About three years ago I wrote about what you should do if you get a windfall. I just went back and re-read it. It's a good article. However, it is written mostly from a theoretical point of view. That was the only way I could write about it, since I had never really had a windfall at the time. However, today we're going to get a little more personal.
Lump Sum Windfalls Versus Income Windfalls
There are really two kinds of windfalls out there. The one we usually think of is a big fat lump sum, such as an inheritance or lottery winnings or exercised stock options. However, there is another type of windfall, an income windfall. This is when you get a dramatic increase in income that you did not expect. Most doctors experience a dramatic increase in income once in their life- when they leave training, but that is an increase they've been expecting for years, and is one of the main reasons they went through all that school in the first place. But imagine, if you will, another increase in your income that you did not expect. That's an income windfall.
My Income Windfall
In the last couple of years I've had two income windfalls. You see, when I left the military, my financial plan was to make $225,000 per year for the next 15-20 years, save $60,000 per year, and then become financially independent in my early 50s. It was a good, conservative plan with reasonable assumptions. That was what it was going to take for me to come out ahead financially leaving the military. If I didn't make that much and save that much, I would have been better off (financially anyway) spending 16 more years in the military and getting a military pension with Tricare (free/low cost healthcare for the rest of my life.)
However, it turns out that as a partner in my private, democratic emergency medicine partnership, I make a lot more than $225,000 a year. In fact, the income for the average emergency physician has gone up fairly dramatically in the last 5 years. The 2015 Daniel Sterns survey indicates that the average emergency medicine partner makes $343K, and it turns out we're above average thanks to a well-managed group with good insurance contracts, good documenting/coding/billing habits and a decent payor mix. This year was particularly good to us.
In addition, I have this little business on the side where I type a few random words into the internet, and a bunch of money comes flooding back. I even wrote a book and random strangers just keep buying it. In 2014, that little business was the equivalent of being married to a primary care doctor. In 2015, it was the equivalent of being married to a well-paid specialist. While I work hard for both of these sources of income, and try to provide as much value as possible to my patients, readers, and advertisers for that income, it turns out that both have paid me far more than I ever would have expected five years ago. I have an income windfall.
While a good problem to have, this income windfall leaves me with a dilemma. I started the blog and book under the premise that doctors make plenty of money and if they manage it well, they can be financially free relatively early in life. My wife and I became millionaires seven years out of residency (ages 38 and 35 respectively) purely based off physician income, which averaged $180,000 over those seven years. Neither the book nor the blog really had anything to do with it, other than helping me make smart financial decisions.
But at the present rate of growth (or even at 1/4 the rate of growth) of WCI, I will soon be making more money outside of medicine than inside of medicine. Thus the dilemma. Do I continue to advise readers to stick with medicine, investing 20%+ of their gross earnings into classic investments like stocks, bonds, and real estate? Or should I tell readers to do what I did, embracing their inner entrepreneur to discover a way to become wealthy even faster?
It took me 4 years of college, 4 years of medical school, 3 years of residency, 4 years of paying back Uncle Sam, and 2 years as a pre-partner (17 total) to get an income equivalent to what I now get after screwing around part-time on the internet for 5 years, a large chunk (but nowhere near all) of which is completely passive. I feel a bit like Mr. Money Mustache. He blogs about how he and his family live on $25K a year and you can too, all while he has a website ten times as popular as mine which is almost surely generating hundreds of thousands per year (and if it isn't, it's only because he has chosen not to.) [Update prior to publication: My wife says I shouldn't minimize the amount of time, effort, and passion I pour into the site. “Those aren't just random words,” she says. “I certainly can't do what you're doing there and neither can most other people.”]
I suppose I'll continue to write about both ways to become wealthy. My original plan was working. It was working just fine. We would have still become financially independent in our early fifties. But here I am at 40, financially independent of medicine and now practicing only because I love it. I'm not completely financially independent (i.e. I still need to work at something), but if this nonsense keeps up much longer, I soon will be. That's because, aside from a brief manic splurge of spending in 2014, we're really only spending like we did on 70% of a pre-partner salary (a high five-figure amount after tax.) The rest of this income is going toward other places. And that's what the rest of this post is about.
Taxes, Taxes, Taxes
A higher income is mostly great. But it comes with a very serious downside, and that's an obligation to Uncle Sam. Most types of income are taxed, but perhaps none so high as earned income, on which you pay income taxes at your regular marginal rate, plus payroll taxes (including the PPACA taxes) and then when you spend it, sales taxes, and depending on what you buy, maybe even property taxes every year while you own the property. So my first word of warning to you, dear reader, should you also have an income windfall, is that your tax bill is going to be far higher than you think. As a practicing physician, I have been in the 15% federal bracket and the 0% state bracket (if you're interested in that, I can get you in touch with a recruiter.) I have now also had the experience of not only being in the top bracket, but also of having nearly all of my exemptions and credits and many of my deductions phased out.
