However, allowing these expenses to inflate too quickly can put you in a very difficult situation.  This is often why so many stories come across your feed discussing physicians with six or seven-figure incomes who still live ‘paycheck to paycheck.’  Having a high income and being wealthy are not synonymous.  This week, we tackle the latest chapter in our Doctor Money series.  Let’s discuss lifestyle creep, the right and wrong way to do it, and a strategy to allow yourself to spend purposefully.  Here is how doctors should address lifestyle creep. 

Doctor Money: A Personal Finance Guide for Physicians

Chapter 11: How Doctors Should Address Lifestyle Creep

For those of you just chiming in, this marks the eleventh chapter of our Doctor Money finances series.  I am using our weekly blog posts to create a future book that hopefully will apply to medical trainees and early career physicians looking to build generational wealth, get out of debt, and take control of their financial lives.  This week, we are tackling all things related to lifestyle creep. 

What is Lifestyle Creep?

So, what is lifestyle creep exactly?  It is also commonly referred to as lifestyle inflation.  Investopedia defines lifestyle creep as the process of raising your standard of living alongside your rising discretionary income.  As a result of this process of inflating your standard of living, former luxuries become new necessities.  It can happen gradually; without the consumer realizing it, it sneaks or ‘creeps’ up.  The layman’s description is: The more you make, the more you spend. 

The first step to combating lifestyle creep is creating and adhering to a formal budget. The idea is that one must first master the skills of creating a budget and sticking to it before one can safely expand one’s lifestyle expenses. 

The thought being that if you can create a (relatively) fixed budget, then no matter how much your income increases, it should not affect your lifestyle as your fixed expenses are predetermined.  This excludes unexpected expenses and emergencies, but if you read our earlier chapters on emergency funds and asset protection, this should not cause you any anxiety. 

To better understand the implications of lifestyle creep, let’s take a moment to highlight some of the most frequent offenders. 

Frequent Offenders

Lifestyle creep can technically affect any and all aspects of our lifestyle. However, I think it is important to highlight some of the more frequent offenders to describe how this commonly affects individuals’ lives. Though this is in no way an exhaustive list, the following represents what I believe to be the most common culprits of lifestyle creep and financial pressures in individuals’ lives. 

Housing

Aside from educational debt, housing is commonly the largest expense we will make in our lives.  Last time, we published an article comparing renting versus purchasing a home.  Here, we worked to highlight how to best calculate the most cost-effective way to acquire housing.  However, I so commonly see individuals inflate their lifestyle by overextending themselves when buying a home. 

Most don’t understand that, unless you can shell out a substantial downpayment, your home is often accompanied by higher insurance costs, more square footage then expects nicer furnishings, increased utility costs, and often the expenses associated with repairs or remodels.  The decision to purchase a home or upgrade is not to be made lightly.  Take the time to review all the costs associated with housing before making a decision. 

Cars

We all have seen it.  A colleague gets a new job or a promotion, and shortly after, they roll up in a brand-new SUV or sports car.  So many jump to the conclusion that the pay raise was substantial, but in my experience, these are often leases or being financed.  Though I do not wish to tackle the pros and cons of leasing or financing a vehicle, automobiles, much like houses, can often place individuals in financially difficult situations.  No one should place themselves in debt for a car.  Further, why subject yourself to a monthly payment?

If you need a car, new or used, save for it at a safe rate (more on that later) until you can purchase one.  If you wreck your only car, take the money you receive from insurance payout, supplement it with your emergency fund, and purchase an affordable car outright. Then, replenish your emergency fund.  This way, you are avoiding debt and avoiding a monthly payment.  Commonly, there are significant gaps between what you want and what you need.  Don’t spend so much on a vehicle that your fixed budget is operating on a thin margin.

Eating Out

With current delivery apps, DoorDash, Uber Eats, you name it… getting food delivered or made for pick up can be done with the click of a button.  It is now exponentially easier to order out than ever before.  For times when no one wants to cook or when your day is busy, sure, order some takeout… but make sure you don’t make it a daily occurrence. 

I am not implying that by never ordering out, physicians will be wealthier.  Honestly, it is likely a nominal expense.  However, as mentioned earlier, the practice of ordering out becomes normal if done with regularity.  With normalcy becomes habit.  Once the purchase of takeout is habitual, you open up opportunities to make most of your meals a larger and more regular expense.   This type of spending can have a snowball effect over time.   Make sure to prioritize a portion of your budget for eating out; this will keep you honest regarding what you can realistically afford from month to month. 

Expensive Hobbies

The last culprit I commonly see pressure finances are expensive hobbies.  These often include golfing alongside a country club membership, boating, owning and flying planes, to name a few.  Though these are fun and entirely possible if your finances are in order and you have built substantial wealth, often, these can pressure early physician finances.  Don’t take up expensive hobbies before eliminating your debt and building a solid and secure financial foundation.  These are likely to require significant portions of your income and have little to no return on your investment. 

True, these things can bring personal happiness, which I completely acknowledge, but there is a time and place for these purchases, and often this is not until you have your financial affairs in order. 

Active Versus Passive Lifestyle Creep

Now that we have discussed lifestyle creep as a concept and potential threat to your finances, let’s talk briefly about how taking an active approach to lifestyle creep can help you inject your finances with more wiggle room as your income increases without feeling the need to inflate your lifestyle to match your pay raise. 

Passive Lifestyle Creep

In order to discuss active lifestyle creep, we need to first understand what passive lifestyle creep is.  This, by definition, is essentially the slow, sometimes insidious increase in expenses that stress your monthly budget.  Overwhelmingly, this is done with minimal to no forethought.  These are the extra coffees that somehow go from splurge to routine.  The extra streaming services you bought to watch a single show only to forget to cancel your subscription.  This new car you are financing comes with a monthly payment and subsequently increased insurance costs.  This is the result of shopping at the new all-organic grocer that opened up over your usual spots. 

Don’t you see?  Passive lifestyle creep is rarely the result of one single purchase (aside from maybe a new home or car) but the slow accumulation of many and many serial purchases that often transition from rare events to habitual expenses.  Passive lifestyle creep is what you want to avoid.  This is why having a clear and comprehensive budget combats it.  It can be a layer of protection and alarm you when you have inflated your lifestyle beyond your budget.  How does one combat or prevent passive lifestyle creep?  Read on…

Active Lifestyle Creep

Active lifestyle creep is more like a small pre-meditated budgetary injection that offers a predetermined increase in your monthly budget.  This can occur when you get a planned or unplanned bonus.  It can occur when your salary increases or you receive a promotion.  It can occur when you change jobs, and your income improves.  It can be the result of a productive side gig.  No matter the reason for extra income, you can allow yourself to inject your finances with some extra money that will allow you to potentially make a splurge purchase without affecting your overall finances and budget. 

The 10% Rule

Here is my recommendation.  Whenever you receive a pay increase or a bonus, take ten percent (10%) and do whatever you want with it.  Infuse your budget, buy a new electronic, place it in cryptocurrency, whatever.  But spend it on yourself or something you want.  Take the remaining 90% and save/invest it.  This affords you the opportunity to spend frivolously while still taking the overwhelming majority and investing in your future. 

If this is a bonus, spend 10% on whatever you choose, who cares?!  Go crazy.  Take the remaining 90% and put it towards your financial goals.  Build an emergency fund, invest it, do your backdoor Roth IRA, place it in your children’s 529 accounts.  No matter where you put it above, you will be housing it in a safe vehicle and exposing that money to the market so it can get to work for you. 

If this is a pay increase or a salary bump/promotion, then allow your budget to increase by 10%.  Perhaps that is a few extra streaming services or more date nights eating out.  There are about a million ways to inflate your lifestyle by ten percent.  However, take the remainder of your pay raise (the other 90%) and use it to make sure you are maxing out all of your retirement accounts, paying down debt, saving for children’s education, and investing.  All the same recommendations as with a bonus.  Use the majority of your pay raise to tackle big, important financial goals.  This will allow you to feel like you are rewarding yourself while still overwhelmingly making sound financial choices. 

How Doctors Should Address Lifestyle Creep

So, how should doctors address lifestyle creep?  They should take a very active approach to their lifestyle inflation.  The overwhelming majority of consumers (not just physicians, but everyone) allow lifestyle to creep passively.  That is why it ‘creeps’ by definition.  Lifestyle creep is slow, inconspicuous, and often rooted in joy, even if only briefly. 

However, if left unchecked, it can spiral out of control and lead to budgetary pressures. Once this has occurred, it takes a massive effort to undo the damage, including having to call and cancel countless subscriptions, potentially trading in your vehicle for a cheaper one etc. 

