I saw an interesting tweet the other day which made me pause and think for a minute: 
A smartphone (and really any connection to the internet, including the free ones in public libraries) can connect you to everything you need to know to become wealthy. Everything. I mean, it's not a terribly complicated process or anything—it can be readily learned through blogs, Facebook groups, forums, podcasts, and books borrowed from libraries by anyone with a middle school level of education. All free for the taking.
How to Get Rich
For those who have forgotten the process of how to get rich, I'll reproduce it below:
- Make a lot of money
- Don't spend a lot of money
- Make your money work as hard as you do
- Protect your money from financial catastrophes like death, disability, illness, injury, fire, and liability
So why aren't more people wealthy? Despite having the same access to information as the elite (and more access than kings of 100 years ago), they don't use it. It's a choice really. You can choose to be wealthy or you can choose to be poor. Now, I know there's more to it than that. Being healthy, living in America, growing up on the right side of town, having the right skin color and gender, etc. are all advantages and make things easier. For the lower socioeconomic classes, becoming wealthy is still easier than it ever has been in the history of the world, although still markedly harder than it is for those born with the advantages available to the upper classes. For those who are reading this site (typically high-income professionals), there is no excuse. Not becoming rich for you is nearly 100% a choice.
Choice or Choices?
Now that's not entirely true. It's not a single choice. Like weight loss, your level of financial success is really the end result of a life-long series of small decisions. Decisions like:
We all have choices to make. In this case, it was “ski down” or “walk down”?
- Will I go to college?
- What college will I attend?
- How will I pay for it?
- What career will I pursue?
- What job within that career will I take?
- Will I open a business?
- What state will I live in?
- Will I get married?
- Will I have children?
- Will I budget?
- How much of my income will I save?
- How will I invest my savings?
- How much will I spend on housing?
- Will I buy new cars or used cars?
- How will I pay for those cars?
- What kind of vacations will I take?
- Will I send my kids to private schools or public schools?
- How much of their college will I pay for?
- Will I hire a financial advisor or learn how to manage investments myself?
- How much will I pay for financial advice?
- How much of a priority will funding retirement accounts be for me?
The answers to these questions will all add up to the answer to the question of “Will you be rich?” Now I'm not talking about Elon Musk rich. I'm talking about reaching a point in your 40s or 50s where you can maintain your desired lifestyle without ever working again. If that's not “rich” for you, consider that half of Americans have less than $25K saved for retirement and then substitute in any word you like—comfortable, financially independent, wealthy, whatever.
A Case Study for Building Wealth
My spouse has been an attending for about eight months now, and I've been practicing law for two and a half years. Together we gross about $380,000 per year. I have about $180,000 remaining on my student loans, which I refinanced through a private company at a variable rate that sits at 3.3% for the moment and which will be completely repaid, at my current schedule, in 7 years. My spouse has about the same amount of debt, but it's a family loan at 0%. We have about $60,000 saved in taxable accounts now and are adding to that at a rate of about $10,000-12,000 per month (I wish that number were higher, but we live in a very high-tax, high cost-of-living city). Given where we live, a house for what we hope will be a growing family will cost at least $1.5 million, so it would take at least a couple of years before we are ready to buy…. The other option would be to start paying down our student loan debt as quickly as possible. I am against this as it would push buying a house (and the associated tax benefits) much further into the future, and there is always the possibility that home prices (and mortgage rates) will make buying a much more expensive proposition at that point. What do you think? Should we be aiming to buy a home? Is there an option we're missing?
Now I've removed some information (including some of this couple's questions) and changed some information to hide their identity, but the general gist of the email can be seen. This is a high-income couple living in a high-cost of living area. They are the classic HENRYs—High Earning, Not Rich Yet. They have made a few decisions (and most of them well) but have a lot of decisions ahead of them. The results of those decisions will have a profound effect on their ultimate accumulation of wealth. Let's look at the decisions they've made so far:
- Go to medical school. Generally a great decision for building wealth
- Go to law school. Also generally a great decision for building wealth.
- Keep student loans to a reasonable amount. Their student loan DTI ratio is < 1, my usual guideline.
- Refinance loans to a low, variable rate. If you're not going for PSLF, refinance your student loans.
- They decided to rent for a little bit as a new attending. Also a great decision.
- They are living like residents. Apparently not counting retirement funds, they're putting away 1/3 of their gross income.
- They live in a high-tax, high cost of living city. Not such a great decision.
- They're planning on holding student loans for 7-10 years due to low-interest rates. A questionable decision.
- They are planning to buy a house that costs 4 times their gross income. A very questionable decision.
Now let's consider their future decisions and their financial impact.
Do They Stay in This City/State?
Perhaps the best thing they can do for their financial situation is to move to a less expensive, lower-tax locale. The lawyer may end up taking a pay cut for doing that, but the doc is likely to get a raise so it will probably be a wash income-wise. But now they can buy a better house for $500K and perhaps even eliminate their state tax completely. In addition, many other costs go down (may no longer need a private school, food, transportation, parking, etc. may all go down.) Unfortunately, like joining the military to pay for med school, this isn't primarily a financial decision. They may be in that expensive city because they love living in big cities. Or they have family there. Or whatever. But if you're not really into Northern California or Boston or NYC or whatever, get out! It might mean working for 5-10 fewer years before retiring.
How Long Do They Continue to Live like a Resident?
This couple is saving well over 50% of their net income. That will give them an awesome jump start to their financial life and almost guarantee eventual financial success. However, how long they do it for also has a major effect on their ability to accumulate wealth. Living like a resident for 2 years is great. Living like a resident for 5 may give you the ability to retire a decade or so out of residency.
How Long Do They Drag These Loans Out?
While there is something to be said for borrowing at a low rate and investing in hopes of earning a higher rate, I find that the docs who seem to accumulate wealth the fastest don't seem to do that. They still invest, but they also pay off their student loans within 2-5 years—even the low-interest rate ones. You're really not done with med/law school until you've paid for it. So where does that money come from to both invest and pay off debt? From the lifestyle, i.e. living like a resident. I just don't see how someone who can save $12K a month expects $180K in student loans to last 7 years. I expect them to last 18 months. Maybe 3 years total when you include the doc's 0% family loan.
