A Doctor Tells: How to Save More of Your Money
Time to Tighten the Belt a Notch?
  

Gregory A. Hood, M.D.

Nov. 30, 2017 (Medscape) —  Unprecedented anxieties and uncertainties grip our nation. The divided and unpredictable state of the Union makes it difficult for Americans to be able to predict their incomes, their tax burdens, and the cost of their healthcare premiums, as well as other major expenses.

Physicians aren't immune to such concerns. I know of several doctors who have faced skyrocketing levels of practice overhead in the past couple of years. Some have gone months without a paycheck in hopes of keeping their practices afloat. Others have gone to work for someone else or left the practice of medicine altogether. Several recent reports of physicians not having their contracts renewed with their medical groups/employers underscore the Grinchy landscape of physician employment today.

Although employment, reimbursement, taxation, and healthcare are prime examples of unpredictability in finances, achieving financial security despite these threats is a crucial milestone that all of us should strive for.

By virtue of their late start in the work world, physicians not only commonly face mortgage and student loan debt, but also these balances are typically quite high. Given their devotion to education, it's also unsurprising that doctors often help their kids pay for their educations. Given the dollars involved, it's understandable that some of us give up hope of ever succeeding financially.

To those physicians, I say that there's only one viable, sustainable financial path that leads forward: the path of frugalness.

For some doctors, frugalness comes naturally. Perhaps their parents came from humble working-class backgrounds, or their grandparents lived during the Depression, instilling in each generation an appreciation for the value of a dollar. For others, speaking of being frugal is like speaking a foreign language. Yet, it's a language that can be learned—passably, if not fluently—by anyone.

Given the complexity of the healthcare market, the changes coming out of Washington, and the unpredictability of the investment world, it's well past time for physicians who haven't yet adjusted their lifestyles to reconsider and embrace learning the language of frugalness.

If the concept of frugalness is new to you, you're probably wondering, "Where do I start?" Here are five steps that I'd recommend:

Bringing Frugality Into Your Life 

Step 1: Be Proactive

Now's the time to start thinking about your spending before it becomes overly indulgent and out of hand. The 4 Laws of Financial Prosperity: Get Control of Your Money Now! by Blaine Harris and Charles Coonradt is an excellent, brief paperback that you can easily read in an evening.

As the authors state, only you can take responsibility for your life and your spending, by being proactive about controlling it. Some of the suggestions that I've taken to heart in my own life include maintaining a detailed monthly family budget on Microsoft Excel, having regular financial meetings with my spouse, avoiding impulse purchases of items that do not fulfill a specific purpose, and maintaining no illusions about what purchases actually constitute "assets," as opposed to those that will not hold their utility and value.

Step 2: Analyze Your Spending

An airplane can't fly on course and on time to its destination unless the pilot monitors the instruments and makes periodic corrections and adjustments. The same thinking applies to money: You won't be able to maintain and control your finances without taking a detailed account of your income and expenses.

Start with the small stuff, the minutiae, and build from there. For instance, if you spend $10 a day for lunch each weekday, that totals $2600 a year. Likewise, $2.75 each morning for a cup of coffee is another $715 annually. I could go on, but you get the point.

Some of the things I do to cut back on these daily expenses is to avoid eating out, especially at lunchtime, when the practice of medicine doesn't really allow a break anymore anyway. In my office, I have prepositioned protein bars and nuts, along with a small fridge. My lovely wife gives me a small bag of sliced fruit and vegetables that I can use as snacks. I keep berries from our garden frozen in the mini-fridge's freezer. Frozen, they keep forever, and the added crunch makes a fun snack.

As a family, we also keep the thermostat a little lower in the winter and a little higher in the summer. We have time-controlled thermostats that allow a much wider change in temperature while we're at work. It saves significant money, and the dogs don't seem to mind. (If you'd like to compare your spending with that of the average American family, read the recent article posted on Creditloan.com.)

Many of the different approaches to saving money and becoming wealthy are explained in another great book, The Millionaire Next Door: The Surprising Secrets of America's Wealthy, first published in 1996 and written by Thomas Stanley and William Danko. Reading this book, which includes some physicians as examples, will put you well on your way to a new perception of financial realities.

Some of the authors' conclusions may still shock readers, more than 20 years after they were first published. But they're as true now, if not more so, than they were then:

• A frugal lifestyle is the number-one reason people become millionaires.
• Despite the popular caricature, most millionaires don't buy new cars, fancy homes, expensive clothes, or luxury goods.
• Most millionaires are self-made (80%) versus having inherited their wealth.
• Most are self-employed businesspeople or professionals.
• Most save more of what they make than most others do.
• Most are married and consider their spouse to be even more frugal than they are.
• A minority attended private schools growing up.
• They value work-life balance and aren't "slaves" to their businesses.
• A full two thirds work less than 55 hours per week.

Getting Others to Help in Your Effort 

Step 3: Involve Your Family Members

To use another flying analogy, a two-engine plane is designed to fly in an emergency on one engine, but of course flies best when both engines are not only working but are finely tuned to work together. In the same vein, my wife and I regularly review our annual budget; meet regularly (or semi-regularly) with our financial advisor; and, of course, discuss major purchases proactively.

