[Editor's Note: This is a guest post written by Dave Denniston, CFA, who has previously advertised with me. He describes himself as “an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with. ]
As you read through wonderful blogs & websites like The White Coat Investor, you may be thinking “Cash flow is easy for him! That’s not me! I’m struggling with paying down debt. I wonder if I am ever going to be able to retire.” Alternatively, you may be thinking, “I don’t have time for extra stuff! How can I find the time to fit one more thing in??” The fact is that other physicians do and many of them reduce their clinical hours to do so.
Regardless of your situation, Dr. Dahle and other doctorprenuers, and millionaire physicians like him are following a very specific set of principles. In meeting and talking with hundreds of investors, a pattern emerges from this haze of wealth creation. Like Napoleon Hill summarized in Think & Grow Rich, I have created a list of “seven irrefutable characteristics” that millionaires, especially white coat millionaires, seem to possess. Explore these with me.
David Denniston, CFA
Principle# 1- Being Personally Debt Free
The most wealthy physicians (& others) I know have absolutely no personal debts. They went about a very specific debt management process.
- First, they paid off their consumer debts.
- Secondly, they paid off their student loans.
- Third, they paid off their mortgage.
- Fourth, and most importantly they bought anything else they needed in the future IN CASH so that they never needed debt again. Their cars, their boat, and cabins were paid for in cash. If they weren’t paid for in cash, then they quickly paid off the debts.
Don’t get me wrong. Debt & leverage have their place. In my opinion, making a business acquisition is a great place to do that. Let’s say you want to acquire a surgery center or you want to acquire a practice or buy into equity in a large physician practice. I think all of those places are wonderful ways to deploy capital and to use debt. Many physicians (and investors in general) love rental real estate. Again, that’s a wonderful place to use debt (as long as it is a fixed debt- with a nice 20% down payment or you know how to flip houses with blood, sweat, and tears).
However, when it comes to your personal life- GET RID OF DEBT AS QUICKLY AS POSSIBLE!
There’s many resources out there to refinance your debts and reduce the interest rate- SoFi, CommonBond, DRB, and Credible just to name a few.
Principle# 2- Owning a Business
The American tax code is set up to benefit one person- the business owner. If you want to take advantage of the tax system and work its loopholes (legally), check out line 12 of the 1040 and Schedule C. There are many expenses that business owners can take advantage of. I know that all of us are so busy and you may not have a single extra second to dedicate towards another money-making venture.
Consider that there are three different ways to own a business:
- Be a partner in your practice (or own it outright)
- Doing locums to create 1099 income
- Having a side hustle
Being a partner is pretty self-explanatory. Passive income and equity can be a great way to do that. Locums is a great way to earn extra dough & be treated just like a business owner. However, in addition to those two, I strongly encourage you (or a spouse) to start your own side hustle. You may start off with a blog like Dr. Dahle or Amanda Liu or PhysicianOnFire. If you like to speak, you can host a podcast like Nii Darko or Ryan Gray.
The key here is to do something YOU are passionate about. Maybe it’s comic books or movies or knitting or underwater basket weaving. Something that brings you joy and you’ll do it even if it doesn’t bring you immediate profits. What are your talents? What are your passions? What is something that wouldn’t take a whole lot of time and have a low barrier to starting up?
Principle# 3- Passive Income Streams Rivers
The wealthiest physicians I know have loads of passive income. They don’t just have like trickling, bubbling streams… they have frothy rivers brimming with passive income. They are usually diversified:
- They have rental income coming in from passive real estate investments (or sometimes active real estate investments). It could be commercial, industrial, or multi-family holdings.
- It’s not unusual for them to loan money and receive interest (but NOT to family unless they are willing to lose the money). They might do this with a contract for deed or personal loans or crowd-funding platforms.
- They have dividends and income streams from their investments.
- They receive interest from the bank.
- They get cash distributions from passive business investments. One couple that I work with owns a huge percentage in a chain of hardware stores. They are on the board of directors and have a hand in decisions. They get cash flow of tens of thousands of dollars every year from these investments.
- As mentioned previously, they may have blogs or podcasts or books or they write articles or they sell courses.
More than anything else, they have multiple streams of income that lead to a roaring river. It isn’t coming from solely one or two places. Check out the PassiveIncomeMD for more thoughts on passive income streams.
