Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode.
Speaker 2 00:00:26 Hey guys, what's up hope you're having a great day today. Uh, looking forward to talking about how to become a millionaire. This is always a fun topic. There's a lot of, a lot of opinions on this. A lot of, a lot of books written on it. Uh, you know, it's a flashy topic and I, you know, I could talk for hours on this topic alone, but, um, I think, and I even have my opinions. Of course, everybody has their opinions on this. Um, but today I wanted to zero in on there's a great book written on this, so I'm gonna reference a lot of stuff from it, the millionaire next door. And the reason I like this book is because it's based on the author's research. And so I think it's a little bit more an objective view of what, what it looks like to be a millionaire, at least, uh, at the time it was written.
Speaker 2 00:01:15 So we'll look at this book and I'll throw in some tidbits kind of along the way that we've seen, uh, our planning firm clients do that has successfully yielded those sorts of results. And hopefully you can kind of take away a few different adjustments or changes to make, to help move you that, that direction. Before I jump into that, a couple of quick updates or announcements, so we're going to be covering a couple fun topics in the future. I was going to throw out there just to kind of keep your eye out for, um, there's been some, uh, requests for variety of topics and, and also, um, kind of switching it up as far as guests and solos and that sort of thing. So, so we'll, we'll be bringing on someone to talk about Bitcoin pretty soon. That's been like a super odd topic, hopefully just to give you guys a, you know, general understanding of how it works and what it is even from a starting point, and then also how the investing aspect works.
Speaker 2 00:02:10 Um, we'll also have some people on to talk about charitable giving as physicians, early career physicians, uh, negotiations and burnout are a couple of other topics we're gonna, we're gonna hit on. So negotiating your own salary or your compensation, um, ideally we kind of give, give you guys a handle on how to, um, you know, really ask for more compensation or, or, um, how to analyze even what your compensation is in the first place and then burnout. Burnout's a big topic. Um, you know, ideally, um, we can kind of learn more about what that looks like and how to avoid it. So look out for those, um, in the coming a month or two, and, uh, we'll look forward to getting those out there. Also keep bringing the, uh, suggestions. They're definitely helpful. Uh, if you wanna, do you want us to somebody on, or if you have a topic he wants to cover, we're always open to that sort of thing.
Speaker 2 00:03:03 Or even if you have your own story, you'd like to share, you think might be valuable for our audience. We're always interested in hearing that, so feel free to reach out. All right, so let's jump into the topic. So if you haven't read the millionaire next door, you should definitely check that out. It's not the most enjoyable read from a readability standpoint, so it's kind of long-winded and, you know, they definitely draw out some points, but what's great about this book is they have lots of good research that, that backs it up. So it's based on the authors research around this specific subject. So it's, uh, Thomas Stanley, who's the other guy, Thomas Stanley and William Danko are the authors. Um, but it was written in, was it 1990, 96 was when it was originally released. So I guess first of all, their definition of a millionaire has already changed or, you know, inflation has made a difference.
Speaker 2 00:04:05 So a millionaire in the mid nineties was, is really like a two millionaire or a little below a two millionaire now, just because inflation. So, uh, so really now they're kind of talking about a multimillionaire in today's world. So if you haven't read that book, definitely check it out. It's the type of book I skim. Um, I kind of skimmed through just to kind of get the high points. Um, but it's definitely, there's definitely some good solid scientific research. And, and, um, what they did was they looked at the, they researched millionaires and then people that you would think would be millionaires. So like people with high salaries and based on their age and demographics, you would think would be millionaires. So the suspected, I guess, the suspected millionaires and then actual millionaires, and they really dug into what their habits look like. And, uh, and that's, that's really the basis of, of the boom.
Speaker 2 00:05:02 So I think there's this. Um, what, what, what you'll find is, is, um, there's this, this profile that, that comes out in the book, that's this optimal, uh, combination of, uh, factors that puts you in a much, much higher position to be a millionaire per that research. So that that combination is higher income and fruit will habits that's to me obvious, um, they, they really hit on the plan or offense and defense, so offenses, you know, making the high-end gum and then defenses being frugal, um, from their research, the optimal combo is that authentic defense that high-income mix with the frugal habits is where you see, you know, the percentage of, of millionaire just skyrocket to me, that's pretty obvious, straightforward, common sense kind of thing. But, um, there's also some interesting facts that, that I, I saw I you'll pull out from this that are, they're kind of interesting.
