Back To Basics: Money…For Doctors

Money 101

How much do you know about money? 

Have you ever read a book on personal finance? Has anyone ever taken the time to teach you?

Me? I knew nothing when I was in medical school. Which may seem strange, because I was an economics major! I knew all about GDP, supply and demand curves, and something about human behavior influencing markets, but I didn’t know much about personal finance. 

When I was younger, I got an allowance, but that was mostly to save up for the next video game, skateboard, or whatever. My parents tried to separate it into different jars for long term savings, short term savings, chartity, etc., but that habit didn’t carry forward. 

I did have one stock, though. My grandpa bought it for me when I was just a kid. One share of McDonalds. But I didn’t know what that meant. Besides, at the time I would have preferred another McDonald’s Monopoly piece. 

Remember those? 

Well, one day I started paying my own rent. I took on massive amount of student loan debt. And eventually I worked long hours for about 3k/month after tax. That’s when I started learning more about managing that small piece of green paper we all worry about: Money. 

Maybe you didn’t get that far, never diving into the rabbit hole of YouTube videos, books, blogs, and podcasts to learn everything you could about personal finance and managing money. Maybe you have no clue. But that’s ok. It’s the best place to start. 

In my last few posts, I wanted to show you how easy it is to be successful without becoming a doctor. If you’re still reading, chances are you made that decision anyway. So now, I’d like to start a new series, back to basics, where I’ll teach you about something you’d be lucky to have one lecture on in medical school. 

In Back to Basics, I’ll teach you everything I know about personal finance, and I’ll show you the simple steps you can take to take care of your own money. Hopefully, by the end of it, you’ll know just a little bit more and be ready for your student loans, resident salaries, and eventual “doctor money”.

For this first lesson, let’s talk about money.

Money is Imaginary

Money is what personal finance is all about, right? But think for a second about what money really is. Money isn’t something that naturally occurs in the world. It’s not a necessity like food, water, or shelter. It’s…imaginary. It’s something that we created ourselves. 

Let’s step back a bit. Way back to when the first hungry person who knew nothing about cooking but was really good at making tools found a chicken farmer whose tools were broken, The first transaction ever occurred. They quickly realized they could benefit from exchanging their goods. One chicken for one shovel.

An easy transaction. 

Eventually, societies became increasingly complex. Finding the value of things compared to other things required a lot of time and a really long spreadsheet. If you needed a colonoscopy, how many chickens would it cost? How many loaves of bread for an antibiotic? 

To make it easier, we created money. With money, all sorts of different things could be compared to just one thing. A chicken is worth 2 silver pieces. A colonoscopy is 2 gold pieces. And ten silver pieces equals one gold piece.

So for the chicken farmer to get a colonoscopy…

But! Because it was really tough to manage that many chickens, our early empire gastroenterologist got money, gold and silver which he could use to buy other things. 

That’s why we created money. Much simpler, right?

You may already know, but gold and silver weren’t the only forms of money. In fact, we tried plenty of other options including salt and even big rocks. But all of those were tough to carry around, so we created what we know as money today. Bills. Coins. Credit. 

Regardless of what form it comes in, the principle is still the same. Money is still just something we created to make exchanging other things easier. 

But of course, to most of us it’s become something seemingly much more important than that. 

Money is The Goal

Does this meme look familiar? 

For a meme, it’s not wrong. Time, Health/Energy and Money are the three major assets you’ll control throughout your life. 

For now, let’s focus on money. 

If I just told you money is a method to exchange things, why is it also a major life asset? It’s because money lets you buy more things, and we need (more and more) things to live our lives. 

For example:

Want to fly across the world? You need money. 

Want to eat a fancy dinner? You need money. 

Find a nice place to live, money. And so on and so on. 

So, to live your best life and have all the things you want, you need money. And that’s how money became something greater than a simple means of exchange. More money meant you could do more than people without it. Have more things. More status. 

