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Your Financial Goals Should Be To Aim For Just Enough

Aim To Save Just Enough – Not More, Not Less

If you don’t have an exact dollar figure in mind then it’s easy to get lost in pursuing your goal, either undershooting and coming up short or overshooting it and realizing that you have wasted precious life energy.

Even worse if you are aiming for a very high savings amount you might put your net worth at risk just to reach that goal and end up worse than you started out.

Imagine if you were aiming for the classic $6-8 million that’s recommended as the retirement goal for most doctors these days and ended up at age 65 scratching your head wondering why the fuck you needed that much. Sure, you can donate it or leave it for heirs but what if in hindsight you weren’t willing to trade your free time for the sake of accumulating that much money. That’s at least 10x the amount that the average family retires with… 10x!

For a long time I didn’t think it’s possible for doctors to come up short and I now know 3 colleagues ages 58, 53 and 62 who are broke. 2 of them women and one a man, all divorced coincidentally. Two of them are burnt out to a crisp, the other loves it and she probably will work til she drops.

Try to think of your retirement number right now, throw something out you big baller. For myself I came up with $500k a while back and though I didn’t need to I still kept working after hitting that number. I hit that number on 3/4/2016. I could have stopped working then, taken some time off and then returned to occasional work – to make just enough to cover my overhead while my investments continued to grow.

With you retirement figure in mind you could go to town on saving it to be done with it. You could also procrastinate saving that amount as long as you enjoy the work you’re doing and are in no rush to get there. It’s critical that you preserve that sum until it has mature and you need it to live off of. It wouldn’t be money you’d gamble on an investment and it shouldn’t be money that you cash out to help out even family members (yea I know, I’m selfish).

What’s just enough?

To answer that question you must first understand what your savings and investments can really do for you, what income and growth can they provide. You have to have a general understanding of the various investment options out there and understand how inflation affects your money. You have to have an honest convo with yourself to determine what your risk tolerance is so that you can feel comfortable with your choice and not spend nights up worrying about it.

In a relationship this conversation becomes a bit more complicated though still quite manageable. By having another person who can give you perspective, work when money is needed or keep you guys on track when you get sick of budgeting you are diversifying and increasing your chance of success.

Save it and let it grow.

If you have a paid off home and planning on still working a few shifts here and there you could invest your money on Wall Street and watch it grow. You would need to save/invest just enough so that it will grow to your desired amount by the time you need access to that money. So again, you need to know what the approximate return on investment is for your specific investment choice and work your way backwards.

If you need $1 million then you might need to invest $300k for 27 years at an average rate of return of 4.5% per year.

If you want $3 million after 27 years then at that same rate you would need to start with an investment of $900k.

So, if you are 38 years old and have saved $500k and have $700k left on your mortgage you can stop contributing to your savings, focus on paying off your home and you will hit the ripe, wrinkled age of 65 with $1.6 mill in the bank along with a paid off house worth over $1.5 mill with plenty of vitality to boot.

Let’s say you hit age 65 and you are so scared of losing your money or so fed up with having to stay on top of your investments that you just want a simple monthly income without having to worry about it. SPIA. Single premium immediate annuity. This is a guaranteed product backed by large insurance companies along with some federal protection which allows you to turn your $1.6 mill to about $8,600/mo of income.

A SPIA for someone my age would earn me $1,900/mo with $500k invested. That’s $1,900/mo until the day I die.

Back to just enough. Perhaps too many of my colleagues are focused on the total amount needed and not what that amount can produce. Lemme ‘splain.

$500k invested using a dividend strategy could get you $1,700/mo. Invested in an index fund it would get you a monthly yield of $850/mo. If invested in real estate it might make you $2,500/mo. If invested in a business it might generate $4,000/mo. It all depends on how much work you are willing to put in, how much risk you are willing to take, how much oversight you will provide and how adept you are in the specific investment strategy you choose.

I got to thinking about this post because I tortured (a little overstated) myself working longer at my job than I needed. 1.5 years ago I still needed to work some in order to pad my investment account but I didn’t need to work full-time. I ignored the benefits of my own investment strategy; namely that my investments will continue to grow even if I don’t add to them. Compound interest.

Aiming for too much.

If you have a dollar figure in mind, let’s say $5,000,000, since that’s the most frequent number mentioned by my doctor colleagues, then it can get quite risky pursuing it. You have your goals set on a dollar figure and not what that money can provide for you. So if the $5 mill becomes $4 mill you might make a risky move and lose quite a lot. This happens more commonly than you think. Instead it might be better to focus on the strategy, focus on the income your investment can generate, on what exactly you need and not a set dollar amount.

The biggest waste to me would be to work an extra 10 years, full-time, in order to reach a dollar amount that I don’t need. My buddy texted me the other day and reminded me of a colleague who committed suicide in our medical group, a nice guy who had been at that group for quite some time. If I’m stressing or going through tough times the last thing I want is the pressure of a structured system, like a job, to drain me even further.

Another part of me wonders what I could accomplish with 10 free years as opposed to 10 years spent mostly focusing on work. The counter argument would be that it’s possible to accomplish any side-goal while still employed full-time. And that might be true, but how much easier would it be without that added pressure.

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