By Dr. Charles Patterson, WCI Columnist

Doctors generally suck with money. Doctors are generally good at doctoring. It would seem that if you can become proficient at the latter, the former should come intuitively. Medicine is complex, tedious work that requires its practitioners to become masters of deductive reasoning and wielders of delicate procedural skills. The basic concepts of financial literacy are straightforward and are, for anyone interested, readily accessible. We might not be too far off in saying that, primarily, physicians struggle with money because of financial illiteracy or poor decision-making.

In fairness, there are systemic hurdles that push physicians, as a group, into poor financial report cards. We start out with a boatload of debt. Medical schools haven’t typically included finance topics in their curriculums. Then, once attending life has been reached, the pressures of family and lifestyle (but it's so good, though…) kick in. Even still, physician incomes tend to be higher, steadier, and with a longevity that is under growing threat but still healthy enough to reach financial independence. I contend that there are strong attributes of medical culture that contribute to the problem.

Unlike in medicine, other professions are beholden to nearly unbreakable precepts. In law, it is literally the law. Engineers cannot ignore math in the creation of bridges and buildings, lest they invite catastrophe. Aviation, however, may be the most applicable comparison. Pilots and air traffic controllers face thousands of questions per day, each of which affects (to some degree) the safety of the public. Why, then, does commercial aviation have a better safety record than medicine, and what can it teach us about physician finance? The answer starts with boldface.

 

What Is Boldface?

When learning to fly an aircraft, pilots must familiarize themselves with checklists that guide them through tasks and procedures. Some items are emboldened and underlined, denoting the importance of the step. These are called boldface items, and they are said to carry their emphasis from the incidents, injuries, and deaths that prompted their creation. Instructors will often say that boldface is written in blood and that burning it into your memory will save your life. Culturally, aviation has embraced the checklist and associated boldface. As a result of working in this culture, pilots are apt to experience a type of transference into other foundational aspects of their lives, like finance.

The ICU in which I work is not an airport, and each patient is their own unique flavor of physiology. Sometimes, X amount of sedative is satisfactory, but it may not be so for the patient next door. We have algorithms, but rarely are two arrests exactly the same. We have guidelines but little by way of boldface. We are expected to practice and hone a skill set that facilitates the use of our best judgment. Consequently, the guardrails are more like traffic cones. Physicians are used to making decisions rooted in knowledge and experience and supported by literature. That is part of our culture, and that is fine. But when this cultural idiosyncrasy transfers to activities that neither require nor respond well to a “doctor knows best” approach, failure becomes an option. It's why doctors make bad pilots and suck with money (except for this guy).

It's hard not to find success in financial goals with little other than financial literacy and good habits of saving and investing. Sure, it's easier to say than to do, but we would do well to remember that certain missteps can (and often do) end in calamity. We should be keen to remember both the critical procedures for success and those of failure. We need finance boldface.

More information here:

Phase of Life Spending

The Semantics of Finance and How to Tune Out All the Noise

 

6 Finance Lessons, Written in Blood

Guidelines and rules of thumb may be appropriate for a good proportion of situations, but universally applicable idioms are rarer. There may be more than six, but I will propose the following and allow the community to share those that were missed.

 

#1 Save a Minimum of 20% of Your Income

This is the first and simplest mandate. While one can argue for greater than this (especially with a professional’s compensation), 20% is a great place to start saving while also having ample left to feel wealthy in the process. For further clarification, I would posit that 20% is explicitly in saving for financial independence. Savings for education, health savings, upcoming large expenditures, and the like are additional.

 

#2 Live Below Your Means

Just as you wouldn’t endeavor on a long journey with a half tank of gas, the sustainability of your financial life is dependent on your ability to stick to a budget. For the physicians among us, this starts in residency and it is of increasing importance in the early years of attendinghood.

 

#3 Internalize Your Flightplan

This is your written financial plan. It should be thorough enough to describe your goals and the path you will take to achieve them, with contingency planning built into it.

Nobody in their right mind would board an aircraft with only the best intentions of getting to their destination. You are going to arrive safely and economically, or you are not going. These are the only two options. The pilot whose plan is to take off and “head in the right direction for awhile” has a contingency plan that looks a whole lot like fiery death. While there are, admittedly, some accidentally wealthy people, they are the exception. The majority became so on purpose, planning for their future by directing each earned dollar to a purpose and by weathering the turbulence of the markets with a careful hand.

 

#4 Embrace Redundancy and Contingency Planning

Every once in a while, you will hear of a commercial aircraft destined for a faraway place that only makes it halfway. The mere fact that the plane is safely returned to terra firma is a testament to robust planning. These are incredibly rare events, so infrequent that as a passenger you’d never even consider it when boarding your flight to London or Dubai or Auckland (one of my favorite cities, by the by). But the captain does. And in your financial life, you are not a passenger; you are the captain.

 

#5 Pay What Is Owed

The manipulation of leverage should be left to minds more deft than my own, outside of the more traditionally acceptable causes for debt such as a home mortgage or college education (engineering degree, four years only please). While the math can sometimes work in favor of borrowers, take note that the lender’s office chairs tend to be leather, not mom’s old corduroy.

The same precept holds for taxes. Physicians and their practices should anticipate audits and render unto Caesar what is Caesar’s. For all of its dysfunction, the IRS can create a months-long headache in a heartbeat. Keeping your nose clean and your liability sheet light is best for your REM cycle and your portfolio.

 

#6 Trust No One with Your Money

This is a tough one but a truism. There can be many involved players in your financial life: CPAs, attorneys, advisors, issuers, and brokers (not to mention your loved one and/or significant other). They may be competent. They may even be smarter than you are. But none of them should care more about your financial health than you do. Only you can be the CEO of your portfolio, and the liability involved in delegating the tasks of its management is profound. Verifying the completion of critical tasks, maintaining situational awareness of asset allocation, and tracking performance can be assisted by competent professionals—but never with abdication of responsibility.

Trust your written investment plan, and let all others provide verifiable data to promote it.

More information here:

The Ethics of Investing

The Moderate-Income Physician

 

Write Your Own Boldface, and Share It

I’ve had innumerable money conversations with folks who have a story to tell, lessons that they learned along their way that taught them to “never ____” or “always____.” These are their boldface items, and evidently, they were important in helping the investor find success. Because there are exceptions to nearly every rule, universal axioms are difficult to describe.

But you may have your own, and they are worth defining and sharing.

What are some of your finance boldfaces? How important is this concept to a successful investor?

 

The views expressed in this article are those of the author and do not reflect any official position of the Department of Defense or the US government. These writings are not authorized, approved, or endorsed by any of the above entities.