I spend a great deal of time on this site imparting knowledge. You know, how the PSLF program works, how to do a backdoor Roth IRA, the best way to use an HSA and the like. What I am not nearly as good at teaching, however, is something that is probably even more important. For lack of a better term, we'll call it “The X Factor.”
The X Factor
The X Factor is that compilation of motivation, willingness to delay gratification, and budgeting skills required to carve out a big chunk of your income to build wealth. There is a great divide among doctors that I interact with. Some of them “get this” almost intuitively. For others, it doesn't matter what I teach them, they just don't have The X Factor and I can't seem to figure out how to give it to them. That is unfortunate, as I am confident it is 80% responsible for my financial success.
A Tale of Two Doctors
I had a doc leave a comment on the site the other day, we'll call him Doctor A. Doctor A was a primary doc who paid off his $150K in student loans in just over a year out of residency by renting a $600 a month duplex instead of buying a house.
I couldn't help but contrast it with a doc I had spoken with the day before who felt crushed by a minimum student loan payment of about 15% of his gross income. We'll call him Doctor B. Doctor B just felt like he couldn't make any progress in his life. He had refinanced his student loans, but only got a minor decrease in interest rate because he put them on a 15 year fixed plan. He talked about wanting to work fewer shifts and to spend more time with his young family, but I could see that he wasn't spending his money in accordance with what he said he really valued and wasn't going to reach those goals anytime soon, if ever.
You Have to Want It Really Bad
How badly do you want to get rich/wealthy/comfortable/secure/financially independent? How much time do you spend each day thinking about it? What? You don't even think about financial independence once a day and you expect to get there in your 40s? Forgettaboutit. You think you're going to be able to resist spending $20K on a car when you haven't thought about being financially independent for months? No way.
Likewise, what are you willing to give up to do it? It takes sacrifice, and the longer you delay that sacrifice, the larger the sacrifice becomes and the longer you delay the time when you no longer have to make it. For example, someone who is frugal in med school and residency like Doctor A may graduate with only $150K in loans. That same motivation persists as an attending and he pays off his loans in a year.
However, Doctor B not only took out more loans in med school, but made fewer payments in residency, took out additional loans as a resident, waited longer to refinance, refinanced into a loan with worse terms, and despite lying awake at night worrying about the debt burden, spends less time doing something about it during the day.
Stop Spending Money!
The ability to stop spending money on stuff you don't really value is a bit like a muscle. The more you exercise it, the stronger it becomes. After a while, you realize you can live quite happily on a tiny percentage of your income. That's when you start winning. The loans disappear quickly and the retirement accounts start piling up. But that comes from not spending 20%, 30%, even 60% of your gross income. You're telling me you can stay up all night for days on end making life-saving decisions and giving families terrible news about their loved ones but you can't live in a duplex for a year or two after residency? Really? Say it out loud. How does it sound? Like you're a financial idiot who's going to be poor their whole life? Good, because that's how it sounds to me, too.
Acquiring Knowledge Takes Sacrifice, Too
Once you have The X Factor, the knowledge seems to quickly follow. For instance, it takes some motivation to read a financial book. I loaned a very short financial book to one of my co-workers (not a doc) a couple of years ago. She tried to return it to me once or twice without having read it. (It takes like an hour to read it.) Each time I gave her more encouragement to try to read it together with her husband. Finally, after a couple of years, I accepted it back unread so I could loan it out to someone else. That works out to be something like 2 pages per month. If you can't come up with enough motivation to get rich to read 2 pages per month, it's just not going to happen. You're going to be living paycheck to paycheck, or worse, your entire life. But if you can spend some time on the internet, reading a few financial books, or even just meeting with some good advisors, I can tell you the rewards will far outweigh the sacrifice.
Motivation is key! Bonus points for anyone who can name the three peaks in this picture
Get Sick of Being Broke
It's time you got sick of being broke. Yes, I know you make $250K a year. But you're still broke. Or maybe even worse. You see, for most docs, it takes a certain amount of savings and discipline to get back to broke, where you were when you started school. Until you decide you hate being broke, really hate it, absolutely detest it deep down inside, you're not going to change. Neither Doctor A nor Doctor B enjoys being broke, but it's pretty easy to see which doc hates it most.
What You Want Most
Spend a few minutes thinking about what you really want out of life. Maybe it is to live in a big house. Maybe it is to help your kids get through school without the massive debt burden you had. Maybe it is to be able to spend months every year practicing medicine in a third world country. I have no idea. It is different for each of us. But whatever it is you want most, use that to motivate you to get there.