Principle# 4- Loads of Liquidity
The wealthiest people that I meet with are constantly looking for opportunities. In order to find those opportunities, they keep a ton of money at the bank. They have a slush fund with six figures that they regularly dip into when the right opportunity presents itself. They will search and search and search for that opportunity. However, once they have it, they will pounce on it and use their liquidity to do so.
Hint: Expect to achieve Principle# 1 and #2 before you can achieve Principle# 4.
Principle# 5- Read & Listen & IMPLEMENT
The most successful people that I meet- physician or non-physician- are avid consumers of content. They are looking for the next idea or the next edge. Mark Zuckerburg and Bill Gates apparently read through about 1 book per week. Imagine that. 52 books in a year!
Can you imagine what they are learning?
(Hint: One hack that I’ve heard is to buy/borrow BOTH the audio book & the physical book at the same time. Listen to the audio book at 2x speed while you read. This way you can better remember what you are reading.)
EVEN MORE IMPORTANTLY- the most successful folks implement and take immediate action when they find a great concept. That’s not saying that they get it all right all the time, but they do take action when they find something that’s awesome.
Here are two fantastic podcasts that I personally utilize that may be helpful to you:
Here are three great books that I love and recommend:
- Platform by Michael Hyatt
- The 21 Irrefutable Laws of Leadership by John Maxwell
- The Millionaire Mind by Thomas Stanley
Principle# 6- Tight Inner Circle
With all of these different wealth creating and time intensive strategies, the millionaire physician doesn’t have time to analyze every last little thing. They have to have a tight inner circle, their own board of directors to lean on. Who those people are depends on what the physician loves and enjoys and their own personal experience. If they love and enjoy financial planning, they don’t need a financial advisor. If they love and enjoy the satisfaction of doing their own taxes, they don’t need a CPA. However, you need to have SOME folks in your inner circle of advisors.
More than anything, these people MUST earn and maintain your trust. That isn’t an easy process. Some folks look to thought leaders. Some folks rely on referrals. Nonetheless, the trust is earned and could be lost. It’s never a bad idea to get a second opinion if you are doing everything on your own. A new perspective with a fresh set of eyes may bring new ideas to the table.
Who is in your tight inner circle?
Principle# 7- Grand Master Gamers
For the millionaire physician, wealth become a game and dollars are the way they track the score. Some of the wealthiest physicians I know still balance their checkbook. They HATE seeing their bank balance down. They only want to see it go up. Even in retirement, they love seeing the accumulation of money. For them, it’s a lifestyle.
Money isn’t everything to them. They know that they can’t take it with them to the grave, but it does bring a degree of comfort. They cringe writing large checks. They turn down the heat in the winter. They turn up the thermostat in the summer. They only buy used cars. They could buy a new car if they wanted to, but they get more enjoyment in seeing their bank accounts grow rather than a new vehicle.
(Truth be told- they still have some guilty pleasures and places that they do splurge on- it may be eating out or golfing or fishing or some other hobby- but it’s usually down to 1 area and even there, they are still the consummate deal hunter).
Money isn’t everything to them. Many of them have charitable interests and the excess money that they don’t need immediately in growth passes on to worthwhile causes.
These are the seven principles I see in physician millionaires.
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Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.
The views expressed are those of the author and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. In addition, the above list of articles and publications is not, and should not be constructed as, a recommendation, endorsement or sponsorship by United Planners Financial Services.
What about you? What are you seeing? What have I missed? Comment below!
This reads a bit like Rich Dad, Poor Dad. I believe principle #1 has to be Live Below Your Means. If you are spending more than you earn, then you’ll never be in a position to do any of the things in the article.
Physicians usually have a good to great income. The keys to building wealth are debt management (pay off student loans; don’t end up with a ridiculous mortgage and car loans) and spending control (you can’t save what you spend).
You can become quite wealthy by investing in passive index funds over time. No need to dabble in private equity or real estate unless that’s your passion.
Ha! I thought I was reading Kiyosaki, too! But FWIW, I am a “white coat millionaire” and each of these principles happen to apply to me.
Thanks so much for your comment! I agree that these aren’t necessary (outside of #1)- but they sure speed up the process. With many physicians struggling with burnout, achieving financial independence earlier is more important than ever.
You know, I’ve never read Rich Dad, Poor Dad- I read the book that came out last year. What I hated about that book was that it never gave any specifics or tools. I wanted to make sure to empower doc that were interested in these subjects.
If I was to edit this post (sent 3 months ago), I would have added Max Out Your Retirement Plans to the first step.
