How to Make Financial Mistakes and Still Achieve Financial Freedom

How to make financial mistakes and still achieve financial freedom

I love to read blogs about personal finance, especially as they relate to financial independence and early retirement. When I was going through burnout very early in my radiology career, much of the inspiration, tools and tactics I used came from stories of ordinary people living their life a bit differently.

I noticed something though.

They were all better than me.

They were more frugal, better at keeping a budget and running spreadsheets, better at travel hacking, better at not burning out from their job, and better at being happy. They lived in smaller homes, had less expensive cars and did it all with much smaller incomes that myself.

They seemed to do everything right, and in a way it was a bit discouraging. It is natural to compare our self to others to figure out how we are doing, and maybe you are comparing your situation to mine. I don’t want you to think that I am perfect with personal finance. Far from it. I have above average knowledge on many things finance related, but I have made plenty of mistakes along the way.

I give you a list of the things I got right, and things I got wrong so you can hopefully see that perfection is not required for financial freedom. You have to get SOME things right, but not everything.

Things I got wrong:

1. I picked a career (medicine/radiology) that I would burn out from: This was a big one, and of course everything is obvious in retrospect. I only lasted 8 years as a full time physician. For most of us, our ability to work full-time in a career for decades is our greatest asset.
2. I went half time: After burning out, I then threw away half of my earning power forever around age 40 to go part-time. None of my other financial “mistakes” even come close to this one.
3. I bought too big of a house: I admit it; I bought the “doctor house”. It’s kind of a McMansion. It’s not obscene, but it’s definitely more than we need. Not only was it more expensive to purchase, it costs more to heat, takes longer to clean, is more expensive to replace carpet and paint, takes more furniture to fill, etc.
4. I only buy new cars: In the financial independence community this is akin to saying you like to kick puppies. I’m almost ashamed to even type it. I can’t help it; I like that toxic new car smell. I calculated the cost of all of the cars I bought since leaving medical school and they total about 100k in 2018 inflation adjusted dollars, and that doesn’t even include the additional insurance and other operational costs. 100k is nothing to sneeze at, and I probably could have saved a lot buying used cars at the tail end of their depreciation curve.
5. Going from a 2 to 1 household income: This was another stream of income we decided to turn off early in our working careers. Although Mrs. Happy Philosopher was only working part-time it was not an insignificant amount of money.
6. Buying individual stocks thinking I was smarter than the market: I learned this lesson the hard way. Early in my investing career I thought I was clever. I suffered from the delusion that I had more clarity about the future than the average person, and therefore could profit from it by predicting trends and investing in companies that would diverge from the market return. I was right, although in the wrong direction. I should have just shorted all the stocks I picked because I seemed to have a knack for picking losers. I would have been better off just buying low cost index funds.
7. We don’t budget: I hate people or systems telling me what I can and can’t do. We spend money on what we want to and let the chips fall where they may. I’m sure we spend more than we would otherwise with a budget, but this one just isn’t in our personality.
8. We outsource many things: I will try little projects like replacing a burnt out light bulb, using a screwdriver from time to time (flat head AND Philips) and I even change the oil in our cars, but I’m not really all that handy of a guy. I pay people to paint my house, replace carpet, refinish hardwood floors, put in faucets, and kill rats that take residence in my crawlspace.
9. We don’t sell our stuff: We had a huge garage sale about 10 years ago. We made good money, somewhere close to $1000, but it took our entire weekend from us and much of the week before to get things organized. I don’t like sitting in my garage for a weekend haggling over the price of kids clothes with strangers. I don’t like answering emails or phone calls from random crazy people on Craig’s list. It’s just not my thing, so when I don’t have a need for something I just give it away or sell it cheap to a friend. I’m sure I’ve left money of the table doing this but it decreases the stress and hassle from my life.
10. I don’t spend much time optimizing my recurring expenses: The thought of calling the cable company and haggling over a few discounted months of service literally gives me a headache just thinking about it. Everything in my life works, from my cell phone to my internet to my Netflix account. I don’t game the credit card signup bonuses anymore (I used to) or open bank accounts to get a few promotional points of interest.
11. We had kids: I think I spend about 5% of my income just replacing the shoes they outgrow and driving to soccer practices/games/tournaments. Seriously, kids take a chunk of money to let them do all the awesome things they want to do, not to mention saving for college. Travel is more expensive. They outgrow their clothes every year, and when they get older you have to start feeding them more and buying them deodorant and stuff.