Draw up a plan today to get to your destination. Is it realistic? Is it worth the sacrifice it will take to get there? If not, how can you modify your dream so it will be? Make the plan as detailed as possible, then start taking the steps toward it. One step at a time.
It might be throwing an extra $5K at your student loans this month. It might be logging on to Vanguard today to open those Backdoor Roth IRAs. It might be going down to the library and checking out a financial book. Maybe it is delaying your trip to France in order to put some extra money in the 529s this year.
You Can Do It
Henry Ford said, “Whether you think you can, or you think you can't, you're right.” Have some confidence in your ability to design your financial life in the way that will maximize your happiness. By virtue of your high income, you're already 90% of the way there. All you have to do is scrape together the motivation and learn a few new things, that are way easier than the other 90% of things you've learned, to get the last 10% of the way there.
Change Your Mindset
Student loans and mortgages are not something you live with for decades. We banter back and forth on this site about the merits of investing versus paying off debt. But the truth is I know very few financially successful physicians who have student loans or a significant mortgage. The same motivation and skills that gave them their success cause them to pay off those debts, even if it may have been mathematically advantageous to keep it.
Financially successful docs don't look at how much they have left in December to decide how much to put into their individual 401(k). They maxed it out back in April. They do their Roth IRAs in January of the current year, not April of the following year. They don't worry about whether they should have 5% or 10% in REITs, because they know they're saving enough that any reasonable allocation is going to get them to their goals. They're not struggling to save 20% of their gross income. They haven't had a savings rate that low for years. They set their lifestyle up so saving 20% doesn't take any effort at all.
Financially successful docs compare their lifestyle to their friends who don't make nearly as much as they do, not to the plastics guy doing 12 mommy makeovers a day nor the private equity fund manager. They know the average American household has an income similar to that of a resident's paycheck. If the majority of Americans can live on $50K a year, they can too. That doesn't mean they have to, or even that they will, but they know that they can.
Delay Delay Delay
It might help your mindset if you stop thinking of it as “something I can't have because I can't afford it.” Instead, think of it as “when I can have that.” It's not that you can't have it, it's that you can't have it right now. For example, when I came out of residency, we lived in a little townhouse. But we didn't dwell on the fact that we couldn't have the big fancy house we had always wanted because the military paid me less than half the going rate for my specialty.
Instead, we concentrated on the fact that we could have it, but not right then, and proceeded to save 50% or more of that measly military salary. Four years later, we owned the big fancy mansion. I'm still driving the $4K Durango I bought the same year as the mansion. I'd like to drive a nice new SUV like my wife does. (Okay, maybe it's not so new anymore since it now has more miles than the Durango.) And I will, but not yet. I simply have bigger priorities right now. [Update 2020: The Durango died soon after this post was originally written in 2016 and was replaced by a fancy SUV that I still drive today.]
You all remember the boat we bought? We delayed that purchase for a couple of years. By doing so, we were able to decide what was really important to us, save up so we could pay cash, and buy it at the best time of year to get a deal. But most importantly, the delay allowed me to max out retirement accounts and other financial goals before buying it.
Savings is Like a Bill
If you do not yet have The X Factor, I hope something in this post resonated with you. I just hope that if I encourage you, show you people who have done it, or perhaps even ridicule the silly way you think about money, that something will click in your mind. I hope that you'll light the fire of The X Factor and find some real financial security in your life.
What do you think? Do you have the X Factor yet? Why or why not? What was it that gave it to you? How can it be passed on to others? Comment below!
A nice guest post from Mr. Money Mustache…Or is this just the new, more aggressive you?
Mr Money Mustache would be screaming about his big, stupid clown cars.
http://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/
You’re speaking my language, WCI!
I would say I’m one of your X-men. Call it motivated, relatively frugal, goal-oriented, … mutant?
I decided sometime in my mid-thirties to be debt-free by 40. I not only hit that target but also became financially independent in the process. I have a very different outlook on life than I did ten or fifteen years ago. I never would have dreamed of an early retirement. Now, it’s there for the taking.
Have a great weekend!
-PoF
This is one of your best posts yet. A wci classic. It doesn’t matter how much you know if you’re not willing to do it.
Agreed, send this post directly to the “classics” list. Anytime anyone claims that they can’t follow WCI advice because their situation is unique needs to be referred to this post.
Strong post but I can sympathize with those who started down the wrong path and now have a spouse and kids who would have to buy in to a lifestyle change as well. Not impossible but certainly harder to move a family of 4 or 5 into a duplex from a “doctor’s home”. Too bad financial literacy isn’t taught in medical school.