If you also pay charitable contributions as a percentage of your income (think “tithe”), you can add that on top of your taxes. It's quite possible that 50-60% of each dollar of that income windfall will not be going into your pocket. Plan accordingly. Despite paying 10% more than I owed last year using estimated quarterly tax statements, I fully expect a massive additional tax bill in April. When you combine that with my 2015 defined benefit plan contribution and my 1st quarter estimated tax payment for 2016 all due at the same time, it will probably feel like I've got the sword of Damocles hanging over my head for the first four months of the year, hoping my income for that year is enough that I don't have to sell investments to pay the tax bill for the previous year. It's tricky to estimate your tax bill with a rapidly rising income.
Giving Back
My overall attitude toward money is one of stewardship. I subscribe to Bogle's “Enough” philosophy rather than Trump's “Never Enough” philosophy. I only need a certain amount to be happy, and beyond that, it doesn't make me any happier. So I like to imagine that I'm merely managing the money (for family, God, society etc) trying to put it toward its best use. So while some of this income goes toward meeting my financial goals (more on that below) a significant portion also goes toward others. For me, that means giving to charities I support, funding the WCI Scholarship, starting college funds for nieces and nephews, and providing jobs for others (the whole “teach a man to fish” philosophy.)
Lake Powell Fun
Splurging
But I'm also human. So I spend some of my income windfall. There's no way I would have been able to purchase that boat with cash this year and meet my other financial goals on just my physician income. WCI paid for the boat. Likewise, if you have an income windfall, it's okay to spend some of it. But unless you are very sure the income will continue, I would encourage you to spend it on one time items rather than obligating yourself to ongoing required expenditures. That is to say, blow it on a vacation, not the down payment on a vacation home.
Accelerating Financial Goals
The main use for this additional income is accelerating our financial goals. All of our financial goals have an endpoint. When I get enough into the kids' college funds, I'm going to quit putting money in there. Sure, I might increase the goal a little just because, but it isn't a bottomless pit. Same with their “20s” funds. This is non-529 money they can spend on anything they like- a wedding, a honeymoon, missionary work, a summer in Europe, a car, more education, a house downpayment etc. I view this as getting part of their inheritance when they can really use it (i.e. your 20s) rather than when hopefully they won't need it (their 60s.) The mortgage payoff fund is exactly the same and is probably the last debt we'll ever have. Even retirement can be funded in advance.
By putting this income windfall toward financial goals, we reach those goals literally years sooner than we had otherwise planned. One great benefit of putting windfall income toward financial goals (rather than spending it) is that if it turns out the income windfall is only temporary, you don't have to cut back your lifestyle after it's gone, and you're still much closer to your goals. Of course, reaching those goals further reduces your need for future income. If I pay off my mortgage, that's $2500 less I need to make every month in the future even if my income gets clobbered. If I have “enough” saved for college, then I no longer have to have sufficient income in the future to save for that. And if you can reach financial independence, you can also drop costly life and disability insurance.
Make Sure You're Living The Life You Want
Perhaps most importantly, it's a good idea to take a look at your life and ask yourself if that is how you would be living if you had all the money in the world. If it isn't, see what changes you can now afford to make. For instance, I kind of hate night shifts. It's mostly different medicine with a different population of people (more psych issues, more drug abuse issues, more undiagnosable abdominal pain etc.) There's probably more liability and certainly the services of the hospital and consultants are less available, increasing risk and decreasing patient satisfaction (and my own.) Nor do I enjoy forcing myself to stay awake at 3 am. And most importantly, I don't like the 1-2 days it takes me to recover afterward. So I'd love to drop them. My group pays a large night shift differential, so there is a very real financial cost to doing this, but since I currently have plenty of income for my needs, wants, and reasonable financial goals, I can afford to drop them and will be doing so soon. If you have an income windfall, take the opportunity to change the aspects of your practice you don't like.
My daughter getting ready to drop into Pleiades Canyon
Likewise, I really like going on adventurous trips and spending time climbing, skiing, and biking in the Wasatch mountains near my home. Long-term blog readers have figured out I pretty much go on vacation for a few days every month. It might just be visiting family or it may be a big vacation to Europe, but more commonly, it's a trip to go boating, climbing, or canyoneering with friends, family, or both. But if I try to wedge in two of these trips in one month, especially if I'm also traveling for WCI, then the month gets really full and my kids start wondering where I'm at, and I like being there to help them grow up as well. So I'm cutting back on my shifts a bit. Unfortunately, that requires 9 months notice to allow the group to hire someone to work “my” shifts. If you have an income windfall, it gives you an opportunity to reset your work/life balance.
