[Editor's Note: The following article from WCI Network partner Passive Income, MD discusses loosening the purse strings a bit. I think it is important to become good at all aspects of your financial life–including earning, saving, investing, giving, AND spending. Enjoy the post.]
Financial freedom from medicine is a beautiful thing. Once you’re in a position where all of your expenses are covered by other sources of income, you get to decide whether you continue to work in a clinical setting or not.
If you’re like me though, that’s not quite good enough. That was the first milestone, certainly, but when it comes down to it, I don’t want to just not work. I want to live a more abundant life.
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Of course, what it means to live a more abundant life is up to the individual. But to me, it means having the resources to live how I want and to be able to give how I want.
Freedom From Multiple Sources of Income
If you’ve been reading this blog, you probably know that I’ve been fortunate enough to have multiple sources of income. As those streams of income have increased, people have asked me how I’m spending that money.
I answer by saying that after my basic obligations are met (housing, education, food, etc.), I donate to causes important to our family, and I also put money toward more cash-flowing investments. My goal is to continue to grow the golden goose that lays ever-increasing passive income eggs every month. When you live completely off that passive income and never touch your initial principal, you’re living the dream.
Well, besides the things mentioned above, you’ve probably heard me and many others talk about the idea of spending money on experiences and not things. This is good advice because it puts the focus on living well rather than simply collecting stuff. But I’ve never really talked about how I do that and why.
So let’s start with the why.
Experiences Create Stronger Connections
As humans, a basic need is love/connection with other people. Experiences—whether through travel and meeting new people or by simply spending time with your family—help foster those connections and create lasting bonds.
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Experiences Create More Sustained Happiness
Experiences create happiness–both during the experience, the anticipation before it, and for years to follow. Not only do those experiences help you look at life differently, but they create memories that will last forever.
Think of an awesome experience you shared with someone, years ago, that still brings a smile to your face. For me, certain vacations and certain cities conjure up such strong memories of joyful times spent with family and friends, they can’t help but bring up my mood in just about any situation.
Experiences Shape Our Lives
How many of you have gone on a trip or to an event and left feeling changed? Experiences can do this because those moments truly can shape us. I remember trips that gave me a new perspective on life. They helped me be more grateful for what I have, and they’ve helped me grow.
Experiences impact us in ways that objects and things never could.
So, here are some of the problems with “Things”:
We Adapt to Things Really Quickly
How long does the newness factor last for you these days? If you’re like me, it doesn’t last very long. Innovation and technology move so quickly that what we’re impressed with for a moment quickly becomes the norm. I remember being so blown away by my first iPod. Now whenever I see an old one sitting around, it looks like a piece of junk to me.
Keeping Up With the Joneses Is Real
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Things are great until you see something better. I remember how excited I was to get my first new car as an attending: a Lexus ES 350h. Some call it a Toyota Camry with leather, but I remember being so excited about it. However, every time I pulled into the doctor’s parking lot between a Porsche Panamera and a Tesla, I couldn’t help but feel like my car isn’t all that great at all.
Happiness Fades Quickly with Things
We all assume that something will make us happy as long as we have that item. The truth is that after the big surge, it isn’t long before we start thinking about when to replace that with something better.
There’s all this talk these days about “sparking joy” thanks to Marie Kondo. Look at the items you have around you in your house. How many actually spark the same joy as when you bought it? I’ll bet there are so many things sitting in the kitchen drawer that you once thought were the best things in the world.
So, I Spend Money on Experiences
So, over time, my spending patterns have changed. I used to buy the nicest new technology I could afford, like the newest phone, tv, or laptop. On the flip side, I used to skimp on experiences and now I’ve seen it all evolve. I now have become more free with spending more for a better experience.
For example, I’m focusing on traveling as much as I can with my family. We used to take one big trip a year, and now my goal is to do it 3-4 times a year. It’s not always about staying at the nicest hotels but about maximizing the experience.
I’ll spend money to see my favorite sports teams win championships. I’ll freely pay to knock items off the bucket list. I also won’t hesitate to pay to see shows and concerts that my wife and I are interested in.
And the thing I spend a good deal of money on is eating out. Sure my wife and I enjoy a home-cooked meal, but we really love the experience of trying out different restaurants. We’re parents and so our “going out” on weekends now consists of a nice meal with a few friends. Great conversations happen over food… and wine.
Well, I Do Buy Some Things
That isn’t to say I don’t spend money on things at all. You just have to know what brings you sustained happiness.
