The FinancialMD Show

Summary:

Transitioning Into Practice: Focus On The W.I.N. Principle [0:01:23]
Stephen Covey’s Four Quadrant: Important, Not Important, Urgent, Not Urgent [0:02:32]
From Taxable To Tax-Free: The Art Of Roth Conversion [0:04:58]
Plan For The Unexpected: Disability Insurance [0:07:32]
Healthy Financial Habits: Budgeting And Managing Surplus [0:09:02]
Financial MD's Resident Roadmap: Securing Your Future [0:10:44]
We Want To Hear From You! Share Your Two Cents With Us [0:12:22]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Hey everybody and welcome to today's episode of the Financial MD Show. I, as always, am your host, Jon Solitro, CFP. Today is going to be a solo show but I'm excited because Trevor's not going to interrupt me all the time – I'm kidding. We do a great job chatting together. Dr. Trevor Smith is very busy with opening his practice and if you want to know more about that, listen to our last episode. That will be the best place to get a quick synopsis and rundown of what Dr. Smith is up to and what it takes to open your own practice. At least so far as we know, he's right in the thick of it; not quite launched yet – building, putting stuff together, getting financing – all that stuff; so that part is… that was a really great show to do.

But today, top of mind for us right now in the finance world and in the doctor world, if I'm talking to you and you are a younger physician just new into your career, you might be wrapping up your training right now. As we record the show, it's October. You may be a couple of months just into your first attending position and I wanted to put out a show to those of you that are the podcast subscribers, and maybe, this is something that you can share with your fellow residents or new attendings to talk about what are some of the things that you should be doing.

Transitioning Into Practice: Focus On The W.I.N. Principle [0:01:23]

If you had to boil it down to just a few things that you should be doing when you first transition into practice, what are those things? Because you can be bombarded with so many different possibilities and options that it is crucial that you weed that out and focus on the most major on the major. You do the important things first. Because if you look at Stephen Covey's book, The 7 Habits of Highly Effective People, there's a lot of great stuff in there. I do suggest that. We'll post a link in the show notes, but when you see that one of the chapters is going to be about focusing your time. You're going to see a lot thrown at you. You got to make benefits decisions. You got to figure out your money's going and buying a house and budget and all these kind of things. One of the things that Covey talks about in the book is "beginning with the end in mind," so that helps you to focus on what things are important now. I talked to my boys about the W.I.N. principle – W.I.N. (What's Important Next) – because they're not great at focusing on what they should be doing right now, when it's getting ready for school in the morning or getting ready for bed at night – all those things is, hey, buddy, what's important next? Oh, okay. And sometimes that helps and sometimes it doesn't.

Stephen Covey’s Four Quadrant: Important, Not Important, Urgent, Not Urgent [0:02:32]

But one of the other things that Covey talks about is he puts together this quadrant and I'll put this on the video screen for those of you that you feel like you need to do or could do or anything you possibly do in a day can fit into one of four quadrants, and up at the top, there's two sections. Think of it like a spreadsheet. There's What's Important and What's Not Important, and along the left side, there is the Urgent and Not Urgent. And so every task has some sort of aspect of both of those characteristics. So something may be important, but not urgent. Okay, so maybe you got to do at some point, not right now. Something may be not important but urgent, and that should give you a clue that maybe it's not something that I really should be spending my time on. If I get a notification on my phone that somebody just commented on my Facebook post, is that urgent? Yeah, I kind of feel like it is. Is it important? No. So, if I'm supposed to be doing something right now, if I'm supposed to be talking with the client, if I'm supposed to be helping, if I'm supposed to be prepping for a lecture I'm going to do, what's important right then? Is it getting that badge notification off my phone – probably not. So everything you do can fit in one of those four quadrants and the first step is knowing what is coming up and what quadrant that should fit in.

And so when I break down for you today a few things it's going to be focusing on those important things. I'm going to help you cut out the not important things necessarily and maybe even the things that are important but not urgent. So we're going to focus on the Important and Urgent right now.

One of the things and tips that I give – and again, this is not personal financial advice; everybody's situation may be different – but one of the things that we often talk about is trying to minimize taxes; not just now, but for the rest of your life. A CPA, a tax preparer, an enrolled agent (EA) – you might see this different places; what they are doing is helping you to look back at last year and prep taxes for last year and figure out taxes for how do we report what you did pay or what you need to pay in taxes, and what a tax planner or financial planner is going to do – and maybe a good CPA is going to do this as well – is look ahead and make recommendations – here's what you can do to minimize your taxes in the future. And there are decisions that you're going to make when it comes to your benefits, when it comes to your income, when it comes to insurance – all these kinds of things. Investments – what can I do right now to minimize my tax burden later. It may even hurt a little bit right now, but long-term, this is going to be what's best for me.

From Taxable To Tax-Free: The Art Of Roth Conversion [0:04:58]

One of those things is going to be a Roth conversion. Now why do you say Roth conversion? Well, number one, you have to have money to convert. Most residents I come across have a 401(k) or a 403(b) that they put a little bit of money into… maybe 2 to 5,000 dollars that, over the course of their residency, they set some aside. A lot of hospitals will auto enroll you, so you'll get 1% at least going in every year which, you know, when you're making 50,000 a year, that's 500 bucks a year. You'll have at least 2, maybe 3 or 4000 in there over the course of 3 or 4 years.

So what should you do with that money? Now, that doesn't seem like it'll be a lot now but if we talk about the point of compound interest which we've talked about before and we can go into depth in that into another conversation, compound interest says that that 3 or 4,000 dollars could be 20,000, 30, 40, 50,000 someday with the right kind of compound interest and the right rate of return. So, that being the case right now because it's in your 401(k) or 403(b), you went through residency, you're now transitioned into practice. Okay, let's say, it's October right now of your first fall in practice and you've got this old 401(k) or 403(b_ sitting at your old residency program – your old hospital – it's never been taxed. They took it out of your paycheck pre-tax. It's going to grow. It's not going to be taxed. But then when it will be taxed is when you go to retire and if you're good and you had a good financial planner, you're still going to be in a high income bracket after you retired because of how much you've saved and invested and planned. That's great, but then you go to pull that money out, you're going to have to pay taxes on it then and you're going to hate it. So how do we fix that now without it hurting too much?

This is where we come up with the Roth conversion. You can take that 401(k) or that 403(b), roll it over into an IRA, but make sure it goes into a Roth IRA. Now the downside is, yeah, you've got to pay taxes on it now, but this year with a half-year resident or fellow salary and a half-year an attending salary, you're going to make less this year than you'll ever make again in your entire life. So when would be the right time to make that kind of taxable transfer? There's no penalties, no cost, other than just the taxes you're then going to have to pay on your tax returns. But now, that money is in a tax-free investment in a Roth and it will stay that way for the rest of your life – that plus the growth it's going to get. So, I think that's an important one and I would say that's an urgent one because that has to be done before the end of this year.

So, that's number one. That's kind of one quick tip that I'd say, hey, if I had a checklist of things to pass to a new attending to say get this done before the end of the year, that's one of those things.

Plan For The Unexpected: Disability Insurance [0:07:32]

The other thing that I would look at is making sure that your Disability Insurance is up to your new income. That's one of the first checklist items that we do with our attending physicians. As we're going through the financial planning process, we'll typically check in when they get out of residency and into practice, say, let's do an in-practice meeting to talk about your new budget and what needs to be changed on your insurances because they'll have life insurance – maybe they didn't get enough; hopefully, they did – but they might need to get a little bit more. That's a little tougher to do because they're going to have to go through underwriting to get more life insurance. The beauty of it is if you set up your disability insurance like we've taught you, you're going to have a Future Increase Rider already on there so that when you go into practice, that disability insurance policy that you got as a resident allows you to increase your income to keep up with your new attending income – it's probably four or five times what you were making in training – that rider allows you to increase that income, no questions asked, no underwriting which is unlike life insurance, and all you have to do is submit to the insurance company your paystub, your employment contract – anything that's going to verify your income – and boom! Your income is now as covered as it's going to be between that and you're most likely going to have some long-term disability at work as well. You use both, so this is, again, me saying to you take what you get at work, it's free or cheap, it's good, get some additional personal – they work together. One is taxable, one's not. We go into that into our disability episode, so check that out.

So, that's number two is make sure you get your disability insurance increase going as soon as you can.

Healthy Financial Habits: Budgeting And Managing Surplus [0:09:02]

Number three that you want to look at is kind of what I touched on when our clients first go into practice and they're in our financial planning program, we're going to sit down and have a brand new budget conversation. A lot of you that we've talked to before, we've said, hey, let's just take 10 minutes, 15 minutes, and go through your cash flow estimate. We know what's coming in; let's get a quick idea, ballpark, what's going out into about 15 or 20 different categories and I will do that with our attending physicians within a month or two when they go into practice; if not sooner. Maybe the month before so that when they get that first paycheck, they know exactly where that's going. It's like Dave Ramsey says, "where every dollar has a name." I believe that, but what I believe actually works is if you take that and you plan it out and you say, okay, here's what I'm going to be making in a few months on an annual basis; here's what I'm going to be spending every month, I think, and then our tool will give you a surplus number at the bottom. So we'll look at that number that say, okay, income minus expenses gives you a surplus – where does that surplus go? You need to know and you need to plan it and you need to deal with that surplus from day one of each month. So as soon as your paychecks come in or first day of the month – whatever works for you; before you start spending, do something smart with that. If you're going to be making 250,000 when you go into practice and, yeah, maybe you bought a new house and you got some other things that'll up it, you will still have a surplus if you did it right. If you don't have a surplus when you're an attending, you did something wrong. I'm just going to say it – possibly offend somebody – but I mean, really, are there unique situations where something really happened in your family? Okay, possibly. But, for the most part, you should have a surplus and you need to do something with that right away and it needs to be happening automatically.

Financial MD's Resident Roadmap: Securing Your Future [0:10:44]

Now, that may be step two of our Resident Roadmap – our Physician Roadmap – is the Safety Net. Get it in the safety net. Build your emergency fund. Get your insurances proper – your life and disability and home and auto and health and all those things – get those in the proper alignment. Great. If you've still got surplus left over which you should, step three is Debt. Maybe you have debts you need to pay off. Now, student loans and mortgage – not really a conversation right now, but maybe car loans, maybe credit cards; then you should still have surplus left over when we start to talk about what can we do with if that's truly going to help us grow into our future goals. So that's step three is sit down with your financial planner or with your spouse or both and figure out what you can see that's going to be coming in, where it's going to go, and how to set that up on some sort of automated basis that you know it's just going to happen like clockwork because you don't have time for this. I'm guessing that you're listening to this or watching this because you want to get some sort of tips that will help you accomplish your goals without really having to think about it and learn and research and do all this other kind of stuff. If you're researching now, great. Here's where you take action: Take some of those steps.

So those are my first, I would say, three steps. There's more for sure, but if I had to pick three just off the top of my head because I didn't prep for this episode, I just thought I would say, what comes off the cuff for me after doing this for 10 years and saying what would I talk to if I had 10 minutes with a new attending physician, they said, hey, what do I do? I'd say, hey, here's at least three things that I think are going to set you up for success long-term. Are there others? For sure. Is this advice right for everybody? I think it usually is, but as our disclosure says, it may not be.

We Want To Hear From You! Share Your Two Cents With Us [0:12:22]

So, this is obviously some good rules of thumb – not personal advice – talk to your financial planner or other experts about that. But if you want to know more or if you disagree with me, please comment, leave a review, or just message us here. I mean, we've got… our email is always available. Financialmd.com is where you're going to get a hold of us. My email – jsolitro@financialmd.com; will get it if you send it to info@financialmd.com. But check us out on Instagram and Twitter and Facebook and reach out to us and just say, hey, here's my situation, what do you think, and we love to just help and educate, and all of the time that we put into these things – the podcast, the didactic minute videos – are meant to just give you education.

Now, does it make my job easier when a resident or a young physician sits down with me for the first time to help them? Sure. They know all this stuff. They watched our stuff. That's great. That helps me, but most of the people that are watching and listening to this, obviously are not going to work with us, but we believe that this is going to help you make some good, smart financial decisions along the way; puts you in a good financial position and puts you ahead of others who are not listening to or watching this stuff.

So, again, comment, questions, anywhere in our stuff. We'll get it. We'd love to interact and chat. Leave us a review please for the podcast. Again, this is how – if you think this is good information, this is how it gets out to other physicians that need to hear this and helps to protect physician wealth to leave a legacy to help their community around them and make a difference in their world. Leave us a rating or review. Share this with somebody today that you feel like needs to hear and say – check this guy out. He's obviously goofy-looking and he says some dumb things but there are some pretty smart things that maybe you can learn from. So, reach out to us. If you are a chief resident and you want to see our lecture programs and we do live virtual lectures, which seems weird but it just means a Zoom lecture live; it's not a prerecording. So, we talk about these topics in a financial education setup where we're going to teach the four different topics that we have on our financial roadmap about budgeting, about protection, about investing, and about debt. So if that's you, you can reach out to us that as well or check out… we've got info at financialmd.com.

Again, this is Jon from Financial MD, thanks for joining us today. Next time, we'll probably have Trevor back with us or some other guest and if there's someone in particular you want to hear from or some sort of profession or topic, please let us know. We'll see you next time.

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.

Resources and Links:

The 7 Habits of Highly Effective People, Stephen Covey – https://www.franklincovey.com/the-7-habits/
I.N. – What's Important Now? – https://coachwheeler.com/win-whats-important-now/
Roth Conversion: Move Your Money To A Roth Account – https://www.forbes.com/advisor/retirement/roth-conversion/
401(k) and 403(b) Plans: What's the difference? – https://www.investopedia.com/ask/answers/100314/what-difference-between-401k-plan-and-403b-plan.asp
What is a Roth IRA? – https://www.schwab.com/ira/roth-ira
Guide To Disability Insurance For Physicians – https://www.guardianlife.com/disability-insurance/physicians
Dave Ramsey: Give every dollar a name when creating a budget – https://www.joplinglobe.com/news/local_news/dave-ramsey-give-every-dollar-a-name-when-creating-a-budget/article_ff88c00f-1f0f-5641-beb1-81592ab24dbe.html
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

Update On Trevor's Newest Business Endeavor [0:00:52]
Embarking On A Journey: A Solo Private Practice [0:04:22]
Protect Your Practice: Invest In Disability Insurance [0:06:26]
Leading With Ownership: More Responsibility, More Satisfaction, More Rewards [0:10:44]
The Trigger: Taking The Leap Into Solo Private Practice [0:13:16]
The Perfect Timing For Your Business: Meeting Organic Needs [0:19:56]
To Own Or Not To Own: The Practice Dilemma [0:24:00]
Private Equity Knocking? Standing Strong In Independence [0:27:13]
Best Of Both Worlds: The W-2/1099 Combo [0:29:39]
The Latest Buzz In The Cryptocurrency Universe [0:35:33]
Don't Let Go Of Your Value; It's Your Voice And Power [0:36:51]

Jon: Well, welcome again to the Financial MD Show. We are so honored to have back in the co-host seat, Dr. Trevor Smith, after some time getting busy doing some things. Trevor had a ton of stuff going on and we continued to try to get some content out, but always left his co-host seat open here. So, Trevor, super glad to have you back and sitting in and chatting and making this – I mean, you're the reason that people listen to the Financial MD Show, so our listenership has been dropping drastically and we're so glad to have you back.

Trevor: That's hilarious. Appreciate, appreciate that ego boost.

Jon: Yup, yup. So, what's going on man? How you've been? What have you been up to for the last – I don't know – this year? Let's say that.

Update On Trevor's Newest Business Endeavor [0:00:52]

Trevor: Oh man, yeah. So, I'm sitting here in my office. I'm over in Wyoming, Michigan, just opening up a practice. So that has been the primary busy item of the year. Yeah, I was just looking back on my calendar of when things have happened or like even just like when bills were paid for, you know, different projects I've been working on and I couldn't believe some of the things that felt like last year were like three months ago.

Jon: Okay, wow.

Trevor: It's one of those where I'm like, wow. I didn't know I was… I knew I was busy, but I didn't know – I was like mentally squeezing so much in. So, yeah, I'm here over Wyoming, Michigan. It's just south of Grand Rapids. It's kind of more like Granville, Wyoming, Byron Center. We're all kind of in the same area, just south of Grand Rapids. So, yeah, I decided to launch my own practice, been looking into that for years – two, three years – and finally decided to pull the trigger. So I was evaluating the practice where I still operate. I still do surgery over in Ionia, Michigan with another practice, and so, I'm still doing that and that's supporting me, starting the practice at the same time, so it's nice. I get to talk about it. I don't have to secretly, you know, be like opening a practice.

Jon: That's great.

Trevor: Even throughout the whole process, I was really transparent with my boss, Dr. Mike Flohr, a great guy. I've been in the Ophthalmology world practicing. He's a solo guy for like 40 years so he gets it, so that was nice.

Jon: Yeah.

Trevor: Lots of hurdles of like how do I handle this situation, how do I evaluate this, so that was one of the big ones. I was like, you know. I just… the stress of this, I figured, you know, it' be better to do it without trying to make it a secret at the same time.

Jon: Yeah.

Trevor: Because people do do that and it's understandable, but I'm outside of the territory and it's been kind of weird like, dare I say, I feel like there's kind of like a God component to things. I don't tend to use that too loosely, but I couldn't have made this scenario. It hasn't been simple, but it's been better than I could have made it. The fact that I get to keep operating while…

Jon: Yeah, really, that's probably not that common, right?

Trevor: No. So I'm like doing two days a week out there. They kind of needed me less because they wanted to hire in an optometrist so they kind of wanted me to be doing more part-time and I wanted to be doing part-time so it's just like win-win and then the timing worked out incredibly well so it was kind of right when I was wanting to launch, they were wanting me to just focus on surgery, so they could control their overhead costs.

Jon: Yeah.

Trevor: So it's more of an "eat what I kill" scenario now.

Jon: Yeah.

Trevor: I've never been in that position before. That's kind of fun which is inherently what I'm doing in my practice here, right?

Jon: Yeah, right.

Trevor: It's kind of like a little pre- like a little taste of when I have a lot of patient flow here, what I can picture. It's just kind of the motivations, I guess, will be very similar. It's like I got to see patients. I got to do surgery to pay the bills and I have to produce for them for them to pay their bills and to pay me. So, it's cool – that's the major update. What else is new? I think I've learned a lot more about what everything costs in my industry and it's expensive.

Jon: Yeah, yeah.

Embarking On A Journey: A Solo Private Practice [0:04:22]

Trevor: So, I chose to work with a group. It's called Independent Practice Partners and I don't mind giving them a nice shameless plug. They just do ophthalmology currently.

Jon: Okay.

Trevor: So, it's a group of roughly four or five ophthalmologists that have started their own solo practices years ago like 20… I think 2012 to 2018… somewhere in that range most of them started, and they figured out a system for helping other people start their solo ophthalmology. They're philosophically in favor of more solo doctors being around and I am as well. That's one of my motivations. So, they've done… they've helped open, I think, 17 – no. I think now they're up to – I think I was the 20th or the 21st solo ophthalmologist they've helped start and that experience gave me a lot of confidence to pursue this despite knowing, you know, it's going to take time, it's going to be expensive – all that kind of stuff. Owning my own business was a big – my own practice specifically was a big goal for me – and wanting to do that in a way where I knew I would succeed seemed like a smart move.

Jon: Yeah.

Trevor: So I went with, yeah, having like kind of some consultants on board, but it meant something that they weren't just like consultants can be kind of a dirty word, you know, in some ways like the people that definitely collect fees and don't always provide value. They definitely collect fees, right?

Jon: Yup.

Trevor: So, you don't want just an extra expense; you want a lot of value added if you're going to work with somebody, you know. So, that's been nice. They provide a lot of value, a lot of experience, and just peace of mind. That's part of what you pay for, for those things.

Jon: Yeah, for sure, like insurance, right? Like it's almost… that startup insurance sort of – not a guarantee – but if I want to up my chances, how do I spend some money to up my chances of success and not making some of those big mistakes, so that's huge.

Trevor: Yeah. So I paid off my student loans earlier this year. I think we did a pod after that.

Jon: Yeah.

Protect Your Practice: Invest In Disability Insurance [0:06:26]

Trevor: That was key; I felt like I wanted to just get rid of. I wanted to like lower my risk and my downside however I could. I mean, I'm willing to like go bankrupt and lose everything I have at this point in my life.

Jon: Yeah.

Trevor: Practice.

Jon: There's no better time to start a business then, yeah.

Trevor: Right, yeah. Like so you have to think like what scenarios would that be. I mean, one would be like you just pick a terrible location or you can't operate like you have a physical issue. That's where I have disability insurance to cover that side of it, you know.

Jon: Yeah.

Trevor: If you don't ensure your equipment and some of it breaks, that's another downside.

Jon: Yeah.

Trevor: And then just not having enough runway; so not being well-funded, not having the finances to get through a six-month period of barely seeing anybody. Cover that by working for the other practice.

Jon: Yeah.

Trevor: That's an extra – I didn't think I was going to have that, honestly. I thought I was just going to have to move on. So having that gives me like a huge level up in terms of financial safety and then I got a great banking situation. My loan is at a competitive rate. Bank of America has an amazing program for doctors starting up practices.

Jon: You know, they do, and there is – I've talked to a guy from Bank of America. One of my clients bought his family practice and used Bank of America and so I got to chat with that guy a little bit and it is, yeah, seems a little bit unique for medical practices.

Trevor: It's unique. Yeah, I went to Chase for a head-to-head and I bank with Chase. I actually… I really like Chase and I've got a – there's a local guy here in West Michigan who just does a fantastic job. I just talked to him recently. I was like why do you do such a good job like you literally answer my phone calls whenever I call. You solve my problems even if it's like a credit card. Like he doesn't get anything out of it, right. I was like, and what's your deal, like why do you do such a good job. And he's just like, ah, well, I just like what I do and I want people to have a good experience. I was like, hmm, there's no angle here. He just does a good job. I like this, you know?

Jon: Interesting.

Trevor: So I wanted to go give Chase, you know, a shot, but they don't have a doctor program like that. I think Bank of America is kind of one of the only ones. You know, commercial loans are at like 8 or 9% right now.

Jon: Yeah.

Trevor: Bank of America was substantially less to my surprise.

Jon: Nice.

Trevor: So, you know, there's lots of paperwork. You bought a home within the last year and a half… two years. You bought a property.

Jon: Yes.

Trevor: Like, I mean, your circumstances were different on that one but, you know, the paperwork involved, it's like – oh, just one more piece of paper. You have to go through that, right, but access to capital lowers the risk a lot so we've got that going too and that was a connection through Independent Practice Partners to know about that program. I don't know if I would have ended up finding it, otherwise. It's amazing what you can potentially have missed. It could have been in a scenario where I'm borrowing at 9% like so easily, you know, like I checked with some credit unions. You're like, those are usually the best rates. They want local business. Everybody I talked to said go with credit union local – Lake Michigan Credit Union – whatever.

Jon: Sure.

Trevor: That's a popular one.

Jon: Yeah.

Trevor: I heard that from multiple people that was like the best advice and you start to think – okay, I heard it from multiple people, they're doctors, that's how they finance their thing – and that would have been, you know, for the amount of money I'm borrowing over time, it would have been, you know – I don't know – $80,000 difference.

Jon: Sure.

Trevor: Maybe, probably more. So, it's kind of kind of mind-blowing.

Jon: Yeah.

Trevor: I don't know. Those are my thoughts. Those are like the risk things I've been thinking about. Just controlling those because, otherwise, you don't do stuff out of fear, right, and you have to jump in a little bit. You don't know, there's a million things, you know, a little problem here and there that pops up along the way. You have to know that you're willing to deal with that kind of stuff to start your own business, but it's usually bigger things that keep people from… and I really do think more doctors should be solo.

Jon: Yeah.

Leading With Ownership: More Responsibility, More Satisfaction, More Rewards [0:10:44]

Trevor: I think it's one of the reasons we're in kind of the lack of medical leadership position we're in right now.

Jon: Okay.

Trevor: It's because of the clock in/clock out doctor mentality we have, instead of ownership of the patient's experience.

Jon: Yeah.

Trevor: Not just from a customer standpoint but actually like the quality of care starts to get dictated by non-physicians.

Jon: Yeah, that's a great point and it can force the physicians to feel like, I'm just here to do a job, right, yeah.

Trevor: And if they don't feel valued like if they don't feel valued because they're equivalent to everybody else in the company and it's not like they need to…they're not better… we're definitely not better.

Jon: Yeah.

Trevor: But there's an authority there. There's like a leadership component because of the knowledge that you have. Like you're the one who when you run like a risk scenario in a hospital setting like why did this person get, you know, like a UTI, you know, and they keep track of these numbers.

Jon: Yup.

Trevor: The buck stops with the doctor, right, who gets sued like it's the doctor most situations. In the operating room, you can even have, you know, an anesthesiologist or a CRNA, but really, it really comes down to you as the surgeon even if you're not running the anesthesia.

Jon: Yeah, sure.

Trevor: Yeah, anyways, if a doctor can kind of know the reasons they're not taking on the responsibility, they can cross off those fear factors that keep people from moving into their owning their own practice and I think if you're willing to shoulder more responsibility you end up with more – what's the right word – you end up with a lot more just job satisfaction.

Jon: Yeah. Like you said, ownership.

Trevor: Yeah.

Jon: Value, yeah. That makes total sense. I can see your point of wanting to see more doctors in solo practice and having that actual fiscal ownership and physical ownership affects ownership and everything else the work you do and that's great. What was it that you feel like made you finally pull the trigger? Because, yeah, we've talked about this for years off and on, just depending what else was going on and… but I know it's kind of always been there, so now you're doing it. What was that tipping point for you do you feel like?

The Trigger: Taking The Leap Into Solo Private Practice [0:13:16]

Trevor: Yeah. My story was sort of like weirdly back and forth so I thought I was going to maybe buy this other practice I'm still working for doing surgery and I'm not like spilling the tea or sharing any secret. These are like things that like Dr. Flohr and his family like they are super open people as well so it's been like a really nice combination of personalities in a lot of ways actually. So I thought I was going to buy the practice. We couldn't match up on price like just making a deal happen and so then it was like, well, I want to own a practice and I can't own your practice and I can't compete with you because I signed a non-compete which is totally reasonable. I wouldn't want to, you know, go into someone's backyard after they hired me anyways. I just don't… wouldn't feel good about that.

Jon: Yeah.

Trevor: So they were kind of just like, well, you're going to start your own practice, right, and I'm like, yeah. So I started doing that, thinking, you know, if I don't buy their practice, I got to kind of have some things going because it takes so long to get started just to open your doors.

Jon: Right.

Trevor: Three months would be incredibly fast. Realistically, you're looking at five to six right where I'm at. I'm at about five from when I got the ball rolling.

Jon: Okay.

Trevor: So I started doing that and then once I realized I wasn't going to buy their practice for sure, I was like I got to go full steam ahead. I've just been doing that since May basically.

Jon: Yeah.

Trevor: And it just kind of takes that period of time and then during that period of time, they were kind of like, well, you can stay; be kind of like flip-flop back and forth, and there is just some positive changes on some areas in the clinic that I was asking for that I didn't think would change and then they did. So, there was a moment where I was like, hmm, maybe I should just stay, but I really, really wanted to own my own practice, and Dr. Flohr is great. He could just tell and he was just like you're not going to regret this, you know. So he was encouraging me to do that, too.

Jon: Yeah.

Trevor: And then he ended up medically retiring from the surgery component just like in the last few weeks and so I'm kind of like meeting a need for the practice there and so, this kind of like happened very organically.

Jon: Yeah.

Trevor: And just kind of staying open to like I really appreciate my relationship with Dr. Flohr and that practice, so I've wanted to like keep going there and I love working with the staff and I think it's like really good for me to work with staff and just keep practicing like how to manage. Right now, I can practice managing there before I have my own staff here. I can keep my surgical skills up so. It's been like this really… I think that's probably true for everybody like from the outside, it's going to look like – oh, I decided to open a practice – and then boom, like I opened a practice, you know?

Jon: Yup.

Trevor: And then probably in two years, they'll be like – oh, you got busy so fast; it must have been so easy – and even I'll probably think it was easy, you know. A couple years from now, I'll probably be like – oh, you should open a practice, it's no big deal; if I can do it, you can do it. Like, remind me not to say that later because it's actually extremely hard and tiring and stressful, but it's good like it's definitely worth it. Putting a good team together is the key and, fortunately, for ophthalmologists, I would say, go with IPP. I mean, they're a great group. There's got be other equivalents for other fields.

Jon: I'm sure, yeah.

Trevor: Like I didn't have to put a team together like I hired this team that already existed and so like join the team but I still own my own practice and they're teaching me how to build my own team.

Jon: Yeah, fantastic.

Trevor: So, it's very much like I'm not trying to do it all on my own. I could not do this all on my own, for sure. They answer questions for me constantly. Every little – there's just so many details, right?

Jon: It's great. Yeah, that's huge. I bet there's more in the Family Practice, Primary Care, Pediatrics, like those kind of ones that you see quite often. The ophthalmology is there for sure as far as one that's commonly independent practice but, yeah, I'm sure the other specialties have those as well. How'd you hear about them?

Trevor: That was like 2020 right after COVID, I was looking for a new job, I was between jobs, and I was like, okay, I have not a lot of experience. I probably don't want to be starting a practice in the middle of like COVID just kicking off, but I was trying to think what that would look like and reading books about it and I had like all my student loans still so I was just like I don't… I definitely can't do this right now. So I kind of scrambled into another position. But while I was looking, there's this website – I think one of my friends told me about it; one of my friends from residency called the Solo Building Blog. A couple of guys worked on it, but I think it was mostly the brainchild of Ho Sun Choi who started up Independent Practice Partners. So, he graduated residency and he even, as far as I understand it – and a lot of this is from his blog rather than just talking to him directly – but he couldn't find a job he really liked that he found that was favorable where like his skills and thoughts and drive was going to be rewarded.

Jon: Okay.

Trevor: And he couldn't find a spot where he was going to work for somebody that would reasonably let him buy in or buy them out. So, he ran all the numbers and he was like it's worth it for me to start my own practice. So straight out of residency, he just kind of bootstrapped his way into starting his own practice like without a lot of… what sounds like without a lot of help other than – not like he didn't have help. Like I know his family was part of it. There's a number of components, but like he didn't have a service like what he built.

Jon: Right.

Trevor: And from that, he blogged about it a lot and then people – other solo doctors – they kind of formed like this little club of like solo doctors and you could pay a one-time fee and then you'd be in this big email group and people talk about what do you buy and where do you get.

Jon: Almost like a Mastermind group sort of thing or something.

Trevor: Yeah, yeah, yeah, exactly like that.

Jon: Okay.

The Perfect Timing For Your Business: Meeting Organic Needs [0:19:56]

Trevor: So that organically grew and then I think there was probably some organic demand for – hey, I want to do… I want to do a solo practice like you, can you help me do that – and then time they made it more official.

Jon: That's great.

Trevor: It's very cool. I mean, that's the advantage of if you're just savvy enough to like form a community online and you're meeting an organic need. People are pounding on your door, asking for you to provide a service. That's like the perfect time to start a business, you know.

Jon: Yeah, right, exactly.

Trevor: Don't worry about creating customers. The customers are asking you to create the service so.

Jon: Yeah.

Trevor: I'm sure I'm glad he did it because I don't know… I think I would have gotten here eventually, but it could have been – I don't know – two years, four years, 10 years, maybe another practice where I couldn't really have a voice on how things were done. That's really hard to find, you know, like I was looking at one practice where I respected all the ophthalmologists there but I thought, you know, one guy said, I might slow down in five years which is code for I might slow down in 10 to 15 years.

Jon: Right, but probably won't, yeah.

Trevor: Yeah.

Jon: Similar thing in our business. We've got… I got into this business with the – I was kind of sold on the idea – hey, the average advisor is 57, there's going to be a ton retiring, there's going to be all sorts of opportunity to buy, you know, firms and buy books of business and stuff – and it just wasn't the case because when I started, I found out like, you know, you can do this into your 70s if you wanted to and you're healthy and they did.

Trevor: Why wouldn't you?

Jon: It's not a super intense business, you know. Once you get this kind of select group of clients, you find that these old advisers just kind of, yeah, work two or three days a week, make decent money, and it's like, why would they retire. I get it – they've got the schedule they want, the lifestyle they want, money's good. So I was just like, man, I can't be waiting around anymore for somebody to kick it. I got to start on my own but, yeah, so totally.

Trevor: Yeah. So, that was a big motivator for me. It was like wanting to have an influence on how things are done even just like how money is spent and what equipment is purchased and all that kind of stuff and it's funny because like you start to do it yourself and everybody who's been in business for like, you know, 20 years-plus like one generation of time like well totally gets this, but like as soon as I started buying stuff, I was like, oh, now, I kind of get it, you know. Like now, now I understand why they said that. Like before I was like… that doesn't make sense to me. I think we should do it this way. You like start to do it and you're like, oh, I get it, you know.

Jon: Yeah.

Trevor: It's nice. It's humbling.

Jon: Yeah, well, it kind of like my daughter, you know, graduating from high school and getting out into the real world now and she's working a couple of jobs and going to community college and I feel like her and my relationship has gotten better like she seems to be taking my advice sometimes and she's just a little more got some common sense on life. It's pretty great.

Trevor: Yeah, there's just nothing like experience.

Jon: Yeah, totally. Way to fast track it, man. That's super exciting. I've been excited to watch you and super proud of taking that leap and glad we're able to catch you kind of at the beginning phases of this but, obviously, there's been already some work and planning that's gone into it. I talked to residents from time to time who are like, I'm going to get out of residency and start my own practice and stuff. It's like, I still have yet to see somebody do it, so that's cool you're saying about Dr. Choi and seeing somebody do that and help others.

Trevor: Yup.

Jon: So, do you feel like there's a certain type of people that should own their own practice and some that shouldn't? Like what do you feel like is that differentiator?

To Own Or Not To Own: The Practice Dilemma [0:24:00]

Trevor: That's a good question. I think I'm pretty practical about it, I'd say, like if you don't have a lot of equipment, you'd have to buy. I was just... I saw my Internal Medicine doctor today and, man, I wish I was an internal med doctor because like the startup cost would be so much lower like I have friends that are like… I have a friend who's a rheumatologist and another guy who's like a Sleep Medicine doctor. I'm like, man, sleep medicine, you could just make so much money doing a sleep because those book out pretty far. There's only so many in town like you could be one of the Big Sleep Centers without a ton of effort just because of demand and he's like, yeah, there's, you know. It's a big thing like, yeah, right, you don't know you don't know. It'd be a lot of work. It would be… it took me, you know, a year, two, three years and getting a different financial position to pull the trigger but it would be successful, for sure, right, so like should he do it? Like, well, he would have to want to and then it's risk, right. I mean, I think that's what people are always deciding is like, oh, that sounds scary or just the perceived… the effort or the time, but you've got… On the one hand, I've got a friend, rheumatologist; the other one's like a sleep doctor. Like the sleep medicine one, if you did the clinic and everything, that's a lot of capital outlay, right.

Jon: Yeah.

Trevor: But if you're rheumatologist or internal medicine like you could start up a clinic like just so easily without a lot of money.

Jon: Yeah.

Trevor: You could read like a couple books on business startup. There's The Medical Entrepreneur is like a pretty easy one. You could start a practice without… I mean, for like under a hundred grand.

Jon: Yeah, sure.

Trevor: And immediately have all the freedom to be on vacation as much as you want to. It's more responsibility, but it's still… like freedom and responsibility go together. I feel like those can be considered like opposite ends of a spectrum, but they're like, they go together like by taking on responsibility, you get the privilege of more freedom. But, yeah, I don't know. It's hard to say. I think you just have to really want to do it.

Jon: Yeah, oh, for sure.

Trevor: Or you have to really not want to do the way things are done.

Jon: Got you.

Trevor: And I feel like the people who start practices now because it's – I don't know why – but perceived to be very difficult to be successful. I don't think that's true. I think it just takes time. I think it just patience. I think if you start your own practice, you like it's almost an inevitability that you'll do well if you're a good doctor.

Jon: Yeah.

Trevor: Because there's so much demand.

Jon: Yeah.

Trevor: I was motivated by both like I didn't like the way…

Jon: Yeah, it's a good point.

Trevor: Like the private equity world is going with ophthalmology and I like the idea of having my own thing.

Jon: Now, are you – you talk about private equity. You know, we see that all the time. Private equity is buying up practices. How do you avoid that, you know? If everybody or a lot of other practices are going that way, there must be a reason… there must be something to it, but you don't like that, you know, philosophically like what, when you think down the road, that's obviously going to be a temptation at some point, right?

Private Equity Knocking? Standing Strong In Independence [0:27:13]

Trevor: I don't think so. I have thought about that like if somebody came in and wanted to write me a check or whatever, what would it have to be and I was like, I just don't think I would want to do it.

Jon: Yeah.

Trevor: Not like there's no amount of money, but there's no realistic amount of money like.

Jon: Right.

Trevor: Everything comes at a cost, right. No one's going to give you something for nothing, so there's always a trade-off. It's going to be you're committing to something. Do you want to be an employee or not? I mean, it's like the real question.

Jon: Well, yeah.

Trevor: I don't mind being an employee but there's just so many better things about not being an employee and owning your own business like you being the one who owns the business gives you all these like tax privileges. Just that alone is why would you give that up?

Jon: Yeah.

Trevor: Yeah, I don't think I would. That's part of the reason these guys don't want to sell their practices. I mean, it's just you really do kind of have to get a decent chunk of change to want to give up all those benefits.

Jon: Right.

Trevor: So unless you want to be retired like why would you sell for less than a lot? You wouldn't. So it's not like I don't understand. It's just for me who's someone who's willing to open their own practice and take the time and some losses upfront like my apples to apples of buying the practice versus starting my own. A lot of other people's apple to apples is taking a salary somewhere else or buying this practice – buying themselves a job.

Jon: Okay.

Trevor: Like why would I buy myself a job when I can borrow myself into owning a company?

Jon: Yeah, totally.

Trevor: Right? So, it makes a lot more sense where I'm at and with what I know and understand about taxes and business. The numbers are like it's not even close. It's like you want to own your own thing. You want to be able to depreciate. You want to be able to pay yourself in a couple of different ways maybe with an S Corp. People argue about whether that's worth doing or not, but that's just a tiny piece of the pie like you are treated better, you know, owning your own company by the IRS.

Best Of Both Worlds: The W-2/1099 Combo [0:29:39]

Jon: Yeah, I've had… I actually had a couple of times now where I've had one of our physicians come to me in a meeting and say, hey, I've got this job and they're offering me either W-2 or 1099, which one should I go with. I was like, no, gosh, 100%, you know.

Trevor: Yeah.

Jon: It's even close, that's… and that's worked out well because, you know, I've talked about this couple before where they worked it out just right. They're both anesthesiologists. One of them was W-2; the other one, I said, let's take the 1099, and basically, if we do this right, we can live off his salary and bank hers pre-tax, you know. So we set up the solo 401(k) and we set up the cash balance plan and the, you know, all that stuff, defined benefit plan, like it was…yeah. I've never had a client put away that much for retirement pre-tax on an annual like over a period of a few years.

Trevor: Yeah.

Jon: Because of that, now granted they're very disciplined and smart – not all my clients are that way – but it was a good opportunity – what's that?

Trevor: That's an amazing combo. I feel like the best thing you can do is like I'm going to have 1099/business ownership. If I could combo up with somebody like a nice like state government employee…

Jon: Right.

Trevor: Because, you know, like the Michigan State benefits are like insane, right, the state employees like their health insurance is like insane, like the coverage levels are just nuts.

Jon: Yup.

Trevor: Yeah, like it's nice if you can get the best of both worlds on that.

Jon: Like a teacher or something, yeah.

Trevor: Right, exactly, yeah. There's a ton of perks that's kind of underrated. Teachers are underpaid, obviously, but their benefits are like…

Jon: I've seen… yeah, my wife used to work for the school districts doing health insurance and she was like, I mean, it is the top tier like I've never seen any better benefits.

Trevor: They don't pay anything.

Jon: No. Like you want a massage every week, go for it. It's covered.

Trevor: Right.

Jon: Yeah. So, again, they're worth it. We obviously don't pay them enough. Glad they have benefits. But, lesson is marry a teacher.

Trevor: That's right.

Jon: Especially if you're an independent contractor… and then like this couple, too, you know, because they were able to, you know, meanwhile, the husband's maxing out his 401(k) at work, you know. So it's like all that stuff combined so, yeah, that totally makes sense there. In fact, we had when I was in Grand Rapid this week for our Financial Advisers Association, we have a lobbyist come in every year and just kind of tell us, hey, what's going on. He hears what's up, you know, at the capital and different things that they're talking about and bills that are coming up and one of them like some other states have talked about, I think some have passed, started with Uber and Lyft trying to get these independent contractors, gig workers, to go W-2 because I think we had this giant chunk of the population that thought, oh, they are making so much money, these companies, they should be paying my employment taxes and giving me benefits and all that kind of stuff and it's like, no, what you have as independent contractors, the ability to not work for anybody to both Uber and Lyft like, you know. And then, you basically get to write off so much, you know, just all that kind of thing that they're probably not totally thinking through. But now, one of the laws in Michigan that they're talking about – I don't know how far it's gone – but, you know, trying to do away with the independent contractor concept for many industries and I just don't get it. Unless we're talking strictly a play of getting more revenue into the state, I get that, but other than that, it's like, man, who would be on board for that?

Trevor: Yeah, that's a tough… It sounds good to say like people should get more benefits but, unfortunately…

Jon: Well, sure, yeah.

Trevor: The question is what's better for the individual, for the worker, is not typically what's asked. It's sort of like what sounds good, and it's sounds good to say like let's get these people benefits, that benefits the politicians, so that I think that's where that comes from because if you… as we're just saying, if you run the numbers, they're better off just managing their own finances, but that can be complicated and not everybody wants to do that. Probably, the majority don't want to have to think about how their money is spent. They just want to have access to healthcare and a car and food and shelter and some fun money and they don't want to run their own budget, so that's a flowing concept - the "we'll take care of you" concept of the government.

Jon: Yeah, exactly.

Trevor: Yeah, which works really great until the government doesn't take care of you anymore.

Jon: Absolutely. Yeah, that's another conversation for another episode.

Trevor: Yeah.

Jon: We'll talk about that. We should go into some political science examples.

Trevor: Right, yeah, some economics. Yeah, that's sound good.

Jon: Yeah, bring out some Milton Friedman.

Trevor: Yeah, some Rothbard. We can get into some Austrian economics, also known as real economics, if you will, for another time.

Jon: So, good. So, life is good. You're on track. You're moving along.

Trevor: It's good.

Jon: Anything else? Any new and exciting? What's happening in the cryptocurrency world? Any commentaries for us?

The Latest Buzz In The Cryptocurrency Universe [0:35:33]

Trevor: Thankfully nothing. No commentary necessary. Everything is quiet and less people are being scammed which is great.

Jon: Yeah.

Trevor: So I'll just continue to say Bitcoin is great. It's a real commodity. It's still regulated by the CFTC. There might be a spot ETF approved maybe someday in the next few months or in the next couple of years or nobody really knows and people like to speculate on that, but Bitcoin is a real asset. You can actually store yourself and everything else in that space is pretty, pretty centralized, and it's manipulatable. I mean, what's the point? U.S. dollar is already manipulated and we use that. I feel like that's enough currencies for me that I use that are manipulated. I don't need to do any others.

Jon: Yeah, well said.

Trevor: Just that one's fine and I'm grateful we have access to U.S. dollar, I know. I'm very grateful for it. So, Bitcoin is better technology, that's all.

Jon: Yeah, good.

Trevor: There you go… that's the shortest I've ever been on the topic.

Jon: It is really, I know. Wow, geez, now I don't… got all this time to kill now.

Don't Let Go Of Your Value; It's Your Voice And Power [0:36:51]

Trevor: I have one other thought on the practice thing. Because this was a major motivator and it should be the motivator, this is the reason I want a lot of my friends to open their own medical practices, solo or otherwise, because we are the thing, not just doctors and nurse practitioners, I'm not being exclusionary or elitist, all of the providers, anybody who can bill, create value, right, we're the ones who actually like make the service happen. We're the ones that will bill the insurance company or the individual even take them out of it. Like I do an eye surgery. I provided that for the patient, you know. If we were in Mexico, they pay me cash maybe as in the privatized scenario.

Jon: Yup.

Trevor: It's a transaction, right, and when you work for somebody else you do not get to retain that value so you are giving that value away, and then when you give away your own value, you also give away your voice, so that's like… that's why I was kind of just lightly saying before why I think we should have more doctors being independent is we can't really… we can't really say from a strong standpoint, we can't argue well and with authority if we don't control our own value. So it's totally worth it. I will actually make more money doing it this way. It's more risk, but I can control my overhead like the actual gross revenue, the amount of money that I create as an individual business, as a physician. That money, you know, that pool of money, I can decide how much do I want to spend and how do I want to use it and how many employees do I want to have.

Jon: Yup.

Trevor: We get like extracted from that if you're employed at a hospital or in other scenarios and I think when you get separated from your own value, you also get separated from your money like people take it and I don't think… I don't think that's right. I don't think that's right in any business scenario. If you're the one creating the value – if you're a manufacturer – you don't want to charge if it cost you $5 to make something and then you're going to sell it to somebody else for 10 and they're going to resell it on Amazon for 100, it's like selling it on Amazon for 100 yourself, you know.

Jon: Right, totally.

Trevor: I just… I just don't like that. So, that has appealed to me to the degree that I decided to spend a lot of my time and energy on opening my own practice. That was one of the primary drivers.

Jon: Sure.

Trevor: It just feels like the right thing to do with the gift and knowledge that I've been given and I so want other people to do the same thing. For their own benefit, they can keep all the extra money. They can give it away. They can make a difference in the world like I just think if you're creating value, you should go the extra 5 to 10 percent especially if you can do it all upfront like I am. That extra time, this one or two years, do it all upfront and I will take home a lot more value that I can use to change the world in whatever way I think is best and I want other people to be able to do that. I want to empower other people to do that just like Independent Practice Partners has for me. So, that's… I didn't mention that component, but that's a big motivator so I want to sneak that out.

Jon: Yeah, no, that makes total sense and I think that's a good wrap up and to kind of add just a final piece of why that can make sense for a lot of people and some of the just the good like you said. Money, sure, but so many other ancillary factors that come out of that that make it worth considering.

Trevor: Exactly.

Jon: I'm obviously a big proponent of that as well. This is, you know, you and I are in a similar position of kind of owning our stuff and what we do and having the control over it and it's hard work and there's some risks and decisions to be made and cost to be had, but I don't regret it at all.

Trevor: It's worth it… it's worth it.

Jon: Yup.

Trevor: More gratifying when you take on more responsibility.

Jon: And that's… and I don't know if everybody's wired that way, but I think you and I certainly are.

Trevor: You're right, you're right.

Jon: It seems like a no-brainer, but… well, cool. Well, I think that's all the time we have for today which is great. I love it when you and I start a conversation. We managed to fill enough of an episode to make it worthwhile to publish. So, yeah, well, guys, be sure... we'll be back one way or another in a couple of weeks as we get the next episode and continue rolling on our next topic. We're getting to the end of the year so we're going to have some topics coming out that are timely that you want to make sure you catch. So make sure you're following or subscribing here. Please, I know every podcast I asked this, but certainly leave a review so that, number one, that this show comes up when people search for this because if you feel like this information is valuable, other physicians need to hear this, then your rating and review are going to help spread that word. So, do a good thing for your fellow physician. Share this, leave a rating and a review, and then hop on over to our other social media places and post and share there. We've got our TikToks that are cranking out. We try to just get some out on a regular basis whether it's clips of this or other stuff that I throw up on the camera; Instagram, our Twitter, and Facebook are going on. So, please get there, help spread the word if you like it. If you don't like it, tell us. Somehow, we love to hear what's going on and until next time. Dr. Smith, good to see you, buddy.

Trevor: You, too. Thanks, Jon.

Jon: Yup. This is Jon Solitro with the Financial MD Show, we will see you next time.

Resources and Links:

Independent Practice Partners: Business & Management – https://ipracticepartners.com/
Resource Guide: Insurance for Startups – https://massfoundersnetwork.org/resource-guide-insurance-for-startup/
Disability Insurance for Business Owners – https://www.investopedia.com/articles/personal-finance/061214/disability-insurance-business-owners.asp
Doctor Loans for Licensed and Practicing Medical Professionals – https://www.bankofamerica.com/mortgage/doctor-loan/
Solo Building Blogs – Helping solo practice physicians succeed – https://solobuildingblogs.com/
Private Equity Funds – https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity
S Corporations – https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
What is a W-2 Form? – https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-a-w-2-form/L6VJbqWl5
1099 Form: Definition – https://www.nerdwallet.com/article/taxes/what-is-1099-tax-form
What is a 401(k) and how does it work? – https://www.investopedia.com/terms/1/401kplan.asp
Cash Balance Plans – https://warrenaverett.com/insights/benefit-plans-101-an-intro-to-cash-balance-plans/
What is a defined benefit plan? – https://www.principal.com/individuals/build-your-knowledge/what-defined-benefit-plan
Commodity Futures Trading Commission (CFTC) – https://www.investor.gov/introduction-investing/investing-basics/glossary/commodity-futures-trading-commission-cftc
What is a spot Bitcoin ETF? – https://bitcoinmagazine.com/guides/spot-bitcoin-etf
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View Details

Summary:

What Does Cory Do? [0:02:08]
The Moment Cory Decided To Become An Accountant [0:04:04]
Critical Key Components: Psychology of Money and Behavioral Finance [0:06:13]
Tip: Take Advantage Of That Lower Interest Rate – Invest! [0:10:59]
All The Things You Need To Know About Being A CPA [0:11:42]
The Start Of The Financial MD "Dinners" [0:14:52]
Most Often Asked Question: What Is The Best Tax Deduction? [0:19:04]
You Can Do A 401(k) And An IRA At The Same Time [0:24:36]
Find Yourself The Right Financial Advisor [0:32:54]
Cory’s Piece Of Advice To Residents [0:35:50]
Do What You Do Best And Delegate The Rest [0:37:56]

Jon: Welcome everybody to today's episode of the Financial MD Show. We're so excited to be back. Dr. Trevor Smith is off, starting his own practice, and I'm sure he'll jump back on and fill us in there. But, today, we've got a special guest/co-host. My good buddy, Cory Lee, a well-established CPA tax expert in the area, is joining us today and I'm super excited. We've got a long history going back that I'm sure we'll dig into a little bit and do some nostalgia recall but, Cory, it's so good to have you today.

Cory: Yeah, I'm happy to be here. Thanks for having me.

Jon: Yeah, so, guys, I'll tell you a little bit about Cory from my perspective. I think Cory, you and I, were introduced by – I can't believe I'm remembering this now – I bet it was 2015 or 16 and I think – I remember who it is, for confidentiality's sake, but it was an ER physician and his wife. He was just getting out of residency, pretty sure, and Cory was a friendly guy that was really great at helping this couple and we met through just in the financial planning world. At least, at Financial MD, we try to get to know our clients' other professionals and establish a good working relationship to try to coordinate the whole comprehensive picture. And so, along that way, I met Cory and I was just two or three years in the profession and learning a lot and Cory and I have done a ton of stuff together in the last six, seven years. Cory has been probably the CPA to whom I've sent the majority of my clients by far, and even before then, Cory was working a lot with physicians and probably now a little bit more – thanks to us – over the last six, seven years. But, as you guys know, there's a unique financial situation that young physicians are in and residents and those just starting out and attending that you want to work with somebody that you know and you like and you trust and they know your situation. So that's where Cory comes in here and we'll talk about some of the things we've done together and what Cory's been up to. But, yeah, Cory, tell us about where you came from and what brought you to what you're doing today.

What Does Cory Do? [0:02:08]

Cory: It's like you said, I work a lot with physicians; probably, 70 percent of my businesses is with physicians. I do a lot of tax planning, tax consulting; you know, set up practice-type help; exit strategy planning type of help. I also do business valuation; you know, people who are looking to merge for sell or buy a practice – I help with that. I've just really been CPA for, you know, about 25 years now and just have really enjoyed just helping people out. And to touch on your point, I think we have a good collaboration because we have similar philosophies in that we want to do…we want to help the client…and sometimes that's referring them to other professionals, you know. You have to know your limitations. You have to know what you can do and where you need to be able to refer to somebody else who can help that person out as well.

Jon: Yeah, absolutely. Okay, cool. So, Cory, where did you grow up and go to school and how did you learn how to do what you're doing today?

Cory: So, the short answer is I grew up all over the place. My dad worked as a computer programmer so we moved around a lot as a kid but I ended up, you know, functionally growing up in Troy, Michigan. I went to high school there. I went to college at Michigan State, you know; got my Bachelor's in Accounting there, and then went to Walsh; got a Master's in Finance and MBA there, and just started working in the Metro Detroit area. I've been working here as a CPA ever since.

Jon: And an MBA…okay.

Cory: Yeah.

Jon: See, I didn't know that. It's good. I'm learning stuff about you, too.

Cory: I've got the MBA and the Masters in Finance just to diversify the accounting background just to help people out.

Jon: So two Masters.

Cory: Two Masters.

Jon: Brilliant.

Cory: And then I've got my CPA as well as my CVA just to make sure that I could help business owners, you know, make decisions and just got to be a resource for the clients that I was working with.

Jon: So CVA is certified valuation…?

Cory: Analyst…right.

Jon: Analyst…okay, interesting. Very good. So, at what point does someone like you know they want to be an accountant?

The Moment Cory Decided To Become An Accountant [0:04:04]

Cory: You know, it was high school; in freshman year high school, they did a career counseling, you know, the personality profile testing like career choice kind of testing and the two top ones for me were mortician or accountant.

Jon: Excellent!

Cory: Those were like the two top career choices, and I’m like, oh no, not too fond of dead people, so I'll try this accounting thing. And there was an Intro to Accounting class that I took sophomore year; got 104 percent the first semester; 106 percent this semester; got every question – every test – right, plus all the extra credit that, you know, anytime the teacher asked me a question in class, I knew the answer. It was just…it was just something that I knew. It's something that clicked. I could read it. I could read it once and just know it, you know. So I took more accounting classes sophomore, or you know, junior and senior year and said, hey, I really like this; let's…you know. Michigan State had a really good accounting school so I went there and did really well there so I just got into public accounting and haven't looked back.

Jon: Yeah.

Cory: I just really enjoyed it, you know. It's just one of those things where, you know, when you struggle with science and you struggle with all these different topics and something just clicks and you'd be really good at it, you stick to it.

Jon: Yeah.

Cory: Yeah.

Jon: That's beautiful. So few people are like that where it's like, huh, I like it; I'm really good at it; this makes sense.

Cory: Yeah, I just kind of found what I was good at early on and just have stuck with it and just still enjoy it and, you know what? I get to work with numbers which I prefer – you know, numbers over words – and I get to help people, so those are two things that I really enjoy doing.

Jon: Yeah, very cool, and I think the unique thing that I'll brag about you a little bit on is that you are not the typical accountant in the sense of you have people skills and you know how to talk well and…

Cory: Those have taken some development…yeah. I've definitely done some Toastmasters. I've done some other things to bring myself out of my shell.

Jon: Okay, nice.

Cory: I'm an introvert by nature, of course; you know, to being typical of accounting. You know, there's an accounting stereotype for a reason, but I try and break that mold. I definitely tried and be out of my shell and, you know, talk to people. Because, you know, if you have the information but you're not sharing it, what good is the information?

Critical Key Components: Psychology of Money and Behavioral Finance [0:06:13]

Jon: Yeah, totally, and that's…yeah, if you have the information, right, but it's not getting to people or you can't communicate it well or whatever the case might be, that's so critical. I mean in our field, when I took the CFP a year and a half ago, they had just started introducing the topic of psychology of money and behavioral finance and all that stuff but that's such a critical key component especially because so many good financial planners are good at numbers and data and planning and figuring out but just not that great at the people side of things.

Cory: You have to know the psychology of people to understand what they like, what they don't like, what their risk tolerance is. I mean, there's a lot of different factors to kind of take into consideration.

Jon: Yeah, and what they're saying…I've got a client that is an older client. We've been working for many, many years and she's very frustrated because she didn't get the kind of growth this year that she wanted to in her accounts. And I said, well, because we had you fairly conservative. Last year, you were really upset because you had lost so much in these stock investments that you had, so we switched everything to a little more conservative while still, you know, getting some growth. She had 12 percent in the last nine months, she got, but she wasn't happy because the S&P had done whatever. I was like, well, I didn't think you wanted to be in all stocks pretty sure based on our conversations. Well, I don't think that's what we said we wanted what…you know. And so it just became this whole like -- here's what I've been doing this a long time. I understand - you may not have directly said it - here's what I thought was the best portfolio based on how you felt when the account dropped, so my first thought is we can't let your account go down this much again, you know. So those are the kind of things where it comes into play of like, okay, maybe she couldn't even articulate what she wanted, or now looking back, she feels anyway. That's a whole…

Cory: And it's also goes to some people don't know what they want until they realize they didn't get it and then they complain about it, right. So you can't always get what you want if you can't express what you need or what you're looking for.

Jon: Yes. And that was what she brought to me was, well, my friends all said they got this much this year.

Cory: Oh my God.

Jon: Their accounts grew this much, and I said, you know, I don't know what to say to that.

Cory: I have that same problem. Every year, I get people who say, oh, my friend got a refund; why do I owe? Well, it's a different situation.

Jon: Oh my gosh, yeah. And that's where I definitely make that a priority just unconsciously because of my background. I've got bachelors in Psychology and I've got a master's in Counseling and I really try to push. You know, I've talked to MSU and their program about making sure they've got a good emphasis on behavioral coaching and finance and just, yeah, financial coaching, because that's a lot of it as well. I've used so much of my counseling training in financial planning just unconsciously and, you know, marriage counseling. As couples come in, money is one of the most contentious things to talk about…one of the most emotionally-driven things.

Cory: Absolutely.

Jon: And you and I both see that in our conversations.

Cory: Yeah…very much so.

Jon: So getting a client to success is more than just getting in the information.

Cory: Absolutely.

Jon: How do we get them to take action on this stuff, for sure, and a lot of that is building a relationship with folks like you and collaborating with that so.

Cory: Even if you get in the most perfect results in your mind, it may not be what they wanted so it doesn't…then they're not happy.

Jon: Yeah, that's true as well, and you may think, you know, I have an idea what I think this client needs based on their goals and their values and plans. You know, I had a couple that had just gone into practice and I had suggested they not pay off their house for a while because it was low interest rate days and they had surplus. I said, do it here, get on track for retirement, 401(k) or build all the stuff – the usual things – and I say, this will get you on track for your goals. Yeah, but we'd like to pay off our house early. Okay, we can talk about that. I don't think it's a good idea, here's why, and eventually, I got…

Cory: If you have a 3 percent interest rate, you should never pay that off.

Jon: Oh, yeah, it was that.

Cory: But if they have a desire to pay it off, they're going to want to pay it off, so it's always good.

Jon: And that's good. Yeah, they ended up moving on because they just didn't feel like I supported their goal of being debt-free which…you're right, my fault, and that was a learning experience for me. I communicate that to clients now – I think this is going to get you to your goals in the best way possible, but if you want to do this instead or pay off your house early, I can get on board with that and figure out how to help you do that.

Cory: Yeah.

Jon: I just think it's going to throw away a lot of money or whatever.

Tip: Take Advantage Of That Lower Interest Rate – Invest! [0:10:59]

Cory: Right, yeah, you're going to be shortchanging yourself in the long run because you're not investing and using that advantage of that lower interest rate but, you know. If you have a high interest rate, then you want to pay that off that debt as soon as possible. It all depends on the circumstances so.

Jon: And I get good practice with my wife because she wants to pay off our house and I think my interest rate is 2.875 and I'm like, babe, no, you know.

Cory: Never paying that up…never, never, ever.

Jon: No. No.

Cory: That's a second rag.

Jon: Yeah. So, after the schooling, there's a test to become a CPA.

Cory: Right.

Jon: Is there a prerequisite in terms you have to have a certain type of degree? Like, obviously, you're an accounting bachelor. Is that enough?

All The Things You Need To Know About Being A CPA [0:11:42]

Cory: Yeah. So currently, for the CPA exam, you have to have 150 credit hours. So you have to have bachelor's plus another 30 hours, so a lot of programs have done like 150-hour combo master's degree.

Jon: Got you.

Cory: Where you can get the 150 hours you need to sit for the CPA exam in a fifth year. So, you know, you use the four years plus an additional fifth, you get a master's and 150 hours, so then you can sit for the CPA exam.

Jon: I see.

Cory: Then the CPA exam is a four-part test currently and it's really a lot of work…a lot of studying.

Jon: How long does it take as far as the actual test itself?

Cory: It's different now. I think it's broken out into about four-hour increments right now, so it's four parts, four hours each.

Jon: Two days.

Cory: Yeah, basically, two days of testing.

Jon: Okay. Back-to-back or are they separate?

Cory: No. It's all separate now so you take one part and then wait, you know, six to eight weeks and then take another part. So you can study for each part in between.

Jon: Four separate parts, though.

Cory: Right, four separate parts.

Jon: That's not bad.

Cory: All different topics.

Jon: Okay. Yeah, our CFP was eight hours one day, I think, all told, the break in the middle.

Cory: Right.

Jon: Okay, and so work-wise, you got the CPA and then what was work like after that for you?

Cory: So, when I started off working, it was just a lot of learning; you know, learning how to do tax returns, learning how to do audits, learning how to do financial statements, learning how to do all the things that, you know, CPA does. You know, most CPA firms do everything from payroll to like, you know, bookkeeping, financial statement preparation, audits, tax returns. There's just a lot to learn, and then as you progress, you know, and as you get into it, you kind of learn what you like and what you don't like. You know, I really stayed more in the tax realm so I don't do any audits anymore that we have other people in the firm that do that. We have people that do the bookkeeping and the payroll taxes so I don't have to do that anymore, fortunately. You know, I stick with doing the tax returns and working with clients on how to get their taxes done and maximize their tax efficiency.

Jon: Awesome. Yeah, that's good. So, now, you're working…your office is based out of Ann Arbor.

Cory: Correct, yeah.

Jon: Okay.

Cory: I'm currently working at a firm, Andrews Hooper Pavlik that has nine offices all in Michigan. I'm in the Ann Arbor office. It's nice to have resources, you know. There's a lot of small firms out there, you know, single, maybe two or three partner firms that just don't have the resources because, you know, they're limited to what they have. We're also nice because we're not a big national firm. You're not going to get lost in the shuffle. We try and have nine offices all in Michigan so we can have that, you know, personal contact for people that are nearby; you know, have small local offices to serve the communities that we're in.

The Start Of The Financial MD "Dinners" [0:14:52]

Jon: Okay, fantastic. So, over the years, our listeners know we like to put out a lot of education, a lot of resources as much as we can. One of the things that probably our listeners don't know is that since 2014, Financial MD, we've been doing dinners at different locations around the Midwest for residents that are on the verge of graduating in their final year – fellows that are in their final year – specifically tailored to the decisions that they're going to make as they transition into practice and it's kind of the capstone on our lecture series. We do lectures for many different residency programs around the Midwest that are focused on four topics – cash flow, protection, investing, and debt, of course, is the other one…student loans and such. So those are done for all the residents in Didactics during Grand Rounds but then we do these dinners and I don't know where the idea first came about – I'd been doing these dinners for a few years and they were successful – and we started doing them in Lansing. We did some in Detroit, Grand Rapids, Ann Arbor, Kalamazoo, Saginaw – gosh, so many different cities – Chicago; did one in Cincinnati a few years ago and then Indianapolis. So about 10 different cities that we've done them in and always been really well received, really fun for us to do, and then somewhere, Cory and I got the idea, we should do these together like give them a more well-rounded experience of hearing from a financial planner and a CPA and then we usually bring in a physician loan or a mortgage expert in there as well. It makes for a great conversation and you get to…it almost becomes like a panel discussion which is kind of cool. We've got these three experts and we're sitting there having dinner with residents from all over different hospitals in the area and they bring their questions and we've kind of got specific topics who might cover but Cory and I have been doing these dinners together for a while and it's just been something we look forward to. They're fun to do, and every time – I think, pretty much – every resident leaves, they're just so grateful for the information, for the time, and I know they walked away with stuff that they wouldn't have known otherwise and they get to ask some fairly personal questions. Obviously, there's questions we'll follow up on things afterwards but, yeah, Cory, I mean...

Cory: Right. I think it's…I love the dinners. I love the way that it works out because it's just really a relaxed, casual, you know, like friendly conversation where they get to ask questions and we get to answer questions and I love answering questions and helping educate people because, you know, a lot of this information is free on the internet but you can't make heads or tails of it. It doesn't mean, you know, you can read 20 articles on HSAs and not understand what the heck it's for and how it helps you.

Jon: Yeah.

Cory: It doesn't mean that you can understand how they function, what the benefit is, and how it's going to affect you, and just a variety of questions. I mean, people come with all kinds of questions but then at that dinner table because we have so many people there, they not only get to ask their questions and hear the answer, but they get to hear other people's questions they didn't even know to ask, then get to hear the answer too.

Jon: Totally. Yeah, and how many times did they come in with the question because – hey, I heard this on the Internet or I heard this on Instagram or I had an attending tell me this or another resident or whatever and that's their opportunity for them to help clarify and stuff; so, not that we're super promoting it but if you hear about one of these dinners near you, definitely, try to attend or reach out to us and we'll…

Cory: Definitely beneficial, yeah.

Jon: Yeah. So, what have you found? If we can kind of fast track our listeners here today to try to get inside scoop like what are some of the questions that we're seeing, Cory, that maybe would be good to point out to some of our listeners that we find or topics that come up that, hey, we'll give you a sneak peek ‘’’’’’’’’’]\\\\

=00{
_POO_u/jat the dinners and some of the questions that we tend to find happening most often.

Most Often Asked Question: What Is The Best Tax Deduction? [0:19:04]

Cory: I think the question I get most often is, what is the best tax deduction out there, right. So how do I, you know…what is the way I can lower my taxes the best, the easiest, the fastest, whatever you may want to call it, right. So, everybody has to pay taxes but nobody wants to pay more than their fair share and, in my mind, the best way, the best tax deduction out there, is the HSA.

Jon: Nice.

Cory: Health Savings Accounts are, you know, if you have an opportunity through your employer or, you know, if you're self-employed to start an HSA, if you have a high deductible plan, you can put in, you know, $3,850 if you're single or $7,750 if you're married in 2023 and just let it grow. It's an investment vehicle which you get a tax deduction for if you don't spend it on medical. It's a savings account so you can just let it grow. You can start investing that generally in mutual funds like the 401(k) and get market rate returns and just let it grow until you need it and everybody's going to need medical expenses at some point.

Jon: Yes.

Cory: And, you know, with aging population and, you know, all these different factors of life in general, at some point, you're going to need medical expenses. So this is like a way to build a medical slush fund is what I call it for, at some point when you need it, you get a tax deduction when you put the money in, you get tax-free growth, and then as long as you spend it on medical, it comes out tax-free. So, it's the best tax benefit out there. But, unfortunately, it's limited, so it's something you want to do every year for a long time to be able to build that up.

Jon: Yeah, agreed. No, that's totally true, and we're on the same page with that. We call it Triple-Tax-Free in a sense it's the only thing like that, right, that goes in tax-free.

Cory: It's the only thing out there.

Jon: It comes out tax-free, and then worst case scenario, if you're over 60, 65, you can take the money out without a penalty; you just got to pay taxes on it, but, you know, in that case then, it's just like a 401(k).

Cory: Exactly, yup. It's an effectively a secondary retirement account.

Jon: Yeah, so it's a no-lose situation and we definitely try- and I've even had conversations with many of our especially high-income clients where we talk about, hey, we try to pick their plan at the beginning of their job and pick their benefits and I'll kind of lean towards those HSA plans because that's something to note too. Not every plan, not every health insurance plan, qualifies to have an HSA. It's got to be a high-deductible health plan and that number of what makes it a high deductible changes every year but look for a plan that has an HSA that's a high deductible if you want to have that tax-advantaged account.

Cory: Right.

Jon: And you briefly mentioned this but that's the other piece is that they can be invested inside most of them. So, a lot of times, you get to pick your own provider whether it's Fidelity or Health Equity or WEX or whatever, Optum Bank. There's so many different providers that will also let you invest it and that's another one of those…you know. A lot of my clients, we've just, you know, put in some index funds the stuff that we know we're not going to use for health expenses real soon. You start to accumulate. A lot of them I've just said, hey, let's leave a couple of thousand in cash for we got to put it off for health expenses, but the other stuff, we're starting to accumulate – let's invest this – and it's really cool to see that piece grow as well.

Cory: Yeah, and this is where really talking to your client comes into play because some clients may have high medical expenses and don't want a high deductible plan because they want the insurance to cover, you know, some of it or most of it. So, if you have a lot of medical expenses right now, having an HSA may not be the best benefit for you.

Jon: Yeah.

Cory: This is, you know, something for people that are relatively healthy, have a high deductible plan and they know they're not going to hit that high deductible cap so you can start putting money away into a high deductible or a health savings account and then just let it grow. If you're going to be using it every year, it's great because you still get the tax deduction but then it doesn't have that long-term opportunity of growth and getting tax-free growth.

Jon: Yeah, it's not a bad thing if you've got high medical expenses.

Cory: No, it's still good.

Jon: As long as your deductible is low enough that it's covering it whatever you put in the HSA but, that is a good point and I'd be curious your thoughts on this. There's a lot of clients who have said, well, we plan to try to have a baby this year, and I may say, yeah, well, then maybe let's do more of a fully-covered, you know, high premium plan this year just to make sure and then once the babies are, you know, you're done having kids or whatever, we could look at an HSA plan.

Cory: Absolutely, yeah. I mean, you have to look at it year over year to see if it's still the best benefit for you.

Jon: For sure, something you're not locked into, you can change every year.

Cory: And then that money's there if you need it, you know. So, I had to have a kid that had braces this year so I used some of my HSA money for braces.

Jon: There you go.

Cory: So you don't pay for that out of pocket. So, it's there, it's available, just write the check for the braces and you're done. It's nice. It's nice to have available.

Jon: Yup. This year, I wanted to get bicep implants and so I've got my HSA.

Cory: Got it. Yeah, you could use it. You could use it for almost anything medical nowadays.

Jon: Yeah.

Cory: I mean, like Tylenol, you can buy with your HSA but I wouldn't recommend it but you can.

Jon: Yeah. I mean, yeah, you get a debit card and you can go do that. So, HSA…other topics that you feel like we're coming across that might be people surprised that they didn't know or they thought it was one way and it turns out it's another way. What's some topics you can think of?

You Can Do A 401(k) And An IRA At The Same Time [0:24:36]

Cory: I think one of the things that most people are surprised by is that you can do a 401(k) and an IRA at the same time.

Jon: Okay, interesting.

Cory: I think there's a common misconception out there that, you know, if you're covered by a 401(k) that you can't do any an IRA. Well, you can, but it's limited. So there's rules around where, you know, there are two different code sections of the IRS and I hate to get technical but, you know, there's two different code sections in the IRS tax code. One is it for IRAs and one is for 401(k)s. You can do them both independently but they both have their own rules and regulations and stipulations on how much you can put in each year. So, if you're covered by a 401(k) plan and you're making, you know, more than, I think, it's some $180,000 a year, you can't directly do an IRA but you can always put in to a nondeductible IRA and convert that to a Roth or put it in and leave it in as a nondeductible IRA. There's lots of different options you have there. You can always do both.

Jon: Yup. That's awesome. Yeah, that's one of those things that we get a ton of questions about backdoor Roth and that's one thing we'd love to talk about.

Cory: Right.

Jon: In my mind, it's one of those and I think, Cory, you and I have had this conversation like, hey, yeah, while it's go in about…

Cory: Many times. Many, many times.

Jon: Yeah, out there let's do it.

Cory: Yeah.

Jon: It's going to be around forever.

Cory: It's one of those things that the backdoor Roth, you know. It utilizes two loopholes in the tax code where, you know, the first one being that there's no income limit on a nondeductible IRA contribution. You can make 10 million dollars a year and still put in $6500 this year into a traditional IRA or $7500 if you're over 50. No matter how much money you can make, you can put it into a nondeductible traditional IRA. Then the second loophole is there's no income limit on converting from traditional IRAs to a Roth. You can make 10 million dollars a year and convert any IRA money you have from a traditional to a Roth. It's a backdoor Roth. It's simple, it's easy. You can put it in, you know, $6500 a year and, if you keep doing that every year, you know, for a long time, it built up.

Jon: Yup. One of the things that I have found as people ask, well, what makes a nondeductible IRA. I'm like, well, it's not the IRA. It's the way…

Cory: Function of deducting it or not, right.

Jon: Yeah, you're right. So how do I make a nondeductible contribution? You just don't deduct it.

Cory: Right, exactly.

Jon: Because people assume just because I put money in an IRA and now it's deductible. No. Now it can be deducted, but you determine that when tax time comes.

Cory: Exactly. So, it's just a traditional IRA, right. So there's really two types of IRAs – traditional and Roth. So if you put money into a traditional IRA and don't deduct it, it's a nondeductible traditional IRA. If you deducted it, then it's a deductible traditional IRA, but you have to keep track on that on a separate form in your tax return. So, Form 8606 that you keep track of whether it's, you know, whether you took…if you didn't take the deduction and you keep track of it there as per nondeductible traditional IRA contribution. Once you've converted it to a Roth, then you keep track of it as a Roth contribution.

Jon: Okay. So you can have an IRA with some deductible contributions and some none inside the same IRA?

Cory: Yes.

Jon: Okay.

Cory: It gets messy and I don't recommend it because, you know, you're going to drive your tax person nuts doing that.

Jon: Yeah.

Cory: I like to try and keep it clean where if you're going to do a nondeductible traditional, either keep it nondeductible or convert it to a Roth.

Jon: Got you.

Cory: There is one, you know, major stipulation out there that, you know, a lot of people don't know about is if you have other traditional IRAs so, say, you take a 401(k) and you convert that to an IRA from your old job, now you have an IRA sitting out there, if you put in a nondeductible traditional IRA contribution, you have to pro- they call it aggregation rules, so you have to prorate the traditional nondeductible and the deducted nondeductible or to deduct deducted IRA in a conversion to the Roth, so try saying that fast.

Jon: Yeah.

Cory: It's really the aggregation rules that if you have any other IRAs out there, it make the backdoor Roth more complicated.

Jon: So what's going to happen? What's the negative if you don't do it right?

Cory: You end up having a mix of deductible and nondeductible that you're not taking credit for. So if you don't keep track of the basis – the deductible basis – then you end up… you could end up paying tax when you take the money out on stuff that's nondeductible.

Jon: That you've already paid taxes on.

Cory: Right, that you already paid tax on, right.

Jon: Okay, so it's not a bad idea to do a backdoor Roth if you've got another IRA out there. You just got to be…

Cory: Careful about it.

Jon: Either convert or be very meticulous about the tracking the numbers.

Cory: Yes.

Jon: Okay.

Cory: Track it really well, or you can convert all of the other traditional IRA out there.

Jon: You know, and that's great. That's a good point. That's a lot of recommendations I make. I find that – and this is probably true for you too – there's certain recommendations that is just general like, hey, at least think about this in your last year of residency; one of which being when you go into practice, you got a half-year of a resident salary and then a half-year at an attending salary, give or take, and probably, if you talked to us anytime you're in residency, you probably put some money in your 401(k) or 403(b) in your residency even if it was just a 5 percent.

Cory: Right.

Jon: And I often – again, this is not necessarily financial advice, everybody's situation is different – but I often tell my graduating residents – let's go ahead and convert that. It's $5000 in your 401(k). Let's just- this is going to be the lowest tax bracket you're going to be in for the rest of your life this year. Let's convert that to a Roth and then we can start the backdoor Roth free and clear…no other pre-tax money.

Cory: That's kind of the best reason to do it, you know, and I always say, look, it's only $5000 or whatever it is…even if it's $50,000. You can do it $5000 or $10,000 a year for five years. You can do any amount in any year you want. There's always the ability to convert from a traditional to a Roth.

Jon: Yes.

Cory: So, if you have $50,000 and you only want to do $10,000 a year, we'll do it for five years in a row and then you're done.

Jon: Yeah.

Cory: But converting it to a Roth makes more sense tax-wise over your lifetime because, again, a traditional IRA, if you put money in now, you get a tax deduction now. Great, you know. You put in $6000, you get $1000 off in your taxes – great, you saved $1000. But when that $6000 grows to $100,000 when you retire, now, in a traditional IRA, when you take that money out, you have to pay tax on every single penny of that $100,000.

Jon: Yes.

Cory: You've just created $20,000, $30,000 of taxable income or tax on that income that you've created.

Jon: Yup.

Cory: When you put it…when you convert it to a Roth, you pay the tax now – okay, great. You pay tax on $6000 – fine. When it grows to $100,000, you can take it out with no taxes at all. You've just saved tax on $94,000 of income.

Jon: That's great, yeah.

Cory: It's an amazing…

Jon: Way to put it.

Cory: The Roth IRA and Roth, even 401(k) is just an amazing tool for long-term growth and avoiding taxes; basically getting tax-free growth rather than tax-deferred growth.

Jon: Yup.

Cory: And a lot of people – and the other misconception out there that I, you know, I don't even know how it happens is, you know, you get these physicians that are making 250, 300, 400, 500,000 a year and for some reason, they've been told along the way – oh, I make too money to be able to put into my Roth so I'm only putting into my traditional 401(k).

Jon: Yup.

Cory: If your company has a Roth 401(k) plan, it doesn't matter how much money you can make. You can put money into the Roth 401(k) plan.

Jon: Yup.

Cory: And I get that – oh, I can? Yeah, put money into your Roth, you know, to save the…you're going to pay tax now. Yes, but that, you know; this year, it's 22,500 that you can put into a Roth 401(k). Put that in the Roth, let it grow tax-free. That way, you never have to pay tax on it again.

Find Yourself The Right Financial Advisor [0:32:54]

Jon: Yeah. There's so many things like that that we find that it just brings us back to that point of finding an expert that you like and you trust and you know has your best interest in mind because you guys as doctors, you know so many things about so few areas and that's true of anybody. We've got specializations; each one of you has a specialty even if that specialty is primary care, you're really good at that, you know a lot about that, and trying to become an expert in something else like personal finance or real estate or any of those things like, can you do it? Yeah, I'm not going to argue with The White Coat Investor and say you can't be your own financial advisor – for sure – but it takes a lot of work and a lot of knowledge that a lot of people just don't have the time or the desire to do or you've got families or you've got just other hobbies or things you want to do that to come in and say, well, I thought 20 years into your career is your fault, like getting misinformation is so much more likely when you're doing your own financial planning on the internet versus finding somebody that knows what they're talking about, that has the experience, that knows your situation, and obviously, I'm preaching here. You guys are listening here and you've heard me say this before and you know this, at least if you're listening to this, you found some good information. But, taking that time however long it takes to find the right person to give you that information and know that this is good information. This person has been doing this a while, they've got the certifications, they've got the knowledge – that thing can save you so much money. Like Cory said, 20 years of putting in a traditional 401(k) versus a Roth like, you can't fix that. There's no way to go back and make that different.

Cory: That creates a lot of tax down the road, and you have to find somebody that can explain things simply, right. Anybody can complicate the hell out of plans. I mean, there's lots of attorneys and financial advisors and CPAs out there that will, you know, explain things in ridiculous detail just so you don't understand it. That means they don't understand it. If they can't break it down so you can understand it, that means they don't understand it.

Jon: Yeah, it's a very good point, and there's certainly a lot of investment strategies and portfolio managers that have talked to me before and then I try to convey that to a client. I was like – okay, I'm going to be honest. You've got a good track record; I don't know why. Maybe we'll stick with just some little more simple strategies.

Cory: Let's figure out something we can understand and explain well and have good returns.

Jon: And it'll probably be just as good.

Cory: And probably just as good, right, generally, yeah.

Jon: Yeah.

Cory: Save some money in the long run.

Jon: Yeah, well, good. So, if it had to be one piece of advice that you gave to a resident in their final year, what do you think would be one takeaway that you would want them to know?

Cory’s Piece Of Advice To Residents [0:35:50]

Cory: I think it kind of reiterates what you were just talking about. Focus on what you do best. You've gone through residency. You've gotten your education. Focus on your career and delegate the rest. Delegate the financial advising. Delegate the, you know, legal work. Delegate…you know, find an attorney that can review your contract when you're signing a contract. Work with the CPA that can help you get your taxes done. Delegate the things that you don't know about because it's not worth the time and effort of you learning. You need to be educated enough and understand enough to be able to asking questions, but, you know, delegate the things that you don't want to know how to do. I give the example all the time that my brother showed me how to change the oil in our car when I was 16; he was 18. I did it one time. I will never do it again.

Jon: Yeah, yeah, that's an example.

Cory. Right, because it's not something that I want to know how to do. Could I figure it out? Yeah, it took me a couple of hours. I'd, you know, figure out may have to go to the store to get more parts and the supplies and I could get it done but I still want to know what to do with the oil when I was done, you know.

Jon: Yeah.

Cory: The oil that came out…what do I do with it? I could spend hours doing that or I could take it and in 10 minutes at the oil change place, pay somebody to do it. Why wouldn't I do that? It's an example of, you know, it's a simple example but it's an example I use a lot because it's effective. I know what I know because I've been doing it for 25 years. I'm really good at it. I love what I do and I love helping people and answering questions and, you know, for me to go out and learn how to remove my daughter's appendix if she needs that surgery, I'm never going to do it.

Jon: Yeah, yeah. If we're in a pinch and I had to do it, like sure, I might have to go to the store and get some other parts and things but, yeah.

Cory: I'm not going to throw my daughter on the kitchen table and Google how to, you know, take out her appendix. That's just…yeah.

Jon: Oh, that's excellent.

Do What You Do Best And Delegate The Rest [0:37:56]

Cory: We have people who are educated in this country for a reason, you know. Do what you do best and delegate the rest.

Jon: Yeah, no, and certainly, you know, people have been screwed over by insurance agents posing as advisors.

Cory: Right.

Jon: Or, you know, getting bad advice anywhere but, you know, that's why we always ask the question, you know, a. get a referral, find some testimonials – those are fine – and find out how this person is getting compensated; you know, that can get a piece of it as well, and understand conflicts of interest and all that kind of stuff.

Cory: Right.

Jon: Be a savvy researcher as you're looking into this but, yeah, and just be smart, you know; understand the recommendations as best you can. Ask questions.

Cory: Ask questions, right.

Jon: Yeah. Work with someone that makes it a collaborative process; that has no problem educating you and helping you understand as much as possible.

Cory: Right, and if somebody, you know, any advisor ever says – oh, it's fine, we'll just do it and don't worry about it – no, that's…they need to be able to explain it.

Jon: Yeah, exactly; that means there's something they're not telling you probably.

Cory: Right, you got it.

Jon: Cool. Well, I think we're at the end of our time today, but this has been great, Cory. I think this is a ton of great information that we've never had in a previous episode and just getting people to get to know you and understanding, seeing behind the curtain of a CPA and how that whole process works. If people want to reach out to you for anything, what's the best way to get a hold of you?

Cory: Best way to get a hold of me is my email: cory.lee@ahpplc.com. I'm not sure if you can post that somewhere.

Jon: Yeah, we'll put in the show notes for sure.

Cory: Yeah, it's easy enough to get a hold of me by email. I'm always happy to help, answer questions, be a resource, and I always enjoy the time and appreciate you having me on. It's been great.

Jon: Yeah.

Cory: I always love chatting with you whether it's the dinners or just in person over lunch or, you know, just phone calls catching up but I think it's always enjoyable to share information.