Additional income also allows you to jettison chores you don't like. For example, if you hate mowing the lawn you can hire someone else to do it. I hired some house cleaners this year, because we have a new baby and I didn't want to do any more cleaning than I already am. I'm also not a fan of working on our cars or boat. So now I pay someone else to do it. If you have an income windfall, eliminate your onerous chores.
I know this post is lengthy, and that this particular post is more personal than most, and I certainly hope it doesn't come across as “humble-brag.” I happen to believe that blogs are best when they're personal, and these are the financial issues (i.e. first world problems) we're currently wrestling with. I sincerely hope you get to wrestle with these issues at some point in your life as well. Hopefully you found something in this post you can apply to your life, whether it is practical advice for dealing with your own personal income windfall, another reason to feed your inner entrepreneur, or just a little inspiration to learn a bit more about personal finance and investing than you now do.
What do you think? Have you had an income windfall? How did you use it? How did you keep from increasing your lifestyle to consume the additional income? Comment below!
Congrats on the success. It’s an inspiration. We’ve been fortunate as well (though perhaps not to the same magnitude!). Our windfalls come in the form of stock options or yearly bonuses, as we’re W-2 employees. We have a couple strategies for dealing with this.
First, to keep from spending them, we never even see them. This is because we direct deposit all of our income directly into our Vanguard account. Our “income” comes in the form of regularly scheduled transfers /from/ our Vanguard account into our checking account. That way when we get raises, bonuses, or exercise options all of that money automatically goes into after-tax savings. Of course we can (and do) periodically transfer money out for large purchases, but there’s a psychological barrier to doing that.
We have (mostly) reached the financial independence number, but don’t really want to retire. But next year I’m planning to cut back to 80%. Having a three-day weekend every week will give me time to bike more while still getting full benefits. And of course thanks to exorbitant tax rates, a 20% cut in my income is less than 20% cut in my take-home pay. This is somewhat similar to your plan to cut out night shifts. The money doesn’t matter anymore nearly as much as the time does.
My company is projecting a bonus nearly 150% of what I make as a base salary. This is money I never dreamed I would be making as a physician
Planning on putting away 25% of it in a taxable retirement account
Another 25% towards the mortgage
Another 25% in a stock index fund for a rainy day
And then perhaps splurging with that final 25%
If this keeps up for a couple years, I might find myself being financially independent by 40 too!
Jim, I think I can speak for all/majority of WCI readers that we are more than happy for you/your family on your success! You have worked extremely hard to get to where you are and I think it’s great you are enjoying the fruits of your labor (glad you bought the boat!). I really enjoyed the “living the life that you want” section – what is the point of making the money if we are misers to others and ourselves?
Totally agree. Nice job and congratulations on your success.
I agree with your wife on not selling yourself short. Your blog and MMM are literally the ONLY blogs that i read every article on the day they come out (and MMM is rapidly falling off that list as his length between articles has gotten ridiculous). Three articles a week is no easy task! Keep up the good work, and I’m happy to see you getting rewarded for it.
Congratulations on your success, which is the result of not luck, but hard work. I can’t agree more about paying other people to do things you don’t like or have time for [house cleaning, landscaping, snow removal]. By far, IMO, the best use of extra money.
Great post. You’ve really provided tremendous value to your patients (saving their lives and comforting them when they’re scared, in pain, and vulnerable) and readers (giving us financial independence by helping us steer clear of financial predators so we are free of financial slavery) and I don’t think anyone begrudges you your success. Two comments:
1. My salary practicing emergency medicine is a lot closer to your projected $225k than your actual current clinical salary. I could make a lot more, but I have chosen to work at a job with nocturnists, scribes, short shifts, and low overall hours for my own health/sanity. I may not be financially independent until age 50, but I hope to love medicine to an age far past 50 by stewarding my physical and emotional resources now. If it weren’t for your windfall, would you be comfortable living on $225k to limit your hours and nights? You pay a lot less taxes that way…
2. I’ve asked you this before, and I know a lot of this is up to your wife, but I would love to see you unwind some of your life and disability insurance coverage as your risk of financial catastrophe due to loss of life or income goes away and then write a post about it (I understand she has to be comfortable living on what you guys have, and then if she gives you the go-ahead to cut the coverage, you have to write the post).
I pay $300/month for disability for me and a total of $150/month for laddered term life for me and a single 30-year term policy for my stay-at-home spouse (we have young kids and I would have to work less and/or spend a lot more on childcare/household help in the event of her untimely demise). I would love to unwind those over time and maybe cut those numbers in half at age 45 and eliminate them entirely at age 55, or some other strategy of increasing self-insurance. It’s a pretty big budget item for our family.
