Smart Spending: Know Thy Purchasing Personality & Why Money Mindfulness Matters

I’d like to preface this entry by saying: this post is really fun; I’m so excited for you to get past this introduction and read on; just wait for the surprises I have in store for you! But first read the introduction, of course. Please.  Money Mindfulness. Or perhaps, “Mindful Spending”, if you’d like.  Guess what it is! No, it’s not the latest #trending New Year’s resolution (#moneygoals, #holla4dolla). It’s not the topic of a dope, inspirational TedTalk, gone viral, either. Nope, sorry, it’s also not the title of my new financial wellness self-help book for radiologists.  

To be honest, it’s not even a new term or concept; back where I’m from, they kinda just call it, “paying attention to your spending and what you buy.“  You might also call it: “self-explanatory common sense of the commonly ignored variety (as it’s all too easy to fall into spending-related patterns of thinking and behavior that lead to financial troubles)” and/or “life-experience preferable not to learn the hard way.” But, as we are not here to play games (entirely), I’ll get on with it. 

Yes, it even applies to you, my high-earning radiologist friends! Did I just catch a whiff of an eyeroll? Well, if so, this post is definitely for you! Below you’ll find some valuable insights, tips, and, yes, a little bit of weirdness to help you brush up on your spending-smarts and to understand what that actually means. 

If you’re a radiology trainee, someday you’ll be making an above average physician salary.  If you’re a practicing radiologist, you’re already making an average salary of $427K.  With that kind of income, you shouldn’t have any money worriesright?  Waitare you telling me you find it hard to meet your expenses each month? This sounds more like a spending problem than an earning problem.

You can’t outearn dumb spending

-Gregory Karp (The 1-2-3 Money Plan)

That quote is a bit misleading so let me explain.  I don’t judge you by how you spend your money.  Money is a resource that gives us choices, and how we opt to spend money is a reflection of our values.  So what is dumb spending?  It’s when our dumb-spending self ignores those values to buy something that our smart-spending self wouldn’t.  

Are you the person who spent $50 in Beanie Babies thinking they would increase in value? Or $100 on clothes for your avatar when you could have bought clothes for yourself?  Have you bought a rare exotic cucumber from a guy who said it would bring you good luck?  Or bought a 5-lb bag of peach rings when you were high?  These stories were all submitted by people who admitted to “the dumbest things they’d spent money on.”

Now back to the quote.  I share it to emphasize  that for everyone, no matter how much they earn, there is a limit to how much that income can compensate for overspending.  

Keep reading to find out what kind of spender you are and take a voyeuristic look into what people spend money on.  Maybe it will trigger some memories of your own dumb spending.  And spoiler alert: you don’t want to miss my list of “12 ways you can spend less for more.”

Self-reflection: What kind of a spender are you?

Some people are natural savers who may be viewed as cheapskates and risk-averse (ahem), some are big spenders and like to make a statement, and others take pleasure in shopping and buying. Others rack up debt—often mindlessly—while some are natural investors who delay satisfaction for future self-sufficiency. Many of us may display more than one of these characteristics at given times, but will usually revert to one main type. Note: Radiologists have been well-trained in delayed gratification.

What is your money personality?  

Saver 

Do you close the refrigerator door quickly to keep in the cold?  Do you enjoy looking at your bank and brokerage statements?

Shopper

Do you get great emotional satisfaction from spending money?  Do you find it hard to resist buying things you don’t need?

Debtor

Do you make impulse buys that aren’t even satisfying at the time of purchase?  Are you deeply in debt?  Note: student loans may not count here.  

Investor

Are you striving to amass enough wealth to be financially independent? 

Why is spending important?

The financial media focuses mainly on increasing income.  Get rich in real estate!  Let us manage your money and double your earnings!  This credit card will give you 6% back!  

Indeed, many of you could change jobs and potentially double (or more) your income as a radiologist.  In reality, if you want to increase your wealth, it’s often much more effective to increase income than it is to decrease spending.

But there are exceptions.  For example, if you’re spending more than you can reasonably earn or you’re living on a fixed income.  In these situations, a spending adjustment may be the best strategy.

How does your spending compare with others?

If you want to make a big impact on your wealth through decreased spending, I suggest you focus on the big-ticket items.  What do you spend most of your money on?  In the U.S., most of a family’s income goes towards taxes, followed by housing (up to a third of overall spending), “other” goods and services (entertainment, clothes, services), transportation, food, insurance and pensions, savings, and healthcare. 

If you’re interested, the Consumer Expenditure Survey by the Bureau of Labor Statistics breaks down how people spend their money, including everything from, literally, dollars (contributed to savings accounts) to donuts (bakery).  

An average family, with an income before taxes of $78,635, spends their money on the following:

Shelter $11,747
Pensions & Social Security $6,831
Food at home $4,464
Utilities $4,049
Vehicle purchases $3,975
Food away from home $3,459
Health insurance $3,405
Entertainment $3,226
Other vehicle expenses $2,859
Other housing expenses $2,270

If you’re like most early-career (and even some mid- to later-career radiologists), you will have most or all of the above expenses plus student loan debt.  But you also earn, on average, three to five times or more what the average family is bringing in.  Most radiologists that I know spend more than $14,017 on shelter and other housing expenses.  

So if you’re looking to significantly reduce spending, the first place to start is often housing.  The reason housing costs so much is because of the purchase price and mortgage costs, property taxes and insurance (which rise with the assessed value of the house), maintenance costs (which rise with the size of the house), utilities (also more costly in larger homes), and furnishings.  

The larger the house and the more expensive your tastes run, the more you will spend on furniture, window coverings, appliances, oriental rugs, artwork, etc.  Some experts recommend budgeting 10% to 50% of a home’s purchase price for furniture. That means a $250,000 home would give you a furniture budget of $25,000 to $125,000. Whoa!

Data during a pandemic proves that people’s spending habits can change

If you think you can’t save more or spend less, just look at how U.S. families have changed their spending during the coronavirus pandemic.  Roughly two-thirds of Americans, 64%, say their spending habits have changed when comparing August 2019 with August 2020. 

Many employees, including radiologists, have been working from home during the pandemic, which typically affects their commuting and dining expenses. But spending in other categories, such as gym memberships, travel, online shopping and even pet expenses, have also changed substantially. 

Category 2019 Monthly Spend 2020 Monthly Spend YOY Change
Investments $940 $1,334 41.91%
Pets $160 $197 23.13.%
Education $699 $818 17.02%
Home $1,831 $1,997 9.07%
Food & Dining $1,862 $920 6.73%
Health & Fitness $270 $286 5.93%
Shopping $766 $810 5.74%
Gifts & Donations $275 $287 4.36%
Loans $583 $608 4.29%
Kids $443 $431 -2.71%
Personal Care $133 $127 -4.51%
Fees & Charges $139 $129 -7.19%
Business Services $355 $326 -8.17%
Auto & Transport $670 $609 -9.10%
Travel $584 $458 -21.58%
Entertainment $120 $93 -22.50%
Bills & Utilities $623 $474 -23.92%
Financial $871 $612 -29.74%

Source: Mint. The financial spending category includes expenses for services such as financial advisors and life insurance, while the investment category includes actual investments transactions.  YOY = year over year

Easy spending changes

As I’ve already said, I don’t judge people by how they spend their money (as I hope they don’t judge me).  But if you’re incredibly busy (like most radiologists), with work often spilling into your evenings, weekends, and holidays, you might not be as aware of how your money is spent as you’d like to be.

You might be overspending on things and not realize it, or there may be relatively simple ways you can put a dent in your spending without sacrificing quality of life.  In some cases, you might be able to get MORE gratification by spending less.

12 Ways you might be able to spend less for more:

  1. Say NO to extended warranties and other junk insurance
  2. Comparison-shop before renewing home and auto insurance (and consider increasing deductibles)
  3. Refinance your mortgage (at the time I’m writing this, rates remain at or near all-time lows)
  4. Cancel landline phone service (are you using it?)
  5. Rightsize and comparison-shop your wireless phone plan (Are you 55 or older? T-mobile offers unlimited talk, text, and smartphone data for $27.50/line)
  6. Review TV, cable and internet service and beware automatic subscription renewal.  Are you using what you’re paying for?  Is it time to cut the cord?  (Check out this article by yours truly about FREE video services)
  7. If you’re an impulsive online shopper, let the items sit in your cart for 24 hours (I’ve tried it - it works!)
  8. Don’t walk into an auto dealer and pay full price for a car (try emailing a few dealers with the details of the car and add-ons you want and ask for bids)
  9. Don’t pay more than you need for financial advice (especially if it isn’t good advice)
  10. Don’t carry a balance on a credit card
  11. Take advantage of rewards cards (I like the Citi Double Cash Card that gives 2% back on all purchases and has no annual fee)
  12. Use online savings and checking accounts (I like Ally - I don’t pay any fees and the interest rate is generally one of the highest you can get - unfortunately, that’s only 0.5% right now)

I’m aware that this list only scratches the surface. I could go on and on with ways you might be able to pay less for more.  Every person’s financial situation is unique and not every tip will apply to you.  Use what works and ignore the rest.  

Remember:

The only dumb spending is that which buys things of no value (you define) or that limits your ability to buy other things of greater value.  Money buys options and the more money you have, the greater number of choices you have.  But at some point, you can spend more than your income allows.  Note: banks and other lenders will not be concerned if you overborrow to the point that your financial plan derails.  They will not care if you have a satisfying retirement or have to work until you’re 80.  They only care that you have a radiologist’s salary and can use that to pay them back.

Thoughtful spending, which might mean a “time-out” from hitting  could mean the difference between one of the best purchases you ever made and a lifetime of regret.  

Bonus tip: Along with free movies, most local libraries also offer a plethora of free downloadable TV shows, eAudiobooks, eBooks, music, e-magazines and digital newspapers.  I get 99% of my reading material online from the library.  I can’t remember the last time I paid for a book that wasn’t related to my work (and I’ve gotten a lot of those from the library too).  I read my eBooks on the Kindle app, which syncs my iPhone to my iPad, so that  I always have the book I’m reading with me everywhere I go.  I gladly pay my property taxes, a portion of which goes to supporting my library.  Readers are leaders!


What in the Heck is a “Bull Market” and a “Bear” Market”?

Imagine yourself skipping down a yellow brick road. That road has a street sign that says, “Wall Street.” You’re on a journey to the Emerald City, which you presume is so-named for all its flourishing investments and wealth; a place where money is so abundant it practically grows on everything and little green triangles always point skyward.   Along the way, the sky begins to darken. Suddenly, you feel spooked and uneasy. Despite your fear, however, you know you must be brave and carry on, so you begin to sing a little ditty. This makes you feel better, and eventually, you arrive at the destination of your dreams. 

The ditty that gave you courage to get through the scary parts of the journey? Well, it goes a little something like this: “Bulls and luftsichel signs and bears, oh my!”  

If I may preempt you, no, I have not been frolicking through a poppy field. The tale I’ve told you will all make sense in time, and in a circuitous way, encapsulates the lesson of this post. And also...the nature of the beast…

Alright, enough goofing; let’s get down to business! 

Even if you don’t consider yourself to be a financial expert, you’ve probably come across the terms “bull market” and “bear market.”  They’re hard to avoid.  The terms are ubiquitous in newspapers, magazines, blogs, and TV news and financial shows. 

Consider the following headlines:

“With the stock market officially in a bear market, here’s a look back at each decline of at least 20% since the 1930s to see how long, and how severe, such downturns typically are.” (CNBC 3-14-20)

“Is this a new bull market?  Or the same old bear?  The rally has been historic, but it still needs to prove itself.” (Kiplinger 7-1-20)

Chart of the S&P 500’s returns in bull and bear markets

 

“Stock investors got the big bull market they wished for - and now they should be careful.” (Marketwatch 12-19-20)

If you don’t have a good handle on what these terms mean, don’t feel bad.  You aren’t alone.  I confess that I used to struggle with this.

Before I did a little research and became financially literate, this is the way I kept the terms straight: I pictured a bull as an animal raging forward (a stock market on the way up) and a bear as a lumbering, hibernating mass of inactivity (a stock market on the way down).  I’ll leave it up to you to decide whether this makes any more sense than the real origin of the terms, which is coming up.  

But first, a couple definitions

Bull

  • an uncastrated male bovine animal (male cow)
  • relating to, or resembling a bull, as in strength
  • having to do with or marked by a continuous trend of rising prices, as of stocks (a bull market)
  • a person who buys shares hoping to sell them at a higher price later

A bull is an optimistic investor who thinks the market, a specific security or an industry is poised to rise. Bulls attempt to profit from the upward movement of stocks by buying now under the assumption that they can sell later at a higher price. 

A bull market is a period of time in financial markets when the price of an asset or security rises continuously.  There is no specific or universal metric used to identify a bull market. A common definition is when stock prices rise by 20%, usually after a drop of 20% and before a second 20% decline. Other common measures are when at least 80% of all stock prices rise over an extended period or market indices rise at least 15%. 

The most prolific bull market in modern American history started at the end of the stagflation era in 1982 and concluded during the dotcom bust in 2000. During this time the Dow Jones Industrial Average (DJIA) averaged 16.8% annual returns. The NASDAQ, a tech-heavy exchange, increased its value five-fold between 1995 and 2000, rising from 1,000 to over 5,000. 

A protracted bear market followed the 1982-2000 bull market. From 2000 to 2009, the market struggled and delivered average annual returns of -6.2%. Then, in March of 2009, the market began it’s start of a ten-year bull market run. 