Jon: Yup, and for the record, full disclosure: Cory does my taxes – there you go. Like that tells you anything. All good. Well, guys, thanks so much for joining us for the Financial MD Show. This has been another great conversation with some good tips. Hope you're taking notes. We've got links to everything we've talked about in the show notes. Be sure to leave a review because that is key for getting this information into the hands of other young physicians that don't necessarily know what they're doing in their personal finances but would like to get better. So, leave a review, share this with somebody, subscribe, and then join the conversation on our social medias – on the Instagram; we've got TikTok blowing up, Facebook, and Twitter. So, join us on all those. We'd love to see those get to the point where it's a well-known resource for young physicians to get good solid financial education so. And, of course, check out financialmd.com for links to all of this, and if you're in the Detroit area, September 27th, come join us for dinner and love to see you. So, we'll talk to you guys soon. This is John from Financial MD, we'll see you next time.

Resources and Links:

What is Business Valuation? – https://www.wallstreetmojo.com/business-valuation/
What is a CPA? – https://www.becker.com/cpa-review/what-is-a-cpa
Certified Valuation Analyst (CVA) – https://www.nacva.com/cva
CFP: Certified Financial Planner Definition – https://www.nerdwallet.com/article/investing/certified-financial-planner
What is Risk Tolerance? – https://corporatefinanceinstitute.com/resources/wealth-management/risk-tolerance/
Health Savings Account (HSA) – https://www.healthcare.gov/glossary/health-savings-account-hsa/
Triple-Tax-Free: What it is, How it works – https://www.investopedia.com/terms/t/tripletaxfree.asp#:~:text=What%20is%20Triple%2DTax%2DFree,municipal%2C%20state%20and%20federal%20levels.
Fidelity Investments – https://www.fidelity.com/
HealthEquity – https://www.healthequity.com/
WEX Inc. – https://www.wexinc.com/
Optum Bank – https://www.optumbank.com/
Index Funds – https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-4
What is a 401(k) Plan? – https://www.nerdwallet.com/article/investing/what-is-a-401k
What is an IRA? – https://www.bankrate.com/investing/what-is-an-ira/
What is a nondeductible IRA? – https://smartasset.com/retirement/what-is-a-non-deductible-ira
Roth IRA – https://www.schwab.com/ira/roth-ira
Backdoor Roth IRA: Advantages and Tax Implications Explained – https://www.investopedia.com/terms/b/backdoor-roth-ira.asp
What is Aggregation? – https://corporatefinanceinstitute.com/resources/wealth-management/aggregation/
(403) Tax-sheltered annuity plans – https://www.irs.gov/retirement-plans/irc-403b-tax-sheltered-annuity-plans
The White Coat Investor – https://www.whitecoatinvestor.com/
Cory Lee’s Email Address – lee@ahpplc.com
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

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View Details

Summary:

Dave Hall's Journey Into The Real Estate World [0:03:26]
One Can Make As Much Money Doing Easy Flips [0:07:13]
How And Where To Find Profitable Deals: The Process [0:09:57]
Your Network Is Your Net Worth [0:13:52]
For A Novice Investor, Should You Get Into Flips Or Into Rentals? [0:20:22]
Let's Talk About Tax Benefits [0:24:07]
Things That Dave Wished He Knows Then What He Knows Now [0:29:42]
Here Are The Numbers On Some Of The Deals [0:32:26]
Advice To Would-be Investors [0:35:28]

Jon: Welcome everybody to the Financial MD Show. This episode is a little different. Dr. Trevor Smith is not joining us today. He's a super busy guy with a lot of fun exciting things going on. But today, we have the pleasure of hearing firsthand answers to some questions that a lot of you have – a lot of you asked me directly or through social media or comment or whatever – real estate investing. We see a ton of articles about that from the different bloggers whether it's White Coat Investor or Physician on FIRE or any of those wonderful guys. It's a huge topic when it comes to physicians and financial planning and the reason is physicians are quickly reaching limits on things like 401(k)s or backdoor Roths or any of those things that we typically do recommend and then it becomes the question in two parts: Number one, where else can I put my money that's tax-advantaged and going to grow and be a good investment, and number two, in addition or just on its own, the question of where can I generate passive income; that's again, especially in the FIRE Movement of becoming financially independent and retiring early. Passive income is always the question. So I thought a little treat for you guys would be to bring in someone I know well; somebody I trust that could give us some real answers and firsthand experience and you'll get to peek under the hood, so to speak, and see how is a real estate investment made and not in a huge syndicated end yet as far as like Fundrise or some of those things, but let's look at a local real estate investor that's putting together deals offering to investors. Some of our clients at Financial MD have looked at and you'll be able to maybe get some answers; maybe it creates more questions, but that's okay. That's what we're here for. So, again, full disclosure: This is not a financial recommendation or personal advice. We can talk about that individually, but this is purely informational purposes only but let's jump into it. My guest today is Dave Hall with Achieve Real Estate. How is it going, my man?

Dave: Good, thanks for having me.

Jon: Yeah, absolutely. Well, I'm excited because this is something I love to talk about…something I'm involved in…and you and I have had several conversations about it and we've known each other for, I mean, really, 20, 25 years anyway; probably, if we were to really go back. But I've seen you grow and I've seen you start from scratch and grow, I think, even though you may not recognize it, a pretty legitimate successful real estate empire. So, you know, as you look back over the last seven or eight years, I'm sure you see that now but along the journey it's not necessarily easy to see, so as opposed to I mean, yesterday, I guess, Dave, tell our listeners what we are, what you do, and kind of a snapshot of your business today.

Dave Hall's Journey Into The Real Estate World [0:03:26]

Dave: Yeah, so Dave Hall, based in Lansing, Michigan; born and raised here, and I read a book called Rich Dad Poor Dad when I was in high school and it made me decide to go into real estate full time. So this was right around the 2008 crash is when I graduated and wanted to flip houses; not the best time for flipping, so I bought some properties and renovated them but couldn't sell them so I rented them and that was kind of what I was doing for a while part-time, and then over a few years, I had accumulated some rental properties and the market was getting stronger so I decided to get back into flipping and started selling some as well as keeping some. And so pretty much for the last 15 years, that's what I've been doing. I buy properties. I started off using my own money in traditional financing which moved at a much slower pace and so I pivoted to using hard money which is, you know, higher interest loans, more risk to lender, and therefore, you have a higher payout but it allows investors to move quickly in and out of flips or to get loans that they might not otherwise be able to get. And then over the last couple of years, I've been using primarily private funding from individuals; sometimes from their IRA, sometimes just from their savings account and they fund the purchase and the renovations of the properties that I'm doing, and then once they're renovated, I pay to refinance after we have a renter in there and pay the investor off or I sell it and then pay the investor off with the sale and, again, that caused me to pivot again because now I'm realizing that I can't get to where I want to get to by buying, you know, a duplex here or a single family there. So we did 12 flips last year just to kind of talk about numbers, but that is still too slow of a pace and so I'm pivoting now into apartments and multi-family deals. I'm, you know, toying with some other different commercial assets but that's kind of where I'm pivoting to since I've built a bit of a track record using private money to put that money into smaller deals and some of those same investors now to pivot into bigger deals. For example, last Friday, we closed on a 15-unit. I was able to raise the down payment from a private local investor that I met here in Lansing and so we bought the property. We renovated. The investor gets cash flow each month and they're a limited partner so they're not involved in the day-to-day. They just wired their funds at closing. We operate it here with my team and send them their check each month and it seems to be a win-win relationship. So that's kind of where I started and where I'm at and then that's kind of where I think the future of my company is going.

Jon: Okay. So you said it was Rich Dad Poor Dad that got you into this and we'll put a link to that in the show notes and probably most of you have heard of this book. I read it; I think I was in high school when I read it as well and probably no coincidence that Dave and I are both business owners now, but you decided real estate was a thing. You got into in 2008. Flips weren't really happening. You got under renting and so would you say that, you know, the growth of your business has not only been in the number but in the size of the deals, the properties, that you're looking at; the investors, the money that you're looking for…all that kind of stuff?

Dave: Yeah. I mean with each deal each year, you know, I'm getting sharper and more specific in what I'm looking for. You know, I think a lot of people when they jump into flipping, they've watched a few shows and they think that "let's buy a house and gut it down to the studs and put it all back together," and that's great for, you know, social media or for a T.V. show but not good for reality.

One Can Make As Much Money Doing Easy Flips [0:07:13]

So I actually started doing the big heavy flips like that and quickly found out that you can make as much money doing an easy flip which is more of a paint and carpet and cabinets rather than gutting the whole thing. So I started off doing the heavy flips and then now I pass on the heavy flips just because I can do…there's enough opportunity out there to not have to do such a heavy flip on each project in order to do the scale that we're trying to do. We try to stick to lighter flips, but yeah, I mean, we've done it all and I just am realizing now there's easier ways to do the same thing.

Jon: Yup, okay. Can you give us a breakdown of your business today? Maybe some numbers in terms of properties, deal sizes lately…that kind of thing?

Dave: Oh, yeah, so we just tipped over a million dollars of private funds borrowed from private investors so that's kind of a milestone but we have about, let's see, I think 85 rental units that we own in our own portfolio. We have a management company that manages those as well as some properties for other investors, and then we're licensed agents as well so we do a fair share of, you know, helping clients buy and sell as well as invest. If they want to buy a rental property, if they want to buy their own flip or sell their primary, we help with all of those things as well. So over the last maybe three years, I think we've done, let's see, maybe 30 million dollars' worth of real estate transactions on the brokerage side and then over the last year, I think we probably bought and sold 40 units in and out of our portfolio because it's constantly…sometimes a really good deal comes up that we'll buy and we don't want to necessarily hold it but because of circumstances we have to hold it for a little while. Typically, that means we're buying from a tired landlord who has bad tenants so we buy always from sellers that have some sort of motivation or a problem you can fix. So if it's a tenant, for example, we buy the property, we help the tenants relocate if necessary, fix the property up, and then once it's cash flowing positively, we can put it back out on the market and sell it. So, we're constantly evaluating our portfolio and figuring out, you know, which properties we can get rid of and roll the money into something bigger and better and which ones we want to hold as kind of a long-term generational plan for my family and for our business.

Jon: So, tell us about how you find these deals. I think everybody wonders…okay, seems like you're finding profitable things. How do you find that and how has that process evolved over the last, you know, 10 years of you when you started to where you are today of how you identify these and gotten more efficient at that?

How And Where To Find Profitable Deals: The Process [0:09:57]

Dave: Yeah, so that was the tricky part. In 2008, everything was a deal, you know…everything…and there was a lot of opportunity. But through the years, I mean it's kind of difficult; the average person thinks that you start on the MLS which is…I mean, there's good deals on the MLS where I just bought one…I'm closing on one in 10 days that I found on the MLS, so there's still good deals, but the MLS is where all the competition is and so off the MLS and not buy through agents and try to buy off market or go direct to seller – that's a really good option. So for a while, I was doing what's called wholesaling and for anyone that's not familiar with that, that is where you market to find some sort of motivation. So, typically, you buy a list, maybe it's a landlord who's owned a property in a different state or maybe it's…you know. I mean, there's all sorts of…you know. You can send a list to recent divorce couples. You can send letters to recently deceased people to probate. There's lots of different lists you can mail...so that wholesaling is you find a motivated seller, you get the property under contract, and then you sell that property or that contract to someone else. So, you find the deal, let's say, for 25,000 and then you find an investor that wants to flip that house for 30 and buy it from you for 30,000 so the wholesaler makes that 5,000 dollars in between. And so that works; there's a lot of people doing that as a full-time business, but it's very transactional. So as soon as you do all the work, you find the deal, you close it, you get paid, and then you got to start over. So, I'm familiar with wholesaling and we've done it and we still do some marketing to direct to sellers but we've pivoted probably last year and now we buy it from wholesalers instead of being the wholesaler, so we're paying these out to other people to bring us deals. But because of the volume that we do, we're able to sometimes get first dibs on some of those deals because they know that we can close and we can close quickly. So a lot of my deals come from wholesalers. They'll get a deal under contract, they'll send it to me, I can evaluate it, and then if I think it's a good deal, I'll send it out to my investors list to see if anyone wants to fund it, anyone who wants to get it…from the investor goes forward with it…the due diligence process is inspecting it and coming up with our quotes and if everything works out, we've typically can close rather quickly just a couple of weeks after sending it out to our investor list.

Jon: So you've kind of established these relationships with wholesalers to be able to find ones you trust, ones you know who are good at finding the deals, and that's kind of, in a sense, they're finding the deals for you a lot of the time now.

Dave: Yeah, and also intentionally, I established myself as an expert in my mark by leading our local real estate investors group, so we have a Facebook group which about 2500 members and then we have a couple monthly meetings that I lead and so kind of by being the face of that organization, a lot of new wholesalers and new investors will come and they don't know where else to pitch a deal or to, you know, who else to partner with so they come to me and then I can kind of get first dibs on some of those deals that way as well.

Jon: Okay. Is the investing group open to anyone or the public?

Dave: Yeah, it's free. We meet monthly and there's a Facebook group which is where I share all the events. Yeah, it's free to join. If anyone's interested in real estate, it's a really good spot to get in and just where you can read posts from other people. You can get recommendations for contractors and plumbers and that type of thing as well as, you know, just read through other people's experiences and stories on what's working and what's not.

Jon: Yeah, great, okay. Well, we'll put a link to that if that's all right in the show notes and people can follow up and dig deeper into that if they want to. Where do you feel like in addition to experience or School of Hard Knocks, let's say, where have you learned the most and gotten some of your education on doing this and getting better at this?

Your Network Is Your Net Worth [0:13:52]

Dave: Yeah, so over the last couple of years, everyone's heard, I think, that your network is your net worth and so by leading the group, I started to network a lot and get really good relationships and to be more intentional about that, I joined a couple of national groups over the last couple of years that we meet quarterly all around the country and because we're not necessarily in competition because we're not in the same market, there's a lot of opportunity to share resources and what's working/what's not working. So I go to these groups, I meet these people, and I can come intimate what they're doing, you know, what's working for them in their market, here in my market, so that's been beneficial and so then I joined multiple of those groups and that's where I'm starting to grow and realize how easy it can be to put a deal together that I thought was once complicated. For example, the apartment deal I just bought, it seemed really complicated upfront but once I talked to, you know, my attorney and my bookkeeper and my accountant and everyone was on the same page and we had the team kind of rowing in the right direction, everything kind of fell into place and that deal was an off-market deal as well that I got from my networking group. A private individual connected me with the seller and he was getting ready to sell but hadn't listed yet so I was able to buy that one, put the money together from an investor for my group, and you know, have it all come together. So from these national mastermind groups, I think it has really accelerated my growth over the last couple of years which allowed me to go from, you know, 40 units two years ago to 70 units last year so by the end of this year, we should be over 100.

Jon: Okay. So I think this is a good point to point out that someone may look at this individual incident and say, "Oh, you got lucky; good deal they connected you before I put on the market," this and that, but you would probably trace it back and say, "I didn't get lucky…I put the work in to get these connections," took the time to build this network, not knowing what it would produce but knowing it would…it should…and more just a numbers game, I would say, of growing that network and stuff just happens, right?

Dave: Yeah, it only took me 10 years to be an overnight success, you know; it's how people see, but yeah. I mean, things are definitely rolling quickly now but just exactly as you said, it took a really long time to get. There are lots of trial and error. I remember the first time I was raising money from a guy I worked with and neither one of us knew what we were doing, you know. Do we call an attorney? Do we call an accountant? Do you just give me the money there? Like how does all of this work? And we just kind of fumbled through it, you know. He trusted me and I trusted the deal and it worked out really well and he's funded five of my deals since then, but I mean, the first couple were really, really rocky and now things seem to be going smoother but it's only because things were so rough in the beginning.

Jon: Yeah, that's going to happen. You got to expect that. I think a lot of our listeners are, being that they're physicians, understand that process that there's not an overnight success. You know, they go through four years of undergrad, four years of med school, three plus years of residency before they start making any decent money and tempting for people to look at doctors and be like – dang, must be nice, you know, how to just start making that – and like, well, it certainly takes a good investment of time on their end and money. I mean, our average physician has like 250 to 300,000 dollars in student loan debt. So, everything's an investment, right?

Dave: Yeah, absolutely, and it's tempting I think to once you find a little bit of that success to try to, you know, live up to a certain standard or level where people, I think, that really build a generational wealth are probably the people that you're talking to or the people that are being intentional from the beginning about their investments and diversifying and, you know, trying to not get too comfortable in a certain lifestyle too soon without putting, you know, planting some seeds early. Actually, real estate, the houses I bought back in 2008, they have gone up in value, you know; some five or six times what I paid for them and it wasn't because I was a genius and bought at the right time, it's what everyone says – in real estate is that you don't wait and buy real estate, you buy real estate and wait and, you know, over time, it always works out.

Jon: That's true, yeah, and I think that's great. I've heard that same thing with real estate, with land, with whatever – always appreciates – and that's exactly a point that our listeners can take too. One of the things that we find with physicians is they get out of training, they get into practice, and they start making the six figures and they want to keep up with the doctors around them that they're not working with and have a decent, you know, nice house and a doctor house and a doctor car and trips and all that stuff and they may make a decent income now but it's getting blown on stuff and they're not doing the smart things with the money that they should. They're not starting to save early. They're not paying off debt. They're not getting into some of these things that long term will make them look successful or do the things that they want to do but you wouldn't believe how many doctors I've met with that are 50, 55 years old and really have nothing to show for it because they've gotten this lifestyle. We call it lifestyle creep where your income goes up and your lifestyle kind of goes up to keep up with it and as your income goes up a little bit, your lifestyle kind of creeps along with it.

Dave: Yeah, exactly, and before you know it, you look up and like you said, you don't have much set aside and even if the money you have set aside is substantial, in order to maintain your current lifestyle, what's the current rate of inflation, you know, most people, I think, are not saving enough in which one reason I would say is that it typically rides the wave of inflation and, you know, you can get your debt essentially eliminated by inflation as long as your interest rate is less than the inflation rate, and so by buying property or aligning your interests with inflation and real estate, you kind of ride that wave and it can work out really well.

Jon: Yeah. So a lot of novice investors that want to get into real estate are asking the question – should I get into flips or should I get into rentals? I mean, what would you say to somebody?

For A Novice Investor, Should You Get Into Flips Or Into Rentals? [0:20:22]

Dave: So I get that question sometimes as well and some of my investors are, you know, high-income earners and so I think that there's the appeal of doing a flip because it looks so fun on T.V. and it can't work out.

Jon: The numbers say in six months, I can, you know, get 20 percent.

Dave: Yeah, exactly, but if you really pencil it out the stress and the hours involved with doing the flip, if that's not, you know, your main skill set, I think that it probably makes more sense to do investments either with a partner that's more experienced with flips or to do rentals because rentals they don't produce a ton of income initially but it's that appreciation where you really see the long-term gains when it comes to real estate. So a lot of the high-income earners I see that jump into flipping are disappointed and, you know, if you're making 200 bucks an hour as a doctor, let's say, and then you get into a flip and you make 20,000 dollars but it took you six months and it took you, you know, hundreds of hours to put all the pieces together, you're making money but you're losing money when it comes to your highest and best use and so if you can double down on, you know, maybe work overtime hours or something if that's really the case at your higher wage…that's your highest and best use…and then roll that extra money into something else whether it's putting it with an experienced operator or just putting 20 percent down on a rental property and hiring a property manager, that's probably going to keep you more sane and make it easier to scale a portfolio rather than be in the nitty-gritty and in the day-to-day operations of running a business on the side.

Jon: Yeah, that's good and that's interesting because the question that I ask in any of our financial planning conversations are goals-based questions – when do you want to achieve this…how much do you want...which, you know, long-term, let's say. We always think long-term – sure, that makes sense. They know that. When we ask the questions, you know that this is long-term investment – yep, got it…you know. The stock market might be 10 percent a year, give or take, that's great – that'll get us to our goals if we save this much – but then when it comes down to the nitty-gritty, "Oh, you know, I only made this…it took me this much or this rental I got is only cash flowing this." I'm like, "Hold on, we said long-term" – and that's a lot of what it takes is coming back to that conversation of – we know in our heads this is long-term and it should be but in our gut we don't…you know, we want it to be cash flowing, very profitable short-term, but as you said, that's not the way that wealth is created especially not generational wealth in a long-term legacy. Our example, you know, as we got into it a year and a half ago with getting our first quadplex is, you know, is it profitable right now? Yeah. I mean, we put some stuff into it that we're paying off right now. We're slowly raising the rents that we think is a reasonable rate and that kind of thing, but I'm not looking for it to like pay my personal expenses right now for me and we can talk about this a little bit. For our high-income earners, I was looking for something that was more tax-advantaged investing, you know, Roth IRA, that's nice but you can only do 6500 a year there; 401(k)s…those things...but real estate has so many advantages to it I say and I know you would say. Talk to me about that when you're talking to somebody and in your experience…I know you're not obviously a CPA or financial planner…but when you talk about some of the tax benefits or other benefits of doing real estate investing, what does that look like to you?

Let's Talk About Tax Benefits [0:24:07]

Dave: Yes, so the tax benefits, so I have a lot of investors that are using their IRA, a self-directed IRA, to interested fields and so that money can continue to grow, you know, tax-free if they lend me out of their IRA and I do a deal and then pay it back into the IRA, so that's one way to get typically above-average returns. You know, I can't promise…nothing certain, but our investors have definitely seen above-average returns on the deals that they've done with us and then same with larger deals and typically for high-income earners, if you can somehow figure out how to become an active real estate professional. So, for a lot of them, it's their spouse gets licensed but I think there's a minimum hour amount that you have to do each year in order to be considered active. By being active, you can take active losses as well, and so on the larger apartment syndication deals, there's a large amount of depreciation that we can take which is just a phantom expense against your income, and so if you can be considered active in a partnership for an apartment syndication, there are some really large tax advantages that you can get that can drastically eliminate what you're paying in taxes from your ordinary income.

Jon: Yeah, that's huge. In fact, this year, and the last year too, we've been talking to our clients about bonus depreciation with short-term rentals and a lot of them want to get into that because they want to get their own lake house but they don't have time to use it a lot. They wonder if they can make money on it – sure – but we talked about something called bonus depreciation which we can get into a little bit here, but probably, we've got some more resources on it. Essentially, as Dave said, if you're an active participant which for our clients, again, it's usually a spouse – the non-doctor spouse – in our case, in short-term rentals, they're managing the property. So they're handling any updates, remodel upgrades. They're then handling the marketing, getting people in and out in the turnover, you know, remotely because it's probably an up north property or something but that allows them to take that depreciation that they take and with bonus depreciation in terms of short-term rentals, you can take 60, 70 percent of the depreciable value of that in the first year against their doctor salary as well which is huge. I don't know where else you can find something like that.

Dave: Yeah, that is a huge tax-advantaged, but again, you want to align your interests with what the government is wanting you to do, you know, so they get taxes to people to do exactly what they want done and so that, you know, the tax law is not rules. It's kind of guidance on this is how you can save the most money.

Jon: Yeah, that's a good way to look at it.

Dave: That they point to to say, you know, if you don't want to pay your taxes, we need real estate managed by private individuals so please buy real estate and we'll give you a tax advantage to do so. So, you know, why not take advantage of that.

Jon: Yeah, absolutely. Then on that note, solar firms…you want to build solar firms apparently is what the government is saying right now.

Dave: Yeah, not everything the government says it makes sense in the long run but by all means…I mean, I see people that are making money on those even in the short-term. It's just a matter of in the way of politics and the economy and trying to figure out where there's an opportunity, you know. So you mentioned some rentals, I think that 2024, you know, whether we're in a recession or not, I think things are going to probably…and I say this because I've been studying the Orlando market pretty heavily because we want to pass some rentals there and bookings have dropped, I think, 30 percent in the Orlando market.

Jon: Yeah, we've got to wait for the housing crisis to come down with that, right.

Dave: Exactly, yeah. So if someone bought last year a short-term rental based on current income and now there's a drop, there might be some motivation there. So, economists are saying that maybe in 2025 things will get better and so that means there may be opportunity in this season to buy from, again, motivated sellers that might have overpaid or maybe their life changed now...they don't need the property anymore. So it's just a matter of kind of staying aware of the real estate market, and you know, microeconomics and macroeconomics of what's happening and then trying to find opportunities with whatever's happening, you know, and anytime you can buy something whether you overpay or not, I think the market will make that correction for you long-term but you can align yourself with what's happening and try to take advantage of and you're really helping someone else out of their problem, you know. If they overpay for a property or if they need to sell quickly for whatever reason, being able to offer them an opportunity to sell when they need to make sense and then if you can get a discount price for helping them in that area, it can be a win-win situation and then as the economy continues to ebb and flow…as it continues to go up overall…I think that's where, you know, real estate is really profitable.

Jon: Yeah, it makes sense. So when you look back at the years you've grown in this as you've grown your business, what are one or two things that you would say to yourself when you were getting started that you know now that you wish you knew then?

Things That Dave Wished He Knows Then What He Knows Now [0:29:42]

Dave: Probably, some of the lessons that I learned that were harder, I probably could have avoided had I, you know, been more aware or even just followed my gut on some things, I had the idea of doing all the work myself in the beginning and that was a great learning experience but it was probably something I could have leapfrogged by hiring contractors at the beginning. And, yes, you pay more and you make less but the difference at the time was doing, you know, one flip a year and making, let's say, 20,000 compared to doing three flips a year and making 15 each, you know. So I'm making less with each deal but as I'm able to scale, I can make less on each deal and still make more overall. That was a big lesson learned and so now I have crews that do all of my work and I'm not involved…I'm not swinging the hammer, as they say, anymore which allows me to spend more time networking and finding better deals. And then the other thing is just the power of networking and aligning yourself with other individuals. So now that I have some private lenders and that's primarily how I'm using, I'm able to move much faster than my competition. We're able to get in and out of deals and it just makes everything easier when you're dealing with individuals compared to institutions. You know, most people think I'll go to a bank; put down 20 percent. I have to wait for an appraisal…have to wait for a bank committee…and the banks, as we saw the last six months, you know, their interest rates shot up from probably 3 percent to 7 percent. I was just looking at that. Actually, the average mortgage rate for 2022, this says 3.2. I don't know if it's accurate or not, but compared to 2023 which is 3 or 7.5, so they doubled. And so if you were solely banking on a mortgage to have your numbers make sense, you might be in trouble, but now that I'm using private money, I'm able to pay higher interest but because I'm able to move faster and I can avoid some of the appraisals and bank fees and origination fees and other things that go into using an institution, I'm able to, you know, gaining a lot of momentum and able to do more deals and like I said even if we're making less on each deal, because of the volume that we're doing, things are working out, and then as we do deals, more deals tend to flow to us and we're getting sharper and better on that each deal that we do and so I think had I leverage other people's time in the beginning and other people's money from the beginning, I think I'd be a lot farther than I am now. But, you know, I'm learning those lessons every day.

Jon: Yeah. So can you give our listeners an idea knowing it's not guaranteed and knowing it's not every deal, what are some numbers someone could expect or that you might be projecting on recent deals?

Here Are The Numbers On Some Of The Deals [0:32:26]

Dave: Yeah, so typically, the pitches that we have three options for investors that partner with us so they can be in a second position for a smaller loan amount. So, for example, let's say, we're buying a property for 100,000 dollars. We'll raise probably 25,000 for a deal like that. It will be in second position to a hard money lender that's giving us 90 percent of the purchase price as well as the renovation funds, so money from the private investor would cover the down payment, would cover some of the closing costs as well as some of the holding costs while the project is underway, and for those deals, we typically pay out around 12 percent, and then if they want to be in first position, we can do those same picks and flip type of deals. So for the 100,000-dollar deal, we would offer 10 percent and that we can either offer 8 percent cash flow each month with two extra points paid at the end or we can just have it all accumulate. We offer both options. Mainly, if it's an IRA, it becomes kind of a pain to do the monthly payment thing so we offer both options but that's to be in first position. So, it's a slightly lower interest payment but it's because there's less risk because you're in first position compared to being in second position.

Jon: Got you.

Dave: Then the third option is our apartment syndication deals and that's a 50,000-dollar minimum and that's where we pool people together or people's money together and then use that as a down payment into a larger asset and those who get equity positions typically or a debt position depending on what the investor wants so that position, again, we can offer cash flow or have it accumulate and those are typically 10 to 12 percent deals, or for equity, there's typically less cash flow but a bigger payout at the end since the equity partner gets to take advantage of some of the appreciation as well as the principal pay down, so the apartment deals are a 2- to 7-year hold. I typically write in an extension option to go further if necessary. A lot of syndicators got in trouble over the last year as interest rates shot up faster than they ever have and exit a property and all of a sudden no one wants to buy it because interest rates are high, you're kind of in a bad situation, so we put in the option to extend a couple of years just to try to get, you know, take advantage of the market depending on what's happening, but those are the three options. So a smaller loan in second position at around 12 percent; a bigger loan typically 80 to 150,000 in a 10 percent; or the apartment syndication model which is a 50,000-dollar minimum but those payouts can be, you know, they're projected to be…cash flow anywhere between 6 and 10 percent and then overall internal rate of return is as high as 15 to 20 percent.

Jon: Okay, great. Yeah, that helps. Any advice you would give to investors looking to be an investor, take that step…not necessarily be active but to get connected with somebody like you…what advice would you give the investor as they're looking into this?

Advice To Would-be Investors [0:35:28]

Dave: Yeah, so I would probably say, you know, there's tons of free resources out there. So reading Rich Dad Poor Dad kind of sets the pace for understanding the power of passive income so I would start there. There's a website and a group called BiggerPockets which has a podcast. They have forums online. All your questions can be answered as far as the different types of real estate investing there. And then I would say get involved, you know. Go to your local real estate meeting. Join…there's some BiggerPockets webinars that are free. You can get a lot of free information, and then just evaluate your risk threshold and then invest wherever that lands you. So, for some people, that means you want to start small and buy. you know, a duplex with 20 percent down and hire a manager; that's a really good way to start. I have a lot of clients that do that. Other times, just invest in someone else. I'd be careful with some of the apartment syndicators that are doing larger deals or some well-known people that take really high fees when it comes to apartment syndication so they might buy mediocre deals because they're good at raising money. So they can raise a lot of money and promise a higher return and it ends up not being as good because they took all their fees up front. They don't really care. Just because the person is well-known and I would say that really that syndication and see what the fees and things are going to be, we don't charge any fees currently on any of our apartment deals. We want a win for us to be a win for our investors so I would just read the fine print, but those are things that you start to question and learn more about, the more knowledgeable you are, you know. Knowledge is power.

Jon: Okay. Yeah, that's awesome. Anything else you would add that I didn't ask?

Dave: Not that I can think about; just that most of the doctors that I've talked to are hands-on type of people and I would say that it's good to be hands-on if you want to maintain control of your investment but at the same time, you don't want to hold on so tight that it is taken away from your highest and best use. Like you said earlier, you spent a lot of money and a lot of time to get to where you are and get the income that you have so don't take a step backwards. I mean, unless you love it and you really want to flip houses for a living or something but I think so many people spending more of their time on a smaller investment thinking it's, you know, somehow going to be a good…it's going to be better than what they're doing…and it turned out to not be and so better baby step, I think, would be to maybe give up some of that control, endorse to someone else that's doing it in the beginning and then once you might figure out that you hate, you know, owning duplexes or that you love flipping or you like just being a limited partner and sitting back and watching cash flow come in on a syndication. But, you know, I would try to maybe dabble in a bunch of different things or research a lot and figure out what fits your personality best because everybody's different.

Jon: Yes, and that I found. As a financial planner, I've come across enough physician do-it-yourselfers that I know right offhand like, hey, man, this is probably not something you should be doing yourself but if you're going to stick with it then I can't help you. Like there's a lot of commonality and personalities with a lot of physicians – not all – but a lot of them are kind of a know-it-all when it comes to a lot of things – and ortho surgeons, I'm talking to you. There's a feeling and a little bit of experience that because they do know so much about a particular topic, that contend some of our weaknesses that can bleed over in other things – oh, I'm probably going to be good at real estate and finances too – and – no, not the same thing at all. We're not…you know. Dave and I aren't going into our kitchen and fixing our elbow fracture. We're going to go find a specialist for that who's good at that and trained at that and that's just smart and it'll cost more for sure but the end result is going to be better at the end. So we've experienced the same thing here for sure, Dave. I'm sure lawyers and CPAs have in every industry. So, what Dave is saying in a nice way, I'm going to say it in a straightforward Financial MD way: Guys, don't try to do this yourself. You think you do because you read the articles and you read the books and you watched enough videos or podcasts but it's not. I've met one or two doctors who are doing it themselves and doing well because they came from either construction background or experience like that but, by and large, 99 percent of you, it may be a good idea to get into this but not to do it on your own. You don't know what you're doing and you're going to risk too much and it's going to cost you too much to get good at this. Not saying you can't, but to do it, I will just say it's not worth your time.

Dave: Yeah, it's comical the amount of apartments indicators that I network with that say, you know, we got a really good deal. We knew it was good because it was owned by this doctor who didn't know what he was doing, you know.

Jon: So many of that.

Dave: Yeah, I mean it makes sense. You think you hire a manager and everything's going to go smoothly but the day-to-day stuff that it's what you don't know, you don't know that comes up and when you're dealing with larger assets, like you said, I would definitely partner with somebody.

Jon: Yeah. Doing well on one thing doesn't mean you'll do well in every other thing so you guys know I love you but I'm going to speak truth to you here just from our own experience. So ask for help; if you have to learn the hard way, go for it, but I don't recommend it. Well, Dave, how can people get a hold of you if they want to know more or get in on some of these deals?

Dave: Oh, yeah, so we're putting a website together. I don't think it's live right now, but hopefully, it will be next week. Investwithdave.com is where we are looking for investors or they can feel free to email me. My email is dave@achievelansing.com.

Jon: Okay, fantastic. Well, this has been great. I love talking about this stuff. I love hanging out with you and digging into these ideas and goals and just seeing this stuff happen and it always challenges me to think long-term, to settle down a bit, but also to get up and dream bigger as well, so it's a good balance and I think you're doing great things. So, thanks for taking the time to be on and educating us a little bit more.

Dave: Yeah, absolutely. Thanks for having me and I look forward to our future conversation.

Jon: Yeah, me too.

Resources and Links:

The White Coat Investor – https://www.whitecoatinvestor.com/
Physician on FIRE – https://www.physicianonfire.com/
What Does It Mean to be Pre-Tax or Tax-Advantaged? – https://www.finra.org/investors/insights/tax-advantaged
The Story of Rich Dad Poor Dad – https://www.richdad.com/about/rich-dad
Hard Money Loan – https://www.investopedia.com/terms/h/hard_money_loan.asp
The Importance of Real Estate Limited Partnerships – https://www.colonyhillscapital.com/the-importance-of-real-estate-limited-partnerships/
MLS Listings, Real Estate Property Listings – https://www.mls.com/
Wholesale Real Estate: A Beginner's Guide – https://www.rocketmortgage.com/learn/wholesale-real-estate
Porter Gale: Why Your Connections Are Worth More Than Money – https://www.forbes.com/sites/danschawbel/2013/06/04/porter-gale/?sh=16fc045d155b
What Is Lifestyle Creep? – https://www.ramseysolutions.com/budgeting/lifestyle-creep
Highest And Best Use – https://www.timbertax.org/getstarted/appraisal/bestuse/
Phantom Income: Definition and Risks – https://www.freshbooks.com/glossary/tax/phantom-income
Bonus Depreciation: Overview and FAQs – https://tax.thomsonreuters.com/en/glossary/bonus-depreciation
What Is a Loan Origination Fee And Is It Negotiable? – https://homebuyer.com/learn/what-is-a-loan-origination-fee
Equity Position Definition – https://www.lawinsider.com/dictionary/equity-position
How To Determine The Debt Position Of A Company – https://yochaa.com/how-to-determine-the-debt-position-of-a-company
BiggerPockets: Create and Build Wealth With Real Estate Investing – https://www.biggerpockets.com/
Lansing Real Estate Investors FB Group Page – https://www.facebook.com/groups/949307535162410/
Dave Hall's Investment Website: Invest With Dave – https://investwithdave.com/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

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Summary:

The Gist Of Employee Benefits [0:01:30]
Trevor's Thoughts And Opinions [0:03:12]
Low Paycheck/With Benefits Vs High Paycheck/No Benefits [0:06:38]
Basic Things To Know Regarding Employee Benefits [0:10:31]
HSAs Are Awesome! [0:12:12]
Another Option: Flexible Spending Account (FSA) [0:19:38]
Retirement Plans: 401(k) vs 403(b) [0:23:04]
Other Ancillary Benefits: Group Life Insurance [0:34:30]
General Recommendation: Get Enough Life Insurance Outside Of Work [0:36:48]
Disability Insurance: Get It As Soon As You Possibly Can While You're Young And Healthy And It's Cheap [0:39:07]
A Little Tidbit: If You Pay Your Own Personal Disability Insurance, It's Tax-Free Upon Claiming And Collecting Benefits [0:45:13]

Jon: Well, I'm excited to dive into today's show. We're going to get caught up with myself and Dr. Smith and go on a very diversified journey into employee benefits with nothing necessarily pre-planned other than our own experiences and opinions and that will be enough to fill an episode. So, how are you Trevor?

Trevor: I'm doing great. I'm excited to learn from you on this topic as well as contribute my biased opinions.

Jon: Okay, great and I will learn something from you as well because I know the house, I guess, but we always learn when we hear other perspectives and I think I know what might be good, bad, valuable, pros, cons to some people but I'd love to hear your take on it, and for those of you that are watching this on YouTube or listening to snippets or checking it out on just the audio podcast, this is the time where you can start to pull up the comments and get some interaction. Let us know what you think, what questions you got, what the heck are some of the things we're talking about, so keep that open. This is not a live show, but we are going to respond to comments as soon as we possibly can, and whether we agree with you or not or have the answer or not, we're going to let you know that. So, employee benefits – what are employee benefits? I'll preface with that and then we can start on a little bit, understanding employee benefits.

The Gist Of Employee Benefits [0:01:30]

So, the gist of it is employee benefits – or you'll also hear the term group benefits, group insurance, group disability, group like whatever all these other kind of things – it basically means an employer has enough people – enough employees – to go and get discount rates on insurance products, get guaranteed insurability on most things, because they have a large enough sample size so they'll get discounts and then they'll also typically pay a portion – not always – and you have to understand throughout this whole conversation that not all employers include any or all the benefits that we talk about. There's no hard and fast rule necessarily until Obamacare and the Affordable Care Act and there were some rules about if you have a certain-sized number of employees, you have to have a certain type of health insurance, etcetera.

Trevor: If I could jump in, just from a higher level like as a potential employer – almost employer – looking at starting my own practice here in Ophthalmology, the ones I hear about are retirement and then there's like the insurances; you're talking about the insurances – life insurance, disability insurance. There's lots more down the line from that. Those are the top – and then health insurance, right. So those are the top three. I just wanted to throw that out there. Those are the main ones people talk about; are interested in. Probably the most common ones would be health insurance and retirement like a 401(k) either access with or without a match. Yeah, just wanted to give those categories for folks.

Jon: That's exactly it. Those are some of the main examples of things that we see. To give us some context for your thoughts and opinions, Trevor, catch us up on what's going on with you right now and that'll help kind of set the table.

Trevor's Thoughts And Opinions [0:03:12]

Trevor: Sure, yeah. So I've been a W-2 employee. I'm an associate ophthalmologist at a small private practice. I've been there for the last nine months. It's been great personally, professionally; learned a lot about myself. I mean, it's not just a job for me. Ophthalmology – my mindset on it has shifted quite a bit in the last couple of years like I really do see it more or less. I wouldn't call it like a calling but like it's a greater purpose for me to go to work. It's impacting the lives of the people around me, both my staff and my patients, and this is where I find myself. I'm kind of in a different headspace and wanting to just be more intentional about the people I'm around. It's made a lot more fun. So, I've been enjoying my work. I'm a W-2; I'm working about 35 hours a week on average so it's not the heaviest, most intense medicine job and then I'm doing a little bit of locums, coming up here too. It helps bump up the income a little bit since I'm working a small amount of full-time. So, I'm wearing the hat of like potential future employer and then I'm also an employee and then I popped around at a couple of private practices which I've talked about in the past previous episodes. I've seen a few different options but, yeah, it's usually for docs that are listening. It's usually, you know, 401(k) with matching that starts about a year into employment. It ranges from 1 percent to maybe 8 percent, it seems like. Kaiser Permanente – I looked at a position there a while ago. You know, some of them they'll bump it up quite a bit more. They're really trying to keep you attached. They're trying to give you golden handcuffs.

Jon: A lot of that golden handcuffs is they'll put a vesting schedule which we can go into but it basically means you don't get to take your match with you if you leave for anywhere between one to five years on a 401(k).

Trevor: And there's nothing inherently wrong with that. It's a great bonus. I mean, you definitely make more per dollar of production, so you're only doing so much work and you get to keep more of the money in that format. If you're like a long-term lifer, you kind of more of a corporate person which you can only find out by experience as a doctor, very few people are like working their way up the ladder and then going to medical school and they're like, 'Oh, I'm a corporate guy.' Maybe some of the military types, that's a nice natural fit. So it's kind of where I'm at. I'm wearing two hats and looking at having at least one employee coming up for at least one of the companies either in Ophthalmology or kind of the Bitcoin business stuff I'm working on. I need more help. I don't have the bandwidth to keep up what I'm doing, if with everything. So, wherever I bring them on, I'm like everybody wants benefits and I want to build a team that wants to stay, right, so I'm not afraid of offering benefits. Not to jump into my hot take too early, but basically, I'm kind of amazed. I think people have read articles online like ask for benefits like benefits are the Holy Grail of employment. I feel like I could offer somebody double what they would actually take home in terms of their benefits and they would turn the job down. Basically, they would take a lower paycheck and the worst benefits versus a higher paycheck and no benefits.

Jon: Why do you think that is? Does it give them some sort of sense?

Low Paycheck/With Benefits Vs High Paycheck/No Benefits [0:06:38]

Trevor: I don't know. I'm curious if you have any thoughts on it because it doesn't make any sense to me but I'm financially literate. I wonder if there's an illiteracy component of they don't know what they don't know and they just kind of heard like you got to get benefits. Benefits is a good job, you know.

Jon: I can see that mantra in America especially from the previous generation; our parents growing up and saying get a job with good benefits or whatever.

Trevor: Right.

Jon: But I think some of the psychology behind it is you get the salary but also when they're doing the recruiting or interviewing, here's this whole list of free stuff that you get, and everybody has free stuff.

Trevor: Yeah, I do think so.

Jon: I think it's some of that like open up a checking account at our bank and you get a free coffee mug.

Trevor: Yeah. So I'm looking at hiring an amazing employee. I'm like super pumped to have heard about him, really well-trained ophthalmology technician who has interests outside of eyes, so I'm really excited and I plan on employing this guy, if possible. He would be better off like I'm going to do the benefits, right. I'm going to give him what he wants because I want to hire him. My goal is having this guy work for me.

Jon: That's the great thing about your first employee is you can just say, 'What kind of benefits do you want?'

Trevor: Yeah, right, it's totally true. I mean, I think with benefits, you have to match like there's no favoritism allowed. I'm sure there's probably ways around this but I'm not aware of what they are. So you have to have the same benefits for yourself now that you have employees. You can be your own employee, somebody else can be your employee, and I'm learning about this so color me naive on the details but you got to share the same thing. S if I want to have a good healthcare plan and I'm hiring him, he gets a good healthcare plan which makes it a little more expensive. I think that's, you know, where it gets tricky and people want to save on stuff. I don't really care. My attitude is if this person is contributing and I'm productive, I will outearn the front-end cost of giving someone what they want. Especially nowadays, it's hard to hire good people. So if you find a good person, you want to make it worth their while, right.

Jon: Yeah, for sure.

Trevor: Yeah, so my observation is like I would love to educate him. I'm like, 'You could be 1099 and then a consultant and then you can write off all your stuff,' but that's me. That's my interest; that's me as an employee, you know. That's not my employees. I want to meet them where they're at and I think that'll be like a 401(k), maybe a match, and figuring that out so I'm hiring a consulting group to help me with a lot of this. When I say I don't know exactly what I'm going to do next, that doesn't mean I have no plan. My plan is it's hire smarter people than me as consultants.

Jon: There you go. That's it.

Trevor: I'll have insights on this that are more detailed in the future but that's my context so far.

Jon: Awesome. So that's kind of the employer side and especially at the starting out point, we don't get to hear that very often. We might hear, 'Here's what we offer.' We might hear, 'Here's what I want.' But it's interesting to hear from your end of the startup, 'Okay, I'm just beginning to think about benefits. I know this guy wants benefits. How do I go about finding those?' And we know we don't have a ton of employers listening to this show. You all are mostly employees. I think the show tends to appeal to residents, young physicians, that are just stuck with whatever benefits they get but quick sidebar: for those of you that are employers or want to be or at 1099, you know, some of these things you kind of got to piece together but there are some firms, groups, that will do everything – the health, the 401(k), the group life, the group disability – kind of do a whole benefits package for you. Let us know. I'm sure we can get referrals for you if you're that person but that's our little business owner corner there.

Basic Things To Know Regarding Employee Benefits [0:10:31]

For most of you getting employee benefits, there's a few basic things to know. Number one, you don't get to decide unless you're so fortunate that you're Trevor's first employee then you do get to pick a little bit but, ultimately, it's up to the business owner, the employer. Let's say, you're at a hospital, it's up to the CEO or the Board or whomever is figuring that out. This is what they have. It applies to pretty much everybody and you have hardly any choice on the matter. Now, they'll give you options sometimes. So, let's take it from the top and the most common being health insurance that might be offered somewhere. There are…often I see two or three – sometimes more – about options of what health insurance you want to take, and without getting too deep into a health insurance segment – we can do that another show – but with health insurance, the first thing you look at is how much does it cost – or the last thing. How much does it cost me? How much is the employer going to cover? The employer may cover some of it or all of it or none of it. Either way, the total cost is going to be cheaper, typically, than if you went out and got it on your own. Of course, there's subsidies and things like that but most of us are not going to qualify for those. Now, you have these options to pick from. They vary in price but they also vary in a couple of things. They vary in deductible, so the amount that you'll have to pay before the insurance kicks in. They vary in copay amount or co-insurance and they vary in out-of-pocket max. So between the deductible and the copay, combine those possibilities together and they give you a worst-case scenario which is called an out-of-pocket max. It's the most that you would have to pay per year no matter what.

HSAs Are Awesome! [0:12:12]

So you look at that number and some of them maybe a PPO which is your pretty standard health insurance or/and within those, you can have an HSA or a high deductible health plan which means you can have a health savings account. What you need to know about that is if you've got a deductible that's over, I think, 1500 dollars – may have changed this year – but you have what's literally technically known as a high deductible health plan which means you can get an HSA with it which, here at Financial MD, we think HSAs are awesome. They're, for all intents and purposes, triple-tax free. They're tax deductible going in so you can tell your company, 'Out of my paycheck, I want a certain amount going into an HSA.' As of this year, the max you can put into an HSA is like 7300 dollars a year, I think.

Trevor: Yeah, for two of you.

Jon: Yeah, for family, and singles like half that. You get that taken out of your paycheck before taxes so it's pre-taxed then what's cool is if you get over 1500, 2000 dollars maybe or something, you can get, for most HSAs, they allow you to pick investments inside of it so then it becomes kind of like this retirement account. So if you really stock that thing full and you don't use much of it, whatever's left over rolls over each year. It's just like an investment account and it grows like a 401(k) and we've helped a lot of our clients pick the investments in their HSA hoping that there'll be money left over in there at the end of the year and grows every year tax-deferred like a 401(k) or an IRA – we've talked about these tax-deferred bucket before – but then as long as you use it for health expenses, your medical expenses, it is tax-free. I talk to our clients about the option of, ʺhey, let's max out this HSA and hope there's money left over and growing every year,ʺ because when you get to retirement – now, you can use it along the way obviously for health care expenses what it's meant for, but if we grow extra in there as well throughout the years, you could have 100,000, 200,000 dollars in here of tax-free money for your healthcare and retirement and we're all going to have a lot of healthcare expenses in retirement, so that gets me excited.

Trevor: The HSA is a fun…it feels like a hack, you know, like a financial hack. It's like a little secret.

Jon: Yeah, I'll be like, ʺhey, do you have access to an HSAʺ, and I've even had some of my high-income surgeons switch their health plan to the HSA option. They pay less monthly premium but the deductible is higher, but the tax savings on that when you're in the 35 percent tax bracket, it's really nice.

Trevor: Yeah, it's awesome. I just switched to an HSA a month ago.

Jon: And you probably got bitcoin, don't you?

Trevor: Yeah, I have Grayscale Bitcoin Trust. That's true, I do. That's always just like arguably the worst investment vehicle of all time.

Jon: Grayscale?

Trevor: I do not even remotely recommend it.

Jon: No? That was my first foray into helping clients into getting some kind of Bitcoin exposure.

Trevor: It's probably better than nothing but, yeah, it's been painful. That's a whole aside but it's a very mismanaged, closed-end trust; rife with controversy as well, so it's not my favorite. But I do own a little tiny, tiny bit.

Jon: Yeah, it's like the easy button and I own some too because I just can't bear to sell it with as much as I've lost over the last two years.

Trevor: That's exactly…I know. It's not my shining example of my investment abilities.

Jon: No, and I mean you've got so many options for doing Bitcoin in an IRA now.

Trevor: Yeah, there's so many companies – Swan Bitcoin which I love; great company, ethical group. They really help people to be educated on Bitcoin even before buying it. I mean, they're not trying to just like make a buck off you and they have an IRA option now too. GBTC, if you Google it, it's a ticker symbol, Grayscale Bitcoin Trust. Really, there's just a lot of articles. They're one of the companies that…with Gemini is owned by the Winklevoss…the Winklevi.

Jon: The Winklevi.

Trevor: It's a pretty well-regulated exchange.

Jon: I agree.

Trevor: I think they disclosed it fairly but like people lent out their digital assets for a yield return.

Jon: Guilty.

Trevor: Oh, yeah. I did temporarily. I pulled mine out. They did a great job. They said like this is being lent out like this is not in our control. I felt like there was full disclosure just like when I put my money in a bank. I'm probably more educated than the average individual for sure just out of my own curiosity but if I did, which I don't, but if I had over 300,000 dollars in the bank in a checking account, I wouldn't expect the FDIC or anybody to cover me for more than 250; that's the rule. So I know that the bank is like a hedge fund that just plays with people's money. I understand I could lose that money if I put it in there which is why I don't. The same thing goes for Gemini. But, anyways, they lent out that money to Genesis Group which they own Grayscale – I don't exactly remember which ones above which one but they're all together. There's a lot of lending that went on and they're the reason lots of things blew up last year; lots of company changes. And FTX, they went to them and it's real sketchy, so I don't love Grayscale but it's hard to get. MicroStrategy is another nice one if you're a stock person or if you're in an HSA. like I use Lively and they connect the TV yeah from my HSA. I use Lively.

Jon: For the HSA?

Trevor: Yeah, from my HSA. I use Lively as the account. Depending on what one you have like it doesn't have to be with your health insurance or with whatever bank they default to, so I use Lively because of ease of transfer to TD Ameritrade to trade within that account. I don't really trade. I just like buy a few things. That's why I'm in Grayscale. I'm basically like just really wanting to make excuses and defend myself for why I own a Grayscale because it's kind of embarrassing.

Jon: That's totally fine. That's what the show is all about. We'll explain what we do and the mistakes we made and we'll try to have links to all this stuff in the show notes too with the disclaimer: Obviously, none of this is financial advice. We're just telling you what we're doing.

Trevor: Yeah, and I'm not a financial advisor so I can't give any anyway. Yeah, basically.

Jon: So that's the HSA; really cool option if you can get it and it makes sense for your tax-bracket income level but I think, you know, when you're looking at health insurance as well, if you've got the option to pick within your employee benefits, you may have preexisting conditions that you'll want to see what's covered and some of the options you've got may cover this and some don't and this particular doctor you like and those are the kind of questions you want to look into. So that's kind of the gist of the health insurance side of things. You got anything to add?

Another Option: Flexible Spending Account (FSA) [0:19:38]

Trevor: No. I think there's the FSA as well which is another spending account. Some accounts have that. It's either or; I don't think there's such thing as an account. I'm not an expert on health insurance by any means but in looking for myself, I don't think they ever occur together. It's FSA or HSA. FSA has to be spent by the end of the year as it currently stands and has been in the past. So that's different than an HSA and I don't think either's in the investment vehicles for that reason with an FSA. Similarly, sometimes with an FSA, you actually get a stipend though like you might get 1000 dollars or something in an FSA account with a certain company. There's no such thing as like a rule where HSA is always the best. The deductible is too high and if you need to use your health insurance a lot, you know, if your employer offers a 6000-dollar deductible or a PPO with just payment as you go – why am I forgetting the term – when you go in and you just pay the doctor a fixed amount…

Jon: A copay?

Trevor: Yes, thank you. I'm a doctor; I should know my copays. I'm just blanking them the term copay. Yeah, so copays can be nice with different plans and then, you know, you don't have as high a deductible and all that kind of stuff. There's different thoughts on that. It's a tough decision because the person who's advising you is often if you're in a small practice, it's just your in-house person that just coordinates with the plan provider. This is where a financial advisor can actually be very helpful if they want to look over your health plans and your utilization of the health plan in the past help you make an informed decision because, maybe, if you're a urologist, it doesn't matter. You're making 700k. If it's 2000 a year or 10,000 a year, you might not really care if you're that guy but if you're making regular doctor money like 220, 250, it can be a huge difference in how much you're putting away into retirement per year.

Jon: Yeah, no, for sure, and if you're asking a financial advisor – I mean, this is general advice – but get a CFP because they're going to be at least educated and trained in insurance and benefits so you should be able to…especially if you're paying them a fee. Take it to them and say, advise me on this as well, assuming they're doing financial planning.

Trevor: Yeah, that's a really good point because like you might have a financial advisor assigned to you or available to you because you work at the hospital and they partner with Northwestern Mutual or something and they're just like assigned to your account like they don't care if they're going to save you some money, you know.

Jon: So that's health insurance. I'll say one last thing on the HSA. The employers sometimes will do – not a match – but they'll put a stipend or a direct contribution into your HSA every year as well, so something to ask, maybe something to negotiate…I don't know. All this comes back to us trying to get you guys to take advantage of free money that's on the table or understand, let's say, you're coming out of residency or fellowship and you're looking at two different job offers that the dollar amounts, the salary, might be the same but the benefits are very different, understand there's value in those benefits and it's all part of the compensation package and so if you are unaware of that, you might be kicking yourself thinking, ʺshoot,ʺ you know, or ʺI thought I took a little bit higher pay in this one,ʺ but it turns out the benefits were so good at the other one they outweighed it. So keep that in mind.

Retirement Plans: 401(k) vs 403(b) [0:23:04]

All right, on the retirement plan side, I'll kind of cut to the chase of what I hear questions either from clients or in lectures or dinners that we do just all across the board. There's 401(k)s and there's 403(b)s. Now, there's also 457s and 401As in those. I'm not going to dive too deeply into that. If you have something, you're going to at least have a 401(k) or a 403(b). The main difference is a 403(b) is typically government or non-profit; 401(k) is typically for-profit, usually. There's no difference to you as the employee. For all intents and purposes, same rules, same tax implications, same investment options, same limits, annual limits…all that kind of stuff. We'll just get that out of the way. But between different companies, different providers, different platforms, they can vary greatly in the investment options you have whether a company matches at all. When you're eligible to start, you could start day one sometimes. Sometimes they make you wait a year; usually they make you wait a year if they match, or if they do a straight-defined contribution. Defined contribution means it's not a match; they're just going to do, let's say, 4 percent a year for you, and then like sometimes they'll match on top of that. So a defined contribution is not contingent on what you put in but a match is. They're only going to put a match in if you put some in. And there's different formulas for that; there's no rule, so get up to speed on what that is. Again, the match and the defined contribution like Trevor was saying, those are real dollars so consider that part of your salary. So when you're comparing some different job offers, if there's a match or defined contribution into your 401(k), that's money. You don't have options on where you can hold your 401k typically. They say it's going to be here at Vanguard or Fidelity or Transamerica or wherever, which is fine, and your employer will also pick the investment lineup options that you have to pick from. By default, you're typically going to be putting what's called a target-date fund. It's based on your age assuming you retire at 65. Let's say, I'm 39. It's 2023 now, so I'll be 65 in 2048. So then my target-date fund…they usually go every five years, so it might be 2045 or 2050...it'll say on the name of that target-date fund which means the manager inside that fund way back in New York City is managing it to be aggressive now when they know you're 25 years away from retirement to conservative as you get closer to try to hold on to your money and we've kind of talked about that in the past of aggressive versus conservative, risky versus stable, etcetera, but just want you to know that's what they're going to put you into by default unless you pick something else. My encouragement to you – if you're young and listening to this which you probably are – pick something else, and just last night, I was sitting with one of my clients and realized we hadn't changed their 401(k) investments. Him and his wife were both in a target-date fund. One was Vanguard, one was Transamerica, and they were fine. Sometimes, they're low fees. Typically, they're higher fees because they're actively managed, and so what I did for both of them is we just went in and picked an S&P 500 Index Fund because they're like 35 or 36 and they got 30 years until retirement and it's cheap and that's one thing I know. That's one thing we could control was the fees. So we picked that or VTI or something and I said, just leave it here for a few years, 10 years whatever, and then we'll reassess. Plus, the target-date funds are never all equity. They're always going to have – no matter how young you are – some like bond and fixed income exposure. These guys at age 35, they had 10 percent in bonds which, personally, I don't think there's a reason to have any bond exposure unless you're within 5 to 10 years of retirement, but that's just my general opinion.

Trevor: That's interesting. How do you read that? Is this like specific to them? With this couple, they just seem like more traditional investors. They want to set it and forget it. That's that.

Jon: Yeah, and they're 401(k). They were kind of…and I've done some where we'll spread it out a little bit if I see some good cheap indexes and options. For them, they didn't have a ton. I'll say, ʺwell, we've got a good Vanguard 500 Index Fund.ʺ But, honestly, so I'll tell you, here's what I can give you – it's not advice – but here's how I advise myself: I'm kind of trying to shoot for the moon still at this point so I'm in like small-capped international emerging markets like stuff that does well over the long-term. Now there's some extreme fluctuation; I could be down 30 percent one year. I don't care.

Trevor: You'll trade volatility for long-term performance.

Jon: Yes, absolutely.

Trevor: Because you know you won't sell.

Jon: Yeah, right. Sometimes, I've made mistakes and sold too soon on some stuff and maybe that'll be a fun show we can kind of peel back the onion on our own investments, and that'll be kind of weird. Wouldn't that be interesting? Feel kind of exposed?

Trevor: Yeah, that'd be interesting for sure. I'm willing to listen to you go through that, if you want to.

Jon: Yeah. Sometimes, I'll be honest, there's not a real rhyme or reason to it other than it'll be…yeah. I've got some individual holdings so I have a SEP IRA because I'm a business owner and I don't make enough to do a solo 401(k) but that's another conversation. But as I think through it, I've got some interesting holdings like I've got one pharmaceutical company that I know a little bit about and I'm just kind of riding that one. I've got an exchange-traded note that's covered calls on U.S. Oil Index which is, again, super random stuff I would never advise anybody on, but if you're curious, I'll show you with the preface this is not financial advice.

Trevor: Interesting.

Jon: It is fun being an advisor and knowing more than most and then playing around in your own accounts.

Trevor: Yeah, you just deal with small amounts, I imagine.

Jon: Yeah.

Trevor: At that point, you're like hobbying and you want to…I mean, people can do what they want with their money, but if you're trying to build wealth, it has to be very, very small quantities and equated depending on what your level of experience is. If it's minimal like most people trading for fun on Robinhood, that falls pretty…it's not considered by the government gambling but it becomes it pretty fast. If you're trying to build a wealth over the long-term, you know, protecting your capital is rule number one. You learn to protect your capital by practicing and by making mistakes so when you're young, it's the best time to be losing money or thinking you have a higher risk tolerance like you just mentioned, 30 percent drawdowns. I think the average person can handle like 15 percent maybe. I don't know if they've done studies on this but just ballparking it, I'd say most people can handle 15 percent drawdowns, and like maybe once a decade, their pooled portfolio that maybe they can handle 30 percent drawdowns. But, you know, we're hitting 30-plus percent in 2008 and 2009 and I know not an insignificant number of doctors specifically who pulled out everything and, you know, ʺgot out of the marketʺ and then we had the biggest bull run in history for 12 years in a row. And then some of them got into, say, silver or gold or precious metals and now those are going on a run so it's like, were they wrong? It's super interesting because it's always just like what's your time horizon? Performance is always start date and end date and you got to compare apples to apples and so you can be a genius one year and you can be the greatest fool the next year, just depending on how you look at your time horizon then.

Jon: It's all on paper until you see it, right.

Trevor: Yeah.

Jon: Your losses are only on paper.

Trevor: You're right. The volatility is such an individual thing which is what makes financial advising still interesting as a profession which you're in and I'm not, so I get to be, Monday morning, quarterbacking 24/7…that's great. So, but…yeah, go ahead.

Jon: I'll tell you, right…obviously, we're digressing on this so we'll come back to it…but to help with myself, I set up…you got to understand the psychology and know yourself well enough to know to not get into it, not get overconfident for one, and when I buy something, I kind of have in mind where I wanted to hit when I'm comfortable selling it and that kind of stuff and I love…like once a year, I dump in some money at tax time for my SEP IRA because my CPA says, 'here, if you don't want to pay a huge amount in taxes, you need to put this much in a SEP IRA.' So, it's okay. If I do that and then I'll have a bunch of cash sitting in the IRA and that's when I can play with stuff or find something that I think is low and buy it and see how it goes over the next 6 to 12 months or something. But if not, and this is a 39-year-old talking, I've got a good chunk of money sitting in Schwab's money market that's paying 4.65 percent right now. It's like its fine.

Trevor: Yeah, you and everybody else, I think.

Jon: Yeah, because that's okay too. But, anyway, 401(k) or 403(b), you might get a match, you might get defined contribution. These same thing; it's tax-deductible or pre-tax going in unless you're doing a Roth 401(k) option which may be a good option for you – that's up to you – and there's also after-tax contributions which I'm not going to get super into that but it's kind of the middle ground between pre-tax and Roth dollars so you can put after-tax contributions. So those are tax-free forever, but then the growth on those will be taxed. Anyway, some plans may offer that option, some may not, but the rules on a 401(k), you can take out a loan on your 401(k) – that can be nice if the plan allows it – and you can't take the money out without paying taxes plus a 10 percent penalty before you're 59-1/2. Those are a huge piece of your financial plan and can give you a huge boost because that defined contribution the employer may make, the match that they may offer, the low fees that they may have…all those things can make or break a retirement plan. If you're planning for retirement looking at what if I put in a 401(k) with no match or contribution and what if I put money into a 401(k) with a match and contribution, how does that look over 30 or 35 years? It could be really good, so you got to evaluate that and figure that out for yourself.

Other Ancillary Benefits: Group Life Insurance [0:34:30]

So, besides retirement plans and health insurance, there are several other ancillary benefits you might call them. Group life insurance is one. Again, pretty basic; you'll get life insurance as long as you're at the employer. They typically cover a multiple of salary. The reason they say that is because everybody's got a different salary and everybody's got a different benefit amount based on their salary. Instead of offering everybody 100,000 dollars, they may say…well, we know as we've told you here at Financial MD, you should have 8 to 10 times your income in life insurance so when it comes to employee benefits then you're able to kind of gauge that because they'll offer one-time salary to – I've seen four or five times salary in life insurance – and there may be a cost to it; there may not be. Usually, they've got like basic – they call it basic life insurance – and then they've got supplemental that you may have to pay a little bit for but it's not much and so I don't think I would be out of line I'm recommending that you get as much life insurance as they'll offer you even if you have to pay a few bucks because it's going to be typically cheaper than you'll find it anywhere else. Now, every once in a while, an employer will offer a life insurance policy like a whole life or a universal life that you can take with you. I don't know if that's a good idea or not for you but I don't see it very often. I did have one client at Ochsner in New Orleans Hospital System down there. They offer a group variable universal life insurance policy which was interesting. That's a policy that can build up cash value and be invested in the market inside of it but other than that, I don't see that kind of stuff very often. You may also see child and spouse life insurance and that can be nice again – just stuff that's free or cheap that is part of most financial plans. You need life insurance for the most part especially if you've got dependents or people that depend on you for finances. There's really not much other flexibility when it comes to group life insurance or employer-provided life insurance. I will tell you it's typically, again, a piece of your life insurance.

General Recommendation: Get Enough Life Insurance Outside Of Work [0:36:48]

My general recommendation is get enough life insurance outside of work so just term life insurance so that if work took those away or you lost your job which they can, you've still gotten enough life insurance outside of that.

Trevor: What do you think about locking in your health on life insurance before you have dependents?

Jon: I typically think it's a good idea.

Trevor: I haven't done it personally but I feel kind of silly for not having done that.

Jon: Well, there you go. This is financial advice for Trevor then.

Trevor: I haven't done it because I don't have dependents and I've got enough money set aside that my family could bury me. It wouldn't cost them, you know. Like I'm definitely not ʺself-insuredʺ life insurance-wise because some people they get to like net worth of a few million bucks and they're like, 'okay, do we need another million bucks,' when I die.

Jon: Just extra.

Trevor: It's still it's only like what, maybe, 1000 dollars a year or something and you get more however you manage your million.

Jon: Yeah. I mean, let's say you've got a million bucks of 20-year term, it might be 70, 80 bucks a month, yeah; 1000 bucks a year so.

Trevor: Yeah, so it's 20 grand over your lifetime to cover your partner for a million, you know, at whatever point…I don't know. That's in the personal category, I guess, like all this but it's interesting to think about. If I ever have a million dollars, then maybe I can think about it. In the meantime, I should probably lock in my health and get some term.

Jon: That's what I'm saying. Even 500,000 or a million will make a difference if you end up needing it one day.

Trevor: Yeah, pay off a house or something.

Jon: Right, yup.

Trevor: Yeah, it's a good idea.

Jon: For most people, like I said, 8 to 10 times your income is what you want to shoot for total; the vast majority of that in individual term that you went and got out on your own and then the perks you have at work are just that; they're perks, they're nice, and they're extra and you'll be glad you have them if you're dead.

Trevor: Your family will be glad. You'll be glad.

Jon: Your family will be glad. You'll be dead. I don't know how you're going to feel. That's another episode for another time on philosophy…religion.

Trevor: Yeah, that's right.

Jon: Lastly we're going to touch on disability insurance. You know how we feel about disability insurance here at Financial MD. We're both passionate about it.

Trevor: We're for it.

Disability Insurance: Get It As Soon As You Possibly Can While You're Young And Healthy And It's Cheap [0:39:07]

Jon: We're for it. Thumbs up. Get it as soon as you possibly can. I'm talking to you, med students and first-year residents. Here's one of the dumber things that I often hear: well, I've got disability insurance through my residency program. Yeah, you do and this isn't dumb; it's just ignorant, because you just don't know. I get it. That goes away when you leave residency and you've got 100 percent chance you're going to leave residency so you got to get something while you're young and healthy and cheap. I think we've sent that message enough. If it's your first time listening, get disability insurance. Shoot us a message and ask us about it, either Trevor or I. We love talking about it and it's super important and you'll hear that everywhere from us to the White Coat Investor to The Physician Philosopher to anybody. So, get it.

Trevor: Yeah, it is the most no-brainer purchase of your life that everyone puts off for no good reason. Like we all put off lots of other important things because you're insuring your car right now in case it dies. It's probably if you're in med school that your car, it's probably only worth 10 to 15,000 dollars max and you're paying like 1200 dollars a year if you've got cheap insurance on that and this is like in med school, it's going to be maybe 50 to 100 dollars a month – something like that – and then in residency, it might be probably similar and then you get out and in practice, it's typically 1 to 2 percent of whatever you're making at the time so. It's super cheap. It's not going to have a long-term financial impact just like if you wouldn't have worked a summer job when you were 16 years old and you made like maybe 1000 dollars in the summer. You traded your whole summer for 1000 bucks. Well, in residency, you can trade 500 to 800 dollars a year and lock in your health and make sure you're protecting your income which is probably worth 15 to 20 million dollars over your lifetime.

Jon: Pretty good numbers, yup.

Trevor: It is the best trade. If you're on Robinhood and you don't have disability insurance and you're a resident or a med student, you are making the worst trade. I mean, the best trade of your life is locking in your career and I've said this before, it should be called income insurance. It should be called income Insurance. You're insuring your income. It's the trade of a lifetime. I mean, you will never out trade that on Robinhood or with Bitcoin or anything.

Jon: What's interesting is even in the last month, I've seen an article from The Physician Philosopher about the not getting disability insurance is one of the worst financial decisions and then I just did a lecture for McLaren's OB program in Lansing and during my Q&A at the end, they said what's the most common financial mistake you see which is really interesting question that I don't get that much.

Trevor: Interesting question.

Jon: I said, you know, this may seem odd but it's probably not getting disability insurance because I've been doing this long enough that I've seen enough residents or attendings wait and then they go to get it and they either can't get it or it's got exclusions on certain body parts or things that they're screwed honestly.

Trevor: Yeah.

Jon: I've had multiple residents try to get it – I'll wait until I go into practice and I've got some money, I can't afford it right now – okay. So we do and then they get a decline letter and then they're f*cked for lack of a better word because now their income is exposed because once you're declined, that goes on your record.

Trevor: It's very hard to get it again in the future.

Jon: Yes.

Trevor: Yeah, I mean you got COVID. Everybody's depressed, anxious, and then substance abuse rates are like through the moon or through the roof – maybe they're through the moon; they're through the roof. I mean, it's affected healthcare workers probably more than the average individual. It's like you got to think about life is hard, I mean, and things happen outside your control. What you can control is getting insurance.

Jon: Yup.

Trevor: I mean your anxiety level will go down I guarantee if you get disability insurance because you are setting yourself up to have a safety net. Your family might not be your safety net. Your own abilities which have carried you so far are unlikely for 100 percent of the population to be their safety net. A lot of people struggle with health issues and just to know that you're covered is it's peace of mind. I highly, highly recommend it. I have had friends thank me for helping them take this step because they put it off and they just feel like stable and rock solid for their family's future because of just this simple step. It's not tough to get it. The longer you wait, definitely, the harder it is to get.

Jon: Change my mind.

Trevor: Change my mind, that's right.

Jon: So when it comes to group disability insurance, you'll see LTD and STD – not sexually transmitted disease but short-term disability. That means typically anywhere from 12 weeks to 24 weeks, they'll offer short-term disability which is usually measured on a per week basis and is often…sometimes it's 100 percent of your income for 12 weeks or 90 days, and that's why we recommend on your personal disability income insurance, you get an elimination period of 90 days because typically your short-term disability will cover that if you've got it. Then group long-term disability kicks in and, again, this is often free or cheap and they measure how much coverage you have based on a percentage of salary. Most common is 60 to 65 percent of your monthly income – gross income – and sometimes you can buy up extra and, again, consult with your financial planner if you should do that but take the base of whatever they give you and the extra might be for you cheap, and again, you'll be glad you did. You can't customize these things – group life, group disability…all these things. You don't get to customize it. You get what you get and you don't throw a fit. But it's a perk, it's a benefit. We've talked about the value of that.

A Little Tidbit: If You Pay Your Own Personal Disability Insurance, It's Tax-Free Upon Claiming And Collecting Benefits [0:45:13]

Now disability insurance should you go on claim and pay out, if it's group employer-provided disability insurance, if they pay, you pay the taxes on the benefit if you go on claim. If you pay for your own personal disability insurance, it's tax-free if you were to go on claim and collect the benefits. So that's a little tidbit to know. We get that question a lot. Now, something to know the group disability plan may be shitty and so you've got to try to get as much on a good personal policy through Principal or Ameritas or Guardian that you can get there. Sometimes they're nice but half the time they're not even true on occupations so you got to be aware of that as well.

Trevor: If you can't take the policy with you, you're not going to have that peace of mind. For me, the product you should get is something that you own. You can take with you anywhere. I mean, otherwise, you're just always tied to your job and the whims of Human Resources. So, if your goal is ensuring your income and protecting your family and your future, you got to control as many components as you can so you got to get your own policy.

Jon: Yeah, and they'll both pay out if you go on claim so you can get a small cheap policy if you've got a really good group LTD at work and then if you go to another job that doesn't have great benefits, you can increase the benefit on your personal one. That's called a future increase option or a benefit update. So that's the other critical piece you've got to make sure it's on there but if it is then you can expand and contract it depending on what your jobs offer throughout the year.

Trevor: That's right. Examples can be helpful so let's say you're taking home 20,000 dollars a month and your group disability covers and it's never going to cover everything that you're taking home because you're not going to need it all and they're just not going to cover 100 percent. Exactly, right, so they don't want to incentivize that. So let's say they cover like six grand a month, okay, with a group disability policy. You could cover yourself with your own policy for 1000 to 2000 and there are limits to how much they'll do, again, because the combo amount is what they don't want to overinsure you. So, that's just a good example. Say, it's like 6000 group disability. Well, you might be able to tack on like 2000 more or something like that and then you go somewhere else and you lose that. You get a new job. You move into a different state. You can take that 2000. You can probably bump it back up to like 8000 because that's what they were willing to like totally, you know, total insure as up to 8000. Well, great. Hey, thanks John. I've got to run here and that's good catching up and talking some shop. Hopefully, it's helpful to some folks. We're always open for questions. I am available at trevorsmithmd@gmail.com – that's my forever email – and feel free to shoot me any questions.

Jon: Yeah, and guys, give us a review and a rating as well please on this podcast. That helps a ton. Comment, like. Get the message out and get the word about financial education for young physicians. Let's continue to help stop physicians making dumb financial decisions.

Trevor: That's right.

Jon: This was The Financial MD Show. Thanks for joining us. We will see you next time.

Trevor: See you Jon. Thank you.

Jon: See you later, bud.

Resources and Links:

Employee benefits definition – https://www.questionpro.com/blog/employee-benefits/
Understanding Obamacare – https://www.ehealthinsurance.com/resources/affordable-care-act/understanding-obamacare
Life insurance retirement plans (LIRPs) – https://www.bankrate.com/insurance/life-insurance/life-insurance-retirement-plans/
Disability Retirement – https://www.dgs.ca.gov/OHR/Resources/Page-Content/Office-of-Human-Resources-Resources-List-Folder/Personnel-Operations-Manual/Disability-Retirement
What Is 401(k) and How Does It Work – https://www.investopedia.com/terms/1/401kplan.asp
What is a W2 Employee – https://www.checkcity.com/taxes-101/what-is-a-w2-employee#:~:text=A%20W2%20employee%20is%20a,name%2C%20%22W2%20employee.%22
What is a vesting schedule? – https://www.capitalone.com/learn-grow/life-events/vesting-schedule/
Preferred Provider Organization (PPO): Definition and Benefits – https://www.investopedia.com/terms/p/preferred-provider-organization.asp
High Deductible Health Plans (HDHPs) & Health Savings Accounts (HSAs) – https://www.healthcare.gov/high-deductible-health-plan/
Grayscale Bitcoin Trust – https://grayscale.com/products/grayscale-bitcoin-trust/
What is Swan Bitcoin and how does it work – https://cointelegraph.com/news/what-is-swan-bitcoin-and-how-does-it-work
What does FTX stand for? The Collapse of FTX – https://bitkan.com/learn/what-does-ftx-stand-for-the-collapse-of-ftx-9171
MicroStrategy news – https://decrypt.co/125511/microstrategy-buys-more-bitcoin-break-even-price
Using a Flexible Spending Account – https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/
What is a 403(b) plan? Retirement – https://www.forbes.com/advisor/retirement/403b-plan/
What is a 457 Plan? – https://www.investopedia.com/terms/1/457plan.asp
What are 401(a) Plans – https://smartasset.com/retirement/what-is-401a
Target-Date Funds – https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-6
Simplified Employee Pension (SEP) IRA: What it is, How it works – https://www.investopedia.com/terms/s/sep.asp
Exchange-traded notes: The facts and the risks – https://www.schwab.com/learn/story/exchange-traded-notes-facts-and-risks
What is a covered call? – https://www.bankrate.com/investing/covered-call-options-strategy/
What is a Roth 401(k)? – https://www.bankrate.com/retirement/roth-401k/
Whole Life vs Universal Life Insurance – https://www.progressive.com/answers/whole-life-vs-universal-life-insurance/
What are the main differences between STD and LTD benefits? – https://www.awaxmanlaw.ca/disability/comparison-ltd-std
Disability Insurance Future Increase Option – https://www.steadfastagents.com/disability-insurance-future-increase-option/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

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Summary:

What Happened To The Silicon Valley Bank? [0:02:13]
FDIC: Where Do They Come In? [0:05:33]
Other News: Stocks Are Holding Steady [0:07:10]
As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]
Should You Buy A House? Student Loan Status During These Times [0:11:21]
Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]
Download The Financial MD App – Its Free! [0:16:49]

Welcome to the Financial MD show. Today, your host is me, Jon Solitro. Today, we will be without Dr. Smith. He's a busy guy and I think just the effort to put something out because it has been way too long, we're going to go ahead and get something out. So, welcome to today's episode. Today, we're going to talk about how things are going in the market today, how things are going in your finances, and how things are just going. We need an update; a lot has happened in the world of finances. Some changes in personal finance, some changes in the economy as a whole, but updates are always good. So, let's dive in.

First, we're going to touch on some of the more pressing things in terms of banking industry right now so if you're listening to this – I don't know what the date is in your time – so, hello future you. Hopefully, things are going better when you're hearing this, but they're not going terrible right now.

What Happened To The Silicon Valley Bank? [0:02:13]

But the most news in the last couple of weeks has been Silicon Valley Bank essentially going belly up. First Republic Bank – same thing – but a little bit different thing happened. So, the gist of it is in terms of Silicon Valley Bank, the regulators came in and essentially bailed them out. The FDIC insurance, which is the Federal Deposit Insurance Corporation, which is sort of a government agency; that's where all of your cash is insured at the banks. Ever since the Great Depression essentially, you've had insurance on cash in the bank, so if the bank had gone out of business and your account balance said zero, you'd get reimbursed up to 250,000 per account type per account holder. So, we won't go super in-depth on that but if you had a joint account, you had a single account then you had an IRA and then you had a bunch of other things at this bank, that's how it would be protected. So, the FDIC came in and did that but there were a lot of other issues with Silicon Valley Bank that weren't necessarily as public but they all contributed to what happened to the bank. The bank was mainly involved with startup companies and venture capital as their clients so they had a lot of cash sitting; they had cash moving in and out at any given point in time; and so that being the case, banks are required to have a certain amount of cash on hand or some sort of assets to stay liquid because what they do with most of your cash – which, if you don't know this, you should – when you put cash at a bank, that bank is able to lend out that cash. They'll show you in your account that they have it and they can get to it but they're in the business of lending out money, and Silicon Valley Bank is no exception. And so they were a little upside down – a lot upside down, let's be honest – in the assets that they had to cover a lot of those liabilities. So when people started pulling money out, a lot of the assets they had to back up that cash was in U.S. government bonds which normally would be fine but in an economy like we have today where interest rates have gone up, they have bought a lot of these bonds a year ago with cash deposits that they had, so the bonds they owned were paying, let's say, 1 percent or 2 percent when interest rates were really low. So then new bonds come out this year paying 4 percent on the two-year – 4.5 percent sometimes – which means the value of all the other bonds out there goes down. So if they had to go sell this on the open market, the old bonds that they had, they wouldn't be able to get what they needed to get or what they thought they had. So, as new bonds are coming out, the value of their old bonds is dropping down, down, down, down so their balance sheet to their books are getting lower and lower and lower and they reach the liquidity ratio that was unacceptable, and it just became this domino effect. People started pulling money out to the point where they couldn't give them their money.

FDIC: Where Do They Come In? [0:05:33]

So FDIC government comes in, and normally, what we all knew was that 250,000 would be insured; anything over that was your SOL. But the government went ahead and you could say they overstepped or they didn't, but they said – yeah, every depositor will be covered; we've got money here somewhere that we've found. But let's face it – this is a podcast so I'm just going to give you my opinion – I think they overstepped. They have essentially effectively raised the FDIC insurance limit because of precedent. So like an illegal case when they say – well, the law may say this but this court ruled on this five years ago – so that's a precedent that says we should get this. So now should this ever happen again, you can go back to the FDIC and say – well, I know you say 250,000 dollars on paper is protected but I lost a million and you covered this guy at Silicon Valley Bank that had a million that he lost – so there you go. So you could say with precedent, they've effectively raised the FDIC limit to who knows what, and I think they overstepped. They just did whatever they wanted to do with money from somewhere and, of course, said it's not going to affect taxpayers but I don't see how it could unless the government has some other source of revenue that they started in the business of – I don't know. So, that's what's going on.

Other News: Stocks Are Holding Steady [0:07:10]

There other lesser news: stocks are kind of holding steady; typical ups and downs that's been going on for the last year or so. It was about this time when things started to really tank last year, going down in 10, 15, 20 percent depending on what you had and we're starting to see some recovery this year but it's not drastic but that's usually how recoveries go. Markets go down faster, then they go up but they have always come up since the beginning of time at least in terms of the S&P and the Dow Jones and the Nasdaq and those kind of things. So, we're going to talk a little bit about what you should be doing with that and how it affects you personally because again this isn't a show about the economy, it's not a show about investing per se, but it all comes back to what does this mean to you as a resident, as a young physician, and your personal finances.

As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]

So, markets kind of doing okay. Housing market is starting to level a little bit. You're not seeing the bidding wars and the crazy high offers and all that kind of stuff like we used to a few months ago. Last year was nuts; year before was nuts. We are seeing some numbers with the CAPE Shiller Index with some other housing price indexes that we can see across that are starting to look a lot more normal. Now, the supply certainly isn't there and that's going to be dictating prices as a whole so the supply of houses available – new houses being built, houses on the market – is not what it needs to be to have things come back down to where they need to be and I get asked the question all the time: When will housing prices go back down to where they were? Should I buy a house now? Should I wait until housing prices come down? I don't know. There's really no way to know. All I know is the supply and demand is the same or is not what it means to be to get the prices back down there and the prices may never go back down to where they were. So, we have to be aware of that and just be ready for that, that may be the case, and this may be where prices are going to be. They're going up slower, but we all know that real estate goes up over time. It just depends how fast or how slow that goes up. There have been cycles where it's gone down, but should you bank on that when it comes to buying a house? I don't know. Rents are slowing down as well. Those rose quickly. They're pretty correlated so you can say, you know, because it gets expensive to buy a house, people decide to rent, so the more people renting so then rent goes up so the more people want to buy a house so it's this vicious cycle – housing and housing – which brings us to interest rates; essentially because housing prices have gone up so much because unemployment is so low; there's so many jobs out there because prices are going up on eggs, groceries, electricity, gas, what have you – all those things necessary to live; that's inflation. We've talked about that before; check out the Didactic Minute videos that we've done to see more information on that. But because of that, the Fed over the last year has been raising interest rates and a lot of people in the housing industry have hoped that that raising of interest rates would curb housing prices, and again, it slowed it a little bit but I can't say that it has curbed it to any great extent.

So, if you're transitioning from residency into attending or fellowship into an attending and you want to buy that house, should you wait? I don't know that the housing prices will drop. Should you wait until interest rates go down to get a more affordable mortgage? Maybe, but we don't know when that's going to go down either. If we look back in the 1970s and 1980s, there was a period of 10 years when interest rates were over 10 percent, and right now, they're around 7, 7.5 percent depending if your credit's decent and you get a 30-year mortgage.

