Recently read a 150pg book on personal financial advice targeting physicians. It’s called White Coat Investor (affiliate link) by James Dahle, a practicing emergency room doctor. Good title, huh? It has a matching website, and podcast here. My physician brother-in-law says it’s solid; it has 970+ reviews, and ranked 4.8 stars on Amazon. Ddaang.
Lots to like about the book:
- Straight-talk from a physician who does what he says. He made his first million $ by age 38, showing that it is perfectly possible to be a great doctor and financially smart.
- Sensible advice. “Spend below your means.” “Save aggressively.” “Invest in no-load index funds.” “Get term insurance” (not whole life). This is what Suze Orman, Dave Ramsey, and anyone worth their salt would say.
- Specificity. This book speaks to physicians. Yes, 80% is generic. However, 20% has Hippocratic goodness. It’s organized chronologically starting with medical school all the way to retirement and estate planning.
It’s worth your read. Some of the key takeaways to reinforce:
1) Calculate your net worth
Know where you are financially. Remember = A = L+E. What is your equity, after you subtract out all your liabilities? As a consultants, we coach our clients to have explicit goals, and track progress. This is no different. As Drucker famously said, “You cannot manage what you do not measure.”
2) Get rich slowly
Love this idea. Fortunately, many of us have good incomes and that’s something to be grateful for. Do good work, make good coin, save aggressively, and invest sensibly. Don’t be a fool; you don’t need to gamble to have a comfortable life. This is a catchy expression, and also a famous blog by the same name.
3) Know your (retirement) number
How much do you need for “retirement”? Hint: your monthly lifestyle expectations and expense matter.
4% rule. How much do you need so that you can live off of 4% of that total net worth annually? It’s an oversimplification, but a good one. . . Let’s say you make a 4-5% return on a lower-risk investment portfolio, then net of inflation, you can live on the returns (while only eating into the principal a little bit).
- Do you need $100K a year, then $2.5M
- Do you want $5K a month, then $1.5M is enough
Millionaire next door approach. (affiliate link). Famous book by William Danko and Thomas Stanley from 1996. From a 20 year study, they determined that 80% of millionaires in the US were first generation. These folks saved money aggressively. To be a PAW (prodigious accumulator of wealth), your net worth should be [your annual income x your age] / divided by 10. So $80K at 30 years old, you are a PAW if you net worth is greater than $240K. Not perfectly applicable to all professions, and places, but a good rule of thumb.
* For me, believe that “retirement” is the wrong way to think about the last 1/3 of your healthy life. Separate topic.
4) Choose an inexpensive medical school
Interested to hear feedback from physician-readers, but Dahle argues, “90% of what you need as a practicing physician will be learned in residency.” Here is where the teacher-consultant says, “okay.”
5) Choose the right specialty
When I first read this, I thought “Yeah, highest paying. . .” Then, I read a bit further to get the author’s real point:
The most important factor, of course, is to choose work you will enjoy for countless hours each year for the next several decades. You are far better off being a pediatrician for 30 years than burning out as a general surgeon after a decade. – James Dahle, M.D
This makes complete sense. Do what you are willing to invest yourself into. Life’s a long race, and this is a craft. Unlike consultants, physicians don’t jump around from industry, function. Better like what you are doing.
6) As a resident, learn. Don’t spend.
Liked this chapter a lot. Learning is the key. Dahle says, “There is a lot to learn in residency, and your chief concern should be learning how to be a great doctor.” Same goes from finances. This is the right time to learn about money, not spending it. As Dahle curtly says, “Try not to buy a house.”
7) Live like a resident
When doctors finish training, their income goes up 400-500%. So, the temptation is to spend. Spend. Spend. No, no, no. Live like a resident. Plow the money into yourself. Pay off the student loan debt. Super-charge your 401K.
Location matters. It matters for rental properties, but also where you practice. If you go somewhere expensive, Dahle notes, “California is a toxic wasteland for physicians, particularly in big cities.” I told you, he’s got some opinions, love it. “States like Indiana and Texas offer low taxes, a low cost of living, a favorable medico-legal environment, and incomes comparable or even better than you’ll find in California or Manhattan.”
8) Lots of sound advice: lower debt, save, invest
The middle third of the book is sensible. Useful. What Tony Robbins said in his book on Money: Master the Game (affiliate link) or John Boggle (founder of Vanguard) mentioned in his his great podcast interview here.
You can easily and reliably reach your goals by doing nothing but practicing good medicine, saving 20% of your income, and buying and holding an index mutual fund portfolio. – James Dahle, M.D.
9) Protect your assets
The US is a litigious society – just drive down the interstate and see the billboards – so physicians need to be smart about this too. Dahle notes that malpractice and personal liability law varies by state. While getting sued is (almost) inevitable, he argues that doctors can reduce risk by practicing good medicine and communication; yes, if the patient understands and likes you – they will be less likely to sue you. Think about giving away assets. Structuring them in trusts. Umbrella policies are inexpensive and effective. All good words.
Check out this next two quotes. BOOM.
The biggest risk to a physician’s assets is divorce. – James Dahle, M.D.
Put at least as much effort into your marriage as your practice. – James Dahle, M.D.
The next chapter on income taxes is probably worth the book itself. Writing a simple, useful book is difficult. Dr. Dahle did a good job with it. Even if you’re not a physician, lots of these lessons apply to consultants.
Related posts: