WCI #68: Moonlighting and Side Gigs

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahli.

Welcome to White Coat Investor Podcast 68 Moonlighting and side Gigs.

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The day today is from Morgan Housel who said too much devotion to one goal, one path, one outcome is asking for regret when you're so susceptible to change. And I think that's particularly true for physicians and other high income professionals. Given the long training pipeline to get into your profession, I think you got to be a little bit careful and realize that you know what you think you want when you're 25 is probably very different from what you actually want when you're 40. So maintaining some flexibility in that regard is probably very helpful. Thanks so much for what you do though. Medicine is not an easy career. There are a lot of difficult things that happen in this career and sometimes you spend some nights worried about what happened with the patient or even crying after losing a patient and it's not easy. So I want to be one of those few people you get who say thanks for what you do and if you're on your way into work or you're on your way home or you're on your way into see somebody you've been called in to see. Just remember that there are people that care about you and are glad you're doing what you're doing. If you haven't checked out the White Coat Investor forum on the website at whitecoatinvestor.com, be sure to check it out. It is a great opportunity to discuss your questions with a lot of very wise people, both experienced individual investors as well as financial professionals. Unlike our Facebook group, which we limit to high income professionals and not financial professionals, the forum is open to all and is a great opportunity both to read about issues other people are having as well as to discuss your own issues. You can use an anonymous name. Nobody has to know who you are and you can get those answers. And if you're one of those who learns from the mistakes of others, a forum is a great way to do it. Today we're going to go over a few questions I've had from listeners. The first one is someone who wrote in with seven different questions about moonlighting. It's actually someone who recently moved local to me and I thought these questions were so good that I could basically form an entire podcast around them. So let's talk about them. This is a couple where he is the doc and she is not, but she's asking the questions here. And really he's just taken up his first real job outside of residency and fellowship and had some questions about moonlighting. So the first question was Some tips on Finding Appropriate Malpractice Insurance to cover yourself well, with most moonlighting gigs, the employer is picking up the cost of malpractice. In fact, if you have to go out and shop for your own malpractice insurance, chances are good this isn't going to be worth your time simply because malpractice is so expensive. If you have to go out and buy it on your own, you you're going to work for free for quite a while just to pay for the malpractice insurance. So there's a few things you can do. You can check with your employer's insurance and see if they will cover this side gig. A lot of times they will do it for no additional cost. Or perhaps they may do it for some small trivial cost, in which case you're coming out way ahead than going out and buying an entirely new policy. Bear in mind, whatever you decide to do for malpractice insurance, make sure you know who's going to pay for the tail. Remember, with malpractice there are two types. There's occurrence policies which cover anything that occurred during the period when you had the policy, and there are claims made policies. A claims made policy is a policy that only covers claims that came while the policy was in force. So obviously if the policy goes out of force and then somebody makes a claim for something that happened a year or two ago, you don't have coverage. So if you have claims made coverage, you have to make sure a tail is bought. And tail coverage covers you for anything that's claimed after that period. But what a lot of docs don't realize is tail coverage can be very expensive. It's often two or three times as much as an annual premium for your malpractice coverage in the first place. So you need to be getting a significant discount if you're taking a claims made policy over an occurrence policy because you've got to be saving up enough that it makes sense to actually pay for the tail at the end. But either way, for most moonlighting gigs where you only work in a few days or you know, a couple of days a month for a year or two, you really, you want the employer picking up this cost. And oftentimes they can just add you on to a policy where they're covering a bunch of other docs. Doesn't cost them that much more. But that's the approach I would take with most moonlighting gigs. The second question is where do you identify good moonlighting opportunities? Do you seek them out independently or use an agency? What are the pros and cons of both? What is the process? Well, this is highly, highly specialty dependent. I mean, in emergency medicine, just about every group is interested in having somebody come in and cover them on the holidays or pick up a few shifts a month. You know, be kind of a PRN doc. In