Why the obsession with money?

[Merovinge]

You’re an attending and you can’t afford a 60k vehicle?

At the wealth level of a typically doctor you can afford anything but not everything. If you want a boat, you can get a fancy boat. If you want a prop plane, you can afford a plane. You want a million dollar house, you can make that work. You want to have 4 kids and put them all through college on your dime, it's doable. You want to travel business class and only stay at the Seasons 3x per year, that can be done. What you cannot do is several of the above list or any other use of significant cash.

This is compounded by seeing your colleagues on social media, one is boating on his $500,000 boat, another is in his brand new architectural digest home, another is floating over the water in boogaloo in Maldives and another is eating at a 3 Michelin star restaurant. Your brain can quickly feel like you can/should be doing these things too and that's where doctors get into trouble. We as a profession are notoriously terrible with money due to the late start we get on earning our high salaries ("I deserve this Model S plaid for all those 80 hour weeks...") and society expectations for what a doctor can/should be affording (see your post as example A). You can/will live very well on 80% of your salary, saving 20% (gross) for retirement after you pay off any/all your student loans.

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[forchinet121]

At the wealth level of a typically doctor you can afford anything but not everything. If you want a boat, you can get a fancy boat. If you want a prop plane, you can afford a plane. You want a million dollar house, you can make that work. You want to have 4 kids and put them all through college on your dime, it's doable. You want to travel business class and only stay at the Seasons 3x per year, that can be done. What you cannot do is several of the above list or any other use of significant cash.

This is compounded by seeing your colleagues on social media, one is boating on his $500,000 boat, another is in his brand new architectural digest home, another is floating over the water in boogaloo in Maldives and another is eating at a 3 Michelin star restaurant. Your brain can quickly feel like you can/should be doing these things too and that's where doctors get into trouble. We as a profession are notoriously terrible with money due to the late start we get on earning our high salaries ("I deserve this Model S plaid for all those 80 hour weeks...") and society expectations for what a doctor can/should be affording (see your post as example A). You can/will live very well on 80% of your salary, saving 20% (gross) for retirement after you pay off any/all your student loans.

It’s really not that hard to not be dumb with money if you have some self control. I hear this idea over and over that you can buy anything but not everything and that is clearly not true (you can’t get a 3M dollar sports car for example)..you just do your best and stay within your budget, a 60k car for the vast majority of attendings is very reasonable, if you can’t afford that you’re doing something wrong. I responded because that guy was making it seem like he can’t even afford a 60k car but then he clarified he lives in New York and doesn’t really want one..

 

[G Sheb]

It’s really not that hard to not be dumb with money if you have some self control. I hear this idea over and over that you can buy anything but not everything and that is clearly not true (you can’t get a 3M dollar sports car for example)..you just do your best and stay within your budget, a 60k car for the vast majority of attendings is very reasonable, if you can’t afford that you’re doing something wrong. I responded because that guy was making it seem like he can’t even afford a 60k car but then he clarified he lives in New York and doesn’t really want one..

I didn’t make it seem like anything.
It really can’t be that hard to explore things in a civil way and without making stupid assumptions. I know it’s the internet but still, I’m assuming you’re a professional.

 

[medium rare]

This equation doesn't appear to make a lot of mathematical sense. If your net income is $200k (approximate average), %10 of that is is $20k, and if you plan to keep a car for 20 years you should spend $400k on it.

From an investment perspective, having bought multiple cars myself in my life, this is not the way. Cars are a unique investment that have diminishing returns on value, which is why folks typically trade in and up.

It’s a guide for automobile affordability - not what you should buy, necessarily. It is hard to justify the purchase of a $100k car regardless, but that is different from what you can afford.

It also highlights the purchasing power of the income level that almost all physicians have. Very different than someone earning $75,000 annually.

 

[BiscoDisco]

This equation doesn't appear to make a lot of mathematical sense. If your net income is $200k (approximate average), %10 of that is is $20k, and if you plan to keep a car for 20 years you should spend $400k on it.

From an investment perspective, having bought multiple cars myself in my life, this is not the way. Cars are a unique investment that have diminishing returns on value, which is why folks typically trade in and up.

Yes and no. The car market has changed. I bought a luxury SUV a year ago. I went to trade it in last week and I got offered the same price. I essentially got a free car for 14 months.

