In my last post, I gave a peak into my early financial life. How we built our financial foundation. That put us in a strong position as we entered our financial coming of age. During the next phase of our wealth journey, I started my independent practice. It was an exciting time of establishing my career, spending with fewer limitations, and investing on a larger scale. During this first decade of practice, we were like teenagers in the “wonder years”, we felt financially invincible. Every year, our net worth was growing bigger and stronger.
Also similar to teenagers, growing into our newfound financial muscle wasn’t always easy. We had to learn new skills for financial adulting, make some mistakes, and find our way. Along the way, we learned more about who we are, as we reached maturity. Hopefully, you can learn from this peak into my financial “Wonder Years” too.
Specializing in My Business
Finding My Niche
I narrated the story of my early career previously. I figured out relatively early on that you must find symbiosis, the balance between work and reward, for a sustainable career. One of the most impactful pieces of advice that I got was to “Go where you are needed”. That was good career advice from a psychological standpoint – purpose is an important shield against burnout. However, it was also valuable for building a profitable business.
When you find an unfilled niche, it is an opportunity. There is less competition and more potential for growth. However, that requires specialized skill to recognize and unlock that potential. You must understand the inputs, outputs, and risks to make a business plan. Even if you are ultimately successful at building an efficient and diverse practice, there is an upfront cost.
Specializing In My Business
I spent the first five years of my practice becoming good at it. Training prepared me to be a strong clinical specialist to care for individual patients. However, it took longer for me to analyze, plan, and lead the changes that made our practice environment strong and efficient. That was also a specialized investment. Improving how we functioned as a business translated not only into providing better patient care, but a better quality of work-life.
We removed frustrating inefficiencies and built a more comprehensive integrated system. That not only improved our incomes, but also freed up time and resources for our teaching and research missions. I had previous leadership training and experience, but I specialized further as a physician leader in the hospital context.
My Return on Investment
You can see how this investment and specialization played out for me in the chart below. One full-time equivalent (FTE) is 52h/week of work, excluding time spent on-call at home. The average Canadian specialist physician was working ~52h/wk. In ICU, we can easily work much more than that in a given week, but that was about right when I considered the hours spread over the year. In terms of income, one FTE was the average income (all sources) for a specialist in my field at the time. I estimated that from a combination of data and frank discussions with colleagues. Every specialty and career path will be different, but the trajectory of mine has some interesting information embedded in it.
First, I actually do track my sources of work and the associated income. That is part of executing a business plan and how I can make charts like this. My hourly income was relatively high from the get-go. I had made an effort to learn about billing effectively during my fellowship years. There were also shortages of people willing to work nights despite the premiums for doing so. I was young and eager and picked up much of that work. It not only paid well, but gave me a unique perspective about gaps in our system that were made most apparent after-hours.
Second, my first five years of practice required a significant investment of time doing poorly renumerated administrative work to establish new services and improve existing ones aimed at filling those gaps. My clinical income dipped in 2010 because I gave up a lucrative part of my respirology practice to try and push improvements in our critical care services over the finish line. That was a risk that subsequently paid off with major improvements in the clinical income of all of our group members. Including me.
I also made sure to collect data on the impact to improve patient care. That not only attracted more funding to our clinical work, but the importance of physician leadership to make that happen was underscored. I became the Chief of a newly formed hospital department. That brought financial recognition and support for the work I had been doing. Moving forward the efficiencies and structure we built translated into an outsized income for my hours worked.
Investing: Discovering I Am Not Special
Now that I was making the big bucks, I also figured that I needed to learn how to invest in a more sophisticated fashion. Working harder, being smarter, analyzing, and specializing worked well in my practice. Unfortunately, that does not translate well into investing success in the more efficient public markets. It took me a while to figure that out because there is a whole industry trying to convince you otherwise.
From Retail To Boutique Advice To Wisdom
I detailed my volatile investment returns and the meandering strategies behind them last year. I ditched retail mutual funds because those were for average people and I was now rich. That was an unintentionally good decision. The high fees were dragging on performance, but I didn’t know where to even find fees at the time. Rather, I ditched them because I was now special. I was entitled to rich-person advice. That sense of entitlement and my lack of understanding of how fees and investing work made me an easy target.
I was wooed by a fancy financial advisor. They were flattering, and nice, and made me feel special and part of the elite. They also sold me some structured complicated products that underperformed net of fees. I sort of understood them, but not really. They sounded sophisticated and exclusive. I paid for stock-picking advice and got their firm’s analyst reports.
