Don’t Make These 10 Financial Mistakes – Podcast #191

Podcast #191 Show Notes: Don’t Make These 10 Financial Mistakes

There are 10 big financial mistakes that doctors make. We see these made repeatedly over and over again. If you can avoid these, you’re going to have a great career and financial life. We often think we have to get everything right with our finances, but you really don’t. You just have to avoid the big screw-ups. If you have made one of these mistakes, fix it today and get back on track for a successful financial life.

In this episode we also answer listener questions about how to contribute more money to tax-deferred accounts, how you can invest income from rental properties, diversifying into international real estate, and retirement withdrawal strategies. 

This podcast is sponsored by Bob Bhayani at drdisabilityquotes.com. He is an independent provider of disability insurance planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage to make sure it meets your needs or if you just haven’t gotten around to getting this critical insurance in place, contact Bob today by email [email protected] or by calling (973) 771-9100.

Quote of the Day

Our quote of the day comes from Phil DeMuth, PhD.

If you were looking for an investment advisor, make sure you find them. Don’t let them find you. The people who find you will be the wrong people.

I certainly agree with that.

Correction from the Podcast

In the podcast we said you needed to sign up for our live virtual conference by January 5th to receive the swag bag of financial books and other goodies. You actually have until January 11, 2021 to register and still receive the swag bag. It is going to be a great conference. We have Christine Benz, Alan Roth, and Mike Piper speaking as well as some great panels and other speakers. But you want to sign up by the 11th of January. Not only will you get all that awesome content, including 17 hours of CME, but you also get the swag bag mailed out to you. If you sign up on January 12th, you won’t receive the swag bag. You can use CME dollars to pay for the conference. If you’re self-employed, you can write it off as a business expense and you get the cool swag bag with books from these authors, a book from me, WCI t-shirt, and all kinds of other stuff from the sponsors. Register Today!

 

The 10 Biggest Financial Mistakes Doctors Make

    1. Making a bad career decision. Maybe you went into medicine and you shouldn’t have. Maybe you chose the wrong specialty for you. I empathize with these docs because it’s very hard to know at 22 what you want to do with your life or what you’ll even be like at 42. But obviously, this can be a major financial catastrophe.
    2. Not paying attention to their debt-to-income ratio. How much you owe or expect to owe probably should have some effect on how you live your financial life. It should have a huge effect on your job choice after you finish training. If you have massive debt from school, you need to do one of two things. Number one, take a job that’s going to qualify for public service loan forgiveness, and manage your loans accordingly. Or number two, take a job that pays more than average for your specialty.
      In addition to just the student loans, too many doctors are way too comfortable with debt. I know you live on debt during school, and I don’t particularly think you ought to feel guilty about doing that as long as you have a plan to take care of it. But that comfort with debt mindset needs to go away when you come out of school and you need to start living within your means and actually building wealth. When you are making payments every month with your income, that’s your greatest wealth-building tool. You’re not going to be able to build much wealth if all of your income is going toward your payments.
    3. Failing to ensure against financial catastrophe. There are basically six financial catastrophes – disability, death, illness, injury, liability, and the loss of expensive property. There are policies available to buy that cover all of these things. And if you’re like most docs, you need to buy an insurance policy that will cover against each one of them. Find a recommended insurance agent that can help you buy the right policies.
    4. Not paying attention to finances, or at least not paying enough attention. A surprising number of doctors are financially illiterate, at least on a functional level. They know nothing about the basic calculations of finance, little about financial history. They don’t know any of the terminology. They simply are not paying attention. This is like arriving midway through your fourth year of medical school and asking someone, “Wait, there’s a residency match?” This is important stuff that you should know about and be planning for long in advance.
    5. Trusting a money guy. Too many doctors fall in with the salesman masquerading as a financial advisor. Now, you don’t have to manage your investments yourself. If you can learn to do so competently, you can probably knock two or three years off your journey to financial independence, but you don’t have to. I bet about 80% of doctors don’t even want to. What you can’t do, however, is hire a bad financial advisor. Someone who does not give good advice or who charges too much for good advice. Many doctors, if you ask them, will list this as one of their biggest mistakes. Find a recommended financial advisor who will give good advice at a fair price.
    6. Not having a written financial plan. Sometimes that comes from not having a financial planner, but whether you use one or not, you need a written financial plan. We’ve accomplished many goals in our lives, both financial and otherwise, but it’s very rare that we accomplish one without writing it down and making specific, concrete plans to achieve it. The greatest financial task of your life is to save up enough money to support you in retirement. Don’t you think it’s worth maybe doing a little planning toward that goal? We think it is. You can hire one of our recommended financial advisors who can help you get a written financial plan in place or you can take our Fire Your Financial Advisor course. It’s a sweet little online course that you come out of at the end not only being financially literate and knowing everything you need to know, if you choose to interact with the financial services industry, but with a written financial plan that you can follow to invest successfully.
    7. Inadequate investment discipline. While a far more common error is to have no plan at all, even if you have a plan it’s still critical that you actually follow it, particularly in a downturn. Every day there’re going to be temptations to deviate from your plan. To sell low, to chase performance, to continuously tweak the plan, etc. All those changes tend to lead to significant investment underperformance.
    8. You don’t save enough money. The median American has a net worth, excluding home equity, of just $29,000. This person has a household income of $60,000 to $70,000, but a net worth of just $29,000. Why is that person so poor on such a great income? Well, there’s only one reason. They don’t save a significant portion of that income and invest it in some reasonable way. Most doctors are exactly the same, just with a higher income. 25% of doctors in their 60s are not millionaires, including their home equity. 11% to 12% have a net worth under $500,000. So, doctors are not immune to this. They don’t build wealth commensurate with their income, either. If you want to grow wealth, you will need to learn to save money. 20% into your retirement and more on top of that for your other goals.
    9. Leaving money on the table. About a quarter of physicians left medical school without having any idea of how much they would make in their chosen specialty. So, is it any wonder they subsequently take jobs that pay much less than the average job in their specialty? Have your contract reviewed by a professional. Know what you’re worth. Don’t be afraid to negotiate. Find a recommendation for contract review and negotiation services and use them.
    10. Thinking other people care about your spending decisions. Too many of us spend money to buy things we don’t want to impress people we don’t care about. Stop doing that. Your patients don’t care what you drive, your neighbors don’t care where you vacation. Your coworkers don’t care where you shop for clothes or whether you eat organic food. How do I know? Well, do you care about what your doctor drives? How about where your neighbors go on vacation or what the labels on your coworker’s clothes are? You don’t care? Weird. Neither does anyone else. We just don’t care. So, stop acting and spending like they do. They simply don’t.