Doctors should anticipate their supplemental income (side gigs, promotions, pay raises, bonuses) and first celebrate and reward themselves using a small portion of that income.  My recommendation is ten percent.  Take this money and spend it on yourself.  You deserve it.  Take what remains (90%) and put it towards your personal financial goals.  This could be debt elimination, saving for your children’s education, or maxing out all your tax-advantaged retirement accounts.  If you have created a financial plan, use it to prioritize where this money should go. 

If you can control your evolving income, you will find yourself actively managing budgetary increases, tackling your financial goals, and rewarding yourself regularly, all while preventing the insidious form of lifestyle inflation. This is how doctors should address lifestyle creep. 

Stay motivated!

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Further, no part of this series, post, or any post on this website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under the 1976 United States Copyright Act, without the prior written permission of the author.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post How Doctors Should Address Lifestyle Creep appeared first on The Motivated M.D..

I rented until I was 32 years old and finally decided to purchase a home during the COVID-19 pandemic, and even then, it was a very difficult decision to make. I know firsthand how much anxiety can come when deciding to rent or buy a home. Further, especially for physicians, there is often a societal expectation that you ‘deserve’ a home. This way of thinking is toxic and can lead to poor decision-making. 

This week, we will tackle choosing to rent or buy a home in 2025. This marks the 10th chapter of our Doctor Money finance series, which I hope to complete and formally turn into a publishable book or e-book in the not-too-distant future. Stay tuned!

Doctor Money: A Personal Finance Guide for Physicians

Chapter 10: Choosing Your Housing Plan

A Common Misconception

I want to begin by formally dispelling your preconceived notions about homeownership. For those who think it is the ultimate sign of success or achievement, you need to shed that obsolete way of thinking. This is no easy feat. 

As someone who fixated on owning a home towards the end of my fellowship, I can assure you that there are many more factors that affect this decision than you realize (assuming you are not already a homeowner and have learned these lessons firsthand). 

I overhear individuals say things like ‘owning a home is the best investment you can make,’ and’ if you are renting, you are just ‘throwing your money away.’  Most people say these things flippantly, but they can perpetuate an expectation that if you rent, you are somehow ‘poor’ or ‘uneducated in the ways of finances,’ which is just blatantly false. 

I know plenty of individuals who own homes that are significantly more than they can afford, which keeps them ‘house poor.’  Further, I know individuals who rent as a lifestyle choice, and they not only avoid all the ancillary expenses that come with homeownership, but it also helps them expedite their financial independence. 

On the other hand, I know many geographic regions in the U.S. with high costs of living that have exorbitantly high rent prices, and I know individuals who took their homes and rented out rooms and turned a profit… and everything in between. 

What you need to take away is that there is no ‘one size fits all’ answer when it comes to home ownership, but there are often right or wrong choices for individuals. This is often based on their expectations, budget, financial goals, and long-term plan. Let us start by talking about the benefits of renting. 

The Benefits of Renting

I rented from the time I left college until my final year of fellowship, nearly 11 years.  As many learn throughout their medical training, we are often relocated every few years.  Four years in medical school. Then you match into a 3-to-7-year residency; perhaps you match again for subspecialty training/fellowship.  This can be prohibitive from owning a home and is a great reason to rent. 

A few things about renting.  First, the number you pay in rent is largely the most you will pay monthly on your residence.  This is a great thing for keeping a fixed budget.  See, if you rent, then issues that arise regarding your residence are the owner’s financial problem, not yours.  If the air conditioning needs to be replaced or the roof needs repairs, that is someone else’s problem.  Advocating for their repairs as a tenant can be challenging, but ultimately, you do not fit the bill.

What I am alluding to is that there are many hidden expenses associated with homeownership. For example, any repairs that come up are your responsibility if your homeowner insurance doesn’t cover them. There are also homeowners insurance costs, property taxes, flood insurance (depending on where you live), any upgrades to the home, utilities (sometimes included in rent expenses), upfront costs to include a downpayment, and closing fees. The list could go on…

So, with all of that said, here are my rules for renting:

My Rules for Renting

1. Your monthly rent payment should be no more than 30% of your monthly net income (take-home pay).
2. Get renters insurance
3. Do not look at rent as ‘wasted money.’

These are a few short rules I recommend to all who are currently renting or considering renting for the foreseeable future. Renting is an underappreciated option that society has often labeled as ‘inferior’ to home ownership, and that is ridiculous. Far too many people, medical trainees and physicians alike, succumb to the false narrative that you need to own a home to build wealth, and that is not true. 

If you are not sure where your life will be in the next five years, find an affordable place to rent and stay. I bet you could calculate how much you are saving compared to a mortgage payment and invest that difference, expediting your road to financial independence. 

The Benefits of Owning a Home

OK, OK… I don’t want to rain on the homeowners’ parade any further. There are some great things about homeownership, too. I own a home, and I don’t regret the decision (most days), but I also adhere to the rules I will highlight below, which have made my home affordable and helped avoid financial stress. Let’s briefly discuss some of the benefits of home ownership. 

The most glaring ones are real estate investment, the diversity it brings to your portfolio, and the building of home equity. As many have seen over the past five years, real estate prices have continued to rise and remain a stable long-term investment. As this happens, many continue to grow the equity in their homes, thus subsequently growing the return on their initial investment.

Paying down a mortgage is also good for your credit score.  It shows that you can manage a large debt and make payments regularly without defaulting.  This can help build your credit.  There are some tax benefits, too.  I will not descend into the particular, as the overwhelming majority of readers here will just take the standard deduction (as do I), but for those looking to itemize their deduction, there are opportunities for tax benefits if done correctly and legally.   

Lastly, there is a certain stability that comes with owning a home.  This is an advantage of home ownership over renting, which is less tangible.  With renters, though your monthly rent payment is (generally speaking) the highest you will pay for your residence, the landlord can always increase rent or potentially find reasons to have you evicted or price you out.  These are extreme scenarios, but scenarios nonetheless.  However, if you avoid defaulting on your mortgage payment, then you will always have a roof over your head.  Better yet, if you follow the rules below, you will be nearly assured of having a home indefinitely (assuming you have exercised other intelligent financial practices previously highlighted in earlier chapters as well). 

My Rules for Buying a Home

1. The price of your home should be less than three times (3x) your annual gross income
2. Your monthly mortgage payment should never exceed 30% of your monthly net income (take-home pay)
3. You should save enough to cover a 20% downpayment (or more)
4. You should plan to live there for at least five years (or more)

So, what do these rules look like in practice? 

Let’s take an average physician household.  In this example, Dr. Works-Hard is an average hospitalist making $275,000 annually.  Her husband works part-time and makes approximately $90,000 annually.  Their household gross income is approximately $365,000.  Using my rule above, 3x of their annual gross household income would be $1,095,000.  This would reasonably be the maximum cost of a home that they could afford.  If they are in a good financial position and have a 20% downpayment saved (or more), then perhaps they could gently push this to 3.1x or 3.2x, but not much more. 

Play With the Numbers

Now, they also need to adhere to rule #2, meaning their monthly mortgage payment needs to be less than 30% of their monthly net income.  Their gross monthly income is $30,417.  After taxes, their take-home pay is likely closer to $20,000.  30% of their take-home pay would be approximately $6,000.  Adhering to this rule is largely where down payment size, interest rates, property taxes, and homeowner’s insurance costs have the biggest impact. 

A $1,095,000 home at an interest rate of 6.5% (including property taxes at 1.1%, annual insurance costs of $1,500, and a down payment of 20%) will have a monthly payment of roughly $6,665.67 (depending on the calculator you use).  If that interest rate falls to 5.0%, then that monthly payment is closer to $5,831.31.  In this example, the interest rate is the deciding factor on whether this home is affordable or not. 

Using the same parameters in the previous example, with an interest rate of 6.5%, but this time the family puts 30% down instead of 20%, the estimated mortgage cost is roughly $5,973.55. Here, the down payment is the determining factor in whether they can make this home work or not. You just need to understand how to play with the numbers. 

Choosing to Rent or Buy a Home in 2025

So, how does one decide what is right for you?  As I previously stated, there is no right or wrong answer.  However, there may be a right or wrong answer for your situation.  I think the most important step is to shed the notion that renting is ‘bad.’ 

Like anything, there are pros and cons to renting and owning a home.  What you want to avoid at all costs is feeling pressured by this societal expectation that you need to own a home and then put yourself into a difficult financial situation, hamstringing your ability to build wealth.  Use the rules provided above to determine what is right for you.  If you have realistic expectations on what you can afford when it comes to homeownership and you plan on staying put for five years or more, then perhaps owning a home is a smart call.  Who knows?  Only you do, my friend. 

