Personal Finance: The Key to Financial Success
I tell myself I write a niche obscure financial blog with relevance to most CRNAs. That niche focuses on the base of the financial pyramid. I’m talking about food, water, shelter, and clothing.
Financial advisors and CPAs focus on higher levels of the pyramid such as asset allocation and taxation. There is a situation for these professionals, but many CRNAs would benefit from a service they don’t provide. The basics.
I don’t say “basics” to be condescending, but rather noting the commonly overlooked fundamentals of personal finance. What makes me say that, well…
Statistics support an ever-growing number of high-income earners living paycheck to paycheck. CRNAs are undoubtedly in this category and that’s an unfortunate reality. BUT, we can change that.
Many readers show interest in topics such as maximizing investment returns, backdoor Roth IRAs, and 1099 business deductions. That’s all great, but a good chunk of the CRNA community is still trying to make it to first base.
Skipping the lap chole kind of stuff and going right for the novel regional anesthesia techniques. You will get there, but first things first.
Just because you are a high earning CRNA does not mean you automatically need a team of investment professionals. You might be able to get away with a SMART goal and a budget.
Really though, there is a time for asset allocation, fancy investment accounts, and investing in rental properties, but that time is after your personal finances are neatly wrapped with a gold bow on top.
So what…
If anyone plans on being financially successful in the long term, they must first have a solid understanding of the basics. And they must have an intimate understanding of their own situation and aspirations.
At the foundation, personal finance is a matter of income, saving, spending, and debt. That’s it.
We control the income or “money in” side of the equation by choosing a career or job. And the number of hours we choose to work. Pretty simple. Eventually, investments and retirement income contribute to this side of the equation.
The “money out” side of the equation breaks down to saving and spending. We need to do something with our paycheck and there are only so many options. Saving money is a generalization including saving, investing, and paying down debt.
Create a goal.
Without a heading for the ship, sailing is fruitless. As dorky as it sounds, a SMART goal is pretty valuable here. Specific, Measurable, Attainable, Relevant, and Time frame. These typically go in a table with ”SMART” descending in the first column, but you get the idea.
Pay off $200,000 worth of loans (SM) by working overtime and following a written budget (AR), by the end of 2025 (T).
Maybe pick something about becoming debt free or a retirement age. Maybe you want to take 4 big vacations per year. Maybe live in a certain house or drive a certain vehicle. Whatever floats your boat.
Consider a short-term goal for paying off debt and a longer term goal for net worth or retirement.
Mrs. TFC and I chose financial independence (S), which loosely translates to 25x cost of living (MAR), at age 35 (T).
Your goal is just that, your goal. It’s what you want and is important to you. No one else, including me should dictate the focus of your goal.
Write ambitious goals. With financial goals, one can see the dollars add up or the debt melt away month after month. And that is amazing motivation.
Use that dopamine fueled motivation to stick with it. It’s best to be incredibly intense for a short period of time. Try not to string out goals for 10+ years unless they are big ones. And NO, student loans don’t count for the 10+ year plan. Like the 2022 Chicago Bears, 3 and out.
Now work backwards.
To go about this, calculate the “money out” side of the equation. If you want to pay off $200,000 in 30 months, divide it out. That’s plus or minus $6,700 per month towards the debt depending on the interest.
The average CRNA grosses $16,700 per month. Uncle Sam takes a chunk but leaves you $11-12K to play with. Right away, throw $6,700 towards the loans. Live off the $5,500 you have left over. If you have a couple bucks left at the end of the month, send ‘em towards the loan as well.
It doesn’t matter how you spend the $5,500. Just keep living expenses below $5,500.
If you work a little overtime or take a higher paying job, your income goes up. Now you might have $10,000 to live off. Cool. And the loan will still be paid off by the end of 2025. EZ PZ.
Budgeting
Budgeting has such a negative connotation, but hear me out…
I will be the first to admit I’m pretty loose with budgeting. Mrs. TFC and I allocate a certain amount of money to investments each month and live off the remainder. Exactly like the above example.
If you are someone who loses the dollars that make their way into your bank account, a closely monitored written budget may be for you. Give every dollar a destination before they reach your account. It sounds dreadful, but I assure you, it’s not any worse than being broke.
Be honest with yourself. Do what is needed to keep the ship on course. I don’t know why I chose nautical references for this post -- I was raised in the Midwest and have never been sailing.
Many clients that reach out feel like they are stuck in a hamster wheel lack budget discipline. There is not enough spending friction, so money just freely flows away. It doesn’t even evaporate at the hand of things the purchaser enjoys. Just unintentional spending.
Budgeting and expense tracking simply bring awareness to spending. Budgeting tells your money where to go before the month starts. Expense tracking tallies spending after the month ends. Like proactive and reactive. Both are superior to being nonreactive.
Many folks have unused subscriptions or memberships. Most don’t realize how much luxury experiences cost. Or the wake-up call when folks realize 75% of their net income goes towards debt including student loans, mortgage, and vehicle debt.
