I have a superpower. I understand your skepticism, but it's true. What I have is so rare that it functions in our society as the equivalent of a superpower by giving me power to do things that most mere mortals simply cannot do. What is this superpower you might ask?
Is it x-ray vision?
No.
Can I fly?
Only in my dreams.
Do I have superstrength?
Well, I did benchpress 225 lbs a few months ago.
But my superpower is none of those. My superpower is that I don't suck at money. I'm not alone. There are a few of us meta-humans out there. In fact, it's possible you are one of these rare meta-humans. But we're like a needle in a haystack. I realized this while watching a presentation by Mr. Money Mustache, and this post borrows heavily from his ideas.
Our society has become more and more financially complex such that negotiating our financial world properly requires a great deal of interest, education, and discipline. Only a tiny percentage of Americans possess all three of those attributes, so if you are lucky enough to be one of the few, it's like having a superpower. Guess what? I qualify, and I bet a lot of you do too.
What Does It Mean To Suck At Money?
Nearly every American willing to work at a full-time job has enough money to meet all their needs, to purchase many of their reasonable wants, and to quit working completely within a decade or at most two. Yet it is so rare for someone to be financially independent in their 30s or 40s that it makes the news when it happens.
Now life is about more than a race to financial independence. Sometimes it is reasonable to choose to spend money on something that makes you happier even if it delays your financial independence by a little bit. But it is not reasonable to mismanage your finances so much that you never actually become financially independent. Yet that is what most Americans do, even high income Americans. How do we know? Well, let's take a look at the Great American Savings Rate. Back in October of 2016, the Motley Fool calculated it at 5.7%. What does that mean? Well, financial independence is not a particularly complicated equation. It is primarily a function of your savings rate. [That average savings rate has steadily crept up to about 7.7% from the time this post was originally written in 2017. Since the Covid-19 pandemic hit the US in March 2020, the savings rate shot up to a high of 33.5% in April. It's steadily dropping since that high, but hopefully, Covid-19 has been a wakeup call for many Americans. -ed]
If you earn 5% real on your investments, and you save 20% of your income, you can retire on 80% of your income after 37 years. It's actually usually a little better than that, since many expenses go away in retirement and you pay much less in taxes when you're only earning 80% as much and you don't owe any payroll taxes because it isn't earned income. It's a lot better than that if you pay taxes like a doctor. But let's use 37 years just for ease of calculation.
Some superpowers are better than others
So if you want to retire after 30 years, how much do you need to save? About 28%.
20 years? About 43%.
10 years? About 66%.
Now, since the average American household makes about $56,000, and the average world household makes $18,000, the average American household can live better than the average world household and still put away more than 66% of their money.
Now, if that's what can be done on an average American income, what could you do on a high-income professional income? Surely 10 years to financial independence is a relatively easy mark to hit, no? Even if you start out way in the hole and make lots of mistakes early on, you should still be able to pull it off in 20 years thanks to your high income. This is classic “Live Like A Resident” stuff.
But what happens if you only save 5.7%? Well, it takes about 63 years — the functional equivalent of never. The average American (and remember half are below average) would never be able to retire without Social Security. Thus, most people suck at money and have to be bailed out in their old age by a social insurance program (a program I am fully supportive of, by the way, since I see that most people lack this superpower.)
It's easy to see why. Look how complex money is these days.
- You have to be able to do some math. Most Americans struggle with fractions and percentages, much less are able to use a financial calculator and understand concepts such as compound interest and the future value of money.
- You have to learn a whole new terminology: Roth IRAs, expense ratios, capitalization rate, etc.
- You have to actually have the discipline to design and follow a plan for multiple decades. [Our Fire Your Financial Advisor: A Step by Step Guide to Creating Your Own Financial Plan course was created to change this from being something complex to a simple, easy to maintain task.] Most Americans don't even have the discipline to maintain a healthy weight; how are they going to maintain a financial plan?
So if you can do all of those things, congratulations, it's like you have a financial superpower! The purpose of money, like the purpose of life, is to find joy and be happy. Since happiness mostly doesn't come from buying stuff, but rather from meaningful work and strong relationships, it seems kind of silly to spend half or more of your income on something that doesn't make you any happier. At the very least, examining every purchase for its “happiness value” ought to help you get to a 20-30% savings rate.
