Financial Planning for Doctors

When you read about personal finance on a consistent basis, it can become a bit of an echo chamber. The formula is simple. Earn a good paycheck. Spend less than you make. Save the rest (at least 20-30%). Take that saved money and turn it into a 3 to 6 month emergency fund. Once you have an emergency fund in place, contribute the your 20-30% savings rate towards destroying your debt and investing in passive index funds. The math and the concept are both easy. It’s the psychology of money that is hard. Here are some examples of financial mistakes I continue to make.

Five Examples of Financial Mistakes I Make

The discipline that it takes to stick to the simple formula laid out above can prove challenging. Even for someone who reads and writes about this stuff on a daily basis. Knowing that bad financial decisions can lead to worsening financial stress and burnout, I want to be loud and clear about one thing today.

We are all human. We all make mistakes along the way. And none of us have to be perfect to get to our financial goals.

I’ve documented past financial mistakes in a prior post. So for my readers who are making financial mistakes right now, here are five financial mistakes I make and/or struggles that I have on an ongoing basis.

1.The Backdoor Roth IRA and I Aren’t Friends

Any reader of physician finance blogs likely knows the benefit of a Backdoor Roth IRA. You place post-tax money into this account, and then it grows tax-free and will never be taxed again. As long as the SECURE Act continues to be held up in the senate, the Stretch Roth IRA money will continue to be the best money to leave to your heirs, too.

However, everything is not easy with a Backdoor Roth IRA for the non-disciplined. The problem is that you should have $6,000 saved to invest all at once when you are performing the Backdoor Roth contribution and conversion. You don’t have to do it this way, but it is substantially easier, if you do.

Many people save this money up and then perform their Backdoor Roth in January. Not my family, though.

Naturally, the problem with this is having the discipline to save $6,000 outside of your emergency fund and your monthly regular savings, tithing, etc. For my family and me, this has proved challenging for the last 12 months. One emergency expense after another has prevented this from happening. The most recent is a $5,000 AC unit replacement so that our children don’t have to sleep at 80 degrees at night.

Usually, we pillage and plunder our emergency fund in December to make it work. Yet, I have to admit that this probably wouldn’t happen if I were better about tracking our money and budgeting each month. (More on that below).

For Further Reading: Click here for a Step By Step Backdoor Roth IRA Tutorial for your First Backdoor Roth at Vanguard.

2. Cars Are Still My Weakness

Long time readers will know that my Chevy SS is my baby. In fact, it is what I used the majority of my 10% rule on when I finished training. The sound of the naturally aspirated V-8 as I crank through the gears on my manual transmission is intoxicating.

That said, practicality usually wins out in the end, and the SS is not the most practical car. Not even close. While it fits three car seats in the back, the rear wheel drive set up is not meant to drive safely in the snow. It cannot carry or haul anything, and it guzzles gas at a 13mpg rate. Oh, and that’s premium gas.

For about six months, I’ve mulled over the idea of getting a truck to remedy many of these problems. Whether this is just run-of-the-mill discontentment that I am trying to satisfy with a purchase or consumer addiction, I’m not sure.

The truth is that I have several reasonable reasons to buy the truck. I plan on essentially trading my SS to break even on it, too. So, it won’t cost me much in the end.

That said, our ability to rationalize to a bad financial decision is one of the reasons that doctors are bad with money. So, I won’t bore you with my reasons. Just understand that whether buying the SS was a financial mistake, or this truck will be… we all make financial mistakes.

3. Not Spending Enough

This one might be counter-intuitive. The truth is that many people, particularly in the FIRE community, are a little too frugal. While this is probably a response to the lavish spending that most financailly illiterate people experience, it still holds that once you learn about financial Independence – we can start to fear spending money.

A recent example from my life involves my wife’s wedding ring, which was damaged about 9 months ago. For the third time. And, this time, it is bad enough to require getting a new base for her diamond, which was passed down from my grandmother to my dad (to propose to my mom) and then to me (to propose to my wife).

That said… it’s been 9 long months. And we still haven’t fixed it because it’ll likely cost us a couple thousand bucks. Yet, Mr. Hypocrite writing this post wants to spend just a little less than the cost of the ring to buy a truck on discount.

Sometimes, we have to let go of the purse strings. This is yet another example of how I’ve made financial mistakes in the last year.