I always dreamed of buying a Porsche when I became an attending. However, I’ve come to realize that I actually don’t enjoy driving all that much. I think years of sitting in hours of traffic have killed any joy of driving for me. If I could, I’d Uber everywhere. I’d much rather sell my car and spend all that money on really nice vacations. Unfortunately with kids, practically you need a car.
However, some people truly get pleasure from driving and, for them, that’s a worthwhile experience. So when I see people buy nice cars, I never judge them. Maybe each drive is an amazing experience and that’s what brings them happiness.
So the things I do buy are usually experience-oriented, like books, courses, or an iPad to read and work on (while I travel). I no longer shoot for the newest and best, but I focus on value and function.
Conclusion
I’m always trying to use money to maximize my life. That includes buying my time, but it also includes buying experiences. In fact, I’ve become so hungry for those experiences that I want to share as many of them as possible with friends and family.
But in order to actually experience these things, you need both money and time. Passive income allows for both, and I hope that it does just that for you.
What are some experiences you won’t hesitate to spend money on? Comment below!
Great article. In my financial planning talks for my residents I have been focusing on adding slides about the psychology of money and the psychology of happiness in general. I think getting to financial independence is great, but living a fulfilling life both along the path to financial independence and after achieving it is the real goal! Great to see articles like this here.
Very thoughtful piece. As a physician who is very much into wellness, I also do not hesitate to spend money on experiences that will keep me physically fit and active. I am a runner who enjoys doing races like marathons, half marathons, etc all which can be quite expensive . These costs can be the form of race registration , travel to destination races, frequent purchases of running shoes, etc. I would rather spend several thousand dollars a year on this hobby that gives me emotional joy and physical fitness rather than spend money on copays and deductibles to see a multiple doctors or pay for medications and procedures for illnesses like DM, HTN, dyslipedemia, obesity, etc. due in part due to lack of exercise and good lifestyle habits. I also do not hesitate to spend more money on expensive produce or high quality food from a farmer’ s market as opposed to buying cheaper, low quality food . I would not hesitate to buy a Peliton bike if that form of exercise kept me moving and helped to avoid disease. Gyms, person trainers, etc etc….the list goes on. .I find these costs personally to be valuable since they help prevent other costs in medical care for chronic diseases of which 80% are preventable according to the CDC. I want to be a good example for patients and I don’t skimp on preventive medicine practices including expensive exercise hobbies and good food!
I think it’s about intentional spending, spending on what makes YOU happy. Experiences, stuff, whatever.
Whether it’s travel, concerts, classes. Or the fancy car that you enjoy driving, the fancy shoes you feel great every time you wear, sports equipment, etc. Spending money on experiences that don’t make you happy, because people say you should do it, etc. is no more superior than buying “stuff”. The Keeping Up With the Joneses effect can occur with experiences as well, imo.
Agreed. The pendulum can swing too far.
I totally agree that it’s experiences that are the best way to spend money. Definitely get the most joy out of nice vacations and dinners. I like cars like most people, but I’ve learned I’d much rather have certain luxuries in a car like a nice sound system that will bring me a more enjoyable drive and doesn’t cost nearly as much as it’s easy to obtain this in a used car. Speed is nice buy I’d rather retire early then buy that Tesla (sorry, had to). Maybe someday if I do get FI early like I’m shooting for and I go part time I’ll get a nice car but it’s not worth it at this point (and may never be worth it).
I do think that if you are smart about buying things, those things can bring you joy in a different way than experiences. Things like nice clothes seems like a waste, but I spent a good amount of money on this laptop (albeit on sale) and get much joy on it doing basic functions as well as learning how to do photo editing (learning photography). Unfortunately, you need a nicer computer for photo editing. I think the important thing when buying things is to limit how much you spend on them and make sure you are actually going to use those things you buy. My early gen iPad is junk now but i’m glad I bought it as it gave me much joy reading on it and watching movies, etc.
I’ve definitely purchased things I thought I was going to use but didn’t. Thankfully, as physicians we have more leeway to make mistakes. We are fortunate to have that luxury as long as we don’t sacrifice our savings rate. It’s just about being smart when you decide to purchase things. And a few little errors may not hurt us, but we still have to be careful to not make mistakes on big purchases like too much house.
I’ve been listening to Paul Pant and she mentions that experiences make us happier because of nostalgia bias, but googling it is more formally called “rosy retrospection.” I didn’t know this previously (and I’m a neurologist) but our brains make experiences seem better than they really were. I couldn’t understand why I keep signing up for Spartan races- now I know why! However, some experiences for me were so terrible and no amount of rosy retrospection helps- i.e. my trip to Sesame Place (overcrowded, too hot, too expensive). Sorry Sesame Street.