Those are the ten biggest financial mistakes that doctors make. Make sure you’re not making any of them. If you can avoid those, you’re going to have a wonderful life. You’re going to have a great career. You’re going to feel financially paid well for it. You’re not going to have financial concerns. So often we think we have to get everything right with our finances, but you really don’t. You just have to avoid the big screw-ups. Obviously, we can add a few more to that list. In fact, I wrote a post 2 years ago that had a couple of different mistakes in the top ten. You could add buying whole life insurance, or you could add having a divorce or something like that to the list. But I think these are probably the 10 biggest that we needed to talk about today.

 

Reader and Listener Q&As

How to Contribute More Money to Tax-Deferred Accounts

“I’m on a T32 training grant, which provides just about $59,000, and my division provides an extra $5,000 salary annually. I’m planning for an academic career and I’m working towards public service loan forgiveness. Due to COVID, I’ve worked a lot during the last two surges, and that means I’ll make an extra $60,000 moonlighting this year. I’m married with two kids, and my wife makes $90,000 a year. We file as married, filing separately to decrease my income-based loan repayment. My institution has a 403(b), and I contribute all of the $5,000 salary to it. We’re not allowed to contribute the T32 training grants nor the moonlighting income, which is characterized as supplemental income, into the 403(b). I have one more year on my T32. Do you have any ideas on how to contribute this extra income into a tax deferred account to lower AGI and provide my family a little catch up on savings?”

Wanting to contribute more money to tax-deferred accounts is a noble goal. If the moonlighting income is paid on a 1099, you technically have your own business. So, you could open an individual 401(k) and do some tax-deferred employer contributions there, about 20% of the profit of that 1099 pay. Maybe if you have a high deductible health plan, you didn’t say, you could also do an HSA, but that’s about it.

You kind of already optimized this as best you can. So, your additional money needs to go toward other goals. Maybe paying off your private student loans, maybe paying off a mortgage, paying off any other debts you have, in a Roth IRA via the back door, if you haven’t done that, or even in a taxable account. You can always invest more in a taxable account.

Recommended Reading from the Blog:

Backdoor Roth IRA Tutorial

Tax Deferred Retirement Accounts: A Gift from the Government

The Taxable Investment Account

How to Invest Rental Property Income

A listener recently bought investment property. He opened up an LLC, opened up savings and checking accounts in the name of the LLC and deposits the rent checks in there.  He wanted to know what his options are for creating a retirement account for this LLC.

Can you stick the money in a retirement account? No. Rental income is not earned income, so it can’t go into a retirement account. It’s not used to calculate anything to do with retirement accounts. So that’s not an option.

You could use that income to pay off the mortgage. You can use it to invest in mutual funds in a taxable account, or perhaps, most commonly among real estate investors, use the money to buy another property. You save it up and buy another property.

It’s great to have that income. Congratulations on that. But you can’t stick it in a retirement account. Now, if you have a retirement account available to you for other work you’re doing, money is fungible. You can live off the rental income and use that earned income to go into the retirement account. But you can’t just open a SEP IRA because you own a rental property.

Of course, if you can achieve real estate professional status, maybe that’s not necessarily the case. Maybe then it’s considered income for your real estate business, and earned income in that way. I’ll have to look into that a little more carefully, but that might be an option. But for the most part, rental income isn’t earned income and can’t go into a retirement account.

Recommended Reading from the Blog:

Four Ways to Make Money in Owning Real Estate

Buy One Property a Year and Retire Early

Diversifying into International Real Estate

A listener thinks we may be extremely US dollar centric and should diversify and consider international real estate as part of a backup plan. He feels like having a small condo overseas or even in Canada wouldn’t be the worst diversification idea, for obvious reasons.

The time to do something like this is well in advance, even if it ends up only benefiting one’s children. Of course, the odds say that America will continue on without major problems, but if things fall apart, I think it may happen quickly.

I get a lot of interesting ideas like this emailed to me, and this is actually one of the more reasonable ones.  I suppose an argument can be made for a condo in Asia or in Canada, maybe keeping a few thousand dollars in yen or euros, a few gold coins, and maybe even a few Bitcoin around as some sort of an insurance policy against that sort of thing.

But there are at least four good reasons to tilt toward the US and the dollar for us.

  1. We will almost surely be spending dollars in retirement. So, adding currency risk to the mix brings on an additional risk that we don’t necessarily need in life.
  2. The US has had some of the best returns during its existence. There is really little to argue that that long-term trend is likely to dramatically change. That doesn’t mean international won’t outperform US over the next 10 years. In fact, we would probably bet it will. But in the long run, we expect US returns to continue to be good. There are a lot of wonderful things about the US that are pretty unique to it.
  3. The US has some investor and private property protections that are not available in all places.
  4. There’s a lot of hassle involved in directly owning overseas investments or property. But a reasonable person can hedge their bets a bit. You want to buy a little gold, a few euros, or a Bitcoin or two? You like Toronto and you want to get a condo up there? That’s not crazy, if you have the money to afford it.

We have a third of our stock in international companies, even though we expect to spend dollars in retirement. So, it’s okay to hedge your bets a little bit, but don’t go crazy worried about some meltdown scenario that is unlikely to happen and have your entire portfolio in guns, ammo, and Bitcoin.

Tax Loss Harvesting

Would California long-term and intermediate term municipal bond funds be substantially different enough to avoid the wash-rule?