I am speechless. This is WCI at the top of his game. Preach it, brother!
There is a great analogy in the fitness and weight management field. While exercise is indeed important to maintaining one’s weight, if you do not watch what you eat, it does not matter. Your mouth can erase the benefit of an hour of intense exercise in a less than five minutes.
Similarly, as a physician, you cannot out earn your ability to spend money. You might work a really long, tough week with weekend call on either end, and you can erase the benefit with the stroke of a pen or the swipe of a card.
One mind game I play on myself, which is particularly effective as I approach an early retirement from my practice, when I am considering a purchase, is to calculate how much longer I would (theoretically) have to work to pay for it. Wanna go to Europe? Is it worth working an extra couple weeks? Sure! Wanna replace the Prius with a new model, it will cost you a couple more weeks? Fuggetaboutit!
That’s how I evaluate many purchases these days. Of course, it’s only another week or two of work seems like a pretty easy way to justify a lot of expensive purchases, raising the standard of living, and prolonging retirement by more than intended.
Another I use is the Rule of 72. Would I rather spend $10,000 now or have $20,000 more in 8 to 12 years?
“Of course, it’s only another week or two of work seems like a pretty easy way to justify a lot of expensive purchases…”
All I can say to answer this is that you like your job more than I do (and I know this from reading your blog, posts, etc.). 🙂
rule of 72 works great to show kids how much that I phone will cost them at retirement. told my kids each I phone will cost them 30 grand at retirement, and a lot of people get a new one every year. when they realized this, they areally happy to take a hand me down phone
Love the weight analogy, Vagabond MD.
WCI, X=spending
The Spending Factor just doesn’t sound as sexy as the X Factor.
That’s my only complaint about the whole article. Well, that and the SUV’s, since I’m in the MMM camp and I think your 65-year-old man wants to breathe clean air as well as retire. 😉 But overall, this is a solid, true, entertaining advice. Thanks!
I’m hoping tech solves the air problem soon. It’s the darn battery technology that needs a huge breakthrough.
Great post. I think it is internal motivation. The same drive that motivates people to go to medical school should drive one to learn financial literacy but it obviously does not. I have a few physician friends who really understand compound interest and asset allocation. I recommend this blog all the time but I really don’t know that many people take the advice. I have told colleagues for several years that I was financially independent and could retire any time but I think most think I am exaggerating. I think for me the motivation for financial security came from my mother. She was widowed at 35 with two young children. She married my father At 39. She wanted me to go to college. She always told me that I could not rely on a man to take care of me that you never know what will happen in life. Maybe the x-factor comes from early childhood experiences. It is a very interesting concept.
I don’t completely agree with all this(maybe someone can try to crucify me like they do on MMM).
I have a plan and meet those goals first. After that I spend the rest. I’m not getting these years back and some events I want to experience are costly.
I’m not planning an early retirement but I am happy to be a physician.
I agree with you and think it is within the intent of this post. You are not just keeping up with your neighbors but have carefully considered your priorities and made rational decisions. You have taken care of your future first.
I guess Rex that you did not get the x-factor!
thats a little too soft of a criticism. Guess your arent one of the MMM crowd.
Personally i have a 401k, DB plan, backdoor roth, and small taxable. Thats enough saving for me i believe. If you arent doing those things then definitely you need an X factor. Besides the latest X men movie wasnt that good.
Rex- I would say that you get what WCI is saying, even if you have chosen not to be as agressive with your savings as you could be. As he says- it comes down to deciding what matters to you. If you have a reasonable plan in place and you’re maxing out those accounts then you’re likely going to be just fine in the long run. Just stay on top of the plan so that if factors change you can adjust, cause it sounds like you have the discipline necessary to follow it but have just not decided FIRE is your priority. No judgement here.
you may be missing my humor. Im not actually concerned with judgement.
I have pretty thick skin since im super knowledgeable on permanent insurance and thus agents hate me.
i do think though that excessively pushing the savings button can lead to issues of unhappiness. i dont want to see people go there.
I spend more than 24k/year and do not own a bicycle! I have never read or posted on MMM forum. I do get his email feed. It sounds like you do have WCIs x-factor if you are saving as you mention. I think the point WCI was trying to make is that the self selected folks who read and post here are either financially literate or soon will be and that sets them apart from most docs. Lots of roads to Dublin. I do think it is ok to think differently about debt, savings,and spending as long as you understand what you are doing. So many procrastinate and end up unable to retire when they want to is very sad to me.