I felt so smart and like I was being proactive in taking charge of my investing by reading books about stock analysis and trading, consuming business media, and trying to adjust my portfolio accordingly. In summary, I was sold complex products and strategies but didn’t benefit from the value that advisors can offer. I still use an advisor for occasional advice, and I will likely use a full-service advisor again when I get older. However, I now have the wisdom to go for the value of the advice and service. Not getting sold stuff.
From Lucky To Smart Before My Luck Ran Out
You can see from the chart below that my returns in those early years were wildly volatile. They are percentage returns and fortunately, the money at stake was low in those early days. I escaped before bad results manifested from the bad decisions I was making. I got lucky and realized that before my luck ran out. What you also can’t see on the chart are the hours of wasted time. Nor my mood swinging with the markets. I eventually learned that a smart rich person invests the same way that anyone else should. Just more zeros and more accounts to use for tax planning.
Work hard to specialize in your business. Diversify your portfolio.
Specialization works well in building a business. In contrast, you cannot specialize sufficiently to consistently beat efficient public markets. Neither can professional managers. The best you can do is reduce diversifiable risk, take as much market risk as you can safely handle, and minimize the costs of doing so.
That is hard to accept given our experience in our careers, but I will expand on the data and academic literature on why that is in some upcoming posts. Financial advisors provide their value by helping you to invest regularly, tolerate market risk, and make sure that you have a comprehensive financial plan for your goals. You must know enough to lead that team and not be enticed by complex products or services of little value (termed “financial bullshit” in the academic literature). Ben Felix and I rinse the financial bovine feces off the lens of The Money Scope in Episode 6: Key Investing Concepts.
Spending: No Guardrails on the Treadmill
In my last post, I discussed how we had to adjust our scarcity mindset to match our strengthening financial position when I became a resident. We maintained a frugal lifestyle while we hammered our debt. By the time I started as an attending, we had paid off our line of credit and started chipping away at our mortgage. That gave us the emotional green light to spend a bit more.
We were healthy wealth adapters at first.
We had managed to keep core values from our upbringing while trying new things and spending more in areas that we felt were important. Kids came into the picture which came with a bump in childcare costs and trying to provide them with the best developmental opportunities. I was working long hours, but we made sure to spend money on experiencing life together.
We started taking a vacation each year to somewhere warm on an airplane. We upgraded to nicer cottage rentals and ditched the tent. Our ingrained fear of financial calamity faded into the background. As we overcame that, we realized that our “giving” had lagged and rectified that. Our scarcity financial mindset had shifted into an abundance mindset.
Still, that only bumped us to about 50% above the average Canadian household in terms of spending. This was a better lifestyle than we had grown up with by far. Up to that point, we were healthy adapters and slowly growing into our new level of wealth. Well, that didn’t last long.
Stepping Onto The Hedonic Treadmill
In 2010, We were spending a bit more than the average Canadian household, but we were making much much more than that. Our adaptive response to wealth was a bit too far on The Denier end of the spectrum. With that came insufficient attention to the pent-up demand of delayed gratification. Seeing our friends and colleagues spending much more around us blew the doors off of that.
By the measure of the communities in which we had grown up, we were living in a “doctor’s house”. However, in the affluent neighborhood where we now found ourselves, we were not. The result of that pent-up demand and social comparison is documented in My Dirty Little 10000 sqft Secret post. That was only the beginning.
Ratcheting The Treadmill Speed To Plaid
When we started building our dream home, we went into full-on Ditcher mode. If there was an upgrade available, the answer was “Yes”. Our compromise for most situations was that we could both get what we wanted. Bigger closets? “Yes” Oversized garage “Hell, yes.”
Our builder loved it, and we felt rich and that we were finally getting what we had worked so hard for. That was true. However, without financial hard stops limiting our spending, we spent on some things that seemed fun but ultimately caused us headaches. Like fiddly gas torches that never worked properly and a giant retractable bug screen that constantly jammed.
Lifestyle creep goes beyond houses and iPhones
Housing was our big spending jump and it had ongoing costs. However, every aspect of our lives was subject to lifestyle creep. This is common amongst early career physicians. Neither we nor the people that we hung out with were immune. Our friends took progressively more expensive vacations and we needed to pay up to be able to go along with them.
The price did eventually start to steal the pleasure and we shifted gears to travel places via the ground as a family. That was driven by our values of spending time in nature and being active outside rather than sitting around a pool eating and drinking. However, since we were rich we didn’t pack into a car and use a pop-trailer like we did as kids. Nope, we got a motorhome. And then a bigger more luxurious motorhome.