Family loans are great, but there's something about owing money to family that isn't very comfortable. As a senior college student, my parents once gave me their beater Geo in exchange for a $3K 0% interest note I was supposed to pay off as soon as I started making real money. I paid it off in September of my intern year. As Dave Ramsey says, “Thanksgiving dinner doesn't taste the same when you owe money to other people at the table.” While they may never say anything, every time you buy a car or go on a vacation, they're going to be wondering why you're not paying them back instead.
What About That House?
I chose to ski. Mt. Superior-2 1/2 hours up, 15 minutes down.
Let's get back to that $1.5 Million house. Buying that on a $380K income essentially guarantees they'll be house poor. Even if they had the cash to buy it outright, the maintenance costs (generally 1-2% of the home's value each year, although possibly less in really expensive places), property taxes, insurance, and furnishings are not insignificant.
Whether they actually buy a house that expensive and when they do so are two very big decisions with serious financial ramifications. Delaying the purchase may mean it has a higher purchase price and even a higher mortgage rate, but it also means they will be in a better financial position when they do so. The purchase of the house will basically end the “live like a resident” period for them. They'll be doing well to save 20% of their income after doing that. Even a 30-year 4% mortgage on $1.2 Million is $69K a year (18% of their gross) and that doesn't include taxes, insurance, maintenance, furnishings, upgrades, utilities, etc.
These are all decisions that we all have to make. How we make them will determine how wealthy we become. Now, don't get me wrong, the end goal isn't to die as the richest guy in the graveyard. But choices have consequences. Ignore them at your peril. As a high-income professional, all your friends, family, patients, partners, and clients assume you're rich. You might as well be rich. Given that you already have a high income, you become that way simply by managing that income well.
What do you think it takes to get rich? What have you done to choose “I will be wealthy”? What choices have you made that work against that goal? Comment below!
Agree. There is a lot of luck involved. Being born from a good womb is still a lot of this. And good decision making.
It seems that virtually everybody who works, works hard. You might as well make more and build wealth efficiently.
Some of the choices that helped me the most:
Community College for 2 years and then transferred to a public 4-year college.
Chose a marketable major.
Worked out of college to pay down debt and save for medical school.
Lived with roommates. Didn’t buy a car right away.
Negotiated the price of big ticket items.
Chose a higher income “lifestyle” specialty.
Paid off all loans within 2 years.
Took job with ownership and upside potential.
Rented an apartment, then rented a house, then bought a small house for cash.
Invested dividends, interest, bonuses, and most of raises into private investments or public low-cost index funds.
Lived where incomes are high and housing costs are low.
Married well (compatible, beautiful, resilient, frugal spouse)
How could one not be financially free within a few years on a plan like that? After that you can live “like no one else” and loosen your spending belt however you want.
Man you get up early. I was with you not six hours before you posted this comment!
I agree you should always choose a great womb! 🙂
You gotta get up pretty early to make the first comment on WCI.
HAHA!! GREAT POST!!! Opportunity is in front of A LOT more of the population these days. It’s a matter of wanting it bad enough. There is an abundance of FREE education online now a days.
cheers!!
I already made that mistake. We moved from our 3BR 2.5 Bath, 1900 sq ft $100,000 starter home to a custom $500,000 (3800 sq ft) home we had built on a $90,000 four acre lot in 2003.
Not only was it stupid to build the McMansion on the biggest lot in the subdivision, it was foolish to build such in a non-growth area (a suburb near a financially dead metro in Michigan).
Fast forward to 2008, the housing bubble burst, dropping the value from $650,000 to $325,000. This has crept back up to perhaps $500-550K (less than cost to build). Property taxes are $7500 a year. With the maintenance, repairs, upgrades, finished basement ($20,000) and heating/cooling/electric bills of $600 per month, it’s my biggest financial mistake EVER by far.
The old house is now a rental worth $75,000 with taxes (if we lived in it) of <$1000/yr. The difference between the old house expenses and the McMansion are hard to think about. Let's say it is $50,000 a year X 15 years or about $750,000, then add in the loss when sold for $550,000 vs cost+improvements of $700,000 and that's another $150,000 plus the HOA fees, bigger lawn care and snow removal, etc. Its easy to estimate about a MILLION dollars gone.
Imagine having invested the bulk of that difference from 2003-2013 at $100,000 a year. What do you think WCI, perhaps it would be TWO Million by now. So, I have a big house and crap equity (perhaps $250,000 in equity) despite a 15 year mortgage these past 8 years, instead of 2 million in a taxable retirement account.
My current non-taxable account is at about 1 million. If I had that other $$$, I would have been able to retire at age 50 with 3 million in funds providing $120,000 in income that would grow by $80,000 a year when my pension and Social Security add in at age 65/67.
Instead, I have a nice big house and perhaps will have to work full time an extra five to seven years. We will sell it in 2018, take the $250,000 in equity, pay off our mountain cabin on 20 acres with property taxes of $2000 a year.
The house cost about twice my income in 2003, and we had paid of our $140,000 in student loans in 6-7 years before we built the monster. The other choices that have delayed retirement are private schools ($15,000- 20,000 a year or so) for about 20 years (staggering in four children)…another quarter million NOT invested…but I did invest in my children.
The big rocks really are big rocks, aren’t they? And then we have Vanguard prancing around telling people what they spend on coffee matters…
I think what vanguard is talking about IS important. I see my nieces graduating from college, buying coffee at Starbucks, sun screen at 7/11 (three times the price) and dinner at Whole Foods salad bar for $15 dollars. It’s that day to day mentality that would keep them from accumulating any wealth. You and I can have a coffee at any place and will be fine, but I was not having my daily cup of coffee at coffee shops at 21…
All of this is based on old/historical trends – do you drive by looking through rear-view mirror (only). Markets at all time high. Asset inflation – just look at homes in major cities. Debt at record levels.
Keep in mind that the latte effect is based on investment growth, but does it consider debasement of our fiat currency? Maybe spending dollars asap isn’t a bad thing.
Too many people claiming we should do what they did because they were successful at it. Well times have changed and the old model is broken.
I agree with many of the arguments made about wise investing, debt repayment, savings etc.
But all too often posters are using a generalization that cannot be applied to the individual.
As doctors we should know that applying a study to an individual patient carries risk…no?
JustSayin’
I didn’t factor in the “income tax savings” (or the extra interest costs) on the big house:
Let’s say average interest of $15,000 a year X 15 yrs or $225,000 in interest paid. It was as high as $27,000/yr, and is now ~ $13,000 on the 15 yr at 2.5%.
