8 things to take away from The White Coat Investor

“Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend… It is seldom luck or inheritance or advanced degrees or event intelligence that enables people to amass fortunes. Wealth is more often a result of a lifestyle of hard work perseverance, planning, and most of all, self-discipline.”
The White Coat Investor by James Dahle, MD had been recommended to me by both classmates and residents before I decided to pick it up. After reading it, I will go ahead and say that this book is a MUST READ,
regardless of where you are in your path to becoming a physician. If you are finding it difficult to squeeze in extracurricular reading between your studies, rotation, or other commitments, it is my hope that this brief overview can at the very least help remind you that finances isan important component to your overall wellness. Being conscious of your financial situation, having a financialplan, and saving EARLY and OFTEN will open doors years down the road and allow you freedom to pursue your passions as well as security for you and your loved ones.
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As a medical student who has never had a large source of income, these are the overall things that I took away from this book:

  1. “At a minimum, force yourself to read one book on personal finance or investing each year of residency and throughout your career.” Medicine is a field requiring continual education. Try to apply that thought process to your finances. This knowledge can not only benefit you as far as designing a financial plan, but can also serve you well when dealing with financial advisors in the future.
  2. “The fact is that medicine, like law, is no longer a guaranteed pathway to riches.” While the average physician salary can afford quite a comfortable lifestyle, higher costs of medical education, malpractice insurance, and lost years of savings due length of school all can create a false sense of security based on yearly income alone. Be conscious of these factors when that first paycheck as a resident (or physician) appears in your bank account.
  3. “A dollar saved is worth a dollar, while a dollar earned is only worth about 50 cents due to taxes.” In fact, a dollar saved ends up being much more than a dollar after proper investing. Dr. Dahle recommends saving 20% of your yearly-income for retirement. Other financial books I’ve read have also suggested that, in a two-income household, put 100% of one of the incomes towards retirement.
  4. “Live like a resident!” Dahle describes the first year out of residency as the most important year in a physician’s financial life. Give yourself a solid financial base by putting your newfound income towards a larger housing down payment, paying off student loans, and contributing to retirement accounts. You can accumulate more wealth by SLOWLY increasing your standard of living instead of going from living like a resident to living like attending overnight.
  5. Saving MORE with less return on investment > saving LESS with higher return on investment. Dahle provides an example to illustrate this point. Consider a physician with a $200,000 salary that starts saving at age 31. If he were to save 10% of his salary each year at a 4% return on investment (ROI), he would have $220,122 at age 40. If he was to have doubled his return on investment (8%) or saved 5% more of his total income per year (total 15%) over that time, which situation would leave him with more money at age 40? Saving 5% more per year. In fact, saving 5% more per year results in a total net worth of $330,183 compared to $269,731 in the situation with increased ROI. Another important point to note is that you can control how much you save, while the ROI is a number that depends on the market outside of your control.
  6. Max out your contributions to your ROTH 401(k)s and ROTH IRA accounts. These are post-tax accounts whose contents are NEVER subject to income taxes. Dahle also recommends maxing out your spouses ROTH accounts as well. He goes into much more detail regarding these accounts so check out the book if you want to learn more.
  7. “If you do not have a 20% down payment or cannot afford to pay for the house on a 15-year fixed mortgage, you cannot afford the house.” Dahle described two guidelines to live by regarding housing. 1) Never carry a mortgage larger than twice your gross income, and 2) spend less than 20% of your gross income on housing.
  8. “Don’t higher a commissioned salesmen.” When looking for a financial advisor, look for a FEE-ONLY financial advisors (whether it be hourly or annual-retainer). The reasoning behind this is that a commissioned advisor has an obvious incentive to sell you this product, regardless of whether or not it is in your best interest. In his words, “the higher the commission the worse the product” because a bad product requires more incentive to sell.
These are just some of the words of wisdom from Dr. Dahle in a book that contains much more information to allow yourself to be financially secure come retirement. Again, I highly recommend finding a copy of this book and reading its contents for yourself. Remember, your overall wellness has a financial component that allows (or restricts) your ability to do the things you want later in life. The way you live later in life is largely determined by how you save now!
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