Should You Buy A House? Student Loan Status During These Times [0:11:21]

So, here's the one thing that we could do. If you buy a house and rates go down, you can refinance later. Now, the issue becomes the cost of refinancing, the fees when you do that but, you know, if you got a million-dollar house or a 500,000 house becomes a lot more advantageous to refinance and get a lower interest rate. So, interest rates have dropped which makes refinancing student loans also difficult because if you have a 6.5 percent federal student loan which most of you do as you're waiting on Public Service Loan Forgiveness or you're just waiting for payments to start, there's been hardly any refinancing in the last two and a half years since they put a permanent or a universal deferment on federal student loan payments and interest accumulation. But as soon as that starts back up again – I don't know when at this recording of this podcast episode – but whenever they do, that's going to be the time when refinancing starts, but those refinance rates with SoFi and DRB and Laurel Road and Common Bond and Earnest and all these companies are based on that SOFR which is called the something overnight button rate – I don't know – but the Fed's interest rate, the Wall Street prime rate, all those things; what is prime – that's another conversation – but that's what mortgages are based off of and the Fed Funds overnight rate is what the Federal Reserve raises when they raise rates. That's what mortgages are based on and that's what private student loans are based on. So, two years ago, you could refinance all day long at 2 percent, 3 percent, 4 percent which is great when you're refinancing 300,000 dollars that's now at 6.5 percent – that's a no-brainer – especially when there was no cost to do the refinance. So right now, I haven't seen in a couple years but I have to imagine that student loan refinancing rates are up near 5 or 6 percent which makes it, you know, again, really no point in refinancing, but still a case-by-case basis of whether that makes sense. If you're going to be eligible for Public Service Loan Forgiveness which we started to see, we were just talking to a physician couple yesterday that was on the verge of getting their student loans forgiven. So I've been seeing several now of our clients getting their Public Service Loan Forgiveness, which is fantastic and a glorious day, and we've been waiting for that for a long time. So, that is a thing that's been happening and it's been real exciting to see. So that's the status of the student loan world, the mortgage world, housing prices, stock markets, banking – that pretty much covers it, would you say?

Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]

Another thing just to keep in mind, though, interest rates are rising which we've said affects student loans, affects mortgages, but it also affects your credit cards. It affects your purse. It affects any debt. So if you've got credit card debt, they may not tell you because all they have to do is give you a range. When you first get that credit card, it'll tell you our interest rates will range from 70 percent to 29 percent and so if that falls anywhere in there, they may not tell you when that rate's going up. So if you're holding money on a credit card, maybe a good time to go ahead and pay that off which, on the bright side of interest rates going up, maybe a good time to take some of your cash and instead of keeping in a savings account – emergency funds too – move it into a money market account like at Charles Schwab or TD Ameritrade where you could get 4.5 percent per year interest on your cash all day long and it's available today or tomorrow just like cash is. So, be looking into that. You've probably seen advertisements for high-yield savings accounts like American Express or Marcus or Chase and those can be good as well. They're not going to be quite as high as the money markets – more like 3.5, 3.75, maybe 4, depending on where you go – but you're going to want to look into those as well if you've got some cash sitting. So if you've got some cash sitting, one, good for you; two, make sure it's getting the best rate possible. Again, it's March 31st today. You've still got 15 days – 17 days, I guess; tax day is April 17th this year – to get your Roth IRA maxed out for last year; for your backdoor Roth for last year. So, reminder to do that whether you're at Betterment or Vanguard or Fidelity or wherever you are, get that done. if you've got some cash and you've got over and above your emergency fund, you're three to six months of your fixed expenses like we talked about, then, by all means.

Other news: We had a graduate resident dinner in Royal Oak last Wednesday that went great; went to D'Amato's in downtown Royal Oak and spent a couple of hours just talking about the transition between residency and graduating into an attending and what to do with some of the personal finance decisions that come up. So, if you're in that area, let us know. We do two or three of those a year to try to educate as many graduating residents as we can.

Download The Financial MD App – Its Free! [0:16:49]

What else is news? I'd say that's the bulk of it. So, that's our update. Hope that helped. I would say be sure to do a couple of things. Number one, download the Financial MD app – that's a good place just to get started to help you making smart financial decisions. The personal finance app helps you budget, puts a quick little financial plan together for you. It's free right now, so why not. Get us on TikTok, Instagram, Facebook. Join the Financial MD community which is doctors only; trading financial thoughts, suggestions, tips. We post resources all the time there so get on that Facebook group. It's private and for doctors only. So that's a good place to make sure you're getting some good information and ask some questions. And always check out financialmd.com for our blogs and our updates. Subscribe to the YouTube channel here for this podcast and if you're on Apple or Spotify or Amazon or wherever you get podcasts, please leave us a review and give us the 5 stars and just, hey, shoot me a message. Let me know what you like, what you want to hear, any topics in the future. Comment on this video. Please like and subscribe. Be a part of getting the word out to young physicians to avoid doctors making dumb mistakes with their money.

This is John from Financial MD, we'll see you next time.

Resources and Links:

About the FDIC – https://www.fdic.gov/
What is liquidity ratio? – https://corporatefinanceinstitute.com/resources/accounting/liquidity-ratio/#:~:text=A%20liquidity%20ratio%20is%20a,to%20cover%20its%20current%20liabilities.
S&P Global Ratings – https://www.spglobal.com/ratings/en/
Dow Jones – Business & Financial News, Analysis & Insight – https://www.dowjones.com/
Nasdaq: Stock Market, Data Updates, Reports & News – https://www.nasdaq.com/
CAPE Shiller Index meaning – https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio#:~:text=The%20cyclically%20adjusted%20price%2Dto,average)%2C%20adjusted%20for%20inflation.
Public Service Loan Forgiveness (PSLF) – https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
SoFi | Refinance Student Loans – https://www.sofi.com/refinance-student-loan/
Laurel Road | Student Loan Refinancing – https://www.laurelroad.com/
CommonBond | Student Loan Refinancing and Consolidation – https://www.commonbond.co/refinance-student-loan
Earnest | Low-Interest Loans Designed For You – https://www.earnest.com/
Secured Overnight Financing Rate (SOFR) Definition and History – https://www.investopedia.com/secured-overnight-financing-rate-sofr-4683954
Prime Rate definition – https://www.investopedia.com/terms/p/primerate.asp
Overnight Bank Funding Rate – https://www.newyorkfed.org/markets/reference-rates/obfr
Charles Schwab | A modern approach to investing & retirement – https://www.schwab.com/
TD Ameritrade: Online Stock Trading, Investing, Brokerage – https://www.tdameritrade.com/
What are high-yield savings accounts? – https://www.cnbc.com/select/high-yield-savings-account/
Betterment: A better way to invest – https://www.betterment.com/
Vanguard: Mutual funds, IRAs, ETFs, 401(k) plans, and more – https://investor.vanguard.com/corporate-portal/
Fidelity Investments: Retirement Plans, Investing, Brokerage – https://www.fidelity.com/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

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View Details

Summary:

Pros And Cons Of Doing 1099 Work (Being An Independent Contractor Or Business Owner) [0:08:17]
Get Started On That 401(k) [0:11:01]
Super Roth – A Third Contribution To Your 401(k) [0:13:25]
Another Big Benefit [0:18:06]
By Being A 1099, You Can Buy The Insurance You Want (Plus Others!) [0:20:27]
Be Sure To Get A Financial Planner Who Always Touch Base With You Regularly [0:24:20]
If You’re Doing 1099, Don’t Forget To Pay Your Taxes! [0:27:55]

Pros And Cons Of Doing 1099 Work (Being An Independent Contractor Or Business Owner) [0:08:17]

Jon: Well that speaks to, I think, our topic today. We’re going to talk about alternatives like being an independent contractor or a business owner and the pros and cons of that and one of the big ones is you control your schedule a lot better – for the most part. Now, there’s certain like ER jobs where they give your schedule. You got to do it, but it’s still a 1099 pay but a lot of times if you’re doing shift work or locums or even self-employed, you’re kind of starting a little small practice, you got more flexibility on the schedule then.

Trevor: Yeah, there’s a lot of different ways to do 1099 work. Some people, it’s just picking up extra shifts and if it’s totally ad hoc, you get full freedom to just not do it for a month or two. Some places require a minimum and then they have a schedule, seniority of who gets to choose first and also and your stuck, not going out of vacation, six months down the road, just because you want to pick up some extra shifts here and there and you’re contractually obligated. All those like everything comes down to contracts and making sure you know what you get yourself into, but there’s a lot of money out there for a little bit of extra work on the side. You were just talking about how. We were talking about tax stuff. There are tax things you can do. That’s really, really getting into the weeds, I think, and even though or S corp and different things, you can read articles on that because it is pretty highly specific and even some of those benefits have changed over the years. They’ve changed enough like you have to talk to your CPA and find out if that’s even a benefit but the real one we were just chatting about that everybody loves is being able to do a solo 401(k). If you’re main gig is 1099, meaning, you’re an independent contractor, you run your own business and someone is paying you as a consultant to come in and do some work – medical work or otherwise – that is definitely a nice thing to be able to put money into your retirement account. It’s a super powered way of putting money away. If it’s at all possible basically to be 1099 or W-2, for me, I always want to be 1099 especially like last year, I didn’t have a W-2. I was just doing contract work, locums.

Jon: Okay.

Trevor: And that let me put away most of my salary other than what I lived on into my retirement account because you can put in like almost $60,000 between your own personal then you’re your own employer so then you can put in another almost 40,000 so 20,000 and then 40,000 roughly. These numbers vary by year and it doesn’t matter too much but it’s in the range of 20 yourself – that’s called an employee contribution – and then an employer contribution. For solo 401(k) can be another 40,000 as long as you haven’t put money into any other retirement. That’s like the total max amount you can do.

Jon: Yup.

Get Started On That 401(k) [0:11:01]

Trevor: And that’s one of the best perks and starting your own 401(k) is like $1,000, $1500 – something like that. It’s not too expensive. It’s a one-time thing. Some companies will do recurring fees to process paperwork and stuff but you can just do that typically on your own; has to get, I think, over 150k to have to file anything anyways. Maybe, it’s 250.

Jon: I think it’s 250, anyway, yup.

Trevor: So it’s just like some paperwork. We’re talking about like basic IRS documentations, very easy to do. Your CPA, your accountant, can do that for you. I didn’t think it was too tough. There’s a decent industry around solo stuff now like there’s also some scams, some scammy stuff out there, so you’d certainly want to do research on, making sure whatever company you use is a real place, but they end up contracting with the bank to kind of coordinate a lot of the stuff, so they end up doing a little bit of legal work on the front end to establish your plan and then you end up kind of just sending them some money and they put it in the bank. It’s not too bad. There definitely are some scammy things in that area who promise more than they legally can deliver. Personally, I don’t mind saying I used IRA Financial. I like them. They’re out of Florida. They’re out of Miami. Adam Neumann is the guy from WeWork. This guy’s name is Adam Kaufman.

Jon: Okay, yeah.

Trevor: So, I wanted to say, Adam Neumann, he’s the guy who did WeWork at the big publicly-traded company massive fiasco, you know, the whole thing. I just heard a podcast about him. Adam Kaufman is the guy who does IRA Financial. They’re great. He puts out a lot of free educational content on his YouTube page.

Jon: And they do a self-directed IRA or self-directed 401(k)?

Trevor: Yeah, they do all of the above. They kind of do all the self-directed stuff.

Jon: Okay.

Trevor: They do self-directed IRA, Roth IRA, solo 401(k). Solo 401(k) with them and what most people, you can have a traditional arm which is pretax contributions and post-tax contributions. You can do either one. Again, your max ends up being that like 60k. I believe that’s the vehicle with the maximum amount of Roth contribution is the solo 401(k). In terms of directly contributing, there’s ways of creating an account and then converting it – stuff like that – but you can do a true Roth contribution directly.

Super Roth – A Third Contribution To Your 401(k) [0:13:25]

Jon: And if they don’t get rid of it in any legislation, there’s this super Roth; it’s been called different things but basically, there’s a third contribution you can make in 401(k). It’s called just basic post-tax contributions or after-tax contributions that aren’t Roth so it’s kind of a hybrid where they would go in after tax but then the growth they get would be tax-deferred and tax-later. So you won’t be taxed on the principal when you take it out but you will be taxed on the growth or the gains. You could max out your 20,500 into a Roth contribution and then you could do the rest of it – so another 40,000 – in after-tax employee contributions which then you convert into the Roth bucket in your 401(k).

Trevor: Got it.

Jon: So there’s ways to get 60,000 and again, this has been on the table to be cut in legislation before but for now it’s possible. I have anesthesiologists doing that and a couple of reasons. They’ve got a unique situation. They’re husband and wife anesthesiologists, both 1099, and who, without going too deep in the weeds, they started a solo 401(k), maxing that out, both employee-employer and then they started a cash balance plan and doing that as well and then the husband is doing some moonlighting with a company that has a 401(k) so he’s doing that with some after-tax contribution, so they’re truly maximizing their income in that sense and it’s pretty cool. That warms my heart to see take advantage of all those different benefits of being a business owner, self-employed.

Trevor: Right.

Jon: Like Trevor said, there’s some paperwork to it and things, but I think once you get over the IRA limit of $6,000, it doesn’t take too much more to make the math work. If it costs you $1,000 or $2,000 a year to administer this 401(k), you know, at 30 percent tax rate, you have to put in another $6,000 to make that worthwhile to save that much of taxes, and so anything beyond that is just pure savings. Makes a ton of sense, and Trevor, you’re able to with self-directed ones. You could invest those in a lot of different things whether it’s real estate or other alternative investments, right?

Trevor: Yeah, you can basically do whatever you want with it as long as it doesn’t violate some pretty specific rules. There’s a number of them and they’ll be in your plan documents. If you got a good company like you’re working with IRA Financial, I can email them just their Compliance Department to say, hey, can I put money in this and if I do, how does that work? There’s some pretty creative ways of deploying money and then if you’re in a Roth, you know, like whatever you do with it, anything you make on, you never ever, ever, ever have to pay anything extra on that.

Jon: Yup.

Trevor: That’s a nice just piece of mind when I’m working with that portion.

Jon: Now the trick is the earnings have to stay in that self-directed, right?

Trevor: It’s all got to be. It’s like it’s sitting on an island. You can’t mix it with anything else and you can’t mix it with family stuff and you can’t mix it with your own businesses but you can do pretty much anything else you want with it. You can go into other people’s businesses which would be like buying a stock, I mean it’s like most, right, but it could be a privately traded company.

Jon: So you couldn’t invest it in something you own – real estate, something like that.

Trevor: No. There’s certain things you can do with real estate. I don’t mess with real estate. As you know, that’s just the territory that I don’t know well enough to be able to outcompete other very, very smart people. Winner take all to a degree in local real estate markets. I don’t mess with that but it does let you do alternatives. So if you want to get gold which is certainly being talked about right now, if you want to find inflation-hedging assets that are non-custody, meaning, like the bank doesn’t just hold the money on your behalf or like with stocks or basically certificates held two or three parties away. If you want other things like that like hard assets then you can use the money to buy the hard assets and then it’s just, yes, it’s part of your Roth IRA. So, if you make money off of them, that money has to stay in there. You can’t withdraw, you know. You get penalties for that kind of thing. That’s why you can’t be buying stuff in your own business and other things like that. But you can buy gold – physical, literal gold – silver. You have some freedom that you otherwise wouldn’t have when your 401(k) with your company. I tried to sacrifice and live like a resident so that I can put as much to my early career away into that knowing that I probably would be W-2 later and not really be able to put anything into that, not be self-directed necessarily for a long period of time. It’s probably my only funds I can do whatever I want with for a while, potentially.

Another Big Benefit [0:18:06]

Jon: Yeah, so that’s one of the big benefits obviously that comes to mind for us. I think equal to that depending on how you use it is just the ability to have business expenses and deduct more of your income typically than a W-2 can. It’s just so much more available to you. They greatly limit the tax deductions that a W-2 can make. There are a few things you can itemize and now with the standard deduction, it’s even less. So if you are a business owner and you have what’s called Scheduled C Income which is synonymous pretty much with 1099 income then you’re able to have a lot of leeway on business expenses, portion of your house or rent or utilities you can deduct or travel – all those kind of things – and last I checked with, say, travel, the mileage was at least 55 cents a mile – I don’t know what is now – but that’s a big thing. Maybe it makes more sense today if they haven’t caught up with it to deduct actual fuel prices but that can be huge. So those are the big things that at the end of the day even if you maybe end up making less as a W-2 or more as a W-2, you got to factor in all these other benefits that you’re getting long-term like Trevor was saying.

Trevor: Yeah.

Jon: Yeah, you’re putting away now more in your 401(k). You’re not keeping as much to bend on your things today but you’ll be glad you did later and then the things that you can deduct now is huge. I think most of the people that we talked to want to keep more money versus getting it to the government if they don’t have to.

Trevor: Yeah, I was just thinking about the benefits. It’s one of those – it’s easy to want to think that it’s simple so it’s like, oh, I got a W-2, these benefits are great, wow, like, man, you know. People like the safety of that. Okay, now I’ve got a job and it’s secure and now I’ve got these benefits. We’ll, I think very few people have or maybe even ever will sit down and do an apples-to-apples. If you’re a curious individual, make a chart and write down all the things you get from work and then all the things you have to pay. If you’re doing like locums and doing some travel and all that and then look at where your locums job would cover. So they covered pretty much everything except for food. If you do that apples-to-apples comparison, you’ll find like health insurance is “expensive,” right, but have you ever looked? Have you ever looked to see how expensive it is? Because for a doctor, it’s pretty unlikely that you’re going to look at it and go, oh my gosh, this is so expensive, I have to take this job.

Jon: Yeah.

By Being A 1099, You Can Buy The Insurance You Want (Plus Others!) [0:20:27]

Trevor: Because there’s a percentage of your income, you buy your own insurance as some on your 30s or 40s is substantially less than you probably would guess it is. It can be $350 a month and that’s kind of maybe an old school car payment. Car payments now are a little higher but $350 a month? Okay, let’s say it’s $500. Let’s say it’s $700 and you’re doing locums somewhere. If you’re a radiologist, you’re making $2500 a day and you’re worried about a $750 a month health insurance payment. I mean, you get the best health insurance that money can buy for probably $1,000, maybe $2,000 max deductible A to Z plan. So I think about these benefits. I think people just assume they’re good like a lot of things we assumed like oh, it must be, it’s benefits and I’m a doctor and I’m in a hospital so they must be good and that’s not usually the case.

Jon: No. I see a lot of benefits for our physician clients so I’ve seen enough examples.

Trevor: Are they good?

Jon: No. A lot of them they’ll take their spouses’ that are working somewhere else because it’s not great.

Trevor: That’s right. Yeah, the hospitals don’t usually provide that great of benefits unless you work somewhere like Mayo Clinic, certain like really well-known institutions that are known for treating their physicians well. They have ridiculous benefits that would take your breath away. I mean, it’s pretty wild. They might have two or three retirement plans or two retirement options and pension and all that kind of stuff. That’s a kind of a different scenario but your typical, just private practice or hospital, you’re getting the same insurance as the technician in your office that, you know, has a high school education and some credentials and they’re great. I’m not saying they’re not smart. They’re smart and you’re glad they’re there, but you have the same benefits as them because that’s what your company is required to do. It has to be equal distribution of benefits. By being a 1099, you can actually buy the good insurance that you want, for example. So let’s go through a couple other categories. Malpractice, you might think that’s really expensive. Well, it might be like $800 a month. That’s like a typical kind of early career amount. It’s more as you get through your career and they kind of balance it out but $800, it’s like not that crazy. They might have a promo then you first get out of residency.

Jon: Or always look at your associations for stuff like that too. You might find some decent discounts with joining associations.

Trevor: The doctors can always through shopping around because now you’re the only buyer, right. Even groups, they don’t switch very often but if you shop around, you can get a massive discount and sometimes they’ll even cover your tail coverage, you know, seal that previous malpractice.

Jon: Yeah.

Trevor: There’s all sorts of things you can do by just kind of shopping around a little bit. All that to say, that’s not that expensive either. Those are probably the top two things people would say like, oh, I’m so glad they cover my malpractice and my health and you’re talking about $1500 a month. It’s kind of silly and then you could for how much you’re going to save and what you can put away in your own solo 401(k) and if they have minimum matching, a lot of doctors get like 1, 3, 5 percent matching. Some places are generous. You know you might get 10+ but not that common. So I think people are often making this decision based on qualitative feeling of benefits rather than a quantitative apples-to-apples on how do I make my money, how do I want to keep my money, and what I spend the better than my company would spend it or my potential company, and that’s the real question. I don’t think people knew that. I don’t know why that is. It’s the same thing I always say like people will work their butts off to get their money and then they like almost don’t care what happens with after that. They just want to put it in the bank and they don’t want to think about it or they hire somebody to do it who just doesn’t have the same incentive to keep track so if you have somebody to help you set it up, you know, that’s kind of what you do. You set it up. You give a lot of great input. You check in periodically, but people don’t often prompt themselves to do those same things.

Be Sure To Get A Financial Planner Who Always Touch Base With You Regularly [0:24:20]

Jon: No, they don’t and that’s, I think, like you said, where a financial planner comes into play. Whoever you are using, make sure it’s somebody that’s going to touch base regularly and is reviewing everything. It should be comprehensive financial planning and you’re probably going to pay more as a business owner or self-employed because there’s more to it but you’re going to get more service. You’re going to have somebody who’s going to say, hey, we’re going to be doing some tax planning and looking ahead, taking advantage of some of the benefits of being a self-employed or business owner and we’re making sure you’re shopping this around. Even with our employee W-2 clients here, we’re making sure every couple of years, they’re shopping out their home and auto insurance, and so if you’re working with a comprehensive financial planner then if they’re doing what they’re supposed to do, they’re reminding you those timely things to say, hey, it’s been a couple of years, or even on a yearly basis and they will have contacts and people that they know to help you shop out these things or resources or places to go to. So, I think that also comes back to the idea of finding a specialist in terms of helping you with your financial planning; finding someone that you can sleep better at night knowing you’ve delegated this stuff, they’re keeping an eye on these things, they’re asking the right questions, they’re going through the right checklist every year. So, we’re not making this out to be an easy, simple thing, for sure. The W-2 is the dummy-proof turnkey way to just get paid and have a job but if you want to take a little bit more organization and thinking through and a little effort on the side, that can be financially better in the long run. But do that apples-to-apples like Trevor was talking about. Add up everything you get in your benefits – your employer matched the portion, the health insurance they paid for in malpractice – all those things, plus your salary. Compare it to a similar 1099 where they’re not covering anything. You’ll find it will be close and even if it’s close than the other ancillary benefits you get from being able to have more in a 401(k) or more tax deductions, whatever the case might be, it may be worth it.

Trevor: Right, yeah, absolutely. And if you’re running – if you have like a little booty practice, and you run it small, you may actually also get a lot more of your time back and be breaking even or making more.

Jon: Yeah. You at least have control over that for sure.

Trevor: Yeah, which is not everybody in a 1099 situation. I’d say probably most docs in a 1099 situation still kind of have more of an employer.

Jon: They’re working for somebody else, right.

Trevor: Relationship.

Jon: Paid under the table, so to speak, because they’re going to report it.

Trevor: Yeah, it’s very above the table, you know, on a 1099, but it’s definitely direct. It’s direct payment and you figure out your own expenses.

Jon: They’re not withholding, remember that.

Trevor: Right, yeah, so you work a week somewhere and they give you, you know, 12 grand or something. I guess, maybe even more probably for most 12 grand, 14 grand, and then yeah, you got to take taxes out on that yourself right away.

Jon: That’s not all your money, right.

Trevor: Yeah.

Jon: Oh boy, if I could tell you. A couple of years out of business, I met a guy who was an ER doc in Ohio, have been in practice two or three years and he said, yeah, I really can’t do anything right now. I’ve got to pay off this debt to the IRS. I owe them like $150,000 because I forgot to pay my taxes the last few years. I’m like, okay. You just thought this was all your money? Like okay, but that happens.

Trevor: So that’s easy to do especially if you’re making big money in 1099, I think, that can happen to people pretty quick.

Jon: Yeah.

Trevor: They’ll figure it out later like, wait a minute. That was a lot of weeks of work. You have a lot of multi-thousand dollar checks and I owe a decent chunk of that to somebody else.

If You’re Doing 1099, Don’t Forget To Pay Your Taxes! [0:27:55]

Jon: Well, and quite frankly, if you don’t start paying quarterly after a year or two of that, then the IRS does have an issue with that because they don’t want that to happen. They don’t want you owing them boatloads of money so they’re going to say, okay, you need to start paying quarterly and if you don’t, there’s going to be some penalties there. So the paying quarterly helps but still every paycheck, set aside whatever your CPA is going to recommend there. A lot of things to be aware of. It’s not turnkey but it’s not hard either and you’ll get the hang of it and it may be worthwhile for some of you. So ask us questions if you’re considering it; if you want to know if it’s right for you. We’d love to talk about it more. If you’re considering some opportunities that you want to shoot our way, Trevor and I are both happy to look at it and give you some of our advice and just experience but we’re out here to eradicate physician financial illiteracy so hopefully this made you a little bit smarter today and maybe gave you an edge somewhere down the road and you’ll come back or just give us a five-star review.

Trevor: Yeah, I was going to plug a book, too, the Medical Entrepreneur.

Jon: Oh, cool.

Trevor: The Medical Entrepreneur – a plastic surgeon wrote it. He’s started and sold multiple companies and had practice the whole time and he does a good once-over. If you’re just thinking about starting your own private practice or your little side gig business or whatever it is, it’s very broadly applicable to just starting any business but from a doctor’s perspective so that kind of helps the doctors where they’re at. I found that one really helpful. It’s sort of like reading a lot of articles, just putting them all together into a book. Very topical, but he pulls in expert opinions like CPAs and lawyers on different components so I recommend that one. I enjoyed it and I’ve even bought it for a couple of people that are non-doctors and they found it like a nice, helpful, basic starting-your-own-business book for their non-medical businesses. It’s a good one.

Jon: Awesome. All right, we’ll have a link to that in the show notes. Lastly, I want to remind you please share these shows. If you’re finding any benefit in these, then somebody else is going to as well. So please help us to eradicate physician financial illiteracy and share these shows. It’s easy to do in your apps. Leave us a review, that helps, again, more physicians find out about these shows. Any other things that are out there, so if this is the only place you’re hearing about us, get on at social media. Our Instagram and TikTok are updated all the time. These videos, we do a weekly Didactic Minute video with some financial tips, so links to these cool articles. We have a Financial MD Community which is a Facebook group just for physicians where were talking and giving and getting tips there as well. So plenty of places to follow us. Last, but not least, go to financialmd.com if you’re not catching anything that I just said. It’s all there and we’d love to chat more. With that, we’ll be saying adieu. This is Jon Solitro and my pal, Trevor Smith.

Trevor: Thank you, Sir.

Jon: We’ll see you next time.

Trevor: Later Jon.

Jon: Bye everybody.

Resources and Links:

10 Things You Should Know About 1099s – https://www.investopedia.com/financial-edge/0110/10-things-you-should-know-about-1099s.aspx
S Corporation – https://www.investopedia.com/terms/s/subchapters.asp
What is Solo 401(k)? – https://www.nerdwallet.com/article/investing/what-is-a-solo-401k
What is a W-2 Form? – https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-a-w-2-form/L6VJbqWl5
What is employee contribution and employer contribution? – https://www.simpliance.in/provident-fund/contributions
IRA Financial Group: Self-Direct Your Retirement website – https://www.irafinancialgroup.com/
A Guide to Self-Directed IRAs – https://money.usnews.com/money/retirement/iras/articles/a-guide-to-self-directed-iras
Self-Directed 401(k) – https://www.shrm.org/hr-today/news/hr-magazine/pages/0300hoffman.aspx
Pretax Versus Post-tax Contributions? – https://www.ameriprise.com/financial-goals-priorities/taxes/how-to-minimize-taxes
Roth IRA Basics – https://www.investopedia.com/terms/r/rothira.asp
The Super Roth IRA – For Regular Guys (and Gals) – https://www.jdsupra.com/legalnews/the-super-roth-ira1-for-regular-guys-08219/
What is tax deferral? – https://www.bankrate.com/glossary/t/tax-deferral/
Tax Now, Tax Later, Tax Never: Understanding Tax Efficiency – https://www.teampinnacle.net/blog/tax-now-tax-later-tax-never-understanding-tax-efficiency#:~:text=Comprised%20of%20IRAs%2C%20401(k,paid%20upon%20funds%20being%20withdrawn.
Fact Sheet: Cash Balance Pension Plans – https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/cash-balance-pension-plans
What is Schedule C Tax Form (Form 1040)? – https://www.freshbooks.com/hub/taxes/schedule-c-form
Tail Coverage Definition – https://www.thehartford.com/business-insurance/tail-coverage
The Medical Entrepreneur: Pearls, Pitfalls and Practical Business Advice for Doctors (Third Edition) – https://www.amazon.com/Medical-Entrepreneur-Pitfalls-Practical-Business/dp/0615407137
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

Trevor’s Main Goal Out Of Residency – Pay Off Loans [0:01:35]
Financial Advisors Are Accountable, To Some Degree, For Our Financial Decisions [0:04:19]
Trevor Wants To Buy A New Car And Consults With Jon [0:06:03]
Trevor Found His Car! [0:10:20]
General Rule Of Advice: Buy A Two- Or Three-Year-Old Car [0:11:04]
Process For Buying A Car These Days [0:13:46]
Financing: What Are The Options? Interest Rate? [0:19:26]
Extra Important Tips In Buying A Car [0:26:02]
Cars That Depreciate The Least Can Be Part Of Estate Planning (Long-Term Care Planning) [0:27:32]

Jon: Alright, welcome to another episode of the Financial MD Show. We’re back and ready to talk about what’s relevant today in finances for young physicians and sometimes there’s very specific things that apply to you and sometimes they’re things that just apply to everybody. Like, for example, today’s topic of buying a car is something that applies to everybody. Now, certainly, when you get out of residency that’s when most doctors are definitely looking to buy a car. I don’t know about you, Trevor, but what was that like? Was that your new car purchase when you got out of residency or fellowship?

Trevor’s Main Goal Out Of Residency – Pay Off Loans [0:01:35]

Trevor: No. My goal was to pay off my loans. I was pretty aggressive on paying off my loans. I keep the same car I had in residency until it was totaled last year. I had a nice trip to Florida, flew back, snowstorm, driving home from the Detroit Airport, and there was a 19-year-old kid in a brand new 2021 Chevy Blazer, bright orange, just ripping down the right lane going about 80. Everyone else was going like 60 or so – really heavy snow condition – people from Michigan would know. And he just started spinning around in front of everybody. He hit an off-duty police officer first and two other cars including my own and so, yes, that car was toast.

Jon: How old was he?

Trevor: I didn’t get his exact age but he looked like he’s probably 19. I mean, he looked younger than 20. It’s possible that he was a little older than that but, yeah, pretty crazy. So I kept my same car. I just was like, you know, I like this car. It’s a solid car. I got a wicked deal on it in residency; didn’t really have many repairs. So I waited, but then I’ve just kind have been like bouncing around because that was still during COVID, you know, a year ago, that was 2021. So cars were like crazy so I just bought the cheapest used car I could find with good gas mileage and I have been driving a 2005 Toyota Prius for the last year. The air conditioning doesn’t work.

Jon: You started to feel that an hour or two.

Trevor: Oh my gosh, I hate to admit how much it drives me crazy not to have an air conditioning but when it’s like – you know, it’s humid in Michigan. So the heat’s one thing, but humid, it’s brutal.

Jon: I know, yeah.

Trevor: So, it’s windows down. It’s loud. I replaced the rear shocks. I just have been putting a lot of money into it. I’m like, this is crazy. So, yeah, what prompted this pod here, right, was I was like I’m going to buy a car and the funny thing about people even if they have financial advisors, they’ll usually buy a house or car and they’ll be like, “Hey, I just want to give you call, just a head’s up, financial advisor; I just bought 80,000 dollar Audi,” or something like that, and, like, “Oh cool, is that part of our plan that we put together?”

Jon: Oh my gosh, that is the same conversation I’ve had. I think folks what you’re hearing is Trevor’s been with us long enough to know what the quick and the dirty side of financial planning that nobody tells you. I’ve gotten to the point where I’ll put it in writing with clients before like please let us know of any upcoming financial changes or large purchases or any of that kind of stuff. I think sometimes they don’t think about it but I know there are some times where they didn’t want to tell me.

Financial Advisors Are Accountable, To Some Degree, For Our Financial Decisions [0:04:19]

Trevor: It’s really funny. Definitely, financial advisors are, to some degree, they’re like accountability for our financial decisions, you know.

Jon: Well, for sure.

Trevor: Like if you eat terrible and you start getting a belly and you still go to the gym and you got a trainer, you know, he’s going to be like, “Hey, we have been working at this like what’s going on.” You know like, “Are we achieving your goals? We can adjust them, but you know, this is what we said we’re going to do, so what’s the plan here?” It’s incredibly valuable to have that person to be able to check in.

Jon: Yeah, not that it’s not flexible but I’ve always said half the value of financial planner when I talk to people about how much it costs monthly to work with Financial MD or any of that kind of thing, they always think, “Well, what’s the value that I’m getting? Are they going to save me money? Are they going to make me more money because I work with a financial planner?” Well, probably, but it’s going to be intangible things that we can’t track because half the value of working with a financial planner is the accountability and we almost call it a financial coach so people can get that concept a little better.

Trevor: Yeah, totally.

Jon: I’m going to tell you to do stuff. I’m going to expect you to do it and when you don’t, I need to hear about it or that kind of stuff and, yeah, you’re totally right and I hope everybody listening to this, whatever the point is you work with a financial planner, if you’re disciplined enough to do it yourself, great, but that’s not the majority as the White Coat Investor says that 5 to maybe 10 percent of doctors are legitimate do-it-yourselfers and should be. The rest need to get some help and you need that accountability. I tell people this. This isn’t information that’s proprietary to me. I’m not some brilliant storehouse of knowledge that nobody else has. I have a lot of knowledge but it’s not stuff you can’t just Google either so why do you need a financial planner. So there you go. That’s my rant.

Trevor Wants To Buy A New Car And Consults With Jon [0:06:03]

Trevor: Yeah, exactly. I mean, I totally agree. Yeah, so that’s why I reached out. I was curious of what are your thoughts, what do you talk to about clients with cars because I’m about to buy a new car. I want to replace the one I have – well, I’m still going to keep it around as a backup because I basically repaired everything that needs to be repaired. It’s got 200,000-plus miles on it like it’s fully depreciated. It’s perfect. It’s a great backup car to just keep around, barely cost me anything on insurance. It’s sweet, and my family can use it – siblings, parents, whatever – running to the airport. It gets great gas mileage so I’m like, okay, I’ll just keep it around. It’s not worth trading in or even selling. But I want to upgrade something that I can kind of be a nice commuter car that’s more comfortable and just something nicer like I really focused so much on my loans that I’m like when I’m going to ever buy something that I like? Like just for me to enjoy because that’s supposedly part of the reason we make money but I’m kind of bad about spending money on things that I can just use that don’t have an explicit investment purpose; you know, growth plan. So I could just drive this thing forever into the ground and save some money here and there but I really would like to do something, you know, and get something nice that I enjoy that’s just fun and comfortable and easier on my back and stuff. I’m not that old but I’m getting old enough that I appreciate a comfortable seat if I’m driving a lot, you know.

Jon: So like back in the day are you like the Lincoln level, like Cadillac, like you want that nice, smooth ride?

Trevor: Yeah, so I’ve been prioritizing like a smooth ride and comfortable seat like good back support. The Prius that I have doesn’t even adjust up and down. It only adjusts back and forth. So I hadn’t been in a car like that in a while when I bought this one. So, you just end up at the same height, you know, no matter where you’re at. It’s just tough, yeah.

Jon: We’ve always been an old soul.

Trevor: Yeah, and the body catches up, right?

Jon: Yeah.

Trevor: That’s what I’m looking for and when I called you I was just like let’s make sure this is kind of what I have in mind. I’m thinking about a car payment in the range of 500 to 800 or something. Get something that’s 60- to 70-something a month amortization, the lease period, and that will get me in the range of 700 to 850 or so. The going rates for the insurance – sorry, for the loan – the interest rates are 3.5 or 4 percent, maybe higher depending on your bank and all that, but I’m getting quoted like around there. good credit is like 730-plus and I’m set on that. So, none of this obviously is bragging, I don’t know. I doubt that sounds like bragging to say my credit score is over 730 but I just want to be clear. I don’t’ really care. I’m not trying to sound like fancy or cool or anything. I’m just saying, here’s my example, you know. Four months out of residency, I paid off on my major loans. I want to drive something a little bit nicer and just enjoy that. I’m coming from the flip side like I’m having a hard time letting myself spend a little bit of money, so I’m finding, because I’ve been so nose down, pay off as much as possible my debt, and now I’m like, “Oh, is it okay if I don’t buy a Toyota,” you know, and it’s kind of almost like a psychological process to walk through like, “Oh, but this costs a little bit more,” and then I look at the miles per gallon for luxury cars. They’re not as good as like a Toyota Hybrid or like a Lexus Hybrid. I’m like, “Oh, it’s going to cost this much per year in gas and if gas doubles in price, it will be even more proportionally.” But at the same time like, you know, what am I working hard for and making money for, you know? So if I’m not going to spend it sometimes on something that I enjoy, it’s like, man, what’s the point, you know.

Jon: Well, my normal answer is you’re making more money to buy more Bitcoin.

Trevor: Yeah, right, right, right. That’s my normal answer, too, and I do love that perspective but you know what? Bitcoin goes down and up, right, so I think I’ve got a pretty rational regular plan on my investing and I got that portion of my income set aside so it’s like, well, I can do that. I don’t really want to buy a home and investment properties. I mean that’s investments – all that stuff. I keep thinking, oh, I could do more investments. Well, I’m already doing investments.

Jon: Yeah.

Trevor Found His Car! [0:10:20]

Trevor: I’m already being responsible. So, anyway, I don’t want to be too redundant but that’s kind of in the process. I found a car I like and now I’m just going through the, you know. I know the exact payments that’s going to cost. I just got quotes on the insurance and I compared the Toyota Hybrid car to this other kind of more like luxury car. It’s still not German. It’s still one of the lower cost ones but it’s like the Hyundai sub-brand Genesis. I’m like, “Oh, these are cool.” I kind of like the look of them. They’re a little more comfortable but they’re not like the cost of a Mercedes E-class or a BMW 5 Series or something like that and the maintenance won’t be quite as expensive. So I’m still being like very financial about it even if I’m trying to make more of a fun decision.

General Rule Of Advice: Buy A Two- Or Three-Year-Old Car [0:11:04]

Jon: So what’s the – I mean we’re going to talk about a couple of different things here in terms of what’s normal advice for buying a car and then what’s it like these days and how do we have to tweak that a little bit. Normally, when we’re looking at a car, I mean, general rule of thumb that I would say to anybody that can and I would say, you know, this is one of those Dave Ramsey would probably agree with – don’t buy brand new car. I think people know that in general but these days that may have changed and be a little bit different. Because the used car market is so tight and unprecedented and just availability and all those things, we may have to re-look at some of those things. General rule of advice? Buy a two- or three-year-old car, pay cash for it, but we’re still in a fairly low interest rate environment. You know, good two- or three-year-old cars are nearly as much as a brand new car so we’re getting one of those weird times where conventional wisdom doesn’t necessarily apply as much. Back in 2004, the government came out with this cash-for-clunkers deal like they were short on – I can’t remember what it was. If people were getting part of scrap metal, there were some issues there. There was just – I don’t remember what it was – but there was a- maybe it was to help the car industry or something like that but they did this Cash for Clunkers where the government was giving a certain amount for no matter what shape your car was in, you were getting money for these used cars and so that bumped up the used car price quite a bit and I ended up buying a brand new car for the first time because for like, you know, a few thousand more, I got the full warranty and a brand new car and all that kind of stuff. I was like, yeah, that kind of make sense.

Trevor: Yup.

Jon: But we’re kind of in an another time different reasons but similar outcome and things kind of have to go out the window. Yesterday, Trevor and I talked a little bit about how much of your- so let’s say you’re not paying cash, how much of your budget should be going towards this? So, he and I talked about student loans. We talked about other outstanding debt, if any; other payments, and one of the big things that I talk to any resident and any physician that I’m doing a budget with is what is the percentage that should be going to any debt – car payment included. So, all told, generally, 45 percent is what you want to be allotted; no more than that. I’m not saying that’s your goal. You won’t get up to that point, but that’s kind of the limit where you’re safe. So, 45 percent for any debt, that’s of your gross income; 25 percent of that is usually housing payment; again, these are maximums recommended. So, that being the case, we talked through some of that but that’s still, you know, I think the environment is still the same for something like that today. So, walk us through, Trevor, what was the process like these days for buying a car.

Process For Buying A Car These Days [0:13:46]

Trevor: Yeah, so what I learned is it’s definitely different than last time I was looking. I looked back in 2014 when I was switching out of a car that was just costing too much to repair and then had just one car between then and now until last year. It’s interesting. I went over and looked at a Kia Telluride. I’ll just give a couple of specific examples.

Jon: Okay. That’s a Crossover or?

Trevor: That’s a full-on SUV.

Jon: SUV, okay.

Trevor: It has a third row, bucket seats in the middle, really easy to get in and out of, good like family car but four-door SUV. So, great car, really highly rated – one of the highest rated on Consumer Reports. I’m really into Consumer Reports. It’s great to read about all the detailed testing they do.

Jon: Does Kia still have good reviews too?

Trevor: Awesome car. Yeah, they have great. Really, honestly, a lot of – I’m not seeing bad warranties really anywhere in the Toyota, Hyundai, Honda range. Honestly, it’s like the American automakers that have kind of like the worst ones like I remember when I was looking at Ford five years ago – I haven’t even looked at them this time – but it was like three-year, 36,000-mile, engine drivetrain, and Hyundai is 100,000, 10-year. They’re kind of known for being one of the higher end ones. So, yeah, I mean if you’re looking for warranties like…I don’t know that American cars have like good warranties but I can tell you the other – Toyota, Hyundai, Kia – they’re all pretty good. I think Kias might be a little less but, regardless, checking out the Telluride, really highly rated objectively by that source and it was on a lot of 61,000 dollars in the MSRP, meaning, like the price it’s assigned at the factory when they make it was 51,000 so it’s currently available and it’s 10,000 more than it should be new. So, I was just chatting to the guy about it – the salesman – and I came back a week later because they wouldn’t really budge on price. They were like, “Oh, we paid 6,000 over asking from another dealership to bring it here to sell.” I’m like, “Okay, all right,” whatever. So, I come back a week later. I’m like, “Hey, you told me the car would be off the lot in a matter of days yet it’s still there. You’re willing to come down on the price,” and they’re like, “Nope,” and I was like, “No problem, not interested.” But I picked their brains a little bit more like so interesting. Obviously, this is kind of new. It’s good and bad for you because you have less volume but you have to sell these cars and then you just basically have to charge more if you want to make the same. Obviously, most of the dealerships make their money on repairs, not on selling cars, but now they could do a bit of both but it’s low volume. He said if I buy a new one and I’m willing to wait – 10 to 12 months is the lead time from willing to wait – then I just pay MSRP and I can do a refundable deposit. So, I think part of the reason that cars are kind of gone is because people have been doing that like a year ago, they would buy and they put 500 down, fully refundable, and when the car would arrive, they could just buy it and they don’t have to buy it, they’re not obligated, fully refundable, but if the market is still tight, they can buy it and just flip it. They can sell it immediately for more. There’s got to be people out there that are speculating on these cars. There’s no penalty for not taking delivery when it arrives so you’ve got a little bit of cash here and there. There’s got to be people that are probably making decent money on that. I saw there’s an article about a guy who has been doing this with Tesla. He has bought like four or five in the last year and flipped them for 7,000 a piece on average and he was doing no work other than putting a hundred dollars down and then financing a vehicle and selling it immediately and he’s making seven grand a quarter doing that, you know. That’s no work – not no work – but it’s slow work and it’s a business, you know. He’s looked at all the details. Anyway, so, there are some ways to get them for cheaper as long as you’re super patient, you don’t have an immediate need. So, if anyone’s looking at cars and they’re like, “I want to wait a year,” I mean go look at cars now, decide, put down 100, 200, 500 or whatever it is, fully refundable. For any physician and healthcare workers listening, that’s a totally reasonable amount of your paycheck. If you’re thinking about a car a year from now, you should easily have that that you can put down and then you save, you know, what is that like, about 20 percent, a little bit less on that. if you’re going from sixty grand to fifty grand, that’s an amazing return on your money. You’re making ten grand over a year essentially versus buying it.

Jon: Just for waiting, right.

Trevor: Just for waiting. It’s really interesting. You can buy used but it ends up being almost the same price as the list price if it’s a year-old, two years old. Some of them sell for more even than a new car because of immediate availability. It’s variable, depends on the brand, depends on your area, but if you go on Carvana, CarGurus – these apps – searching around for cars, you’ll see. I mean, they’re really just…you just can’t find them. They’re super hard to find. If you want a hybrid, it’s like impossible. So, that’s the gist of kind of the market if you’re looking for what everyone else is looking for, when everyone else is looking for it. That’s going to be the hard thing to find so right now that’s high gas mileage, sedans, and SUVs, so hybrids are really tough to come by.

Jon: Yeah. So as gas prices have gone up, have you noticed more SUVs, full-sized trucks available – that kind of thing – or not really?

Trevor: Totally. You can go buy whatever Toyota 4Runner you want from any Toyota dealership right now.

Jon: Okay.

Trevor: You can get any color, any version, interior, exterior, different technology packages, and trucks are still pretty popular so they’re not necessarily as easy as SUVs, I think, because there’s just such a big market for trucks but, yeah, you can find like a Toyota Tacoma in a lot of different colors without driving more than 30, 40 minutes away because their gas mileage is like 18, 22 or something like that.

Jon: For what?

Trevor: Anything in that like teen range, it seems like it’s pretty easy to find them.

Jon: I know the thought…there was a thought crossed my mind to sell my Suburban a few months ago but then as gas prices have gone up, that’s not so appealing anymore. What about financing? What’s the process? Financing what are options like out there? What is interest like out there?

Financing: What Are The Options? Interest Rate? [0:19:26]

Trevor: Yeah, it’s not. I thought it was going to be higher. I was kind of nervous. I thought I’d walk in, learn, find a car I liked, and then it would match sort of the housing market. I was fearing 5 or 6 percent rates. I was just thinking, I might need to buy a less car, but it’s looking like…here’s certainly the trick. The lower you can go on the amount of months you’re financing for, the lower the rate – dramatically lower. I was looking briefly at a Mercedes just mostly out of curiosity like E350 is a really nice car.

Jon: Okay.

Trevor: Everybody likes some pretty reliable for a Mercedes, you know. It’s kind of the second nicest luxury sedan below an S-class – those are like 120,000-plus S-class. These are like 70 to 80, you get a used one from the 60s. So like Mercedes in the 18, 19, 20 car years, they’ll go down at 1.99 percent and those are certified pre-owned. So you’re getting basically slightly older car, all the warranties of a new car, you know. They check the tires, they do all of the stuff, the replacement if they have to, and you get 2 percent financing. Well, that’s at 36 months. So your payments are like 1500 dollars a month. It’s like I think a student loan payment for a lot of people. So, for a rapidly depreciating asset, maybe they haven’t been depreciating much for the last year and a half but I don’t think anyone thinks that will be the case over the long term. So most people finance for that reason because they don’t want a lot of their cash flow each month to go into a rapidly depreciating asset even if you’re going to get all the way down at 2 percent. Like if I get a 3.5 or 4 percent loan on a 45,000- to 50,000-dollar car, I’ll end up paying around five to seven grand, really more like 5500 in interest over a period of 60, 70 months or so. It’s not like…I mean, it’s a chunk of interest when you think about it. That’s 10 percent more in final cost, but it’s not terrible. It’s worth it to not be paying 1500 dollars a month even if I saved three grand over the life of the payments. At least to me. You know, that’s where it gets like just a personal decision of what do you want to look like.

Jon: And relative to your cash flow and stuff.

Trevor: Yeah. I’m personally leaning towards trying to get something in like the 700-something dollar range, 4 percent interest. You know, a couple of years ago, that would have been 2 percent probably which is nice but it’s totally doable and, yeah, I’ll probably go with that. It gives me some space. You know, I could do it shorter and ratchet it up to a thousand a month and probably get down to like 3 percent or something.

Jon: Yeah.

Trevor: I’m just glad it’s not 6 percent, you know, like the housing market.

Jon: Is it through the dealership or is that a bank credit union?

Trevor: Really either. So, my experience with the dealership is that they’re like, “Hey, we can just throw this out to the local credit unions. They get the best rates for preferred lenders.” It’s the same process going through them as it is going through the bank. They kind of do it for you. I mean that’s what I found. You can kind of pick your poison. Some of them like I’m looking at other types of loans like for business ventures and you don’t want to do a bunch of hard pulls on your credit when you’re applying for other things at the same time unless you’ve got great credit. Maybe, it’s okay, but it’s ideal not to.

Jon: Which you pulled off, you’re awesome.

Trevor: Yeah, so I’m not doing a shotgun approach. I talked to one lender that was like, “Oh, send it up to 72 loan companies and get quotes from all of them.” You know, they say it’s a soft pull, but I’ve had soft pulls that are actually hard pulls before and so I never really believed anybody. Tell me if you’ve had different experience but I have had people said it enough times where I’ve ended up with a hard pull that affects my credit. I’m just like, “I don’t’ need 72 quotes, you know. I need one that I’m okay with.” Sure, it’s great to shop it around and check and maybe get a quarter percent and a half a percent. But in 50,000 dollars at half a percent, yeah, you’re going to save a little, maybe like 5.

Jon: Especially on 4 percent. Yeah, if it’s 4 percent, how much could this spread on the range actually be.

Trevor: It’s not going to be big, there’s not a big difference. How much, you know, for 500 dollars, you want to spend an extra week looking at cars, that’s a lot of your time driving to dealerships dealing with all that stuff. So just to have to remember, your time is valuable as well so I’ve gone with a simple approach on that and I was already pretty happy with those rates.

Jon: Okay.

Trevor: I think I’m pretty close to pulling the trigger on one of these and getting back to the life of driving a car with air conditioning. It sounds amazing.

Jon: Yeah. It’s pretty sweet.

Trevor: It’s going to be great and I’ve saved a ton of money over the last year driving this kind of POS but also a great gas mileage car. So if you sacrifice for a while, eventually, you know, it’s okay to let yourself go ahead and spend a little bit of money and enjoy your earnings.

Jon: Yup.

Trevor: I’ll report back and let you know if I’m actually able to do that but that’s what I’m going to try to do is actually enjoy some of my earnings.

Jon: Good.

Trevor: Hopefully, I won’t regret it. I don’t think I will but…

Jon: No. You got a good job. You got a good, you know. Your life is finally stable again after Jamaica.

Trevor: Traveling, yeah. Lots of great experiences and in one spot…yeah. Well, it wasn’t even worth having a nice car then, and now, I’ll be using it. I think I’ll drive about 20,000 miles a year or so with the new job because it’s kind of jumping around different offices so this is a good time to be doing what I’m doing. It makes a lot sense.

Jon: Okay. I like it. Okay, so you’ll find out you said in September-ish kind of what they’re thinking or before then on the car?

Trevor: For which part?

Jon: And the car should be in by?

Trevor: Oh, yes. I’m actually going to buy a used car. I’m going to buy a 2021 used car that’s pretty hard to find and if I order it new, they don’t have any lead time on it.

Jon: Okay.

Trevor: And you can’t order – the car that I want, you cannot order currently for next year even because they haven’t finalized the model design. So, I’m like, “Okay, cool. I don’t need a brand new car.” I would be happy with a 2019 or 2020. They just happened to have a 2021. It’s a very limited selection so you just kind of get what they got and I looked online; couldn’t find any online, so there you go.

Jon: Okay. Gosh, it must have been- I think I was doing a review with a client with a similar thing. They’re like waiting for a text from the car to tell them the car is in, they’re on its way or something like that and stuff.

Trevor: Yup, they ordered ahead and then they pay in full when it arrives.

Jon: Okay.

Trevor: Yeah. Typically, a pre-approval letter when you apply for a loan, you can get a pre-approval letter and you just go around and show them the piece of paper and then you’re good to go. They’ll kind of take care of the rest.

Jon: Like shopping for a house?

Trevor: Yeah, like shopping for a house. They typically only last like 60 days and you potentially have to apply for the loan twice like when you first go looking and then if they don’t have it and you order a year out, you would have to apply again before they get it in.

Jon: Yeah, that’s fair.

Trevor: Kind of a weird thing, just told me that, yeah, that can happen. It’s all new territory to be able to or to have to order that far.

Jon: Yup.

Trevor: It’s kind of interesting.

Jon: Okay. Well, super. Any other tips or tricks for our young docs buying a car? Anything else that you feel like, “Hey, here’s one or two things you should know or just keep in mind, they’re super important?”

Extra Important Tips In Buying A Car [0:26:02]

Trevor: Yeah, my wrap on the summary would be like use reliable objective sources to pick a reliable car.

Jon: Okay.

Trevor: So, Consumer Reports is pretty solid. Kelley Blue Book has just user reviews and people posting like, “This car sucks, I had to do this and that,” and you can see if there’s a trend of those. Like Consumer Reports is great. They do one big annual issue every year that just came out and that goes through really almost all of the cars commonly on the road in the U.S. So I used that as a final reference of, you know, even certain model years of a car even if you got a Toyota Corolla or something, incredibly reliable. There’ll typically be one kind of weak year where they were tweaking and generally the best cars are like three years after a new model year because they kind of work through some of the kinks the first year or two. You don’t often want to buy the new model. You get the newest refresh of a model year.

Jon: Right.

Trevor: You often don’t want to do the last one either from what I’ve seen because they kind of tend to tail off they’re working on the other car. So something in the middle. Toyota seems to refresh like every 8 to 10 years or so, so it gives you a wide range in the middle. I don’t think you can really go too wrong with a Toyota typical sedan if you had to choose and then Lexus is still like the most reliable car brand. That’s the luxury brand also owned by Toyota – the most reliable car company plus sort of. They’re number one and usually number two with Toyota.

Jon: Okay.

Trevor: I think that’s a very valuable thing. Depreciating asset should at least be a reliable depreciating asset.

Jon: Yeah, maybe, if anything, depreciates slower than some other car potentially or something, okay.

Trevor: Yeah, exactly.

Cars That Depreciate The Least Can Be Part Of Estate Planning (Long-Term Care Planning) [0:27:32]

Jon: Good, but it kind of reminds of another story. My dad was working with some older folks on some estate planning and part of the name of the game there is Medicaid planning or long-term care planning. They’re trying to get assets – money, investments, cash – out of consideration for Medicaid because if you have too much money, Medicaid won’t pay for your long-term care and you can’t just get rid of it because they look back five years to see what your net worth was or what you had but anyway. So he said you can put money into cars which obviously depreciate but he would like around for doing a research on cars that depreciated the least where they could kind of park money for these people and get it out of consideration, and at the time – what did they buy? It was like a BMW X5 or something like that that is holding its value the best, and so, there’s other ways that is useful but, all right. Well, I think that’s hopefully helpful on buying a car and whether you’re listening to this five years from today’s podcast or five days from it, it might be in a different car buying and selling environment but there’s some good rules of thumb for you to remember regardless and then some just little nuances about the time that we’re in this year. Are we headed towards a recession? Will these prices be dropping soon? Where is gas prices going? All these things. Perhaps while you’re listening to this episode, you already know the answers to these questions that I’m asking about the future. But either way, the financial advice that we have here is always solid and we’re always trying to prepare for whatever the future may hold, planning all contingencies and if it and when we need to. So, if you got any further questions on that, you know how to get a hold of us. Go to financialmd.com. You’ll find all the free resources there. You’ll find our financial planning app designed for residents. You’ll find the links to our YouTube, to our TikTok, our Instagram. We’re trying to get videos out at least once a week. So, TikTok, Instagram are going to be the best place to catch those videos and subscribe and follow those but you’ll see this video on YouTube and Facebook and please not only subscribe to this podcast if you haven’t yet – I’m assuming you have. I never know why they always ask at the end of each podcast I listened to – you need to subscribe to this podcast – like I’m listening to it. But what’s big is two things: Please share and please leave a review if you want this info to get out to other doctors. If you feel like it’s good, if you’ve benefited from Financial MD at all, get the word out. We’d love to hear from you. Shoot us a message. As always, Dr. Smith, thanks for joining us. Always a pleasure to hang.

Trevor: Yup, great talking with you, Jon. See you on weekend.

Jon: Yeah. We’ll see you guys next time.

Resources and Links:

The White Coat Investor website – https://www.whitecoatinvestor.com/
Dave Ramsey: Ramsey Solutions - https://www.ramseysolutions.com/
What is Cash for Clunkers? - https://www.investopedia.com/terms/c/cash-for-clunkers.asp
Consumer Reports: Product Reviews and Ratings – https://www.consumerreports.org/
MSRP definition – https://www.cornerstoneauto.com/cornerstone-finance/car-buying-tips/what-does-msrp-mean/
Carvana: Buy & Finance Used Cars Online – https://www.carvana.com/
Buy & Sell Cars: Reviews, Prices, and Financing – CarGurus – https://www.cargurus.com/
Depreciable asset definition – https://www.accountingtools.com/articles/depreciable-asset.html
Hard pull versus soft pull – https://www.creditkarma.com/advice/i/hard-credit-inquiries-and-soft-credit-inquiries
Kelley Blue Book: New and Used Car Price Values – https://www.kbb.com/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

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View Details

Summary:

Let’s Talk About Real Estate [0:05:01]
Diversification: Alternate Investments [0:07:48]
Pros And Cons Of REITs [0:10:33]
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
Jon’s Personal Real Estate History [0:16:51]
Trevor’s Preference Regarding Real Estate [0:22:44]
Why Do People Don’t Like Bitcoin [0:26:29]
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

Jon: Welcome everyone to the 20th episode of the Financial MD Show. Today, Trevor and I will get into a topic that we get a lot of questions about and we’ve done a couple of Didactic Minute videos on and those are only 2 or 3 minutes and so we decided to dedicate a podcast episode to it because a lot of our doctors ask us this question specifically about real estate – When is the right time to invest in it? How to invest in it? What’s the right way? – and there are several different ways to do it out there and they all have their pros and cons so we’re going to go into that today from literally buying real estate or rental properties or flip properties all the way to just buying some mutual funds that have real estate in it. So, listen up, take some notes, shoot us any questions if you have them, please leave a review, and here’s the show:

Jon: Welcome again to the Financial MD Show. We’re so excited to be continuing and jumping into 2022. How’s it going Trevor??

Trevor: It’s going great. Yeah, I’m among the COVID-positive so that’s good. I’m on the other side of it and get to look forward to not worrying about getting other people COVID.

Jon: That’s right.

Trevor: It’s kind of nice.

Jon: Yeah.

Trevor: The not knowing is half the terror or the frustration or the whatever. I mean, my whole family has pretty much had it now so it’s like we can just go anywhere and do anything we want now. You know, it’s kind of nice.

Jon: That’s a beautiful thing.

Trevor: Yeah. The New Year brings gifts and new forms.

Jon: Yeah, good. Your holidays were good?

Trevor: The holidays were great. I got to do a little Florida trip. That’s not where I got the COVID, contrary to what people would probably guessed. A local brew, but yeah, so I had a good holiday; got to get a little bit of warmth pre-holidays. I got to do a trip to Jamaica, do some surgery done there. It was really good December, and January is kicking off, pretty busy already. How about you?

Jon: Yeah. We had a crazy time. On the 21st of December, we flew down to Florida with me and wife and four kids and spent a week in Fort Myers. During that week. we flew up to Orland, just my wife and I, to see some friends for dinner overnight, stayed there, came back in the morning and then we flew from Fort Myers to Austin, Texas and did five days there with some friends and their kids and then flew back to Michigan. In all, I counted it; my wife and I were on six planes over the course of two weeks.

Trevor: Wow, that’s a lot of planes.

Jon: It was just like had the process down.

Trevor: It’s lucky, I guess.

Jon: Yeah. So got a lot of miles but used a lot of credits and I did a TikTok video in the airport about using airline miles and doing all that kind of thing. Grand Rapids Airport, by the way, has massage chairs while you wait. They’re like five bucks for 10 or 20 minutes. It was nice; so a little plug for Grand Rapids Airport. I love it.

Trevor: I have to check that out. I go through there all the time. I’ve never noticed the massage chairs.

Jon: Oh yeah. So when you get to – let’s see. You go through security and you can basically go left to right. So if you go to the left, those gates, you’ll go up the hallway, take a right then you start to get into the gates. Right before you get into the gates section on your left, there’s about four of these massage chairs.

Trevor: Yup, all right now.

Jon: Well worth it. Check it out.

Trevor: Nice.

Let’s Talk About Real Estate [0:05:01]

Jon: Other than that, nothing too new or noteworthy. Life is good. Today, I thought we’d focus on how we talk about real estate in terms of financial planning and what kind of an allocation or a piece of your financial picture does it take and when is the right time to do that, what kind of ways there are to do that, and we could spend several episodes on this so we’ll just kind of do some quick overview. It may lead to a part two or three, etcetera. In general, I get this question especially when our attendings are getting to that point where they’re doing well. In fact, I just had this conversation with a couple. They’re both anesthesiologists, they’re in Nevada, and they’re killing it in terms of saving. I love this couple because they are making a high six-figure income. One of them is in the military, so a lot of things are cheap. They’re daycare their housing like all that kind of stuff. They’ve got two kids and they’ve kept their life pretty reasonable and have an enormous surplus that they’re saving and we’ve figured all sorts of tax free ways. I mean I think they’re saving a couple of hundred thousand a year pre-tax due to some self-employed business owner type of loopholes and things which is another conversation for another time. All that to say, they are well funding their retirement to when we have these every six-month reviews like we did yesterday, and I said, okay. They’re like, how are we doing towards retirement savings, and I’m like, you guys probably no surprise to you that you’re well over a hundred percent on track for your goal so you can basically retire a lot earlier than you planned on or you can plan on a lot more money in retirement than we had originally planned on but either way, you’re doing kind of all the normal stuff. You’re putting into mutual funds and stocks and IRAs and 401(k)s and defined benefit plans and they’re saving in a regular brokerage account and they’re doing all the stuff. I said this is about the time when we start having the conversation about diversifying more when we’re as diversified as we can be in an investment account. They’re very stable and have checked all the boxes, otherwise, how much should we put into something outside of the normal?

Diversification: Alternate Investments [0:07:48]

You might call them alternative investments and everybody’s got a different concept of what that means but for our conversation today, I said, have you thought about investing in real estate. And they said, yeah, you know, we’ve kind of thought about that but we didn’t know how and it sounds really complicated of buying property. Again, I think I did a video on this a few weeks ago – maybe a couple of months ago – about the different ways to get involved in real estate. And there’s the ways that everybody expects or knows how as far as you buy a house, you rent it out, you manage it, they call you when the toilet clogs – all that kind of stuff – and that’s “investing in real estate.” Then there’s the other end of the spectrum where you basically just buying real estate funds in your investment accounts, and we do a little bit of that anyway. Then there’s kind of this middle ground where if you’re an accredited investor, which means, basically last I checked, you’re making a couple of hundred thousand a year consistently or you have a net worth of at least a million dollars, then you can invest in these real estate – what would you call them, Trevor, syndications – is one way of thinking about it. It’s a fund but it’s not like a mutual fund. It’s a private fund. It’s a hedge fund. It’s a real estate fund. So you’re actually giving your money and a lot of these minimums are at least 50,000 to 100,000 dollars and this company like Cadre, you may have heard of; Fundrise, CrowdStreet. There’s a bunch of them like this now. We’ll post a list of – I think there’s 15 to 20. I found an article that was listing all of them but you get actual…it’s called a limited partnership essentially and so you get some shares and you can actually pick the actual property or project that you’re investing in. It might be apartment building or commercial and then you get a benefit from the investment growing so the value of it grows which helps you when you go to sell that investment one day. The other benefit is you get monthly rent, so you participate in the monthly rent from the project. And there’s different types of that. Some that are more focused on rent, some more focused on what they call capital appreciation, but those are kind of offhand a few of the ways. Anything to add to that, Trevor?

Pros And Cons Of REITs [0:10:33]

Trevor: Yeah, no. I mean, real estate is definitely not been something I’ve looked into too much. The only thing that I’ve read a little bit about was REITs, the real estate investment trust, and I’ve read a handful of articles just enough to know that I was not really at the point where I wanted to do that yet but there’s owning and then there’s sort of like somebody else owns it and manages it and it’s almost like just a stock version of real estate.

Jon: Right.

Trevor: That’s like a REIT, and so there’s more tax benefits on the direct ownership side.

Jon: Correct.

Trevor: There’s more responsibility. There’s more headache. And then the other end of the REIT is just like the least amount of headache, the least amount of tax benefits, least amount of work but still a decent amount of returns. I don’t know if they’ve been la lot higher but I feel like the returns I tend to hear about for REITs is like 10 to 13 percent, kind of what aggressive stock portfolios used to return and then maybe up into – if you’re getting lucky and you’re picking a really hot one – maybe gets up until like the upper 10s or low 20s. Individual stuff – that’s more like they own tons of stuff so you also get the benefit of the diverse portfolio of real estate versus if you buy the house down the street and you’re the landlord. If your local area tanks, you might get a minus 10 percent. You might get like a loss but if your local area goes crazy then you get like 30 or 40 percent return. You can pay a lot of taxes on it if you want to flip it because you can hold it for a year or whatever. Those are the pros and cons that I like, and those are on the extremes and then there’s like all these different real estate vehicles kind of in between those two.

Jon: Yeah.

Trevor: I read about them and I was like it sounds fine but I’m good so that’s something of a thing.

Jon: Yeah.

Trevor: It will be, at some point, my thing. It’s just I really like to know everything about the entire breadth of the spectrum of something so if I understand the pros and cons on the ends and I would probably go more towards a REIT personally because I’m mobile and I’m single and I don’t want to have to stay in an area or give up a substantial percentage of profits to hire somebody else. I’m like a hands-on. I’m that kind of person I like to have the control. I like to be unlimited, so location-wise, real estate has not been something of interest for me but incredibly powerful and I’ve definitely missed out on growing my net worth because of that, but I knew that when I kind of got of it. I’m also missing out on any sort of substantial drawdowns. We haven’t had any. So right now, it just looks like I’m missing out on all the wins and all the profits.

Jon: I know.

Trevor: I have buddies that have two houses from residency; almost like that military thing where people move around, they buy one and then they rent it out and they kind of build the thing. So when the market’s going vertical, everyone’s a genius, right?

Jon: Right.

Trevor: Yeah, that’s my two cents on it. That’s what I know – a surface-y level of pros and cons.

If You Want To Get Into Real Estate, Start With REITs [0:13:50]

Jon: Yeah, and I’d say that’s about right and I think most people if they want to get into real estate should probably start with these REITs and especially these publicly-traded REITs that are exchange traded funds essentially. So real estate investment trust is that you’re buying a share of a real estate company or project and you do often get some monthly income from it but the tax benefits aren’t as much as if you bought directly or directly invested in the project, but that’s good because you don’t want the liability and sometimes the minimum investments to get into the other things. So, the REITs are good. You get to experience that. You can get some monthly income, experience the growth, and just having that diversification in your account so that if you got all stocks and mutual funds here that are pretty much all equities, maybe some bonds and stuff but no real estate, having a little bit, let’s say, 5 to 10 percent real estate, gives you that diversification, and a lot of stuff that I’ve seen, now granted this is from real estate guys, that say real estate has beaten the market over time, maybe, but it’s worth looking into especially when you factor in rent and capital appreciation or the growth and the value of the actual investment. When you add those together, you could definitely make an argument that it could beat the stock market over time. Either way, it’s what you call a non-correlated asset, so something that if the market goes up and down, often you’ll see bonds go the opposite way. Market goes down, bonds go up and vice versa. With real estate, it’s not so correlated, and when you’re doing investment analysis which none of you probably are but when a money manager is doing investment analysis, you’re looking at things like beta which are the number that is or you guys probably know some of this from stats in undergrad – correlation coefficient. You’re looking at R squared to C. If it’s 1, then these two things are perfectly correlated. One goes up, the other goes up by the same amount. If they’re -1, they’re perfectly correlated but in opposite directions. One goes up, the other one goes down in the exact same amount. If they’re zero, then there’s completely no relation. One could go up, the other one could do nothing or could go up or down; it’s just there’s no relation. So the stock market and real estate probably had not exactly zero but closer than bonds or international stocks or other things like that. That’s something to keep in mind, too. That’s just whatever you do, real estate will help you diversify your investments, and again, there’s lots of ways to do that.

Jon’s Personal Real Estate History [0:16:51]

I have one example I can talk about personally and I’ll give you my real estate history. I first really learned about it when I was in high school, and during my summers, I lived in East Lansing or near East Lansing and my best friend in high school, his dad owned probably 8 to 10 houses in East Lansing in kind of the student ghetto where every house was rented by students. There were families here and there but it was pretty much that was what it was and they were getting great rent from these houses. Now, he took care of them really well – me and my best friend and our other friend would work there during the summers. We’d do kind of the turnovers, and when we weren’t doing the turnovers, we were painting, cleaning, refinishing floors, just doing all that. We saw some really gross stuff. We saw some really cool things that we weren’t allowed to see normally and we saw just how that whole system worked, and I was like, that’s interesting. I didn’t think too much about it at that point. But then he got into college, and then in grad school, I experienced property management again but working for a big company that did a lot in East Lansing with student housing. So I’d worked on the leasing side a little bit, some property management, some marketing but got a good scope of that and then a friend of mine a couple of years later, we did a house flip so this was when in 2010 it was easy to find foreclosures and we found one for 40,000 or 50,000 dollars, maybe; decent little house. We kind of rehabbed it, flipped it, and made a little bit of money. So I experienced it on that side and that was really my last exposure to real estate. I’ve always read about it and wanted to get a little bit involved but I’ve also heard horror stories of just landlords even around Lansing here where they just get in and they want to get out of it, and one case, I mean, you and I both know Reuben had bought a bunch probably back in ’08 or ’09, maybe 2010 and they just never performed the way he wanted them to and he has had a hard time getting rid of them. So I hear those stories too which I vowed never to…you know, I kind of know the area well enough to know which places I don’t want to be investing in.

Trevor: It’s kind of like that’s the pro and the con of a hard asset.

Jon: Yeah.

Trevor: Right now, real estate – just to go back to the correlation thing –pretty much all assets are correlated right now, right. All going up about the amount of money that was added, you know, the amount that was printed roughly. You can compare different assets or even currencies and you can kind of overlap them – what’s a good example – like Bitcoin and U.S. dollar and like U.S. dollar and Euro and you can kind of skip them, right, just like a chemistry equation. You can go from what if A then B, B then C, and you can just do A and C. So you can kind of compare a lot of these different assets and they end up being like if you compare them to the amount of money that was printed, everything’s up just slightly above just like the printing of the money. I think that’s part of the reason; we’ll have to see if that continues or what they’re doing. The Fed is threatening, tapering and increasing rate slowly and they kind of said specific amounts that they kind of changed after a week, didn’t they. They might actually enforce them and the market might not crash if they don’t. There’s a lot of interesting things going on there. With hard assets, you’re stuck with them and they cost you something if they’re not making you money or if you sell them for more than you bought them for. It’s worse than having a liquid asset that you can just sell. Like Tesla stock tanks and you lose 30 percent of your money, you can execute on that and get out before it goes down 20 percent more and then you have lost half. But the benefit is there’s only so many hard assets in the physical world or some sort of digital signature world, which is the whole crypto, Bitcoin.

Jon: Blockchain.

Trevor: Yeah. so real estate has that pro but I do think people forget how much that’s a con. You can’t sell that house. It’s your house and it’s worth nothing, right. like people don’t want to pay money for it. You still own it and guess what? You get to pay taxes on it.

Jon: Yeah. At least if you have a stock that you can’t sell, it doesn’t cost you anything to hold it typically.

Trevor: Yeah, it is like if things really, really go south, people are going to remember how much it hurts to have hard assets that people don’t want.

Jon: Yup.

Trevor: It’s like having a business. Let’s say you sell clothing and you buy just a ton of cloth, whatever, you know, you make it from and you’ve got all these different colors and then two seasons later, you bought purple and nobody wants purple. You can’t beg, so you have to pay somebody to take it to the dump, you know what I mean?

Jon: Oh, yeah.

Trevor’s Preference Regarding Real Estate [0:22:44]

Trevor: That’s the downside of physical good commodity or real estate and that’s like one level larger like just the big picture. It’s why I haven’t gotten involved in real estate. It’s not because I don’t think you can make money and I think I should probably have some real estate but for me, the only kind of real estate I want to have is the kind of specifically useful to me. I want to have me as the owner-occupier of the real estate. So when I diversify my net worth into real estate, it’s going to be me owning a home and that’s in line with my goals, so you got to have your written financial plan. White Coat Investor always says – I totally agree with that – you have your written financial plan and you stick to it, and for me, my written financial plan is going to be my first real estate acquisition is going to be to try to grow my net worth. Like I said, I have lost out by not doing that but I want to be me owning a house in the town that I want to live in for a long time.

Jon: Okay.

Trevor: That doesn’t mean lifelong, but five years, 10; something where you could have a 1930-level, 1929-level event depression and I’d be 1945 equivalent like I want to live in this house and I don’t mind paying taxes on it because I bought it to live in it.

Jon: You’re right and you don’t really care what you paid for it necessarily because it’s a long-term investment.

Trevor: Yeah, you essentially don’t – I don’t know. It’s sort of – I don’t know if that’s a millennial take on real estate but it’s a noncommittal take on real estate.

Jon: Yeah? That’s okay.

Trevor: Yeah, those are – I don’t know. That’s what I’ve been thinking about because I think a house would be cool. Property is nice. I like hard assets that’s why I like Bitcoin, but it’s not mobile. It’s not transferrable. It’s not liquid.

Jon: Yup. Liquid, and that’s the word, I wanted to emphasize too was illiquid versus liquid. Stocks are designed to be liquid because there is somebody on a particular stock exchange that no matter what – they’re called market makers – and they’re creating a market to make sure there’s always demand or someone to buy a particular stock. So if something is publicly traded, there’s always going to be somebody to buy it for the most part. But if you hold shares of a privately-owned company, there’s no market for that typically. There’s some real estate too. The market’s got to be there and the market, no one has control over the real estate market.

Trevor: Yeah, like Bitcoin can go to zero because it’s liquid, right, you know, can meaning it’s technically possible because there’s demand, just like any stock can go to zero.

Jon: Right.

Trevor: That’s a benefit, I think, and I’d rather be in a liquid asset than illiquid asset in general or at least a large percentage of my net worth I’d rather be in liquid. But that’s a philosophical decision, you know. When I’m 55, do I want to have most of my net worth being illiquid assets? Not really.

Jon: Yeah.

Trevor: It’s 65, I guess, I would say. Fifty-five still kind of maybe – it depends on what the world looks like.

Jon: Well, and it depends if those assets are providing income for you too like what are they doing for you at the end of the day is the question.

Why Do People Don’t Like Bitcoin [0:26:29]

Trevor: That’s right. That’s why people don’t like Bitcoin. That’s why traditional investors like Warren Buffet don’t like it.

Jon: Because they don’t pay dividends?

Trevor: They don’t pay dividends. It doesn’t pay you anything and it “isn’t a business that produces something.”

Jon: Yeah.

Trevor: Yeah, which is I totally understand that argument.

Jon: That’s sticking to a philosophy, right?

Trevor: Yeah, it is, and that’s you should do. He’s been very successful and he has been not beaten. I think I kind of like pooh-poohed this at some point in one of our talks but he’s been losing against the S&P for 10 years or longer, I think, but he’s doing it with billions of dollars. It’s really hard to do. The flip side is like easy to critique but if you have tens or hundreds of billions of dollars and you’re still able to grow it at over 10 percent, it’s like kind of insane. That’s really, really, really hard to do.

Jon: Yeah, totally. I love those conversations of people like, well, my advisor’s doing pretty well, I mean I got about 15 percent, 20 percent last year, and it’s just I kind of rolled my eyes like well, you’d have to be an idiot to not get 20 percent last year where you just got to stick in some index funds and good to go, and obviously, that has no bearing in the future. So that’s kind of the pros and cons of real estate. My latest experience with real estate is…

Trevor: This is the part you got to talk about.

Jon: Yeah. All right, I’ll tell them everything. I learned a lot in a short period of time so far.

Trevor: Give them the full story.

Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]

Jon: So, I listen to Grant Cardone sometimes who does a real estate podcast. I’ve just always thought, you know, I could get into real estate. I’ve learned enough from other people’s mistakes in it that I think I could do okay.

Trevor: Yeah, classic.

Jon: Classic, and so it wasn’t something I was actively looking for but something came along. By came along, I mean a push notification from Zillow popped up on my phone and it was like, hey, there’s this five-unit building for cheap, like 225,000 dollars. So I was like, and the other thing was again, I would say, if you’re buying real estate as a rental or flipper, whatever, the number one important priority is you got to know the market and so I knew if I was going to get something, I was going to buy it local where I knew the market. This one was about 5 minutes away from my house so I was like, yeah, I know that market. So I went and checked it out like as soon as it hit the market. My realtor and I went and saw it. So the other realtor – the listing agent was there – and the owner of the building was there which was kind of odd but I guess, well, I guess it made sense. They had to have a property manager there to let us in, I guess. It was my first time looking at “apartment building” and so it was five units. It was this house built in 1920 that had four units in the one house and then a small one-bedroom unit by itself bungalow-style. So I checked it out and walked through really just two of the units and bathrooms were nice, updated. Kitchens were good. like things were taken care of pretty well. My realtor was like, yeah, you’re probably going to need a roof on that single building there. I was like, okay, and we went in the basement and it was an old, unfinished basement that had some water in it which was fine. Nobody was really doing anything down there but he’s like, yeah, you may want to look into waterproofing that. All right, so I said, and it had five units that were all rented, averaging about 500 a month each, some one bedroom, some two bedrooms and so at 225,000 with 2500 a month coming in, that’s pretty good, okay.

Trevor: Yeah.

Jon: So I made an offer. I borrowed some money from a family member to make a cash offer just to get it. So did that, offer was accepted so we’re moving forward. A week later, we scheduled the inspection and I started learning things. I learned that five units and above is considered commercial so commercial loan, commercial insurance, commercial inspection. I had to add a sewer inspection because of that which was another 500 bucks. The inspection itself – the normal inspection – was 400 dollars. So we did all that and then I had a guy that does property management come with me and take a look at it too. So we had all these people doing this inspection, and during this inspection – the owner’s never there at a house when you do this – but in this case he was and he was this old Greek guy in his 70s and I found that he’d owned the place for 50 years – not exaggerating – and he looks at me and he goes, what are all these people doing here, and I was like, this guy’s a sewer inspector, this guy’s the housing inspector, this guy’s a property manager. He’s like, what do you need all these people? He’s like, you don’t need any inspection. He’s like every building I bought I didn’t have an inspection. I just trusted my own gut and he’s like, are you Greek, and I was like, oh, I’m Italian. He’s like, okay, close enough. He’s like, you’ll do fine. You don’t need to have all these inspectors. I’m like, well, okay, this is what we’re doing though and he just like he wanted us to spend 30 seconds in each unit. He was just concerned about pissing off his tenants. So inspection went fine. There were a couple outside exterior spots and we patched up, getting a new roof like we thought. Then the sewer inspection came back and was like, yeah, you’re going to need to run a new sewer line through the house and then about 10 feet out from the house. So I was like, all right. Then a few days later, a four-unit, maybe two or three blocks away, again pops up on my phone and I was like, hey let’s go look at this. I’ve learned a lot so far about this process. I also learned that a commercial loan to get this five-unit place was going to be 25 percent down and 15-, maybe, 20-year term is the most that you would see and higher interest. So all this stuff just started adding up to where a lot of things are going to cost me more than I thought. So I go to see this four-unit one which was appealing to me because I learned in the process a four-unit is completely different than a five-unit. Four-unit is much cheaper insurance. You can get a normal mortgage. You can get like all the stuff. So we go to see this four-unit one. a bunch of people had already saw it. It just hit the market. It was listed at 250,000. So higher a little bit than the other one, but it was nice. There was no basement. It was built on a slab. It was a lot newer, built in the 80s instead of the 20s, and there were four 2-bedroom units, cookie-cutter, like mirror images of each other; had a wash and dryer in them, like just nice. Good shape. Three of the four rented. Good long-term tenants. So even just with three rented, it was fairly profitable. So my realtor was like we got to make an offer by 7 p.m. today and it was like 5 o’clock. So we go through, think about it and I was like, yeah, let’s do it. We offered a little bit over asking. I knew there was some other offers on the table and I think offered 260,000 and they called us the next day and they said, could you do 263,000 and I was like, yeah, fine. So we got it, and then I cancelled my offer on the other one basically saying, okay, inspection not up to par, we’re going to withdraw our offer.

Trevor: Yeah, for sure.

Jon: I actually found out a couple of days ago, that one is still in the market.

Trevor: Do you have a referral code for that?

They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]

Jon: Yeah. No, I would not do that to anybody. So we go to the closing process, inspection goes fine. We go to close and we closed quickly because we used cash and I was going to then refinance and pay back this family member once the house is purchased. I just like to make a cash offer because you can usually either beat out other offers at the same dollar amount or pay less or whatever. So we get to closing, everything goes fine pretty much. That was the Tuesday before Thanksgiving. Wednesday comes and we get the keys on Wednesday and I go into see the empty unit and this one, they all did their own electricity but we paid for water as the landlords. So we’re going to this thinking, my wife and I are like we don’t need a property manager, it’s only four units, close enough, they seem pretty easy, we can take care of this ourselves. So we wrote this nice letter, introduced ourselves to the tenants. We bought them some pie. We dropped off a pie to each of them and then I go this empty unit and it’s freezing. The electricity was already shut off. So I had to call Consumers Energy. I call them on this Wednesday 5 o’clock – they’re closed. I called first thing in the morning but it’s Thanksgiving. They’re still closed. They’re not going to open for another two days. I’m like, oh my gosh, and it’s here in Michigan and the nights are starting to get below freezing and for those of you not in the Midwest or up in the north, when stuff gets freezing, your water pipes can freeze especially if there’s no water moving through the pipes. When standing water freezes, it expands. Pipes burst – you guys know this. So I’m freaking out thinking, I don’t know what to do. I’ve got Thanksgiving and the Black Friday with no electricity in this unit but water’s on. So I go over there, turned on all the faucets and all the bathtubs just to get water running through the pipes and I go back two or three times a day and I was losing sleep and then halfway through that day, I realized, I forgot to get insurance. So I had no insurance and I can’t believe I’m admitting this as a financial planner but I forgot to get insurance. Because it’s like every other house I bought I had a mortgage and they make you get insurance. It’s just part of the process, right.

Trevor: Yeah, exactly, because of the cash offer.

Jon: Yeah, because of the cash offer. Nobody said get insurance. So I feel naked, exposed, liable; anything could happen in this property and I could be financially screwed for the rest of my life. I was like this is the day that somebody’s going to slip and fall and die and I’m going to get sued for 2 million dollars. So I’m over there taking salt and salting the sidewalks and just making sure everything’s fine and it just happened to be freezing rain that day too. So I called my insurance agent. He’s like sorry, I can’t help you until Monday. So I’m googling everywhere in the internet. There’s got to be some insurance company that does business on even Friday like every store in the world is open on Black Friday but no insurance agencies. It was finally Saturday morning 9 a.m. I get a hold of Consumers Energy. They turned the electricity on. Some insurance company calls me back. I’m able to buy coverage that day and I could rest a lot easier and then picked up the phone and called the property management company and said, yeah, I’d like to hire a property manager. I decided not to do this myself. Everything ended up fine but I overestimated a lot of things and didn’t take it super seriously in terms of like, my realtor said, make sure you call the utilities and get those switched today, and I was like, okay, but tomorrow’s probably fine too and it was not; just the wrong day. It’s the worst because it was a four-day weekend with Thanksgiving. It’s the worst time to do that. But now we’ve got them and the tenants are paying rent on time and we pay a property manager 10 percent to manage everything and they do the leasing and record keeping and books and accounting and service and all that stuff. There you go.

Trevor: Nice. That’s what I would do if it was me but everybody’s different.

Jon: Yup.

Trevor: I think you said too when you were telling me about it initially like right after Thanksgiving, you said there’s different – I mean, I know that there are too. There’s different rates that people charge. Didn’t somebody try to charge you a deal where they got a percentage of the sale or something?

Jon: Yes, they wanted 3 percent of the sale price if I ever sold it.

Trevor: Crazy.

Jon: And they’re like, well, it’s because, you know, we have to do a lot to get ready to sell and we help you sell it and show it.

Trevor: Three percent? That’s what a real estate agent makes after all their training and work and showing people.

Jon: Yeah, if I sold it for 300,000, that’s 9,000 dollars.

Trevor: That is the clause that keeps them in business if I was to guess.

Jon: Well, they didn’t get my business so I went to a different property manager.

Trevor: Amazing. Read the fine print with everything. It’s very annoying but very true.

Jon: Yeah. There you go, kids, so hope that helps.

Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

Trevor: The cash offer that really got you, it’s interesting how, you know, it’s just funny because I would have never thought of that, and we do get handheld a lot like in the U.S. especially. We’re really fortunate to be here because things are so regulated and controlled. It’s kind of annoying in some businesses and we don’t like to be controlled by the government but there are a ton of things in place to protect the consumer.

Jon: Sure. As an advisor like I have to get errors and omissions insurance and I have to get a surety bond. That’s all stuff I have to get and it’s to my benefit but it’s also the consumers benefit, so it’s fine.

Trevor: It is, and I’m somebody I don’t like that kind of stuff but it’s often there for a reason.

Jon: Yeah, like you as a doctor, employers won’t hire you a lot of times unless you have tail coverage if you had a claims-based or policy and all that kind of stuff. That kind of thing.

Trevor: That reminds me, I need to get a paper copy of the tail that was paid because I put that in my last contract; made sure I negotiated that the tail would be paid by the practice that had me there.

Jon: There you go.

Trevor: It’s not too expensive. That’s one of those things that gets expensive if you’ve been working for 5 to 10 years.

Jon: Yeah, for sure.

Trevor: For shorter periods of time like I basically I did a locum’s position with an optionality to change to permanent and then I elected not to do that, being pretty short period of time for locums and that goes into account, but it was a good reminder because I need to get that in paper and put up my files.

Jon: Yup, there you go. I’m glad – see these little things a good reminder.

Trevor: Yeah, insurance. There’s always more things to insure. It seems like there’s more things to be thorough on no matter what.

Jon: Absolutely but I’m a big believer in that. I mean, we have the errors and omissions. We have cybersecurity insurance.

Trevor: Identity theft.

Jon: You’re right.

Trevor: You can get the tax thing you pay for that, make sure you get it all back and they help you with it.

Jon: Yup. I’m good with that. Well, all right, I think we gave them a lot of stuff, Trevor.

Trevor: Yeah, it was great. Good catching up with you as always.

Jon: Yeah, you too.

Trevor: Talk to you soon.

Jon: Thanks to our listeners. Hope you enjoyed it. Be sure to check out the Financial MD community on Facebook if you like what you hear here. There’s a lot of discussion happening there and if you want more videos, get us on TikTok and Instagram and if you want portrait mode, shorter, or if you like the landscape view, go to YouTube and Facebook and no shortage of stuff there. So hit us up if you’ve got questions on anything we’ve talked about in any episode at financialmd.com. Take care, guys. We’ll see you soon.

Resources and Links:

Understanding defined benefit plan – https://equitable.com/retirement/articles/understanding-defined-benefit-plans
What is an alternative investment? –

https://corporatefinanceinstitute.com/resources/knowledge/finance/alternative-investment/

What is syndication? – https://www.1031crowdfunding.com/education-center/blog/92-what-is-syndication
Cadre | Real estate investing, reimagined – https://cadre.com/
Fundrise website – https://fundrise.com/
CrowdStreet: Online commercial real estate investing platform – https://www.crowdstreet.com/
Best real estate crowdfunding sites of 2022 – https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
Real estate limited partnership – https://www.businessinsider.com/personal-finance/real-estate-limited-partnership-relp-definition
Capital appreciation definition – https://cleartax.in/g/terms/capital-appreciation
What are REITs? – https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits
What is an ETF? – https://www.schwab.com/etfs/understand-etfs
What is a non-correlated asset? – https://insights.masterworks.io/finance/investing-strategies/what-is-a-non-correlated-asset/
Hard asset definition – https://www.accountingtools.com/articles/hard-asset
What is liquid asset – https://economictimes.indiatimes.com/definition/liquid-asset
Making sense of Bitcoin, cryptocurrency and blockchain –

https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html

Liquid vs illiquidity – https://www.connectinvest.com/resources/blogs/liquid-vs-illiquid-assets/
Podcast Cardone Zone – https://grantcardone.com/podcast/
Errors and omissions insurance – https://www.thehartford.com/professional-liability-insurance/errors-omissions-insurance
What is a surety bond? – https://www.suretybonds.com/what-is-a-surety-bond.html
Tail coverage: What it is and who needs it – https://www.magmutual.com/learning/article/tail-coverage-what-it-and-who-needs-it/
Cybersecurity insurance: What it is, which businesses need it – https://www.nerdwallet.com/article/small-business/cybersecurity-insurance
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

The Concept In Investing In Startups [0:02:11]
Good Ideas Fail All The Time In The Marketplace [0:06:50]
If You Cannot Put Numbers To It, You’re Gambling; Not Investing [0:09:25]
Everything Goes Up Including Housing [0:16:04]
Have A Specific Time Horizon When Investing [0:18:23]
Dunning-Kruger Effect – Expert Bias or Self-confidence Bias [0:23:10]
By The Time You Hear About It, It’s Too Late [0:24:39]
Fear Of Missing Out (FOMO) – Step Away From This [0:31:14]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: The topic that came to my mind which I don’t think we’ve really delved into before is – I think people probably hear about investing in startups so I know some about that. I figured, you know, that’s something that comes up as people just…I don’t know. I seem to read about it all the time just in any kind of investing news about researching startups and ventures and tech startups and just all that kind of stuff so I figured that should give us a good amount of conversation on that. We’ll start up pretty basic and maybe get a little bit more advanced into what we know or what we’ve been experienced in the tip of things and what comes to mind and see if we can give some helpful information that would apply to people that are doing it currently or thinking about doing it or think about one day maybe down the road they’ll do it. In general, we talked about investing in terms of you put your money somewhere hoping it will grow whatever different purposes. Most people know of investing, they think of Roth IRAs or stocks or mutual funds – all these different words – which, yes, basically means putting your money somewhere to grow for a purpose.

The Concept In Investing In Startups [0:02:11]

And when we talk about investing in startups or small companies, most of the things that 99 percent of the public is invested in are publicly traded companies or funds through their IRAs or their 401(k)s or brokerage accounts or whatever, but they’re all typically publicly traded and that’s something we’ve kind of gotten into a little bit in previous episodes or if you watch any of the Didactic Minute videos from my YouTube or Facebook. We talked about kind of basics of investing and that would be explained in there, so reference that. But today we’re going to talk about investing in businesses that are very small businesses – sometimes brand-new businesses – and they’re not publicly traded so you can’t go in a stock exchange and get them and so they are technically a private transaction between you and this company getting shares of a company and there’s a lot of different ways and forms that this can take, and typically, your money’s going to be locked up for a certain amount of time and you’re hoping for drastic growth compared to, let’s say, you put into mutual funds or S&P 500 Index Fund or whatever. You’re hoping for a pretty steady rate of return, maybe some slight ups and downs, but long-term, shooting for maybe 10 percent a year growth, give or take, and so that’s predictable. What’s not predictable is when you invest in a small startup company because it’s really a gamble. It could go either way. The startup company has no history. It’s got a new idea sometimes, but you’re putting a certain amount of money and usually there’s minimums – 50,000, 100,000, whatever – so this is not necessarily geared towards residents typically but a lot of attending physicians that we work with get to the point where they’ve got this cash and they’re maxing out other things and they say what are some other creative things that I can invest in. And there’s tax benefits that we won’t necessarily get into but you’ll see these called private placements or Reg D, RD’s private transactions. A lot of times you do need to be in an accredited investor – so making 200,000 a year plus or net worth of a million dollars or more – those are the SEC’s guidelines for what is an accredited investor that can then invest in these private investments. They assume that you’re knowledgeable, experienced, and savvy enough with that kind of money to both: A. have a capacity to risk that, and B. you probably know a little bit about money given you’ve reached that point. Now, we’re talking to doctors here who just because they’re wealthy doesn’t mean they know a lot about money to be honest which is why Financial MD is here. So that’s not necessarily and all-encompassing, hey, you make decent money, you must know something about investing – no. So when you hear things like a tech startup or you see an IPO – an IPO is basically a startup that got a lot of investments over the years and has finally decided to go public – and again, that’s another conversation. This is before these companies go public and you’re getting kind of on the early stage or you’ll see things like the seed round or a series A, you know, these different terms that involve what phase of the business is it getting this money. When these investors invest, they get shares in the company, get equity so that when eventually it gets bought out for a billion dollars by Google or Amazon then everybody who invested early wins big. So that’s the gist of the concept. Trevor, what do I miss?

Trevor: Yeah, let me. For anybody that didn’t make sense to you because Jon’s kind of giving you like some different perspectives and different parts – different terminology – kind of like adding analogy throughout, so if that didn’t all make sense to somebody and they were just following like, oh, yeah, I know that…oh, I know what that is like, and you’re not investing in a company – don’t. I mean that’s not financial advice because I’m not an advisor. It’s definite not individual advice, but in general, you want to understand, you know, the market that you’re investing in. You want to understand the market for a startup for sure. You want to have some sort of kind of advantage to know whether something is BS or not.

Jon: Yeah.

Good Ideas Fail All The Time In The Marketplace [0:06:50]

Trevor: Good ideas fail all the time in the marketplace, like good ideas that are turned into businesses fail all the time. So you don’t want to invest in an idea so much as you want to invest in people and the application of a good idea, so the execution, and the business of the idea is what you want to invest in. My favorite book on the topic or maybe like the best book on running a startup and if you’re trying to be the startup guy would probably be Venture Deals which is kind of like the bible for raising any sort of capital from multimillion-dollar companies all the way down to smaller raises. It just gives you a good understanding of what all that mean like what are stocks, what is common stock, what is preferred stock, how do you want to structure a deal – that’s why it’s called Venture Deals. It’s a good book. It’s written by a couple like kind of Silicon Valley insider guys that wanted to educate themselves and other people on the system. They wrote a book and it sort of just…it’s almost like a how-to manual so it gets them into the nitty-gritty. That’s a solid one for people looking to do raises, for people investing. I haven’t done that but I know, you know, we know some people that do that. That’s like their thing, you know. They pull in people like me essentially so I’m hearing about things. I haven’t invested. I’m hearing about things and yeah, you want to big picture things like how big can a company get, you know, if you’re putting in 10 grand and it’s going to give you 10 percent and then the company is going to be 100,000 dollars so you got 10 grand for 10 percent. If you’re just even amount, then what’s that company at a 100 grand today, what it’s going to be worth later, what if it’s like successful because you’re ideally you’re getting in really early. So if it’s going to a million, you got like a potential 10 x return on your money. Now a 10 x sounds incredible and those are actually pretty rare even though you hear doing like a 50 bagger or 100 bagger or something like that. A ten bagger is still like ridiculous. You get a few times with a decent amount of capital and you’re going to crush it. But if you’re doing with 10,000, you know, and you get a 10 x, it’s only a hundred thousand, like that’s great, but like I think a lot of people think they’re going to get down on something or going to get rich, and you have to kind of look at numbers.

If You Cannot Put Numbers To It, You’re Gambling; Not Investing [0:09:25]

If you cannot put numbers to it, then you’re not investing. You’re just gambling. I think a lot of people end up gambling and they’re like, oh, it’s cool, I invested in a company. Don’t be cool. Be smart. Be cool. Do other things that are cool like get a new set of golf clubs or something.

Jon: Yeah, trying to be cool is how us guys get into trouble throughout most of our life.

Trevor: Yeah, yeah. That’s true in general. If you want to be cool, like buy a car and buy a 40,000-dollar Corvette, and at least you’re downsize is 40,000 dollars.

Jon: Yeah.

Trevor: Yeah, plus repairs and maintenance, but like at least it’s capped, right. But if you put the money in, you may end up investing more, you could get dragged through the mud. You got your emotions. You could lose a friendship if it’s a friend, so when I hear about startups I think high returns if successful, low likelihood of success. There should be a limit of size if they can articulate to you long list of risks and then the emotional toll of that.

Jon: And you’re not typically like involved in this company. It’s not like you’re all of a sudden…

Trevor: Yeah, you just give the money.

Jon: A partner.

Trevor: Right.

Jon: So you’ve got to be willing to a. this is money that you can part with and be ready for it to be gone forever, right. That’s the worst case scenario.

Trevor: Right, yeah.

Jon: But totally likely or, you know, also be ready to just invest it and not…like you said, the emotional volatility that goes into it too, like, don’t be following this company everyday seeing how they’re doing or checking up like…you don’t have that kind of stress sometimes so if this is something you wanted to get into at some point just know, yeah, it’s something, hey, I got this completely.

Trevor: Right.

Jon: Discretionary money that I can lose. It’s 5 grand, 10 grand…whatever it might be for you. I’m going to put it here and if it grows, great. I’m not going to pay…you know, I may get updates every month or quarter, whatever.

Trevor: Yeah, if you’re just the investor, that’s true. If you end up being a big investor or if you’re taking an active role, then it does get more interesting. You can do a lot of things. You can try to get on board. If you want to have control, you got to get a board seat. If you want to have like decision making that’s required to be considered by the rest of the group. You got to really have some things in a contract and then you’re like advisor and/or board seat and like there’s a lot of components. But if you’re like just giving your time, that’s another way people especially doctors can invest in a company. You can become an advisor. That’s nice because it just costs your time and potentially many have the emotional component. You have your own expectations. Expectation is like a huge part of this. It’s like what I’m getting to get out of it? How guaranteed is it? The answer usually not much and there’s no guarantee.

Jon: Yeah.

Trevor: That’s like business so doctors aren’t used to getting into business. Oftentimes, they’re like, I went to medical school and then I became a doctor and then now I get the salary and they always pay it to me and the only variability is how many RVUs or how much surgery I performed or patients I see and then maybe I get more or less but that’s not how everything else works out and that’s usually uncertainty and doctors often tend to go into medicine because they like certainty. Even though there’s uncertainty in medicine, there’s certainty and safety in the job.

Jon: Right.

Trevor: So I think there can be a…there’s a lot of doctors who have gotten ripped off, right, just in general, and especially I thin in investing. Not so much as financial advisors to be honest. I think it’s a lot more like people doing companies and doing raises or things that sound like a sure thing. I don’t about you but when I hear about something that starts to sound like a sure thing, my first response is skepticism. If I liked it and I’m interested and that still sounds too good to be true then my second step is research, thorough vetting and investigation about something. We’re not even talking about startups. I mean, again, the risk level, the likelihood of failure goes up dramatically. I’m just talking about like stocks that I’m interested in or something or cryptocurrency or whatever. I should say a Bitcoin because I don’t really endorse crypto in general.

Jon: Well, that is good. That’s a lot of…people talk about, oh I just got...I heard about this group or I heard about this on and this one… you know what I mean? That is getting as prevalent as any time of random...

Trevor: It is. It’s terrifying. Every time I hear it, I’m like RIP.

Jon: Yeah.

Trevor: Put in that just be ready to never ever see it to go on and on.

Jon: Yeah, so if you’re looking for tips and tricks on that, I mean that’s inventing a new cryptocurrency is just so easy to do that these things are popping up all the time – oh, I just heard about today. I must get in early because it’s going to grow and I’ll make money like no. For all these ones you’ve heard that have grown incredibly, I mean, how many dozens or hundreds have not?

Trevor: Oh, yeah.

Jon: That’s kind of like an IPO conversation, though – ooh, if I get an IPO today, it’s going to have to go up right? Not typically, honestly.

Trevor: Yeah most go down 30 to 40 percent before they end up and then now everything goes up but before they go back up, they usually are go down for a while.

Jon: That is not financial analysis right there.

Trevor: That’s just sarcasm.

Jon: Everything goes up. Everything goes up! Invest in whatever you want.

Trevor: Well, the Fed tends to buy everything right now so it’s a weird time to be.

Jon: Yeah, that’s true today.

Trevor: Yeah, it’s a weird time to be about specific investments because it’s hard to not to be doing well right now.

Jon: Well, everyone relates.

Trevor: Right, everyone…

Jon: To our conversation.

Trevor: In a bull market.

Jon: Yeah, and the problem with that is if you just started investing in the last 5 years then that’s what you know and that’s going to influence your bias towards how do you feel about the future of the market. That it just always goes up. You had such a good…that must be how it is, you know.

Trevor: Housing.

Everything Goes Up Including Housing [0:16:04]

Jon: Housing, for sure. You know, I have been alive long enough to see 2008, 2009 and 2010 and I probably told a story before but in 2012, I bought a foreclosure because they were everywhere and stuff was undervalued and so I was just lucky enough to be looking for a house for me and my family. We bought a 4-bedroom in Lansing area for 150,000 dollars and then sold it for 300,000 eight years later. So that’s not something you can expect, and if you buy a house this year or last year, you can probably expect that that’s possibly going to go down in value in the next 5 to 10 years. So, you know, a thing cycle and just understand what goes up does often come down and if we’re talking about basic long term like retirement planning, you know, we based that on things typically long-term do go up but there are ups and downs along the way. But when we talk about startups and we talk about cryptos, like any of these things like that that can just pop up and say hey, invest in me, that doesn’t mean anything, and when you’re investing in IPOs, say something just is going public, you think, great, I’m getting early. You’re not getting in early. There’s tens or hundreds of thousands of other investors whether it was the employees that got some shares, the founders, the early investors – they’ve all got shares that they’re going public because they’re ready to cash out and not everything but a good chunk like they get together and say, okay, I’m ready to become a millionaire or like let’s go public. So that means the public gets to invest in it. They typically are selling their shares now. That’s what you’re buying is their shares at a very high price.

Trevor: Right, somebody bought for you to be able to buy it.

Jon: Yeah, so that’s what like the early winners already got it. Now that’s not to say… like a lot of IPOs we see like start out high in spark and then come down and maybe gradually go up, it’s truly a good company but just be ready for that and investing in a startup early on with venture capital is even more so like that.

Have A Specific Time Horizon When Investing [0:18:23]

Trevor: One other huge factor – this is in general, this is a nice general point – investing in general, you want to have a specific time horizon of what you’re doing with this investment. So you want to look at if I’m getting in a startup – and it applies to all but startup is nice – how long am I…when am I looking at getting my money back? What’s my return on investment…the time to my return on investment? That’s an important factor too when you’re putting your money in because if you’re putting in 10,000 and you just have a gambling attitude – well, it’s gone and we’ll see what I get someday – but an investor who goes, I’m putting in 10 grand and that’s whatever percentage of my net worth or maybe a hundred grand and I expect to get such and such return and I think the chances of that happening are 25 percent. So when you start to invest multiple things at that level, you’re putting in a hundred grand, you think 25 percent chance of return, you’re just estimating; people who are really good at estimating could do this across the board. So essentially that, when you give that away, it’s worth 25,000 dollars to you. Like you do the math on that for the risk level of like okay, I just sunk 75 grand in the hole on this. I think I might get 25 back. Maybe nothing. And then back to the time horizon – you want to know how long like okay how long until I get it back and/or how long do I want to be willing to let go of the 100,000 dollars, so I want, you know, this portion of my net worth to keep cycling back to me in 5 years so I can make different decisions or, you know, this is a one-year plan. I just want to like stake you and then you’re going to give it back to me as soon as you have it or it’s 10 years or 20 years and just like I just want to hold this forever. like people who buy gold, they don’t really ever plan on selling it. They just want to have some percentage in their net worth and a less fungible asset.

Jon: Yeah, it’s a hedge, right?

Trevor: Yeah, it’s a hedge, right, so they have different purposes and they have different time horizons but startups tend to be high-risk, high-reward and I am currently doing a raise for like a bitcoin mining thing right now and one of the things I found is people want like a 5 x or higher return in 3 years, 3 to 5 years. Those are like the startup mind itself, and I don’t think there’s anything wrong with that but when I learned that I was like you guys are here to lose all your money. Like not literally, but you better have some winners because those are hard to find, you know, 5 x are pretty, pretty hard to find in general especially in the 3-to-5-year range. You got to be talking software and like what I’m doing is hardware, right, so you’re buying a lot of expensive machinery so has a different multiple but then in your portfolio maybe that goes in the more conservative range. Now Bitcoin sounds speculative and not conservative, so it’s hard to find an investor who thinks it’s conservative as the returns are – if that makes sense.

Jon: Right.

Trevor: I’m probably getting a little off track there, but I found that really interesting because I’m like I see this as a conservative bet, you can reliably get this but it’s not a startup return but it kind of requires the emotional or mental tolerance of a startup because to the guys with money, it’s expensive to start. To most of the average, say, like boomer kind of population – these are effectually not to say criticism, I know how that goes – but they have a different time horizon. Part of their reason, they’re like, I kind of want to do a 5 x in 3 years because I want to retire in 5.

Jon: Yeah.

Trevor: But a lot of these guys are like oh, they’re doctors late in their career and they kind of want to accelerate their retirement and they still wanted to feel low risk. I think startups feel low risk because, oh, that’s a familiar concept. Oh, these young guns, they’ve got a great idea. They’re going to triple my money and that’s not…I don’t know.

Jon: Why do you think people think that that is safer than it is? And I don’t necessarily understand that.

Trevor: People are persuaded by narratives. Why people get in these random other cryptos? Because they sound cool, oh, we’re going to solve that problem with a blockchain and, oh, I read something about the blockchain. I think I understand that. It sounds cool when I talk about it in my weekly coffee meeting with my friends, you know, what’s like.

Jon: Yup. Well, because they’re relative an expert compared to the people they hang out with, right, so they make them feel smarter than they are. It’s expert bias or self-confidence bias, we call it.

Dunning-Kruger Effect – Expert Bias or Self-confidence Bias [0:23:10]

Trevor: That is of the Dunning-Kruger effect.

Jon: Yeah.

Trevor: Well, as you know about something, the more you feel like you know more than you know. That’s the short version of it. It’s basically like you go in and you take a test and you’re like, oh, I nailed that, and it comes back and you got a D minus, you know, 68 percent or something – whoa, I didn’t know what I didn’t know so that’s I would bet in investments and startups especially if you got lucky with one.

Jon: Do you think it has to do with just the psychology of maybe optimism of you kind of convince yourself that?

Trevor: Totally.

Jon: Yeah.

Trevor: Gambling, right?

Jon: Yeah.

Trevor: Do people have a good understanding of their odds when they place a bet on a sports team?

Jon: I bet it’s a very similar place in the brain, right?

Trevor: It was for me when I…you know my story like I got into the crypto trading stuff in 2017 at the peak like an idiot, you know, and it taught me some lessons, but you kind of have to learn them on your own. I’ve talked to people who are like getting into it right now. Most things are at all-time highs.

Jon: Yeah.

Trevor: In general, not just in cryptocurrencies.

Jon: Yeah.

Trevor: So if you think you know more than the guys who are selling at all-time highs, what are the chances that you’re going to do better? I mean…

By The Time You Hear About It, It’s Too Late [0:24:39]

Jon: Yup, exactly, and it’s not like you walk on…Yeah, and for most of us, 99.9 percent of us, by the time we hear about it, it’s too late.

Trevor: Yeah, that’s a good rule of thumb. It’s kind of like it’s a misnomer, but if you heard about it, it’s too late.

Jon: Yeah, unless you work at a company, it’s not inside information, okay. It’s public. Unless you work at the company and then it is inside information and it’s illegal and you can’t invest in anyways so there’s no winners here.

Trevor: Yeah, so conservative investing over the long term is much wiser, but the trick right now is you have to put your money in something or else you’re like rapidly losing value from inflation so I just think today that like the U.S. like the CPI, right. They pull out basically everything that inflates and then they don’t include it in the inflation metric? Yeah, it does not include like housing, doesn’t include cars, doesn’t include some food items…yeah. There’s a good website on it. I’ll see if I can think of it but there’s been three versions of CPIs since the 80s and they just kept taking out things that were inflated. Germany doesn’t do that in their year-over-year inflation as a I think a month ago was 11 point something percent. That’s a more honest metric than ours which is 6.

Jon: Well, and it’s like we can all feel these things and if they put out these crap numbers like, oh, inflation’s normal this year like there’s no way like you’re looking at…I mean, freaking price of steak is going up and obviously, gas and houses. Now, there are other things that are obvious but, yeah, that’s another story for another time.

Trevor: It’s one of those things where it’s hard for me to understand how people can’t feel like…how people can’t be sure that they’re being lied to.

Jon: Yeah.

Trevor: We are all being lied to and the narrative is being controlled including the math behind the reality, right, and that’s not conspiratorial. You can just go and read about the changes to the CPI and what’s included. It’s a basket of goods is the term and they’re not representative of living costs and CPI is designed to tell us the inflation of living costs so that’s a direct manipulation.

Jon: No. Housing is the biggest one and they’re not including it. That’s crazy.

Trevor: So, anyhow, it was nice to hear like an apples-to-apples…

Jon: Yeah, no, that’s good to know. I didn’t know Germany was that way. That’s a huge help and makes me think I’m not so crazy like I feel like prices are going up everywhere but the government says they’re not.

Trevor: If you’re feeling like for me, it was one of my like spidey sense things because if I feel like I’m crazy, I’m what, okay, maybe I’m crazy but let me look into it first, right?

Jon: Yeah.

Trevor: It’s that I feel like I’m crazy usually also it’s like, ah, it’s probably fine. It’s either like it’s probably fine or you should be a little worried, you know. That’s kind of like the little red flag in your mind. Look into it and your mind attacks those things because it’s trying to protect you.

Jon: Yeah, I know there’s some truth to that for sure. We are built with a certain sense. You know we’re created with some good…there are things that set us apart but even animals like I feel like have some of that – you know what I mean? Like somehow dogs just inherently know when somebody is a good guy or a bad guy.

Trevor: Right, right. I had thought you’re going to say that because I was thinking the exact same thing. There’s just something there like, yeah, it’s a smart thing.

Jon: You know, how can residents and doctors apply this kind of knowledge like whenever you’re dealing with an advisor or an insurance agent or something like that and there’s like you’re starting to be like hmm, this seems great but something’s…this can’t be right…you know, and again, not that it can’t be but do some homework. Talk to somebody, you know. I mean, anyone listening to this, you guys can shoot us questions if you’re like, hey, I was told about this deal or this product or whatever, what do you think, you know. We’d be happy to debunk stuff.

Trevor: For doctors, there’s just like so much you can add for companies and startups and things like that like I can say from personal experience that it tends to just be networking, making friends in areas and talking to lots of people and listening to podcasts and just like throwing caution to the wind a little bit in terms of just reaching out and chatting with the if you’re curious.

Jon: True.

Trevor: I had a buddy in residency. He reached out to this guy. He was developing like an AI algorithm for something he found interesting with, with retinal imaging and he just like reached out to the guy and then he ended up doing an internship there for a year like kind of created a little mini internship dream job for himself. I have been able to work with some people and some companies I’ve really enjoyed just from reaching out or even doing a little bit of free work or like hopping on some calls and answer some questions – that’s just a specialty now. That doesn’t cost me a thing, you know, other than opportunity costs of my time if I wanted to try to go for it. You can do a little bit of that or you know just…I started out just doing stuff for free and giving away just a lot of time and then you build some connections and friends and it’s fun if you enjoy it and that’s a good form of work.

Jon: Absolutely.

Trevor: Yeah, so, just networking and have fun with it and then you can learn about a company too like if you’re like at a startup. In your knowledge base, you can tell it’s a waste of your time, it’s a waste of your money. So get in there and see how you like spending your time on it and then maybe invest from there.

Jon: Yeah, 100 percent.

Trevor: But just bumbling around and trying some things, wasting your time is like the perfect way to find out you don’t want to waste your money.

Jon: Yeah, I think that’s good and that’s how a lot of good things happen and we find opportunities and you know like you said opportunities that don’t create a lot of risk because you’ve invested the time and the knowledge and good things don’t happen overnight, I’m sorry. They just take time.

Trevor: Correct, and there’s one good deal.

Jon: Yeah.

Fear Of Missing Out (FOMO) – Step Away From This [0:31:14]

Trevor: FOMO-ing into a job, FOMO-ing into – FOMO meaning fear of missing out – FOMO-ing to an investment or a stock or a crypto or whatever, it’s just a false understanding of the reality of the decision of do I invest or not. It’s a biased mental space. So you step away from that, and then if the price goes up, that’s okay. Prices are going to go up in other things too. You have to miss out on things. Good investors miss out on things all the time. They get into the right stock and then they sell on the way up and it keeps going up after they sell and they call that missing out on profits or something but if their time horizon was, I need that cash or I want that cash for something else, they’re not missing out on anything.

Jon: Yes, that’s good.

Trevor: With their written plan.

Jon: And I tell people about that all the time that talking about stocks with my buddies and then like, oh I wish I would have stayed…Like you cannot beat yourself up over that or you’re going to lose. Accept that that’s going to be a part of that.

Trevor: And if you beat yourself because you’re afraid and you sold it at the last minute, bounced back well, examine your ability to trade or invest. I mean trading means a specific shorter time horizon. People are terrible at trading. Statistically, it’s like 99.9 percent of people, you know. I think it’s one in a thousand will be profitable traders or something like that.

Jon: Really.

Trevor: It’s extremely unlikely, yeah, so I guess that would be…

Jon: Yeah, good to know.

Trevor: That would be accurate.

Jon: All right. No, that was good. Yeah, I think we, as always, we came out with some good stuff. Let’s do a part two of this at some point and have Rueben on here from Washington Avenue Ventures and I think…

Trevor: Oh, that’s like the thing when we first started talking about him like man, this is the guy and he’s going to…I feel like I gave more of a con argument and he will give much more pro which is perfect. That’ll be a good convo.

Jon: That will be good. Yeah, the cons of startup investing and then episode two the pros of it. Yeah, that’ll be good.

Trevor: Cool.

Jon: All right, super. Well, anything else you want to add Trevor?

Trevor: No, that was great. I appreciate your time.

Jon: Okay so reminder to you guys, subscribe and share this. This is how we get the knowledge and good info out. If you like stuff you’ve heard, please share with your colleagues and friends and buddies and family. Join the Financial MD community on Facebook, look it up, and get in on there. That’s where we have continued conversations from these episodes and articles we shared. Any of our other social media is going to be out there – Instagram, TikTok, Facebook – is where we’re putting out new stuff in a hurry and then, yeah, shoot us a message if a question came up. If you’d like us to speak to your residency program about any of our basic financial topics, we do that as well. You can message us about that and for those of you in the Detroit area, we got our first graduating resident dinner of the season on December 15th in Royal Oak. Invitations will go out soon but get on the website or shoot us some email if you want to know more about that. It’s been fun. Again, this is Jon Solitro with my colleague, Dr. Trevor Smith. It’s been great. We’ll see you guys next time.

Trevor: Thanks Jon.

Resources and Links:

What is a startup? – https://startupsavant.com/what-is-a-startup
What is a Roth IRA? – https://www.schwab.com/ira/roth-ira/what-is-a-roth-ira
What are mutual funds? –

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-1

What are private placements or Reg D? –

https://www.sec.gov/smallbusiness/exemptofferings/rule506b

Guidelines of an accredited investor –

https://www.sec.gov/capitalraising/building-blocks/accredited-investor

Definition of an Initial Public Offering (IPO) – https://www.investopedia.com/terms/i/ipo.asp
Seed round vs Series A – https://www.abstractops.com/seed-vs-series-a
Venture Deals (book) – https://www.venturedeals.com/
What is a Ten Bagger? –

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/10-ten-bagger/

What is venture capital? – https://www.business-standard.com/about/what-is-venture-capital
What is a blockchain? –

https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain

Overconfidence bias –

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/overconfidence-bias/

The Dunning-Kruger effect –

https://www.verywellmind.com/an-overview-of-the-dunning-kruger-effect-4160740

What is Consumer Price Index (CPI)? – https://www.bls.gov/cpi/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

Let’s Talk About Real Estate [0:05:01]
Diversification: Alternate Investments [0:07:48]
Pros And Cons Of REITs [0:10:33]
If You Want To Get Into Real Estate, Start With REITs [0:13:50]
Jon’s Personal Real Estate History [0:16:51]
Trevor’s Preference Regarding Real Estate [0:22:44]
Why Do People Don’t Like Bitcoin [0:26:29]
Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

Jon: Welcome again to the Financial MD Show. We’re so excited to be continuing and jumping into 2022. How’s it going Trevor??

Trevor: It’s going great. Yeah, I’m among the COVID-positive so that’s good. I’m on the other side of it and get to look forward to not worrying about getting other people COVID.

Jon: That’s right.

Trevor: It’s kind of nice.

Jon: Yeah.

Jon: That’s a beautiful thing.

Trevor: Yeah. The New Year brings gifts and new forms.

Jon: Yeah, good. Your holidays were good?

Trevor: Wow, that’s a lot of planes.

Jon: It was just like had the process down.

Trevor: It’s lucky, I guess.

Trevor: I have to check that out. I go through there all the time. I’ve never noticed the massage chairs.

Trevor: Yup, all right now.

Jon: Well worth it. Check it out.

Trevor: Nice.

Let’s Talk About Real Estate [0:05:01]

Diversification: Alternate Investments [0:07:48]

Pros And Cons Of REITs [0:10:33]

Jon: Right.

Trevor: That’s like a REIT, and so there’s more tax benefits on the direct ownership side.

Jon: Correct.

Jon: Yeah.

Trevor: I read about them and I was like it sounds fine but I’m good so that’s something of a thing.

Jon: Yeah.

Jon: I know.

Jon: Right.

Trevor: Yeah, that’s my two cents on it. That’s what I know – a surface-y level of pros and cons.

If You Want To Get Into Real Estate, Start With REITs [0:13:50]

Jon’s Personal Real Estate History [0:16:51]

Trevor: It’s kind of like that’s the pro and the con of a hard asset.

Jon: Yeah.

Jon: Blockchain.

Jon: Yeah. At least if you have a stock that you can’t sell, it doesn’t cost you anything to hold it typically.

Trevor: Yeah, it is like if things really, really go south, people are going to remember how much it hurts to have hard assets that people don’t want.

Jon: Yup.

Jon: Oh, yeah.

Trevor’s Preference Regarding Real Estate [0:22:44]

Jon: Okay.

Jon: You’re right and you don’t really care what you paid for it necessarily because it’s a long-term investment.

Trevor: Yeah, you essentially don’t – I don’t know. It’s sort of – I don’t know if that’s a millennial take on real estate but it’s a noncommittal take on real estate.

Jon: Yeah? That’s okay.

Trevor: Yeah, like Bitcoin can go to zero because it’s liquid, right, you know, can meaning it’s technically possible because there’s demand, just like any stock can go to zero.

Jon: Right.

Jon: Yeah.

Trevor: It’s 65, I guess, I would say. Fifty-five still kind of maybe – it depends on what the world looks like.

Jon: Well, and it depends if those assets are providing income for you too like what are they doing for you at the end of the day is the question.

Why Do People Don’t Like Bitcoin [0:26:29]

Trevor: That’s right. That’s why people don’t like Bitcoin. That’s why traditional investors like Warren Buffet don’t like it.

Jon: Because they don’t pay dividends?

Trevor: They don’t pay dividends. It doesn’t pay you anything and it “isn’t a business that produces something.”

Jon: Yeah.

Trevor: Yeah, which is I totally understand that argument.

Jon: That’s sticking to a philosophy, right?

Trevor: This is the part you got to talk about.

Jon: Yeah. All right, I’ll tell them everything. I learned a lot in a short period of time so far.

Trevor: Give them the full story.

Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]

Trevor: Yeah, classic.

Trevor: Yeah.

Trevor: Yeah, for sure.

Jon: I actually found out a couple of days ago, that one is still in the market.

Trevor: Do you have a referral code for that?

They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]

Trevor: Yeah, exactly, because of the cash offer.

Trevor: Nice. That’s what I would do if it was me but everybody’s different.

Jon: Yup.

Jon: Yes, they wanted 3 percent of the sale price if I ever sold it.

Trevor: Crazy.

Jon: And they’re like, well, it’s because, you know, we have to do a lot to get ready to sell and we help you sell it and show it.

Trevor: Three percent? That’s what a real estate agent makes after all their training and work and showing people.

Jon: Yeah, if I sold it for 300,000, that’s 9,000 dollars.

Trevor: That is the clause that keeps them in business if I was to guess.

Jon: Well, they didn’t get my business so I went to a different property manager.

Trevor: Amazing. Read the fine print with everything. It’s very annoying but very true.

Jon: Yeah. There you go, kids, so hope that helps.

Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

Trevor: It is, and I’m somebody I don’t like that kind of stuff but it’s often there for a reason.

Jon: Yeah, like you as a doctor, employers won’t hire you a lot of times unless you have tail coverage if you had a claims-based or policy and all that kind of stuff. That kind of thing.

Jon: There you go.

Trevor: It’s not too expensive. That’s one of those things that gets expensive if you’ve been working for 5 to 10 years.

Jon: Yeah, for sure.

Jon: Yup, there you go. I’m glad – see these little things a good reminder.

Trevor: Yeah, insurance. There’s always more things to insure. It seems like there’s more things to be thorough on no matter what.

Jon: Absolutely but I’m a big believer in that. I mean, we have the errors and omissions. We have cybersecurity insurance.

Trevor: Identity theft.

Jon: You’re right.

Trevor: You can get the tax thing you pay for that, make sure you get it all back and they help you with it.

Jon: Yup. I’m good with that. Well, all right, I think we gave them a lot of stuff, Trevor.

Trevor: Yeah, it was great. Good catching up with you as always.

Jon: Yeah, you too.

Trevor: Talk to you soon.

Resources and Links:

Understanding defined benefit plan – https://equitable.com/retirement/articles/understanding-defined-benefit-plans
What is an alternative investment? –

https://corporatefinanceinstitute.com/resources/knowledge/finance/alternative-investment/

What is syndication? – https://www.1031crowdfunding.com/education-center/blog/92-what-is-syndication
Cadre | Real estate investing, reimagined – https://cadre.com/
Fundrise website – https://fundrise.com/
CrowdStreet: Online commercial real estate investing platform – https://www.crowdstreet.com/
Best real estate crowdfunding sites of 2022 – https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
Real estate limited partnership – https://www.businessinsider.com/personal-finance/real-estate-limited-partnership-relp-definition
Capital appreciation definition – https://cleartax.in/g/terms/capital-appreciation
What are REITs? – https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits
What is an ETF? – https://www.schwab.com/etfs/understand-etfs
What is a non-correlated asset? – https://insights.masterworks.io/finance/investing-strategies/what-is-a-non-correlated-asset/
Hard asset definition – https://www.accountingtools.com/articles/hard-asset
What is liquid asset – https://economictimes.indiatimes.com/definition/liquid-asset
Making sense of Bitcoin, cryptocurrency and blockchain –

https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html

Liquid vs illiquidity – https://www.connectinvest.com/resources/blogs/liquid-vs-illiquid-assets/
Podcast Cardone Zone – https://grantcardone.com/podcast/
Errors and omissions insurance – https://www.thehartford.com/professional-liability-insurance/errors-omissions-insurance
What is a surety bond? – https://www.suretybonds.com/what-is-a-surety-bond.html
Tail coverage: What it is and who needs it – https://www.magmutual.com/learning/article/tail-coverage-what-it-and-who-needs-it/
Cybersecurity insurance: What it is, which businesses need it – https://www.nerdwallet.com/article/small-business/cybersecurity-insurance
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

Are We Heading Towards A Great Depression? [0:03:39]
Current News Update On Crypto And Bitcoin [0:06:33]
Just What Happened To The Luna? [0:11:16]
Trevor Shares His Personal Strategies In These Unique Times [0:17:37]
Leverage: An Interesting Strategy [0:20:16]
Sometimes, It All Boils Down To A Person’s Emotional Well-being [0:23:16]

Jon: Welcome to The Financial MD Show. We’ve got an exciting show for you today. We’ll, it’ll be an interesting show anyway. I’m here with my ever-present partner, Dr. Trevor Smith. How are you, Trevor?

Trevor: Been well, Jon. Good to see you.

Jon: Yeah, you too, buddy. Excited to be back in the saddle and back on the mic and we’re coming in hot with all sorts of things on our mind and we’ll try to give you some good financial info that’s going to help you. They might not be necessarily connected topics but we’re going to talk today and you’ll get to listen to our thoughts and expertise in different areas but hopefully you can walk away with something that will help you out just by spending a few minutes with us. So, today, on the Financial MD Show, we’re going to touch a bit on some market commentary about what’s been going on. As of today’s recording, it is May 16th and it’s been a rough year, pretty much every sector – for stocks, funds, crypto – whatever you want to talk about, there is nowhere safe.

Trevor: Except commodities, if you bought them last year.

Jon: That’s right, and we’ll have to probably educate some people on what commodities are but that’s okay. That’s the point of the Financial MD Show. As of today, at any given point in time, S&P 500 is down probably 15 percent, give or take, from its high in December. What does that mean for you? Most of you listening to this are young physicians and that really means nothing to you and if you’re a resident and you’re putting money into a Roth IRA and you’re saving into your residency’s 403(b) or 401(k) – keep doing that. At end of the day, if history tells us anything, it’s a great time to put money into the market. I’m just going to be honest. We need to chill out and if you’re older and you’re listening to this, kudos to you for finding podcasts and you’re probably a little more concerned and maybe rightly so, but if you were aggressively invested, meaning, if you had a lot of your investments in stocks and Bitcoin or whatever, then you knew this could happen, and that’s always a possibility. So let this be a lesson to you. This is why we say aggressive because it’s risky. This is what risky means, and even this isn’t drastic. I mean, it was worse during pandemic, worse in 2008. Could it get worse still? Sure. We can talk about recession, but there’s really between stocks, bonds, crypto like all of those things – what’s causing this. In the stock market, at least I can speak to that and then Trevor’s going to touch on Bitcoin and just kind of state of the Bitcoin address.

Are We Heading Towards A Great Depression? [0:03:39]

Things are weird as we’re coming out of the pandemic and recovering from that. Some of the big companies that really had some gains last year – your Zoom, your Amazon, your different things – I’ve had to pull back because they haven’t had the same scenarios. It’s not the same atmosphere. We’re getting back to “normal.” People are going back to the office. Zoom isn’t used as much. Peloton’s not being used as much. You know, all these things that are hitting some lows that are affecting the market and the interest rate increase, I think, is leading to a lot of this. You’ll probably see it affect the housing market shortly, not as drastic as buyers want it to but some and we may be looking at a recession which means two consecutive quarters of negative GDP – gross domestic products. Basically, the country is going down for two consecutive quarters, that means a recession. Now, again, we’ll get through it. We have every time. This has happened before. It’s not a Great Depression type of scenario, but just be prepared that that may be a thing and I’ll just say it. I said this three years ago that the Feds needed to start raising interest rates. The economy was doing well. I didn’t know why they were waiting but you’ll probably all say it because of politics and you’re probably right which just is one of those frustrating things that pisses me off when politics get in the way. This is people’s money. These are mortgages – it’s people’s livelihood – and the Federal Reserve is supposed to be a fiduciary, meaning, I don’t know if they’re technically a fiduciary but like their job is to handle things like inflation and interest rates and all those things and then they come in like they have recently and jumped them drastically which we see it in reflection in things like mortgage rates that go from 3 percent up to 5.5 percent. It’s insane, and it just hurts, I think, the average consumers. I think they should have raised rates years ago. We still would have gotten some inflation but it wouldn’t be as drastic and we still would have had interest rate increases but it would have been more gradual and so this is them being reactionary because they didn’t want to raise them during an election year, right before an election year or all this kind of things. So that’s stuff, just kind of pisses me off. So we could be heading for recession, increased unemployment, high inflation, things like that. You’ll see this concept called stagflation which means rising prices without rising income and that’s a thing. So who knows but that’s my explanation for why stock markets looking like they have bonds have been doing poorly because when you look at current bonds out there, they weren’t paying great interest rates and then when the Federal Reserve raises the interest rates that these bonds are paying, that makes current bonds out there look even worse so they lose value so there’s just no place to get any steady rate of return right now. Some of you guys have been watching Bitcoin or Ethereum or any crypto. Trevor, can you speak to that at all or what are your thoughts on that?

Current News Update On Crypto And Bitcoin [0:06:33]

Trevor: Yeah, absolutely. I mean, in my circle, people know that I’m a Bitcoin fan, right, so I often get the question why did the Bitcoin price do this or that. I’d say, first, it’s interesting that people – we talk about price of Bitcoin because really it’s an exchange rate like it’s another currency rate.

Jon: Yup.

Trevor: It’s really is an exchange rate, but we think of it as an investment so we talk a lot about price. Bitcoin is one of the most volatile assets out there. It goes up and down a lot. That is what it means for it to be volatile. So, usually I just say Bitcoin’s just being Bitcoin. That’s how it works. It’s a true free market so it really follows the psychology – the human psychology of markets very, very closely. You can Google image search the human psychology of markets and see a very obvious trend of what spikes and troughs look like and they don’t always match up, but the 2018 cycle matched up pretty well for how fast it went up and the pace and the ups and downs even along the way. It’s just kind of doing one of those things where, you know, why did the price go down like the answer is there’s more sellers than buyers like that’s the reason. It doesn’t get propped up in the same way. If there’s a lot of selling in the stock market, they’ll actually halt trading. If it’s going up too fast in the stock market, they’ll halt trading and it’s a really manipulated system and the idea there is just to control volatility because then investors don’t get nervous or buy too much or sell too much. There’s some good intentions there but it’s not truly a free market. So, Bitcoin’s going to be inherently more volatile because it’s a global free market. It’s pretty much the last free market. These other cryptocurrencies can be manipulated, that is absolutely true, just based on the size and it’s based on who controls the creation of new coins so similar to the Fed in the U.S. The Federal Reserve prints money. I don’t get to print U.S. dollars. They get to print U.S. dollars. But with these alternative cryptocurrencies, non-Bitcoin – some would call them unregulated securities because you’re creating a token and then you’re raising money potentially from other people and then you can sell it in an open market. Regardless, that’s not really been enforced totally by the SEC so that’s to be determined, but those are more manipulatable because they’re centrally controlled and their supply is controlled. So if I made a new currency and I had 50 percent of it sitting here in my house and then I sold a bunch of it to other people and I gave it to some people and then more people wanted it because they thought my business model of how I was going to somehow use this makes a lot of sense starts to go up, and now I have this 50 percent pile here and everyone else is buying and buying, I can just sell as people are buying it so people would be like selling into retail or selling into bull market or whatever it is. It’s not full-on like pump and dump. Even the name doesn’t even matter but if you’re pumping it and you’re selling your own, I mean that is kind of the definition of a pump and dump. So that is where you’ll see the legitimacy of a market is oftentimes seen in the downturn and what happened in the 2018 cycle after the big crypto top end of 2017, early 2018 is you saw 95, 99 percent drawdowns in these alternative coins – cryptocurrencies – and if you have a similar bear market which were pretty much undoubtedly in for Bitcoin and other digital assets, yeah, it’s going to get rough. It’s probably going to get – if you haven’t been through it before, you know, it’s rough. I don’t feel it emotionally after being through it before. Part of that is because experiencing how unregulated all these alternative coins are. It’s not that there’s no value in them or there can’t be another new thing in the future but Bitcoin is very well established. So, for me, I don’t have to really worry too much about that portion of my holdings because I understand it. I know what it is. I know that it does these quick highs and lows and I’m not in it for the short term and that mental framework translates to not being too stressed out about it.

Jon: Yup, yeah, exactly. If you know the purpose of it why you chose the investment you did or the strategy you did whether it’s Bitcoin or stock market or whatever the case might be, then it all comes back to that same concept. I think that’s a great reminder.

Trevor: There was another event too. Should I tell them about the Luna thing we were talking about?

Jon: Yeah, I think that’s worthwhile. Explain what that means.

Just What Happened To The Luna? [0:11:16]

Trevor: There was this company that came along that – I’ll try to keep it as brief and digestible as possible and you can listen to other podcasts or check out on Twitter – but there’s this company called Luna and their goal was to create an algorithmic stablecoin so we’re getting into the weeds a little bit already. So we’ll just say they create these coins that are supposed to match the price of the dollar and you can trade in and out of them and it’s just faster, it’s more efficient than sending your dollars around, and the idea is if you think Bitcoin is going to go down, you could sell into this coin and it’s just a little bit faster than really settling out into true U.S. dollars and then the real trick – the reason people were buying this – is because you could go on to a certain platform and you could get a 20 percent yield on your stablecoin. So you’ve got – it’s this feeling, this idea of I can take my U.S. dollars, not have the volatility risk literally none ideally, sit in a stablecoin and earn 20 percent. It’s like if you could earn 20 percent on your cash that you put under your mattress, it’s kind of that similar feeling that people would get about this. It feels secure, and then the question is what is that backed by? Well, Luna kind of tapped into the Bitcoin safety, the stability of Bitcoin that people like which non-Bitcoiners would laugh at, but in this space, Bitcoin is seen as a true long-term store of value. So, if it’s backed by that, people kind of like that – oh that’s interesting, okay. So, now it feels extra safe and plus they’re buying Bitcoin as people put more and more U.S. dollars in there. They’re kind of like matching it up and they’re going to use Bitcoin as their reserve – kind of like this idea of a Bitcoin standard rather than a gold standard. So they’ve got this narrative. It sounds pretty nice and plus you’re earning a 20 percent yield and people when they’re earning a 20 percent yield don’t always ask as many questions as they should, right?

Jon: You’d think you would at 20 percent, like doesn’t that sound a little too good to be true?

Trevor: In the Bitcoin space, in the digital assets space, it’s a little unclear as to how it works until one of them blows up. So, what happened in this one is they got a bunch of people in and they had about 70 billion dollars, I believe, is the number of value. This, in the last week, was what people would have read. This got erased all the way down to about two. So, how did that happen? The way they were backing the coin so like if I bought hundreds of millions of dollars in the stablecoin and then I decided to sell it, they would have to be able to back it up to trade like dollar to dollar.

Jon: That’s the definition of a stablecoin, right?

Trevor: Yeah, right. So, they have to match it up. So, if you exit it, when you trade one thing for another, there has to be like a shift. They’re backing it up with their own coin that they made called Luna and then their reserves were some in Bitcoin as well. So somebody decided – it’s very obvious how they would do this. I guess people were publishing articles on how you could basically attack the system and break it and somebody went and did that. So they shorted Bitcoin to bring the price down and they shorted Luna and they sold the stablecoin. When they sold a bunch of the stablecoin, it had to be switched out for something like Luna and Bitcoin but as Bitcoin was losing value this last week and Luna was losing value, now the thing that they had to kind of like hold that stablecoin at a dollar, they didn’t have enough money to back it up. So, people were trading out of it and they couldn’t trade them back. They basically were like – it’s like a bank run. They couldn’t make these people whole so as they couldn’t make them whole as they tried to exit, the value of that currency drops dramatically, and in a matter of hours, it went from basically worth a dollar worth nothing. It was kind of associated with Bitcoin so maybe that news got misinterpreted and Bitcoin went down a little bit further – irrelevant. I mean Bitcoin is volatile but this was a specific attack on Luna is what failed in that scenario and not Bitcoin. It should be reason for everybody to be very, very cautious for any of these new projects, for things that have too good to be true yields, and there’s also a lot of big-named folks that were involved in the project. Frankly, you should know better. Anyways, it’s good reason to be cautious the whole YOLO-ing approach to the spaces. It is not wise and know what you’re buying. I mean, know what you’re buying with stocks, with the diversified portfolio. This is your money. If you’re investing, it’s ultimately your responsibility you can have a great guide like Jon here and he’ll help you and it’s still ultimately your responsibility to understand what you have and what you’re buying and creating your own plan and your own reasons for having what you have.

Jon: Yeah, and full disclosure. If you are simply looking for Bitcoin advice, I would contact Trevor.

Trevor: Not financial advice for me, but I’m happy to discuss the technology and the features.

Jon: How about Bitcoin consultant? How about that?

Trevor: Sure. No problem.

Jon: I think that helps a lot. I mean that was the gist of what we wanted to mention today is some reasons for what’s going on in the market and some of you are staying on top of that. Some of you – I think most of our listeners know what’s going on but I wanted to have us come in and give some perspective on the various markets of why and ultimately not to panic but I think that Trevor’s point, too, like know why you’re getting into what you are – this YOLO approach or just whatever it is. When you’re getting into something that is potentially risky or volatile, fine, if that’s money you can stand to lose, but if you’re investing your life savings or retirement savings or whatever the case might be, everything’s kind of a purpose. We talked with our clients about at a certain point we put together an investment philosophy statement which basically says regardless of the market or our emotions or whatever, we want these guidelines to guide what my family, my company, invests into and why, and so it just helps to maintain some stability at least of emotion and thought through ups and downs. Be aware that I think long-term investment strategy doesn’t change. This has happened before. It will happen again. We are certainly in unique times in terms of – it’s hard to say, gosh, where I can turn to the find stable growth. I don’t know, but where most of us are just staying the course because we had a strategy and a plan and this doesn’t change that. Anything else to add to that, Trevor?

Trevor Shares His Personal Strategies In These Unique Times [0:17:37]

Trevor: No. I don’t have anything else to add to that. Yeah, I’ll just share a little bit of my own personal strategy that I’m obviously into Bitcoin and I am heavily weighted in that in my portfolio. I won’t say exactly how much unless I said it before which I may have. I’ll just use it as an example for the purpose of having a specific asset or equity or stock in your portfolio or combination or ETF. When you know something’s going to be volatile, you want to size it appropriately and if you think Bitcoin is going to 10x in five years which I think is totally possible from a point of 30,000 – could be wrong – but that’s kind of like my thesis. So 10x from here in five years, I would totally consider that reasonable. So, if I have 10 percent of my net worth, let’s say, in that and we get a 10x, we’ll, that portion of my portfolio will now be 100 percent value. I don’t need to have 90 percent of my wealth in asset that I think is going to go up really high, and if I know it’s volatile and it could drop in half or 80 percent then I can tolerate from 10 percent down to 2 percent and my overall portfolio could drop a good 8 percent or something if it goes down 80 percent, and for me being 35 and losing 8 percent of my net worth is not a big deal. It’s not going to ruin me. It’s not going to affect my payments and I am not YOLO-ing into any sort of investment. I am looking at this soberly knowing it’s going to suck when I see it go down and I’m going to put in 10 percent because 10x should be plenty good for me and having 100 percent return over five years for my entire net worth would be ridiculous. It’d be amazing especially in the current inflationary world we live in, that’s great. That’s going to keep up with inflation and that’s one of my goals and I only have to really “bet”, stand to lose 10 percent of my net worth. My dad’s like at retirement. Do I want him to have 50 percent of his net worth in Bitcoin? No, that would be crazy. If it drops down by 80 percent, then he could lose 30, 40 percent of his net worth. That’s too much. You know, that’s irresponsible, unquestionably. But 5 percent, 2 percent Bitcoin and then at 10x’s and then now he’s got a 20 percent boost with such an extremely low risk, that’s where it’s valuable and it’s outside of the current system and the Fed can’t print in a way that can manipulate Bitcoin as much, although it’s a liquid asset. It's going to be affected, at least in the short term, but yeah, just to land the plane on that.

Leverage: An Interesting Strategy [0:20:16]

With that in mind, leverage is an interesting thing. So you can have a 100 percent net worth but if you leverage your money, you actually can have a higher percentage than 100 so you can invest like 120 percent of your net worth if you have 20 percent leverage in. People are, well, that sounds crazy. Well, most of you are doing that because you have a home so it’s balanced out by the debt but if the value of your home goes down then you are actually leveraged above. So, let’s say, you got 100 percent net worth and then you borrow against the home and you get a 400,000-dollar loan for a 400,000-dollar house. So you’re still at 100 percent because those cancel each other out, right?

Jon: Yeah.

Trevor: If your house value drops in half and you got now 400,000 dollars you owe and 200,000 dollars of house value left and you’ve got a million dollars, well, now you’re minus an extra 200,000. So you’ve got 1.2 in assets but you have 400,000-dollar loan, so now you’re at 800,000. So, yeah, it’s right about 20 percent. People might not be leveraged right now but depending on what you own, you could be. So, with that same kind of thing in mind, I have student loans and I have been investing so there’s always that discussion – should I be investing or should I pay off my student loans or a little bit of both – personal decision. Talk with the financial advisor and then scope it out, maybe two different directions, know where you’re headed and pick the one that sits well with you. Well, recently, what sat well with me was, I’d like to kind of de-leverage. I’m basically when I’m making payments and I’m investing at the same time, it’s almost like I’m borrowing to invest that money because I’m effectively not paying off the loan. You can do some mental gymnastics. My loan was at a 5 percent rate. That’s not too bad with inflation. Some people would say borrow that money all day long and there’s been times where I felt that way and I was just like, you know what, there’s a peace of mind I could just feel myself desiring and I wanted to pay it off and I had the funds and then looking at the environment of recession – potentially – I did this before where, you know, a year ago, all my assets were up a lot higher than they are now because I was in volatile assets and I could have paid it off with a smaller percentage of my net worth than I had to do this last week. But I just thought, you know what, that percentage of my net worth I would have to sell to pay this off could double again in the next year if things keep going down. I just want to de-leverage myself and have that peace of mind and so I decided to pay off. I still have some student loans remaining but I paid off about 50 percent of what I owe and that lowers my monthly payments and making the cash flow more comfortable. It allows me to more conservatively pursue the career that I want to have so I don’t feel as limited by that and that was my financial decision.

Sometimes, It All Boils Down To A Person’s Emotional Well-being [0:23:16]

Jon: Sometimes, I recommend that. I usually, in the interest rates we’ve had in the last several years, have said, don’t pay off your loans early. We can get a much better rate of return in the market or investments, but there have been times when I knew it had to with a person’s emotional well-being. We had a client that really hated their job, hated where they were at, just a bunch of stuff, and it was affecting his family and I just said, hey man, I think you’re going to be happier if we switch, alter course a little bit and try to aggressively get these loans paid off, then you can move, you know, because he was a thousand of miles away from home where he grew up and he’s trying to raise a family away from his parents and their family. It’s like all these things that – I’d been a financial planner long enough to say and a therapist for a little bit to say – yeah, I think you’re going to be better served. The numbers are not going to make sense but your happiness and emotional well-being just outweighed the numbers.

Trevor: If you can’t do stuff like that and you’re making money and you’re saving money, you got to remember what’s the point of the money? It’s not just to get more of the money. It’s you want to preserve your buying power.

Jon: To what end, yeah.

Trevor: Yeah, part of it I was like what I’ve sacrificed lots of emotions, learning and investing in a volatile market and assets and taking on lots of debts and stuff. I was like, you know, I’ve paid the price for this, and occasionally, you just need to reap the rewards. I’m not going out and buying a car. I still like driving my old used cars. They’re great, but this is a big goal and I don’t regret it at all and then the market dipped 25 percent so that was particularly satisfying. I don’t think that usually happens but I was like, well, there you go. I would have otherwise had to just wait another year because I’m not going to sell down at that. I’m not going to sell at the bottom, but selling in the middle – the middle-ish – that’s all right.

Jon: I can get onboard with that. All right, well, it seems that covers it for today. Trevor, thanks for sharing. Your perspective is always valuable and I appreciate you doing this with me, and for the rest of you out there in Financial MD world, just keep at it one day at a time. Stick with the plan. If you’re unsure, consult your financial planner. Find somebody you like and you trust and you feel like has your best interest in mind. You know how to reach us at financialmd.com. We’re coming out with new Didactic Minute videos every week; kind of blowing up on TikTok and Instagram so if that’s convenient for you, follow there. Otherwise, we’re still always on Facebook and YouTube for the video piece but if you haven’t yet shared the Financial MD Show, please do. If you care about somebody, you’ll share the Financial MD Show. Get this information out to as many people as possible and share the love. Subscribe on iTunes and Spotify and Google. Other than that, until next time, it’s Jon Solitro saying goodbye, and Dr. Trevor Smith. We’ll see you next time.

Trevor: Good to see you, Jon. Bye.

Jon: All right, see you later.

Resources and Links:

What is a 403(b) plan? – https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-403b-tax-sheltered-annuity-plans
The 401(k) plan: Complete Guide – https://www.investopedia.com/terms/1/401kplan.asp
Gross domestic product (GDP) definition – https://www.bea.gov/data/gdp/gross-domestic-product
Current Federal Reserve interest rates and why they change –

https://www.thebalance.com/current-federal-reserve-interest-rates-4770718

Federal Reserve website – https://www.federalreserve.gov/
What is stagflation? – https://www.investopedia.com/terms/s/stagflation.asp
Bitcoin website – https://www.bitcoin.com/
Ethereum website – https://ethereum.org/en/
Stock Market Psychology – https://www.dailyfx.com/education/understanding-the-stock-market/stock-market-psychology.html
All about Terra with it’s token, Luna – https://www.cnbc.com/2021/12/27/what-investors-should-know-about-terra-and-its-token-luna.html
The great Terra Luna crypto crash – https://indianexpress.com/article/technology/crypto/5-things-you-need-to-know-about-luna-crypto-crash-7919632/
Terra 2.0 – https://www.euronews.com/next/2022/05/26/terra-luna-2-0-how-backers-of-the-project-want-to-revive-the-failed-cryptocurrency
Stablecoin definition – https://www.investopedia.com/terms/s/stablecoin.asp
Leverage trading: Pros and cons – https://www.wealthwithin.com.au/learning-centre/leveraged-trading/leverage-trading-the-pros-and-cons
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
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View Details

Summary:

What Happens After You Die (Financially-Wise) [0:02:50]
What Is An Estate? [0:06:07]
Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]
What Is SECURE ACT? [0:11:16]
Bitcoin As An Early Inheritance [0:16:17]
There’s Something Called A Step-up In Basis [0:19:18]
Gift Tax – What Is This? [0:23:17]
How Do I Dictate What Happens After I Die? [0:27:07]
Who Should Have A Trust? [0:30:15]
Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]
It Pays To Invest On Life Insurance [0:36:33]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hey everyone! Welcome to the eighth episode of the Financial MD Show. Hope you’ve been having a good time listening through all the episodes and learning stuff. Today, we’ve got a fan favorite. This is a highly requested topic both through emails and correspondence, and after getting requests on podcast topics as well as just getting straight up questions in the webinars and lectures and things that we do. Disability insurance is what we’re talking about today, which is great, because I’m knowledgeable on it, Trevor is knowledgeable on it, and we’ve had some good and bad experiences, but there’s a lot of mixed information out there and we hoped to straighten some of that out today. We’ll give you some tips on how to buy it, how to shop for, what to look for, what not to do, and ultimately how do you feel you’ve done well and just protect your finances. Without further ado, here’s today’s show.

Trevor: Need to go back a little further.

Jon: Okay, let me think a topic today. Your thoughts on topics today?

Trevor: What have I been thinking about lately? I’m thinking about life or death. We could not talk about that.

Jon: I don’t know.

Trevor: I think it’s bad up there. This is good. What have you been talking about with clients? We can talk about bitcoins. It’s almost at an all-time high if you want.

Jon: Yup. What have I been talking about lately? Well, a lot of wondering if Biden’s going to make any big tax changes.

Trevor: Certainly. Do you get calls about that stuff right now?

Jon: Yeah. I mean mainly emails, text, whatever. Clients just like, hey, should I be doing anything, or what should we do or etcetera. And, you know, the answer is still at this point like it’s too early to tell, really and so that run maybe we can do yet so anything else would be preemptive until we have a better idea what’s going to be passed and all that stuff.

Trevor: Yeah, that’s a little premature.

Jon: Yeah. I mean I can kind of run that. We can chat about it.

Trevor: We chatted about that last time.

Jon: I think we did.

Trevor: That was the last topic we did.

Jon: I’m kind of curious about...

Trevor: What about…yeah, go ahead.

Jon: Well, let’s talk about…let’s have a show called, “What happens after you die?”, but let’s talk about it more specifically with financially like what does happen to my stuff after I die? How do I…do I know? How can I know? When should I be thinking about that or making moves on that? I think that’s probably a good question we haven’t really addressed.

Trevor: Yeah, sure, like wills, estates.

Jon: Estate planning, basically, yeah.

Trevor: Well, I will be honest. This would be mostly you. I know almost nothing about that. That’s something I’m going to start looking into.

Jon: Well, that’ll be a good…you’ll be a good person to talk to because that’s what most of the doctors we have are like I’m not – anything about that.

Trevor: Okay, yeah. Sure, let’s do it. That’s great. I can ask you questions. Yeah, please, go for it.

What Happens After You Die (Financially-Wise) [0:02:50]

Jon: So what happens after you die is the question that we’re addressing today and we’re going to try to keep it nearly in the scope of financially. Spiritually, that’s probably out of the podcast, we can recommend for that, but on Financial MD, we’re going to talk about what happens after you die and the answer to that is our typical legal approach of, well, that depends. So on our show, of course, we have Dr. Trevor Smith giving us as always the valuable yet slightly more informed physician opinion and experience and then myself, Jon Solitro. We’re going to talk about this. So we’re in a unique situation where Trevor may be in the position that many other physicians are in from a knowledge standpoint of estate planning. So he’s going to approach it as though he is an estate planning dummy and ask some questions and we’ll try to do kind of an estate planning for dummy show and try to keep it very simple because it can get very complicated. You know, people get entire degrees in this thing. Alright, so first question that pops into your mind, Trevor, when it comes to what happens to your money after you die? Or your stuff?

Trevor: Big picture – I’d like to know in terms of…I think the main thing is a question of when you see a lot of this in the news right now, we were just talking about taxes and potential buying tax. Changes that are coming up the pipeline, we don’t if they’ll occur so there’s not really much to do. Maybe get to read about. Maybe click bait – probably a lot of articles are click bait on this kind of stuff – but what gets taxed after I die. I mean that’s the question I’m in. If you’re going to leave your money to somebody else whether it’s a charity or individual, children, spouse, partner – whatever it is – not everything gets taxed, even if you have a lot of money as far as I understand. But I’m early enough in my career and I don’t have dependents so it’s not something I spent a lot of time thinking about but, you know, right now for me as a single adult it’s, you know, filing a single…it’s pretty simple, you know. Just like the accounts I have are going to go to somebody else and a lot of the banks and whatnot, you just write a beneficiary down – brother, sister, parent, whatever. For any, you could just pick friends. You could pick whatever you want. You can give things away to people, and you barely even as far as I understand need a will but I know there’s frozen accounts of having one for specific items. So I would like to know first what is taxed and then I would like to know what is an estate and then after, it’s right into that.

What Is An Estate? [0:06:07]

Jon: Yup. So what if tax…maybe I’ll start with the second question. What is an estate? So most things when you die will be in your estate. Estate means anything that really needs to get settled or given to somebody or dealt with after you die. Now there are some things that are inherently out of your estate specifically the 529 plan if you started one for your kids or somebody else, that will be out of your estate as soon as you die and doesn’t get counted in terms of... When you say out of estate, that’s typically…what that means to an attorney or even who’s dealing with this is what counts towards estate planning – or not estate planning – estate taxes, we’re in an environment right now where it doesn’t get talked about that much because currently the threshold of your net worth above which you would have to pay estate taxes and estate taxes are typically about 40% is 11 million and some change for a single individual or basically 22 million/23 million for a couple. So if your net worth is more than that when you die then, yeah, you have to think about estate taxes and what’s in your estate and that’s everything – house, land, bank accounts, IRAs, life insurance – any kind of assets that you own or have any ownership in whatever your worth. More specifically, if you’re a business owner, this really comes into play because if you don’t have a lot of stuff, right, just got a house and some money, you know, I got 5 million bucks in savings and house and all those things, okay, that’s not that uncommon in this world, but then so what do you do for a living. Well, I own a company that’s probably if I had to value it is worth 50 million, but, you know. Well, that is part of your estate. That’s part of what you own. So that’s a big deal. So a lot of estate planning when it comes to business owners is how do I get this business out of my name before I die essentially or just be prepared to pay the estate taxes because whoever inherits it is going to have to pay. I mean we’ve got stories and you can see horror stories of…Michael Jackson’s estate to what other estates were terribly managed? Oh one interesting example who I think did it well – do you remember Aaron Spelling? TV producer – Melrose Place, Beverly Hills 90210 – that kind of stuff?

Trevor: Oh, nice.

Aaron Spelling – An Example Of A Well-Managed Estate [0:08:51]

Jon: Yeah. So he died recently and his estate was structured in such a way his daughter, Tori Spelling, was kind of a mess growing up and he had set aside a trust that was very specific as it was multimillions of dollars, but all she could get was a certain salary every year out of that. She couldn’t just pull a million bucks out and do something with it, but she could pull a million bucks out to donate it or start a business or do stuff like that. So he had very clear trust and estate planning documentation set up. Now, not a lot of us have to go to that extent but you could have any kind of jackass in your family that if you got a hundred thousand dollars that goes to him and you know they’re going to blow it. So back to the original question, what’s in an estate? Anything you have ownership in, frankly. There’s a couple of things that are specifically at this estate and then kind of more specifically, what is a probate asset and what’s out of probate. If something clearly has a beneficiary on it – life insurance, IRAs, 401ks, stuff like that – that is stays out of probate. But if you don’t have a will or trust and you have stuff that does not have a beneficiary on it – house, bank accounts, cars, that stuff – that’ll go into probate and a probate judge will decide who gets what and how much and that kind of thing plus you typically will pay 3 percent of what goes into probate as a probate tax and stuff. So people want to try to avoid that, but a lot of…you know, so when it comes to what’s taxable in a worst-case scenario, there’s probate tax but then in a scenario where you own a bunch of stuff – business things, whatever – totaling over 11 million, there’s estate tax. But what most people are going to deal with is things are going to get transferred fairly without tax unless it has never been taxed. So we have two scenarios there. So a qualified account of 401k and IRA – things like that basically or retirement investment account – those have usually never been taxed, right? We’ve talked about before. Money goes in pre-tax. Then you die – your son, daughter gets it.

What Is SECURE ACT? [0:11:16]

What changed in 2019/2020 was the SECURE Act which changed it so that as soon as you inherit something, you get 10 years to get it out of there and pay taxes on it. So 401ks, IRAs – things like that specifically. Life insurance death benefit is not income taxable when you get it. Now if it’s over 11 million then yes, there’s a portion that would estate-taxed.

Trevor: Interesting.

Jon: Yeah, the whole beauty of life insurance is the tax-free nature of it for the vast majority of people.

Trevor: Okay. I didn’t realize that.

Jon: Yup. So it’s kind of...and some people look at it, a lot of middle America will have a lot of money in 401(k)s and IRAs at the end of their life and that they say, here, son or daughter, you can have this after I die and also here’s a little life insurance policy that cover the taxes on this. That’s kind of a strategy sometimes.

Trevor: Interesting. So I thought that retirement accounts were not taxed actually.

Jon: They are, you know, when you pull them out and it used to be you’d get what’s called an inherited IRA or an inherited 401k which would then have a or rightly called a stretched IRA which means you could stretch it to your life expectancy and the IRS has this formulas and tables to say, here’s how long we think you’re going to live based on how old you are and we’re going to give you a formula so that if you make it to your estimated life expectancy, you will have completely liquidated that account and paid taxes on all of it.

Trevor: Got it.

Jon: So for example, typical 65-year-old has what’s… well, a typical 72-year-old, we’ll say, because that’s the age when you have to start taking money out of your IRA or your 401(k). That’s called a required minimum distribution but at that age, 25.6 is the typical multiple, I guess, or divisor, but you basically take if you have a hundred thousand dollars in your IRA, you divide it by 25.6 and that’s how much you have to take out this year and then each year that amount goes up a little bit. It comes to about 2.7 to 3% the first year and then bumps up a little bit every year after that. The point is you got to take that out and then pay taxes on it, that’s why. So IRA is taxable, 401k is right. ROTH IRAs – different story. That’s all tax-free.

Trevor: Inherited, is that free too?

Jon: If you inherit a ROTH, you still got to take it out but you don’t have to pay taxes on it because the government can find…

Trevor: Okay, so it can’t keep growing tax-free.

Jon: Exactly.

Trevor: You can take it out immediately all at once?

Jon: No, it’s still with 10-year window, I believe.

Trevor: Okay, got it. So the new SECURE Act made everything a 10-year window?

Jon: Correct, for almost everybody.

Trevor: Okay.

Jon: There are what’s called eligible designated beneficiaries which are disabled beneficiaries, spouses, and any beneficiary that’s less than 10 years younger than you. In that case, they keep the spread provision that says, here, you have to take some out every year but you can stretch it out over your lifetime.

Trevor: Okay, that’s make sense. I’ll give you a specific context, just to add a little flavor here. I like to jump in the clubhouse. I think my handle is the same there – trevorsmithmd@trevorsmithmd.

Jon: Yup, I’ve been there some times.

Trevor: Occasionally, I’ll hop on stage and chat with big-pointer people about stuff and we were talking about ways to pass on your bitcoin and the bitcoiners are not afraid to get creative and there’s like a small contingent of bitcoin folks that are basically willing to break the law. We don’t like the tip, okay, so that’s a bad luck for a great asset. It’s like avoiding taxes is not part of the ethos of bitcoins. Must be a good store value. You could buy more later with it than you can buy today. I mean that’s a simple kind of…that’s like where good money would be regardless if it’s bitcoin or not. So we we’re talking about how do you give it to your kids, right, especially once it’s going to be worth more later down the line, let’s say, 30 years from now, what’s it’s going to be worth. So one of the things we talked about was gift taxes so you can give up to 15,000 dollars per year to anybody in your immediate family.

Jon: Correct.

Bitcoin As An Early Inheritance [0:16:17]

Trevor: And we’re just kind of saying like 15,000 dollars of bitcoin if it keeps going up in an exponential or parabolic manner, it’s almost like you can give substantial pieces of wealth to your children just by giving them whatever amount 15,000 is at the time of the gift. So like earlier this year, bitcoin is like 30,000 so you could give half of bitcoin to your kids and nobody would have to pay any taxes on it.

Jon: Yup.

Trevor: It’s kind of like a workaround, almost like an early inheritance and the context was, okay, what would make that make sense. But you have to have a great relationship with your kids, you with your parents or your parents with you to do that and then you also want to…like the idea there is that’s inherited so like don’t spend it. But if you have the context where your kids are responsible they’re not going to spend it, bitcoin is unique too because you can gift it to somebody and then somebody else can custody it as well. So you can almost do like trust level gifts where it’s controlled, pay no taxes, and then actually not really physically handed off to them and then withdraw until later. That was a little more advanced than I intended it to be, but just in general, I think of it in U.S. dollar terms, just giving cash. You can give 15,000 a year and they don’t pay taxes on it and you can kind of just… If you have 30 million dollars, that’s not going to move the needle for you, right, to limit your taxes that you pay after death. But if you got like 5 million and you think you’re going to double again in 10 years and you might be flirting with that level of 10 million/11 million and then they’re going to gouge 40 percent, you know, 4 million roughly out of 10, then like certainly give some early tax-free with gift tax. We’re just talking about that. I’d be curious what your thoughts are, and do people do that often or do they just kind of not mess with it and just do like trusts? How do you transfer wealth to your kids?

Jon: Is it kind of capitalize that to where if you buy and sell, it’s a capital gains tax or income tax?

Trevor: Absolutely. It’s treated just like real estate long-term and short term gains. The other thing is you can spend the bitcoin? That’s the same thing as a sale so like anytime you transfer it to somebody else, it’s a taxable event, it’s a capital gains event. It just depends on how long you’ve held that whether it’s long term or short term and then you get a higher or lower tax bracket based on that. Those are googleable on the IRS website and currently there are like if it’s short term, less than a year, you pay your income tax rate generally if you’re making good money like a doctor, and then if it’s long-term after a year, then you’re paying either 15 or 20 percent. The more you make then you’re on the 20 percent category. Usually long-term gains 20 percent.

There’s Something Called A Step-up In Basis [0:19:18]

Jon: Correct. So it depends on the type of assets. So most capital assets like that – stocks, real estate, bitcoin. As of today, October 20, 2021, there’s something called a step-up in basis, which is one of the most advisable things is to not gift stuff before you die because when you gift something, your basis becomes their basis which means, okay, great, you didn’t gift it to them to sell, but if they do, they’re going to pay taxes on the growth that you had. So you bought it, you know, you bought bitcoin at 40,000 and they sell it at 60, they’ve got 20,000 in gains, that’s taxable gains. That’s a recognized gain that they have to pay taxes on. But if you wait till you die and bitcoins at 60,000, their new basis is 60,000 and if they sell it that day when it’s 60,000 then no taxes for them. Same thing with the house, same thing with stocks in a brokerage account.

Trevor: That is critical information. That’s very helpful because that shifts... You could kind of do a bit of both. I mean I’m one of those guys I think bitcoin is going to…each one is going to be worth a million dollars plus; somewhere between a million and 5 million each at some point in the future. It could be, you know, in the range of 12 years from now is kind of what I picture just based on the supply and demand curve but it could be well down the road. But hitting some office good but like having a step-up in basis, that’s massive. That is incredibly massive if you’re going to sell it at some point.

Jon: Well, and that’s why… that’s been a very longstanding law and the Biden administration has discussed eliminating step-up in basis, so that’s a big deal.

Trevor: Wow. Huge deal.

Jon: And that’s a thing that wouldn’t just affect high net worth people. That affects anybody. I mean if you inherit your parent’s house and, you know, everybody does that, then there’s a step-up in basis issue there. So that’s why it’s typically better to inherit or bequeath something rather than gift it because if you give something before you die, they take on your basis which means more taxes for them. I have had clients ask me all the time about, hey, should I just put my house in my kid’s name? Would that be easier when I die? Well, if you do that, you effectively gifted it to them and now they have your basis. No step-up in basis and you’re going to hold the government more than you should so step-up in basis becomes a huge question.

Trevor: Okay, so just to like hammer it home, make sure I understand, so if one of my parents passed away and they had shares of Tesla and let’s say they had one share there and it was 200 dollars and they bought it 10 years ago and then now it’s worth a thousand. If they gifted it to me before they passed away, I would have the basis of 200 dollars?

Jon: Exactly.

Trevor: Okay.

Jon: Now that’s outside of an IRA or qualified plan. That’s like a broker’s, just Robinhood or whatever.

Trevor: Taxable account.

Jon: Taxable account.

Trevor: Yeah, well, they’re technically all the taxable accounts but you might just call it like a regular, non-retirement account.

Jon: Yeah, kind of taxes-you-go account you could say where you have to taxes every year.

Trevor: Taxes you go, that’s actually a very helpful common sense term. Okay, cool. That’s helpful. Were the other…? Go ahead.

Gift Tax – What Is This? [0:23:17]

Jon: Well, the gift tax…your gift tax point is another one. Gift tax is not a thing until 11 million dollars either so you got an 11 million dollars of stock you can gift. The reason the 15,000 is there, if you keep it under 15,000 a year, you don’t have to report it. But if you gift something that’s worth more than 15,000 dollars, you have to fill out a gift tax return schedule on your tax returns that year and the IRS keeps track and if you get to the point where you gift more than 11 million dollars’ worth of stuff then you got to pay taxes on that.

Trevor: Oh, so you can give more. Do you have to pay taxes on it though if you give more?

Jon: If you give more than what? 15?

Trevor: Yeah. I thought you had to pay taxes on it.

Jon: Nope. I thought so too, but you just have to report it.

Trevor: Just have to report it and that’s maximum of 11 million.

Jon: And it starts counting towards what they call a gift tax exclusion or exemption.

Trevor: Interesting.

Jon: Yeah, pretty sure. Disclosure – I’m not a tax professional. I’m just deep in the weeds of the CIP right now and I hope that’s true because that’s how I may answer on the CIP exam next month. But that’s what’s had been. That’s what I understood in the tax planning course that I’ve been going through. You know, I don’t see issues like that that often that’s why. So when I try to keep clients under that 15,000 and it comes up like I had a woman that wanted to gift 15,000 into her granddaughter’s 529 plan that’s a gift. She wanted to just…so she was 72/73. She had to take a required minimum distribution from her IRA and she said instead of taking this, can I put it in my granddaughter’s 529 plan? Yeah, you can. You still have to count as income so it’s not like you just bypassed you, but it still comes to you and you can put it on a 529 plan but her RMD was like 18,000 dollars or something which was going to be over which meant we were going to have file a gift tax return. So what we did was we had, the investment company, withhold the taxes on that like 20 percent for taxes. So it came out to like 14,000 or something was the actual check that she got, which is great, because now it’s in the 15,000 and she can kind of standard rate with that. So that’s how that works. There’s a gift tax exemption amount as well as an estate tax exemption amount and they’re both kind of around that 11 million. In fact, we can kind of confirm this with the ultimate tax planner Google.

Trevor: Yeah, 11,580,000.

Jon: There you go.

Trevor: It’s the limit.

Jon: They’re similar because people, you know, would try to gift stuff to get it out of their estate. Just like well, here’s how we fix that.

Trevor: Oh, interesting. No incentive.

Jon: Yup.

Trevor: Yeah, that’s wild.

How Do I Dictate What Happens After I Die? [0:27:07]

Jon: So, in general, for most people with estate planning, the question becomes then, how do I dictate what happens after I die with my stuff? A will is the most basic way to do that, that just gives directions to an executor, but if you’ve got young dependents or you got some other specific plans or things like that, you can establish a trust and when you die, a trust creates a separate entity with its own social security number where all of your assets if they’re properly named and titled and beneficiary and everything, go into that trust, so now this trust pulled that this trust has to file on tax return. It has a trustee whom you’ve given specific instructions on what to do with this and when and how, and you know, it would bypass all the probate stuff potentially because there’s some things that just have to go through probate unless you set up a trust. So that is something you want to…I recommend typically just getting a trust done. It can be 2 to 3 to 4,000 dollars but when people are at that point in life where you got a spouse or dependents or enough stuff that they want to, you know, make sure some very specific directives are done when they die then that’s where a trust makes sense and I recommend using an estate planning attorney rather than just a random attorney, you know, just helps to make sure they are specialists and a lot of experience in what this is.

Trevor: How much money do you have to have to make it worth having a trust?

Jon: You got to think of life insurance face amount in there as well, a death benefit. So let’s take, for example, if you’re a resident and I’m talking to you, most of my residents especially if they’re married, even if they don’t have kids like they’re going to have a million bucks or 2 million bucks in life insurance and assets and everything altogether. So at that point, yeah. Gosh, what’s the dollar amount?

Trevor: Because there’s been a couple grand for it, that’s the context I’m thinking in, you know, like if I have… yeah, I don’t know.

Jon: I would say it’s not so much dollar amount but complexity of your estate and your assets and your whole make up of what you have. You know if it’s just house and car or you’re renting, you just got a car, then yeah. But as you start to accumulate assets, you know, that’s a different story. So, I don’t…I don’t know. That’s a tough question. I just say, probably, I don’t know. I guess I can’t answer that.

Who Should Have A Trust? [0:30:15]

Trevor: Let me ask you differently. How do you determine who of your clients should have a trust?

Jon: For sure, if you got minor children.

Trevor: And what’s the reason behind that? If I don’t get the money like immediately or something just knocks on them.

