Welcome back to The Prudent Plastic Surgeon! We’ve already reviewed what I have done to correct the first 5 of my top ten financial mistakes and are back to go over Mistakes #6-10 (plus a bonus one).
As a reminder, here are my top 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 jump in!
6. Not paying attention to my investments.
I remember speaking with my cousin, who is certainly a great example of financial well-being, and him telling me that he managed his own investments. This seemed like such a complex task that I almost dismissed it out of hand. However, after reading three introductory books on the topic (The White Coat Investor, The Bogleheads’ Guide to Investing, and The Coffeehouse Investor), I felt knowledgeable enough to do this.
All 3 books advocate for investing largely via broadly diversified low-cost index funds with a fixed asset allocation that is rebalanced one or twice a year (Don’t worry if those words don’t make any sense at all yet). This approach seeks to approximate the stock market average, which has always gone up over the long term, rather than stock pick, day trade, or otherwise try to guess the market, which is not possible. I also learned about the different accounts that I could invest money in, including tax advantaged and taxable accounts. We will go into those later, but these represent the buckets into which money can go. Within these buckets, you can choose the way that you want to invest the money – for me, it is an 80% stock/20% bond split with stocks invested in broadly diversified low-cost index funds.
After becoming knowledgeable, I took action. I studied all of my investment accounts (remember, I had one via my personal savings with a financial advisor and another through my hospital that I didn’t even know existed until recently). I realized that I was not in low cost, broadly diversified index funds in either account. I was in moderate cost actively managed mutual funds. Actively managed mutual funds like the ones that I were in underperform passively managed funds (like index funds) 80% of the time. There is no way to know ahead of time which 20% of active funds will outperform. Why would I pay high costs and advisor fees for an 80% chance of underperforming?
I took the money out of my advisor investment account, opened a Vanguard account, and contributed to a Roth IRA retirement account, selecting broadly diversified low-cost index funds. The investments in my 457 hospital account were higher, so simply taking them out would have subjected me to capital gains taxes. So I switched the investments within the account from high cost actively managed funds to the lowest cost broadly diversified index funds that the account offered. I am finally paying attention to my investments.
7. Using a “money person.”
I offer another disclaimer like I did in the earlier posts: I do not have an issue with paying a fair price for good advice from a financial advisor. However, you must educate yourself enough to assess if you are getting good advice. Too often, financial advisors are actually commissioned salespeople that have a direct conflict of interest with your goal of creating wealth.
The financial advisor that I was using is a great guy and very honest. He helped my wife and I a great deal to understand concepts and encouraged us to become financially literate. However, once I learned how to handle my investments on my own and that it was not all that hard, I just didn’t feel the need to pay for those services. Even a 1% fee is 1% less of your hard-earned investment money in your pocket. Especially if they are going to invest it in high cost products that are more likely than not to underperform the market.
If you do want to use a financial advisor, make sure that you know how they are being paid. If you want advice but not necessarily for them to actually invest your money, see if they offer a flat fee for that service. Most of all, make sure that you trust them and don’t feel like you are being “sold.” Good financial advice and good investments sell themselves. Bad advice and bad investments need to be sold.
8. Not having a written financial plan.
We wrote a comprehensive personal financial plan. This plan included specific goals and when we would like to reach them, our asset allocation and how we would rebalance, as well as advice for how we would handle a bear market (do nothing!) among many other things. Essentially, we laid out our financial philosophy and a “how to” guide with associated goals that we can always refer back to when needed. This is a huge guiding and stabilizing force. Everyone’s plan will be different but I feel it is so important that everyone have a written personal financial plan. Then, when you doubt yourself or someone comes to you saying how they are buying up all the gold they can, you can just look at the plan that you developed and relax knowing your finances are right where YOU want them to be. Lastly, I cannot stress enough the importance of you and your significant other both being on the same page with your plan. It’s a good experience to work on developing it together.
9. Not developing a side hustle.
The need for a side hustle is interesting to think about. For one, I believe that many people, especially physicians, can reach their financial goals through smart saving and sensible investing. However, other streams of passive income increase financial stability by decreasing the reliance on the income from your “day job.” As we have seen recently, no one, even physicians, have guaranteed job security.
My perspective is that establishing passive income is a good move. However, it needs to align with your overall life goals, passions, and purpose. Doing it for its own sake is like reaching financial independence for its own sake…there needs to be a “why” or it’s hollow. I feel very passionate about increasing financial literacy and well-being by sharing my story which led me to this “side hustle.” My wife and I have also realized an interest in real estate and therefore have begun to pursue cash-flowing rental real estate properties as another source of passive income. Neither of these pursuits have yet paid off, but we are passionate about them and enjoy them regardless, so it aligned with our overall life goals, passions, and purpose.
10. Holding onto a scarcity mindset with money.
I have to admit, I continue to work on fixing this one every day. It takes active reminders as I often find myself thinking in a scarcity mindset regarding money still. I know it will take time before thinking in an abundancy mindset will become more involuntary. I practice this by trying to focus on the big picture. I have found that it helps a lot to focus on the big picture when you have a plan in place (see #8). Before I had a plan, the big picture was blurry and I was sweating the small stuff. Now I am working not to.
Bonus #11. Not learning.
This one drives me nuts! Why did I not do this earlier?? The books are not long, the blogs and podcasts are entertaining. My colleagues, friends, and family have been very interested and receptive in discussing these topics. What was stopping me?! What is stopping you? Again, it seems simple to look back and say why not? But, the reality is that learning about personal finance is intimidating and looking our mistakes in the face can be scary. That is what held me back. However, once I took that first step, I never stopped. As I am writing this, I have 2 new financial books in my backpack that I can’t wait to read. I think you will find similar excitement and interest upon starting as well.
Time is another concern that many people will cite, including my past self. We are all busy and there is never a perfect time to start. The same way that we can always save more money, even when it seems we are at our limits, we can always find time. It’s a matter of what we prioritize and your own financial well-being and future is definitely a priority! Like I always recommend, buy a book or open a blog and just take 10 minutes to read the first chapter or post. You will be hooked. Then, set a goal for continuing financial education like trying to read one new financial book a year or subscribing to this blog!
Well, there you have it. That is what I have been doing to correct my financial mistakes of the past. I’m sure many of you have already taken some similar steps while others may relate to desire to correct your mistakes but are not sure how to do it, like I was. I hope that I’ve been able to share some actionable steps that you can take to get on the path towards your financial well-being, no matter where you are starting!
I’ll be back with more posts as we keep moving forward together!
What do you think? Have you taken any similar steps towards financial well-being? Do you see any steps that I have missed and should pursue? What has your road to financial well-being looked like? Leave a comment below and please share with your family, friends, and colleagues!