There is a whole lot of misinformation out there when it comes to personal finance and the economy. I’ve been 7 years clean of media consumption and I’m blown away when I now look at the cover of a newspaper or am forwarded some verbal diarrhea by a friend.
If it was simply misinformation, no biggie, but when it’s masked as a fact, when it’s meant to trick you into believing, now that’s evil. That’s why blogs started, that’s why podcasts started, why index funds gained popularity, and why Uber took over the paid transportation industry.
What are some safe financial assumptions worth hanging your stethoscope on? (For the orthopedists, that’s the thing you listen to the heart and lungs with …. which are organs often adjacent to bones and muscles.)
Inflation is a good one to start out with. We’re not talking about deflation or hyperinflation – those are as rare as Bugattis and not worth addressing. But a persistent devaluation of your currency with time is a safe financial assumption.
Inflation isn’t a bad thing – just the way our economy was designed. So why keep your money in a low-yielding savings account or in cash in a checking account? Laziness? Ignorance? Wishful thinking that Bofa will raise their savings rates?
Here is another safe financial assumption for you – banks will take you for a ride. They will lend out a mortgage at 5%, an auto loan at 7%, and a business loan at 14%, all the while giving you a savings yield of 0.5% – if you’re lucky.
Some refuse to invest in stocks or bonds (index funds) because of market fluctuations. But market fluctuations are a healthy and normal part of the economy. Very rarely is there any rhyme or reason to them. Sure, many experts will voice their opinions as to why market fluctuations happen – but we usually have no idea why.
Market fluctuations are a good thing. If you look at trading volumes during market fluctuations, you will see lots of buy/sell orders. Usually there will be more sell orders on market dips and more buys on market jumps. Meaning, people sell at the bottom of the market and buy at the top of the market. This is partly why you can financially profit from investing in index funds.
Debt Interest Rates Are Guaranteed
If you have a mortgage, student loans, or a car loan, the interest rate on that debt is guaranteed. You will owe that money to the bank unless you die. Unless you’re planning your imminent death, it’s better to pay down debt before getting too fancy with investing.
It’s a safe financial assumption to make that by paying down your debt you’re getting a guaranteed rate of return of whatever your interest rate is. If you invest your money in a stock or bond fund, how guaranteed will your return be over the lifespan of the same debt?
New Investment Options
Speaking of investing your money, there will always be new investment options. Much like public transport, a new one arrives every 15 minutes. (For Californians, public transport is a low-cost mass transit concept invented in Europe and currently piloted in real cities like Portland).
There were ‘bullet-proof’ investments like Bernie Madoff’s fund, then there were mortgage backed securities, peer-to-peer lending, and crowdfunded real estate investment opportunities.
As medical professionals our investment horizons are rather short and our funds rather limited. Some investors are playing with $500M; you and I might scrape $50k together on a good day to invest in the newest and greatest investment option.
Investing is a skill and not an exact science. There is no formula. It’s a better idea to pick some low-risk investments and stick with them. Once you have that game licked, you can venture out to the investment de-jour.
Investing for the consumer is a zero-sum game, so play wisely. It’s worth recognizing that the blogger who is pushing the newest investment option is making more money advertising the investment than they are making from investing in it. Conflict of interest? Not any more than the research studies we consume, funded by the drug manufacturer.
Your Healthcare Spending is Predictable
Though not guaranteed, it’s a safe assumption that eating ding dongs and downing sodas all day long will make your coronaries toast (add me to your will). Since my income as a family medicine doctor is $300,000/year, it’s a very safe financial assumption that any health problems in the future will cost you a lot of money.
As a medical professional your highest health risks are heart disease, cancer, and substance addiction. Granularly:
- heart attacks
- colon cancer
- prostate cancer
- breast cancer
- alcohol addiction
Whatever steps you can take to decrease the risk of these will help you save a ton of money on healthcare. Your efforts won’t be in vain; even if you still suffer a heart attack or a stroke or cancer, the healthier your body is the less likely that you’ll go six feet under because of these health events.
Another financial assumption you can hang your hat on is that your money will grow at a faster rate that you anticipated because of compounding interest. I mean everyone knows that’s it’s not A=Prt but A=P(1+r/n)^t – duh! ?
