Changing the Narrative of Women and Money

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
Hello WCI listeners, I'm still taking some time off to rest and recover from my accident. But don't worry, I'll be back in a few weeks. Until then, enjoy this episode from one of our friends of WCI.

Megan:
Welcome back to the podcast. This is episode number 386 – Changing the Narrative of Women and Money.

We are still moving along without our fearless leader for a few more weeks. He is making incredible progress and he'll be back with us soon enough. We thank everyone for your concern and your kindness as Dr. Dahle is resting and recovering.

Today, I am going to be attempting to host the podcast along with a great friend of WCI, SC Gutierrez. I am Megan, I am the podcast producer, and I've been pulled from behind the camera to have what I think is going to be a fantastic conversation. And we will get into that shortly.

But first, today's episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.

Loans are originated by SoFi Bank, N.A. NMLS 696891. Advisory services by SoFi Wealth LLC. This brokerage product is offered by SoFi Securities LLC, member FINRA/SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply.

QUOTE OF THE DAY

All right, let's jump right into our quote of the day today. This one comes from Pablo Picasso. “Our goals can only be reached through a vehicle of a plan in which we must fervently believe and upon which we must vigorously act. There is no other route to success.” That one certainly aligns with what we preach here at WCI. Have a plan, a written plan, implement it, and stay the course.

I love that I get my turn to do a thank you for this episode. For those of you who are on YouTube, you may notice my background just magically changed. After I finished this episode, I went home and I found myself thinking about how grateful I am for my connection to our community. And that made me want to re-record my initial thank you. And our ever patient editor gave me the thumbs up. So here it is.

Jim's accident obviously came as a big shock and with that, a lot of emotion from our team. We truly are a family here at WCI. And the reminder of just how fragile life is hit pretty hard. But what has been the most amazing silver lining has been to see how quickly everyone rallied together to make this podcast flow as smoothly as possible.

So I want to give an enormous thank you first to all of the incredible people who dropped everything to come on this podcast with very short notice. These are busy professionals who have a lot going on in their lives. And without even a moment's hesitation, every single person that I reached out to for help gave an enthusiastic yes. And I am so thankful to each of you.

And second, I want to give another huge thank you to all of you, our audience. I don't even like the word “audience” because we are a community. You keep showing up week after week. You send us emails. You send us thank yous. You send us corrections. You give us feedback. You leave reviews. You tell your friends. You come to the conference. That is a community. And that is rare.

Thank you for your flexibility and patience as we try new things in new ways for a few more weeks until Dr. Dahle is back. He and Katie and the rest of the team are also incredibly thankful to each of you. It is a privilege that is not lost on me to be part of both the White Coat team and the White Coat community with all the gratitude that I have. Thank you.

Okay. We have all the technical stuff out of the way. So let's jump into our discussion.

First, I would like to give a formal welcome to SC. Welcome to the podcast again. Thank you so much for being here with us today.

SC Gutierrez:
Thank you so much for having me.

Megan:
We've been wanting to have a discussion about this topic for a long time. So we thought that while Jim is taking his break to rest and recover, that this would be an opportune moment to dive into this topic.

The purpose of our conversation today is largely to make a case for women's participation in money. We want to change the narrative of women and money, women in finances. We're going to dive into gender roles and gender norms and so much more. And so we hope that this is a super interesting conversation for you. We hope you find it beneficial.

SC is the financial master of the two of us, and I am much more new to this. I know that I work at White Coat. I sort of live and breathe the finance world. My husband's a financial advisor as well. We talk about this stuff all the time, but I am new to becoming financially literate. So hopefully between the two of us, we will be able to cover a really big spectrum of where people are at. We want everyone to feel like they have a place at this table, no matter where you are on your financial journey. It is a journey, it is a process, and that's just how it is. So hopefully this is interesting for you all, no matter where you're at.

Also, we want to say men don't go anywhere. Just because this is a conversation specifically talking about women and finances, that does not mean that this won't pertain to you as well. If you have a wife, a sister, a friend, a mother, this is an important topic for everybody.

GETTING INVOLVED IN FINANCIAL DECISION MAKING

SC Gutierrez:
I just can't agree more. And we can talk a little bit about the research, because I don't want people to think we're kind of over-stereotyping here, but it is really impactful, not just for women, that women are still lagging in long-term financial decision-making, but this really does impact men as well. It impacts our marriages. Finances are still one of the top causes of divorce.

We need to address these things. And it's just general well-being. We want our mothers to be able to be confident in their finances, because often women live longer than men. There's a lot of reasons that we want all the women in our lives to feel really confident about finances and to feel like they have a role in making these big long-term decisions.

Megan:
Absolutely. And there is research out there that supports this topic that women are not as confident in the financial sphere. There's plenty of research. We're going to talk about a little bit of that so that we want to be research-based. But anecdotally, I think we do all know that this is the truth. I think it's getting better, particularly in our community, where we really are all focused on enhancing our financial literacy, changing our futures.

We have a really great view of the changes that are happening. But as a whole, my experience certainly aligns with the research that says women are just less comfortable in the financial sphere. So we're going to talk about some of that research. And then we're going to break it down and just have a conversation about those findings. So, SC, do you want to share some of that research and we can jump into it from there?

SC Gutierrez:
Sure, yeah. We can post some of these studies in the show notes if you'd like. But there's a few different places that we can start. There's a UBS study from 2019 that looked at women who were divorced or widowed in older age. And over 90% said that they wished that they were involved in long-term financial decision making over the course of their working years or their spouse's working years. And then looking then at that same study saying, “Hey, okay, millennial women, is this changing from generation to generation?” And it's really not. More than half of millennial women said that they really weren't part of long-term financial decision making.

I do want you and I to talk a little bit about what we mean by financial decision making. I think that's really critical to understand what we mean by that. But I think the level of comfort with finances, like you were saying, is also really important. There is a Bank of America study that showed that only 46% of women versus 64% of men feel like they have influence when it comes to investing. Less than half of women feel confident about their finances. And one of the biggest regrets women have in finances is that 44% of women wish that they had saved and invested sooner.

There's another journal article that found that in joint financial decision making in the household or in joint households, women are more likely to delegate decisions to their spouse. Again, these are very large, 50,000-person studies. I can tell you 20 stories right now of women leading finances and their male partner being in the dark. We can give opposite stories, certainly anecdotally. And in incredible enclaves like FEW, that I hope you'll talk about too how women can get involved in that.

But within the White Coat Investor community, we see a lot of women who have equal participation or lead financial decision making in their households. And so, we really don't want to get bogged down into the stereotypes. But can I just give the biggest thing that just kills me every time when I think about it? It’s that in 1974, Congress passed the Fair Housing Act. And that's when women could go get a mortgage on their own without a spouse or a father signing with them. You have a credit card. Think about this. It's 1974.

So here's the deal. When I see studies like this, I just think, “Well, gosh, duh?” I was born in 1980. Maybe in my lifetime, it's been perfectly legal for women to have equal decision making to take ownership of our finances. But just because something's legal doesn't mean we have culturally changed the narrative. Because the narrative was very much in place the majority of our lives.

And so, what I think is interesting about a conversation like this, especially your personal experience, which I think is really incredible, is what is the way that we can manufacture a new cultural narrative? How do we change this? When I go and speak to groups, of high-powered female physicians or women who will lead hospital organizations that have millions and millions in their budgets that they're managing, I'll have inevitably women who will come up to me and say, “Gosh, I really enjoyed your presentation. So interesting. I think this is great. I just need you to know that's just not my thing. In our household my husband just manages it all.”

And what's interesting is that woman in that moment actually thinks that she is the only person that has chosen that. She thinks it is a unique thing. And I think we can talk again about the distinction between delegation of financial duties and household duties and long-term financial decision making. I want to be really clear on what we're talking about.