Bear

  • any of a family of large heavy mammals of America and Eurasia that have long shaggy hair, rudimentary tails, and plantigrade feet and feed largely on fruit, plant matter, and insects as well as on flesh
  • a surly, uncouth, burly, or shambling person
  • a tall, friendly bear of a man
  • something difficult to do or deal with
  • having to do with or marked by a continuous trend of declining prices, as of stocks (a bear market)
  • one that sells securities or commodities in expectation of a price decline

A bear market is characterized by a prolonged decline in the price of securities, typically by 20% or more from recent highs.  But 20% is an arbitrary number, just as a 10% decline is an arbitrary benchmark for a correction. 

Bear markets may accompany general economic downturns such as a recession. They can be cyclical or longer-term. The former lasts for several weeks or a couple of months and the latter can last for several years or even decades.

Another definition of a bear market is when investors are more risk-averse than risk-seeking. 

Investors can take a bullish or bearish stance, depending upon their outlook. To be bullish is to believe that an investment's price will rise. To be bearish is to believe that the price will fall.

Between 1900 and 2018, there were 33 bear markets, averaging one every 3.5 years.  A prolonged bear market occurred between 2007 and 2009 during the Financial Crisis and lasted for roughly 17 months. The S&P 500 lost 50% of its value during that time.

In February 2020, stocks entered a sudden bear market in the wake of the global coronavirus pandemic, sending the DJIA down 38% from an all-time high on February 12 to a low on March 23 in just over one month. During this “Coronabear” period, the Dow Jones fell sharply from highs close to 30,000 to below 19,000 in a matter of weeks. Note: as I write this on December 29, 2020, the DJIA is back up to 30,390.

Other bear market examples include the 1929 Great Depression and the bursting of the dot com bubble in March 2000, which wiped out approximately 49% of the S&P 500's value and lasted until October 2002.

“Bear” and “Bull” explained by a bit of history

The bear came first. Etymologists point to a proverb warning that it is not wise "to sell the bear's skin before one has caught the bear." By the eighteenth century, the term bearskin was being used in the phrase "to sell (or buy) the bearskin" and in the name "bearskin jobber," referring to one selling the "bearskin." Bearskin was quickly shortened to bear, which was applied to buying and selling stock in a speculative manner.

The “bear” borrows stock, sells it, buys it back at a lower price (hopefully), and returns it to the lender in a specified time period.  This technique, called “short selling” is done with the expectation that stock prices will go down and bought back at the lower price, with the difference from the selling price kept as profit. It’s a risky trade and can cause heavy losses if it does not work out. 

For example, an investor “shorts” (borrows and sells) 100 shares of a stock at $94/share. The price falls and the shares are “covered” (bought back) at $84. The investor pockets a profit of $10 x 100 = $1,000. If the stock trades higher unexpectedly, the investor is forced to buy the shares at a premium, causing heavy losses.

As an alter-ego to the bear, a “bull” makes a speculative purchase in the expectation that stock prices will rise. 

Another explanation for for the terms bear and bull markets - one that is probably more widely understood and represented by the illustration below, is the following:

The “bear market” phenomenon is related to the way in which a bear attacks its prey—swiping its paws downward. This is why markets with falling stock prices are called bear markets. The term “bull market” comes from the way in which the bull attacks by thrusting its horns up into the air (rising stock prices).

What does this mean for you?

So many people can say it better than I can:

There will always be bull markets followed by bear markets followed by bull markets.  (John Templeton)

There are two kinds of investors, be they large or small: those who don't know where the market is headed and those who don't know what they don't know. Then again, there is a third type of investor: the investment professional, who indeed knows he doesn't know, but whose livelihood depends upon appearing to know. (William J. Bernstein)

Bull markets go to people's heads. If you're a duck on a pond, and it's rising due to a downpour, you start going up in the world. But you think it's you, not the pond. (Charlie Munger)

The last leg of a bull market always ends in hysteria; the last leg of a bear market always ends in panic(Jim Rogers)

Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.  (John Templeton)

In a nutshell

When it comes right down to it, you don’t need to know what a bull market or a bear market is in order to make sound investment decisions.  You don’t need to listen to the media and sell during a bear market and buy during a bull market (although, sadly, this is what many people do).  

Upright CXR showing arcuate lucency surrounding the aortic “knob”

Then why did I write this post?  For the same reason you should be familiar with the “luftsichel sign” of left upper lobe atelectasis on a CXR.  You may know this as an arcuate lucency surrounding the aortic knob, representing the hyperexpanded superior segment of the left lower lobe interposed between the atelectatic left upper lobe and the aortic arch.  

Do you need to recognize the luftsichel sign in order to diagnose left upper lobe collapse?  Absolutely not.  There are many other, more consistently seen signs of volume loss that allow you to make the diagnosis.  But when your non-radiologist colleague or resident asks you if the lucency represents a pneumothorax or a pneumomediastinum, you need to be able to answer “no” and explain what the lucency represents.  Or when they use the term luftsichel sign in a conversation, you need to know what they’re talking about.  

Similarly, understanding “bull markets” and “bear markets” is not required in order to be a good investor.  But if you do understand the terms, and someone mentions them in a conversation, you won’t feel like an idiot.  And if they try to convince you that you should sell your mutual funds because we’re in a “bear” market, and the “market is only going to tank further”, you will know that that is a bunch of “bull”.


Top Ten Tips for Academic Radiologists

The first few years in academic radiology, especially year one, can be overwhelming.  If you’re lucky, you will get excellent advice from colleagues from within and outside your department.  If not, you may feel like you’re sailing in a boat without a rudder. Going into it without a solid plan and supportive guidance can mean the difference between early success and early failure.   

As a radiologist, you have enough clinical work to keep you busy.  Somehow you need to find time to tend to your academic passions.  If you have a family, you need to make time for that too (and for scuba diving, playing the cello, traveling the world, or whatever you find to be personally fulfilling).  

This post is about using time to your advantage.  It will be most relevant to junior radiologists who are building their academic careers and looking to get promoted, but if you’re beyond this stage, or if you’re a resident or fellow planning on an academic career, you may also benefit from reading my “top ten tips.”  The items are not listed in order of importance and I could keep going past ten.  But people seem to like top ten lists, so here goes.

  1. Always have something in the mail.  One of my mentors said this early in my career and it stuck with me.  There’s something exciting about waiting on a decision as to whether your paper or abstract has been accepted.  Or whether you will get the award or grant.  It serves as motivation. Always having something in the mail is tangible evidence that you are actively pursuing your goals.
  2. Keep a to-do list.  Having a list not only helps you meet deadlines but also means you never have to waste time wondering what to do next.  And checking items off as they are completed will give you a sense of accomplishment.  
  3. Leverage your work.  This means getting the most out of your efforts.  Don’t turn a project into just an abstract that you present at a meeting.  With advanced planning, your research project can earn you a grant, presentation of an abstract, and publication of a paper.  With enough forethought, you can make sure you meet the deadline to submit your work for an award.  Once you’ve presented and published your work, people will invite you to give a talk as a visiting professor because you will be seen as an “expert” on the subject. That’s 5 items for your CV from one project.  
  4. Put yourself out there.  Let people know you are interested in serving on committees and collaborating on research.  Be active and don’t always wait for someone to approach you.  The more things you do, the more people you will meet, which will lead to more opportunities.  Attend events at society meetings where more senior members mingle with junior members.  Look outside your department and institution for mentors and collaborators.  When the time is right, be a mentor to someone else.
  5. Develop a niche.  Build on your strengths and consider pursuing areas of deficiency in your subspecialty area.  I had an advanced degree in education and 6 years of teaching experience before going to medical school.  I’d always been passionate about education and saw a need for someone to promote educational scholarship.  I joined and later chaired numerous education committees locally and nationally.  I teamed up with PhDs in medical education departments at my and other medical schools to do medical education research. I was a radiology program director and dean for graduate medical education.  I built my career and brand around education.  What’s your passion?
  6. Learn as much as you can.  Take advantage of faculty development opportunities.  Apply for a fellowship in radiology journalism (ARRS Figley Fellowship, ACR Bruce J. Hillman, MD Fellowship in Scholarly Publishing, RSNA William R. Eyler Editorial Fellowship).  Apply for the AUR Faculty Development Course.  Take advantage of local faculty development courses, especially if you’re female or a member of another underrepresented minority.  The Hedwig van Ameringen Executive Leadership in Academic Medicine® (ELAM) program offers an intensive one-year fellowship of leadership training with extensive coaching, networking and mentoring opportunities aimed at expanding the national pool of qualified women candidates for leadership in academic medicine.  One or more women at your institution have probably attended - talk to them.  Find out if your institution is one that offers a medical education fellowship (here, here, and here are a few that do).  Consider getting another degree (MBA, MEd, etc.).  Note: the networking opportunities are as valuable as what you learn from a fellowship.
  7. Document your teaching activities.  Keep a record of courses taught, learner evaluations, curriculum development, and assessments and outcomes of these educational interventions.  Document links to online presentations.  Log all teaching awards.  All of this can be chronicled in an educational/teaching portfolio (also here and here). 
  8. Always have something to work on wherever you go.  I don’t mean you should be working all the time.  But if you’re sitting on an airplane, bus, or train you might as well be doing something constructive.  Uninterrupted time to read background literature for a research project comes at a premium.  Got a paper to review for Radiology, AJR, Academic Radiology, or JACR?  You might be able to knock that off while you’re on the Peloton or sitting in the dentist/doctor’s waiting area.  Note: In addition to adding something to your CV, being a reviewer is one of the best ways to become a better writer. 
  9. Consider being active on #SoMe (social media).  It can be a great way to network, which can open the door for speaking invitations and research collaboration.  It takes time and you’ll have to judge whether it’s a good use of yours.  If it becomes a burden you can dial down your efforts.   Caution: be mindful of what you post. If you wouldn’t feel comfortable seeing it on the news, think twice about posting it. It’s easy to feel anonymous when you post online, but you are never truly anonymous. Follow all patient privacy (HIPAA) rules.
  10. Update your curriculum vitae (CV) regularly. Don’t wait until the end of the year or until someone asks for a copy.  Your CV should be an active document.  Keep a shortcut on your desktop so it’s easy to get to when you want to add something.  When you’ve spoken at a meeting, given a resident lecture, published a paper, received an award - whatever the accomplishment - put it on your CV.  If you’re especially productive, you might keep a list of activities and update your CV every time you’ve accumulated a few.  I know people who update their CV every couple weeks.  Don’t put it off. It’s easy to forget lecture titles, dates, and even the activities themselves down the road.  Plus, it will make you feel good to see how much you’ve accomplished every time your CV gets a little bit longer.

Financial Capacity: Here Today, Gone Tomorrow (Wise-up on Health, Wealth, & Aging)

You may lose your marbles, but you can still preserve your financial well-being.  Unlike other finance posts on The Reading Room aimed at helping you become financially literate, this one is all about what happens when you develop age-related financial vulnerability and are no longer able to make sound financial decisions.  

And this post is not just relevant to older or retired radiologists, but also to those of you who are nearing that time of life or are/will be acting as an agent to manage finances for a friend or family member.  

There’s a good chance that you will at some point be asked to manage someone else’s finances or will need someone to manage yours.  If you are a working radiologist, you are probably already busy enough.  Managing a loved one’s assets will be an added burden.  Of course, the more informed you are, the betterand being as prepared as possible can help make that burden less overwhelming. 

It’s an important andokay, yes, somewhat depressingsubject. Growing older comes with it’s perks (wisdom, financial security, naps, etc.). It also brings greater susceptibility to a host of potential afflictions and new challenges to navigatefor both yourself and for your loved ones. 

Hopefully, we will all undergo the aging process like a fine wine; stay sharp as a tack and still run marathons at 104, but we all know life is unpredictable. That’s why it’s vital to protect your financial health and security as a senior, and to know the risks and responsibilities involved when taking care of others.   

In this post, I’ll talk about the scope of the problem, how aging and other factors can effect our financial abilities, the signs of financial vulnerability, tips for managing loss of financial capacity, how to recognize elder fraud and exploitation, and what you need to know before you agree to be a power of attorney.

How many people are at risk for age-associated financial vulnerability?  Let’s look at the facts.

Source: U.S. Census Bureau 

According to the U.S. Census Bureau, there were more than 54 million U.S. residents 65 years and older in 2019, up from 40.3 million in 2010.  The number of Baby Boomers (born between 1946 and 1964) has hit 73 million, which has increased by 34.2% since 2010.  Note: U.S. population in 2019 was 328,239,523.

Baby boomers have changed the face of the U.S. population for more than 70 years and continue to do so as more enter their senior years, a demographic shift often referred to as a “gray tsunami.”  In 2019, one in five people in Maine, Florida, West Virginia and Vermont were age 65 or older.

What is the relationship between age and financial behavior?

When considering age-related changes in financial capacity, it’s important to understand the distinctions between normal aging, age-associated financial vulnerability, mild cognitive impairment, and dementia.

Although there are differences in abilities and rates at which individuals decline, everyone is expected to show some losses in fluid cognitive abilities.  This includes memory, computations, and speeded decisions.  These changes are typical of aging (i.e., “normal aging”) and not hallmarks of dementia or other disorders.

Age-associated financial vulnerability (AAVF) is defined as “a pattern of financial behavior that places an older adult at substantial risk for a considerable loss of resources such that dramatic changes in quality of life would result.”  Note: To be considered AAFV, this behavior also must be a marked change from the kind of financial decisions a person made in younger years. For example, if you’ve been in the habit of leaving $1,000 tips throughout your career, this wouldn’t be considered an abnormal behavior just because you turned 65 years old.