other specialties it can be very difficult. You might have to go through a locums agent or a recruiter. So if you're having trouble finding them. A few things I do one, I talk to your peers and colleagues in your specialty and ask what they know about or what other people have done. Sometimes they'll be interested in having you come in and cover them for a while. So that's the first place I'd go. The second place I'd go is I'd call up some locums companies and ask them what's available. Yes, they make their cut, but they're also usually providing you some services in exchange for their cut. So those are the things I do, you know, and it just depends on your specialty. You know, if you're a hospitalist, go to the hospitals you know and ask who does the hiring for the hospitalist group. It's just like finding a regular job to ask, hey, do you need somebody prn, do you need somebody part time looking at picking up a few more hours? Third question, how do you limit your tax burden on any income gain from moonlighting? How much does our tax situation change by moonlighting? I recall in one of your podcasts saying after training when you were on military salary that you moonlighted but were effectively taxed at 40% anyways, you've learned to decrease this burden. I want to make sure it's worth my husband's time to Moonlight. Well, I was actually in a really unique situation when I was in the military. I was in Virginia, but I was an Alaska resident. So my military income I paid no state income tax on. In addition, a large chunk of my military income, the allowances, and a significant chunk of my pay when I was deployed are tax free. And so my effective tax rate in the military was ridiculously low. I think one year is as low as 4%. But the problem was when I went out to the local trauma center to try to get some experience and keep my skills up, do a little moonlighting there, I found that my marginal tax rate on that money was really high. I think my taxable income before that was something like 70,000. And so, as you might imagine, I'm not in that high of a tax bracket there. I think back then it was the 25% tax bracket. But the problem was on that money, I had to pay Virginia state tax. So add another 5% or so onto that 25%. And I had to pay payroll taxes because I hadn't maxed out the amount of income you need before you stop paying Social Security taxes. I was paying the full Social Security taxes, you know, both halves, because I was a 1099 contractor. I was paying 12.4% there and 2.9% on Medicare. And so my marginal tax rate was close to 45%, even though I was only at an income at that point of about $70,000 a year as far as a taxable income. So you have to be a little bit careful there. For most attending physicians, which have already made enough money to have maxed out their Social Security taxes, it may not be quite that high, but that's all individual. And only you can decide after you look at what your marginal tax rate is, whether it's worth your additional time to moonlight. But how do you limit your tax burden? Well, there's not a lot you can do. I mean, it's like anything else, right? There are some things the government will pay you to do. You want to give money to charity that will lower your tax burden. Not by as much as you give to charity, but it'll lower your tax burden. Likewise, any additional work expenses you can write off, you know, some portion of your cme, some portion of your white coats or scrubs or shoes or those kinds of, you know, uniform type items. And then, of course, you know, business mileage, if you qualify for it, can be a big tax deduction. But the biggest one for most docs is retirement plans. And if you are moonlighting, you can open an individual 401k, unless they're treating you as an employee. If they're treating you as an independent contractor, you can open an individual 401k. And depending on whether or not you've used your 18,500 employee contribution in your main gigs 401k or not, you may be able to put a lot of money into that individual 401k. If you haven't already used that employee contribution, you can use it in your individual 401k. So basically your first 18 and a half thousand dollars can go in there and be totally sheltered from federal and state income taxes. But for most people, they've already maxed out their 401k at their main gig and essentially what they're allowed to put into the solo 401k is 20% of what they're earning at the moonlighting gig. Alright, next question is the pros and cons of moonlighting while in training versus after training. Well, a big pro of moonlighting while you're in training is it makes a big difference in your financial situation. If you're only making $50,000 a year and you can moonlight and make another 20, it's like getting a 40% raise. It's huge at that sort of income level. And so I think that's what drives a lot of residents and fellows to do some moonlighting, is because it just makes such a huge financial difference in your life. The con, of course, is you're not a fully trained physician yet, so. So really it's difficult to support that as a good idea unless somebody's supervising you closely. I know this has been a big debate in the emergency medicine community. If we think people need to have an emergency medicine residency in order to practice independently in an er. Well, we can't very well support