#Team YOLO or #TeamInvest? Which side are you on when it comes to money?

Each year I try to read several books that will not only teach me something I didn’t know but will also challenge my views on a variety of topics, especially money. One of the books I just finished reading is “Die with Zero” by Bill Perkins. I have to say, this book has made me reevaluate my entire life.

As many of you know, I’m a planner. I’m also a frugal person who tries not to spend too much money, especially on material things. One of my life goals is to amass a great deal of wealth that I can use to retire early, give to my friends and family, travel the world, and donate to companies and organizations that make the world a better place. In order to do that, my initial plan was to work a lot over the next 10 years, get paid a high salary, and invest a large percentage of that money to increase my net worth. To put it simply, I was going to work a lot, make a lot, and invest a lot so that I could build wealth as soon as possible.

Bill Perkins in his book “Die with Zero” made me rethink that entire plan.

I still plan to amass wealth but the way I do that has definitely changed.

One of my biggest takeaways from the book was that instead of structuring my life to maximize my wealth, I should instead structure my life to maximize fulfillment. That means discovering what makes me happy and creating a life that allows me to have more of the experiences I enjoy. It means realizing that some experiences like international travel, late-night outings, or active outdoor activities are better had at certain points in my life (ie. When I am young and healthy). While this may sound basic, it caused me to rethink my life plan. Through this book I learned that I shouldn’t use my youth delaying gratification and sacrificing for my older self (at last not as much as I had planned). Instead, I can be fiscally responsible, but I should also try to enjoy life more along the way. In other words, I need to make sure I’m not delaying gratification too much.  Some experiences are best had when I am young and healthy so if I keep delaying, I may never get to have them (at least not in the way I desire).

Let me give you an example. One of the things I’ve wanted to do is go to China to climb the Great Wall. I keep telling myself I’ll go eventually, but I’m about to turn 32 and I still haven’t done it. This book has helped me see that if I keep delaying going to China, I may eventually be too busy to go (once I have kids) or too to enjoy the experience the way I imagined (if I delay the trip until late middle age or retirement). A trip to China wasn’t the only thing I was delaying. There were also experiences I kept putting off. One of them is going to Coachella with my friends. This book made me realize that If I keep delaying it then I may soon miss out on the ability to do this. Why? Because at some point I will get married and have children so leaving my newborn at home to spend all day at a festival in the desert won’t be as appealing. My point? Some experiences are better had when I’m young so delaying them may cause me to miss out on the experience entirely. 

And this brings me to the balance question.

What is the right amount to work vs play? What is the right amount to spend vs save? Yes, we should all try to live in the moment and maximize happiness with incredible experiences but shouldn’t we also save for the future and for a rainy day and invest for retirement? What is the right amount to allocate to each side and how do you know when you’ve gone too far in one direction vs another?

I have friends who spend almost everything they get, fail to save anything, and rack up tons of debt that they may never be able to repay. I have other friends who save so much of what they earn that they deprive themselves of incredibly meaningful experiences they may never be able to have again.

One friend accrued over $10,000 in credit card by buying designer bags and living in fancy apartments she couldn’t afford. Another friend missed out on his best friend’s wedding because he was too busy at his job to take the time off work.

Neither is ideal.

So when I think about this phase of my life (and you think about this phase of your life), we are all left wondering about the right balance. We don’t want to squander our youth and good health working way too much to amass more money than we truly need. But we also don’t want to spend too much too soon and fail to have the money we need to take care of our families, pay our bills, and invest for the future. What should we do?

The optimal balance may vary from person to person. It may also differ for each of us during certain phases of our lives. Perhaps when I’m younger I can invest a little less to have more money to travel and enjoy life before kids. Maybe when I start having kids, I travel a little less and spend more time/money investing for their future and spend more quality time at home. Then when my kids get older, I cut back on investing once more to have more memorable family vacations and gatherings with friends.

My point? It’s quite possible that our savings/investing rate may fluctuate throughout our lives. It’s also likely that the balance of work life and personal life may change as well. Our job right now is to start thinking about what that optimal balance looks like during the next year or two. For me, this will probably mean working part-time and making a little less money than I could in order to travel more, spend quality time with my aging parents, and cross some things off my bucket list. It may also mean that instead of investing a large portion of my income, I instead invest a reasonable amount (15% to 20%) and give myself the freedom and flexibility to enjoy the rest of the money in ways that maximize my overall life fulfillment.

Tell me, what is your optimal balance of work and play? How do you determine what amount to spend vs save? Is there anything you’d like to change over the next year?

5 Truths Every Resident Needs To Know

July 1st is just around the corner and for those who are new to medicine or unfamiliar with residency life, July is the start of the new resident physician year. A resident physician is a doctor who graduated from medical school and is getting specialized training in his or her field of choice while still seeing patients. Residents are doctors who are still actively learning (like a student in school) while they are also working and earning money.

