There are 3 main parts to money which I would like to expand on in this post. I believe that these are the main 3 aspects of money:
- making it
- saving it
- avoiding losing it
Money is a man-made creation, so there isn’t much mystery to it. However, it’s not exactly what it was once supposed to be. You see, back in the day, money was introduced to create an even playing field for those who were bartering from different countries, for things that they didn’t know the value of.
By tying the value of money to something everyone knew, gold, it became a unified language. Later, money lost its connection to gold, sometime in the 1970’s, and it became just a piece of paper. Governing bodies assumed correctly that the population had enough faith in the dollar that it would continue valuing it even if wasn’t tied to gold.
With the production of borders around countries, controlling what we import, what we export, and making sure that very strict laws are enforced within our borders, it became possible to preserve the apparent value of the faces printed on the high-tech paper.
Healthcare Professionals And Money
Healthcare professionals tend to place less emphasis than the average person on the other 2 factors when they master the first. Though striking an even balance is all that’s needed, it’s not always easy to achieve unless we are strategic about it.
If they earn a high income then they save far less than others. If they are really good savers then they are more prone to putting the money at risk. And if they are good at preventing the loss of their money and are good savers they tend to make very little effort in earning money.
My healthcare professional colleagues who are younger than 40 rarely worry about having enough money, they simply can’t fathom a day they would want to cut back on working. I have witnessed this over and over with new incoming attendings and have rarely seen it play out otherwise.
Inevitably, the majority of them hit that unexpected point when their identity is no longer defined by their specific career and they could now vividly imagine themselves leaving medicine. It’s by no means an easy place to be. Feeling guilty, feeling spoilt, or ungrateful comes with it.
The fear surrounding money is most pronounced around age 50 and for a few it’s even more vivid as they approach retirement age. I’m meeting more and more divorced healthcare professionals who are approaching retirement alone, often a little worried and often underprepared.
Not Enough Saved Up
Look, we’re all gonna fear that we don’t have enough saved up. The future is uncertain and retirement spans so many years that it’s hard to adequately plan it much else imagine our lives well into our 90’s.
If we approach the problem from a purely numeric perspective then we start using rules such as the 80% rule or the 4% rule just to hear them discredited by one pundit or modified by another.
I’m not about to offer a solution to this well-established phenomenon. However, there is definitely a minimum number for everyone to hit based on their specific lifestyle preferences and the investment risk they are willing to take.
Some take the 4% rule literally and so will anticipate a specific spending budget during retirement, let’s say $50k, and therefore save a securities portfolio of somewhere in the $1,250,000 range. Then, as they get closer to this amount, they decide that it’s safer to aim for 3% and so they aim to save $1,700,000.
It doesn’t end there. They reach $1.7 million and realize that the only really safe way to ensure the longevity of their portfolio is to only live off the dividends – now we’re down to 2% or $2.5 million.
By the time this household has decided that the 4% is only effective if they put their own special touches on it, even $2.5 million won’t be enough. “Honey, we were gonna live on $50k?! No way, we need at LEAST $80k a year because of all the different things we like to do in retirement. I don’t wanna live like a pauper!”
If a healthcare professional is worried that their savings won’t be enough for retirement there are far more efficient ways to build layers of redundancy and diversification as I’ve discussed in too many posts on this blog. Aiming to save more, working longer at the job, or working a ton of overtime is simply inefficient.
The Trifecta Of Money
We earn money, we need to save it, and we must protect against losing it. That’s the general and accepted standard of being responsible with money. I agree with it but there is a LOT of wiggle room in this paradigm.
If you can strike a very even balance between these 3, you’ll have a far higher chance at a successful retirement. If you just save a ton of money but have it stashed under your mattress then inflation will nibble away at the value of your dollars.
If you earn a lot of money but don’t care to save this seemingly never-ending well then you will find new clever ways to spend the money and soon find yourself in a very inflated lifestyle.
Making The Money
Perspective is absolutely critical when it comes to making money. As healthcare professionals we are often making 2.5-5x what the average person is making. And don’t forget we live in a progressive society where even the person who is unable to earn an income must be able to have a minimum quality of life.
And this quality of life is ignored by most Americans. It’s far, far, far above the standards of the rest of the world. My patients on SSI, food stamps, and housing stipends can afford iPhones, cable TV, a car, some of the highest quality groceries, and the spendiest of healthcares.
