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, 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
Motivation is key! Bonus points for anyone who can name the three peaks in this picture
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.
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. [Update 6/2016: The Durango died and I now drive a fancy SUV-details in an upcoming post.] I simply have bigger priorities right now. You all remember the boat we bought last year. We delayed that purchase 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
We treat our retirement accounts like a bill with a due date, just like the mortgage, our taxes, and the utilities. Not maxing them out isn’t an option for us. In fact, we’ve spent a great deal of time and effort trying to max them out as early as possible each year to maximize the benefits of compound interest. If you want to get rich, treat your savings as a bill that must be paid. It’s not your money to spend anyway. It belongs to your 65 year old self. You’d be a real jerk to rip off that old man.
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, and 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!
That darn $4,000 Durango of yours has been lurking over my shoulder every time I think about buying a fancy SUV to replace my 20+ year old truck. So, I’m looking forward to hearing the story of your new wheels.
There’s not a lot to tell. We’ve been planning for it for years. When the Durango died, we were going to buy a new Sequoia. It did, so we did.
Hello,
I was sent this direction from the PoF’s Sunday best! Really interesting read! I definitely have the X factor and one of my brother’s does too. Yet the other brother doesn’t have the X factor what so ever…that could be an interesting study within a family system. I think my non-X factor brother has kind of given up now and he “lives for the day” rather than seeing any light at the end of the tunnel in terms of finances, retirement planning, etc. At times the only thing I can think might work is some type of “intervention” (as if he had some kind of addiction – well, he does – to spending money when he shouldn’t…) I am really scared for his future.
Hello Vicki,
The bad news…You might not be able to do any thing to help him. You can show him how saving passively adds to his net wealth. If you save 100k per year for 30 years you end up with 10 million. You could show him that if he buys something on credit card it’s like paying double the sticker price but at the end of the day if he doesn’t want to change and come to this realization on his own then there is little you can do.
The good news… He may get there naturally…
I am in a similar situation With my wife. Over the years she has slowly gotten me to loosen the purse strings a little and I have gotten her to at least start to think before she spends, and realize money is limited and not to open/close/use credit cards. Without constant gentle/joking reminders (not nags) she might slide back, I also like to talk to her about what I’ve read on this website, as to keep FI fresh in our minds and in our goals. (It also helped when she got her own money that she could spend on whatever she wanted and thus I could reasonably keep a budget)
It’s a slightly different situation but that has been my limited experience
Isn’t it interesting how some couples can meet in the middle financially and both be happy and others have their relationship explode over it?
I completely agree…it’s very interesting. My relationship could have easily gone the explosion way. For the first years of our relationship we never fought. Then as my wife started going to med school we relied on each other more financially we started to fight more and 90% of our fights were about money and 10% stupid couple stuff that doesn’t matter. We made one simple change and it solved most of our money fights and a second change all but eliminated the remaining fights we had.
I could not convince her how silly it was to be spending money on Starbucks, cloths, meals when we had credit card debt and it was only getting bigger. I never knew how much would be in her account to pay bills. If I had kept down the same path of trying to convince her that my values (or X factor) should be her values, with out taking any other action then I am not sure we would still be together. But I broke down and gave in. Around the first year of residency We decided she would have an allowance and her own account. From that account she would pay for x, y, and z. I couldn’t complain about what she did with her money (even if I thought it was frivolous), she couldn’t dip into her main account so I could reasonably budget.
the second change we made which mostly eliminated the rest of the fights was that we just started making a lot more money. But If we didn’t do the first part it wouldn’t have mattered how much we made
I agree with the importance of having some of your own money, even if it isn’t very much. It’s even more important when the “our money” is limited. We’ve always done that but there was a time when our “allowances” were $20 a month.
Great article, your messages resonate well with lots of us. I love the way you share your knowledge with us with passion and energetic.
My way of thinking is that while it is important to save for retirement but don’t forget to enjoy while you can when you have a young family. We can work harder, pick up a few shifts here and there, so we can afford nice vacations with our families. While we can drive old beat up trucks but the wives can drive nice vehicles. Money is good and every thing but dont miss living your great lives. We can work a shift or two extra to save. After all we have been dedicating our lives at work, we can do it abit more for our families. What do you think?
