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High Income Without Relevant Financial Skills

Earning A High Income Without The Right Business Skills

It’s rare for a person to earn a high income in this world without having specific business skillsets. Generating several hundred thousand dollars of income in a steady fashion is often achieved by those who have mastered certain entrepreneurial financial skills.

Turning a high income into wealth isn’t as easy as it seems. Entrepreneurs seem to have figured out how to accomplish this. Doctors, often don’t have the same success when trying to turn income into wealth.

Doctors can make a high income without owning a business, without having spent decades making business mistakes and learning from them, and without the risk that an entrepreneur takes on.

The lack of experience with developing that high income and learning necessary business skills could be the reason why some physicians have a hard time accumulating wealth.

High-Income Earners In Business

In the US we are accustomed to hearing about the mega-millionaire business investors. Those who make the news are among the few. There is only so many ways to spin the daily business details of Zuckerberg and Trump, Gates and Jay Z.

For every one of those uber-successful entrepreneurs, there are hundreds and probably thousands who have a small business, employing 1-50 employees. These business owners have carved a niche and are incredibly proud and consistent in earning $250k-$1 million, year after year.

They have a very broad set of skills, not just one particular specialized one. They are able to sell, market, lead, recognize talent, predict markets, budget, manage stress and grow their wealth.

If you’ve ever dealt or known a successful small business owner, you likely have recognized such talents. My good friend, Chuck Neal, who owns a very successful race car parts manufacturing business, has all the skills above. At age 70, he always has something insightful to teach me about business.

Other High-Income Earners

There is another set of high-income earners in the US economy, those who have a very specialized skill, either so rare that it’s in high demand or very uniquely talented.

Imagine a painter who is so talented that their paintings are earning them thousands of dollars. They have a specific talent which they have developed over the years. They practice diligently or they have done it for a very long time. Or perhaps they have an eye for something that everyone else disregards.

Some chefs are so incredibly talented, personable and driven that their skill is rewarded several times above those of their peers. They have mastered the basics and are probably setting new trends in the way food is prepared/served.

Some musicians, equally, command the kind of following that earn them stardom. They work hard, but their skills are quite specialized. They create a product that the masses find incredibly valuable.

It’s rare to find a chef, a painter or musician or architect, who is earning several thousand a year, if not millions, who hasn’t spent many years practicing their skill. They have failed and gotten up again, they have become among the best of the best in their field.

Without a doubt, unless they have taken the time to master the financial side of their profession, their high income will be short-lived and no wealth will come of those many zeros.

High income is like water, it will find every nook and cranny to seep out of. It will evaporate and eventually run dry.

Specialization ≠ Financial Success

There are enough stories circulating about famous chefs and architects whose business ventures have failed. There are professional athletes who have gone bankrupt and politicians who were unable to turn their high income into wealth.

This post is about understanding why those with high incomes are also wealthy. While many others, who earn a high income as a positive side effect of their career choice, are unable to amass wealth.

To sum it, wealth is a consequence of applying business skills to one’s income. Otherwise, earning a high income alone is no indication that wealth will accumulate.

Understanding why one group is able to succeed in this goal, while the other often fails, can help us avoid the consistent mistakes that physicians make with their high income.

Doctors, The Other High-Income Earners

In order for me to earn $300k a year, I simply have to show up to my job with my credentials and do the work I was trained to do. I would go as far as to say that it’s incredibly rare for any market event to interrupt my income

I didn’t have to be better than the rest of my professional peers to command the high income. Sure, I had to compete with other students to get into medical school or get the better grades in college. However, once I have my medical credentials, my income is damn near guaranteed.

I didn’t have to start a business, take the risks of an entrepreneur to earn several hundred thousand dollars a year. This puts me in a very unique group of individuals. There are many pluses to this and also many minuses.

To earn the income of a doctor I don’t need to know much about leading people or inspiring employees. I don’t need to have a vision for my business and figure out how to realize it. There is no need for me gauge the markets and predict economic trends. I don’t need to invest a ton of my own money or learn how to secure a lender to start my entrepreneurial endeavor.

There is no need for me to learn how to budget effectively or feel out the competition. I don’t need to constantly stay one step ahead of my competition to earn the higher income and prevent my business from failing.

A physician rarely will need their own lawyer, a CPA, a CFP or a business adviser on their team. They won’t need career coaching and they won’t need to form mastermind groups.

Such is the double-edged sword of when money finds you instead of you having to actively seek out the money.