He is asking if California long and medium-term bond funds are substantially identical. Well, no, they’re not. Certainly not in the eyes of the IRS. These are very different investments. So, if you want to exchange them, you can. But they’re also significantly different.

If you’re exchanging out of a medium-term California bond fund from Vanguard or something, I might look and see if there isn’t one from Fidelity to exchange into because those are pretty substantially different investments.

The idea is to choose something that’s not, in the words of the IRS, “substantially identical” but is actually substantially identical. You want it to have a high correlation with another investment.

But if you, for instance, exchange from a medium-term to a long-term bond fund, and that month interest rates went through the roof and that long-term bond fund just got hammered, then you’re going to be bummed because you’re not owning something you meant to own in the long run just to book a tax loss.

So, yes, to answer your question, you could exchange them. I’m not sure it’s a great idea. The good news is usually they don’t have very dramatic losses to exchange in bond funds. Usually, when you’re doing tax-loss harvesting, you’re doing it with stock funds because they tend to be more volatile and go up and down quite a bit more. I can’t imagine you have some huge bond loss in a long- or medium-term bond fund. At least at the time that I’m recording this, interest rates have been coming down and you should have gains on most of those things.

Recommended Reading from the Blog:

A Step by Step Guide to Tax Loss Harvesting

Retirement Withdrawal Strategies

My financial plan has mostly focused on accumulation phase strategy with index fund investing and tax efficient fund placement up to this point. My taxable account, which will probably be about two thirds of my portfolio at retirement, is mostly in equity funds and already has significant unrealized capital gains. My tax deferred account will be about 20% and is essentially comprised of bond funds. The rest is Roth IRA and HSA.

My question has to do with retirement planning and, more specifically, withdrawal strategy. I believe that I would generally want to preferentially tap into our taxable account first. However, I am not sure with the large amounts of our realized capital gains. I do plan to increase my overall bond allocation percentages as I near retirement. Should I start placing more bonds into my taxable account when I increase my bond allocation as I approach retirement so I can utilize those for retirement spending? Any other thoughts or strategies on this?

It is awesome to think about this before you get there, because too many of us just spend time accumulating, accumulating, and accumulating. Eventually, you’re probably going to want to spend some of this money.

So as a general rule, yes, you want to spend taxable before tax-protected money. Number one, because it doesn’t grow as fast due to the tax drag, but number two, it gets less asset protection from your creditors. That probably won’t matter in your life, but if it does, it’s a nice extra benefit. It also has some pretty significant estate planning benefits, like being able to stretch an IRA for 10 years after your death.

So, especially as an early retiree, it’s fine to sell shares in those taxable funds. No big deal. Obviously, your first spending every year is going to come from your dividends, your interest and your required minimum distributions you have to take, any rents you get, social security, any other income you have to take.

But after that, assuming you want more to spend, you generally sell your high basis shares. Now, most of that high basis share is just return of your principal. You don’t owe tax on that. So, if you bought something at $90 a share, and now it’s $100 a share, and you sell those shares, nine-tenths of that income isn’t income, it’s not taxable. It’s just the return of your principal. You’re only taxed on 10% of that. You’re only taxed on those gains. And even those, if you’ve held that at least a year, are only taxed at long-term capital gains rates. So that’s a pretty good way to get money.

As you near death, however, you might want to think about maybe not cashing out of low basis shares. It can even be smarter, sometimes, to borrow against them and even pay some interest rather than paying all those long-term capital gains, because your heirs will benefit from the step-up in basis at death.

But the general rule is taxable first. Then you take from your tax-deferred up to the top of the nearest tax bracket. And if you want additional income beyond that, you take from your Roth or tax-free accounts. Obviously, any health expenses you have come from an HSA, if you have one. And ideally, you try to leave your Roth accounts to your heirs. They’ll certainly appreciate it.

Recommended Reading from the Blog:

The Most Important Factor in Retirement Withdrawal Plans

 

Ending

Happy New Year! If you have made any of the 10 financial mistakes we discussed, make a goal to remedy the situation. You can start with registering for the conference today to start or continue your financial education.

 

Full Transcription

Intro:
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here’s your host, Dr. Jim Dahle.
Dr. Jim Dahle:

This is White Coat Investor podcast number 191 – The 10 biggest financial mistakes that doctors make.
Dr. Jim Dahle:
We’re recording this on December 8th. It’s going to run on December 31st. Welcome back to the pandemic, it feels like. We’ve been in this for months. I don’t know about you, but I’m starting to regularly lose patients to COVID.
Dr. Jim Dahle:
I had a patient come in that was syncable this week. Heart rate in his thirties, blood pressure in the fifties, and I spent a lot of time trying to resuscitate him, get his blood pressure back up, his heart rate back up. I discovered he’d had some sort of a heart attack, also seemed to be septic and sent him off to the cath lab. Of course, once he’s in the cath lab, the corona virus test comes back positive and unfortunately, he didn’t make it much past the cath lab. We go into the ICU and do codes periodically now as well on COVID patients.
Dr. Jim Dahle:
So, a lot of you who are on the front lines with me, thanks for what you do. It’s not easy. And it’s getting real, but you know what? By the time you hear this, I’m hoping a whole bunch of us have been immunized. This is going to run at the end of the year and it’s been a long year. I’m sure we’re all ready to turn the corner and start 2021 on a fresh note. None of us I think, are going to look back on 2020 as an awesome year, but here we go into the new year and I expect it’s going to get a whole lot better and hopefully very quickly for all of us.
Dr. Jim Dahle:
This particular episode is sponsored by Bob Bhayani at drdisabilityquotes.com. He is an independent provider of disability insurance planning solutions to the medical community in every state and a long-time White Coat Investor sponsor.

