[Live Free MD is a blogger and a WCI forum participant. He made a forum post about the concept of gradual financial independence recently and I asked him to expand it into a guest post. We have no financial relationship.]
Most participants in the WCI community have some idea what their “Target Number” is for financial independence. This number is probably very large and will not be obtained for many years. A recent WCI forum discussion showed that this financial independence number ranges from 2-10 million for most physicians and other relatively high income professionals. One usually arrives at this number by projecting their yearly expenses during “retirement” and then multiplying it by 25 (for a classic 4% withdrawal rate) or 33 (for a more conservative 3% withdrawal rate).
Financial Independence is a Process
Although it is important to have a goal number in mind so that you have some idea of what you are shooting for, in reality, financial independence is not a number. You do not work full blast for 15 years, reach your number, pop the champagne cork, and then collapse on the couch without working a single additional day in your life. Rather, the path to financial independence occurs gradually over time; it is a process, not a destination. You could think of financial independence being a continuum, ranging from 0% financially independent (net worth several hundred thousand dollars negative owing to student loans) to 100% financially independent (your ultimate goal number).
In the process of obtaining financial independence, you will be able to make positive changes in your life that reflect a greater degree of financial comfort. These changes don’t happen all at once. Rather, you can start to incorporate these positive changes as your net worth gradually increases. This breaks down the large FI number into several small goals with rewards along the way. It is much easier to stay motivated if you are accomplishing the smaller more manageable goals on a frequent basis, rather than simply looking way out into the future at that huge FI number.
Live Free MD and his spouse at Banff NP on a trip between SLC and AK (3 of my favorite places in the world incidentally)
The journey to financial independence and the goals along the way will look different for each person, but I wanted to give you an idea of what it looks like for myself. I have broken my path to financial independence down into several net worth goals, and each net worth goal is accompanied with a reward in how I choose to practice medicine and some of the bucket list items that I want to accomplish in life.
The path starts out with me over $400,000 in debt immediately after residency. At that point, I was financially DEpendent. This was not the time to expand my lifestyle or give myself some freedom; this was the time to buckle down, live like a resident, and charge. During this time, I worked hard, took call, didn’t take any vacations, and gave a half dozen presentations throughout the community to expand my practice. I recently paid off all my loans, 2.5 years after residency. In case you’re wondering, this is how I did it. Going forward, here are my net worth goals and the rewards that I plan for with each goal.
My Financial Independence Timeline
Net worth of $0 (worthless)
I recently rewarded myself with a change in practice that involves no call and no weekends. The freedom begins. I still plan to work hard (some of you in heavy call specialties may laugh at this), live like a resident and not take any more than 1 week of vacation per year. I also recently started a blog to connect with the FI community and expand my skills beyond medicine.
Net worth of $500K
I plan to increase my vacation time to 2 weeks per year, and my wife and I will take one nice vacation per year. We still plan to keep to a goal budget of 50-60K per year in total spending.
Net worth of $1 Million
I plan to increase my vacation time to 4-6 weeks per year, and attend some specific conferences to expand my skills (both business and technical skills,) to start molding my current practice into my “ideal” medical practice. My wife and I will also save up for a down payment on a home (we are currently renting).
Net worth $2 Million
At a 3% withdrawal rate, we should be able to support our modest $60k/year lifestyle without additional income. Time to bust out the bucket list (you have one of those, right?). For me, my bucket list involves taking a season off to race cyclocross nationally, climb Denali, invest in real estate, develop an iPhone app, learn how to play the piano, learn how to kite surf, teach a high school course on personal finance, and write a book. It’s all possible when you have some financial freedom.
Net worth $3 Million
I hope to have my “ideal” medical practice set up, which will generally involve seeing the types of patients I find most rewarding and dropping burdensome administrative tasks, which may mean that this is a cash-based practice.
Net worth $5 Million
The ultimate FI goal, but remember, this is a process. We may never reach this number. Or, if we do, this may give us the freedom to further expand our lifestyle. At a 3% withdrawal rate, 5 million should support 150K per year in spending. Hopefully, I still enjoy medicine and will continue to practice, but at this point it will be completely on my own terms. I would only plan to work in medicine for around 20 hours per week at this point, with the rest of my time devoted to outside pursuits, including family, continuing my athletic endeavors, and lecturing around the country on topics I feel strongly about, including preventive medicine, exercise, obesity management, healthcare reform, and financial acumen.