But in these cases, what the women were saying to me was not this is a delegation of duties. They're saying “I'm not involved in this at all. And it's very unique to me.” And what I would say is it's not unique. What's unique is when a woman comes up to me and says, “Oh, my God, I love that tax-efficient waterfall you just talked about. These are the buckets that that my husband and I or I have chosen.” That's always when I get really excited. Because that is a more unique thing that I wish was not quite so unique.

Megan:
Absolutely. And I think, again, you've said this, but it's so reasonable for us to be in this very cultural norm. My household certainly was the traditional way. My dad did all the finances. I don't even think he knew much about them, but he was the man. So he handled it. My mom was much less comfortable. And that's essentially what happened in my marriage.

I got married really young. I did not learn about finances at home, got married young. And my husband and I both just kind of unspokenly assumed that that was his job. And that really was the way that it was for a long time. And it's not until embarrassingly recently that it just dawned on me that this is my responsibility to know this too. Not only is it like my responsibility, but it feels important to my personhood to be involved in these big financial decisions.

And we can get into the delegation conversation that I think is an interesting one, because I don't think that you have to be physically clicking the button, putting the money in the accounts, you don't have to be the one balancing out your portfolio necessarily. It's great if you want to be involved at that level.

But on a higher scale, what's important is knowing what's going on, being part of the decision-making process, having a say in where your money is going, and what your retirement accounts are going to look like, and what is the number you need to retire.

And knowing those numbers really impacted me in the way I handle money now, the way I choose to spend my money. I now have an understanding of what we're working towards. And so I get to say, “Is this item or this thing today more important and valuable than compound interest on that same thing 20 years from now?” And that actually helps me make good choices. And sometimes, yeah, getting my nails done is worth it. It makes me feel good. So I'm going to do it. And other times, it doesn't feel worth it, because my goals are more important or more exciting than whatever the thing is.

SC Gutierrez:
We had a very similar kind of upbringing. I was in a similar household where my dad led the finances, and my mom was largely in the dark. I don't think she wanted to be involved in them at all. And when I look at, if I insert myself into what that would have felt like to her and how that did lead to a lot of, let's call it discomfort, when it came to finances in their marriage for her, everything was just a big black box.

Whether you're on track for retiring or not, that's someone else's job. “Can I buy this shirt or not? Do I want to buy the shirt or not? I don't know. I want the shirt.” But there's no context for, “Is that within the parameters of what we can afford as a household?” There's absolutely no understanding of where that fits in with everything. And so, of course, that would lead to missteps. That's in any household, if you have no context for anything, then it's very difficult to do that.

And so, I actually talked to my mom ahead of this podcast to get permission to share that. And she said make sure people know that I read your book at age 60. I wrote a book on women and money and saving for retirement. And she was like, that was the first time that I ever really learned about money.

And since then, she's created her own financial notebook. She and my dad have worked together so that she has login information. She has printouts of all of their account statements. And her level of understanding has given everything context. And she can now make decisions that are in the context of all of their money. I think for her, that was a big source of comfort, something that she had avoided for her entire marriage. It ended up being the thing that she actually really in the end kind of loves.

And so, I think your experience, my mom's experience getting on board with this at age 60 kind of tells us that this nature versus nurture thing, we think it feels right. Like, “Oh, that's just not my thing.” But I wonder if we are just feeding into that old narrative that tells us that that's not our place.

And I would just say, if there's anyone listening to this, who's like, “You know what? I have never really wanted to get involved in this, or my wife has never wanted to get involved in this.” I wonder if we asked the question of, “Let's just try it for a little while, see if we like it.” And I promise, there will be probably a different opinion coming out of it.

Megan:
Yeah. I can speak to my own experience of not wanting to be involved was largely because of the anxiety that I felt about money in general. I learned in my home. Again, I want to be careful, my parents were wonderful and provided a beautiful life. And somehow in my childhood, I learned that money was kind of scary or something to have anxiety about that I had a scarcity mindset, that it was not a topic that was talked about.

So, I brought that energy into my adult life. And I really felt that fear of every time I went to purchase something, I didn't know if that was okay or not. And because I had that anxiety and that fear of actually getting in trouble or something that's funny to talk about as an adult, but it is the feeling I had, it made me less and less and less inclined to actually get involved. That anxiety and fear just spiraled and spiraled and grew into this thing where “I don't want anything to do with any of this. And hopefully, it's just all okay.” It was largely the way I saw it.

I'm trying to remember exactly what changed. I think as my husband became more financially literate, he found the White Coat Investor a decade ago, and he started learning how to communicate about money, too, that's when things slowly started to change.

And when we sat down, and he kind of forced me, he was like, “You can handle this, you have the capacity to hang with me through this.” And so we did. And we sat down and we went through everything, all the spending, and it gave me hives. Looking at it, going through, making a budget and showing me where all of our money lived and how much we had. And then we finally got to kind of start talking about goals. And then I started to be like, “Oh, I've spent a lot of money at Target on nothing. I don't want to do that anymore.” The anxiety went away.

Becoming part of the solution was the most anxiety reducing thing, probably, in my adult life. And it was so counterintuitive to me, for some reason, that by understanding finances, and knowing how much money we have, even if it was less than I wanted, even if I was like, “Oh, I thought we had more than that”, or “Oh, we have so much more than I thought.”

I’ve had both of those experiences throughout my life, simply knowing, changed everything, so that I could make a purchase without feeling afraid or guilty, or I knew better than to make a purchase because we were tight at that moment.

My hope is that that message will come across that if you're somebody who feels uncomfortable or afraid or anxious or unsure about your finances, the more you dig in and understand them, even if it leaves you being like, “Oh, man, we got a long way to go.” It still feels better.

SC Gutierrez:
That is incredible.

Megan:
It is weird, it is great. It is incredible. And it feels really good to not be walking through my life with this low grade to high grade burning anxiety about money. Money is the weirdest thing where if you have a plan, and you're executing the plan, again, regardless of how much money you have, the anxiety goes away, you don't have to think about it. It can consume your every thought or if you have a plan, it's just like gone. And it's awesome.

DELEGATION VS DECISION MAKING

And at our house, speaking of delegation it doesn't look that different now than it did before. I have a partner who loves this stuff. I call him Captain Finance. We laugh about it and make fun of him all the time. He's a huge nerd about finances. He loves it. He left dentistry to go into finance. It's his passion.

So, why would I take over that? I have other things that I am really skilled and gifted at that he's not so good at. The difference is that we sat down together, we made a plan, I know what's going on financially, I could step in if I needed to. I'm involved, but I'm not doing the fine detail, we all are going to have things in our partnerships where some of us are better at one thing than the other. So it doesn't have to look equal. You have to be on the same page. Do you agree with that?

SC Gutierrez:
I totally agree. And here's the deal. I think that a lot of women who might have entered into this podcast, if we had said long-term financial decision making, they would have equated that with investing. I think that the financial world has sold this exciting crypto, beat the market. If you look at financial commercials on long-term financial planning, it is so geared toward investing. And we have assumed that that is what we mean. Anyone who has listened to this podcast up to this point now understands, we haven't said that word one time, we have not discussed that one time. That's not what we're discussing here. We are talking about long-term financial decision making.

And so, what we mean here is, when are we going to be able to have the ability to stop working? That is one major big financial decision. When can I, as a female physician or whatever your job is, when can I stop working? Can I stop working when I'm 55? Can I stop working when I'm 60? Can I stop working when I'm 65? When do I get that choice?

Have we talked about asset allocation? No, we have not. That is so unimportant compared to, “Are we as a household ensuring that enough money is going into accounts so that when I'm tired or if I got sick, got cancer or had heart disease, and I really don't have the physical ability to work, am I going to be able to stop working? If I want to stop working because I want to spoil grandkids or garden, do I have that choice?” That's what we're talking about here. That's big term.