Poor People Suck At Money
Now, there are always examples out there of people who have had terrible things happen to them. Appropriately taking care of them is the role of government and charitable programs, both of which I wholeheartedly support with my time and money. That's not what I'm talking about. I'm talking about people who didn't finish high school because they didn't feel like it. Then stay in a minimum wage job because they're not interested in learning any new skills. Then go down to the payday loan store and rack up some 466% debt so they can play the lottery. Does that person suck at money? Yes, they do.
Middle-Class People Suck At Money
Let's talk about the middle class for a minute. What is the evidence that they suck at money?
- Exhibit A: 5.7% savings rate
- Exhibit B: Percentage of Americans who leave part of their salary on the table by not getting their 401(k) match (25%)
- Exhibit C: Auto loan debt for both new and used cars are at record highs.
- Exhibit D: Number of whole life insurance policies purchased and then surrendered prior to death (70-80%)
Just because you're smart enough to get through high school and maybe even through college doesn't automatically grant you this financial superpower.
High Earners Suck At Money, Too
Lest you think I'm picking on people who make less than I do, I want to point out that most high earners suck at money too. Look around you. How many of your colleagues can explain in their own words how a mutual fund works? How many of them are aware of even the most well-known behavioral finance pitfalls? Why have so many attendings not even purchased disability insurance? How many have purchased a cash value life insurance policy but don't know what a Backdoor Roth IRA is? Why are there so many that haven't refinanced their loans, or still have loans a decade or more out of school? Why do they buy expensive houses and cars when their net worth is still negative? Why don't they know how to log in to their 401(k) website? Because they suck at money!
Even Financial Advisors Suck At Money
Don't get me wrong. I think financial advisors are way ahead of the curve. But even so, way too many of them also suck at money. I find it amazing how many people take advice from financial advisors who are not financially independent. I mean, if they're 30, fine. But the guy is 50, punishes himself with 60 hour work weeks, and hasn't had a vacation in years, and you want his financial advice? Really?
Carl Richards likes to talk about “real financial advisors.” I like that, because it makes it obvious that there are so many out there that are masquerading as such. But even among the “real,” experienced, fiduciary, fee-only advisors with the highest designations in their field it is appalling how many of them are giving bad advice — individual securities, actively managed mutual funds, cash value life insurance before maxing out retirement accounts or paying off debt, market timing, bad asset location advice, etc. The truth is that even real advisors have to focus so much on acquiring new clients and “the big rocks” like getting clients to save more and not bail out of the market during relatively minor downturns that they don't even bother learning the comparatively minor stuff.
What Hope Do You Have?
So, now that we've established that almost everyone sucks at money, what hope do you have? Just one. Unlike many superpowers, you don't have to be born on another planet to have this one. You don't even have to be bitten by a radioactive spider. This superpower is much more like Ant-man's. Not only is it acquired as an adult but it can be taught and learned. You don't even have to develop the technology yourself. You can just borrow it from those who have already invented it. Do yourself a favor. Become a superhero and take control of your financial life. But always remember….with great power comes great responsibility.
What do you think? Do you think the ability to become financially independent is a superpower? Why or why not? What are you doing to acquire it? Comment below!
Money super hero ideas are easily transferred to your kids. My son is getting married this year. He works at a low paying job, owns one rental house with a good cash flow, just closed on the home he will be living in with his new bride, and has a positive net worth that will rival the average 50 year old. He already has enough money in his retirement account to give him a good retirement if he lets it ride. He is only 25 years old and better off financially than many doctors and they often make 10 times his income. He has simply listened to the financial talk we have at the dinner table and gone out and applied it to his own life. If we could get good financial lessons to be taught in high school, we could change the world. One problem is that high school kids often don’t listen since they don’t have in money problems at that time in their lives. They think they will learn it later. But later never comes for most of them.
On Basic level finances are like working out. Not rocket science and really all behavior. Do it – look and feel and live great. Don’t do it – well you get the idea.
I would reserve “superpower” status to entrepreneurship. There are people who get business and rock at it. That’s the super power. I frankly believe this can be achieved by many physicians but most don’t try or don’t have to I suppose or don’t have the proper moxie for it.
Honestly, it doesn’t matter. I’ve saved a million in six years with some help from a robust stock market and have a nearly paid off rental property. In reality, I still have to work. I still can’t live where I want or do what I want. I agree with Newbie above- it really doesn’t matter unless, like the talented WCI, you have a talent (and an opportunity) for business. While I may end up slightly better off in my eighties, saving has not made my life materially any different. It’s frankly overrated.
