5 Financial Mistakes To Avoid As A Young Professional

As working professionals we must be exemplary at our jobs and diligent with our finances. Unfortunately, the later goal is easier said than done. Although we may work hard at our jobs, managing our money in the most prudent way can take extra work and have negative effects if we fail to handle it properly, especially during times of an economic recession like we have today. Here are 5 financial mistakes to avoid as a young professional:

1. Overspending. As young professionals with a decent salary, we can be very tempted to overspend. Many of us may not have children or family members who rely on our incomes, so we may purchase numerous things we may not need with our discretionary (left over) income. Whether it’s new clothes, take-out food, weekly happy hours, or frequent travel, we may find ourselves spending a lot more than we anticipated at the end of each month. Although it’s acceptable to “treat ourselves” every now and then, we must make sure that we have set a budget on how much we want to spend each month and have a reliable way to track our expenses. The less we overspend the more money we have for other priorities like saving and investing.

2. Not saving enough money. If this pandemic has taught us anything, it’s that we should all have some money saved up. We never know when something unexpected will happen and it behooves us to have money available just in case our income drops or a large expense comes our way. Although we may be tempted to simply save whatever we don’t spend from each pay period, we should instead take a more proactive approach. Consider writing down how much money you’d like to save each month, then have that money automatically deducted from your checking account into a savings account. Saving money this way will ensure you meet your savings goal.  

3. Under-estimating our expenses. When I was younger and more financially immature, I seemed to always run low on funds at the end of each month. There were several times that I would hope and pray I had enough money in my checking account to cover my monthly bills. Don’t be like be, have a monthly budget and be as precise as you can when it comes to your monthly expenses. Oftentimes, we may know how much we spend on rent or electricity but we may underestimate or forget to save money for other expenses like car repairs, grocery bills, and transportation costs. Underestimating these items can give us a false sense of security and cause us to think we have more money to spend in our accounts than we actually do. Being more precise with our monthly expenses allows us to better account for how much money we can spend each month and ensures that all of our necessary expenses are covered, especially during this current pandemic where our disposable income may be different from normal.

4. Taking on too much debt. With today’s age it can be relatively easy to get access to a credit card, qualify for a car loan, or receive a student loan. Although there are many good uses of these items, we must not forget that they are still forms of debt. One of the biggest mistakes many young professionals make is taking on too much debt. We may graduate from college with tens of thousands of dollars in student loan debt. We may move to a new city and pay for expenses with a credit card. We may decide our current car is too old and opt for a lease or finance a newer ride altogether. We may even get married and decide to purchase home. All of these decisions may bring us joy but may also cause us to incur a lot of debt, which may make us financially vulnerable to changes in our income. If some unfortunate event happens and we are furloughed from our job or experience a decrease in our pay, it may be difficult for us to cover all of these debt payments. We are better protected financially when we refrain from incurring too much debt at once by vowing to pay off or pay down some of our debt before incurring more.

5. Having too much confidence in our investment abilities. As we start to mature and hang around other professionals in our work or social life, we may desire to build our net worth and start investing. Many of the advice we hear about investing requires us to pick which companies we want to invest in and purchase stock. Although there is nothing wrong with buying stocks, we must do so in a way that minimizes our risk. Unless you have a crystal ball to predict the future, it can be virtually impossible to predict  which stocks will increase in value over time (which make us money) and which may decrease over time (which may lose us money). Although we can try to speculate based on news events,  most of the “insider information” is known by wall street investors and active portfolio managers long before is it known by members of the public. Since we can’t guarantee that we’ll make accurate predictions regarding a stock’s future value its best to not have to choose. Many financially savvy people purchase index funds (a collection of many or all of the stocks available) since it spares us the burden of having to pick which investments will do well and which ones wont. Plus, if one company’s value goes down, we have so many other companies that can help cushion the blow and prevent us from losing too much money. Data from the past few decades show that index funds tend to outperform the majority of actively-managed funds, which virtually guarantees us a good profit on our money when we buy index funds. Try to avoid overestimating your own investment ability and consider purchasing index funds to minimize your risk.  