But then let's back up a little bit. Can we take vacations? How much can we spend on those vacations? Can I buy clothes? How much can I spend on those clothes? Can we buy a house? How big of a house can we buy? Can we buy a second house? How big of a second house? These are the questions. These are the questions that I think that if I were to ask any random woman on the street, “Do you want to be involved in making decisions about all of those things?” I guarantee you 99.9% would say yes, 100%.

I blame the financial industry for selling us a bill of goods that are not the goods that we need to be buying. It's saying, “Hey, if you want to be involved in finances, we are going to have a discussion on the stocks you need to buy, the bonds you need to buy, the crypto you need to buy, the real estate investments you need to make”, when those things are a tool certainly for building wealth.

But what we're talking about here is long-term financial decision-making. And what that is, is a financial plan that puts together, if you're a single-person household, what your desires are. If you're a two-person household, what your joint compromised desires are. Putting them into place and putting the money behind them so that you can reach those goals. Now, that's what we're talking about.

The rest of it, the investment decisions, which I think should have some component, at least of the other spouse understanding what's going on and being able to weigh in. Maybe you have one spouse that's a little more conservative. I think it's great for two spouses to weigh in.

But the logistical carrying out of rebalancing a portfolio, ensuring you're hitting your federal, how much you can maximize into retirement plans. Doing this, absolutely, that can be delegated. My husband and I have to delegate. It would make no sense if we were like, “Okay, time to pay the mortgage, let's both sit down and do it. Okay, let's fund our brokerage account. Let's both sit down and make a transfer.”

Now, I will say we do automate all of these things. So I'm just saying this for dramatic purposes. But we do, we each are in charge of these certain things. And while we do have them automated, that spouse manages the whole thing. It is a very fine thing for a male spouse or a female spouse to do all of the financial operational things.

I hope that we've made this kind of distinction pretty clear what we're talking about here is it is fine to delegate. But what I don't think is fine is for one spouse to make all decisions and another spouse to be in the dark. And I want to also make a point here. The claim is not that there is one spouse is taking on all the finances and leaving the other spouse in the dark. Maybe that does happen.

But I think what's happening here is we've taken these cultural norms, and it just happens that way, that one spouse does make all the financial decisions. And by default, the other person, by not being involved, and by not being a sharing of information ends up in the dark. And that's where you're making your own financial decision making in the day to day kind of budget decisions, largely making them in the dark.

Megan:
Yes, absolutely. Okay, so let's assume, let's pretend like we've got everybody on board, everybody who's never been interested is suddenly interested. What do we do? If you're like, “Okay, I'm at the beginning of my journey, I want to have a say, I want to have a voice in my finances, where do we start?”

WHERE TO START IF YOU ARE JUST GETTING INVOLVED IN YOUR FINANCES

SC Gutierrez:
Okay, really great. So, let's break it down. Let's say that you're the spouse, whether you're male or female, that right now is the one that's in the dark.

Megan:
Not feeling it.

SC Gutierrez:
Not feeling it. Now, take it from me, you got to be a little bit careful here. Because if you suddenly go to your spouse after never being involved in finance, and you're like, “I'd like to see detailed statements of every single one of our accounts.” Some questions might arise in your spouse of “What's going on here?” So I would start by saying, “Hey, I've just listened to this podcast on getting involved in my finances and the thing that they're recommending that I do is to start by having a meeting with my spouse and just learning where everything is.”

So, that's where I would start, is “What are you currently doing? What accounts do you have set up?” I know women and men who have retirement accounts at their work that their spouses actually set up on their behalf. Got the logins, figured it out. So, you might even have to learn what you're doing in your own work retirement plan. Great.

Megan:
That happened at my house when I was first working. Guilty.

SC Gutierrez:
Right. You want to know. And so, I might start there, but I'm going to turn this back to you because you did this. And it sounded like maybe Tyler asked you, how did that first encounter happen?

Megan:
That's a good question. It happened kind of at the same time that we were doing sort of like a life summit in general, which we are these type of people every handful of years, were like, “Okay, how's it looking? Let's go through all the categories in our life. And what do we like and what needs to change?” And this is a thing that we do. I think it was kind of part of that larger discussion.

But what I was going to talk about, yes, there are tangible, practical things that are need to be done. Start learning what accounts you actually own and where all those live and those kinds of things. But I think too, for me, something that was super helpful was just simply starting to learn. The financial industry in our country is so complicated. It's a foreign language. It's so boring on the surface. It's hard to get excited about out of the gate. So for me, what was helpful was listening to a podcast together or picking a book and reading that. Tyler and I love listening to a podcast and taking a drive and listening and pausing it. And an hour podcast takes us three to get through because we're talking, I'm asking questions. We do this on all of the topics.

So just go easy. There's a lot to learn. It can be overwhelming and it can be easy to quit because there's so many terms and things that you're just like “Roth, HSA, investing, insurance? What is all of this?” It feels overwhelming. So just start slow.

And I have always found learning to be so grounding and so empowering. And by starting slowly and learning slowly, it became exciting. It became empowering. It became something I wanted instead of something I was like, “All right, I should probably be a grown up and figure this out.” And then it started to build and I was like, “Oh my gosh, look at our net worth. It grew, look at our investments. Oh my gosh.” Like everyone, our high yield savings account is kicking butt right now.

Something that we've done that's really fun is look at how much interest we earned this year and say, “Let's take $500 of that and go have a weekend in the city.” So we've made it feel really fun watching those accounts grow, watching the progress happen, and then physically rewarding ourselves for it. That's been a cool thing that we've done.

I think there's a lot of ways you can start. Obviously, what you said, start learning what's actually going on in your household, but then also start learning on just a more broad scale. And hopefully you'll find it to be meaningful at the very least.

SC Gutierrez:
I love that. And what you're talking about is actually changing even your perception of money from it being boring or tedious or scary to maybe, dare I say, exciting. So let's say, like I said, there's lots of entry points here. I love the idea of a quarterly financial meeting, household meeting. I love that idea. You and Tyler love discussing money. I will say in my marriage, we don't. Isn't that funny?

Megan:
Makes sense.

SC Gutierrez:
It's not fun for us. For us, it just isn't, it's not life-giving. I wish it was, it's just not. So what we do is we take our medicine and in every quarter we have a meeting. We lay it all out. We make sure we're on the same page and then we're done. I feel personal joy watching our net worth grow over time. And I can see that. So once you have access to your accounts, you can use account aggregation tools. There are some out there where you can have a website that pulls all of your different, your HSA account balance, your 401(k) balance, the balance of all your accounts. It'll bring it together and you can see it over time grow.

And that might be really fun for you where I love your idea, set at these quarterly financial meetings. Maybe you or you and your spouse or long-term partner, maybe the two of you all sit down and say, “Okay, if we save this much and we over-save or save or end up with more, let's have a goal of taking a vacation.” Making it kind of fun to exceed your benchmarks essentially.

We have a weekly budgeting system where we kind of do… I'm happy to talk about our personal budgeting system in our household, but we have that built in. So, we call that gamification of money. Again, this makes money kind of fun and it changes the narrative. I also came into money because of how I grew up with a scarcity mindset and fear around money. So I have been in a lifelong pursuit of having a healthier, more positive relationship with money.

And I think the financial plan, knowing what the plan is, watching us stick to the plan, the plan then working, every year that has gone by has lowered my anxiety and fears around money. I think these quarterly meetings and being able to, at minimum, just watch the results of your saving and investing as part of that, watching that and your anxiety go down.

Now, what I think, unfortunately, a lot of people will find is that while their spouse has been in charge of the money, maybe by default, that in reality, you were not saving as a household enough. And it's scary. We've had a lot of women and men who had previously delegated their spouse to do that. Start doing some reading, listening to some podcasts, understanding “We need to be saving 10% or we should be saving 25% if we're a higher earning household” and finding that in reality, they were saving maybe in the single digits and that they may have to catch up. But again, better to know that now.

