The Turtle Wins the Race
Published on 07/01/2022 |
I don’t know how many doctors in their early 60’s have said to me, “I don’t want to work anymore but I have to.” They’re unprepared, financially, for their retirement years. It’s not uncommon for them to have made bad financial decisions during their working years, and as they get older they’re in no position to support themselves at a time when it is really needed.
How and why does this happen?
There are exceptions, of course, but typically the decision to pursue a career in medicine or dentistry is made early in life, even before or during the academy years. Teachers and parents alike encourage bright and aspiring students who do well in math and science to choose this path. In our culture these fields are associated with status, honor, and glory. And because of the call for medical missionaries, pursuit of a medical career is affirmed by the Adventist faith.
In college, pre-med and pre-dental students excel in the sciences — biology, chemistry, math, physiology — and receive high honors. The problem is in many cases these students are not balanced through the study of other subjects or experienced in other lines of practical life or employment.
The medical and dental school experience provides more of the same — study of the sciences, preparation for boards, residency selection and achievement upon passing the final set of boards. Now these young graduates are ready to enter mainstream life and begin earning a high salary because of their training and credentials. Finally! After years of frugality necessitated by the high cost of their education, they start getting paid a lot of money.
The problem as already stated is that many of these graduates lack a basic knowledge of areas outside the sciences such as business or psychology. But since they have excelled in everything they have tried so far, they sometimes develop the inappropriate opinion that they are good at everything.
Financial planners say physicians are the worst people to advise on finances, because they think they are already good at it. The second thing financial planners and accountants will tell you about their physician clients is that they aren’t good at taking directions.
This creates a difficult problem. Here you have highly trained, productive, talented individuals with a huge defect which they are either unaware of or unable to admit to. Many physicians approach me and say, “I’m completely underwater, upside down financially. What do I do?”
Several years ago I enrolled in a course so I could become a financial planner. I offered free financial advice to anyone who wanted it. An ER doctor and his wife came to me for help. They owed money on everything — their car, their home, and more — and step by step they made changes which brought them peace and financial security. They don’t live in an expensive home anymore, but it’s paid for. The same is true for their cars. They gave me a big hug and thanked me, saying, “You completely changed our lives.”
I encourage everyone — especially young professionals with the most to gain (or lose) — that they become educated and seek professional help whenever possible in any area in which they do not have expertise. Just because you’re a neurosurgeon doesn’t mean you know how to build a bird house.
Schemers and scammers often take advantage of the fact that medical practitioners are very busy with little time to evaluate financial opportunities. They may make a very appealing pitch for investment in some entity that will either shelter their funds from taxes or provide a high rate of return. Doctors are vulnerable to falling for such schemes and not a few have lost a lot of money (and more) as a result.
If it sounds too good to be true, it isn’t true.
People will say, “But it is such a good deal.” I would walk away from it.
The best financial advice I can give is this. Be a turtle. Invest slowly, wisely, and keep plodding along. And always spend less than you earn.
If you’re young, start planning now.
I just completed teaching a semester of economics/personal finance to a class of high school seniors. One of their assignments was to create a graph. The x axis (vertical) represented time and the y axis (horizontal) included their academic, financial, and spiritual goals.
Seven of the students in the class set a goal to be financially secure by age 42.
I told the students in my class, “You don’t have to come. You can leave if you need to go to the restroom. Don’t ask for permission. Just go. If you’re not here, I blame myself (for not being an engaging or relevant teacher). They came every day. One kid was sick but came anyway. It was rewarding to see these young people mature and make wise plans for their future.
Within the Adventist subculture there is an undercurrent of thinking that somehow it is sinful or wrong to be financially stable and secure. God asks for ten percent of our income, but it is easy to give 20 or 30%. We can’t have passive income and financial security unless we follow the rules. Students typically receive little or no advice about planning for their financial future.
But the students in our class learned how wise stewardship now will translate into having significant financial resources later which can be used to support God’s work and help others.
That’s where most doctors want to be, but they don’t make the right decisions to achieve that goal. When they are high income earners, it seems like there is no end to the money supply. But if they spend as they go, they will discover, like my friends who are in their 60’s and wishing they could retire but can’t, that they don’t have enough passive income in place to retire.
It’s unfortunate, because at the income most doctors are at, they should have significant income to invest within 10-15 years of starting practice. But this requires a sacrifice. It means trading short term gratification (ski boats, fast cars, big houses) for long term security.
The desire to gain wealth is biblical. Abraham was considered a prince because he had so much wealth. But he knew how to handle it. When he rescued Lot, he could have kept all the booty. It was his right. But he said, “I’m not taking a penny. You didn’t make me wealthy, God did. No thanks on the plunder.”
If your ultimate goal is for financial security, ask yourself: Do you want to work for your money or your money to work for you?
For those who are young, the wisest choice you can make is to continue living frugally after you complete your training and begin working. Don’t fall for the material trap. Save as much as 50% of your income. Investments that are made before age 30 will have the most significant long term gain.
Sometimes financially it’s better to work for someone else than be on your own because of the group employment benefits. Ideally, you work for your money, you save a significant portion, you invest in a group retirement plan (you can even do this as a resident) with 5-7% matching funds. Find out what the maximum amount is that you can put in — perhaps even up to 15% of your income. Get a self-directed IRA and invest pretax dollars. Compel yourself to do this! Money invested in this way will generate huge returns later.
About 17 years ago I started a defined benefit pension plan through my corporation. I purchased an annuity — a life insurance policy that annuitizes and they will pay you a fixed amount for the rest of your life. Life insurance returns are better.
About five years ago I closed down the defined benefit plan. I took the money out and paid tax. Now my assets are in after tax dollars, and the government can’t charge me 70% tax like they did in the 1980’s.
You should also consider diversifying your assets by investing 10-15% in precious metals. That is an investment and a huge hedge against inflation. Over time we see that metals hold their monetary value. That hasn’t changed over the past century.
In summary, the key to wise financial stewardship is to start heavy and start early. Put in the maximum amounts early. Always spend less than you learn. Read books like The Millionaire Next Door and Rich Man, Poor Man.
Don’t rely on your financial analyst to do your thinking for you. When your taxes are done, understand what they are.
Avoid unwise investments. For most physicians owning an airplane is not a great idea. It’s a depreciating asset. The same is true for boats, big houses, and swimming pools, horses, motorcycles, and ATV’s.
Self restraint is biblical. Men especially need to guard against keeping score when money is the scoreboard. People look at the car you drive and make value judgments like, “He must be rolling” [in money]. This is one of the principles I taught the academy students, and here’s how it played out.
We were traveling in Los Angeles with the academy seniors who were just finishing the semester of personal finance training. One of the students spotted a beautiful Lamborghini cruising down the Pacific Coast Highway. The kids sized up the situation and said, “He’s probably leasing the car with no net assets in the bank!”
In our society we judge people by status symbols such as the places they live and the cars they drive, but in our country a lot of people are doing this on credit. They don’t really own these things outright. They are living above their means. They are making payments and saving nothing.
Another primary rule for financial success is to make no payments. If you have to make payments to own it, you don’t need it. Cars lose their value faster than you can pay off the loan. The exception to this rule is the home mortgage. Live within your means. Always spend less than you earn. Government loans are easy money. Don’t take out one because you will have to pay it back. The turtle wins the race.
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