If I am making 3x what the average person makes then it means that I have 3x as much opportunity (unless I’m black or a woman – yea, as I said, it’s America) and I should be able to retire 3x as soon, have 3x less stress, have a 3x as much resources.
Saving The Money
If you don’t save your money then it doesn’t matter how much you earn – really, it doesn’t. It’s understandable why some believe that their high income affords them the ability to ignore their savings, however this only applies to those who are making 20-30x what the rest of us make.
If you earn just 2-3x that of another person you will have a disproportionate amount of tax and liability to deal with. And even though you get to take advantage of compounding interest, you likely won’t be in a position where you’ll get the highest rates.
Instead, if you are earning 20-30x what others make you likely are in a position where you can dictate rates of return. You have the ability to make mistakes without feeling the financial backlash from it. At these high income numbers even the dividend yields of securities can afford you the kind of lifestyle others can only dream about.
Protecting The Money
Protecting our money has to do with controlling risk. Inflation is one of kind of risk. If you keep all your savings in a no-yield checking account for a long enough time then your money will definitely have less value than it did however many years ago.
We are all investors, we may not call ourselves investors but we are making daily financial decisions which put our money at risk or help protect it. By choosing to live in one State from another, we are hedging that we’re going to have a higher paying job or that our homes will appreciate at a higher rate.
By choosing to defer taxation into the future by taking part in 401k, IRA’s, or other retirement accounts, you are making an investment decision. You are saying that you are willing to forgo access to this money now because you think you can keep more of it if you pay a lower tax rate on it in the future. You’re an investor whether you want to be or not.
When we actively invest in mutual funds, individual stocks, income properties, businesses, or do hard money lending, we are making a statement which is rarely uttered: I am putting this money at a higher risk in order to get a better return because I am not okay with my money losing value due to inflation.
And there are gradients of risk. Stocks are quite volatile but can provide nice returns. Bonds have shitty returns but are less volatile and thus have lower risk. Options trading has a ton of risk as does commodities trading. Those who undertake that risk are saying: I am not okay with small returns in the 5% range that more conservative investments can offer. I am willing to risk losing more in order to have a shot at far higher returns.
Finding That Balance Between These 3 Aspects Of Money
For a while I thought that I could just pick up a ton of overtime to make up for my lavish spending. However, I soon outspent any money I could earn plus whatever I put on credit cards.
I thought that maybe if I hurry up and save as much as possible and invest as well as possible then I could get to my investment goal and kick my feet up. Nope.
I even tried at some risky investment strategies, short-term trading of equities. I thought that since I was earning a lot and spending a lot, I might as well increase my chance at higher returns.
A Fine Balance
It’s tough in the beginning because we have the debt hurdle to overcome. And though some of us take on even more debt with our home purchase, at least the current mortgage rates allow for mortgage installments similar to rent payments.
After the student loans and credit cards are paid off that’s when things start to look better. Especially after that first $100k is in the bank – that’s when you really start to see a difference. Remember, most Americans don’t even retire with $100k. It’s not about comparing ourselves to other – but it shines a light on the problems our society faces, the exact ones we can hopefully avoid.
Investment Risk Balance
Don’t try to increase your investment risk to make up for more spending or for lower earnings or for your high debt burden. At best, you might go from 6% to 8%. Maybe you’ll go as high as 10% but that means more work, more upkeep, more risk.
There are some generally accepted investment options which will allow your money to compound with minimal risk. If you are new to purposeful investing, then start on the lowest risk end of the spectrum. If you are genuinely interested, you sure will find better investment options as you gain expertise.
Working overtime can be one of the least efficient ways to earn more income. If you can drop to part-time and instead do a little admin work, that might be a more efficient way to find that balance on the earning side of the equation.
There are more efficient ways to increase your income. In my opinion, increasing your hourly wage is a better way to go. That means that you might have to take on consulting roles, or admin, or find a niche field within your specialty.
And though I’d like to say that we should just be sensible when it comes to spending, I feel as though our culture has become one of excess spending. Spending in order to solve problems. Spending in order to fill voids. I did it, which is why I’m perhaps harping on it.
I think a healthy budget can be had by anyone. But I’m fairly certain that as healthcare professionals our spending is far in excess of what it needs to be.
It’s hard to spend less once you get used to a spendy lifestyle. However, if you are frugal then you can always jump up a few notches every once in a while – it might even feel sweeter.