Thanks again for your insight! =-)
I think the other thing missing is a plan. Just like anything else they need to pick a direction and head towards it. Otherwise all the rest just becomes muddled over time,
Agreed! Well said! Thanks for your comment!
Guess I did not follow 80% of the stuff he mentions. I am 40 with a net worth just above 2 million.
Things I DID NOT follow: Did not own a business or “side hustle”. Dont do locums since I want to spend time with my family. Also the link to Amanda Liu was little horrifying knowing she is bipolar and sleep only 4 hours a day, I dont think I want my kids or myself to be like her.
I only have a trickle of passive income, only one house that I bought as a resident that I rent out for minimal amount, otherwise most is made from saving and living below means. I dont have multi family rentals, loans to anyone or high dividend yielding stocks. I use all that time to spend with my family, work on my health and recharge for my job
I do have a ton of money at bank but really not looking for opportunities, if markets go in bear I may put some in, but otherwise I just keep my cash. I dont search and search and search for opportunities, just play with my kids.
I have never looked for next big thing. If some one asked me what my next big thing would be I would say, some minor repair to house, maybe buy a new car. (Already bought the boat)
The reason I read a book is to relax and enjoy and not listen to audio at some horrendous speed. definitely would burn me out.
My tight inner circle is my spouse, kids and my siblings. I try to take vacations with them when ever I can.
I dont balance my check book, I just spend less. My thermostat is on automatic, it switches between heat and cold on its own to keep my kids comfortable.
My last car is almost 10 years old but I am planning on buying a TESLA next (with cash) Also did buy a boat with cash too.
PS: I still have a small mortgage (pretty small).
All I can say, is if you just live below means, work on being in a high paying specialty then you dont need any of this. Just put your life on autopilot and enjoy.
This is a lot simpler way….and it works too!
+1. It all comes down to living below your means. I’m in the same financial situation as Dr PK without doing anything except not spending all my money, investing in index funds through TSP and Vanguard, and enjoying lots of time with my family. (I guess technically my military retirement will be an alternate passive income stream, but I haven’t quit yet.) I have $120K in the bank because I like to be able to ignore the markets for years at a time, and still pay cash for any urgency. But I don’t look for opportunities; if anything I should just put most of the cash into the same index funds or pay down a little more of my miniscule mortgage…
What? You mean making a physican income, saving a good chunk of it, and investing it in a reasonable way made you a millionaire? Weird!
Seriously, great job.
I hadn’t heard Amanda only sleeps 4 hours a day, but that doesn’t surprise me. I always wonder how she does as much as she does on the side as a resident.
Dr. PK, Thank you for commenting. You love your family, that’s awesome! You’ve obviously followed a great blueprint. Congrats!
However, I would encourage you not to demean an incredibly hard-working & kind & passionate person like Amanda. We all have our struggles. I suggest that such comments are better left unsaid.
I absolutely agree that creating stable streams of passive income outside of medicine is very important.
Thank you for your comment Dennis! It’s all part of the puzzle of quicker financial independence and fulfillment in my opinion, but isn’t meant for everyone. =-)
I always like hearing the rationale for paying off q primary mortgage. It’s a unique piece of consumer debt featuring perpetual negative cashflow, but has some excellent tax free capital appreciation benefits. And having a comfortable place to live is always nice. I don’t think of our personal residence as an investment (yep, more Rich Dad philosophy), so getting it paid off quickly is important to me.
The counter argument amounts to paying off 3% loans vs. getting 8-12% investment returns which is a significant return over 15 years (or 30) for a disciplined investor. Personally, I dislike using leverage on assets that don’t generate cashflow.
Why would you pay off (or not pay off) the mortgage on a personal residence?
Everyone has a different way of dealing with this, including WCI who has written about it before.
What I did personally was: Paid one extra payment a year for the first five years as I as investing most of the money in stock market. Now that I have build a nest egg and markets appear to be all time high (I still do automatic monthly stock market investment) I am using the extra money to pay off my mortgage.
https://www.whitecoatinvestor.com/thoughts-on-paying-off-mortgage/
https://www.whitecoatinvestor.com/6-reasons-the-rich-should-pay-off-their-mortgage-early/
Thanks for the links! I’ve found several older posts after-the-fact where Jim’s already done an elaborate analysis of the topic at hand, but hadn’t read either of these before today.
