retirement contributions.

Pitfall: The reason banks offer very low introductory rates is because they know that once you have even a little debt, you are more likely to take on even more debt. Such harmless concessions are a brilliant tactic used by banking institutions.


Investment Options


Q: Should I invest in real estate, index funds, or individual stocks? 

If you have to ask then the answer is passive index funds. You can keep it conservative and invest in a broad market index fund. Economists, investors, and financial advisers all agree that this method is quite safe and unlikely to hurt you in the long-run.

Effective financial decisions should take research into account. Other financial experts have already done the math and come up with some hard-to-disprove facts.

Once you have established such a base then you can venture out and buy a rental income property. After that you can take a small portion of your money and invest it in slightly riskier ventures.

Pitfall: Avoid jumping back and forth too much. When you cash out your securities then you lose out on compounding interest accumulation as well as dividends.

Supplemental Disability Insurance


Q: Is my group disability insurance adequate or should I buy a supplemental policy? 

Here is an absolutely brilliant overview of disability insurance by the Godfather. You should buy supplemental disability if the “definition of disability” isn’t favorable.

I would advise you to contact HR or your benefits department and get a copy of your disability policy. Then contact a private disability company and have one of their agents review it. If they identify a gap then take that information and run it by an experienced colleague and go from there.

Effective financial decisions also mean that you have to protect what you have or what you could stand to lose.

Pitfall: Don’t keep paying for disability insurance once you are financially secure. In the case of disability you would have access to your retirement funds without having to pay a tax penalty.

Paying Off Mortgage


Q: Should I be paying off my mortgage as soon as possible?

If you are free of credit card and student loan debt then your money will likely grow much faster if it’s invested instead of it going towards paying down your mortgage.

It would make sense to pay off your mortgage sooner if you can still invest quite a bit (low household overhead) and you get excited by the idea of being debt-free.

Pitfall: Unless you are 100% sure that you will remain in your current home until your dead body is carted out of it, do not pay extra towards your mortgage.


Predicting Market Behavior/Performance


Q: Should I be investing in securities even though they are at an all-time high?

You should always be investing, regardless of whether the market is overvalued, undervalued, or valued just right. If you are doing this for the long-run then it won’t matter because you’ll be investing in as many overvalued markets as undervalued markets.

The more practice you have investing, the more effective financial decisions you’ll make. Investing is a wonderful way to realize the value of money.

In the beginning it’s more important to acquire the habit of constantly investing. There isn’t much value in trying to predict the markets – most often you won’t get it right. Spending time and energy predicting markets could be a wasted effort.

Pitfall: If your risk tolerance is changing with age then your asset allocation should reflect it. This will prevent you from stressing over a sudden drop in your portfolio value.


Changing Jobs


Q: Is it time for you to change your job?

Healthcare professional have an excess amount of job loyalty. This is taken advantage of by employers. And now that medicine has been taken over by large medical groups, it will only lead to more exploitation.

The only factor that should keep you from switching jobs should be your vesting schedule. If you have 1-2 years left before vesting in a retirement plan at work, it might make sense to stay unless you are suffering greatly.

Pitfall: A healthcare professional who is miserable with their profession is unlikely to find happiness with another job. If you are in such a situation look for an alternate career path instead.



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