4. Budgeting Sucks

I am a believer in backwards budgeting. The premise is to accomplish your big picture financial goals first, and then to spend what is left. I don’t believe in line-by-line budgeting. Not because it doesn’t work, but because I am too lazy to line by line budget.

We have tracked spending at times with personal capital (there is a link at the bottom of this post) with some success, but even that we break away from at times. It’s a great tool (particularly to track your net worth), and yet I don’t use it all of the time to track spending.

Continually staying disciplined has proved challenging and is a constant reminder of our financial mistakes.

5. We Bought a Home Too Early

I always promised my wife that we would buy a home as soon as our student loans were paid off. It took us 19 months to pay off our $200,000 in student loans. And, literally in the same month that they were paid off, we bought a house.

Fortunately, we didn’t have a mortgage payment for about 45 days after that. Still, we had unexpected expense after unexpected expense pop-up. A broken AC unit. The broken electric fence for our dogs. The new carpet that was installed in our house before we sold it (which got some hate in a House Hunters episode that featured our old starter home). Or the broken garbage disposal.

I knew that buying and selling a house wasn’t cheap, but I also knew that we had equity in our old home. Then, I turned around and used that equity to pay off our student loans so that we could buy a new house.

This is a lesson in patience, which I continue to lack when it comes to things that we really want. We have been disciplined enough that our financial mistakes haven’t sunk our ship, but we certainly could have waited a few extra months and been in better shape.

Remember, there is always another house. The one you are looking at is “THE house” until you don’t get it and find the next one that’s now “THE (next) house”. Learn from our mistakes and be patient!

Take Home

One reason I write about behavioral finance on a consistent basis is that I have to constantly remind myself of the truth. It’s the same reason why a community that can reinforce wise financial attitudes and behaviors is essential to our success.

My wife and I are still on track to reach financial independence in our mid 40s. This is despite all of the mistakes that I’ve documented on this blog.

So, I hope that some of the examples above gave you hope. Maybe you have made some of the same mistakes. You, too, can turn it around and do enough right (hopefully, with the aid of The 10% Rule) to find financial success in the midst of your financial mistakes.

What financial mistakes have you made? Were any of them similar to some of the mistakes that I listed above? Leave a comment and a story below!

TPP

9 thoughts on “Financial Mistakes For the Financially Literate”

  1. First off, it was great to meet you in person at FinCon, definitely a highlight of the whole experience.

    I do think no matter how much financial literacy we gain, it is easy to still make financial mistakes, albeit much smaller than had we not educated ourselves on the subject. Loosening the purse strings is a big one and can be expecially hard when you are first retired. Hard to change habits if you have been a saver all your life.

    • Likewise! Really enjoyed meeting you. You are a stand up guy, exactly what I expected!

      Changing courses is hard. The pendulum often swings one way (overspending) then the other (oversaving). Finding that happy medium is the goal, but I think our successes in either direction change as live moves on, if we are being honest.

      TPP

  2. Purchasing a home before you are ready is a mistake my wife and I have recently made. Our goal was to pay off student loans and then build up a down payment. We learned that where we were renting was potentially going to be sold. Having moved many times through training and early in my career, I was tired of moving and wanted to settle down. We purchased a home that had some surprises with our HVAC system, roof, and foundation. It has slowed us down on paying off the student loans by about 4-6 months. Looking back at where we were living, the apartment is still on the market and has not sold. Hindsight is 20/20!

  3. What a great post! Very honest and revealing. It’s so valuable to be critical of your decisions to see how they could have been better or when you made an error in thought process. No matter how much we learn, we are still prone to errors, whether in finance or medicine.

    I once asked one of my mentors who is an amazing surgeon with a well-earned reputation surgically and academically, “When did it become easy? Like you could predict nearly every outcome accurately and avoid the pitfalls?”

    His response: I’ll let you know when it happens.

  4. Jimmy-
    It’s hard to avoid getting sucked into traps, even for the financially literate. I know for me, my weakness is eating out. It’s just so convenient, and it’s hard to muster the interest to go make dinner after a full day of work. Sitting down to calculate my monthly expenses after the fact really puts things in perspective, though. We can’t allow ourselves to get trapped into the belief that we know everything there is to know about finances and are therefore infallible. Pride comes before the fall, and the financially literate with hubris can easily find themselves falling instead of “FI-ing.”
    -Brent.
    http://www.TheScopeOfPractice.com

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