Fortunately, some great tools across the internet allow you to alter the parameters that factor into housing expenses, homeownership, and renting.  Take the time to play around with these calculators. The education alone, learning how different variables affect affordability, can help you better grasp the factors at play and how you can use them to your advantage.  As always…

Stay motivated!

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Further, no part of this series, post, or any post on this website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under the 1976 United States Copyright Act, without the prior written permission of the author.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Choosing to Rent or Buy a Home in 2025 appeared first on The Motivated M.D..

For many who follow the blog regularly, you likely have noticed that I haven’t published a blog post in quite some time (a month or two).  This was a massive change of pace for me as for the longest time I was keeping my cadence of weekly content. 

However, many changes have been happening in my personal life and some time and space felt necessary and welcomed.  Now, with my creative side itching to write again, I wanted to sit down and share where I have been, what I have been doing, and my plans moving forward with this website.  Here are lessons learned from my hiatus. 

Where Have I Been?

So, lets start by addressing my absence.  There is no one thing I can point to explain my hiatus in it entirety.  Instead, it has been a confluence of multiple responsibilities and changes that have left my time nearly nonexistent. 

For starters, I am just a few days away from welcoming my third child.  I already have a three-year-old and a soon-to-be two-year-old toddler.  For many of my readers with young children at home, having two toddlers in the house is already busy enough.  Yet, adding a newborn into the mix will require my wife’s and my utmost attention and sanity.  True we have a fulltime nanny, but we still both work full-time clinically and still wish to have a steady hand in our children’s lives.  Because of this, carving out the time for family remains a top priority, and as our family grows, more and more time is needed to make that goal a reality.

Second, we have had some unexpected transitions at my job, and this has left me to cover extra clinical obligations with some consistency.  This has further eaten into my time. 

Last, but not least, I genuinely felt as if I was running out of ways to provide useful and entertaining financial content.  Publishing post after post, week after week, while juggling my clinical burdens, family life, personal goals, my health… it just became too much. 

When Passion Loses to Productivity

I noticed the more I wrote that my feelings towards the work I was publishing was changing.  My passion for writing personal finance content was losing way to productivity and the compulsion to keep up with my competitors.  I no longer found it enjoyable to write post after post.  Commonly I felt like I was just reiterating what so many others in the physician finance niche were saying while feeling like I had somehow already addressed the topic. 

Keeping a personal finance blog is a tricky thing.  For starters, many come onto the scene and expect that their work with be impactful.  This may be true, but there are only so many ways to say the same thing over and over.  Save this much, withdrawal at this rate, diversify your portfolio, guard against disaster, et cetera, et cetera…

Though I absolutely love writing about my personal finance journey, I also felt like I had shared much of the information necessary for physicians to easily amass wealth and avoid overly risky investments.  Further, finding the correct balance between pursuing my writing passion while still managing the business side of a blog was challenging as well. 

Though I have no expectation that this blog alone will lead me to financial prosperity, there is always a hope that when you create something it may inevitably turn a profit, assuming it offers real value to the consumer.  However, despite starting this blog in late 2021, I still feel that much remains in order to make it the successful enterprise I intended.  This has forced me to take a deep breath, be objective about where the website is and the quality of the content I publish, and determine how to best move forward. 

Adjusting to Life’s Cadence

Another reason I have taken a hiatus is that I needed time to reflect on the realities of my publication cadence.  As I alluded to above, life gets busy.  The chapter of life I am in with a growing family, young and impressionable children, and an early career is taxing.  Finding the time, even if it can be enjoyable, to read and write has proven to be tough. 

As such, I have found myself focused on wanting to write only when I have something to say, not necessarily to keep a certain publication cadence.  There are many other physician finance blogs that publish content daily.  They often have teams of staff writers who can produce and edit content on an endless amount of topics, and sometimes these topics resonate with me… but not all the time. 

I have found, for me personally, there is no sense in creating content if it doesn’t speak to me.  Further, if it doesn’t speak to me, then it is not likely to speak to you either.  Because of this, I am challenging myself to continue to write and publish on this blog, but only when I have something meaningful to say, or find I am passionate and empowered to share a thought. 

What does this look like in practice?  It likely means I am no longer planning to publish a post each week.  Does this mean I am publishing every other week?  Or once a month?  Who knows…  Even I don’t have an answer yet.  If I have something to share, I will share it.  If it means I need to share that message over a few blog posts, then perhaps that will be a busier month.  However, other times, when life gets busy, I may exercise my freedom to ‘pump the brakes’ and return when it feels appropriate. 

Anyone Can Do It

Lastly, I have a relatively unoriginal theory about personal finance. 

Anyone can do it. 

I don’t mean it in the sense that no matter who you are or your educational background you can reach all your wildest financial goals.  For physicians, however, type A, motivated, educated, and hard-working individuals, I do fully believe that anyone can reach financial independence and achieve all their financial goals with a relatively small educational investment.

This may be a bold statement, but I believe it to be true.  Though many websites have endless content on personal finance that is applicable in varying degrees, 90% of what you need to be successful comes from just a few brief topics.  The other 10% is where nuance lies for physicians (i.e. managing significant educational debt, navigating physician mortgages, owning your own practice, etc.).  But if you just learn the common-sense 90%… the other 10% is not necessary. 

I believe this to be so true that I am working to finalize my book that tackles what I believe to be the essentials.  Many others have done it with varying degrees of success, but I think that everything you need to know to reach realistic financial goals for our profession can be said in less than 100 pages.  It is because of this I do still intend to finish my book. 

Plans Moving Forward

So, with all of that said, where do we go from here? 

First, I want to make sure I am transparent with my viewership that I am not going anywhere.  I will continue to own and operate this website.  The new caveat is that I am no longer going to hold myself to an unreasonable publication cadence.  I will write when I have something to say.  If I feel like someone has said it better than I could, I will reference that article.  Why reinvent the wheel?

I do also want to finish my book.  I have written nine chapters, and only have roughly 15 chapters planned, so I am nearly 2/3rds of the way done.  I want to see where this goes and I want to create a helpful work that is short, efficient, digestible, and helps any and all healthcare professionals master the basics of personal finance in a single read.  How you choose to self-educate beyond that is up to you! 

We all have different personal and financial goals, it is that final 10% where the nuance lies.  But if you master, what I consider to be, the ‘basics’ then really no matter how you choose to navigate your finances, you will be poised for success. 

Lessons Learned From My Hiatus

Ahh, honestly my recent hiatus has been incredible.  Sometimes the rat race that is content creation, publishing, running a business, and thinking of novel ideas is exhausting.  Trying to work that in to a dual-full-time physician household with two toddlers and a newborn on the way seemed downright comical. 

As I have written about before, I refuse to compromise on the things that bring me joy and benefit from regular investment.  These include my marriage, my family, my career, and my physical and mental health.  If at any point I feel one of those ‘pillars of happiness’ is suffering at the expense of something not on that list, then it needs to take a backseat.  This website had become that because, after all, it remains a one man show still.  I have no assistant; I have no co-authors.  Just yours truly.

I love what I have created here and I continue to have big aspirations about where it can go, how it can grow, and what it can offer the financially curious.  However, if I am going to practice what I preach, then finances and side gigs should never detract from my ability to be happy and healthy.  Taking a break was my way of rediscovering my priorities, and knowing that, if my audience really wants this blog to be successful, then I have to be in a mindset of success too.  Taking a break from time-to-time can help us achieve just that. 

And hey, if you do genuinely feel you have benefitted in some way from the content published here, please, please, please spread the word! I would really appreciate it. Catch you on the next post. As always…

Stay Motivated!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Lessons Learned From My Hiatus appeared first on The Motivated M.D..

These claims are, of course, bogus.  No one can consistently beat the market; for the incredibly rare few who do, it is either luck or fraud.  So, with this chapter, I hope to briefly touch on the basics of market investing and describe why simple diversification and index fund investing are the most effective ways for busy clinical physicians and healthcare providers to invest with the expectation of long-term gains.  Don’t try to beat the market; be the market.  Create a simple and effective portfolio that lets market growth work for you. 

Doctor Money: A Personal Finance Guide for Physicians

Chapter 9: Be The Market

With the publication of Chapter 9 of our Doctor Money content series, we are reviewing how to approach stock and bond investing. Though there are many other forms of investing (e.g., real estate, Exchange-Traded Funds or ETFs, speculative investments, commodities, etc.), I will dedicate a chapter to real estate investing later in this book. However, all other investments are so nuanced that they will not be covered here. Other than real estate, most physicians will house their wealth in stocks and bonds.