Cognitively intact older adults may become financially vulnerable. 

An important distinction should be made between AAVF and dementia or other cognitive impairments. Cognitive impairment is not necessary for AAVF.  In other words, cognitively intact older adults may become financially vulnerable. 

Mild cognitive impairment (MCI) is a disorder included in the Diagnostic and Statistical Manual of Mental Disorders.  It is NOT considered to be a precursor to dementia. The essence of MCI is that the individual's cognitive functioning is worse than expected but not bad enough to be classified as dementia. MCI is more challenging to diagnose than dementia because it must be distinguished not only from dementia, at the upper end of severity, but also from normal cognition, at the lower end of severity. 

To further confound things, people are not accurate at assessing their own memory or cognitive function, and subjective complaints often do not correlate with objective deficits.  Many of those experiencing true cognitive decline often feel they are not, while many who are not experiencing decline often feel they are.

The ability to perform simple math problems, as when handling financial matters, is typically one of the first skills to decline in diseases of the mind, like Alzheimer’s and other forms of dementia.  But you may be surprised to learn that even cognitively normal people may reach a point where financial decision-making becomes more challenging.   

Why is it that some older people seem to be “as sharp as ever?”  

Are they really, or are cognitive problems just not easy to detect?  You may know elderly radiologists who still drive, make investment and healthcare decisions, and read CT scans - only to receive a diagnosis of dementia.  How can this be? The answer lies in the ability of the brain to compensate for mild cognitive loss, and a person’s ability to adapt to their environment.

A person’s financial decision-making ability peaks in their 50’s, when they have substantial amounts of experience and only modest declines in ability to solve new problems.

The brain's compensation is related to two kinds of intelligence:

  1. Fluid intelligence is the ability to solve new problems.  It slowly declines over time, starting as early as age 20.  
  2. This is partly offset by our growing experiences and wisdom, known as crystallized intelligence.  This type of intelligence tends to plateau in a person’s 70’s, the time at which people become most vulnerable, particularly as they reach their 80’s and 90’s.

Note: A person’s financial decision-making ability peaks in their 50’s, when they have substantial amounts of experience and only modest declines in ability to solve new problems.  

Older people adapt to their environment by developing habits and following familiar routines.  Such tactics require fewer cognitive demands.  Alarms can be used as reminders to take pills or attend appointments.  Rooms, such as offices and kitchens, can be organized so that items are always in the same place.  Driving can be limited to familiar routes.  

The signs of decline can be subtle:

  • Focusing on investment benefits and downplaying the risks
  • Taking longer to pay bills (especially writing checks that need to be mailed)
  • Difficulty with math calculations that become prone to error (e.g., calculating a 15% tip)
  • Difficulty understanding concepts like deductibles, minimum balances, inflation, and interest rates

It isn’t all about memory loss

Although you might be or become a “super ager” (individual in their 80’s or beyond who functions at a much younger intellectual level), the vast majority of adults will experience at least some isolated cognitive decline associated with typical brain aging as they progress through their 60’s, 70’s, 80’s and beyond.  

Aging has become more or less synonymous with memory loss.  Although memory does decline with age, many older people experience far more dramatic declines in non-memory-related cognitive abilities, such as difficulties with concentration, problem solving, and decision-making.  Whereas memory loss is a temporal lobe phenomenon, these other abilities are closely linked to deterioration of the prefrontal cortex.  

Complex decision-making, such as purchasing financial products and making related decisions, if often the first cognitive function to decline in older adults.

Abnormalities in the brain areas involved in emotion and decision-making, rather than memory, may make some older adults especially susceptible to poor decision-making.  Other areas that often change with age include diminished processing speed or quickness of thought; a reduction in the volume of information a person can think about simultaneously (also known as working memory capacity); and slower rate of new learning ability.  Complex decision-making, such as purchasing financial products and making related decisions, if often the first cognitive function to decline in older adults.

Factors that influence the aging brain

Cognitive change in older adults is uneven and dependent on many factors, some that may not be intuitive.  They include:

  • Educational background
  • Overall intellectual capacity
  • Uncontrolled physical health conditions (high blood pressure, high cholesterol, diabetes, cardiac disease, endocrine dysfunction, autoimmune disorders, pulmonary dysfunction)
  • Lifestyle habits (smoking, excessive alcohol consumption, lack of exercise, social isolation, limited intellectual stimulation)
  • Mental health conditions (depression, anxiety)
  • Mild cognitive impairment (impairment beyond normal cognitive change associated with healthy aging, but not as severe as dementia)

While people with mild cognitive impairment (MCI) may appear relatively intact and function reasonably well in most areas of life, their subtle cognitive deficits put them at even higher risk for poor decision making and financial exploitation.

Elder fraud and financial exploitation - the “Crime of the 21st Century”

Fraud (typically perpetrated by strangers) and financial exploitation (committed by people who occupy positions of trust, such as friends and relatives) are crimes that target older adults. One in five Americans aged 65 or older have been victimized by financial fraud.  $3B is taken from seniors per year and only 1 in 44 cases is reported to authorities. Radiologists and other physicians are not immune.

Having adult children who manage an elder’s money decreases the risk of fraud because they prevent strangers from accessing their loved one’s accounts.  However, the presence of adult children may increase opportunities for financial exploitation.  Despite the common image of stranger scams and paid caregiver thefts, the perpetrators of exploitation are more often family members or trusted friends.  Radiologists are not immune.

Where there is a history of family conflict, where an adult child feels he or she is “entitled” to their parent’s money, or where the adult family member is reliant upon the vulnerable adult for basic needs, the potential for financial exploitation increases exponentially.

Social isolation is not only a potential risk factor for financial victimization, it is also a tactic perpetrators use to manipulate their victims and hide acts of exploitation.  Fraudsters and financial exploiters use undue influence to limit and control an older person’s social interactions, creating a sense of powerlessness and dependency.  This makes elders easier to manipulate, even if they are mentally competent.  

Why are the elderly targeted by scammers?

Answers:

  1. The elderly have a diminished capacity to recognize fraud
  2. Our nation’s wealth is disproportionately held by older adults 

Note: Adults over the age of 65 hold about a third of the nation’s wealth.

Even the most financially literate person can become financially vulnerable, owing to loneliness due to loss of a spouse, physical dependency, or cognitive decline.  I repeat: Financial decision-making is often one of the first functions to decline with age.  The most preyed-upon age range is 80 to 89.

Financial exploitation victims experience mental health consequences such as shame, depression, and anxiety.  In some cases, even suicide.  

Common abuses

One of the ways we can protect ourselves and others from fraud and abuse is to be aware of the common crimes being committed.  They include:

  • Affinity fraud (claiming to be from the same ethnic, religious, career, or community-based group)
  • Suddenly-appearing needy “grandkids” of no relation
  • Tech support scams (promising to “fix” computers)
  • Home improvement scams (scammers take money and don’t do the work)
  • Free lunch seminars aimed at recruiting investors
  • Free trips
  • Lottery scams (false claims of “you’ve won!”)
  • Internal Revenue Service (IRS) “agents” offering to settle “back taxes” by pre-paid debit cards
  • Fake charities
  • Deed theft and foreclosure rescue
  • Identity theft
  • Credit card fraud
  • Fake “official” snail or email (appearing to be from a legitimate bank or business)
  • Health care fraud (scammers pretending to be from Medicare)
  • Funeral and cemetery scams

Tips to combat loss of financial capacity

  • Assemble a “protective tribe” of trusted people who are willing to assist when needed
  • Select more than one person to make financial decisions on your behalf, preventing one person from having unbridled access and control over financial assets
  • Simplify your financial life (e.g., limit assets to a few mutual funds at one institution, carry no debt)
  • Organize important documents in a safe, easily accessible place (bank and brokerage account information, mortgage and credit information, insurance policies, pension/other retirement benefit summaries, social security payment information, contact information for financial and medical professionals) 
  • Consider a “letter of diminishing capacity”, which authorizes a financial professional to contact a named individual when there is a concern for declining cognitive skills
  • Consider creating a durable financial power of attorney
  • Keep things up to date (new accounts, trusted contacts)
  • Speak up if you think you or someone you know is being taken advantage of
  • Have an open conversation with loved ones about investments and other financial matters sooner rather than later

One factor that appears to be linked to better financial decision making in old age is financial literacy.  In fact, neuroimaging shows that financial literacy is associated with greater structural and functional connectivity between important brain regions, even after considering the effects of cognitive ability.  This is encouraging because financial literacy (defined as “the ability to understand, access, and utilize information in ways that contribute to optimal financial outcomes”) is an ability that could be improved at any age and is therefore a potentially modifiable protective factor against financial exploitation in old age.

Your role as a durable power of attorney

With the rapid expansion of the 65-and-older population comes an increase in the need for legal safeguards for that population.  You might be asked to play a role as a durable power of attorney, meaning you agree to manage money or property for someone else (called a principal).  In this role, you are a fiduciary, which involves 4 basic duties.

Duties of a fiduciary:

  • Act in the principal’s best interest
  • Manage the principal’s money and property carefully
  • Keep the principal’s money and property separate from yours
  • Keep good records

Accepting the role as a fiduciary is a serious decision, with ramifications for both you and the person for whose money and property you agree to manage.  What can go wrong? A lot.

Family members might not all agree on important financial decisions.  The conflict that results can lead to deep and permanent rifts among family members.  This is best addressed with advanced planning.  Let’s say you agree to be a fiduciary for your elderly mother. You can have a conversation with her about what she wants before she needs you to make decisions for her.  If this isn’t possible, the next best course of action is to look at her past decisions, actions, and statements to determine what she would have wanted.

As a fiduciary, you must avoid all conflicts of interest or even the appearance of a conflict of interest.  You can’t make decisions about money or property that benefit you or someone else at the expense of your mother.  Generally, this means not borrowing, loaning, or giving her money to someone else unless you know it is in line with what she wants. 

Having your son repair your mother’s roof, even if he does that work for a living, may be considered a conflict of interest if you pay him for it with your mother’s money.  If you pay yourself, the fee must be reasonable and you should only do so if the power of attorney document or state allows it. 

As a fiduciary, you need to be aware of the common signs of financial exploitation.  Why?  Because your mother may still control some of her funds and can be exploited (and even if she doesn’t control her funds, she can still be exploited).  Your mother may have been exploited already and you may be able to intervene.  People may try to take advantage of you as the fiduciary.  Knowing what to look for will help you avoid doing things you shouldn’t do, protecting you from claims that you yourself have exploited your mother.

Common signs of financial exploitation

  • You think money or property is missing
  • Your mother tells you money or property is missing
  • You notice a change in your mother’s behavior (withdraws large sums of money, tries to wire large amounts of money, uses the ATM a lot, is not able to pay bills that are usually paid, buys things or services that don’t seem necessary, puts names on bank or other accounts that you don’t recognize or that she won’t explain, makes gifts to “new best friends”, changes beneficiaries of a will/life insurance/retirement funds, has a caregiver or other person who suddenly begins handling her money)
  • Your mother says she is afraid or seems afraid of a relative, caregiver, or friend
  • A relative, caregiver, friend, or someone else keeps your mother from having visitors or phone calls, doesn’t let her speak for herself, or seems to be controlling her decisions

What to do if someone has been exploited

  • Call local adult protective services (www.eldercare.acl.gov)
  • Alert the bank or credit card company
  • Call the local prosecutor or state attorney general
  • Call the long-term care ombudsman program or the state Medicaid fraud control unit (if your mother is in a nursing home or assisted living)
  • Consider talking to a lawyer

That was a lot to absorb so let me sum it up for you.

  • The number of people in the U.S. age 65 and older is increasing faster than any other age group.  
  • They own ⅓ of the nation’s wealth. 
  •  “Normal aging” involves a loss of fluid cognitive abilities.  
  • Even cognitively normal people may reach a point where financial decision-making becomes more challenging.  
  • In other words, cognitively intact older adults may become financially vulnerable.  
  • Financial decision-making is often one of the first functions to decline with age.  
  • People are not accurate at assessing their own memory or cognitive function.  
  • The signs of cognitive decline are often subtle.  
  • One in five Americans aged 65 or older have been victimized by financial fraud.  
  • The elderly have a diminished capacity to recognize fraud.  
  • Radiologists are not immune to any of the above.

If that’s not a sobering stew of facts I don’t know what is!  

Our brain partially compensates for certain cognitive losses and we can combat the effects of those losses further by adapting to our environment so that items are easy to locate and common tasks are repetitive and familiar.  We can limit the risk of fraud and abuse by being aware of the common crimes being committed and recognizing the signs of exploitation.  

We can simplify our financial affairs, organize our financial documents, and make plans for people to manage our finances for us when we’re not able to do it ourselves.  (If you agree to be that person, you will be required to be a fiduciary and abide by the legal requirements that are entailed.)

Final note

A person’s protection from financial fraud or exploitation is only as strong as their own financial capacity or that of the person/s who have been granted legal control over their financial decision-making.  It doesn’t matter how well you’ve managed your finances over your lifetime if, when you become unable to continue doing so, the person you direct to do it for you is not capable or trustworthy.  It’s a sad fact that senior abuse is often committed by a close relative or trusted professional.