Toward a Life of Freedom
This timeline is certainly a work in progress, but I hope it demonstrates that financial independence is not a number; it is a journey. Enjoy the adventure and make sure to reward yourself along the way. You can gradually mold the life you have into the life you want, in pursuit of the ultimate goal which is a life of freedom, security, purpose, contentment, and contribution.
What do you think? What does your financial independence timeline look like? What freedoms and activities will you gradually incorporate into your life as you get closer to financial independence? Comment Below!
Financial freedom is a continuum. Like you and WCI both have said, if you like being a doctor and can mold the practice you want out of it, then why not practice into your 60s or later.
Also no need to deprive yourself of things that make you happy (like time with family) working 80 hours a week for the hope you will be healthy enough to hang out with your kids when you retire. Time lost is time lost and it is easy to loose time at work.
Congrats on setting up the blog and working towards the milestones. I look forward to seeing what the next 5 years bring on your path.
For myself, I’m not sure I would work part-time, but the concept of an ideal medical practice that you and Dr. Wible write about is something that all doctors should strive for. I think most doctors do desire an ideal medical practice where they work fewer hours and spend less time on administrative paperwork, but financial considerations and lifestyle inflation make this impossible.
Great article, LFMD. I enjoy your blog and look forward to reading more of your writing in the future.
“I think most doctors do desire an ideal medical practice where they work fewer hours and spend less time on administrative paperwork, but financial considerations and lifestyle inflation make this impossible.”
Exactly. The more you can resist lifestyle inflation, the more options you will have with regard to your medical practice.
I really hope that you fulfill your goals!
Best of luck! 🙂
Thank you! Maybe I’ll do a follow-up post every year to show my progress towards these goals. Alternatively, maybe the goals will change over time…
Love the idea of FI as a continuum, with each milestone bringing greater freedom and flexibility. That’s my perspective on it as well, since I currently plan to be part of the FI crowd but not necessarily the RE one. Trying to hit big financial goals as a family of five living on my income requires focus and dedication. Each big milestone I hit will give me the option to increase flexibility, both financially and in life. Great post!
Good post LMFD. I think it makes sense to break up the journey, especially given that those net worth levels each bring their own options. Saving for $5M might take a long time, but there’s obviously “value” in getting to $500K, $1M, etc. You might even get a boat out of it like some of the doctors around here!
No boat is in the plan. That costs too much freedom. But a surfing trip to Costa Rica? Definitely.
Love the idea of dividing the journey into smaller tasks. Great post LFMD!
Really outstanding piece, well-conceived and well-written. I think that like many things in life and medicine, changes over time have made this sort of pathway possible. In my subspecialty, however, twenty years ago and today, if you do not want to work nights or weekends, you are virtually unemployable. Even the notion of being part time early in your career would limit your job opportunities.
This is not something that I thought about then, but I have been trying to execute a suitable part time arrangement with my group for about three years, with it finally coming to fruition later this year only when I literally gave notice last year.
One concern I have with your plan, along many newly minted docs and younger FIRE types, is not making financial allowances for growing the family. I could probably “live like a resident” today, but I might find myself living alone like a resident as I was when I was actually an unmarried resident!
Well done! I see great things for you in your future.
Thank you Vagabond. I’m glad you were finally able to arrive at a part-time arrangement.
You bring up several good points:
1. Choose your specialty carefully if you are interested in a controllable lifestyle. Some specialties do not provide the option for no call and no nights or weekends.
2. It is important to make realistic expense adjustments over time, especially if you have plans to start a family. A couple without kids might be able to live on around 60K per year, but each kid might add 20K/year to the budget, especially if you need to move into a larger house.
Thanks so much for reading.
Please don’t take the numbers literally. Starting your medical practice with a plan for only one week of vacation per year is a path to burnout. I like the concept of a continual process. Get plenty of time off from the start like I advocate in my book “The Doctors Guide to Starting Your Practice Right. ” Then you could increase the cost of your vacations over time as your net worth grows.
Never make plans that sound like “someday I will live a good life, after I do X” Live a good life now. Just don’t live it on borrowed money. You don’t know how many tomorrows you have so enjoy your life now.
Hi Cory. I agree that it is important to achieve a balance between hard work and relaxation. Burnout will potentially derail your financial goals faster than anything else (except maybe divorce?).