Besides experience, the main difference between a resident physician and a regular physician (like an attending physician who is done with his/her specialized training) is that resident physicians work a lot more and get paid a lot less. I’m still a resident myself, so as you can imagine, it’s a busy time in our lives. There are a lot of things we have to worry about, but finances shouldn’t be one of them. Here are 5 money-related truths every resident physician, and young professional with high earning potential, needs to know:

1. You are not guaranteed to be rich. Just because you are a doctor and will have a high salary, does NOT mean you don’t need a plan for your finances. Most people who make more money, get into more debt. Your time as a resident is not an excuse for poor money management and credit card accumulation. Many doctors’ net worth is not nearly as high as it should be considering how much they get paid. Make some financial goals for yourself now and try to avoid some common pitfalls. Learning a few finance basics as a resident can go a long way.

2. Spend less. Save more. Minimize debt. Things can be challenging during residency so try to live below your means or at least avoid living above your means. You don’t have to have a detailed budget but creating a basic spending plan to prevent yourself from accumulating [more] debt during training might be helpful. Save money in an emergency fund so that small, unexpected expenses like a car repair, urgent trip back home, or new cell phone doesn’t derail your budget or financial goals. Vacations can serve as a much-needed break from the stress of residency, but try to pay for them in cash by saving a couple hundred dollars from each paycheck. If you can, invest some money in index mutual funds via your work retirement plan or your own Roth IRA. The goal in residency is to keep your head above water financially and avoid getting into more debt. 

3. Have a plan for your student loans. Choosing to “deal with it later” is NOT a plan. Read about the different student loan repayment options and choose one, likely an income-driven repayment plan, so that your payments are affordable in residency. Most residency programs qualify for public service loan forgiveness so take a couple minutes out of your day and sign up for this free program so that you have an option for your student loans to be forgiven after 10 years. When choosing a student loan plan recognize that the optimal student loan plan for you as resident may change when you become an attending. That’s okay. Just figure out the best federal repayment plan for you now, likely PAYE or Re-PAYE and consider hiring a company like Student Loan Advice or Student Loan Tax Experts once you finish training so they can run the numbers for you and help you determine the best repayment plan for you as an attending.

4. You need Insurance. As a resident physician, there’s a good chance you have health insurance from your employer that is either free or low cost, but health insurance isn’t all the insurance you need. Every resident physician needs long-term disability insurance. You may get a small amount through your residency program but that is unlikely to provide enough coverage. Most residents and attendings will need to purchase an additional individual long-term disability insurance policy. If you have a spouse, kids, or family members that you support financially, you may also need to purchase term life insurance. If you have a side business, you may also need extra liability insurance coverage. Figure out all of the insurances you need and make sure you get them.

5. Think twice before you buy a house. Owning a home can be a major milestone and lifelong dream, but it may not be wise to do so in residency. You cannot just compare the monthly mortgage price to the monthly rent price and make your decision. There are additional fees and costs associated with home ownership that can be challenging to deal with as a resident. Do what is best for your family, but make sure you consider all of the pros/cons of buying a home before you make the decision to rent vs buy.

Saving money isn't enough, You must INVEST!

If you are a young professional, there is a good chance your job has a retirement plan. Since I work for a non-profit organization, my retirement plan is called a 403b, but it is very similar to a 401K that many other companies offer. Even though I am decades away from retirement and could use even more cash to pay for things now, investing, especially investing for retirement, is a necessary sacrifice that I’m making right now. So should you. 
 
Investing will allow me (and you) to:
-increase our net worth
-build wealth
-pay down debt sooner
-provide a better life for our family
-live a better lifestyle
-become less dependent on our job
-have financial security when we are no longer able to work
 
Contrary to popular belief, most of us cannot just save our way to retirement or to a better life. Saving money is important, but it is not enough.

The interest rates in savings accounts are too low (so our money doesn’t increase much just sitting in a savings account) and inflation is too high (which means the price of things goes up each year). This means money made today is actually worth less than many made tomorrow because you can’t buy as much with it. Given these two principals, it is vital that you invest money. Let me give you an example.

Let's say person A makes $60,000 a year and decides to merely “save” 10% of her income each year (which is $6,000) in a savings account. Let’s say person B makes the same amount of money but instead decides to “invest” $6,000 (through his work retirement plan or Roth IRA) in stock market index funds which earn an average of 10% in interest each year.
 
After 10 years, Person A will have $6,000 x 10 years = $60,000 saved. 

According to Table 1 below, after 10 years Person B will have a total of $95,624.55.

Person A contributed a total of 60,000 and didn't make any money in profits. Person B contributed the same amount of money ($60,000) and made over $35,000 in profits after 10 years. Person B now has $30,000 more than Person A by choosing to invest money instead of just save it. 
 