You look at the higher end Porsche 911 as an example..many of those hold value extremely well while others increase. Generally speaking you can buy a 2-3 year old 911 gts for 175k. Hold it 3 years and sell it for 150 assuming you don't put a million miles on it. So what was initially the purchase of a 175k car (and unreasonable to the more frugal amongst us) in actuality was 25k/36 months or 690 dollars a month. Not at all bad for an amazing vehicle.

 

[WisNeuro]

My rule of thumb is that I don't buy anything that I'm not buying outright in terms of cars.

 

[BiscoDisco]

My rule of thumb is that I don't buy anything that I'm not buying outright in terms of cars.

Why? Youre significantly better off investing the difference than lowering monthly payments on a small interest rate loan on a reasonably small amount of money.

 

[WisNeuro]

Why? Youre significantly better off investing the difference than lowering monthly payments on a small interest rate loan on a reasonably small amount of money.

I don't like extraneous debt and monthly payments beyond a mortgage. I already max out all of my retirement accounts and have another set of funds for fun investments (brewery). It's worth more to me to not worry about that extra monthly detail as I have way more than I need in other areas.

 

[Zyprexa100]

Everyone is different. Some people value the money others value time with their family. It is a free country so chose whatever you want including the amount of money worth for you.

 

[FlowRate]

It’s a guide for automobile affordability - not what you should buy, necessarily. It is hard to justify the purchase of a $100k car regardless, but that is different from what you can afford.

It also highlights the purchasing power of the income level that almost all physicians have. Very different than someone earning $75,000 annually.

I'm personally more fond of some of the FIRE recommended guidelines. Not as extreme as some (5% of gross income) but I agree that if you buy something that's 10-15% of your gross income then you're unlikely to be too bothered if something happens to it.

My rule of thumb is that I don't buy anything that I'm not buying outright in terms of cars.

It's a reasonable way of doing things in a higher interest rate environment. I think my auto loan was like 1 or 2% interest. At that point you're really getting paid to take out the loan.

 

[Monocles]

As the risk of derailing the thread, I'm curious to know more from our "car enthusiast" friends on this forum. What do people mean when they say "____ is more fun to drive"?

(Asking as someone who drove econobox toyotas and hondas my entire life)

 

[FlowRate]

As the risk of derailing the thread, I'm curious to know more from our "car enthusiast" friends on this forum. What do people mean when they say "____ is more fun to drive"?

(Asking as someone who drove econobox toyotas and hondas my entire life)

In day to day life most people primarily mean faster acceleration. But it can also be having a car that transmits information about how the tires and suspension are interacting with speed/cornering forces and road conditions in a way that makes you feel informed about how much more you can push the limits of static friction. Or, put another way, feeling like you are more fully in control of the vehicle and informed about what it's doing.

As an analogy, you may have a preference between roller skates and roller blades or between a cruiser bike and a road bike. Or between a pentel RSVP vs the 10 cent throwaway things they give patients at the front desk.

 

[whopper]

The problem with buying an expensive car for me is aside that these things are also expensive to maintain (e.g. someone I knew bought a luxury car and an oil change was over $300), I know myself well enough to know that after a few weeks of having this mega-cool car it wouldn't be cool for me anymore. The novelty would've been over.

The cool factor extends to other things like, if I were in my 20s and single, there are enough superficial people out there where having the cool car would matter to them. E.g. and if you don't admit to this you're in denial or lying, if you drive a cool car more women will want to date you. (Oh you're such a sexist!!!-common we're mental health professionals here. There are idiots that think like this. If you want your PC to make you deny the real things going on waste your own time and don't reply). As much as you want to play Beauty and the Beast things like how much money, your physical attractiveness, etc do matter. Of course that shouldn't be the only thing that matters but it does matter on some level, and all the other things such as intellect, common interests-heck those are superficial characteristics too if you want to get at it. IQ is mostly genetic. Lots of people can't afford an education, but if you want to tell me how superficial I am cause I'm turned-off with someone thinking the Earth if flat go waste someone else's time.

For me it wasn't worth tens of thousands for the cool car thing. I already spent my 20s living like a hermit although I don't think my 20s self would've bought an expensive car anyway if I was an attending back then.

I do see the novelty thing of the car being long-term when the person gets that zen with the car where they're maintaining it themselves, and are into building cars but I'm not into it.