Dr. Jim Dahle:
He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage to make sure it meets your needs or if you just haven’t gotten around to getting this critical insurance in place, contact Bob at drdisabilityquotes.com today. You can email him at [email protected] or you can call (973) 771-9100.
Dr. Jim Dahle:
All right. So, our subject today for this new year is the 10 biggest financial mistakes that doctors make. And I see these made repeatedly over and over and over again, and they’re probably the most impactful financial mistakes that we see doctors make. So, let’s talk about these.
Dr. Jim Dahle:
The first one is making a bad career decision. Maybe you went into medicine, you shouldn’t have. Maybe you chose the wrong specialty for you. I empathize with these docs because it’s very hard to know at 22 what you want to do with your life or what you’ll even be like at 42. But obviously this can be a major financial catastrophe.
Dr. Jim Dahle:
There was a question on the Bogleheads forum recently who said “I’m currently a practicing surgeon with a relatively busy academic practice with teaching and clinical care I enjoy, although the admin can be painful sometimes. During the shutdowns, I was grateful to have that meaningful work to go into every day while I watch family and friends work from home. That’s why I might be a little crazy for thinking about this opportunity, but it is a unique one that has come across my desk.
Dr. Jim Dahle:
A headhunter for a large pharmaceutical company has reached out to me to ask if I’d be interested in working in medical affairs for them full time. I’ve done minor consulting. This would be a full-time 9 to 5 job starting virtually for at least the first year. I’m at a stage in my career where this is kind of a big fork in the road moment for me. I would appreciate any thoughts or recommendations from MDs.
Dr. Jim Dahle:
The salary is comparable to what I make now as a surgeon plus stock options. My clinical practice has gotten a little stale and this may demand more creativity and a different skillset for me. Surgery has already started taking a toll on my body. In my mid-thirties, I have neck and back pain that I do extensive stretching yoga for, but the wear and tear is already building”.

Dr. Jim Dahle:
Shoot, this is surgeon in his mid-thirties. I mean, do you even get out of residency before your mid-thirties when you’re going into surgery? How long can you possibly have been in practice at this point, if you’re in your mid-thirties and at least having physical, if not mental burnout from the career?
Dr. Jim Dahle:
When I see somebody wanting to change careers in their thirties, it makes you wonder if maybe it wasn’t the right career choice in the first place. And I don’t want to particularly criticize this doc because this happens all the time. But if you chose something that you don’t actually want to do for most of your life, that can be a rather large financial mistake.
Dr. Jim Dahle:
Now, obviously he’s got enough of a clinical training, but now he’s quite valuable as a non-clinician. And so, he’ll probably be just fine. It sounds like he’s being offered just as much money to do something that’s not going to do wear and tear on his body but it makes you wonder about the career choice.
Dr. Jim Dahle:
And as far as specialty, while it’s good to consider your pay and your lifestyle and your debt burden when you choose a specialty, the most important financial aspect of specialty choice is how long you can practice it for. You will come out ahead financially if you practice preventive medicine for 30 years versus ENT for 10. And so longevity of career is probably the most important financial decision. So that argues certainly for choosing something that you’re going to love doing for a long time.
Dr. Jim Dahle:
But if you find plastic surgery and family medicine equally challenging, equally fun, then for heaven sake, choose plastic surgery. You’re going to make a lot more money and your life’s going to be a lot easier. But for most of us, there was probably one specially that was head and shoulders above the others and it was obviously the choice for you. And doing something else is probably not only a bad career decision, but probably a bad financial decision too.
Dr. Jim Dahle:
All right, mistake number two the doctors make. Not paying attention to their debt-to-income ratio. How much you owe or expect to owe probably should have some effect on how you live your financial life. Maybe that means you find an alternative way to pay for school. You do MD-PhD or you join the Health Service Corps or the Indian Health Service, or you take an HPSP scholarship and work in the military for a while, whatever.

Dr. Jim Dahle:
Maybe it even has a little bearing on your specialty choice as we discussed above. But most importantly, it should have a huge effect on your job choice after you finished training.
Dr. Jim Dahle:
If you have massive debt from school, you need to do one of two things. Number one, take a job that’s going to qualify for public service loan forgiveness, and manage your loans accordingly. Or number two, take a job that pays more than average for your specialty. Maybe well more than average for your specialty.
Dr. Jim Dahle:
I’m continuously appalled every time I find a doc working part-time or working for two thirds of what they’re worth who’s struggling under their student loan burden. They often don’t want to relocate to a better paying job or lower cost of living or whatever. They don’t even realize that they already made that decision when they decided how much they were going to borrow for school. They already decided that they had to rule out the lower paying jobs in their specialty. Now that decision is just playing out.
Dr. Jim Dahle:
Did you decide to borrow $650,000 to become a private practice pediatrician? Well, that’s when you decided that you’re going to live like a resident, not for two to five years, but for 8 to 10 years. That decision is already been made. Now it’s just playing out. So, don’t try to change it at this point.
Dr. Jim Dahle:
In addition to just the student loans, too many doctors are way too comfortable with debt. I run into docs all the time that want to borrow for a car and borrow for another car and borrow for a second home. They’re still paying off student loans. Maybe they’re still paying off a practice loan. They are actually carrying balances on credit cards.
Dr. Jim Dahle:
I know you live on debt during school, and I don’t particularly think you ought to feel guilty about doing that as long as you have planned to take care of it. But that comfort with debt mindset needs to go away when you come out of school and you need to start living within your means and actually building wealth.
Dr. Jim Dahle:
When you are making payments every month with your income, that’s your greatest wealth building tool. And you’re not going to be able to build much wealth if all of your income is going toward your payments.