Jon: Yeah. The other option is if you don’t then the court’s going to establish a guardian or custodian that’s going to have more freedom and flexibility around whatever assets that you set or that you have left over.

Trevor: Got it.

Jon: It’s just safer for the trustee. It’s safer for the kids, if you just put it in a trust, that’s very kind of regimented and controlled, and has specific language. Because then with a trust, you can say, okay, I want my kids to get this much at 18, this much at 25, this much at 30, like you can dictate directions like that.

Trevor: Got it. You can probably even do like percentages or absolute amounts, things like that like if it grow super fast, then you’re like, oh, I didn’t know this account was going to be 30 million dollars. I mean that’s a great problem to have, but you probably don’t want an 18-year-old getting a third of that like upfront or something.

Jon: I mean even a hundred grand to an 18-year-old.

Trevor: Yeah, so true.

Jon: Right?

Trevor: Just a massive amount of money. I mean, can you imagine? It won’t last very long.

Jon: Nah, I know and it’s been so many times.

Trevor: I bet. It’s kind of the default, right?

Jon: Yeah. I mean it is the default if you don’t set up any other rules.

Trevor: Yeah, that’s important to remember – the defaults. The defaults on how money is treated is pretty horrendous.

Jon: You can’t just kind of let it go and be like, well, I’m sure the government’s set up different defaults that’ll make sure this gets handled a different way.

Trevor: They haven’t.

Jon: The government will say that’s on you buddy like we just want to get our taxes.

Trevor: Yeah, it is important to remember the IRS isn’t there to…There is no benefit really to individual. They just collect taxes.

Jon: Their job is to generate revenue for the Unites States government.

Trevor: For the government. Yeah, that’s the way to say it. Yeah, that’s absolutely right. That is their job.

Jon: For-profit arm of the Federal Government.

Trevor: Huh! I’ve never thought of it like that either. Those are both really good.

Role Of Regulatory Bodies Like FINRA And SEC [0:32:48]

Jon: Well, that was like, yeah. When I’ve had dealings with regulatory bodies like the FINRA, the SEC or something like that like take FINRA for example. FINRA is the Financial Industry Regulatory Authority. Every advisor or at least broker is regulated by them to where they can levy fines and penalties on you for different stuffs and sometimes dumb stuff, and I don’t mind saying that, but I was talking to an attorney about it one time and I was like, you know, what’s the likelihood… You know how do they typically look at this attitude-wise? And he said, well, you got to look at it this way. FINRA is what’s called a… it’s actually a private organization, so to speak. It’s a self-regulatory organization that doesn’t necessarily get funded by tax reg. It gets funded by fines and penalties so you can imagine that there are little one…you know they’re not going to be just like, ah, sure. We’ll let that go without a fine or penalty, you know. It’s like that’s how they make money so is that a conflict of interest? Probably, like yeah. So if it’s an easy opportunity for them to collect the penalty or fine, then probably will.

Trevor: You think the SEC is similar. Like the SEC – Securities and Exchange Commission – the positive optimistic view is that they’re trying to protect investors from malinvestment.

Jon: Correct.

Trevor: A common example I hear is like you can’t…Burger King can’t claim that the Whopper cures cancer. So because of that, people can trust a lot of marketing in the United States. There’s like make a false sense of security that like if somebody says something is true, you can trust that it’s true and that’s not always the case but they’re one of the ones that enforce that type of thing and then they also determine like you can’t sell snake oil, and I’m saying that in the sense of like people selling shirts of a company like you can’t fleece people. You can’t say, oh, buy into my company. We’re going to do this and then just disappear. They determine that you selling parts of a company is a security and so they’re trying to protect American investors from being ripped off. So there’s some good… I’d say the SEC is not all bad but there are certainly because there’s rules and there’s a lot of money to be made, it gets gamified a bit so there ends up being certain ways to play the system and have winners and losers in terms of companies going public and being tradeable and all that kind of stuff.

Jon: Oh yeah, the whole conversation on us back is where allowed companies to go public without really going to the whole IPO filing process and then filing their S and filing just all that kind of stuff that’s a way to kind of get around that sort off. They kind of would go public in a bundle sort of, you know, when they get around some of those – what do they call these – the name of the disclosures that they would have to have file when they go public.

Trevor: That’s right, yeah. They don’t really have much.

Jon: Yeah.

Trevor: It’s cheaper, it’s faster is the main thing, I think.

Jon: Faster, right. All right, well I think we are probably out of time, but yeah. That had been a really beneficial conversation. It’s amazing.

It Pays To Invest On Life Insurance [0:36:33]

Trevor: Yeah. It seems as if there’s a lot to think about and just the basic big picture stuff that you shared on retirement, accounts, and life insurance not being taxable, I mean. Again, you know, I say this all the time I’m like not a normal person in the sense that I think insurance is amazing and really interesting. It’s such a good product like for the things that we buy, like we buy a car and it’s so worthless so quickly or you buy a computer and it’s out of date in 2 years like you can spend money on insurance year after year and man, nothing’s going to pay you out like for what you’re paying, you get a lot out of it and yeah, the industry, the people at the top of those companies, they make a crap ton of money. They could charge less, sure, but like man…I mean you get a lot out of a contract with an insurance, the really reliable long-term insurance company, and the fact that it’s not taxable for life insurance is just a pretty remarkable product. We’re fortunate to be a country where you know it’d be enforceable. Your family would get paid. It’s sweet. That’s a level of assurance you can have that a very large portion of the world does not get to know that your family will have the money that they need to survive.

Jon: As long as you made the right choices along the way, right.

Trevor: And it’s not even that expensive. Some already get approved. It’s like… that’s a sweet product.

Jon: Yeah. Now I mean it’s just a general advice that I’m giving like life insurance for sure is a no-brainer. Term insurance – a 20-year term policy – for a 30-year-old male, let’s say, is probably 60/50 bucks a month for 2 million dollars of 20-year term like it’s so cheap and these days, there’s a couple of companies out there that will get it. Sometimes you can get approved in 10 minutes if you’re healthy and boom, you got a policy. Like that’s all over the world now so there’s no excuse. If you die without life insurance, it’s like that’s…It’s so easy and cheap to make sure that your family is taken care of. Or a charity or a ministry or mission or any of these kind of things like I grew up always believing in life insurance because my dad was in a life insurance business and just always felt like, boy, that’s a cheap way to make sure that, you know, things you care about, people you care about are set. And I still feel that way. So I wished it was a mandatory thing. There will be a lot less people dependent on the government, I think, on just different programs because what if every parent had life insurance for their kids and, you know. I’ve just heard so many stories where, yeah, my Dad died when I was young and my mom had to work 3 jobs and he didn’t have life insurance and I was raising my brothers and sisters and you know it’s…oh yeah, all the time.

Trevor: Yeah.

Jon: All right, well, thanks for joining me, Trevor. Love the conversation as always.

Trevor: Thank you.

Jon: For those of you out there listening, hope this helps. Be sure to get the financialmd.com for more info. Join us for our weekly didactic minute videos. Those can be found on YouTube and Facebook and then we’ve got some upright versions on TikTok and Instagram to get just here, your weekly 2 minutes of good financial info. Join the Financial MD community on Facebook where the conversation is happening. We’re sharing articles and resources that will be helpful to you as physicians and then subscribe to this podcast and please share this stuff if you think the information’s good. Get it out there. All right, so have a great week. We’ll see you next time. Trevor, stay healthy and get back in shape.

Trevor: Thanks Jon. See you.

Jon: All right, see you later.

Trevor: Bye.

Resources and Links:

What is Probate? –

https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/the_probate_process/

What is the SECURE ACT? – https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
What is an inherited IRA? – https://www.investopedia.com/terms/i/inherited_ira.asp
What is an inherited 401(k)? – https://smartasset.com/retirement/inherited-401k
Internal Revenue Service (IRS) website – https://www.irs.gov/
What is Step-up in Basis? – https://www.thebalance.com/how-the-stepped-up-basis-loophole-works-357485
FINRA website – https://www.finra.org/about
SEC website – https://www.sec.gov/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

What You Need To Know, What You Should Look Out For [0:03:17]
What Are Employee Benefits? [0:05:08]
Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]
Let’s Start With Health Insurance [0:09:03]
Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]
Next Up: Disability Insurance [0:15:48]
Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]
Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]
Other Benefits: Continuing Education, Concierge [0:20:24]
In Summary: Ask, Get, Compare, Decide [0:21:11]

Jon: Actually, it’s just Jon. Welcome to today’s episode of the Financial MD Show. Today, it’s going to be just me. Trevor is off in Jamaica doing some good medical work down there, and so today, I thought I would riff a little bit on something that every doctor needs to know about whether you’re in residency, fellowship, or you transitioned into practice. These are going to affect you, and that is your employee benefits. You could possibly be missing out on some big dollars here and not fully maximizing your benefits. So I’m going to tell you several tips – what they are, what you need to know, and how to fully maximize them and sometimes reduce taxes, which is always good. So, if you haven’t yet, subscribe and leave us a review. Share it with another doctor and share the love and the info. Here’s our show:

Jon: All right, welcome everyone to The Financial MD Show. We got a great show for you today. I’m excited because I’m all by myself, which is not necessarily a good excitement, but it’s excitement. I basically have to fill the time all by myself which is not impossible. In fact, it’s quite simple. I can talk for 45 minutes at a time – no problem – but it probably will be shorter. Most of my lectures tend to be quick and to the point so I’ll treat this kind of like one of my resident lectures and I do probably 100 of those a year so we should be fine. But this will be a little bit of a different format. Our friend, partner in crime, co-host and partner, Dr. Trevor Smith, is doing some mission work in Jamaica, slaving away for the kingdom, serving, and I’m sure he’s enjoying a little bit of beach time as well. So, we’ve checked in with him. He’s doing good. He sent me some pictures. Life is good for him. Life is good here in Financial MD world. We got a lot of great stuff going on. Lectures are happening all over the country. We’re doing workshops for the residency and fellowship programs, teaching financial literacy, getting the word out, getting residents to make smart financial decisions before they jump into the big six-figure income.

What You Need To Know, What You Should Look Out For [0:03:17]

So we’re going to talk a little bit about that today, getting into this concept of employee benefits. Specifically, I want to cover what does employee benefits mean. You hear the words like group or qualified plan or employer plan – all these different things. I’ll break down what they mean, what’s kind of the mumbo-jumbo garbage jargon and what you need to know, what you should be looking for. We do a lot of lectures specifically on employment contracts to our residency and fellowship programs with our attorneys and so a piece of that talk is often on the employee benefits and understanding what role that plays in your job offer in your compensation. And so that’s not something to be ignored by any means. It’s something that you need to know more about and you need to take advantage of because there’s potentially some money on the table. As we’re putting this out there, we’ve got coming up a financial wellness – Prepping For Residency – so if you’re listening to this and you are in your final year, let’s say, you’ve just gotten matched during your last year of med school, we’re going to be doing an event that’s going to be both live and streamed. It’s going to be based out of Detroit, Michigan. We’re going to stream it. It’s on May 4th. So shoot us a message if you want an invite to that. It’s going to be kind of a guest panel so it’ll be myself. It will be a physician mortgage and physician loan specialist and we’re also going to have a realtor. We’re going to talk about a lot of things like getting your residency, buying a house, renting, other smart financial decisions to make along the way. So check out our website for that. Look at LinkedIn and other social media but the quickest and easiest way to get the info on the invite is just shoot us a message – info@financialmd.com.

What Are Employee Benefits? [0:05:08]

So that’s what’s going on here. Let’s dive into employee benefits. If you’re listening to this whether you’re in residency or fellowship or training or you are into your attending position, there’s about a 90 to 95 percent chance that you have some sort of benefits, and what are benefits? Essentially, you’ve all seen the job offer in the contract. You may have gotten this 18-page employment contract and you kind of skimmed through to try to find that heading that said compensation or salary – that six-figure number that you’ve been waiting and slaving for years and years and a decade plus to get to. You finally get it, you see the number, it sounds good, great, accept the offer and you move on. What so many residents and fellows don’t look at is what can often be a large piece of the compensation is the employee benefits. Why is that? Well, let’s say you’re going to make 250,000 in your first year. Okay, that’s great, and let’s say you’re comparing job offers too. Let’s say you get two or three job offers. One is 250, one is 275. The 275 one sounds good, but if you were to look a little bit deeper, flip on through the contract more. It’s not always in there. A lot of times you have to ask for it but ask for what’s the benefits are. Here’s why: Employers often will spend a lot of money on benefits to try the three R’s – recruit, retain, and reward great physicians. So you’ll see these in a couple of different formats. You’ll see them in private practice and you’ll see them in hospital settings, and they tend to have some common denominators between the two.

Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]

In general, the large employer – the university, the hospitals – are going to have a lot more negotiating power and so they’re going to be able to get better benefits dollar-for-dollar for their employees than a small group or a private practice might, which means what you often see in these settings – and you guys can probably vouch for this just as much as I can – that the academic world and the hospital settings are going to pay less often than you’re going to make in a private group depending on your specialty and so they’re going to make that up in benefits, so they think. So, let’s dive into that. Let’s say we have two jobs that have even the same compensation, so we’re looking at two jobs – 250,000. You’re trying to figure out – everything else is the same – which job do I want? Let’s say, they’re same city, where you want to be, with your family, same hours, same kind of requirements, duties, responsibilities, etcetera, you’re definitely going to want to flip through the benefits. Step one: Look in the back. There’s either exhibit pages. Hopefully, they sent an attachment – a PDF – that says like 2020 at a glance, gives your benefits. Half the time you may have to reach out to the person you’ve been speaking to or to the HR person or whomever and get more details on the benefits themselves. They’ll often send you a PDF and it will go through all the details. So, you’ve asked for it, you found it, you’ve got the benefits handbook and you’re looking through it. So let’s find out exactly a lot of times they’re going to tell you what the employer pays but sometimes they won’t. So especially let’s start with this: Health insurance.

Let’s Start With Health Insurance [0:09:03]

Health insurance is one of your employee benefits. Now, it may mean a lot to you or you may be like me where it’s like, hey, if they’ve got coverage and it seems decent and fine, I don’t go too much into the details versus my wife who likes to know this kind of things. She is looking deeply into them to see what kind of health insurance is available to us, what kind of providers, kind of networks are they in – all those kinds of things. What’s the copay? What’s the deductible? All that stuff. So a quick breakdown on that – we’ll go deeper into health insurance in a subsequent show – but for all intents and purposes, you want to look at what the deductible is and if it’s a high deductible health plan – so if it’s over a certain limit, they call it a high deductible health plan – you can then get an HSA with it which honestly can be nice for a couple of reasons. Most employers with an HSA what we’ve seen for a lot of our physicians will put some money into the HSA for you. So they’re going to put 1000, 2000, 5000, whatever, into the HSA and then you might put some of your own money in as well but it’s basically going to cover the bulk of the deductible that you would have to pay. Deductible means you have to pay this much before the insurance company would start kicking in, and the idea behind it is that it’s meant to make you a smart shopper so you’re not just going everywhere, getting all sorts of unnecessary procedures with the really expensive physicians and not shopping around. So that’s kind of what the point of a deductible is. Now there’s also an out-of-pocket max. So what an out-of-pocket max means often once you reach your deductible then you’re going to be on the hook after that for maybe 10 percent and the insurance company will pick up the other 90 percent. So if your deductible is 5000 dollars but your out-of-pocket max is 10,000 then you’ve got to pay 100 percent up to 5000 then the insurance company would kick in and they have some rule it might be 10 percent or 20 percent – whatever what they call the cost-share, a copay is. But no matter what happens, an out-of-pocket max is basically like a stop max limit type of thing and so that means that you will not have to pay over and above this certain amount. If you get into some sort of situation where you have to go more than that, then the insurance company will pick up 100 percent. So that’s something to know. All right, along with that, you’re going to see vision insurance, dental insurance – those kinds of things. So just things to know, things that are often included in there and can be important and what you want to look at is what you’re going to have to pay for the premium, if anything, and then what the employer picks up and what the employer is going to pay, you can basically stack on top of your salary to say what’s the employer actually paying for me as an employee to work here. There’s the salary which is the vast majority of it but then let’s tack on the health insurance premium, that’s another piece.

Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]

After that, I often look at the retirement plan, that’s the second biggest cost to an employer because they’re going to put just straight up dollars in your account usually. Then again, this is usually. And typically, the universities tend to have the best matching in a 401(k) or a 403(b). Now what’s the difference between a 401(k) and a 403(b)? Really for your sake as the employee – nothing. There’s some difference on the employer side. Usually, a 403(b) is for non-profits; typically, non-profits – academic institutions, things like that, hospitals – but they can also have a 401(k). They don’t have to have a 403(b) and the 401(k)s are typically in the for-profit – the private groups, things like that. Either way, as of this recording, 19,500 is the max that you can put into it on your own which may seem like a ton to you right now if you’re still in training, but if you are an attending and you’re making 250,000 plus then that’s going to be a lot more valuable and you’re going to save on taxes. That’s one of the biggest deductions that a W-2 employee can have on what they call an above-the-line deduction. So that means that if you make 200,000, you put almost 20,000 into the retirement plan, you’re only taxed on 180,500 technically. So that’s something to know. But the value as far as compensation and what the employer puts in is all in the match or in the profit sharing or whatever they call it, that’s the piece where the employer is pulling money out of their accounts and putting it into yours and it can be high. Michigan State used to do this. It’s cut back recently in light of some other expenses they’ve taken on. Wayne State University does this where you put in a dollar, they put in two dollars. Usually, it’s up to 10 percent. So if you put in 5 percent, they’ll put in 10 percent for a total of 15 percent of your income going into the 403(b) but it’s only costing you 5 percent. So that’s super nice. If you put in 19,500 then that’s 38,000 that the employer is putting in. Boom! Stack that on top of 250,000-dollar salary, that’s 288,000. So that’s money right there, that’s something to think about. It’s not like something that you feel in your paycheck necessarily, but it’s still your money. It goes into your account. You’re just not using it yet but you’re going to be super glad that you did it when you get your retirement. We’ll go further into 401(k)s and 403(b)s in a different topic but basically you want to look at what the retirement plan is, what the match is, how much you have to put in to get the full match and we usually recommend you do at least that. Beyond that, how much you put in is totally up to you. You may have a different tax situation. You may be working with your financial planner to figure out something else, but in general, that’s free money and you can’t beat that.

Next Up: Disability Insurance [0:15:48]

So we talked about health insurance – that’s an employee benefit that can be expensive and costly and valuable to you. We talked about 401(k)s and 403(b)s. The next thing I would look at that cost money that ca be valuable is the disability insurance. Now we’ve talked to you guys enough but we’re not going to stop about how important it is to get the right disability insurance for you. Disability insurance with your own occupation that’s going to protect you as a specialist is super important but you first want to see what your employer is providing because it costs them something. Now they’re going to pay less for that policy than you would pay as an individual because they’re operating on a large scale group kind of bulk discount type of fashion. But it’s still there and it often covers between 65 and 70 percent of your income which is great. So then all you have to do is go out in individual marketplace to your Guardian or Principal or Ameritas. Get your own policy to bridge the gap in the other 20 to 25 percent. You’re going to be hard-pressed to find 100 percent of your income covered even between multiple policies because they look at each other. They communicate. They’re going to ask you how much you get it at work and limit what you get based on that. That’s something that can be a valuable benefit. It certainly reduces the cost you’re going to have pay for your individual policy and often that long-term disability at work is free or at least very cheap. So that’s LTD. Short-term disability – that’s another thing that basically would pay for the first typically 90 days to maybe 12 weeks that you’re off work and then your long-term disability would kick in but there’s a cost to that as well and that’s not something you’re going to just be able to go get on your own.

Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]

The other piece we’ll look at is life insurance, and it’s life insurance for you but many employers also offer the ability to get very cheaply life insurance for your spouse and sometimes your children as well. So this is stuff, again, they’re paying the price for some of that to help defray that cost. You may have to pay some, but whatever they pay is just something you can stack on top. Now, typically, they’re not going to give you a flat dollar amount. They’ll give you a multiple up to a certain cap. For example, Henry Ford will cover four times your annual salary so if you make half a million dollars a year and they cover four times in life insurance, that could be potentially a 2-million-dollar life insurance policy. But their limit is a million dollars, so no matter how much you make, you’re not going to get more than a million dollars in life insurance. But again, if you had to go get that on your own, that could be potentially fairly expensive. So nice benefit.

Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]

I’ll kind of put a footnote on the insurances especially. Don’t rely 100 percent or even the vast majority on your employer group benefits or your perks that you have at work especially for your life and your disability insurance. Get life insurance on your own as well. Get disability insurance on your own as well. In fact, get a little bit more than you think you should because at any time employers can take away the life insurance. Let’s say, times are tough and maybe they were hit by a giant lawsuit; they’ve got to come back at different areas. Typically, they don’t cut pay first for employees. They’re typically going to cut benefits first. And so if they cut life insurance and you said, oh, I got a million bucks at work, I don’t need anything else, or let’s say you said, yeah, I need 8 to 10 times my income like Jon said, so I may get a million at work and I get another million and a half on my own in term insurance; that’s cool but if they take away that group insurance, you’re left with a million and a half of term insurance which is not as much as you need and then something could have happened in your health between now and you can’t get more insurance because on the individual insurance whether it’s disability or life insurance, you’ve got to get underwritten. You’ve got to qualify for that health-wise and you guys know better than I do as physicians, anything can change. We’re all just one doctor’s visit away from having some news that can change our lives. I stress that because we’ve seen it here. Life insurance, disability insurance – get it early. Lock that in and then you’re golden.

Other Benefits: Continuing Education, Concierge [0:20:24]

We’ve covered health insurance and we’ve covered retirement plans. We’ve covered life and we’ve covered disability insurance – all of those have a cost associated with them that the employer is picking up and adds on to what the actual value of the compensation and the job offer is. So, something to think about there: There are also other benefits. It may be helping to pay for continuing education. It may be paying for some other out-of-pocket things. There’s employers that offer a concierge type of service where the physicians and some of the more higher-level senior employees can have access to people that will get their dry cleaning done or go get their oil change in their car – things like that. Those obviously have a cost that the employer is picking up.

In Summary: Ask, Get, Compare, Decide [0:21:11]

So when you’re looking at job offers, look at the employee benefits. If they didn’t get it to you in the job offer or the employment contract, ask about it. Don’t be afraid to ask because that’s an important factor when you’re making a decision. Hopefully, like we recommend, you’re doing a few things. You’re doing the legwork ahead of time to get multiple job offers. The more job offers you get, the more you can come at it from a position of confidence saying, hey, this is my favorite job. I’m going to negotiate with this one, but if it doesn’t work out, that’s okay. I’ve got a lot of fallbacks. The second reason to get multiple job offers is it gives you some context to say, okay, this is my favorite one. I like this job offer but I want to get some other offers just to see what else is out there and see if this one is reasonable, usual, customary – those kinds of things. So get those multiple job offers. When comparing, don’t skip the benefits. They’re not just a nice thing to add on. They can be 50/60/70,000 dollars’ worth of compensation that a lot of people don’t think about.

Hopefully that was enough detail and information for you. If you have any further questions on these then email us at info@financialmd.com. Check us out on the Facebook community – Financial MD Community. It’s where doctors get together and ask questions and give advice and share ideas and learn more about some of the just quick questions that we’ve got or little tips or all those kinds of things. Hope that helps. Join us next time on the Financial MD Show where Dr. Trevor Smith will be back, a little bit tanner, and we’ll see you guys next time.

Resources and Links:

What are employee benefits? – https://www.questionpro.com/blog/employee-benefits/
What is health insurance? – https://www.investopedia.com/terms/h/healthinsurance.asp
Copay vs deductible – https://www.singlecare.com/blog/difference-between-copay-and-deductible/
Definition of health savings account (HSA) – https://www.healthcare.gov/glossary/health-savings-account-hsa/
What is an out-of-pocket max? – https://www.cigna.com/individuals-families/understanding-insurance/what-is-an-out-of-pocket-maximum
Meaning of retirement plan – https://www.dictionary.com/browse/retirement-plan
401(k) vs 403(b) – https://www.forbes.com/advisor/retirement/403b-vs-401k/
What is an above-the-line deduction? – https://bench.co/blog/tax-tips/above-the-line-deductions/
Disability insurance definition – https://www.guardianlife.com/disability-insurance
Own-occupation disability insurance definition – https://www.guardianlife.com/disability-insurance/own-occupation
Life insurance guide – https://www.investopedia.com/terms/l/lifeinsurance.asp
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

View Details

Summary:

What’s In a Name? Venture Capital Firm Or Venture Studio [0:04:20]
Reuben’s Startup Journey [0:07:03]
What Areas/Sectors Do Venture Studios Look For In Startups? [0:11:23]
Steps Doctors Can Make To Invest In Startups – First, Be An Accredited Investor [0:14:33]
You Have The Opportunity To Do Impact Investing [0:17:36]
Places To Go For Startups [0:22:38]
A Success Story [0:24:49]

Jon: All right, welcome to the Financial MD Show episode 17. We’ve got a little bit of a surprise for you today. It’s a follow-up from our last show where we discussed investing in startups and we thought what better way than to get you an actual conversation with someone in the venture capital world – the funding, the startup world – none other than Reuben Levinsohn. You know him, you love him and you’re going to hear him talk specifically about what he’s doing with Washington Avenue Ventures, what to watch out for, what to know when you’re looking for startups, and just some good info whether you’re getting into it now or you hope to get into it someday. So please leave a review. It helps more young physicians find this show and get some good financial information. Listen up.

Jon: All right, well, welcome to another episode of the Financial MD Show. Today, we have your normal hosts, me, Jon Solitro, and Dr. Trevor Smith in the house. What’s up, Trevor?

Trevor: What’s up? What’s up?

Jon: Right on, and today’s show, we got a special guest with us who is kind of a guest, he’s kind of a host. He’s been a friend of Financial MD for a long time. Mr. Reuben Levinsohn is here to help us get into some more personal examples and stories and some specialized expert insight into what we started last episode so today is part two of talking about startups. How are you doing, Reuben?

Reuben: Good, Jon. Thanks for having me. Happy to be here.

Jon: Absolutely. We’re stoked. Trevor and I have known Reuben for quite a while and we’re all buddies outside of this and enjoy a good bourbon from time to time but we’ll be just drinking virtually right now although none of us are drinking, I don’t think.

Reuben: Would like to; just coffee.

Jon: Right. That’s kind of made me think about that – why don’t I have any bourbon around here? Oh, well, another problem for another time. Okay, so last week we started startups and there’s a lot of conversation – it has been for years frankly – as the internet has made tech startups more common, more prevalent, more well-known and profitable for a lot of people and bankrupting for a lot of people. Last week, Trevor and I dove deeply into what some of the downsides are from our standpoint – me as a financial planner; Trevor as definitely a financially experienced and knowledgeable individual but he’s had some of his own experiences with that and still does. We got to talk a little bit about some of the things we know and as I talk to clients about a lot of our physicians bring ideas or want to get into things or hear some other doctor at the watercooler talking about this or that or read something online or in a Facebook post – all sorts of things. We went into that into our last episode but today, we thought we would talk with Reuben who was one of the founders and partners of Washington Avenue Ventures, a Michigan-based, would you say, a venture capital firm or a venture – how would you describe it Reuben?

What’s In a Name? Venture Capital Firm Or Venture Studio [0:04:20]

Reuben: Yeah, we’re a venture studio. It’s a newer term here in the States is that certainly a newer term in the Midwest but it came out of Europe more. I think there’s a lot more of it there but it’s venture studios. We connect that space – that kind of black hole or abyss between angel investors and VCs because a lot of these startups think they go right from an angel round to a venture capital round and it’s not that simple. They’re not always ready. The other thing that’s a little different – there’s accelerators and incubators out there that usually lasts for a couple of months that these startups can apply and get themselves into then those are great but they’re a couple of months and then they’re on their own again. So the venture studio, we partner with early stage companies, startups, and even sometimes precede before they’ve even had revenue and work with them to help build that solid business foundation. So they’ve got something they can scale off of it and we also, I would say, that were really good at helping tee them up better or package them up so their investable before they go out for those investor rounds.

Jon: Perfect. So it’s not only maybe connecting them with money but also maybe even more importantly getting them ready for that point and just taking – I mean, kind of an incubator but also more of a facilitator or support consulting, would you say?

Reuben: Yeah, we’re definitely on there. I usually hold a seat on their advisory team whether it’s formal or informal. I’m usually one of their go-to advisors for anything to do with fundraising, legal, finance, cash flow, forecasting, cap table management. I just got up a call with one of our founders and we’re setting them up on our system to manage their cap table so they always know what the notes – convertible notes – and everything, because these guys are brilliant. These founders we work with are brilliant at whatever they’re doing but they generally haven’t held a lot of these basic business experience and they don’t realize until it’s too late how critical that is and then they start having meetings with investors; investors are asking questions that these guys have never heard of and we fill in those gaps for them really well.

Jon: Okay. Trevor, you got any questions off the bat?

Trevor: Yeah, I’m curious. What was your first experience in the startup world? Were you already working with the same studio group? I mean, how long have you been doing it? What got you interested in it? Just tell me a little bit about the beginning of your story.

Reuben’s Startup Journey [0:07:03]

Reuben: If I went way back, it starts with just having entrepreneur in my blood like at 9/10 years old, I was running the biggest paper route in the area by having my brother and all his friends do all the work and I was just running the business. So I told that story to some entrepreneur groups at the local university here but I think it’s just entrepreneurialism in the blood first and foremost and then I’ve launched and exited my own companies. My most successful one was around my late 20s when I exited my painting franchise and that did pretty well. From there, it was more starting to angel invest here about 7/8 years ago. I’d say right around late 30s, early 40s I started realizing like I’m probably not going to be the entrepreneur who’s going to found and launch a bunch more companies and if I can’t do that, the only other thing that keeps me in the game is investing in others or advising others who are doing it and working off their energy and their brilliance. So that’s angel investing, I guess. Informally, I was angel investing. I made my first angel investment – my first official angel investment – in a Denver-based company, probably that was 2015-ish, maybe 2014, and that one failed and you learn a lot on the failure and you can look back and say like that well, what did I do wrong. That one for me was pretty easy to identify years later is that I invested in a founder who didn’t know how to build a team or was just not a good leader. So from there, I start selecting better and you start learning and there’s a lot of things you wish you could go to school for this and learn and I’m sure there’s a ton of great resources I’m not aware of but I’ve learned a lot of it just by making my own mistakes, generally how I learned most of my stuff in life. So I started informally angel investing 25,000 here and there. You could take a couple of hits on those and you’re like, okay, if I’m going to be in this game, I got to play it better. And so a few years ago, I formalized it with Washington Avenue Ventures where we – I was starting to realize the reason most of these were failing were not always just that the person didn’t have the drive or didn’t have the leadership skills, it was also they just did not have good business background – business experience – the basic business functions whether it’s accounting or finance or legal. They just didn’t have any of that experience. They could be a brilliant software engineer who can solve some pretty big problems but didn’t know how to build a foundation of a business or maintain that. So I reach out to Angie, someone I had worked with for years in the past. She had her MBA and she was running a pretty big division of a large corporate company in Grand Rapids and she was looking for a change. She wanted to go back in a small business and I said, how about we go really small, let’s work with startups. They need more than money, they need our expertise, so let’s put together a team that can help advise and help them build solid companies and that’s what we’ve been doing for the last three years. We’ve gone really deep with one company that we took on at pre-seed stage and we’ve got half a dozen other companies that we’re advising and working with now too. To answer the question, full circle there Trevor, it was informal angel investing and realizing you can throw checks at these and be a passive investor and have a high likelihood of loss or you can increase your chance of return by actually working with these companies that you’re investing in. All of them that we work with I made a personal investment or we’ve made an investment as a venture team into them financially but more importantly, it’s the investment of time and expertise we’re putting in.

Jon: I see.

Trevor: Go ahead.

Jon: Well, I was going to dig deeper into some of the people investing into startups but finish yours, Trevor.

What Areas/Sectors Do Venture Studios Look For In Startups? [0:11:23]

Trevor: I was just going to ask what areas do you invest in? Most investors a classic thing so people only invest in things they feel like they have some sort of edge. What sectors do you look for startups? Are you just doing tech? Are you just doing software as a service like the SAS kind of stuff?

Reuben: Yeah, no, we’re all over.

Trevor: Local, national?

Reuben: So far – I can’t say this will be forever – but so far I’m going at it like Jon would as a financial advisor. I’m saying to my team and to our investor network that diversification is important so we’re not going to go after just SAS. We’re not going to go after just deep tech or AI. I know there’s plenty of VCs and accelerators out there that honed in in that niche. We are still going with the philosophy that diversification is important and we are smart enough to pick the exact sector that’s going to be the dominant one. For instance, we’ve coffee shops. There’s very little to no tech. We’ve got Lingco Language Labs which is SAS, software as a service, in language learning built for the classroom so that’s more of a B2B-focused. And then we’ve got REZA Footwear. REZA Footwear is IoT of wearables so internet of things for wearables and that’s a very different play. There’s tech for sure but not like SAS at all; very different. And then we’ve got V.One which is an app builder. They are an app for building apps for people who don’t know how to code. It’s a no-code, low-code app builder which is a pretty hot space, definitely high tech; and then we’ve got Halo out of Indianapolis area. Halo is a community-based microfinancing company. They don’t focus on tech but they’re using tech as their platform; they’re more of a FinTech. And then the Advisor2.0 which is a group that does gap assessments and consulting for financial advisors. So it’s all over the board. We have not picked a sector yet.

Jon: Nice. So for our listeners, specifically, we have doctors either doctors in training or a lot of times younger and we’re surprised at how many older physicians are listening to this but it’s across the board. Getting into it, we talked a little bit about some of the downsides but you would know, Reuben, more specifically. Let’s say somebody has talked with their advisor and they’re at a position where they can do something like this. They’ve got some discretionary income. A lot of questions that people might ask is how much do I need to have to invest in a startup? How do I do it? Where do I find it? So what are the first steps for an investor who wants to and should, you know, or it’s okay for them to get into this space?

Steps Doctors Can Make To Invest In Startups – First, Be An Accredited Investor [0:14:33]

Reuben: Yeah. First step is probably not going to suitable for someone who’s still in residency. They’ve got to be an accredited investor; household income of – what’s the current rules here – 200,000 plus.

Jon: Yeah, a million of net worth.

Trevor: A million.

Reuben: Yeah, or a million of net worth of investible net worth so we do make sure that they’re accredited. We only work with accredited investors in these. For someone who’s accredited and they’ve got the basics in place with their financial advisor or they’ve got their liquid money they need, they’ve got their retirement on track, I think this is a great alternative space to play in and it’s becoming more of a movement than it was even just a couple of years ago. It’s like real estate used to be the only other alternative people knew about or wanted to look into. Then there’s things like cryptocurrencies, of course. Don’t get Trevor going, right, but startups, you’ll be surprised. I would not be surprised if there’s a crypto exchange or coin that is backed by venture capital at some point or there’s some really interesting movements where venture capital – I think that by end of next year, you will see exchange traded funds (ETFs) or something similar that are all into early stage venture companies. I think it’s going mainstream so I think it’s going to be talked about more and more. But, again, if you got the basics in place, I think it’s a great space if you’re working with someone who understands it. Don’t just go out and throw your money around at everyone that pitches you because that’s the typical problem we see. Doctors or other high-net worth people make is that they’ll just throw money at everybody that pitches them because they all sound good. But there is a process of picking them. There’s a process of eliminating them; knowing who to make the bets on and how we can actively track or monitor their KPIs and how they’re doing for a while before we invest in them. There is a good due diligence process we use and we are starting to introduce it to more and more financial advisors for their clients because it’s a nice alternative investment with high impact, especially your high net worth investors who want to know where their money’s going and they want to have some impact. Maybe it’s social impact, maybe it’s environmental impact. Maybe they just love the idea of helping young, brilliant founders and entrepreneurs and they want to make a return but they can speak with these founders and teams. They can advise these founders and teams. The investor can even use some of their background and expertise to influence their investment which is a really neat thing. You can’t do that when you throw your money at basic stocks, bonds in the market.

Jon: Yeah.

Trevor: Say that again? Say that one more time.

You Have The Opportunity To Do Impact Investing [0:17:36]

Reuben: Well, I’m saying that it’s neat to be able to share with other financial advisors and their clients that you have the opportunity to do impact investing. We call it impact investing because you can either pick the area you want to have an impact on with your money or the person you want to have an impact on and you have a direct line of communication with the people running these companies because they’re early stage companies.

Jon: You can feel like you have some influence?

Reuben: Yeah. I mean, maybe you don’t have voting rights. Maybe you don’t have a lot of shares enough to have an influence but these are early-stage companies and founders and teams who value their investors and value the investors’ experience and credentials that any way that can help them or even if it’s just networking or introducing other investors, there’s a lot of ways you as an investor can have an impact on your investment in this space.

Trevor: I’m thinking about like your investors that invest in these startups or really any, especially, alternative assets, what percentage you think of their motivation is just like that connection? Because it’s got to feel a little bit more special, right, to be investing in people who you’ve met and heard their story. I mean, it’s so compelling, that’s why the SEC exists, right. There’s the downside of these regulations where you have to have a certain amount of money or make a certain amount to be able to invest in specific types of investments and assets and the Securities and Exchange Commission regulates all that and it’s supposedly in order to protect investors, and to a degree, it certainly has at times. Right now, it’s kind of laughably restrictive in some ways where you could be educated and you’re still not allowed to invest your money and there’s lots of people writing and talking about that sort of thing right now. But back to my first thought, what do you think people get excited about it? I mean, part of it is the narrative, right? It’s fun, it’s exciting, it’s interesting, it’s new. You’re building something. What percentage do you think is that part of it for investors like?

Reuben: Yeah.

Trevor: Because it’s definitely 99 percent financial because they’re looking for something else. It’s 99 percent financial.

Reuben: Yeah, I agree. They are still highly interested in a return I would say that. The most the network of investors we introduced to these startups and these investment opportunities, they’re definitely motivated by return, but I’d say it’s more, you know, whereas if they’re throwing money in the stock market with their financial advisor, that’s like 99 to 100 percent. All they care about is return, right, because they don’t know anything about where’s the money’s invested or what it’s doing or what company. But in this case, I’d say, it’s probably more 80/20 like the 80 percent, they’re doing it because they want a chance at a higher return in something but 20 percent at least is about they love the fact that they’ve got that. They get that investor update monthly from the company they’re invested in. They get to see what this company is doing. They could come sit down with the team and meet with them and they’re very close to them and they can see the impact that their money is having much better than you can in traditional investments.

Jon: Yeah, makes sense.

Trevor: Yeah, which makes communication by founders critical.

Reuben: Yeah, and I was just on a call last week with a small investment group, a group of retired guys and ladies that came together with some money and they threw together about a million bucks of their money and that’s a group, I would say, they are more like 50/50 like 50 percent care about return; the other 50 percent was about social impact. They specifically wanted me to only introduce them to social impact. So they came in and invested, matched us on some investment with Halo because Halo has a very clear social impact. They’re fighting off the predatory payday lenders for underserved markets – underserved people – who don’t have access to capital. That’s a social movement. And so this company was specifically – this group was specifically attracted for that reason.

Jon: All right.

Trevor: That’s interesting.

Jon: Are there places to go? I don’t know. I mean it seems like there’s a lot of online places to invest in a real estate syndication or private placements or limited partnerships or things like that. Are there places to go for startups like this?

Places To Go For Startups [0:22:38]

Reuben: Yeah, more than people realizing it’s happening fast. There’s more and more of it coming out, but an easy place to start is like AngelList. Go to AngelList. The AngelList, they run syndicates. You can lead a syndicate there and use them as a platform or you could join us and get there, get in for as little as, I think, 2500 dollars. That still requires you to be accredited but there’s also, of course, crowdfunding. Crowdfunding is where they kind of let anybody – if they broke the Reg D issue and let anybody be somewhat of an angel investor through crowdfunding campaign like Kickstarter. But there’s several out there. AngelList is a popular one. If they’re not connected with a group like us who tee up the deals and do the due diligence; in some ways, we are like a syndicate. We just haven’t formalized it because we’re teeing them up. We’re doing the deal flow. We’re doing the due diligence. We’re most likely investing ourselves before we even present it to investors.

Jon: Yeah.

Reuben: By the time we’re presenting to investors, there are people in our network that it’s like a syndicate. We’re generally dealing with minimum checks of 25,000 whereas you can go to AngelList and get on a small syndicate for 2500 dollars. You make that commitment so as the investor you’re making a – to be in a syndicate, you have to make some sort of a commitment that, you know, I will make 10 investments in the next 24 months at 2500 each or something.

Jon: Okay. I see. Can you give us some kind of success story? Again, last episode we talked a little bit about some of the downsides and things but I’d love to hear from you as you look back over the last several years of getting into the angel investing whether it was with WAV doing some of the consulting piece or you individually investing or whatever the case might be or just things you’ve seen. Do you have any success stories that you can point out to and say, here’s where it was done well and it worked out well?

A Success Story [0:24:49]

Reuben: Right. Yeah. Well, like I said, my first one was a bust and that’s probably normal when you just impulsively invest in the first one you see and it sounded cool. I was out in Denver and I think we’re having some whiskey and I met the founder and I said, yeah, I’m in. That one didn’t work out so well but I would say statistically – actually, that company is still going so it’s still a chance. My money is still invested and they’re active company; they just have never learned how to build a team or expanded beyond Denver. They’re an Uber-type company for moving stuff instead of people so it’s on-demand light moves like your apartment furniture or whatever. Anyways, I love the concept and now other companies, competitors, have started to scale across the country but this one hasn’t. I just chose the wrong one; not the wrong idea, just the wrong one.

Jon: Okay.

Reuben: Anyway, statistically, the way you look at these is for every 10 you invest in – and I tell people diversification is important and I tell people that doing enough of them is important because there is a bit of a number’s game here. Now by working closely with these companies, we can eliminate some of that number game or we can optimize it to our advantage, but in general, you need to be prepared to get into about 10 of them if you’re going to play the game at all. It’s kind of like real estate. Don’t go start getting into real estate if you’re just going to either stop with one or two that you can manage or go to like 30 or 40 where you can hire a manager.

Jon: Yeah.

Reuben: But in this I think, you can get stuck and if you get into two or three, you could have easily picked two or three bad ones. If you go to 10 and you are being pretty smart or you’re working with a syndicate, there’s a pretty statistically is a chance that in 10, you’re going to have three or four complete busts; two or three are going to be just break even on your money, and then you’re looking for one that could be a 3 to 5x your money and you’re looking for that one shining star that’s going to give you 10x plus on your money that makes up for the losers. I tell people compared to traditional investments where you’re trying to double your money about every 8 to 10 years in the markets, this should be something that because of the higher risk, higher reward profile, you should be looking to three to four times your money if you play it right about every 10 years. Otherwise, that extra risk isn’t worth it.

Jon: What could we do in the stock market over 10 years or the S&P, right?

Reuben: Yeah, if you get really good at it, you’re looking to 5 to 10x your money overall. Then there’s definitely angel investors and good VCs who would say, I wouldn’t be doing this if I didn’t think I could 10 times every dollar I put in. And that’s where the risk-reward – once you get good at it like anything, you mitigate the risk side and optimize the reward side. I know people who have gotten really good at it like that.

Jon: Of course.

Reuben: Yeah. A good resource would be Jason Calacanis’ book, Angel Investing. Jason Calacanis is known as one of the greatest, most accomplished angel investors in the world. His book, Angel Investing, kind of shows the numbers in how you can literally go ahead like it’s your job. He has had people quit their jobs and go angel investing full time by following his program.

Trevor: I listen to his podcast of All-In podcast.

Reuben: Yeah.

Trevor: It’s funny because they all make fun of him, kind of.

Reuben: Yeah.

Trevor: Yeah, he’s like definitely big in the angel world.

Reuben: He can take it. He’s pretty arrogant and pretty successful. I think he can take it.

Trevor: Yeah. He can handle it but it’s just funny. It’s a great podcast, listening to people rip on each other that are good friends. I mean they can take it but all four of them are sensitive to a degree as well which is really interesting. You can hear it when they talk about different things, how accomplished they are and how wealthy they are. Yeah, exactly. They care.

Reuben: Yeah. it’s funny. Even when you read his book, you can see where his strengths and insecurities are like you can feel it in the book.

Jon: Definitely. Trevor, any last questions?

Trevor: No. Reuben, thank you so much for your time. It’s great to learn from you and your experience in this area so thanks for coming on.

Reuben: Yeah, I’ll be sending you both some pitch decks after this and I expect your investments to come wired through.

Jon: That’s right. Yes, obviously, let’s preface.

Trevor: Absolutely.

Jon: This is not a solicitation to invest or purchase in any startup or any syndication of any kind.

Trevor: Or securities, yeah. This is not individual investment advice.

Reuben: And this is completely unsuitable for 99 percent of people and you are very likely to lose every dollar you put in to startups.

Jon: That’s right, and we are not specifically endorsing Washington Avenue Ventures and we have no formal financial relationship with them at all.

Trevor: There you go. Got your disclosures out there.

Jon: Reuben, if someone wants to learn more about WAV or Washington Avenue Ventures, where can they go?

Reuben: They can get connected to me through you or on our website, wa.ventures.

Jon: Awesome. Well, we may have some doctors in the crowd listening that have a startup. Maybe there’s a device or something that we see that quite a bit over the years, so cool. Well, thanks so much for joining us guys, Trevor and Reuben. This has been super great. It’s been a different dynamic having a third person in here and hopefully a nice refreshing change for our listeners who are probably tired of hearing just Jon and Trevor all the time. But for those of you who loved just Jon and Trevor, stick around. The next episode will be that again so we’re not necessarily doing away with that but I think we’ll bring some more guests on to mix things up a little bit and makes us have to talk a little bit less which is nice.

Reuben: Let me know any input – your feedback – you get if there is more interest in diving deeper into this world at all. I’m happy to do it.

Jon: Yeah, that would be great and we love to learn more about this stuff and just be a resource. So for any of you physicians out there listening, again, we’ll be posting more resources that Reuben has talked about as we get more articles and things like we always do on the Financial MD community which is a Facebook group and then we keep things updated through our social media through Instagram, Facebook, Twitter, and TikTok. So with that, you guys have a great week and we’ll see you next time here in the Financial MD Show.

Resources and Links:

Reuben Levinsohn, Partner, Financial Advisor, Washington Avenue Ventures – https://www.waadvisors.com/team/reuben-levinsohn
Washington Avenue Ventures LinkedIn Account – https://www.linkedin.com/company/washington-avenue-ventures/about/
Venture Capital – https://www.investopedia.com/terms/v/venturecapital.asp
What is a venture studio? – https://www.applicoinc.com/blog/what-is-a-venture-studio/
Everything you need to know about cap table management – https://www.heavybit.com/library/blog/founder-101-almost-everything-you-need-to-know-about-cap-table-management/
What are convertible notes – https://techcrunch.com/2012/04/07/convertible-note-seed-financings/
Angel investing: What it is and how to start – https://www.nerdwallet.com/article/investing/angel-investing
What are exchange-traded funds (ETF)? - https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-2
What is impact investing? – https://thegiin.org/impact-investing/need-to-know/
Securities and Exchange Laws and Rules – https://www.sec.gov/investment/laws-and-rules
AngelList Venture: Invest in startups – https://www.angellist.com/
Crowdfunding explained – https://ec.europa.eu/growth/access-finance/guide-crowdfunding/what-crowdfunding/crowdfunding-explained_en
What are private placements or Reg D? –

https://www.sec.gov/smallbusiness/exemptofferings/rule506b

Kickstarter – https://www.kickstarter.com/
Jason Calacanis personal blog – https://calacanis.com/
Angel: How to invest in Technology Startups by Jason Calacanis – https://www.amazon.com/Angel-Invest-Technology-Startups-Timeless-Investor/dp/0062560700
All-In podcast (Jason Calacanis) – https://podcasts.apple.com/us/podcast/all-in-with-chamath-jason-sacks-friedberg/id1502871393
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

Angel: How to Invest in Technology Startups--Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000

View Details

Summary:

Looking For Locums Work [0:02:35]
Trevor’s Long-Term Goals And Aspirations Career-Wise [0:07:24]
When Finding Jobs – Be Positive, Know Your Worth, Don’t Put Down Somebody Else [0:12:36]
Burntout To Badass – Honing In On Your Priorities [0:19:57]
There’s Something Called Geographic Arbitrage [0:24:23]
The Secret Sauce If You Are Doing Locums – Call Up Hospitals And Ask For the Physician Recruiter [0:030:03]
Locums Interview Process Vs Typical Interview Process [0:33:20]
When You Get A Job Offer, What’s Next? [0:37:26]
Very Important – Read All Your Contracts [0:41:44]
On Getting Paid – Do Some Simple Math [0:43:50]

Jon: Welcome everybody to Episode 16 of the Financial MD Show. Here, Trevor and I, figured out that something interesting to talk about with residents and fellows that are nearing the end of their training is finding work and, more specifically today, we’re going to talk about finding locums work. This can be an extremely lucrative type of work but has pros and cons in both direction – from taxes to scheduling to how do you find the work and how permanent or temporary is the work. Dr. Smith has some recommendations and some experience, so listen up. Subscribe on Google, Apple, and Spotify, and leave a rating in, if you don’t mind. Here’s the show:

Jon: Anything in your mind financially?

Trevor: Financially? I’m paying the bills; paying those student loans off as soon as possible so I can make completely unbiased decisions about my life and be free. You know what I mean?

Jon: Yeah.

Trevor: That sounds good, yeah, which is good. I think that’s realistic this year. But yeah, that’s kind of hyper. That’s a little, you know, egocentric. That’s what I’m thinking about financially.

Jon: Let’s go about locum work or being an independent contractor as a physician.

Trevor: We probably have not although I have to say I haven’t really done it yet so probably it would be good to down the backburner.

Jon: Okay.

Trevor: I could talk about…

Jon: Looking for locum work.

Looking For Locums Work [0:02:35]

Trevor: Yeah, looking for locum work. Yeah, definitely. Looking for locums is highly dependent on your subspecialty – that’s one thing I’ve learned. I was talking to somebody the other day and they’re like, hey, how’s the job search going, are you still thinking maybe start your own practice or whatever, and I was like no, I’m kind of putting that on the backburner. What about locums? And I said, yeah. They’re like, yeah, there’s probably lots of those jobs. Well, it really depends. She knew somebody that was an anesthesiologist and they had done locums basically their entire life – 1099 all the time – hopping around, and typically if you do it your whole career, you do end up doing longer stints too like 9 years here or 10 years there. But, regardless, in anesthesiology, it’s a lot more common and it sort of just in and out work already. But other clinical work, it’s a bit less count. Just to characterize how many I’ve seen while keeping my ears open for opportunities over the last year. I’ve only seen like six-ish come up and you know that they’re really legitimate opportunities especially if you signed up for multiple locums companies. They’ll all email you if there’s one that’s really broader or really looking for something. So, if you’re counting those plus like one or two extra, there’s only been about six that I’ve seen for ophthalmology in the last year. So they are not incredibly common.

Jon: Is it more common with other specialties, do you think?

Trevor: Yeah, if you can plug in and out really easily then it’s fine and then the more hospital-based it is, it seems like the more likely because they can credential you. Basically, they have to set you up to be able to get paid through the insurance and they can kind of, I think, my understanding is that like a radiologist who’s sitting in a dark room can just show up and work 8 to 5 or whatever just for chest x-rays and they can just filter. If you’re not credentialed with all of them, you’re at least going to be credentialed for Medicare which a ton of people will have.

Jon: Oh sure.

Trevor: They could have you to see those patients. They can filter that stuff.

Jon: Or I wonder if they can float you for a while until you get credentialed too.

Trevor: There is some of that. They can. If you’re seeing patients that you’re not credentialed with, though, the hospital and you will not; basically, they’re paying you a daily rate but they’ll eat the cost of you interpreting the things that you want credentialed for. So maybe they’ll eat the cost for that a little bit. Medicare is cool because you can get signed up pretty fast. They’ll backdate your payments up to 3 months. Like if someone’s opening their own practice, the first one they can get oftentimes is Medicare and maybe some private payers, but the private payers tend to take longer like up to three months, six months, or 12 months, depending on certain part of the country. As far as credentialing goes, some parts are so bad as to say that you couldn’t get it even within up to 12 months because they’ll just close off who they’re willing to credential. So they’ll have cameras it’s called but closed something. So like you could get it if you wanted to and it’s just like we’ll let you know when we’re starting to bring in new providers and you can’t get on unless they open it back up.

Jon: This is déjà vu.

Trevor: It’s crazy.

Jon: When I was a therapist, I went through some of that because I had to get credentialed for insurance companies and when I was doing it, there were a couple that were closed at the time to therapists and certain areas or whatever and so I remember that. I remember getting – yeah, Medicare was pretty easy to see. There are a couple other like – I never got credentialed with Blue Cross. I wasn’t doing it that long, just two or three years, but I would have eventually but it was just like you didn’t and then you started getting enough patients through the other carriers and it was just like it was fine. I wasn’t going to hustle too much on that but yeah I remember that process.

Trevor: Yeah. And Medicare, it depends about like they’re pretty good about paying and it’s really the private payers that can be a little bit more difficult.

Jon: So when it comes to locum work then – I don’t know when our last – our listeners knew, you were working maybe, maybe not but can you bring our listeners up to speed a little bit about what you’ve been doing, what’s your mindset behind the locum work; how does it fit into your long-term goals, aspirations, career trajectory.

Trevor’s Long-Term Goals And Aspirations Career-Wise [0:07:24]

Trevor: I started looking at locums for the first time a year ago during coronavirus. I was in practice then – it wasn’t a good fit – and I started looking into right now at the time of recording – it’s mid-April – and I was starting to look pretty right around the same time a year ago. So I started looking knowing that I kind of thought I knew what I wanted in the next practice as I’m a young associate and I knew some of the things I didn’t want and you kind of collect those a little bit easier than you collect what you do want. The things that you do want tend to be a little more vague is another thing what I’ve realized so you do want good ethics, you want to have patient priority, and these are not just talking points. It’s legitimately like what are you going to do this for if you’re not doing it for a couple, you know, those important reasons, just foundational.

Jon: Right.

Trevor: And then you want to also have a good business. If you’re looking at private practice, you’re looking at the business factor too because that should be one of the reasons you’re involved in private practice or if there’s not an academic place around it. Academics will take care of some of many of those details. If you don’t really care how much you make, there’s certainly an easier way to find the ethics and the quality of patient care because you’re going to have more resources at the university, too.

Jon: Absolutely.

Trevor: So, anyway, I was looking at locums because I thought it’d be a good, transitionary period. So I look at either – I didn’t know any of the ropes for building a practice – and I was just preparing to read books and realizing like, holy smokes, there’s a lot that goes into it. Anybody who’s in solo practice like that’s impressive. It’s a lot to undertake just to get the ball rolling and then you’ve got the stress and the pressure of succeeding or failing or how am I going to find patients and what’s the timeline knowing you’re going to potentially even lose money for a year or two. It’s such a significant decision so I have so much respect for people that have done that. And because they’ve been through a lot, they have a lot to pass on, a lot that they’ve learned and they enjoy sharing it with kind of the next generation. They really believe in that model. So kind of dug into that and was thinking, okay, solo is like a six-month runway from when you decide to do it. Six months is a very safe amount. If you’re really, really going after it, you can do it in like four, maybe. So I was looking at locums as like a transitionary thing initially and then I happened upon a different job opportunity which was permanent and not necessarily in a place that I wanted to be long-term but seemed like a simpatico kind of business approach and heard about it. The connection was through a former attending from my residency so it came with a good kind of thumbs up, and just over a period of time, it was clear that it was not going to probably be a good fit and there’s a couple of those things where you know that someone was looking for something different than they thought they were looking for when they hired you. And you just have to know that that’s a part of it and be confident in yourself that part of what you’re looking for, someone else is also looking for something when they hire you and you can’t know, just like I didn’t exactly know what I was looking for in this second job out of residency.

Jon: Right.

Trevor: Some people when they hire you, they also kind of don’t know what they’re looking for or what they want out of the end of their career. So I found myself on a similar path as many other associates where you got hired in and you find someone was kind of planning on retiring in the near future and that’s kind of the language of it, I’m looking for a partner very soon, and then there’s things you find along the way. Maybe you find that someone had been there for a while and wasn’t made a partner or someone was there temporarily, moved along, and you didn’t know about them before. Those are the kinds of things that when you talk about a contract or negotiate about a job, you want to ask about those very thoroughly. You can go on websites actually and look at backdated versions of websites and find people who have been in the practice on the website. That was nice. I skipped one opportunity because of finding that. So these are the different things that happened. Anyways, I was in this other position for a short period of time really about six months and it wasn’t a good fit for a number of reasons and it’s one of those things like you have to be careful how you talk about things when you’ve been on the job and I do advise people, you know, know your reasons but be as positive as you can about them and no future employer wants to hear negative things when you’re interviewing at your next jobs.

Jon: That’s absolutely true.

When Finding Jobs – Be Positive, Know Your Worth, Don’t Put Down Somebody Else [0:12:36]

Trevor: You got to just be positive. You got to know your worth. You’re not worth more by putting down somebody else. Just basic stuff, which is challenging to do when you’ve been driven your whole life and you’ve been successful of becoming a doctor and getting good grades and getting a residency that you wanted and all that kind of stuff. Yeah, you can interview well. You can have had a couple job opportunities that you didn’t think were great from the start and that’s okay. You’re not going to lose opportunities for the future. You know, I picture myself at any point in the last year if somebody would have come along and said, how’s the job going, do you like it, what are your thoughts, I’d be that person or that my former self like, hey, you’re going to do a great job somewhere else. If you don’t think it’s a good fit, get going; get looking for something else. There’s no sense in hanging on to something that you feel like it’s not a good fit because there’s so many practices out there and if you just want to take good care of patients, you’re going to find a place where you can do that and not be stressed out, not feel like you’re kind of bending your care plan towards a certain mentality or efficiency or cost-effectiveness.

Jon: At what point should someone look and say, okay, either this is not a good fit or this is pretty good, there’s something in me that I need to come to terms with or adjust? How do you react with that?

First And Foremost, Don’t Make Any Rash Decisions [0:14:31]

Trevor: I agree totally. I’m somebody who looks at themselves in the mirror and really think like, okay, what can I be doing differently too. I think one thing you could do, if you find yourself in a position where you’re not enjoying your job, don’t make any rash decisions – number one.

Jon: Yup, good.

Trevor: I’d say the first thing you want to do is talk to a couple of mentors if you feel like there’s some things that are conflicting with you internally, you’re having that mental stress of like, I don’t know if this is quite the right thing or I feel like I’m not being allowed to practice in the way that keeps my patients safe or whatever it might be. You should talk to someone who’s a co-resident or a colleague or an attending and just have a confidential discussion. Hypothetically, if I found myself in this scenario, what would you think about that? Like I feel uncomfortable with it but, you know, I just came out of residency and maybe I don’t really know how the real world is and can you reassure me or is this something that should be a hang up for me I should talk to my boss about. That’s the real world. You started to have to have these conversations with your employer that are, you know, kind of uncomfortable or make you nervous but if you can have them in a respectful, responsible manner, it’s well thought out, you’re not firing off multiple e-mails, I mean, if you’re doing a lot of your discussion about this kind of stuff over e-mail, do not expect to be the one.

Jon: It’s not going to go well.

Trevor: That is not how you make any sort of resolution to really anything.

Jon: Yeah, that’s good advice. That’s general advice to anybody in the 2000s, now that we’re in this century like don’t have emotional conversations over text or e-mail. Have it verbally.

Trevor: Yeah. Even I would say don’t have any important conversations at all. If something’s a pain point for you, do not have that discussion over e-mail. I made this mistake and I was really fortunate because my first position, the president of the group – it’s a pretty big group – he would just come in and say like, hey, you know, I know you’re new, you just had residency, you want to make things better, don’t do it over e-mail. And that was like such a great tip because I was just like here I am like ambitious, well-intentioned. I’m writing this long e-mail and I’m thinking, I’m getting all my thoughts out perfectly like this.

Jon: This is going to be received so well.

Trevor: Yeah, exactly. I’m like, they’re going to be so glad they hired me. I was just like totally – I didn’t know 12 other ophthalmologists, I didn’t know. They’re going to all read one e-mail and potentially each person could take it differently rather than just having a conversation. I think that that’s something that most people wouldn’t do so it’s probably like not advice that everybody needs but I would just say the overarching thing for me like a huge – I like to have action points because it’s just easier. It’s just more tangible like here’s my rule. I really want to feel good about my work and about my ethics and about my patient care so I can easily prioritize the urgency and importance of that above the efficacy of my communication. And that’s probably a lot of doctors, I would guess. I know that’s probably why a lot of doctors butt heads with administration and hospitals and you hear that a lot. So, no e-mail for important conversations. Maybe an email to set something up to chat about it. I mean, that’s been one of my big takeaways. It goes both ways, you know. So, in terms of working on things, I have talked to a coach before which I found was really helpful.

Jon: Okay.

Trevor: A lot of people do that. it’s kind of becoming a thing now. You probably know it.

Jon: Yeah, it kind of is. You’ll see it with The Physician Philosopher and others like that in the arena that are offering coaching. Did you speak to someone that was physician-specific?

Trevor: Yeah. I found it incredibly helpful to talk to someone who was a physician who had experienced burnout. I’ve definitely experienced burnout and it’s helpful to have a little bit of that commiseration but you’re okay. The person I was talking – she gets it, you know, like she really loves people. She really loves medicine and like she was not enjoying it. She also was just not vibing; like the fit she had with her job was not good. She did not like the priorities lined up and so she made a shift and now she loves it and she doesn’t do many hours. She kind of figured out like what do I need to want to keep doing this. My story is different than hers but the same principles come across. Yeah, go ahead.

Jon: Is that somebody you think you can recommend that we could put a link in the show notes?

Burntout To Badass – Honing In On Your Priorities [0:19:57]

Trevor: Oh, totally. Let me look up her name real quick. I just got an e-mail from her. She puts out great stuff. Errin Wiseman is her name. She has a course called the Burntout to Badass. I haven’t done that. She came out with that after – I did just a few sessions with her a couple of years ago and that was incredibly helpful and so you don’t have to plan on shelling out like thousands of dollars for a year or whatever it is. I just had a few and it was just like really helped me hone in on my priorities like what I wanted, what I’m looking for. So, I’m kind of a long roundabout. We’re talking about locums but – I mean, hopefully even if anyone just listens to this and it’s just like, oh, cool, there’s other doctors that thought they knew what they wanted, pride themselves on knowing what they want that didn’t know what they want, and now they’re looking for something different. Part of what I’m looking for with locums is to try something different and see if maybe I like that version of medicine a little bit better and then it provides the flexibility to keep learning about solo practice. It’s also a nice try before you buy for practices so it’s sort of a non-committal or less committal almost more like dating rather than getting engaged right off the bat for starting a new job. Because you can’t know what the practice is like; you can’t really know what the flow of patients is like whether the doctor is going to share with you, you know, just the Medicare or going to share with you the premium patients. There are a lot of these things that can happen, that can really change the dynamic of what you think you’re getting and the locums really is a great way, like if I had a solo practice, I would love to hire somebody and it’s a 1099 to start. They like it and I like it then boom! Let’s mutually get more serious about the job now that we know we’re good to go and now it hasn’t cost the practice or the hospitals much money and it hasn’t cost them, you know, maybe all of their time or them moving themselves or their family or something like that. To me, it’s almost like if you’re going to go like first principles thinking like how would I want to hire somebody to feel something out because we’re expensive. It’s a huge loss. You sign a full at least one-year contract for a set amount no matter how good or bad somebody is. It seems like an awesome way to hire. I’m liking it just because it’s almost like you’re dating somebody, now you feel like you’re on the same page like you’re both taking it slow.

Jon: Sure. You are friends first and then you take this to the next level.

Trevor: Yeah, so to me, it just feels like the most sort of intelligent responsible way of looking at a new physician so I’m excited about that.

Jon: No, I think that’s awesome, and so for you, it kind of started out as, you know, I got to get out of here, I know I don’t necessarily want this, I think I want to have my own practice at some point, let’s go for this kind of locums part-time but still decent money. I mean is it the kind of money you said you’re going to be doing what you’re looking at right now. There’s a job that’s looking at 7 to 10 days a month, you said?

Trevor: Yeah, that’s right. So that’s what I’m looking for. I mean one thing that’s cool about medicine in general, I mean, it’s got the pros and cons, right, but if you are in rural America, you tend to get paid more. The payer mix is either higher or there’s just almost always you get paid a little bit more.

Jon: Oh, for sure. We’ve always thought it was like federal grants to some of these underserved areas can boost a lot of that or something.

Trevor: There are some of those programs but it’s mostly that there’s a different multiple that Medicare pays based on location.

Jon: Okay.

There’s Something Called Geographic Arbitrage [0:24:23]

Trevor: It’s supposed to kind of be related to living costs, I think. I’m not really sure exactly but it has to do with that multiple at least for the government program. But then there’s certain pockets of the country too that have really good pension programs. Some of them will be in rural areas so that can be helpful too. Anyways, they call it geographic arbitrage and you can work in a remote area and then do locums and you can make pretty good money. I know especially like if you’re a radiologist and anesthesiologist and things like that can be really pretty easy to find a position and then you can work in places that are not as necessarily going to attract as many people and then they’ll kind of pay you a little bit more just because they need radiology and even though they’re not quite making as much – an average doctor at hospital might make like a hundred grand often a year or more eventually – maybe they’ll just eat that cost because they need a radiologist and then they’re going to make it up.

Jon: They bring in more people eventually.

Trevor: Yeah. All that’s to say you can make a little bit more money in certain areas. There’s a huge range for what they pay per day in ophthalmology. That was kind of interesting.

Jon: Oh really.

Trevor: Yeah. And you can negotiate but you’re kind of competing with other people for a limited number of positions so you don’t want to drive too hard of a bargain or else they’re just going to take guy number two for hundreds of dollars less per day potentially if they’re really price-driven.

Jon: Yeah.

Trevor: Yeah, there’s varying amounts.

Jon: Okay.

Trevor: You can look at how much doctors make and compare the different subspecialties and clearly some more than others but it is interesting to break that down all the way to a daily rate and when you’re looking at locums, you’re looking at a daily rate of what that doctor will get paid for the work that they do and then you have to include the fact that if you’re working with a locums agency, they’re going to get paid too at some sort of rate either for the contract duration or I’m sure there’s a few ways to do it and then they’re going to pay for your travel, for your lodging, and for your car as well, so your rental car; so flights, rental car, and lodging. I don’t know if they need to pay for food but certainly some hospitals have free cafeterias and stuff. So they’re paying your daily rate plus all of that so you already know that the hospital somehow is making more hiring you.

Jon: Yeah.

Trevor: Most physicians, they’re not going lose on average generally, right, because they can’t on average. So they’re paying somebody else to find you and you and all of your travel expenses. I talked to a radiologist. He started hunting around – he’s been doing this for 25 years or so.

Jon: Locum work?

Trevor: Yeah, just purely locums. He started hunting around for his own locum’s work, not using an agency and just calling hospitals or making friends – other radiologists – and asking around. When you do that, you can cut out the middle man and meet in the middle.

Jon: Okay, So, per-day rates can be higher?

Trevor: Your per-day rate is going to be higher. And what could be better than increasing your per-day rate? You know what I mean?

Jon: Yeah.

Trevor: That’s like a lawyer charging more per hour substantially.

Jon: For the same work, yeah.

Trevor: With the same work, you’re already going to be doing the work. It’s an interesting way of thinking about a raise in a different way. That’s something I have attempted a little bit. I think it’s hard for ophthalmology, but if I was a radiologist, I would not be using a recruiter. If I was an anesthesiologist, I would not be using a recruiter, and certainly other high-paying subspecialists like if I was a dermatologist and I did like Mohs and I was just graduating and I didn’t care where I lived and I wanted to be somewhere or I was okay with being there for two to five years, you could definitely find a hospital that doesn’t have a Mohs surgeon and just call them and say, hey, would you support me in my first couple of years. You could make your own deal. I mean, residents and fellows that are graduating right now that aren’t doing that, I know it’s busy, I know it’s stressful, but if you go and do that, holy smokes! I can imagine how much more you would make in your first or second year just being basically a free agent instead of being drafted.

Jon: Sure, yeah.

Trevor: Yeah. I mean it would be loads, loads of money for those people. We’re talking like easily a hundred thousand dollar raise just from looking around and finding your own thing.

Jon: Yeah, I wonder because again we have residents that their main financial goal before they talk to us and sometimes even after afterwards is that they want to pay off their student loans first no matter what before they really invest and that’s certainly if they want to frontload that before they really settle on their final job or maybe they want to do that before they have kids or whatever the case might be, it’s a good time to do that. Maybe you can aggressively pay down loans with that extra hundred grand a few years sooner.

The Secret Sauce If You Are Doing Locums – Call Up Hospitals And Ask For the Physician Recruiter [0:030:03]

Trevor: Oh, yeah. I mean some of them when I’m saying 50,000 to 100,000, that might be part of the daily rate. It might be part of whatever. If you’re doing locums, they don’t really do signing bonuses but you could call – you know, the world is your oyster – you can call places and just say, hey, who’s your – and this is one thing I learned – is you have to know who to ask for. So this is like the tip of the podcast here – ask for the physician recruiter. You can just call the hospital – I feel like I’m giving away the secrets sauce here – but you can call the hospital – and I’ll let you know, me I love just like cold calling and talking to people – call the hospital. It doesn’t matter. Talk to their operators and say, hey, would you mind transferring me to administration. They’ll transfer you to admin. Someone in admin is going to know who the physician recruiter is and if they don’t outsource that then, you know, fully 100%, if they have somebody that fits that type of role a little bit or some similar name, that person will love that you went straight to them rather than using a recruiter because they save money too and they look good. So you’re helping whatever hospital you’re calling. The person who hires you and brings you to everybody else, you’re making them look good. I mean, that’s a great way to get a job right there. And those people, they’re physician recruiters so they’re also the nicest people ever. They’re always bubbly. They’re like, oh, let me take down your e-mail and we’ll let you know and let me talk to so and so and I’ll give you a call back and they’re actually responsive to e-mails. Because that’s what they do. I don’t know. If I was talking to residents, I would just say like do yourself a favor. Pick a state and just start calling hospitals and talk to their physician recruiters and see what you can find out because, you know, doctors can do this stuff and it’s not that difficult. There’s so many resources for contract negotiation now too. You know these paid services where they really do, they look at so many contracts. You could start setting yourself up for your own thing and you’re like, oh, I don’t know if this is even going to be a good deal or am I making up. You just pay under a thousand bucks and get an expert review and now you know. So now you’ve done it yourself, it’s like selling your own home, you know. For sale by owner is such a great way to sell your house.

Jon: Good learning experience.

Trevor: Yeah, the buyer’s agent will basically do all the work for you because they want the sale or else they don’t get any percentage. So if somebody brings you a buyer then you don’t even have to do any work or if you find somebody else who doesn’t want to use an agent, you can just figure out what deal you want to make and then go to a lawyer and they write it up and it cost you like 1500 bucks instead of 6 or 7% of the total worth of your house. There’s just these big moments where you can kind of buck up and do your own work and then pay an expert to make sure you’re not being an idiot and you’re going to clean up six figures pretty easily and, for a lot of people, you’re halfway done with your student loans at that point.

Locums Interview Process Vs Typical Interview Process [0:33:20]

Jon: Yeah, exactly. Going about the process of finding it once you connect with some, tell us about the interview process. Is it different than a typical interview process?

Trevor: It is different. I would encourage people to interview just as seriously as you would for a normal interview. Like right now, I didn’t shave really. You can see this is my preferred kind of look but, generally, I won’t normally have, you know, maybe half this or something. But if I’m interviewing on a Zoom call for a locum which you pretty much always are, I would shave. I would wear like a dress shirt; maybe even a suit coat jacket on top. So, take it seriously. Assume they haven’t read your resume. I think on at least one interview, I was just kind of thinking they were going to take it seriously as I was taking it and I found that they didn’t really. I interviewed with somebody and then within an hour, I got an email from the locum’s person, my agent, and he was like, hey, what about this part of your resume, hey what about this part of your resume, and I was like I literally just got off the phone with them 45 minutes ago, why didn’t they ask me? I thought that was the point of the interview, you know.

Jon: Sure.

Trevor: It was just funny. I don’t know if it was a lack of organization.

Jon: What’s the point of a resume, yeah.

Trevor: Yeah, so it was just kind of funny. I was like, oh, yeah, I’ll totally, you know, here’s my answer, here’s my answer; happy to hop on a call if they need clarification. So just kind of assume they don’t know, give your story, kind of tell them what you’re looking for. And then I’ve been reading this book – I haven’t talked about this with you – but it’s called Business Made Simple – there you go.

Jon: Okay, yeah.

Trevor: Business Made Simple, and it’s by Donald Miller. I love his stuff. He is kind of like a marketing guy.

Jon: Yes, the StoryBrand.

Trevor: Yeah, StoryBrand guy. He’s written a lot of books about his own life and then he really got into marketing maybe up to 10 years ago now. Good stuff. He wrote this book and it’s sort of like a 60-day going through business principles but the first week or two or is really just on your own personal development and talking about character and your values and what are the things that matter to you that set you apart and when you develop those and they’re solidified in your mind; it’s sort of knowing your strengths. There’s always a classic like what are your strengths, what are three strengths and three weaknesses or something like that, and just knowing yourself on the level of your character and your story, being able to communicate your story in a transparent but still very positive way like no matter what. When somebody says three strengths and three weaknesses, you don’t tell them, well, I’m terrible at time management and I never get anything done. Do you know what I mean?

Jon: Yeah.

Trevor: Those are not the types of things that you would say on an interview. You wouldn’t say like, I’ve been late. You know, sorry I was late to this interview, yeah. All my friends teased me about being late or whatever it is, you know what I mean? Like you don’t tell them like worst things. You want to give them the best afford, still be honest, still be transparent. But this book, I think is really cool because it helps you prioritize real things that make a difference that’ll enhance your leadership skills.

Jon: I’ll have to check that out. Great, that’s sweet. We’ll put a link in the show notes to that.

Trevor: Yeah, it’s really good. I’ve enjoyed it. I’m about three weeks into it and they’re really short. It’s kind of like you read it and you’re like I knew that, but now it’s organized and you get that mental framework.

Jon: Yup.

Trevor: Yeah.

When You Get A Job Offer, What’s Next? [0:37:26]

Jon: Good. So you go to through the interview, take it seriously even though they may not necessarily appear to read your resume beforehand. So when you get a job offer from somewhere, what does that look like typically? What are some different things about that with locum?

Trevor: Yeah, for locums that is different. So you get an offer. Basically, if you work with a recruiter, you kind of get a message like, hey, they’re like good to go, would move forward, and you’re like, okay, cool. I haven’t done this before, what does that mean?

Jon: They’re like, oh shoot!

Trevor: And they’re basically like, well, we got to get you licensed in the state and that can take however long. This is a cool thing now. They have something called a letter of qualification and you can apply for his letter. You apply actually within your own state but you use an interstate medical licensing, IMLCC, credentialing center or something; imlcc.com is the website. Anyways, you pay a pretty decent amount of money. I think it’s 700 dollars or 800 and the state that you’re in verifies, okay, yeah, like, you’re good to go. You have no malpractice claims. You have no background issues. You do fingerprinting. They give you a letter – they have like an agreement or compact with 30-ish states in the U.S. so mostly Midwest, northern, and eastern states. You can get a license within – 10 days is kind of long – but they can get them usually within 48 hours and that tends to be a rate limiting step for a lot of states with getting credentialed. The locum’s agency, if it’s a good one, they’ll pay for that so you don’t have to do it yourself; just have an out-of-pocket expense and you maybe do or don’t get a position, and then you get the state license, and they kind of walk you through it sort of. If anyone has applied to a hospital for credentialing, typically, it’s like, oh yeah, we’ll help you with all this, we’ll take care of it, and then some hospitals will fill out everything for you. You’ll send them a resume. They’ll fill it all out and you just kind of look it over and sign and then some hospitals will be like, we’ll take care of it all for you, and they send you a link and a code to log in and then you have to fill it out everything yourself, and it sounds like a silly thing to complain about but if you move to a big city, you’re doing like four or five of these, it’s a lot, like it’s one of those things that are like solo doctors. They spend a lot of their time on paperwork because they don’t have somebody who does it for them. Anyways, they’ll kind of help you with that. They make sure you have it all done but you still have to be sitting down signing PDFs like every other day for a month or so. It’s getting a home loan, they’re like, don’t worry, we just need three documents for you.

Jon: From your last one.

Trevor: You’ve gotten a home before. Yeah, this is the last one. Every day for 30 days, you know what I mean? It’s not quite as bad. They’re like Quicken Loans home loan process or something. It still ends up being, you know, it’s always like one more thing and oh can we get a little more detail on this; that date doesn’t line up with that and you’re like, oh, it turns out it was a typo. That’s kind of the process. So they kind of give you like a thumbs up and then you just start the credentialing process just like you would with a regular job. The big difference is your 1099, they do cover your malpractice and with your tail so you don’t have to pay 5 grand, 10 grand at the end of the contract. It’s just all included capped off specific to that location so you can’t work locums one place and then start doing another one or like range your own or work in your practice and have that malpractice cover you. It just covers your job there.

Jon: Yup.

Very Important – Read All Your Contracts [0:41:44]

Trevor: I read all my contracts. I read them very thoroughly myself. I would encourage all doctors to do that. it’s kind of a headache. It’s kind of a pain. You feel like you don’t know what you’re reading. You read it once. If you feel like it was confusing, take a day off, read it again. It’s set in plain English because it has to be pretty easily understandable by all parties to hold up in the court of law. So like if you’re a doctor and you read it twice, you’re going to understand it. You’re not going to know what you don’t know but if it’s a hospital system, a lot of people have signed it and then you can get a contract person to review it or a lawyer to review it. It shouldn’t cost more than a thousand dollars. Anyways, that’s kind of been my process. Don’t be afraid to hunt around. Don’t be afraid to turn things down. Just because you’re doing locum, it doesn’t mean you have to take the first thing that comes along.

Jon: Good point.

Trevor: I’ve turned down three, four opportunities that I’m sure I would have gotten if I would have taken their stated introductory rate, daily rate, and I was just like that’s just not enough for me to want to fly out and do this and that. Hospitals are going to try to get the lowest amount and if you’re not getting paid for call and you’re going to take a call, that’s kind of crazy like I would definitely get paid for call. You’re giving up your time even though you’re there just for the job potentially if you’re traveling for it. Kind of value your time. It’s hard to do when you’re looking for something but just know your worth. Value your time. If you’re going to find a job that you like and it might be from that locum’s job and it might not be but find something that really compensates you at a level that you think is reasonable.

Jon: That’s good.

On Getting Paid – Do Some Simple Math [0:43:50]

Trevor: I’ve one other thought on the finance part. I would also recommend just doing some simple math on what you get paid if you were getting paid for a permanent position there. So keep in mind you’re going to have travel days on each end so you’re really losing a couple of days potentially depending on how far you have to go. So if you’re working seven days, let’s say, you get paid the same amount. Let’s say you get paid – and this would be kind of low – but let’s say you get 1500 and you work seven days with the same rate – and it might be less on the weekends, you know, if you’re not seeing patients – that’d be 10,500 dollars. And you’ve lost two days, the travel time back and forth-ish especially if there’s a time change or something. But let’s just say you work that job permanently and you were there, you know, 10,500 dollars for seven days and you multiply that by four so that’s 42,000 a month multiplied by 12 months and then that’d be 500,000 dollars. That’s really good – 500,000 dollars – but really you wouldn’t work that much and they’re kind of paying you for the time of the travel and 1500 is pretty good for ophthalmology potentially, and you wouldn’t be getting paid for those weekend days. So if you’re getting paid like 400, 450 and you’re traveling to somewhere that’s not cream-of-the-crop location – that’s not Chicago or Denver or LA – you’re getting paid pretty well for that time. But, if you cut out some of those days and then you’re down like 20%, you’re at 350,000 or 400,000. If you take a job for 300,000 in a city that you like better and you’re okay working permanently than for somebody else and all that stuff lines up where you find the perfect practice, is it worth an extra 50,000-dollar potential amount? You just have to kind of weigh that out. So I’d like to look at it both on a daily rate and like I’m traveling and losing a little bit of time perspective, and then I look at it from an annual rate too because you don’t know how to price out like how much is my daily rate worth because most doctors have never thought about that before.

Jon: No, it’s true, yeah.

Trevor: So if you’re switching, you can take your current salary and then divide it down for, you know, if you’re going to just work weekdays, you can divide it down and just look at that, but if you’re going to work 14 days and they’re not going to pay you for the weekend in between, kind of like losing some time. You just have to look at all those factors. It ends up being simple multiplication most of the time and just remembering to factor in, oh, I would have taken vacation. So, really you’d want to multiply that by 10 months because you’re probably would have taken 4 to 8 weeks of vacation so that would be 400,000. So you’re like, okay, this 1500 dollar per day rate makes pretty good sense but 1200 dollars per day definitely does not. That’s kind of like, you know, you could find a part-time job in a city or in a lot of different places potentially and make 200,000 per year. So, it’s good. It’s just an attempt to compare apples to apples.

Jon: Yup, definitely. I think which goes back to the, you know, don’t necessarily jump at it right away. You don’t always have to take the first job. Take your time both getting a job and leaving a job which, again, this is true in investing or job choices or anything but don’t base any decisions on any one point in time. Patience is power is what I tell my kids.

Trevor: Totally. Unless if you’re in like a horrendous scenario that you know you just have to get out of.

Jon: Sure, there’s an exception of that.

Trevor: Yeah, those definitely exist in medicine so I would never judge anybody who departed from something quickly just knowing those scenarios happen. There’s personal things that happen. People have step away for whatever. But really, three months, six months like you might know at one month but you can wait another month and then you’re going to start looking. Most of the time, it’s going to take you a good three months to find something especially sorting out between a few good opportunities to find the great opportunity.

Jon: Yeah. So if it’s not a big hurry or urgent, try to save up some cash for that gap.

Trevor: Yeah, definitely. I mean it’s one of the reasons you want to have an emergency fund of at least three months.

Jon: Yup, totally true. Okay, well, I think that’s about our time for today. I think that was super helpful. We got some great stuff out of that. Hopefully, there’s things that listeners can take whether they take action on it now, whether they never do anything with locums, whether they’re thinking about it or they can use it in the future, this is going to be a great resource and I really appreciate your time and letting us learn from your experiences instead of having to learn the hard way.

Trevor: Totally, happy to help. If anybody has any questions, they can email me at tsmith@financialmd.com or my other email is trevorsmithmd@gmail.com. Happy to reply on a personal level or professional level if you have any questions. Happy to chat with you.

Jon: Awesome. All right. Well, everyone, we’ll see you next time on our next episode. In the meantime, be sure to get up to the Financial MD community, that’s the Facebook group that’s specifically designed for physicians by physicians to ask questions, to start some conversations. We post articles and tips and things there. Get out to our YouTube channel. Subscribe to our weekly Didactic Minute video where we put out little two-minute tips of personal finance things that pertain to you as physicians and other than that, we’ll see you next time on the Financial MD show.

Trevor: Awesome. Thanks, Jon.