So $225,000 of deductible interest at my effective tax rate of average of 20% is $45,000 of taxes I did not pay. Of course, at some point, I made so much money that my interest itemized deductions are reduced for having a large AGI, and I’ve hit the AMT for $6K to $8K a year for a the last 5-7 years.
The mortgage deduction is crap when compared to the interest paid ($225,000) and the loss when the house is sold ($150,000).
Houses make sense when they go UP substantially in value (or at least pace inflation) like they did from the time I finished residency 1991 to the debacle in 2008. I’m sure I’m not the only fool from the 1990’s who built a McMansion.
Of course this blog is for folks like us; ie to urge the $380K/year couple to become FI/rich instead of stay chained to a job through their 60s/70s.
But the choices described aren’t even acceptable or considered to some of my poorer friends. Counseling a friend who counts me as a mom, I see the differences between us: he dropped out of college last year for a term when his car broke down adding $1K car repair and likelihood of not getting to his job so all in all being dropped for not paying his college bills if he stayed. And lost $2K he’d already paid for dorm room by quitting at Xmas time before the spring term. Aside from bad luck and costs of old car vs new are sometimes higher, the planning and forethought involved- getting a single dorm by default instead of a cheaper shared room or off campus…. But what am I thinking, a long ago beau went across country to college living in a trailer in FL with no money for food, got sick, and couldn’t do his pilot program with a bad ear. I never thought to ask why he hadn’t phoned home for money to avoid eating ‘bread’ sandwiches only. And I myself went off to a summer job once not knowing how long it’d be before I had money to buy food- sold plasma and went on a lot of dinner dates with faculty that first month. And similarly had no expectation my parents would send me money… they probably would have, somehow, but they hadn’t thought to make sure I knew what I was doing…
And my young friend doesn’t even have a family he can ask for money- they often need or ask it of HIM. He was just on the phone telling me of the job he got and that he couldn’t take another he’d been offered- not enough hours offered. I reminded him to put aside a buffer for the old car’s usual annual repair or accident, and asked him what he’d do if his mom or sisters again needed some money (he’s now going to put his needs first or he’ll never advance), and affirmed his epiphany to buy 5 cans/meals of chunky Campbell’s soup for the price of 1 pizza=3 meals or 2 taco bell meals, and a case of cans of soda in his fridge instead of getting one at a time a few times each day.
I’d recently passed on to him ‘Building Bridges Out of Poverty’ which a sociology professor friend had given me. In summary seems to point out that I, and other well off, save the marshmallow for later to get the pay off, but the lower classes know/ have learned/ been taught that the marshmallow will not be there if not eaten now. A windfall must be shared out with community of family/friends, and will probably be consumed with the next car break down or family need. SO of course buy steak when you get a bonus- or you’ll never eat steak ever. If you get caught starving someone you once helped will share their beans.
I’ve even had a slight evolution in that regard myself- only a few years into my marriage and regular army med officer salary did I recognize I needn’t make up to my dad or sister that I have more money than them, as they were pretty strongly conveying to me. The sister is estranged and thinks I’m a bitch but no telling if thousands $s over the years would have changed that narrative; the dad learned to pay his own way to see us now and then and I enjoy taking the kids back to my hometown to see him when I’m paying.
Just some thoughts about the poor- that they don’t really have access to the same knowledge we do, or even the same reality about money in many cases.
I heard a talk last night from a young man working on Obama’s campaign for $12 an hour who was picking up change off the sidewalk and stealing food from hotel buffetts because he had $50K in credit card debt. He now has a website that runs $1M+. A month. Where else can that happen?
No doubt that it’s harder for some than others and luck plays a role, but we still have a great deal of control over our own destiny, and those who downplay that are less likely to find success.
Yes, the information is out there but there is just as much misinformation and scams that lead people down unforgiving paths.
I had an ex girlfriend who was very motivated to make something of herself. She was a young black woman in a similar situation as the Jenns friend. She signed up for college to become a paralegal only to find herself scammed by Corinthian. On top of it all, her car got impounded a month before she graduated due to a ticket she couldn’t pay. She wasn’t able to finish her internship which required a car and never even got her degree.
Her main mentor, before she met me, was her older sister who was trying to convince her to have kids to collect welfare because that’s really all they knew worked.
Your website is one of the few trustworthy resources available, but I’ve met many doctors who don’t even know about it. How do you expect someone who has crappy mentors / role models to be able to identify the signal from the noise?
Exactly. Attended a right arm night (take your assistant to the bar) at the Army Club last night, appetizers catered by a financial firm. Probably not one that is best for all the soldiers there whose contact details they got for the raffle.
Please tell me it wasn’t First Command.
Of course it was. But I got a luggage tag (might mark out their name), a bunch of croakies and pens, and a likely very bad book which seems to say you NEED a guide to get rich. So, then, aside from their flyer on working for them indicating no salaried pay for 1-2 years, tons of training up to then, and having to go out to bars in the evenings regularly for stuff like the right arm night, your disdain further clarifies that they are not the route for me to take to help people out with their finances. (Have offered; to one friend who teaches there; no bite so far, to give a finance class based on you/ your work to the local DO school. Would have to sort out how NOT to say, a little too late, ‘select a cheaper med school than the one you did’. And won’t bother asking First Command to buy a crate of your books for the event if it ever occurs.)
That’s an excellent point. Lots of noise out there.
Thanks for your insight Jen and Dan…I am kind of surprised by this post by WCI. I really love a lot of what you share but this does not sit well with me. It’s so easy to lift our fingers and look down at people…poorer people…people of color who can’t catch a break and basically blame them for not rising…And highlighting one person who made it is like telling poor Black people…see Ben Carson…look he did…why can’t you!? You didn’t study social work, or sociology and you come from a position of privilege…I would just caution us to not look down on others because they make different choices but rather try to expand our mind to what really causes people to not make those choices. Yes America does offer many people opportunity. And depending on which side of the train tracks you grew up…whether you experienced early childhood trauma, whether you had someone who believed in you or not…whether you even knew where to look for solid information…whether you had a mentor to guide you etc…There are just so many factors…please don’t make it appear that it’s just as easy as deciding to go to medical school like me.
Are you familiar with Napoleon Hill’s Think and Grow Rich? Nobody said it was going to be easy.
