It has been said so many times that no one really listens to it anymore. But it’s true that “It’s not about the money.”
I used to make those excel spreadsheets which would predict how much my money would grow at a certain rate of return. I used to pat myself on the back when I would see the millions that would accumulate. I started doing these calculations when I was 15 years old and used to do them by hand calculator. I look back and have to chuckle. Nothing really worked out that way for me and I doubt it does for many people.
I also used to read about all the intricacies of taxes. But tax laws change and political climates change. My best advice is to make sure that you hire a good accountant.
Most importantly do not put all your hopes and dreams on reaching a certain number. Think more about what kind of life you really want to live. Then the number is secondary. The government could change a tax law and you could see many years of savings collapse. That is why I am a fervent believer that you must at least enjoy the journey or else you may be very disappointed.
It is healthy to see more physicians are talking about finances. We do not tend to speak about our finances amongst ourselves as a profession since it could be seen as poor taste. I believe when physicians take care of their finances, they are able to work with less distraction and less stress.
It is wise to ensure that one has multiple layers of redundancy with respect to their finances. I am cautious to not fully expose my financial future on a paper portfolio anchored mainly in a public equities market. That is why I constantly review the tactics that are completely within my control such as minimizing unnecessary expenses. And I try to build a wonderful life with minimal financialization.
I am seeing especially amongst physicians or anyone who is able to reach FI, some of their fears do not vanish. Once the baseline FI is reached, more and more money will not help to assuage your fear of enough. Money does not tend to quell fear-based thinking. That is why the bar continually gets moved higher and further away. The numbers begin to be Franken numbers. The healthiest players are those who set a modest number. They have a simple plan to reach it and then spend more effort building a resilient life rather than reworking their excel spreadsheets. The lure of the one last year syndrome is real and can add decades more to your original plan if you are not careful. Furthermore, it is not healthy to give money all that power over your life.
For myself, it is about control. It is about laser focus of your values and your goals. I am beginning to see bloggers sharing their net worth. Although interesting, be careful about comparing too closely. Know that there are some people who can reach FI with a fraction of the ultimate number but are steadfast in their ability to “make it work”. Then there are the others who develop spreadsheet after spreadsheet and even with a massive number have to hold on for another year.
Design your financial plan robustly. Avoid blindly worshipping the public equities market of which you have zero control. I am participating in the buy, hold and pray technique but I assure you that my equity portion is simply used as an inflation hedge. I do not need it to make me wealthy. The public equities market is a place to store some part of your wealth- few should use it to build wealth. Even the infamous Warren Buffett- he built a business and he has influence with the companies he invests in. You and I do not. I hope that that was not a surprise to anyone.
I am generally distrusting of simple models that are also easy such as the 4% SWR (safe withdrawal rule). That might work but I am certainly NOT relying on it. It pays to be a bit paranoid at times especially when it comes to your wealth.
I tend to use multiple and redundant layers when it comes to my financial plan:
- Live modestly– As I continue to pontificate, learn to love extricating yourself from consumerism and being thunk upon by corporations.
- Be self employed– I plan to keep my license active since I enjoy being a doc and my work enables me to dial it up or down as needed. I appreciate this aspect of my career a lot. It probably will help me age healthier as well. One of the issues with some older retired people is that they seem to talk about their prior work a lot…
- Use inflation hedges:
- Real estate:
- You can continue to increase the rent of your investment properties which should keep pace with inflation
- Owning my home will allow me to keep my living expenses stable. It will be the best option to hedge against rental inflation and sequence risk which all these 4% SWR folks need to worry about. Plus I love having my own home. It does not have to be fancy but it has to be mine.
- Equities– I have zero control of these companies but hopefully they will produce products or services which are inflation adjusted.
- Commodities– buy some precious metals in case all the digital assets become frozen. No, I am NOT a prepper/ end of the world enthusiast.
- Real estate:
- Have non- correlating assets:
- I doubt that my local real estate which I have fully paid off would catch the contagion of an equities bear market. Be careful with REITs since I had lost 100% of my REIT investment during the 2008 financial collapse when lending money was tight. REITs use a lot of leverage and this could be affected by the stock market.
- Guaranteed Investment Certificates– I love having insurance on my money. I like knowing that I can get my money back. I often use GIC’s(CDs in US). I simply use 5 year ladders which mitigate the interest rate risk of locking the money up for longer terms.
- Community– Rely on family and friends and make sure to that others can rely on you!! You could take care of many things with sharing, bartering, etc.
- Hire good professional help– Especially for professionals with complicated corporate structures, use the internet to stimulate some questions but please use knowledgeable accountants and lawyers who understand your specific details. It bears repeating but everyone’s financial situation is different so tread carefully.
Finally remember that money helps you with aspects of life but it is not the end game. At times, it pays to develop multiple layers of redundancy especially for something as crucial as your financial health.