As you can see, I’m not fantastic with money. Other FIRE bloggers spend less money than me, make fewer mistakes and are more efficient. Even Physician on Fire destroys me here. But I am still going to be financially free and probably retire before I’m 50. In spite of all my mistakes and short career I did a lot of things right. Here they are.

Things I got right:

1. I picked a career in medicine/radiology: There is no doubt about it; having a high income can make up for a lot of financial mistakes. Radiology is a well-paying specialty in a high income field (medicine). Even though I burned out and only worked 8 years full-time, I was able to quickly eliminate debt and save money early in my career.
2. I went half-time: This was a financial disaster for me (losing ½ my income), but saved my career and allowed me to work longer. When we are young and are highly compensated, our ability to work is our greatest financial asset. Working 10 years part-time and being happy is better than working 5 years, being miserable and burning out. The tax code is more favorable, you have fewer years to stress out about health insurance and you have more time to detach your ego from your job.
3. We didn’t buy a house we could not afford: Although our house was more than we needed, it was not more than we could easily afford. Our “doctor house” was less than 2x our gross annual income. We could have bought a bigger house, or in a neighborhood with a much higher cost per square foot, but we didn’t. Additionally we didn’t feel the need to upgrade or build a custom home, something I see many physicians do 5-10 years into their career. If you ever feel like extending your career by 5-10 years just buy some land and build a 4000 sq. ft. house. The housing market was also not completely insane when we purchased. Additionally, we got lucky with a house we bought in residency and banked enough for a healthy down payment. I don’t recommend buying a house in residency under most circumstances. Rent in residency; buy 1 house after residency for less than 2x your gross household income.
4. I drive my cars for a long time: Yes we buy new cars. This is expensive. But we have only purchased three of them in the last 18 years. We got rid of the first one after 16 years and the second one is going on 13.5 years old. They were nice cars, but not insanely luxurious…and this still cost 100k. If you are buying expensive luxury cars every three years you are effectively destroying your freedom for questionable benefit. The funny thing is, when I tell people how old my cars are they are often surprised. It’s amazing how new your cars can feel if you just keep them clean, don’t drive them too hard and do routine maintenance.
5. We went to a 1 household income: This was a financial loss, but it was actually pretty small after doing the math. After subtracting taxes, commuting costs, child care, fancy doctor clothes, licensing and CME, etc., Mrs. Happy Philosopher’s take home pay was probably less than it was in residency. The improvement in the quality of our lives without juggling 2 call schedules or wondering what we would do if the nanny got sick far outweighed the benefit of her paycheck. You can’t just look at the gross salary of a job, you have to subtract out the external and internal costs and benefits. The tax code punishes high W2 income due to the progressive nature and at some point it makes no sense for the second person to keep working.
6. I leaned many financial lessons when the stakes were small: As mentioned above, you should probably just short any stocks I think are going to be blockbusters. I had many go to zero or almost zero. I bought tech stocks at the height of the bubble. I bought “value” stocks that went bankrupt. I bought stocks that friends recommended because they “knew someone at the company”. It was all nonsense, but I made these mistakes when my net worth was close to zero and I learned some valuable lessons. I don’t know the opportunity cost of my early investment strategies, but I do know if I made these same mistakes once the real doctor paycheck started rolling in I would be working many more years to make up for them. Low cost index funds are what most people (including me) should probably be stuffing their money into if they are building wealth with paper assets (business or real estate is different).
7. We track spending: I hate budgets, but I love tracking. I do a 10,000 foot view of our finances every year which takes me about 2 hours. I only dig into the weeds if something is an outlier (like our spending jumps 10% from the previous year). I want to know where our money is going and if it aligns with our happiness. I want to know if some huge but infrequent expense skews the data (like when we purchased a 27k car and I almost had a heart attack when I did the spending review). I know what our household has spent for the last 7 years. Because of this I have a pretty good idea what the next 7 years will look like. This takes almost no time at all, but I can look at a spreadsheet and in a matter of seconds know exactly where I am. I’ll write a blog post on how I  do this at some point.
8. We insource many things: We don’t pay people to clean our house or take care of our yard. We eat most of our meals at home and they are usually healthier, tastier and cheaper than eating out (although we still love to eat out as well). I do my own taxes. The more you insource the things that are neutral, and they don’t take too much of your time, the better off you will be financially. This leads to a lower overall cost structure of your life. When we were both working we outsourced more.
9. We give our stuff away: Although we don’t bother to sell many things, we give a lot of stuff to various charities. There is a tax deduction here (although this is going away with the tax law changes for 2018) that is probably pretty close to what we would have received from selling it and 99% less hassle.
10. We have few and inexpensive recurring fees: Although I don’t spend much time optimizing recurrent expenses, we don’t have that many of them. The ones we do have are not terribly expensive. We don’t have the cheapest cell phone bill, but it is somewhat reasonable. We don’t have an expensive cable package (we hardly watch television anyways). We have a few subscriptions that add value to our lives and they are a rounding error to our total spending.
11. Use credit cards for almost everything: Although I don’t do major credit card hacking, I do use a couple to get either cash back or miles. When we travel we try and take advantage of companion passes. We grab the low hanging fruit and save a few dollars here and there. I recently learned the incredible value of having frequent flyer miles on hand.
12. Our kids go to public schools: Private schools are insanely expensive, and I would only use them if the public schools in my community were truly awful. My guess is that most doctors live in areas with decent public schools. I think private schools are overrated and a poor value most of the time, but many doctors tend to be very opinionated on this topic and wouldn’t be caught dead sending their kids to public school. Nobody cares where you went to elementary school, junior high, and high school. It just doesn’t matter. Seriously. Instead just read to your kids every night when they are young and instill in them curiosity and the love for leaning. There you go; I just saved you several hundred thousand dollars.