Moderation in all things, but realize that passion and focus can do pretty impressive things too.
“It’s not your money to spend anyway. It belongs to your 65 year old self. You’d be a real jerk to rip off that old man.”
That’s my favorite part of the blog. Makes me laugh whenever I think about it. 🙂
Passion + Knowledge, that’s what it takes. Great article.
Well when you put it like that…
Great post lots of motivation to be found in every paragraph. Spend less than you earn. A LOT less.
Yes the Xfactor is something people have or others just can’t seem to grasp it. A coworker of mine was living with her grandma rent free making around 45K a year, and couldn’t fathom maxing out the 401K. 18K is nothing if you don’t have to pay for rent or food, or utilities. I am close to reaching about 30% of a savings rate with a non-physician income. WIsh me luck.
Love this post! I’ve been in this mindset for the last 10 months of my life and I can testify that it works! I’m now completely obsessed with staying the course and making my financial goals come to life.
However, there’s one point I want to make that I think is very important. Though I fully agree with you on delaying gratification for material things (cars, houses, boats, etc), I think its important not to delay life experiences. As doctors we all know very well how quickly and unexpectedly life can end. If you make yourself miserable by saving so aggressively that don’t allow yourself some sort of enjoyment each day or each year, you could die tomorrow before you ever get to do the things you want to do.
For me travel is very important. I currently set aside money each month for “personal” savings. From that account we can afford to plan at least a couple of nice 2 week trips each year. I’m going to Hawaii in January in fact. When we are sitting on our death beds, all we will have that matters are memories of the experiences we’ve had throughout our lives. Material possessions and money will not matter one bit.
Its easy to lose sight of that and become too obsessed with money and material possessions. Budget for some good life experiences now. They don’t have to be expensive. Travel a little, learn to play a musical instrument, have a hobby with friends, spend more time with your kids, etc.
I agree. Figuring out a level at which you do not feel deprived is very important.
I actually think we just need to understand we will always feel a deprived, and that’s OK! Better get used to it, accept it and become comfortable with it. If you spend 100% or more of your income, there will still always be the next thing or nicer thing you desire, and thus, you will feel deprived. Same thing happens if you spend 80% or 60%. You really can’t ever spend enough to not have that next desire jump right up and start whispering in your ear. So, you can either have that feeling while saving 20% or more of your income, or you can have it spending 100% or more. Your choice. Some people spend until the natural limit of being completely out of money and/or credit stops them and others put the brakes on themselves at a lower number, which requires discipline. The one way you have to work forever, the other you get to work when you want to after a certain point. Your choice.
That darn $2,000 Durango of yours has been lurking over my shoulder every time I think about buying a fancy SUV to replace my 10+ year old truck. So, I’m looking forward to hearing the story of your new wheels.
Here it is:
https://www.whitecoatinvestor.com/our-experience-buying-a-brand-new-car/
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Hilarious! Great job on the post and defending your comment section White Coat!
My husband is 4 months from the end of Fellowship. I just read your book and I’m loving your blog. Thank you for sharing your time and wisdom with the rest of us! I can’t wait to get started and to share our successes. 🙂
I read this post before, and I agreed with it, and I nodded my head and put it away.
It’s there on the WCI classics all the time, and I decided to read it again today.
This is a wonderful post that gave words to a lot of what I see in Burnout coaching.
Either people are ready for action or find fifty different excuses to not do it. The ones with X factor are easy to see even among the self selected group of people asking for help.
Put us somewhere in between the two poles. We are 43 and have a net worth of 500k, but we still have student loans {2.75%) and a mortgage (3.75%). We are sending our kids to private school (for now) so we are having trouble saving 20%. We bought new cars (3 and 6 years ago) but we plan to drive them forever. We didn’t even pay cash (1% loan), but they are paid off. We live in a nice house, but it’s small. I think we’ll do Ok but not amazing.
This is an excellent articulation of a philosophy I have espoused my entire life. I am now the old guy looking back on my financial life. I thank my younger self for having taken such good care of me and my family.