One of the material things I have been debating is whether to buy a pool or not- obviously a material thing, but my wife argues can make memories and experiences. what do you guys think? Right now I feel it won’t make me happy given the maintenance cost, and I live in NJ where summer is only a few months. Our local gym has an outdoor pool. also I can save the 100K the pool would cost and invest to retire earlier.
I LIVE IN PHX, A AND HAVE A POOL, TRUE THE MAINTENANCE IS A HEADACHE – POOL PUMP, VACUUM, POOL SERVICE, BREAKDOWNS, SALT WATER SYSTEM MAINTENANCE ETC. BUT WHEN I AM IN IT WITH THE WIFE AND KIDS IT IS AMAZING- PLAYING SHARK – FISH, HAVING MY 7 YEAR OLD SON “SURF” ON MY BACK , OR JUST LAYING IN THE WATER AND WATCHING THE STARS AT NIGHT.. PRICELESS. OFTEN ON DAYS OFF WIFE AND I WILL HAVE A MEXICAN STYLE PARTY OF TWO WITH TEQUILA/ CHIPS/ SALSA WHILE KIDS ARE IN SCHOOL AND RECREATE A VACATION WITHOUT HAVING TO TRAVEL TO MEXICO, THAT JUST SAVED A BUNCH OF MONEY RIGHT THERE!!
LIVING IN NJ YOU’LL NEED TO EVALUATE THE HASSLE VS ENJOYMENT. IF YOU CAN AFFORD TO PAY FOR MAINTENANCE AND NOT WORRY ABOUT IT THEN THE HASSLE FACTOR FOR YOU IS ZERO AND THE REST IS ALL ENJOYMENT.
I have read about the two types of happiness and think about it often. Type 1 is the hedonistic type of short term happiness that we derive from immediate gratification, such a good meal, a joke, etc. Type 2 is the fulfillment type of long term happiness that we derive from a sense of accomplishment or achieving a challenge. I think spartan races and marathons fall firmly into type 2, and that is why we remember them, think back on them often, and keep signing up, even though in the moment of the race, or the training for the race, there is no immediate happiness until the very end. In an ideal situation, we can find type 2 happiness in our work as well.
true! I wish I could also find Type 2 happiness just getting my kids to bed each day- remarkably much more difficult than the Spartan race, but don’t get that same sense of accomplishment that I do when I complete a Spartan.
I think it has to do with I have to do it all over again the next day!
I call that type 2 fun when out hiking in a rainstorm with the Boy Scouts. They assure me it is type 3 fun, i.e. fun that isn’t even fun looking back it.
yeah, putting my kids to bed is type 3 fun.
One of the best investments I’ve seen a client make was a vacation home in an area that their family frequented each year. They made memories and utilized the money they planned to contribute to 529 for their children to pay the mortgage. Renting the property through AirB&B, they were able to pay for their children’s school even though their initial plan was to sell to pay for college.
I think that is probably the best alternative to 529s as discussed here:
https://www.whitecoatinvestor.com/real-estate-as-a-college-savings-tool/
Certainly way better than whole life.
Obviously there is the option for grants, scholarships, etc. I usually have my clients look into “Scholly” the app. In just a few short years, it’s helped students qualify for over $100,000,000 in otherwise unused scholarships. There is a scholarship for any student.
Whole life for children is a good way to guarantee some level of insurance for them for the future in the event that they have a diagnosis, etc. That way they have an amount of insurance in adulthood or when they have their own families which they otherwise would never have been approved. The best time to get any insurance is when you are young and healthy and term insurance isn’t an option for minors.
Disagree that whole life for kids is a wise purchase.
https://www.whitecoatinvestor.com/6-reasons-not-to-buy-life-insurance-for-your-children/
You’re argument is based on a linear analysis of finances. Many retirement plans involve converting 401k assets (not all) into a SPIA. For individuals who marry and annuitize as joint life, they receive 15-30 percent less on their payment. Partnering a SPIA with a life policy on the primary owner allows for a single life annuity, recovering a larger percentage of regular cash flow and, upon their death, the death benefit can be utilized to create new cash flow for the survivor. An inexpensive rider (guaranteed insurability rider) can be added to a policy for almost nothing. $30 a month can cover $300K for a 1 year old child with guaranteed insurability, adding to about 1.5MM death benefit by the time they are 40. In three dimensions, permanent insurance certainly can be a great tool for a successful financial plan. There isn’t much that $30 a month will do for funding college ($12,500 at 20 for a newborn child in a 529).