1. Yes. Especially now that I’m about “done” saving for retirement and college as written here: https://www.whitecoatinvestor.com/the-concept-of-being-done-saving/ Especially with EM, longevity of career matters more than anything else. Far better to make $225K for 30 years than to make $350K for 15 and then burn out. You’ll pay a lot less in taxes that way plus give your money more time to compound. Do everything you can to promote longevity in your career. That said, I find having control over my work environment by owning my job to be very longevity-promoting as well as more lucrative since no one is skimming off my profits like in many employee situations and CMG situations.
2. I’m not quite ready to do that, but the day is coming a lot faster than I expected it to. Of course there will be a post about it. I do wish I’d taken graduated premiums for my disability and used annually renewable term for my life though. It would have reduced expenses significantly.
Would love to see you do a post about annual renewable term life as well. I learn a lot from your blog and have heard a lot about term vs whole life but this was a new concept as a reader for multiple years just based on this comment. Sound like I might want to take out an “insure against catastrophe” term life policy, and then a rather inexpensive additional “nice to have” annual renewable policy if the price is right as I finish residency and “live like a resident.” Thanks for the great work, inspirational and educational blog and your well deserved success.
That might be a fun post. I thought I had done one, but went back and couldn’t find one that really addressed it.
Annual Renewable Term (ART) or Yearly Renewable Term (YRT) Life Insurance is the equivalent of lighting the fuse and hoping that you can run away fast enough before your legs blow off.
There are two rate schedules that are part of the policy a current premium rate and a guaranteed maximum. Each year on the policy’s anniversary the rate is determined for the next year. While you hope to pay the current premium rate, it can be as high as the maximum (a multiple of the scheduled premium) based on the insurance company’s mortality experience, investment experience and their expenses. From the perspective of an insured, this is difficult to budget for and, even if experience with all three factors mentioned is better than expected, the premium will not be less than the current scheduled premium.
Generally, the only reason to purchase this type of policy is if your short term goal is convert your term life policy to whole life (or another form of permanent insurance). Rarely is this the case – especially for readers of this blog.
For these reasons, most often a level premium term life insurance policy with guaranteed premiums for 10, 15, 20, 25 or 30 years is recommended.
I do see agents from one particular company recommending this type of policy and it is something that should almost certainly be avoided.
Are there no policies where the premiums increase each year, but that the increase is set in advance so you can make calculations on it?
I have never seen ART that’s locked in for more than 5 yrs (and I used to sell it at one particular company :-). I wish it existed on one hand. But on the other, I also know guarantees like that ultimately cost money. I respectfully disagree with Lawrence and think ART works very well in certain situations where people become self insured incrementally over time and desire to reduce coverage as this occurs. However this transition must happen with some amount of speed because the longer it takes, the better Level Term looks in comparison. In fact, I still own ART myself and cannot justify switching to level term even though I have zero plans of converting any of it to permanent insurance. I will slowly decrease my death benefit as I build wealth, but still fast enough so that my total insurance cost will be lower using this strategy. I will admit this strategy includes an important assumption (I am good with it – but it’s certainly there). I am assuming that history repeats itself with the particular insurance company. That their financials and mortality experience continue in the future as they have in the past. This ultimately drives what I pay… and if you look at the history books of this particular product, “scheduled premium” rates end up being lowered (in the form of a dividend) . I just looked at mine today and it’s $50/yr less than what was originally scheduled (I have owned this policy for 5 yrs). So there is some risk associated with taking on a product with “scheduled premiums” plus very weak guarantees vs. one with very strong guarantees (aka level term). However, I personally feel comfortable taking that risk knowing what I know about the historical rates, company financials, and the history of mortality experience.
In some ways, ART is more of a “pure insurance” because you’re not prepaying some of the insurance you’ll use later like you are with a level product. That said, I think Larry is probably right that a level product is best for most. Most insurance purchasers don’t think about this stuff like you and I do.
No. Not with ART or YRT policies. If anything is guaranteed (where the current premium and guaranteed maximum are the same), it is usually for a limited time period. In a lot of cases, the cost of a 10-Year Level Term will be less expensive than the cost of a YRT policy – even in the first year.
Again, YRT really is used for conversion to a permanent life insurance product within a limited timeframe. Rarely have I seen it used elsewhere or sold for another reason.
Let’s look at some policies. Can you get me a quote for the least expensive $1M ART policy for a healthy 30 year old Utah male?
I’m not a life insurance expert, but I think we purchased what you described. We have a few laddered “Life Value Term” policies from Banner. (Google it.) They’re effectively term life policies but with premiums that increase at a predefined rate that is greater than inflation – or realistically what I might expect to make nominally invested in the market … but they make it easier to drop in the future when I become self-insured. (Either by savings and/or the need for insurance disappearing as children get older.)