having emergency medicine residents moonlighting in that same er. So that would be the main con there. Obviously there's some liability too, and the less training you have, the more likely you are to have something bad happen to you after training. The pros are similar in that, you know, it's additional money. It probably doesn't make as much of a difference in your financial situation as it made as a resident. But it's still more money and that money can be used to save for retirement and financial independence, to save up a down payment, to save up for a vacation or some toy you want, or to pay off student loans. You know, there's lots of things you can do with the extra money. You usually have a little bit more time after training So I think it's a little easier to find the time to do some moonlighting, especially if your main gig isn't anywhere near the number of hours you were working as a resident or a fellow. The cons, of course, is your employer may not be happy that you're moonlighting. They may rather have you working more hours for them if you're going to be working more hours. Which leads us into the next question. How does moonlighting work within the organization you are employed by? Is it standard? Do moonlighting for the same organization all things equal, do you recommend moonlighting within the same organization or without? Is pay typically more competitive outside? You know, I think that just depends. That's very individual. There are a lot of residency programs that have actually arranged for some sort of internal moonlighting, you know, where you work in the urgent care or something like that. And so that can be an opportunity for some people while they're still in training, but working within the organization, that just sounds like picking up overtime to me, which I guess is like moonlighting. But maybe check there first, see what they're going to pay you, and then you can look around at other opportunities and compare them to working more hours at your main gig and just take the one that pays more that you enjoy the most. Another great reason for moonlighting is simply to see different kinds of patients do different kind of medicine. And so people want to go outside of their employer to get that experience. The other benefit, of course, is if something happens to your employer or happens to your job, you've already got a foot in the door somewhere else. And I think that can be pretty useful when your career's on the rocks. How do you manage working for other healthcare facilities and potential conflicts of interest there? For example, my husband's contract states he cannot moonlight for competitors without the employer's approval. But it seems unlikely they'll approve him to do any moonlighting and will say he needs to work more for them. Well, you got to be careful what you sign. If your plan is to moonlight for somebody else, you better not sign a contract that says you can't moonlight for somebody else. But you might be surprised how flexible an employer will be when you threaten to walk out the door and just go work full time for the other person. Of course, you better be careful that you don't have any sort of non compete agreements that's going to keep you from doing that. All right, let's move on to some questions from somebody else. This one's a little bit related. It's also about side Gigs. And this doc writes in and says, almost invariably, financial bloggers talk about setting up multiple streams of income. Right now, I essentially have two streams of income. My primary one is my day job as a physician, and the second stream is passive income from that money saved and invested in index ETFs. I'm lucky that I quite enjoy my day job and it pays me a lot. I earn over a million bucks and about $800,000 a year goes into my couch potato fund. Essentially. I can't picture myself doing really any side gig that would make any meaningful impact in a into my finances at the expense of taking away from my doctor job. I guess what I'm asking is, do you think that there is a threshold in which one should just focus on their main source of income rather than dividing one's energy into multiple, perhaps less lucrative ventures? Wow, we've been given the wrong message here. If docs are getting the idea that they have to have a side gig, you do not have to have a side gig. You especially do not have to have a side gig if you're making seven figures. Okay? The basic path to building wealth for physicians works just fine. Make a lot of money, save a good portion of it. My Recommendation is usually 20% of gross. This doc's obviously saving far more than that. And invest it in a wise way. You know, if you have retirement accounts available to you, use them. If you don't invest in taxable, you can keep your investments very simple. Just buy an index fund. You know, an index fund portfolio of three or four or five index funds and just let it ride. That pathway to wealth works just fine. A physician's income is generally fairly stable, and it's plenty of money to become financially independent on. Don't feel like you have to write a book or start a blog or start a podcast or be moonlighting or any of this other stuff that people do as a side gig. It's okay not to do it. It's fine to be just a physician saving a decent chunk of her money on the side. So don't feel like you've got to get