Resources and Links:

Definition of Locum – https://dictionary.cambridge.org/us/dictionary/english/locum
The Physician Philosopher - https://thephysicianphilosopher.com/
Burnout to Badass by Errin Wiseman – https://www.burntouttobadass.com/about
First Principles Thinking – https://www.jumpstarthealth.co/blog-1/first-principles-thinking-adopted-from-aristotle
What is geographic arbitrage – https://www.realsimple.com/work-life/money/saving/geographic-arbitrage
Business Made Simple – https://www.amazon.com/Business-Made-Simple-Leadership-Marketing-ebook/dp/B085XNKHMB
StoryBrand by Donald Miller – https://storybrand.com/
Interstate Medical Licensure Compact – https://www.imlcc.org/
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

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Summary:

There’s A Certain Excitement On Initial Consultation [0:00:31]
Being A Financial Advisor Is Interesting [0:02:13]
Estate Planning – A Fun Kind Of Challenge [0:05:15]
Having No Estate Planning Is A Bad Decision – Take For Example, Howard Hughes [0:06:53]
There Are A Million Different Ways To Do Financial Planning [0:12:43]
At Financial MD, We Are Happy To Have A Good Impact On Our Clients’ Lives [0:15:22]
Ultimate Goal Is To Be The Best You Can Be [0:20:24]
In Financial Planning, You Have To Have Your WHY To Motivate You [0:24:10]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Trevor: I’m just thinking. I mean, when you sit down with people when you’re doing some advising, what do you get most excited about like talking to the clients about? Is it the value – big picture like value? Is it potential money earned, saved, taxes? What pops up along the way where you’re just like, oh, this is the fun part, I get to talk about whatever.

There’s A Certain Excitement On Initial Consultation [0:00:31]

Jon: Well, great question. I would say when I think back on the last seven years and the clients that I worked with, there’s a certain excitement to sitting down when we do an initial consultation and somebody has seen me at a workshop or lectures – something along those lines – or dinner what-have-you and they’re sitting down with me – I just love that first moment when I just, okay, hey, great to meet you, hope you got some value at the lecture, what can I help you with – and just, you know, whatever comes next. Some were similar but they’re never the same and then the hour-long conversation that ensues after that. I love getting to know people. You know, you know my background. I was a counselor before this and as much as I got bored of that real quick being a counselor – you know, I still loved the people and loved the ones that I felt like I could help – and being in financial planning is a little bit of a different atmosphere because I still feel like I’m utilizing quite a bit of the soft skills and the counselor stuff that I had of just the psychology, but it’s more rewarding in a few different ways because number one, I get to really pick and choose who I can work with for one. Number two, it scratches the itch of being an entrepreneur and get into really determine my future but mainly, I’m sitting down and listening for most of that hour when I first meet people and hearing about some of their fears and some of their goals and dreams and what they love and what they hate and all those things makes for – I never get bored of that part, and I’ll be sad if I ever have to get out of it and play CEO or do any of those things but I hope I’ll always be able to do a little bit of that. Money’s an interesting one.

Being A Financial Advisor Is Interesting [0:02:13]

When I was first looking at the field of financial planning, I remember I was meeting with a family friend that was the only financial advisor I knew and just talking to him and he was a real genuine guy and he said being an advisor is interesting because there’s a lot of people who, you know, the two most important things in their life – and he worked for a lot of Christians – and he said, the two most important things in their life and they won’t admit to this but it’s money and God and often on the same plane and sometimes not in the right order and people will tell you things that they don’t tell anybody else and it’s interesting. So that part probably just my favorite part about being in financial planning and being a financial planner and then once I’ve been working with a client for a little while, that transitioned out of residency into practice is pretty fun, sitting down for a first review meeting, they’ve been in practice, they’ve gotten a few big paychecks, and I’m excited for them.

Trevor: That’s cool.

Jon: I have a client right now. I was the first one they told when they got pregnant so that was kind of special.

Trevor: That’s cool. You have how many kids again?

Jon: I have four.

Trevor: Four kids, yeah.

Jon: That’s the stuff that keeps me going quite a bit on that end. Topic-wise, what do I really like to get into, I love talking about things that I know a lot about like anybody, say this and brag a little bit. I feel like we’re probably the financial planners that know the most about disability insurance, you know, other than somebody that that’s all they do is sell disability insurance. They’re insurance agents. For us being financial planners, we are licensed to sell it, but we’ve been doing it so long with doctors that we got to be one of the experts as far as if we took a handful of financial planners. So I enjoy that part because that’s probably one of the areas we get the most questions on because they’re getting hit by these insurance companies or agents that are just going after them, trying to get a big policy, thrown into some big policy that they shouldn’t be in and getting a big commission and/or getting some complicated thing and 90 percent of the time when I sit down with these people that already have a policy, I’m like, okay, so can you tell me the details in your policy, and most of them are like, I have no idea, I bought this in second-year residency or whatever. So, it’s fun sorting that out for people. It’s gratifying but sad when I have to tell them that like, you probably made a bad purchase here, because insurance is a sensitive topic. Investing is easy to talk about, right? Cash flow, budget – those things are fairly easy to talk about – but when I sit down and say, okay, let’s talk about when you’re going to die or when you’re going to get sick or injured or the scary times in life, I think a lot of planners or advisors might avoid that. I think, here at Financial MD, we are happy to talk about it. We know a lot about it and so we get a lot of that kind of peace and comfort from clients knowing that, okay, it’s good to know that I’ve sat down finally with somebody that I feel like cares about me that, you know, as a fiduciary because I’m paying them but they can help me sort out this insurance issue without as much anyway conflict of interest and that kind of thing. Yeah, I like talking about that. It’s easy.

Estate Planning – A Fun Kind Of Challenge [0:05:15]

I like talking about estate planning. I’ve gotten to be friends with quite a few estate planning attorneys, some that I send clients to, just getting to know that profession, that field; the nuances of estate planning, just that concept of trying to take what you have accumulated and earned and worked for, how do I pass this on to my family or charities or people that I care about and – as my conservative root showing – how do I keep that out of the government’s hands as much as possible, you know, with my Libertarian bent. That’s a fun kind of challenge and I’m always trying to learn more about estate planning. I’m actually into the final class of the CFP coursework which is estate planning so I’m trying to really pay attention. It’s super interesting.

Trevor: That’s cool. Estate planning is something I’m not terribly familiar with, kind of for obvious reasons. I mean, I’m still not too close to the end of my life and there’s just so many other fish to fry in the short term.

Jon: Yeah, that’s what it feels like, and that’s what a financial planner’s job is to help you prioritize what you should do first.

Trevor: Yeah. You often have, if you’ve done a great job of planning and if you’ve been a high net worth individual or you often have the most money when you die, you can often have the most money you’ve had in your life when you die and so you have the most to lose, right?

Jon: Yeah, that’s a good way to put it.

Trevor: I mean when you have the most and you could potentially have the government take half, you’ve done all that work and then to have not organized what happens after you’re gone can cause you more than any decision you ever made while alive. Is that an accurate statement?

Having No Estate Planning Is A Bad Decision – Take For Example, Howard Hughes [0:06:53]

Jon: Definitely, yup, for sure. Case in point – who was it that died and his estate – this is a different celebrity story. I like listening to a podcast called Celebrity Estates. Howard Hughes’ estate, for example, was in the hundreds of millions at this point when he died. A great aviator – he helped to build some planes during World War II. He was an innovator in the field of aviation. Howard Hughes had an estate valued at, I think, a couple of hundred million dollars – had no will. No trust, nothing, and really no family that was obvious to pass through in probate, and so within a few weeks, there were about 15 different wills that came forward. Howard Hughes, he died, no will, had an estate probably around a couple of hundred million if I remember it correctly and then within a few weeks, about 15 different wills surfaced, none of which proved to be valid and the court just ended up dividing his stuff between a bunch of cousins.

Trevor: Wow.

Jon: Meanwhile, the probate cost – just for the probate fees and court fees – can be between 3 and 8 percent. So if you think about, let’s say, split the difference, 5 percent on 200 million is 10 million so that sucks and then there was a decent amount of estate taxes, I’m sure, which right now, the estate tax range is about 40 percent if you got a net worth over 11 million as a couple which when we look at 30, 40, 50 years from now when a lot of us are going to die, that’s not a high number and if we think of trends and what, say, this administration has proposed to do some tax changes, one of the big ones is pulling that ceiling way back down so that if you have a million or half a million net worth which is very common, then you’re going to be looking at estate taxes, so it’ll be much more critical to know how you’re set up for estate purposes and trying to avoid that, you know, and then just the cost and things notwithstanding, just the fact if I want to make sure that whomever is important to me that gets what I feel like they deserve whether it’s again charities or family or whatever.

Trevor: Yeah, but money actually goes where you want it to go.

Jon: Yeah, so there’s a lot of risk there that we want to try to mitigate and I guess it kind of feels like when you think of all the areas from investing to insurance to estate planning to tax planning like a lot of it is just like minimizing the risks that are involved because if you can just avoid some of the landmines and pitfalls will do pretty well especially in this country.

Trevor: Yeah, that’s right. We have significantly less although that’s sort of like big area of potential change here coming up with how much money is being printed but we have significantly less existential threats in the United States, or we have, it’s probably more accurate. We’ve had less threats that can completely undermine the value of our money or work. Our government is not likely to seize our businesses or assets because they’ve changed their priorities or the administration is changed or a coup has occurred and that is a luxury beyond luxury on our planet.

Jon: Yeah, absolutely.

Trevor: That’s pretty uncommon. I mean, let alone your own personal safety and that of your family, you know, all that crazy stuff that can happen and have in the last hundred years.

Jon: Yeah, when you think on the side. I heard an interesting tidbit today. Spain or Portugal is going to have a 3-year experiment of doing a four-day workweek, so as a country, that’s interesting.

Trevor: That’s very cool. I wonder who came up with that. I’m going to have to google that.

Jon: I don’t know. Millennials, probably.

Trevor: More power to them if so.

Jon: Yeah. What would the world be like if we all had an extra day?

Trevor: It’s funny. Here’s the thing, depending on which generation or whatever your perspective is – usually it doesn’t matter your generation, just how your brain has been programmed over the years of what your experience and exposures – you’ve got this idea, oh, five days is what is done and that is the best that shows hard work, that shows commitment. So you attribute these values to this system when the system doesn’t care what values you’ve attributed to. The five-day workweek doesn’t care whether you think that means that your employees are working hard. It doesn’t care. It’s just the system, right? So what if the system is not optimized for performance or happiness or growth or whatever and also the four-day workweek is actually what causes your company to grow and you to pool in better talent and people want to stay there because they like to be able to travel on the weekends. Whatever it is, it’s so easy to go, oh, yeah, that’s a millennial thing and kids these days don’t want to work and blah-blah-blah. It’s much more the case that our generation just wants to question the value, the base like first principle’s thought of, okay, a five-day workweek, is it best or not; is it optimizing the things that our company or family or whatever unit our church values or does our church value different things, okay, then what if we align those values with how we work our hours throughout the week. And then all of a sudden, the conversation is not like righteous or self-righteous basis of philosophy. It’s now how do we work together to accomplish what we actually wanted to accomplish.

There Are A Million Different Ways To Do Financial Planning [0:12:43]

And again, this is why we like financial planning is because there are a million different ways to do financial planning and tons of different goals that people come to the table with or even just values and they haven’t even made their goals yet. For some people, they probably sit down with you – tell me if this is the case. They probably sit down with you and they really haven’t put together goals.

Jon: No, for sure.

Trevor: They never really thought about their life in terms of goals but they did have values and they had never put names and words to those values. Now, they sit down with you and they realized, okay, there’s actual limitations to how much monetary energy I can create with my job which means I have to focus that limited time, limited monetary energy that time is converted into, and then that can be targeted towards goals that can make a difference in the world around you – the physical world around you – just by purposely pursuing them and you can actually achieve more goals if you plan appropriately, and if you save in certain ways or you give your money to certain groups of people who also makes similar or wise decisions that they’re goal-oriented and value-oriented, it becomes exponential. Yeah, that’s why you have a cool job. I mean, you get to rubber meets the road for a lot of people for the first time in their life, and working with doctors, it’s while they’re in the thick of it as residents and then like you said, you get to be one of the cool parts – you get to be part of that transition. With your clients, most of them have a 5x or 10x increase or some of them even higher on their salary like at the flip of graduation from the residency and now they have this entirely new powerful tool to change and form the world around them in their lives and that of their family, I mean, and the right framework which you have and financial advisors have; now also and you can channel that energy.

Jon: Yeah, and that’s it. I mean, we sat down and added up one day just an estimate of the income that’s going to happen, you know. If there’s a million and a half attending physicians and they’re averaging even just 200,000 dollars a year of income over a 30-year career, it’s getting into the trillions of dollars and so we began to realize at Financial MD when we birthed this vision like what’s at stake and what we potentially have influence over.

At Financial MD, We Are Happy To Have A Good Impact On Our Clients’ Lives [0:15:22]

If we can take just a piece of that and influence it for good, I’ll die a happy man knowing that my company helped to steer the trajectory of society by taking these high-income individuals that some of them will do good things for sure, some of them will have good advice for sure, but we just want to be able to impact a small fraction of that for the good to say, hey, let’s just pause for a second and sit down and see what’s important to you in life and how do we make choices with your finances that are in line with those values and how can we, after taking care of yourself – and I try to push all my clients to think through this, you know – you take care of yourself for sure, take care of your family – we get that – but the third step that most of them don’t think about is how do you try and take care of the world around you, and I’m not saying sacrifice yourself to do that although I would say I believe there should be some of that.

Trevor: Right.

Jon: But almost all my clients are able to make an impact in the world around them without really cramping their lifestyle at all. So much so that if we were to say what’s your target client, obviously, it’s physicians, but to be even more specialized, it’s physicians that have enough care about the world around them that they want to make a difference in some way. And I’ve talked to some that really just don’t care and they’re just not a good fit here and I can’t get them to think of – you know, and I’ll push them too like if you could give a million dollars to something between now and the end of your life and it really made an impact on something, what would that be? What charity? What mission? What cause? And you know, I can usually get something out of people there but some people are just, no, I just want to be happy; like, okay.

Trevor: Which is fine, and you’re talking to residents too who are like drowning in stress?

Jon: Yeah, right.

Trevor: You know what I mean? I feel like I’m just, you know how they talk about like the cliché term – I don’t know if it was the 2000s or the 1990s or whatever – but it’s self-actualization of becoming your better or greater or truer self.

Jon: Yeah, the humanistic psychology.

Trevor: Yeah, okay. There’s some good movies where people talk about that. Fargo season two, and there’s a great character who’s always trying to self-actualize. I can’t remember who plays it now – Kirsten Dunst, I think. Anyway, it’s very funny the way that she’s always trying to do that and it just kind of flighty and purposeless but it’s like self-actualization for the sake of self-actualization. But if you actually do that, you can make a huge impact and some people when you’re a resident – let me just speak from my experience. In residency, basically we’re forced to, practically speaking, you didn’t have time to and my mentors some of whom really just – I had one person specifically tell me that you are not Trevor who is a doctor; you’re a doctor who happens to be is that you’re now a working physician. And that’s from somebody who is honestly like a great person, a great mentor, really made a huge difference for all the residents throughout our training – very grateful – but it’s just a different perspective and it certainly doesn’t help you free your mind to think like, oh, what are the possibilities that I can build in my life like what do I want to do and be, and that’s a nice version of what some people are told in residency. Some people get way, way worse than that and once you get out, it takes time, I think, for those layers of sort of like stress, I mean, in some cases for people certainly like toxic environments that they’d have had to work in. You have to be in a healthy environment for that stuff to heal and wipe away all of that dirt that helps you to see more clearly. Anyway, for me, I feel like I’m just kind of getting there and I’ve been a couple of years out and I’m learning a ton. I’m always interested in lots of things but it still takes a while to just feel like, what do I want because I was told what my goal was for a while and a lot of us who end up in med school at all were told by our parents or by mentors of like you should do this because it’s the best you can do. it’s just pure optimization. Your interests don’t matter and it’s not that they don’t matter because we think they’re bad. They don’t matter because your goal is to be the best you can be, right.

Ultimate Goal Is To Be The Best You Can Be [0:20:24]

Jon: That’s especially true in the Asian culture. I’ve talked to a lot of Indians and Middle Eastern. In fact, I was freshman at Michigan State, lived in the dorms, and on my floor was an Indian girl who I became good friends with and one day I just asked her because she was pre-med and I was like, how come all you guys are either doctors or engineers, but mostly doctors, it seems. She’s like, well, you know, we grow up with our parents helping us to be the best that we can be and our expectation on us is that you’ll then go – doesn’t matter what you want to do – you’re going to do the best thing that is out there in the world from a financial standpoint, from a prestigious standpoint, and to them it’s a doctor and so that was just the ultimate goal.

Trevor: Yeah, totally. I mean, a tenth of my classmates. I’m grateful to have been able to go to a great medical school and then also medical school that really value diversity. I grew up in a small Dutch community in West Michigan – Holland, Michigan. The amount that I learned about just like the world and what is out there, and I was fortunate to grow up in a family where I traveled abroad. My parents did mission trips that genuinely made a difference in Jamaica and we go there every year with a group of college students. My dad was a professor. So I had a bit of a global perspective, but still it’s not the same as being surrounded by a diverse community of people with different backgrounds. I mean that was very common. You hear that across the board like one of the common jokes is like, my parents told me I could be anything I wanted as long as it’s a doctor or a lawyer.

Jon: Yeah, right.

Trevor: I had friends who, in a non-joking way, would say like, yeah, my brother’s like applying in medical school again, my parents have always been disappointed with him. And I’m like what he is doing? He is an engineer. You know it’s like – they’re like super smart. They’re making probably as much or more than physicians in their lifetime, but it’s a different priority. So, all that to say I think it takes a lot of sort of unwrapping the programmed mindset that we get and then we program ourselves to be able to study as much as we have to study to get through all the training. For anybody who is listening, I mean, I talked to like a life coach or like a career coach person a couple of years ago and that was super helpful because they equip you with a skill set we weren’t taught which is thinking through your thoughts in a different way. It’s not so much introspection. It’s just like focusing your critical thinking that you learned in medicine on your own decision making for your life and it’s sort of like we kind of want a little bit hands off to stay on the conveyor belt and not think too much about the fact that we’re giving up our 20s and so you’re used to making big decisions and not really thinking too much about where it sends you and I found it really helpful to talk to a physician career coach and just to think about somebody who has also done and been through it and been burned out and all that kind of stuff. They have that perspective. Anyway, I think that’s very helpful. It’s a growing thing right now. I think the physician philosopher; he’s got some White Coat connections. I think he started some sort of coaching thing – he can be a coach now too. I mean you can see why it’s popping up. There’s a huge need for it and it’s really great.

In Financial Planning, You Have To Have Your WHY To Motivate You [0:24:10]

I mean, in financial planning, you have to have your WHY to be your motivator to stick to a plan and I think it’s why a lot of people don’t end up getting disability insurance when they should early on and they don’t put money into the Roth IRA when they can afford to. They just don’t have a WHY to motivate them because they are not looking at their life like it’s their own. They’re kind of you almost have to step outside of yourself to make it through the training, to sacrifice that much. So, yeah, anyway, I totally recommend anybody to get a few sessions with a career coach or a life coach – whatever you want to call it. Any that are with a physician is particularly beneficial. That was a huge rant about coaches and life perspective but it’s very important. You have to have big motivators and the ones that are truest to yourself are the ones that are going to make a difference. Other people’s dreams of being a multimillionaire, they’re not going to motivate you. You’re not going to care. You have to want something yourself and you have to know that it’s your own thing that you want that just come from you or you won’t get there.

Jon: Yeah. What is the phrase? Know thyself, right?

Trevor: Yeah, that’s tough. That’s like the toughest part of life, I think.

Jon: Yeah. Well, that’s probably our time. There’s so much more we could go on to that but thanks for switching seats and asking the questions today a little more but we’ve got some great resources continuing to come out. We’re going to be coming out with an online course for residents. This summer is the plan so that’s in the works. We’re super excited about that. It will be kind of do-it-yourself approach, step by step, what to do, when to do it, and just a lot of good on-demand education, so be on the lookout for that. Join the Financial MD Facebook community, so search for that. You’ll also find it on our website: financialmd.com. Check out the Didactic Minute videos on YouTube and Facebook. Those come out once a week which is quick two-minute topics, tips, finances, something to move you forward a little bit, and keep an eye on TikTok too. We’ll be throwing stuff out there. Yeah, I’m learning from my teenage daughter how to use that. So, lots of great stuff. We’re trying to give you again just to know more things and that’s usually a good thing. So, hope it helped. Again, with the Financial MD show, this is Jon Solitro and my co-host is Dr. Trevor Smith, and with that, we’ll see you next time.

Resources and Links:

Financial Planning – Definition, Objectives and Importance –

https://www.managementstudyguide.com/financial-planning.htm

Estate planning: What is it? – https://www.investopedia.com/terms/e/estateplanning.asp
Certification Coursework Requirement – https://www.cfp.net/get-certified/certification-process/education-requirement/certification-coursework-requirement
Celebrity Estates podcast – https://podcasts.apple.com/us/podcast/celebrity-estates/id1466224736
What happened to Howard Hughes’ estate? – https://www.gordonfischerlawfirm.com/howard-hughes-estate/
Spain to try 4-day workweek – https://www.forbes.com/sites/jackkelly/2021/03/15/spain-is-the-latest-country-to-try-a-four-day-workweek/?sh=5c663331f1da
Financial MD Website – https://www.financialmd.co/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD TikTok – https://www.tiktok.com/@financialmd
Financial MD Instagram – https://www.instagram.com/financial.md/
Financial MD Twitter – https://twitter.com/financialmd2
Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

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Summary:

Tesla Acquired 1.5 Billion Dollars’ Worth Of Bitcoin [0:01:11] Inflation – What Is The Value Of Money? [0:05:01] There’s A New Asset Class – Digital Assets [0:08:12] Everybody Can Have Bitcoin [0:10:49] The Reason Companies Are Buying Bitcoin [0:11:38] Pump Up Your Portfolio – Diversify! [0:16:23] Implication For The Average Young Physician [0:17:52] Volatility Is Not A Negative Thing [0:19:40] As Elon Musk Said, ‘In Retrospect, It’s Inevitable’ [0:22:55]

Jon: All right, so you want to get rolling on crypto?

Trevor: Let’s do it, yeah, and mostly just Bitcoin. I mean, I’m pretty…call me a Bitcoin maximalist is what they call it.

Jon: You bleed Bitcoin?

Trevor: I bleed Bitcoin. I mostly just don’t want other people to lose money in other more insanely speculative bets. It makes me nervous.

Jon: Okay. Ethereum pretty solid?

Trevor: Ethereum pretty solid – great question. That’s probably the biggest debate. Yeah, so Bitcoin is like mainstream. All of them put together, something like, you know, 1.1 trillion market cap that fluctuates a good 10 percent day-to-day, week-to-week, even more sometimes. So the whole market cap of like cryptocurrency and everything was like about 1.1 trillion, right. I think it’s a million for a second there. Yeah, so it’s definitely trillion and Bitcoin’s in the 800 billion range right now and that’s been kind of working its way up, and then Ethereum’s market cap actually should but I don’t know off the top of my head. It’s the second largest but it’s not an insane amount. I want to say – we could google it – but it’s probably between let’s say it’s 100 and 200 which I don’t think it’s that high. If it’s 100 billion then it’s still, you know, significantly smaller than Bitcoin, but it’s a significant part of the cryptocurrency kind of landscape because a lot of the other coins are either like sort of created on what’s considered the Ethereum network.

Tesla Acquired 1.5 Billion Dollars’ Worth Of Bitcoin [0:01:11]

Yeah, so those are the kind of the top two coins but like the main reason I wanted to talk about cryptocurrency and Bitcoin is because of the big news that Tesla acquired 1.5 billion dollars in Bitcoin a month ago.

Jon: Yeah, so let’s talk about that. Why do you think they got that?

Trevor: Yeah, so they called it in their filing with the SEC an alternative store of value asset. So it’s a store of value much like gold where it protects against inflation. When they say store of value, they kind of – it’s kind of like a fancy way of saying like hedge against inflation, meaning that there’s a lot of inflation and dollars losing their buying power, you know. Dollar is going to be a dollar, but a dollar versus, you know, what? A loaf of bread. A dollar versus a euro, a dollar versus a peso. You know, if it loses the ability to buy things then that’s important.

Jon: Sure. Value…

Trevor: So that’s the basis. Yeah, value, and it’s most important, you know, you can talk about like a banana at a store, okay, sure, like those prices do fluctuate and that’s kind of more on the order of the mainstream i...

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Summary:

Russia Invading Ukraine – Implications [0:01:31] The Market Is Doing What It Always Does – Volatility [0:03:31] What’s Inside An Average Client Portfolio (It’s Not All S&P Index Fund) [0:04:05] Crisis In Europe Affects Gas Prices Which Affects The Stock Market [0:06:34] The Longer You Wait To Curb Inflation, The Worse It Gets [0:08:30]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Welcome everybody to the Financial MD Show. We are here, your hosts, once again, Jon Solitro and Dr. Trevor Smith. How are you, doc?

Trevor: I’m good, I’m good. How are you?

Jon: I’m great. I’m, as you know, sunglass shopping. We’re trying this out. We’ll see. I’ve gotten some other good recommendations. Thank you, sir.

Trevor: Your welcome, your welcome. American Optical.

Jon: American Optics. Sponsoring today’s episode is American Optics. They don’t pay us at all but, we’re going to pick them certainly.

Trevor: Yeah, I think is it American? It might even be American Optical. Either way, it’s the Top Gun. It’s the famous Top Gun aviator but they make some other less enormous frames.

Jon: Well, I got to tell you coming from an ophthalmologist, that has to mean something.

Trevor: Yeah, they’re great. Super quality.

Jon: All right. Cool. Well, we want to just bring in a short episode today. We’re going to try to get this out as soon as possible and talk about it’s now February 28th, the last official day of 2 of 22. Hope you all did wonderful things on 2/22/2022 – that was pretty exciting. But lots happened this year. This has probably been one of the worst Januarys on record for a long time and from the stock market standpoint. Here at Financial MD, we had investors who were down, you know, 15 percent within a span of a month or two because we had some aggressive stock portfolios and the stock market just took a hit and there’s a lot of reasons for that.

Russia Invading Ukraine – Implications [0:01:31]

We’re going to talk about a few of them today just briefly but we’ve also got an uncertain future, frankly, and we’re not going to beat around the bush with Russia invading Ukraine. That’s a big deal and could be potentially the start of a World War III or could be, you know,

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Summary:

What Is A 401(k)? When Was It Created? [0:03:00] What is a ROTH [0:10:27] Capital Gains Explained [0:13:44] Financial Advisors Can Help Maintain Your Accounts [0:16:16] When Is It Not A Good Idea To Do A 401(k) [0:25:44] Other Times To Not Use or Put Money In A 401(k) [0:33:27] What Can You Do With Your 401(k) [0:38:26]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hey everybody and welcome to the tenth episode of the Financial MD Show. This is the number one stop for getting direct tips, education, and knowledge on how to make smart personal financial decisions as a resident, so thanks for joining us today. We’re excited because we’re going to give you a twist on a very commonly recommended topic – that being 401(k)s – and, specifically, when is it not a good idea to utilize your 401(k) at work. We’re going to talk a little bit about the history of 401(k)s, how they came about. Trevor is going to go a little bit into the ROTH concept when that makes sense versus a pre-tax contribution to a ROTH, and then we’re going to talk about some things to watch out for. What are the biggest drags on investment returns in a 401(k) or any other account for that matter? Make sure you’re taking notes, rewind if you have to. We’ll be sure to post plenty of resources in the show notes afterwards, but this is going to be a good one to give you some practical tips on when this makes sense and when it doesn’t.

Jon: Okay, so today, we are talking about when it’s not a good idea to use a 401(k) and we’ll make that a general statement so we can apply it to a lot of situations and it’s not so specific as we do in the advice world especially when we’re making a podcast. Full disclosure, I say it at the end, but this is not necessarily financial advice. You got a couple of financial nerds talking about different topics that pertain to doctors and that’s all we’re doing today. We’re going to keep it fairly general and this helps us to get a lot of traction out of this 45 to 50 minutes.

What Is A 401(k)? When Was It Created? [0:03:00]

So let’s talk about a 401(k) a little bit first because of two things. Most people don’t know what that is. They know it has something to do with employee benefits and/or they know it’s a retirement at an employer, but I get this question all the time – what’s the difference between a 401(k) and a 403(b)? And I was like, “Oh, nothing for all intents and purposes.” For our situation here – for you, as the investor – nothing. It’s a little different for what they call the plan sponsor which is a fancy name for the employer. In general, let’s talk about what a 401(k) is or a 403(b). It was created back in the 70s with the ERISA, the Employee Retirement Income Security Act. This created a lot of rules around employee benefits and especially rules around retirement. Back in the day, there were pensions. For years and years, you got a pension, which meant that the company would put away money for all their employees, typically into one big pool, and they had a record keeper that would kind of see how many credits different people had accumulated based on years of service and then how much they made, and then when they retired,

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Summary:

Refinancing: A Hot Button Issue [0:03:08]
Early Financial Services Firms [0:05:28]
Being Comfortable In Your Refinancing Decisions [0:08:35]
Current Refinance Rates: Fixed Versus Variable [0:15:14]
How To Refinance Student Loans [0:17:25]
Getting A Loan Will Not Cost You Anything [0:24:29]
Different Tiers of Saving (Buckets) the Ramit Sethi Way [0:28:44]
What Are Stable Coins? [0:30:25]
Final Thoughts on Refinancing [0:36:53]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now, here’s your hosts, Jon and Trevor.

Jon: You know, you’d think it doesn’t need to be long but probably like most of our topics, it will get longer than we think it will but I think we’ll be done by 9.

Trevor: All right, that sounds good.

Refinancing: A Hot Button Issue [0:03:08]

Jon: I’ll just try to keep track of the time but you know how it goes. We’ll just shoot to share about refinancing and see what type of rabbit trail that takes us and I think we’ll come out with some valuable info especially because this definitely is the hot button issue for residents, young attendings, as they’re getting to the point where they’re realizing they’re going to have to start paying the government 6.8 percent on a full payment and it’s such a good time to refinance. I think we’ll have plenty to cover. I have this conversation all the time – multiple times a week – with clients as they’re telling me, “How do I refinance? Should I refinance?” I mean they’re talking about it in questions and lectures or we’re talking about it with individual planning conversations, but as with many of our topics, Trevor, you can add some wisdom and experiences and I can certainly add experiences from this end seeing many, many residents go through the process and what I think are kind of the quick bullet points. This is one of the topics where we’re going to have some actionable take-home giveaway things so if you’re listening to this episode –which, if you heard that sentence, then I guess you’re listening to this episode – there will be a giveaway. We’ve created a refinancing recipe which is kind of just a brochure – a quick 2-page how-to – on how to refinance your student loans, because it’s not complicated, and so we break it down to something that you can really follow step by step and make sure you’re doing the proper steps and not forgetting any ingredients and you come out with a really nice recipe at the end. We’ll talk about that at the end, but I love how this has become a hot topic in the last 5 years because you and I were talking about Link Capital back in the day, right? Was that the first company that you looked at?

Early Financial Services Firms [0:05:28]

Trevor: Yeah. I’m trying to remember how I came across them actually. I was looking at the traditional as I think we had talked about this not too long ago, but I looked at the limited number. There were three main ones that I learned about on White Coat Investor and it was like Common Bond – how do you say this one, Darien Rowayton Bank.

Jon: Yeah, DRB.

Trevor: DRB. I think SoFi was just coming on in the scene and there was one other one – I think Common Bond, maybe.

Jon: I always get the impression SoFi was kind of the original, but maybe not. They just had the most dollars and were really pushing the hardest.

Trevor: They were late. They were fourth as far as I could tell. Those top three were the established ones that had been written about I think on White Coat and I remember one of them was doing medical and dental and just dipping their toes into lawyer because like it was still early enough that like I talked to people actually when I was evaluating them. This was in 2014-2015. There’s a few banks early on that were getting into it and then I remember SoFi came on the scene maybe within a year or so. I don’t think I refied mine in 2014-2015. I think I waited another year. Link Capital was kind of a startup and I heard about it somehow through somebody and then found out there were some connections to my undergrad at Hope College and so I just pursued that. I thought it was interesting and talked with them and just thought it was cool. They’re kind of startup and had the same guarantees, read the fine print. SoFi came on the scene just before that and then there was a huge glam on of a bunch of different banks like trying to beat it, but SoFi had a great situation where they give you this nice dollar amount like 300 or 500.

Jon: Do you think they were the first to do that?

Trevor: Yeah, I think they gave you more and then the real benefit was that they had this hard number of 100 dollars a month is all you had to pay. I don’t know if they pulled in a lot of people on that but that was the thing that seemed different to me. I don’t remember them having that same dollar amount deferral level from some of the other banks. I think you were starting to pay but you were able to save a lot so it made harder for residents. Then SoFi came in, probably was pulling a lot of business from them – I’m guessing – and then these banks probably just had to compete, right, so then they had to make it easier for residents. I mean some of these companies now you can get – I think one of them is up to like 700 for just refinancing your loan.

Jon: Just for rebate at the beginning.

Being Comfortable In Your Refinancing Decisions [0:08:35]

Trevor: Yeah. This is one of those that I put in the category – I’m not a financial advisor so I can’t advise people to do it but I can tell you from my experience in retrospect after I read the articles and felt comfortable, you want to feel comfortable about making your decisions but you also want to balance that with like not having analysis paralysis. You don’t want to just like try to figure something out for so long you never do it, but this is one of those no-brainers, in retrospect for me. I refinanced a loan that wasn’t that big. I want to say it was like 50,000 because I have multiple student loans and this was one of the few, unfortunately, that had eligibility so I had refied it, and I think just off that smaller loan – most people have 150 to 250 – I saved 10,000 dollars. Ten thousand dollars over the life of the loan – so going from almost 8 percent or 6.8, I think it was, maybe, or 7.8 – 6.8 down to 4.

Jon: Yes, 6.8 was the average.

Trevor: Yeah, I do put it in the no-brainer category along with disability insurance.

Jon: I’ve heard you say that about disability insurance.

Trevor: For physicians. It’s just like one of those products like you can’t believe that it exists. It’s like too good to be true. In some ways, I hesitated on disability because it did seem too good to be true and then you read about it and you’re like, no, okay, this makes sense. Tons of people paying in and some people get sick and that pays them out. But, yeah, so I’m a big fan of refinancing if it make sense for you and then you’re the expert on whether it’s the right decision for the individual. I mean as a financial advisor and it definitely does depend on the situation. But for me going into private practice almost certainly or owning my own practice in ophthalmology, I knew that I wanted to either go straight into the missionary field and do some stuff internationally for a while where I could get support for that no matter what, or I wanted to go into private practice. I just didn’t think academics was in the future. For me, I wasn’t going to be working for a non-profit where I could be eligible for loan forgiveness. That allowed me to be a little more aggressive in paying off early and making some extra payments in residency that just kind of knocks it down in chunks that can’t grow – that big pile can grow really fast. That’s kind of my thoughts overall on it and it does matter, though. I mean, if you’re going to be eligible for loan forgiveness, you do want to look into that, but like I said, analysis paralysis. Talk to somebody who knows, read some articles on White Coat. I think it’s confusing enough. This is a topic where I would say it’s hard to figure out for yourself which one’s smarter. You kind of need to pay somebody a little bit of money – a financial advisor – like you. You charge 50 bucks a month, right, for residents?

Jon: As of this recording, subject to change.

Trevor: I mean I think that’s a no-brainer to look at that and set yourself up. I’m sure I’ve said that before but you can make up for that by deciding whether you refinance or not, and if you choose refinance, instant return on your money for that. I mean, imagine if somebody takes your services and refies and gets 700 dollars and saves 20,000 to 40,000 dollars over the course of their loan over 10 years. I mean for 50 bucks a month, that’s pretty good.

Jon: You’re right, exactly. Real quickly, the break-even point comes real quick. That’s a lot of where the conversation starts with the residents and the young attendings that I’m working with. The main thing I want to talk about is these student loans and that’s been the same question ever since I’ve been in the industry and it has shifted to include refinancing back in the day 6-7 years ago when I started. It was, mainly, helped me with the student loans, whether that was refinancing or figuring out if PSLF was going to be a thing that had just started kind of coming around or just how do I pay these off properly, in the world where there was no private options because today’s interest rates make private loan refinancing a no-brainer, for sure.

Trevor: That’s a good one too.

Jon: Yeah, back when you could refinance for 5.5, it was like go from 6.8 to 5.5, that’s nice but that means I’m out of Public Service Loan Forgiveness eligibility. Is it worth it, this and that – so you better be sure you’re not going to be eligible for Public Service Loan Forgiveness at that rate. Over the last 10 years, the rates have dropped to where it’s absolutely a no-brainer because the federal rates haven’t really dropped. I think they have a little bit if you’re starting out right now in medical school but the residents that we talked to, they’re still around 6 or 6.8 percent. I just had a resident I was talking to today while she is in practice now but she’s refinancing. She’s got about 380,000 and she’s in Family Medicine and she could be eligible for Public Service Loan Forgiveness probably, but she has decided to go the private loan or private refinancing route because of a couple of reasons. That’s a lot to bank on and hope it works out in her mind and I think people have a hard time trusting the government and you know that they’re going to come through in their promises and just all that stuff so she decided to go private refinancing and she looked at Laurel Road, Earnest, and SoFi – and we’ll have links for these in the show notes – but incredible was the website that she went to to look at several different lenders at once so that helped and that’s what recommended SoFi.

Current Refinance Rates: Fixed Versus Variable [0:15:14]

I don’t think we ended up going with SoFi. She’s going to do one of the other ones; the rates were just simply better. She was looking at a 20-year which was 4.05 and a 15-year was 3.85, and then a 10-year was down to 3.4 or 3.5. Then we talked about, okay, here’s your different options, and these are for fixed. You can probably get lower on the variable but I don’t recommend the variable especially on these, and I don’t mind saying that to pretty much anybody and everybody that’s the case. Fixed because rates can’t go much lower. They’re only going to go higher over the course of their loan so the variable rate, you’re pretty much guaranteeing that thing is going to go higher.

Trevor: Right, yeah, because there’s two times right.

Jon: Yeah, before too long, it’s going to surpass what the fixed rate is you would have gotten so I just say, “You know what, just take the fixed rate. Sure it’s a few points higher but worth it.” I think she ended up setting on a 15, maybe a 20, because she had some other financial obligations that we had to also prioritize but typically, I find my attendings are getting a 10-year rate, probably 90 percent of the time, and then usually they’re making about a payment to be paid off in 7 years and so that’s typically what I find with the average physician. I know incomes are all over the board, but typically, we find we’re able to do that, still put money towards financial planning goals, retirement, kids’ college – all that kind of stuff – buy a house, have a decent lifestyle – 10 years seems to be pretty doable. I hope that continues to be the case as tuition and college costs are rising, but so far at this point it is.

How To Refinance Student Loans [0:17:25]

When we’re looking at that, the first question you have to ask yourself is, “Do I want to plan on Public Service Loan Forgiveness?” If yes, then refinancing is off the table. If no, then we can look at the refinancing and we know almost beyond the shadow of doubt, if your credit’s decent and most lenders are looking at least 700, maybe 720 is what they want to see – typically 700 is the minimum that you got to have to look at refinancing – but if you got good credit, you have an employment contract in hand, sometimes even before that, you’re going to get rates that are for sure going to be in the 3.5 to 4.5 percent range. If you know you’re not going to do PSLF – and we’ve talked about this enough before, you can Google this if you need to find out more details – but you know you’re not going to do PSLF which means you’re not working for a non-profit or you don’t trust the government or any of those things, then you can start shopping around for your refinancing and the great thing about refinancing is all the companies that we’ve seen when you go to get your quote, they do a soft credit pull. It shouldn’t affect your credit score – just to check – and that means you can easily get 2, 3, or 4 different quotes so you know you’re making educated decision. We typically tell our physicians to get at least 3 refinancing quotes. We can do it all in one afternoon, probably all within an hour. It doesn’t affect your credit score and you’re only going to be better off by knowing 3 different options. And then we sit down, we have a conversation. We say, okay, because it will show you, here’s the 5-year, the 7-year, the 10-year, the 15, the 20, and each one has a different interest rate and a different payment. The shorter the term, the lower your interest rate’s going to be. It’s going to be more advantageous to get a shorter term, but you might not be able to afford that kind of payment either. So it’s finding that sweet spot, and honestly, that’s a budget conversation then because it’s like, okay, sure, we’d love to have this paid off in 5 years at a lower interest rate but that’s 8,000 dollars a month. You can’t afford that. Like I said, typically, we end up settling on a 10-year and putting a 7-year schedule on it. I love having that conversation because these rates are so good. People don’t know how good it is when you think about just the history of interest rates. That’s kind of my quick and dirty on how to refinance student loans.

Trevor: Yeah, and for the people who haven’t even looked at this at all, they just went through med school, did a great job, graduated AOA, and they’re like the smartest person in the class, but they just focused on med school. I mean there are two different types of loans in financing. Like you said, one is fixed and one is variable rate. Fixed means that it’s just the same rate. It’s like the loan you get from the government stays the same forever until you pay it all off. Variable, a bank will loan you the money at a lower rate but they reserve the right to continue to lower the rate if general interest rates go down or they can raise the rate over time. If it’s already at a low rate which is why Jon was saying it’s low now, why would you lock in a fixed unchanging for the length of the loan. You can lock in a fixed rate when it’s low and the variable rates are already low – pretty much rock bottom. They could go a little lower but it wouldn’t matter. If you go from 2 percent to 1 percent doesn’t really make a big difference, but if it goes from 3 percent and then the variable rate goes up to 5, 6, or 7 percent, it makes a huge difference. That was the logic there on that. Nobody, I guess, unless you take a private loan – I don’t think even private loans when you go to school. People can’t take out variable rates, can they?

Jon: I know they can take out private loans.

Trevor: But I wonder if those are allowed to be variable. I actually don’t know the answer to that. I don’t think so, but I don’t know for sure.

Jon: Maybe not. I’ve seen high rates which seems like those must have been variable at some point to get this high, but yeah, maybe not, because we were seeing sometimes loans from SunTrust Bank or something back in the day that were 8, 9, 10 percent on student loans but those could have been definitely been fixed. Once you pick which lender you want to go with and which term, or which option they call it, let’s say, you choose the 10-year with a 2800 dollar a month payment and this and that, then you kind of go through the full application process, and if everything goes well, I think it typically takes 2 to 6 weeks. They basically pay off your federal loan and then now you owe them that same amount whether it’s SoFi or Common Bond or Earnest or Laurel Road or whatever. There’s so many out there and I’m also going to try to put a link in the show notes. It’s going to be either through the White Coat Investor or different credible or something like that. They’ll have a list of the top 10 or top 20 student loan refinancing companies. There seemed to be more that pop up every now and then.

Trevor: NerdWallet can be decent too for comparing.

Jon: NerdWallet is a good one. Bankrate is a good website for looking at student loans but those are the kind of websites where you’ll find mortgage rates and savings account rates and credit card rankings and stuff like that. I still use that for a lot of our stuffs. When I have credit card conversations with clients, that’s where I typically send them, this NerdWallet or Bankrate to say, hey; or savings accounts. If we want to try to eke out some kind of interest near 1 percent, we might go to try to find some high-yield online bank savings account through NerdWallet or Bankrate or something. That’s a place to go, and the other thing people ask, you can refinance as many times as you want typically.

Trevor: Yeah, I’ve done that. I’ve done two. I did Link Capital and then SoFi.

Jon: Right.

Trevor: Yup, and I got paid on both of them.

Jon: Yeah, and it didn’t cost you anything.

Trevor: So that’s cool. They didn’t cost me anything. That’s the other thing. I don’t think we think said this. I was like, “Oh, will there be a closing cost?” Like buying a house.

Jon: Yeah, for sure you’d think so.

Getting A Loan Will Not Cost You Anything [0:24:29]

Trevor: I knew just from my parents buying a house that there were cost money to get a loan. I was like, “Oh, it’s going to cost money.” It doesn’t cost anything. The other thing is like you and I, other than that referral fee or bonus, when you click a ref link from somebody, usually they’re getting paid a little something like 2 or 3 dollars. It’s usually about the same for these loans, but there’s no commission. It’s not like you make money off of them refinancing. It’s just like a win – it’s not a win-win. It’s just like a win for you.

Jon: Yes.

Trevor: Yes, a single win, and it’s only you that wins.

Jon: Yup.

Trevor: Normally, you’re going for win-wins, but this is just like, “Hey, if it’s a win for you, it doesn’t matter.”

Jon: It’s okay to be selfish here, yup.

Trevor: Yeah, and that’s a cool thing. I mean it doesn’t cost you anything. Again, like I said, it seems too good to be true. It makes you wonder, “Why did the government charge me so much for this loan?” Because they can.

Jon: That is a great question. Because they can, right.

Trevor: It should make you mad.

Jon: Yeah, it does. I’m mad for my doctors because in my mind, the physicians are kind of propping up the student loan academy.

Trevor: A hundred percent. True.

Jon: They’re paying the same interest rate as these bad credit low-income Joe Schmo that is not going to make his payment, isn’t making his payment, is still at 6.8 percent because the government doesn’t check that stuff. They just feel like everything should be fair so everybody should be paying the same rate.

Trevor: Everyone should get to go to college.

Jon: Yeah, so you going to medical school for 6.8 percent is a travesty and let alone the fact, everybody should be paying less rate, I think, especially the larger borrowers – people with jobs that are more secure – and physicians have as good a job security as anybody and yet you’re still paying the same rate again as those that graduated from college and can’t find a job with a bachelor’s degree. Even over the years as interest rates have dropped, and they’re still getting 6.8 percent. That’s the part that it’s like, what the hell?

Trevor: That’s pretty messed up. I mean, I like to think about what’s the best argument like if you’re going to try to prove somebody else wrong or really discuss the topic well, the pros and cons, you try to put up the best argument for the other party.

Jon: Sure, kind of play Devil’s Advocate and think well.

Trevor: Yeah. I want to be able to articulate the argument better than them and then still defeat it. In this case, I literally can’t think of anything like what would be the reason that they can justify charging a higher percentage than the free market. It’s not cool. It’s definitely not cool and I’m sure everybody agrees so I’m sure we don’t belabor the point. It’s very weird. You’d think there’d be a justification.

Jon: No, there’s somebody in the government who will consider this and be impacted by our rant.

Trevor: Right, yeah. I’m sure there is a really gentle soul out there who just got their hand on the key and they can just turn this, no problem, change it.

Jon: It’s that easy.

Trevor: I was going to say – and you could pull this for a different podcast or whatever. It is a nice thing. People are always looking for high-yield savings accounts. You can tell because I read the Ramit Sethi book – you know I love this book, this guy – the I Will Teach You To Be Rich book. It’s got the whole how-tos and a lot of things and gave me a good framework, but he’s got a thing on automating your finances and he talks about specific banks – Ally Bank – where you get paid; automatically, it goes in your checking with direct deposit, and then monthly, the Ally Bank savings account can pull the money, and then within that account, they have different tiers of savings like buckets so like emergency fund.

Jon: Okay, like different interest rates.

Different Tiers of Saving (Buckets) the Ramit Sethi Way [0:28:44]

Trevor: No, it’s one account. It’s one savings account. It was one percent which is kind of the highest around APY so annual yield of one percent, which is still insanely low. We’re talking about our student loans way higher, but if you’re holding an emergency fund, you need some cash in case your car dies or you lose your job and you have to pay your student loans still and you want to hold some money there. This can automatically deduct a certain amount per month like if I’m saving for a house, it can throw 2,000 in the house bucket and 5,000 in the marriage bucket if saving up for a wedding, and then 15,000 in the emergency fund bucket. You don’t have to have all that money. You can distribute that evenly. You can take 2,000 dollars from your monthly check and it will automatically distribute it to whatever percentages you want for each one of those things. It’s a pretty cool tool. So you think I’m just saying, “Oh, this is the coolest thing I’ve ever found.” Feature-wise, it’s awesome, but since March – it’s January 2021 right now – since March of last year, every two months, it dropped by 0.1 percent or so. It’s like 0.6, I think, now. That’s brutal. I mean, that’s typical high-yield savings account but it’s brutal. I don’t care what anybody says. The reason I brought it up is because you know how I’m into the whole cryptocurrency kind of stuff.

Jon: Yes, I kind of knew this was going that way.

What Are Stable Coins? [0:30:25]

Trevor: You’re right. Again, not a financial advice, I’m not a financial advisor. Talk to Jon. But it is important to note that there’s a lot of disruption occurring in the finance space because of this and there’s something called stable coins which are kind of cool. Coin-based is one of the ones that’s regulated in the U.S. and you can transfer with an ACH transfer – that’s just like a bank-to-bank transfer. It takes 3 to 5 days. Everyone’s probably used one. You can transfer your money over to coin-based and they’ll kind of credit you a little bit ahead of time if you established some proof that your bank has money in it and if you’re a customer for a while. Otherwise, 3 to 5 days later, you put in, let’s say, 2,000 dollars, you transferred over and that’s to be getting your baby emergency fund or if your car dies or your basement floods or something and you can convert that over for a teeny tiny fee like a couple of dollars to a stable coin which is called the USDC. It’s a currency. It’s the U.S. dollar equivalent and it stays pegged to the U.S. dollar. So this is not like Bitcoin – the price goes up and down – which I’m still loving, not hating on the Bitcoin, but this is designed to stay on the same price.

Jon: Hence, the name stable coin.

Trevor: Stable coin, exactly, yeah. Just like a digital dollar, and the government’s maybe talking about doing some like this. China already did it or they’re testing it. It’s going to be crazy. A lot of the stuff is going happen pretty fast. Anyways, you can already do this. Coin-based, I think, is 2 percent or 4 percent return automatically just right there. You can convert it over or you keep your dollar just sitting there. They’ll give you a return on your money right there. I mean that’s like 4 times what you get on the Ally, okay. They don’t have the buckets. They don’t have that kind of savings feature and then it’s sitting right there just trying to get you to buy some Bitcoin, you know what I mean. They’re making it convenient and enticing to keep it on the network for multiple reasons for your benefit but also because if it sits there for a while and you’re watching everything else go up 20 percent every few days, you’re going to want to dive in to one of these random cryptocurrencies which certainly people always say do your own research. I can’t advice anything but they’re volatile and you can lose a lot of money so people should be careful. I do encourage people to read about Bitcoin and all the cool features and stuff it has. It’s a really disruptive technology.

Regardless, there’s a third-tier step to that where there’s companies now that will lend out stable coins and cryptocurrencies so you can take the USDC and it’s all U.S. regulated. It’s all KYC which means know your customer information so you’re saying this is my bank account. It takes your Social Security number, but there’s another company where you can transfer USDC over to them and then it just sit there. It looks like it’s your bank account just like it would at chase.com and they’ll give you a return of between 11 and 12 percent. They do that because people will buy it on leverage.

Jon: Sure. They’ll call you to do that in stocks too.

Trevor: This is where you have a stable coin. It’s just sitting there in a savings account. It never looks like it leaves but all the money that’s sitting there, they’re doing the same thing that your bank is doing, Chase, which is giving you zero percent. It’s essentially like fractional reserve banking. It can take up to a certain percentage of it safely, lend it out to people who will make money with it, and return it with interest and they share that interest with you. If you’ve ever wondered how much Chase Bank is making off of the money that’s sitting in your checking account, you can make 12 percent off of a stable coin that’s sitting in the equivalent. It’s crazy. I mean it’s like skipping the bank. It’s all digital so they can just contract digitally with hard digital assets and borrow this extra money to leverage. Anyways, it makes it hard to want to hold my entire emergency fund in 0.5 percent Ally Bank APY.

Jon: Yes, I hear you. As long as it’s liquid that’s why what’s important about in an emergency fund is you need to be able to get to it and it’s got to be stable so the value can’t be up and down every day.

Trevor: That’s the thing, yup.

Jon: Those are main pieces, so other than that, have it in whatever you want as long as it’s stable and it’s liquid.

Trevor: Yup, and I think they have a delay on withdrawals so you have a few days. You can’t just withdraw it immediately. That’s not uncommon. In ACH transfers, it’s already 3 to 5 days, so it’s not really a big deal. This isn’t instant transfer once it appears. Anyways, just a little fun thing that I learned about, maybe, 2 months ago.

Jon: Yeah, that’s interesting because that’s stuff that most people don’t know about by far.

Trevor: Yeah, it’s going to be game-changing. It’s going to be a wild world out there, and I still like Bitcoin even though it went down 25 percent today.

Jon: Oh no, it didn’t. Do you know why? Does anybody know why?

Trevor: That’s just natural market corrections; just what happens when you go crazy for 5 months straight. It’s one of the longest runs it’s ever had. Again, not a financial advisor; I’m repeating what I’ve read. It’s just typical. I mean this is what happens. It’s got a lot of volatility to it. There’s tons of indexes and stocks and things you can trade that are more volatile than it. Penny stocks, right?

Jon: Yup. Oh, for sure.

Trevor: But this is a global financial infrastructure. I’d rather own that than the penny stock.

Jon: Yeah, penny stock can go to zero.

Trevor: Yeah.

Jon: Cool, all right.

Trevor: We lost topic.

Final Thoughts on Refinancing [0:36:53]

Jon: Yeah, that’s right; still interesting though. That’s the Financial MD Show. Any final thoughts on refinancing or anything? Is anything else for that matter?

Trevor: Final thoughts – for me, it was a realization that I had to find a reason not to refinance given that I wasn’t doing Public Service Loan Forgiveness. I was just like, okay, this is how it works. It’s safe. No one’s making a killing on me. No one’s ripping me off. It was my first step into the financial world and I had to make sure that I wasn’t doing something stupid. And once I realized I wasn’t doing something dumb, I was doing a consensus decision that people make along the way. I mean lowering how much I was going to pay in interests. I already bought the school that I went through. Why would I want to pay more for it? They were going to let me pay less so I want to pay less. That’s what I chose to do.

Jon: Yeah, I think that goes along with the age-old Dr. Smith advice that we always like to refer back to of make easily reversible decisions or something like that or what would you say?

Trevor: Yes, although this is not a reversible decision.

Jon: It’s not reversible, no, but it’s something that could be refinanced again. You’re not locked into it.

Trevor: That’s true.

Jon: Think it through and think, okay, what are the downsides, and if you’re okay with the downsides, then you move forward. That’s kind of how we approach it – whenever we’re making decision, think through what’s the worst case scenario, and if you feel like, yeah, I could stomach that or I think it still makes it worth it, then that’s it.

All right, I think that’s enough info on refinancing. It was kind of the main things that you need to know. We will include in the show notes for everyone listening to this a lot of the links that we talked about from the books and some other websites and things, but also, the ability to download the refinancing recipe from Financial MD. So head there in financialmd.com or look in our show notes on whatever device you’re listening to here; that will take you there. Be sure to visit the website for updated blog posts and info on what we’re talking about today. We keep a list of refinancing lenders. We like to keep you pointed to the right direction and then we’ve always got the conversation going on the Financial MD community – a Facebook group. Be sure you’re there. This is Jon Solitro, Dr. Trevor Smith, with the Financial MD Show. Thanks guys for listening.

Trevor: Thanks Jon.

Resources and Links:

White Coat Investor website – https://www.whitecoatinvestor.com/
Link Capital Partners – https://www.linkcapitalpartners.com/
Common Bonds – https://www.commonbond.co/
Darien Rowayton Bank – https://www.drbank.com/
SoFi – https://www.sofi.com/
Public Service Loan Forgiveness (PSLF) – https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
Laurel Road – https://www.laurelroad.com/
Earnest: https://www.earnest.com/
SunTrust Bank: Personal, Mortgage, And Small Business – https://www.suntrust.com/
NerdWallet: Make All The Right Money Moves – https://www.nerdwallet.com/
Bankrate: Guiding You Through Life’s Financial Journey – https://www.bankrate.com/
I Will Teach You To Be Rich by Ramit Sethi – https://www.iwillteachyoutoberich.com/
Stable Coin – https://www.coinbase.com/usdc
Financial MD website – https://financialmd.com/
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA

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Summary:

Trevor’s Background on Disability Insurance [0:03:34]
What Trevor Did On Getting Disability Insurance [0:09:04]
Catastrophic Plan – What Is This? [0:11:01]
Importance Of Own Occupation Rider [0:12:54]
Future Increase Option Rider/Guaranteed Benefit Update Rider [0:14:03]
What Makes A Good Insurance Company? [0:22:31]
Why Will You Get A Cost Of Living Or Inflation Rider [0:28:06]
Insurance As Part of A Financial Plan [0:33:30]
Diversifying Risk: Two Insurance Companies [0:36:15]
We Can Help You Get Disability Insurance At Financial MD [0:43:45]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Obviously, there is a lot to talk about when it comes to disability insurance. Huge topic of conversation. When we do our workshops, all the time, disability insurance comes up almost without fail and rightly so. I think as financial planners at Financial MD here, we’re obviously big believers that that’s a big part of a financial plan. Today, I wanted us to riff a little bit on. Let’s talk about shady insurance agents or shady insurance practices a little bit and what to do if you’re just flat out, “I don’t want to necessarily pick this one person to help me find my options. I’m just going to go around educate myself and figure out which shops to go to get disability insurance.” Trevor, that’s what we’re talking to today. Part of the reason that we met is I think you did that more than anybody else that I had known up to that point, or residents anyway as far as taking initiative, getting to know the disability insurance world and saying, “I’m going to go figure this out.” Let’s start with that. Give me some background on what you did when you decided, “I need to get disability insurance.” How did that whole process even start?

Trevor’s Background on Disability Insurance [0:03:34]

Trevor: That’s a good question. When did I first look at it? I think I looked it up in medical school and I misunderstood and thought that I couldn’t get it at the time because I didn’t have income yet so I waited and start residency which is a bummer. I think I mentioned before that from lots of studying, of course, occasionally, your neck gets a little sore. You’re looking down all the time, whatever you were reading and you didn’t take a break, and exam was several hours. For whatever reason, I was like, man, I should like – I’m learning about how great medicine is and how it can really help us and I wanted to be a good, healthy person. As a medical student I’m like, you know it, yeah. I’m like and you do kind of get a little inspired. I want to take care of myself. It’s like I’m going to pop over to the university health service to get a free visit. I’m going to pop over there, talk to a doc. They have physical therapists there and they have PMNR docs. I made an appointment with PMNR. I was just like, “Yeah, this part’s always getting kind of tight on this side.” I’m right-handed. With the mouse and the computer, whatever, like reading books. I made them just like getting some strain or something. I got a physical therapist then I was working on some stretches and stuff and strengthening exercises. By the time I applied for disability insurance, the disability companies did not like that I had went to the doctor once for neck soreness. Spine exclusion was one of the – I don’t think they call it a rider, I guessed it’s called an exclusion – when you have a preexisting medical issue. It’s not like health insurance where they are not allowed to add those. It’s actually the entire industry of insurance is based around excluding people that are going to be potentially more expensive.

Jon: That’s how they are profitable.

Trevor: Yeah, they have to do that. People with more problems seek insurance more often.

Jon: What do they call it, Trevor? Selective – what do they call it?

Trevor: I actually just can’t remember.

Jon: Adverse selection, that’s it.

Trevor: Adverse selection, that’s right.

Jon: I got that once or twice in resident who was surprised like, wait, what? They can exclude stuff? I thought they had to cover everything.

Trevor: You’re right. For health insurance, fortunately, that was one of those good Obamacare things actually. I don’t know anyone that disagreed to that. It mentioned that they can do that for the actual health insurance. It’s terrifying. For disability, there’s paying for your income. It’s your income stability insurance, your guaranteed income. Anyways, I had that exclusion for a while. I was blown away that I would potentially have to pay more and get less out of it simply because I didn’t apply earlier before this stupid doctor visit. So I’d two years reapply, do the full medical underwriting again, got it removed, because they can let you reapply later. You keep the policy just in case something else happens and then when nothing happens especially in that specific exclusion, they’ll take it off for you. Going through that process, I was like this is crazy. I didn’t understand. I would ask lots of other people, hey, do you have disability? Nobody had it. I told friends about my experience. It was difficult.

Jon: You were residency at this point or still in med school?

Trevor: I was in residency. They were just, okay. yeah, I’ll do with it later. Pretty much the standard response. I was, no, you don’t understand. They were like, well, maybe next week. It’s usually like it’s not a big deal. It’s more like I acknowledge that’s an issue and I will put it off.

Jon: Yes. I will definitely put that in my to-do list. Thank you for bringing that to my attention.

Trevor: I will definitely ignore that for a while and then I will get back to it later. For me, I was so inspired and I’ve realized that part of the cost of signing up goes to an agent and I’m already thinking like I wonder if I can make this and do a little side gig during residency because I wasn’t allowed to moonlight. That was the motivating factor. If I could have done some moonlighting then, I probably would have just done that. Like radiology residents, they make great money hanging out by the MRI in the middle of the night. I don’t understand but I would have been happy to sit by an MRI machine as an ophthalmology resident. Anyways, I got really into the whole insurance and then applied for my license and took the test and everything because of that difficulty and I wanted to help friends, family, whomever, to protect their income in case they get sick and people talk about accidents but we know that sickness, disease, ailments are really the main thing that caused people to be disabled and lose their income. Just they’re way more likely than traumas and accidents even though those happen a fair bit in young people as well. I maybe got a little off track here but that’s how I got interested in the whole thing.

What Trevor Did On Getting Disability Insurance [0:09:04]

How did I go about actually getting it? I think I just went right to White Coat Investor and then I looked and then I closed my eyes and I picked a random advertising pretty much. I think the one that sounded the nicest. I went with – and we talked about that – Set for Life, which is nice. It ended up just being I think one phone call and then a lot of emails and then a phone call with the insurance company to talk about any medical issues, more you have, the longer it is or the more OCD you are about describing details along our takes. Another reason to do it sooner because then you have a shorter phone call. Then another phone call with – maybe she just delivered – you have to deliver the final insurance thing as an insurance sales person. I think she just sent via email and then a doc you sign or something. It wasn’t too bad. It was pretty easy. I didn’t exactly know what I was getting. That’s probably a nice thing to figure out. She was an independent agent as well. Online stuff is nice. It’s convenient, but it’s not quite the same level of personal trust and assurance that I probably would have appreciated. I didn’t really understand the riders and the insurance agents are not incentivized really to make sure you understand. They’re kind of incentivized to get on the next call or write the next email. Having good materials that describe the different riders and the pros and cons and things like that would have been nice. There’s a lot of riders depending on which company you’re with. Catastrophic is a big main one.

Catastrophic Plan – What Is This? [0:11:01]

Jon: How do you feel about catastrophic? Any thoughts on whether it makes sense or not or it’s kind of a gimmick?

Trevor: First, I’ll just say for disability insurance, the main thing – for anybody that doesn’t know a lot about it which probably most people – basically it guarantees a certain percentage of your income even if you get disabled with certain qualifying conditions. If I can’t work, it depends on the companies. Some are verbiage on this, some are a little more open, a little more strict. If I can’t work, then I get paid. Usually, it’s somewhere around 65 percent or so of what my income is when I’ve verified it. If I make a hundred thousand dollars, actually even with Principal and Guardian in them because doctors make so much, they start to cap it out. If you make 80 grand, they’ll probably cover you up to pretty close to 80 grand. If you make 350 thousand, they’ll probably cover you for 65 percent or so up to maybe like 8,000 a month, 10,000 a month. Even with a lot of bills and stuff, they know you can probably get by with 8,000 to 10,000 a month in income. The upside for covering more of it isn’t that high for them. In the event you get insured, it’s outweighing injury and you pay him 20,000 dollars a month and then we charge him 300 dollars a month and then we maybe make a little bit extra. I don’t think it probably bares out the risk/reward for them. Anyways, you end up getting like 65 percent and then they figure out what things you can do with the policy so those were called riders.

Importance Of Own Occupation Rider [0:12:54]

One is own occupation that’s made famous and clear by White Coat Investor pretty well. Doctors should have that one because you don’t want to get injured and have the verbiage of your contract say, if you’re injured but can still work at McDonalds then we don’t have to pay you, and the own occupation when you have that slapped under your policy means that if you have taken work in other capacities and you can’t work in your original capacity like if I’m an eye doctor and I can no longer do eye surgery and work in the office and use the machines then I get paid even if I could work at McDonalds.

Jon: Even if you do go do something else as long as it is something else truly, you’ll still get your benefit.

Trevor: Yeah. That’s right. If I become an insurance salesman or something, then I can get benefit from the first job. What are the other main riders? We were just talking about catastrophic. So one of the other big ones before catastrophic, the guaranteed.

Future Increase Option Rider/Guaranteed Benefit Update Rider [0:14:03]

Jon: I’d say the future increase option?

Trevor: Yeah, future increase or guaranteed benefit update rider is what Principal I think calls it. Basically, if you get a pretty good increase in your income, it can’t be like teeny, tiny little steps every so often like year.

Jon: Like residency to attending.

Trevor: Yeah. Every couple of years, you have to use it and it will expire if you don’t use it. I actually just opt mine three months ago because if I wouldn’t have, I would have lost the benefit update rider. Kind of have to keep making more money if you want to increase it.

Jon: Yeah, you got to report it every three years is I think what it is basically, and if you’re making less, then they’ll drop your benefit.

Trevor: Oh, okay, you just have to keep them in a loop. That makes sense.

Jon: Yup.

Trevor: In my case hopefully, we’ll just hope that it keeps going up and that it will be that way for long. We’ll see.

Jon: You and me both.

Trevor: With COVID, I mean, we’re seeing a lot less patients so some people might be landing in a weird benefit update period, honestly.

Jon: Yeah, that’s true.

Trevor: That’s one of the best. People say get it early so you can lock in lower rates. It’s kind of true but it’s mostly that you are locking in your health.

Jon: Exactly. It’s the concept of locking in your age and health.

Trevor: Yeah. A healthier you get lower rates but mostly you just lock in your health so you don’t get any exclusions and you can put your income to the moon as you really grow your income.

Jon: That’s what we talk about with disability insurance. I remember doing a workshop and I’m talking about the concept of disability insurance, they say, “Oh well, we actually have some here at work.” And I say, “Yeah, I know you do.” That’s kind of irrelevant because a. you’re going to lose it as soon as you leave here and go into practice or go to fellowship; and b. we’re getting you this disability insurance policy. What we typically do at Financial MD is try to find the lowest disability insurance benefit just to save a few bucks but still making sure it’s fully robust. Low benefit but making sure what’s important is that the future increase, that benefit update, because the whole point is locking in your good health now so that you’re saying, “Okay, great. Now I feel better that whatever happens from here and out, if my health changes or something changes in my record or whatever, I still have that maximum potential increase I can go up to.” For example, Principal’s right now is 25,000 a month of monthly benefit that if you got a small, say, a couple thousand dollar-a-month benefit right now as a resident and you’re good, you got that in place, you know that when you go into practice if your income justifies it, no matter what happens in your health, you could get diagnosed with diabetes. You could get a shoulder injury. You could get a neck injury – all these stuff – and when you go into practice and show them your contract, your pay stub, they’ll still increase it whatever you need. They can’t look at your health anymore. I definitely think that’s the biggest one I got to hit this concept over and over again that that’s why we’re looking at disability insurance as a resident. Just protecting your income now.

Trevor: Right, yup. I mean you do protect your resident income which, heaven forbid, something happen, you would still be glad you did that.

Jon: You’re not going to be mad you had it.

Trevor: You’re not going to be mad you had it. I think I was paying 90 to 100 bucks a month during residency for the coverage of my resident salary which was 4,000 per month.

Jon: Well, you were overinsured technically because between that and your group benefit they gave you at Beaumont, you probably would have collected on 5500 bucks a month anyway.

Trevor: You’re probably right.

Jon: So that’s what they do. That was different. Insurance companies, residents are the only profession where they’ll give you more than you make. They’ll insure you for more than you make because they know you’re good for it in the future.

Trevor: Interesting.

Jon: I had a fellow that was making 65,000 to 70,000 and Guardian was able to give him – he could go up to 7500-dollar monthly benefit as a fellow and he did. I was like, “You don’t have to take that. That’s pretty expensive.” He was, “No, I want to.” I was like, “Okay.” That’s fine but it was 300 and some bucks a month.

Trevor: That’s a lot.

Jon: I know. Some people just figure they can understand chaos theory in statistics and just say, okay, but if something happens before I even go into practice, I’m going to want to be making a decent amount and not have to worry about finances because, shoot, I put in all this time in education. I want to get something for it. I get it.

Trevor: Yeah, that little bit of monthly payment is a very nice safety net. I’m glad I have it. After just updating it, I was okay, feel a little better. I think it’s going to be a little bit similar to what it feels to pay off your student loans or your home or your car. You just breathe a little bit. This is a sigh of relief like, okay, even if I get hurt. I don’t have kids yet but when I do I have that policy and there’s no exclusions and they will be provided for which is a good feeling. You don’t have to worry about if something happens. Just like when you get life insurance. If you do a dependents and you have that in place, you’re just like okay. God forbid if something happens, but at least, I would know that they’re taken cared of even if I didn’t know something was coming for me. I would know that they’re okay.

Jon: It’s getting over that hump of the avoidance of worst case scenario. People like I don’t want to think about it and that’s what prevents a lot of people from looking into it. As a financial planner, we want to talk about the optimistic future and growing towards your financial goals and doing that stuff but I’m doing our clients a disservice if I’m not saying okay but what if that doesn’t happen? What if something bad happens? How do we make sure these financial goals still happen for you or your family if you’re not around anymore and you only have to talk about it once and then you’re good. Okay, so your experience with Set For Life was pretty good.

Trevor: Yeah. That season, they got me the policy. That’s the goal. I’d say definitely the most important thing for any resident or medical student is just get the policy. If you don’t really want to spend the money yet, get the cheapest, lowest price you can with a good company so don’t skip on the company. Just skip on the coverage. Some of them have promotional prices for medical students. They’ll have just really low monthly payments. I mean, you’re already paying for student loans. It’s going to be cheaper than any book. It’s going to be cheaper a stethoscope, study materials, stuff you buy on the Amazon. It’s cheaper than all of that stuff. Easily, it’s the cheapest thing and you lock in your health. The number one thing is just get it. Just get it like today, tomorrow, this week. If you don’t have it just get it. Go ahead.

Jon: That’s what I was going to, I think, about good companies. Yeah, that’s what I’m going to go towards. What makes a good insurance company?

What Makes A Good Insurance Company? [0:22:31]

Trevor: Good question. I mean, there’s a few things.

Jon: I would say financial strength, stability. I guess we can kind of short cut the process and say if you really wanted to look it up or ask the insurance companies what is their rating through a company called AM Best – that’s a company that rates insurance companies and they give the A’s, A+, B, B+, B- – all those kind of things. When you’re comparing, that’s something to look at. I wouldn’t say go with the top-rated company per se. I would just say make sure that the company or companies you’re looking at all have decent ratings, and by decent, I want to say B+ or better, maybe A- or better. For example, we kind of look at six different companies if we’re getting disability insurance for residents. Here at Financial MD, we’ll typically look at six different companies – Principal, Guardian, Standard, Ohio National, MassMutual, and Ameritas. I would say they are the top six as far as how do we pick those companies. Financial strength and stability, for sure, obviously. All these companies had been around for 100+ years in some way, shape or form. They’re very strong in that sense they’re profitable. All that kind of stuff. They’ve got a ton of insurance on the books in the billions. What also we’re looking at is secondly do they have a good product for physicians, and a lot of that kind of boils down to the definition of disability when it comes to that true own occupation concept, how do you know it’s got true own occupation, and even between all those different companies. Those six companies, we know had a pretty good product, a good language for disability of true own occupation. Even between those, there would be some that I might steer one way or another. Take Guardian, for example. Guardian is probably the more expensive but they’ve got very generous languages in their definition of disability. To be very specific to say they’ve added on you can basically get a physician definition of disability and even a surgeon or a procedurally-based specialty kind of definition of disability that says if I derive more than 50 percent of my income from a particular procedure and I can’t do that procedure anymore, Guardian will consider me totally disabled, meaning, they’ll pay my full benefit if my income’s down by half because I can’t do a procedure. I may still work full time 40 hours a week. You tell me if you saw just what did consults or kind of clinic type stuff, no surgeries, would that affect a typical ophthalmologist?

Trevor: Yeah, I mean it would cut your money on half at least.

Jon: Yup, half at least, for sure, which is exactly what those types of policies are addressing so that’s where if that’s a concern to you, you may want to look at something like a Guardian. Ameritas has kind of a definition like that. But if not and you’re just like, “I just want to make sure it’s covering me as a physician in my specialty.” They’re all going to cover your specialty, that’s the big thing, of saying this is what you trained for. You didn’t necessarily get into medicine to be a doctor although definitely but specifically I wanted to be a pediatrician or I wanted to be a surgeon or I wanted to be whatever that’s what you wanted to and it just happens to fall on through medicine and doctor. How do I make sure that if I can’t do that anymore, I don’t have to do something else and that’s where that comes in. A good strong company has a good product, good definition of disability for physician. You want a company that’s got a resident discount frankly because that’s huge and the big thing with these discounts is they stick with you for the rest of your career. You could get it in your last year residency or your first year attending. The monthly benefit is not going to be a whole lot of different but what you save over the course of your career by getting it during residency and getting that discount on is huge.

Trevor: Is it a percent discount usually?

Jon: Yeah, 10 to 30 percent depending on all of those different things.

Trevor: Okay. I’m sure I got that. I just don’t remember.

Jon: Yeah, I hope so. That’s the big thing. Like we said, you’re locking in your health so you’re going to increase later. You’re locking in that discount. You know why do you get it young? The discount’s big. We’ve calculated it out before. Taking that extra money, not going for its premium, investing it, compound growth – all the kind of stuff – it’s in the six figures of what you save by getting that discount and getting it young. So, I think, the future you is going to be glad you did when you look at how much you’re saving. What else? The big riders, I guess, if I were to run through it – yeah, the future increase; yes, the true own occupation.

Why Will You Get A Cost Of Living Or Inflation Rider [0:28:06]

Beyond that, secondarily, I would get a cost of living or an inflation rider so that makes sure if you had to go and claim it 35 and you’re on for 30 years until you’re 65 and it’s a 10,000-dollar monthly benefit, today, that’s nice, but 10, 20, 30 years from now that’s going to be nothing and that’s just the concept of inflation and goods and service is going up every year. You want to make sure your benefit can keep up with that because if you’ve been working, you would have gotten raises and at least cost of living raises each year and you don’t even notice inflation as much. But that’s big when you want to partial or residual rider, different companies call it different things. This rider ensures that if you, and again, different companies kind of have little tweaks in this like Guardian will say if my income drops 15 percent or more then I can collect a certain benefit. Some say if it drops 20 percent or more, but if it’s due to a loss of time or income, you can collect a partial benefit which actually the majority of claims are partials claims so you want to make sure you have that rider on there. Catastrophic, that one I don’t necessarily steer people towards that much. If they want it, fine, but it doubles your benefit if it’s like something pretty catastrophic like you’re losing an arm or leg or an eye.

Trevor: I think it’s partially activities of daily living like you can’t do a certain number of activities of daily living.

Jon: Yeah. Two of the six of ADLs or something?

Trevor: I think it’s two, so if you can’t feed yourself and you can’t shower and then you’d get a substantially large amount of money per month to cover the cost. Basically, it’s a nice thing because if something really happened to you and you didn’t have family members around or somebody who’s willing to put all their time into it then they would have to not be working as well. If you don’t have that scenario, if you can’t self-fund that then you could really end up in an assisted living facility long-term.

Jon: Good point.

Trevor: That’s the way some people I’ve talked to have viewed it. I had one guy. He and his wife both got policies and he ended up just wanting to do catastrophic. That was the thing he wanted the most because he wasn’t so much concerned about covering his income because he and his wife were both going to do very well in an internal medicine subspecialty. I thought it was just really good sort of first principles just sort of like we only need to replace one income. What are the chances both of us get hurt really, really low. So he was really going with the odds. He was like, “But in the unlikely event that I do have something happen like a stroke, the amount of money that it would cost me to stay at home and I want to stay at home would be too much even for her decent salary.” He felt that would really bankrupt them to a certain degree and he was trying to prevent losing all any sort of wealth that he would build and even though the other things are more likely, this is the one that will be more devastating so he ended going up with that. You know everybody is different. There are different goals. It’s an expensive rider so usually I don’t necessarily recommend it and people get sticker shock. When he told me that, I was, “Okay, you’re talking me into want wishing I had that on mine.” This makes really good sense. It’s a personal decision on what do you want to do with the policy. The fact that it exists at all is really cool. I mean, the whole product itself. I got excited about it just reading about it. When I was studying the licensing exam stuff, I was just, “This is insane.” As a society, we’ve created this product where you can for sure get an income over a lifetime even if you’re injured because everybody is chipping in and you get would get a great benefit if you’re disabled, and on top of that, it’s a whole industry so it creates jobs. Insurance is one of the big chunks of our GDP and it provides a great service. Not for everybody, a lot of people are paying in, and they do make a ton of money – those CEOs, those people at the top. I mean there’s a lot of money in the insurance industry but it’s a crazy product. Think about how many people on earth don’t have access to it and then all we have to do is send some emails, make a couple of phone calls, actually take the time, and I’m guaranteed income for life. That’s insane.

Insurance As Part of A Financial Plan [0:33:30]

Jon: Yup. That’s it and that’s the whole point of insurance in kind of looking at your whole insurance portfolio as a part of a financial plan because what I want to do is I want to increase the likelihood of my client’s reaching their financial goals no matter what happens. A homeowner’s insurance, car insurance, health insurance, life insurance, disability insurance, long-term care insurance – all these things are there that it’s like if you stand back and look at your portfolio, it should be like, “Yeah, okay, there’s really not anything I can think of that would take me off track from my financial goals long term.” And that’s a really great feeling because we’ve all run into people in our work or in our different circles where it’s like, “What happened to them that they just can’t seem to make ends meet?” Or they just like, “Did something happen where it just set them back permanently? Have they’ve never been able to be the same?” That’s tough. They’re but for the grace of God go like we all just kind of one situation or circumstance away from being like I’m never going to be the same again financially and insurance as crappy of a concept as it is thinking I’m paying for something that I hope I never have to use but I guess you’re paying for that peace of mind. You and I obviously, we know this stuff. We go to bed at night knowing that no matter what happens or how I wake up in the morning or what happens on my way to work, we’ll be okay financially and that’s worth a lot to me and to you I know and why we stress on this for physicians and residents specifically is because you spend a lot of time and money to you had to practice medicine and do your calling and all that stuff but to make a decent living too and I hate for that all to change just because, “Oh crap, I went to the doctor and got diagnosed with whatever and my future looks totally different.”

Trevor: Right. Yeah, it’s pretty cool stuff and doctors can certainly afford it. I mean that’s the other thing. There’s really no excuse for not having it. It’s not crazy expensive.

Jon: Yeah, that was my thought the last piece. When people ask, I say it’s 1.5 to 2.5 percent of your income is typically what we say you should budget for that.

Diversifying Risk: Two Insurance Companies [0:36:15]

Trevor: It could be less. It could be less. Mine’s amount is less than that and I’ve got good coverage because I’m healthy and I have just one policy. We didn’t tackle too much about that. I guess I’ll mention I really like the strategy of having two companies just in case one folds. It’s diversifying risk. They’re not going to fold. What happened is I heard a good podcast about that. The company fails. Technically, the state is supposed to have some money set aside. I’m sure every state is basically bankrupt right now so I wouldn’t bank on that but other companies will buy them and they buy those policies. Somebody would absorb that probably Warren Buffett or somebody like that would just buy it. I mean, they could easily support that. There’s tons of wealthy people that would just love to snap up an insurance company. Those top ones will be fine but still diversifying risk and then only certain companies will play well with each other. If you have a work policy that you can’t take with you, they don’t usually like Lincoln something like that, they won’t play well with your Principal or Guardian or your Standard. You can’t combine the two, but if you do like a Guardian and a Principal or a Standard and a Guardian, you can combine two policies and potentially have more coverage. That’s probably the main reason to do it. More coverage and the risk.

Jon: It’s that more future increased coverage when we’ve talked about doing that with some of the higher paying specialties like, hey man, you’re going to make a half million dollars one year and at that point you’re going to come to me and say, I’ve maxed out this policy. I need to get another one. What if instead of getting a decent one policy in residency, you’ve got smaller two policies and then you’ve essentially doubled your maximum benefit potential. You don’t even have to worry about anymore. You’ll never have to get another policy because if you’re an ortho or cardiology or any of those kind of things where it’s like you have potential to be in high-six figures, maybe, a million bucks a year, it’s not that farfetched.

Trevor: Yeah. The other thing that’s surprising about having two is it’s not any more expensive than having one other than if one policy just happens to be more expensive. You could cover yourself a thousand with Guardian and a thousand with Principal and it would be about the same as 2,000 with Principal, maybe a little bit more or be a little bit less than 2000 with Guardian because Guardian is a little bit more expensive.

Jon: Right.

Trevor: You don’t really lose in the cost department in the monthly payments and then some people don’t have to do underwriting for their health because they’re fortunate to be in a residency where the hospital has already set it up and made it so that all the residents automatically are insurable. So when you do a big group like that, it kind of dilutes the risk of several people having a disease in there.

Jon: Yeah, that’s so nice.

Trevor: That’s so nice. I wish my hospital had that in residency because then I would just have both. I would just keep it going. It seems like Standard does that. What’s that?

Jon: Yeah, There’s been a couple of residency programs or hospitals who I’ve talked to about that before. U of M, Henry Ford, and DMC have one with one with Standard. It’s a guaranteed issue plan and I don’t even think Standard will do them anymore for new hospitals but they’ve grandfathered in that one.

Trevor: Interesting.

Jon: I tell people because it’s guaranteed issue and I’ve seen this before where people apply and get declined, I’ll say get that first and then come see us and we can get whatever company you want. You can either keep both or drop that guaranteed issue one but at least you know you’ve got covered. I had an ER resident last summer that’s shocking because she said she was fine. She seemed fine like nothing. She applied with Principal and she applied with Guardian and they both – no, MassMutual and Principal – and they both declined her and she was surprised. I was surprised and we got a little more information and found out it was just a result of multiple little things that she didn’t think were a big deal but because she was a type that just went to the doctor for everything and they put everything in her records.

Trevor: Yeah, we do that as doctors because we see crazy stuff and so just locking it in medical school before you get medical student syndrome is a good idea.

Jon: Yup. She’s got no coverage today and she was in residency where she could have gotten a guaranteed issue.

Trevor: Now, they won’t give her that because the only reason they won’t give it to you is if you’ve been denied elsewhere.

Jon: That’s right.

Trevor: I talked to a friend from when I went to Michigan and we’re chatting about him picking up a policy. He was like, “Actually, I found out our House Officer Association.” They basically have a union there which is really cool. It’s called the House Officers Association. It was basically a union and that’s how they got it. Somebody a while ago negotiated that. Anyways, he was like I think I can get The Standard policy without doing anything. I was like go get that first and then apply for a second policy with Guardian which has better terminology so he then he has the best of both worlds which is great and he can increase it higher or he can just drop the standard one later if he wants to but you can also just keep The Standard one really smaller like 1000 or a little bit above and just slowly increase it and keep the other one as a big policy. You can make one have a lot of coverage and one have a little coverage. Never really bad to have two, and in case you’re wondering, the insurance guy who sells it to you by doing two policies now they don’t really make that much more money. You think that they would make more money but it’s a percentage of the sale.

Jon: That was the first year premium.

Trevor: Just the first year premiums and then teeny, tiny little bits of it after that. I don’t know how much it is but it’s not a lot. Nothing to get people rich, really.

Jon: Five to ten percent, maybe.

Trevor: Five to ten percent? That’s actually a little higher than I thought. Yeah, it’s not going to make them more money to do two policies so they’re not trying to upsell you. They’re trying to get you more features, more flexibility down the line. If somebody is suggesting that, I think it’s great advice to do that and you lock in your health with two companies instead of one. So if you end up not liking one or if you end up disagreeing with the guy who sold the insurance at least he gave you options. It’s great.

Jon: Agreed. Well, as usual, we’ve spent a lot of time making a boring topic fairly interesting, I think.

Trevor: Maybe, or an interesting topic boring more likely.