If this trend were to continue for another 10 years, this difference would be even larger. Person A, by continuing to keep the money in a savings account, would have $120,000. Person B, by continuing to invest in index funds that earn an average of 10% in interest each year, would have $343,650. Nearly 3x as much money!
 
As you can see from this example, investing is critical to building wealth!
 
It is so critical that once you have a certain amount of money in an emergency fund, you should start investing money, even as you try to pay down debt. If you wait until you are completely debt free to start investing, you may be delayed in investing by several years and would thus miss-out on years worth of extra profits. 
 
Thankfully, there are many different ways you can invest money. Some people invest in real estate, others invest in their own business. But as I’ve shown in the example above, one of the most popular ways to invest is in the stock market.  Some people purchase stock in individual companies, but I prefer to purchase index funds, which are large groups of stocks from many different companies. Index funds earn an average of 10% in interest each year, which is what I used in the example above. Getting a 10% profit on your money each year will add up over time. 
 
Although you may choose a different type of investment keep in mind that certain investments and accounts may cause you to make more money than others, some may pose a lot more risk than others, and some may require you to pay more taxes than others.
 
One of the simplest and tax-efficient ways to start investing is to open a Roth IRA or contribute to your work-sponsored retirement account (which is a 401K, 403b, or 457). Once you determine which account to use, decide how you want to invest the money in that account. I purchase stocks and bonds via index funds, but you can choose what is right for you based on the options your job has available. The important thing is that you start investing money now so that you can become more financially stable and start to build your net worth over time. While saving money is good, investing money is better. 
 
Tell me, have you started investing money? If so what investments are you making and what type of account are you using?

6 Life Hacks To Start Saving More Money

As a busy young professional who aims to be fiscally responsible and money savvy, I realized I needed to change my habits. Here are 6 habits I changed to save more money:

1. Pre-plan restaurant outings. When I get invited to eat out with friends, I show up a lot more prepared. Instead of getting there and being shocked by the price, I take a look at the menu online before I arrive and come up with a maximum dollar amount I want to spend. If I know I don’t want to spend more than $25, then I’ll think twice before I order another round of drinks or that extra appetizer I know I don’t really need. I spend less money if I set a limit for myself beforehand. 

2. Decrease the amount of times I go to the mall. Most people who know me, know that I loveeeeee to shop at Express. They have cute business casual clothes for young professionals and quality dresses for an occasional night out. As a med student I could never seem to resist their sales and if things were magically 40% off, I usually bought up the whole store. Since I knew I couldn’t curb my self-control, I did something even better. I refused to let myself walk by the store. In fact, I decreased trips to the mall altogether.  I now only go to the mall once a month for make up and any other personal grooming things. Since my self-control wasn’t the best I had to avoid putting myself in situations that constantly tested my limits.

3. Remove text alerts from clothing stores. If you know me, you know I love a good sale. Getting a sale price for a quality item is something that brings me immense joy. Anytime I got a text alert from one of my favorite stores notifying me of a sale it was hard to resist. When I realized I wanted to start spending less money, I changed this practice. I turned off the text alerts to my phone and send the sale notifications to an email address I didn’t check as often. That way, when I actually needed to buy something from the store, I still had access to valuable coupons, but was no longer inundated with them every couple days via text message.

4. Drink less alcohol. I’m not addicted to any drinks and don’t particularly care for hard liquor, like many young professionals I know, I love wine. Something about a glass of red wine after dinner alleviates my stress and makes me feel like a success. Unfortunately, this craving for wine was costing me a lot of money. Drinks were overpriced at bars and weekly wine bottles were starting to add up. In an effort to spend less money and lower my grocery bill I deceased my wine intake and started drinking less wine

5. Purchase things in cash. A couple years ago I noticed that I spent less money when I purchased things in cash versus when I bought things with a debit or credit card. When I swipe for a payment it can seem a bit passive. There is something about physically seeing the money leave my hands actually makes me want to spend less. Anytime I pay in cash I question whether I really need what I’m about to purchase. With a debit card, I typically don’t have that doubt check system into place.

6. Take advantage of free  and low cost entertainment. When I was a med student on a large college campus and even now as a resident in an urban city, there are tons of affordable entertainment options, especially on Friday nights. Instead of paying to go out somewhere, my friends and I decided to go to some of the free things. Our med school college campus had a bowling alley that was free on Fridays. Occasionally, they had art and painting classes that were also free. Sometimes we would even go to sporting men’s football games or women’s gymnastics meets which were relatively affordable as well. During the warmer months, we could rent Kayaks on the lake or do a movie night with popcorn at someone’s home in the winter. Either way, these affordable sources of entertainment were saving me money.

What do you think of these habits? Are there one or two life hacks from above that you could start adopting in your own life?