into this world that you hear about on the blogs and the podcasts if you're. Especially if you're not really interested in doing it and it's going to take away from your main gig. I mean, think about what I made with the White Coat investor. That first year I made $900. I wrote it all off because I had more expenses than that. Did that actually make sense for me to be spending all that time Doing that instead of working extra shifts in the emergency department. It really didn't. And there was a decent chance that the White Coat Investor never started making good money. So don't feel like that's something you have to do to be financially successful because you don't, not as a physician. As a physician, you've already got the ball on the three yard line. You just got to run it into the end zone. Don't try to do anything fancy or maybe you're likely to throw an interception. All right. The other question from this very high earning physician was about donations. He asked Monetary charity has never been a big part of my life nor my upbringing. Again, reading financial blogs, it seems to be a common theme that charity be an aspect of one's financial portfolio. I've done some searches on the web as well as on your website about donations and understand that there are some tax advantages and lots of worthwhile causes. But it sounds like when it comes down to it, donations just make you feel good and it is somewhat difficult to put into words. I generally have not found great satisfaction when donating money. I wonder if it is more worthwhile to be generous with my time and volunteer rather than make monetary contributions. Perhaps both. Regardless, I wonder if you'd be interested in writing about why someone might become more charitable with money or time. Well, I'm a big fan of charity. I mean, a lot of people give money to charity. I give a significant portion of our income to charity and always have been, even when we were very poor. In fact, last year we gave away more money than we spent. We hope that continues indefinitely going forward. A big part of what we do here at the White Coat Investor is the White Coat Investor Scholarship, where this year we'll be giving away more than $60,000 in cash and prizes. So I think giving is a very important part of my life. That doesn't mean anybody else has to. That's just a choice we make. But I think there is something that happens to you when you give away your money that is good for you. It's almost like sending a message to your psyche that you have enough, that you don't need this money. It reminds you that hearses don't have trailer hitches and that you don't want to be the richest man in the graveyard. I think that it's important to give something away because it helps you to remember that your fortune is not all from your hard work. Some of it comes from luck and just being born in the right place, into the right family, at the right Time with a brain and a body that works. And so I think giving something away to a cause you support helps remind you of that. Don't forget that there are so many people out there that need some help and that you have the means to really change their lives. So take advantage of that opportunity. I think it's good for you and it's good for the world. And the likelihood of you not being able to find a charity that you support is very, very low. There's so many thousands of great charities out there. Alright, next question. I created a traditional IRA account a week ago and put $5,500 from my checking account, but it grew to 5522 08. I transferred the money to my Roth IRA today, but during transfer it asked me if I would like to transfer the whole amount or a specific amount. So I transferred just 5,500. I was naive and unsure of tax laws and thought the Roth IRA should be capped at 5,500 and then let the money grow in it tax free. I understand by the end of December, the traditional IRA needs to have $0 in the account for the backdoor Roth. But my question is, how do I manage that additional 2208 in the traditional IRA? Should I put it back in my checking account or just leave it in the IRA or should I convert it to the Roth IRA? Well, you should convert it to the Roth IRA. Remember the limit, the $5,500 limit, is on contributions. There is no limit on conversions. And so this is not uncommon for people to make a couple of bucks on their money in between the contribution and the conversion step. Just put it all in the Roth ira. It makes it very easy because ideally you want to have nothing in that traditional IRA on December 31st because it messes up your tax paperwork for reporting the backdoor Roth IRA. That's done on form 8606. And I think it's line six on the form that asks how much you have other IRAs and basically to make things work out well, you want that answer to be zero. So the easy thing to do is just throw that money into the Roth IRA as well. Alright, here's another question. Thanks for what you're doing. It's making a huge difference. In many lives, I've been lazy and lacked focus with regards to our finances until recently. I actually hear that kind of stuff quite often in my email box. Because of what I've learned and been reminded of by you, my wife and I have been able to take massive action. At age 48, I don't have much time left to make up for past failures, but at least I have a busy surgeon salary to