I truly believe that achieving financial freedom should be a goal for all physicians. This sounds somewhat self-evident. But I would estimate that the majority of doctors still don’t think of this as a goal and certainly don’t have a plan for it. So, why isn’t physician FIRE on more doctors’ minds?
Well, the reasons abound. Personal finance can seem complicated, intimidating, and even impossible for some. So they don’t even try. For many others, the original taboo of money and medicine permeates so deep that they almost feel bad for thinking about their own financial well-being.
Whatever the reason is, physician financial freedom or FIRE actually makes us all better doctors. Don’t believe me? See if these 9 reasons help convince you. Thinking of it in this perspective, it seems to me that we owe it to our patients and healthcare in general to pay attention to our financial well-being.
With this in mind, I recently was talking to Selenid about the financial rules or commandments that we would just always follow now. It seems so obvious to us now.
But quite recently, they seemed totally foreign to us. At least until we started our financial comeback story. But now we’ve built all of these commandments into relatively automated financial habits that have helped build our net worth to over $1 million from -$500,000.
The 10 commandments of physician FIRE
Let’s take a look at these 10 commandments of physician FIRE!
1. Thou shalt invest in a financial education
Even though doctors are highly educated, we get no formal financial education or even basic training in personal finance. This is the root of the financial issues that can face doctors, like living paycheck to paycheck despite a high income.
Thus, you need to invest time and even some money to your financial education. It doesn’t need to take over your life. I started by reading 10 pages a day of a personal finance book and committing to reading one blog post from a personal finance blog each day. That way you can micro-dose the information without overwhelming yourself.
Find any book and blog that resonates with you. Obviously I am partial to my book, Money Matters in Medicine, and my blog, but there are tons of great ones out there!
If you are looking for a more fully immersive and accelerated education, you can check out my course, Graduating to Success!
2. Thou shalt know your big why
Your big why is the reason that you are seeking financial freedom and financial well-being. If you don’t have a big why and just set an arbitrary goal like ” I want to have $3 million saved up,” you will face an extreme arrival fallacy once you hit that goal. And that is unfortunately a recipe for burnout and disappointment.
So think about why you really want to reach physician FIRE. And then write it down and keep it somewhere you will see it.
My big why is I want to achieve financial freedom with a focus on improving my overall well-being to be able to chase my passions [which still includes medicine] on our my terms while maximizing time with my children, friends, and family.
3. Thou shalt calculate your net worth at least twice a year
Your net worth is like your annual check up with your primary care physician. If you don’t check up every year, you don’t really know where you stand health wise. Especially as doctors, we don’t really question this.
Well, your net worth is like your financial check up. If you don’t check your net worth at least twice a year, it’s really tough to know how you are doing financially and where you stand in your path to physician FIRE. So, you need to do it. And you need to make any adjustments based on your findings just like you would adjust your diet or medications based on what your primary says.
It goes without saying then that you need to know how to calculate your net worth. Luckily, it’s actually really simple as this post will show you. Simply by understanding how net worth works and checking it twice a year, you will be avoiding the mistake that dooms too many doctors to living paycheck to paycheck because they think a high income makes them wealthy (hint: a high net worth makes you wealthy and income doesn’t show up in any net worth calculator!).
Checking my net worth is how I recently realized I could stop working (if I wanted to) way sooner than I originally thought…
4. Thou shalt pay off debt…aggressively
If you take a moment a looked at how net worth is calculated from above, you’ll see that it is equal to your assets minus your liabilities. And debt is the largest and most common liability.
So, to increase your net worth, you need to eliminate liabilities which means getting rid of your debt aggressively.
Whether this involves some form of loan forgiveness, refinancing or just good old fashion debt payments, you need a plan to get rid of your debt.
Which brings me to the next physician FIRE commandment…
5. Thou shalt spend intentionally without taking on new debt
As doctors we have a ton of delayed gratification from our years of education (taking on debt) and training (making very little money). As a result, we often spend very impulsively when we become an attending and take on lots of debt via mortgages, car loans, and the like. Then, we realize that we have to make payments every month on those purchases (which we don’t derive as much joy from as we anticipated when we bought them). And we end up spending up to our entire paycheck, hamstringing our ability to build any wealth at all. Yikes.