Dr. Jim Dahle:
All right, mistake number three – Failing to ensure against financial catastrophe. There are basically six financial catastrophes – Disability, death, illness, injury liability, and the loss of expensive property.
Dr. Jim Dahle:
There are policies available to buy that cover all of these things. And if you’re like most docs, you need to buy an insurance policy that will cover against each one of them. Yet there’s docs all over the place who have not yet done so, that are finishing residency or have even been in practice for a few years and don’t yet have disability insurance.
Dr. Jim Dahle:
If you’re thinking about getting disability insurance as a senior resident, you’re already behind the eight ball. That’s something that you should be buying as an intern really with your first paycheck. Residents get disabled or become otherwise unable to buy disability insurance all the time.
Dr. Jim Dahle:
So, if you need some help, the sponsor for this episode, Bob Bhayani, he does a great job helping docs get disability insurance. If you want to see some of the other people we recommend, you can go to our recommended pages on the website and check out some really great independent insurance agents and get that taken care of.
Dr. Jim Dahle:
But not doing so is a serious financial catastrophe. It’s like the people going bare for malpractice. It’s just not a good idea. Buy some malpractice insurance. Not only does it pay for your defense, but it also pays if you lose. It pays the payout. And usually, the payout stays within policy limits if you just buy a freaking policy.
Dr. Jim Dahle:
All right, mistake number four – Not paying attention to finances, or at least not paying enough intention. And most of us are guilty of this at some point or other during our careers.
Dr. Jim Dahle:
A surprising number of doctors are financially illiterate, at least on a functional level. They know nothing about the basic calculations of finance, little about financial history. They don’t know any of the terminology and they can’t tell a Bitcoin from a Tesla. They simply are not paying attention.

Dr. Jim Dahle:
This is like arriving midway through your fourth year of medical school and asking someone, “Wait, there’s a residency match?” This is important stuff that you should know about and be planning for long in advance. Now you can’t know what you don’t know, but these are critical life skills and it is knowledge you need. So, pay attention to your finances, become financially literate.
Dr. Jim Dahle:
Mistake number five – Trusting a money guy. Too many doctors fall in with the salesmen masquerading as a financial advisor. Now you don’t have to manage your investments yourself. If you can learn to do so competently, you can probably knock two or three years off your career off your journey to financial independence, but you don’t have to. And I bet about 80% of doctors don’t even want to.
Dr. Jim Dahle:
What you can’t do however is hire a bad financial advisor. Someone who does not give good advice or who charges too much for good advice. Many doctors, if you ask them will list this as one of their biggest mistakes.
Dr. Jim Dahle:
If you need help knowing what a good financial advisor looks like, we’ve got a recommended page at the White Coat Investor that you can go in and look at financial advisors and what good ones look like.
Dr. Jim Dahle:
Now, whether you choose one of those or not, and of course, they all advertise with us, but whether you choose one of those or not, at least you’ll know what you’re looking for when you go looking for a financial advisor. You’re looking for a fee only, fiduciary, competent, experienced folks.
Dr. Jim Dahle:
Okay. Mistake number six – Not having a written financial plan. Sometimes that comes from not having a financial planner, but whether you use one or not, you need a written financial plan. I’ve accomplished many goals in my life, both financial and otherwise, but it’s very rare that I accomplish one without writing it down and making specific concrete plans to achieve it.
Dr. Jim Dahle:
The greatest financial task of your life is to save up enough money to support you in retirement. Don’t you think it’s worth maybe doing a little planning toward that goal? I think it is.

