Recently, I was speaking with a medical colleague who was struggling to get their finances on track. They didn’t ask for specific advice so I held off from offering anything unsolicited. However, the interaction got me thinking.
I could relate exactly with the feeling that this colleague was going through. Before starting my financial comeback story while I was mired in burnout, I had trouble gaining traction. And there are other areas of life where I still can struggle to gain traction occasionally.
Getting started with anything is a skill. And it is a skill to start to gain the traction necessary to get your finances on track.
And again, the New Year is a perfect time to start implementing some of these changes to build healthy money habits (remember, it takes ~66 days to make a new habit).
It got me thinking about the small things that we can do to gain traction and get our finances on track. In coming up with this list, I tried to really focus on truly small things that anyone could start to do at anytime. Regardless of knowledge level or time available.
The goal here is to begin to gain traction. Once that happens, bigger steps, like creating a written financial plan, become easier to take. In that way, this list even precedes overcoming analysis paralysis…at this stage, there is not even enough analysis going on to paralyze.
7 small things to get your finances on track
It’s all about starting the engine…
1. Read about personal finance for 5 minutes a day
No matter where you knowledge level around personal finance is now, we can always learn more. And if we are having trouble gaining traction, immersing ourselves into the subject is a great way to find inspiration.
Too often, we think that we need to go from being a novice at something to an expert immediately. Nothing in between will do. My best guess is this arises from our innate perfectionism coupled with the way medical training works. Regardless of etiology, this is not realistic, in medicine, in finance, or in anything else.
So embrace being a novice. And don’t rush through that stage.
Pick a personal finance blog to subscribe to. I would be honored if it is mine. But any will do and there are a bunch of great ones out there! And then just read a single post each day.
I continue with this habit to this day!
2. Create a savings rate of 1%
A very simple formula for doctors to reach financial freedom is:
- Save 20% of your gross income and invest in index funds
This is a very effective and safe plan assuming you invest for the long term throughout your medical career. And, especially in the beginning, how much you save is way more important that how successfully you invest.
But saving 20% of your gross income can feel very daunting. But again, there is no one saying you need to jump from 0% to 20% overnight. Doing so is often not feasible or even recommended.
So, challenge yourself to save 1% of your gross income in one month. So, if your gross (pre-tax) monthly income is $10,000, save $100 in your first month. This $100 is not going to get you to retirement. But that’s not the point right now. The point is proving to yourself that you can do this.
Then, the next month, save 2%. Then 3%. And on and on. Until you reach at least 20%. Sure, you can jump up by 5% if you want. But you are building a bridge to your goal. That is always more successful than trying to get to the other side in one giant leap.
A permissive budget is the most helpful and complete way to accomplish this step. However it is not 100% necessary to have one to create a savings rate. So don’t let that stop you from starting to establish your savings rate!
3. List all of your debts in one place
Managing debt is key to your financial success.
But if you are anything like me when I got started, you don’t even know exactly what all of your debts are. I knew I had debts. But the exact amounts eluded me.
The problem with this is that without knowing exactly what they are, we can’t effectively plan to get rid of them. Depending on our perspective e, they either feel “not real” because we haven’t come to terms with them or they seem “too real” and scary, causing us to avoid them.
So, sit for 15-20 minutes can make an Excel sheet of all of your debts:
- Credit card debt
- Student debt
- Car debt
- Home debt (mortgages)
- And so on
Seeing all of your debt in one place focuses in reality for you. It also takes away some of the fear as you look at it in the face (I experienced this paradoxical reaction). Then, you can begin to attack the debt effectively using one of these strategies.
4. Determine your net worth
I went back and forth with including this in this list of small things to get your finances on track. Mostly because I didn’t want to scare anyone away. Determining your net worth sounds like a “big thing.”
But in reality, it isn’t. And completing this step really has an outsized impact. So that is why I ultimately included it here.
To determine your net worth, simply Google “net worth calculator.” I use this one. But they are all pretty much exactly the same.