General principles:

Personal finance is simple. Spend less than you make, invest the difference wisely, and avoid disaster. That’s all there is to it. You don’t have to do everything right, but you have to do some things right. Focus on the things that have greatest impact. Your house, cars and food will probably be your biggest expenses. For physicians, student loan servicing may be in the top three. For others it will be vacations, educational costs for kids, or health expenses. Whatever it is, minimizing your top 3 or 4 big expenses is more important than saving $18/ month on your cell phone plan or cutting coupons.

Put a lot of time into big decisions, because change is expensive. Sometimes change is necessary for happiness, but it’s expensive in the short term. There is wisdom to the old adage ‘One house, one job, one spouse’.  The person we choose to be our significant other, the community we live in, the job/career we choose and the decision to have children. Those are usually the decisions that have the biggest impact on our lives, both in terms of happiness and finance. Choosing the wrong refrigerator is not a big deal, choosing the wrong spouse and getting divorced is a huge deal (for many people). Not everyone will get this right, but we should try and maximize the pre-test probability for success.

Make lots of money and save lots of money. Money will not bring you happiness, but it will bring you freedom. I know most people say follow your passion when it comes to your career. This is kind of true. You don’t want to pick a career that you will hate or burn out from, but, all else being equal, pick a high paying job. It’s better to make $100k than $40k/yr.  Buy your freedom with the extra $60k and you will have many more years to pursue your passion.

Eliminate external comparisons. This is really hard to do, but once you stop caring about what other people have and stop comparing your success to theirs, you become free. You will stop buying and consuming for the sake of filling an unfillable hole. Some people will always have more than you, and this is OK. Feel happy for them and have gratitude for the things you do have.

What are some financial mistakes and successes in your life,  and how have they affected your freedom?