#81: Creating a Safety Net For Your Life

Foreign welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey everyone. Hope you're doing well. Before we get to today's episode, I wanted to let you know about some cool things that are coming up. As we all know, the holidays are approaching and there are some amazing Black Friday Cyber Monday sales. I used to go to these things in person. I don't know about you. I used to stay up at night and go to some of these things. I don't quite do that anymore. And I'll do some online shopping, as probably many of you do. Well, we decided to do the same for some of the amazing products we have here at pimd. Some of you have participated in our conferences in the past, whether it was Financial Freedom Through Real Estate Conference or whether it was the Leverage and Growth Summit for Physicians. And I know that many of you have thought about, you know, going back to that content. You've thought about maybe reviewing some of the amazing talks that went on there because, I mean, they're chock full of value and information and honestly, whatever price it is, you're going to get so much value from it. Well, we decided to package some of those things and kind of bring them back out for people, bring them back out of the archives and give people an opportunity to purchase some of these products. And some of them we bundled up in some interesting ways for in case you're, you know, thinking about active or passive. And we're going to be doing it at a pretty good discount just because we want to get this out to people. And if this is something you've been thinking about or interested and maybe you missed your opportunity, look out for the Black Friday Cyber Monday PIMD sale and hopefully you can take part in it and enjoy. Okay, well, now let's get to today's episode. As many of you know, if anything, this whole last couple years has taught us, it's that life is unpredictable. It is so unpredictable. In fact, that's the only thing in the world that's certain, right? I mean, they say death and taxes, but otherwise it's that things will be uncertain, that there's no way to predict the future, no matter what you do. However, despite knowing this, and everyone knows this, the majority of us, we want to control things as much as possible. We try to be as risk averse as possible. And I've noticed that high income professionals are probably some of the most risk averse people out there. We've invested so much of our time and our energy to get where we're at. And so we want to minimize risk wherever we can. And honestly for us, like we known that if we put in the work, there's a pathway. We want to get where we want to be, we know how to get there, but that's really not how life typically works. So we do think about the future, I'm sure all of us, and we think about the potential for some sort of unfortunate circumstances. And we all know that, and this is everybody. If that wasn't there, people didn't think like that, there'd be no such thing as insurance. Right. And there's insurance for just about everything, honestly, if you take a look just for anything, right. I mean, I think it's important to think optimistically about life and about the future. And I think I'm one of the most optimistic people out there. But you know, you need to have a good safety net, right? So you can sleep well at night. There's something out there called Maslow's hierarchy of needs. It was created by an American psychologist named Abraham Maslow. And he talks about the different needs that people have. And again, the hierarchy, right? What's most important to us now besides air and food? That feeling of safety has come before anything else, before we're able to do anything. For example, if, you know, trying to enjoy time and worry that the roof is going to cave in at any moment, there's no way you can enjoy yourself in that situation. Right? And I like to sleep well at night. I'm sure you do. So I've really worked hard to create a decent safety net for myself and my family. I want to make sure my wife sleeps well at night too. That way I can be free to pursue some other interesting ventures, do what I want, enjoy my time with the confidence, knowing that if all else fails, we're going to be fine. So we're going to talk about safety nets today. I'm wondering if you've instituted or, you know, brought this into your life at all. And let's talk about all these aspects. We're going to start with some financial safety nets. Number one, emergency fund. You probably heard about this. Depending on where you get your financial advice, experts will say your emergency fund should cover about three to six months of all your expenses. Now think about that right now. What are your expenses on a monthly basis? And three to six Months of that. They say you should keep that emergency fund in a very liquid type account, meaning that's something that you're able to access easily and that's very stable. Something like a savings account or money market account. You know, personally, if you've read my blogs before, I don't have a true emergency fund. Like I don't like leaving cash around or having it on hand. Uh, especially with inflation around, I feel like it's, it's just sitting there and burning a hole in my pocket. But I do make sure I have access to cash if absolutely necessary. I know that with some of my businesses I know that money's being produced or you know, there's some delayed billing type stuff where income's gonna come in no matter what happens. Even if I stopped working today, many of you who are in medicine, you've probably bill for a couple months prior. So you know that even if you were to stop or have like a two to three month break, you, you know that funds would still be able to come in. Some. I also have had a home equity line of credit which allows me to access capital if I needed to in a pinch. And that's been kind of my emergency fund. But at least I've thought about it. How am I going to access capital? Something happens to me for three to six months, am I going to be okay? And have you thought about that yourself? Okay, along the lines of financial safety nets, I have something called umbrella assurance. Now you probably have several types of insurance. Health, homeowners, auto