The solution, spend intentionally and don’t buy even big purchases on credit. A primary home mortgage is maybe the only exception. But even then, don’t buy a house more than 2x your annual income.
Next…
6. Thou shalt save 20% of your gross income
The more money you save, the more money you can invest. The more you invest earlier in your life/career, the greater than return on those investments.
This is simple math due to the nature and wonder of compound interest that any compound interest calculator like the one here will demonstrate.
If you don’t save, you can’t invest. If you don’t save early, your investments will lag behind. And you will need to depend on your doctor’s income for longer. Maybe even longer than you want to or can.
Create a savings rate of at least 20% of your gross income as early in your career as you can. If this seems too hard, start by creating a savings rate of 5% and then increase it by 5% every 1-2 months. It’s best if you started yesterday. But the next best day to start is today.
7. Thou shalt know thy risk tolerance
Without knowing your risk tolerance, you won’t know how to invest your money. If your portfolio carries more risk than your tolerance permits, you may end up selling when a bear market hits (and one will hit). This is way more damaging to your wealth building than simply investing more conservatively from the start.
Another way of thinking about risk tolerance is your investing margin of error. But for now we will treat those as synonymous.
Either way, the most basic way to set your risk tolerance is with your asset allocation, the percentage of (more risky) stocks, (more stable) bonds, and perhaps real estate (more risky) that you invest in.
This guide will help you figure out your asset allocation starting with the anchor of your portfolio.
Once you do that, you can start actually investing your money…the smart way…
8. Thou shalt invest in the market passively
Investing in the stock market can seem really risky and intimidating.
That is until you realize that the overall stock market has always gone up over any long term period. (More in depth discussion about this can be found here.) And investors who invest passively by mirroring the entire stock market outperform investors who try to time the market or pick individual stocks 80% of the time.
That means that if you could just find a way to invest broadly in the overall stock market over a long term, you would make a lot of money with your investment.And that’s exactly what index funds are designed to do!
So, invest in index funds like I do in my investment portfolio.
9. Thou shalt not buy whole life insurance
Life insurance is insurance needed if you have anyone depending on your income to live. This includes spouses, partners, kids, etc.
Unlike term insurance, which lasts only for the “term” that you buy it, whole life insurance is designed to pay out when you die, no matter when that is, even if that’s at age 95.
However, there are a whole lot of downsides that make whole life insurance really not a great or even mediocre option for 99% of physicians out there.
This is not a comprehensive list but the downsides include:
- It is wayyyy more expensive than term life insurance;
- The returns are low;
- These bad returns (often negative) are front loaded;
- Most policies are surrendered prior to death, meaning that those who bought them found they did not serve a purpose
Way too many doctors get tricked into buying unnecessary whole life insurance that slows their wealth building. Don’t be like this. Stick with term life insurance!
Actually, let’s just rename this commandment as Thou shalt protect yourself with only the types of insurance doctors actually need!
10. Thou shalt not overpay for financial advice
Achieving financial freedom is not complicated. Hopefully this post has helped demonstrate that. That doesn’t necessary make it easy. You still have to build the right habits and turn this knowledge into wealth-building action.
But you are certainly capable of managing your own finances successfully. And, even if you decide to use a financial advisor, you still need to educate yourself enough to make sure you are getting good advice. And at that point you often know enough to just manage your own finances anyway.
But I get it, some people know they just won’t invest or take action without someone helping them or doing it for them.
In that case, you still need to make sure that you are not overpaying for this advice and help. Your advisor should be investing your money passively and rebalancing once a year. That doesn’t take a lot of effort. They deserve to be paid for their work, but not tens of thousands of dollars.
So make sure you understand how much and how your financial advisor is paid if you use one!
And there you have it…
Those are my 10 commandments of personal finance and physician FIRE! Of course there are many more that I could have come up with.
But in my mind, these are the core tenets that you need to follow. Follow them religiously (see what I did there?!), craft your own and use them to form your written personal financial plan (here is mine), and I can all but guarantee that you will reach financial freedom!
Looking for more? Here are some other more minor personal finance commandments of mine:
- Thou shalt create an alternative stream of income via physician side gigs
- Thou shalt invest in real estate as a flywheel, not a rocket ship
- And, thou shalt enjoy the journey!
What do you think? Any FIRE commandments that I missed? What would you add? Are you following all of these faithfully?! Let me know in the comments below!