As a young professional, which financial mistakes have you avoided and which ones have been more difficult to bypass?

How to use money to buy more happiness

There’s no guarantee that having money will make us happier but as someone who has been through periods where I was broke and others were I was a financially stable, I certainly prefer the later. Although having money doesn’t guarantee us happiness, Jonathan Clements’ book How to Think About Money teaches us that there are certain ways we can use the money we have to increase our happiness.

1. Spend money on others. I know this seems odd, but numerous studies in his book show that we get more happiness and lasting enjoyment when we spend money on other people instead of buying things for ourselves. Most of us have a few people in our lives that we care about. Using our money on those people in a way that brings them joy can make us even happier than we anticipate. Using our money towards a social cause we are passionate about or helping a group of people who is less fortunate can give us the sense that we are promoting goodness in the world which can provide a lasting feeling of happiness and self-contentment.

2. Focus on experiences rather than possessions. If we have money and would like to purchase something for ourself, his book states that we get more gratification when we spend money on experiences instead of possessions. In other words, we can get more satisfaction and lasting joy when we forgo buying “things” and choose instead to create memories and lasting experiences. So instead of buying the latest iphone, designer clothes, or new shoes, we would get more “bang for our buck” if we instead used our money to travel to another place, go to a fun concert, or participate in an exciting activity.”

When we use our money on experiences we get 3 sources of happiness. The first source of happiness is anticipation of doing the fun thing (knowing you have an experience planned brings us happiness from the day we decide to do the activity until the time the activity begins). We get another source of happiness by actually “doing” the activity (we have fun during the experience). Lastly, we get happiness from memories of the experience (even after it ends, the memory of that experience brings us happiness). Moral of the story: spending money on experiences and good times can make us extremely happy and that happiness has a lasting effect

3. Delay purchases (to build anticipation) If we do decide that we want to spend money on ourselves and buy some “thing” instead of an experience, there is a way to do this so that we get maximal happiness from the purchase. We should first: delay the purchase to build anticipation. I know this sounds counterintuitive in our age of impatience and desire for instant gratification, but it works. According to Clements’ book, we adapt to both good and bad things in our life relatively quickly.

For example, we get a new phone and are happy but after a couple weeks, it no longer makes us smile inside when we pull it out to text. We get assigned to a different division at work and at first it seems challenging but before we know it, we adjust to the demands and it no longer seems as difficult as it once was. The same thing happens with purchases. Because we adjust to things in our lives relatively easily it behooves us to delay this adjustment and build anticipation, since as we learned in the previous section, the mere thought of knowing we are going to get or experience something enjoyable actually makes us happy. We can put a timeline in place and tell ourself that we’ll buy that thing in a week or during our next pay period and the anticipation of being able to get that thing during the allotted time will actually bring us more lasting happiness than if we were to just buy it as soon as possible.

4. Opt for frequent small purchases instead of infrequent larger ones. Along the lines of delaying purchases to gain additional happiness from the anticipation of something, Clements’ book teaches us another thing we can do to gain more happiness from the things we purchase: Opt for frequent smaller purchases instead of infrequent larger ones. As stated above, we adjust to things in life relatively quickly. In order to gain more happiness from our purchases we may need to make more purchases overall. Since it isn’t feasible or financially responsible to buy expensive things all the time, it is better to choose to buy smaller things more often instead of one large big thing every blue moon. For example, instead of buying 4 things on Amazon at one time when you get paid, purchase 1 item a week.

My point? There are a milieu of hidden gems in Clements’ book How to Think About Money, but I loved these 4 tips on ways to spend money that could increase our happiness. What do you think? Which tips might you use?