I wrote a really interesting post on the topic yesterday. It’ll run in a few months.
Agree with your post and the comments above. I know what you mean with the term “windfall,” but to me the connotation has always been unearned…lottery, inheritance from distant relative, finding a 5 spot backcountry skiing (all “windfalls” that I have experienced)…what you are describing is good result from a lot of hard work, hardly unearned.
Right, but lots of people have worked just as hard without good results. I met with a good friend recently, a trauma surgeon working 120 hour plus weeks. I’m not sure he makes what I do clinically, much less with the addition of the website income, and he’s doing a ton of good and working far harder than me. That sort of thing provides me with a lot of inspiration to help docs.
You’re right that windfall has an “unearned” connotation, but whether unearned or earned, I treat it the same.
It’s hard to believe there is that much money in website hosting/blogging. I think it’s great.. especially when a decent amount of content can be generated by others.
Kudos to you.
I wish I’d had a similar idea.. I enjoy thinking about finance, and I’m not a bad writer. But most of my writing talents have been used in a non-revenue venue: fantasy football commissioner…. ha!
I make a lot less money that you as a doc, and a lot less if you include your side business.
Frankly, I don’t understand where you come up with the time to do everything you describe. I have just 2 children (both under 2) and even if I had more money, I can’t travel, I can’t do anything fun really.. it’s too much work at home. My wife would probably divorce me if I spent time at work, then lectured and spent time writing for and administering a website and doing all the travel for fun.
Well, hosting is an expense, not a revenue source. But you’re right, the internet is the wild west of entrepreneurship because everything can scale and there are few if any rules other than whatever moral code you choose to follow.
Where does the time come from? Well, the garage is a mess for one. 🙂 Two, I get bored easily and I type fast. Three, I’ve dropped a few (of many) hobbies in order to do this.
Kudos on your success. It has been fun watching you through your blog posts change and grow over the last few years. I look forward to your posts as your viewpoint continues to be shaped by your current and future success. For physicians out there who don’t have the income “windfall,” WCI’s original conservative path is what we have followed. It has worked out just fine. Best wishes.
Happy for you, but that was certainly long-winded and arduous to read.
Lacked your creativity and humor.
Hopefully you don’t distance yourself from those still struggling.
Yes, I tend to get wordy. Bad habit. Hard to distance myself from those still struggling (doctors and non-doctors alike) when I work with them every day in the ED. A charitable inclination also helps. At dinner last night we talked with the kids about the organizations we’d like to donate to this year. We chose the local food bank, the local homeless shelter, MSF, and college funds for their cousins. We’re hoping to teach the kids the concept of “enough” and they’re slowly getting it, although my oldest daughter is trying to decide whether to be a “back surgeon or a financial advisor” when she grows up. (She has a friend whose father has done well as a spine surgeon, entrepreneur and real estate investor.) We’re very much aware there are many less fortunate than ourselves and also that our financial success can go away at any time. However, we are comforted by the fact that our knowledge of how to make money and a willingness to work hard can be used to reproduce it in some manner in the future even in the event of a loss of wealth or income.
My income windfall took the form of my wife having a far better corporate job than I had imagined (with great benefits like a pension and retiree (and spouse of retiree) health care). Even though her salary and income has been less than mine, my income has been trending down, while hers continues to rise. Her stock grant alone for 2016 is going to be more than a primary care doc makes in a year.
All of our planning and budgeting has been based on the premise that I would cover everything, and she would milk her career along with enough to pay for child care and put some money away for retirement. Well, she is doing quite a bit more than milking! Her income has allowed us to pay off the house in 11 years (2010) and invest the mortgage payment. It has allowed us to put away money for the children’s education and starting in life accounts (each over $250k). It has allowed us to pay cash for cars when we need them and take some great vacations.
I had previously planned to retire from practice at age 58 or so (I am currently 50), but I have scaled that back to 52 and am currently working on developing a couple of new, entrepreneurial endeavors to keep me busy and productive doing something I love for at least 15 years.
Jim, from my point of view you are underpaid as the WCI. Your advice has completely changed my financial life. The freedom to know where I’m going money-wise I has allowed me to be a better doctor, dad, husband, friend, etc (I think).
Thanks for the blog. God bless you for doing it.
That’s very kind of you.
I often have this discussion with AUM advisors who argue that they should be paid according to the value they provide, citing the millions extra those who follow their advice will have. While it’s true that telling you to put away 20% of your gross income every year of your career is extremely valuable advice, it just seems wrong somehow to charge you thousands, much less millions, for advice that easy to give. Especially when saving your life only pays me a couple hundred bucks.
Great post! Related to the comment above, it would be an interesting exercise to estimate the total “income/savings windfalls” realized by your readers following your advice for the past 5 years. You’re only seeing a portion of that through your blog/book, some would argue not enough for gems shared here. Keep this up!