Misinterpreting A High Income

Doctors are well known for making a decent income. Sure, their school debt can often cloud the value of their salaries, but we are known for a group who clocks in and clocks out of a job and yet commands a much higher income than their retail equivalents.

We are routinely approached by investors and those trying to sell us financial products, often because it’s assumed that our high income translates into a high net worth. I have been embarrassed a couple of times after being asked what my net worth was by acquaintances who have considered bringing me on their very successful businesses. “You’ve been making $200k+ for the past 5 years and you have how much??”

CPA’s will often share that their physician clients tend to have tiny little net worths compared to their income. Our dentist counterparts seem to do a lot better when it comes to managing finances and turning income into wealth – but physicians, for the most, we tend to be a bit behind and often don’t learn the relevant skills until well into our 50’s.

Going one step further, if I haven’t already offended the 2 docs reading my blog, many doctors think that they are business savvy. I sure did and I surely still do. It’s the constant aura of confidence that we must give off at work which we mistakenly apply to other aspects of our lives as well.

Turning High Income Into Wealth

I thought a lot about what to write under this heading of “Turning High Income Into Wealth”. Most articles seem to make it seem as if it’s self-explanatory, take the high income, save it and invest it.

It seems as though it should be quite easy to turn a large sum of money inflow into something that could be called wealth. Yet, it’s not just about taking a percentage off the top and stashing it. Unfortunately, too many factors erode the value of our income and unforeseen events drain our reserves.

And yet, if broken down into a few key concepts, it’s not all that hard to make this happen. First, pay off all debt and stop accumulating more. Second, spend as little of your income as possible. Third, anticipate and avoid any fiscally expensive mistakes.

Debt

My mom said it best “I know you’re tired of working and a little burnt out, just go buy yourself a big house and a fancy car and you’ll have every motivation to work hard again, how the fuck else you think people make it through 30 years of full-time work?!”

If you have debt, pay it down. The argument of saving versus paying down debt is handled well by those who are business savvy. They don’t care so much about debt which helps them earn an income but they will avoid all debt on liabilities.

A far bigger problem for the doctor is accumulating debt on top of debt. As soon as one is paid off, a new one is taken on. A car is paid off and new one is financed. A home is paid off and a vacation home is purchased. A large net worth is created and suddenly the household decides to take a large loan to invest in a business.

Spending

Traditional personal finance teaches us to focus on how much of our income we save. Here again, the business savvy individuals don’t think in such a narrow fashion. They are focused on minimizing spending, a far more powerful practice.

It’s never good to be cheap but mastering frugality is absolutely critical in the early stages of wealth building. Money is the reason people steal from each other, kill each other, the reason why countries invade other countries and the reason many households experience stress. There is no shame in respecting a rare resource and building wealth.

I realize that my financial voice, among many aimed at physicians, is perhaps the most radical. I don’t think a doctor’s household expenses should be $70k/year or the much more common $120k/year.

I know this for a fact because as doctors get closer to retirement, they suddenly come to realize that such an expensive lifestyle is not compatible with gracefully transitioning into retirement.

This is why most physicians build the majority of their wealth between ages 50-60. There is nothing wrong with that, but I believe there is more value in building this sooner.

Spending is curbed through budgeting. Learn to budget and no matter how much income you earn, you will always have mastery over your money.

Avoid Financial Disasters

Avoid investing in some shitty business idea or an investment that you don’t know much about. If you lose your investment early in your career, when you haven’t built up enough wealth, then the consequences can be tragic.

Avoid costly divorces. I realize that I’m venturing into personal subjects here, but I don’t see how a pre-marital agreement (prenup) or a postnuptial could harm a couple, I’m all for it.

Avoid moving a lot or buying and selling a primary residence repeatedly. Furnishing a home and spending to feel at home in a new locale is costly and can halt your savings accumulation.

Avoid trying to buy a medical practice right out of residency. It’s good to get your feet wet in your specialty in order to learn the ins and outs before taking the leap.

Only use <5% of your savings to invest in speculative investments. Sure, almost all investments require you take some risk, but positioning yourself in the most conservative of investments early on will allow you to develop a better sense of judging riskier ones.

 

One reply on “High Income Without Relevant Financial Skills”

Excellent advice in this post. I loved your comment about offending the “two docs” reading this blog! I don’t know if dentists have things better than docs as they seem to graduate with HUGE student loans, often double the size of doctor student loans. I like the idea of living like residents until you’ve saved up enough to retire. At that point, you can decide if you want to retire or work for more years and gradually inflate your life style a bit to fit the extra amount you’ve saved.

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