 

[Merovinge]

As the risk of derailing the thread, I'm curious to know more from our "car enthusiast" friends on this forum. What do people mean when they say "____ is more fun to drive"?

(Asking as someone who drove econobox toyotas and hondas my entire life)

Go test drive a model 3 and find a highway or spot where you can safely floor it. If you don't find that completely insane, see if you can do the same in a model S plaid. This is just pure acceleration porn that many people find fun.

After that see if you can test drive a porsche 911. Find some banked curves or just take regular 90 degree turns as tight as you can. This is the feedback and handling experience that people find fun.

After that go return to your Honda and spend all the money you saved on something you value more. There's always value in seeing what large swaths of the population enjoy/like but it doesn't mean you can/should agree with them. I recommend everyone try out a good Michelin star restaurant, a nice bottle of scotch/wine, stay at a 5 star hotel, etc and find out what really gives you bang for your buck in happiness.

 

[psychmd03]

At the wealth level of a typically doctor you can afford anything but not everything. If you want a boat, you can get a fancy boat. If you want a prop plane, you can afford a plane. You want a million dollar house, you can make that work. You want to have 4 kids and put them all through college on your dime, it's doable. You want to travel business class and only stay at the Seasons 3x per year, that can be done. What you cannot do is several of the above list or any other use of significant cash.

This is compounded by seeing your colleagues on social media, one is boating on his $500,000 boat, another is in his brand new architectural digest home, another is floating over the water in boogaloo in Maldives and another is eating at a 3 Michelin star restaurant. Your brain can quickly feel like you can/should be doing these things too and that's where doctors get into trouble. We as a profession are notoriously terrible with money due to the late start we get on earning our high salaries ("I deserve this Model S plaid for all those 80 hour weeks...") and society expectations for what a doctor can/should be affording (see your post as example A). You can/will live very well on 80% of your salary, saving 20% (gross) for retirement after you pay off any/all your student loans.

Such a good way of putting it. Like with everything in life you gotta prioritize a little bit. Personally, I am not a big buy clothes and things type of person. But I will spend a lot on food and experiences. Personally, that gives me much more fulfillment. So I can end up spending a lot on those things semi often, especially the good food. But it would be much harder if I was constantly buying a new watch, new luxury shoes/clothing, car and wanting a multimillion dollar home. Or of course if I had kids.

 

[forchinet121]

I didn’t make it seem like anything.
It really can’t be that hard to explore things in a civil way and without making stupid assumptions. I know it’s the internet but still, I’m assuming you’re a professional.

What stupid assumption did I make? You said you’re trying to “tame your desire for a BMW” then you said you want an i4 but will “settle for something less.” If you want an i4 it should be easily affordable unless there are extreme circumstances like 8 kids or super low paying job.

 

[smalltownpsych]

What stupid assumption did I make? You said you’re trying to “tame your desire for a BMW” then you said you want an i4 but will “settle for something less.” If you want an i4 it should be easily affordable unless there are extreme circumstances like 8 kids or super low paying job.

Maybe they are putting money into other things. Sometimes I go all in and other times I decide it’s not quite worth it. I just bought an e-bike for about 2k. I was looking at some that were higher end and I could obviously afford more but I wasn’t sure if I would use it or like it enough to justify the added expense at this point in time. Two weeks later and I am thinking that my next bike will be at that high end. In the meantime I can spend a couple of years having some fun and figuring out what are the must haves for the next ride and the tech will be better too. In the same place with my Jeep that I bought six years ago. That was close to everything I wanted in a Jeep but self driving and a hybrid electric. That will be my next one and it will be pricy. I like to start small and scale up as I go. I always find it amusing when new people to a sport or just about anything waste a lot of money on high end stuff they can’t use or need.

 

[docksan]

Forget a car, I'm putting 10% of my income into popcorn.

 

[surfguy84]

Forget a car, I'm putting 10% of my income into popcorn.

I literally know a psychiatrist who invested in a popcorn company and lost a bunch of money.

 

[docksan]

I literally know a psychiatrist who invested in a popcorn company and lost a bunch of money.

Probably wasn't meta enough.

 

[TheRightMedication]

Investing in tax efficient accounts is all the fun I need. May my subaru run a thousand years.