However, it is nearly impossible to generate significant wealth without an introductory understanding of stock and bond investing, diversification, and risk tolerance.  My goal at the end of this post is to convince you that having a simple and appropriately diverse stock and bond portfolio that indexes the United States and International markets is the best way for busy physicians to begin to generate wealth and guard against market volatility.  Further, this simple approach can be your lifelong investing strategy or a springboard for further investment interests. 

Investing as a Busy Professional

Let’s begin by formally clarifying why I will lay out the following investment strategy.  Most clinical physicians are busy.  With increasing emphasis on patient turnover and documentation, all while navigating the complexities of billing and authorization, our jobs are stressful and time-consuming.  This will come as no surprise to most healthcare workers.  Add in the complexities of family life, child-rearing, and pursuing any interest outside of your career, and much of your time is spoken for.  How, then, can any physician find the time to research individual companies and make educated decisions on which publicly traded businesses are undervalued?  We simply cannot.  There are not enough hours in the day.

Do not worry.  As an investment vehicle already does all the leg work for us.  Instead of investing in individual stocks, why not buy all the most economically impactful stocks in a proportion that reflects an index of the market?  Enter the index fund. 

Index Funds

According to Investopedia, an index fund is a type of mutual or exchange-traded fund (ETF) that tracks the performance of a market index, such as the S&P 500, by holding the same stocks or bonds or a representative sample of them. 

Essentially, by mimicking their makeup, index funds mirror the performance of market benchmarks like the S&P 500, the Dow Jones Industrial Average, the Nasdaq Composite, etc..  These passive investments are largely considered a bland and unexciting way to invest.  This is largely why I (and so many others) advocate for them! 

As working professionals, we don’t need more anxiety. We want to know that our investments are simple, safe, and effective. Though this form of investing may fail to capitalize on single stock growth (think Apple, Google, Meta, Nvidia, Tesla, etc.), it wins in the long run by growing as the economy does. 

Market history has already demonstrated beneficial evidence in favor of index investing.  Here are a few reasons:

• Overwhelmingly, index funds have lower expense ratios because they are passively managed.  No significantly excessive charge is needed to manage a fund that just mimics a market index.  This saves you money.
• Index funds mimic a market index; thus, by their very nature, they are well diversified. 
• Since they replicate market indexes, their holdings are well-known and transparent
• Over the long term, most index funds have outperformed actively managed funds, especially after accounting for fees and expenses
• Lower turnover rates in index funds often result in fewer capital gains distributions, making them more tax-efficient than actively managed funds

If these points did not sell you on the idea, here is a graphical representation of index fund performance (since 1970) compared to other U.S. Assets over time:

As you can see, the S&P 500 alone significantly outperformed corporate bonds, U.S. Treasury Bills, and Real Estate over the past nearly four decades.  Given that many index funds use the S&P 500 as their index, they, too, have performed very well over the past 40 years. 

Index Fund Drawbacks

Of course, there are some drawbacks to be aware of with index funds. Given their diversification, they lack the flexibility to rapidly adjust to changes in market trends. Further, given that they mimic a market index, they often include publicly traded companies that may be over or undervalued, but that is the very nature of an index. 

Best Index Funds

Several investment platforms (Vanguard, Fidelity, Charles Schwab, USAA, etc.) offer index funds with low expense ratios.  For individuals looking to invest in index funds, according to TradingView (as of July 2024), here are the best index funds by name:

Diversification

Though index funds are diversified by their very nature, given their representation of a market index, our individual investment portfolios can better guard against market volatility with even broader diversification. Meaning: ‘Don’t put all your eggs in one basket.’

Diversification is a strategy for managing risk by holding different types of investments within a portfolio (e.g., stocks, bonds, real estate, ETFs, commodities, etc.).  The distribution of wealth across these different types of investments helps buffer one from any sudden changes in the market. 

The rationale behind diversification is that a well-constructed portfolio harboring different types of investments will, on average, yield higher long-term gains and lower the risk of any individual holding or security.  Multiple studies have shown that maintaining a well-diversified portfolio yields the most cost-effective way to mitigate risk in the market.  Diversification works to smooth out risk events in a portfolio so that the gains in some investments help to combat the losses from others.

So, how can a busy physician efficiently diversify their portfolio with as little time investment as possible?  This is where index investing flourishes.  See, an index fund that tracks the S&P 500 market index (like the Vanguard 500 Index Fund Admiral Shares (VFIAX), for example) is already a well-diversified selection of 500 stocks.  Volatility in any stock is often neutralized because of appropriate diversification amongst the other 499 stocks remaining in that fund.  However, being solely invested in the U.S. stock market, even if using index funds as your investment vehicle, is still not a healthy level of diversification. 

This is where bonds and international stocks come in.  Many, myself included, would argue that your investment portfolio should also include safer (less volatile) investments like bonds.  Since bonds are safer investments, they often have lower rates of return but are largely more stable investments.  Depending on how close you are to retirement or a big purchase, it can often influence the portion of your investments you may feel needs to be housed in bonds instead of stocks.  This is where risk tolerance factors in. 

Risk Tolerance

Everyone has a different risk tolerance. Though being 100% invested in U.S. stocks is not wrong, many would see this as risky.  It would be risky because all your investments depend on a single country’s economy.  Any unexpected turmoil like war, political unrest, recession, or depression in the market can lead to catastrophic losses.  You would not be at all shielded from these losses as your portfolio is not well diversified. 

However, individuals who are afraid of unexpected changes in any one market (domestic stocks, international stocks, housing markets, etc.) impacting their investments will likely feel incentivized to broadly diversify their portfolio.  This means they will keep a portion in domestic stocks, a portion in international stocks, a portion in domestic bonds, and (sometimes) a portion in international bonds.  Even more, they may diversify further and house some income in real estate, and so on.

Your risk tolerance, or how afraid you are of losing money, will influence what portion of your portfolio is housed in any type of investment vehicle.  For early career physicians, who ideally have decades of investment time ahead of them, they can often weather a recession or two.  This means they likely can be more aggressive by housing most of their portfolio in stocks.  Higher risk, higher reward. 

For physician approaching retirement, for example, the threat of a recession may loom heavily over their finances.  Unexpected losses could impact their quality of life in retirement and their withdrawal rate.  A doctor in this scenario may be more likely to house an increasing majority of their investments in bonds.  Let your comfort with risk and your financial timeline influence your diversification. 

On to the final questions.  How can busy physicians safely and efficiently invest their savings?

The Three Fund Portfolio

This is where we ultimately return to an investment strategy I have written about previously on this blog.  The Three Fund Portfolio, originally popularized by the Bogleheads’ community (a community dedicated to the practices and advice of Vanguard founder Jack Bogle), is a very simple strategy for intelligently investing your savings. 

It houses your investment in three essential funds, each of which is an index fund (thus broadly diversified) and across three broad investment types.  The Three-Fund Portfolio consists of three essential index funds:

• The Total U.S. Stock Market Index Fund
• The Total U.S. Bond Market Index Fund
• The Total International Stock Market Index Fund

This approach is critical as it offers diversification across domestic and international stocks and bonds.  The genius of this strategy lies in its simplicity, making it, in my honest opinion, the best (initial) starting portfolio for busy physicians.

Again, it works because each of the investments above indexes their respective markets and is intrinsically diverse by nature, and risk is spread across both domestic and international markets.  A win-win.  Again, determining the portion of your investments you wish to distribute to each fund will be based on your risk tolerance and your financial timeline.

Aggressive individuals may house 90% of their investments in stocks and 10% in bonds.  Less aggressive individuals may house 70% in stocks and 30% in bonds.  Perhaps individuals nearing retirement keep a 50-50 split between stocks and bonds.  It is entirely up to you and your comfort level.  But I encourage all busy clinical physicians to start here and build upon this solid strategy. 

Be The Market: How Doctors Should Invest Their Money

Lastly, let us return to the question at the core of this chapter.  How should doctors invest their money?  You are already a hardworking professional.  You spend your life dedicated to patient care while still hoping to leave work and have the energy to be mentally and physically present for your families and friends.  You deserve your hard-earned income to work for you consistently, with little mental bandwidth needed.

The last thing early career physicians need is to occupy hours of their days or weeks worrying about investments.  The investment process should be streamlined, simple, and free from frequent human involvement.  Follow the recommendation above as an initial strategy to house and diversify your investments, then build on it as you learn more.  Study after study shows that fortune favors those who try and ‘be the market,’ not those who try and ‘beat the market.’  You do not need to waste your money gambling on individual stocks, nor should you pay someone else to do it for you.  They are just gambling on your behalf and charging you for it.  Do not fall for this trap. 

