10 Financial Fallacies

Each of us has a unique upbringing. A different set of parents. Individualized experiences that influence our current decision making. Without saying, each of these variables lead us down different paths.

I have said before and will say again, I don’t fault CRNAs for making the financial decisions they do. Personal finance is 75% emotional and 25% mathematical. Success on paper does not always equate to success in practice. Financial success requires an understanding of both the emotional and mathematical components. The least we can do is discuss some of the areas where people take the wrong path when encountering a fork in the road.

Retirement is age 65 – or later.

This one bugs me most of all so I moved it to the top during the editing phase. Maybe I’m just the weird one out here asking myself why I would wait so long to have the option to quit working. It’s not that I don’t like passing the anesthesia gas, I just don’t want to be forced into something. Anything really.

I want 10 good years of anesthesia. This statement came from my undergrad self around 2015. Looking through the realist lens, I predicted there would be significant changes in the profession by the time I became a CRNA and then practiced for a decade. Maybe great changes that would lead me to love the profession more than ever. Maybe changes for the worst leading me to despise my drive to the hospital.

Not to mention any number of life changes that influence my desire or abilities to do a certain job or be in a certain profession. Plan for the worst and hope for the best. Now that’s a very anesthesia way of thinking.

At the simplest form, personal finance is about ratios. Money in versus money out. What percentage of your net income covers cost of living and how much is invested? How much does the nest egg generate annually and can it cover your cost of living?

I work hard to generate an income, the greatest wealth building tool for the non trust fund babies out there. A significant portion of that income is set aside each month where I put it to work in the form of equities or bonds. Over time, I look for my investments to outearn what I make in my day job -- or at least cover my cost of living and then some.

That’s when retirement happens. It’s not an age, it’s a financial status.

Skip the Starbucks to become rich.

To the audience of this blog, a $5 fancy coffee isn’t going to make any significant difference.

$5 * 365 days = $1,825 annually

For the average earning CRNA, that’s less than 1% of your gross annual income. Having some little luxuries in your life are worth it. Cutting out everything enjoyable makes budgeting miserable and unsustainable. I’m okay with miserable for a short period to accomplish something great, but not for the long term. There is a time and place to trim the budget and coffee is low yield.

Not visiting your favorite barista may even have severe repercussions on interpersonal relationships if you become abrasive without your fix.

I’ll worry about retirement later.

And many people do, but following the heard on this one is a detrimental mistake. Early in one’s career, it’s important to pay off high interest debt quickly to stop the financial bleeding. After achieving a positive net worth, it’s time to set money away for the ever coveted retirement phase of life.

With the disappearance of pensions, the government incentivizes individuals to take responsibility for their retirement in the form of tax advantaged accounts such as the 401(k). Every W-2 employee is allowed to contribute $22,500. Not only is this a good move throughout one’s career for retirement’s sake, but the tax savings arise from the highest progressive tax bracket, which is likely between 24% and 35% for CRNAs.

Invest $22,500, save $6,000 in taxes, and maybe pickup an employER match of $6,000-$12,000. Hard to go wrong here.

If you are in the 1099 group playing the employEE and employER, that value increases to $66,000. Same deal, but without someone else matching your contribution. Decrease taxable income by $66,000, yes please! And more for those over age 50.

Fortunately, high income earners have leeway because their income is so significant. But if you have the funds to start investing for retirement, the benefits are well worth it.

It’s not worth saving small amounts.

Saving some amount is crucial for everyone. Difficult for 20-year-olds to put away any significant investments. Equally difficult for newly graduated broke CRNAs to put away significant investments despite a substantial income.

This is one aspect of personal finance I discuss during coaching sessions. As most CRNAs are W-2 employees, the trifecta of advantages listed above are relevant. Many coming out of school report between $150,000 and $200,000 of total debt, most being student loans.

We create a plan to attack the debt, but also set aside a small amount to meet the employER 401(k) match. Usually the $6,000-$12,000 listed above. An instant 100% return on your investment, plus the tax advantages. The $2,000 in tax savings go unnoticed, but certainly doesn’t hurt.

Investing $500 per month off a CRNA salary doesn’t appear to be much, but after a few years of feeling like they did nothing but pay off loans, they are pleasantly surprised to see $40,000 in their 401(k)-retirement account.

After the medium to high interest debt is gone, then it’s time to turn up the investments.

A CRNA salary makes me rich.

Laughable. But this is the assumption of some CRNAs and most non CRNAs. No amount of money can out earn stupidity. Professional athletes and lottery winners. Enough said – but I’ll go on anyway.

There is a difference between a high income and wealth. I provided this Bloomberg.com statistic in the Pitfalls of Accumulating Wealth post and it deserves a second mention. One in three Americans earning at least $250,000 annually live paycheck to paycheck.

This means all of the ratios that need to align for retirement aren’t in the same universe. Major misappropriation of funds if the goal is financial independence. It’s quite inexpensive to purchase a lifestyle that appears luxurious, but rather expensive to build sustainable wealth.

Renting is a waste of money.

I will provide a complete breakdown of why houses as a personal residence are a poor investment. To solidify my anecdotal experience, I included all of the numbers throughout my latest house buying process, so you can see just how much of buying a house doesn’t go towards the house.

Oh, but the equity…just a buzz word. Don’t forget about taxes, insurance, mortgage interest, PMI, closing costs, renovations, repairs, maintenance, and homeowners’ association fees. All sinking costs. All sunken costs that could have been allocated to actual investments.