@Rex
You sound like you are making a conscious choice to spend your money – maybe not like WCI spends his, but from an informed position. This is a little different than the people who don’t even consider, just follow the herd, keep up with the Joneses, mindless consumerism. I can respect that even if I choose differently.
Also – just to keep it even – I made a different choice, stayed in the military, make less than my civilian counterparts, have not really “skimped” on life experiences, and am richer than many of my age matched Urology cohort. Also, got to live with my family in Europe for 3 years, San Francisco, DC, sent my daughter to Duke Univ with my GI Bill, all on the military’s dime. So to any budding military docs out there, learn from WCI but don’t think you have to make the choice to get out if you are having fun!
I agree with that. The military is a great option if you like being a military doc.
One doesn’t have to chose just one
I spent 8 on active duty
The post isn’t about early retirement. The post is about figuring out what you want out of your financial life and going out and getting it. That might be early retirement, but for most of us, it isn’t.
You have to preach an extreme in order to move people to the middle (not sure I agree with my own statement). As long as you have an adequate saving rate to retire when you want (and with the passive income you want), you are free to spend the rest (and I think WCI would agree with this). Just realize that spending all the rest won’t necessarily make you any happier (although giving away some of it, and buying experiences with it may…). I’m in a high paying specialty, so I can spend a lot (at least 4x the average American income, mostly on hobbies I really enjoy and vacations), save a lot ( >30% of income, which will give me the option to retire early if I choose), and still give a lot. Set your priorities, set your goals, anyone who is a physician should be able to see the long term picture, and travel down the road you’ve chosen. Don’t fall prey to the hedonic cycle, but enjoy your life, you do only get to do it once, and we don’t know the future.
Great post, none of the good advice is worth anything without cash to invest. Having a world view that says financial independence in the future is worth more than current “stuff” makes everything possible. Now this does not mean that you have to do without, but rather put some things first rather than last.
Its all about financial literacy. Once you understand compounded profits, the rule of 72, and why passive investing works, All you need to do is get the ball rolling and get your path on auto pilot.
Saving is a trait taught by your parents
I think this was the point, its not about only that. You have to see it, and then go OMG!, and then start acting based on your new priors. Most people simply dont do this, idk why.
For example, one of my best friends who is very successful and frugal in many ways, has his student loans paid off etc…runs his own practice and had me go over their 401k plan. It was atrocious. High costs, fees, and that was before the awful fund choices where nearly every ER was over 2% for index funds. I told him this, pointed him to Vanguard, gave him my spreadsheet showing how much this 2% cost over 30 years, etc…and still to this day no changes in the plan. What can you do. I think I will shoot him that graph I saw the other day that illustrates the concept more strikingly.
It seems John Oliver recently had an AHA moment when he delved into his 401(k) plan:
https://www.youtube.com/watch?v=gvZSpET11ZY
This was fantastic! Thanks for sharing.
Sometimes a whisper is louder than a scream. I find Doctor B more interesting. Chaos Theory might help her more than all the books and analytics. What’s her beating butterfly wing action? Don’t give up on her WCI. The end goal is different for each of us.
If Dr B can’t sleep because of his debt burden even after refinancing then perhaps looking at other expenses would help since DrB wants to cut back and work fewer shifts even before paying off the loans. (record run on sentence). Perhaps DrB flew into too much house or leased luxury cars. I just don’t see cutting back while still having educational debt.
Yes, Hatton. My point is she needs action…a first step. What I see in Dr. B was my husband and I years ago. Our change didn’t start with some big aha moment. It didn’t come from educating ourselves about finance. It came from a nagging sense that there must be a different way. We made a series of small adjustments that grew over time. Our financial education came later after our small behavioral changes had primed us. My husband would tell you his first small step was starting an IRA in response to a fellow resident simply asking if he had started saving for retirement after our daughter was born. For me, my first step was listing all our credit card debt on the refrigerator where it couldn’t be ignored after we had bounced some checks. Dr B seems primed for taking action. Thinking she has to go learn all this finance first and make some big actionable life plan can be self-defeating. Some of us start small and build up steam over time.
I really want to encourage the readers whose frugality set point it different than many posters today to know they can be successful as well.
Well I know it sounds odd but when I did my residency if there was a retirement program of any sort no one told me about it. I managed to avoid credit card debt and only had loans of 29k. I did not start saving until age 31. So when these youngsters are posting about all their savings in residency I feel amazed.
To me the X factor = taking action. Can you recall any initial small actionable financial event that helped you get started down your path?