Less Is More

Less truly is more in this scenario.  You can diversify your investments across three funds, then set and forget it.  The only maintenance that may be required is an annual re-distribution of your investments, so make sure it continues to reflect a ratio that you are comfortable with.  If your stocks grow significantly more than your bonds, then you may need to re-distribute some stock funds towards bonds annually. 

As time passes in your career and your wealth grows, the above investment strategy will afford you the opportunity to explore other forms of investing.  Maybe you dip your toes into real estate investing.  More on that later…  No matter what, if you build on an already diversified and efficient portfolio, you are bound to achieve long-term success and appropriately weather inevitable market turmoil better than most.  This is how doctors should invest their money.   

Stay motivated!

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Further, no part of this series, post, or any post on this website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under the 1976 United States Copyright Act, without the prior written permission of the author.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

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Please be safe, take care of yourself, and help others if you can. The silver lining of a horrific event like this is the incredible humanity we witness in its aftermath. 

Motivation Monday Recap for October 7th, 2024

In keeping with this theme, the first article on our list for Motivation Monday Recap comes from your truly:

The Motivated M.D.

In the wake of Hurricane Helene’s devastation this week, I ask the question, are common emergency fund savings enough?  What if the worst-case scenario happens?  Should recent weather events impact your emergency fund?

You can find the entire article by heading to The Motivated M.D.: Should Recent Weather Events Impact Your Emergency Fund?

Financial Samurai

The second article is yet another compelling argument from Sam Dogen of the Financial Samurai. This week, he helped us review the question of whether retiring early or retiring wealth is better.

You can find the entire article in the Financial Samurai: Why Retiring Early is Obviously Better Than Retiring Rich.

The White Coat Investor

The next article on our list is an energized one from Dr. Jim Dahle of The White Coat Investor. He asks a simple question:  How fast can you get out of debt, and why should you be motivated by your anger? 

You can find the entire article here by heading to The White Coat Investor: How Fast Can You Get Out of Debt?

Have a great Monday and as always…

Stay Motivated!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Motivation Monday Recap – October 7th, 2024 appeared first on The Motivated M.D..

Though severe weather events like this used to feel like a ‘once in a decade’ tragedy, they are, statistically speaking, becoming more and more common.  This week, amid this chaos, I wanted to circle back to our emergency fund recommendations and determine if these should be re-evaluated.  Should recent weather events impact your emergency fund?

Hurricane Helene’s Legacy

If you are anything like me, you have been glued to your television or smartphone with the ‘flood’ of pictures and updates steaming in regarding the devastation left in Hurricane Helene’s wake.  As a resident of the southeastern United States, I am no stranger to severe weather events, especially hurricanes, storm surges, and flooding.  It happens.  However, I have not seen destruction like this since Katrina. 

Though I consciously understand that many hurricanes batter the U.S. East Coast and the Gulf each year, Helene, much like Katrina, was a grim reminder of how fragile our society is.  Though I do not mean to descend into the ‘doom and gloom’ of everything, our lives can change on a dime.  Storms can grow quickly and unexpectedly.  Tornados can strike down on a moment’s notice, and flooding can devastate our infrastructure.  Further, going beyond just a few days without power can begin to genuinely pressure the very fabric that holds our society together. 

Many who follow this blog know that I reside in South Carolina. Though my area was not dramatically affected by the hurricane, it did cause flooding, which is not uncommon. However, I have a number of friends and colleagues who live in the western part of the state and portions of western North Carolina, and some of the stories coming out of that area are truly horrifying.  

Wiped-out grocery stores, medications unfilled, spoiled food, hours-long lines for gasoline, and impatient citizens pulling firearms on each other, escalating tensions in an already tumultuous time.  Society is fragile, and with an expectation for more frequent severe weather events, I fear more stories like Helene’s will become all too familiar. 

What Can We Learn From This?

Is there anything to be learned from all of this?  Perhaps the lesson lies in collegiality, comradery, and helping your fellow man.  However, this is a personal finance blog, and for me, it goes beyond that.  Helene highlighted that even wealthy communities and well-financed and well-educated populations can be caught off guard and devastated.  Low and high socioeconomic classes alike, no one is spared.

All this coverage made me reflect on my own emergency fund. So, I started listening to podcasts and videos about filing flood insurance and homeowners insurance claims. I wanted to know how long the process takes, how quickly you can get financial relief, and how often you have to hire attorneys to help you receive an appropriate payout.

Unfortunately, this led me down a path of unpaid claims, hurricane horror stories, and insurance company fraud.

Though we all hope our insurance claims process is efficient and adequately reimbursed, we all know that there is a financial incentive to pay as little as possible for each filed claim.  In the wake of a hurricane as devastating as Helene, tens of thousands of individuals are likely filing claims, surely totaling billions of dollars.  The latest estimates suspect Helene caused nearly $35,000,000,000 (35 billion) in damages. 

If all of these claims were reimbursed in their entirety, many of these insurance companies would go bankrupt.  As such, do not assume you will be paid what you feel you deserve.  I do not mean to paint such a grim picture, but I want to provide a healthy dose of realism. 

As I consider all these confounding factors, I am left to contemplate my own scenario.  If our family were to evacuate for a severe weather event and return to find a completely destroyed home or town, what would that look like financially? 

Going Through The Motions

For starters, I would immediately take pictures and document the damages. I would then subsequently file a claim with my homeowners and flood insurance. In the meantime, I would likely have to stay at a hotel, AirB&B, or with my parents. Assuming my hospital is still standing, I would obviously continue to work my job as best as I could to continue to bring in income. However, one is still expected to pay their mortgage even if their home is destroyed. 

Secondly, while we wait for the claims process to begin, we would likely spend more money eating out and purchasing essentials like clothing and other necessities, given that, in this hypothetical scenario, all of our belongings are destroyed. 

Many may need new computers to work remotely; maybe a car was also totaled (filing a claim for this, too), childcare is still needed, perhaps you have to employ a lawyer to help you receive what you feel your claim is owed, etc.  These expenses add up quickly, likely wiping out your emergency fund much sooner than expected.  Now, this is the very reason for an emergency fund, but would your savings be enough? 

Though my prior estimates had me feeling safe, after recent events… I am not so sure. 

Common Emergency Fund Recommendations

I am no stranger to writing about emergency funds.  I think they are largely the first and most important aspect of financial security.  One of my first articles ever written on this site was titled: Emergency Fund: Your First Financial Goal.  It has aged well I believe.  Many of the recommendations I wrote about back in 2022 remain the same. 

What are these common recommendations, you ask?  Let’s review what so many in the personal finance community (including myself) have recommended:

• An emergency fund should house at least three (3) months’ worth of living expenses. 
• Budgeting for living expenses should be comprehensive (mortgage payments/rent, student loans, groceries, utilities, childcare—every. single. monthly. expense).
• An emergency fund should be used for emergencies only (car wreck, unemployment, unexpected healthcare expenses, etc.)
• When money from an emergency fund is used, its replenishment should be a top priority
• The money should be housed in an easily accessible and protected account (e.g., a high-yield savings account or money market account).

As you can see, the recommendations are relatively straightforward.  Save money to cover all your monthly expenses, house it safely, and only use it if needed.  Simple. 

It is common practice for the personal finance community to recommend this as the first priority for anyone looking to harness sound financial habits. An emergency fund covers most unexpected things, and for all other assets, you purchase insurance coverage (life insurance, disability insurance, homeowners insurance, flood insurance, malpractice insurance, etc.).

Hurricane Helene has highlighted the gaps in asset protection or the unfortunate chinks in our insurance coverage’s armor.’  Why would anyone in Asheville, NC, have flood insurance? I am sure the overwhelming majority of residents have homeowners’ insurance—that is a no-brainer—but I would be surprised if flood insurance is mandatory like it is in many of the coastal cities where I reside. 

Secondly, and more unfortunately, I think the scale and speed Helene demonstrated highlights how fragile even our insurance system is. True, insurance companies are legally required to hold a certain amount of accessible money for events that subsequently lead to a high claim volume. However, for areas like Florida, these storms are becoming all too common. 

Many larger insurers are no longer offering coverage to certain portions of the country with statistically higher severe weather events. For the remaining insurance companies, these events can lead to unacceptable amounts of claim depreciation that sometimes spill over into fraud. This can leave the homeowner liable for most damages. 

Should Recent Weather Events Impact Your Emergency Fund?

So, should recent weather events impact your emergency fund?  Honestly, I think yes. 