Speaker 2 00:05:58 So 80% of millionaires are first generation millionaires, which I thought was interesting. I think the common knowledge common thought is that it's a much lower percentage of that. Um, also 20% are retired. I would have thought it was much higher percentage retired. Uh, and then 50% are owning their own business. That's not really a surprise to me. Business owners will build wealth in their business and on top of that, their own personal assets. So they also generally have a higher income. Okay. So this book really kind of boils down those characteristics. Uh, they called them seven common denominators of people that successfully built wealth and became millionaires. So the book has seven, I'm going to kind of boil it down, um, even less, I think there there's some overlap in some of them, but the bulk of what I wanted to talk about is what those common denominators were.
Speaker 2 00:06:53 And ideally, um, try to help you guys think about some practical ways to, uh, check how you're doing there and maybe make adjustments on each because I, so a lot of these, I think are common sense. Like they'll probably make sense. You'd be like, yeah, big shocker, Daniel. It was, um, get to something more impactful, but what's really important I think is, is, uh, executing on it and applying it and the behavioral component of it. So I want to sprinkle that in as well, just to kind of help you have some takeaways. Okay. So first big characteristic that they went into of a, of a millionaire is they live below their means well below their means, so big shocker, right. You know, spend less than they make. So what is a good metric of that? Or do you know, I guess I would ask, do you know, would you consider yourself to be spending well below your means?
Speaker 2 00:07:53 I think the problem here is, so we all hear this first one and we're like, yeah, it's been well below my means, you know, the that's a obvious one and Mo a lot of people are like, yeah, I got that. Or I'm working towards that, or I'm good there, or whatnot, or maybe people just aren't sure. But I think the question is, are you actually living well below your means? And how do we measure that? So I think a good general, um, habit to have is to have a general idea of where your money is going or cash flow. So ideally, you know, of your income say you make a hundred thousand, you should know roughly what percentage is spent versus saved. And that's just kind of a minimal at a minimum. Everyone should, I think, know that. And so, um, I personally think a, um, starting point of saying you're living well below.
Speaker 2 00:08:48 Your means would be that you're spending less than, or you're saving more than 20% of your income. That's kind of a starting point. So that would, and so let's just leave taxes out of the equation for now just to simplify things. So you're making a hundred thousand, you're spending 80%, you're saving 20%. That's just kind of, this is my definition of when somebody, I would consider somebody living well below their means. And that's like a starting point. Now, if you're saving 10% spending 90%, I don't think I would consider that well below your means, but somebody that's like 50% spend 50% save that is very well below your means. And that's, um, that's kind of what the, this author these authors are talking about in this regard is like the more you're doing that kind of thing, the, your chances of building wealth are exponentially greater.
Speaker 2 00:09:40 This is probably the biggest driver of future wealth. So first of all, I guess takeaway is, do you know what your just high-level spending percentages are like at a minimum? Do you know what percentage you're saving versus what percentage you're spending? This is not as easy sometimes to calculate, as you might think, for example, you could be saving 10% into your 401k, but then you could be spending 10% more than you're taking on paying, going into credit card debt. So at when you net all that out, you could be spending 100% of what you make. So, um, so we have, uh, a few, uh, resources on our website that we'll link to that can help you kind of track cashflow. But the gist of it is understanding what percentages your income is going to, what categories. And if you really want to track something, that's a good thing to track, and you can track how much your savings percentages versus your spending percentage.
Speaker 2 00:10:39 And if you want to ratchet up this kind of thing, if you want to increase your chances of being a millionaire, you can kind of dial up that savings percentage, uh, as a physician key times for this kind of thing, if you're, if you're gonna, if you're gonna procrastinate as long as possible, kind of the latest time to really think about this, um, or an opportune time at the latest would be like, right before you started in practice. So right before you started your practice, that's the bit, you know, your income is likely going to go up quite a bit. And that's the opportune best opportunity. You know, one of the best opportunities you'll probably have to really zero in on this specific aspect. Ideally you identify what percentages you want for your new income before the income comes in. So what happens is if you're not tracking it, you don't have a plan you're going to gravitate towards higher spending percentage.