I guess my event was I started dating a full service stockbroker. I of course now realize that I made many mistakes by taking some of his advice but the aha moment was becoming interested in personal finance.
you’ve nailed it.
it is indeed the X factor.
the reason that as a mere PGY2, the only liability i have is my dream/2nd home I purchased since MS4 (complete free of all other debts including student loans/credit card debts/car loans), and on track to retire by 2023 (only 3 years out as attending), is exactly the X factor.
the X factor is what I have been blogging, speaking, and teaching about. thank you so much for hitting it right on the nail!
People talk as though they have to do things–keep up with the Joneses, eat out all the time for convenience, etc. They are de facto saying that these are their priorities despite paying lip service to family time and early retirement. Look at their bank statements and their calendars to see what they value.
Maybe they’re insecure and need these things to make themselves feel better.
It’s strange, though, that when they do actually focus on the things like family time, paying down debt, and early retirement and start making progress they gain the confidence to not care what the Joneses think and delayed gratification becomes a point of pride. It becomes an achievable challenge.
How to get over the hump and get started? That’s the big question. Maybe a 30-day test run at frugality? Most docs can make a significant dent in their debt every month that they actually focus on it, and the feeling is addicting.
Yes, converting your joy and satisfaction from one area say spending or something to another like saving and making your financial security much better is key. It really is quite satisfying and enjoyable. I suppose one could go too far in that area but I’ll deal with that when the time comes.
Once you’re able to make that switch to where saving, paying off debt and marching towards your goals is what makes you happy youre good to go.
I don’t think it takes too much willpower to save.
My wife and I max individual contributions to 401k x2, a 457b, an HSA account we don’t dip into, and max backdoor Roth IRAs x2, in addition to employer 401k contributions. Altogether this is $100k a year, but it doesn’t feel like that much because it’s mostly pretax or employer contributions.
Based on advice from your book and blog, it’s brainless and effortless, more or less.
Brexit may disrupt the best laid plans…
Actually, Brexit should have no impact on “the best laid plans…”
Asian financial crisis, Long Term Capital management, Y2K, Dot.com bust, 9/11, 2008 all were just blips. Hopefully Brexit will be as well.
Nonsense. I can’t even tax loss harvest stuff I bought in January yet. I bought thousands of dollars of stocks today.
I actually sold some I bought in february to buy some today. Everything else still up big from feb. I’ll take any dip I can get.
It’s funny, was just talking with Dr Mom a few posts ago about when there will be the next big dip in the market so people could start to pump money into the market, and here the Brits have opened up this opportunity for us
The big opportunity for new investors here is to simply stick with your plan, watch, and learn.
The 4 most dangerous words in investing are “This time it’s different.” Sir John Templeton
Perhaps. But if it disrupts the UK and the EU, it may well be a new dark age. Although maybe a great time to pick up some cheap real estate across the pond…
“A new dark age”? How could Brexit even in any absurdly unlikely scenario possibly cause a new dark age?
Well…I think it will probably be fine. But it could lead to the UK splitting up, and possibly the EU, while Putin licks his lips and pushes expansionism as the EU dissolves and the US is left without one of our major allies and stuck defending Europe against Russia.
But, agreed, not much to be done about it. Although I do think British RE may have a bit of a fire sale, and prices in NYC might climb further.
“You’re going to be living paycheck to paycheck, or worse, your entire life. ”
This sentence seems to be missing something.
I had to read it twice. He means that there is a condition worse than living paycheck to paycheck, such as not making ends meet, accumulating more debt, filing for bankruptcy, being forced to eat dog food, or any other situation that you can imagine that is not covering your expenses.
That’s exactly what I meant. Still seems clear to me, but I guess that’s why people have editors.
Was that the Tetons? Also, great post!
Yes, but not a view that many people see. There are three peaks in the picture, the one on my left, which everyone has heard of, the one on my right, which some people have heard of, and the one I’m standing on, which very few have heard of.
Grand Teton, Tewinott, Moran?
NM, I see the answer down below
The right answer is already posted, but Grand Teton is one of them!
if you learn that stocks are the best asset class and wall street is an uneven playing field, you are on the right track
in residency you should be starting your investment career; earlier if possible
after reading random walk, I started indexing and never looked back
the issue we all will experience is what to do nearing ret age; I went super conservative to preserve capital and it was prior to the crash
I haven’t been around WCI blog in a while and dont plan to but for all the troubles to poster I may have caused here is an exercise.