Though I do not wish to fearmonger and hope that storms like Helene are rare, time has demonstrated that this is not the case. Hurricanes and other severe weather events (tornadoes, flash floods, wildfires, etc.) are becoming increasingly common, and unfortunately, this is coinciding with higher insurance premiums or loss of coverage. This can lead to prolonged claim processing time, insurance incentives to lower payouts, or even litigation. 

These outcomes are costly. Many do not think about or factor this in when saving for emergencies. Sure, rationally, we think our air conditioning unit may fail, a car could get totaled, or we might change jobs and lean on our funds for that transition. 

I am not sure anyone expects to be stranded without the expectation of basic goods like housing, water, or power for the unforeseen future.  This would likely chew through your emergency fund savings far quicker than you planned. 

6-12 Months Living Expenses

As such, I will begin to recommend that emergency funds cover at least six (6) months’ worth of living expenses and may range to as high as 12 months (one year) for the most risk-averse. 

I understand that, for most physicians, this is a massive amount of money.  Many would argue that six-figure savings should be housed in an investment vehicle that can generate more interest.  I do not completely disagree.  However, understand that if you house an emergency fund in an investment account, it is subject to the market’s volatility, for better or worse. 

Take Home Points

Before we close out, I want to be clear: This article does not intend to make light of the disaster that has unfolded in the wake of Hurricane Helene.

What I have seen in parts of Georgia, South Carolina, North Carolina, and Tennessee is heartbreaking.  However, with many tragedies in life, there is (hopefully) something to be learned.  Financially speaking, we now must grapple with the fact that we live in a world where severe weather events are becoming more common.  As a result, you are statistically more likely to suffer from one.  Re-evaluating all aspects of your emergency plan, including how you save financially, is critically important.  Luck is where preparation meets opportunity.  Be lucky when disaster strikes. 

I hope none of us have to suffer the damage and repercussions of such storms, but the truth is that some of us will. I personally am taking the time to consider my financial needs, given that I reside in a coastal town, and have determined that I need a bigger buffer. What do you think?

If you are looking for ways to help victims of Hurricane Helene, I found this article helpful.

Stay motivated!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Should Recent Weather Events Impact Your Emergency Fund? appeared first on The Motivated M.D..

The Motivated M.D.

This week we published the latest chapter in our content series titled Doctor Money: A Personal Finance Guide for Physicians.  For those of you who do not know, I am using our weekly content to periodically drop posts that will later double as book chapters.  This week we published chapter 8 which looks at how to automate your savings.  Take the human element out of your finances to accelerate your journey towards financial independence.  Here is how doctors can save more and do less!

You can find the entire article by heading to The Motivated M.D.: How Doctors Can Save More and Do Less.

The White Coat Investor

Dr. Jim Dahle published another insightful article about ways to feel rich.  Many will achieve significant wealth on their journeys towards financial independence, but there is a difference between amassing wealth and feeling rich.  Here Dr. Dahle provides 10 ways you too can revel in your financial achievements.

You can find the entire article by heading to The White Coat Investor: 10 Ways to Feel Rich.

Planet Money

Lastly, the most popular topic of this past week was Jerome Powell and the Federal Reserve cutting interest rates by 50 basis points (0.5%).  This was not exactly a surprise, but understanding how rate cuts directly and indirectly effect our lives is somewhat more ambiguous.  This week I wanted to highlight a great listen (podcast) from National Public Radio’s (NPR) Planet Money.  It can be found in the link below and does a great job parsing out how rate cuts effect the average American.

You can find the entire listen by heading to Planet Money: Rate Expectations: What It Means That the Fed is About to Lower Interest Rates. 

Have a great Monday, and stay motivated!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Motivation Monday Recap – September 23rd, 2024 appeared first on The Motivated M.D..

The publishing of this post marks Chapter 8 of my work and the start of the back half of this potential book.  This week, we will focus on how doctors can automate their finances to remove their emotions and effortlessly save for many of their goals.  This is how doctors can save more and do less.  Learn how to automate many aspects of your savings, and you can accelerate your road to financial prosperity while freeing up more time. 

Doctor Money: A Personal Finance Guide for Physicians

Chapter 8: Automate Your Savings

This week, we will discuss how to automate your savings. Before we discuss each individual savings account, let us first highlight exactly what it means to ‘automate’ your savings. 

A Simple Concept

This is a simple concept for most visitors to my site, but it should nonetheless be reviewed.  When I talk about automating your savings, I mean using strategies and technology to easily transfer money into savings or investing accounts to remove the human element. 

In medicine, it is commonly agreed that ‘to err is human’.  Most healthcare professionals would agree that humans make mistakes.  A study by Johns Hopkins in 2016 found that medical errors may potentially be the third leading cause of death nationwide.  So yes, humans make mistakes.  This is the same for personal finances.

Be it the fact that humans are overconfident or that we let our emotions get in the way, humans are also notorious for being bad with their finances.  Now, this is not applicable to all, and largely, if you have made it to my website, you are likely an exception or looking to change your ways.  Either way, the more you can automate your finances to remove the human element, the better.  Using this mentality, we can navigate ways to save regularly and effortlessly. 

Saving money is simple but not easy.  Many individuals struggle to put money away regularly as they feel an urge to use it elsewhere.  Fight this temptation.  Let’s take the time to apply this strategy to some of the more common long-term needs.

Automate Your Retirement Savings

Retirement savings are likely the first that comes to mind for most individuals.  From the moment you start post-graduate education (internship and residency), this is seen as a physician’s first ‘real job.’  Though it often does not come with the attending salary, medical trainees are getting paid to perform a service, and hospitals provide retirement plans to these individuals. 

For many, putting money away is more difficult during this chapter of their training, as income is small, budgets are tight, and saving for retirement, statistically speaking, takes a larger bite.  However, so many residents fail to realize that the money saved early in their training is arguably the most important and has the potential to work the longest toward wealth accumulation. 

The Motivated Resident: An Example

In 2024, the current 401(k) contribution limits are $23,000.  Now, I understand the idea of a resident maxing out their retirement on a trainee salary is extreme.  Saving $23,000 when the national average unweighted resident salary in 2023, according to AAMC data, was $63,800.  That would mean that a resident maximizing their 401(k) contribution in 2024 would be saving roughly 36% of their income towards retirement.  Not an easy thing to do.  However, for the sake of argument, let’s say a particularly motivated resident decides to max out her contribution annually for a three-year residency. 

Assuming that the contribution limit remains at $23,000 (it normally increases each year), then a resident at the end of a three-year program would have saved $69,000.  Not bad!  The savings during residency alone, not including future savings as a high-income earning attending, over 30 years with a real rate of return at 6% would total nearly $400,00 ($396,300.89 to be exact).  Here is a graphical representation:

What you are meant to take away from this is that at the time of retirement, a resident who saved for retirement during a three-year residency would have nearly $400,000 more than a resident who did not. Remember, that is approximately $327,300 of free money, assuming real market returns over 30 years. So yes, saving this much during training is tough, but the potential rewards are colossal. 

Now, extrapolate that very same idea to a full 30-year career.  Let’s say this particular physician does nothing but max out her 401(k) for her three-decades-long career.  Literally doing only this, with an annual contribution of $23,000 annually ($1,917 monthly) and a real rate of return of 6%, will amass a nest egg of nearly $1,798,229.30!  That is doing nothing for your future other than maxing out one single retirement account and keeping it fully invested in the stock market. 

Here is the kicker: according to Investopedia, since adopting the S&P 500, the average annualized rate of return has been 10.26%.  Adjusted for inflation, that is still roughly 7.99%.  As you can see from the chart above, a real rate of return at 8% would create a nest egg of nearly $2,560,593.32.  For many physicians, depending on their lifestyle and spending, this is more than half needed to retire… doing literally nothing other than saving for retirement using an employer 401(k) as your solo vehicle.  This does not even factor in other savings or an employer match! 

The takeaway is that automating retirement savings is critical to future financial well-being. Even more, doing it early and often, even if it means sacrificing your lifestyle while you are a resident, can reap substantial rewards later in life. 

Automate Your Investments

We discussed the benefits of investing early and often when talking about retirement. However, for many high-income healthcare professionals, investing in more than just one’s employer retirement plan will be commonplace. For individuals looking to build an even larger nest egg at retirement or looking to retire early and/or pursue financial independence, retire early (FIRE); often, additional investment strategies will need to be employed. 

This will often take the form of performing a backdoor Roth IRA, a spousal Roth IRA, real estate investing, personal investment accounts, and so on.  There are so many vehicles to house your income and make your money work for you during your career.  However, I often think of it this way. 

