Financial Independence, Retire Early (FIRE)

There's nothing quite like starting at the beginning, right? If you become financially literate at the beginning and start applying all this stuff very early in your career, it's amazing what can happen. I wouldn't say I was financially illiterate right at the beginning, but certainly by the time I was midway through residency, I was. And so when I became an attending, we hit the ground running, right? We had a high savings rate, we were investing intelligently, we were checking the important boxes when it comes to our financial plan. And it all worked out very well. We became millionaires about seven years out of residency, multimillionaires a few years later, and ended up becoming financially independent at about 43 years old. I was 43. Katie's younger than I am. And that's pretty cool because it gives you independence, it gives you financial freedom, gives you the ability to choose what you want to do with your life without having to pay attention to the financial ramifications. And everybody chooses something different when that happens, right? And your why matters because as you can see, to get there and get there quickly. If you don't just become very fortunate and happen to have started company that really takes off like we did. It takes a lot of discipline. It's a lot of discipline for money that you could spend, but instead, in order to become financially independent early, you have to save. You need a big fat savings rate. I tell people to save 20% of their gross income for retirement. More if you're saving for other goals like a second house or college savings or something like that. That's not for financially independent. Retire early. That's not to be financially independent at 40 or 45. That's to be financially independent at the end of your career. If you want to be done financially by mid career, you got to save more than 20%. That's not quite enough. And in fact your savings rate is actually the most significant number in that calculation. The more you save, the sooner you're financially independent. That's just the way it works. What can you do with financial independence? Well, you can make these decisions without thinking about the financial consequences. Let me give you an example of this. I'm going to brag on Katie for a minute. Maybe she'll listen to this episode, maybe she won't. Katie's on the school board. She ran for election this fall. While I was busy getting my head right after falling off a mountain, she was campaigning. We had a gazillion campaign signs in our garage and they're put up all over the neighborhood. And she's off seeing people and at these Meet the Candidate nights. And anyway, she got elected. And that's something that you can do when you're financially independent. You have time to go pursue something like that. Now, it's technically a paid job. I think it pays something like $13,000 a year. It also qualifies us for health insurance. But she turned both of those down. She's actually doing this for free, just like she was volunteering in the schools, on the school community councils and the PTAs and all that sort of stuff. She's doing this essentially as a volunteer thing as well. And a lot of people don't have that option. They don't have that option in their mid-40s. They don't have that option even in their mid-50s. Why not? Because they need to be working, they need to be earning, and they need to be earning more than $13,000 a year. But financial independence gives you options like that. And that's the really cool thing about it. All right, so how does this work? You want to be financially independent, you want to do it as fast as you can? Well, the key is to have a plan and follow the plan just like it is anything else. Now, the sooner you started earning, the better. That's why you hear about all these people in the tech world that are in the fire community. Right. Become financially independent by 32. A lot of us weren't even out of training at 32. Right. This doesn't translate very well to the life of a doctor, but if you come out of college at 22 or 23, get a tech job paying six figures, save $80,000 a year for the next eight or 10 years. Yeah, you become financially independent. It's pretty amazing. The Dr. Version of that is likely coming out of your training in your early 30s, knocking out your student loans within a couple of years, saving some big chunk of your income, 40, 50% of your net income perhaps, and there you'll be 10 years from then, you'll be financially independent. Right. What do you do with the money? Well, you stuff it into retirement accounts. You invest it in taxable. Because most people saving that much don't have enough retirement account space to put it all in there. So you end up with a big taxable account as well. And you invest it in some reasonable mix of, of low cost, broadly diversified index funds. Probably need to be relatively aggressive in the beginning, mostly in stocks. Things like a total stock market fund, a total international stock market fund, maybe a little bit in a bond fund, a muni bond. Fund, if that's appropriate for you, and you're having to do it in a taxable account, those sorts of things. I run into people as well who pick up a second gig, a lifestyle, job, whatever you want to call it, of direct real estate investing. They go out and they start buying some properties. They buy a new property every year, and after eight years, they've got eight properties and a bunch of them are partially paid off and they're all cash flowing. And all of a sudden, when you look at that income, in addition to what they have saved, they're financially independent. So there's lots of different ways you can do this, investment wise, but the key is you've got to have the money to invest. And the way you do that is just by having a really high savings rate. You know, it's probably higher than 20% of gross. It's probably something more like 40% or even 50% of gross, right? So if you're paying 25% of your money in taxes and you're living on 25% of it, well, that gives you 50% that you can save. And if you do that for a decade or so, you're going to have a lot of money. That's the way it works. I got an email the other day from a surgeon, and I can't remember what the question the surgeon was asking is, but this surgeon had provided enough other information that I made an additional comment and said, hey, you know, I think the surgeon was about four years out of training, had about $120,000 saved up for retirement. And I know what surgeons make, right? Even the average general surgeon, something like 350, 400, $450,000 a year, something like that. Well, if you're saving 20% of that, by the time you're four years out, you probably ought to have something more like 300, 400, $500,000. And this doc was sitting there with $120,000. And so I made a comment about the importance of maybe bumping up that savings rate a little bit more. And I don't think that situation is uncommon at all among doctors. I think a lot of doctors, they come out and all of a sudden now they've got to make their student loan payments and they just bought that big house. They deserv. They spent so long in school, eight years in school and five years in residency and maybe a year in a fellowship after that. They've been deferring gratification for so long, they want that nice house. Now they got a couple of payments On a Tesla, you gotta have a Tesla and you gotta have a nice truck and a boat to go with it. And all of a sudden that savings rate gets so low that it's not only not gonna get you to fire by mid career, but it might not get you to financial independence by the time you hit normal retirement age in your mid or late 60s. So pay attention to that. Whether you want to fire or not. Your savings rate is a number worth calculating every year and seeing where you're at. And if you calculate it and you find you're at 18 or 19%, okay, I'm not going to yell at you. There's Nothing magical about 20%, it's just kind of a rule of thumb. But if you calculate it and the rate is 6%, that's a problem. 6% is not enough. It is not enough to get you where you want to be by the end of your career. That number needs to be much closer to 20% for most doctors. So pay attention to financial independence. It gives you a lot of options in your life. You know, hitting early financial independence or even retiring early might be among your financial goals. It might not be. When I got there, I found I didn't want to stop working. I enjoyed my jobs, I enjoyed what I was doing. I thought it was a meaningful part of my life. It gave me purpose and it allowed me to help a lot of other people. I didn't quit working when I became financially independent. Now that in itself certainly has lots of financial benefits. We're allowed to support a lot more charities than we ever thought we were going to be able to support. But you don't have to retire early just because you become financially independent. You can continue to work, but you're now working on your terms. And I tell you what, it is fun to work on your own terms, right? I work the number of shifts I want to work with my group. I work the types of shifts I want to work with my group. Nobody even asked me to be on committees anymore because they kind of know the question they're going to get. I'm still on a couple committees. I help with the 401 committee and I help with the recruitment committee. But nobody's coming to me and asking me to be the medical director because they know the answer is going to be no if they ask. And that's okay. I'm working on my terms. And that's what you can do when you become financially independent. So work hard, make sure you're getting paid fairly, save a big chunk of your money. Determine your financial goals, write them down, make a written financial plan and follow it. You'll be amazed what you can accomplish in the first 10, 15, 20 years of your career.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.