Financial Confessions of a 40-year old Doctor
I started work as a terrified intern saddled with, what seemed at the time, a huge amount of debt.
I remember wishing there was some sort of financial guide to help me dig myself out of debt, and use my wage in an efficient manner to create financial stability. In comparison with our US colleagues Aussie graduates have it really easy, but debt never feels good.
Through the years, finance rarely came up in conversation with older doctors. It’s something we just don’t talk about. I have been frustrated, after making financial mistakes, to discover many senior colleagues had made similar errors.
The idea of this blog was tumbling around my head for a couple of years before, during hotel downtime between locum shifts, I took the plunge and started this site. In writing this blog, please do not mistake me for a finance professional or expert in investing. I simply want to share financial shortcuts and mistakes discovered over my career, and encourage others to do the same.
On to my mistakes, in the hope my confessions can help you avoid regretful decisions, or at least make you feel better about the choices you have already made. Please don’t judge me for the stupidity of youth…
Financial Confession No 1: Debt Management
I was brought up to understand debt is bad, and mortgages a necessary evil that should be paid off asap. In some ways, I heeded this wisdom. I have still never borrowed for a car purchase (a major destroyer of wealth). In other areas. I completely flunked this test of patience and self-control
University loan payments – that magical money that arrived in my account to be spent on beer, clothes, rent and books. Loan money didn’t seem “Real”.
I wasn’t earning it and I told myself that it would feel like a small tax out of my generous postgraduate wage. I wasn’t particularly extravagant as a student, but certainly could have done with treating my loans like “Real money”. I have now experienced paying the whole painful amount back dollar by dollar. For any student readers, don’t deprive yourself, but do make sure your spending consciously and cautiously! You will have many better things to spend your money on 5-10 years after graduation than paying back debt.
In the last six months of medical school, I got a bit spendy. The looming promise of a regular pay cheque convinced me to relax a bit more. I swiped my way to several thousand dollars in high interest debt (at 29.9% interest, at the time this did not even fill me with horror.) Unthinkably dumb! So many people live like this – trapped in a cycle of paying off minimum amounts of credit card debt by huge interest charges. My first few intern months were spent on paying this silly debt off.
Not completely cured of stupidity, after buying my first home, I succumbed to the temptation of decorating it with “Decent” furniture asap. A trip to a local furniture store later, I had acquired several pieces of new furniture on an interest only deal! I thought I was being super smart (and keeping the money in my new offset account)…. They charged administration charges to the “Interest free account” so I may as well have been paying interest, and ended up paying for this furniture for long after it was new and filling me with pleasure to use. And of course, I spent the offset money on something else.
Financial Confession No 2: Home purchase and renovations
My home purchase I do not count as a mistake – it has given us shelter, a sense of security and finally, after a decade – I’m paying less in mortgage payments than I would have been in rent. Whenever you hear a widely accepted truth, such as “Rent money is dead money” stop and question it.
In this article, I discuss and calculate, whether a home is better financially to buy or rent. Money isn’t everything, and the sense of satisfaction and stability are priceless. But financially, I would have been far better buying an investment property in a capital growth area (or putting savings into index funds) and continuing to pay rent in the regional town I lived.
The “Big Reno” has a created a house that fits our family’s lifestyle so much better, with loads of room for the kids to run around, and a pool they have learned to swim in. We love it!
But we over invested, and it will take quite a few years in measly growth to make the money back in value.
Before you take on a big renovation, consider the financial aspects, top value house in the area (you want to spend no more than your renovated house will be worth) and whether you would be better buying, taking in to account 6% buying and 2% selling costs.
Financial Confession No 3: New Car purchase
Most people have no idea how much of an impact their behaviour with cars affects their long-term financial outlook. Buying new cars, trading in regularly and car loan interests can steal your financial freedom.
Mr Money Moustache has analysed all aspects of financial efficiency in life and gives some great advice about cutting the costs of car ownership.
My “crime” was to buy a new car. I was scared of buying an unreliable second hand car. And maybe a little bit felt I deserved better than the hunks of junk I had brought so far in cash.
That was a decade ago (but feels like 5 minutes), the car was not particularly well looked after (I’m lazy) and is scratched, dented and looks suspiciously like I may be allowing homeless people to live in it.
But it still gets me from A to B, and will last me (hopefully) for at least another 5 years.
Disappointingly, the New car feeling lasted for a few weeks.
The most cost-effective way to own a car is…don’t.
After that a great 2nd hand car from a very reliable make, is far more efficient given the huge losses in value from depreciation over the first 5 years of a car’s existence. Holding on to that car until you need to replace it (rather than when you get bored, or it begins to look scruffy) also improves efficiency.
Financial Confession No 4: Not Paying for a Financial Advisor, and taking advise
I thought I was doing the responsible thing, after a big jump in pay, to see a “Financial adviser” to organise my finances. It turns out he was an insurance and managed fund salesman. He did get my partner and I to review our insurance needs, and secure better life and disability as well as income protection insurance at a relatively young age (the premiums increase steeply during 30s).
However, he also convinced me to move my superannuation to a “Superwrap” product that was charging 4%! I was reluctant, but he was pretty convincing that the better performance would outweigh the fees, and after all – you get what you pay for. They didn’t of course, and after 3 inefficient years, I moved my superannuation to the original fund and will likely stick with them until retirement.
Remember, the fees are the only thing that is ever guaranteed! Ruthlessly minimise fees to get ahead.
Finance confession No 5 Salary Sacrifice
For years, this just seemed too confusing, and I was too lazy to take advantage. Ridiculous! Too lazy to make a phone call and fill in some forms to get free money (the tax I paid! Every time I changed job, this was a big hassle I often didn’t get round to sorting out for months or years. It is a great deal, don’t be lazy, Read this article, and salary sacrifice your accommodation costs and superannuation
Financial Confession No 6: Drift
“Drift” is a term I first heard on the US based Choose FI podcast and it summarizes a common pattern I fell in to.
I have always been interested in personal finance, but often get to a point (especially in my early training years) where progress towards financial goals was extremely slow -and I would lose interest and focus for years at a time.
During this period, automated actions such as paying into my mortgage continued, but extra income that was gained through pay rises was absorbed into the households spending unconsciously. Actively using those pay rises could have got me to financial goals faster, but nothing changed until I snapped back in to goal setting mode.
Drift is almost inevitable, for a medical professional probably even more so. The demands of work, postgraduate training and exams are extreme. You will not have time to keep your finger on the financial pulse of your household too.
Set your goals. Automate as much as possible (savings & investments), make an appointment with yourself to review your goals and progress. Set a reminder on your phone, calender or email once or twice a year to meet with yourself (and partner if you have one) to limit the destructive effect of drift and keep on track to your financial goals.
Financial Confession No 7: Money organisation
With our mortgage, 10 years ago, came multiple offset accounts. This should have been great, but meant to a disorganised mess with overdrawn fees as a result of money being in the wrong account.
Each household needs a money organising system. Finances get more complex as you grow older, and often spend on many more items.
I have trialed a few systems, the most important feature seems to be separating discretionary spending (Wants) from obligatory spending (Needs). There are some grey areas, but decide for yourself what are Wants and needs, and pay for wants our of a separate account – with a set amount to spend each week/fortnight/month.