Money became the goal. 

Money Doesn’t Always Lead To More Happiness

It makes sense to think that people with more things and higher status are happier, right? Then logically, since money is the key to those things, more money should mean more happiness, no?

That’s something plenty of people think. And they’re not wrong…sort of. 

Research has shown that money does lead to more happiness. But only to a point. After which, more money doesn’t necessarily lead to more happiness. Despite our frantic obsession with hoarding as much of it as possible, that point, that number, is surprisingly low. According to this study, only around $75,000 per year. 

$75,000 per year. 

That’s not a lot, you may think. You’d be much happier with an extra 20k, right? What about 50k? 500k? 

Ok, even the authors of that study agree that it’s not the number they quoted that matters. As it turns out, everyone is different, so the actual number varies from person to person. But whether it’s $75k or $500k, the point is that at some level, more money won’t bring you any more happiness.

The trick is finding what that number is for you, and figuring out how to get there.

Money Isn’t Hard

If you’ve tried to learn about money before and got lost, I don’t blame you. It’s probably because it seems incredibly complicated. Managing your 401k or 403b. HSAs. Deciding Roth vs Traditional. Understanding tax brackets and strategies. What insurance to get. Creating budgets. Learning about stocks and mutual funds. Growth vs Value. Large cap, mid cap, small cap. Mutual Funds. Settlement Accounts. Interest. Credit scores. etc. etc. 

It’s no surprise that some people look at this and say “nope, I’ll just pay someone to do it.” But if they started small and took the time to learn these things themselves they’d realize that it’s much easier than it seems. 

And learning this can save you hundreds of thousands, if not millions over your lifetime. 

That’s what I want to prove to you. So let’s start now, and I’ll tell you the easiest, simplest thing there is to know about proper money management. 

Spend less money than you make.

That’s it. Just start there. 

Then, as we cover more and more information, you’ll learn one more thing followed by another. Baby steps. Until eventually you understand everything there is to know about money. And the secrets to making lots of it. 

Money Can Grow (on its own)

I wouldn’t dream of keeping you waiting, so let’s jump into the first secret to making lots of money. That is: money makes money.

Ever hear the saying “the rich get richer”? It’s true! And it can work for you, too. You just have to know the right places to put your money to make it grow.

What that means is not hiding it all in the walls or under your mattress. In fact, if you do that, something called inflation will actually make your money worth LESS. The exact opposite of what we want. So let’s beat inflation. 

Instead of hiding it, put your money to work. Invest it. Put it in the right accounts and use it to purchase assets. 

Assets, which I mentioned earlier in this post, are simply valuable things. In practice, they can actually be anything. For example, apple stock is an asset. But so is a house. And bitcoin. Whiskey. Shoes. Even beanie babies. 

Now, while anything can be an asset, some assets are clearly better than others. Something you definitely learned if you invested heavily in beanie babies in the 1990s (or tulips in the 1630s).

So yes, you can invest in the latest trend, but the important lesson is that some assets are riskier than others. Over time, we’ve learned to identify those assets that minimize risk and maximize rewards. Assets such as stocks, bonds, real estate, and businesses. These are the key to turning your money into even more money. 

But more on that later. For now, let’s take a step back. 

Understand Your Money 

The rest of this blog post hopefully taught you something about what money is and why it exists. But now, I want to take the first actual steps to properly managing your own money. 

As I mentioned before, money buys things and, to a point, things bring you happiness. So let’s try to figure out how many things you need to achieve peak happiness.

The first step: over (at least) the next week, or next month if you’re willing, track everything you spend. No, I don’t want you to create an entire budget. I just want you to understand where you’re starting from. How much money are you spending? And how much is left for saving and investing?

Then, once you’re done, ask yourself this: Which of the things you spend money on bring you the most happiness? And which of them the least?

Is there anything you spend money on that actually decreases your happiness?

And is there anything you can change?