[Editor's Note: If you’re looking for an easy side gig that could pay you thousands of dollars per year, let us introduce you to the world of paid surveys. By taking on a side gig like this, you can make extra money at your own convenience, start a solo 401(k), and use your medical knowledge to impact new products. WCI has seven recommendations for survey companies that want to work with you, so sign up today and start making extra cash in your downtime!]
By Dr. Jim Dahle, WCI Founder
About six years ago, we had a hemorrhage. It was bad. It was a financial hemorrhage. There was a lot of fun involved and no serious damage, but we did learn some lessons.
Long-time readers will recall the Loosening the Purse Strings series from 2015. It demonstrated a very deliberate thought process where we spent on some things that we thought would bring us additional happiness. The hemorrhage I'm reminiscing about today was quite a bit more haphazard and chaotic. In fact, it took us a while to figure out what happened.
The Setup
The events that set this hemorrhage into motion are easily recalled. After having worked very hard as an emergency medicine attending for a decade and on The White Coat Investor for more than half that time, I decided it was time to cut back a bit at work. I gave about a year's notice to my partners in hopes of cutting back about three shifts a month starting in April 2017. Then, we lost a doc, and my shift count actually went up. April became May, then June, then July, and finally in August, I cut back from 16 shifts a month to 12.
In preparation for this event, I started scheduling trips. There were trips with the whole family, adventure trips with the guys, a trip with the Boy Scouts, and even a trip with just my wife. By the time the end of July rolled around, I had nine trips scheduled in a three-month span. Meanwhile, Katie had scheduled some long-planned home improvements. The older Sequoia needed some work. We started getting really busy, so we ate out. A lot. Many of these trips required some expensive, specialized gear to take them—a shotgun, backpacks, canyoneering gear. You name it. That didn't include the airfare, the hotels, the rental cars, the restaurants, the gasoline, the entrance fees, the tour guides, and on and on.
Some people might think I'm a little bit miserly. Let me assure you, I have no trouble finding stuff on which to spend money. And when I'm working less, I have more time to travel, more time to adventure, and more time to spend. In fact, we got so busy that we couldn't even find time for our monthly budget meeting. We put that off for the entire three months. When we finally got around to adding up the damage, it was pretty impressive. Our typical “variable” spending category was about $5,000 per month. For each of those three months, we spent about twice that, and that doesn't include the $6,000 we had in our home improvement account and the $2,000 we had in our vacation account, which we also blew right through.
The good news is that we could afford it. Thanks to having no payments aside from a very affordable mortgage, having already maxed out our retirement accounts and 529s (at least up to the tax deduction limit) for the year, having a nice clinical income (even with fewer shifts), and having the highly variable but growing WCI income, we still spent much less than we made over this time period. But I can understand now how people with less income or less space between their income and their fixed expenses can get into financial trouble in a hurry.
At any rate, now that confessional time is over, let's get into the lessons learned section of this post.
Experiences Over Stuff
The happiness literature is very clear that the best way to spend money, at least if your goal is to increase your happiness, is to spend it on experiences with people you care about rather than on stuff to impress people you don't care about. I guess the home improvements don't fall into this category, but they were things we'd been planning for some time (and had obviously budgeted for as a priority). But all of the other purchases were for things we'd be using on these trips with people we care about—or the actual expenses of those trips.
More information here:
Spend Your Money on Experiences . . . and Some Things
What to Do If You’re Not on the Same Financial Page as Your Spouse
Budget/Track Expenses Regularly
One of the best reasons to have a budget meeting once a month is so you can put the brakes on quickly if your wheels come off the track. If you're too busy to have the meeting, chances are you're hemorrhaging money.
Creating memories or hemorrhaging cash? You decide at Moraine Lake, Banff
It's OK Sometimes
I've written before about how budgeting is for rookies. If you have set up your life such that your earning power and your saving muscles are sufficiently strong, then a splurge—even a huge one every now and then—isn't going to sink your ship. We keep our fixed expenses quite low, and we have significant income. That provides for a lot of variable spending power, and sometimes it is good to use it.
More information here:
Getting Busy Is Expensive
If you're trying to control your spending, getting busy is usually a bad thing. When you are busy, you have less time to prepare your own meals, plan out the cheapest way to do something, ride a bike instead of driving, do your own repairs, etc. If you're busy because you're trading your time for money, that's one thing. If you're busy because you're planning five vacations at once while catching up from your last one, that's completely different.
Beware the Sheer Number of Transactions
As I reviewed our spending, one of the more impressive things was the sheer number of transactions. Since 75% of our spending was done with a credit card and most of the rest was via ACH transfers out of the checking account, it is easy to count the number of transactions on the spreadsheet for the month. I can remember when there were only maybe 15 on there. In August 2017, there were 119. That's four a day! Even if every transaction is only $50 (gas, restaurant), that adds up in a hurry.
The Out of Control Feeling Is Unpleasant
The worst part about the whole experience was the feeling of being out of control. I think we both knew we were hemorrhaging money, but we weren't really sure how much. We tried to evaluate each decision for potential increased happiness as we went along, but without an overall idea of where we stood, it was a bit uncomfortable. I imagine some people live their entire lives that way, never really knowing where their money is coming from or going to, but I don't like it much.