malpractice. Now what umbrella insurance does, and it's designed to do is work alongside all of these in some ways. Sometimes to get umbrella insurance you have to have those original policies. It provides additional coverage on top of that in case one of them fails to pay for whatever the liability is. Completely right. It's above and beyond type thing. You know why this is great is that in the case that you do suffer some sort of lawsuit and you, you know, I think most people say it's not a matter of if, but a matter of when. It'll help you make sure that your personal assets and your savings stay intact. For example, if you have a slip and fall, somebody's trying to fix something at your property, you know, you might have some liability up to a certain point, but in case it exceeds that, for whatever reason, the umbrella assurance gets tapped next before again you have to pull something out of your own pocket. And how much do people get? I mean, I tell people the best thing to do is probably buy enough to cover your net worth. I think that's a good, safe way to go. Next. One of my favorite safety nets is to have multiple streams of income. I mean, having many different income streams, it can help ensure, right. Against any sort of job loss, job change, and reduction of any of those incomes. We all know that in today's environment, reimbursements in medicine, they're not under our control, right. Where are they headed? Many of it's all headed in a downward trend. I mean, I don't know how it is for you. So what's your solution? Have you thought about it if and when that's the case? Now, my wife is a ophthalmologist, and she's talked about how insurance just decides to reimburse certain things or not reimburse certain things. Right. They'll just bundle that in together. And so physicians are kind of left scrambling if that's something that they depended on. So what is your backup plan if that happens? Is it to work more hours, to more work more weekends and nights, to cram more people into a clinic day? To me, that's not okay. We're, you know, our time is limited, and I'd rather spend that time doing other things that I enjoy and again, with people that I love. So I hedged against that by creating and really nurturing other streams of income. All of us, during the last pandemic. I don't know about you, but my group was told at one point, you're going to drop 30% in terms of reimbursement for your time. And that's just the way it's going to be. You know, these days, I would say relying on a single source of income is probably one of the worst ways to put yourself in a bad situation. It's one of the ways always hedge against uncertainty by having multiple streams of income. Another safety net when it comes to financial stuff is to reduce your debt. Now, one way is to really create that little buffer of safety is to reduce your liabilities. You know, it's the stuff that you owe every month, whether it's your loans, whatever type of loans that might be. And having a smaller expense column stuff in your expenses, in your budget, makes it easier to weather changes in income. Income goes up, income goes down. But as long as what they call your nut or your expenses are lower, then you have less to worry about. This might mean putting additional payments into your mortgage or student loans. Whatever the case, the less debt that you have, the less you have to worry about. You know, I used to be in the camp that believed that, you know, you should accumulate pretty much as much debt as possible. Well, good debt, and use that income or the cash from that debt to in a sense arbitrage and make as much you can on return on profits. I think it's a very smart way to go if you know how to do it well initially to build wealth. However, as I get a little older, a little wiser, as I have my kids growing up, I'm starting to see a little bit more of that emotional quotient, that emotional safety, you know, that comes with debt reduction. Now these days it's kind of hard to do that, at least mentally because the rates are so low. So one thing you can quickly do to reduce the amount that you owe is to refi all of your loans if possible. If you can refi those loans, get it down in terms of interest rate, owe less, that's one way to do it as well. Whatever it takes to help you sleep better at night, that allows you to have more of a margin between your income and your debt and your expenses. You know, increasing that gap is something that's going to help you create a better safety net. Okay. When it comes to your health, I've been thinking about safety nets there. Health insurance is an obvious one. I won't go into too much detail. Yes, we all need health insurance, whether it's your employer or your own. Let's keep moving on. Disability insurance. This is a no brainer in my opinion, especially for physicians in like technically driven specialties. If you perform a certain procedure, could you continue to work in that specialty if you couldn't do that certain procedure and if so, you should absolutely be considering specialty specific insurance. And then the question becomes, should you have your own private, should you do according to your group? I think that's really important for you to take a look at because some of that group insurance, disability, you look at the policies, it may not be specialty specific and may not be something that you can take with you should you change jobs or should you change your work situation. I think it's worth at least talking to a disability insurance person. Right. A private one, an independent one that works with multiple different, you know, companies and get you any sort of policy and just see what your options are. In my opinion, it's the best way to really ensure that if something happens to you, your main source of income is going to remain intact. And just so if you remember, if you pay this with post tax money, all the gains that you get in terms of, let's say your insurance does kick in. All of it's tax free. So is. I think it's. Obviously, I think it's a must when it comes to physicians in terms of getting really, really solid disability insurance. At least until you can self insure. I mean that even if you stop working, you'll be fine. Then