And then to have that peace of mind that, “Yeah, you might have to downsize your life a little bit.” Downsize a house to make this work, but your peace of mind and now being involved in this and knowing that it's going to happen and that you're going to be able to stop working one day on your own terms. You're going to be able to take vacations and they won't be on credit card debt. These kinds of things are going to happen. I think that that can help people.

I want to also mention, I loved your idea on listening to podcasts. There are some just terrific ones. Obviously the White Coat Investor podcast is a great one. I also think there's some great books to read. My default for any physician getting involved or spouse of a physician is to read “The White Coat Investor.” Just read that book and start there.

There's another great book too, that kind of helps people to understand that money doesn't have to be complicated, that it can be quite simple. I love “The Simple Path to Wealth” by J.L. Collins.

And then for people who are like, “I've always been scared of investing. I don't want to touch it.” I really think “The Little Book of Common Sense Investing” by Jack Bogle, it's just a really accessible book. It can be read in an afternoon, really breaks down the jargon. It's a very simple book to understand. I think that this self-education and these quarterly meetings can get you 90% of the way to being involved in the long-term financial decision-making.

Megan:
Yeah. I was thinking too, as you were talking that if you don't know what's going on, you don't know what's going on. And I have had friends live that experience that you just shared. I have a couple of friends that came to mind immediately that when a divorce happened and they finally were forced to look at their finances, it was not what they thought. Or on a much smaller scale, when they decided to get involved, they were the same thing. “Oh, this is not what I thought.”

I think it is our responsibility as human beings, we owe it to ourselves as hardworking people to know where our money is going. It was very easy to just kind of sit back and pretend like it wasn't my responsibility. But I think we owe it to ourselves. And that is gender does not matter, that if we are working hard in our life, whether we are the stay at home parent, or we are the physician or the engineer or the lawyer or whatever we are doing. That if we're working hard in our lives, we deserve to have a hand in what is happening. And we deserve to know and it's our responsibility to know.

I feel like that's an important thing to remember that we need to have a hand in what's happening in our lives and where our future is headed. That is really critical. And it took me some time to understand that.

SC Gutierrez:
Yeah, thinking about, in what other area of our life would we cede all knowledge? Not just control, knowledge. Could you imagine if someone else is making all of our decisions about what we eat or what we wear or how we parent. You wouldn't want that. And again, this is that I think we've been kind of programmed that one person takes all this on. But when you look at it from the perspective that we are looking at it from, I think people say “You're right, we both need to be involved in that. Sure, someone else can take on the logistics and the interest in how we invest and how we carry this out.”

But we're talking more fundamentally here is, “Are you literally on track for being able to hit major life goals that would take decades to be able to stop working on your own terms?” And keep in mind here, I have not said the word retirement on purpose, because that is a piece of jargon that many people do not resonate with.

So what I'm saying here is if you want the opportunity to be able to at your own decision point, be able to stop working, it takes decades. It starts in your 20s. If it doesn't start in your 20s, then it has to double down in your 30s. And then if that doesn't start in your 30s, it has to triple down in your 40s. That's just the reality. It can be done. We've seen people turn it around at all different ages. But you have to be a part of that. And so I think that is exactly right.

HOW TO ENCOURAGE YOUR PARTNER TO GET MORE INVOLVED IN THE FINANCES

And then can we now pivot to the other side? We just had a conversation on how if this is the person who has been largely kind of in the dark and not involved, how do you initiate? But if you're the one listening to the podcast, let's be real, chances are you're the one that's involved in the finances.

Megan:
Absolutely, right.

SC Gutierrez:
And you're probably going, “I want my spouse involved. I would love to have these conversations. I want her or him to know what this is like, to get excited about watching our net worth grow, to set financial goals together as a team, to be rowing in the same boat. How do I get my spouse involved? She or he has really never wanted to do that.”

And I think this is where you really need to kind of insist and say, “Look, we need to make these big decisions together on money. And I would like for us to have a meeting once a quarter where I can show you everything that we have. I can ask you some questions about where you want to see our life going, where if you're working, when do you want to stop working? If you're not working, what do you want for me? When do you want me to stop working? Are we going to live in this same house? Are we going to upgrade our house? What are our big joint dreams that we want together? And can we put money towards those dreams together? And maybe start with this idea of a quarterly family management meeting to lay that all out.”

And maybe this is a podcast that you can say, “Hey, would you consider listening to this podcast?” And saying “I really want this for you. Would you consider being a part of it?” Do you have any other ideas?

Megan:
Yeah. More of what I was thinking about as you were talking is obviously, there are pros and cons to being a single person creating your financial future, versus a partnered person creating your financial future. There are things that are awesome and challenging about both.

But for those of us who are in a partnered situation, we've been talking about gender norms, or the stereotypes, men versus women, and I was thinking about this notion, “Are men inherently better at this than women?” No, of course not. That is silliness. And so, as I was thinking about this, the beauty of a partnership is that you are two different people who see the world differently. That is powerful, and that is beautiful.

And so, by nature of having one person create all of the financial plan, you're losing the creativity, the insight of the other partner regardless of which partner it is, it's important to have the input of both. I think it will enhance your plan to have this person that you've chosen to live your life with, it will make it better if they get their voice and their vision integrated into that plan.

And I think if you can talk about that as the partner who is more interested and excited, and trying to bring someone in to say that, “I want your vision, I need your creativity and your input. Because without you, this is just my plan. And this is our life and our plan. And it will make it better.”

I am not the financial guru of our household, I never will be. But there's almost some power in the simplicity of me walking in and sitting down, and Ty going, “Here it is”, and me going, “Well, what about that? Why are we doing that?” And him explaining it to me, and some of the things that we choose to do changed because of that. And that was me with no knowledge. And as that knowledge has grown, we've been able to continue that conversation and evolve that conversation. But I don't think you have to have this powerful set of knowledge to make an important and meaningful impact on your finances.

SC Gutierrez:
I love that so much. And I just want to follow that up. We have been very careful to make a distinction that what we're talking about is long term financial decision making, that we are not equating a financial plan with an investment plan. But is this a moment where I can say, “I do think that the world has tried to convince us that men own investing.” I remember taking an advanced finance class at Wake Forest and an investment management class at MIT. And 90% of both of those classes were men. We have assigned that this is just a man's world. I think 15% of all financial advisors are women. I could keep going on and on.

But this is a really interesting study that has been largely replicated since it was proposed in the 90s. A Berkeley study found that overconfidence in investing leads to overtrading in the market. And then overtrading in the market leads to underperformance of the market average.

And so, if you look at what gender is more likely to be overconfident when it comes to investing, obviously, it's men. And that's what the study found is that men tend to be overconfident, women tend to be more fearful. When you look at their relative investing styles, you have men that are more likely to be in and out of the market, trying to time it better, trying to pick stocks. Whereas women we might hold our nose and say, “Just get in, we set it, we forget it. And whatever happens, happens.” Well, if you look at the relative performance of those two styles of investing, which one likely ends up with more money?

Megan:
Listen, we understand that over here at White Coat, SC. Set it and forget it. Simplicity. Absolutely. That's so interesting, though.

SC Gutierrez:
Right. And I'm not trying to say, “Okay, now all investing decisions should shift to women.” That's not the point. The point is just to say, again, if you are a woman, and you're listening to this, and your perception has always been that men are better, whether you are consciously deciding that or not. But if that's always just been your understanding is that the men in your life are the ones that do it because they tend to be better at it. What I would like to say is this is why we need your voice at the table is because the research doesn't support that. And so, we need both.

Now, women do. And I see this anecdotally, and the research also shows you can go too far when it comes to being too conservative. We'll see women who make decisions to say, put all of their money in cash, or instead of putting money into their retirement plan, might decide to simply pay off their house.