cover a multitude of financial sins this writer wanted to point out something about food storage and wanted me to talk about it in the podcast or on the blog he writes. Just like disability insurance, life insurance, and an emergency fund, it seems that food storage is an important decision to make with a definite financial side. I heard from Joel Salatan that in the 1940s nearly half of the food that Americans ate came from their own or their neighbors garden or land. With modern high efficient food production and distribution systems, there come great vulnerabilities to interruptions of those systems. The average city has only a three day supply of food on the grocery store shelves. You live in a state where Mormons predominate, many of whom practice food storage. This would significantly lessen the blow if there were any interruptions such as war, drought, economic crises or other disasters. As a non Mormon, I have adopted this practice and I can tell you there is great comfort in knowing that we have months of basic foodstuff stored and ready for an untoward event. What a service it would do for your listeners and readers to be introduced to this topic. The more that your listeners act on your advice for their financial lives, the better their lives in our country will be. The same can be said if you were to highlight the risks of solely relying on the industrial food system for our basic sustenance. As Ted Koppel's book discussed, the Church of Jesus Christ Christ of Latter Day Saints has developed a massive parallel system of food production and distribution that is good for America. What good is own occupation, disability insurance or piles of low cost index funds if there's no food on the shelves? Hungry kids will not be impressed with savvy finances if more basic needs have been omitted. Well, I think that's true. We actually do have some food storage right next to the White Coat Investor studio here we have a pantry and we probably got several months worth of food in that pantry. Between what we have in our freezers and what we have in the pantry, we could probably avoid going to the grocery store for several months. Now the LDS Church teaches you should have up to a year of food storage. I'm not sure we've ever been up to a year, but you can see the principle there that when you know, things really hit the fan, if you have something to eat that goes a long way. Now you might say you need the bullets and AK47s to defend it, but there's something to be said for having some food around the house. Maybe think of it as part of your emergency fund. Yes, it's a pain if you decide you're going to move and now you got to move a year's worth of food. But I think there's something to be said for having some food there. And you can start easy. You know, you can start very slowly and work up to a month's worth of food storage and then work up to three months. And if you want to go above and beyond that, that's okay too. But I think there's a great deal of comfort that can be had from knowing that, you know, not only do you not have to pay off a mortgage, not only do you have some money in the bank, but you've got some food downstairs that you can eat if things get really bad. And I think when you actually look at what happens to people, it's not like Great Depression scenarios or flood scenarios where people get into this food storage. It's when they're, you know, lose a job or when they're between jobs, they can go and, you know, raid that for something to eat and use their money for more pressing needs because they've got that money, they've got that food on the side. So I hope that's helpful to you. Think about putting some food away. Just buy a little extra when you go to the store each time and put it on the shelves until you've built up a decent little amount. And don't buy like crazy prepper stuff either. You know, these huge bins of wheat and that kind of crap. I just buy the stuff that you normally eat and keep extra of it around. Instead of buying one of them, buy two of them, put the other one on the shelf and rotate it out so it doesn't go bad. This stuff really isn't that complicated to do.

Love what you hear on the podcast. Looking for more great White Coat Investor content? Head over to our YouTube channel where you can watch video recordings of our podcast, short snippets of financial tips explained succinctly by me and others, and deep dives into topics for more in depth learning. You can even learn all about real estate with webinars from our real estate partners. Check out all this and more@YouTube.com thewhitecodeinvestor you can do this and the White.

Coat Investor can help. Be sure also to check out the White Coat Investor Forum. It's a great place to ask your questions if you don't want to wait for me to answer your questions by email or on the podcast. Or if you just rather get a lot more answers to your question so you can kind of crowdsource the answers, go to the White Coat Investor Forum. It's easy to register. We get you approved right away and you can ask your questions and start getting your answers. It's totally, totally free. Head up, shoulders back. You've got this. We can help. We'll see you next time on the White Coat Investor Podcast.

My dad your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney, or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

Sam.