Dr. Jim Dahle:
If you still don’t have a financial plan and you don’t feel competent to write it yourself, you’ve got two choices. I mentioned the financial planners above. You can also take our Fire Your Financial Advisor course. It’s a sweet little online course that you come out of at the end not only being financially literate and knowing everything you need to know, if you choose to interact with the financial services industry, but with a written financial plan that you can follow to invest in success. And I think it’s a really important part of your financial education. It’s actually writing down your plan.
Dr. Jim Dahle:
Okay. Number seven – Inadequate investment discipline. While a far more common error is to have no plan at all. Even if you have a plan it’s still critical that you actually follow it, particularly in a downturn. Every day there’s going to be temptations to deviate from your plan. To sell low, to chase performance, to continuously tweak the plan, et cetera. All those changes tend to lead to significant investment underperformance.
Dr. Jim Dahle:
And I get your emails all the time. I just got one from someone today that talked about all the changes he made to his portfolio in 2020. And he admits at the end, “I shouldn’t have done any of these. I should have just stayed the course with the reasonable plan I had at the beginning of the year”. But he felt like he had to make changes. And every one of them just about cost him money. By the end of the year, he was day trading in his account. And so, you just can’t do that. You need a plan. Yes, but you also have to follow it. So, have some discipline.
Dr. Jim Dahle:
Error number eight – You don’t save enough money. The median American has a net worth excluding home equity of just $29,000. Why is that? It’s because they don’t save any money. I’m not talking about the homeless dude living in a tent downtown. I’m not talking about your neighbor’s disabled adult child. I’m not talking about somebody living on $15,000 a year as a part-time restaurant server. I’m talking about the median American.
Dr. Jim Dahle:
This person has a household income of $60,000 to $70,000, but a net worth of just $29,000. Why is that person so poor on such a great income? Well, there’s only one reason. They don’t save a significant portion of that income and invest it in some reasonable way.
Dr. Jim Dahle:
Most doctors, however, are exactly the same, just with a higher income. 25% of doctors in their 60s are not millionaires, including their home equity, including everything. And 11% to 12% have a net worth under $500,000. So, doctors are not immune to this. They don’t build wealth commensurate with their income either.
Dr. Jim Dahle:
If you want to grow wealth, you will need to learn to save money. You got to spend less than you earn. It’s rule number one. If you want to help your family, if you want to support charity, if you want to have nice stuff, if you want to find a great work-life balance, you need to save some money.
Dr. Jim Dahle:
I tell attendings the minimum is 20% of their gross income for retirement. Other savings, you want to save up for a Tesla or a down payment, or you want to save up for your children’s college, that’s all above and beyond that. Do you want to pay off your student loans or you want to pay off your mortgage early? That’s above and beyond that 20%. 20% is for retirement.
Dr. Jim Dahle:
You know what? If you’re only putting 5% toward retirement, don’t be surprised when you can’t retire at 65. You just don’t have enough money to do it. And here you are working night shifts at age 70 or taking hospitalists call or whatever you have to do because of that.
Dr. Jim Dahle:
Number nine – Leaving money on the table. About a quarter of physicians left medical school without having any idea of how much they would make in their chosen specialty. No idea whatsoever. Never saw a salary survey as a student, never talked to an attending about what they make. Nothing. So, is it any wonder they subsequently take jobs that pay much less than the average job in their specialty?
Dr. Jim Dahle:
Have your contract reviewed by a professional. Whether it’s a national contract review service, whether it is a healthcare attorney in your state, have it reviewed. Know what you’re worth. Don’t be afraid to negotiate. You’re not willing to work for free. I know because I survey you. When I survey you anonymously, none of you are willing to work for free. Okay? About 2% of you are. But almost none of you are willing to work for free.
Dr. Jim Dahle:
It’s called “work” because someone has to pay you to do it. So, if you’re going to do it, make sure you’re paid fairly to do so i.e. paid the average wage for your specialty or better. Why be in the lower half? You haven’t been in the lower half of your entire life. So, unless it’s a really special job in a really special place, I sure wouldn’t work for less than the median income in my specialty.
Dr. Jim Dahle:
Number ten – Thinking other people care about your spending decisions. Too many of us spend money to buy things we don’t want to impress people we don’t care about. Stop doing that. Your patients don’t care what you drive, your neighbors don’t care where you vacation. Your coworkers don’t care where you shop for clothes or whether you eat organic food.
Dr. Jim Dahle:
How do I know? Well, do you care about what your doctor drives? How about where your neighbors go on vacation or what the labels on your coworker’s clothes are? You don’t care? Weird. Neither does anyone else. We just don’t care. So, stop acting and spending like they do. They simply don’t.
Dr. Jim Dahle:
So those are your 10 biggest financial mistakes that doctors make. Make sure you’re not making any of them. And you know what? If you can avoid those, you’re going to have a wonderful life. You’re going to have a great career. You’re going to feel financially paid well for it. And you’re not going to have financial concerns if you can just avoid those mistakes.
Dr. Jim Dahle:
So often we think we got to get everything right with our finances, but you really don’t. You just got to avoid the big screw ups. Obviously, we can add a few more to that list, right? You could add buying whole life insurance, or you could add having a divorce or something like that to the list. But I think those are probably the 10 biggest that we needed to talk about today.
Dr. Jim Dahle:
So, let’s take some of your questions. Let’s take a question off the Speak Pipe. This one is from JD who is doing a postdoc fellowship.
JD:
Hi Dr. Dahle. I’m an internist by training and current addiction medicine and general internal medicine fellow doing a postdoctoral research fellowship. I’d like your advice on how to best handle moonlighting income. I’m on a T32 training grant, which provides just about $59,000 and my division provides an extra $5,000 salary annually.
JD:
I’m planning for an academic career and I’m working towards public service loan forgiveness. Due to COVID I’ve worked a lot during the last two surges and that means I’ll make an extra $60,000 moonlighting this year. I’m married with two kids and my wife makes $90,000 a year. We file as married, filing separately to decrease my income-based loan repayment.
JD:
My institution has a 403(b) and I contribute all of the $5,000 salary to it. We’re not allowed to contribute the T32 training grants nor the moonlighting income, which is characterized as supplemental income into the 403(b). I have one more year on my T32. Do you have any ideas on how to contribute this extra income into a tax deferred account to lower AGI and provide my family a little catch up on savings? Thanks for all that you do.
Dr. Jim Dahle:
All right. JD is making $64,000 a year plus $60,000 moonlighting. His wife’s making $90,000 a year. Pretty good household income there. He’s an academic going for public service loan forgiveness, doing the complicated little married filing separately with pay to try to maximize that and wants to contribute more money to tax deferred accounts.
Dr. Jim Dahle:
Well, that’s a noble goal, right? You want to maximize your forgiveness. So, you want to minimize your taxable income to do that. So, if the moonlighting income is paid on a 1099, you technically have your own business. So, you could open an individual 401(k) and do some tax deferred employer contributions there. About 20% of the profit of that business of that 1099 pay. Maybe if you have a high deductible health plan, you didn’t say, you could also do an HSA, but that’s about it.
Dr. Jim Dahle:
You kind of already optimized this as best you can. So, your additional money needs to go toward other goals. Maybe paying off your private student loans, maybe paying off a mortgage, paying off any other debts you have, in the Roth IRA is via the back door if you haven’t done that, or even in a taxable account. You can always invest more in a taxable account.
Dr. Jim Dahle:
All right, let’s do our quote of the day today. This is from Phil DeMuth, PhD. “If you were looking for an investment advisor, make sure you find them. Don’t let them find you. The people who find you will be the wrong people”. And I certainly agree with that.
Dr. Jim Dahle:
Okay. Our next question off the Speak Pipe comes from Joe. Let’s take a listen.
Joe:
Hey, Dr. Dahle. This is Joe with a question for you about investing income from rental properties. So, I recently got bit by the real estate bug. I bought my first rental property, and I’m now having income from my tenants. I opened up an LLC, open up a savings and checking account in the name of the LLC. I deposit the checks in there and the money’s starting to add up. And now I’m asking myself, what are my options for creating a retirement account for this LLC? Do I open up a solo 401(k)? Do I open up a SEP IRA?
Joe:
Is it as easy as just taking the money that’s been deposited from my tenants checks and taking it from the checking account and putting it into a solo 401(k) after I open it up? I’m a bit ignorant in this process. Any advice that you might be able to offer would be greatly appreciated. Thanks for all that you do.
Dr. Jim Dahle:
Okay. How should you invest income from rental properties? What are your options? Can you stick the money in a retirement account? Well, no. Rental income is not earned income, so it can’t go into a retirement account. It’s not used to calculate anything to do with retirement accounts. So that’s not an option.
Dr. Jim Dahle:
You could use that income to pay off the mortgage. You can use it to invest in mutual funds in a taxable account, or perhaps most commonly among real estate investors use to buy another property. You save it up and you buy another property. And that’s pretty common as well.
Dr. Jim Dahle:
So, lots of things you can do with that money. It’s great to have that income. Congratulations on that. But one thing you can’t do with it is stick it in retirement account. Now, if you have a retirement account available to you for other work you’re doing, money is fungible. You can live off the rental income and use that earned income to go into the retirement account. But you can’t just open a SEP IRA because you own a rental property. Sorry.
Dr. Jim Dahle:
Of course, if you can achieve real estate professional status, maybe that’s not necessarily the case, right? Maybe then it’s considered income for your real estate business, and earned income in that way. I’ll have to look into that a little more carefully, but that might be an option. But for the most part, rental income isn’t earned income and can’t go into a retirement account.
Dr. Jim Dahle:
All right, this one comes in via email. “I really appreciate your work. You’re truly amazing resource for our family. I just listened to your podcast with Morgan Housel. Really good and thought provoking”. Thank you. I appreciate your kind words.
Dr. Jim Dahle:
“I passed CFA level one and a CFP and have an MBA”. Well, that’s pretty good. “But for good or bad, nothing shapes my investment outlook like my experience living and visiting a hundred plus countries over the years. Whether it was living in Japan when the Nikkei was at 39,000 and watching it go to 8,000 or living in Argentina around 2005, seeing middle-class families pick through the garbage or now observing college educated Venezuelans arrive in Buenos Aires with only the shirt on their back.
Dr. Jim Dahle:
Nothing haunts me more than Rwanda and how peaceful neighbors started attacking each other, how they assume the Americans and Europeans would come in and save them from the craziness. The museum there details Clinton’s regret for not helping”.
Dr. Jim Dahle:
I can’t tell if you’re just really well-traveled or if you somehow keep ending up living in the worst place in the world at any given time. It goes on. Saying, “Anyway, thinking of Morgan social media comments, today’s political environment, and the USA deficit and QE issues and reading your forums I think your readers rightfully so have been extremely US dollar centric and should diversify and consider international real estate as part of their backup plan.
Dr. Jim Dahle:
Obviously, a possible place where one has some kind of a personal connection. Aleppo was a beautiful, prosperous place a short time ago. Those in Syria who owns something outside the country had options, seems to me having a small condo overseas, even Canada, wouldn’t be the worst diversification idea for obvious reasons.
Dr. Jim Dahle:
The time to do something like this is well in advance, even if it ends up only benefiting one’s children. Of course, the odds say that America will continue on without major problems, but if things fall apart, I think it may happen quickly”.
Dr. Jim Dahle:
Okay. I get a lot of interesting ideas like this emailed to me or whatever on forums. And this is actually one of the more reasonable ones. And I suppose an argument can be made for a condo in Asia or in Canada, maybe keeping a few thousand dollars in yen or euros, a few gold coins, and maybe even a few Bitcoin around as some sort of an insurance policy against that sort of thing.