I just started a new practice last year, so I am trying to build my practice, give lectures, hustle, and be available. With weekends off and no call, I can recharge, so 1-2 weeks of vacation per year isn’t actually that dismal. Alaskan weekends are one big vacation anyway. : )
With no weekends and no call, I wouldn’t be too concerned about burnout.
I essentially did what you are talking about. I hit the 5 mill number and quit ob. I am still working but no call and no weekends. It is possible even in call heavy specialities if you plan for it.
Mold your ideal life with less dependency on the numbers. I think one week vacation is too little even in the beginning. Move some of those 2M goals like piano and kite surfing to now. Don’t overdo your ability to delay gratification.
I tend to be a hard-charging person. But point well taken. The timeline may need some modification.
Perhaps your “reward” points could be at specific time periods instead of numbers, which would fit better with your post’s title? With your work ethic the numbers will take care of themselves. Be mindful of how much time you are trading for your current number goals. Best wishes!
Very nice post. I often consider a gradual transition like this, but then the type A worrier in me whispers “Hey dummy, how long do you think this medicine gravy train will be around for? How long do you think community hospitals and private practices can hold on for in this environment? You better hustle and work your butt off now or you might not have the same chance in a few years.” And I comply.
Also, currently with four young kids and a spouse that also works (with less vacation time), more time off for me is not as valuable now as it will be in the future (ie earlier retirement or when kids are older and in college). Not as easy to use the extra time off to go on vacations or exotic CME locations, but rather end up sitting at home with a large “to do list” that doesn’t get done.
I think I’ll stick with the goal of 100% hustle for as long as I can (for now). But I love reading different perspectives, particularly from people who are actually newly retired.
Never waste vacation time on a to do list. Your kids will be grown up faster than you think, spend some time with them now. Think about using a vacation to do things with the kids in town that you normally wouldn’t do (if your wife has to work). Don’t let good pay be an excuse to be a workaholic.
Hi Cory. My post maybe wasn’t that clear. I actually get 10 weeks off per year as a fulltime partner and usually spend at least three of them on vacation with the family, and pretty much all of my other free time with my kids, coaching, daytrips, etc…
Its just that the other seven weeks off, when my wife is working, and the kids can’t be pulled out of school any more, that I get chores done or work extra locums. My point was, cutting back further now and having more non-summer time off doesn’t help me a ton if my kids are in school and my wife is working. But everyone is different.
Enjoyed reading your post. You may want to consider doing some stuff now that you really want to do (like traveling if you like to travel). My dermatologist died at age 41 from a brain malignancy. I don’t know what kind of lifestyle he had, but if that were me and all I did was work my ass off and only take 2 weeks off per year, I would have died an extremely angry and bitter person. You never know how much time is left.
I second that emotion. Did you catch my recent post “I See Dead People”?
http://www.physicianonfire.com/see-dead-people/
I’m 41 now. I stopped doing locums on weeks off a few years ago; now I’m looking to slow down to part-time this fall. The transition begins…
Yes- good read.
I’m 36 now, and if I died tomorrow I would not have any regrets about having worked too much instead of enjoying my time on earth. Despite taking a ton of vacation each year, I was still able to reach my first significant financial independence milestone recently of having all my basic living expenses covered by a 4% withdrawal rate. Certainly not ready to retire anytime too soon, but I’ve definitely started narrowing my scope of practice and cutting out surgeries that I don’t enjoy doing anymore.
Agreed. Taking only one week of vacation seems extreme. Delayed gratification means not buying a boat or an expensive car until you’re well on your journey to FI, it doesn’t mean eliminating vacations or hobbies.
You don’t need a $2 million net worth to learn to play piano or kite surf
Sometimes extreme goals require extreme sacrifices. But yes, I understand your point. Don’t get so singularly focused that you forget to be a happy, healthy, compassionate, well-rounded person. I biked out to the Knik Glacier last weekend and skied across the Chugach front range on the “Arctic to Indian Traverse” the weekend before that. Don’t worry, there are plenty of hobbies and trips being pursued over here. : )
Great points all around. My wife became a stay at home mom last year. Honestly progress towards Financial Independence enabled that, with savings rate adding the icing to the cake. Without a decent amount saved I’d feel too nervous of the risks for us to have made the change. But at sometimes the risk is more about needing to work a few more years, not pay the bills for six months while someone job hunts…
Great to see you over here, LFMD!
