Top 5 financial mistakes I made as a doctor
I developed a love and respect for my financial mistakes. They brought me to where I am now. But I’m moving forward. The list of what I did well is relatively short and recent. The list of my financial mistakes, however, is long.
Honestly, there probably aren’t many people who have made more bad financial moves than me. So take this whole list as encouragement, even if you relate to some, some or all of the mistakes I made. If I can start to climb out of the money pit I’ve created for myself, so can you!
So now when I go through these financial mistakes with you, I am even more inspired and focused on my personal and financial wellness goals. Losing now helps me win. It has made all the difference for me, and I encourage you to adopt this mindset with your finances as well. The best day to fix them was yesterday, but the second best day is today!
And if you’re new or need a refresher on where I started before you start this journey, Check out my comeback story!
My Top 5 Financial Mistakes
Mistakes #1 and #2: Spending up to my salary and intentionally not spending
Unfortunately, I think this mistake is too universally common.
I have to admit, before I started my journey to financial wellness, I kind of assumed that spending what you earn is exactly what you do.
It’s a testament to the advertising and marketing machinery that I’ve been conditioned to respond to every pay rise (annual raise, tax refund, etc.) by buying something. I didn’t save wisely, if at all, throughout my 11 years of post-baccalaureate training.
In fact, I always told myself that I would worry about saving when I started making more money, but as I got closer to that pay rise, the price to pay for a lifestyle increase struck me – a house, cars, daycare, furniture, new toys, etc.
I’ve had so many attendants or other high-income professionals say to me, “The salary goes up as an attending physician/lawyer/etc. but the costs get even higher.” As doctors, we abide by the “pain now, it will pay later” philosophy for all of our training as our friends get gainful jobs and we sink deeper into debt in medical school. At the end of the training, we are ready to pay!
My advice: Pump the brakes BIG TIME
Whatever your salary, don’t spend it all. Someone who earns a million dollars a year and spends a million dollars is not a millionaire. They are as rich as me (a zero-aire?).
Mistake #3: Pay me last
This one joins my first mistakes. I paid myself last, and therefore, I didn’t pay myself.
Every month I made X$ and every month I spent X$ – it’s a surefire way to have a savings rate of 0.00000%.
It seems obvious to say, “Well, don’t do that, save some money.” But if you’re still paying the rent/mortgage, car payment, daycare, groceries, dinners, movies, concerts, etc., before you know it, there’s nothing left. That’s what I had always done. I rationalized by saying that I was just spending what I needed, but I knew deep down that I was just balancing out with what I brought in every 2 weeks.
I will repeat what I said above – don’t spend everything you earn. Save! Pay attention to this discrepancy. The easiest way to do this is to pay yourself first. Pick a percentage of your earnings and withdraw that amount from your slush fund — aka your checking account — when each paycheck arrives. Put it in a savings or investment account, then spend the rest of your earnings guilt-free.
What percentages should you save?
Some people advocate a huge savings rate of >50% of your annual income in order to retire very early. It can be done, with great success, but requires a lot of sacrifice and discipline. I recommend at least trying to save around 20% of your annual income, investing it in broadly diversified low-cost index funds.
My wife and I had a 0% savings rate when we started. Our savings rate is now 40%-50% each month (including paying off student debt, which I believe counts towards the savings rate).
Mistake #4: Not Repaying Debt
Since I mentioned debt, let’s talk about that.
I had a lot, like a LOT, of debt. I attended private undergraduate and medical schools. And I paid every penny of it in loans in my name. Private loans, federal loans, subsidized, unsubsidized, etc. I’ve had them all. They stressed me out terribly. But I didn’t know anything about finance and was intimidated to learn anything, so I ignored them. I carried them over to medical school and throughout my plastic surgery training, which lasted another 7 years.
Every year I had to fill out more paperwork to defer my loans, and I cringed at the huge numbers I saw.
How the hell could I afford the huge number I saw? I earned little money, paid rent in New York and had two children.
I’ll tell you how I could have started doing that, paying myself first — which includes loans! My interest on loans went up because most private loans were at variable interest rates – although I didn’t even know what that really meant until I picked up a book.
As of this writing, I owe close to $350,000 in student loans. Yeah. I wish I had started getting rid of it sooner. But, I made a huge dent by:
- Repay all trade debts
- Aggressive repayment of student debt to the tune of over $100,000 in 1.5 years
The lesson to be learned from my ignorance is…
attack debt aggressively — in particular consumer and high-interest debt (>8%). That’s a guaranteed 8% return on investment, and there are few better guarantees when it comes to financing. It’s a way of paying yourself first and should factor into your savings rate.
Celebrate each milestone and before you know it, you’ll be debt free. We now have a plan in place to pay off all of our business and student debt in 5-7 years without sacrificing our retirement savings plan.
Mistake #5: Not having a written financial plan
A written financial plan is like a compass.
When you’re not sure what you should do in a certain situation, look at your plan and it will tell you. Just do that. This way you act out of logic and reason (the state of mind when you wrote the plan) rather than emotions (how you feel at the time).
You won’t be surprised from what I’ve shared so far that my wife and I didn’t have a financial plan, let alone a financial index, until recently. Not having one leads to more confusion, uncertainty and stress.
Once you’ve started on the road to financial wellness, commit to developing a plan within a month (with your partner if you’re in a relationship – being on the same page can’t be overstated in terms of ‘importance). For all my family, friends and co-workers I talk to, this is one of the things I talk about the most.
If you come up with a reasonable strategy based on financial knowledge and research, formulate that strategy in a written plan, and follow that written plan, you’re better off than most investors. It’s not necessary and it probably won’t be perfect, but a start is better than nothing!
You can read my complete and real financial plan here!
Where do we go from here?
Again, I’m listing these financial mistakes (and believe me, there are more) to demonstrate that most, if not all, of you are probably in a better place than the one I put myself in. .
So you are already at a healthier starting point!
Most importantly, by acknowledging our financial mistakes and lack of knowledge, we break free from the cycle of fear of losing (which only leads to more losses) and can finally start playing to win, using the financial mistakes. past experiences and past defeats as motivations. .
Congratulations on continuing to reach these milestones with me!
I know from experience that these are the hardest steps to take. Open yourself to accepting and acknowledging your past financial mistakes and you will open yourself to a world of opportunity – a world of making the right decisions that lead to personal and financial well-being.
And I continue to use this learning process today. Quite recently, I have been rehashing some of the Big Financial Mistakes Selenid and I Made Buying Our Third Rental Property and all that we have learned from them!
Disclaimer: The author is not a lawyer, accountant or financial advisor. His expertise is in the field of medicine. Any information contained in this editorial and its links should not be considered personalized financial advice.
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder of The cautious plastic surgeon.