What I Wish I Knew About Finance As a Medical Student and Resident

Let’s talk about the “f-word.” That word being failure, of course (what did you think I meant?). Hindsight is 20/20.  To err is human.  We can’t escape failure, as much as we might want to, especially when we receive that stinging feedback. It’s true that the path to success is paved with failure—but, as it turns out—everything you thought you knew about failure is probably wrong (🤯!!!). Well, maybe not everything, but I have an interesting tidbit for you. Contrary to common beliefs about learning from failure, you actually learn more from success.  This is true of personal success and personal failure. But did you know that people learn equally and just as much from others’ failures as from others’ successes? In other words, when failure is removed from the “self’,” when you take the personal out of the equation and psychological distance is achieved, people tune in and learn from failure. 

So, now that I’ve gone all psychological on you, the stage is set and you have some context for what comes next. 

This post is about learning from others’ failures or regrets, because...

“The only real mistake is the one from which we learn nothing.” - Henry Ford

I’ve come across a lot of blog and social media posts over the years about the things medical students and residents wished they’d known earlier.  None of it surprises me, except maybe for the fact that most of the time what they regret is unrelated to finance.  Maybe trainees don’t consider financial matters to be as important as choosing the right school, prioritizing personal time, starting early to prepare for licensing exams, or doing research.  It’s also possible that they just “don’t know what they don’t know”, which is the oxymoron of financial illiteracy in a highly educated population.  Financial regrets and advice seem to emerge a few or more years into physicianhood

In light of this, I’ve collated some of the most common financial wisdoms that I’ve heard from junior radiologists who, after looking back at their earlier selves, realized “what they wish they’d known” about finance during their training. Give it a read—your future self might thank you. And, yes, read it because you can learn better from others’ failures and successes without the “ouch” factor (you’re welcome).

It’s not true that as a doctor you’ll never have to worry about money again. 

Sometimes this way of thinking is part of the message students receive.  Case in point from a Canadian Medical Director:

“It can be daunting to think about tuition and how you’ll pay for medical school, but try not to ruminate on it too much. You stand to earn a substantial salary once you’re practicing medicine and will eventually have no trouble paying off your debts.”

Because they believe it IS true, many students figure they’ll worry about finances later. Medical student loan debt starts accruing interest while in medical school. While making minimum payments in residency, it’s still accruing interest. This means that by the time a resident finishes training, $200,000 of loans could have grown to nearly $400,000 – sometimes even more. Without some degree of financial literacy, many students make financial mistakes that cost them a small fortune. Note: I’m a strong advocate of financial literacy being a required part of the residency curriculum.

I don’t have to live up to someone else’s standards.

You may have heard this before: “She’s a doctor, she can afford that,” or, “A doctor has to have a nice (insert material item).” This pressure to “live like a doctor” may even come from family members and close friends.  Even during residency, the outside world thinks that doctors have the world handed to them.   It’s this kind of thinking that prompts medical students to drive new BMWs, use student loan disbursements to make car payments, and justify it with their future doctor salary.  If a physician lets someone else dictate their spending, lifestyle, or self-image, that person will likely never have control of their finances and never be satisfied.

Buying a house as a resident isn’t always a smart move.

I don’t know what the statistics show, but I’ve heard from a lot of residents who regretted buying a house.  I’ve also read accounts of residents who claimed they “made money” when they sold their house and were happy with their decision to own instead of rent.  And of course, if you’re married to a high-earner and have no debt, none of this may apply to you.  The thing with real estate is that the cost is dependent on a multitude of factors: location, housing market, sale price, mortgage rates, renovation and maintenance costs (and the owner’s DIY skills), and property taxes.  Aside from the $$$ costs, there is also a time-cost in owning a home that there isn’t with renting a home or apartment.  And I don’t have to tell you that time is a limited commodity during training (keep reading for more on this).  

There are a lot of reasons why owning a home during residency may not be a good financial move: you don’t have a down payment; you already have a lot of debt; radiology residency is only 5 years and it can be hard to break even, let alone make a profit in that length of time; and new homeowners tend to underestimate the costs of maintenance, property tax, insurance, and furnishings. Buyer beware.

It pays to understand student loans.

It’s easy to put off any thought of managing student loans when you’re busy trying to become a doctor or a radiologist. Managing student loans involves borrowing as little as possible and entering the right loan repayment program for you on day one as a resident. For the latter, you need a plan. The most comprehensive guide is available here for free.  Note: This is an area where it can be very important to consider your personal situation, especially if you’re married to another earner.  

Start by consolidating your federal loans so that you’re eligible for Public Service Loan Forgiveness (PSLF) (even if you may not ultimately go this route) and enter into an income driven repayment program.  The best choice for most residents is REPAYE (Revised Pay As You Earn).  (Note: The goal here is to pay the minimum required qualifying payment each year and to have as much debt forgiven at the end of ten years.)  The monthly payments are usually an affordable $0-$300/month so you can avoid deferment or going into forbearance.  Next you want to refinance any private loans you have (which are not eligible for PSLF).  Private student loans can be refinanced for free and you should consider refinancing whenever you can get a lower rate.  Typically, when you finish residency you can get a better rate because of your enhanced income status.   

Anything you pay for now (using borrowed money) will cost you 50% more in the long run.

It actually may cost more than this and it’s due to the compounding effect of interest on loans.  That means that a Caramel Cocoa Cluster Frappuccino® Blended Coffee (one of the top ten drinks at Starbucks) with a price tag of $4.95 might actually cost about $7.50 in the long term.  The $2,000 tab to travel to your cousin’s wedding could wind up costing $3,000.  Think of it as paying a premium for everything you buy using money from loans.  

I don’t advocate total frugality as a trainee and a reasonable amount of discretionary spending will not be nearly as consequential as how a newly graduated radiologist spends her salary.  But beyond a reasonable amount, you could be setting yourself up for regret.  It’s a good idea to think about how much something is “actually” costing when using borrowed money.  You don’t know how your future self will feel about how your present self is spending. If for some reason you decide you don’t want to be a radiologist, you will still have to pay back the money you borrowed.  

Not all medical schools cost the same.

If you get accepted to only one medical school then the choice is simple. It would also be hard to pass up a full-ride scholarship.  Otherwise, it pays to consider each school’s cost.  (Note: I don’t mean what the school advertises, but what you will have to pay, which is often very different.)  Going to a public school in the state where you are a resident will usually decrease your overall loan burden, and the difference between public/resident and private/nonresident costs can be substantial. Think twice about taking on $300,000 of debt if you have the option to spend half that much by choosing a less expensive school.

Tuition, Fees, and Health Insurance, AAMC, 2020-2021 (Note: minimum cost is $0)

Ownership Residence Status Median Maximum Average
Public Resident $39,150 $347,612 $41,438
Private Resident $64,053 $73,659 $61,490
Public Nonresident $63,546 $91,557 58,246
Private Nonresident $64,494 $73,659 $57,619

Note: I don’t know if the $347,612 number is an error, but it caught my eye.

You can’t make up for missed opportunities to contribute to retirement accounts. 

About half of hospitals offer residents a retirement plan (401k, 403b) and some will match your contribution up to a limit.  By not taking advantage of this match you are leaving money on the table, essentially taking a self-imposed pay cut.  You also miss out on the tax break because the money you contribute to a 401k is tax deductible, which lowers your taxable income.  This is advantageous if you are pursuing Public Service Loan Forgiveness and are on an income-driven repayment plan because the lower your income, the lower your loan payments, and thus, the less debt you will eventually pay back.  

The other retirement contribution that residents should consider is the Roth IRA. You pay the taxes on the front end (at the time of contribution), but there are no taxes on the back end (at the time of withdrawal) and money grows tax free while it’s in the account.  As a resident, you may be in the lowest tax bracket you'll ever be in for the rest of your life so it’s a good time to contribute to a Roth IRA because the front end taxes will be low. You can also contribute to a Roth IRA for a non-working spouse from your income. Note: You can’t put off contributing to a Roth IRA during residency thinking you will just make bigger contributions after you graduate.  This is because you’re only allowed to contribute a certain amount per year ($6,000 in 2021). 

Residents should have disability insurance.

A professional has a greater statistical probability of suffering a severe disability that impedes their ability to work than of dying prematurely.  More than one in four 20-year-olds will experience a disability for 90 days or more before they reach age 67.  If you become too ill or injured to work before you reach peak earning potential, you’ll still have to pay back the lender that bankrolled your medical school education.  The lender will not care that you are disabled.  

When should you get DI? If you have a pre-existing medical condition (which might mean you get denied insurance) you might want to wait until you are a resident.  About 70% of residents are offered fully paid group disability insurance through their employer that does not require a medical exam or medical history taking (but the insurer may deny anyone who had previously been denied DI).   An individual policy is best, but it will cost more than a group policy (ranging from 1% to 3% of your annual income per year). 

Medical students and residents with spouses or other dependents should have life insurance.

If someone depends on you financially, life insurance provides for them if you die.  Some residents with children choose to purchase life insurance during residency (or before) and others wait until they finish training, when they can more easily afford the premiums.  Those who wait are gambling with their spouse’s and children’s financial future.  Other good reasons to purchase life insurance early are that you will pay lower premiums (as you will be younger at the time of insurance purchase), and you will lock in the insurance rates while you are still healthy. If you wait, and become ill or disabled as a resident, your premiums could rise significantly, and you may even become uninsurable.   

Permanent life insurance is almost always a costly mistake.

There are two basic types of life insurance.  Term life insurance provides a predetermined death benefit and covers you for a predetermined number of years, usually five to 30.  The annual premiums are fixed and are based on your health and life expectancy at the time you apply for the policy.  Permanent life insurance combines a death benefit with a savings or investment account.  There are several varieties, including whole life, variable life, and numerous variations of universal life insurance.  The policy covers you for as long as you’re alive. The premiums can be fixed or not, depending on the policy you purchase. Like term life insurance, the premiums are based on your health and medical history.  

Permanent life insurance is NOT the best choice for most people. It’s several times as expensive as term life insurance for the same amount of coverage. While your policy does accumulate some cash value through its savings or investment component, which a term policy doesn’t have, you pay a hefty premium for this feature and for having a policy that will definitely pay out one day. Nearly every radiologist will receive a pitch at some point in their career to buy permanent life insurance.  Often, the medical school or radiology department will bring someone in to “advise” residents on buying life insurance, and that person’s goal is often to sell as much expensive insurance as she can.  Residents, and often well-intended departments, may not recognize that the “advisor” is a sales person that does not have the best interests of her clients in mind.  Naive radiology residents and practicing radiologists being “sold” permanent life insurance is one of my top financial pet peeves.  Note: Residents should get disability and life insurance from an independent insurance agent.  Even if the hospital offers a group plan, the coverage is often inadequate.  Individual plans for trainees are relatively cheap.

I could have started a 529 for my kids during residency, even before they were born.  

A 529 plan (from Section 529 of the federal tax code) is a tax-advantaged savings plan, typically established by parents or grandparents to help pay for a child’s or grandchild’s education. You can open a 529 plan before your kid is born and list yourself as the beneficiary, and then change the beneficiary after birth since 529 plans allow the beneficiary to be changed to a member of the family of the old beneficiary. The two major types of 529 plans are savings plans and prepaid tuition plans. Savings plans, the most common type, allow for investing in mutual funds that grow tax-deferred.  Withdrawals are tax-free if they're used for qualified education expenses. 

Prepaid tuition plans allow the account owner to pay in advance for tuition at designated colleges and universities.  Prepaid tuition plans are offered by a limited number of states and some higher education institutions. They vary in their specifics, but the general principle is that they allow you to lock in tuition at current rates for a student who may not be attending college for years to come. They grow in value over time, and the money that eventually comes out of the account to pay tuition is not taxable. Prepaid tuition plans may have restrictions on which particular colleges they may be used for. The money in a savings plan, by contrast, can be used at just about any eligible institution.  

You aren't restricted to investing in your own state's 529 plan, but doing so may get you a tax break.  Bottom line: As with other kinds of investing, the earlier you get started, the better. With a 529 savings plan, your money will have more time to grow and compound. With a prepaid tuition plan, you'll most likely be able to lock in a lower tuition rate, since many schools raise their prices every year.  

Time is more valuable than money.  It’s limited in supply and once it’s gone, you can’t get it back.

You can lose money and make more.  And radiologists are fortunate in that they have a higher than average physician income ($427,000) so they can make a lot of financial mistakes (up to a limit) and still do okay.  But time is something you never get back.  How you spend it is therefore one of the most important decisions you will make.  As a student or resident, you will have a limited amount of discretionary time away from studying and taking exams.  How you spend it will reflect your personal values.  If you have a spouse and children, they will want a piece of your time and I’m guessing you will want to spend time with them. 


The Finance Savvy Resident: Your Future-Self Will Thank You For This

Or your future-self might not; I don’t know, because I can’t predict the future. But I can offer some solid, evidence-supported suggestionsapropos to residentsas to potentially prescient, if not  generally, sensible financial moves.  Whatever your particular path or current circumstances, it is never too early nor too late to consider your financial future; how you can help position yourself for financial stability and mitigate financial disaster. Of course, as you might’ve guessed, such things are not one-size-fits all. Much like ice cream, radiology residents come in as many flavors as exist under the sun. I’m waxing a bit poetic here, because now we are about to get into some serious stats and figures! Ready?  

Residents are a heterogeneous group. They may be married with kids, married without kids, single, or part of a blended family.  Their student loan debt ranges from nothing, to average ($200,000), to over $300,000. These amounts can be doubled in dual-physician households and some monster debts reach over $1,000,000.  Another 19.3% have additional consumer debt (Median amount $12,000).  

