Basic Money Principles

A few months ago, I came across one of the most insightful financial articles of the year, written by Morgan Housel. Housel’s unique writing style allows him to identify the signal and highlight timeless behaviors like no one else.  Psychology of Money is one of the best and most approachable books about money.

In his current piece, Morgan shares three powerful insights:

  1. True happiness in life is mostly unrelated to money, and realizing this truth after acquiring wealth can be a challenging admission.
  2. Quick wealth is fragile wealth.
  3. Expectations often outpace income growth, leading to unmanageable expectations when income rises.

Physicians seek my guidance as a financial advisor not only to optimize earnings, savings, and minimize lifetime taxes but also to gain confidence and security in their financial decisions.

However, I believe my ultimate job is helping my clients discover their purpose and core values.  This could be demonstrated by raising a family, coaching their child’s swim team, creating a business, or traveling to remote parts of the world.

Our ultimate goal is not to accumulate more money at the expense of living your life.  Often we get fooled into thinking optimizing our spreadsheets is the end goal. But constant thinking and worrying about money is not winning.

Getting outside and skiing on a bluebird day is winning.  Spending an afternoon on the river fishing with friends is winning.  As a few of our friends recently did, taking a sabbatical and living in Chamonix for the summer with your kids is really winning.  Giving away your overnight call so you can always be home to put your kids to bed is winning.

While measuring and tracking how much we earn and save is relatively straightforward, this often elicits comparisons to others.  Am I saving enough?  I know Dr. Jones has more saved.  Or Dr. Smith lives in a larger or newer house.

Comparison always steals joy from us.  We never fully understand someone else’s financial picture or what they are working towards. The only comparison that matters is with yourself.  Are you achieving the best you are capable of?

I recently served as my anesthesia group’s Treasurer for the last three years.  This meant I had eyes on what every partner in my group earned.  Did I have brief moments of jealousy seeing some of these (larger) paychecks?  Of course, but those moments have thankfully become more rare.

I am not competing to see how much I can work and earn.  As a new father, my priorities align with spending as much time as possible with my wife and son.  Reminding myself of my core values works to ground me whenever I feel those twinges of comparison or jealousy.

Which brings us to Morgan’s second point.  How many of you wish you had bought Bitcoin under $1000 or stocked up on NFTs in 2021?  I am not here to debate the importance of crypto; there have been countless others who have contributed to this debate.

Instead, this is a chance to remind ourselves of the timeless path to wealth.  While it should be discussed more, the first step is having a great income.  If you’re reading this, you likely have won this step!

Next, you must save and invest no matter your income—the greater your savings rate, the bigger your wealth-building shovel.  Most of us understand that we won’t get wealthy by working, even on a physician’s salary.

Finally, you must own income-producing assets – whether ownership in a business through the stock market, purchasing investment properties, or building your own business.  The path to wealth creation runs through ownership.

In today’s environment, it’s easy to see the end result of success on Instagram or TikTok.  We see the cars, houses, and the big payday when someone sells their business.  What is missing from this picture?  The years of dedication, work and sacrifice it took to create that.

Or the years of quietly saving 15-20% of your income and investing.  As a new attending, this journey feels like an uphill climb, especially with six-figure student loan debt.  But It takes only a short time for those financial habits to bear fruit.

This slow accumulation of wealth is less sensitive to the mood of the day.  When you build a resilient life, spending less than you earn, and focused on your core values, you can weather many financial storms.

We know what works.  But it’s boring.  Or we want to make the clock run faster and reach our goals more quickly.  And in doing so, we make mistakes, often very costly mistakes.  Instead of staying the course.

Relying on consistent home runs in financial decisions makes you vulnerable to being knocked out of the game entirely.  This is long-term thinking in action.

It is easy to let your spending grow as fast or faster than your income.  When your expectations are continually growing, you are never satisfied.

While an increase in spending from your student or residency days is inevitable, you cannot build wealth without saving.  There must be money to invest.

So what’s the cure?  One way to get off the hedonic treadmill – and I know it sounds woo woo – is practicing gratitude.  Gratitude for what we have right now.  Our health.  A great job.  Even a fun, shiny, new car.

Practicing gratitude is a fantastic way to remind ourselves of all the gifts we have today.  It takes us out of the constant search for the next thing or experience to make us happy.

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