Thanks for the comment Csciora! Without going through all the analysis, I personally like paying off the mortgage for three reasons:
1) Cash flow. What if you want to retire early? It’s one less burden to bear. It’s incredibly freeing once you are debt free. Many folks I work with feel less tied down and have much more freedom to do what they want when they want.
2) Most advisors and banks have a conflict of interest in giving the advice of not paying off the mortgage. It’s to their benefit and not yours.
3) It is a guaranteed rate of return. Albeit, it’s a small one. For sure, it’s the last domino to fall of the other debt. At the end of the day, we have no idea what the markets will do, but we do know what will happen with the mortgage. If you are maxing out retirement plans/back door Roth/ paid off debts/ set aside plenty of rainy day money, then in my opinion, paying off the mortgage is worth getting done. If you haven’t done those actions, then don’t pay it off.
I know the mortgage thing has been beaten to death on this site. I disagree with the urge to pay it off quickly, the math just doesn’t add up in most cases. I think it’s more of an emotional decision. Of course, it needs to fit into your larger financial plan, retirement date, etc..
Here is the best post i have found on the topic( no offense to WCI)
http://financialmentor.com/popular/pay-off-mortgage-early-or-invest/7478
BTW: The guys I know that are in the $10-20M range all have mortgages and use debt in balance with aggressive alternative investments. They are not big on passive index investing, they go big and large on real estate and businesses. The people I know in the passive camp are also doing well, but fall in the $2-5 range. Maybe it’s the people I hang with or a local thing.
Just my two cents.
Interesting post. I am almost done with step 1 and started on to step 2 & 3.
It would be interesting to know what types of passive investments do folks do ? (beyond real estate and medical practice). My personal invetments have been in:
a) surgical center
b) dialysis unit @ loss
c) some premarket IPO investments in companies (havent paid off yet)
d) Real estate
e) preparing for a hotel investment
All of this is after paying down debt and full investments to 401K etc.
How do you have money and time to invest in all these ventures while still being a med student.
Congrats Spiderman!
You’re doing some great stuff! I think the easiest investments are the ones you are around which is sounds like you are doing. I generally suggest to match your cash cushion/NQ funds with whatever passive investments you do outside. This way you keep on increasing liquidity. Have you followed PassiveIncomeMD’s blog? He talks about several kinds of passive investments.
The stuff i haven’t seen work is equipment leasing and oil drilling type investments. I’d stay away from those with a 10 foot pole.
Similar you, with the exception of I don’t focus on paying down the mortgage.
Surgery Ctr.
Commercial Real Estate
One Angel Bio tech start up
Possible hotel coming up.
Passive income easily pays for college for two kids and is growing.
Much too complicated. You don’t need many of these. I don’t own my practice, have a side hustle or tight inner circle and I’m doing just fine.
Pay off debt. Spend a lot less than you make. Invest the rest. Keep investing costs low. Simple (but not necessarily easy for some).
Thank you for your comment DTSC! It doesn’t have to be complicated, but agreed- these aren’t requirements to be able to get to $1 mill + or to be financially independent.
However, it can speed up the process and I find that at least personally for me, this journey is more fulfilling.
Doing the side-hustle for me- doing interesting investments- doing the podcast- makes life more exciting and interesting and filled with fascinating people that fill me up and gives me more purpose and a way to give more to the world beyond my normal gig.
that being said, it isn’t for everyone and hope at the least, it gives you something to think about.
To become a physician millionaire is not difficult as WCI has outlined ad nauseum. However, what this poster is describing is a mega/multi millionaire physician investor. I work with a physician perfectly described by this post who has a net worth of over 100 million (that I know of) and likely over 250 million by my estimates. A minuscule amount of this wealth has come from medicine. This post almost perfectly describes him. To become a millionaire should not be difficult for almost all physicians. To become “wealthy” beyond “millionaire status” takes a lot of work and a system like the one described above. Thanks for the post.
I indeed have met some of the mega million MDs. I dont think I will ever reach there. Most have made money with some patent or a small medical related company they have made.
None of these ‘principles’ are incorrect or ill-intentioned, but there’s some stuff in here that is really extraneous to building wealth, and some things that are much easier said than done. Some people make money branching out into real estate and so on, but others wind up loosing their shirts on stuff like this. For every WCI blog there are dozens posting their thoughts unnoticed into the void. The problem with ‘aggressive’ financial mindsets (as I would characterize this) is it gives everyone the idea you have get really active, when its entirely optional if you are smart with what you earn. A person could read some of these points and then wind up being far too susceptible to that ‘great investment idea’ discussed in the doctor’s lounge.