All you have to do then is fill in the blanks. The calculator will ask how much your assets – things like retirement accounts, cars, homes, etc. – are followed by a tabulating of your liabilities – like the debts you collected in step #3. It will list all things that can conceivably be conserved assets or liabilities so you don’t miss anything. And then it simple subtracts your liabilities from your assets to spit out your net worth.
I first determined my net worth 4ish years ago when I knew very little about personal finance. So knowledge or experience is not required. And my net worth was roughly -$500,000. I did not like looking at that number. And chances are that you will not like the number you see either.
But seeing this number did empower me. Because now I knew what I could do to improve my net worth – by decreasing liabilities and increasing assets. I knew the rules of the game. Then I started making moves and increased my net worth significantly as detailed here.
5. Meet with your HR representative or equivalent
At bare minimum, all doctors need to be maximizing their retirement accounts. This provides tax advantages along with typical employer matches. So, this is a great place to start when investing.
The problem however is that many of us don’t actually understand how these accounts work. I know that I didn’t. And while this post provides straightforward explanations of all of these accounts, an event more direct and effective way to start using your retirement accounts is to meet with your HR representative.
Larger employers will have specific representatives that you can see. Smaller practices will still have a point person that can review your benefits and refer you to others as necessary. And for self employed doctors, I recommend you meet with a fiduciary financial or tax advisor who can help you understand the options available to you in terms of retirement accounts.
Once you understand all options and how they work, funding the accounts becomes way easier. And a simple 20 minute meeting can make this difference…
6. Invest with play money
Before I ever invested in a retirement account, I first invested in a taxable investment account. This doesn’t really make sense from a rational perspective. Your investment accounts are like a waterfall. You fill up the most tax advantaged bucket until it is full, then you fill the next bucket and then the next. A taxable investment account is typically the last bucket to fill.
However, I wasn’t being rational when I started investing for the first time. I knew all about how index fund investing beat active investing 80% of the time. So I had my investing strategy. But I still needed to get my feet wet before I started investing big amounts of money.
So, I opened an Acorns account and began to invest my change. I figured that, at best, I be saving more money and get comfortable with investing. And at worst, I would lose some of my play money.
And once I got comfortable dipping my toes in the water, I was able to dive in. Some people may. be comfortable diving right away, but most – like me – aren’t.
Acorns is a great way to get started and I still use my account today. The amount I invest here won’t get me to financial freedom. But investing here helped me behaviorally get ready to take the steps that would; get me there!
7. Find someone to talk to
This is maybe the smallest and yet maybe the most impactful of these steps to get your finances one track.
By just having someone to talk to about personal finance, you gain an accountability partner. Even if it is just an acquaintance, you gain someone to stimulate your interest when it wanes anytime they bring up the subject with you. Even more ideally though, it will be a close friend or significant other (tips for navigating these waters here).
And an important point to address is that your partner does not need to be at the same knowledge or even interest level as you when it comes to personal finance. They just need to want to improve their financial well-being. If you know more than your partner, enjoy being a mentor. It will sharpen your skills as well. And if you are the mentee, learn from your mentor and pay it forward.
In fact, maybe the biggest benefit of this blog is all of the connections that I make with others like yourself that motivate and inspire me, keeping me on track!
Stacking the building blocks
All of these 7 steps to get your finances on track are straightforward. None are complicated or require even a basic knowledge of personal finance.
Nonetheless they can be both humbling and exciting. I certainly experienced this mix of emotions as I took these steps in my journey. On the one hand, I was slightly embarrassed that I was in this situation. But, once I started taking these steps, I felt totally empowered to change my financial future. Too often, the focus is only on the latter half of these emotions. My goal is always to share the full picture as authentically as possible.
Regardless, each of these steps is a building block. One won’t get you to financial freedom. But once you start stacking them, you will find your goals are closer than ever, motivating you to continue gaining traction and to take more massive action to improve your financial well-being!
Here are the next steps for after you complete these 7!
- Guide to Creating Your Financial Goals and Priorities
- Still Need a Written Personal Financial Plan? Here…Use Mine!
- Physician Finances: the Race vs. the Finish Line
What do you think? How did you start to gain financial traction? Did you need help to get your finances on track? Let me know in the comments below!