The median US household income is in the $60,000/year range. It’s a very good income for most cities in the US. And it’s not by happenstance; all of this is carefully orchestrated in order to make the financial society as functional and reliable as it has been.
Society’s Financial Design
Mature societies such as the one in the US are designed carefully. Congress passes laws in regards to taxes and savings and investing which allow the median household to live quite well.
Even if the average median household chooses not to engage in those opportunities, they are right there within reach. Consumers are protected, employees are protected, and retirement accounts are protected.
That’s the middle class. What about those on the ends of the spectrum? The poor can get a lot of financial assistance from their state. And the very rich get hefty tax breaks in order to grow their businesses and provide more job and add to the GDP.
Hacking the Financial Design
I’m a little obsessed with efficiency this month so I’ve been delving into how efficient our society is. And I’m trying to gauge and improve my own efficiency. Not just in terms of spending but I’ve also been looking at how I spend my time, my diet, and my exercise habits.
I gotta say that when you focus on this stuff too much, it takes you away from living life. So maybe it’s good to read some nerd’s perspective on it but it’s probably not very mindful to tease out every last efficient drop from daily activities.
The US tries to allow upward mobility for those in the middle class. The society is meant to offer lots of luxuries for those in the upper range of poverty and, of course, for those in the middle class.
The government cares little about the wealthy in that sense; they can purchase their own luxuries. They can create their own little worlds. In a way, the government benefits from the very wealthy because they create jobs and fend for themselves.
How can I, as a high income earning physician hack society’s design? Not take advantage of it but put it to its optimal use.
1. Recognize All That’s Available
Let’s tally everything which is provided to us for free; for nothing more than being a resident or citizen of the US, we get:
- laws to protect us from corruption
- employment security
- access to free or very cheap public services
- ability to travel the world unrestricted
- high standards of food quality and safety
- an amazing public health system
- reliable electricity, internet, sewer, and water
- low rates of targeted violent crime
- unlimited access to free information
- top-notch health care
Fuck! None of my ancestors ever had any of this. I could be broke as a joke and have access to more than they had when they were wealthy; it’s quite an impressive time to be alive.
2. Pay to Protect Against Risk
If I become disabled and can’t work any longer, I could eat up all of my savings. Having a high income allows me to afford disability insurance. At $500/month it’s a steep tax to pay, but the upside is huge.
Once I’m financially independent I can drop the disability insurance – as I did in 2016 and many of you will when you’re closer to retirement.
3. Avoid Health Disasters
We have some of the most advanced health technology in the world and yet many complain because of the cost of healthcare. Health isn’t achieved through healthcare so I can do everything possible to maintain my health as much as possible.
Should I end up needing healthcare, it’s probably best to piece it together à la cart. A 7-course healthcare delivery system usually means wasteful spending and a higher chance of medical errors.
4. Employment Protection
Disability, FMLA, sick leave, paternity leave, maternity leave, harassment, bullying, corruption, and vacations; so many damn employment benefits. So many wasted opportunities.
As a sole proprietor I have none of those protections now. When I was working full-time for KP I didn’t take advantage of any of this because I thought I was better than that. Or maybe it was because of the stigma of being weak or the labeling that comes with asking for such benefits.
How many of us have continued to go to work when sick? When burnt out? When depressed or dealing with major family drama?
5. Hire a Tax Strategist
You can read an 800-page book on tax strategizing or you can hire someone to do it for you. There are a few ways of saving money on taxes when you’re a high-income physician. It takes a creative tax strategist but it’s achievable.
Once you’re a self-employed physician, the tax saving opportunities are massive. You can start playing around with your investments, depreciation, and future deductions.
6. Business Income
Our tax code favors the poor and those who own their own business. You can own a business even if you are a full-time employee. Of course, this only applies to someone who gravitates towards entrepreneurship.
Starting your own business in or outside of medicine is a great opportunity. Whether you do it now or later in your career, self-employment income is more potent than employment income.
It’s 2019, and now you can pay $0 to invest your money. This is the first time in the history of the world that a zero-cost investment option is available to everyone. An example is the Fidelity ZERO fund. Despite this, penetration isn’t as high as you’d expect.
We now have decades of research which shows that as long as I invest in passive index funds, I’ll likely grow my wealth. All I need to do, theoretically, is invest in a fund like VTI and keep buying…. and then keep on buying through its ups and downs.
Don’t like stocks or bonds? There is a lot of data on real estate investing as well. Whether you choose the securities options such as REITs or physical real estate.
8. Savings Rate
If the median household can live very well on $60,000 then why can’t I as a physician live on the same or even less? Why should my savings rate be 20%? Why not 80%?
When I was living in San Diego, Ca, I was saving 70-80% of my income. It’s not that bad when you only have to do it for a few years. Even 50% is much better than 20%.
Our society is sadly designed around spending. Economists claim that spending can revive the economy. That’s not accurate – there are far better ways of fueling GDP, especially in this tech age.
I can live far away from work in the burbs and spend the savings difference on commuting (not to mention the time lost in my day). I can buy commercial great kitchen shit as if I’m an Iron Chef. I can join a triathlete club and spend my money on bikes, helmets, penguin suits, running shoes, and all of the travel costs and entry fees.
Why let someone else tell me how I should spend? I don’t need a new package from Amazon every week. I don’t need to venture to the delectable isle at my grocery store – the produce section and the herbs offer more than enough adventure.
10. Professional Advice
Besides tax advice, a high-income medical professional could hack the financial system by having their own financial expert. A financial advisor could be worth a lot of money if you’re willing and able to follow their advice.
A business coach is amazing for when you want to take your business to the next level. Beyond that, online courses are a much better use of your time than sitting there and googling stuff.
11. Paying Cash
Paying cash for bigger purchases like a car requires savings, budgeting, and foresight. It’s still possible in the US to buy a house cash. Cars, for sure.
The advantage to buying cash is that you ignore your credit report. You’ll buy what you need in cash and won’t have to worry about ongoing payments. Your extra money you can put towards investments.
12. Raise Your Income
Why stay at a job that you’re not crazy about when you can get a raise somewhere else? If I’m an efficient urgent care physician then I’d rather go somewhere where I’m paid for productivity rather than a straight salary. Or perhaps I’d open my own urgent care.
If time is more valuable to you than income, focus on raising your hourly income. I went from earning $140/hour as an urgent care doctor at Kaiser to $250/hour from telemedicine and consulting.
13. Take Risks
A stable and reliable economy like we have in the US allows us the opportunity to take calculated risk. Starting your own business or investing in something non-conventional could be healthy risk.
If your job sucks or your state blows, leave. Take the risk and start a new job with a new employer. Some risks can have massive gains.
It’s okay to make mistakes. It’s okay to capitalize on risk and fail. Like a bus, there will be another opportunity coming.