I especially like the “kids 20s’ fund”. Can’t even imagine starting life without debt, student loan or even….gasp… mortgage debt (depending on how generous your fund is).
It’s not generous enough to buy a house, I can tell you that. Probably not even generous enough for a 20% downpayment. Who knows what it will grow to.
But the goal is to help them avoid undergraduate student loans, car loans, credit card debt etc without removing the incentive to work. Enough that they can do anything they want, but not so much that they can do nothing.
I was also excited to hear about the “20’s fund.” I’m really interested in that as a concept. Bogleheads had a thread a few weeks ago where the idea of giving kids some spending money in college was shot down as a horrific example of economic outpatient care. It seems like a great idea to me, though, and not really what I remember from Millionaire Next Door as economic outpatient care. I’d love to hear thoughts about how you arrive at what the numbers should be, when to let the kids know about the funds, if you are going to try and control distributions at all, etc.
Legally, it’s an UGMA. So after 18/21 it’s their money to do what they wish. They already know about it and its purpose. It’s not much money yet, and may not ever be that much. I’d expect at least $10K but less than $30K but who knows. Certainly not more than $100K.
I’m glad you mentioned this as well because I’ve had a question for you ever since I read the boglehead guide to investing. In it they mention that you just need 20k by age 15 to have 1M by retirement. My first thought was “that’s not much money” and “why didn’t my parents do that for me?” (Answer, because they probably didn’t have that kind of cash, even in a retirement account . . . ) And then I thought, “I could definitely do that for my son.” And while I haven’t decided if that is a good idea or not, if it WAS something my husband and I decided to do, what do you think the best way is to go about it? With the UGMA, hoping the kid won’t blow it on blow? Or is there a better way to do it? I’m curious what your thoughts are.
There’s a great book on this subject called making your kid a millionaire. You have a number of choices. Roth is ideal, but it must be earned. UGMA is an option, but truthfully, for a 6 decade period, a very low cost VA is probably best.
I’ll check out the book, thanks for the rec!
Before setting up such a fund, I’d suggest you read a few chapters from “Millionaire Next Door” about the so called economic outpatient assistance…I know WCI has! I’m not saying its wrong, but tread cautiously!
I know this blog is geared toward doctors, is it OK to post if not?
I loved this post and shared it with my wife while reading. I enjoy reading about your success both as a doctor and as WCI. It seems to me you could have easily hid behind the curtain, not sharing your success, and still pop out the articles. But you chose to share your story with your readers, and for that I thank you for your forthrightness.
I’m also a huge fan of MMM. I’d love to read a post like this from him, knowing a believing he and family live on $25K/year.
Again, a huge thank you for your blog.
Of course, anyone willing to be civil is welcome to post comments.
Thanks for your kind words. I too would love to read about what MMM is doing with his blog income.
[Post removed for spamming the blog. Seriously David, what made you think it was acceptable to post that same comment advertising your firm in multiple locations on the website?-ed]
Great post on an interesting topic. Timely for me as well, as I happened into another type of windfall that you didn’t mention but more and more docs will face soon: a practice buyout. I wasn’t an equity partner, but the purchaser really wanted our practice and I was able to negotiate a handsome “retention bonus” for sticking around. (I could have left for another job and they would have a hard time recruiting for my specialty…know your worth 😉
Similar to you, I set aside a huge chunk (33%) to cover taxes, another 10% for charitable causes and most of the rest for “splurging” on a long awaited backyard pool project. Its something we’ve wanted for 2+ years and it will be nice to pay cash instead of cutting back on savings or using a loan/HELOC. I struggled with the concept of just chunking the whole thing into savings like many of my internet super-saving financial mentors would suggest, but figured I’m already saving 50% of my post tax salary and its time to “loosen the purse strings” a bit as you advise!
If you’ve been thinking about that pool for two years, I know you’ll enjoy it and get your money’s worth out of it.
Yay – maybe we’ll get more articles/tips on taxable accounts and other high income strategies now that you have more than enough to fill the tax-advantaged space!
Congrats – but this income in hardly passive. Awhile back you responded to a question I emailed you in about 5 mins! Now that’s service!
It just goes to show how valuable unbiased information and the search for “truth” is. This website has been the missing link for along time. Keep it up!
Yup, definitely more interest in taxable investing for me these days. But also in new ways to get tax-advantaged space! (See the upcoming newsletter for details.)
Congratulations on the WCI-boat! I am glad to have contributed to it through being an eyeball that the advertisers track, and I intend to add to that pile by refinancing my wife’s student loans via your SoFi affiliate link in a month or two.