5 ways to ensure you’re financially protected against the unexpected

As we continue to advance in our careers, we must ensure that we have protected ourselves financially. If unexpected expenses, life events, or pandemics, come our way, we must make sure we have the financial means to cover our bills and take care of our families without worry. Here are 5 ways to protect yourself financially:

1. Keep your fixed expenses low. One of the first things you can do as you are getting your finances in order is keep your fixed expenses low. Fixed expenses are regular expenses (like your monthly rent or mortgage payment) that don’t vary much in price and occur each week or each month. Keeping these expenses low allows you to save and invest more money towards your future goals. It also gives you a cushion financially in case something unexpected arises. If you have the unfortunate luck of losing your job, undergoing financial hardship, or simply living through this current pandemic that has wrecked the economy and lowered your salary, it is much easier to adjust to the changes and make any necessary spending cuts if your fixed expenses are low. If your fixed expenses are high it is much harder to weather the storm and cover your bills during times of hardship. Keep your fixed expenses low.

2. Reduce (and eliminate) your debt. Along with decreasing your fixed expenses, you should also work to eliminate your debt. The sooner you pay off your credit card bills, car loans, and student loans the sooner you’ll be debt free and have less money from your paycheck going to these expenses. It’s much easier to adjust to a reduction in income or a financial hardship when you have fewer bills and expenses to cover. Plus, paying off your debt leaves more money in your pocket each month that you can use to save or invest for the future.

3. Insure yourself against catastrophe. As we’ve all seen during this pandemic, you can’t always predict when financial hardship will occur or how long it will last. Aside from keeping your expenses low and paying off your debts so that you are better able to handle any income changes or unexpected expenses, you should also make sure you’re insured. We can’t always predict when large expenses will occur and may need some assistance if they do occur. Just like all people need health insurance, all working people should also have disability insurance. You need disability insurance so that if you are injured, sick, or unable to work at your full capacity for a prolonged period of time, you can get money each month to cover your bills. People with a spouse, kids, or family members who depend on their income should also have life insurance so that if they pass away unexpectedly, their family members are covered.

4. Save money for unexpected emergencies. Although you can’t always predict when unexpected things will occur, you should prepare for this possibility so that you are ready if it does occur. Part of protecting yourself financially means having an emergency fund with enough cash to cover 3-6 months of expenses. It may take some time to save up this amount of money, but putting a certain percentage of each paycheck into a separate bank account for emergencies will ensure that you are protected financially. Many people who had emergency funds before the Coronavirus pandemic found themselves in a much better position to handle the economic impacts than those who did not have an emergency fund.

5. Make sure your retirement is funded and diversified. Another thing you can do to protect yourself financially is make sure that you have invested money for retirement in a way that increases your profits and decreases your risk. Many people who were not investing money toward retirement when they were young have fewer years to let compound interest work in their favor and may have to work even longer and save even more money to be able to retire after several decades in the workforce. Others have invested a great deal of money towards retirement but have done so in a way that makes them extremely vulnerable to changes in the real estate market or stock market. Both groups of people may be even more impacted than others during this current pandemic. The goal is to have your money invested in many different companies across a variety of industries (ideally through index mutual funds) so that you are in a good position to gain interest on your money overtime but better protected in an economic downturn.

My point? While none of us have a crystal ball to predict when unexpected things will occur, we can do the things above to protect ourselves if and when hardship arises.

6 Things To Do With Your Stimulus Check

Of note, a version of this article first appeared on Doximity’s OpMed.

The federal government has started sending out stimulus checks of $1200 to all Americans with an adjusted gross income of less than $75,000 a year for singles and 150,000 a year for married couples. Although the amount of the stimulus decreases for those who make above $75,000 a year and is completely phased out for those who make over $99,000 a year, many people will be seeing a bank account boost, if they haven’t already. Here are 6 things you should consider doing with your stimulus check:

1.     Pay bills and buy necessities. With over 22 million people filing for unemployment over the last 4weeks, many people are seeing a sharp reduction in their income and may be relying solely on government assistance. This $1200 may be just what people need to cover all their bills during this time. It may also help newer physicians and healthcare workers with any extra expenses we might be facing such as increased transportation costs to and from the hospital or increased food costs as we pay for more take out & delivery services. Others people may have children or a spouse they are helping to support and may need to use this money to pay a babysitter or cover other childcare fees. Regardless of what the expense is, we should all use this extra money to cover any bills we would have had difficulty paying otherwise.