An individual can’t change where they start out in life, but they can certainly have an effect on where they end up.
I agree with Kaara. It’s easy for me to say “just try harder,” but I’ve never had a major medical issue, a major car accident, or a natural disaster wipe away all my belongings and my home. I’ve had parents who paid for a private school education and college and I got a good job straight after graduation. I am in no place to tell anyone to just work harder. If anything I should be calling my congresspeople to make sure roadblocks are cleared and safety nets are securely in place for those who are less fortunate than I am. As a society, we need to stop predatory payday loans, for-profit colleges, and other scams from targeting those who are vulnerable.
These are the comments I don’t quite understand. I’m not trying to be insulting here but more attempting to understand why you may think the way you do: do you think your situation in life has led you to feel guilty? Is that why you have a hard time telling others to work hard?
I’m from a slightly different situation. My parents could not afford college for me. They therefore told me at an early age (elementary school) that I needed to work hard to get scholarships. I did. So can others.
Tommyboy- i feel similarly to veronica and kaara. No i dont feel guilty. I TRY (unsuccessful at times) to live by the golden rule though-do unto others as you would have them do unto you. Do you think its a bad thing to want to help others that may not have the background knowledge or mentors to help them succeed as you and i have? Its great your parents told you early you needed to get scholarships- some people don’t even have someone in their life saying that college is an option though. I think it would be great if we all advocated for the have nots. You may already be doing this – just interested in your perspective.
You are absolutely right. We should all do our best to help others in need. I do the same as you (following the golden rule) to the best of my ability.
I think, for me, it always comes back to personal responsibility. We need to provide the paths for others to take. But ultimately, each individual is still accountable for their own actions in life.
Totally agree! Thanks for following up
Truth!
Just sold my home purchased in 78 for 105 for 615k- In general houses do appreciate well in the right location(good to excellent schools and access to public transportation)
Obviously buying the biggest house on the block is foolish
By my quick napkin math that would be an average annual return of 4.6% on the house over 39 years. A solid return on investment but I wouldn’t use it as a justification to recommend the person in the case study buy a home that is 4 times their gross income.
Wait a minute, my back of napkin math shows only 1.06% annual return REAL! Not quite the same when you consider inflation. Someone check my math if I’m wrong!
Whether my math is incorrect or not, I’m fairly certain from the academic studies I’ve seen that in general houses definitely do not appreciate well in any location.
I didn’t account for inflation.
True, Ken
Although you paid $395K for the house (in today’s dollars). And that doesn’t include upkeep, home improvements, ongoing costs, transaction costs etc. If you factor in that as a pure investment you could have made more in stocks or other investments. I’m not saying you were wrong to buy a house, just that costs are part of the equation and that 1978 dollars are not the same as 2017 dollars.
If we’re going to talk about houses as an investment, you’ve got to include a lot more than the price of purchase and sale. You’re basically not counting the dividends (i.e. free rent.)
https://www.whitecoatinvestor.com/a-home-is-an-investment/
I totally agree with this. “Free rent” and tax breaks often go overlooked, except in this reference post which I just read for the first time, nicely done!
Ours was the biggest lot, NOT the biggest house. The houses in the subdivision in 2003 ranged from $300,000 to $900,000 (so we were solidly in the middle).
I’m on the brink of making one the largest financial decisions I’ll ever make, where to live and practice one I’ve finished fellowship. I’m from the NYC area and I train in Boston, as you’ve mentioned in you’re post these areas eat into a physicians ability to achieve wealth. I’ll likely split the difference and search for practices in central CT or Western mass where I’ve seen salaries almost 75-100k higher with those 1.5 million homes going for 800-1mill, mental comprises such as these allow one to achieve wealth much faster and live more comfortably with the big cities still being only a few hours away.
Good financial decisions.
1. Go to medical school.
2. Go to state medical school (scholarship plus loans).
3. Never ran up credit card debt.
4. Live in a low cola area.
5. House only cost $229000.
6. Started own practice.
7. Developed an interest in financial planning at age 31.
8. Put extra money into stock market.
9. Paid off house at 45.
10 Never bought whole life insurance.
Bad decisions
1. Over -remodeled house. Kitchen and bathroom.
2. Angel investing.
3. Short-lived investment in a gift shop.
4. Not buying an office building.
To my earlier point – so many decisions rated as ‘good’ are based on how things panned out for you.
So much is based on what the future holds. Devils advocate listed below
Good financial decisions.
1. Go to medical school – Where will doc salaries be in 10 years (apply plus med school plus residency)
2. Go to state medical school (scholarship plus loans). – sure
3. Never ran up credit card debt.- Could have
4. Live in a low cola area.- There are many low COLAs that havent recovered since 2008
Home I bought in residency just sold for 5% less than I paid for it
5. House only cost $229000.- All relative
6. Started own practice.- Who does that these days
7. Developed an interest in financial planning at age 31.- Many could argue that’s pretty late in life
8. Put extra money into stock market. – At all time highs? Not best idea now
9. Paid off house at 45. Well done, but based on #8 should have put more $ in stock market
10 Never bought whole life insurance. I guess
Bad decisions
1. Over -remodeled house. Kitchen and bathroom. – Wait how can you praise your home choice above and knock it here?
2. Angel investing. Only if you make poor choices – if you did well you would have moved this to ‘good choices
3. Short-lived investment in a gift shop.- Yup – stupid
4. Not buying an office building.- Too many variables are at play
You boil decisions down to ‘good’ or ‘bad’ but so much of it has nothing to do with you.
I was simply listing choices I have made that turned out to be good for me not the world in general. Yes I waited to the elderly age of 31 to start investing. It worked out well for me. I have been through a couple of all time high markets before. I have previously detailed my angel investing experience before so I will not repeat it. It made the national news.
As in – the type of news you don’t want to make?
I have to say that the first part of this article rubbed me the wrong way. Yes you gave a quick obligatory disclaimer but you backed away from that and said “But in the end, it’s a choice.” Sure I know people who have worked hard and overcome many disadvantages to do well. But to say poverty is a choice is, at best, a gross oversimplification. Yes, there is tons of information out there if you know where to look and understand how to apply it. Many people in poverty make poor financial choices but how much understanding of the finance do they have. Most people in poverty are just trying to get by. The stresses of being poor can interfere with long term planning. Again I am not saying it is impossible to overcome these barriers but we should not minimize the challenges that many face.
