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Learn How to Set Your Financial Foundation!

This post is originally from Ian Cook of Carpe Diem MD, one of the founding members of the PhREI network! I really love this post! It’s on such an important topic: how to successfully set your financial foundation. Because there is no way that you can reach financial well-being or financial freedom without first creating a good foundation.

So, in this post, Ian creates a great analogy to teach this lesson and provide some tips!

Take it away Ian!

So I know becoming a table was not one of your goals in life but hear me out.  

When I was a Resident I received some practice advice from a senior Emergency Physician: “become a tripod”.  No jokes please….  The advice was simple. This senior physician recommended practicing at three different locations to provide professional stability. 

The Tripod Model: Practice medicine at three different locations

His advice was simple. Work and maintain your credentials at three locations. That could mean practicing with three Emergency Medicine groups or moonlight at an Urgent Care while pursuing other clinical opportunities.  The combination of different practices was fine but the goal was to have three practice locations. This physician had experienced the rapid turn over that occurs in Emergency Medicine and was sharing his experience to help junior residents. 

We all know a physician or have experienced this scenario ourselves.

It goes something like this….. Hospital group A (Emergency Medicine, Hospitalist, Intensivist etc) loses their contract to Hospital group B and physicians become displaced. This can be devastating if you are not credentialed at more than one location because credentialing can take months at some hospitals. 

Therefore, by practicing with multiple groups and maintaining your credentials at multiple hospitals you increase your professional stability. In addition, this model allows you to easily increase you income by filling shifts across multiple calendars.

financial foundation

The Downside of the Tripod Model

The downside of this model is completing multiple credentialing packets every 2 years, schedule management (see the pocket life post), and keeping track of different staff.   The benefit is different staff, change of scenery and stability.

I followed the “tripod model” for years when I practiced Emergency Medicine and worked at three different Emergency Departments.

When I transitioned to Wound Care I continued the plan by practicing at two Emergency Departments and three Wound Care clinics.   Eventually, I cut down to one Emergency Department and 2 wound care clinics and so on.

Today, I practice full time Wound Care and split my time between TWO wound care clinics (one shy of a tripod).  This is the first year that I have only worked at two locations.  I might have to re-evaluate my schedule after writing this post….  I still maintain my Emergency Medicine credentials.

The “tripod model” has worked great for practicing Emergency Medicine and Wound Care.  This practice model provided stability and a feeling of freedom by ensuring that I am never dependent on just one practice location. I am grateful for the advice that my attending provided. 

Note: I understand that this model does not work for all practice types. If you own your own practice you have more control. This model is more directed to physicians that lack control over their practice. But the model can be expanded to include non-clinical income as discussed below.

Over time, I came to realize that the “tripod model” needed to be expanded.  The model provided clinical income stability but I needed to diversify into non-clinical income.

The Non-Clinical Tripod Model 

Now that I no longer practice Emergency Medicine I have started to replace that portion of the “tripod model” with “non-clinical” income.

Lauren and I have chosen real estate as our third source of income. 

The next evolution of our investment strategy is to move past the “tripod” and become a “stable table”.

To become a “Stable Table”  you will need to pursue additional sources of income outside of Medicine.  By investing in assets and increasing your sources of income you will become financially stable which is priceless.  

The Stable Table Model

The First Leg

The first leg in our table is our clinical income.  This leg is stabilized by multiple sources of clinical income. That’s the beginning of a good financial foundation.

The Second Leg

The Second leg of our table is Long Term Rental Real Estate Investing.  This can be SFH, Multifamily, or commercial. We are focusing on Multifamily.

The Third Leg

The Third Leg is Short Term Rental Investing.  Short Term Rental investing provides a higher cash flow than LTR but with more volatility. This third leg rounds out a “tripod of income” but when we add the Fourth Leg, we have a stable table….

The Fourth Leg

The Fourth Leg is a well-funded Retirement account. This leg does not provide active income but will allow you to retire comfortably. 

When you reach retirement, the Second leg (LTR) and Third leg (STR) of your stable table will provide a “tripod of income” in retirement.  You will enjoy stability in retirement by receiving income from your real estate and retirement investments.

Your “stable table” can have more than Four legs.  In fact, there is no limit to the number of legs that can be added.  

Your “stable table” may be completely different and that is ok. There are many different and unique ways to increase your sources of income.  The point is to choose a form of non-clinical investing today and begin building your “stable table”.

I will not tell you that my way is the only way but our path is working well.

In Summary

Right now, I feel like there is a lot of noise out there in the physician financial blogging community about the right way to save, invest and diversify.

In fact, there seems to be some that are upset that physicians are actively pursuing real estate as an investment vehicle and try to discourage these investments.

On the other hand, some physicians describe retirement accounts as the slow way to retirement.

I think both sides are entrenched in their own goals and experience personal biases.  

The reality is they are both right and wrong in their own ways. They both help create a stable financial foundation.

Sure, you might reach retirement faster by putting all you finances into real estate. But you are assuming more risk.

The “less risky path” to retirement at 65 is well established: pay off your student debt, pay your mortgage on a 15-year loan, fund your retirement fully and retire comfortably.

I would argue that there is a middle ground. 

Fund your retirement… That is your back up plan…. and invest in real estate.

After you fund your retirement account, invest your additional income into real estate, especially Short Term Rentals. (Click here to learn more about STR tax benefits)

Real estate investing can increase your yearly income, improve your retirement income and help you reach an early retirement, if you desire…

You can achieve all of this while still having the stability (back up plan) of a traditional retirement account.

I think these financial philosophies can co-exist.

And I agree!

What do you think? How many legs do you have on your financial table? How did you set your financial foundation? Let us know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

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