I am many years away from having a six-figure “slush fund” (and I don’t think I could bear having that much money sitting in a bank account earning 1%). And just reading a book a week doesn’t mean you know anything – my dad is constantly trying to get me to read some crackpot thing O’Reilly or Hannity wrote; he’s not getting any smarter! 😉
I see two points of view.
# 1 There is no doubt a physician salary is “enough” income to live and retire very comfortably as a multi-millionaire. Carve out a decent chunk with which to build wealth, invest it in a reasonable manner, and work any kind of a “normal” career (20-30 years) and you’ll be there.
# 2 Too many docs (and others) don’t realize that boosting their income is in fact easier than they might think. While I was certainly on track to reach FIRE at 52 or so without ever making a dime from WCI, I became independent of medicine at 40 and will be FIRE at least by 45 because of it. “But not everyone can have success with an entrepreneurial pursuit.” That may be true, but you also only have to hit it big once. The serial entrepreneur approach is likely to eventually pay off for someone smart enough and hard-working enough to get into and through med school and residency.
Dave,
What are you calling the Rich Dad model? Buying real estate and biz entities for cashflow?
It’s been awhile since I was living in Rich Dad land and am probably mixing in Dave Ramsey’s thoughts on debt reduction and savings. RD definitely advocates getting a handle on personal spending, debt reduction and traditional investing (the ‘safe approach’) before buying cashflow investments. That seems in line with everything you posted initially.
Entrepreneurship is definitely not for everyone, but there’s a big difference between starting a business and buying an existing one. The biggest place where work/save/invest falls apart is when you don’t have enough time for compound interest to work its magic. For anyone with a retirement window under 15 years (maybe even 20 years with bad market timing), I don’t think it’s really possible to save enough for a portfolio that will support you safely through the end of retirement.
My daughters will have funded Roth IRAs before high school, but we started pretty late with actually implementing all the investment advice I’ve learned over the past several years. My business(es) are the only thing that make retirement feasible at this point.
every doc should become a multi millionaire by age 65 merely by passive investing
I think the title of the tread is inappropriate but I agree with the gist of the main article. It should be White Coat multimillionaire – someone who has $10-50 million. To reach that goal one needs to take steps like large passive income, aggressive investing and having side business (es).
The average physician who invests 20-25% of his income steadily in an index fund will become a millionaire but his worth will probably be < $5M, unless he has a high income specialty and invests a good % of it. The truly Mega-millionaires (> $250M worth) who are physicians probably had a stake in a venture capital that hit big or someone who has patents or stated his own medical / pharmaceutical company. They are rare and is not the focus of thsi article.
I remember the first time I discovered that doctors had developed such a great system for maximizing money (partnership, 1099 locum work, solo 401(k)s, ability to invest in practices/medical devices, etc.) and still wonder where are all the lawyers doing the same thing? Instead, my fellow lawyers and I have developed a system that seems to promote W2 income. And we’re the ones that wrote the tax laws!? It’s bizarre.
That is interesting. The other thing I can’t figure out about lawyers is why they keep opening (and attending) expensive law schools when such a large percentage of grads can’t find a decent paying job. I guess it is pure profit-seeking.
7 out of 7 here.
I don’t really see the need for all the complexity and agree with those who are saying that if you LBYM, save a significant portion of your income, follow a low cost balanced index style investment course that you are golden as a physician. To me it comes down to whether you are happy to be in the fat part of the bell curve or want to try to be out on the right end. The problem with aiming for the right side is that there is more risk to taking this path and the bell curve is probably not a true bell curve, the left tail is probably fairly fat for many reasons, one being those who made the gamble and it didn’t work out (it seems to me I know many more of these people than I know MDs who have >50m net worth). Personally, I was happy to go with a Boglehead approach and retire at 52 from a standing start with >5m despite having 4 children. I think it is a great disservice to MDs to make things look complicated when they are not at all and I thank the WCI for being one of the voices of reason. If one can’t retire well as an MD then something is seriously wrong.
Yes, it’s a tricky balance to talk about all this complicated stuff and address it so people know that I know what it is and what its merits and downsides are, while also letting them know that an intelligent, sophisticated investing plan can be ridiculously simple.
I agree all MDs should be able to retire well, but the process isn’t automatic.