Imagine you have a balance on your Credit card. Like $1,000. You make $50 monthly payment on it. Now think of it like a ROC calculation
(-$50 x 12)/100 = -60%.
Thats your “return” on cash. That is you can make 60% if you payed off your card. Get that return anywhere? doubtful.
Anyways, back to building business.
Not sure I follow that calculation. I think you’re trying to demonstrate that having debt hurts your cash flow. I agree.
YYJames (-$50 x 12)/100 = -60% should be /1000, you were off by a factor of 10 but don’t worry we cannot all be as diligent as wci in our math calculations 🙂
Yes I was off but it’s still 60%. Typing too fast
It’s just a different way of looking at expenditure. Cash on cash or return on cash applied to expenditure. It’s ok, not many follow this but here is another example: if you buy something for $20 monthly but can now find same thing from alibaba for $18 then you ROC on this expenditure is $2*12/20*12 = 10%. Great “return”
Anyways to JN – WCI missed the point in my calculation not a 0 off but please consider him fool proof as all the fans here blindly do. Good luck.
Yy … I know I addressed the last comment to you but it was really a troll of wci in a recent post he was off by a factor of 10…sorry for the confusion
Oh ok. Oops. Clearly my sarcasm meter is broken.
Will do better next time 🙂
Long time lurker. Rare poster. I am a big bogle head fan as well. I’ll chime in with a vote of moderation and purposeful spending. I’m 39. 8 years of of residency this week.
I still have loans. At 1.6% over 30 years.
I have 13 years left on a 15 year mortgage with a balance just over 800k at 3%
I don’t have any car loans.
I don’t have any consumer debt.
The 401k’s broke 1MM last year.
The 529’s are just over 250k.
Taxable and cash are around 100k.
We an expensive area with an easy commute. Home equity 6-700k.
If you add it all up, I have around 1MM in debt. Oh no.
Net worth 1.8MM maybe 2MM if we sold our house into a bull?
Long story short, I have three kids. They are school aged, and I’m about to turn 40. All in all, we havnt deprived ourselves of much, and have set a pretty good foundation. We are still saving ~75k a year into tax advantage space. BUT, we are starting to spend more, specifically while our family is young. I have no idea how long I’ll live. I have no idea what will happen in the next 5, 20, or 40 years. What I do know is that my kids will never be hungry or homeless and that with the life and disability insurance I carry neither will my wife or I.
As I am turning 40 this year, I am happy that things have worked out this way. It wasn’t an accident. I guess I could be financially independent or retired if I wanted to slash my spending, but I like my job and want to give my kids some experiences I didn’t have growing up. The plan is to have the mortgage and the college bills paid for the day my youngest graduate from high school in 14 years. At that point Ill be mid 50’s. Net worth will hopefully be 5MM and I will be able to quit if I want. For me, that’s the number. An easily achieved conservative FU number that would let live the way I currently do with very little sacrifice.
Good luck to those who are starting out. Hopefully I will still be posting along the way.
John
You’re 39, have a nearly $2M net worth and you’re preaching moderation? 🙂 I agree that you may want to take a look at spending a bit more as discussed here:
https://www.whitecoatinvestor.com/loosening-the-purse-strings/
Our situations are remarkably similar.
At 8 years of residency, you are probably in a similar boat as me… I’m 36, did 8 years, and now making an income that reflects that. At 36, I have a net worth of about 1.2MM (depending on home value). I have 3 more years left on school loans, and 4 more years on a 30-year mortgage – i pay about 3x more each month in principal if you are trying to do the math. With family and kids (we started young), I still manage to eek out a frugal lifestyle. The problem is, I sacrifice a lot for someone in my income range. No country club golf membership (seems standard around these parts), drive a 14 year old beater, do my own yard work… I spent $12K on credit card purchases last year. hahaha. For someone who earns well into 7-figures, my lifestyle is incredibly underwhelming.
The problem is, as WCI points out, I’m not happy. In fact, sometimes i’ll go to Target or Costco and just buy something for the hell of it, as it gives me retail therapy. Even putting gas into my car gives me a twinkle of happiness.
I guess I don’t have this “x-factor” that is described in this article. I force myself to save. I sacrificially deprive myself every living day, so that I can achieve this so-called financial independence.
In comparison, many of my friends live fairly lavish lifestyles. They vacation often, travel to exotic places, drive expensive European cars, plus have a “fun car” for the weekends. They all belong to exclusive golf clubs, eat out at the hottest restaurants regularly, send their kids to exclusive private schools, and live in homes nicer than mine. My friends have a pretty good idea how much I earn, and they think my lifestyle is ridiculous, especially since I earn more than them. Their motto: you can’t take it with you when you die, so spend it now.