Many personal finance sites recommend saving at least 20% of your salary annually.  According to the latest Medscape Physician Compensation Report for 2024, the average physician salary was approximately $363,000 ($277,000 for primary care and $394,000 for specialists).  If we use this data to explore potential savings and future investment returns, 20% of the average physician income in 2023 ($363,000) would be $72,600.  This means one would need to save (and invest) $72,600 annually to live up to the average savings recommendation of 20%.

The Motivated Attending: Example Continued

Let’s continue the example we used above. This physician is now an attending, making $363,000 (the average physician salary listed above).

If the 401(k) contribution limit remains at $23,000 (which it will not, but I am trying to be overly simple), she would still have $49,000 left to save and invest annually after maxing out her employer retirement contribution.  She would have to employ other avenues to invest this money using some of the abovementioned investment vehicles. 

However, if she practiced this advice and invested $72,600 annually over what remained of her 30-year career (27 years following residency), including her $69,000 from residency savings, then assuming a real rate of return at 6%, by the end of her career she would have accrued a wealth of $4,957,780.46.  If she is lucky and benefits from an 8% real rate of return, then she would have nearly $6,892,842.02. 

These are colossal numbers, more than enough for a comfortable retirement.  Remember, these calculations do not factor in employer contributions.  Even more, imagine if you saved more than 20% or experienced a stronger economy.  This is what is achievable when you combine the earning power of physicians with the wonders of automated contributions and compounding interest. 

Automate Your Personal Savings

OK, now that we have highlighted the importance of automating your retirement savings and investments, let’s briefly talk about how this same concept can be applied to the rest of your savings. Regarding personal savings, there are options to automate this as well. Be it saving for your budget, creating an emergency fund, or having a rainy-day fund, this can be automated, too.

Though online banks and apps often offer options to automatically transfer money from your checking account to your savings account, you can also have your employer direct deposit into your savings separately from your checking account. 

This can be a great option for individuals who often struggle to personally save money.  Often, this only requires a brief phone call or updating a form for the financial department at your place of employment.  From here, you get to dictate how much of your take-home pay you wish to have directly deposited into your checking vs. your savings.  This is a great way to further increase your financial cushion for those looking to have backup funds or guard against unexpected expenses. 

Automate Your 529 Savings

The last large savings I can foresee is for your children’s education. The cost of education in the United States remains on the rise, and by the time your children reach college age, it may be as much as $250,000 for many four-year public schools. This is another aspect of your savings that needs to be addressed early. 529 savings plans are among the most common savings vehicles for your children’s future education. 

Since these savings are so important, automated savings is another avenue to utilize.  My children’s 529 has an option to ‘auto contribute.’  Since my checking account is already linked for contributions, I can set it up so that it automatically withdrawals from my checking account and contributes a predetermined portion into my 529 monthly or annually.  This can be another great way to automatically prioritize your children’s education and remove the human element.  All you need to do is determine how much you think you need for their education and how many years you have to save until they are of college age.   

Automate Your Short- and Medium-term Financial Goals

Lastly, you will inevitably have future short- and medium-term goals that will require savings.  Be it the downpayment for a home, a car, or a vacation, these expenses come up.   To be clear, this is separate from unexpected needs that largely benefit from an emergency fund.  However, short- and medium-term financial goals are still important.  These are easily addressed by automatically transferring money from your checking account to your savings account or automatically saving any bonuses or supplemental income.  Make sure to apply the same principles used for retirement and investment savings to your other financial goals, too.

How Doctors Can Save More and Do Less

As you can see, making your savings automatic can save you time and help you effortlessly accumulate wealth.  For many of the examples above, the benefit of automatic contributions is that you largely never see the money before it is deducted, and thus more easily tolerated.  Out of sight, out of mind, right?

So many of our long-term savings can be hindered by our short-term wants.  Do yourself a favor and set your finances up to remove ‘you’ from the equation.  This way, you are always on track to meet your savings goals while limiting the physical and mental effort needed to get there.  Set it and forget it! 

Also, make sure to check out the rest of our Doctor Money Personal Finance Book (in progress) by clicking here!

As always…

Stay motivated!

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Further, no part of this series, post, or any post on this website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under the 1976 United States Copyright Act, without the prior written permission of the author.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

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The Motivated M.D.

The first article on our list is our most recent publication.  As I celebrate a time in my life where I have freed up discretionary income, I am starting to consider real estate investing.  Though investments in stocks and bonds remains mainstream, often physicians are approached with real estate investments, largely for their high incomes.  As I begin to self-educate on real estate investments, I wanted to help answer the question: when should doctors begin investing in real estate?

You can find the entire article by heading to The Motivated M.D.: When Should Doctors Begin Investing in Real Estate?

The White Coat Investor

The second article this week is a great reflection on the opportunity costs of purchasing expensive vehicles.  Dr. Tyler Scott, a columnist at The White Coat Investor reflects on his previous four cars, and why purchasing a ‘beater’ to get from A-to-B may very well make him a multimillionaire. 

You can find the entire article by heading to The White Coat Investor: My 27-Year-Old Care Will Make Me a Multimillionaire.

Passive Income MD

Next on our list is an article highlighting the importance of saying ‘No.’  Many who enter medicine are ‘yes’ people.  It is great to be open to helping others, but as our careers and personal lives progress, often we find ourselves over agreeing and quickly becoming overwhelmed.  There is an art to saying no, and Dr. Peter Kim provides an enjoyable seven minute read describing the art of saying no. 

You can find the entire article by heading to Passive Income MD: The Art of Saying No: Live a More Focused, Higher Quality Life.

Physician on FIRE

Last, but certainly not least is an article from our friends at Physician on FIRE.  With the recent presidential debate taking place this past week, we learn more about our candidates and their potential policies, should the take office. 

Alvin Yam writes on PoF, what your taxes could look like under a Trump or Harris Presidency.  Though we still don’t know exactly how these plans would manifest, it sparked great reflection and commentary regarding the privilege afforded to us as high-income earners as well as taxes on abundance.  What do you think?

You can find the entire article by heading to Physician on FIRE: What Your Taxes Could Look Like Under a Trump or Harris Presidency

Have a great week!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post Motivation Monday Recap – September 16th, 2024 appeared first on The Motivated M.D..

I had never genuinely considered real estate investing (in its many forms) until I finished paying off most of our debts.  For those who have not read our recent posts, we paid off my wife’s debt, which has been a critical financial milestone.  With a significant portion of our income now free from the shackles of educational debt, we can entertain new ways to invest our earnings and grow our wealth.  Like so many of you, I have little background in real estate investing.  I am seriously considering it however, so I figured I would do some self-education and explore when should doctors being investing in real estate?

Real Estate as an Asset

This will likely not shock anyone, but real estate is very much an asset.  As we navigate the world of assets and liabilities, assets make us money; liabilities take our money.  Relatively simple concept.  Stocks, bonds, and real estate are some of the most commonly known assets to the average American.  Liabilities include depreciating vehicles and the many forms of debt.  When considering diversifying your portfolio, those looking to add more protection to their wealth will sometimes incorporate assets beyond stocks and bonds.  Real estate is often the next logical step. 

When determining if real estate should earn a place in your personal portfolio, consider a few statistics from Investopedia in an article titled Has Real Estate or the Stock Market Performed Better Historically?  This article highlights some important concepts regarding the risks and benefits of real estate as an investment. 

For starters, you can get rich investing in both stocks and/or real estate!  Historically, the stock market has outperformed real estate.  Remember that.  Individuals still pursue real estate over stocks, or in parallel, because the stock market is historically more volatile than real estate, making real estate a safer investment during economically uncertain times.  Lastly, stocks have no tangible value, but property ownership (real estate) does. 

So, what is the takeaway here?  Statistically, investments in stocks are still, historically speaking, the best investment long-term.  For those looking for tangible assets that can better withstand market volatility, real estate is a safer investment and largely still a great one.  How, then, can a busy physician incorporate real estate investing into their lives?  What types of real estate investments exist?

Types of Real Estate Investments

Great question!  Fortunately, we have already published some great articles on this exact topic.  One is a recent post titled Active vs. Passive Real Estate Investing: What’s Right for Physicians?  The second article is a classic that discusses how real estate investing can expedite your financial freedom!  For time’s sake, I will not detail every real estate investment available. That would take way too long.  I want to briefly highlight the pros and cons of active and passive real estate investing.  This can help you determine which type of investment best suits you and your availability. 

Active Real Estate Investing

Largely stealing from many of our prior articles above, active real estate investing is just like it sounds.  Active.  Active real estate investing requires a hands-on approach, engaging the investor in many ways.  Doctors looking to actively manage real estate will be front and center.  This can involve (but is not limited to) property research, contract negotiation, purchase, and subsequent management. 