 

[Osminog]

The psychiatrists I’ve met who clear over $600K from clinical practice alone generally do so at the expense of their patients. Psychiatry is the humanistic specialty, and there is no simple shortcut to understanding another person’s experiences and state of mind. Those who view their patients primarily as money-making opportunities cannot be effective psychiatrists; typically, they abuse the specialty’s inherent subjectivity and ambiguity to maximize their “efficiency” and financial returns. One can observe the same phenomenon among pain doctors, though they tend to be under closer scrutiny now given the widespread publicity of the opioid crisis.

 

[deleted456421]

As the risk of derailing the thread, I'm curious to know more from our "car enthusiast" friends on this forum. What do people mean when they say "____ is more fun to drive"?

(Asking as someone who drove econobox toyotas and hondas my entire life)

Our RAV4 Prime blows my mind. Satisfies the econobox requirement while being wicked fast. Just don't look at the RAV4 moose test.

I love cars and drove the Audi E-Tron, Porsche Taycan, and Volvo XC-90. My car enthusiasm was vastly outweighed by practicality.

The Toyota lacks some driving characteristics but is 1/4 the price. If you want real car advice, check out the anesthesiology forum.

 

[vanfanal]

I read somewhere that the point of money is to not have to think about money on a daily basis; which I though was a interesting way to think about it.

From my own experience I know I’m currently hoarding it, every time I reach a new savings goal, it becomes not enough. I’m like that dragon in the hobbit. Lol.

 

[Ludwig2000]

Oh the irony...

Looking at OP's post history, they were the one who started the thread on how to make $1M+ first year out of residency and all their posts other than one are in that thread or ones like "psych is the new derm". Wondering if OP won the lottery in the past two years to be criticizing the forum about discussion of income.

OP also answered their own question in their million dollar thread:

"Before anyone asks, I have many dependents and tons of life responsibility outside of medicine so I am willing to push myself to help the people I love.

I've already been offered $290 per hour to work at a facility in Wyoming as an inpatient psychiatrist. I can easily work about 80 hours per week, possibly 90-100 on a very tough week, so let's average 85 hours per week working every week out of the year coming out to 52 x 85 x 290 = 1.28 million per year.

Is this realistic? Or would I be smarter to work in a more populated area and strike deals/contracts with hospitals with lack of psychiatric coverage to join on as an employee and be able to round on and bill individually for multiple 50+ patient units. Also, I'm considering nursing homes. Is this lucrative?

I have a significant other with severe debt and would like to help her out and my dependents as much as possible. Thank you for your help

And please don't mention that I'm going to get burned out. I know plenty of doctors and people from other professions who can work hours like that and be fine. Those rules don't apply to everybody and I am confident in my ability to stay focused and stay on task at all times."

Lots of other reasons to want to maximize income that have nothing to do with monetary obsession.

The evolution of OP’s posting is truly fascinating. I feel like I need to know more about this change in mindset. Reminds me of a sort of rebellion against a prior self? Like the guy in high school who was obsessed with Dave Matthews Band until he discovered Radiohead, goes to college and gets a weird hang-up about what a bunch of lame posers Dave Matthews fans are…

 

[psyguru]

There is nothing wrong with getting paid for your work. One of the reasons that I've switched over a significant portion of my work to IME/forensic work. I happen to enjoy in immensely, but it also pays very well. I think the bigger issue I have with a small subset of posters here is that there are discussions about how to do the absolute barest minimum in patient care, to bill the maximum. The number of med checks+therapy/hour that some people seem to churn out is truly concerning, as there is almost zero chance that those patients are receiving adequate care. Luckily it seems to be a small number here, and the majority of discussions are about improving care. So, bottom line, get paid for your work, and try to get paid well. But, you still have to do what's best for the patient. Don't compromise that. Most of us here are highly intelligent individuals, and if all we wanted to do was to maximize our revenue in life, we could have found much better ways to do that than go into healthcare.

Agreed. I do quite a bit of IME/ expert witness work. In my clinical work I have no financial pressure and spend 1 hour for new patients and see 2 follow-ups an hour. With my forensic work, I have no interest or need for a clinical job where I can make more seeing 4 follow-ups an hour when I can accept an extra forensic case prn.

 

[whopper]

The psychiatrists I’ve met who clear over $600K from clinical practice alone generally do so at the expense of their patients. Psychiatry is the humanistic specialty, and there is no simple shortcut to understanding another person’s experiences and state of mind.