2.     Create an emergency fund. Saving money for an emergency fund it a little bit like trying to eat healthier or lose weight. We know we should do it, but we’re always tempted to put it off. Why not use this stimulus check to finally get the ball rolling? Although many of our jobs are salaried and thus our income seems guaranteed, an emergency fund is still useful. You never know when the car might break down, the house needs repair, or our cell phone stops working. While these inconveniences may not bankrupt us, having money set aside for these seemingly inevitable, unpredictable expenses is a good use of our money. According to finance guru Dave Ramsey, the minimum amount of money in any emergency fund should be $1,000 and many financial planners advise patrons to have about 3 months of expenses in cash available at all times. This stimulus check is a good starting point.

3.     Pay down your debt. If you have any consumer debt like credit card bills or car loans that have an interest rate of higher than 8%, use this money to pay down the debt. The sooner you are able to eliminate your consumer debt, the quicker you’ll be able to build wealth and become financially independent. Instead of sending hundreds of dollars a month to a credit card company or car dealership, after paying off the debt you can instead use that money to increase your savings, invest, and fund future trips and vacations. With the Coronavirus pandemic, you may even be able to refinance loans at a lower interest rate which will allow you to pay off the balance you owe even sooner.

4.     Spend it when the economy bounces back. Whether it’s gifts for your kids or a much-needed family vacation, one of the things you could do with the money is simply spend it. Now for those who already buy way more things than they need, perhaps this isn’t the best idea, but for others who have a budget in place and are meeting all of their saving goals, using some of the money to “treat yo’self” may not be a bad idea. Many of us have been on the front lines of this pandemic and have sacrificed a great deal to help care for others. Despite the increase in hours, workload, and mental stress, many jobs don’t include any sort of bonus pay for times like these. Instead of feeling like you have to always put others before yourself, why not consider going against then grain and spending part of the stimulus money on yourself or those you love? Perhaps you’ve delayed buying those air pods you see your colleagues wearing at work. Maybe you’ve always wanted to travel overseas with your family, party in Las Vegas with your friends, or go wine tasting with your significant other. We all work hard and deserve a break. Why not use part of this check to do something nice for yourself?

5.     Prepare to invest it when good opportunities arise. Although the economy is down right now, it won’t be this way forever. Once the pandemic begins to subside and the prevalence of the virus decreases, the economy will start to bounce back. Why not use this money to prepare for when it does? Using this stimulus check, along with any additional money you may have received from your tax return or previous savings might leave you with a nice sum of cash to invest in various opportunities. Perhaps you’ve considered investing in an intriguing business idea, purchasing a rental property, or simply want to increase your investments in the stock market. Using this stimulus check as a jumpstart for your future investments might be a good use of this money.

6.     Give some of it away.  I’d be remiss, and a bit selfish, if I didn’t mention that one additional thing you could do with your check is give part of it away. For those of us who are in a good financial position, giving part of the money away to our friends and family who may be less fortunate may also be a good use of this money. While many of us have financial goals or fancy trips we’d like to save up for, we can all think of at least one person in our life who could use a little extra cash around this time of the year. Perhaps we could commit to giving at least a small portion of the money away or buying someone we love a nice gift. As the biblical saying goes, “We are blessed to be a blessing.” Why not use this money to provide a small token of love to someone else?

In the Midst of the Coronavirus: Buy Disability Insurance!