More information here:
Less Work = More Spending
One thing I learned about myself is that if I'm not working, I'm probably spending. I like to see new places and do new stuff. And when I'm out doing stuff, I like having nice gear to go with it. This is really a concern when it comes to planning a retirement (or even just a partial retirement). I wondered then what would happen if I dropped four more shifts. Would I spend even more? At a certain point, the increasing spending line will cross over the decreasing income line, and I'll be in trouble.
Beware What You Become Used To
An even more significant issue is one of hedonic adaptation. If our expenses double, so does our nest egg requirement for retirement. If you continually increase your spending at too high of a rate, you may NEVER reach financial independence.
These were just some thoughts I had after doing our budget meeting following the hemorrhage. While it was a little disconcerting to get so out of control, we did have a ton of fun on all those trips, and at that same budget meeting, we realized that our mortgage payoff fund was equal to our mortgage. We were still making progress toward our financial goals, so no harm done. But it did feel like a warning shot across the bow.
What do you think? Have you had a spending hemorrhage? How come? How did you deal with it? What have you done to avoid it in the future? Comment below!
[Founders Note: This updated post was originally published in 2017. As this post was selected to be run again in 2023, I was asked to look back at it and give a “seven years later perspective.” We're financially independent now and still working and accumulating wealth. Clearly, this particular “hemorrhage” really didn't cause us any long-term financial issues. In fact, that list of trips sounds an awful lot like what our life looks like now on a regular basis. I did eventually drop more shifts, and our spending did eventually increase beyond what my clinical work was paying me. Luckily our savings/investment income/WCI income more than fills the gap. I do think the warning about hedonic adaptation is very applicable, though. At this point, it would really feel like a sacrifice to dial our lifestyle and spending back to our 2016 levels. Especially with inflation in the last couple of years.]
Jim,
The initial hemmorhage for new gear is big, but once acquired the spend rare drops. Four years into retirement and going on 10-15 trips a year I find I spend little once out on the trips (granted they are usually on a river or wilderness off the grid and away from Amazon). Getting geared up was pricy, now it’s just food, transportation and gear upgrades as you damage or wear it out
Thanks for stopping by Tim. I agree with you when you only have two or three hobbies. The problem is I keep picking up new ones! For example, if I started running rivers, I would basically have to start all over acquiring gear! But if I’d just stick to climbing, I’m pretty set. A new rope and pair of shoes every season just doesn’t cost much.
“If I started running rivers.” How prophetic.
Where is that quote in the article? I went looking for it but didn’t find it.
Jim,
Have you given consideration to purchasing a motor home?
No. I don’t want to store, maintain, or use a motor home. That would qualify as a money hemorrhage though.
Wow. I am planning to work as long as I am able, and hope that when I cannot work anymore I also will be unable to waste my money on a lot of such stuff. I am pretty sure my last business trip will be the last time I get on an airplane. Eating out, buying gear, travelling, these are not the things that I would have any interest in doing now, let alone when I am old and too feeble to work. I would enjoy having more time to sit quietly and read, perhaps while listening to good music. But the music reproduction equipment is cheap, and paid for. Books are either cheap, used or free from the library.
Let’s see: making reservations, packing, planning a trip, hustling to the airport to wait forever at security, cramming onto a plane for hours, picking up a car or paying someone to drive me for the next step in this ill-fated trip, checking in, unpacking and finding food. A huge amount of money spent and nothing “fun” about it.
An alternative : Some of my happiest times on vacation involve a massive 2 mile trip to my local library where I snag a good spot near a window and spend the time reading some interesting book picked from the shelves.
Then I go home.
Costs me 4 miles worth of gas.
Sounds like this past fifteen months of semi-retirement for us. Many trips, both family and just my wife and I with restaurants, renovations and a few unexpected expenses (new heat pump).
Just recently I added up the new front door and porch, new garage door and opener, the heat pump, and the most recent addition of three new stone countertops and three new sinks.
I can say it’s equal to twice my salary as a resident from 1990-91. I can relate to many of the points in the post and in the comments.
Luckily, I can do a few more weekends to reduce the hemorrhage and the vacations were worth it!
I can definitely identify. I actually used the same hemorrhaging term just yesterday while chatting with a friend about it while out hiking and planning our next adventure. Less work does equal more spending for us too. This year was a new mountain bike, a fat bike, new nordic racing skis, and roller skis. Protective equipment for all of those activities and a hot tub for recovery. I find now that I’m older, that I have money, but I heal and ride slower. So, carbon fiber and D30 full plate mail body armor help me to keep up with my younger friends. Combining the experiences, relationships, physical activity, skill improvement, and spending time in nature and a flow state is really a synergistic use of time/money for happiness/satisfaction.
-LD
It’s amazing to read in 2023 and think $50 for a restaurant. For a family of 4 it’s hard now to spend less than $100 on a restaurant. $50 in gas seems right, but that’s for a car not a truck.
Boy you’re right about that huh. Can’t eat for $5-7 at a fast food place any more. It’s $10-15.
I enjoy most of these evergreen articles. Thanks for re-posting!
Our pleasure. Maybe not you, but most of our readers haven’t seen most of them.