I feel very passionately about helping doctors improve their finances. The worse the state of their finances, the more motivated I am to help them. Unfortunately, I seem to be most talented at helping those in the best financial shape and the least talented at helping those in poor financial shape. But I’m still trying. This post is an email exchange where I attempt to instill the X Factor into a physician. Details obscured to protect the innocent.

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Q. I Make $320K, I’m In Debt, Don’t Understand Investing, and Unable to Save for Retirement

I’m embarrassed to admit that I have an MD degree but my greatest weakness is finance. I’m struggling actually to understand some of the concepts. I have a financial advisor and am likely losing money with him despite him being very helpful so far. Combined, my partner and I make $320K and I feel like we live in a modest home but we have so much debt I can’t seem to get to a place of investing so I can retire at a decent age and spend money on experiences rather than our cars, bills, loans, daycare, and shopping. I’m interested in learning but feel like I need more help than the average person! What are my next steps?

A.

Keep Using an Advisor

If the advisor is providing good advice at a fair price, it’s probably a good idea to keep using him/her at least for now and maybe forever. But you’re paying him/her a lot of money to answer questions like the ones you’re asking me. How come you’re not asking the advisor these questions? That’s what you pay him/her for.

Live Like a Resident

The bottom line when you have a lot of debt and you’re not making progress toward your financial goals is that you have to make more or spend less. So start doing things that do that. It doesn’t matter how you invest if you’re only investing $5K a year. You’re not going to have a very nice retirement like that. My general recommendation is 20% of your gross income toward retirement, above and beyond whatever it takes to pay off all your debt except your mortgage within 2-5 years of residency graduation. That generally requires you to live a lifestyle that a resident could afford for 2-5 years in order to take the rest of your income and build wealth with it.

Get Financially Educated

You might consider taking the WCI Online Course, “Fire Your Financial Advisor,” together with your partner. It is our “premium product” and really helps you not only learn how to interact with your financial advisor but also draw up a written financial plan. For those who need more help than the book/blog, but don’t want to pay financial advisor fees, I think this is the best option. It comes with a 7-day money back guarantee, so if you don’t like it, just email back. You could also sign-up for the free monthly newsletter, which includes a free 12 step email course called WCI Financial Bootcamp.

Q. I Want to Fix the Problem But I’m Not Willing to Change Much

Thanks for the advice.  I’m beyond 5 years out and in my mid-30s so I’ve missed the ball and can no longer afford to live like a resident. I am looking for someone to give me advice for someone who is more like 5+ years out of residency and has an established mortgage, ongoing debts, and a family. I feel like a lot of advice is geared towards early career doctors and I’m in a position that I’m not willing to change my lifestyle all that much.

I don’t think we are frivolous.  We have a modest home and modest cars. We don’t buy fancy things or have expensive hobbies. Our family doesn’t go without but at the end of the day I’m barely able to contribute 10% to my retirement and had to stop altogether the past two years when we welcomed another member to the family due to cost of daycare.

I’ll talk to my financial advisor but I feel like I need individualized advice for my particular situation.  It’s not ideal. I make $250k, my partner makes $70K, we have $15K in credit card debt, still owe >$50k with our cars, and $140k on loans. We have $150k in equity on our home and I have about $135k in retirement savings.

So here we are…and here I am wondering how I fix this problem.

A. Only Dramatic Changes Will Make a Difference

You can’t expect dramatic changes in your financial life without making dramatic changes. Making little changes around the edges isn’t going to change the big picture.

Nobody thinks they’re frivolous, including families making twice what you are but having the same issues. I have medical students over to the house every year and tell them “if you can’t live on $200K you don’t have an earning problem, you have a spending problem.” They all laugh because it is so hilarious to them that someone can make $200K and have financial problems. But guess what? Half of them later do. Meanwhile, you’re making $320K and not happy about the progress you’re making toward your financial goals. I became a millionaire 7 years out of residency on an average household income of $180K those 7 years (and was well under that the first four.) Ask yourself how that happened and you’ll quickly figure it out. We spent very little, saved early and often, didn’t pay unnecessary interest, and made sure our money worked as hard as we do. Anybody can do that at any stage of their career. Sure, it’s easiest right out of residency before you grow into that attending income, but it’s never impossible.