I raise my objections to poverty being a choice as the logical conclusion many draw is if poverty is their own fault then the wealthy are justified in not helping. I am not saying this is the author’s intention. However, I find it to be a disquieting trend among the wealthy to say that the poor are not deserving of anything because it is their own fault.
/end social justice warrior rant
Agreed. Those of us more fortunate in most cases don’t understand and don’t even realize that we cannot empathize with the lives of those in poverty and that the majority of their energy is spent simply getting by. The lucky ones who through their own grit, enterprise and better fortune (maybe they have parents who want better for their children and give up everything to do so) are celebrated for their ability to make it. We probably have readers like this on this forum but most are not so lucky and those of us who have succeeded should not forget that or assume that just because we did it, everyone can.
I didn’t come from poverty but I left Ireland in 94 when unemployment was 17% and I remember times when I was a kid when 10 pence was hard to get. Yes, that’s a dime. I was lucky that my parents were hard working people who wanted better for their children and I made it because of that plus many other choices I made later mixed in with a dash of luck and good timing and hard work. Being in the right place at the right time meant more opportunities, some of which I created and some of which I did not. The start of the article way over simplified how difficult it can be to over come those things. And to think that you can overcome this purely because you have access to a smart phone is ludicrous. Many people with smart phones are ignorant of the power in their hands through no fault of their own. I don’t work in the medical field and am in technology.
I think people are going down the SJW road a little too easily here. The argument made was that all the knowledge needed to become rich was available to essentially every member of society thanks to the miracles of technology. Not that it was equally easy for everyone. Not that some people don’t have advantages (sorry HUGE advantages) given to them by virtue of luck and the work of their parents. Not that everyone can become equally wealthy. But that the information was available.
Then I shifted gears and began talking to the readers of this site, 99%+ of whom are high income professionals in the USA. For those people (i.e. YOU) becoming wealthy totally is a choice. If you’re making $200K a year and you end up poor at the end of your career, it’s pretty much your own fault.
Yes, I’m no social justice warrior. I understand now what your intention was but the initial pasted tweet specifically mentioning that “those near, or in poverty” set the tone/context for the article that followed and it hit a nerve with me. I get the intent now.
Yes, and I’ve now modified it a little to show my intent better. That’s one fun thing about the blogging medium- every post is a living document like the constitution, but far easier to amend!
Thanks Gamma and Kevin for speaking up. I agree!
Gamma Knives, I respectfully suggest your social warrior rant is misplaced. This blog is aimed at docs and other high end professionals. Many of them make poor choices that keep them from becoming reach. WCI is dedicated in part to helping those folks make better choices.
Now, as for the poor, of course there are structural factors that might keep these sorts of choices out of their reach. But as a guy who went to school in the south with a lot of underprivileged kids, some of whom got sports scholarships, the vast majority made BAD choices and ended up back in their original circumstances. If as a society we aren’t willing to grant them the dignity of being responsible for their own actions, how will they ever achieve? Pick your social justice program of preference; how successful has it been in alleviating poverty? My view is that each individual would do better taking their own destiny into their own hands.
Larry. I debated about making my post for the reason you stated. However, the author of the original post did not say it is a choice for high end professionals to be poor, which could be a reasonable argument. His post started by talking about how many Americans in poverty have smartphones. He generalized and said that being poor is a choice for all Americans.
I disagree with your assessment of the poor but as you stated this is not really the forum for such a discussion and I doubt either of us will have much success altering the other person’s opinion on the subject.
I agree I didn’t pivot as well as I intended. I should have more explicitly stated that it is without doubt a choice for those who are reading this site, but that the equation is far more complicated for non-high income professionals, but still easier than it ever has been in history thanks to access to information. Apologies for minimizing the effect of that.
Just say this post after my other reply. As I stated below, I think we are closer in our opinions than may have come across. I apologize if I was overly acrimonious. Overall, I enjoy your insights.
Perhaps it feels to you that you’ve taken my argument to its logical end, but I disagree. You’ve taken it down a road it didn’t even look down as it drove by.
I am right now sitting in a conference with hundreds of people who at one point were quite poor and are now owners of their own business, building wealth rapidly, and teaching others how to do the same. The guy giving the talk now has only a high school education and has been incredibly successful. Why? Using that information that we all have access to thanks to a smartphone and the internet.
Let’s take your argument to a potential end- You’re basically arguing that someone born poor with disadvantages can never be successful. Any reasonable person (including you) is going to disagree with that. So is it easier for some than others? Of course. But whether you end your life in the same place you began is largely up to you, particularly if you were born in America and have a smartphone in your pocket.
I did not state that choices have no impact or it is impossible to overcome circumstances. I even stated that I know people who have done such so.
If it is all up to choices then why do some people make the choices that allow them to succeed and others do not? Do they want to be poor? Are they genetically bad apples? Is it just that they don’t care and want everything handed to them? There are some people like that but in my experience that is the minority of the poor.
I think programs like you describe to inform are great. I would argue the best solution to poverty is empowering people to be successful (obviously easier said than done). My opinion is that capitalism has done more to reduce poverty than anything else in the history of mankind. However, we still have room to go. Sometimes people need some help just to get the breathing room to attend a class or start a business.
We are probably not as far apart as our posts would suggest. I think that circumstances of birth and environment have a larger impact but certainly don’t deny the importance of choice while (I think) you believe that choices dominate your future but don’t deny the role of circumstances of birth. Maybe it is all semantics. You might say it is not as easy for some people to escape poverty and I would say it is a herculean task for some people.
It’s a spectrum isn’t it and I’m not sure anyone really knows how much is circumstances and how much is choice. Without doubt both play a role.
You make a lot of good points, but let’s remember that the plural of anecdote is not data. People who overcome great odds make good stories that are shared. People who attempt to entrepreneur their ways out of poverty and fail are less apt to be discussed.
Back to the central thrust of this blog, though, the decisions we make play a major role in where we end up. Let’s all make good choices
Let’s not only make good choices for ourselves, but also reach down and help others up. Here’s another inspiring anecdote:
https://www.ksl.com/?sid=46185759&nid=148&title=ogden-man-helps-liberian-scammer-turn-his-life-around
What an incredible story. Thank you for sharing.
cd :O)
Agreed! Great story
you might like http://www.ahaprocess.com/wp-content/uploads/2013/08/Study-Guide-Bridges-Out-of-Poverty.pdf and https://www.ahaprocess.com/store/bridges-out-of-poverty-book/
As a dentist who works at a Federally Qualified Health Center, I must remind our medical colleagues that less than 3% of medical and dental students come from the bottom quintile of American income. More than 2/3s come from the top quintile. As such, it is very difficult for medical professionals to empathize with and see finances from the perspective of someone born in the lower middle class or in poverty. The median income for a single working adult American is about $30,000 annually. The majority of Americans do not have bachelors degrees or a robust professional social network that someone born into wealth may take advantage of.