We Can Help You Get Disability Insurance At Financial MD [0:43:35]

Jon: We may have crossed that line, but, yeah. If this struck something for you guys out there, there’s places you can go. There are certainly people you can know you can ask other residents. At Financial MD, we’ve got a team that does disability insurance every day. We’re independent and we’d be more than happy to shop that out for you, but again, we don’t really care where you get it as long as you get it and you get it right and you get it now.

Trevor: Absolutely.

Jon: If you got questions, shoot us those questions myself or Trevor and go to website to find our info and the Facebook group, if you go to the Financial MD community, that’s the place where it’s physicians only, sharing information, sharing ideas, and just get educated and if you’re working with someone on the disability insurance or life insurance or whatever the case might be or just financial planning, make sure it’s somebody that you like and you trust and you feel like has your best interest in mind. Any other closing thoughts, Dr. Smith?

Trevor: No, that’s it. I mean it’s one of the most foundational things. It’s sort of like the insurance equivalent of an emergency fund. That’s how I look at it. Just get it done and they’ll help give you that foundation stability for everything for the future, and once it’s there, it’s even better than emergency fund. You just do it and you have forever. As long as keep paying, they’ll keep covering.

Jon: I like it. All right. Well, with that, have a great night and we’ll see you next time.

Trevor: Thanks Jon.

Resources and Links:

White Coat Investor website – https://www.whitecoatinvestor.com/
Set for Life Insurance – https://setforlifeinsurance.com/
Retirement, Investments, and Insurance | Principal – https://www.principal.com/
Guardian Insurance – https://www.guardianlife.com/
AM Best Company – http://www.ambest.com/home/default.aspx
The Standard – https://www.standard.com/
Ohio National Financial Services – https://www.ohionational.com/sites/public/
MassMutual: Insurance and Financial Services – https://www.massmutual.com/
Ameritas Insurance – https://www.ameritas.com/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD website – https://financialmd.com/

View Details

Summary:

Resident Finance – Where To Start [0:05:04]
Mental Barriers on Financial Planning [0:09:29]
Second-guessed by People [0:13:44]
Do For One What You Wish You Could Do For Everyone [0:18:02]
Taking Action, Doing Something, Using Technology [0:21:32]
Make Reversible Decisions Quickly [0:26:43]
Great Price Offered At Financial MD [0:34:26]
Additional Information [0:38:25]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hello and welcome to the seventh episode of the Financial MD Show. We got a great conversation for you today. Trevor and I talk a little bit where to find good financial education other than Financial MD. Obviously, there’s some great resources here that I could brag about, but we’re going to point you in some additional directions, ways to get information passively, ways to get educated from good sources in a timely manner that work for you, that are actionable, things that you can do passively between shifts, between patients. We know that things are busy but you still do need information. Unfortunately, what we find is that so many residents and medical students get ignored because they don’t have any money or it’s just not a focus on them and there’s so much more you can find on being an attending with money. We hope to point you on some good direction today, give you some actionable items. Of course, you’ll hear some humorous banter from me and Trevor, but without any further ado, here’s today’s show. Hope you enjoy it.

Jon: Welcome to today’s episode of the Financial MD Show. I have, as always, my partner in financial education, Dr. Trevor Smith.

Trevor: Hey, hey.

Jon: Hello, and myself, Jon Solitro, bringing you once again the latest and greatest in how to be a resident well and a lot of our stuff obviously applies to anyone, but we’re looking out for the younger guys – the medical students, the residents – as you’re getting through and trying to figure out what to do, what can you do, how to do it right. We can tell you some ways how to do it wrong too if you’re interested. For sure, that will come up. If you missed our last show where we talked about buying or renting, we talked about some mistakes and things we’ve learned in the process, so go back and check that out (Episode 5). Today, we’re going to talk a little bit more broadly about educating yourself. You’ve gone through undergrad, you may be in med school now, you may be in residency, but you’re starting to figure out and starting to hit home that, “Okay, I’m seeing the light at the end of the tunnel. I’m going to make money. I need to get smart about what to do with that money.” In Trevor’s case, for example, from an early age, Trevor was educating himself and trying to take some very proactive steps. We talked about in episode 1 how Trevor and I met and it was simply because he was one of those residents that was a bit of an anomaly in the sense that he was thinking about this stuff way ahead of most of his peers – good, bad, or indifferent – and we got connected because obviously I liked talking about it, he liked talking about it, and so we talked about it. He was one of the more knowledgeable residents on finances – personal finance, investing, insurance – all those different areas so we had lots to talk about and he was enjoyable to talk to, not like those others. Whenever I go to lectures in residency programs, there’s always the one that’s in the back of the room and raising his hand saying, “Well, actually, I read…” I’m glad Trevor’s here to help us talk about this of what’s out there for residents and what are some of the places that we can help steer you to. Today’s going to be kind of a resource show. Trevor, what’s on your mind? Where would you start when it comes to resident finance?

Resident Finance – Where To Start [0:05:04]

Trevor: Great question. When you were talking about how I was interested in the subject early on, my first thought was my program director telling me to study more ophthalmology and to focus on other things later and I do think it’s definitely important to focus on your residency training but if you’re putting – and you already are – putting 99 percent of your time into reading the required textbooks and studying for that main exam every year, if you occasionally read an article online and it has a super high-yield impact on your financial feature, that’s okay, too. I spent probably a little bit more time on that stuff then I found – you and I had been talking about just have been reflecting how much I find the stuff interesting just naturally. Not everybody feels that way. Just an article here or there is not a bad way to start. The motivated people in these areas are probably going to read naturally a little bit more, pickup – probably not even pick up a book – but just read some White Coat Investor, probably specific to topics. I was thinking about that yesterday. I was like what kind of curriculum – if I was to write a book on this like what would I want to write and I thought certainly it would have been easier if I had somebody like you who gave me a plan and a trajectory and steps, that would probably rank at the top of the smartest ways to do it. Highest yield amount of time – you don’t charge very much obviously – you do more of a fee-based for residents, but I think if you just randomly try to address your individual questions that you’re like, “Oh you know I’ve heard the ROTH IRA is a no-brainer. Maybe I should look up a ROTH IRA.” I think a lot of people can benefit from that in residency and anything you’ve heard that is like a no-brainer in finance as long it’s not going to make somebody a bunch of money on a sales commission whole life or something. Yeah, it’s worth to google. Everyone has their phone with them. You go to the bathroom with your phone half the time. People usually do. You take a moment and read that article, that thing you’ve been meaning to google, that you’ve been anxious about googling that you keep pushing off, that thing that you don’t want to try to look up more information even though you know you should. That’s usually the first thing you should go do. Tim Ferriss talks about that a lot. He’s like, “What’s it that thing that you know you should do but you haven’t and you don’t want to do because it feels like a lot of work even though it’s not?” Do that thing. Just start with that. Just do that thing. I think for the people who are not going to pick up a whole book, that’s a good way to start. If I was to do it over again, I think having somebody in my corner like you – it sounds like an advertisement. I’m trying to make it not sound like an advertisement.

Jon: Sure, we can generalize.

Trevor: It’s true, though. You have worked with lots of people. It’s one of those things that are – I don’t know how I went about not getting somebody more official especially at a low rate because it all the work for you.

Jon: Yeah.

Trevor: Talk me out of your services. I mean, kind of to a degree, you know what I mean? It costs money. That’s the downside, right? I mean that’s it.

Jon: Yeah? I’d say that’s it and I think there’s this – not a stigma – but this feeling people have like, “Well, I really… I mean there’s not much that I can do anyway. I probably wouldn’t be utilizing this guy’s time really well. I’m just a resident. I don’t make that much money. What can I really do? I want to learn but I don’t want to actually meet with a financial planner.” And there’s the next level of it which is legitimate, “I don’t know this guy. I don’t want to talk to him about my financial life. I don’t know if I trust him.”

Trevor: Yeah, that makes sense.

Jon: I’ve got some sleazy things about financial advisors.

Trevor: Sure. There’s some mental barriers there.

Mental Barriers on Financial Planning [0:09:29]

Jon: Yes, that’s probably a good thing to bring up. What are the barriers that are preventing you from not just meeting with a financial planner but taking action on anything and from the very small one like you’re saying Tim Ferriss said what’s the barrier that’s keeping you from just taking that step of researching something or doing whatever. You can have a paralysis by analysis and you can get inundated with information and knowledge but knowledge without execution is meaningless, right?

Trevor: Right.

Jon: You can know all this stuff.

Trevor: Yeah. The other thing I was just thinking as you were saying that there’s hesitations. I was talking with a friend looking at a car recently and I was can I help him and just enjoying looking at the process of maximizing value – I mean that’s why I like the stuff – like what’s the best yield, consumer reports, up and down the board, all-wheel drive, SUV. Mazda CX-5 is a great value. Lexus RX 350 is a great value. Even old – you can pick up a 2010, a 2012. They’re going to drive for a long time. It’s like a Corolla, but if you want an SUV all-wheel drive, it’s a good one. It’s like how can you maximize the value there and once you have and you’ve deliberated and deliberated, there comes a point where you just have to actually put the money down. You have to pull the trigger. That’s the other thing Tim Ferriss says. He’s like if you’re going to try to make a decision, making a decision and then changing it back is fine. Try to make a reversible decision and try to make it as fast as you can because you’re losing more by waiting and not trying that than you are by trying it and then cancelling it. You want to try a financial advisor? Find one that’s not too expensive. Okay, now you try a cheaper and inexpensive financial advisor. It doesn’t mean all financial advisors are bad, but at least you tried one. If you didn’t like it and it was cheap, well, maybe you need to pay a little bit more for higher quality. I mean there’s different things you learn along the way. I tried that with a tax strategist guy who’s a CPA and it just ended up kind of for the cheap price I was paying – not cheap but the low end from the offerings that are available on White Coat’s site – it ended up being cheap advice for a cheap price.

Jon: Right.

Trevor: Anyways – I don’t know why we’re talking about Tim Ferriss so much – but do that thing that you’ve been thinking about, the thing you know you should be figuring out. He also talks about outsourcing. I mean having an advisor is that other strategy. It’s basically like if you’re going to Tim Ferriss your finances, you’re either going to do the hardest thing. If you don’t want to, outsource it. If you’re not sure what to do, just try something. Do something. Ask a friend. Everybody knows one person that is a little more interested in this stuff and ask a friend, “What do you think?” If they give you a strong piece of advice, say, “Well, how do you know that’s true?” That’s a good stuff, too. Try to figure out what you’re learning is it true. How can you validate it?

Jon: Yeah, go back to the source and a good way to ask that, maybe not, “Is it true?” but “Oh, really where did you hear that?” or “Oh, where did you read that?”

Trevor: Yeah, right.

Jon: “Where can I learn more about that?”

Trevor: Yeah. That’s kind of a big picture approach but that’s kind of how I’ve done it which is a little slower than going straight to an expert source. Some people does have to learn by making their own mistakes.

Jon: Yeah, but don’t people do that with medicine too? I mean, patients are googling crap all day long before they talk to a doctor, and by the time they get to the doctor, they have some preconceived notion of what they have. We get that in financial planning all the time. I get second-guessed by people.

Trevor: Oh, yeah. Me too.

Second-guessed by People [0:13:44]

Jon: Yeah, I get it and I absolutely don’t mind the questions. I really don’t. Now, if they start to fight me on something or say this is what I need, then take a hike, but if it’s like, “Well, don’t you think I should be doing this?” or “Shouldn’t I be putting more on my student loans?” or this or that, and all you will just say, “Hey, that’s a fair question. Let’s talk about that and here’s my rationale.” That usually means I haven’t explained my rationale very well or they just need to get things off their chest and they just want to be more educated.

Trevor: Yeah, especially I think I didn’t appreciate that as much as a resident in the patient interaction like the art of medicine. People talk about that a lot. I’m only two years out and I’m already getting substantially better at addressing what a person is asking when they’re not asking. They’re saying something and they’re asking a question but they’re not really asking that question. There’s a different question behind that question.

Jon: A question behind the question.

Trevor: Yeah, it’s cool. I didn’t think I would like that part of medicine to be honest. I kind of found it frustrating in residency, but then over time, you realized that’s how you really make people happy. You really can satisfy your patients a bit more by learning what they’re thinking. Where are they coming from? What are they trying to say and walk away with?

Jon: Yeah. In fact, I had a conversation this morning with one of my favorite clients. Her husband’s the resident and she’s very knowledgeable on finances. When we first started the relationship, I knew this was going to be a – not a challenge – but it would be a challenge that I was up for and enjoy because she has a ton of questions and I could tell by her questions that she knew what she was talking about and she asked about CFP and I said “Yeah, I’m in the process of getting my CFP.” We talked about all these things and I said to myself, okay, if I’m going to bring these on as clients, I better be prepared to make sure I know my stuff and that I’m explaining it well. We had a conversation this morning, she and I, because she had asked a question by email a week ago and it was, “Hey, so…” I could tell by her email that she wasn’t completely satisfied with the last review that we’d had and I think if I was younger or new, I would have freaked out and just been like, “Oh my gosh, I don’t know what to say here like I did my best and it’s not good enough. They’re going to leave me.” I just sat down with her and said, “Hey. It sounds like maybe our expectations or what you expect from financial planners maybe not exactly what I’m delivering which is fine. Most of my physicians are good with talking every six months and I look at their stuff and we talk and I tell them what to do and they walk away and that’s what they wanted. They just wanted someone to tell them what to do and they really don’t need explanation or an education and they just want to know what to do right now and that they know in six months, there will be more stuff to do and I’ll them then and give them a to-do list.” I said, “If that doesn’t work for you, that’s totally fine. I’m open to be and flexible on that and would it help if I structure it this way and the output that I give you or the kind of deliverable or take home looks more like this and shows more details on these areas.” It ended up being a really good conversation. I think she felt like she was heard and I was flexible and just said, “Yeah, this isn’t necessarily cookie-cutter process.” She’s one that I value the relationship and I can’t do that for everybody because we just don’t have that much time but once in a while.

Trevor: You don’t need to.

Do For One What You Wish You Could Do For Everyone [0:18:02]

Jon: No I don’t need to. I remember learning in some of my training years ago – some leadership training that I took – Andy Stanley said do for one what you wish you could do for everyone because people always operate with this mentality of, “Well, I can’t treat this customer this way because then I’m going to treat everybody that way,” and that never happens. I’ve been trying to handle it that way and she just wanted to know that I was truly answering all the questions that she had and wanted to see some rationale of why. I think they trust me, but that’s just how she ticks and that’s fine. That’s the same way with some of your patients, I’m sure. They just wanted to know that they’re heard, that you’re hearing them, and their concerns are being addressed and they trust you but their personality, they’re probably the engineer types or whatever or just wired to, “Okay. I just want to know what your thought process was.”

Trevor: Right. You’re right. It’s a service industry. You’re in a service industry. I’m in a service industry. Sometimes, it’s annoying to have that patient in your chair frankly because they’re difficult. It’s emotionally more taxing, and in the end, maybe that person’s more satisfied later. Maybe they’re not. Maybe you sat there for 20 or 30 minutes and sometimes, no exaggeration, it can be that long if somebody really, really is feeling like they need something more and you give them all the time you possibly could and you’re running behind and then that’s the patient that didn’t feel like you paid attention. Any physician of any kind or PA or whatever listening to this will totally think of their most recent person in the last week or two that’s been similar to that and you can go a month – two months – without having one that really stands out, but there’s always like there’s varying degrees and there’s a different kind of satisfaction sometimes in providing that even above and beyond level of care and time, generosity, for that individual when they might not even be grateful for it. That’s more in the medicine side, not so much on the finance stuff.

Jon: No. I certainly had those experiences too.

Trevor: Yeah, and I know when people do that for me and a customer service thing and I really do appreciate it. Because of being in service, I tried to express it more than I would otherwise. But just because I don’t doesn’t mean I’m not grateful. This is just a good reminder for me even if you don’t feel somebody is grateful doesn’t mean they’re not and it’s good to provide that extra. But back to finance, what were we talking about?

Jon: We were talking about – I’m not sure. Let’s get into some other ways.

Trevor: Education or things residents can do.

Taking Action, Doing Something, Using Technology [0:21:32]

Jon: Yeah. On that note of taking action like doing something, the thing that I love when I talk about my lectures all the time is that there is technology that you can automate. Once you learn something like I needed the ROTH IRA or I need to get a budget or I need to get disability insurance or whatever the case might be, there is technology that you can put into place to – even before that part – to help educate you. For example, I follow the same people that – probably a lot of people listening here do – like the White Coat Investor and Physician on FIRE and all these guys and I have them on Twitter. I set it up so I get notified when the White Coat Investor comes out with something and I use an app called Feedly for my blog collections. What do you use, Trevor?

Trevor: I don’t have a ny blog collector. The ones that really stick with me, I use Medium so I’ll subscribe to channels or users or whatever on Medium. I like that. You could do both channels and individuals and then I get little, maybe, it’s even daily email. That’s a nice one. You can write on there too as well as just read other people’s work. Twitter’s a big one. A lot of stuff – Instagram – I don’t use a ton for learning. To me, that’s a bit more social. I like Twitter quite a bit actually. I feel like I’ve learned a lot in the last year or two. You also get very differing opinions on Twitter just due to the nature of it. I think there’s a significant percentage of people in the medical world that are not really going to get into Twitter. I think the high-yield things are the financial blogs and you can subscribe to those pretty easily. It’s easy going to site. There’s a pop-up like, hey, give us your email right now. So you’ll definitely get lots of email from those people.

Jon: Yeah, and that’s good.

Trevor: Those are probably the main ones, and books. I mean, I think books are better. I think books are best. People sit down and so intentionally organize their thoughts when they read a book. With the current kind of blog style, it’s very underrated to read a book. Physical book, it doesn’t matter, whatever. I mean you can get a Kindle and read it like a PDF if you want to. One of my favorite ones I have right here is I Will Teach You To Be Rich. It’s so well organized and it’s in order, and mentally in my mind, these are the steps and you can still flip through it and look for answers to certain things. I like that. I think that’s an excellent resource for people that are just trying to figure stuff out.

Jon: Okay, that’s a great one. On that topic, what books would I recommend for that area? I think everyone should read through Dave Ramsey’s book.

Trevor: Total Money Makeover?

Jon: Total Money Makeover, yup.

Trevor: Yeah, it’s a good one.

Jon: It’s a good place to make sure you’re thinking right about money and debt and budgeting and all those things. Probably, the White Coat Investor’s book. Have you read that one, Trevor?

Trevor: I’ve skimmed it. I haven’t read the whole thing, no.

Jon: Maybe you can get everything from his blog.

Trevor: I took his course. I took the Fire Your Financial Advisor course. It’s basically his book in little mini videos over and over.

Jon: Yeah. Guys like that have a lot of different bloggers and these educators have so many different ways to get the same information. It’s probably what you find. There’s a lot of that stuff for sure. Between his YouTube videos, his podcast, his blog, his book, his Twitter feed, his emails – you want to make sure you don’t miss anything. That’s the way to do it. We certainly do the same thing. We got this podcast. We got the YouTube didactic minute videos. We got the blogs. We got everything. Nothing wrong with that. Other books – I would say The 7 Habits of Highly Effective People and I think that has a bearing on personal finance because one of the biggest takeaways from that book for me – one of the habits – was ‘Begin with the end in mind’ and making decisions especially in finances on beginning with the end in mind and making sure, like you said, every decision can be reversed, right? Is that how you put it?

Make Reversible Decisions Quickly [0:26:43]

Trevor: Yeah, it was the thing, make reversible decisions – make reversible decisions quickly, really, I guess is the idea.

Jon: Yeah, quickly, right. For example, getting something like an app like Mint or Personal Capital or something for tracking your budget like, “Okay, no big deal. If I don’t like it, I’ll delete it. It doesn’t affect me financially. It’s free.” Just get something. Do something. It’s kind of just what’s that saying. Now, something like disability insurance. Should you go after it? Yeah, that’s not so easily reversible in the sense of can you always cancel it? Yeah, you might be out of few months premium if you’re like, “I made a dumb decision here.” Again, not the end of the world and it might cost a hundred bucks and a couple of months of spent premium that you learned a lesson of whatever and you’re going to do much better next time – things like that. Starting a ROTH IRA, what have you to lose? Probably nothing, I guess, unless you invested in some stocks inside of it.

Trevor: Yeah. You can take all of these individual decisions and I was thinking in terms of get a one-time financial plan. Just put it all down and I’m sure you can pay monthly for a different fee-only financial advising Just try it once. Pick one that’s not going to crush you financially. If you throw down 500 dollars or even more on a one-time financial plan even if it’s not all the details. It’s not all the bells and whistles. It’s not going to be one plan for 20 years. It’s going to get your mindset – it’s going to get the train moving in the right direction. Just so you’re actually taking action, it’s going to point you towards, “Maybe, I do want a start a ROTH,” but at least it gets you moving and the people who are going to put that off for a really long time, they know who they are. For the people who know like, “I’m really never going to read a book on this. I don’t care about this.” I’ve talked to a couple of friends recently and they’re like, “I don’t want to manage any of my finances period.” I’m like, “Really?” It can be huge. We’re talking, for a physician, the White Coat Investor talks about multiple millions of dollars between this decision and this decision over a 20-year period of time, not to mention a 30-year period of time. And they’re like, “Yeah, but I just don’t really want to do it.” I’m like, “Millions of dollars?” And they’re like, “I don’t care.” You know what I mean?

Jon: Yeah.

Trevor: We don’t identify with that but that person can still hire somebody like you who does and then they can go about their life and they don’t like I want to live in this spreadsheet. I like living in this spreadsheet. I’m going to live in this spreadsheet because I guess I’m just born that way. I like it. I know I can’t get away from it. It’s fun. I still enjoy my life. It doesn’t take away from any of my enjoyment but other people don’t want to do it. They can – for very cheap – create a plan that’s automated with someone like yourself or somebody else. It’s an incredibly valuable product. If you made it up and it was just invented right now, you’d be like, “Whoa! What does it do?” It makes me a bunch of money and I just have to hire somebody and that’s all they do for me. It’s one of those things where if you kind of reverse look at it, you’re like that’s an amazing value rather than you feel you’re being sold then you’re like, “Okay, wait. Let me first reject that and let me save my money and assume that it’s not worth it.” But it’s reversible. A lot of people are doing month-to-month now and you can just cancel anytime you want. I buy stuff. I cancel. I just tried a new cereal – Magic Spoon. It’s amazing. I love it.

Jon: What is this?

Trevor: Yeah, it’s really good. It’s advertised on tons of podcasts and stuff which is probably where I heard about it.

Jon: Right. Is it a mail-order cereal?

Trevor: Yeah. It’s one of those companies, they just have one product. They make super tasty, subscription-based cereal and it’s low glycemic index but it tastes really good. It tastes like Froot Loops – it’s one of the flavors basically – and it doesn’t have a bunch of sugar. You can eat it and your glucose doesn’t spike. Super healthy.

Jon: Good for kids.

Trevor: It’s good for kids, got healthy oils.

Jon: My kids do eat sugar.

Trevor: Yeah. The worst case scenario, I spent a silly amount on cereal for one month. It’s 40 bucks for four smallish boxes. The best case scenario, I’m healthier, actually eating breakfast in the morning which I do now, and I’m more energized throughout the day. I’m in a better mood. It’s great. I love it. There you go.

Jon: So Magic Spoon if you’re hearing this, we’d be happy to have you sponsor the show.

Trevor: That’s good, yeah.

Jon: I think they owe us for these last two minutes already.

Trevor: This is a good example of a reversible decision. Sure, I don’t mind plugging a company. It’s a great example. It’s so great, it stands out so much in my mind that I want other people to enjoy it and I feel the same way about taking control of your financial future however you do it, whoever you hire. It’s great. It’s just such a good feeling.

Jon: I think in that same – we’re talking about making decisions – I talked to my wife and I’ve talked about this all the time – we talked about it since we were dating of how I make decisions and how she makes decisions. I’m pretty well thought out. When I make a decision though, it’s done and I’ve made it, I moved on and I don’t have any regrets. What I think about when I’m making decisions, usually bigger decisions – we’re not talking about huge decisions – but I think about, okay, what’s the worst case scenario here and am I okay with it? If I am or it’s okay, I can deal with it or the reward way outweighs the worst case scenario, then we make it move on. Case in point again. Take Financial MD. If you’re single residents, 45 bucks a month as of today’s recording for a financial plan, and yes, obviously, we prefer you to stick with that for a longer period of time but if you’re, “Nah, this wasn’t what I thought it was,” and you backed out, then that’s it, the month-to-month thing, and so you’re out 45 times how many months you were in the program. If you didn’t learn something, then I would be shocked in those few months where you didn’t gain something that was worth the 90 or 150 bucks that you spent on that for a few months of that. That’s the beauty of financial planning – it seems most of the work is done upfront. There’s certainly plenty of ongoing work. It’s like a physician or an ER doc. They come to the ER and you’re just trying to get him stable and then you turf him off to internal medicine or to ICU to maintain or keep him alive but it’s like, “Okay. I got to bring this guy back to life and then we’re going to keep him alive after that works.”

Trevor: Yeah, that’s right, which is why a lot of places charge a ton up front.

Jon: Yeah, and I get it. I’d second-guessed that all the time.

Trevor: Yeah.

Great Price Offered At Financial MD [0:34:26]

Jon: I think we wouldn’t be the number one financial planner for residents if we were charging, yes, it’s 500 bucks upfront and then 45 dollars a month. We just wanted to make it a very low barrier of entry to get some good financial planning.

Trevor: Yup, that’s great and now you have a vision for doing more than just bringing on as many wealthy clients as you can or else you wouldn’t be doing that type of work – 45 bucks a month for residents.

Jon: Yeah, for sure.

Trevor: It’s a good price.

Jon: For us, Financial MD is about being the best in the world at resident financial planning. There’s plenty of places out there that are great financial advisors for doctors and that’s all they do but it’s 3000 dollars a year minimum and the one, offhand, that is probably the most well-known as far as I can think of, he’s 6000 dollars a year starting which a lot of attending physicians are paying that and that’s great and I get it and they do great work but I don’t know of any residents that are going to pay that. That’s 500 bucks a month and most of the residents I meet with don’t have that kind of surplus. That’s all we were trying to do when we started Financial MD, and like I said, if the worst thing that happens is you get some education and you come away knowing a little bit more, then great. Certainly, we wanted to take this show today to help point you in some directions of where to get the education. Obviously, our kind of flagship, I guess, is our resident lecture series that we do for residency programs all around the country to try to at least get some education out there. Clearly, not all those residents are going to work with us. That’s not the point. The point is disseminating the education, getting the knowledge and information out there, giving some good followup, take action things, and then beyond that, we’ve obviously got some passive education here at Financial MD between this podcast, our YouTube video channel, our blog, the website, the social media channels – we’ve got all of those things. What I love to do throughout the week is I’m watching for videos and articles that I can share with you guys that’s going to benefit you and as I read through which I do every day, I’m going to stick this Twitter or I’m going to throw this on Facebook and this can be helpful to somebody else especially student loan stuff. I get every day – twice a day probably – emails about google alerts I have going on with student loan. Rest assured, we’re staying on top of it in trying to get the information out to you guys as fast as we can which is timely because there’s all sorts of flurry of chatter going around about Biden and Student Loan Forgiveness.

Trevor: Yeah, that’s a very interesting topic.

Jon: I think that’s not going to come out too much. My gut is maybe 10 grand per person which for some people, hey, that’s great.

Trevor: That’s kind of what I guessed, yeah.

Jon: For doctors?

Trevor: I’ll take it. I would take it. Ten grand is ten grand. It would be good. It will make a difference. That’s a reasonable amount. I wouldn’t be surprised if was even lower, but yeah, we’ll have to see. Maybe they won’t do it at all, I don’t know. They’ll just weigh out whether it’s popular or not, I think, is the bottomline.

Jon: Yeah, it depends on the congressmen and senators that are up for election in two years.

Trevor: Yeah. We’ll see what happens.

Jon: Any other info you think we should give them?

Additional Information [0:38:25]

Trevor: The other thing I was going to do is just if people have questions, the other obvious channel is email you, email me. I’ll be switching over my email to something probably more official with the Financial MD thing but my available email is trevorsmithmd@gmail.com.

Jon: Well, I think, let’s launch that. All right, tsmith@financialmd.com. There you go.

Trevor: That’s fine. I mean you can email me with either one. I’m fine with either, so just first name last name md at gmail.com and then I’ll get an email with you too. It’s easy. I mean, I check all emails just like everybody else. They all just go to one spot. It almost makes no difference for me.

Jon: All right.

Trevor: My favorite conversations throughout the day oftentimes are a friend group chat just talking about this topic or that topic about finance. Lately, it’s been trying to pick out what’s the best long-term car, low price and all that.

Jon: What do you said on that? Have you made a decision?

Trevor: Well, I’m not going to buy one. I like my car which I just found out has a high trade in value of 3300 dollars and I’m happy with that. I just reread Jim Dahle’s post on The White Coat Investor. He was driving a Dodge Durango for like forever until part of it started falling off and it was just encouragement like, yeah, other people do this too and I like my car. It’s fine. I’m just trying to plan ahead. If mine bites the bullet, I don’t want to have to feel like I’m scrambling to choose what’s the best next car so I already picked out. I think the Mazda CX-5 and the Lexus RX 350 are no-brainers. They’re both really good. You can buy any used model. For the Lexus, probably, it can last 10 years, and for the Mazda, it will last three years. That’s great. I mean you’re only going to get down to 20,000 probably which is I think I out of my price range for the short term, but with a used Lexus RX 350 – we live in Michigan so I want an all-wheel drive. I prefer to switch over to an SUV. I drive a sedan right now – and you target that category, those two are so reliable. It’s like a Toyota Corolla. You know how those are the gold standard. These are like pretty much right up there.

Jon: Sounds like you’re doing research.

Trevor: I’ve been nerding out on that for a week. I certainly have not made my hourly. They try to say, spend your time on projects like this that have a sort of return like if you can spend three hours on a car negotiation and save 3000 dollars, you’ve made a thousand dollars per hour that you spent on that. I’m definitely making like two dollars right now but it’s fun so it doesn’t matter.

Jon: Yeah. Well, you enjoyed it and I know whatever topic you spend your mind on is one I can usually ask you about and you become an expert pretty quick.

Trevor: If it saves me money then usually that’s the case, yeah.

Jon: Good. Anything else?

Trevor: That’s it.

Jon: I think that was some good meat.

Trevor: It’s fun talking, man.

Jon: Good. You too. Check us out guys on YouTube. We’ve got the didactic minute video channels you can subscribe to. We’ve got some great topics that have come out lately very timely ones that are keeping up-to-date on some of the things that are coming down the pike with student loans. Otherwise, connect with us on Twitter or Facebook page, group, Instagram. There’s places all over to make sure you’re getting the most up-to-date info on financial education for young physicians. Other than that, I’m Jon. That’s Trevor over there.

Trevor: It’s me.

Jon: Thanks for joining us on the Financial MD Show. We’ll see you next time.

Resources and Links:

White Coat Investor website – https://www.whitecoatinvestor.com/
Tim Ferris blog – https://tim.blog/
Andy Stanley – https://store.northpoint.org/products/one-not-everyone
Andy Stanley website – https://andystanley.com/
Physician on FIRE twitter – https://twitter.com/PhysicianOnFIRE
Feedly app – https://feedly.com/
Medium app – https://medium.com/
I Will Teach You To Be Rich by Ramit Sethi – https://www.amazon.com/Will-Teach-You-Be-Rich/dp/0761147489
The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey – https://www.amazon.com/Total-Money-Makeover-Financial-Fitness/dp/159555078X
The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing 1st Edition by James M. Dahle, M.D. – https://www.amazon.com/White-Coat-Investor-Personal-Investing/dp/0991433106
The 7 Habits of Highly Effective People by Stephen Covey – https://www.franklincovey.com/the-7-habits/
Mint: Budget Tracker & Planner – https://mint.intuit.com/
Personal Capital: Financial Planning and Wealth Management – https://www.personalcapital.com/
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD website – https://financialmd.com/

The White Coat Investor: A Doctor's Guide To Personal Finance And Investing (The White Coat Investor Series)

The Total Money Makeover: A Proven Plan for Financial Fitness

View Details

Summary:

Trevor’s Story: Finding A House During Residency [0:03:41]
Buy Or Rent? Which Is Which? [0:06:36]
Breaking Even On A House? [0:13:05]
Buying A House Is Mostly An Expense [0:15:38]
Trevor’s House During Residency [0:20:43]
Unexpected Problems Relating To Houses [0:30:30]
Can I Buy A House When I’m Already An Attending? [0:32:59]
Motivation To Buy Or Rent A House [0:36:40]
Roadmap: Values Based Financial Planning Approach [0:40:04]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hello everyone and welcome to the fifth episode of the Financial MD Show. On today’s show, we dive into the concept of buying a house during residency. We start off by hearing a little bit of Trevor’s story and his experience during residency and med school and what he learned about buying versus renting and what he would do differently. I’ll give you a little clue: He’s got some regrets to share with us today. We then pivot to talking about when it is the right time to buy a house and how to buy that house. We talk a little bit about physician mortgages. Trevor goes into how his perspective has shifted which actually turns to go a little bit against conventional wisdom. We wrap up by talking through, is renting really worse than buying and what are the pros and cons of it and when in your career is the right time to buy a house, how to buy it right, and how to identify when it is a seller’s market versus a buyer’s market and how not to pay too much frankly. And so with that introduction, I hope you enjoy today’s episode of the Financial MD Show.

Jon: All right, welcome everyone. We are back again with the Financial MD Show with yours truly, Jon Solitro, and Dr. Trevor Smith. How’s it going, Trevor?

Trevor: Great! Having a good start to the week here.

Jon: Yes, it is Monday here in Financial MD land and somehow I feel slightly more dynamic with these big headphones on my head or it could go completely the other way where I’m like an NPR announcer. Anyway, we’ve got a great topic for you. I love talking about this particular topic because we do get a lot of questions on it and it’s more of a philosophical or more of how do you predict the near future is going to go, when we get asked the question of should we rent or buy during residency – we’ll talk about that first – and then we’ll talk a little bit about buying or renting when you get your first job because that’s a different concept as well. There are a lot of factors to consider when you’re buying versus renting. You’re getting out of medical school, you’ve been matched, you know where you’re going to be, and you start looking ahead maybe a few months before of where you’re going to live. Trevor, you came from U of M Med School, right?

Trevor’s Story: Finding A House During Residency [0:03:41]

Trevor: Yeah, that’s right. I grew up in West Michigan, went to undergrad there at Hope College, and then went to University of Michigan Medical School.

Jon: You then had to find a place in Royal Oak area because residency was at Beaumont?

Trevor: That’s right. Beaumont, now called Beaumont Health.

Jon: Okay, I call it Club Beaumont.

Trevor: Some people do call it Club Beau, definitely not internally, but yeah. It’s not very clubbish for sure. It’s definitely a residency. Then I had to find a spot in Royal Oak. My first thought is just like I don’t know where I was going for residency so to think about getting a house in medical school was like definitely not on my agenda. Nor did I need one; didn’t have a family, didn’t have kids. Everybody has got a different circumstance. I don’t even have a motivating factor to even lean in that direction, plus I was 23 starting medical school which sounds young now.

Jon: You mean out of medical school at 23?

Trevor: No, starting medical school. In terms of looking at a house potentially, there’s people in my class that bought a house.

Jon: That’s interesting.

Trevor: They had worked for a few years. Not even that much older, late 20’s. They had a kid or a kid on the way.

Jon: Working spouse?

Trevor: They had either a working spouse or some of them a non-working spouse who just wanted a home.

Jon: Their student loan payments went to mortgage payments?

Trevor: Yeah, I would think that would be it. I’m honestly not sure, now that I say that. Maybe they were working and it was just enough to pay that portion – I’m not sure. When I went to residency, I kind of thought about it. I googled around a little bit and White Coat Investor steered me clear of buying anything big and then I knew I was going to try to pay off my loans directly so my finances were tight-tight because the first few months before I refied, I was paying full payments on one of my loans – the government one – so I knew getting a house was not in the cards for me. I didn’t have the cash flow. I didn’t have a down payment. More to that story later, I did end up getting a house for a year.

Jon: Oh, you did? Okay, excellent.

Trevor: Yes. We haven’t talked about that at any point. Yeah, but I’ll get back to you.

Buy Or Rent? Which Is Which? [0:06:36]

Jon: Okay. Here’s the situation: You’re getting out of medical school, you’re going into residency, you’re searching around for where to live, and most people come into it with the mentality of, in general, it is better to buy than rent – not throwing away your money – and so I get this question. I got this question when I was speaking to – I remember one specifically, I was talking and this was a year, maybe two ago – talking to MSU’s Radiology Residency Program, and I tried to hang around and answer some questions at the end but a first year PGY-1 comes up to me and says, “You know, I’m thinking I should probably buy a house, what do you think?” And I said, “No, don’t do that.” And they kind of look at me a little shocked like why? It’s always better to buy versus rent, right? You’re owning something and building equity, and normally, sure, although there’s other schools of thought on that as well. It just depends what’s important to you. Is it important to you to be more mobile? Is it important to you to not have to take care of a house? All that kind of stuff. Throwing away money could be valuable – that kind of thing – but when it comes to residency, the general school of thought that I approach it in is a: A longer residency makes a little more sense versus you know in a pretty high likelihood you’re not going to stick around that town. Probably 80 percent chance. Most people are traveling a distance from their home so maybe they’re one of the few that really liked it and they get offered a job as an attending to the hospital that they actually graduated from – but not likely. Specifically, in today’s market, if you buy a house, I would say prices are higher than they should be on houses in Michigan as we’re talking today. So this may be different in your part of the country, but in Michigan, prices have been going up and up and up since about 2012, have surpassed beyond where they were at the time of what we call the housing bubble or the mortgage crisis or whatever you want to call it when prices kind of crash back down again. I was lucky enough to pick up a foreclosure at the time and just sold it this summer so we made out pretty well. In general, buying a house right now or in the last couple of years or probably in the next year or two means you’re going to be paying a high price for this especially when you look around and see that people are getting into bidding wars for a house. That’s like a sure sign that you’re overpaying for this house, I would think, and maybe you don’t care but when it comes to something that I’m going to buy this and then 80 to 90 percent chance I’m going to sell it in the next three to five years, should you be buying an asset that’s overpriced is all I’m saying. Personally, I say don’t buy a house during residency; rent, and it’s simply for that reason, and we saw this back in before my time when some of the partners that I grew up with and was trained with when they were doing these lectures and working with residents and helping them transition into practice in 2006, 2007, 2008, what they saw was residents buying houses because at the time, real estate is the “best investment in the world.”

Trevor: Right. It always goes up.

Jon: You’re right.

Trevor: That’ what they were saying and that’s why it’s a safe bet.

Jon: Is that true over time? Sure, you would say that about the S&P500 too. But we’re not talking about long term. I had an ER resident that got out of residency in 2009, had bought a house, and she couldn’t sell it because she owed more than it was worth. She was what they call underwater and she moved out of the state to get a job in Kentucky still having this house. So for two, three, four years, she carried two houses and you can say, “Well, that’s great. You can just rent it.” Yeah, sure that’s an option. Do you want to? And it’s not like a sure thing.

Trevor: That’s a stress.

Jon: Oh, it is.

Trevor: When you’re having life changes even if you take a new job that you’re really excited about and you have to move and start fresh, it’s stressful. It’s very stressful. I think especially in medicine with so many uncertainties and there’s a pressure on you. You put pressure on yourself. You know people are watching you. We just hired this guy. We just paid a bunch of money to come over here. Is he going to do a good job? You want the staff to like you. You want to not be busy throughout the day, making phone calls and arranging stuff. It’s just adding complexity to your life or adding complexity to your future life. It couldn’t be avoided for the first five to ten years after graduating medical school. It’s priceless because things are always – there already chaos and you only have control about so many factors that are going to stress you out. But making major purchases, you have control over that and unless you have a lot of good reasons, you’re going to be glad especially if you really look into the prices and how much you “save” by buying a house and not “again” wasting your money on rent. When you compare the two over a lot of time periods and in a lot of scenarios, you come out ahead on the rent. People argue about this forever, but it’s true. It adds complexity.

Breaking Even On A House? [0:13:05]

Jon: I mean how long does this even take before you’re really going to get back to breaking even on a house? How much of those first few years are just interest, and let alone, closing costs? Even if you sold the house for exactly what you bought it, you wouldn’t be able to get back out of it what you put in for four or five years, I would think. So these residents buying houses in their first year, their house has to go up in value just to get their money back out and break even when they get out of residency because of closing costs and interest and all kind of stuff especially if they’re doing the zero money down physician loan which in residency is pretty much most people, that’s all you can do. It kind of allows residents to get a house when maybe they shouldn’t. There’s a lot of factors to that. It’s the timing of when you’re buying and selling, it’s the interest, it’s the closing cost, and just all that stuff. I think a lot of you growing up, again, like Trevor saying have this message that you need to buy and not rent. But renting is like paying insurance. There’s a cost to what you are paying for. Well, you’re paying for the freedom to be able to live your life the way you want and not worry about bad things happening and at least wiping you out financially. That’s insurance. Same thing with rent. You’re paying for the insurance that if I got to go somewhere quick, I can and I don’t have to worry about selling a house or being a landlord or if I need to be flexible and with you guys as residents, you know you’re going have to be flexible.

Trevor: I’m probably extreme on the rental side of things. I read Ramit Sethi’s book I Will Teach You To Be Rich. He’s got a whole blog system and stuff – he’s great. That just put the nail in the coffin for me in wanting a house in the next three to five years. I don’t want one. I had such a long list of reasons why I love renting. Before, I was like, “Oh, renting kind of stings like buying a house there’s so many barriers, it’s really hard.” Like I said I had one for a year – maybe I’ll tell that story in a minute – but I kind of know it is challenging and there’s so many hidden costs and they’re not small that it meant a lot of responsibility. I’m a millennial and I do like the freedom.

Jon: Not a vagabond?

Buying A House Is Mostly An Expense [0:15:38]

Trevor: Yeah, and I’m not. I’m like so not a vagabond. I’ve been in Michigan my entire life. It’s nice to not feel stuck to things that are big and expensive when I’ve already got student loans. The renting is just so good. I don’t understand how – there must be just so much money being made by the housing industry to convince everybody that owning a home is a no-brainer and then also the housing market, I think you’re almost had to get into the bigger economic picture of the United States inflation and all the stuff. The numbers have just gone up so it just seems like a safe thing. It’s a false sense of safety. It’s a false sense of an investment when to me buying a house is actually mostly an expense. If you look at it a little bit more objectively for how much you’re going to pay like you said closing costs, the interest is actually kind of insane unless you’re doing a 15-year. When we’re talking to residents here, residents aren’t doing a 15-year.

Jon: No.

Trevor: They’re trying to get their monthly payment as low as possible. They’re trying to say, “I can get more for the same price as renting.” Usually, I think, is what it comes down to. It’s not, “I’m going to invest my money and I’m going to have a little nest egg in three to five years.” It’s like, “Oh, well, I was going to pay 1100 dollars for a rental place and it’s not that nice and I want to have my own place. I’m going to find a place at Zillow for 900.” It’s going to end up costing you 1200 with all the closing costs with the insurance you’re going to have to buy and you’re going to want and then what if something breaks? It really adds up fast. You started out, and the way they get you to buy something – just in general, car purchasing process is the same way – they make it seem really easy. It’s going to happen really fast. It’s going to be smooth. It’s just as good or better than the option – renting – that you thought you’re going to do. They just kind of sleepwalk you into buying a house. They make it seem easy. They do the mortgage calculator for you on Zillow. I can find a good deal. You talk yourself into thinking you found a deal.

Jon: Interest rates are low and there’s no better time.

Trevor: Yeah. I mean how many people have you heard go, “Oh, best thing ever. I just bought a house. I paid too much.” Everyone thinks they got a deal, do you know what I mean?

Jon: Well, and that’s what I don’t understand. When I talk about the whole bidding wars thing, you put an offer on a house and then the realtor comes back and says they got another offer, what’s your highest and best. That’s the bidding war. How can you feel good about that? How do you not have some buyer’s remorse? You must be so emotionally attached to that house that you’re like, “I don’t care. Just write them a check, honey, whatever they want.”

Trevor: That’s right.

Jon: So you get the house and then you go through this process and you’re sitting in this house, wouldn’t you said the first time being like, “Yeah, I paid too much for this thing.”

Trevor: I don’t think people do have that.

Jon: No, they don’t. They can’t. They wouldn’t be able to live with themselves.

Trevor: They’re so happy. You know what people don’t do is after the fact, sit down, and go, “How much did I spend to make this happen?”

Jon: No, they don’t because they don’t want to know.

Trevor: And, “Am I glad?” They do not want to do that. I wouldn’t do that either. Nobody in their right mind would sit down and go, “Okay, there was some unexpected costs. Let me put that in a spreadsheet and just make myself depressed.” No one’s going to do that. But that is what’s going to happen.

Jon: Yeah. We can convince ourselves of anything and when they go through that process, they’re just slowly everyday convincing themselves, “Yeah, no, this is a good deal. Yup, I’m glad I did this. This is great. This makes sense.” And I totally agree on people say their house is an investment but it’s not. Unless you’re going to turn that somehow into cash and recognize that gain, it’s not an investment. It’s an asset, I guess.

Trevor: It’s an asset with a decent amount of risk like buying a stock.

Jon: Yeah, and people talk about if they have enough savings for retirement and they’re like, “Oh then I’ve got my house too. I’ve got equity in that.” That equity doesn’t mean squat unless you’re actually going to sell it. It’s just paper gains, right?

Trevor: That’s right.

Jon: So you’re going to sell that house to help fund your retirement. If yes, then okay. We can include this in the picture and in the plan. But if not, then they can sit over here on the side while we look and see what other investments you don’t have because you decided to pay down all student loans first.

Trevor: Yeah. So let me tell you about how I got this house.

Jon: Yes, please.

Trevor’s House During Residency [0:20:43]

Trevor: So I’m in the residency and – I’m reflecting on the silly parts of the story – so, I was second or third year resident living in a teeny tiny little apartment. I want to say it started out like 630 per month and it was walkable to the hospital and I had a very strict but responsible landlord and it was great. It’s one of those kitchens where the kitchen counter was this wide next to the sink. You didn’t even have a place to dry your dishes pretty much and there’s no dishwasher. But I knew what I was getting and I was motivated to pay off my loans and I wanted to live responsibly. At that time too, I was planning on doing long-term international medical work. I got to keep it tight so I can get out there and get going as soon as possible.

Jon: That was kind of one of the stipulations on your loan forgiveness sort of, right?

Trevor: Yeah, that’s right. Anyways, I had the small apartment and I liked it. I definitely am somebody who can go with the flow. We don’t need to have everything right away. I can bide my time, delayed gratification. Anyways, it was fine for a couple of years, and then I started dating this girl with a dog and then I couldn’t have a dog in my apartment.

Jon: Period. Not even visiting?

Trevor: Not even visiting because like I said, my landlord was really strict, even though it’s not a nice place, you’d think he’d be fine with it. He had a dog. It just kind of put this bug in my ear like, maybe I’ll look at a house and I was looking at a fellowship and staying in the area so I kind of started doing like justify this part of my feelings and it be kind of convenient for this and I kind of want to do want to have a house and trying to get out debt so why don’t I pick up an asset that’s going to be worth more in a couple of years. Basically, I just started looking at houses and then I would find one, I was like, “Oh, I really like this house.” Completely emotional interest and then I would look at it and it wasn’t what I want and I was like, “Okay, thank God, I didn’t like that house because I don’t have the money.” Eventually, I got a house. My parents helped me with the down payment because they don’t want do a physician loan and it was understood that I would basically borrow that, pay it back. Anybody listening who doesn’t have that type of situation is like, “Gosh, this guy, I feel so bad for his loans with his parents helping with this house.” But I’m just being real. This is how I ended up getting a house. It was 215 I think I paid and it was just a small ranch home. I liked it. It was great. It got a good inspection, and less than 30 days in, the hot water here went out. I replaced it myself with the handyman, went to the store, carried this 200-pound full of the hard water buildup stuff inside. It was one of the heaviest things I’ve ever lifted. I was sure I was going to hurt myself.

Jon: Heavy and awkward.

Trevor: Yeah. So we carried it up the stairs and he disposed of it, and bottom dollar, paid him hourly for the afternoon and bought the thing at Home Depot and used his truck and drove it over. Bottom dollar, it cost me 900 dollars to replace it within 30 days, and I didn’t do the one-year insurance thing which is to me I’ll always do that in the future. So I had that repair then a month later, I had a backup in the basement. It did like snow melted and somebody came in, snaked it. They took some roots out and they were like, “Hey, there’s cracks.” They used a clay pipe because it’s an old area of Detroit and Berkley. It was cracked. He’s like, “You’re going to have to replace that from the house to the street.”

Jon: You know what? They get a ton of those down there.

Trevor: Oh, yeah, tons because these are old. Twelve thousand dollars is what they were saying is going to cost. Guess how much money I had in the bank? Twelve hundred dollars probably, 1500 dollars? Pretty much living month to month now that I bought a house and a refinancing loan so I’m not even paying my loans down anymore. Goals out the window. Eventually, then I’m applying for fellowship and I didn’t match in Detroit. So now I have to sell my house. I was pretty much sure I was going to match in Detroit. Everything works out fine – love my mentors and everything. It’s fine, but it was unexpected and I was, “Okay. That’s great. I’m still going to go somewhere good but I’m going to have to sell this house.” So I sold the house 10 months actually after I bought it.

Jon: Oh my gosh.

Trevor: I did for sale by owner. I got out of it by the skin of my teeth. I actually made a small profit because selling by owner is pretty doable. I got lucky, super, super lucky, and I was stressed probably for six of those 10 months. I was stressed about when I sell this, they’re going to do an inspection. They’re going to see that that pipe needs to be replaced and I’m going to have to pay it. This was going to be at least 12,000 dollars depending on how fast they can do it and permits and so forth because they have to shut down the street. That’s just one of the million things that can expensive wrong with your home that you have to replace. So I wasn’t prepared to be in a house. I still enjoyed it. There’s lots of great memories.

Jon: Did the dog get into the house?

Trevor: The dog got to hang out in the house. He was very happy in the house. Those were great. It’s fun. It was nice to have a home. It’s a different sort of satisfaction to own a home, I get it, it’s nice. But the stress in residency is significant. The stress of owning a home and the lack of predictability is substantial and there’s way worse stories than that one but the reason I was able to not lose a bunch of money was because I fully disclosed that whole thing when I was selling it by owner and because I did, he had a separate plumber – different company – come out and give a second opinion, and they said, “This is normal. Cracks in the pipe is fine, and this will last 20 more years as long as you just snake it once a year. That’ll cost you 50 bucks once a year.” I got so lucky. Otherwise, I would have just added another ten grand to my already large mountain of debt. And that was a house I had inspected thoroughly. My brother is a real estate agent. He’s like everything is checking out, everything looks good. My real estate agent is like, “My son just bought a house in the same neighborhood a couple of months ago. This is good price. You’re getting a deal.” Again, see, I thought I was getting a deal.

Jon: Says the guy who was going to get a commission.

Trevor: I know that’s exactly a long story.

Jon: No, that’s exactly a prime scenario.

Trevor: It happens. Maybe I had to go through that but I love renting now. I’m obsessed with renting.

Jon: Understandable.

Trevor: I don’t have a fancy apartment or anything right now and it’s just great. It’s peace of mind. It’s a controlled fixed amount of money per month so I can manage my budget better while I’m aggressively paying down my loans. You don’t always get a great landlord but I have. I’ve repeatedly had a really nice landlord that fixes things quickly. My hot water when I take a shower is terrible. It’ll go hot and then cold, but it’s like, nah. You’re not going to have everything even in the house that you own and the peace of mind and the control of being able to leave or move, it’s amazing. It’s so nice. Renter’s insurance is way cheaper. Everything is less expensive. I love it.

Jon: Yeah. Those are some fantastic points and a lot of them in favor of renting from lowest cost and insurance and no chance of you having to deal with like water issues in the house are the worst because they’re so expensive to fix if they can be fixed and that’s the one thing I’ve learned from different houses is always look at the basement. Look for any signs of water because they may say whatever they may say and at the end of the day they’re not liable. There’s no return policy on house so you’re in it and then the next month you got water in your basement.

Trevor: And you’re dealing with it again.

Jon: I’ve dealt with that and it’s so stressful and then what happens is every time it rains after that, you’re lying awake in bed just like, “I’m going to go check the basement.”

Unexpected Problems Relating To Houses [0:30:30]

Trevor: Yeah. I have a list of things that I want in my next house and one of them no basement. They have them. My parents actually don’t have a basement because the last house they owned flooded every single year and they got sick of replacing the carpet and the drywall and they did all of the things all of the people recommended and they had a sump pump and they had a backup battery and it just always flooded. They rehabbed a house and it was close to some dune area where nobody in the neighborhood had basements and they were just, “We are not putting in a basement. This is great. We love this. How could it flood?” I mean, the roof could leak or a pipe could break, but other than that, it’s not going to flood like clockwork annually. I hated worrying about when it would rain.

Jon: Yeah. I’ve put a deposit down to get a B-Dry System – a basement waterproofing. It was 8,000 dollars they wanted for that. The first time we got water in there, so I’m like, “Fine. Do it. Here’s the deposit. I want this.” And then I had to move around some dirt and stuff around the outside of the house and fix some gutters and stuff and that pretty much took care of it. So then I was, “I guess I don’t need the B-Dry System.” So I went to get my money back and they’re like, “Yeah, we don’t really give the deposit back after 45 days.” It was a 25% deposit too. Two grand. And I was like, “I don’t think so.” They gave me half of it back eventually after I threw enough of a fit and wrote a letter. Yes, lots of great stories about buying a house. Similar concept when it comes to, “Okay, I’m out of residency. Now, I’m an attending. Now I can buy a house, right?” Trevor – maybe you know this – what are the chances that your first job is going to be your last job?

Can I Buy A House When I’m Already An Attending? [0:32:59]

Trevor: The last job is probably less than 10 percent, I would guess, for last job. I think people say more than half of people leave their first job within two years. At least half.

Jon: That’s what I’ve heard too. I’ve heard 80 percent within three years.

Trevor: Yeah, that sounds right. I mean I’ve got text messages going with lots of different ophthalmologists just in my subspecialty. That’s just subspecialty where you do want to find something and stick because you build patient base that really, really benefits and then when you’re a partner and you’re profit sharing, it’s particularly beneficial in ophthalmology and particularly detrimental really to move around for the same reasons. I’m talking to multiple people. We’re all early and I have moved and they’re all either moving or looking and asking like, “Hey, what did you look for in this next position? I don’t have this. I don’t have that. I’m looking for something new.” They’re all renting fortunately. I mean off the top of my head, I think they’re all renting. So it’s great. I mean it’s just one major factor that’s not going just kind of push you and hold you down when you know you don’t like what you’re in.

Jon: Yeah. It’s a lot of the same concepts again if that first month or two when you’re in that new job and you buy a house and you’ve got a physician loan with zero down, again, you’re almost going backwards a little bit just until you got to bring money to the table to get out of the house because you’ve got no equity and there’s closing costs and all that stuff. I don’t think we need to go too deeply onto that concept. Pretty much the same thing until you really feel you’re settled until you feel you’re getting a good value. I don’t know about good deal but good value for what you’re getting and what you’re paying and just all those other factors. Not saying never ever buy a house. I own a house right now that’s basically makes sense for us. Part of it is I’ve got four kids. It’s hard to find a place to rent that can fit this many people.

Trevor: It’s nice for kids to have stability. I think that is nice.

Jon: Definitely. A house and a yard and the neighborhood and all of that stuff, for sure. That’s what we are paying for.

Trevor: And just not to move every other year. If you’re renting, they can like a family probably but they could sell the house if the market’s hot in the next one to two years and you’re moving every couple of years. It does happen to people. I know people who have done that as a family but just have to pick up a move. They’re selling the house.

Jon: Yeah. We had really good timing with like I said, we bought our house in 2012 as a foreclosure, four-bedroom, good-sized house, and then we just sold it this year and basically doubled our money. But that was probably – cross my fingers – a once-in-a-lifetime opportunity and I knew back then I was, “Okay, there’s a bunch of foreclosures around. I’m going to find a sweet deal on a house,” and then we always knew as a family that this could be our forever house or we could sell when it makes sense. One day, we just looked at each other and we’re like, “What do you think about selling this house? Okay, look into it.” And here we are.

Motivation To Buy Or Rent A House [0:36:40]

Trevor: I have like getting close to a closing thought too which is just I’m trying to think what my friends have been saying me as I’ve been talking about how much I like renting. Definitely, the number one is, “Well, don’t you feel you’re wasting money?” We’ve kind of been over that and it’s never a waste. It’s a roof over my head and all these great things that I get out of it just like a house. It’s definitely not a waste of money. I’m paying good money for something and not too much but it’s always about a lot of these questions are so objective-focused. It’s like, “I want a house. I don’t know why I want a house but I have a desire to have a house.” I think when we want something, people will oftentimes say they’re just trying to figure out how to get the house because they want the house even if they don’t know why. But they’re not thinking bigger picture like how do I build wealth, what do I want in life, how do I want to be successful. And you don’t need a house to build wealth especially early in our careers as a physician, you’re so far in the hole that buying a house often inhibits your ability to build wealth. This is like, “Do I buy new car, do I lease a car?” I think I read a lot about the specific issues which is just helpful in residency. I was, I want to get a better car, we want a reliable car. It’s all these narratives that companies and whatever we tell basically us. We tell ourselves these things because we want new things. We want nice things. But the question really is how do I want to build wealth? How do I make a plan? It’s so easy to get distracted with these individual decisions but it’s really you got to come back to the big picture. What am I trying to accomplish? What am I trying to do? What am I trying to build? Who do I want to be? These are way more important questions that become your motivation. It becomes your foundation for making a smart decision about buying a house. And we almost got to this backwards a little bit but it is what’s motivated me to rent say like there’s all these good ideas – but really the reason I’ve done it and I’ve stuck with it is because I want freedom. I want financial freedom. I don’t want to be in debt. I love to own a house someday but I don’t want to do it in a way where I feel trapped or where it’s limiting me, funding. If I want my kids to go to a private high school or something, I’d like to be able to do that. I don’t think I want to do that. I went to public school. This is a good example of – I think we focused on the specific issues and it’s helpful and there’s a lot to be learned, nuances, pros and cons, all these opinions but really if you don’t know what you want or what you’re striving for, you’re just going to forget and just read little tiny articles about this and that.

Jon: Sure. It kind of hit that.

Trevor: That was the closest thing.

Jon: Go after whatever you read all shiny object and kind of go after that.

Trevor: Yeah, and you forget – it’s so easy to forget. Anyway, thank you for giving me a minute to pull my thought there.

Roadmap: Values Based Financial Planning Approach [0:40:04]

Jon: I think it’s a great closing thought how does this all tie back into financial planning and your overall financial picture. Does the house play into that? Maybe. I’m not saying it doesn’t but it’s definitely something that every decision – you know we do this roadmap with our new clients where we walk them through first before even talking about money and dollars and goals and time horizons and all that stuff – we talk about their values and we say it’s called the values based financial planning approach where we say, “Okay.” But this concept of money, what’s important to you about money, and we start to get at the motivations of people and, “It does bring security and it brings comfort and I take care of my family,” and do all of these kind of things that are deep-rooted philosophical values that they were raised with or cultural things and then we get to the next step of okay and how does your financial plan help you feel these things or accomplish these things and basically make you feel like how does money give you the life that you want now and 50 years from now and leave the legacy you want for your family and all those things and maybe a house plays into that but maybe we have to have the conversation that, “Okay, for you to do this, I think the most optimal way is for you to rent right now and that’s okay and may go against the conventional thinking.” But running everything and why when we have our reviews with our clients we pull out the roadmap every time so we can say just to check back to that standard and that benchmark of is every decision that we’re making and everything that we recommending and the plan for putting together, is it still in line with what you said is important to you. And a house buying decision, where you live, buying or renting is no different. How does it all play into that? That’s I think a fantastic point that we need to remember. Overarching, what are we saying here at Financial MD, does this decision get you closer to or further from your best life I guess.

Trevor: How often do you go over that with your clients? Is that an annual check-in?

Jon: At least every six months.

Trevor: That sounds about right. I tend to get off track little bits maybe quarterly, but for the most part, a six-month check-in would probably be spot on.

Jon: I can fix most things within six months with people. And six months, it’s funny I have been working with enough attending physicians now that there’s six months between they can build up enough cash that depending who they are, I’ll meet him every six months and be like, “I’ve got another 50 grand sitting in my checking account.” “Okay, let’s do something with that. Let’s invest that. Let’s do it and just not just let it sit in your checking account.” “I’ve got 100 grand,” or whatever the case. That works for now and I don’t always remember to bring out the roadmap but it’s definitely some I try to make a regular habit.

Trevor: That’s great, nice. Thanks.

Jon: All right, so I think that’s enough to say on that topic. Trevor as always, thanks for sharing insights.

Trevor: Hopefully, people can learn from my mistakes and it’s definitely humbling to just tell that story and people can listen to it in perpetuity but it’s true. Everybody has complex situations. In whatever way you feel like your situation sucks, somebody in that exact same way has probably had it worse than you. There’s always a way out. There’s always a plan, and honestly, once you sit down and look it square in the face, it’s typically not as bad as you thought it would be and more doable than you expect. There’s lot of good people out there and great financial advisors like Jon. If you don’t have one, he’s a good one. I don’t give you enough big thumbs up on here but it’s true. You’re a good dude and you’re principled and a family man and all that stuff so keep up the good work. People are lucky to have you.

Jon: Thank you, Trevor. I just need more like me I guess. Awesome. Well, it’s good. It’s good to be reminded of what we do and why we do it.

Trevor: Absolutely.

Jon: Hopefully, this helps somebody – I’m sure it will – and hopefully it helps lots of people because like you said, this is going to go in perpetuity. This is going to posted to the world wide web and it’s going to change people’s lives.

Trevor: That’s we go.

Jon: Yeah. I’m Jon. This is Trevor. This is the Financial MD Show. Thanks for listening. Be sure to share it and I guess this would be the time in our show career where we say please leave a rating and review. This helps it to reach more people, more residents making smart decisions early on. So leave a review. That would be so fantastic. Check out the YouTube channel where we got the two-minute didactic minute videos. You’ll meet Piper, the labradoodle, in the most recent video, and get some good financial tips along the way. Join the Financial MD Facebook community, a group of like-minded physicians sharing ideas, getting ideas, giving ideas. We’re trying to throw as many resources at you as we can to protect yourself from yourself here at Financial MD. Other than that, you know how to contact us – financialmd.com. Schedule your free consultation. We’ll see you next time.

Resources and Links:

White Coat Investor website – https://www.whitecoatinvestor.com/
I Will Teach You To Be Rich by Ramit Sethi – https://www.iwillteachyoutoberich.com/
Zillow: Real Estate, Apartments, Mortgages & Home Values – https://www.zillow.com/
Roadmap ?
Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
Financial MD Facebook community – https://www.facebook.com/FinancialMD/
Financial MD website – https://financialmd.com/

View Details

Summary:

Financial MD Gives Useful Financial Information to Residents And Young Physicians [0:03:05]
The Big Picture In Investing [0:04:31]
Describe Financial Planning [0:08:21]
It’s Not What You Make, It’s What You Keep [0:09:21]
What Are The Four Different Steps In The Roadmap for Residents? [0:15:06]
What Is A Robinhood Account? [0:18:19]
Definition of Securities Backed Line To Credit [0:23:10]
Need Help? Email Or Call For Free Consultations [0:28:17]
Takeaways: If You Can Do The ROTH IRA, DO IT [0:29:00]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hello everyone and welcome to the fourth episode of the Financial MD Show. I’m excited about today’s show. We’re going to be going into investing and the basics of investing and what it means particularly to residents. We begin by talking about some of the basics of actually investing in stocks and where it comes from and what is actually happening. Trevor starts going into the behavioral side of investing and how to manage your emotions to be a more successful investor. We then pivot to talking about how it fits into a resident’s financial plan, when to start investing, how much, and where to actually invest. Trevor digs into some of the ways that investments can get tripped up and where we should be putting our money based on how it’s going to be taxed and I talk a little bit about what are some of the biggest drags on investment performance over time. We wrap up by giving some resources on where you can go to get more information and how to get started today. And so with that introduction, I hope you enjoy today’s episode of the Financial MD Show.

Jon: Investing – definitely, I’ve got some knowledge on the formal side of actually being a trained financial advisor but the whole reason that you are part of Financial MD is because you have a more organic interest in these, and don’t get me wrong, I’m interested in this stuff. But your interest is – you know you have the beauty of not having to take the Series 7 and 66 and all the crap that I had to do. You get to pick and choose what aspects of investing you want to get drilled down into and get really good at.

Trevor: Yeah, that’s right.

Jon: For sure, more than most residents, so I don’t expect you to disseminate everything you know to every resident out there. That’s not fair to them.

Trevor: That’s exactly right.

Financial MD Gives Useful Financial Information to Residents And Young Physicians [0:03:05]

Jon: But I think you’re down to earth enough to be able to say, hey, if I had to give kind of Dave Ramsey style advice because we go back and forth on Dave Ramsey. We agree with a lot of his stuff in general, but we also understand Dave Ramsey’s advice is for the masses and so when we have residents or young physicians come to us and say, well, Dave Ramsey said this, what do you think of this? And I say, well, sure, but the whole point of Financial MD is that everyone listening to this podcast is going to be in a doctor’s or in a unique financial situation. So I don’t think all of Dave Ramsey’s or all of Suze Orman’s or all of whoever’s advice is going to everybody – let alone physicians – hence the point of making Financial MD in this podcast. So we’re going to give you guys some tidbits. The whole point of Financial MD is to give information that can be useful at any point in your career even if you’re in training so a lot of the stuff we’re going to talk about today, I want it to be hopefully you guys walk away listening to this getting just a few, even one or two tips that you can say, hey, I’m going to implement that, and the 65-year-old me is going to thank me. So, Trevor, where would you start?

The Big Picture In Investing [0:04:31]

Trevor: A big picture just in terms of investing like what is investing, I think the big picture is often sort of addressed at the end, or for me, I’ve been kind of finally getting the big picture of investing after reading the little bits and pieces like I started with the details almost like, what’s an IRA, what’s a ROTH IRA, what are the differences, how do I contribute to retirement accounts – that’s kind of the meat. Retirement accounts is the meat of investing for most American doctors and most Americans in general. So the question is, that’s the meat? And then everything else, and there’s a lot of other products. There’s a lot of other ways to “invest.” But the big picture philosophy is, how do I use the money that I’ve earned? Tax strategies, how do I keep the most of my money? Like I earn the money and then how do I keep the most, and then from what I keep, how do I make it grow the most and how do I keep it as it grows? How do I keep it from going down and mostly going up? To me, that’s investing and then you’re picking things that are worth having so that other people want to buy them too. That’s how things go up or you’re picking things that grow in value, not just because other people want them too but because they produce something – they create something – so that’s where stocks come in. Companies make something, people buy it so it grows, and it’s worth more money. We’re trying to take the money that we have kept and now we are trying to grow it – I mean that’s what’s investing is – and then we want it to be there when we need it. So there’s short-term investing and there’s long-term investing. Short-term investing has a goal of being available sooner and longer term usually means when I retire. If you don’t have the money when you retire, unless you can keep working through that period, you’re going to be in trouble. It’s serious business but I got into reading about it because I think it’s fun too. Figuring out what is valuable and why it’s valuable to me is like a very interesting challenge and it’s one of the most dynamic things. There’s a million different experts on one stock. Tesla being one of the hottest ones, right?

Jon: Right.

Trevor: Anyone who has a Robinhood account – it’s like a free trading app – anyone who has a Robinhood account has probably owned Tesla at some point.

Jon: That’s why they got the app probably.

Trevor: It’s an app for nonprofessionals. Yeah, right. Actually, that’s exactly true. I totally agree with that. There’s a million different opinions on Tesla and there was. I first bought it in 2014, and currently, one of those disclosure things – I don’t have any right now. I wished, yet I sold it on the way up really early, but I’ve had it on and off since 2014 back when people said it was going to zero every three months – every quarter – someone was saying it’s going to zero. And now there’s a few outside people that say in the next decade, it’s going to be the most valuable company in the world. That’s why investing is fun. It’s interesting. If you’re right and you bet an appropriate amount – it’s not truly a bet – but if you invest an appropriate amount and you’re right, it can change your life and it doesn’t have to be risky on a scale that hurts you. That’s my big picture perspective on investing.

Describe Financial Planning [0:08:21]

Jon: Yeah, that’s a great way to explain it and describe it because that’s exactly right. No matter what you’re investing in, I think you described it well. There’s a few concepts – and I think this covers – probably you could describe financial planning in general. It’s making enough money, keeping enough money, investing enough money, because we always say that when we talk about, oh well, my stock, I’ll talk to somebody who says so I got this investment and it made X or it grew this much or whatever, and then I say, okay, we’ll, that’s all well and good, but if you want to cash that out right now, you’re going to have to spend 15 or 20 percent in capital gains taxes or whatever so it’s really this. So we have this concept of it’s not what you make, it’s what you keep. That’s why we may talk about investing and things like but I think an equal amount of the conversation has to be about taxes and fees and all those other things.

Trevor: I totally agree.

It’s Not What You Make, It’s What You Keep [0:09:21

Jon: I always want to go to the resident seminars and you’ve probably heard me do this at a dinner where I say, what are the two biggest drags on investment performance, and it’s taxes and fees depending on the account obviously but those are things that doesn’t matter what the investment is. Those things apply in some way, shape, or form, so it’s not what you make, it’s what you keep. It’s not what you keep but it’s how you grow it and how you invest it and where it’s invested and all of those kind of things, and then I love how you framed that. You got to buy something that somebody else is going to want again at some point and hopefully more than they want it now. For most of the people listening to this, it doesn’t mean like, okay, do a ton of research into the individual stocks that you’re going to buy because most people aren’t going to buy stocks, or if they are, it’s not going to be a big part of their retirement portfolio, hopefully.

Trevor: Right, and it’s smart enough to do that. It’s safer. I think I’ve done a little bit of trading myself and if it has taught me anything, it’s keeping your capital. Keeping the money that you used to try to make more money is both the most important and the most challenging part of investing because potentially the bigger you invest in something, the more you make, and anytime something is really successful, you never invested enough and anytime you lose money, you always invested too much.

Jon: Yup.

Trevor: That’s how it feels a hundred percent of the time so creating a plan and sticking to it is the key. This is all still big picture stuff but keeping the money you have is almost more important than the performance but not to the detriment of your growth. Holding it in cash is not a great plan and pretty anybody would agree with that especially when – do you notice I look this up – 22 percent of the U.S. dollars in circulation right now were created this year – twenty-two percent of all U.S. dollars.

Jon: The ramifications that has for inflation and everything – that’s crazy.

Trevor: Yeah. I looked it up. You can look it up on one of the government federal reserve websites like how much is in circulation, how much is printed this year, because you can just look at 2019 versus 2020. It’s a 22 percent increase. I was like this has got to be fake news like that’s too high, but no, it’s the real deal.

Jon: You’re talking about printed cash or just anything in cash or money markets or derivatives like that?

Trevor: That’s a good question. I think it’s probably printed cash to be honest – how much they printed – because there’s no way it’s the total amount of U.S. dollars out there.

Jon: No. I figured you meant the GDP went up 22 percent like whoa.

Trevor: That would be nice.

Jon: Maybe since April but yeah. No, I’ve had this recently. This morning I looked at a stock that I bought of a company that I know and in the last two days, it’s gone up 30 percent, and have that same age-old conversation, should I take my winnings and walk away or leave it there, and honestly, I’ll probably sell some and leave the rest of it invested.

Trevor: Yeah, and it depends on what your plan is. The key is to make a plan. If I put in this much money and it goes up this much then I’ll take this much out. And that’s really to a degree, it’s not literally day trading because you’re not opening and closing a trade in the same day – I think that’s the definition of that – but it’s kind of like day trading. It’s just that you’re not looking at it quite as much and you’re waiting a bit longer. It’s a short-term approach. It almost doesn’t qualify as investing compared to what we would normally talk about with residents which should be like retirement accounts and what can you do. What is a retirement account and what can you do with the funds inside of it because even that’s a mystery to people. They might put a few grand into a ROTH IRA every year for a residency and that’s a post-tax so all the growth that you get in a ROTH account. The only difference between a regular IRA and a ROTH IRA is that you’ve already paid the taxes, you contributed with the money that you already paid taxes on, and it’s a limited amount. The only way to contribute to that is if you make less than – was it 135,000 for single and some sort of combination in the 200,000 or 300,000, I think, when you’re married.

Jon: Yup.

Trevor: Regardless, it changes a little tiny bit every year and you can always look it up on the IRS website. So you put a little bit of money in there and it’s like, what you can do with it? Well, you can’t just put it in. It doesn’t just start growing. You have to pick things that you buy within the IRA. At least in one of the books I’ve read, that’s apparently a common thing that’ll happen for the occasional person. They’ll put the money in. They’re like why isn’t it going up. They’ll check back later. They missed the whole year of growth; they just deposited in there. They just assumed somebody was making it grow but you have to actually buy specific funds when you invest. Some companies will set it up automatically; you have to pick one when you open an account, but most of them will not or Vanguard necessarily will not and some of the lower fee ones are a little more hands-on so you have to pick your own either a retirement fund or you can buy specific stocks but generally buying a group of stocks is the approach of either a mutual fund or a retirement account.

What Are The Four Different Steps In The Roadmap for Residents? [0:15:06]

Jon: Yeah, and that’s probably where step one is for, if you’re a resident and you’re listening to this and you’re making 50,000 dollars a year and you maybe put your spouse to work so you can get a little more income, but somehow you found a little bit of surplus and you’re ready at that point because before any of these tips or advice or anything and we talk about investing, we’ve got four different steps in the roadmap for residents, and the first 3, none of those first 3 are investing. Investing is the fourth one. The first one is cash flow – getting a handle on what’s going in and what’s going out. Step two is getting your safety net right – your emergency fund and your insurance. Step three is getting a handle on your debt whether you need to knock out some credit cards or refinance your student loans which we talked about in other shows. But those three things have to happen before you get to what we’re talking about today with investing, so get those in order. Get your house in order there, and so if you’re at that point and you’re listening to this, then it’s like, yeah, usually the next step is ROTH IRA, and it’s that because like Trevor was saying, this is the only time in your career or the last time in your career when you’ll be able to put money directly into a ROTH and we can go into backdoor ROTH and how that works and a lot of my in-practice physicians do that. But the easy button when you’re a resident is the ROTH IRA and the most you can do is 500 bucks a month and I have very few residents that are doing that but a lot of them are doing 100 bucks, 50 bucks, 200 bucks, whatever they can do because 30 years from now, they’re going to want as much in this tax-free bucket as possible. That’s certainly a piece of that. Vanguard, Betterment, Wealthfront, Personal Capital – those are kind of places that if you’re just looking for the easy button today, then that’ll be a place to get in and get in cheap and they’ll do everything for you pretty much. You just give them the answer to a few questions, figure out how much you’re able to save. They’ll pick the investments for you so you don’t have to have whichever was saying happen where you put it in and you realized a year later it’s just sitting in cash because I’ve had that conversation where I meet a new client and they come and they say, okay, I’ve got this other account that’s just not been doing very well. I think my advisor sucks. And I look at him like, well, he probably doesn’t suck, you just have had this in cash for a year or whatever. That’s that conversation is what do we do first? Well, get a handle on everything else but then ROTH IRA and Trevor got into what’s a mutual fund and it’s a collection of stocks and you’re basically paying and this is where that concept of fees comes into because you may say it doesn’t look like I’m paying anything or my investments are free but that’s never the case.

Trevor: That’s right.

What Is A Robinhood Account? [0:18:19]

Jon: There’s index funds and ETFs where they can be cheaper for sure but what’s happening is this company whether it’s Vanguard or iShares or BlackRock or whomever is paying somebody to put together this fund and monitor this money even if it’s an index fund which is basically tracking somebody else’s list of stocks, there’s still some fees and expenses to it. But I’d like to say it doesn’t have to be difficult or complicated, and when it comes to Robinhood, that’s not a place – they don’t do IRAs. Robinhood is a place – an app – to find companies that you like or interested in and buy some of their stock basically. I just got Robinhood a couple of months ago and I’m kind of figuring out and playing with it but it’s a game changer probably, not that this thing hasn’t been out there before. I don’t know would you say is Robinhood the first to do something like this with the no cost and stuff?

Trevor: It’s the first – they didn’t even have fractional shares until I think within the last calendar year but they were the first to have zero fee trading. That was what put them on the map. That was what drew in a lot of users and then they opened “checking account”, or specifically, it’s a money market account. You may better know the details, the difference basically of money market accounts. I understand it is essentially the same as a checking account but it’s typically in the past, it’s sort of like a holding of actual some sort of share where they guarantee you some sort of growth percentage because like Vanguard has a money market account and you get between a 0.4 and 0.8 percent on it – sometimes more, sometimes less. It’s not a guaranteed amount. It functions similar to a checking account but I think you technically have shares of something.

Jon: You do. A money market is you’re buying shares and the share is always one dollar.

Trevor: Yeah, it’s so and so. If anyone is interested in the whole cryptocurrency thing, it’s almost kind of like a pre – they call these things stable coins. There’s these cryptocurrencies that are tied to the U.S. dollar and they hold tightly to 1.0000 dollar. It’s pretty similar to that but it has a return and the company who holds it must from their profit share it. I don’t know how it gets distributed. That’s a long-winded kind of aside there. I was just little curious of what a money market truly was but sounds like it was about what I was thinking. So Robinhood has that and they have a money market account. They’re trying to get people to deposit their money directly from their jobs, and SoFi is trying to do the same thing. Robinhood is mostly stocks, purely stocks. I do think they have some.

Jon: From my standpoint, it’s interesting. Robinhood maybe started this whole trend of zero-cost trading and then that pushed the big boys into it like Schwab and TD and Etrade to all had to go to zero as well and so people wonder like, oh, how can they do that, but turns out those were only made up a very small percentage of their revenue. The bulk of these custodians, which is where the money is being held, the bulk of their revenue doesn’t come from these transaction fees and cost. It comes from the spread they make on the cash. Schwab has so many billions or trillions sitting in money market or cash. Everybody’s got a little bit of cash in their accounts, and some of these custodians – call it conspiracy or not – they make every account hold at least a little bit, maybe it’s one percent or half percent in cash as part of their portfolios, that’s just their requirement. So all this cash that’s sitting there as a requirement, they may say, here’s what we’re paying you on our money market fund that we have. So Schwab might say, yeah, we’ll give you 0.25 percent because they’re getting 0.5 percent out there in the world in any other scenario so they’re making that spread and you may think, 0.25 isn’t a lot, but when it’s on half a trillion dollars, yeah, it’s plenty.

Trevor: Yeah, and not only that, I mean some of them they have credit card divisions, making 22 percent.

Jon: Oh, for sure, yeah. Schwab’s got a hold on it.

Trevor: Making mortgages and they can lend that money at insane rates.

Definition of Securities Backed Line To Credit [0:23:10]

Jon: Yes, and one of my clients does – we just started getting into what’s called Securities Backed Line to Credit where if you have an investment account – let’s say it’s at 100,000 dollars – you can borrow, you can get a line of credit off of that without having to hold the money out. Let’s say, I want to put a down payment on a house or I want to get this or that, you only need 50,000 dollars. Well, you can borrow against that so that 100,000 is all still invested and it’s the investment company giving you the 50,000 and then they charge you, right now, I think she’s paying 2-1/2, 3 percent or something. Pretty competitive, but they’re still making money, so they’re finding ways. It’s always interesting to get a little deeper in these things and see how the sausage is made and see where the money is made.

Trevor: That’s right.

Jon: I think for our purposes today, again, if we’re talking to residents, it’s get your house in order with the budget and debt and emergency fund and those other things. It kind of ties into the budget conversation. If you say, well, I’m ready to start a ROTH IRA, then the question becomes okay, well, how much because then that goes to the budget. You got to figure out obviously how much to save first. Whether it’s building your emergency fund or building your ROTH IRA, it’s always better to start with something versus say, oh, I can’t afford 100 dollars right now. That’s fine, do 25 bucks or do 50, and then we used to always have this thing where on your birthday, double it and then give it – it’s like a little birthday present for yourself – and then you be surprised what happens in four years by the time you get to the end of residency and you got this little bucket of money.

Trevor: Yeah. That’s a great approach. I like that. I mean that’s what I did. I was putting in 100 bucks a month to my ROTH IRA. It was enough that I was feeling it, which is not going to be the case later in your lives, but you’re putting away enough that you’re feeling it just a little bit and if you stop doing it, you have some extra money so it’s important to you at the time to put that money away and it develops a good habit. But it doesn’t keep you from enjoying your life and doing fun things and having enough money for restaurants or whatever. It’s a healthy amount and some people can do more, some people can do less. There are people out there listening who I’m very jealous of that didn’t have to pay for medical school or somebody else pay it for them, and if you’re one of those people, I mean, you should be max IRA ROTH IRA for sure.

Jon: Right.

Trevor: You could definitely afford 500 dollars a month going into ROTH IRA. Probably even if you’re living and working in New York City because you’re paid a lot more as a resident there. In most programs, not all of the fellows do, but you should be making enough money pretty much wherever you are to be middle class and the government designed these programs for the 25th to 50th percentile of at least the middle class. If you can’t put that money away now and you don’t have any loans, you’re in big trouble for the future to be honest. That’s where you probably want to hire a financial advisor ASAP to try to figure out what’s going on. I don’t want to wake up when I’m 45 and have nothing in retirement-type situation. Yeah, 500 dollars a month is doable. My payments even until I refinanced were enough to like there’s no way I could have been doing that but most people are deferring now even if they’re not going to complete the Public Service Loan Forgiveness – which way is it?

Jon: You got a PSLF.

Trevor: Okay, nice. Most people are doing that even if they’re not going to do it to 10 years so they have the money to put it away.

Jon: Yeah, and that’s kind of what I’ve seen too. I’ve sat with a lot of residents and done budgets with a lot of residents and I would say 80 to 90 percent of the time, they’re able to pop into a ROTH IRA, not that there’s things that they don’t have to knock out first but we’re definitely able to get there in a reasonable amount of time. A lot of these things we talked about we can’t go into as much depth as maybe we’d like to in the show but that’s why we created the whole didactic minute video series so get on our YouTube channel or our Facebook and check that out because that’s where you’re going to see a lot of these more specific topics that we drill down into a little bit further.

Need Help? Email Or Call For Free Consultations [0:28:17]

Trevor: You do free consultations, I mean if somebody’s trying to figure out like where do I want to put my money, they should shoot you an email, give you a call. An hour right now, if you don’t know what a lot of these terms meant, it’s going to be huge. If you’re worried about the fact that you’re in residency and you’re not making that much money, this hour would be worth getting paid 10,000 dollars for that hour because you’re going to save that much money later. You won’t make a better rate of return in residency than sitting down and educating yourself on finances and what your plan is for the future.

Jon: Agreed.

Trevor: It’s a no-brainer.

Takeaways: If You Can Do The ROTH IRA, DO IT [0:29:00]

Jon: Yeah, I would say, in general, takeaways, most of you guys can do a ROTH IRA, do it. The easy buttons are the Vanguards, the Bettermans, the WealthFront, Personal Capital, index funds, ETFs or what they’re going to do for you there. Trevor, any other quick takeaways or just in summary what they should remember from today?