The big picture is that you need to dedicate a big chunk of your income to building wealth if you want to build wealth. Everything else is just details. So that’s the place to start. Even if it is just dedicating 1% more of your income each year toward building wealth.

Good News

Here’s the good news:

  1. You already have a positive net worth in your mid-30s.
  2. Your debt to income level is very manageable.
  3. You have a great household income.
  4. You know you need to make some changes. You have insight into the fact that there’s a problem.

Bad News

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Here’s the bad news (and I’m going to be super blunt in an effort to help you):

  1. You think credit cards are for credit. They’re not. Debt is an emergency.
  2. You buy cars on credit. That’s not an ideal way to build wealth. Here are 15 reasons to pay cash for your cars.
  3. You are keeping your loans in the basement downstairs like a pet instead of obliterating them rapidly after residency before getting used to that attending income.
  4. You have a financial advisor but you don’t feel like you’re getting individualized advice. That’s the whole point of a financial advisor. If you don’t like the one you have, here is a list of ones I recommend.
  5. You’re in such a tenuous financial situation that a childbirth somehow ate up $30K a year. Some families live off of $30K a year.

Trying To Help

So I’m sitting here thinking, “What can some guy on the internet say in an email that is going to change your financial life, motivate you to take control, and give you the hope you deserve as a member of the most honorable profession?” So here’s my best shot:

# 1 You Need to Get On a Written Budget

Every dollar you earn needs a name. There is no way you’re not wasting a ton of money right now. It’s going somewhere and neither you nor I know where. The only way to find out is to write down where every dollar went last month. Then you look at that list/spreadsheet/budget and ask yourself, “Does my spending reflect what I value most?” And then you start cutting back on the stuff you don’t value (like driving a fancy car or eating out or vacations or whatever) and move that money toward stuff you do (getting out of debt, saving for retirement, vacations, cars, daycare, whatever). It really is that simple. Not easy. But simple. It’s very hard to cut back on lifestyle stuff. But you telling me “I want to fix this problem but I’m not willing to change my lifestyle all that much” is like an obese patient telling his doctor that “I want to lose weight but I don’t want to eat less or exercise more.” Well, there’s no gastric bypass for your finances. If you want to lose the financial bloat, you’ve got to cut the calories. Step one is to find out where the calories are coming from.

# 2 You’ve Got to Really Want This

This isn’t easy. If it isn’t really important to you, you’re not going to be able to do it. You’ve got to get sick and tired of being sick and tired. I might suggest listening to the Dave Ramsey podcast on your commute. It isn’t geared to the high earner like my podcast, but he might be the best person in the world at getting people motivated to get out of debt.

# 3 Consider Making Drastic Changes

Drastic changes include:

  1. Taking a better paying job
  2. Moving to a lower cost of living area or a tax-free state
  3. Downsizing to a cheaper house
  4. Selling the expensive cars and buying $5-10K cars with cash
  5. Cutting up the credit cards

Chances are you will need to do one or more of those steps to fix this problem. Maybe not. Maybe getting on a real budget will be enough, but I think you’ll need a little kicker to that.

# 4 Start Keeping Score

In personal finance, your score is your net worth, everything you own minus everything you owe. Right now it is $285K-$210K = $75K. What do you want it to be by year end? What will it take to get you there? What do you want it to be in 5 years? How about when you turn 50, or 60? Set some goals, then work backward to see what it would take to reach them.

What do you think? How did I do? What should I have said? How can one diplomatically point out someone’s spending is out of control? How can you transplant the X Factor? Comment below!