Real look of horror knowing payments eat their entire paycheck.
What are you okay with?
Now we look back to the SMART goals. Is it worth keeping consumer debt? Is prioritizing retirement important? Do you want to travel early and often? Is delaying gratification something you can or want to do?
Is working until you are 65 or 70 something you are okay with? I don’t know many who are looking forward to a 50-year career in anesthesia, but I’m certain someone out there will prove me wrong.
And if so, will that career be out of the love for anesthesia or the love of spending money?
Maybe you want to go on 4 all-inclusive vacations per year. Excellent choice to feel like royalty and recharge for a week. I hope you aren’t also looking for FI at age 35 because I know how much I work to stay on track.
If you manage this feat, please message me if a position opens at your establishment as I would also like to vacation quarterly and retire early.
The attainable and realistic aspects of SMART goals maintain balance. You can’t have your cake and eat it too. Get it…because you ate it and it’s gone. But you can make more money and buy another cake. Prioritize and persure.
Debt
We could discuss good debt and bad debt all day long. Debt is leverage. Leverage creates risk. Risk is exposure to potential downside. So, all debt has downside potential.
Debt is the anchor in the sand for those looking to set sail on a successful personal financial voyage. Aye, tried another one.
The financially successful manage the downside. Which usually means pay off their personal debts.
I understand that in the business world, the only way to create a billion-dollar company in a matter of years is to take on large amounts of debt to scale. But we are in healthcare, so that doesn’t apply to us.
Good Debt
Commonly thought of as debt that increases opportunity or income. Student loan debt. It’s fine for career advancement but should not be taken lightly as it will not disappear with bankruptcy and possibly death. Tough for your family to pay anesthesia student loans without an anesthesia paycheck.
Mortgage debt usually falls under good debt. Those of you who have read my opinions of buying a personal residence know where I stand. Living in a house is expensive, so don’t discount the overall costs associated.
Rentals, one can make a strong argument if the numbers are solid. Most folks are not conservative enough with the numbers to make it work. Even professional real estate guys only pursue less than 1% of market listings, which should tell you something.
Bad Debt
Consumer debt. Buying liabilities. Vehicle loans, credit cards, personal loans, etc. This debt has the same downsides but lacks the financial upside. This debt needs to be paid off immediately.
Debt management is relevant in the personal finance conversation because I have heard many folks talk about financial avenues such as trading individual stocks when they carry massive notes on their student loans, mortgage, and vehicles. Bad idea.
**Rant Incoming**
Quit reading r/wallstreetbets for the next big meme stock and just clean up your mess. If you want to play with speculative investments, have your ducks in a neat little row before doing so.
No options trading, no leveraged ETFs, no day trading, and no real estate until things are tidied up. “Investing” while you have debt is still exposing you to downside risk. If your “investments” go South, the bills are still due at the end of the month.
**End Rant**
Modern Relevance
Envision just filed Chapter 11 bankruptcy, which is a reallocation of debt. Anyway, without getting into legalities, they paid employees half of their paycheck one week early but will not pay the other half until the usual payday, which is now 3 weeks apart instead of two.
What if your payments were due between these periods and you only received half of your typical pay? Living paycheck to paycheck with debt isn’t so appealing. Because Mrs. TFC and I only have a mortgage payment, it really didn’t make any difference to us as long as we get paid eventually.
Mind your chickens.
I just had a locum contract fall through. I work 3 on 1 off and thought I had somewhere to work during my off week. I did until I didn’t.
Again, we have room in our budget, so it’s not a big deal. Me being me, I picked up overtime at my home site the next day for those same weeks. Financial stability gives flexibility.
So, that’s why debt is something to be careful with. Now back to the SMART goals.
How do Mrs. TFC and I approach our SMART goal of achieving FI?
We stacked the odds in our favor by padding the income side of the equation. This gives us the allowance to invest a great deal each month, plus uphold a reasonable middle-class lifestyle.
We don’t have a written line-item type budget where we track individual purchase per say. Each month, we track total spending divided into a few categories such as housing, utilities, groceries, date night, and discretionary.
We really just need the total number of expenses to be around $4,500 for average months and $7,000 for the months with bigger activities or travel.
So, what about our investments?
For the complete picture, we invest primarily in passively managed, low-cost index funds via tax advantaged and personal accounts.
If debt is in your life, I would take advantage of an employer match and stop there. Additional investing only comes after the other stuff is cleaned up.
I really want to emphasize the importance of managing your personal finances before trying to do anything fancy. When you have good personal finance habits, progress towards aspects of risk management and long-term planning.
Don’t worry about tax optimization when you are drowning in debt. You don’t need a trust to manage inheritance taxes when you are broke because there is nothing to manage. Don’t worry about novel investments as an accredited investor because you likely don’t qualify if you don’t have your personal finances in order.
Become financially literate and build a stable financial system, then ask around about the more advanced stuff.
I hope all of you have your financial houses in order and share your approach with others. Thanks for reading!