Maybe that’s the sign you’ve made it, when you don’t spend any time thinking about/worrying about money. It just ceases to be an important part of your life.
He’s actually stressed about money unless I’m reading it wrong
Yes! Or at least stressed that saving and investing alone will not relieve me of being a wage slave, making it seemingly pointless.
I really don’t have time to expound and if I did I’d just start a blog but in short
1. You can take more risk and do business for supplement / passive income.
2. You don’t need much”talent”. I am not that talented. Re: WCI he outworked many people and put in incredible hours to get WCI going. Now it’s network effect and more passive.
3. Partner with people you trust and you can take reasonable risks.
I wish! As I said, I still can’t do much that I want, and I still have to work. I’m not very materialistic so it hasn’t been a sacrifice, exactly, but I can’t really see that I have much in my life that I want, and I still have to spend most of my days doing something I loathe.
With all due respect, do something else. Life is too short to spend it doing something you loathe. I don’t need to work for money. I do continue to work since I love it. You can either change your work now, or follow MMM and PoF and retire early.
I agree. Life is too short that doing something you loathe for any longer than it takes to transition to something else seems foolish, even if there is a big pay cut involved.
Well said. Loathing is not what life is made for. Find joy, whatever makes you happy, and then do that, and more of that. A Physician in US can have a fulfilling life even when working a few hours a week. What do you do, my friend? There is a WCI guest post that may be helpful, Jim has walked through this, and it may help you –
https://www.whitecoatinvestor.com/using-a-venn-diagram-to-decrease-burnout/
If you loathe it then you need to change it. Have you read the essay on the Happy Philosophers site about alligators and kittens? In short you need to get rid of your alligators so your kittens will survive. If it is the particular job start looking for a new one. If it is call renegotiate it. Whatever it is you may be able to change it if you can figure out what is causing the problem. For me it became the liability and timing of Ob so I became a just GYN doc.
Every workplace is sexist and racist, two things for which I have no tolerance, so I have a really hard time imagining a workplace that I could tolerate, much less enjoy. It’s not the work, it’s the environment.
But I am sincerely open to suggestions and appreciate all the comments. I truly do want to be happy!
Dear Snowcanyon,
I am female, and am one of the ‘less preferred minorities’, graduated from residency in 2003, work in the south in majority dominated environment and I have been an avid fan of this blog. I have worked in primary care, ER and am now as a FP trained hospitalist . I have felt fulfilled everywhere I have worked since residency and changed jobs only to improve earnings. I think the loathing that you feel has a lot more to do with the ‘sexist and racist environment’ than with the dislike that you have of your career choice. I love my career and get a lot of satisfaction from it and while there are undertones that I sense, even from the patients I treat, it is not enough to affect the passion for what I do. At the end of the day, I shake my head and laugh about it with the other ‘less preferred minorities’ and then we keep going. I suggest you change career or find a job with a more collegial atmosphere. As the other readers have advised live is too short to do something you loathe.,
sorry, meant ‘a lot LESS’ to do with the “sexist and racist environment”‘
You may be right. Your post makes me sad, though- I don’t think you should have to deal with bad vibes from your patients. They don’t deserve you.
Now the real question is whether you’d choose this superpower or something like x ray vision or ability to fly?
I’ll take not sucking at money day in and day out! What good is flying with a $400,000 debt weight around your neck??
That’s why I cranked my savings rate to 41%, developed and comprehensive budget and written financial plan, and am investing wisely in the stock market (index funds) and real estate (cash flowing rentals) to work towards financial freedom!
The Prudent Plastic Surgeon
Great post! Isn’t it interesting that the Great American Savings Rate jumped from 5% to 7% to all the way up to 33% during the pandemic? It means people can certainly save, within the income they already have, if they want to. And I bet that is not something they’d agree with, if you told them that, pre-pandemic.
Yes, it was pretty amazing how much less we spent when we were afraid to go out and spend! That was unfortunate for the businesses that rely heavily on discretionary spending though–concerts, vacations, travel, restaurants etc.
Generally, I find this site to be quite informative. But this piece is very misleading on multiple levels. In particular, these two lines stand out:
– “Nearly every American willing to work at a full-time job has enough money to meet all their needs, to purchase many of their reasonable wants, and to quit working completely within a decade or at most two.”