you can get rid of your disability insurance. Now obviously life insurance, that's important, the sooner the better. I mean most younger people don't think about it. But if you get it under 35, it's the cheapest right. You want to get typically that term life insurance, meaning there's a set term for it. It's pretty cheap when you look at it. And it can totally insure you and your family in case there is a loss there. Especially when you start to buy a home, when you start to have children. It makes it easy to actually think about getting life insurance. I like to go by the white coin investor and I remember this quote from him and he would say buy the cheapest long term level premium term life insurance policy from a reasonably reputable company that you can find. I think it's just an easy way to do it. Don't make it overly complicated by a 20 to 30 year term life insurance and, and set it and forget it. Okay. I know some people have thought about long term disability. Now this kind of fits into both the financial and health categories. If you're in need of long term care like home care, rehab, obviously that stuff gets expensive and the long term disability helps pay for it. I've heard situations that people didn't have long term disability and then in some cases it led to financial ruin because it can get. Just to have a caregiver can be quite expensive. However, I know that it is not cheap. So I think that's something you have to weigh against is look at your different income streams. Look at whatever you have in terms of your portfolio already. Would you be okay if you had some, you know, long term disability issue? Do you have the financial means to continue to live as you need to not burden your family financially? If you know something happened to you and you needed that type of care? I don't have it personally, I've thought about it, but at this point I, I know that my other income sources can cover me if something were to happen to me. All right. And then lastly, you know, estate planning, setting up a trust. And I know many of you thought about it, it's like creating a safety net for your family instead of a will. What a living trust does, it ensures that your Assets will go where you want it to go. It's like pretty well spelled out and you don't have very little court interference. You don't have to go through probate, which can be expensive and time intensive. You know, that's that most people decide to go with something called a, like a revocable living trust. It allows more control while the grantor like you, you know, you're alive, you can cancel it if you want and but something you can change over time. But it really outlines how you want your assets to be passed down. Okay. And the last couple are just some fun life, safety net type stuff that I like think about. Number one, I don't know about you, but my life is on my computer and my phone. I make sure I have everything in terms of backed up. I have stuff that automatically backs up to the cloud. Something called crash plan is what I use. But there, you know, there's a lot of other ones that people can use but. And I keep like, you know, my hard drive backed up on external hard drive here and there because if something goes down, I don't, I can't even tell you how many documents on there that are valuable. And I've been storing a lot of them also, not only in the hard drives, but also in the cloud as well. Google Drive is a great place to do it. Obviously some are more secure than others. So depending on the type of document that you want out there and where you want it, make sure to look out for that. But that's something that absolutely everybody should think about. And then the last thing I thought about recently was what happens to you in the case of an emergency, if your spouse, your partner needs to get access to your accounts, if somebody needs to get access and know where your financial investments are. I don't know if your family's like mine, but I handle most of the investments. And my wife, she actually doesn't even know where a lot of these investments are. What we've invested in to like a, you know, in that type of detail. So what would happen if something happened to me? And so to create a safety net, I've made sure that there's a document out there that is, you know, relatively updated every so often that keeps all of this information in one centralized area. I use something called the ice binder, which is in case of emergency binder. But it's just a written document, just helps you organize this type thing. People can use other ones. You can just create your own. But just some sort of document where you can put safely somewhere where a spouse or partner necessary needed to access and know where everything is, then they could do that in the case of an emergency. And that helps me sleep well at night knowing that in case something happened to me, not only will we be, not only will we be fine financially, but in terms of information and things like that, we're all set to go. You know, this is one of those situations where it's always better to be safe than sorry. You know, in life and especially finances, life can be so much easier, right? It can be made easier and definitely less stressful by making a little bit of preparation or having that preparation time today. Now you can sleep better at night. And when you have that safety, I found it allows you to take some other chances, right? To create other streams of income, try other ventures, allow you to focus on yourself and your needs to be better health wise and just to live a better and more extraordinary life. So which of these safety nets have you put in place? Which are you missing and what am I missing? Go ahead and let me know wherever you can, whether it's on our Facebook group Passive Income Docs, whether it's by emailing us or whether it's going on the blog and leaving us a comment. In any case, hope you're doing well. Have a great week and we'll talk again soon. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you a part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs and you can always learn more at our website, Passive Income Document md Com. Thanks again for allowing me to be a part of your journey. See you next time.