The counter argument to this isn’t “But some years your investments go down! Why invest?!”. Hopefully you are investing for the long-term and have researched the average rate of return for your investment. More importantly, hopefully you’re not constantly moving your money in and out of investments which kills your chance of compounding rates of return.
For example, if you’re a day trader (=not a hobby, a full-time job) then you might expect 15% annual returns on average. You might lose money for 3 years and then make +70% returns for 3 years in a row.
I invest in index funds so my average expected rate of return is probably in the 5% range annually for stocks and 3% for bonds. It might be higher, it might be lower but not by a lot. Either way, I will enjoy compounding interest on my money.
Some medical professionals believe social security won’t be there when they retire. Or that they will get a very tiny amount compared to what it is now. I have written about SS before, such as the current maximum you can get from SS. Are medical professionals at risk of not receiving social security benefits?
Here’s the rub, if you end up not qualifying for social security it will only be because you have more than enough money in your own retirement portfolio which makes social security irrelevant.
Many of my physician colleagues believe that they have to have at least $5M saved up before they can retire. That’s about 6x more than what I retired on but maybe they have more baby mommas than I do. If you have $5M then you can enjoy a passive income of at least $150k/year. Why the fuck would you need a shitty little income from SS at that point?
The more medical professionals work and save the more likely it is for little guys like me to sneak under the radar and retire early. Even though I would love for each of my colleagues to taste the freedom of early retirement, I realize that the fear of early financial independence can be crippling.
Those who will aim for the multi-million dollar net worths may at some point deal with asset testing in order to qualify for tax breaks, Medicare, and social security. It doesn’t mean that they shouldn’t continue accumulating wealth if it’s a worthwhile pursuit, but it’s a situation worth being aware of.
Protection of the Poor
Now that we addressed social security, let’s talk about another safe financial assumption, namely the economic protection of the poor. Who is considered poor? Anyone earning less than the median US household income which happens to be liker $60k+.
When I was in college at UC Irvine in the late 90’s living off of $15k/year I was living like a king. In today’s dollars that would be like living off of $21k/year which is still a ton of money – but anyone would consider this as being broke as a joke.
As a nation we have to protect the poor because we make a lot of money off of their backs. Does the US keep the poor intentionally poor? Is the wealth gap increasing? Can a poor person raise themselves out of poverty? Does modern day slavery exist in the US? Are the poor just lazy? Is Dr. Mo full of shit?
Fortunately, the bar of poverty is set very low. For example, there is no asset testing to qualify for Medicaid. Therefore, decouple from the economic systems as much as you can and enjoy the benefits of being poor. Don’t worry, you won’t break any laws.
Medicine Will Always Make Money
Medical professionals won’t be going broke, that’s another safe financial assumption. Our knowledge and our skills are in very high demand. However many doors are closed on you, there are others left to open.
Even though your medical license can be taken away, nobody can take away your knowledge. Nobody can take away your experience and it’s up to you to market your knowledge so that you can make money from it.
Whether you’re a pharmacist or dentist or doctor, you can always make money in the field of medicine, peripheral to your health profession. There are a ton of options for lateral movement within healthcare, from consulting, teaching, sales, technology, project management, to compliance.
Budgeting Makes You More Wealthy
It’s rather unlikely for a high-income physician to want to budget. Their income is so high that they aren’t going to run out of money. As long as they stay in the game long enough, they’ll be wealthy as duck.
Most of the physicians I know have $1.5M of household debt. The average income of my physician cohort is $400k. The spread there is nothing – noooothing. Work long enough and all your debt will be gone, plenty will go into retirement accounts, and you will retire with millions of dollars in the bank.
However, if you want to be wealthy earlier or truly wealthy then budgeting will get you there. If you earn $1M and spend $1M then you are broke. If you earn $200k and spend $180k, you’re poor.
Budgeting shifts you up the income curve. It allows you to put more of your earned income aside. It allows you to pay down debt faster. And it allows you to save for important financial goals more effectively.
Budgeting, for example, can help you realize that the majority of your spending goes to housing, transportation, and food. You can own a home in a desirable city in the US for around $150k. You can use public transportation instead of owning a car. And you can eat the healthiest food imaginable for $350/month.