And so, there are problems with being able to meet financial goals when you're overly conservative, and you don't have an interest in taking on some necessary risks in order to get those returns. This is not, again, to change things dramatically. This is literally to say, “Hey, you might have a better role in this than you might think. And your conservatism, if that is what you have, could be a really important moderating factor in a household when making investment decisions.”

But the other thing that I want to say is we have talked to high level here. And what I think is interesting is now shifting the conversation to, okay, let's say that we've arrived. We've got these quarterly meetings. If it's a two-person household, we have both of those people making big, long-term financial decision making. We've set a savings rate together. We are going to be a household that saves 25% of our income. We're a household that's going to save 10% of our income, whatever that number is. We are making long-term big decisions together. If it's a single-person household, you are making those decisions long-term for yourself. You're consciously making these decisions.

And let me just say that a flip side of that is you might assume that a single person is making long-term financial decisions, but that's not necessarily the case. You might have a retirement plan and be saving 6% in it, not because you chose to save 6%, but because you were auto enrolled at 6%. Decisions are very much being made, but they're being made in a passive way.

CASH FLOW MANAGEMENT IDEAS

So let's assume that we have moved from one person in a household being in the dark or passively making decisions to this, “Okay, we are involved in long-term financial decision making.” From there, how do we then execute a budget? And I think, again, trigger words. Sometimes I hear budget.

Megan:
Money organization.

SC Gutierrez:
There we go. Or I like cash flow management. My team doesn't like that. They do not like, they're like, “Stop saying cash flow management, just call it a budget.” Okay, fine. We'll call it a budget. So, how do you all handle this notion of budgeting? Now that you've got the big long-term decisions made, let's just assume that money is just disappearing into those big ticket items, like disappearing into your retirement plans. It's not disappearing. It's being allocated into those retirement plans. It's being allocated towards intermediate things like your emergency fund. It sounds like you have a high yield savings account for that. The money is being taken off the top because I'm assuming you pay yourself first. The money gets taken off the top. It goes into those things. But how do you then manage the rest of it towards more short-term and intermediate-term decision making?

Megan:
Well, I think that's changed over the years as we got better at what we're doing and we're more familiar with where our money is and where it's going and all of that. But in the beginning, we had a really, really serious budget meeting every single month until we had a handle on it. We went through every single charge on our credit card. And anything that hit our bank account, we went through all of it.

We wanted to make sure that our spending was reflecting our values. That's a big thing at our house. We can spend on what we care about, but let's make sure we're doing that. And so, we did that. We went through every single item. We looked at the total at the end of the month. We said, “How are we doing?” If we were good, then that was the end of the meeting. If it was not looking how we wanted it to look, we talked about how it was going to look different the next month. And we did that for years. And I hated it. I liked knowing, but the tediousness of going through together, everything, was not my favorite activity.

And then as we felt more comfortable, we cut it back to, “Okay, we don't need to do this every month. We're solid. Now let's do it quarterly.” And now it's even a little bit less than that, probably in reality. But at least a handful of times every year, we sit down and we make sure that, like you said, all of those bigger buckets have been taken care of.

We sit down and we decide, we look at where our money has been and where it's going. And we talk about, again, is our spending reflecting our values? That is our main takeaway anytime we're talking about money. And we really value travel. And recently we've said, we want to travel more. So where are we going to find that money so that that bucket can get bigger? And so, clothes bucket, nails bucket, that gets smaller so that it reflects our values. It's more of every handful of months we'll have that conversation.

SC Gutierrez:
I love that. And I'll say that is amazing, but I would find that really hard. I would find it personally very difficult to sit down and go expense by expense.

Megan:
It is.

SC Gutierrez:
It's incredible. That is very applaudable. I'll say in our household, the way we kind of handle that. So let me just back up. I own my own business. I'm the majority owner at Aptus Financial. And then my husband also owns a salsa dancing nightclub. So he has a bar. And then he also has some consulting work that he does as a chemical engineer.

And one of the things, the practices that we have done that I think is incredible for entrepreneurs, especially people who own their own businesses, is you're going to have fluctuations of your pay and your income. But largely you have the expectation, hopefully over time, that your businesses will make more money. And I think there's a tendency with people who own businesses that the money just hits your account. And then it's like, “Oh, we can spend.” We have more money because you live in such deprivation. Because you're sacrificing to build your business, especially those early years that you really don't allow yourself luxury.

So, it's fun when you do become profitable, you want to ease up. But what can end up happening is you spend everything that comes in. So one of the practices that we have that it was not intentional, it actually just happened out of almost laziness and routine, is that we would have our money hit investments first, go through the brokerage account. And then we would pay ourselves, we would just send a flat amount to our household.

And so, we ended up going from a 10% savings rate that way to at times we'll hit a 40% savings rate. So, it's been a really effective tool for us to make sure that our lifestyle didn't creep up because it's the other side of the coin. You from a bottom up standpoint, we're making sure that you didn't have lifestyle creep.

What that is, is that your lifestyle is just kind of going up, whether you intentionally wanted it to, or actually thought, “Oh my gosh, I feel so much incremental happiness because of the spending that we're doing.” Not really, you're just spending more because the money is there. I think that's what you're saying there. So you're just making sure that from the bottom up, that you all are not experiencing lifestyle creep.

We do it from the top down. Our lifestyle creep is not happening because whether we want it or not, this is how much money there is to spend. And if we want to spend more, we have to intentionally say, “We need to make a bigger transfer out of our brokerage account.” And that's a big decision to make. So it prevents us from having that lifestyle creep.

I think you can do it both ways and different households are going to find either way to be good. And I'll say, you don't have to own a business to experience these fluctuations. A lot of physicians can experience this. They'll get quarterly bonuses. That's really difficult to “budget.” If all that money just gets deposited into a brokerage account and you're paying yourself the same amount, you can also achieve the same thing.

But then there's the other side. The other thing that we do together or the same in our budgeting system that I think is really cool is setting aside buckets of money for the big things. For instance, every month out of that money that's coming into our checking account from the brokerage account. And then we do have a paycheck that comes from my company that also hits our checking account.

When we get that money, we instantly have money shoot aside into seven different savings buckets. And so, I'll describe mine. We've made a decision in our marriage that travel is everything. And we want to take our kids to all the national parks. We hit Glacier National Park and Yellowstone, Grand Canyon, Sedona in this summer alone. And we're making plans over fall break to get some closer by. These are expensive. Especially flying out of Little Rock. It's very, very expensive. We allocate quite a bit of our resources towards vacation. So every single month we have money going into that account.

We have a home repair account. As you and I both know you don't have home repairs until you have home repairs.

Megan:
It's the worst.

SC Gutierrez:
It's not like your air conditioner is like, “Hey, heads up. In two months we're going to bust out like inoperable.”

Megan:
Just happened at our house.

SC Gutierrez:
How much did yours cost?

Megan:
Oh, we got to do our air conditioning, heater and water heater all at the same time. So it was $40,000. But you will know this, SC, that we follow the exact same plan because we learned from you. We had the money in our home repair bucket. And I could have cried with joy in a weird way. I was so relieved that it wasn't an issue because we've been doing these buckets for years now. So anyways, continue.

SC Gutierrez:
Well, I will say congrats, we do not have that amount in our home repair. And so, that is a big reminder that we need to up that because I was about to lament our $5,000 air conditioner replacement.

Megan:
We live in a house that has a lot of things coming for us. So we knew that we needed to front load it.

SC Gutierrez:
Yeah, yeah. Our roof is getting older. Probably the next five years, it's going to be need to be replaced. But yes, we have a bucket for that that we put money aside. We had an estimate for $500 to fix a leak. $5,000 later, our cement completely busted up in our driveway, they found the leak. So, it just happens.