Medscape Residents Salary & Debt Report 2020

 

Total Premedical and Medical School Debt (%)

No debt ($0)                      26.7

$1 to $49,999                      5.6

$50,000 to $99,999             6.1

$100,000 to $149,999         9.1

$150,000 to $199,999       13.1

$200,000 to $299,999       26.2

$300,000 to $399,999       10.5

$400,000 to $499,999         2.0

$500,000 or more               0.8

Median education debt of those reporting education debt $200,000

AAMC Medical School Graduation Questionnaire (July 2019)

 

Residents may be married to someone without earned income or someone with a high income, or have other financial resources (inheritance, previous work savings, etc.).

Duration of residency ranges from 3 to 7 years (radiology is 5 years followed by fellowship).  Not every radiology resident follows a typical pathway to graduation.

One thing that is pretty uniform among residents is salary.  Resident salary averages $62,400 ($64,600 in radiology), and ranges from $57,200 in year 1 to $68,500 in years 6-8.

The point of all this is that although general advice works for most residents, you will have to make decisions based on your individual circumstances.  Having said that, here are some of the most important financial considerations that residents should be aware of:

 

 

Disability insurance (DI)

A professional has a greater statistical probability of suffering a severe disability that impedes their ability to work than of dying prematurely.  More than one in four 20-year-olds will experience a disability for 90 days or more before they reach age 67.  If you become too ill or injured to work before you reach peak earning potential, you’ll still have to pay back the lender that bankrolled your medical school education.  The lender will not care that you are disabled.  When should you get DI? If you have a pre-existing medical condition you might want to wait until you are a resident.  About 70% of residents are offered fully paid group disability insurance through their employer that does not require a medical exam or medical history taking (but they may deny anyone who had previously been denied DI).   An individual policy is best, but it will cost more (ranging from 1% to 3% of your annual income per year) compared with the cost of a group policy .   

Life insurance 

If someone depends on you financially, life insurance provides for them if you die.  Some residents with children choose to purchase life insurance during residency (or before) and others wait until they finish training, when they can more easily afford the premiums.  Those who wait are gambling with their spouse’s and children’s financial future.  Other good reasons to purchase life insurance early are that you will pay lower premiums (as you will be younger at the time of insurance purchase), and you will lock in the insurance rates while you are still healthy. If you wait, and become ill or disabled as a resident, your premiums could rise significantly, and you may even become uninsurable.   

Will

If you have kids, you need a will that designates guardians for your children should you and any other custodial parents die.  If this occurs and such a designation is not in place, a court will decide who will be the legal guardian.  This will most often be a relative who is willing to take on the responsibility, but in extreme cases, the court could mandate that your children become wards of the state.  You may not want one or more of your relatives to raise your children, particularly if they don’t share your views, aren’t financially sound, and aren’t genuinely willing to raise children. 

Emergency fund

Sh#%! happens.  Your kid breaks her arm and you get a big medical bill.  The car needs repair (Note: In 2017, the average auto repair bill was between $500 and $600.)  Your washing machine dies.  An emergency fund provides you with ready cash to cover these expenses so that you don’t have to pay for it with credit (or sell investments in a down market).  How much $$$ should be in your emergency fund?  Three to six months of  essential living expenses is the general recommendation.  For many residents, this may mean $15,000 to $30,000.  Where should you keep it?  This is money that you will need NOW, so it needs to be readily available.  Typically, this means keeping it in a savings or money market account.  Note: Online accounts pay higher interest rates (~0.5% at the time of this writing) than do brick-and-mortar banks (which pay an average rate of 0.08%). Also note:  An emergency fund is for emergencies (duh) and not for a new HDTV.

Loan management

You need a plan for your student loans. The most comprehensive guide is available here for free.  (Note: This is an area where it can be very important to consider your personal situation, especially if you’re married to another earner.)  Start by consolidating your federal loans so that you’re eligible for Public Service Loan Forgiveness (PSLF) (even if you may not ultimately go this route) and enter into an income driven repayment program.  The best choice for most residents is REPAYE (Revised Pay As You Earn).  (Note: The goal here is to pay the minimum required qualifying payment each year and to have as much debt forgiven at the end of ten years.)  The monthly payments are usually an affordable $0-$300/month so you can avoid deferment or going into forbearance.  Next you want to refinance any private loans you have (which are not eligible for PSLF).  Private student loans can be refinanced for free and you should consider refinancing whenever you can get a lower rate.  Typically, when you finish residency you can get a better rate because of your enhanced income status.   

Retirement plan contributions

About half of hospitals offer residents a retirement plan (401k, 403b) and some will match your contribution up to a limit.  By not taking advantage of this match you are leaving money on the table, essentially taking a self-imposed pay cut.  The other retirement contribution that residents should consider is the Roth IRA (named after Senator William Roth). You pay the taxes on the front end (at the time of contribution), but there are no taxes on the back end (at the time of withdrawal) and money grows tax free while it’s in the account.  As a resident, you may be in the lowest tax bracket you'll ever be in for the rest of your life so it’s a good time to contribute to a Roth IRA because the front end taxes will be low. You can also contribute to a Roth IRA for a non-working spouse from your income. (Note: Anything that has tax ramifications should be considered in terms of your personal circumstances.)  If you are pursuing PSLF (and thus want to minimize the amount you pay back along the way), you want to minimize your taxable income in order to minimize your loan payments (which are based on income) by maximizing contributions to a pre-tax retirement plan, like a 401k.  Also, if your spouse is a high earner, you may have to contribute to a Roth IRA through the “back door.” Note: You can’t put off contributing to a Roth IRA during residency thinking you will just make bigger contributions after you graduate.  This is because you’re only allowed to contribute a certain amount per year ($6,000 in 2021). Also note: Married residents with earned income of $65,000 or less may qualify for a Retirement Savings Contributions Credit (free money from the federal government!) - another reason to contribute to a retirement account.

Pay off high interest debt

What is high-interest debt? I’m not talking about student loans or mortgages.  I mean high interest credit card debt.  (Note: In December 2020, the median interest rate on credit cards that were assessed interest reached an astronomical 19.4%.) I mean that 6% car loan. I mean that 8% personal loan that paid for that trip to Maui for your cousin’s wedding.  Pay those off. Doing so will be the best investment you can make.  In these examples, you’re getting a 6%-19.4% guaranteed return on your investment.  That’s hard to beat.  

Even Uncle Sam advises you to pay off high-interest debt:

“No investment strategy pays off as well as, or with less risk than, eliminating high interest debt. Most credit cards charge high interest rates -- as much as 18% or more - if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card. That’s why you’re better off eliminating all credit card debt before investing. Once you’ve paid off your credit cards, you can budget your money and begin to save and invest.”

Final piece of advice: When it comes to finances and life, hope for the best but prepare for the worst. 

And remember: Knowledge is power! The Reading Room is always open.


Play By the Rules and You Could Love Retirement

Are you thinking about retiring?  Unless you’re already retired, I suggest you DO start thinking about it.  Whether it’s 5 years down the road or 50 years into the future, it’s wise to start planning early.  

Why is that?  I could fill beaucoup tomes on that answer, but let’s keep it simple: because getting to the $ number you need in order to retire with the lifestyle you’ve imagined for yourself will only happen if you take action.  Starting early will give you more options and increase the likelihood of a happy retirement.

Next question. What do you need to know to prepare for retirement?  That, my friends, is the subject of the day. Read on! 

Note: I’ll only be discussing the financial aspects of retirement, but it’s also important to think about what you will DO in retirement (e.g., fishing, taking up Muay Thai boxing, learning a new language, starting a new career, riding your bike across the country,  joining a dead poet’s society or pie baking club, writing a book...well, I don’t know what your cup of tea is— you fill in the blank). Point is, just remember that the financial part isn’t the only aspect of retirement planning that you would do well to prepare for. 

Oh, and as the title suggests, I’ll be talking about rules—specifically, the 4% Rule and the Rule of 72.

In prior posts I talked about retirement plans and investing accounts, which you may want to read now if you haven’t already.  

But saving and investing is only one aspect of financially planning for retirement.  You also need to think about spending!  This post will address both. 

Perhaps right now you’re thinking, spending?! As in, should I buy that fancy boat to go with the beach house? Well, that’s not the type of question I can answer for you. 

However, I will suggest four helpful questions, and then offer some practical information in response that can help you build a retirement financial plan that’s right for you.   

When making a financial retirement plan, you might ask the following:

  • How much will I need in annual retirement income?
  • What will be my sources of income?
  • How big of a nest egg will I need?
  • What savings rate and length of time will it take to build that nest egg?   

Let’s consider each of these questions in turn.

Question #1: How much will I need in annual retirement income?

Let’s say you are earning an average radiologist salary of $427,000 (according to the 2020 Medscape survey). Congratulations!  You are among the top physician earners!  

Of course, it’s quite likely that you earn much more or less than this amount.  A radiologist just starting out earns around $250,000 to $350,000 and high-earning private practice radiologists can earn three to four times that amount.  With so much variation in salary during your career, what number should you use in order to plan your annual retirement income?

Do your investments/pension/social security/other income sources need to replace all of your earned income in order to retire with the same standard of living as you had during your working years?  The answer is no.  Financial planners assume you'll spend about 80% of the income you make before you retire during your retirement—that's known as your retirement income replacement ratio.  Although this may be true for the general population, it probably doesn’t make sense for radiologists and other high-income earners.  Why not?

Some expenses will decrease (yay!)

Many of your expenses will decrease.  In retirement (assuming you no longer have earned income or that it has decreased considerably), you will no longer be contributing to retirement accounts. Let’s say you’ve been earning $400,000/year and contributing 20% to retirement accounts ($80,000).  You won’t be making that contribution when you’re retired.

What else changes in retirement?  If your income goes down, your taxes go down.  If you have $400,000 of earned income and your effective tax rate is 30% (you can refresh your knowledge of income tax here and here), you will pay $120,000 in income taxes.  If your retirement income is $200,000, from investment income and social security, your effective tax rate might be as low as 15-20%, for a tax bill of $35,000 to $40,000.  It could even be less than that, depending on the type of investment income and the state in which you live.  

Other expenses that may go down in retirement include debt (mortgage, car payment), work-related expenses (clothes, travel), insurance (life, disability), childcare, and college costs.  If you downsize to a smaller home, you will save on property taxes, property insurance, and maintenance costs.  

Some expenses will go up (uh-oh!)

What costs go up in retirement?  If you retire before age 65 and your employer doesn’t extend health insurance during retirement, you will likely pay much more in health insurance premiums and other health care costs until you are eligible for Medicare.  Once you sign up for Medicare, your premiums will go down, but they may be higher than what you paid when you were employed.   

Medicare premiums go up as your income increases.  The standard Part B premium amount in 2020 is $144.60. But if your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you'll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.  For example, if your yearly income in 2018 was above $174,000 up to $218,000 (married filing jointly), your premium amount would be $202.40 in 2020.  If your yearly income in 2018 was $750,000 and above (married filing jointly), your premium amount would be $491.60 in 2020.  Some retired radiologists on Medicare may experience this extreme situation if their spouse is still working and generating a large income.

The $285,000 question 

A BIG unknown is long-term care costs.  Most radiologists will not buy long-term care insurance, but rather self-insure (i.e., save enough money to pay for the costs).  A 65-year-old couple retiring in 2019 can expect to spend $285,000 in healthcare and medical expenses throughout retirement. This doesn’t include the additional annual cost of long-term care, which, in 2019, averaged from $19,500 for adult day care services to $102,204 for a private room in a nursing home.  

You may choose to travel more in retirement, so those costs can go up considerably.  Or you may buy a second home.  Or start paying someone else to clean your home, shovel your snow, do your yard work, and prepare your taxes.  Or you may decide to stop paying someone and do all those things yourself once you are no longer working.  

So, how do you figure out what income YOU will need in retirement?  To reach the most accurate number, don’t base it on a percentage of your income.  Rather, look at your current expenses (yes, that might take some effort if you don’t have a handle on this already), and make adjustments based on how you think you will live in retirement.  If you’re 30 years away from retirement, it will be harder to guestimate what you will need.  In that case, start out with a reasonable number, say 20-50% of current income, and make adjustments over the years.  You need SOME goal to shoot for in order to plan how to get there.

Question #2: What will be my sources of income?

Let’s say your magic number (the amount you need each year in retirement) is $150,000.  Where will it come from?

Some possibilities:

  • Social security
  • Pension
  • Investment income
  • Annuities
  • Inheritance
  • Lottery

Most radiologists can count on social security and investment income.  Fewer will also draw from other types of investments or pensions.  Annuities allow you to basically buy a pension, and although it may make a lot of sense to purchase single premium immediate annuities, not many people do. It probably isn’t wise to count on an inheritance, and foolish to rely on winning the lottery.

Social security

A discussion of social security is way beyond the scope of this post, but basically, if you’ve paid into the Social Security system for at least 10 years you become eligible for early retirement benefits at age 62. However, you will receive a higher monthly benefit if you wait until your “full retirement age”—66 for people born in 1954, then add two months for each year until reaching 1960, at which point 67 becomes the new full retirement age for all—and an even higher one if you wait as late as age 70, at which point the benefit maxes out.  Spouses can also claim benefits, based on either their own earnings record or their spouse’s.  

The maximum social security benefit for someone who retires in 2021 is $3,895/month ($46,740/year).  The average retired worker receives $1,512.63/month ($18,151/year), as of May 2020.  The amount you can expect to receive will depend on the number of years you contributed, the amount you contributed, the age at which you start to collect social security, and whether you’re collecting based on your history or that of your spouse.  