I needed progressively larger tractors to tackle projects around our property faster and better. Then, a barn to put them in. Plus, a workshop to work on them. That started with my trying to preserve and pass some good values and skills that I was raised with. Be independent and do jobs yourself if you can. If something breaks, then fix it rather than buy a new one. Those are excellent principles. However, since I was rich, I got every tool that I could, of the highest quality. It was tool creep. My workbench in the corner of the garage morphed into a separate insulated fully equipped workshop to use. I needed all of the garage space for my growing fleet of motorized toys anyway.
Our kids were growing up and we wanted to provide them with all of the cultural, sporting, and academic opportunities that we hadn’t had. It seemed noble and natural. Everyone around us was doing it too. Our kids were highly programmed and surrounded by highly programmed and pressured kids. Some kids thrive in that type of environment. Others do not.
By around 2018, a little over a decade into my practice, we were spending about 5 times the Canadian household average per year. From the earlier section on my income growth, you can deduce that we could afford it. However, I was also working flat out. At times, two doctor FTEs. That is ~100h/wk average. That is hard to believe in retrospect, but it happened. It was unsustainable and contributed further to our spending as I tried to make up for my absence through spending. I wasn’t spending enough time at home, and I also felt like I had to work to pay for everything. Eventually, I came to realize that I was burnt out. It seems like “Duh? No kidding” now, but I was fully entangled in The Earning-Spending Trap.
Lessons From Our Financial Wonder Years
I call these The Wonder Years because it was like our financial adolescence. It was exciting. It felt like there were no limits and we were constantly growing. We tried different things and made mistakes along the way. However, our strong financial foundation from earlier in our lives gave us considerable leeway.
We felt financially invincible but eventually did find ourselves becoming trapped by our income and spending. The financial wonder years will look different for everyone because it is a time of self-discovery and we are all different. Here are a few major points that we learned from ours.
Work Hard & Specialize In Your Practice. Simplify & Diversify Your Investing.
You only have so much time and energy. The biggest return on your investment as a professional is usually in building your career. Not just your expertise, but how your practice works as a business within a system. There may be an upfront investment, but taking some risks and putting in the effort can yield longer-lasting dividends. That took about five years in my case, but I still benefit from that over 15 years later.
In contrast, investing should be simple, diversified, and effective. Not fancy looking and expensive. Despite what your advisor and your mom may say, you are not special. You can put in some time to learn to invest simply and effectively using ETFs. My DIY Investing Hub can help. However, if you still cannot make and stick to a simple plan, then you should have an advisor to help you. Choose an advisor with an evidence-based (low-cost and mostly passive) strategy for investing, and who helps you to plan, execute, and stick to your plan easily. That planning and coaching is where their value lies.
Lifestyle creep can be profound and insidious.
One of the biggest things that triggered our spending spiral was our housing upgrade. It is a large fixed expense with high ongoing maintenance costs. It seemed like the natural thing to do. Everyone around us was moving into big houses and real estate was touted as a way to grow your wealth while enjoying living in it. In retrospect, our house was actually a big drag on our net worth. Further, a lot of the upgrades that we spent extra on thinking that they’d bring us more pleasure did not. The lack of financial limits and our inexperience caused us to overshoot. We also didn’t set any luxury spending boundaries.
Spending on experiences can also be great. We had some great vacations with our friends. However, towards the end, the excessive cost was stealing some of the joy. We could have just as much fun without scented pillows and concierge at our resorts. And we could have done it more often. We shifted to vacationing in our motorhome. That initially was much more cost-effective, and enjoyable. We built great memories traveling together with our family (including pets), and other friends. However, that grew from an older 40-footer to the most luxurious 45-foot rock star bus we could buy in 2018. In retrospect, we had more fun renovating our original fixer-upper and traveling in it than the newer fancier one.
Overall, we did try to adjust our spending along the way to re-focus on things that we value. However, it was not a straight line. There was trial and error. The dominant result was still a steady increase in spending each year.
Where to next?
A strong financial foundation and high income allowed us to do this with relative impunity. However, we did find ourselves off course by the end of 2018 and vulnerable. Fortunately, we discovered a lot about ourselves, our core values, and our relationship with money as well. Stepping back to consider that and our financial position was key to using the financial power that we had built along the way to change course. That will be the next chapter in our wealth journey. Extracting ourselves from the earning-spending trap to become financially independent. Then, using that financial independence to recalibrate.