Trevor: Yeah, the other thing to do is really just warn people. I mean, speculative investing on things like cryptocurrency or even aggressive real estate opportunities. Save those for your dollars that you can afford to lose later. I think as a resident, if you’re not filling up your ROTH IRA, don’t try to go to the casino to make enough money to fill up your ROTH IRA – that doesn’t make sense – or you wouldn’t go to the slot machine. Sure, enjoy. You know I’m a big believer in certain aspects of cryptocurrencies but they’re still speculative and if you’re not earning a lot, if you want to be a part of something like speculative then just keep it very limited. Even Dr. Dahle of The White Coat Investor, he knows some people are interested in bitcoin or something and they want to have a little bit of it. They want to pay attention or they’re excited about the technology but it’s still risky and keeping your capital to grow for the future is the most important part and parking it in a ROTH IRA is one of the safest places to put it. I mean if you read anything on his website – and he’s a conservative investor – sure that’s his bias but parking money into ROTH IRA when you can really do it easily and maximize it, it’s great and there’s a lot of other fun exciting things but I think a lot of people in residency are trying to gain something fast, if their financial people trying to gain something fast quickly so they can fill up the ROTH IRA, instead of just focusing on putting a little bit of attack in a slow and steady kind of approach; would have benefited me more, would have benefited a lot of other residents that I know personally and it’s hard not to do that. It’s hard to follow that advice but if you do it, you just won’t regret. I know people that did and they’re killing it. They’re just slow and steady and they’re doing great. That’s a wise advice for reason. Everybody says it for a reason. So it looks like they know. It’s almost like they’ve experienced it before. You just listen to the people a little bit further ahead it really pays off.

Jon: You know, that’s absolutely true. I was just reading a White Coat Investor article today about just ways to look at debt and he’s very conservative when it comes to debt and so when it comes to investing too for sure. I mean we always say 5 percent of your portfolio or less can be in some of this very speculative risky stuff and that’s kind of a real thumb, but the other thing, slow and steady wins the race. I always close with this in my investment talks: that most of the millionaires were made from small, boring, consistent decisions made over a long period of time.

Trevor: That’s a hundred percent right.

Jon: I think it’s a reality check for a lot of people. Well, I think that’s enough for people. I know Trevor and I could talk about this forever and we probably will next time we get together but again we tried to have this podcast to give you in depth on certain topics but for sure there’s more resources out there. Get to the Facebook group. You can ask questions of either me or other doctors out there – that’s the whole point – and then check out the didactic minute videos that are on either our Facebook group or on the YouTube channel. That’s going to go in the specific topics – each one a different – and there’s new ones that come up every week so plenty of places for more information. There’s no excuse for not knowing, and then ultimately, get that consultation scheduled with one of our people and just get your questions answered, nothing else. You’ll walk away feeling okay, either I was right or I was wrong or one way or the other but that’s kind of the point, just to get a quick financial checkup. That’s all we got for tonight. We’ll see you at our next episode and stay safe everyone.

Trevor: Awesome. Thanks Jon!

Jon: Thank you, Trevor.

Trevor: See you!

Resources and Links:

Series 7 and 66 Exam Details – https://www.kaplanfinancial.com/securities/series-7-66/exam-details
Dave Ramsey website – https://www.daveramsey.com/
Suze Orman: Personal Finance Expert – http://www.suzeorman.com/
Tesla: Investor Relations – https://ir.tesla.com/
Robinhood: Commission-free Stock Trading & Investing App – https://robinhood.com/us/en/
Traditional And ROTH IRAs – https://www.irs.gov/retirement-plans/traditional-and-roth-iras
Vanguard – https://investor.vanguard.com/corporate-portal/
Betterment: The Smart Money Manager – https://www.whitecoatinvestor.com/
Wealthfront: Banking, Automated Investing & Free Planning – https://www.wealthfront.com/
Personal Capital: Financial Planning and Wealth Management – https://www.wealthfront.com/
Index Funds Vs. ETFs – https://www.thebalance.com/index-funds-vs-etfs-2466395
iShares Exchange Traded Funds (ETFs) by BlackRock – https://www.ishares.com/us
Fractional Shares – https://www.investopedia.com/terms/f/fractionalshare.asp
What is Cryptocurrency? – https://www.nerdwallet.com/article/investing/cryptocurrency-7-things-to-know
SoFi Investing 101 Center – https://www.sofi.com/investing-101-center/
Charles Schwab: A Modern Approach To Investing & Retirement – https://www.schwab.com/
TD Direct Investing – https://www.td.com/ca/en/investing/direct-investing/
E*TRADE Financial: Investing, Trading & Retirement – https://us.etrade.com/home
Securities Backed Lines Of Credit – https://www.sec.gov/oiea/investor-alerts-bulletins/sbloc.html
Student Loan Forgiveness – https://studentaid.gov/manage-loans/forgiveness-cancellation
The White Coat Investor – https://www.whitecoatinvestor.com/

View Details

Summary:

Budgeting Basics [0:03:18]
Trevor’s Expense Perspective Before and After Med School and Residency [0:04:43]
Tracking expenses: Mint/Dave Ramsey Envelope System [0:07:35]
Enjoy The Things That You Enjoy Including Spending Money [0:10:06]
Geography Plays A Role In Budgeting [0:12:56]
Budgeting For The Future During Med School Is Smart [0:22:01]
Reverse Budgeting [0:29:39]
Focus On One Number Instead Of 10 Different Categories [0:30:02]
Takeaway: What Is That Number For You. Find That Surplus Number [0:35:47]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hello and welcome to the third episode of the Financial MD Show. Thanks for joining us. You’re in a for a treat. I’m excited about today’s show because we’re going to talk about the boring old basics of the budget. That’s an alliteration for you. Trevor and I are going to share what we see as a budget and how budgets are done wrong and how budgets are done right in terms of what we’ve seen that works, what’s successful, what’s been successful with ourselves, and from my end, I’ve worked with hundreds of residents over the years and been able to identify what are ways that work on a resident’s salary and a resident’s expenses and that kind of a lifestyle. Next, we’re going to talk about technology and how to properly utilize that just to make your life easier. You guys are busy; how can we automate some of the tasks. Lastly, we’re going to talk about what that magic number is that you need to concentrate on with your cash flow and with your budget and give you some tools and resources that you can look up on how to actually find that number and make that number work for you. So without further ado, here’s our show.

Jon: All right, welcome to the Financial MD Show. I’m your host, Jon Solitro. Joining me as always, Dr. Trevor Smith.

Trevor: Hey!

Jon: Good evening to all, whatever time you’re listening to this. It’s an evening to us. I’m in a hoodie today because it just feels like that kind of day. It’s rainy here in Michigan and that’s okay. It’s almost October and it’s supposed to be that way. We get spoiled with an Indian summer from time to time and we had that last week and got that out of our system.

Trevor: Yup, just got to soak it up. I actually hit the beach on Saturday, but it was quite a windy Michigan beach day, but we still like those, right? I mean you got to soak it up when you get out.

Jon: Oh, absolutely! Like we went to – you know where Shelby is? Hart, Whitehall?

Trevor: Oh, yeah, actually. Yeah, I’ve been there old township.

Jon: We went there Friday, so walked out there. We love it. Yeah, we’re actually looking at a house up there.

Trevor: Oh, cool!

Budgeting Basics [0:03:18]

Jon: All right so, we are stoked today. I love covering the basics because as tedious and boring as they might seem, they are super useful and super practical so today is going to be the quick and dirty with a few tips on budget, specifically, a resident budget. We can talk about attendings a little bit. They are a little more difficult to get into a budget although I personally believe that budget’s good for everyone. Not necessarily budget meaning here’s all you have to spend and you have to stick to this, but we’ll talk about this today. I do a kind of what I call a reverse budgeting approach and I think it works for everybody but it helps you to put the main things and make sure that you are focusing on the priorities that you’re supposed to be focusing on no matter what stage in your career. So we’ll give a few tips to start up, but I guess first, Trevor, give me your expense perspective, getting into and out of med school and the residency. What was your budgeting approach or cash flow management? What did you do? What helped? What didn’t work?

Trevor’s Expense Perspective Before and After Med School and Residency [0:04:43]

Trevor: Sure. I mean before med school – so I went pretty much straight through. I took a little bit of time off. Just by default because I ended up applying the fall after my senior year in college. So yeah, there’s like kind of spring, summer default time off, but yeah, pretty much a regular going from college and med school.

Jon: Okay.

Trevor: I wasn’t making any money so it didn’t really matter how much budget. It was just like don’t spend all the money in your bank account because you’re making a couple hundred dollars a week kind of situation.

Jon: This was in med school?

Trevor: But getting into med school – that was like right before med school.

Jon: Okay.

Trevor: Getting into med school and starting med school, I didn’t think a lot about it which is not surprising in any way but I essentially was just like, okay, again, this is the money in my bank account. I wasn’t working in a job. I knew a few people that worked during med school but it’s usually side gigs. I remember talking to a med student not that one who grew tree frogs and sold those kind of rare tree frogs. Unless you have a random kind of side gig or preexisting business, it’s kind of hard to do in med school but you get your money from the student loan, not I want to say reimbursement, disbursement.

Jon: Disbursement again, that’s probably a good word.

Trevor: Yeah, disbursement. At the beginning of semester, so you just get a big lump sum amount of money and that’s supposed to last you the calendar year.

Jon: Which is? You know I’ve always had a problem with doing it that way. I feel like they can do a little more to help stretch it out a little bit or break it up.

Trevor: Yeah, they should be breaking that up into little chunks because it’s a great way for them to make more interest slowly over that whole year. The earlier somebody gives you money, the more interest they make off of you holding onto a period of time.

Jon: Yeah, so that’s probably why they do it.

Trevor: Yeah. I’m not sure of the details when it starts accruing interest. I think it might actually be after you graduate.

Jon: That’s probably true on student loans, yeah.

Trevor: I think it doesn’t gain any interest until after you graduate, but regardless, they do give it to you upfront and it does inspire super rational decision-making. I remember I bought a 300 hundred-dollar pair of sunglasses and really you don’t need sunglasses most of the time. This is an ophthalmologist talking. You could buy a really cheap pair and they would pretty much get the job done and most of them have nice filters and all the stuff you need for it.

Jon: Okay, totally.

Tracking expenses: Mint/Dave Ramsey Envelope System [0:07:35]

Trevor: Anyway, I can’t imagine how much I actually paid for that because usually depending on how long you wait along the way, a good 10 years later, you paid at least probably twice as much. So it was 600 dollar-plus pair of 300-dollar sunglasses. But for budgeting? I wasn’t doing a ton of budgeting. I was just trying not to spend money and there was a period of time where I was planning on doing international medical health stuff. I was trying to keep it really tight, really minimum, and I just used Mint. That was not too much longer like that was kind of in the Mint heyday. I cannot remember when it came out but I want to say it came out in the mid to late 2000s. They got pretty big in the late 2000s and I thought that was going to be a great product and they build it out. I think a lot of people actually thought that. I just had automated stuff for credit cards and connected it with my student loans and different bank accounts and kind of used that a little bit in residency, but it never ended up having really feature build out so I just did automated stuff and tried to ballpark some different categories and I remember the Dave Ramsey book and I tried the envelopes with cash which is hilarious. Nobody does that anymore. Nobody carries cash.

Jon: No, and the reason I don’t is because if I carry cash, I’d spend it typically is what I find. Even if it’s in envelopes, it’s going to float out of there.

Trevor: Yeah. I mean if I had an envelope of cash right now for my spending per month, that would be an irresponsible amount of spending. Imagine you hold it out and you actually did the full thing and you included your student loans.

Jon: It’s just dollar, yeah.

Trevor: Yeah, exactly. It’s a good method. It was a good method, I would say. But it’s a pretty retired method in my opinion. I didn’t do a lot of that then, and in residency and in fellowship I did keep an eye on spending but my philosophy on budgeting ended up even before I read this book that I just read this last year called I Will Teach You To Be Rich by Ramit Sethi. Awesome, really, really good book because it’s so doable and practical. I was pretty much spending.

Jon: All right, we will take notes.

Enjoy The Things That You Enjoy Including Spending Money [0:10:06]

Trevor: Oh, yeah, that’s a great one. He talks about to just enjoy the things that you enjoy like you’re going to spend money. Part of the reason you have money is to enjoy it and you should just pick a couple of categories where you know you won’t ruin your goals by “overspending” according to financial gurus. It’s just like overspend on lattes or overspend on pizza or whatever you really enjoy, just enjoy the heck out of it. For me, that category has always been restaurants. I’ll spend definitely in the hundreds of dollars on restaurants every month. I just prefer to eat in a restaurant than make meals most nights of the week and I’m single so I’m not paying for two kids and a partner. I can afford to buy myself a 30-dollar meal a few times a week and it’s not going to move the needle. If you do the math, it’s not even going to move the needle on paying off my loans and I could be debt-free approximately two or three weeks earlier if I sacrificed for two years reining in the spending on restaurants every single month for 24 months in a row. I can be debt-free two or three weeks earlier.

Jon: Yeah. It’s that cost-benefit analysis.

Trevor: It’s not worth it. I think Ramit Sethi has probably had more of an impact for me. I like feeling comfortable with spending in different areas in a non-traditional budget approach and then I’d talked to other friends too. Anybody who has a high income – and it’s weird to think that I’m one of those people now – but if you have a high income, you can kind of like ballpark your budgeting to a degree and I have a lot of student loans but then I’m aggressively paying them off. But you have cushion if you have a decent amount coming in. For the residents, you have to keep it tight those little like refinancing your student loans and only having a hundred dollar a month payment. I did that, made a huge difference, and then I don’t have to feel as guilty about spending on things I enjoyed while still not going crazy and then now I just allow myself a little bit more freedom in the hundreds of dollars range for restaurants. That’s definitely my big category and if try hard to lower it, it stays the same. If I try hard to spend extra, it magically stays the same.

Jon: Okay, so you kind of found your number?

Trevor: The exact same. Yeah. I’m just like, well, why should I feel bad about it? I’m not going to ever blow the roof off and it’s not going to move the needle for any of my goals. That’s what I do. It’s been good.

Geography Plays A Role In Budgeting [0:12:56]

Jon: Well I think part of that too and a lot of these budget conversation can revolve around the geography and area that you live in as well. A lot of things play into this budget conversation.

Trevor: Oh, that’s so true.

Jon: I had a resident – anesthesiology resident – in New York City and different story on budget and while walking through our whole budget exercise at our first meeting and we get to the eating out category and she’s like, ah, probably 2000 dollars a month, and I’m like, what? Now, yes, she is in New York but still New York residents don’t make any more than residents anywhere else for the most part. It’s easier to spend a lot of money in New York, I get that, but it just probably takes that much more discipline to not spend that. The other thing about a budget is like you said, we’re talking about mindset philosophy on budget on spending. The book you’re talking about sounds like it kind of gave you a mindset shift a little bit on spending and cash flow and a lot of that comes from how we were raised and our environment. You know there’s that whole nature and nurture conversation. Some of us just no matter how we’re raised, we’re going to be terrible spenders or great savers or whatever case might be. But I think our parents and our culture we came from certainly has some impact on that. My dad was pretty frugal. He made good money but you wouldn’t know it and he’s kind of that millionaire next door that retired with a couple of million bucks in their 401(k) which was plenty for him because he didn’t have a big lifestyle to maintain and he’s never going to spend all his retirement investments.

Trevor: That’s great.

Jon: Plus, he’s got a pension so it’s just even more. It’s just going to sit there and I have to push him to be like, dad, you can spend some money. Spend something. Buy a corvette like do that stuff. That certainly rubbed off a little bit on me, but like all of us do with our parents, we take a little bit of the good and a little bit of the bad and create our own. I’m probably more frugal than some but not as cautious and conservative as my dad was, and maybe it’s the millennial in me, and I’m just kind of on that borderline. There’s still some value in experiences and a dollar isn’t just a dollar. To my dad, it was. Everything could be put a price tag on it and I think my wife and I feel a little bit differently.

Trevor: Yeah. I totally agree. There’s all those kind of hot articles about if you stopped eating lattes, it’ll be worth a hundred thousand dollars in 30 years and stuff. But you went 30 years without eating a latte.

Jon: I think you meant 30 years.

Trevor: They’re eating a pizza. It’s like, that’s sucks, man. Who wants to live that life? It’s not about a hundred dollars at that point. If you did that with bigger things like a nice car or if you just slammed dunk the more expensive stuff then yeah, a really nice car for me right now would be like giving up a million dollars in retirement. That’s worth thinking about for sure.

Jon: Yeah.

Trevor: Maybe you’re going to be worth it. If you’re going to plan to being on worth 25 million dollars then you’re like, okay, well, do I want to just have a fast car when I’m 55 or would it be more actually fun to have one when I’m like 35? That’s a fair trade-off as long as you’re making a trade-off like you’re seeing it for what it is. I mean you can do that.

Jon: That kind of leads to what I was telling you before. I mean my wife and I were looking at this house in Lake Michigan. I don’t make a million bucks a year. I’m not. We’re not in that category where it necessarily makes sense right now but we kind of had a frank conversation earlier this year and we’re like, how about we not wait for retirement on some of these dreams? Why did these have to be retirement dreams? What if we just got a little bit creative and try to find a way to make this work now? It’s kind of one of those strangest secret things where it’s like the secret. You speak something and you kind of have it on your mind and it’ll just somehow magically happen, and we’re like okay. We’re going to start taking step towards that. We’re going to research it. We’re going to talk to people and let’s just like believe that this is going to happen at some point and may be a way will come out, and like the house we’re looking at this week was right now out of our price range just to get it and use it but I’ve started talking to some really interesting people that have had profitable vacation rentals in that area and I’m just like if we can just break even and so I’ve met several different property management companies that specialize in vacation rentals and they can run some numbers for me and tell me and I’ve started to feel like, I think this could work, and I don’t have to spend any of my money. So that’s exactly it’s that same kind of thing where it’s like maybe we don’t put this off. I mean, life is short, of course, and then just a concept of a dollar today is worth more than a dollar – not inflation standpoint but just to me. You and I are going to have more money in 20 years than we do now and so I know if we put that away and it grows and invest, that’s great, but there are things that have value today. Anyway, a dollar has different value in different places so for example, I talk to residents all the time about the conversation of, should I take this dollar and pay my credit card down or put it in savings, and I always say like, if you don’t have an emergency fund built up, you need to get that done because in my mind, a dollar liquid in the bank ready to use is more valuable than that same dollar put on a credit card even though he hasn’t pays off interest, but right now for you that’s more valuable in the bank and savings. That’ll change in six to twelve months when they have their emergency fund funded, then yeah, maybe we can talk about paying down your credit card.

Trevor: Right.

Jon: Yeah, gets into that just value conversation. So talk to me. You got into residency. You used Mint and kind of start to work with that a little bit. What did you find that worked well when you got out of…? Well, I guess let me just kind of go back to med school a little bit. Did you find something that worked well when you got that lump sum disbursement that helped you to kind of hang on to some of that? You know I definitely had some friends a lot.

Trevor: I couldn’t really figure out what to do correctly on that and most of my time was just spent studying. I really, really genuinely was like you studied the first year a lot and you think that all of that stuff you learned is going to really matter and a lot of it actually doesn’t but you’re just kind of learning how to study to a certain degree too like there was a lot of inefficient study time but for me I had to do that and then I was efficient to study the more valuable material the second year. I went to the University of Michigan and they even change their curriculums substantially now. You get into rotations a lot earlier, even in the second year, I think, and it’s a little bit different. Anyways, back to the budgeting. I mean I got a bunch of money. I didn’t really know what to do with it but I don’t want to pay it back. I don’t want to give it back because I don’t really know what to do if I ran out, and I was like okay. I don’t even know what the numbers were. Let’s say it’s like 8,000 or 10,000 dollars and it’s just sitting there in the bank and I’m paying 700 or 800 a month in rent month after month and I kind of just ballpark calculated it out and I was, this is how much food is going to cost, and then maybe some other amount of things I’m going to spend here and there. Some little bit of clothes or stuff. I’m not a big spender so it wasn’t like I was planning on breaking the bank at J.Crew every other week – not that they’re a place people shop anymore, I don’t think.

Jon: I know. They actually file for bankruptcy.

Budgeting For The Future During Med School Is Smart [0:22:01]

Trevor: Yeah. I’m sure I spent money there fairly more than I could afford. I guess it would have been nice to just have somebody to be like, okay, let me help you figure how much money you actually need for the year, and then, okay, are you going to work in the summer or not? Okay, if you’re not going to, then you need money for that. Budgeting to project in the future during med school would have been smart.

Jon: So budgeting like a semester at a time?

Trevor: Yeah or even like, I think, yes, measured in time. They don’t make it easy for you because they kind of wait to tell you how much tuition is it going to be until later. It would have been nice to be able to project annually but I’m thinking now I don’t think they told you the exact amount until maybe early winter or spring semester. They’d be like, we think that’s going to be approximately 50,000 dollars again but it’s going to be probably an extra if they tack down like one or two thousand per year each year increase which is insane.

Jon: And that’s the racket that is universities.

Trevor: Yeah, like five to ten percent increase per year.

Jon: Yeah, way for inflation, but it’s another topic for another time, another client.

Trevor: Definitely, yeah. So if I was thinking what would have helped me, it would have been somebody to step in and try to help me figure out how much I actually needed because I borrowed. I’m 100 percent sure I borrowed more than I needed all four years or even to sort of get financial coaching before I started like, hey, if you get some roommates, you can cut your cost by 30 percent, and it’s not a ton. It’s fine to do your own thing and spend money on housing and stuff, but for four years straight, that’s 48 months. That’s a lot of time. It’s a lot of rent. Splitting that with other people is smart. I did that. I had really cheap rent living in like a co-op. I did pretty good. That was probably part of the reason I had extra money because they went by averages but they just give you a ton of money and then you’re not really sure what to do with it.

Jon: Crazy.

Trevor: In retrospect, it’s amazing. I mean sure I went to college but still just like you graduated from high school without a financial education, you graduate from college without a financial education, just fine that you’re premed.

Jon: Yeah. So what changed when you went to residency then?

Trevor: Well, the thing that changes when you enter residency is you’re not an adolescent anymore. You’re like this delayed adolescent if you went straight through it for college. Anyone who had a job, there’s tons of people who do that and they go consulting for some three years, five years or something.

Jon: Yup, research or something.

Trevor: Go back to medicine. Yeah, it’s something. I mean anything where you’re really paying your own bills substantially. I mean just to be honest, I worked at restaurants or coffee shops before med school and then I borrowed the money I needed to live on for all of med school. I didn’t work. So I started residency and you’re in over your head in a bunch of different ways but then you finally have to be an adult. I mean you have to pay your bills. Your budget becomes really, really real because you’re like, okay, my med school sat down with me for an exit interview instead. You can either do Student Loan Forgiveness in Form A, B, C, or D, or you can start paying and it’s going to be this many thousands of dollars starting three months in and you’re like, okay, these are some really rough options here. Then you run the numbers. If any interest in that like defaulting on your loans or losing your housing or not having enough money to spend on things that you enjoy, that was the driver for me. I was like, I’m not going to have enough money in my checking account if I don’t figure this out. As a resident, you’re definitely living month-to-month and that’s just the way it is so some people will rack up credit card debt or personal loans but that’s less common or some of the savvy people like a radiologist and certain professions, you can sign early with companies or with hospitals. They’ll pay you throughout, so there’s some much more savvy ways to do it than what I was thinking about. I wasn’t even considering that. That’s not super available in my field of ophthalmology. People don’t really do that so it’s not handed down or advised from people years ahead of me. You have to budget when you know you’re running out of money like constantly so that was the motivator for me.

Jon: Yeah. One of the things that we start doing in residency is starting to, okay, and we try to start this as early as we can. They know what their salary is going to be so I do a quick projection on what we put together this basically a spreadsheet that breaks it down. Okay, here’s your income. Here’s what your taxes are probably going to be and the other paycheck deductions. Here’s what your take home will be. Let’s start breaking down the things that you know. Here’s what your rent’s going to be and you kind of work through those fixed expenses then we kind of ballpark some of the discretionary stuff like going out to eat or just any of that stuff and then we get down to kind of the big final number which is – maybe not big – but the final number which is the surplus, and everything the line item of expense takes away a little bit more from that surplus and they see, okay, here’s what you should have in your surplus, and the number that appears in that surplus calculation is very rarely the number that actually is in their surplus or in their bank. When they look at it, they’re like, oh, that’s says I should have 5,000 dollars a month or that says I should have 500 dollars a month leftover? No. They’re like, there’s no way. Well, let’s go back and look at it. I mean the math looks right. What we do is we say, okay, I said if this looks right, these expenses look right, then this is just the surplus you should have, and they’re like, yeah, I guess so. And that’s normal, like money just goes places and most people have no idea – I mean most of us – and here’s tip number one: Take a look at your checking account and your credit card, most people can find little subscriptions, stupid things they forgot about that’s costing five, six, eight, ten dollars a month. That’s stuff adds up. You can find 50 bucks a month sometimes just by getting rid of those things. There’s a term for it now like phantom subscriptions or something like that. Netflix knows how many of these there are, they know how many people pay and have not actually been on their account in six to 12 months.

Trevor: Oh, wow.

Jon: It’s so crazy the number, I can’t remember this but it sounds like, and then what? And they’re like, what do you want us to do? Like reach out to these people and ask them to stop paying? No.

Trevor: That’s crazy.

Reverse Budgeting [0:29:39]

Jon: Yeah, and a lot of us it’s probably not Netflix but has some sort of subscription like that. Anyway, I call it reverse budgeting because in my mind it’s that thing that is we start with the end. So once we get to that surplus I have the conversation with the residents and just say, hey, okay, what can we do to be smart with the surplus, and then basically it becomes a lot easier because then I say, okay, let me help you with this 500 dollar a month surplus. I’ll give you a few smart things to do with this. Then I tell them, you can do whatever you want with the rest of it because you know you’re making smart decisions with that surplus. You’re doing the important things that you have to do and you’ve got freedom to do what you want with the rest of it. And we find that works pretty well.

Trevor: Yeah.

Jon: See if I can put a copy of this. I’ll show you what the template looks like here.

Trevor: Once I became an attending – which is still very weird for me to say – once I became an “attending,” or to say private practice doctor, the first time I calculated that out, I was, oh, wow. I can pay off a lot of debt if I want to, and then I waited a month or two, I didn’t pay off the debt and I didn’t have my own money in my bank account. I think I got a little more generous on paying for a tab at a dinner with friends one too many times and I bought who knows what on Amazon probably some extra books and I don’t know. Definitely Amazon is my number one disappearing category because this is Amazon.

Jon: Oh yeah. That’s the one right now we started putting in a whole separate category just for Amazon in our budgets.

Trevor: Yeah. It’s like, oh, yeah, remember, you bought that really cool-looking air filter. Now your air is more filtered.

Jon: Right.

Trevor: You can’t do that several times a month. I’m a gadget guy. You can’t just like buy gadgets.

Focus On One Number Instead Of 10 Different Categories [0:30:02]

Jon: Well, that’s the thing. If you think of something or you see something or you research something, the problem with Amazon is you can now two seconds later buy it. We had a little bit of discipline before Amazon because before we’d have to go to the store to get it, and we’re like nah, I don’t need it that bad. I feel it’s a problem for consumers. So here’s my spreadsheet I use. We put in the things we know – the income, any 401(k) deductions – and then we start working with the fixed expenses and work our way down and then as we do, it starts kind of eating away at the surplus until we get to this yellow box here which tells them in big bright letters what their surplus should be, and again, rarely is it actually that but I say, okay, focus on this number. If we can do smart things with this number, you’re going to really move the needle on your time in residency as far as the impact that it makes in your financial future and you can still live a lifestyle you want to live in residency and not to have to suffer too bad. We’ll put this as a downloadable file on the show notes as well so people can feel free to play around it and see if it does anything for them. I find it’s much easier to just focus on that one number instead of trying to stay within 10 different categories or more. All I say is, okay, I know your busy. I know life is crazy right now in residency. Just focus on this number. Let’s do smart things with this and then I don’t care which you do with the rest because you know even if you spend everything else, you at least kind of what they say pay yourself first, whether it’s saving, whether it’s emergency fund, whether it’s disability insurance – those are the things that we talked about and say here’s the order you should be doing things and let’s be smart with that.

Trevor: Yeah. I took that number and played around with it in my Excel with my budget and I ended up making multiple other sheets at the bottom, different kind of tabs or pages, whatever those are called – these are called sheets. I used that number and I was, okay, I was job hunting earlier this year, I was like what if I get a job that pays this or what if I get a job that pays like signing bonus, and I put in all those things that it would trickle down into, this is the surplus you’re going to have per month on the same overhead budget cost, and then I looked at like how fast can I pay off my loans, and then now I have a magic number of this is when my loans are going to be paid off like a date like in months from now, basically from signing with whatever practice. Now I got the same surplus, then how many months until I am “hitting a million” in retirement funds. And then I had to figure out like what’s my number back calculate where I can live on 80,000 dollars a year. Once you know what your surplus is per month, it enables you to project into the future like, what is my life going to look like in x number of months with a given scenario. It empowers you to make better decisions for your life and for your family, partner, whatever, like whoever you’re considering in that scenario – a family wherever you want to live – and it’s like informed decisions that are life-changing and it’s starts with the budget. That’s where it becomes a powerful tool, not a tool to be like, oh man, you can’t get this latte.

Takeaway: What Is That Number For You. Find That Surplus Number [0:35:47]

Jon: Yeah, absolutely. Like you said, you can give yourself permission in that budget if you still got a surplus as long as you still got a surplus. I think the big takeaway from today is what is that number for you, how do you step one figure that out because knowing is half the battle, and then what do you do with that surplus? Are you making smart decisions? Here in Financial MD, we can certainly help with that. That’s kind of our specialty. I feel like we’re the only ones in the world that are spending the time and have a specific program for residents on how to get started on the right foot, how to build these habits early, and what to do with that surplus number. Find the surplus and then be smart with it, and sometimes we got to dig back in and cut some expense and things because there’s no surplus but 95 percent of the time, we can find the surplus and enough that we can make some big impact. It doesn’t feel like it today but the decisions that you make today in residency are going to impact your financial future absolutely, and Trevor’s talked about this before, whether it’s disability insurance, getting it now will make a huge difference on your financial future, making student loan decisions, refinancing – all that stuff – can make a big decision. We can’t stress that enough but find that surplus number, let us know if you need help. You know how to reach us. Go to financialmd.com. Check out our videos. We’ve got the weekly didactic minute on YouTube so subscribe to that and you get notified as soon as those come out every week. Little financial tips we put out. Lastly, join the Financial MD Facebook community and get involved in the conversation that’s going on between other physicians, ideas, takeaways, and just different things to give you a little bit of an edge. So any final thoughts, Trevor?

Trevor: That’s it. I think I’ve shared more than enough from my life and experiences, and I agree. I think the big takeaway is what is that surplus number. I mean that’s your tool – that’s your number one tool for planning your financial future.

Jon: Yes, the catalyst, right? It’s like your Sleep Number, like a Sleep Number mattress. What’s yours? What’s that number for you?

Trevor: That’s great.

Jon: All right, well, that’s it. Again, I’m Jon and this is Trevor. We’re saying see you next time.

Trevor: Thanks Jon.

Resources and Links:

Mint: Budget Tracker & Planner – https://mint.intuit.com/
Dave Ramsey book: Financial Peace University – https://www.daveramsey.com/blog/envelope-system-explained
I Will Teach You To Be Rich by Ramit Sethi – https://www.iwillteachyoutoberich.com/
Definition of Cost-Benefit Analysis – https://www.investopedia.com/terms/c/cost-benefitanalysis.asp
Student Loan Forgiveness – https://studentaid.gov/manage-loans/forgiveness-cancellation
Financial MD: Help for Busy Doctors – https://financialmd.com/
Downloadable Budget Spreadsheet –

View Details

Summary:

Federal Loans Highest Around 2010 To 2014 At 6.8 Percent [0:03:21]
Independent Companies For Refinancing – Link Capital, iCapital, SoFi [0:04:00]
Why Not PSLF? [0:06:00]
What If There Will Be Changes In The PSLF Down The Road? [0:10:47]
Why Do Refinancing? Because Of Compound Interest [0:13:10]
If Refinancing Done Right, We Could Achieve 3 Things [0:16:50]
Create A Strategy That Works For You [0:21:04]
Different People Have Different Financial Plans And There’s No Wrong Or Right Ones [0:22:08]
List Of Refinancing Companies Available On FB Group Page [0:27:12]
Need Help On Starting? Jon Can Assist You [0:28:15]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hello everyone and welcome to the Financial MD Show. I’m super excited about today’s show. Trevor and I talked about student loans which is the most requested topic by far. You’re going to get to hear some interesting perspectives, mainly a lot of Trevor talking because he’s the one with the largest student loan balance. He’s still working on paying that down but he tells you how he got around to choosing the option that he did, what other options he looked at, and how he is handling it now that he’s an attending, and of course, what he would have done differently when he was a resident. So be sure to stick around and listen all the way to the end. There’s some great tips here. Takes notes and here we go.

Jon: Welcome to the Financial MD Show. We are your hosts. I’m Jon Solitro. With me is Dr. Trevor Smith, and Trevor, how you doing today?

Trevor: I’m doing good, just finished, have a great day at clinic.

Jon: Good. I did not. I was in my home office again. We’re still technically in a pandemic, but it’s okay. I’ve tinted2.08 out pretty good and I’m kind of enjoying working from home. But it makes podcasting doable and if you missed the first episode, I encourage you to go back and listen to that. I gave some background on Financial MD and who we are and why and what and how and we thought we would start jumping in today’s episode with the topics that we’ve got lined up that the residents and young physicians want to hear and we’ve kind of grouped them in order of priority or demand based on the fact that I myself have done probably 300 workshops and residency programs around the Midwest, and resoundingly, the most popular topic or question is on student loans, and so that’s we’re going to cover today, and yup, actually it’s clickbait, but it is important stuff and we’re going to have some good info for you. Everybody likes to start with a story so Trevor, would you just give us your experience with student loans a little bit? How it started? Where they came from? Where they’re at now? Anything your willing to share.

Federal Loans Highest Around 2010 To 2014 At 6.8 Percent [0:03:21]

Trevor: Absolutely. Yes, I was in med school from 2010 to 2014 and I was unfortunate enough to have those highest rates I think ever from federal loans, and so it was 6.8 percent directly – is that right? I think it’s right, 6.8 directly from the government, and then friends, I didn’t have private loans but I’ve friends that did and that it was 8-plus percentage range usually; bumped up a little bit higher. I was in the 6.8 percent range and still had a decent amount.

Independent Companies For Refinancing – Link Capital, iCapital, SoFi [0:04:00]

Probably about a year and year-and-a-half into residency – I don’t think I met you yet – but I had googled around a little bit on The White Coat Investor and saw some refinancing info. I found a couple good rates there to refinance and even came across to the startup company called Link Capital – I know they’re still doing some stuff. They’re a startup and I was, “Oh, that’s pretty cool,” and they were one of the first companies that do a standard 100 dollar-a-month payment no matter how much you owed. So I ended up refinancing.

Jon: I started with that but that’s a cool link.

Trevor: Yeah. I think it was probably a year or even two before SoFi.

Jon: Oh, yeah, I remember. I have a story at iCapital too.

Trevor: Yeah, I tried to refi through SoFi and they turned me down. They were, “No, we’re not really doing medical student loans,” and I was, “What?”

Jon: Huge on some market.

Trevor: Yeah, I was just thinking, holy smokes. These Link Capital guys haven’t made it. There’s DRB (Darien Rowayton Bank) and there was another random one like a smaller bank. I want to say it – not common bond – but there was another one like that.

Jon: One of the earlier ones.

Trevor: Anyways, there was a couple of small banks that was kind of a niche there doing this and I think they’re brilliant because they’re such a reliable group and we can’t bankrupt the loans anyway. It’s a great thing to be doing. Anyways, I refinanced down to four and a quarter or something for the second year and to me it just seemed like a no-brainer and I was in ophthalmology and had no intention of trying to spend 10 years picking certain jobs just because I wanted to get a certain amount of money paid back by the government.

Why Not PSLF? [0:06:00]

Jon: Yeah, that’s what I was going to ask you why, get into the details, but why not PSLF? Why not stick to the federal?

Trevor: Yeah, I thought about it. Right, I mean, part of it was I don’t have the most faith in the government to stick to what it says because it tends to change its mind so I didn’t see it as the most reliable dealmaker in the scenario. I felt like I could trust myself and invest in myself, in my ability to negotiate and find good jobs better than I could trust them to pay my loans 10 years later, and the more they grow, the larger they’d be, the less they would want to pay them back, is kind of what I thought, and then the more likely they’d try to push some sort of cost of that back on me which it looks like they would. It would be a decent amount of taxes you’d have to pay on that because it’s considered income. I still feel very good about that decision and everybody does it differently. I think it’s totally reasonable if you’re doing that job. Anyways, I was looking at private practice and most ophthalmologists are private practice. I figured the sooner I refied even if I’m turning down that one option – it was the only thing I was turning down – and I was guaranteeing saving somewhere between 10 and 30 thousand dollars despite refinancing. And then I also had extra spending money because I was actually paying on some of my loan when I refied. I just decided I would put it off which looking back on it, I probably spend most that money on restaurants and it would have been a smart move to pay it.

Jon: But you would have been smart too, yeah. I tried to say.

Trevor: It’s fine, honestly. I think I said last week a lot of which you do in residency in terms of paying after loans is a drop in the bucket but refinancing is probably if you’re not going to do some sort of government-attempted payoff thing at a nonprofit hospital then it’s such a no-brainer. I’m so glad that I did it, and it’s easy too. It’s easy. They don’t charge you anything. I thought, oh maybe they’ll charge me some sort of fee like when you take out a loan on a house and maybe they charge you a thousand bucks just from the start, just cash up front. These refinance companies, they usually give you 300 to 700 dollars just for graciously letting them buy your loan from somebody else because it’s free money for them. It’s guaranteed. We’re always going to pay off back our loans.

Jon: Yup.

Trevor: Yeah.

Jon: Yeah, and there’s a lot of stuff there. I mean you’re right; 6.8 percent is the national average still, I think, and that happened probably back in 2008-2009. Yeah, when was med school for you?

Trevor: It was 2010 to 2014. I’m pretty sure there was like four years where it’s 6.8 percent the whole time?

Jon: Yeah.

Trevor: And four years in a row? And those were the four years that I was in med school. If I remember correctly, I’m almost sure that it was still high at the 6.6 the couple of years before but right when I was in med school or at least finishing college, every single year of the highest percentage loans from the government ever. Have you looked back? There used to be like 2 and 3.

Jon: It did and that’s what I was going to say. When we started doing this whole resident workshop curriculum, the most that the residents refinancing was not a thing because student loans were so stinking cheap at one to three percent that I still got some clients that are attendings now in their late 30’s/early 40’s or more that have those loans but our suggestion was, “Man, take as long as you can to pay that sucker off because that’s cheap.”

Trevor: Yeah, those were amazing.

Jon: Yeah. I’ve just had the conversation with one that’s probably 44. He’s a pathologist. He was talking about we’ve kind of hit a lot of other goals and student loans is his other thing. He’s like, “Oh, I want to get them paid off.” I’m like, “Dude, you got one and a half to two percent interest. Please don’t.” I know you want them to and I know it feels good and just all that stuff. Emotionally, sure. I get it. Financially and numbers-wise, no. Just don’t. If you just look at it from strictly an interest-rate standpoint like you get a thousand bucks, would you put it in something that pays off at two percent loan or an investment that could get you 8 percent for you? I have to hear the argument from people, “Well, sure but that two percent is a sure thing.” Okay, fair, so then if we readjusted, we can go into all that stuff.

What If There Will Be Changes In The PSLF Down The Road? [0:10:47]

Yeah, that’s the simplest way of putting it and like you said as well, the PSLF thing – the Public Service Loan Forgiveness – I get that question pretty much every single lecture that I do and it’s the, “Should I plan a PSLF? What do you think about PSLF? Is it going to be around? It is legit? Blah blah…Afford this?” And I get this one all the time, “Have you ever had anybody that’s gotten or given?” And no I haven’t yet. I heard of, seen articles, whatever, but we’ve got hundreds of physician clients and we haven’t had anybody that’s gotten loans forgiven yet. The good chunk of them – I’m with you Trevor – if anybody has even just any doubts or even if they’re in a nonprofit or a government job, if they’ve any doubts, I say take the sure thing. get the refinance, get the low rate now. Here’s how I typically explain it in my lectures: Okay, you got a 6.8 percent loan now. You refinanced especially these days – geez, rates are so low. But let’s say you get a four percent, okay, and you get that quote and you’re like, “No, I’m going to stick with my federal loan because of the PSLF.” Okay, I get it. So then they are working down this road on a 10-year payment schedule and then the rest is going to get forgiven after that but then what if at year 9-1/2, something drastic changes in Congress or the government, they changed their minds or whatever. They can do that, right? Some may say, well, it’ll be a class action lawsuit, blah, blah. Okay, maybe, but let’s just say something happens and maybe they put an income cap on it or they put a cap on how much is forgiven, whatever. Then you’re like, “Okay, well, that’s alright, I’m just going to go and refinance now.” And over those 10 years what’s happened to the interest rates?

Trevor: Exactly.

Jon: They’ve gone up and now, sure, you could refinance for seven percent or eight percent and now you’re like, “Shoot! I guess I’ll just stick with these loans and I should’ve refinanced 10 years ago.” I’m not saying what’s going to happen.

Why Do Refinancing? Because Of Compound Interest [0:13:10]

Trevor: Right. Even if, let’s say, interest rates stay the same. You want to refinance later, but the whole point of refinancing is getting your rate lower as soon as possible because compound interest. If you wait seven to eight years and you’re, “Oh, well now I refinance.” Okay, well, eight years’ worth of interest has been growing and depending on what situation you have and which bank you have, I guess I would just straight up with the government. It does all fall back on and create compounds principally on the principal. Some of those ones that do refi during residency just the interest accrues or you just accrue interest on the principal so if you have $30,000 loan, you keep getting interest month by month on an annual rate on the 50,000. They don’t’ keep rolling it back on 50,000 and 100, 50,000 and 500.

Jon: Subsidized loans.

Trevor: Yeah, on the subsidized loans, they don’t do that. But once you’re an attending and you don’t have one of those refinanced deals then it does. The snowball just gets bigger and bigger and bigger. So if you wait, it’s just that much bigger of a monster to have to take down. Definitely, it’s the sooner, the better for that scenario. For me, one of the core questions was, do I want to be in control of my future or do I want to depend on the government? Do I want it to be in my hands? All of these make a lot of decisions on these maybes. They could have a maybe the program will still be there and maybe I’ll take a job with a nonprofit. Maybe, I’ll stick with it for 10 years. Maybe, I won’t take it. You know I started in a fellowship and it was a private practice fellowship and I’m mashed into it. Let’s say I wanted to do this nonprofit thing and that’s not just true for ophthalmology, that’s true for lots of specialties. You can match into a fellowship with a private practice. They’re not a nonprofit and yours is out of luck. I mean, you break that up. You’re in your two years at a fellowship or three years at a fellowship. I mean that deal’s done. It’s not worth it too anymore. Let’s say you’re a general surgeon or something and you’re doing something between a 5- and 7-year residency and then you’re going to do a 3- to 4-year fellowship or something. By the time you’re starting your fellowship that could have been six years of principal that was accruing interest at only three percent instead of seven or eight, and you can take this private loans that are eight, nine percent and refi them down to three percent or something. I actually refied mine from almost seven to four and a quarter and I refied it again a year ago when I was ready to actually start paying more aggressively on a 5-year term all the way down to 3 percent. This is before coronavirus COVID. If I waited a little bit, I probably could have gotten it down to two and a half, two and three-quarters. Anyways, I think, to me, that ends up adding up for most people if you just had what should most people do. Most people are going to be in my position. Most people are not going to have all those maybes lined up as a yes. Somewhere along the way one of those maybes is going to be a no and then you’re done and you would have been better off refinancing yesterday four years ago.

If Refinancing Done Right, We Could Achieve 3 Things [0:16:50]

Jon: Yeah, and that’s what I say is so easy. It’s free. It’s more of, wouldn’t you rather have a sure thing in a lot of ways and a cheaper thing on a private. What if it wouldn’t have been forgiven? Maybe it’s a philosophical thing of, “Do you bet on the maybe?” Or like what I said, “Do you bet on here’s what I know. I’m in control. I have this. I’m going to pay it off. It’s just a thing, and it’s part of the financial plan that we worked in there.” And I always say to my residents like, By the time we get into your first or second year of an attending, if we do this right, you’re able to do three things in a pretty decent manner. You’re able to put a decent amount on your student loans; you’re able to, and by that I mean, usually pay it off within five to ten years. You’re able to put a decent amount towards your retirement, and you’re able to live a pretty decent lifestyle. And I’ve yet to have the attending that’s like, “I still have to live like a resident.” You can and there’s nothing wrong with that but most of my attendings have gotten the house and the cars and are making good progress on their loans and save for retirement. It seems bleak now but no, I mean, just like Trevor was saying, there’s nothing wrong with paying off your loans yourself. That’s what you signed up for and we can do it in a much cheaper rate.

Trevor: Yeah. I’ll add too that because you’re running Financial MD and you’re a financial advisor, I bet more often than you expect when you’re talking about refinancing loans being a grave decision, I would bet either residents that you talked to like you go to these programs and you talk to residents or here and there, you probably forget that they don’t know you don’t make any money off of that. I bet you take that for granted honestly because you’re just, “Oh, this is a great thing. you guys should do this.” And in the back of their minds, they probably sounds like disability insurance which you make a small commission if you sell a policy, and rightfully so, it’s much more time-intensive. You have to follow up, chase down tons of doctors and try to get them to fill out the health portion, do the phone interview. There’s a couple of steps and still not bad, but this is so simple. This is a few steps like SoFi. I did the whole thing on aftie, 150 minutes, and you personally don’t make any money giving this advice unless you’re Dr. Dahle on The White Coat Investor and you have a link. There’s some referral bonuses maybe you get worth 1937this…it’s nothing. It’s maybe a hundred dollars if you got a referral bonus or something and they capped it too.

Jon: Yeah, I know. I’m in bond.

Trevor: Oh, did you?

Jon: And they said you can get 300 bucks or you can pass it to your clients and we just said, give it to the clients, well, because we got a referral contract with them. It was like whatever, no big deal. And I know for residents sometimes 300 bucks is 300 bucks.

Trevor: Oh, yeah. I recommended that.

Jon: I’m probably shooting myself in the foot as you say. I mean I don’t even think about it but yeah, if I were a scrupulous financial advisor, it was like I want to have as much money as possible, it would be hey, make minimum payments on your federal loans for 10 years and hope it gets forgiven and then invest the rest with me because if you refinance and you go into practice, put in 3 or 4 grand a month onto your student loans and that could be going into your investment.

Trevor: Yeah. I bet you have clients that come to you and say, “Hey, I want to put as much money into investments as possible because I’m not risk averse and I understand that I might be splitting hairs and barely breaking even trying to beat the market, yadda yadda and paying off my loans slower at three percent or four percent. I’m going to try to be at the market and get eight percent to 12 percent.”

Create A Strategy That Works For You [0:21:04]

That’s not wrong. Tons of people try to do that and that’s fine. It’s less of a sure thing. It’s a different strategy. Some people will do that and they’ll make more money than the next guy. Some people will do that and they’ll lose a lot of money buying single stocks on Robinhood and they don’t pay off their loans. That was me three, four years ago. When I was in residency, I was like buying occasional stocks. It would go down. I would freak out. I would sell and buy high. I’d sell low. You have to realize who you are. People are allowed to make mistakes but if you keep making them, you’re never going to get anywhere. That’s why you got to create a strategy that works for you. You got to know who you are and what your risk tolerance is and people aren’t wrong for doing one way or the other but certainly refinancing is a net win for almost anybody who does it.

Different People Have Different Financial Plans And There’s No Wrong Or Right Ones [0:22:08]

Jon: Yeah, I would say so. I don’t think anybody ever regrets that. I have a story about my first year or two in this business, I sat down with a couple. He was an ER resident, she was OB-GYN. They were probably 750 to 800,000 in student loans between the two of them and here I was in my late 20’s and I was, “Oh my gosh, that’s a lot of money,” and I saw them thinking, okay, and we were starting to put together some plans because they were a year away from getting out of residency and get into practice and I said, “Okay, we’re going to probably budget. It’s going to be probably six to eight thousand dollars a month for both of you guys on student loan payments. That’s okay. You guys will make enough money that it’ll work.” And he’s like, “Nah, I’m not going to do that.” And I was like, “What now?” And he’s like, “I don’t want to pay those off. I mean I will but I wanted to take as long as it possibly can and I want to stretch those suckers out. I just come to the conclusion I don’t want to sacrifice lifestyle and I’m just going to look at those as a piece in my budget for the rest of my life and that’s to sit.” And I was like, “Okay.” I’m not going to talk this guy out of this, but what I learned over the years was there’s no right or wrong answer there. That was what they wanted to do. As I got trained in being a financial planner and asked him the question in every area of their finances, what’s important to you about money, and you’ll find people’s values and you’ll find people’s philosophies are different and that’s what drives their financial plan and drives all that stuff, and so for him it was enjoying lifestyle, he’d sacrifice for several years like you do, goes into practice like I’m not sacrificing anymore. I was like, okay. You know what that means interest-wise. He’s like, yeah, I’m fine with that. Okay, as long as you know. That’s my job and then you give decision. And so love those guys. They’re still clients today and they’re making payments but it’s a vague ‘wanna stretch those, you know, 25 years is the plan.’

Trevor: Yeah. This is not quite the same thing but there is something to be said about the fact that doctors have so much earning potential that we talked a little bit about budgeting last week. You can cut corners and you can restrict and you can live like a resident and then you still come up against the wall. You can’t live on zero dollars and doctors can earn a lot. I mean even if they’re already earning really well, there’s different revenue streams and approaches to practice and growth areas for the practice or starting their own practice and taking on a higher percentage of what they make if they can be just as busy on their own. There are so many ways in doing medicine that can increase your ceiling even higher. Yeah, maybe that guy is just driven to grow and he doesn’t want to think about what he has to pay on his loans. He’s just going to try to outearn it. That’s another strategy too and I mean you can do that. I mean you totally can do that.

Jon: And they’re good savers. You know what it means, not like they’re wasting a bunch of money either. Debt-averse means you don’t like debt but he’s averse to paying off debt. He’s not taking on more debt. He’s been a good saver, and like their first year, they saved a hundred grand, no problem, and just a savings account in addition to getting on track of other investments and stuff. So it’s like, yeah, they’re not stupid. They’re still disciplined. They’re still good savers and great clients. That was a growing experience for me and I learned some things, but yeah, that’s my story.

I always have this little competition in my head as I go and visit residency programs. I’ll never forget the first one probably two years ago where I met a guy and his wife was a resident as well and he kind of pull me aside. He’s like, “We’ve got over a million dollars in student loans between the two of us.” And I was like, “Okay.” And in my head, I’m like, okay, my first one. I’ve been waiting to meet you. So already in residency, they have a negative net worth of a million bucks. That’s tough. That’s a hard number to look at.

Trevor: That sounds like a very expensive hundred grand.

Jon: Yeah, on both for sure.

Trevor: It’s crazy.

List Of Refinancing Companies Available On FB Group Page [0:27:12]

Jon: But yeah, I would say where to get information? You know there’s companies – Common Bonds, SoFi, Laurel Road, DRB; Earnest, I think or it might be DRB now, Earnest – there’s so many refinancing companies. You can check out The White Coat Investor. I will post either on the Facebook group or the page together a list of 10 or 15 student loan refinancing companies and I would say that’s a place to start because getting the refinancing quotes, they do a soft credit pulse so it doesn’t affect the credit. Like Trevor said, it’s easy, it’s free. Just start by taking a look and then get a second opinion whether to meet with one of us or talk to a financial planner and just say, “Hey, here’s what I got. Here’s my trajectory career-wise. What do you think?” And again there’s no wrong decision here, just get the facts first, and then you can make an informed decision and just make the one that feels right for you.

Need Help On Starting? Jon Can Assist You [0:28:15]

Trevor: Yeah, absolutely, and I’ll put in a plug for Jon here, too. I mean there are so many articles on like White Coat Investor and I’m still just reading a lot. I’ve done the White Coat Investor course and all of that but there’s a lot of easy points you can grab right away and the sooner you do, the more money you save. If you’re someone who’s trying to optimize now and you want to do in just a couple of weeks something that could save you thousands and thousands of dollars, I mean, hit off Jon and he can steer you towards some of those easy points right way and you could just kind of rest easy for a couple of months knowing that you’ve done a lot of the heavy lifting and then you can start doing the fine tuning and self-education over time.

Jon: Yeah, and that’s what we tried to do at least within two or three weeks like you said. Get at least one good action plan put together and the residents can walk away with here’s five or six bullet points of things you can do right now to get you on a better trajectory, and then step by step all the way through training so that when they get started, they’re starting out on the right foot as much as possible.

Well, alright, well I think that’s our time to go guys. Hope that was helpful. I think we threw a lot at you. We’ll again try to have resources on the website at financialmd.com. Check us out on Facebook – that’s where we post all of the resources and links afterwards. Join the Facebook group. We’ve got a Financial MD community which is made up of physicians, young and old, that are sharing tips, given and getting advice and then be sure to subscribe to the YouTube channel where we’ve got new videos coming out every week on a different financial topic so leave us a review on iTunes for the podcast. Subscribe, share, get the word out, and slowly we will make the world of physician finance a better place.

Alright, thanks Trevor. Will talk to you soon.

Trevor: Thanks Jon.

Resources and Links:

The White Coat Investor – https://www.whitecoatinvestor.com/
Link Capital Partners – https://www.linkcapitalpartners.com/
SoFi – https://www.sofi.com/
iCapital – https://www.icapitalnetwork.com/
Darien Rowayton Bank – https://www.drbank.com/
Common Bonds – https://www.commonbond.co/
Public Service Loan Forgiveness (PSLF) – https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
Laurel Road – https://www.laurelroad.com/
Earnest: https://www.earnest.com/

https://financialmd.com/wp-content/uploads/2021/06/The-FinancialMD-Show-Ep-002-An-Inside-Scoop-on-Student-Loans-61121-3.48-PM.mp3

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Residents need help, too – that’s why we started FinancialMD! Jon is a financial planner, and Trevor is a doctor, and together they give you the breakdown of what FinancialMD is and how it helps residents. Here’s a hint – there are things residents can do TODAY. That can make a positive impact on their future finances. Jon shares the technical, financial side, and Trevor knows firsthand what to do and what not to do as a young physician. Don’t miss an episode!

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and a certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice, and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now, here are your hosts, Jon and Trevor.

Jon: Welcome to the very first episode of the Financial MD Show, the only show specifically designed for financial tips for residents. Today, you’re going to hear about Financial MD itself, what it is, why we created the Financial MD Show, and who is Financial MD. You’re going to talk to me, of course. You’re going to hear a little bit about my story, where I came from, what inspired me to even work with this crazy population called physicians, and you’re going to hear from our regular co-host, Dr. Trevor Smith. This guy is going to tell you where he came from, how we got together, and what also got him passionate about helping physicians with finances, and what he’s interested in some of the topics. We’ll touch on things like cryptocurrency and getting through residency, and some of the mistakes that we’ve seen. Ultimately, in the end, we’re going to share some of the great things that are going to be rolling out from Financial MD, resources, and all sorts of information and education that’s going to make you a financially smarter resident. So without any further ado, here’s the show.

Jon: Welcome to the very first episode of the Financial MD podcasts. As a physician, everything you ever wanted to know about finances and a few things that you didn’t. Today, I am one of your hosts, Jon Solitro, and our co-host, Dr. Trevor Smith is on as well. Say hello, Trevor.

Trevor: Hey, hey! How’s everybody doing?

Jon: Yeah. A big round of applause. Thank you. Alright, so we thought we’d start out for most of you that are listening unless this is my mom – hi mom; most of you are probably not completely aware of Financial MD is. I assume you have a little bit of an idea, but we thought it might help to give some introduction on what it is, who we are, why we’re doing this podcast, and how an advisor and a physician ever became friends and friends enough to do a podcast.

Trevor: Yup, that’s right.

A Little Background On Our Hosts [0:03:15]

Jon: I’m going to jump in. I’m Jon Solitro. Where am I now? I live in Lansing, Michigan area, and I am the financial planner of the duo and married. I’ve got four kids – a girl that’s 14; boys that are 8, 7, and 5 – so life is crazy. Both genders are at their craziest ages. I got a teenaged daughter, and then I got young boys that are just insane. But life is good. We are recording this in September, so we’re still in pseudo-pandemic at who knows? Depending on what numbers you look at. Either way, I’m still working a lot from home. Trevor is not. He has to go into the office, but that’s the nature of that. Unless you’re a radiologist, you’re probably going back into the office.

Trevor: That’s right.

Jon: Radiologists always said that. We’ve had a few clients over the years, and they get paid BUCO boxes to sit in their basement and look at pictures.

Trevor: That’s some serious business, though. I’m not jealous of the darkroom personally. I mean, I did some dark rooms for ophthalmology, but that’s a lot of darkrooms. Those guys like to hibernate.

Jon: I know. I had one that moved to Hawaii and then spent most of his days in a basement.

Trevor: Yeah, that’s where they put those guys.

Jon: They had nice weekends.

Trevor: Absolutely.

Jon: I remember when I was an undergraduate at MICU, one of my good friends was pre-med, and she wanted to be a radiologist, and I said, “Why?” And she’s like, “Well, I’m not that much of a people person.” I was, “Okay.” I guess that’s a specialty issue when you have no bedside manner.

Trevor: That’s okay. That’s it. It is a give-on, but you don’t have to deal with all the interpersonal complexities of patient care are certainly reducing that subspecialty, which can be an advantage.

Jon: We need those. I mean, at the end of the day, you guys are scientists and researchers.

Trevor: I think as a scientist would be a very generous description of me at this point.

Jon: Alright. I can truly understand that.

Trevor: In my background here, I’m Trevor Smith. I’m an ophthalmologist in the Flint area in Michigan, comprehensive ophthalmology, but I followed this guy, Glaucomflecken. He’s a famous Twitter ophthalmology personality – a really funny guy. He’s got a site and stuff too. He had this joke the other day that was like, “My patients always ask me if I would go back to medical school again if I’d go back and do it again?” And he says, “Yeah, of course. I know half of the material.” It’s very true for ophthalmology. I think probably a lot of people end up forgetting just a ton of what you used to know in medical school, so you’d have to learn a lot again.

Anyway, my other intro would be that I have under 100 followers on Twitter, so I’m not a famous ophthalmologist like Glaucomflecken, but you can follow me @trevorsmithmd. That’s my one plug. I tweet 50 percent about interesting libertarian things, including bitcoin, and then 50 percent about just random either ophthalmology stuff or hot takes on pandemic issues and pretty apolitical. I just like to think about the ideas more than the opinions. The political aspect definitely does get interesting nowadays because it makes some mashes and twists and turns all the actual what you want to call facts. That’s one of my side hobbies, and just being on Twitter a little bit too much, mostly reading on other people and just learning about finance stuff, which is how I ended up meeting Jon here.

Jon: Yeah.

Trevor: Yeah. We met, what, four years ago? Five years ago?

Jon: I bet it was that. No more than four.

How They Met [0:07:44]

Trevor: It may be in 2017, actually. It might have been between three and four – 2016 or 2017. Basically, I was trying to figure out whether I could have a nice little side gig of disability insurance during residency because every dollar counts, and I wanted to fill out my Roth IRA. I was not going to be able to do it as a resident. Initially, I was paying on my loans before I refinanced. Then I had refinanced, and I was just doing 100 bucks a month or something. Then I was able to get more into Roth, but I was just looking for different options, and I like side gig stuff. That’s why one of the reasons for sitting here. Anyways, I was looking into that, and my cousin works for an insurance company, and then he had some sort of connection, I think, with your dad, right?

Jon: My daddy was his business partner.

Trevor: That’s what it was? Okay. And he was, “Oh, you should talk to this guy, Jon. He works with doctors specifically. He’s a young guy. Maybe, he’ll help you get some information.” I don’t even know what does an agent do, do they take tests, whatever. So he walked me through that, and then I ended up getting certified in health, life, and disability. It’s like there are just different combos of that two of those overlap with one of the other ones. I don’t remember which ones – which you can take separately, or you can take them all in one. It’s not too bad. I learned a lot about whole life and term life and sort of the agent slash – now they’re actually called a producer – but what we think of us an agent. I learned that perspective on the industry, which is kind of cool – the official – this is what you have to know to be an agent, the curriculum, and that was after having read a lot like White Coat Investor stuff. It was cool to see it from kind of both angles – like these are the products, these are the laws, these are why the laws exist and stuff.

When Dr. Trevor’s Interest Started [0:09:45]

My personal interest started with a disability because I had a sore neck one time in medical school studying long hours. Then I went to the doctor because of, not technically hypochondriac, but I was the medical student version like everybody. I think it’s called medical student syndrome. Anyways, I went in. I saw somebody, and because I was on my medical record, it was really tough to get a non-exclusive policy that would cover everything, including my neck and my spine. Fortunately, I went a long time without actually having issues. My initial application had spine exclusion. I got it taken off later because you can actually reapply after a couple of years if you’re not having any issues, so it’s kind of nice.

Jon: Well, thank the Lord.

Trevor: Yeah, thank the Lord because ophthalmologists can really have some problems with their necks and backs and stuff.

Jon: Yeah, I think that’s the biggest claim for surgeons, probably.

Trevor: I’m sure it is. I’m thankful that most days, I almost have no even soreness. A lot of times, if I do, it’s not like a chronic or constant thing, so it’s just the regular kind of like make sure you position yourself well kind of thing. Anyways, that’s where my interest came from because I was, “Wow, this is complicated.” I learned after I had that initial issue, years later, I’m in residency, I was, “Oh, I got to get this disability,” and realized it’s not just easy to do and especially if you have any sort of medical thing that was like nothing’s the same that caused any problems. I wanted to help other doctors understand how important and valuable it is and also earn a little side gig income, and I have done just a handful of policies, really. I talked with doctors about the value, and we’ve talked about some strategies. I have kind of my own approach for doing a couple of policies and splitting them. I mean, you taught me that. I really like that idea, in case one goes under, or they go from AAA or whatever not as reliable.

Jon: Yeah. I kind of like that idea too. Remember, we’ve talked about that.

The Idea Behind Financial MD [0:12:00]

Trevor: Yeah, it’s a cool thing, and then you kind of honestly do the heavy lifting in the paperwork. They don’t make it easy for you. There’s no click solution until now that you’re working on Financial MD. That’s kind of the idea. It’s like be a one-stop-shop and solution to just do all the things that doctor’s need and take the work out of it so that they don’t wait years to bank the money so they don’t wait years or until they have a medical problem to try to cover themselves medically. You’re doing it well, and you know the system, and you know what doctors go through and you’re a relatable person. I mean, that’s what has kept us connected, I think, because you know what’s up. You really know how to solve doctors’ problems, and you also could have saved me so much money if I’d listened to you about multiple things and investing. I’m certainly not giving investment advice on the podcast. Jon can actually technically give it. I’m sure there are some disclosures in there, but you’re certified. You’re the real guy.

Jon: Yeah, well, I appreciate that. There’s a lot of quotes that I’ll use in my books so thank you.

Trevor: Perfect.

Jon’s Journey Into Financial Planning [0:13:29]

Jon: Yeah. That was where our lives intersected. Prior to being a financial planner, I was actually a therapist, and I’m a licensed counselor. I got my Master in Counseling and tried that world of mental health care for a while and got burned out pretty quick. I think it felt like a lot of time and a lot of work without a lot of rewards. It seems I didn’t get to always see the patients get better. A lot of them just didn’t. I think a lot of them didn’t want to. I worked for a lot of couples over the years, and what I found to be the biggest quickest impact was helping couples with their finances. It didn’t fix everything, but it certainly gave them something tangible they could walk away with, say, “Okay, we’re communicating better on this, or we understand why we act this way when it comes to money.” I did that for about two or three years in private practice and then transitioned into financial planning when Reuben Levinson, who’s one of our partners, approached me. I was friends with his daughter back in high school, and he was always the cool older brother. I did not talk to him for years and years, and then he ran into me just the right time and said, “Hey, I’ve always wondered how a counselor would do as a financial planner. I think there’s a lot of overlap.” So I said, “Sure, okay, why not. I hate my life now. Let’s try something else and see if that scratches the itch.” Yeah, I mean, it did a lot of things.

Financial MD’s Beginnings [0:15:11]

I am an entrepreneur at heart. I think Trevor would say the same thing in a lot of ways. We’ve got kind of that entrepreneur spirit, love building something and love creating new ideas and then seeing them grow. So we were able to do that with Financial MD six-and-a-half, seven years ago now, and really took off in the area and what our goal was this year and I think in a lot of ways this pandemic accelerated us. We wanted to do what works so well in Michigan because what I do is I speak to residency programs. That was kind of the way that we get our message out. We get our education out, and we found years ago when we started this residency workshop curriculum/financial literacy curriculum is that residents were often jumping from $50,000-a-year salary to $250,000 a year with no idea of what to do with it. They probably heard bits and pieces here and snippets from the other residents or their attending or something they found online or whatever – some good, some bad info. But what we found is that there was no formal education. You go through four years of undergrad and four years in med school and however long the residency all without anybody really taking out enough time in a class type of setting to say, “Here’s what you need to know and what you need to do.” And so we started with one residency program in Lansing, Michigan, until last year we probably did 220 or so – all of them at Midwest. We branched out in Chicago, Indiana, Ohio, and Michigan. That just got me thinking of how much bigger impact we could have if we could take this thing virtual and we weren’t limited by location. Along comes the pandemic and says, sure, and a lot of people are going to be more open to that here this year. It’s really paved the way for where Financial MD is going. I’ve been super honored to have Trevor along for the journey because he is kind of my wise sage that is able to share some experiences, go through them, and I might come up with a dumb idea of, “Hey, I think physicians will like this,” and he’d be, “Dude, no they won’t. You’re way off face there. Come back.” I think it worked. We’re kind of the yin and the yang, and hopefully, we’ll make the show entertaining.

How Financial MD Can Help Residents and Attendings [0:17:42]

The bigger vision – and I think Trevor and I can both share into this – but my vision for Financial MD why I think people ask me the questions, especially older advisors who ask me, “Why do you work with physicians. I hear they a-holes,” or “Hey, they’re really difficult to work with,” or “God complex” or whatever – all these words, and that haven’t been my experience by and large, but I know that there’s good people wanting to help people for sure and do they make an income? Sure, they make a high income, and that’s great. But what I have seen over the years is way too many physicians that are just working, putting their head down, coming home from work, living their life doing whatever and the income at the end of a year, they may have made $250,000, $300,000 and they got nothing to show for it. Add to that maybe they’ve married physicians and also double income. Add to that, and maybe, they’ve got it much higher, whatever the case might be. But over the lifetime of a physician, run these numbers one time and if there’s a million-and-a-half physician, which is probably given or take a couple of hundred thousand in the United States, and average physician income if you take them all is probably between $200,000 and $250,000 over a 30-year career on average, multiply that times a 30-year career, you’re talking in the low trillions of dollars that are at stake here. In my mind, that can do a lot of good. Not only for the physician himself, not only for their families but then once we hit those checkpoints, I have this kind of checkpoint roadmap process that I take everyone through even in residency. It’s step one complete this, then you can run step 2, and it kind of builds up like this. Remember Maslow’s hierarchy of needs and kind of identifying this is the basic need, then you move on to more kind of discretionary or optional things.

In my mind, there’s a lot of good that can be done, and I hate to see physicians that have such income potential over the years and such financial potential to look back over their 30-year career and if I tell him, “Hey, did you know you made 20 million dollars over the last 30 years,” and they just looked back like, “I’ve no idea where that went,” and if we can start as early as possible for that income starts getting into good financial habits so money is not necessarily wasted or put into stupid things or somebody talk to him into this kind of policy or talk to him in this or whatever. We tried to prevent that. But also as to become an attending to say, okay, do this to take care of yourself, do this to take care of your family and those that are close to you and that mean a lot to you, and then beyond that if we work this right – and I think 99 percent of the time we can – you’ll still have money left over to do great things with over the years and our dream at Financial MD is that we’ll be able to maybe not literally but be at the physicians’ death bed when they’re 90 years old and say, “Hey, because of what you did and the decisions that you made, you donated a million dollars to ABC over the course of your career,” of 2 million dollars, 5 million dollars, which seems like crazy numbers when I tell this to residences or young attendings, but it’s possible, and if we can do that for one, we can do it for a hundred, or we can do it for a thousand. I believe that Financial MD is going to be a force for good in this culture if we can stay the course and start to shift where some of the mentality and the behavior is going in the world of physician’s finances.

Trevor: Yeah, it’s nice if you make a lot of money if you know where your money is going. I mean, pick an investment, you can argue over different types of investments, and there are different opinions on automating things, or there are 10 different investment opinions, but if you don’t even know your money is going, it doesn’t even matter what you’d think would be a good investment. It’s like their ninth conversation.

Jon: Any of those things is better than nothing, right? There’s not a right or wrong there. It’s like at least do that, and then we can talk about secondarily what to do within those things.

Trevor: Yeah, that’s really true. Yeah, unlike a pyramid, if you’re kind of doing one of those things, it’s helpful. It’s better than doing none, but certainly, if you know where your money is going, which is not necessarily budgeting. I don’t know if you’re a big-budget guy or not, but a lot of people start with budgeting as the core thing. Whether that’s good or bad doesn’t necessarily matter. If you generally know where your money goes, like I haven’t been a strict budget guy, but I can always tell you generally how much I spend on this for that or where my money has gone. I spend it on purpose even if I don’t know where every single dollar is, and then if it’s not making sense to me, I kind of do it just a little bit larger, and I think honestly, as a physician, that was not as true as a resident. I had to keep a little closer track, but now that I’m attending, you can kind of afford to do that. If you’re not blowing, if you’re earning a decent paycheck, let’s say you’re at that 250 range starting out if you just don’t spend all your money that the first month, you’re going to have like a nice cushion in your checking account of between 5 and 10,000 dollars. You’re not going to have overdraft fee problems, and you’re going to be able to keep track to a certain degree, and that’s not necessarily I should say which other people that do, you have those issues. We kind of have an easy mode in terms of doing some of the basic things right as long as we are playing by the correct rules, as long as we had good information. The correct premise goes a long way if somebody who makes a decent income and you can even make mistakes that other people don’t make and bounce back from them. There’s a lot of legroom like doctors are so set up to succeed even with 10 percent of the effort of the average person, they’re going to do better. Having a high income is a big advantage. Dave Ramsey talks about if you have a lot of debt, you got a big hole you are in. This is a weird analogy. Actually, I’d love to get your take on this. I think the analogy he gives is you’re in a hole, but you have a big shovel.

Jon: Does that make you deeper?

Trevor: Yeah, but I’m pretty sure that’s what he says, every time you got a big shovel, and it will get you out of it. And I was like, “Aren’t you in a hole?”

Jon: Because of that, shovel? Didn’t that shovel make that hole?

Trevor: Yeah. It doesn’t quite add up. I mean, it’s true. I mean, it’s a big shovel, but that’s sort of like if you’re trying to make a hole – I don’t know. It doesn’t work well. Anyway, those are just my quick thoughts now that I’m an attending, which I should say, yeah, I am a board-certified ophthalmologist. Those boards are tough. I’m glad they’re over, and I’ve been out from residency for a couple of years and I kind of wish I would have been a little less stressed in residency. I wished I had just set up the things that you advised and then not been, “Oh, I need to make every little extra dollar,” because the dollars come after. They really do come after and just enjoy the time, the limited time they have in residency, but I mean in a matter of 10 hours, probably less an hour a week over 10 weeks, you would have every single thing in your financial life set. You see it, and you’re like, “I want to make money the time I get out of this.” But you also have to live life outside the spreadsheet, and there are different stages. As a resident, I’m always stressing about this or that because I’m a driven person, but I wished I could go back and tell myself, “Just chill, man. Just learn and just get your stuff in place. Just get your disability and maybe try to fill up that Roth IRA if you can. Refinance those loans to save tens of thousands of dollars. That’s the easy one. The sooner you do it, the more you save.”

Jon: Yeah.

Trevor: Yeah, you know what I mean. You can’t do it all at one time, but you can get a plan early, and then you just get to execute that plan real slow.

What Is The Roadmap for Residents [0:26:52]

Jon: That’s totally true. That’s why we created the roadmap for residents so it would be kind of a one bite-at-a-time type of thing, like ideally we meet with a resident in their first year and say, “Okay, PGY1, here’s what you do,” and then the other stuff, we can put off until PGY2 and 3 and 4. We take it in bites because it’s hard enough to spend any time as a resident about anything, let alone your personal finances and so what I wanted to do with Financial MD was: A. Figure out a way to first automate as much we can. B: But have somebody for a reasonable price that even a resident could afford. Hey, I know they’ve got my stuff. I may have just sat for three to four hours a year, but I know that somebody is taking care of it, making sure I do what I got to do, and I don’t have to be. What we’d seen before Financial MD was you could get that kind of service, but you had to be an attending because these advisors were only working with people that had 100,000 or 500,000 saved up or they had these minimums because I get it, they had to pay their bills, and it takes some time, or they were paying out of pocket a couple of thousand dollars a year, but by the time you’re through residency, you’ve already built some financial habits, and it’s too late at that point a lot of times.

So, yeah, that’s totally true, and going back to the budgeting thing, I agree with you on that, and we’ll show in another show how we do this concept. It’s brilliant or proprietary, but it’s the word for some I kind of came up with called reverse budgeting, which, if that’s not out there, we’ll trademark it. Basically, the concept of, “Okay, what do you think you need to do all these different categories of life from housing to the car to student loans to food to groceries to gas and all these different things. It’s like, “Well, I think I probably need this and this and this.” I’ll go through this conversation the first time I sit down with a resident and, usually, we find some, “Okay, if we do that math, and there’s this whole spreadsheet with formulas, and it says you should have 150 dollars a month leftover in surplus, and they’re like, “Oh, well, that doesn’t seem right. I usually have nothing left over.” And so like, “Okay.” Probably true, and that’s usually what happens. But if these numbers are right, and we look over and, “Yeah, it looks right. You should have 150 surpluses, right?” “Yeah, I guess that makes sense. We thought of everything that I spend in a month.” Okay, so let’s take that money first and do something smart with it. Then we don’t have to worry about budgeting. You should do whatever you want with the rest because you know you’re smart with the extra, and if we can kind of slowly tweak that up every six months, then you’ll be doing better and better and starting knockout stuff on that roadmap. The first step, get an emergency fund. Knock out some credit card debt if you have to. Get your disability insurance. Those are some of the basic first steps that, with 150 bucks a month, we can do that, and you’ll know that you’re doing better than 90 percent of the other residents out there, just by doing that. Actual budgeting is hard to do; sounds good in theory. I have rarely seen it work, so why don’t we just take care of one budget, and that’s saving and just personal finance stuff, and then you do whatever you want with the rest.

Trevor: Yeah. Wouldn’t it be nice if there was a product where you’re basically like contributing a pre-tax to your employer’s retirement plan where they just take the money out? It never ends up in your checking account. It’s one of the reasons it’s such a great way of investing – you kind of never see it. It’s sort of like, would you pay Social Security if they gave you the money in there like, hey, we’re going to put this in your bank account and then if you want to be a part of this then give us whatever like 2 percent. That’s more than that, right? I can’t remember how much Social Security is. Medicare, I think, is 2 percent, right?

Jon: Yeah.

Trevor: Anyways, I just don’t remember.

Jon: Well, your FICA of Social Security – all that stuff – I mean your 7.65 percent is just employee share. Yes, it’s a lot, and that’s why most people have most of their money at the end of their career in their 401(k) because it’s the easy button, because you don’t see it.

Trevor: Yes, right.

Jon: It’s hard to believe you can do this, but it’s a good thing – employers can automatically enroll every new employee at 1 percent or 2 percent.

Trevor: Yeah. If Social Security wasn’t mandated, a lot of people wouldn’t do it even if it feels free tax, and there’s a reason that’s mandated. You can’t say no, and so you’re going to have a little bit of a safety net, not a lot. And if we could do that to ourselves even beyond a 401(k), that would be sweet. In residency, I could have saved more. As I said, it was tight – it’s tight – but it’s also what a lot of people make.

Jon: Yes, average income.

Trevor: For a lot of people, it’s the most of them making. It’s not a terrible income. If you don’t refinance your loans, you’re super strapped because then you’re paying minimums between 7 and 1500 dollars a month on a salary take-home of 3,000 a month. It’s pretty tough but doable if you have a cheap apartment or roommates. But if you could filter that like 3,000 a month in residency into a bank account where you’re like, hey, I want 200 or 300 of this every month to go to X, and kind of you can’t access it. There is some sort of artificial barrier you could sign up for that’d be kind of sweet, you know what I mean? Just like stocks go up, but we’re young – we buy them, we trade them, we sell them, and then we buy high and sell low, and that’s really common if there’s a way to lock it up so I’m not allowed to do the stupid thing that I know that I’ll do.

Jon: Yes.

Trevor: But it’s your money, so they’ll let you sell it. It’ll be most nice to have some really purposeful thing. It makes it really tough for you to get to your own money.

Purpose Of A Financial Advisor [0:33:22]

Jon: Well, and that’s what I feel part of the purpose of a financial advisor is to be kind of between people and their money, and someone’s like, “Hey, I need you to sell all that stock,” and the advisor’s like, “Are you sure?”

Trevor: Exactly, that’s what that money is for, and it would have saved, to me personally, a lot of money to have been doing that over the past, even in residency. I think that’s exactly what a financial advisor is. It’s just like, “I have your funds under management.” We can do that. There are some extra fees involved, but that’s not all bad. I mean, that is the barrier.

Jon: Well, and that’s what you’re paying for.

Trevor: Yeah. I listened to White Coat Investor, and I’ve done his course, and I have a plan and all that stuff, but doctors are their own worst enemy, and we’re kind of worse in investing than a lot of the average individuals.

Jon: Well, even you would say maybe 15 to 20 percent of doctors are actually do-it-yourselfers.

Trevor: Totally. You’re absolutely right.

Jon: The rest are going to get fiduciary.

Trevor: Yeah. You read the blog, though, and you’re just like, “Oh, here’s the information. I understand the information. Let me execute based on this.” It’s very simple.

Jon: You make it sound like everybody should do this, and no one should need an advisor.

Trevor: It does come across that way. He’s such a good dude, though. I emailed him a couple of times. He’s so helpful and so responsive, and I think his philosophy, even like his tagline, is helping doctors get a fair shake or something like that,. I think he’s just trying to equip doctors actually to know, and then from a Dave Ramsey kind of approach, it’s like you can find out. If you know a lot, then you can find out if the guy that you’re paying knows more than you or knows how to do the right stuff. That’s my approach, at least.

Jon: I think that makes sense. I’m a big proponent of the White Coat Investor because I know he’s not an anti-financial advisor. Yes, his course is called Fire, your Financial Advisor, but I get it. I mean, it’s kind of a given, but at the same time, he’s out there for the do-it-yourselfers, and I think there’s a lot of people that will make more informed decisions on who their advisors which we’re totally in favor of.

Trevor: Absolutely. Yeah, and having a fiduciary is like, I mean, who doesn’t want to have somebody who’s on their side. I think that’s a totally reasonable thing.

What Exactly Is A Fiduciary? Difference Between a Fiduciary And A Salesman [0:36:12]

Jon: Yeah, and that’s the whole point. If we could give any investment or financial advice today, it’s whoever it is you work with, whether it’s yourself or whether it’s an advisor, it’s got to be someone you like, and you trust, and number three, you know, has your best interest at heart. And it helps if they’re legally bound to have your best interest at heart, just what a fiduciary is.

Trevor: That’s right. Yeah, if not, I mean, salesmen who are not fiduciaries, they have no responsibility to tell you. They’re trying to make a sale, however, and if you’re a fiduciary, then you’re not just a salesman. I mean, you’re trying to better the person that you’re working with. It’s a big difference.

Jon: Yeah, and we’ll go into another episode where we’ll talk about the difference and how to pick a financial advisor. I mean, to get a fiduciary, you’re going to have to pay for it. You’re going to pay for it with some assets under management, or you’re going to pay for it out of pocket, but that’s the price you pay to have good suitable advice and somebody that you can trust. And again, a salesman – I’ve met some great salesman – good people. There are some for sure, but at the end of the day, can you truly say that the guy just can’t be conflict-free? And nobody is – let’s be honest – but if we can try to minimize as much as possible, we’re human, and we’re all driven by money. I’ve met plenty of doctors that are driven by money. It’s not exclusive to just the financial field.

Trevor: That’s right. You’re absolutely right.

Jon: Well, I think we’re coming up at the end of our time. Any final thoughts, Dr. Smith?

Final Thoughts [0:37:45]

Trevor: I think my last thought is like not so much from the financial perspective, but I’m curious. Physicians take an oath, right? Just thinking about what you’re just saying, like we take an oath to do no harm. There’s a lot that goes after that, but we usually just say the ‘Do No Harm’ part. But I don’t know that there’s a legally binding fiduciary equivalent in medicine, which is very interesting. Sort of like I must take the patient’s best interest at heart. I’m going to have to chew on that because I don’t think it exists, and that’s kind of interesting that it doesn’t.

Jon: Yeah. That’s a good one.

Trevor: I’m pretty sure it doesn’t exist, so I’m going to think about that. That’d be a cool thing, and it’s something that should exist, so it’s, yeah, interesting, once you think about that because there are plenty of conflicts of interest in medicine.

Jon: Yeah, and for sure, in the financial world as well. I mean, I can tell you there are. Just offhand, I’ll give you some looks under the hood. There’s a lot of push in incentives for an advisor, say – and we can’t do this – but, say, a commission-based advisor to sell a variable annuity to someone with a million bucks versus put them in a mutual fund account or brokerage accountant and do it that way and just make maybe half-percent a year on an amount like that. Because a lot of these annuities probably come down a little bit over the years but getting 6 or 7 percent up-front commission one time would not be unheard of, so on a million bucks, that’s what? Seventy thousand dollars, sixty thousand dollars.

Trevor: That’s crazy, yeah. I’ve heard some good podcasts by The White Coat Investor. Let’s talk about that.

Jon: Yeah, it’s not, and even me, as inviting getting into that and seeing this going on like this, how do you expect these guys to even – even if they’re good guys – to make good decisions or feel good?

Trevor: That’s what he says exactly. It’s so much money that there’s just no way. If you’re selling a lot of that product, it has an impact.

Jon: Yeah, so whose fault is it?

Trevor: Yeah, oh, totally.

Jon: The annuity company is it.

Trevor: Yeah, and all we can do is just be responsible for our own actions, and at the end of a day and then in decades down the road, it’s what do you want to look back on.

Jon: Yeah. Don’t you want to sleep at night, and that kind of thing.

Trevor: Yeah, totally. You want to have mattered and feel good about it, and that’s worth leaving money on a sideline. It’s not like you’re losing it. You’re just not gaining it, and that’s okay.

Jon: Yeah.

Trevor: Well, great. It’s good to catch up.

Jon: Good to see you. Enjoy your vacation, and it looks like that’s got to be Fiji?

Trevor: Oahu.

Jon: Oahu, okay.

Trevor: Yeah, I just woke up on the plane, and I’m just here.

Jon: Oh yeah. Send me a fit-flop. Okay, well, put some pants on. It’s great, it’s fun, and that’s a wrap, and we’ll see everybody next time.

Trevor: Sounds good. Thanks, Jon.

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians, and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

Resources and Links:

Dr. Glaucomflecken Twitter page – https://twitter.com/DGlaucomflecken?s=20
Dr. Trevor Smith Twitter page – https://twitter.com/trevorsmithmd?s=20
The White Coat Investor – https://www.whitecoatinvestor.com/
Dave Ramsey’s You Have an Income Crisis – https://www.daveramsey.com/askdave/faith/you-have-an-income-crisis
What is FICA? – https://blog.ssa.gov/what-is-fica/
Fire Your Financial Advisor! The WCI Online Course – https://www.whitecoatinvestor.com/fire-your-financial-advisor-the-wci-online-course/

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Jon Solitro