Dr. Jim Dahle:
But there’s at least four good reasons to tilt toward the US and the dollar for me. Number one, I’ll almost surely be spending dollars in retirement. So, adding currency risk to the mix brings on an additional risk that I don’t necessarily need in my life.
Dr. Jim Dahle:
Number two, the US has had some of the best returns during its existence. And there’s really little to argue that that long-term trend is likely to dramatically change. That doesn’t mean international won’t perform US over the next 10 years. In fact, I’d probably bet it will. If I had to put money on the table. But in the long run, I expect US returns to continue to be good. There are a lot of wonderful things about the US that are pretty unique to it.
Dr. Jim Dahle:
Number three, the US has some investor and private property protections that are not available in all places. The simple fact is we’re not Rwanda. We’re not Venezuela. We never have been and we’re unlikely to ever become so.
Dr. Jim Dahle:
Number four, there’s a lot of hassle involved in directly owning overseas investments or property. But a reasonable person can hedge their bets a bit. Like I said, you want to buy a little gold or a few euros or a Bitcoin or two. You like Toronto and you want to get a condo up there? That’s not crazy if you have the money to afford it.
Dr. Jim Dahle:
I’ve got a third of my stock in international companies, even though I expect to spend dollars in retirement. So, it’s okay to hedge your bets a little bit, but don’t go crazy worried about some crazy meltdown scenario that is unlikely to happen and have your entire portfolio in guns, ammo, and Bitcoin.
Dr. Jim Dahle:
All right. So, if you don’t know about it, we have WCI con 21 coming up. This is a live but virtual event. We’re going to keep you 100% safe from COVID during this event. It’s going to be awesome. It’s going to be March 4th through 6th. We’ve got way more content than any WCI con that we’ve ever had before. We’re going to have some sweet keynote speakers. We’ve got Christine Benz and Alan Roth and Mike Piper coming. We’re going to have some great panels. It’s really going to be good.
Dr. Jim Dahle:
But you want to sign up by the 5th of January. Because if you sign up by the 5th of January, not only do you get all that awesome content, including the CME that comes with it, I think it’s going to be about 17 hours of CME, but you also get the swag bag mailed out to you. If you sign up on January 6th, we’re not sending you a swag bag. So, you got kind of a deadline there.
Dr. Jim Dahle:
January 5th, get signed up. It’s going to be awesome. You can use CME dollars to pay for it. If you’re self-employed, you can write it off as a business expense and you get the cool swag bag with books from these authors, book from me, WCI t-shirt, all kinds of other stuff from the sponsors. It’s going to be great.
Dr. Jim Dahle:
All right, let’s take a question off the Speak Pipe from David.
David:
Hey, Jim, would California long-term and intermediate term municipal bond funds be substantially different enough to avoid the wash-rule? Thank you very much.
Dr. Jim Dahle:
All right. So, it sounds like David is tax loss harvesting. It’s the impression I’m getting. He is asking if California long and medium-term bond funds are substantially identical. Well, no, they’re not. Certainly not in the eyes of the IRS. These are very different investments. So, if you want to exchange them, you can. But they’re also significantly different.
Dr. Jim Dahle:
If you’re exchanging out of a medium-term California bond fund from Vanguard or something, I might look and see if there isn’t one from Fidelity to exchange into. Because those are pretty substantially different investments.
Dr. Jim Dahle:
The idea is to choose something that’s not in the words of the IRS, substantially identical, but is actually substantially identical, right? You want it to have a high correlation with another investment.
Dr. Jim Dahle:
But if you, for instance, exchange from a medium-term to a long-term bond fund, and that month interest rates went through the roof and that long-term bond fund just got hammered, then you’re going to be bummed because you’re not owning something you meant to own in the long run just to book a tax loss.
Dr. Jim Dahle:
And so, yes, to answer your question, you could exchange them. I’m not sure it’s a great idea. The good news is usually they don’t have very dramatic losses to exchange in bond funds. Usually when you’re doing tax loss, harvesting, you’re doing it with stock funds because they tend to be more volatile and go up and down quite a bit more. I can’t imagine you have some huge bond loss in a long- or medium-term bond fund. At least at the time that I’m recording this interest rates have been coming down, you should have gains on most of those things.
Dr. Jim Dahle:
Okay. Next question is Dean from the Upper Midwest. I think Dean has called us before, but let’s listen to this new question.
Dean:
Hello, Jim, this is Dean from the Upper Midwest. My financial plan has mostly focused on accumulation phase strategy with index fund investing and tax efficient fund placement up to this point.
Dean:
Quick background. I am in my late 40s and may retire in about 10 to 12 years. My taxable account, which will probably be about two thirds of my portfolio at retirement is mostly an equity funds and already has significant unrealized capital gains. My tax deferred account will be about 20% and is essentially comprised of bond funds. The rest is Roth IRA and HSA.
Dean:
So, my question has to do with retirement planning and more specifically withdrawal strategy. I believe that I would generally want to preferential tap into our taxable account first. However, I am not sure that’s happening into equity funds with large amounts of our realized capital gains is prudence in retirement.
Dean:
I do plan to increase my overall bond allocation percentages I near retirement. Should I start placing more bonds into my taxable account when I increase my bond allocation as I approach retirement so I can utilize those for retirement spending? Any other thoughts or strategies on this? Am I overthinking this? Thanks again for all you do. I appreciate it.
Dr. Jim Dahle:
Okay. Dean wants to talk about retirement withdrawal strategies. And it’s awesome to think about this before you get there, because too many of us just spend time accumulating, accumulating, and accumulating. And eventually you’re probably going to want to spend some of this money.
Dr. Jim Dahle:
So as a general rule, yes, you want to spend taxable before tax protected money. Number one, because it doesn’t grow as fast due to the tax drag, but number two, it gets less asset protection from your creditors. That probably won’t matter in your life, but if it does, it’s a nice extra benefit. It also has some pretty significant estate planning benefits, like being able to stretch an IRA for 10 years after your death.
Dr. Jim Dahle:
So, especially as an early retiree, it’s fine to sell shares in those taxable funds. No big deal. Obviously your first spending every year is going to come from your dividends, your interest and your required minimum distributions you have to take, any rents you get, social security, any other income you have to take.
Dr. Jim Dahle:
But after that, assuming you want more to spend, you generally sell your high basis shares. Now, most of that high basis share is just return of your principal. You don’t owe tax on that. So, if you bought something at $90 a share, and now it’s $100 a share and you sell those shares nine tenths of that income isn’t income, it’s not taxable. It’s just the return of your principal. You’re only taxed on 10% of that. You’re only taxed on those gains. And even those, if you’ve held that at least a year are only taxed at long-term capital gains rates. So that’s a pretty good way to get money.
Dr. Jim Dahle:
As you near death however, you might want to think about maybe not cashing out of low basis shares. It can even be smarter sometimes to borrow against them and even pay some interest rather than paying all those long-term capital gains because your heirs will benefit from the step-up in basis at death.
Dr. Jim Dahle:
But the general rule is taxable first. Then you take from your tax deferred up to the top of the nearest tax bracket. And if you want additional income beyond that, you take from your Roth or tax-free accounts. Obviously, any health expenses you have come from an HSA, if you have one.
Dr. Jim Dahle:
And ideally you try to leave your Roth accounts to your heirs, they’ll certainly appreciate it. And if you want to give to charity, leave your tax deferred accounts to charity. I personally think if you’re so inclined to give to charity, you ought to get started while you’re still alive. Most of us can certainly afford to give more away than we do.
Dr. Jim Dahle:
And it’s a great way to give to charity just to give your low basis shares from your taxable account. It helps continually flush those low basis shares out of your taxable accounts so you don’t have to pay so many capital gains taxes later.