I love the concept. The execution will probably vary quite a bit from the outline, but that doesn’t take away from the idea that it’s smart to shift gears as you make progress towards financial and career goals.
I’ve kept the pedal to the metal for the most part, making hay while I see the sun shining, but I’m finally allowing myself to do less now that I’ve surpassed my FI number.
One last “plug” — The Happy Philosopher (a half-time radiologist) wrote up an excellent piece discussing pros and cons of part-time work. Enjoy: http://thehappyphilosopher.com/a-physicians-guide-to-working-part-time/
Cheers!
-PoF
Hi PoF! I definitely agree that the timeline will change. I wrote and submitted this post nearly 2 months ago. As I re-read the post 2 months later, I am already thinking of modifications to the timeline. Especially with all the heat I’m getting about 1 week of vacation! ; )
Thank you for the link to The Happy Philosopher’s article. I already sent it over to my friend, a 3rd year medical student, who is planning a career in radiology and very interested in part time work. We read the article in the car on the way to a day of backcountry skiing at Turnagain Pass. The snow wasn’t great, but we had plenty to talk about!
I think it is great to have milestones and goals. The choices of amounts and activities are highly personal. My approach has been more of a “enjoy the journey” approach rather than to reach a specific destination and that has worked well for me. I also prefer to think about cash flow rather than assets or age as a line but it can end you up in a similar place.
Last comment: I think it is easier (and desirable) to take a lot of vacation/CME time. I don’t think it will reduce your income as much as you think – it may even boost it (due to enthusiasm and career longevity). It is a lot harder than you may think to work part in medicine. I’m hoping this will change in the future.
While attaining FI quickly is a great goal, I’d take a minimum of 3 weeks off per year. It won’t change your timeline significantly and you will be investing in the non-financial side of your life a bit more.
As others have noted, maybe a little better reward system needs to be put in place because we don’t know how much time we have left. But at least, you have mapped it out.
The last few years, we have had some extremely memorable trips and adventures. You can never get back time. Invest it extremely wisely.
cd :O)
I’m definitely sensing a theme here. Loosen up the vacation strings a bit…
Nice post.
One great feeling in your timeline is to hit $0 net worth. It is an amazing feeling to not owe anyone anything or at least have the investments to be able to cover all your liabilities. The next great place to be is realizing that if you cut out your luxuries you have enough cash to live indefinitely without ever working again. The good about that day is you realizing you don’t have to work and put up with BS. You can really begin carving out the things you hate most about your work. After all, now you are working on increasing your luxury since your basic necessities are completely covered. If you get there very early in your career you technically don’t even need to save anymore money. Compound interest will get you to your goal. If a physician can save their 1st million by 40 years old they are set. Without a single extra contribution that physician will have $3.3 million by 65 at 5% real growth. Add in the bear minimum $18k 401k contribution and they will have $4.2 million. Lets not forget the extra $30k for their social security (SS) and another $15k for spousal SS if the spouse made minimal contributions. Plenty of money to live and retire comfortably.
Your plan is sound, but I believe it may be a little too aggressive. Please allow yourself a little extra time off. The last thing you want to do is burn yourself out after just a few short years of practice and not be able to fulfill all your goals.
“If a physician can save their 1st million by 40 years old they are set.”
Yes, that’s definitely the goal. It’s an aggressive timeline and perhaps too aggressive. Maybe I should have put a disclaimer on the bottom of my post: “I reserve the right to modify this timeline at any time, for any reason”.
Great post I’ve been thinking about this myself. At some point I’d like to go to 4 days a week to give me more time to concentrate on my family. And then gradually not need to work at all! Right now I’m at the tail end of student loan payoff but it is exciting ot get to that next step rather than stare down this monumental number which you may never reach.
I enjoyed reading this article and the link to Live Free MD’s blog link about how he paid off 400k in less than 3 years of finishing residency. My story is similar and I also strive for FI.
I live in California and finished residency in 2014. Since then, I paid off 250k of student loan debt, 15k in car debt, maxed out my 401k, and bought and renovated a house. My base salary was 190k with huge bonus potential. I do not have kids to support, but I do support my aging parents.
I increased my net worth by half a million dollars in this time, but I didn’t feel like I sacrificed much.