My question is: who is happier?
Maybe it’s time to decide what makes you happy – retail therapy vs taking some time off to go on a vacation or something. You don’t have to be a miser to be frugal, and you don’t have to be a spendthrift in order to wisely use money to do something you enjoy.
My point is that I am spending more now, instead of later. I’m pretty sure it is making me happier. We are going on nicer vacations with more amenities or “service”. It is springing for a second state room on a cruise instead of jamming 5 people into 249 square feet for a week. The other big splurge…We are putting in a pool now, before the kids are too cool to use it. I could have waited five more years, but what’s the point.
If you have reached a point where you will truly never be destitute, and are still saving and accumulating, spend what’s left over. I have never had a budget, and I know we could spend less, but we have always automated our savings. 401k, 529, mortgage prepayment, etc… What my wife and I decided to do is to decrease the savings amount and spend a little more now. What are we really saving it for? How much is enough? I’m not going out and buying a Porsche, we still have a Toyota in the garage, and we haven’t joined a country club or signed up for private school, but we are living a little more now.
Hmmm….sounds familiar: https://www.whitecoatinvestor.com/loosening-the-purse-strings/
OK. Take a baby step and start having a date night at the hot restaurant. See if you have a panic attack from spending the money. If you don’t then make it routine. On your current track your friends might be amazed when you retire at 45 or 50.
Are you the Hatton1 who retired from OB at 56? I am planning to model something similar – once college funds are topped off and mortgage paid off around my age 52 will aim to stop OB call (24 hour in house shifts around here) which are my least favorite part of the job. Still being able to contribute to the retirement funds at that time while cutting my hours in half is the goal. I am 3 years away, well 1002 days but who is counting LOL – Any regret ??
yes that is me. I was in a solo practice but sharing call with 6 docs. The call was not in house. My home is one mile from the main hospital so I would come in for delivery or pushing if a multip. With 6 people the weekend call was tedious. I really like that when I am done in the office I am done for the day. I might get one after hours phone call per week now. I still enjoy operating. I reduced my malpractice expense even more by going part-time. I can only work 20 hours per week. I am not making much money but I am doing an individual IRA with catch up (6500). I sometimes miss the L&D staff but I still visit. I spend 4 day weekends at my lake place. I no longer work any holidays or weekends. I have a net worth of close to 7mill so I decided I had enough and will not continue getting up in the middle of the night in my 60s.
Sounds perfect, good for you. Was your New Worth that high when you dropped OB? Mine won’t be but I figure I will let the nest egg ride and not touch it as long as I can work part time – so it will grow for the next 15 years until I will need it. As long as it is 3-4M I will be OK.
I had crossed the 5 mill mark in financial assets when some unattached call rules on OB changed. So I thought about it, put it in a spread sheet and decided to do it. I am letting the assets grow and living off my 3 day income. If I need a car I have set aside money for this and other expensive non-reoccurring items .I have about 5.9 in financial assets and about 1 mill in property.
Boy, I would made that decision long before my 60s and $7 Mil! I’m impressed you lasted that long.
So go over your current expenses, guesstimate your future retired expenses at 60 80 or 100% (your true expenses may vary- if kids gone, maybe the lower numbers) in current dollars, figure out when you can retire based on your savings rate, and then recalculate for if you spend the extra $200/month on the in restaurant or $500 (or whatever) a month for restaurant plus country club (including the extra costs of the club like rounds of gold, eating meals there, getting golf clubs…). Various calculators here’s one, I use excel but have to relearn the math formulas each time. https://personal.vanguard.com/us/insights/retirement/retirement-tools
Then review with your spouse and decide what’s more valuable to you.
If you aren’t happy then something should change. One thing that might help is getting more frugal friends- if you’re religious find a lower rent house of worship, join a low cost (careful some have hidden costs) political or hobby group together, etc. Or time to loosen the purse strings.
I’ve done that exercise now with hiring a cleaning service (worth it), and maybe about hiring a gardener or getting fresh flowers delivered every week (all that shipping material bad for the environment? Doesn’t stop me from buying books that way).
But for us stopping work was very valuable and so we budgeted and saved for it.
I thought I would pass along the link to this recent John Oliver show. Might be useful for people in search of the x-factor to watch.
https://www.youtube.com/watch?v=94Rqmf98PLs
You’re atop the Enclosure; Mt. Owens is on the left with Leigh Lake behind it; and behind you on the right side of the photo is the upper part of the West face of the Grand Teton. The great chimney of the west face route approximately parallels the boundary between sunlight and shade.