Speaker 2 00:11:35 We talked about it in a couple of episodes back on lifestyle creep, your livestock creeps up. That's just what happens. So if you're not tracking this, if you don't have an understanding of this, that's your starting point. Once you have a good temperature check on where your money is going, second thing is work on opportunities to dial it up. If you want to, you know, dial up your savings percentage. And one of the best opportunities is when income increases. So first big point live well below your means. Those are a few that's that's, that's kind of an obvious one. Um, I threw out a few ideas to kind of zero in on that. Um, ideally, you know, where your money's going, ideally your taking advantage of opportunities to dial that. Uh, second big characteristic they identified for millionaires is that they're efficient with their money and their time and their energy.
Speaker 2 00:12:28 Um, this is kind of a broad one, but well, before, before I get into that, under this, they kind of identified an interesting relationship. There's a inverse relationship between time spent purchasing luxury items like cars or clothes or material stuff, uh, and the time spent planning one's own financial future. So basically the more time you spend buying things that look cool, uh, the less time you tend to spend on your personal finances. So I thought that was an interesting kind of takeaway makes sense, but, uh, these researchers kind of pulled out that characteristic from within is that people tend to, um, the people that are focused in on a material tend to not be focused on their personal finance. So you can kind of look at your own situation. How much time are you spending on your personal finances? How much time are you spending, looking on Amazon for stuff?
Speaker 2 00:13:19 I mean, nobody's perfect. I get on Amazon quite a bit. So no judgment there. I mean, it's just, it's just one of those things we deal with. So everybody's got to kind of look at their own life and see where they're in, see where they lie in regards to these big factors. So, so the, the, the point is the characteristic is that these millionaires, they find allocate their time, energy and money efficiently in ways that are conducive to building wealth. So for example, that inverse relationship I was talking about, uh, the millionaires are not spending the time on material purchases or that sort of thing. And instead they're spending their time on planning their own financial future, or for example, they're spending their time in a profession that, um, yields a very solid, uh, hourly rate, or they are aware of, uh, their value of their time.
Speaker 2 00:14:16 And they are, uh, maybe they're outsourcing things like mowing their grass for a much lower hourly rate in exchange for working those hours and earning a much higher hourly rate. Uh, there's a million examples of this characteristic of allocating time, energy, and money efficiently. There's a, there's a million examples of this, but the general aspect is what are you doing with your time? What are you doing with your money? I think I mentioned that looking at your cash, where your money's going in the last point, that's kind of overlaps with this point is understanding where your money's going is going to start to give you an idea of, you can kind of zero in on where that savings is going. So this gets into more of like, so let's say you're saving 20% of the a hundred thousand, like I was talking about before this point gets into, where is that 20% going?
Speaker 2 00:15:07 So for example, if you're just dumping it all on cash or putting in your mattress, I mean, that's not efficient, so that's not a good, now there's a, you do need some cash as a baseline, but if you're just continuing to build up cash and more and more and more, that's not a very efficient usage of the dollar there, or maybe you're spending your time in things that are, um, not yielding good results on your bottom line. I think this, this a time thing you gotta be careful with, especially in medicine. And this is why I think this is a good point. Number two, you, a lot of you guys can work as much. I mean, you can work as more and more and more and take on more jobs or work locums or take on extra shifts. So I think it's good to set some limits on that time thing, because time is definitely not unlimited.
Speaker 2 00:15:56 And I'm sure you have areas of life that are important. Non-financial things like spending time with your family. And so I think it's good to draw a line in the sand on the time thing. And so what I, the way I would look at it is you're allocating the time that you're dedicating towards work or building wealth or earning a living for your family. You're allocating that slice of time efficiently. So if you are, uh, able to dedicate 40 hours a week, for example, towards working in your life, and that allows for you to have good balance, ideally under this point, you're spending that 40 hours as efficiently as possible to yield good results for, for goals. So, um, maybe your, a good example would be asking for a pay raise. I mean, that's just, if you asking, you shall receive, you don't ask, you know, no chance.