And to think most people make a new home purchase every 7-10 years, so the sinking costs rear their ugly face again. Homes only appreciate an average of 4% annually. This includes the infrequent skyrocketing housing prices that we have experienced as of late.

A home purchase comes with advantages such as stable housing costs and a place to call home. If you spend enough, you may deduct mortgage interest, but with the standard deduction for married, filing jointly being $27,700, you need a significant mortgage to make that relevant.

Rental homes -- great investment potential IF the numbers work. Personal residence -- not as much of an investment. It’s like a vehicle, you can buy one and enjoy it, but be careful making it the heavy lifter of your portfolio.

Money equals happiness.

Current data suggests happiness related to income peaks in the low six-figures. As in, just over $100,000 annually six-figures. This is likely the amount needed to ascent Maslow’s hierarchy of needs. After this amount, there isn’t so much of diminishing returns as there is a plateau.

$100,000 covers basic needs such as food, clothing, and shelter. It allows one to live in a safe dwelling in a safe neighborhood. I suspect many at this income level meet their social needs and dabble in the esteem category.

I truly believe reaching the top of Maslow’s hierarchy has very little to do with the accumulation of money. Money allows for rapid ascension but will never unlock the pinnacle – self-actualization.

Spending frivolously will not make anyone happy. If anything, cause significant distress. Mrs. TFC and I attempt to mindfully spend money on things that spark joy. Could I buy a new truck? Sure. Would it make me any happier? No. I already park at the end of the lot so no one door dings my 2010 that has rust in the wheel wells. So much that I needed to buy fender flares to hide the eye sore.

A new truck wouldn’t get me to work any faster. I still wouldn’t look cool. I wouldn’t have any new friends. It wouldn’t make for a good blog post. But it would stress me out because that’s $60,000+ I could have spent on Vanguard Total Stock Market Index Fund ETFs.

To be fair, money equal happiness to an extent regarding annual income and spending. Our anesthesia income allows us to live comfortably, invest heavily, and make the most of our time away from work.

Money allows Mrs. TFC and I to book flights on American that are triple the price of Allegiant because the flights fit our schedule. Money allows us peace of mind knowing if we lose our jobs, there is no rush to find another one. Money allows us to be financially generous and feel great about it.

It’s not the size of the income that matters, but how you use it.

Time the market to beat the market.

A $10,000 investment in the S&P 500 at the end of 2006 would have grown to nearly $50,000 today. If a trader missed out on just the 10 best days in almost 2 decades, the return would be less than half, around $23,000.

The best days are missed by those timing the market because they come during significant market downturns when many are on the sidelines. Miss the best 20 days in the market and you would barely be profitable after all that time.

Sure, this doesn’t account for avoiding bad days in the market. But if timing was so easy, why weren’t there millions of billionaires in 2008 when Lehman Brothers called it quits. Or in 2018 with the near bear market. Surely everyone had their timing worked out when the market took a nosedive in 2020. Oh wait, there were a select few who did extremely well and everyone else was a loser.

Those that stuck it out through the downturns ended up alright. Teams of professionals can’t reliably time the market and you can’t either. Focus on time in the market, not timing the market.

Financial independence is out of reach.

FI is security. The ability to walk away. The ability to cover an expense.

FI means different things to different people. Some CRNAs are high rollers, so the amount needed for financial freedom is significantly higher than a minimalist. Regardless of the timeline, financial freedom requires discipline. Financial success NEVER happens by accident.

Think unrealistic versus undesirable. It’s less desirable to be responsible and disciplined. No doubt about it. This was relevant with comments on a blog post about how the average CRNA can reach financial independence in 10 years even with $150,000 in debt and an averagely compensated CRNA job.

The follow-up blog post was a reality check to how the average American lives. I think most, if not all, CRNAs can reach financial independence within 10 to 20 years of becoming a CRNA. This timeline changes for many reasons, but with a gross income of $200,000, it’s absolutely doable.

It’s taboo to talk finances.

It’s not surprising to learn a guy who writes a personal finance blog enjoys talking money, investments, and business endeavors. I especially enjoy these conversations with those who are well versed in the topic. Those who have a higher net worth or earning potential. Those who have proven themselves and are not only armchair experts.

One’s net worth is not a measure of importance, value, or worth as an individual. People are people. Some bring more value to the marketplace and therefore have a higher income or net worth.

There is nothing wrong with this. Nothing to be embarrassed about. No reason to brag. Talking finances is an opportunity to grow your knowledge base. No different than talking anesthesia at work. An opportunity for knowledge and improvement. Become a savant.

No one teaches personal finance. Public schools don’t. Many parents don’t. Graduate programs don’t. Employers don’t. If you don’t ask around, how will you learn and share ideas? That was the idea behind this blog.

Most financial coaching inquiries that hit my inbox say, “I am at XYZ stage and I don’t know what to do.” You automatically think, “Ah, new grads. They will learn as they go.” I was surprised to learn that this is not always the case. Sure, I have had plenty of young CRNAs reach out.

I have also had plenty of veteran CRNAs say, I make good money and have no debt, but have analysis paralysis and need help moving forward. I applaud all efforts to reach out to better themselves. We all start somewhere. We all need help sometime. Don’t avoid personal finance conversations for your own good.

As always, thanks for reading!