Not to mention you can make way more money doing other things. So why cut corners and do poor work, when as an alternative, you could set up your money in good investments, make even more money from those investments, and continue to do good quality work?

Even if you don't know much about investments getting a good fiduciary and safe advisor will set up you up.

 

[erg923]

I read somewhere that the point of money is to not have to think about money on a daily basis; which I though was a interesting way to think about it.

From my own experience I know I’m currently hoarding it, every time I reach a new savings goal, it becomes not enough. I’m like that dragon in the hobbit. Lol.

Endless talk about "retirement" in America, the relentless monitoring of it/your portfolio via Apps, and all the ways to tax shelter is absolutely part of this. 10 years ago, we give money to a non-fiduciary financial manager. We meet withsomeone3 twice per year. We make less than 200K combined as married couple with 3 children.

 

[forchinet121]

Not to mention you can make way more money doing other things. So why cut corners and do poor work, when as an alternative, you could set up your money in good investments, make even more money from those investments, and continue to do good quality work?

Even if you don't know much about investments getting a good fiduciary and safe advisor will set up you up.

How can you “make way more money” doing other things? What do you mean by that? You can set up investments when you do poor work as well those things are not mutually exclusive.

 

[WisNeuro]

How can you “make way more money” doing other things? What do you mean by that? You can set up investments when you do poor work as well those things are not mutually exclusive.

My assumption is that he was speaking of forensic and/or consulting work, which pays several multiples more than clinical work.

 

[forchinet121]

My assumption is that he was speaking of forensic and/or consulting work, which pays several multiples more than clinical work.

Ah that makes sense

 

[whopper]

How can you “make way more money” doing other things? What do you mean by that? You can set up investments when you do poor work as well those things are not mutually exclusive.

More than that. If you have enough money in investments your investments could actually exceed your income as a psychiatrist. This will require you have a good financial person or learn to do the other stuff in addition to practice.

 

[finalpsychyear]

More than that. If you have enough money in investments your investments could actually exceed your income as a psychiatrist. This will require you have a good financial person or learn to do the other stuff in addition to practice.

Spot on. But assuming a 7-10% return via index funds your investments would need to be 3-4m if your looking to get in the 200-250k psych salary.
Not sure how long it takes someone making that salary to accumulate that nest eggs at least 16-20 years putting 100k yearly and getting 7 percent avg. For most its closer to 25 years.

 

[BiscoDisco]

And some are now saying expect a decade of flat returns...

 

[Monocles]

More than that. If you have enough money in investments your investments could actually exceed your income as a psychiatrist. This will require you have a good financial person or learn to do the other stuff in addition to practice.

Whopper is correct.

Most people underestimate the power of compound interest. There are rare months where the market does so well that it makes 150% of my monthly attending income. I'm not spending hundreds of hours researching individual stocks or anything - this is just straight up all VTSAX (broad index funds which I've been contributing towards ever since pgy-2 year, it just snowballs onto itself)

Sadly it's not consistent enough, otherwise I'd be retired already as a second year attending LOL.

 

[forchinet121]

Whopper is correct.

Most people underestimate the power of compound interest. There are rare months where the market does so well that it makes 150% of my monthly attending income. I'm not spending hundreds of hours researching individual stocks or anything - this is just straight up all VTSAX (broad index funds which I've been contributing towards ever since pgy-2 year, it just snowballs onto itself)

Sadly it's not consistent enough, otherwise I'd be retired already as a second year attending LOL.

It can also lose triple your salary as well

 

[Stagg737]

I'm surprised it took someone this long to bring up outside investments. You can make good money as a clinical psychiatrist, but there's definitely a ceiling, and the only ways to break it with clinical work are to find a high-paying niche or through massive volume which typically involves sub-standard care and/or ridiculous hours. There are plenty of ways to make way more with passive income, especially long-term.

It can also lose triple your salary as well

Sure, in the short run, but passive investments in markets are meant to be long-term. A year of loss like that would be balanced out by long-term gains. Sure, it would suck to be mid-retirement in a market like the current one, but the point of investing early is that you'd have a nest egg that can weather a few years of bear markets.

 

[hamstergang]

Not to mention you can make way more money doing other things. So why cut corners and do poor work, when as an alternative, you could set up your money in good investments, make even more money from those investments, and continue to do good quality work?

Even if you don't know much about investments getting a good fiduciary and safe advisor will set up you up.

