When you put a 1000 piece puzzle together, do you throw away the picture on the front of the box? Or do you use the big picture as a guide to where that tiny, little piece in your hand might go? In a lot of ways, medical education throws away the box with the picture on it. At the very least, this is true when it comes to teaching personal finance topics in medical school. We expect physicians to pick up pieces of the puzzle along the way. Then, we expect them to figure it all out as they go without the big picture being in view.
If they are lucky, they put the full picture together before it is too late. Maybe they figure it all out by the time they are 40 and have another 20-25 years to catch back up.
For many, they never figure it out. This explains why 50% of physicians who are 65 cannot retire and maintain their current lifestyle.
What if I told you that there is a better way? What if I told you that it involves keeping that big picture in view so that we can fit those oddly shaped pieces together to form a plan?
Here are 5 of the most crucial steps to putting the personal finance puzzle together.
1. Don’t Throw The Box Away
Before you can even have the opportunity to throw the puzzle box of life away, you need to paint that big picture first. You need to know what you want in life, where you are going, and what that dream will look like.
The best tool that I’ve found to help do this is the Three Kinder Questions. It’s also the best tool for getting your significant other on the same page with personal finance, even for people who think their spouse doesn’t “like talking about money.” You know how you win those people over? I’ll give you a hint. It doesn’t involve talking about money.
Instead, sit down and talk intentionally about the life you want to live. Plan the life you want. Then, once you see that big picture painted in front of you, you and your spouse might realize that getting to that dream life involves wise financial decisions.
If the three questions are followed in order, they help create that big picture in very broad strokes. What’s most important to you will come into view.
Doing this first makes sense, right? You wouldn’t just get in a car for vacation without picking the destination first, right? Then, don’t plan on that working for your personal finances either. Pick a destination, and then make a plan to get there.
Once you have that big picture painted, don’t throw the big picture away. Keep the puzzle box in view. Otherwise, you are going to be holding a bunch of random pieces to the puzzle in your hand with no idea of where all those middle pieces go.
2. Pay Yourself First
When I put a puzzle together, I like to start with the edges and corners to fill the frame. Then, I like to put all of the pieces with the same colors together in groups. I allocate the pieces to the groups that they should go first. Finally, I put the pieces together.
You may put puzzles together differently, but the point is that there is a process. And being successful at personal finance is the same.
The “edges and corners” of personal finance involve paying yourself first. Once you paint that very broad picture, you will need to start laying the puzzle pieces down.
So, if you decided that your big picture involves refinancing your student loans and paying them off in 2-5 years, then you need to allocate enough money to that endeavor before you spend money on your house, car, or eating out. By doing this, you are paying your future self “first”.
You should do the same for your other goals, too. For example, you might allocate a certain amount of money each month towards your retirement goals, funding a 529 for your kids, paying down your mortgage, or giving to charity.
The point is that you should make sure all of these big picture financial goals that you created through the Kinder Questions are paid for first before spending what is left.
3. Spend Lavishly on What You Love
My family and I don’t budget. Yep. You read that right. Someone who thinks, reads, talks, and writes about personal finance every single day does not follow a budget. Well, not in a strict sense. We believe in backwards budgeting, which is a lot better – in my opinion – than traditional zero sum (aka zero based) budgeting where every single dollar has a job.
Why do we love backwards budgeting? Because it doesn’t create any guilt about my family’s spending habits. Once we have “paid ourselves first,” we get to spend the rest however our heart pleases. In other words, so long as those big picture goals are taken care of, who cares how we spend the rest of our money?
Truthfully, I want you to spend money. A lot of money.
In fact, if your money is being spent on something you truly love, I want you to spend lavishly on it. Seriously. Go and spend a bunch of money on your passion. BUT, do it after you have taken care of the big picture financial goals. That’s why it is a backwards budget. You make sure the important stuff is taken care of first, and then spend what is left. This is the opposite of most budgets where you spend all of your money and try and do smart things with whatever happens to be left.
In continuing our puzzle analogy, once you put the edges and corners down on your personal finance puzzle by paying yourself first, you get to fill the middle in with all of those colorful pieces. If all of your big picture financial plans are in place, then you now get to place those puzzle pieces in whatever fashion your heart desires.
In fact, this is how my family and I spend our money. It is the reason that I was able to buy a new car (twice) and a country club membership while we also paid off $200,000 of student loans in 19 months and increased our net worth by $250,000 in one year.
4. Automate Wealth Building Habits
All of this sounds great, but how do we make sure that we actually stick to our plan? How do we make sure that we pay our future self first every month? After all, if you’ve read this blog for any amount of time, then you know that human beings do not make rational financial choices.
The way that you take care of the #1 enemy of your personal finance success (ahem, look in the mirror) is by automating the financial choices that you decided on above. What I mean is that money should come automatically out of your bank account every single month towards your big picture financial goals. It should be an automatic process, just like how you finish puzzles the same way each time by starting with the edges and corners, grouping the colorful pieces in the middle, and then looking at the big picture to put it all together.
For example, my family’s automatic monthly process sends money to all of the following each time we get paid:
- Our 403B and 457 investment accounts at my work place
- The governmental 457 and 401K at my wife’s work place
- Our tithing for our church
- The 529 funds for each of our three kids
- All of our recurring bills (mortgage, credit cards that we use to get rewards, life insurance, etc)
In this way, we are making sure that we achieve all of our most important financial goals “automatically”. We don’t simply hope that these goals happen. Instead, we are making them happen by pure force.
Then, we get to spend lavishly with what is left! That’s the fun part.
5. What if my budget gets off track?
After all of this, you may realize that you are not obtaining your big picture financial goals. What happens if you start paying yourself first, and then realize you are consistently digging into your 3 to 6 month emergency fund? How do you figure out the problem?
First, you track your spending. Some tools that are helpful for this include personal capital or mint.
After doing this, you might realize that you are spending too much after you pay yourself first. This is a common problem for many people who are high-income earners.
After tracking your spending, you may realize that you are eating out way too much. Perhaps, you spent too much money on clothes. Or any number of other things. The point is that looking at where your money is going, you will then get to compare that expense to the big picture you are chasing after.
Then, you have a choice. You can either earn more, spend less, or fail to achieve your financial goals. Given that the third option isn’t really a choice, you are left with the other two. You can earn more money through a physician side hustle, or you can real back your spending so that your personal finance puzzle comes together the way that it should.
Until a personal finance curriculum exists in every single medical school (one of my biggest aspirations and dreams), we are all left to figure out our own personal finance picture.
Whether you are a puzzle lover or not, you should create an automatic process for reaching your financial goals. First, paint the broad picture. Automate your wealth building processes. Then, spend lavishly on the one or two things that bring you great joy.
Throughout it all, keep that big picture on the personal finance puzzle in view so that you can remember why you made your choices in the first place.
Did you spend some time up front figuring out what means the most to you? Have you made automatic wealth building processes? What do you do when your financial life gets off track? Leave a comment below.