Pension

49% of the workforce in private industry has no private pension coverage.  If you’re lucky enough to work at an academic center (okay, I’m biased because I’ve spent my whole career in academic radiology), you will probably receive a pension from the university.  The amount will depend on your years of service and salary level near retirement.  Note: this refers to the salary from the university and does not include practice plan income, which is usually the majority of a radiologist’s income.  Radiologists who work for the VA and meet service requirements receive a generous pension.  The majority of radiologists, however, are in private practice and do not receive a traditional pension.  

Investment income

This refers to retirement accounts, taxable brokerage accounts, certificates of deposit, and savings accounts.  It may also include real estate or other sources of investment income.  All together, you can consider this your investment portfolio.  During retirement, those investments can grow (from dividends and interest) and they can decrease (from market losses and spending). 

Question #3: How big of a nest egg will I need?

Let’s say you’ve estimated needing $150,000/year in retirement income.  How much investment income will you need?  Since you can estimate what your social security income will be (or ignore that income if you don’t trust the government), and any pension income, your investment income must be enough to make up the shortfall.  

There are different ways to determine how much money you need to save to get the retirement income you want. The 4% rule can be used to determine how much you need to save as well as how much you can spend.  

To determine how much you can spend: add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

Using the 4% rule to determine how much money you need to save, you divide your desired annual retirement income by 4%.  To generate $150,000, for example, you would need a nest egg at retirement of about $3,750,000 ($150,000 ÷ 0.04). This strategy assumes a 5% return on investments (after taxes and inflation), no additional retirement income (e.g., Social Security), and a lifestyle similar to the one you would be living at the time you retire. 

Note: hot off the press - the 4% rule is now the 5% rule!  Even so, I’m still using 4% in my calculations to stay on the conservative side.  Also, many people feel that a 4% withdrawal rate is too high and recommend a 2-3% withdrawal rate, depending on individual circumstances.  A discussion of a safe withdrawal rate (SWR) is beyond the scope of this post, but the bottom line is this - If you want an SWR of 4%, you need to save more than if you want an SWR of 3%.  The 4% rule also assumes 30 years of retirement - an early retirement will require a bigger nest egg or a smaller SWR.

Is it reasonable to expect a 5% real return?  The historical average annual return (1926 to 2018) for stocks is 10.1%.  Note: that’s 100% stocks, and you probably have bonds and other types of investments in your portfolio, not just stocks.  That 10.1% also doesn’t account for taxes or inflation.  Over the last 100 years, inflation has averaged 3%.  However, during the past 10 years, inflation has been well under 3% each year except one.  The current inflation rate is only 1.4%.  In 1980 it was 13.5%.  

Let’s assume an inflation rate of 3% going forward.  That brings the return on 100% stocks down to 7.1%.  Are you paying 1% to your financial advisor?  If so, your return is now 6.1%.  

Let’s say you’re invested in 50% stocks and 50% bonds (not unreasonable for people close to or in retirement).  The historical average annual return (1926 to 2019) for this portfolio is 8.2%.  Knock off 3% for inflation and assume you pay negligible investment expenses or taxes, and you’re close to a 5% return.  

Question #4: What savings rate and length of time will it take to build that nest egg?  

Assuming you need a nest egg of $3,750,000 as calculated above, what amount do you need to save per year, and for how many years do you need to save to build that nest egg?  This is actually more complicated than it may seem since you probably won’t save the same amount every year for 30 years.  

You can reasonably expect your income to increase over your working years (although it may not increase every year, and in some years it may decrease).  Historically, average radiologist salaries have increased most years.  

Your salary will be lowest early in your career, when you might also have many competing expenses.  The amount you can save for retirement will increase as your salary increases and your expenses decrease.  So, why not wait several years to start saving?

The answer is that the earlier you start to save, the longer your money has a chance to grow.  

Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double.

This brings me to the Rule of 72, which is a way to determine how fast your money will grow at a given interest rate:

Divide the interest rate into 72, and the result is the number of years it takes your money to double.

So, if your investment earned 7.2%, your money would double every 10 years (72 divided by 7.2 equals 10).  If you assume a return of 5%, your money would double every 14.4 years.  Note: the percentage return you assume is AFTER inflation, expenses, and taxes.

Think about that.  $25,000 at 5% would double to $50,000, then double to $100,000, then double to $200,000 in 43.2 years.  If you invest that money at age 32, you’d have $200K at age 75.  If you invest that amount at age 46, you’d only have $100,000 at age 75 (two doublings).  

Of course, a radiologist doesn’t invest for one year and call it quits.  Ideally, she invests every year of her working career.  You can use a future value calculator or the future value function of a spreadsheet to determine how much money a yearly investment will compound over a given length of time, assuming a certain percentage of return.  

Let’s go back to the $3,750,000 nest egg.  If you invest 15% of a $400,000 annual income ($60,000/year) for 30 years, and assume a 5% real return, you would generate $4,077,425.  That’s pretty close to your nest egg goal!  But most radiologists should easily be able to save more than 15% of their income.  Let’s say you invest 25% ($100,00/year) and assume a return of 5%.  You would generate $3,938,354 in just 22 years.  If you start investing at age 32, you’d reach that goal at age 54 - early retirement!  

You can play with the numbers (it’s kind of fun), changing the amount you invest, to see what it would take to shorten or lengthen the time to retirement.  One note of caution:  increasing the return rate will add a greater element of uncertainty and the higher you make it, the more likely your calculation will be an exercise in optimism/fantasy and not reality.

Recap (not a question)

You can play with an infinite number of variables to determine how much money you will need in retirement.  If you want to keep it simple, especially when you are young and don’t have a clear vision of your retirement lifestyle, you can guestimate an annual retirement income to be 20% - 50% of current income, and using the rule of 4%, divide that annual income by 4% to determine the size of your nest egg.  

To estimate how long you need to save in order to retire at a desired age, use the rule of 72 (with the aid of a future value calculator or the future value function of a spreadsheet).  When you do retire (congratulations!), you can use the 4% rule again to estimate a safe withdrawal rate (SWR).  I would suggest, however, that you use the 4% spending rule only as a guide, and incorporate plenty of flexibility in your withdrawal strategy.  When your portfolio is doing well, spend a little more.  When it’s not doing well, spend a little less.  The more flexible you are with spending (and I’m a big fan of low fixed expenses for this reason), the more likely you will enjoy a long and financially successful retirement. And bring your retirement vision to fruition, whatever that may look like to you (fancy boat and beach house sold separately).


Negotiation: Everything You Wish You Knew But Nobody Taught You

Q: What do a doormat and a bull-in-a-china-shop have in common? 

A: Neither are good approaches to negotiation. 

In a previous post I briefly discussed contract negotiations. Because this is something that can greatly influence one’s career, I feel it’s worth taking a closer look at what it takes to be a successful negotiator. If you’re already a pro at this, you might want to read on anyway so as not to miss my personal story (Ebert and Roeper give it two thumbs up!).

But first, what does “negotiate” mean?

Negotiate: to confer with another so as to arrive at the settlement of some matter.

In practical terms, the reason to negotiate is to produce something better than the results you can obtain without negotiating, or in other words, to “change the outcome for the better.”  

Notice I didn’t say “changing the outcome for myself.”  There are always at least two sides in a negotiation and a “good” outcome is one that is good for all parties.  Also, the “outcome” can be a lot more complicated than you might think.  

The reason for this? Every action has consequences; changing one variable in a transaction influences other variables.  If you successfully negotiate a salary raise, the outcome isn’t just a change in your salary.  It also changes the group’s expense line and it may create inequity among employees.  Note: Be careful what you negotiate.  

We all negotiate

Like it or not, you are a negotiator.  As a toddler, you negotiated with friends about sharing toys (you were a sharer, weren’t you?).  

As an adult, you might negotiate with: neighbors (when a tree falls down on both properties); siblings (taking care of your parents); children (minutes of TV time or 3 more bites of broccoli and then dessert); spouses (picking out new furniture—wait, can we buy a sports car, instead?); roommates (it’s your turn to take out the trash); colleagues (who will pick up the extra weekend of call?); potential employers (getting the job); and bosses (you’ve earned a raise).  

When was the last time you negotiated something?  Was it when you made an offer on a house, followed by a few counter offers?  Or haggled over a find at a flea market?

Have you ever passed on an opportunity to negotiate?  Did you pay the sticker price for a car instead of offering less?  

Did you sign the first job contract offered without questioning any of the terms (uh-oh)?  

Have you paid a financial advisor an assets under management fee for 10 years without ever negotiating for a better rate (guilty, as charged)?  

When was the last time you spoke with your insurance agent to negotiate the terms of home or auto insurance (or do you always pay the amount on the invoice that arrives in the mailbox every year)?  

Negotiation is an opportunity to optimize a situation to be more in your favor. But…

When to negotiate (and when not)

It isn’t necessary or practical to negotiate every transaction in life.  Case in point: you don’t need to worry about paying 29 cents for a banana (which, by the way, must be the cheapest food on the planet).   

Negotiating becomes more important as the stakes increase.  Your starting salary will serve as a baseline on which future raises are based.  That’s pretty high stakes. If everyone in a group receives a pay raise of 5%, your salary of $250,000 will increase to $262,500.  A salary of $300,00 would increase to $315,000.  The difference between the two salaries, after the first increase, grew from $50,000 to $52,500. Your initial salary level should be fair and reflective of what you’re worth and what the market can bear.  

It’s also not necessary, or even wise, to negotiate every element of a transaction.  Why?  Because “over-negotiating” sends a negative message to the other party that you’re not dealing in good faith for an outcome that is reasonable and fair.  In the case of contract negotiation, it is an indication to the employer of what kind of an employee you will be.  Who wants to hire someone who will constantly be asking for more?  

The most significant outcome from negotiation is often the relationship that develops between the parties involved.  Negotiation is seldom a one-time deal.  There will likely be opportunities for future negotiation.  In fact, you should hope for that.  How you negotiate today will open or close doors for the future.  Don’t make the mistake of trading a big win today for a large loss in the future.  That’s why a “win-lose” outcome is seldom the best outcome. 

You were never taught how to negotiate?  You can learn!

Undergraduate and medical students don’t negotiate their medical school tuition.  Residents and fellows don’t negotiate their salary or benefits.  As a trainee, I bet you were never taught the art of negotiation.  At this point, you might be asking, “how do I learn how to be an effective negotiator?”  There are lots of books on the subject, mostly iterations of the same general principles.  

Here’s a book I recommend: “Getting to Yes: Negotiating Agreement Without Giving In” by Fisher, Ury and Patton (Roger Fisher is the Samuel Williston Professor of Law Emeritus and Director Emeritus of the Harvard Negotiation Project.) It’s short enough and interesting enough that you can read it cover to cover and it includes actionable strategies that you can apply in your professional as well as your day-to-day life. 

Principled negotiation (from “Getting to Yes”) involves four points:

  • Separating the people from the problem (attack the problem, not each other)
  • Focusing on interests, not positions (avoid having a bottom line)
  • Inventing multiple options looking for mutual gain
  • Insisting that the result be based on an objective standard (e.g., market value, expert opinion, custom, law) 

The first point seems self-explanatory - keep emotions in check. Focus on the tangibles. One sure way to derail a negotiation is to let your emotions speak for you.  Decisions based on anger, fear, hostility, or trying to preserve your ego are likely to end in disaster.  It takes practice and skill to overcome the urge to fight, especially if something personal is at stake.

The second and third points are related.  Consider salary, for example.  Salary isn’t always the element of most interest in contract negotiation but it is one of the most common.  It should be.  If radiologists weren’t paid for their work, most would not do it.  Money pays for the things we need to exist and unless we already have a life’s-worth, we need to acquire it by some means.  Unless you have a steady stream of income from real estate investing, a trust fund, an annuity, or some other source, you will need to earn it.

For example, setting a position of a certain salary level (your $ bottom line) will lock you into a number that will give you less room to negotiate.  Using principled negotiation, you don’t want to narrow the gap (between your salary position and that of the employer), but rather to widen the options.  You’re not looking for one right solution.  Being open to a number of different solutions will give you more room to negotiate.

A radiology group or department often has a fixed pot of money budgeted for radiologist salaries.  In that case, you might be wondering, how can there be multiple options?  The most common solution is to sweeten the salary pot with a sign-on bonus, loan-repayment benefit, greater academic time, or other perks.  There are yet other ways to widen the options.  Consider that the department may not be the only source of revenue.  Depending on the type of radiology job under consideration, there may also be a hospital, university, or corporation that will want a stake in your hire.  

Radiology groups have shared goals with the institutions with which they associate. For example, they may share a common plan to increase diversity among their workforce.  Perhaps there are funds associated with this initiative that can be used to hire an underrepresented minority radiologist.  

Hospitals have a stake in bringing on radiologists who can develop a new service line (and it’s associated $$$).

As another example, money might be available from a funded quality improvement initiative.  The hospital might pay a portion of the salary of a radiologist who is willing to be a leader in that initiative.  Hospitals have a stake in bringing on radiologists who can develop a new service line (and it’s associated $$$). Do you have the skills needed to start a uterine artery embolization service, or a prostate MRI program?  Such examples are win-win situations for all the parties that can jointly contribute to your salary.  

Universities are another source of salary income.  They contribute money to departments to pay for the teaching time of radiologists and radiology medical student course directors.  Some of this can be passed on to you as part of your guaranteed salary.