I understand your point but using ALWAYS and NEVER aren’t great when it comes to finance. Most arguments I ever hear regarding permanent insurance is linear and non whole.
I think it is unlikely that buying two insurance products (and paying commissions and costs on two) is going to work out better than one on average at life expectancy. I agree it’s an option to buy single life SPIA + a single payment permanent life policy, but I bet it works out worse most of the time than a dual life SPIA.
Buying insurance on a child is dumb. That’s obvious to anyone who doesn’t sell it. The money used to buy a policy on a child can be better used in a plethora of ways. A $1.5M death benefit on a 40 year old is not a particularly impressive accomplishment. That’s worth $500-1200/year depending on the length of a comparable term policy bought at 40 on a healthy female. It’s entirely possible that $12,500 in a 529 at 20 is a much better gift for the child. (I calculate 20 annual payments of $360 at 8% grows to $16K though.) That’s going to be far more than the cash value of that policy at age 20. It probably doesn’t even equal the payments at that age if it is like most of these tiny policies sold to unsuspecting parents.
“Preserving insurability” might be a great way to sell whole life insurance to anxiety-ridden parents, but it isn’t particularly wise to someone who sits back and thinks about it logically.
First, most of the time a large enough policy to really preserve any significant insurability isn’t actually bought. The numbers you’re using ($300K, $1.5M) are rarely what these folks actually buy, but even if they were, by the time this kid might need insurability in 50 years (even that would be a very untimely death), at 3% inflation, $300K-$1.5M is only $65-$327K. That’s not even going to pay off the mortgage, much less provide for a real dependent.
Second, you have to multiply the risks. The fear is that you’ll become uninsurable before the age at which a need for life insurance actually shows up. For most people, that’s age 25-35. What’s the likelihood of that happening? It’s actually pretty low. Perhaps 5%-20% aren’t in “Preferred Plus” health at that age, and an even lower percentage can’t buy life insurance at all. Let’s call it 5%. But that isn’t really what you’re insuring against. You’re insuring against the risk of becoming uninsurable multiplied by the risk of actually dying while there is a need for insurance. What are the odds of that? Again, we’d have to ask an actuary, and yes, those two risks are not completely independent, but again, let’s call it 10% as that seems reasonable from this chart:
https://www.finder.com/life-insurance/odds-of-dying
So your real risk is 5% * 10%, or 0.5%. 1/200. So you’ve got a 1/200 chance of buying a whole life insurance policy working out better than putting that money in a 529. Seems kind of dumb now, right? So it might not be NEVER, but it’s close enough for our purposes.
Interesting. An 8% actual return on any 20 year period of time for a 529 is a pretty high projection. 6.5 is my general default and that’s how I came up with the 12k.
Likelihood of using life insurance before forty is about 10-12%. The list opportunity cost of term life is very expensive. Odds if becoming disabled before retirement is 1/3. If that happens in 30’s, 40’s or 50’s, that’s a pretty high likelihood. Mortality is a part of life as well but generally it won’t happen during a time that term life insurance is affordable. Your plan works for individuals who ONLY want to use life insurance to replace income, not infinite banking, wealth preservation it income efficiency planning in retirement.
There are some great points that you make. It’s just ridiculous that there are individuals who abuse the value of permanent insurance because of greed.
It’s your money. You can use whatever assumptions you want. I invest my 529s aggressively. My 529 returns are higher than 8%. I generally use 8% as a long term return figure because that’s what my portfolio generally does and I think it’s a reasonable assumption. But if you think your portfolio is going to earn something lower than historical returns, I certainly wouldn’t expect whole life dividends to magically remain the same as they were historically. What do you think the insurance company is doing with the money?
You’re entitled to your own opinion, but not your own facts. The likelihood of a 1 year old dying in the next 30 years is 2%. The likelihood of a 10 year old dying in the next 30 years is 3%. The likelihood of a 20 year old dying in the next 20 years is 5.96%. While I couldn’t find 40 year data, I find it hard to believe that the likelihood of even a newborn dying is 10-12%, especially if that newborn can pass a physical.
https://www.finder.com/life-insurance/odds-of-dying
Term life is not expensive, thus its opportunity cost is not expensive and I have no idea why you’re mixing disability in here. I agree that life insurance is best used for a death benefit rather than all the other dumb reasons agents try to sell it like banking, wealth preservation, and “income efficiency” 3-7 decades from now. Agents turn to those uses when they realize that almost nobody actually needs a permanent life insurance policy and the agent isn’t going to be able to send his own kid to college much less buy a boat if he doesn’t get some of these suckers sold soon.