I think this post is valuable in that it shows that the end game is not having $X but rather improving your life through its judicious use. There’s indeed a happy medium between Mr. Money Mustache purity and pop culture excess, and that’s not a bad place to be in.
With regard to Mr. MM and his blog earnings I seem to have a hazy memory of him saying he’d contribute proceeds over some dollar amount ($4,000/month?) to charity. This could be a completely fabricated memory, on the other hand, so I’m going to try to locate it or declare it a myth today.
Found it! He indeed puts excess proceeds towards his own charitable foundation.
http://www.mrmoneymustache.com/2012/09/22/weekend-edition-where-do-we-go-now/
“3. A plan for the future of Blog Moneymaking
As we’ve discussed in the past, people can make some real money off of these things. A blog with this traffic, appropriately spammified, could earn over $300,000 per year. Even with the current lower-key setup, I think the income has just hit $2000/month, matching the entirety of the MMM family’s spending. So I thought it would be fun for us to make some plans together for this large and probably ever-growing amount of income.
3a) Mr. and Mrs. Money Mustache shall get paid for working on the blog, although the amount shall not exceed $2000 per month, no matter how big it gets. I’m not sure why, but we still find it motivating to get paid at least a small salary for our work. Especially since the size of this blog job has displaced much of our other hobby activities, some of which provided (technically unneeded) income. However, the cash will end up being saved and invested anyway, with the scope and creativity of investments increasing over time.
3b) The blog shall have a budget for paying for its own expenses (web hosting, science experiments, paying people to help with technical issues, any promotional/conference travel, etc.). Not to exceed $1000 per month except in extremely fun circumstances that you’ll get to read about.
3c) 100% of all surplus income beyond this level shall go to a new charitable fund called the Money Mustache Foundation, that will try to do good in the world. Articles on the details are coming up this week, but it’s based on some reading I’ve been doing on the Gates foundation, and the book called The Life You Can Save.”
Cool! Glad to hear it.
I appreciate you using the link. But as a general rule, the eyeballs that are most valuable to the advertisers are not the regular readers and commenters here. You guys do provide a community that makes others feel welcome, provides additional information, and adds to the trust factor that is my most valuable commodity, but those who click on links and hire financial advisors and buy doctor mortgages and disability insurance are mostly casual readers (a few times a year) and people who come in off the search engines. Those are the vast majority of visitors to the site. Like any internet forum, lots of lurking going on.
I also agree with your wife about not underplaying what you do with your blog. I’m a fee-only financial planner that works on an hourly basis and I think you have a rare skill of cutting through all the nonsense to communicate good, solid advice in an easy-to-consume manner. It’s what I try to do everyday and while I think I’m reasonably good at it, I don’t think I do it as well as you. And I’m not practicing medicine at the same time!
I’m sure you’re very good at it. One thing I worry a little bit about is spending too much time thinking about financial topics instead of the more important things in life. For example, I just got back from a run and probably spent 45 minutes thinking about fundamental indexing. Maybe I should have spent that time thinking about how to be a better dad.
If you don’t mind me asking, how are you in the 15% federal tax bracket and not paying any state taxes?
I was in the military. They don’t much and a good chunk of it isn’t taxable income. And I was an Alaskan resident, so no state income tax. I pay much, much more now. I paid 25 times last year in taxes what I paid one year while I was in the military. It’ll be more this year.
Congratulations on your entrepreneurial success. Will you still have physician specific advice even though the majority of your income will come from a blog as it continues to scale? Just think, you could double what you earn from this website in months, I mean it’s not even optimized for income yet. Imagine if you had a YouTube channel…
Curious as to why you’re calling this an “income windfall”. In my opinion this blog isn’t an income windfall, it’s a successful investment. WCI is probably worth something in the millions and right now it is paying a dividend. I feel like there’s a hidden lesson in this post. As the White Coat Investor, your greatest “investment” was your time and money put into this blog. It wasn’t the S&P 500, VTSAX, P2P lending, or rental properties. Your financial independence really is defined by the success of this blog. Perhaps it is a lesson to us physicians that we need to open our eyes to other opportunities. Did you ever dream of cutting down on night shifts this early? Providing college funds for your nieces and nephews before you were 50? You reached your goals 15-20 years earlier not because of Boglehead idealism but because of an entrepreneurial spirit and mindset. There’s a book called The Millionaire Fastlane (MJ DeMarco) that talks about the sidewalk, the slow lane, and the fast lane. You were able to move from the 7% a year, reach financial dependence when we’re 65 (or younger depending on your savings rate) “slow lane” of the vast majority of physicians (who read the blog), to the fast lane of providing real value to people in the form of this blog and becoming rich in the process. Really the greatest advice you’ve ever provided us here is that if you want financial independence, give something of true value to the world. This blog and your book, are truly valuable.