If you have kids, then your plane is operating with a higher "gross weight." This is important to consider, because the decisions to live more frugally affect everyone in the household and must be shared by everyone. It's also true that their decisions affect your odds of success as well. Should some of your kids take on part-time jobs, for example, their choice will not only add horsepower to the family's financial plan, but it will reduce the gross weight of the "aircraft."

Living frugally is important, but so are the needs and priorities of your family. Winning on the spreadsheet, but making some of your family members miserable because the things that are most important to them haven't been appropriately valued, is not winning. It's another form of losing.

Working together to develop a financial plan, through teamwork and shared decision-making, helps define the goals. Teamwork also helps each of you avoid peer pressure or splurging "in the moment," which will make budgeting and frugality more difficult. (I only partially regret the mint-condition, powder-puff yellow 1971 Jaguar that, because of discussing our family's budget and frugalness, isn't mine today.)

Exposing your children to the pain, anxiety, and uncertainty that you've faced in life will help them as they live their lives and make their own decisions. The protectionism that successful parents often engage in creates a paradoxical trap, from which their children too often don't escape if they haven't been taught the tools of frugal financial success. Without the opportunities to make mistakes, learn, and develop their own discipline, there's little chance that your kids will find the path to financial independence on their own.

Furthermore, because the family's ultimate financial success is a multigenerational team effort, it's imperative that each of you listen to one another. Constructively discussing the reasons given for a purchase outside of the budget creates the opportunity to realize how superficial the reasons for many such purchases are. Doing so will also help everyone realize how a seemingly trivial decision, or a stream of them, can really blow the family off its financial course.

Of course, this doesn't mean that you and your family can't enjoy the fruits of your labor and success. It's fine, say, to go out to dinner every so often, to celebrate an accomplishment or a birthday—or just to blow off steam at the end of a busy week. That said, it may be helpful to set a dollar limit above which a discussion should happen before the purchase is made, versus nitpicking and interrupting each other's day over something trivial. Smaller purchases, such as the occasional restaurant meal, can be reviewed and discussed every week or month, depending on what you're most comfortable with.

Reaching the Place You Want to Be 

Step 4: Visualize and Prioritize Your Goals

Visualizing a budgetary goal implicitly involves a relative decision on how frugal one wishes to be. Do you want to save aggressively enough to be debt-free? If so, by what age? How much do you want to set aside for emergencies? What's a reasonable amount to allocate for your family's daily cash flow? These are all questions you need to consider before you can begin traveling the path to financial independence.

Another option to consider is whether your family can live on one salary, even if both spouses are working. Being able to operate as a one-income household is a fast-track to financial independence.

Once you've drawn up your list of goals, it's essential to prioritize them. For example, maybe your goal is to be debt-free and have 6 months of savings in the bank. When all is going well, these goals may coexist harmoniously. However, if your employment contract isn't renewed, then the potential of a dramatic reduction in your take-home pay may drain your savings and derail those goals, at least temporarily. In such events, a comprehensive reassessment may become necessary.

When a family's finances don't adhere to rules and wind up out of control, there are several negative consequences. That these negatives quietly fade away once a priority is placed on frugality is a realization that typically dawns on people slowly, over time. In fact, frugalness may lead you to be better prepared in the long run to take on the gift-giving, experiential events, or vacations with family and friends that you experienced in your more free-spending days.

This prioritization can also have other interesting effects. By freeing your estimation of self-worth from comparisons with "the Joneses," and by knowing that you're succeeding by meeting your goals, the feelings of freedom and peace that you may attain may be among your greatest rewards.

For prioritization to be effective in living a frugal life, however, you need to look at the bottom line, which means accumulating assets while reducing debts. True assets, such as equities and real estate, generally appreciate in material value, whereas pseudo-assets—such as cars and boats, to name a few—almost invariably depreciate in value.

Keeping On Track 

Step 5: Revisit and Revise Your Plan

Chances are that your financial plan won't go perfectly right the first time. In fact, the chances of that happening are just about zero. There will be unforeseen expenses, such as a new roof or expensive repairs to one of your vehicles. There will be mistakes, too—decisions that seemed right in the brain but that didn't match the votes of the heart, or the feet. A van purchase that we made while overtired and having not done our due diligence in background research comes to mind...

However, if your first attempt to fix your mistakes leads to improvements and positive results, then it will be even easier to refine your plan the next time, which will improve its odds of long-term success. One additional, excellent book worth reading is Prosper! How to Prepare for the Future and Create a World Worth Inheriting, by Chris Martenson and Adam Taggart. It will help guide you, and in turn your children, through the value of making mistakes and learning from them.

Remember, too, that being frugal doesn't mean you have to give up all of the things that you enjoy in life. A plan that does so will lead to "frugal fatigue," which afflicted a lot of investors almost a decade ago, after the last financial crisis. This fatigue commonly leads to a relapse in spending, sometimes of epic disproportion. A properly executed financial plan will lead to long-term positive results, including increased savings and both greater security and greater freedom in the future.

Finally, personal financial success also feeds better practice and professional success. A less stressed, more comfortable physician will have better odds of performing well in his or her professional obligations.

Most of us work hard at earning our income. It's time to spend as much energy on figuring how best to save and invest it. 

 

 

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