I have used my version of the “x-factor.” It has served me well.
First money spent: cover the cost of earning it.
Second money spent: the savings “bill.”
Next money spent: housing/insurance/etc (cheap at first), utilities, groceries, etc.
Next money spent: small luxuries, music, occasional restaurant.
Leftovers: savings and keeping the now old 60 year old in milk and cookies (ie retirement funds).
Over the years, even as my paycheck grew from subsistence to stratospheric, the ratios, have changed, but not much.
Here’s how it breaks down on the average over 50 years:
Early years
First money (loans, tuition) about 15%
Second money (savings) about 25%
–maxed out retirement matches from employers
Third money (housing) spent about 30%
Fourth money (small luxuries which have grown over the years) 10%
Leftovers: 20% mostly to extra savings or some fun stuff.
Middle years:
First money (loans, tuition) about 0%
Second money (savings) about 25%
–maxed out retirement matches from employers and now 401k/Roth/etc.
Third money (housing) spent about 20%
Fourth money (small luxuries which have grown over the years and includes airplane gas) 30%
Leftovers: 25% mostly to extra savings.
Later years:
First money (loans, tuition) about 0%
Second money (savings) about 10%
–now capped out of retirement funds
Third money (housing) spent about 20%
Fourth money (small luxuries which have grown over the years with income) 20%
Leftovers: 50% mostly to extra savings.
And soon I will have a new problem: RMDs will create a costly tax problem, so I’m working that problem right now, before its a bigger problem. It’s been a good run so far, and it really was fun to drive the rust bucket into the parking spot between the Beamer and the Benz. And now…off to the mountains in the new-ish Outback.
Classic Post. Evergreen content. Get the X Factor early in life!
I’m a premed student, and one of the things that scares me the most about the path to being a physician is the financial debt. The money was probably the biggest reason for my hesitation to pursue medicine. I read “the Slight Edge” and “The Compound Effect” and “The Millionaire Next Door,” all great books, which talk about these concepts. Thank you so much for making this! I hate being in debt (currently have undergrad debt), and this gives me hope I won’t be spending 10 years after I finish residency and fellowship paying off debt. This makes me less scared to pursue this dream.
It seems unlikely you’ll have that happen to you if you already know about what I write about on this site. Medicine is still a financially viable career path.
I mainly learned about obtaining the x factor from those books, not so much practical application of it. Really happy I found out about this site so I can learn more!
“Maybe it is delaying your trip to France in order to put some extra money in the 529s this year.”
That sounds reasonable in theory, but life happens, and you might never get to take that trip.
Let me tell you a little bit about Doctor C. He had fun in medical school but saved money when he could. He took out a moderate amount of student loan debt but always took advantage of group trips where he made wonderful friends. Memories of sunsets in the Grand Canyon, between physio and pharm. Biochem flashcards on a bus in Vietnam.
In residency, he paid moderately on his loans. That way he could afford an apartment he was proud of. His place wasn’t fancy, but it was big enough to throw a party or two. He was sometimes guilty of eating out at an expensive restaurant but drove an old car with good gas mileage to make up for it.
After residency, he didn’t buy a little condo or a fancy house. He invested in a moderate single-family home. He had three children. His two boys shared a bedroom, but his wife didn’t work. They took family vacations as much as possible; usually, somewhere they could drive to and camp.
I guess everyone has different priorities in life, and that’s ok.
As for the original two doctors: Doc B seems irresponsible with money spending beyond his means. Sadly this condition is not exclusive to doctors. On the other hand, financially responsible Doc A values early retirement. He has convinced himself that every simple joy skipped in the present will pay benefits in the future. This is not always the case, as some opportunities are once in a lifetime. Some things are worth more than money.
Moderate Doctor C ended up retiring at 68 instead of 65. When he looks back on his life, he has no regrets because his memories are priceless. He understood early-on that TIME was the ultimate commodity. Throughout his life, he was mindful of his pocketbook but ultimately valued relationships the most.
Doc C didn’t have the “X factor” he didn’t need it. All the friends, food and trips filled his soul. Doctor C was happy.
Moderation in all things.