It’s very hard to value a website. I’ve been using a 2X advertising revenue figure to value it. But it would obviously be hard to sell it since so much of it is just me. I’ll have to work on a succession plan at some point.
But you’re right about entrepreneurship. I think everyone ought to own a business. But slow and steady works too when you’re working with a physician income. I mean, financial independence in your early 50s IS the fast track to many people.
This has been a concept that has been near and dear to my heart as I finish residency. Entrepreneurship is really the fast tack towards financial independence. Working for other people gives a large portion of your profitability to someone else (or else why would they hire you?). I have worked in a few different side careers over the years and what I love about medicine is that is is relatively (not tremendously) lucrative. You can do well, plug away at it for years and then end of up with a wonderful family and some good life experiences. You can even save aggressively and invest wisely with a 6-8% return with index fund investing and do very well for yourself. I too read the “Millionaire fast lane” and found a lot of truth to it. Large scale wealth comes from entrepreneurship combined with an eye for business and smart investing. We have a great opportunity as doctors to have a solid fallback, or even part time opportunity as physicians. We can even work full time if we love it for the experience it provides. But hedged risk taking tends to be the smarter option as you build a family, and the doctor card provides a great hedge. I’m just finishing residency and working hard on the most basic in medicine along with some solid small scale investing but am looking forward to the various opportunities that arise. Having a spouse with a good career, or else a good alternative career allows you to take risks, to start a business and have a higher return. The internet is a fascinating technology with the potential for truly exponential returns away from the $/hr trap. Many lessons on this blog, and I truly enjoy your candor, and person anecdotes that can resonate with those of us just starting out.
Congrats on your progress!
I think what’s made the difference for me in handling income windfalls has been having thought through my end-goals and how I choose to get there. Clarity, captured in well-examined writing, allows me to dispatch the excess without second-guessing or other delay or friction.
most will create their wealth through their retirement plan
Of course others might succeed in RE or other endeavors but you will not hear about their failed ventures as well
Similair to hedge funds-Many go belly up; MOST, like 85%, underperform
Naieve investors looking to hit a home run while shrewd investors are singles hitters
The other key to entrepreneurship is failing early and often. You only have to have one home run. That might be your first go; it might be your 20th. Don’t wait 40 years to get to your 20th if the first 19 are failing.
Referencing PTM’s point in comment #24, I am in the midst of a buyout/merger. When my guest post was published this past summer (https://www.whitecoatinvestor.com/super-saving-for-an-early-retirement/), the buyout was a vague possibility on the horizon. It’s almost a certainty now, awaiting the final contract verbiage, voting process, etc.
For those of you who (kind of) know me through that post, you may remember that I have struggled with a compulsion to get across a “magical finish line” (retirement), not always appreciating that saving so aggressively offers an opportunity to make a job I enjoy less over time more enjoyable (i.e. I could work less, which would go a long way toward bringing back the joy of medicine).
With prodding from some wise WCI readers who commented on my guest post, and now the potential for a large windfall to put in the retirement fund, I have finally wrapped my mind around cutting back at work. Of course, the logistics of cutting back are going to be a bit sticky at my practice, but the wheels are in motion. I think this could be the greatest enhancement to my quality of life since starting to make an attending salary 10 years ago.
WCI, your windfall is hard-earned and well-deserved. I appreciate you offering a glimpse into your balanced approach to managing your windfall – something to which we can all aspire.
Great post! I hope that you keep this site largely focused on issues for professionals earning high incomes from their day jobs, rather than placing too much emphasis on matters relating to entrepreneurial projects. It’s great that WCI has worked out so well for you, but I don’t think that most professionals will be able to find or capitalize on such a niche. For some of us, our careers take up so many hours of each week that there really isn’t time left over for other endeavors.
Of course it will continue to be focused on high income professional financial issues. The two are obviously not mutually exclusive though. Owning your own practice, for instance, is one form of entrepreneurship.
WCI said, “Or should I tell readers to do what I did, embracing their inner entrepreneur to discover a way to become wealthy even faster?”
Can I issue a caution on this specific point (see above)? My own personal experiences and my professional observations of numerous “technology”-connected income windfalls is that these windfalls have a shelf-life. That shelf-life may be a few months or a few years, sometimes even several years, but in the cases I’ve seen, the really good times don’t roll forever.
My own belief is that one has a much better chance of becoming affluent via a high paying job and financial discipline than anything else. And then, what you get with entrepreneurship is a chance to hit some really big numbers. But that’s a lower probability event.
Agreed. Definitely lower probability. Definitely see the tech issue. Easy come easy go and all that. Still, I think everyone ought to own their own business, even if it isn’t their main source of income or wealth.
The fun thing about this is I can always switch back to the “slow track.” I’ve just knocked a few years off of it.