– “[S]ince the average American household makes about $56,000, and the average world household makes $18,000, the average American household can live better than the average world household and still put away more than 66% of their money.”
Nearly every: “Nearly every” is a vague term, but I doubt there is an argument for “nearly every” being “less than half”. Yet the piece uses statistics about average American income. As we know, less than half of the population is above the average in a right skewed distribution, which US household income is.
Average income of $56,000: In Q2 of 2017, when this post was written, the median income for full-time workers was $44,910 in 2020 dollars (BLS: https://www.bls.gov/news.release/wkyeng.t01.htm). Alternatively, the median household income in 2017 was $62,626 (Fed: https://fred.stlouisfed.org/series/MEHOINUSA672N). Neither of these numbers is $56k.
Could save 66%: Even if we accept $56k of median US income and $18k of median world income as the appropriate numbers for calculating how much an American household could save, the statement that this household could save 66% of their income assumes an effective tax rate of 0%. In addition, this comparison does not account for cost of living differences between the US and the rest of the world.
Meet all needs and many reasonable wants while saving: Most importantly, this entire discussion started with the statement that nearly every American could save a massive fraction of their income while living comfortably. Yet the standard used to calculate the minimum income needed to live comfortably is the rest of the world, where 50% of people lack access to health care (WHO: https://www.who.int/news-room/detail/13-12-2017-world-bank-and-who-half-the-world-lacks-access-to-essential-health-services-100-million-still-pushed-into-extreme-poverty-because-of-health-expenses). Living without health care does not qualify as “meet[ing] all their needs… [and] their reasonable wants”.
I agree that all doctors and other high income earners can and should save more while still living very comfortable lives. However, I cannot agree with the statement that nearly every American can save more and still live comfortably, and I object to the implication (likely unintended) that middle income individuals who do not achieve this goal do so through their own poor choices.
Saying you disagree with something is not the same as “this is misleading.”
Your main beefs seem to be the tax rate on someone with $56K of income and the cost of health care. I’m curious if you are aware of the effective tax rate on a family of four with a gross unearned income of $56K? I’ll give you a hint. If it isn’t zero, it certainly rounds there.
I’m also curious if you are aware of the size of the PPACA subsidy for a family with a gross unearned income of $56K? Again, the cost of the insurance is very, very low after the subsidy.
At any rate, I don’t expect to convince everyone to agree with my opinions and you are clearly one who does not, so I guess we’ll agree to disagree. But I will refer you to the literally hundreds of FIRE blogs out there of people who are doing what you say cannot be done. Just because many choose NOT to do it, does not mean it cannot be done if they choose to do so.
My statement was: “Nearly every American willing to work at a full-time job has enough money to meet all their needs, to purchase many of their reasonable wants, and to quit working completely within a decade or at most two.” I suspect our disagreement may come down to defining needs and reasonable wants and what life looks like after you quit working.
P.S. The median household income is now up to $78,500. https://www.huduser.gov/portal/datasets/il/il20/Medians2020r.pdf
I agree, those definitions are quite personal. Thanks for the reply, and the additional information.
Jim wanted to let you know that we appreciate your blog Don’t be discouraged by the easily offended (probably by everything) who characterize the post as arrogant. Please keep speaking to the truth. The vast majority here appreciate it.
This might be my favorite of your posts. Thanks for bringing it back!
X factor is also a good one.
3 issues from this post.
1) I can’t believe you can bench 225 pounds. Maybe at my prime in high school I could do 200 but now I’m lucky to do 100 pounds.
2) Not sucking at money is way easier than being at a healthy weight speaking from experience.
3) No matter what anyone says I’m not making my last student loan payment until 2041. 36 years after graduation. Just can’t justify it when it’s below inflation at 1.6%. Every now and then they come up with nice tricks like making 5k deductible this year that make it even better. Also it’s forgiven if I die. No brainer. I’ll keep investing that extra and pay the minimum In the loan but I understand your point. Just wanted to point out that all of us in our 40s with student loans don’t necessarily suck at money.
What if you had $20M? Then you’d still bother dragging out that student loan? Really? At a certain point, becoming debt-free just simplifies your life and can even function as a status symbol. “I don’t need to arbitrage a $10K 0% car loan to meet my financial gaols, I’m sorry you do” etc.