Fourth point - arm yourself with objective standards

It doesn’t get more objective than a dollar number. Salary ranges are easy to get. 

Note: A better interest to consider is compensation, which includes benefits and salary.  Considering this broader term opens the door to more options, which is the third point of principled negotiation.  But total compensation numbers are harder to get.

Let’s say you’ve researched all the latest salary surveys and talked to other radiologists in a similar position (based on skill, experience, location, and type of practice) so you have an idea of what is fair and reasonable.  It’s good to go into a negotiation with an acceptable range and not one number.  And it’s good to know your BATNA (Best Alternative to a Negotiated Agreement) before negotiation starts.  BATNA refers to the lowest value of a deal that you’re willing to accept, and at anything less, you will walk away from the table.

Note of caution:  a rigid BATNA inhibits imagination.  It reduces the incentive to invent a tailor-made solution that can reconcile differences in a more advantageous way for both parties.  It limits your ability to benefit from what you learn during the negotiation process.

You’ll be in a much better position to negotiate if you’re considering your total interests and not one position and you can create multiple options to get to your desired BATNA.

Let’s assume you’ve concluded, based on the research you’ve conducted, that an acceptable salary range for a first radiology job, for someone in your position, is $250,000 - $350,000.  Does that mean your BATNA should be $250,000?  Not necessarily, if you weigh the benefits such as retirement contributions, insurance, and paid time off.  Consider the following two one-year probationary job offers:

Job A offers you $300,000 in guaranteed salary, a compensation package worth $40,000, and 30 days of paid time off.

Job B offers you $240,000 in guaranteed salary, a compensation package worth $90,000, and 35 days of paid time off.

You might think the two offers are fairly similar in worth, and that a salary of $240,000, although lower than market value, might be okay. But you don’t have all the information you need to make that conclusion.  Will salary be guaranteed every year or just the first year?  If only for the first year, how is it determined going forward?  Is it based on work relative value units (wRVUs) or some other measure of productivity?  Does the group typically distribute a bonus at the end of the year?  If so, what portion would you be entitled to?  When should you expect a salary increase?  What are the criteria for an increase?  Who determines salary increases?  What type of retirement package are you being offered?  Are you able to invest in diversified, low-cost index funds?  Or will you have to choose from a limited number of funds with high fees?

There’s another reason to think beyond the first year.  Job A may come with regular increases in salary and Job B’s history of salary increases might be spotty.  There’s nothing wrong with asking your potential employer how much you could be expecting to earn in 2 years and in 5 years.  You might even be able to negotiate future salary increases as part of the initial contract.  

If the first year’s salary offer is below $250,000, and the benefits don’t compensate for it, but otherwise the job is more appealing than other offers, you can ask for a sign-on bonus or negotiate a raise the following year.  You’ll be in a much better position to negotiate if you’re considering your total interests and not one position and you can create multiple options to get to your desired BATNA.

My personal story

I’ve had lots of experience on both sides of the negotiating table, both as a hirer and a hiree. Most recently, I negotiated the current position I have as Director of Medical Content at MRI Online.  It’s a non-clinical role that allows me the opportunity to use my leadership and educational skills to help build the best educational platform for radiologists.  Since it’s a unique position, there aren’t published salary ranges.  But I knew the value of my worth as a clinical radiologist and an administrator so that was a place to start.

My interest was total compensation, not salary.  I considered the total value of salary and benefits as an employee and an independent contractor.  As an employee, I would be eligible for the usual benefits such as office space, retirement, insurance, and vacation.  But as I was already retired from clinical work and financially independent, I didn’t need disability, malpractice, or life insurance.  And I had a good health insurance plan through the Wisconsin Retirement System.  

So, what did I decide to do? I opted to work as an independent contractor, waiving all benefits (except for paid time off).  Since they would save money on benefits, the company could afford to pay me a higher salary as an independent contractor than they could as an employee.   

Note: The Internal Revenue Service (IRS) considers a self-employed individual (i.e. independent contractor) to be both an employer and an employee.  As such, I am required to pay the full 12.4% Social Security tax up to the wage limit and Medicare tax of 2.9%, for a total self-employment tax of 15.3%.  If you choose self-employment over being an employee, the salary should be increased accordingly (in some cases up to 50% more).

Also note: As an independent contractor (i.e., sole proprietor), I am able to deduct 20% of my qualified business income (QBI) as a 199A deduction on my income taxes.  The QBI deduction is not considered an “above the line” deduction because it is subtracted after adjusted gross income is calculated.  But it is also not an itemized deduction, so I’m able to claim it as well as the standard deduction.  As a sole proprietor, I can also deduct health insurance costs as an “above the line deduction”, decreasing my taxable income dollar for dollar. And since I work from home, I am able to deduct home business expenses.

And finally: Federal anti-discrimination laws only apply to “employees” and not independent contractors.  Your job as an independent contractor may not be as stable as it would be as an employee.

Never yield to pressure, only to principle  

What do I mean by that?  If an employer tells you that they can only offer you a starting salary of $225,000, and you know that number to be well below average, you don’t have to give in.  What can you do?  You can share your salary data with the employer and ask her to explain why her offer is fair market value.  This creates a situation where you are asking for a fair salary based on objective criteria.  Note:  be prepared for the employer to come back with her own objective criteria, different from yours.

Get in touch with your assets

Factors that will influence bargaining power include who needs who more, external market forces, and what types of contracts other people are signing.  Knowing your assets gives you more negotiating power.  What assets might a newly-graduated radiologist bring to the table?

  • Manpower (especially valuable during times of manpower shortage)
  • Unique skills (CT colonography, prostate MR, etc. if you concentrated on these areas in training)
  • Extra degree/certification (PhD, MBA, IT, MEd)
  • Underrepresented minority (a more diverse group is a better group)
  • Ties to the community
  • Research experience and interest
  • Fellowship training in a high demand area
  • Flexibility in work hours
  • Flexibility in scope of practice (i.e., willing to practice general radiology)
  • Ability to start the day after finishing training (if you’re willing to do so)

Something else that will give you power is knowing in advance what the BATNA for the other side is. Since this is difficult, if not impossible to obtain, you should strive to at least understand what the other side’s alternatives are.  Learn what the other party needs in a new hire by reading the job description and perusing the group’s website. 

Entering negotiations with information about the other side’s interests will allow you to better determine your own value by knowing what you can bring to the table.

Talk to former and current employees.  Ask targeted questions about the direction the department is taking, what is needed to get there, and how you might fill a needed role. Ask whether there are deficiencies in the group (and view these as opportunities).  

For example, unless you ask, you may not find out that none of the current faculty members have an interest in leading the medical student radiology course. This results in a missed opportunity to emphasize your educational leadership interests.  If you don’t check out the group’s website you might not discover how lacking it is in content and design and blow an opportunity to promote your experience in web development.  Entering negotiations with information about the other side’s interests will allow you to better determine your own value by knowing what you can bring to the table.  

Don’t ignore the soft skills

How you negotiate reveals a lot about what kind of a person you would be to work with.  You’d be smart to keep this in mind.  This works both ways - you will get to see what kind of person the employer would be to work with by the way she negotiates.  Negotiating is an opportunity to demonstrate your principles: fairness, continuous self-improvement, service-orientation, and a desire to see the group thrive.  If the employer values those qualities, she will want to add you to her team.  If you convince all the people you interview with and otherwise meet that you share the team’s values, those people will root for you.  

Negotiating presents an opportunity to build trust and sow the seeds of a long-lasting positive relationship.  It’s hard to put a dollar value on that.  How much is it worth to have a world-renowned radiology chair write a personal recommendation on your behalf?  Her initial impressions of you will be influenced by your style of negotiation.  

Go into negotiations with a clear idea of what is most important to you.  Then focus your asks on those interests.  Presenting a long list of demands will make you appear unreasonable and not the kind of person a group wants to bring onto their team. Most employers are not going to fight a limited number of changes that would make a candidate happy. After all, they spent a great deal of time and money to recruit you, and they won’t want to start the process all over again.

Don’t sell yourself short  

Even “standard” contracts that “every physician has signed” can be changed.  Underestimating your value can substantially reduce your compensation—and that reduction can last a lifetime if future raises are based on initial salary.  A person doesn’t get paid what they’re worth, they get paid what they negotiate. It’s very likely that the first offer you receive won’t be the best offer. You may recognize those words from previous posts because it’s a mantra worth repeating. View receiving a contract as an invitation to bargain. As a general rule, initial contracts are worded in the best interest of the employer and should never be signed outright.  

I also recommend against accepting an offer on the spot. The right amount of time (days, not weeks) provides an opportunity for both parties to think about what they bring to the table.  If you’ve made a good impression and “sold yourself”, a day or two will make you even more valuable in the eyes of the employer.  

My advice: when presented with an offer, thank the employer, express your interest in the job, ask for a day or two to think it over (and to discuss it with your legal consultant), and come back with a sound and reasonable counteroffer.

When the other side doesn’t play smart 

Since negotiation is a skill that is honed with education and experience, you shouldn’t be surprised if you find that the person you’re negotiating with isn’t very good at it.  This actually works to your disadvantage.  You would rather be negotiating with someone who understands the importance of creating multiple options and building relationships. When this isn’t the case, you’re going to have to work harder to make up for the other side’s deficiencies.

When the other side doesn’t play fair

So too is it difficult when you’re stuck negotiating with someone who doesn’t play by the rules.  Here are some of the ways interviewers don’t play fair:

  • They try to deceive you by representing themselves as someone with authority they don’t have (promising you something they can’t deliver) or by offering phony facts
  • They deliberately make you feel uneasy (the room is too hot or cold, they don’t offer food/water or a bathroom break)
  • They criticize your appearance or fail to listen to you or make eye contact
  • They ask illegal questions (do you plan to have children?)
  • They threaten or overly pressure you (I need to have an answer right now)

One way to handle the above is to stick to your principles of negotiation, which includes separating the people from the problem and focusing on your interests, multiple options and objective criteria.  

Another solution, which might be the best, is to walk away.  Do you really want to work with someone who demonstrates that kind of negative behavior?  Unless you only plan to stay with the group for a short period of time as a temporary position until your dream job opens up or until your family is free to move around, you should think twice about forging a long-term relationship with someone who creates a toxic work environment.

Closing remarks

Negotiation is much like politics (the definition of which is “the art of influencing others”). Becoming a skillful negotiator requires a bit of finesse as well as education and practice.  In high stakes situations, like your dream job, you might want to practice with a colleague, faculty member, or an experienced and trustworthy person in a hiring position.

The way you negotiate can mean the difference between making a deal or not, whether the pie is expanded or merely divided, and whether you have a good relationship with the other side or a strained one.  If you do come to an agreement, be happy about it, even if you didn’t get everything you wanted.  Both sides should be happy to be working together.  It won’t benefit you any to feel remorse. If that’s the case, it probably wasn’t a deal worth making.

Remember:

  1. Know what you want and what you can accept 
  2. Know what the other party wants and needs
  3. Negotiate in good faith and build a lasting relationship 

Enhanced Education Through the Application of Adult Learning Principles

What are adult learning principles?  What does it mean to apply “adult learning principles” to one’s teaching?  Are you already doing it? If you don’t know the answers to these questions I invite you to keep reading.  

Research that looks into how pre-adults (pedagogy) and adults (andragogy) learn shows that if you apply adult learning principles, you can be a more effective teacher.

Adult education literature supports the idea that teaching adults should be approached in a different way than teaching children and adolescents (pre-adults). Many aspects of effective teaching apply to all age groups, and current theory sees the two processes as a continuum with pedagogy on one end and andragogy on the other. However, adults have had more life experiences and in many ways are differently motivated than children. 

Malcolm Knowles, who is considered the father of adult learning theory, coined the term andragogy to describe the study of adult learning.  Adults are more self-directed in their learning and have a greater need to know why they should learn something. They have set habits and strong tastes. They may have prejudices, which are detrimental to the learning environment. They want a choice in what they learn. These characteristics of adult learners can be addressed in the learning environment. Understanding the principles of adult learning can help you become a better facilitator of learning.