Then we have a health account because we have a high deductible health care plan. My daughter just had her tonsils out, $4,000 out of pocket. Some people are like, “Oh, yeah, that's right. It's $4,000 for the surgery. But how much did you pay?” I want to be like, “I literally had $4,000 in an account somewhere. And then I didn’t.” That's how much I paid. That's what I mean by “It cost us $4,000 to get my daughter's tonsils out. Anyone who doesn't have a high deductible health care plan gets really shocked by that. But that's the way this works when you're in a small business.

We put a significant amount of money aside into a health savings account, like an actual savings account in our bank. We have a health savings account tool that we use for investing and for retirement. But that's part of our pay yourself first, we actually have a savings account set aside so that we don't have to use our official HSA.

And then we have a car savings account for saving for my next car. And my husband's next car. We have a clothing account, because I buy clothes seasonally, for me and the kids. My husband just doesn't buy clothes, which is also fine.

We have all of these accounts that our money shoots aside for that we both make decisions about. We have made decisions, this is how much we spend on all of these different things. And then we allocate that money towards them. And then whatever is left for us in our household, in our checking account, that is essentially what we spend on bills, and anything else. Dining out groceries, babysitters, entertainment, you name it.

WHAT WOULD PERFECTION LOOK LIKE?

Megan:
Yes. Okay, SC, this podcast is going long. This is what happens if you put the two of us in a room. We will talk for a long time. I feel like we just barely scratched the surface and we need to do it again. So maybe you'll hear from us again in the future. Audience, let us know if you want more of this because we could do this all day.

SC Gutierrez:
All day folks.

Megan:
Okay, I want to wrap it up with one last question. And then we will set you all free. But what does the utopian world look like? Women and their finances and getting involved? What is utopia?

SC Gutierrez:
A utopia is getting a survey where 90% of women in their 60s say that they are so happy that they were involved in their long term financial decision making, rather than the opposite. And so, to me, that is utopia. This is not about women taking it over. This is about equal decision making in a household.

Megan:
Absolutely. And I would add to that, I think utopia also looks like intention. Our motto at our house, we have a few of them, I've probably already told you a few of them today, is we do everything on purpose for a purpose. And there's great power in intention. And if you are intentional in your involvement and participation in your finances, it will change the way you view your life. I can attest as someone who has made that change.

Thank you so much, SC. This has been so much fun. It's a great topic. There's so much that we could talk about and hopefully we can do it again sometime. Thanks for being here. We really appreciate it.

SC Gutierrez:
Thanks for having me on. I love this topic.

Megan:
All right, I hope that you found that discussion to be helpful or interesting or motivating. This is just a topic that we're super passionate about at the White Coat Investor. We want everyone regardless of where you're at in your journey, what your level of financial literacy is. We want everyone to be involved. We want everyone to feel confident and feel like they are intentionally choosing what their money is doing for them and where they're headed.

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DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Megan:
Hey everybody, it's Megan, your podcast producer. I'm just here to remind you that Dr. Dahle is still resting and recovering from his accident. But don't worry, he will be back soon. He's doing well. Please enjoy this episode.

Josh:
Welcome to Milestones to Millionaire podcast number 189 – Emergency medicine doc hits $2 million net worth.

Our sponsor today is 37th Parallel. Are you using multifamily to build long-term wealth? If not, I strongly encourage you to take a look at 37th Parallel Properties. They're multifamily specialties with 100% profitable track record across over $1 billion in transaction volumes since 2008. Investing with them is like partnering with a highly tax

With 37th Parallel, you get access to institutional quality assets, conservatively managed with proven results. Their educational content on passive multifamily investing is also very good. Visit 37th Parallel, that's 37parallel.com/wci today for more information. And make sure to stick around today after the interview for Finance 101. We're going to be talking about HSAs today.

INTERVIEW

Let's welcome Brayden into the podcast this week. He's got an awesome net worth. Brayden, hello, how are you?

Brayden:
I'm great. Hey, thanks for having me.

Josh:
Yeah, awesome. So, let's just break it down. What is the net worth? Why are you here today?

Brayden:
My wife and I recently surpassed $2 million in net worth.

Josh:
When you say that out loud, and we probably said it a lot out loud, I would imagine in the last however many weeks, what does that feel like when you say that out loud?

Brayden:
Well, I actually feel like we hit the $1 million mark not very long ago. And so, I think it surprised me how fast we went from one to two. That's probably been the biggest surprise of it all. Because even when I told my wife, I said, “Hey, I think in the next couple of months we're going to hit this.” And she said the same thing. She's like, “Didn't we just celebrate $1 million like a year or two ago?”

Josh:
It's bonkers how once you get to that $1 million mark, it just builds and builds and builds. And all of a sudden you've got like $20 million in the bank. You're like, “Well, how did that happen?”

Brayden:
If I have $20 million, I worked way too long.

Josh:
We'll have you back at $10 million. How about that? We'll do that. Brad, this is going to be like next year by the time the way this is going, right? So, what is your profession and how far are you out of school?

Brayden:
I'm an emergency physician and I just finished my eighth year of practice. I guess that puts me 11 years since school and eight years since residency.

Josh:
And you told me before we started. After four years, you were debt free. After four years, is that right?

Brayden:
Yeah. I actually took a loan repayment option through the state I live in. I had some private student loans from undergrad. My wife had some undergrad and grad school loans, but then about 90, probably 85 to 90% of my medical school cost was in a forgivable loan that was one year of service for one year of debt repayment. Four years ago, that debt was officially repaid.

We had actually paid the bulk of everything we owed in that first 12 months that we were in practice. And so, then it was really just a matter of ticking off the last three years of time before I think we could really hit the accelerator on how much we were saving for retirement.

Josh:
Where are you now? What part of the country are you in?

Brayden:
Yeah, I'm still at my same practice. We'll call it, I'm on the Great Plains. We're in a flyover state, low cost of living area for sure.

Josh:
Lots of tornadoes and stuff.

Brayden:
Yeah, we're on the Northern edge of Tornado Alley, I would say.

Josh:
So, low cost of living area. You're in a state that had this program. Are you from that area or did you move to that area?

Brayden:
Yes, I am. I grew up in even a more rural area of the state where than I live now. My wife is from a more major metropolitan area, but where I went to school. I went to the University of Kansas for school. We met in Kansas City and we live just a few hours away from there now. But we're within close proximity of multiple family members. So, it's been a good location for us.

Josh:
And how has she adjusted to everything? If she's come from a big metro area to more of a rural area.

Brayden:
Well, yeah, it's interesting. She's lived her whole life in Kansas City and Denver until I drug her out here. But every time we're back in the city, she says, “I don't miss this actually.”

Josh:
Oh, great.

Brayden:
Yeah, I think that some minor things like traffic are a headache, but I also think there's some keeping up with the Joneses that I think she realizes you don't have some of that same pressure when you shrink your city size by 10 fold. I couldn't convince her to move back there if we wanted to now.

Josh:
Okay, let's go through the range of income you've had since you got out of school. How's that all break down?

Brayden:
Yeah. Actually we got married in my last year of medical school. And so, my wife's a nurse. So she was really the one kind of being the breadwinner for the first few years of our marriage. Gosh, the first year we were married, we probably made $40,000. And then through residency, she still was making quite a bit more, but for those three years of residency, we were probably making about $130,000 a year.

And then pretty much every year since residency, it's been between $475,000 and $525,000. I usually say about $500,000 is where we've been. This year is probably going to be our biggest earning year because my wife went back to work about 20 hours a week. So, we'll see how that affects our taxes this coming year. But yeah, it's been about $500,000 for the last eight years.

Josh:
And so, you go from making basically $40,000, not that long ago to making mid six figures. I don't know your background or how much your parents made or how much your wife's parents made, but that's got to feel like surreal. Or you're used to it now, maybe you're used to it.

Brayden:
No. This little town I'm from, my parents both worked and had good jobs. My mom was a teacher, my dad was like in middle management, agribusiness stuff. And so, I think even when we were in residency, we were probably making more money than my parents had ever made. And so, that part was already a little surprising.