Speaker 2 00:16:55 So it doesn't hurt to ask that kind of thing can bump up your hourly rate or working in a different lo uh, area, um, location. Um, there's all kinds of things you can, you can, uh, work on in this specific category. Um, I think a couple of ways to, um, track how you're doing here. Um, I think tracking net worth is a good habit. Everyone should be doing this, I think is a good, if you're going to track anything, tracking your net worth would be something, something to start with. Um, so basically what tracking your net worth would be is just, you know, writing down date stamping and writing down the balances of your assets and categorized by asset, and then your debt, your liabilities, writing those balances down, and then assets minus liabilities equals net worth. So your net worth is the net of the two.
Speaker 2 00:17:47 So you're just saying, you know, as, as I'm recording this, it's, uh, it's May 24th. So, um, as a May 24th, uh, uh, my assets are this, my liabilities are this and my net worth is this. So you have that dollar timestamp and then you do it, you know, at another point in time, I personally think it's better to do it. Um, I think it's easier to do it like at a S uh, uniform date. So for example, I do it for our families, uh, assets and liabilities. I do it on the first of the month, every month. You don't have to do it every month. I think quarterly is probably a good frequency for a lot of people. Um, but what happens is the first few times you do it, there's not a lot. You get out of it. It's kind of like, okay, yeah, that's, you know, not a big shocker, but after doing it for, you know, six months, a year, two years, you start to see these trends coming out and, um, you start, you start to be able to identify, you know, how you're doing.
Speaker 2 00:18:40 And so going back to the cash example, if you have just gobs and gobs of cash building up, that's an inefficient usage of wealth. On the other hand, if your net worth is, is staying flat, that's an indication your probably not living well below your means, or you have substantial debt load. So tracking those numbers over time will, it's kind of a starting point for having a temperature gauge and then tracking your time would be the other thing. Um, I think time is more valuable, considerably, more valuable than money. And so just having a general idea of your time every once in a while, I like to really zero in on it. Like I'll track my time. I'm doing it right now. So track tracking my time more detailed, but, um, it's kind of like a tracking your cashflow or your expenses or something like that by tracking your time, you start to see, get a better idea of, are you actually allocating that time efficiently to, in a way that's conducive to building wealth.
Speaker 2 00:19:41 So if you're sitting on like Facebook all day long, even if you're, you know, maybe getting paid at your job, like that's not very efficient, um, you could probably be doing something else with the time. And so that's, there's plenty of ways to start to apply that, but I think tracking them money over time in the form of your net worth, and then tracking your time spent will help start to show you where you're at in relation to, um, being efficient with your money. Because it's easy for me to say, yeah, a millionaires are efficient with their money and it's easy for you to be like, yeah, I'll do that. But like, this is a way to really test that and verify it. The third big point they make in the book it's is millionaires. Um, have this belief that financial independence or, or job independence is more important than, uh, displaying high social status.
Speaker 2 00:20:40 So this is, this kind of gets into living below your means, but it is, there is a little bit of a difference, uh, spend to this. You could be living well below your means, but be very much into status. So you could be living well below your means. You're a physician with a very high income and say you're saving 20%, but you are very much concerned about how you look to others. And so what this is talking about is they're saying millionaires have a much higher preference on being financially independent, as opposed to, um, status or how they look. So good example, old mill, you know, their, their definition of classic millionaire next door is like driving an old beat up car. So I did a podcast about my old car, 2003 Avalon. Um, but, and this is kind of, um, I mean, I, I'm just kind of a cheap dude for, for first of all.
Speaker 2 00:21:37 I think it was, I think I was born that way, but, but I think where someone, the car is such a good example in, um, in how someone is viewing, uh, this particular or how someone is doing in this particular characteristic, are you focused on status? Are you focused on financial independence? So you can, you can look at your car and say, and it's not that it's like bad, uh, that you, if you're focused on status, it's just, don't expect to be building wealth as fast. You know, don't be like expecting to be a millionaire, a multimillionaire, or expect to be financially independent fast. If you're buying nice fancy cars. I always tell our planning clients, like it's a direct, a very direct relationship. Like the more you spend on cars or houses or whatever material, uh, the more you spend on those sorts of things, it has a direct, very direct negative effect on your progress towards financial independence.