As COVID 19 continues to spread throughout the country and leave lasting impacts on our economy, many of us are trying our best to cope with the changes. While this can take a huge toll on our mental health and leave us unsure of our next move, there’s one thing we need to do in the midst of the chaos: BUY LONG-TERM DISABILITY INSURANCE. Here are 6 things you need to know about disability insurance during this COVID 19 crisis:

1. Disability insurance helps to protect your income. The purpose of long-term disability insurance is to protect your income in case you become disabled or unable to work due to a physical or mental illness. This means if you get sick (i.e. with coronavirus, depression from the virus, or some other ailment) and are unable to work at your full capacity or generate your normal revenue, disability insurance will kick-in and help supplement your income until you recover and get back on your feet.

2. Many doctors are rushing to get it. As healthcare workers, we take care of patients who may have the virus and have come into contact with many others who have been exposed. With the nationwide shortage of personal protective equipment, we may be even more vulnerable to contracting the virus, or being an asymptomatic carrier of the virus than we realize. Due to our increased risk of exposure, many doctors, especially those who work in the Emergency Department or the Intensive Care Unit (ICU) have been rushing to get disability insurance. They want to make sure that their income is protected in the unfortunate possibility that they contract the virus or acquire a mental health disorder from treating others with the virus that could impact their income.

3. Pricing hasn’t changed & there are discounts available. Despite the risk of Coronavirus infection, the price of disability insurance hasn’t increased. In fact, many insurance companies are still offering a 10-20% discount to newer doctors who are still in residency training programs or fellowships. Plus, female attending physicians and a few resident physicians can still get unisex policies that will prevent them from paying more for disability insurance than their male counterparts. Although these unique features may only be available in certain areas from a select group of carriers, they can save so much money that they are worth seeking out. Remember, the cost of disability insurance varies by state as companies have realized that your risk of becoming disabled is increased or decreased if you live in certain areas. A policy in Georgia is much cheaper than a policy in California.

4. Companies are still accepting new applications. I called my insurance agent, Pradeep Audho from PKA Insurance Group, to follow up on some paperwork for my own on disability insurance policy. During our conversation, he mentioned something I found surprising: although more doctors were trying to secure disability insurance, the application process had not changed. There was no hold on claims or freeze on new applications even with Coronavirus spreading. The process itself is similar, if not easier than before. To get started, you just reach out to an insurance agent who can help you determine your desired policy amount and any added protections (or riders) you may need, such as extra payments to cover student loans, partial disability coverage, and a cost-of-living adjuster, etc.

5. The process of approval is easier than before. Despite the chaos, it’s easier to get approved now than it used to be. Once you figure out the payout and features of your desired policy, the insurance company will then assess your risk of getting disabled so they can determine the specific price to charge you for the policy. One way they assess your risk is by inquiring about your medical history. Many companies used to require a detailed medical exam for any policy with a payout greater than $6000 a month. Nowadays, things are much easier.  Most people can skip the detailed medical exam and get approved by filling out an online or telephone medical questionnaire for any policy that pays you up to $120,000 a year. While the process could change in the future, as of 3/30/2020 the process is the same as before, if not easier.

6. You can still get coverage, so get it now! The Coronavirus pandemic has been a sobering reminder that our health is not guaranteed. Although we may feel fine today, all workers need some form of long-term disability insurance to supplement their income in case they fall ill for an extended period of time and aren’t able to work at the capacity they used to. Companies are still accepting applications, many agents are offering discounts, and the process is easier than before.. If you’re unsure of where to look you can start with PKA Insurance Group or browse the list of trusted agents on the White Coat Investor page. You can also view prior articles on Disability Insurance and skim the 9 things I learned when I bought my own policy. Although we have lot on our plate, take a few minutes to apply for it now.

***Bonus: You may want to consider term-life insurance as well. As a single person with no children or family members who rely on my income, I don’t yet have an individual term-life insurance policy. However, I recognize that I’m in the minority. Many doctors have children and spouses who’s yearly expenses and savings goals are largely dependent on their doctor income. If this is the case for you, consider term-life insurance as well. Just like disability insurance, you can seek help from an insurance agent who will give you some price quotes. Plus, many policies with a payout under $5 million no longer require a detailed medical exam. The only change in the life insurance process is that insurance companies are taking a little longer before they confirm your policy. As of March 30, 2020, insurance companies may be hesitant to approve your policy if you have traveled internationally within the last 60 days and may require a 30-day waiting period if you have recently been exposed to the virus. Although there are a few more hold ups with term-life insurance than there are with long-term disability insurance, they are both worth looking into. In the midst of this crisis, be sure you’re protecting yourself, and your [future] income.