My wife's parents are pharmacists and nurse practitioners. She had a little bit more income in her middle school and high school years, but they lived very frugally. Her family lived more frugally than my family did, even though they may have been making twice as much money during that time. And so, she brought a lot of that to our marriage in a good way that toned down my spending habits in ways that probably would have been really detrimental to our long-term financial goals.

Josh:
That's interesting. Even if she wasn't working or if she was making like a fifth of what you were making, that kind of mentality, how she grew up kept you maybe from trying to keep up with the Joneses or to get into that lifestyle inflation crunch?

Brayden:
Yeah, and I think seeing somebody else's family just managing money differently than mine did, I think is eye-opening because we never wanted for anything when I was growing up, but to see somebody live below their means better than we did, and in ways that probably set her parents up better for retirement, I think was very enlightening.

The other thing that my wife and I did together was that we went through Dave Ramsey's Financial Peace University, and that was huge, to learn how to budget together and to have sort of an inclination to being debt-averse really helped. To this day, we still do a budget every month. It's gotten obviously a lot looser than it did 10 years ago, and we don't invest the way that Dave Ramsey maybe teaches people to, but I think knowing how to handle every dollar coming into your household makes a big difference. And that's how you see people, physicians who are broke at 50 and physicians who have $5 million, is probably as simple as that.

Josh:
Okay. Brayden, what is your approximate net worth now? How is that divided all up?

Brayden:
I think when I looked today before we got on, it's at $2.2 million, it’s the total net worth, and the bulk of that is in retirement savings. I think about $750,000 is in qualified retirement accounts, 401(k), 457, backdoor Roths, individual 401(k).

There's another between $400,000 and $500,000 in a taxable brokerage account that's also a retirement fund at this point for us. We have about $200,000 that's in real estate investments, primarily through syndicated real estate investments. We have almost $200,000 in our kids' retirement funds that I guess you could lump into that net worth, but is money that I guess I'm probably never going to spend on myself, but will hopefully pay some dividends for us by not having to cash flow out of our own pocket for college.

And then our home that we live in is probably in the neighborhood of $600,000, conservatively. That comes, I don't know, somewhere in the neighborhood of $2.2 million I think if you add all those up.

Josh:
$200,000 in 529. You have 529s, right?

Brayden:
Yes, yes.

Josh:
That is a lot, it seems like. How old are your kids? When are they going to college?

Brayden:
One is five and one is eight.

Josh:
How did you get that much money into your 529s? That's awesome.

Brayden:
We started just like the day they were born. Our state will give you a tax deduction on the first $6,000 you put in. So every kid gets six grand every year, no matter what, and it's just plugged in $500 a month for both kids every month.

We had a few years early on that, at the end of the year, we just had this pile of money laying around that our financial plan said, “What are we going to do with this?” Because one thing that Jim taught us to do is we made a detailed financial plan and part of that was all this money, at the end of the year, starts giving up, “Okay, this is extra mortgage payment, this is extra kids' college fund, some of this money is just for an extra vacation kind of thing.”

We had a few years that it was more like $10,000 a year going in, and then the rest of it has just been market. The market has gone up for the majority of my kids' lives and so 50% of the money in there is not money that we put in. I think that the harder thing for us is going to be, “When do we stop contributing? Should we stop?”

These new rules with putting money in your kid's Roth from their 529s, that landscape has changed the calculus because the original plan was stop when the kids started elementary school. And our youngest one just hit elementary school. But now we're like, “Well, do we stop? Do we just stop one kid?” Because one kid has like $115,000, the other one has like $75,000 or whatever it is.

And so, I don't know. That is still to be determined for us, but I certainly think that's been maybe a bigger surprise to me than hitting the net worth that we did was to say, “Holy smokes, we have so much money saved for our kids' college compared to what my wife and I had available to us. That's change your family tree kind of step that I think we've taken.

Josh:
We have friends whose kids started elementary school and they were like, “Oh yeah, we probably should start saving for college pretty soon.” Compared to that, you have that much money when they're so young. That's amazing. That's really, really impressive.

Brayden:
Oh, thank you.

Josh:
Okay. What advice do you have for someone that is like you before you started making this large amount of money?

Brayden:
I think I'm cliché in that it's a lot about budgeting early on and the better you are at the beginning, especially if you're going through residency and then your attending salary hits, the less you have to do of it later.

I think Jim's talked about that, that you need to figure out what your expenses are and then you need to make sure you're paying yourself for your future retirement and then everything on top of that, you kind of get to do whatever you want with.

I've seen that that's where we're getting to now, but having a spouse you're aligned with, that makes a big, big difference. I've got a partner who makes more money than me because he works more than I do and he says things that I don't have to think about, like, “Oh, geez, my wife just spent another $1,500 on J.Crew for kids' clothing for school and I'm like, “Our kids go to the same school.” And I'm thinking, my kids wear hand-me-down clothes, we're probably the third set of people to have them and I can't even calculate how much money that's probably been saved over the last eight years with that mindset being just so well aligned with my spouse on our financial goals.

And then geographic arbitrage is real. If I had stayed where I trained, not only would I have had to pay back my student loans that I didn't have to, that was worth a couple hundred thousand dollars, I probably would have made 40% less money than I'm making now. My housing costs to be in an equivalent house probably would have been double. It's just so hard to even think about how we could be anywhere close to where we're at now had we made that decision to make less money, spend more money, pay off more debt that we didn't have to do any of those things.

Josh:
And the great thing is you both want to be there. It's not like a sacrifice to be where you are. You're in a low-cost living area and that's exactly where you and your wife want to be. That's amazing.

Brayden:
Yeah, yeah. We've had job offers other places that would have been similar, and we said no, we like it here. We don't really want to move.

Josh:
Well, Brayden, it's a real pleasure to talk to you. Congratulations on your milestone, $2 million, continuously zooming up the charts. That's amazing. Well done. We're happy to have you.

Brayden:
Oh, thank you so much. I'm so happy I got to be on the show.

Josh:
Okay, that was a great interview. That was really fun. Brayden and his wife have their stuff together. They've worked together. Obviously, they're on the same page. That's so important to be on the same page as your spouse, to actually sit around and budget together. And it seems like they like it. They live in a low-cost living area. They both enjoy being there. Their kids are going to be in an awesome position to go to college if they want with these huge 529s. Just a job well done there.

FINANCE 101: HSAs

Tyler Scott:
Wonderful. Thanks, Josh. Great interview.

My name is Tyler Scott. I am standing in for Jim here, doing the Finance 101 talks for a few weeks while he is recovering from his accident at the Tetons that I think you're all aware of at this point. I am a friend of WCI. I am a financial planner. I write for the blog. I've been on the podcast before. My wife, Megan, is the podcast producer. So, it makes it easy for her to tap on me to help in moments like this.

Today's topic on Finance 101 is about HSAs, health savings accounts. HSAs are a beloved account by personal finance enthusiasts because of their incredible tax efficiency and tremendous flexibility.

Before we get into those details, let's zoom out and talk about the two major categories of health insurance plans offered by most employers and available in the marketplace. There are more than two types of health insurance plans. There are PPOs, HMOs, EPOs, point-of-service plans, high-deductible health plans, and more.

For purposes of this conversation, we're going to talk about high-deductible health plans and then non-high-deductible health plans. For simplicity, I will refer to the basket of non-high-deductible health plans as PPO plans.

Most of us are very familiar with how the PPO plans work. Your kid gets strep throat, you go to the pediatrician, you pay the $30 copay, the insurance pays the rest. This is the cadence most Americans are accustomed to. It is easy to understand, it is easy to plan for.