Speaker 2 00:22:36 So if you, if financial independence is more important than higher status, you should be acting that out in the form of your future purchases, or even like taking a look at your current stuff and saying, you know, is this stuff in alignment with what my values are? So the takeaway here is like, really think about it. What's most important to you. Is it financial independence? Is it sadness? It's okay to want to have nice stuff. So that's not wrong. It's just taking a minute to think about it. And if financial independence is more important than look at your, all your material stuff and say, okay, what was that thing in alignment with, with my financial independence priority? And then in, in the future, as you have future purchase, come along, use that as kind of a temperature check is this is this decision in alignment with building towards financial independence.
Speaker 2 00:23:25 The fourth big point I'll hit on. I thought this woman was really interesting. Um, and this is count a little bit counterintuitive. The millionaires, the majority of the millionaires, they research a general characteristic is that their parents did not subsidize their lifestyle. They call it a, what do they call it? Economic outpatient care, basically. Uh, that's when your, your parents are supporting you. So they're the authors concluded that the majority of those millionaires, um, were more likely, you're more likely to become a millionaire. If your parents don't financially support you, which is interesting. Cause you think very wealthy people support their children and they're, you know, like trust fund kids are, are definitely millionaires, that sort of mentality. But I think what, in reality, I think what happens is when you support someone too much, they have a hard time understanding what it's really like to earn a dollar or make a dollar or build wealth.
Speaker 2 00:24:25 So the extreme example, the trust fund kid, you have a trust fund that generates say at the age of 18, you have a trust fund that generates a hundred thousand dollars a year for the rest of your life because your family so wealthy and they have to give it a, you know, they have, that's like a chat tax planning strategy for them, and you've just benefited from that. And so you're very, uh, wealthy just by the fact that you have this trust fund. Think about like being in that position. Like if you have a hundred thousand dollars coming in just boom day one and turning 18 years old, it's going to be difficult to really understand what it's even like to make a hundred thousand dollars. You're going to have a hard time being incentivized. It's gonna be harder to incentivize yourself when you know that that's all kind of taken care of.
Speaker 2 00:25:09 Now, that doesn't mean that it's impossible. It just means it's going to be harder. Um, and that kind of thing definitely does not help if the goal is to be building wealth and becoming, building your own wealth and becoming a millionaire. On the other hand, if you say your parents, I think the optimal situation is, and this is kind of personal opinion and experiences your parents, uh, help you with in the form of like education. Like they teach you and they don't give you money. They teach you, uh, or provide for your education so that you can learn the tools of the trade yourself. And so then when you go out into the real world, you have a solid foundational education, but then you are still responsible completely at some point, ideally, as soon as you're ready, you're completely responsible for making your own financially.
Speaker 2 00:26:09 Um, I think that's, that's the healthy route. You can start this at an early age. So I think, uh, a good check on this. Like if you want to kind of check yourself on this everybody's, this is not as easy as it might seem. We all want to help our children. We all love our children. We want to, we want to, um, give them the best, but a good check for this is how much are you supporting your children, economics? And is that like, are you just giving them the money for something that they could be self-sufficient on or, or could you potentially, you know, um, reduce that and teach them like how to be self-sufficient. So if you are supporting your children financially, what is the exit strategy? When, because ultimately, you know, if you buy into this, you want to get them to a point where they're learning how to be self-sufficient sooner than later.
Speaker 2 00:27:00 So what's your exit strategy? How do you get to a point where they are learning that self-sufficiency because what the authors are saying is as long as you're, um, economically supporting your children, they're not going to really learn that. And it's going to be diff very, very difficult to learn that. And so I think the takeaway is, is how, what does that look like in your life? How much are you supporting your children? And I'm talking about really the above the basic necessities, and it really depends on age and, and even your individual child, but how much are you supporting them in something that they could be self-sufficient on already? So that's, that's, I think a good check check for everyone is just kind of looking at that. And then if, if you are, if you feel like maybe you are supporting them in something that you could potentially scale back, then what's your strategy for reducing that that's going to have kind of a exit plan and they're not going to like it.