Opps: Mt. Owen (no trailing s).
Also, a party can be seen on the Owen-Spalding route to the right of the great chimney, near the right edge of the upper third of the photo. One member is on the Double Chimney and the other, in dark red, is at the stance above, at the base of the Owen Chimney…standing about as tall as the distance between WCI’s mouth and eyes. Their helmets appear as white dots.
Spoken like someone who has been there.
And if you look carefully, I’m not the only climber in the picture.
In the great chimney, yes, in 1983. On the Enclosure, never. And we bypassed that part of the Owen-Spalding en rappel, off photo right.
Random thought experiment:
Let’s say I am transitioning from training to residency. Have high wage and will be hit with largest tax bracket….have credit card debt.
Initial thoughts are to attack credit card debt until it’s dead and delay maxing out ira/ 401k for a year. However I think that mathematically it makes more sense to do 401k even if the credit card had a rediculous rate like 30% as that is still less than the 40%ish that the gvmt would take. Am I missing something? Thoughts?
P.s. You cannot say tighten your belt and pay both… That’s cheating in this thought experiment.
You should tighten your belt and do both, whether it is cheating or not.
But I’d pay the 30% credit cards as nothing in your 401(k) will give you a 30% return, even with the arbitrage between your 40% rate now and perhaps a 30% rate later. As you get closer to 10%, you might be able to make an argument that the 401(k) tax breaks, plus asset protection, plus return are better than the available return on the credit card, but I wouldn’t even be sure about that until you approach 5%.
credit cards are bad and need to die this year or next but mathematically why is better to pay them off this year when you have 10% to 30% arbitrage (this is a hypothetical thought experiment but I had the same thoughts to pay cc off first too, and I feel like there is probably some down side to keeping the debt one more year that I am not thinking about… This isn’t doubling the length of a mortgage where behaviorally you can get too accustomed to the easier lifestyle and besides I’m mostly focused on the mathematics for this )
A 10-30% guaranteed return is an awfully attractive investment.
I 100% agree to pay off those cc. If you can make yourself believe that there is anything outside of an emergency that is worth that rate, you’ll be in debt forever. Its a very bad path. I dont actually see the difference in why you’re not adapting lifestyle to the balance as you must be using the money elsewhere or it wouldnt be an issue. Its basically the same. Dont rationalize it, cc balances are just the worst.
On the other hand, why dont you transfer it to another card for 12-24 months at 0%, even if it has a standard transfer fee you’ll save during pay down. But you must pay it down.
If you must look at the interest each month charged for the luxury of carrying that balance, and get a snowball/extra payment calculator or something to knock it out and prevent further interest charges that can really aggressively add up at that rate to decrease how long you’re paying.
The reason is that when you retire, you will not be in the 0% tax bracket. Some of that cash being pulled out will be in the 15% and more than likely 25% tax bracket range. Therefor you are arbitraging the difference between 39.6% now and 25% later.
Also, there is no garuantee that the markets will grow. But you are garuantee 30% by paying off the card. Plus once it is paid off you have extra cash flow to invest.
The real answer is to stop being an idiot and do both.
Yes the real answer is stop being an idiot and do both but this is a thought experiment and I can put in conditions like you have to choose one and in this scenario you don’t count capital gains/losses ( cannot predict them so I don’t count them)
But you pretty much pointed out what I was missing …. I forgot about paying taxes when I take it back out so my whopping 30% arbitrage turns into 40-10(low cc rate)-15 (low retirement income tax ) into 15%….all it takes for either the credit card rate to be higher or the retirement tax bracket or tax rate policy to go up (the last 2 are very likely)…and now it’s a loss or at least not worth the risk
Thanks for the help all… This was fun
but what if you pay down cc and then run it back up again? A paid off cc is for the moment, a 401K might be for 30 years.
I can TOTALLY relate to this post. I don’t work in medicine, but rather finance, and often there are new grads who enter the firm and immediately their lifestyle (and cost of living) shoots through the roof. Then they complain that they don’t make enough money and have trouble balancing their budgets.
I think you’re totally right when you say it always comes back to “how bad do you want it?”
Interestingly, I met a fella the other day who also works in finance, in a very commission-based sales department at another bank. He strongly encourages new hires to lease an apartment in the Harbourfront region of Toronto (the most expensive real estate in the city) because this will create tremendous financial pressure for them. This means they have no room for failure and will definitely perform.