A high-deductible health plan works differently. These plans offer lower premiums in exchange for higher out-of-pocket costs. The insurance doesn't pay for anything until you have reached the high-deductible, which is often around $2,000 or $3,000. Now when our kid gets strep throat, we do not pay a $30 copay at the pediatrician's office, we pay the entire $300 office visit. This is not the cadence most Americans are familiar with. It can feel confusing and it can be difficult to plan for.

For this reason, high-deductible health plans, or HDHPs for short, are unfortunately underutilized in our country. I say unfortunately because HDHPs represent an opportunity for many of us to save on overall health care costs and to build significant wealth over time. A primary way they help save on overall costs is because the monthly premiums are typically meaningfully lower than the premiums on the PPO plans, and they should be.

If you're paying $300 for the strep throat visit instead of $30, you are saving the insurance company money, and thus it makes sense for the insurance company to charge you less for this type of coverage. For an average family of four, I usually see that an annual high-deductible health care premium might be $1,000 to $3,000 less than the PPO premiums. That's not always the case, you need to check your own, but that's often what I see.

The annual savings on premiums is critical to keep in mind when you are paying the $300 pediatrician bill instead of the $30 copay. It can feel shocking at first to pay the full cost of the visit, but you have to remember that you are already several thousand dollars ahead each year just by virtue of saving on your premiums.

Now, having those lower premiums is nice, but the real magic with a high-deductible health plan happens because an HDHP is the key that unlocks the glorious door of the health savings account. You must be enrolled in a high-deductible health plan to save into an HSA.

Congress has set up a system that allows us to use pre-tax money to pay for our healthcare costs under both the PPO and HDHP plans. For the PPO plans, we can use a flexible spending account, or FSA.

With an FSA, your employer sets some money aside from each paycheck into this flexible spending account that you can use to pay for your $30 copays, prescriptions, or any additional medical, dental, or vision costs during the year. Often you get a special FSA debit card that you can use directly to pay for these expenses. This is great because anytime you can pay for things with pre-tax money, you are getting a discount equal to your marginal tax rate, which can be 40 to 50% for many high earners.

The downside of an FSA is that it is use-it-or-lose-it money. If you set aside $2,500 for the year and you only spend $1,500, you lose that $1,000 you didn't use. This is why you see people at Costco in December with carts full of contact solution and Metamucil. They're trying to use their FSA money on qualified medical supplies before the money evaporates at the end of the year.

With a high deductible health plan, the way that we use pre-tax money to cover qualified healthcare expenses is with an HSA. It's similar to the FSA that we just talked about, but with some incredibly meaningful differences.

The similarities are that this is also typically funded by payroll withholdings in a separate account. A debit card is also often provided so you can pay for the $300 pediatrician visit with pre-tax money. That's where the similarities end.

Now let's talk about the differences. A health savings account is a triple tax-protected account. What do I mean by triple tax-protected? The first layer of tax protection is that the amount you contribute to the HSA lowers your taxable income each year and thus lowers your tax bill accordingly.

In 2024, the maximum you can contribute if more than one family member is covered by the HDHP is $8,300. The limit for if only one person is covered is half of that, $4,150. For someone who is in the 32% federal tax bracket and an 8% state tax bracket, their marginal tax rate is 40%. So, if they contribute $8,300 to their HSA, they save $3,320 on taxes every year.

This is also critical to remember when you were paying the $300 strep throat bill. Not only did you save a couple thousand dollars on your premiums, now you've saved another couple thousand dollars on taxes. For most high-earning families, using an HSA saves them between $2,000 and $5,000 between lower premiums and tax savings every single year. That is a pretty big head start each year when it comes to reducing your overall healthcare costs.

Further, because the premiums are cheaper for your employer as well, in hopes of enticing you to use the HSA, many employers will make a contribution to your HSA on your behalf. It's not uncommon for employers to chip in $500, $1,000, or $2,000 to your HSA. That is free money. Just like your 401(k) match is free money, your HSA match is money you are leaving on the table if you don't opt into it.

Keep in mind that the annual contribution limit to the HSA is the combination of both of your and your employer's contributions. So, if your employer puts in $1,000 in 2024, you can put in the other $7,300 to hit the overall $8,300 limit.

The second layer of tax protection is that this is not use-it-or-lose-it money. This money is yours forever, even if you don't spend it all during the year, even if you leave your employer, even if you opt out of a high-deductible health plan in the future. No December Costco shopping sprees needed. This money is yours, and you can invest it within the HSA in stock and bond, index funds, just like any other investment account. The growth on those investments each year is tax-free. You don't owe any tax as the investment grows or kicks off dividends each year.

Tax protection number three is that when the money is withdrawn for qualified medical expenses, there's no tax due on it then either. This is the only money in America that routinely passes from ordinary income all the way around to expenses with no tax due.

Now, the way this money is meant to be used is you go to the pediatrician, it's $300, and you're meant to whip out your HSA debit card to pay the bill. There's nothing inherently wrong with this idea, but I don't want you to do that. I want you to cut up the debit card. That's because the tax-free nature of this account is so mathematically profound that we don't want you pulling money out of the account. We want this HSA to benefit from as much compounding growth as possible for as long as possible.

If you can start maxing out an HSA every year in your 20s, invest the money wisely, do not withdraw money from the account during your career, then you can have well over a million dollars in your HSA by the time you are 65. Now you have a completely tax-free way to pay for what is often the highest expense for retirees, which is healthcare, including Medicare premiums. This can meaningfully change the time when you reach financial independence.

If this isn't sounding awesome enough already, wait, there's more. I mentioned these accounts are the darling of personal finance enthusiasts, both because of their tax efficiency, but also because of their versatility and flexibility.

To understand what I mean by that, we must first outline a few rules about HSAs. Most importantly, if you take money out of an HSA prior to age 65 for non-qualified expenses, you must pay ordinary income taxes on the withdrawal, and there is a 20% penalty. The IRS wants to discourage you from buying a boat at age 55 with your HSA money.

But one of the really cool things about an HSA is that after age 65, that 20% penalty goes away. If you are healthier than expected in retirement and don't need all of that money for healthcare, you can take the money out and buy that boat if you want to. The withdrawal is still subject to taxation, just like a pre-tax 401(k) would be, but the 20% penalty is gone.

This is an incredible benefit and why Jim has been known to call the HSA, “Stealth IRA.” It's really just another retirement account with better tax treatment when used for healthcare.

Now, if you really want to optimize, you can make sure future withdrawals are tax-free and penalty-free at any age. We call this the save the receipts strategy. The way this works is that you pay out of pocket for your healthcare costs over the years, not using your HSA money, and you are saving the receipts as you go. Personally, I take a photo with my phone or a screenshot on the computer and save them digitally as physical paper receipts can degrade over time.

Now let's say that over 10 or 20 years, you have $30,000 in medical and dental expenses. I'm going to get half of that just putting my three kids in braces over the next few years. The reason to do this is that any time in the future, you can reimburse yourself for past medical expenses using your HSA. That reimbursement is tax-free and penalty-free at any age.

So, if you retire early and you're 55, you can buy a $30,000 boat using your HSA dollars because you are simply reimbursing yourself for $30,000 of past medical expenses as documented in the receipts you have saved. Prior to age 65, this saves you both the tax and the penalty. After age 65, it's saving you the tax that would have been owned on the non-qualified withdrawal.

Okay, that's the story with HSAs. They're pretty cool. Give strong consideration to one if you have access to one. High deductible health plans are not scary. They are still real health insurance that you have out-of-pocket maximums similar to PPO plans. So, it's not like you're going to have to pay $100,000 if you're in a car accident or you get cancer. They all have the same protections as all other plans under the Affordable Care Act.

You pay a little more upfront at the doctor's office in exchange for lower premiums, lower taxes, and tax-free withdrawals that can be used for anything if you combine all the techniques we just discussed. It's a really good deal and a near no-brainer for most high earners.

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We'll see you next week on Milestones to Millionaire. Thanks for stopping by.

DISCLAIMER

This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.