Speaker 2 00:27:53 I mean, I don't, I mean, for the most part, now, some children are better about it and they want responsibility, but, um, uh, it's, it's definitely, according to this research and experience that I've had is that it's good for you, uh, to learn them. And so on top of that, this, these researchers found that the parents, so I mentioned the parents didn't don't subsidize their children. They also found that these millionaires themselves were not being subsidized by anyone else. So it's like they, they're not subsidizing their children's lifestyle and their, their parents, they were not subsidized themselves. So it's kind of like cross, you know, both ways like the, the millionaires they researched, they tend to not be supported by not having not, were not supported by their parents, uh, or they were less likely to be supported by their parents. And also they're less likely to be supporting or subsidizing their children, especially adult children that could otherwise be ALK enough economically self-sufficient.
Speaker 2 00:28:52 So there, they had a few other points. I think the book has like seven points. Um, there's a few other points and I think they, they really overlap. And with some of the things we've already talked about, they also have one about choosing the right occupation. Um, I don't know if I'm, I guess if you're strictly looking at it from a, how to be a millionaire standpoint, that's a big deal, but I'm a big fan of, uh, focusing on what you value or what you're going to spend a lot of time in your profession. So, um, you know, you don't want to just go for the millionaire route, but as physicians, you know, you guys are in a very good setup right there from the start. So I don't want to spend too much time on that. Um, pretty much all physicians are going to earn above average income.
Speaker 2 00:29:34 So that's, that's already a great starting point. Okay. So, so we mentioned living well below your means. We talked about being efficient with your money and your time and your energy. We talked about valuing financial independence above status, and then we talked about this, a family subsidized setup, like where either your parents are subsidizing you or you are subsidizing your children. And ideally moving away from that. I also threw out some suggestions. So, um, ideally you're tracking your net worth over time. Ideally you're tracking cashflow over time. And at minimum it's easier just to track total spending and total, uh, saving that's much easier to track than like every single category you spent on. So it's tracking your cashflow is a good starting point of understanding where your money's going. Another thing I mentioned is just kind of tracking, maybe tracking your time in general.
Speaker 2 00:30:26 I also talked about kind of taking a, a checkup on what your current setup looks like in relation to, uh, status versus financial independence. And does that align with your goals? So I think if you just, just take just one of these as a starting point, if you're not tracking any of these things, or you're not aware of any of these things, take one, maybe you're tracking your net worth, start tracking that, you know, next month. Um, I think that's a step in the right direction. And if it's, if this stuff is important to you, you can kind of get a temperature check and start measuring how you're doing and, and have a reminder, you know, once a month. So put it on the calendar. If you haven't done it for make it the first month, make it, make it next month. The first of the month, first time you do it, write it down.
Speaker 2 00:31:09 If you need a tracker template, I got a template for you. I'll link to it, but just take a step forward. Um, if this is important to you and let me know how it's going also, it's not all about being a millionaire. Like this is just one piece of the puzzle. You can take this too far. So there's plenty of people that financial independence or building wealth is the most important thing in their life. What's that movie? Um, about the billionaire that doesn't, I can't remember the name of it. The billionaire that doesn't, uh, bail out his, uh, or, uh, his, his, uh, grandson gets kidnapped and, uh, he doesn't pay the ransom, um, or holds out on it. But I mean, I think of the, that is an example of, you know, very much focused on your wealth above all, even families. So you have to, it's all a balance. It's like life, it's all a balance. So, um, ideally you're kind of moving that direction, but also taking into consideration what's most important to you. And, and I think that's, that's kind of where the balance gets struck. So hope this has been helpful. Uh, let us know if, uh, if you have topics you want us to cover, let us know how it's going. And, uh, we'll look forward to talking next time
Speaker 1 00:32:16 As always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our website at finance, for physicians.co for all sorts of additional content. See you next time. Finance for physicians is not an investment tax legal or financial advisor. All content included in this podcast is for informational purposes only and should be considered financial tax or legal advice. Material presented. It is believed to be from reliable sources and no representations are made by finance for physicians as to another party's informational accuracy or completeness, all information or ideas. It should be discussed in detail with an advisor accountant or legal counsel prior to the implementation. If you don't have an advisor or like a second opinion, feel free to check out our website for recommended advisors.