“Being healthy, living in America, growing up on the right side of town, having the right skin color and gender etc are all advantages and make things easier. But in the end, it’s a choice.”
To call social determinants of health and socioeconomic status simply “advantages” is a profound understatement. In the end, you have a “choice” to actually educate yourself about the nature of poverty and upward mobility in the United States – I suggest you do so.
It is exceptionally obtuse to suggest that wealth is simply “a choice.” If you’re like most physicians and dentists and were born into the top 20% of American household income, then yes, perhaps it is a choice. But I would love for you to come spend a day working with patients at community health centers, particularly children born into these terrible family situations, and tell them that their future success is simply a choice.
There is a fantastic podcast series from revisionist history on this topic. It is a three-parter, but I would highly recommend “Carlos Doesn’t Remember” as the one in particular to address this. http://revisionisthistory.com/episodes/04-carlos-doesnt-remember
I agree that for many people, wealth is not a choice. There’s a lot of luck involved. But what about people who are already doctors? They made it through life with enough luck and good circumstance that from then on, it’s more about planning and decision making. Someone who is 70, has made great money over a 35 year career, yet still can’t retire because they spend their money on garbage… for that person, there is no luck in the equation. He’s simply a fool. I’d say this applies to almost everyone who has already made it into the attending stage. At that point, life has already served you up a silver platter and it’s all on you if you screw it up.
All this ‘luck’ talk is driving me nuts!
Overall, I learn a lot from WCI, but this comment by FQHC was the most glaring thought I had when reading this post. Do not simply gloss over things such as race, SES, health and gender, because these things possibly influence the likelihood you have to be rich more than other things. Simply look at the loan burden of Black versus White recent medical graduates. Or other stats. Nepotism, family wealth, race, etc, all play more, or at the least, an equal part in being rich as the choices you make.
Absolutely agree. I thank WCI for all of the wonderful work over the years but this article is definitely not what I would have expected. Social mobility in the US is at all time low and has fallen significantly compared to other OECD countries. Among those that have had made it to medical school there is a choice to be rich or not so rich… among large portions of the population there is a dream that seems to recede with each passing year since the 80s.
Kind of reminds me of the quote:
My Uber driver tonight in D.C. was driving his daughter’s car. Said he was making $1600 a week driving Uber but pointed out he had friends who were more hard core than him and were making over $9K a month driving. He’s kind of busy with his business though, where he ships Caterpillar heavy equipment back to his hometown in Ghana and resells it.
So maybe you’re right. Maybe it is easier to be upwardly mobile in Ghana than it is in the US, but he seems to be doing just fine in both countries. Anecdote? Sure. But I prefer to believe that barring some exceptionally bad circumstances, people can do what they put their minds to. I guess I’m surprised to see so many people disagree with that, but I do understand that people from across the political spectrum do view the world in vastly different ways and feel those who may not be exactly where they are on the spectrum are “out of touch” with the way the world really is.
FWIW- the other two Uber drivers I’ve used so far on this trip had similarly inspiring entrepreneurial stories.
I’ve spent many days working at a CHC as a medical student and refer many of my patients there. You know I work in an ED, right?
Would it make you happier if I had called them “big advantages” or “huge advantages”? Or do you think it is impossible for someone born in poverty to rise out of that condition? Surely that’s not your argument.
I realize this is written with the high income professional in mind, but I worry this type of analysis is fraught with confirmation bias. It’s easy to look back on your path in life and believe that your choices made all the difference in your success. It’s equally easy to look back on a “failed” life and point out all the obstacles and poor choices.
The older I get and more I think about it, the more I believe that most of life’s outcomes are due to luck and fate. Even these so-called financial choices are informed by one’s life experiences up to that point.
Do you think luck and fate get people into and through medical school?
thats not really what he meant though is it?
You have to be lucky to be born into a stable family. Is it necessary? No. You have to be lucky to be born in the USA (or to a wealthy family in a foreign country). You have to be lucky to have a household that values education. You have to be lucky to not have major illnesses or cancers that can kill you prematurely. You have to be lucky to get the right school system that teaches well. Lucky to learn test taking skills. Lucky to have the free time to study. Lucky to be taught the right habits like delayed gratification. And finally- you do need some luck in medical school to not have any medical issues like depression, or underlying conditions that inhibit your ability to succeed.
So yeah. you need a lot of luck.
Personal responsibility is needed much more than luck to succeed. I understand that your examples make some individuals feel better about themselves – “It wasn’t my fault I didn’t succeed, [insert any example] happened to me!” Sure, there are bad lots in life, but anyone can come up with an excuse for themselves if they want to.
If you are born in the USA, your glass is already half full in my opinion.
But that doesnt gel with reality.
When the vast majority of medical students come from parents with a college degree let alone a graduate degree or medical degree that seems to indicate a strong predictor for success.
If it was primarily ones desire to succeed and work hard and since medicine is one of the most meritocratic fields why isnt the admissions rate so in favor of certain groups?
Surely youre not suggesting that all low income students are simply too stupid to succeed.
Correction-I meant why is it* not isnt
I’m not following your train of thought. I didn’t say any of those things. You’re setting up a lot of straw men.
Many people don’t have the desire to work hard. That is exactly my point. You say it’s “luck” that some people have that drive and some don’t. It’s not luck. People need to take personal responsibility for their own actions. Some just don’t want to.
We still need to provide opportunities as a society. I think you and I agree on that.
No not at all. Im not arguing that at all.
Im saying that to get into med school you have to be willing to work hard.
If hard work was the primary cause of ones ability to get into medical school it seems reasonable to assume a diversity of income backgrounds and dgerees from their families.
Instead its very homogenous w the majority w college degrees and a substantial number with advanced degrees.
One can argue that a strain of hard work runs in these families and that hardwork is taught by these succesful families but that implies that non college educated workers are not hardworking.
