Articles

Hard Times Teach Us About Money

By Jimmy Turner, MD
The Physician Philosopher

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The last week, I intubated and extubated multiple patients for surgreries. Each of them could have been positive for COVID-19.  We really don’t know. Our hospital has positive COVID patients and multiple suspected COVID + patients.  In this current environment, it feels strange to write about personal finance topics.  Yet, these extreme circumstances have brought these topics to the forefront whether we want them to be there or not.

I know many physicians, nurses, and other supporting staff who are worried about making ends meet during a time where elective surgical cases have come to a halt.  Yet, despite the circumstances, our current situation continues to drive home important financial points.

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1.  Money Isn’t the Most Important Thing

Today, I jumped on the trampoline with my three kids for thirty minutes. Then, I took my two youngest kids with their putters and some golf balls to putt the 16th and 17th hole right next to our house.  The quality time spent with them matters infinitely more to me than writing a blog post about money.

Yet, this is a truth that reverberates from the fact that money has never been the end all, be all for my family. Money is a means to an end. It is not the end itself. Money helps us to live the life that we design based on what is most important to us.

I am reminded that the following are what is most important to me:

  • Time with my wife and kids.
  • Investing in my wife and the career she is pursuing.
  • Checking on other family and friends.
  • Being a good physician.
  • Enjoying pursuing entrepreneurial pursuits.

Financial calamity doesn’t feel very far away at this point. Yet, I am still trying to be rooted in what matters most to my family and me.

2. Financial Security Still Matters

Despite everything above, financial freedom still matters. For those of us still dependent on a pay check, financial security matters.

I’ve had many people ask how much they need in an emergency fund. The common answer is “3 to 6 months of living expenses.” Yet, that isn’t exactly accurate.  What you really need is 3 to 6 months of BASIC living expenses.

For example, my family easily spends more than $10,000 each month during normal operations.  However, a lot of this money includes optional expenses that we would cut during an emergent time like the one we are currently living in.

For example, we have cut several of the following expenses during this time:

  • Child care expenses (day care and before/after school care) ~$1,200
  • Country Club ~ $400
  • Eating Out
  • Gas on traveling expenses
  • Refinancing our mortgage to 3% interest

When you deduct all of these we are saving a lot of money each month.

This is the point.

Given that we are debt-free outside of our mortgage, we are saving a lot of money each month. While our emergency fund might typically last us 3 months based on “typical” living expenses, we can easily last 4-6 months on basic living expenses.

That’s what your emergency fund is for… covering 3 to 6 months of emergency expenses. Put it in a high-yield account. Make it easily accessible, but separate (so you don’t raid it).

3. Some Costs are Optional

In addition to everything mentioned above, there are other things we could cut if we fell upon truly hard financial times.  For example, if I lost my job, all of the following would get cut quickly to allow our emergency fund mentioned above to last as long as possible:

  • Charitable Giving ~$2,500 per month
  • Childcare ~$1,200 per month
  • Groceries ~$500 per month
  • Estimated Tax Payments each quarter
  • Adopt Minimalism/Frugality ideology

The point is that we spend a lot of money each month that is not strictly necessary.  We could cut much of this and help out emergency fund last 6 months instead of 3 months at our current spending.

4. My Risk Tolerance is Accurate

For those who have been following my our net worth updates, you may have noticed that we stay somewhere between 90-95% stocks.

I’ve heard from others that 95-100% stocks is “too aggressive” if you haven’t withstood your first bear market, recession, or major down turn.

Well, now that we are in the midst of it, I can say that our asset allocation is spot on.  I have no trouble sleeping at night while keeping to our current plan.  I know the market will recover, and I am happy to “buy stocks on sale” during this downturn despite the many others I’ve talked to who have converted to cash while they sit on the sidelines.

A Bear Market serves as a “stress test” of sorts.  If you have had a hard time enduring the current climate, maybe your asset allocation is a bit too aggressive.  For me, it is just right.  I’ll keep pummeling money in with each paycheck, and I am happy to stay the course while I get a discount on all of my index funds!

5. Cutting Expenses

That said, it is not as if my family is not cutting our current expenses. We have trimmed our typical costs on several items.  This allows our emergency fund to last a little longer.

For example, we are saving money on child care, gas, eating out, and several other items.

That said, we are still giving to others who are in positions that are at more financial risk than us. We continue to pay the family that cleans our home, cuts our grass, and we continue to give to our church… even if they aren’t able to provide the typical experience or service that we expect of them.

These people are at risk of losing their income, and they are not an expense I am willing to cut at this point.

Take Home

Money is not the end all, be all. It is a tool.

However, it is a tool that may keep food on the table at this point in time. COVID is teaching us a lot about many things, including our money.

What expenses could you cut, if necessary? How long would your emergency fund last?
Leave a comment below.

TPP

7 Comments

  1. Psy-FI MD

    TPP,

    I hope you are doing well. I love that you’re still giving to the people who do work for you around your home. We are doing the same for our cleaning lady although she can’t come in our house. Here’s to being in the position to help other in their time of need!

    Regards,

    Psy-FI MD

    Reply
    • Waywoe

      I have an older woman who dog-sits for me 4 days a week. Now with the elective surgeries at a standstill at my hospital, my workload is negligible and the other pathologist and I now work alternate weeks. So far, my salary hasn’t been affected. I feel that the right thing to do is to still pay her during my off weeks. She was nearly in tears when I told her this and said it meant a lot to her.

      And my dogs are thrilled I am around more.

      Reply
      • ThePhysicianPhilosopher

        The Morales family, who cleans our house, was the same way. We have continued to pay her even though we have been cleaning ourselves (though not nearly as good as her and her mother do).

        It is important to give to others. Keep it up!!!

        Jimmy

        Reply
    • ThePhysicianPhilosopher

      Amen, brother. The Morales family has been a wonderful help to our family. Thankful for their work cleaning our house

      Reply
  2. Thedoctornextdoor

    Wonderful summary of what to cut, and how an emergency fund takes into account spending less monthly than when fully up and operational. I believe in supporting a few important people dependent on our giving as well! I’m can make cuts elsewhere in my budget!

    Reply
  3. Ko

    Just out of interest, if you were a Elective work physician that lost their income would You Still be putting money into stocks now? That woUld change your cashflow…
    Would your risk tolerance be the same?

    Reply
    • ThePhysicianPhilosopher

      Good question.

      My risk tolerance in the market would stay the same because that money is untouchable. I’d declare bankruptcy before I touched my retirement money.

      Also, with a six month emergency fund I cannot imagine a world where a doctor is not needed somewhere in the next six months. In the meantime, I’d be working like crazy to build another source of income just in case.

      My emergency fund consists of both my six month emergency fund and my multiple sources of income.

      I may stop contributing to retirement vehicles while facing such a situation, but my risk tolerance in the market would be no different because that money isn’t meant for today. It is meant for someday 30 or 40 years from now.

      Reply

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