Dr. Jim Dahle:
All right. I hope you enjoyed that. This particular episode has been sponsored by Bob Bhayani at drdisabilityquotes.com. An independent provider of disability insurance planning solutions for the medical community nationwide and a long-time sponsor here.
Dr. Jim Dahle:
He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your coverage or if you just haven’t bought it yet, give Bob a call (973) 771-9100 or just email him at [email protected]
Dr. Jim Dahle:
Don’t forget about WCI con 21. You have till the 5th, if you want to get the swag bag. So, sign up now. This gives you a chance. If you buy it the day this podcast drops, you can use your 2020 money. If you buy it the next day, you can use your 2021 CME money. Either way, you get a pretty awesome course, essentially at a discount by using your CME money or being able to write it off as a business expense.
Dr. Jim Dahle:
Thanks to those of you who have left us a five-star review and told your friends about the podcast. A recent one earlier this year, it came in from panda17, who said “I’m a wife of a doctor and I’m learning a lot. My husband is just about to finish up training and his attending gifted him the White Coat Investor book. After reading it I have started listening to these podcasts as well. I felt very overwhelmed by the financial world but these podcasts have been helping me feel competent. So thankful for this amazing resource.” You’re very welcome. Thanks for the five-star review.
Dr. Jim Dahle:
So, keep your head up, your shoulders back. You’ve got this and we can help. And let’s get out there and stay safe. Take care of your family. Take care of your patients. Take care of your finances. And I’ll see you next time on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

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