Thats hard to believe. If it were so then the hard working blue collar family should have just as fair a shot at sending their kids to med school. That doesnt happen at the same frequency.
Ergo-where you come from is a big deal.
I never said the drive to work is luck either.
You said people were lucky to be taught the right habits.
Wait-are you saying instead of being taught by example, by life experience, by exposure to family behavior people are born with it?
Because if they are not taught tell me how else they learn.
I’m going to agree to disagree with you here and leave it at that. The OP stated, “…I believe that most of life’s outcomes are due to luck and fate.” That statement is what I am disagreeing with specifically realating to this particular article. Luck and fate do not determine the vast majority of outcomes related to success in life. To say so is to deny your own personal responsibility. It’s a poor excuse.
I agree for people who are competent and can make a decent salary, or better like most who are involved here. That said, most individuals who are poor don’t have the capability to use the information that they have access to or capability to earn enough to save as much as they would need to meet these goals. Now if you make like 70K and live as I do in a low cost area you can save, but then you are not going on vacations, eating out, and spending so that you can retire eventually.
I disagree that just being poor means you don’t have the capability to use information.
I think that’s up for debate. Severe poverty has been shown to actually change your mental processes (here is one article from Scientific American- there are many others: https://www.scientificamerican.com/article/poverty-disturbs-children-s-brain-development-and-academic-performance/).
There are always exceptions, and there are many different ways and experiences of being poor (generational, immigrant, situational etc), but there is an increasing amount of scientific evidence that poverty actually affects brain function permanently. So it’s not clear if people who have had a lifetime of deprivation are able to process and use information the same way.
I’m skeptical about that particular study. Seems to show correlation, but not causation. I couldn’t quite tell if it was controlled for intelligence.
Obviously no one can perform a double-blind, placebo-controlled study on this, so there will always be room for debate. But if your hypothesis is true, and it’s intelligence, wouldn’t the end result be the same- that the poor/socially deprived/less intelligent-can’t use information as well? And isn’t that even more damning for these individuals?
I don’t think you’re describing my position on this issue accurately, nor that the word “hypothesis” (i.e. a theory that can be disproven by scientific experiment) should be used to describe this sort of thing.
I’d say in the case study above, the one huge mistake would be the house. I’ve seen this time and time again with colleagues, and I feel fortunate to have learned from their mistakes before I made the same one myself. I went the opposite way and bought a house that equals about 35% of our annual household income, and it’s been awesome (not as extreme as it sounds since I live in a super low cost of living town).
I think that anyone who makes it to the medical school level has no excuse to be poor later in life. A person who makes it that far has obviously had enough effort and luck to get past many of life’s random unfair barriers, and after that it often comes down to whether or not someone can make good decisions and how resistant they are to peer pressure.
Exactly the point of the article. You got it.
Completely agree with the idea that stretching to buy a big house is a huge impediment to wealth building/FIRE. Reading the post and trying to contemplate affording a $1.5M house on a $380k income made me shudder.
We live in a HCOL area of a moderate COL city, and bought a $740k house with a $590k mortgage on a $400k income (average SFH cost for our neighborhood is above $1M).
We’re able to max out 2 401k’s 2 Roth IRAs, a 457b and a solo 401k, plus pay extra on our mortgage. But, I still wish we could save more and pay down the mortgage faster to get to FIRE faster. I would feel completely trapped in my job if we had spent $1M or more on a house!
WCI – I get the initial point but
It is all relative
Whats the interest rate on the loan
How much was put down
Are they making more YoY or less
Have housing prices been rising in the area- ie is this Boston
Did they buy in 2017 or in 2010
Is it the most expensive home on the block
See the problem with generalizations
Great article, but I do agree with some of the comments that your life circumstances are a significant contributor to your chances of success. I am part of that 3% that was fortunate enough to go to medical school, despite growing up in poverty and having some of the disadvantages mentioned above. With that said, I still had many ‘advantages’ compared to my colleagues in my neighborhood. There is definitely a spectrum of how disadvantaged you are starting out, and learning about how to grow wealthy may not apply to the majority of us. With that said, for those of us fortunate enough to get a college education, it is certainly a choice.
Not a Dr., didn’t even finish college. I am the “right” color and had a stable home life. My wife is also the “right” color, but did not have a stable home life. We started our family young. I worked two jobs for fifteen years. Family did help us get our first home. Despite advantages, there are also plenty of scars. Scars that no one sees and very few even know about. We aren’t rich, but have more than most.
We had flip phones forever. We had one TV and no cable forever. We had beater or very practical vehicles forever. We put our kids through private school. Our older kids got some music lessons.
I didn’t ask to be born where I was. Neither did my wife. I didn’t ask for some of my scars. Some were created because of my own stupidity. Some weren’t. I get tired of being tried to be made to feel guilty for things I had nothing to do with.
I do understand. Anonymous people dropped groceries at our door decades ago. We have tried to pay it back. I worked 16 – 18 hours a day. Now I work 8 and do coaching and teach Bible classes. I didn’t start reading all of this investing stuff until this last decade. I just knew if I wanted to get ahead at all, I had to work harder and be willing to make sacrifices. That is what we did.
An inspiring story to be sure. Congratulations on your success!
The name of this blog and website is The White Coat Investor, not the “average investor” or the “starting from scratch and downtrodden investor” or the “I have a lot of poverty related problems investor” or the “I started out completely broke and poor investor.”
Almost EVERYONE thinks their own circumstances are special, and that they “overcame a lot”…even Donald Trump. We do not know other people’s lives.
I like to think that having started with very little (a beater car that cost $1800 and a job as a Red Lobster dishwasher) with a High School GPA of 2.25, and coming from divorced parents, having to start at a Community College, and then becoming a doctor, graduating AOA, having a successful career and becoming a millionaire was “special”, but it’s not.
I like to think that because thoughts like this make the effort and results seem special and more difficult. Turns out I’m just a lucky man who worked hard and had a few breaks like getting PELL grants for the junior college and then a scholarship for the last two years of undergraduate work. Lots of lucky breaks, some good decisions, and a smart, nice, helpful wife.
