At this point, I have shared all of the mistakes that I have made financially.
To review, I never pursued a financial education, convincing myself that it was not important but, in reality, I was intimidated by the topic and embarrassed to admit it.
Then, finally, after 15 years of college, medical school, and plastic surgery training, I picked up a book which started me on this journey of financial well-being aligned with my passions and purpose to ultimately enhance my overall well-being.
Now, let’s get into some actionable items and see how I have been going about fixing these mistakes and getting on the right path.
I think the best way to do this is to list out the top ten mistakes of mine that we reviewed in the prior post. I will then go one by one and share how I am working to remedy them, again splitting the mistakes up into 2 parts – Part I and Part II.
Keep in mind, I am on this journey with you. I have not yet reached the proverbial finish line – let’s get there together!
As a reminder, here are my top ten (with an extra one for bonus) financial mistakes:
- Spending up to my paycheck
- Paying myself last
- Not paying off any debt
- Dipping into savings
- Buying on credit
- Not paying attention to my investments
- Using a “money person”
- Not having a written financial plan
- Not developing a side hustle
- Holding onto a scarcity mindset with money
- Not learning
Let’s get going!
1. Spending up to my paycheck.
This was the biggest “A-ha” realization that my wife and I had.
The principle of saving some percentage of monthly income seems so simple now. But we, like many people, just never really gave it any thought. Any increase or decrease in income met an equilibrium with our spending. Our savings rate was 0%.
To fix this, we sat down and developed two budgets. One was for our current situation as a plastic surgery fellow and a PhD student. Even though it seemed impossible to cut spending when 75% of our income was going to New York City rent and childcare, we created a savings rate of 10% and noticed that our lifestyle did not noticeably change.
We also created a full budget for when our incomes increased within the next year as we became an attending surgeon and professor, respectively. We established a savings rate of 31%.
There are a bunch of ways to increase your savings rate and stop spending everything you make (which by definition will never lead to wealth accumulation even if you earn $1 million annually).
You can go our route, which is to sit down and budget to establish a chunk increase in savings. Or, you can work to save 1% of your monthly income one month, then 2% the next month, and so on. Before you know it, at one year, you have a savings rate of 12%.
I believe a good rule of thumb is to work towards a savings rate of at least 20%, so maybe save 2% one month, then 4% the next, etc.
2. Paying myself last.
This was a pretty simple fix for us.
Instead of spending throughout the month and then saving whatever was left (usually zero), we took out our goal monthly savings (initially 10% x our monthly income) at the beginning of the month when the paycheck hit the checking account. Then, we could spend the rest guilt-free.
Soon, we will start doing this by having my student loan payments, retirement contributions, and other savings (for a total of 31% of our monthly income) directly removed from our account before we even see it. This is a great way to get on track with your savings.
3. Not paying off any debt.
My student debt seemed insurmountable and led me to totally avoid it or even acknowledge its presence. This was obviously a mistake since interest works around the clock without ever taking a break whether you acknowledge it or not.
To fix this, my wife and I sat down and set a goal of when we would like our debt paid off. For us, it was 5 years.
In our budgets, we then allocated an amount that would get us to this goal. This counts towards our overall 31% savings rate since each dollar that we pay towards debt is a dollar increase in our net worth. We will go more into specific student loan strategies in the future.
Given the interest rate freeze at 0% for federal student loans in place now until October 1, 2020, we are focusing on aggressively paying down our commercial and private debt now.
4,5. Dipping into savings and Buying on credit.
I’m lumping these two together because we addressed them similarly.
We stopped these habits cold turkey.
It was one of those things that we knew we shouldn’t be doing but it was often the path of least resistance. We made a commitment to each other not to do this and wrote it in our personal financial plan (see more in Part II of this post). The only allowed exception was for necessary expenses (like my surgery board fees) that we otherwise could not pay outright. If there were other items that we wanted and could not pay outright through our checking, we purposefully saved for it and bought when we could if we still felt we wanted/needed it (called intentional spending).
Research actually shows this practice increases the joy you get from a purchase – that’s been my personal experience as well. Sometimes, after waiting, we realized we actually didn’t need or want them item after all.
We will take a break here and be back with Part II of What I Did (And Am Doing) To Fix My Financial Mistakes!
What do you think? Can you relate to any of these feelings or actions? Any steps of mine that you disagree with? Leave a comment below and please sign up for our mailing list (we make it easy to unsubscribe at any time)!