The benefits of being actively involved in your real estate investments include having more control over the day-to-day decisions that impact a property.  There is potential for higher returns as you limit the involvement of others, and you can leverage your own market expertise (assuming you do your research).  Lastly, investors can actively deduct expenses related to property taxes, maintenance, and management fees depending on the investment.

The drawback to actively managing our own real estate properties is that there is often more risk.  If you ‘go it alone,’ there is more opportunity for significant losses due to market volatility and poor investment decisions.  Actively managing properties often comes at a higher cost, too.  Finally, active management is a much more time-consuming process.  In a world where busy physicians are looking to supplement their income and diversify their investments, taking an active approach to real estate will require your precious time. 

Passive Real Estate Investing

Let’s switch gears and talk about passive real estate investments.  Compared to active real estate investments, passive investments require considerably less direct involvement from the investor.  This results from much of the hands-on portion of management being turned over to a middleman.  This is often a property management company for individuals still looking to own the property outright or an investment firm if you are leaning towards crowdfunding, real estate investment trusts (REITs), and other passive investing strategies. 

The obvious benefits include lower direct risk to the individual as professionals often diversify and manage these investments.  A lower upfront cost is often needed as well, making this a more accessible option to individuals looking for early exposure.  A passive approach to real estate investing offers more diversification as you can spread investments across various asset classes, reducing the impact of any single property’s poor performance.  Lastly, it simply requires less time.  This is largely why many doctors initially start with passive real estate investments.  As a profession, we don’t have the time or expertise to manage a property ourselves!

There are some drawbacks to passive real estate investments.  Though one benefit is that the risk is spread across multiple individuals, it also means there are often ‘more cooks in the kitchen.’  This means that you have less control as an investor, and further, the potential returns are statistically lower as more parties take their piece of the pie.  Lastly, passive investments have limited ability to react to changes in the market and thus lack the ability to aggressively seize emerging opportunities. 

Understand the Commitment

Though the above review of active and passive real estate investments only scratches the surface, you can see how there are some big considerations for each.  Determining how they will directly influence your decision to incorporate real estate into your investment portfolio is a personal decision. 

In my opinion, when it comes to real estate investing, there are two overarching considerations: the time commitment and the upfront cost.  Let’s briefly explore each of these. 

Time

When I think about the decision to invest in real estate, I anxiously recall my own home-buying experience.  It was months of evening trips looking at houses, discussing intricate details, the pros and cons of each experience, and ultimately placing offers that would later lose out to others.  Granted, this was during the COVID housing scrabble, but you get it. 

I had to juggle my professional career while still tending to my expecting wife while still finding the energy and enthusiasm to house hunt.  It felt like endless nights and weekends of driving around neighborhoods, meeting my realtor, and ultimately deciding on a property that didn’t fit our needs.  If I pursue actively managing a real estate property, the search process alone sounds exhausting, much less the subsequent maintenance. 

Clearly, there are other avenues and passive real estate investing has much more appeal to the busy professional, but that, too, still requires upfront costs.  From a time perspective, some research must go into decisions to invest in one platform over another.  However, largely, following some upfront research, my understanding is that once you provide your capital, it becomes a ‘set it and forget it’ experience until a later payout date.  This sounds much more appealing when I am in my early career, juggling two toddlers and a newborn on the way.  However, I do love being handy and can see myself enjoying property management later in life, but not at this point. 

Money

The second commitment I alluded to above is largely that of cost.  Thinking about active investing again often includes saving for the downpayment of a property or potentially saving the expense entirely so that all cash flow following purchase is profit.  However, the decision to stow away between $50,000 and $400,000 (or more) sounds anxiety-provoking to me.  Sure, you could house it in an investment account and put that money to work, but largely, you risk exposure to market volatility. 

From a passive perspective, there is largely still an upfront cost to be expected, but if you are not purchasing a property outright, these barriers of entry are often lower.  Further, many other options like crowdfunding often share this risk amongst many investors, lowering potential returns but also lowering risk as well.  Either way, you are spending money upfront.  

Ultimately, the decision sounds like you are spending a lot of money and time up front to reap a larger reward later, or you are spending less time and potentially less money to have someone else do most things for you.  This may provide a false sense of security but involves less time commitment.  This may be worth what you lose in gains compared to active management.  Anxiety is taxing, too, and in our profession, the less stress we self-inflict in our lives, the better. 

Tax Benefits

It is important to highlight that some tax benefits come with real estate investing.  Though many could explain the differences in detail, the gist is that passive real estate investors can only deduct normal costs (not business costs) associated with their rental property. 

According to Morningstar, passive investors may deduct passive losses against passive gains.  Active real estate investors may deduct up to $25,000 of passive losses if their Modified Adjusted Gross Income (MAGI) is less than $100,000.  When their MAGI exceeds $100,000, the tax break is cut by 50%.  If the MAGI exceeds $150,000, the active investor (taxpayer) cannot take any passive losses.  Active real estate investment losses greater than $25,000 can be carried over to the following year.

All of this said, as a real estate investor, you have tax advantages, largely more for active investors than passive investors. Keep it in context: If you are a physician making physician-level incomes and simultaneously running a real estate side gig, this is a good problem to have…

When NOT to Invest in Real Estate

So, now that we have reviewed this information, let’s discuss the decision to break away from the norm of stock and bond abundance in your investment portfolio and pursue real estate investing. Though everyone’s financial journey is different, as is their risk tolerance, I do think there are some times when you should NOT invest in real estate. Many may disagree with my recommendations, but hey, to each their own. 

I would argue that if you are in the throes of your medical education and training, i.e., a medical student, resident, or fellow, AND you are actively accumulating student debt or still paying it down, then it may not be a great time to explore the world of real estate investing…yet.  Focus on your education, become a good physician, and solidify your financial footing before pursuing alternative investments.  Yes, you should still prioritize your retirement savings, but I hesitate to encourage much deviation from the generic recommendation of ‘live below your means, save, pay off debt, max out retirement.’  Complete those tasks first, then consider real estate. 

Further, if you are a profoundly busy clinician with an even busier household (spouse, kids, etc.) and cannot stand the thought of another time-consuming venture, I would say active investing is unlikely to fulfill your fantasies.  This busy physician should focus on their financial goals, and if real estate is a potential part of their financial plan, then passive real estate investment opportunities or hiring a management company will be more digestible. 

I don’t think busy physicians should burden themselves with real estate unless they either carve out time for it or pursue it passively.  There are a plethora of physicians who transition to real estate (see The Darwinian Doctor, The Prudent Plastic Surgeon, Passive Income MD, and Semi-Retired MD), but these are largely individuals who have made their money, used this cashflow to increase their property ownership, while simultaneously decreasing their clinical burdens.  You can only build an effective real estate empire if you have the time and money to devote to it.  Most full-time doctors I know lack one or the other (at least early in their careers). 

When Should Doctors Begin Investing in Real Estate?

So, when should doctors begin investing in real estate?  I have created this long-winded post to end on a somewhat high note.  See, much like many of you reading this, I have not decided to pursue real estate investing yet, but now, more than ever, it feels like a good time to consider it. 

I am the ‘every physician.’  What I mean is that I have completed my training, I have a few years as an attending under my belt, and I have used this initial time and income to tackle the biggest goals.  My wife and I have paid off all our debts (that are not being actively reimbursed).  We have no credit card debt, no automobile debt, and our mortgage is affordable. 

Though we have a third child on the way (and I am scrabbling to factor that into our financial plan), it genuinely feels like a good time to consider real estate investing.  We have freed up discretionary income, live below our means, save for our children’s education, max out our retirements, and our emergency fund is full.  This is what I would recommend to doctors looking to explore real estate. 

Get your financial affairs in order, guard against disaster, have your emergency fund full, and eliminate your debts (unless you are pursuing PSLF). Then, you will feel financially emboldened by your intelligent choices to take some risk and explore potentially lucrative opportunities. 

Remember, real estate investments are not for everyone.  We each have our own story to tell, and the decision to complicate that more with real estate is not one to be made lightly.  However, for the right doctor, adding real estate to your arsenal of money-making tools is not a bad idea!  A real opportunity exists to accelerate your path toward financial freedom with it.  Think about it. 

Additional Resources

If you are interested in learning more about types of active or passive income investments, or wish to speak with vetted professionals, make sure to check out The Motivated M.D.’s Recommended Real Estate Investments page. Though you will find platforms I have an affiliate relationship with, I only recommend them because I have personally interacted with them and feel they genuinely offer investments worthy of your time. As always…

Stay motivated!

The Motivated M.D.

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.

The post When Should Doctors Begin Investing in Real Estate? appeared first on The Motivated M.D..