Hard work, luck, no serious trauma beyond my parents divorce, no major illness, and some support. Unfortunately, there are folks with quite a hill to climb who started out at the base of the mountain. I started halfway up, and I can admit it now. In my twenties, I really thought I had started at the bottom. My mom helped me get that car and gave me $1000 a year in undergraduate. I also had a house to come back to and could get a loan from my dad if I was in dire straights. A lot of my patients at community mental health have none of this luck. Many have substance abusing parents, a chronic and persistent mental health problem, no vehicle, and a history of abuse or trauma.
They are not going to be reading this blog.
Yes, let us all remember those who carried us partway up the mountain through sacrificing their own blood, sweat, tears, time, and money.
And pity (and help? I of course feel the government has some role 🙂 ) those who have no one who will carry them partway up, in fact many grabbing their heels and pulling them back down it. Race, gender, religion it might be ‘society’ doing so, but it can also/ in addition be toxic family members or teachers or local powermongers.
I love watching social justice warriors and progressives try to out-liberal each other in the comments section, mostly missing the point of the article.
I’m also grateful that I live in one of the freest, most blessed nations in history, so that my personal success and outcomes require the least amount of luck of anywhere else on the planet.
What’s wrong with wanting justice for all?
Any data to back up the claim that success required the least amount of luck anywhere else in the planet?
A history book 😉
Actually, it is much easier to achieve personal success in the Nordic European countries, where university studies are free, negating a big roadblock present in the US. This is why social mobility is much higher there.
I’m very much a capitalist, but a reasonably strong argument for some form of socialized education and health care is pretty easy to make.
The dilemma over a high-cost of living area cannot be overestimated. I moved to a state with a lower cost of living, and it’s just been miserable. While I’ve made friends and am trying to make the best of it, it crushes me that I can only see my extended family once a decade, if that, and my parents just a few times a year. There is just no good answer if your family lives in a high cost of living area- you can either be poor and live near them, or be sad and rich and live far away. It’s terrible.
It’s an interesting dilemma for sure. For me, family all lived in the same high COLA so there was no real choice. Sure, I could be some higher paycheck mercenary and go live wherever the pay was greatest but it would go against my other priorities that cannot be monetized. My father won’t be around forever and I want to remain a presence in his life. Similarly, I want to be around for my siblings and their children. Fine, I won’t have as much of a retirement nest egg and I won’t retire as early, but I don’t honestly see any way around that and am comfortable with that choice.
That makes me sad to read that. Are the only options really to be either poor or sad? Seems a false dichotomy. Why not make some other choices in your life that will allow you to be both happy and comfortable?
I think the choice isn’t really “poor” or sad. But more “normal” or sad. As someone who lives in a HCOL area many doctors drive Hondas, live in smaller houses, send their kids to public school, and lead relatively average lives. I think in the end money is a tool to get happiness but not the end all of itself.
I get a little green seeing that I could get a house twice the size of mine living outside of the east coast and that perhaps I could up my automobile game some but in the end, to me, family is what’s important.
[Comment removed as it came way out of left field, had zero to do with anything related to this article at all, and mentioned information that seemed to be a violation of privacy. If those mentioned want it replaced, let me know. Maybe it’s an inside joke or something, but it’s the first time in 7 years I’ve seen a comment like that on the site.-ed]
WRT Mr. Beshore’s thinking,
Agree. the government-dependent have access to Obama phones and free data plans.
Disagree. access to information is not access to capital .
Disagree. 100 years ago, King George, in 1917, diminished his status and inheritance via a poor marriage choice.
Serious history buff there. 100 years exactly. Impressive.
1. Not an inside joke.
2. Don’t want it replaced
3. Thank you for deleting
4. Jim see your email.
For the sake of provoking, I’ll mention my disagreement on the anachronistic conventional wisdom of privileges. In 2017 privileges include black/brown skin from mid- and upper SES, two-parent families, use of non-ghetto standard English, religious community, beauty, brains, athleticism, birth into growing local economy, female gender, and health.
I base this on studies by Angus Deaton, Raj Chetty, and Charles Murray. Also, CDC data on suicides.
Imagine the odds against the white, rural, obese, ugly, dumb male born to a nonreligious single mom. I see suicide in his future,
Ummm…you are really misinterpreting Angus Deaton and Raj Chetty’s work. I suggest you review it.
and What Specifically are you challenging?
Choices that led to more wealth:
Switched major from psychology/philosophy to Finance.
Graduated from college and put down roots in a MCOL growing city in a state with no income tax.
Picked a career in financial services and stuck with my first company through 2 promotions instead of jumping around.
Started maxing out a Roth IRA with first job at 18 and have done so ever since.
Picked Vanguard and learned about index investing at a young age; avoided whole life insurance.
Married another high earner who also is not a high spender; have avoided divorce (so far)
Haven’t had kids.
Buy used cars, hold them long term
Choices that have slowed or could have derailed wealth building:
Drinking and driving, being arrested for a DUI in college (didn’t do long term financial damage but could have)
Not maintaining many long term friendships, especially with wealthy/connected people in my sorority
Decided not to go to law school (glad I made this choice but may have given me a lower income ceiling)
Bought a fancy new car (once) before realizing the waste
Have embraced lifestyle inflation when it comes to clothes, travel, restaurants (savings rate is high but could be higher)
It’s good they are asking you a question. If you can guide someone to the right decision, that works well. If they make a bad move and live it for awhile, it is hard to convince them to change to something better. Moving to a less expensive area is a very hard decision to make. Best to get the right start. Make good choices and you get good results. Make bad choices and you get bad results.
The house at $1.5 million with income of $380,000. Ratio of 4:1. It’s a free country but you won’t be free with that mortgage payment. Double everything Bankrate tells you. I bought a $825,000 house with $500,000 income (1.6 ratio) and with 20% down paid $7,500 a month mortgage, plus we had two hailstorms (destroyed roof) with a 2% deductible ($16,000 a pop), plus painting and upkeep. Sold it and bought a $400,000 home (0.8 ratio), much happier. $2,500 a month mortgage and almost paid off. I actually have a chance of retiring soon (or being financially independent).
[Ad hominem attack removed.]
What % of doctors can retire comfortably at full retirement age? Guess its not as high as one might expect
Dentists-3%
Ken that’s hard to believe that only 3% of dentists retire comfortably at full retirement age. They are certainly doing something wrong with their income.
You would be surprised how bad dentists are with their money. Even after this robust decade I only know a handful of dentists over 65 who have retired. The others will work until they die, of which 5 I know did this summer…
That makes me sad. But I’m not going to lie, it doesn’t surprise ME any more.