There are so many paths to financial freedom. It does not matter if it’s starting another business, investing in real estate, or saving in your 401(k). You will reach financial independence as a physician if you save and invest. The most crucial factor in achieving financial independence is consistency.
- Do you save and invest money every month? Or do you have to wait until the end of the month and hope anything is left over?
- Do you have a financial plan? Do you review it when the stock market is in turmoil? Or do you sell in a panic because the market tanked? Did you buy the latest hot stock tip you heard in the physician’s lounge this week?
It doesn’t matter if you choose to fill your pretax space in a 401(k) or 403(b). Or if you decide real estate is your jam. Docs and real estate are super trendy right now. You’ll hear a lot that real estate is the only way to become financially independent. Or that you are messing up your finances by paying off your debt and investing in the stock market.
What upsets me about these articles is that they make it seem like there is only one unique way to build wealth or financial freedom. With so many options, we can get paralyzed and instead choose to do … nothing.
Building wealth is simple. That doesn’t mean it’s easy – but it can be for all physician families. To build wealth, you must spend less than you earn then invest those savings. The next step is creating a plan. Many physicians work with financial advisors to help them plan and keep them on course. Other physicians are DIY. What they all have in common is creating a plan that they can consistently follow.
For example, if you’d invested in the market from 1995 to 2014, you’d earn a healthy 9.85 percent annual return. But what if you hold more equities than you can stomach and you trade a lot? By missing the ten best days over those 20 years, your return drops to 6.1 percent. What if you miss the 40 best days? Your return is actually negative!
This example demonstrates the power of a plan and staying consistent. But most importantly, get started building wealth and working towards financial independence. Start today. Create a balance sheet – see where you are right now. Create a plan that works for you and your family. Make it easy. I got caught up in the real estate fever. Set up an LLC and then got to work looking for properties. While I enjoyed learning the nuances of this market, I quickly recognized I did not want to spend my free time searching for properties or talking with our attorney. I’d rather be skiing, mountain biking, or building my financial planning business!
I’m aiming to sleep well at night, knowing our family is taken care of financially and on track to reach our goals. I’m not trying to maximize every last second of my day, nor am I trying to maximize every last cent that I save. Am I leaving money on the table? Absolutely! Is it stopping me from building wealth and quickly reaching financial independence? Not at all.
Recently I read Four Thousand Weeks: Time Management for Mortals by Oliver Burkeman. One of the author’s fundamental points is that we all have limited time. None of us can accomplish everything we want to. And we will disappoint others. The best response is to choose who you disappoint and what projects and activities you ignore. And focus on what’s most important to you.
And guess what? My family has almost reached financial independence by simply investing in pretax space in the market. This strategy has allowed me to work part-time and pursue other projects. Could I earn a higher return or pay less taxes investing differently? Maybe. But this works for my family!
Those physicians investing in real estate do incredibly well too! Build a plan, create a team to help you find and secure properties, and you are on your way. Similar to stocks, you need to pay attention to any potential tax law changes – the proposed 1031 exchange limitations would be a doozy!
If you have an entrepreneurial spirit, pursue it. There are so many incredible ideas out there waiting to be implemented. But you have to like the challenge.
It’s natural to want to chase the latest shiny thing. We all do this to some degree. But the more we stay focused on our priorities and our dreams, the better off we will be.
More than anything, I want to help our physician colleagues build financial freedom. We work with so many talented and passionate individuals. I know each one of you has dreams and passions that drive you. You may find your pa within medicine; some of you will search elsewhere. But I guarantee that financial freedom helps all of us live happier and healthier lives. It will even make us better physicians as well.
Cobin Soelberg is an anesthesiologist and financial planner.
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