As humans, we usually are pretty good at knowing when some aspect of our lives doesn’t align well with our values. The problem is that we are also very good at ignoring this sixth sense of ours. And when it came to my financials, that is what I, like many, did for the longest time. I ignored my values and ended up putting myself in a bad financial situation by the time I was finishing training and getting ready to become an attending.
The good news, however, is that I was able to turn things around — and you can too! As far as my own journey, once I started my financial education and began aligning things well financially, life got a whole lot better. Below, I share the five ways I align my finances with my values.
Disclaimer: I’m not trying to proscribe what you should do financially. I’m just trying to get you to think about what values you hold closely and how you could better get things in sync financially.
1) I prioritize saving.
A healthy savings rate for any doctor is 20% of your pre-tax or gross income. If you do that and invest in index funds over an average length career, you will reach financial freedom. And, the higher income you earn, the more this becomes true.
With that being said, my savings rate on a month to month basis is around 40%. This is because I strongly value financial security, which for a long time I didn’t have. Before I started my education, in fact, my savings rate was negative thanks to credit card debt. Furthermore, my mindset around money growing up was not healthy.
While I have done a lot of work to fix this and create a healthier money mindset, it is still not perfect — and this bigger savings rate gives me some cushion and comfort. I know plenty of doctors who are more in the “die with zero” camp and thus have a lower savings rate. That’s fine. But it will probably never be me.
2) I pay off debt aggressively.
When I started my financial journey, a huge portion of my 40% savings rate went to aggressively paying off debt — credit card debt, student debt, car debt, mortgage debt.
As a result, nearly four years later, the only bad debts I have are federal student loan debt that is one payment away from forgiveness, and our primary home mortgage. (You will notice I don’t include the mortgages I have on rental real estate, as this is maybe the only form of good debt in my opinion).
And even now, my wife and I pay an extra $1,000 monthly to the principal of our primary home mortgage to pay it off quicker. This will make fans of interest arbitrage throw up in their mouths — because I very likely would have received greater returns on my money if I had invested it in the stock market or in real estate instead. But guess what? I don’t care! I value being debt free more than anything (keep in mind I am not there yet). Becoming debt free makes me more financially nimble. It increases my cash flow. It protects me in the event something happens to my income (passive or active). And best of all, paying off debt is a guaranteed return on my money. No other investment provides a guaranteed return. To me, this is huge.
3) I invest actively … but not like you think.
Humans by nature are tinkerers, some more than others. I am on the heavy tinkerer end of the spectrum. That is probably why I became a surgeon.
The problem is that, unlike most endeavors in life, you do better in the stock market the less you actually tinker. I’ve talked ad nauseam before about how passive investing strategies (i.e., doing nothing) outperform active stock investing (like timing the market and stock picking) 80% of the time. However, even though we may know this and be smart people, the urge to tinker or feel like we can do better than the market is ingrained in our humanity. It’s why so many investors chase alpha despite it being a sort of white whale.
Now, knowing my interest in tinkering, I decided to be proactive. Rather than try to white-knuckle it and resist the urge to invest in the stock market actively, I took a different tack. I started to invest in real estate, namely in cash flowing long-term rental properties. Unlike the stock market, the real estate market contains a lot of inefficiencies that an active investor can take advantage of to generate great returns. Doing this more than scratches my active investing itch. As a result, I leave my equity investments alone (except for rebalancing once a year) and let the market do its thing over the long term.
4) I keep it simple.
I am a huge believer in the K.I.S.S. principle (keep it simple, stupid) in pretty much all aspects of life. This includes medicine. I’m sure we all remember mentors who could break down complex topics, disease processes, or procedures to their component parts so we could understand them. And I’m sure we also remember mentors who could make the same topics seem clear as mud. It always struck me that the simplifiers seemed to actually understand things better.
The same applies in finance. The path to wealth is simple — but that doesn’t make it easy. You still have to follow the steps and remain disciplined. And the more complicated you make it, the less you will want to keep up with it. Even among investors adherent to the principles of passive market investing, making your investments really complicated is not that difficult. I see investors discussing what percentage of their portfolio should be in international funds with a value tilt or municipal versus G-bonds. Fortunately for us K.I.S.S. acolytes, those decisions probably matter very little. And they certainly matter much less than your savings rate.
In fact, I venture that these complicating investors are letting their “tinker” bone get the best of them. They would be much better off taking a simpler approach, such as transitioning from a five-fund portfolio to a two-fund one.
5) I spend a lot of money.
This may come as a surprise. Most people assume that I am super frugal. But I’m not really. Sure, I’m a bit frugal. But I still spend a lot of money. As a high income earner, I, like pretty much all physicians, am blessed to have much more disposable income than the average American.
So how does this align my finances with my values? Well, because I buy stuff according to my values and what I actually like! It sounds like that’s what most people would do. But it isn’t. Most people spend money very unintentionally, based on preconceived notions, either their own or others’, of what a doctor should buy. Or in a way that tries to keep up with the Joneses. I used to do that as well — until I aligned my finances, including my spending, with my values. For instance, I’m not a car person. So I didn’t spend a lot of money buying a doctor car. But I did spend a lot of money on a doctor house, because that better aligned with my values.
See, spending money isn’t bad. In fact, spending it intentionally based on our values makes it even more valuable to us! This is also how my family ended up at a Taylor Swift concert and a Yankees game suite recently …
But more importantly, what about you? What are your financial values? How does your written financial plan represent them? Have you given this active thought? Anything you would change or improve? Take a moment to sit and think about this. I can just about guarantee it will improve your financial well-being!
What are your major financial values? Share in the comments!
Jordan Frey, MD is a plastic surgeon in Buffalo, NY at Erie County Medical Center and the University of Buffalo. His clinical focus is on breast reconstruction and complex microsurgery. He is also the founder of The Prudent Plastic Surgeon, one of the fastest growing finance blogs. There, he shares his journey to financial well-being with a goal of helping all physicians reach financial freedom, practicing on their own terms.
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