To explain, when I became an attending, I decided to value:
1) time over money
2) experiences over things
3) health over career
Time over Money – I made a decision that I would only work 70 percent part time out of residency. Some people might consider the trade off of loss income unacceptable, but the time I gained allowed me to become financially saavy. I read just about every personal finance book and blog and ultimately developed my debt repayment and investing strategies. I am currently, reducing my work load to 50 percent part time to focus on building passive income streams to reach FI even faster.
Experiences over things – While I lived like a resident, I did not feel deprived of fulfilling experiences. Because of the extra time I had off, I was able to explore a lot of rewarding but low cost hobbies. This included cooking, baking, swimming, hiking, exercising, reading. In addition, I have a friend who is an avid sailor, and I was able to learn to sail for free. I also learned to build a lot of my own furniture which was both practical and rewarding. I was able to also take 2-3 international vacations per year heavily funded by credit card points. I continued to drive my scion XB and wear the same clothes and shoes.
Health over career – I never sought career prestige (academia or management) because I feel the trade off of time commitment/stress/emotional energy was not worth the toll it would have on both my mental and physical health. While there was some pressure from senior physician administrators to take on leadership positions, I respectfully said no, knowing that the extra time commitment would take away from the time I had to focus on wealth building, meaningful experiences and staying mentally and physically healthy.
As I am reaching more of my financial milestones, I am reducing work to 50 percent time now. This allows me to continue to practice medicine with the safety net of a 401k and health benefits but allowing me even more time to further expand my wealth building/passive income activities while maintaining a health work life balance.
So happy to see the next generation WCI’s like LiveFreeMD and Physician on Fire. A true testament to the value that WCI has added in this world.
Nice post with great details!
Thank you for sharing your story, and congratulations on your success in multiple areas of your life!
Research the tyranny of compounding to see how COSTS REALLY MATTER in investing
You might be shocked how all those fees kill your nest egg
I agree about the oppressive effects of fees. WCI has covered this in detail in many prior posts (https://www.whitecoatinvestor.com/the-impact-of-mutual-fund-fees/). My wife’s 401k has blasphemous fees (Expense Ratio 1.5%) in all investments offered. I have tried sending articles, graphs, and charts to her HR department but this is falling on deaf ears. Some battles cannot be won.
I agree with all the applause above, however, I’d conceptually replace “net worth” with “invested assets”
A home that adds $500,000 to your net worth will not fund vacations nor food. Homes drain money from your wallet, they don’t generate money, until perhaps the day you sell.
As a young investor you will naturally want to include the value of your home. By the time of retirement, you will drop the home value and include only invested assets.
Homes are both investments and consumption items. The “dividends” it kicks out are the rent you’re saving.
In addition, you technically can use that money for vacations, etc…and many did in the lead up to that one thing we had in 2008-9….
I would never drop the value from your net worth even if it isnt 100% as you need a place to stay for sure.
I agree with JZ on this. When you are close to retirement you need to know both your financial net worth and total net worth. When I calculate FI numbers I use my financial net worth to for the 25-33x number (or the 3-4 % swr). You could of course sell your property or reverse mortgage your house. Both numbers are important and easily obtained from personal capital
Everyone’s FIRE number will be different depending on their rate of spending and their passive income streams. Thanks for letting us in on your plan for FIRE domination. 🙂
I’m not a big spender at all, but I feel you schedule is too spartan. Remember that divorce can devastate your portfolio!
They would have said the same thing about my spending the first four years out of residency. How do you like me now? 🙂
Thankfully my wife prefers TIME together, rather than expensive things. I’m lucky to have her!
Definitely some things you can do with the wife that’s free 😉
You have a great story. Very inspiring! I just read with my wife. And now I will read with daughter.
I would also echo what a lot of people are saying.
These numbers and your goals are concrete, however they are also arbitrary in the bigger game of life.
I liked your chart on your website about paying off your loan. If you think about it, the FIRE chart doesn’t move a whole lot for a Physician like you with a high savings rate with 20k more or less, as long as you keep the tax advantaged space fully occupied.
But a week, especially two weeks, spent recharging give perspective in life. It cannot be intellectually explained, it can only be experienced. And once you get used to it, you never go back.
I take 8-10 weeks off each year. The best vacation is when I come back and I have forgotten the passwords at work. It doesn’t matter where we go or what we do. Usually there is no plan.
Taking time off makes work more attractive by itself.
Now that your net worth is on the plus side- set it and forget it for your investments, and these goals will take care of themselves. But the time lost will never come back. Regards.