Everyone seems to be drawn to “top ten” lists, so here are ten principles of adult learning:

  1. Adults have accumulated a foundation of life experiences and knowledge.  Acknowledging adults’ understanding and experiences validates them as competent and capable learners. It is important that the facilitator of adult learning help adult students see the connections between earlier learning experiences and new information. Thus, teachers of adults should begin educational sessions by finding out what the adults already know about the topic. For example, knowing whether or not a group of students has an understanding of interstitial lung diseases would be helpful to the radiology teacher who plans to show the students radiologic examples of the diseases. A student with no fundamental knowledge of such diseases, who may be unfamiliar with the disease names, would have no current knowledge to tie the radiologic images to.  Although this information is ideally obtained prior to the educational event, when this is not practical, the audience can be quizzed at the beginning of the session.
  2. Adults are autonomous and self-directed.  Knowles promoted the concept of self-directed learning. He felt that adults should create personal learning objectives that would allow them to set individual goals and to apply the new learning in practical ways. Self-initiated learning is lasting and pervasive. It is most effective when adults can proceed at their own pace, so independent study should be encouraged. Independent study can be facilitated by providing learners with references and supplementary educational resources, such as educational videos and handouts. 
  3. Adults are goal-oriented.  They like to know how the educational activity will help them reach their goals. This is why you should explicitly state your objectives at the beginning of every presentation. For example, a learner may attend a lecture on high-resolution computed tomography (HRCT) of the chest, with a goal to understand the different patterns of disease seen on CT scans. At the beginning of the presentation, you would outline several patterns that will be discussed and contrasted with each other, making it clear to the learner how the lecture will help him or her understand patterns of disease on CT scans in a way that will be applicable to his or her practice. 
  4. Adults are relevancy-oriented and practical.  Learning should be applicable to the learner’s work or other responsibilities valued by the learner. In other words, adults want to know “what’s in it for me” (WIFM). They want content that can be applied to real-life situations. Adults tend to be problem-centered and learn best through practical applications of what they have learned. Techniques that can be used to facilitate making content relevant and based on learner needs are problem-solving activities, anticipating problems in the application of the new ideas to the learner’s setting and offering suggestions, and showing real-life cases to link theory to practice.
  5. Adults (all learners) need to be respected. Learning takes place in an environment that is considered “safe” by the learner- one in which the learner feels he or she can be successful. Respectful learning environments are those in which all opinions are valued. Adults should participate voluntarily. In a true learning community, all participants, including the instructor, share ideas and learn from each other. As the instructor, you are a facilitator or guide rather than the only one with knowledge. Learners respond to personal interaction, such as when you call them by name and listen to their questions and viewpoints. They respond positively to constructive feedback and your respect for their time and educational priorities.  
  6. Adults are motivated to learn by both intrinsic and extrinsic motivation.  What motivates radiologists to learn?  They want to build social relationships, fulfill licensing or certification requirements, improve their ability to serve mankind, advance professionally (e.g., by getting a raise or promotion), escape from the routines of home or work, and learn for the sake of learning. You can leverage learner motivation to make your teaching relevant.  An obvious example of this is how you might use case-based teaching to prepare trainees or practicing radiologists for certification exams.
  7. Adults learn best when they are active participants in the learning process. Teaching is not something that should be done to the learner. The learner should be actively involved in the learning process as this enhances retention of new concepts. Active learning is student-centered (e.g., not a “talking head” lecture), encourages sharing of experiences and questions, and weaves discussion sections with exercises that require learners to practice a skill or apply knowledge. Such experiential learning (as described by Carl Rogers) that is personal, self initiated, and evaluated by the learner leads to long-lasting retention of knowledge.
  8. Not all adults learn the same way. Individual learning styles are influenced by personality, intelligence, education, experiences, culture, and sensory and cognitive preferences. Methods to accommodate different learning styles can include small- and large-group discussion, role-playing, lecturing, case studies, games, questioning, and optimal use of technology. For decades, educators have quoted literature touting that learners retain 10% of what is read, 20% of what is heard, 30% of what is seen (demonstration), 50% of what is seen and heard (discussion), 70% of what is said (practice), and 90% of what is said while doing (teach others, immediate use). These numbers have been debunked but the general principle still holds true that learning is most effective when different learning styles are used and learners are actively engaged.
  9. Adults learn more effectively when given timely and appropriate feedback and reinforcement of learning. Providing timely feedback optimizes learning and mastery of content and skills. Constructive feedback helps learners correct errors and reinforces good behaviors. As the name implies, positive reinforcement is “good” and reinforces “good” (or positive) behavior. Negative reinforcement is useful in trying to change modes of behavior. The result of negative reinforcement is extinction—that is, the instructor uses negative reinforcement until the “bad” behavior disappears or becomes extinct. Feedback is most effective when it is constructive, frequent, and regular and comes from self, peers, and instructors.
  10. Adults learn better in an environment that is informal and personal. It has been suggested that people do not learn from experience, but rather they learn from reflecting on experience.  Reflective learning is a way of allowing learners to step back from their learning experience, helping them to develop critical thinking skills and connect previous learning experiences. Writing in reflective journals is one way to track changes in behavior or actions as a result of new learning and to keep track of how those changes affect one’s practice over time. 

In summary, adults learn best when:

  • New knowledge is built on current knowledge
  • Learning is self-initiated
  • Learning helps meet personal goals
  • Learning solves problems
  • They feel comfortable in the learning environment
  • They are motivated to learn
  • They are active participants
  • They can use their preferred learning styles
  • They reflect on their learning
  • Constructive, regular, and frequent feedback is provided

The best way to learn is to teach.

Teach/Learn Image from Dvir Yitzchaki (@divirtzwastaken) tweeted 8-18-19  

Every good post deserves a Collinsism, so here it is:  The best way to learn is to teach.  Put another way -teaching is learning twice.  All of the adult learning principles described can be wrapped up in one activity: teaching.  Nothing in my career has been more rewarding than the positive changes I’ve made in the lives of the students I’ve taught both formally and informally.  Most rewarding of all is to hear that someone is a better teacher because of something I taught them.  

One last note:  thank you to all the teachers who made a difference in my life.


Financisms: A Top Ten List

Radiologists can relate to the phrase “a picture is worth a thousand words.” “The only constant is change” is another adage perfectly describing the specialty.  And this dictum was hammered home by faculty throughout my radiology training: “If it isn’t documented, it didn’t happen.” 

You know I have a passion for finance. But I have a confession to make.  

I also love words.  I love learning new words.  Which is why when my parents asked me what I wanted for my birthday many many years ago, my answer was a copy of the Deluxe Encyclopedic Edition of New Webster’s Dictionary of the English Language.  It still has a place on my bookshelf (next to a well-worn medical dictionary and one of the best books I’ve read about Bob Dylan).  

I also love to make up words, which is how I came up with the title for this post.* Did you know there’s a word for that, too? Protologism. It’s a word for a new word that hopes to one day become ‘official’ and widely accepted. 

Another quick fun fact for you: before the Internet, there was Shakespearethe master of coinage.  Seriously, it’s insane, you should Google it. 

Anyway, speaking of, ahem, coinage…

Financisms:  Financial truisms

For those of you who don’t know the definition of a truism: A truism is a statement that is so widely accepted, or so evident and factual, that questioning its validity is considered foolish. 

Examples: You’ve got to crack a few eggs to make an omelette. A fool and his money are soon parted.

If you’ve read hundreds of finance books over the years, followed finance blogs, listened to finance podcasts, and attended finance conferences, you’ve probably come across many of the financisms on my list. I like them because they concisely sum up important financial concepts.  And because, well, in addition to loving words, I also love truisms and their cousins: idioms, proverbs, sayings, adages, maxims...you get the idea.  

I thought it would be fun and educational to list some of the financisms that I’ve found particularly enlightening.  Most of them have been repeated over and over without giving credit to their origin, but I’ve credited a source (which may or may not be the original source) when it’s known to me.  

My top ten financisms and what they mean:

1. It’s not timing the market that matters, but time in the market.

Market timing refers to the act of moving in and out of a financial market or switching between asset classes based on predictive methods.  It is the opposite of a buy-and-hold strategy.  It is nearly impossible to time the market successfully compared to staying fully invested over the same period. This is due primarily to costs of opportunity, transaction fees, and taxes.  A report of investor behavior showed that, if an investor remained fully invested in the Standards & Poor’s 500 Index between 1995 and 2014, they would have earned a 9.85% annualized return. However, if they missed only 10 of the best days in the market, the return would have been 5.1%. Some of the biggest upswings in the market occurred during a volatile period when many investors fled the market. 

A recent White Coat Investor post does a nice job of explaining how timing the market is a fool’s game because it requires 1) predicting the future, 2) knowing when to get out of the market, and 3) knowing when to get back in the market.

2. It’s not how much you earn that counts but how much you keep
(also: It’s not how much you make but what you make of it).

This could be construed in a couple ways.  First, that you can earn a lot of money but spend it, especially on things that you don’t value.  Second, that you earn money from investments but in an inefficient manner (again, those pesky fees and taxes) such that an unnecessary amount of the profit is eaten up by fees and taxes.

3. The greatest wealth is health.

This phrase was reportedly coined over 2,000 years ago by the Roman poet Virgil. Translation: No amount of money can compensate for deterioration of health and the limitations it places on the ability to enjoy life.  Some people remain active for a long time and don’t seem to have to work at it.  They’re lucky.  For most of us, we have to work at it every day by eating well, exercising, getting adequate sleep, avoiding stress and getting recommended vaccinations and screening exams.  I’d happily trade financial wealth for the ability to walk 10 miles a day when I’m in my 90’s. Fortunately for many of us, we have the potential to be wealthy and healthy.  Note: I’ll let you set your own criteria for financial wealth.

4. Don’t compare your insides with other people’s outsides.

In other words, stop trying to keep up with the Joneses’.  The bestselling book, The Millionaire Next Door, identifies seven common traits that show up again and again among those who have accumulated wealth. Most of the truly wealthy in this country don’t live in Beverly Hills or on Park Avenue-they live next door.  The sad truth is that a lot of people who live in big homes, drive fancy cars, and take expensive vacations aren’t wealthy.  They’ve accumulated a lot of material possessions but with them a load of debt.

5. Only in investing is it NOT true that you get what you pay for; you get what you don’t pay for.

A version of this financism was often repeated by John Bogle, founder and chief executive of The Vanguard Group, who is credited with creating the first index fund.  He preached on why it is so difficult to capture the market’s returns due to the costs of investing—fund management fees, operating costs, brokerage commissions, sales loads, transaction costs, fees to advisers, out-of-pocket charges, market timing, and so on. These fees are minimized if you invest in broadly diversified index funds and avoid market timing.

6. You can’t manage expenses if you don’t know what they are.

I’m not going to tell you to make a budget, but if you’ve never looked at how you spend your money, I suggest you have a go at it.  I think it’s fun! Track all of your major expenses for 6 months (mortgage/rent, utilities, phone/internet/cable/streaming services, food, insurance, gas/auto maintenance/other transportation, travel, health care, clothes, child care, lawn care, student loan payment, credit card debt, retirement contributions, etc.).  Also, find out what you pay in income and property taxes.  You might be surprised at where your money goes.  For most of us, money is a limited commodity and we make choices as to how we want to spend it because we don’t have a never-ending supply.  Like the Hawthorne effect (or “observer effect”), simply observing what you spend will influence the way you think about spending and may change the way you spend going forward.  The point is not to stop spending money (it really can’t be avoided) but rather to spend and invest it on things you value.

7. Net worth is not self-worth.

Net-worth: Your assets minus your debts.

Self-worth: The quality of being worthy of esteem or respect.

It’s human nature to compare ourselves to others. And many people determine who is living a more valuable life by comparing their clothes, cars, homes, and paychecks (tying self-worth to net-worth). I hope you don’t do that, because life is far more valuable than the things that you own.  Your self worth is also not determined by how many things you cross off your to-do list, your job, your social media following, your age, what other people think of you, how far you can run, your grades, the number of friends you have, or your relationship status.  You are the only one who determines your self-worth. What truly matters when determining people’s worth are their kindness, compassion, empathy, respect for others, and how well they treat those around them.

8. In the end, how your investments behave is much less important than how you behave
(source: Benjamin Graham). 

Behavioral finance theorists argue that, rather than being rational, people often make investment decisions based on emotions and biases. Investors often hold losing positions (i.e., investments) rather than feel the pain associated with taking a loss. The instinct to move with the herd explains why investors buy in bull markets and sell in bear markets. When the market takes a big downward swing, investors see the value of their portfolio plummet and hear TV/social media/blog chatter about “getting out of the market before it goes down even further.”  But doing this results in a behavior of  buying high and selling low, leading to lower long-term gains than if the investor had ignored the hoopla and stayed the course.  

9. The market giveth and the market taketh away.

A stock market correction is usually defined as a drop in stock prices of 10% or greater from their most recent peak. If prices drop by 20% or more, it's called a bear market. Since 1920, the S&P 500 Index has—on average—recorded a 5% pullback three times a year, a 10% correction once every 16 months, and a 20% plunge every seven years. Corrections have lasted an average of 43 days. In 2020, the coronavirus pandemic rocked the stock market, sending it into another bear market. But within five months, the S&P 500 had made a full recovery and was setting new record highs. Key point: market swings are to be expected and should not influence your long-term investment strategy.

10. Past performance is no guarantee of future results.

This year's top-performing mutual funds aren't necessarily going to be next year's best performers. It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year. That's why the U.S. Securities and Exchange Commission (SEC) requires funds to tell investors that a fund's past performance does not necessarily predict future results and recommends considering other factors before investing in a mutual fund.

But, wait, there’s more! Financisms, of course. Enough for a couple more top ten lists, so let me know if you’d like a follow-up post.  Send me your financisms and I can throw those in, as well.  

And because I couldn’t NOT include these two:

Bonus financisms

The future ain’t what it used to be
(Source: Yogi Berra - okay, maybe this isn’t strictly a financism, but it sure applies to investing).

See #10.

The best guide to our future behavior is our past behavior
(Source: everyone from psychologists, such as Albert Ellis, Walter Michel, and B.F. Skinner, to writers such as Mark Twain.  I first came across the phrase when reading one of my favorite finance books by Jonathan Clements.  I don’t remember which one it was, but I recommend both of the following: How to Think About Money and Money Guide 2016.  You can also access Money Guide for free on his website Humble Dollar).

If you found yourself unable to sleep during the last market downturn and wound up selling stock funds when they were down, you learned something important about how you react to market fluctuations.  You may need to titer your portfolio to include fewer stock funds to the point where you can sleep.

*Disclaimer: a Google search of financisms reveals nothing, but removing the “s” creates a term that, as far as I can tell, has been described as an extreme stage of capitalism.  My use of the terms financism and financisms is unrelated to this definition.