5 Books to Read while Social Distancing from the Coronavirus

With coronavirus and the nationwide push for “social distancing,” you may find yourself home a lot more often than you’re used to. While binging Netflix shows and old movies can be fun for a while, you may also find that you want to do something a little different or perhaps use some of your extra time to gain new insights. If that’s the case, here are 5 books about business, finance, and real estate that you may want to consider read while quarantining:

1. Rich Dad Poor Dad by Robert Kiyosaki. This was one of the first books I read about finance and I can’t even articulate how good it is. Unlike most investment books that delve deep into the details of FICO scores and retirement accounts, this book is completely different. It actually tells of story of two fathers: one is well-educated and broke while the other is minimally educated but rich. In this book, Kiyosaki highlights the life lessons he picked up from both men. He also explains why accumulating wealth requires a shift in thinking and how pursuing a career in real estate or entrepreneurship can be the springboard we need to reach our monetary goals. While you may not agree with all of his life lessons, there is no doubt this book will cause a paradigm shift in the way you think about money, while entertaining you along the way.  

2. The White Coat Investor by Jim Dahle. This is one of my favorite personal finance books. Besides the fact that it was written specifically for doctors like myself and other high-income earners, I like this book for a couple other reasons as well. First, it’s easy to understand. If you never read anything about personal finance or money management before, start with this one. It goes over the basics, easily defines terms in an interesting way, and starts off by answering the most basic question “why should I even care?.” Secondly, this book is easy to follow and gives you all the tools you need to know to get your life in order. You don’t have to go picking stocks or making complicated tax manipulations. Instead, he walks you through the most important things so that you don’t screw up in a major way. You’ll gain some student loan insight and get basic info on retirement plans, buying a house, building wealth, and protecting your assets. It’s a must-read for any doctor and a really good read for anyone else.

3. The ABCs of Real Estate Investing by Ken McElroy. After I read Rich Dad Poor Dad, I began to think about investing in real estate. Real estate investing is one ways many people accumulate wealth and since I didn’t have any personal experience in that area, I wanted to educate myself on the topic. Ken McElroy invests in real estate with Robert Kiyosaki, the author of Rich Dad Poor Dad, so I figured his book would be a great start. I’m so glad I got it. This book is like a beginner’s guide to real estate investing and does so in an informative, easy-to-understand manner. I learned a lot from this book including the benefits of real estate and how to properly evaluate a variety of deals. If you’re even the slightest bit interested in real estate investing, consider reading this book.

4. Ego is the Enemy by Ryan Holiday. Those who know me personally have seen me post quotes and excerpts from this book since the start of the new year. Ego is the Enemy is a must-read for any one with even the slightest bit of ambition. In this classic, Holiday walks us through how to manage our ambition, properly handle our successes, and overcome our failures in a clear-cut way. Each chapter is fairly short and clearly delineates a character trait we either need to develop further or break entirely to become the best version of ourselves. This book will make you examine your habits and really think about what you can do differently to reach the level of success you desire.

5. Lean In by Sheryl Stanberg. Sheryl Stanberg is one of the most well-known female senior managers in the country. From her work at Google to her current role as the Chief Operating Officer at Facebook, she is a household name and an idol for women in corporate business. In this book, Stanberg challenges us women to seek leadership positions and “lean in” to push ourselves even further to succeed in our careers. Stanberg examines how she reached such a high level of success in her own life and pinpoints tips to help other women overcome some of the most common obstacles. She famously talks about the “competing” desire to have a successful career while nurturing a loving family and provides some advice on how she tackled handled both priorities. For females who desire a successful career and family, it’s definitely worth a read.