As of March 25, 2024, Donald Trump has to pay $454 million bond to shield his assets as he appeals a civil fraud trial loss. Also, as of the March 25 deadline, he has not done so. And theoretically, the New York Attorney General can start seizing assets and freezing bank accounts.
I have my political leanings. But I don’t plan on sharing them here. I’m not that naive. And, to be honest, they aren’t really relevant to the goals of this blog to promote financial freedom and well-being among physicians. So, this post is going to be apolitical.
However, these happenings do still interest me from a purely financial perspective. Because, sitting in the doctors lounge, among the other bad financial advice being doled out, I heard a pretty lively debate on whether or not Trump should even have that amount of money liquid to pay his bond.
It got me thinking…should he? If I was in his position, would I?
So, let’s examine…
Should Trump have $454 million liquid to pay his bond?
Again, I feel I should clarify. No politics here. I’m not even arguing whether he morally should have this liquid or not. And I’m not placing an opinion on whether he is guilty of civil fraud. I’m not even saying if the amount is right or wrong.
What I am purely addressing here is whether or not, given the judgment that was made, he should have this amount of money liquid from the standpoint of good financial habits and practices. And, to be honest, I’m solving this equation for the first time as I write this. So I don’t know yet what the answer is.
Are we good on these terms? Deal?
Ok. Let’s move on. One step at a time.
How much should anyone have liquid in cash?
This really comes down to the concept of an emergency fund.
Well, your emergency fund is a stash of money that represents 3-6 months’ worth of your average monthly expenses. Your emergency fund is money that you could need at any time. For an emergency. It’s even in the name.
Therefore, you want to be able to have access to that money easily at all times. Because you never know when you may need it.
Could be because your car break down, you get a hole in your roof, or you are found guilty of fraud and need to post bond.
So, the safe, conservative answer is that everyone should have 3-6 month’s worth of expenses saved in liquid form as an emergency fund. It is not a matter of it being a percentage of your net worth, but rather a function of your expenses.
And let’s say we are going to use the high end of the spectrum – 6 months – for this example. Because, as one’s net worth increase, you should more easily be able to create the maximum emergency fund possible.
So the next question is…
What are Trump’s monthly expenses?
Well, here’s the deal. We have no idea. He famously would not release past tax returns. And even knowing that he (or rather a related political action committee) paid $5 million for legal expanses in February 2024 alone, we still are no closer to estimating his true monthly expanses.
So, let’s work backwards
Let’s say he does have an emergency fund of $454 million, sitting liquid in a savings account or money market fund.
That would ostensibly mean that $454 million is the sum of 6 months of expenses for him and his family.
That would mean that his monthly expenses would have to $75.7 million. That’s a lot of McDonalds hamburgers!
Could it really be anything close to that?
Well, let’s work backwards again…
As of March 2024, Forbes estimates Trump’s net worth at $2.6 billion. Let’s say he has this money invested in low cost, broadly diversified index funds like he should.
That would mean, assuming he has reached financial freedom, that he could safely withdraw $104 million each year via the 4% rule.
This equals a monthly withdrawal of just $8.6 million.
And that means that Trump’s emergency fund should actually be just $52 million. Well short of the $454 million that he needs to pay as a result of his civil fraud case. It’s evens short of the new, lower bond of $175 million that he now has to pay instead.
But what about insurance?!
I’m not an expert but they don’t have insurance for this kind of thing. So that’s out.
What does all of this mean?
Well, it means that even if Trump were following best personal financial practices, he will be well short of the liquid money needed to pay this bond with just his emergency fund.
That would mean doing other things like selling investments in stocks, bonds, and real estate to cover the debt.
That’s a big hit.
But don’t feel too bad, even if he paid the original bond out of his net worth, he could still safely withdraw $7.2 million monthly via the 4% rule.
Not all is lost for the Donald. Heck, at this age, he should probably start withdrawing even more.
Does any of this matter for doctors and their financial well-being at all?
Directly? No. Probably not.
But as an allegory for physicians? Sure! Why not? It can be whatever we make of it.
The hidden, and relevant, story that I see here is that, even as doctors, big expenses can come up and surprise you. So you need to be prepared.
And you do this largely in two forms:
- Insurance and
- Emergency Fund
We’ve already been through the emergency fund part of things
Save 3-6 months of your expenses in a liquid form.
That way, if an emergency happens and you need the money, you can cover it without tapping your (present or future) nest egg or taking on credit.
The other aspect is insurance
Thankfully, there is insurance available to pretty much all of the major financial risks that face doctors.
Doctors typically need the following types of insurance:
- Malpractice insurance for malpractice suits (plus, over limit judgments on malpractice suits are exceedingly rare)
- Own occupation disability insurance of you get hurt and can’t work
- Umbrella insurance for claims above and beyond your car and home insurance
- Term life insurance for your family if you unexpectedly pass away
But keep in mind that there are many other insurance products out there that doctors do not need. And lots of people will try to sell these to you. Just stick to what you actually need. All of which you can find here: What Types of Insurance Do Doctors Actually Need?
As long as doctors have those areas covered – emergency fund and the right kinds of professional insurance – you should be just fine!
And as a last gasp, here are some additional resources on these topics:
- Can Your Roth IRA Be A Back-Up Emergency Fund?
- Thinking About Investment Liquidity as a Doctor
- 5 Interesting (and Scary) Financial Facts
What do you think? Should Trump have $454 million liquid to pay the bond? Why or why not? Let me know the comments below – but remember, no politics!