But can't the people cutting corners, doing poor work, and making more money still set up their money (and the extra money) in good investments, thereby making even more money? I'm not advocating for cutting corners, but I don't get how the ability to invest is really an alternative to the extra work instead of an add-on available to all.

 

[Stagg737]

But can't the people cutting corners, doing poor work, and making more money still set up their money (and the extra money) in good investments, thereby making even more money? I'm not advocating for cutting corners, but I don't get how the ability to invest is really an alternative to the extra work instead of an add-on available to all.

It can be an add-on or an alternative. I think the point was that it isn't necessary to go for volume at expense of patient care to make enough money to be comfortable and that those just toiling away without a sense of investment or long-term strategy aren't that much better off in the long-run than those working less and investing wisely.

 

[Monocles]

But can't the people cutting corners, doing poor work, and making more money still set up their money (and the extra money) in good investments, thereby making even more money? I'm not advocating for cutting corners, but I don't get how the ability to invest is really an alternative to the extra work instead of an add-on available to all.

You CAN, but I would argue that the "marginal cost" of working for that extra income is not worth it.

For most physicians who invest you can likely reach about low six figures of passive income within 10-15 years, and likely low-seven figures by "traditional" retirement age. At that point would you really want to go through the headaches of the hustle, not to mention open yourself up to legal liabilities by doing shoddy work? I would think that most people can easily find creative or social endeavours to occupy their time instead of toiling away.

Money is important, but eventually has diminishing returns. If you're likely to hit the estate tax (12M solo, 24M for couples) well before the end of your life, why work extra just to have it all go back to the IRS?

 

[FlowRate]

And some are now saying expect a decade of flat returns...

This is only really a problem for anyone planning to retire in the next 15 years or if it were to somehow signal a permanent deviation from historical long-term average market returns. Otherwise you're likely to still see the average 11.88% nominal returns over a 20+ year time horizon.

For most physicians who invest you can likely reach about low six figures of passive income within 10-15 years, and likely low-seven figures by "traditional" retirement age. At that point would you really want to go through the headaches of the hustle, not to mention open yourself up to legal liabilities by doing shoddy work? I would think that most people can easily find creative or social endeavours to occupy their time instead of toiling away.

Maybe if you're investing like $100k a year. If you're just maxing tax-advantaged accounts that's usually not the case (assuming 10% real returns which is very optimistic.)

 

[BiscoDisco]

This is only really a problem for anyone planning to retire in the next 15 years or if it were to somehow signal a permanent deviation from historical long-term average market returns. Otherwise you're likely to still see the average 11.88% nominal returns over a 20+ year time horizon.


Maybe if you're investing like $100k a year. If you're just maxing tax-advantaged accounts that's usually not the case (assuming 10% real returns which is very optimistic.)

If years 0-10 return 1% and years 11-20 revert back to the norm, you would still be off the historical average over that 20 year period. No?

 

[the5thelement]

We are stuck on this rock for 3 score years and 10 (if lucky) and sadly will leave empty handed when the time comes. Beware of the hedonic treadmill and live simply.
"I hated all for which I had toiled under the sun, because I must leave it to the man who comes after me. And who knows whether that man will be wise or foolish? Yet he will take over all the labor at which I have worked skillfully under the sun. This too is futile."

 

[FlowRate]

If years 0-10 return 1% and years 11-20 revert back to the norm, you would still be off the historical average over that 20 year period. No?

Historically isn't never been "10% every year like clockwork." The market is more volatile than that. It might be a decade of stagnation and then a decade of averaging 20% annual returns. There have been a couple of 20 year stretches that were net stagnant (start and end with downturns) but otherwise most 20 year periods get you through enough up and down stretches to average out to typical returns.

 

[calvnandhobbs68]

If years 0-10 return 1% and years 11-20 revert back to the norm, you would still be off the historical average over that 20 year period. No?

If the stock market is returning that little consistently, it's likely because central bank interest rates are still pretty high and government bonds, bills, CDs and savings accounts are returning so much that capital is shifting into higher returns in these areas rather than stocks. So just means its smarter to park more money in these until central banks start lowering interest rates again. Remember that during the 1980s, ONE YEAR CDs were returning 11%. Already my high yield savings account is at 2% and 18 month CDs are at 3% for absolutely no risk.

 

[Monocles]

But can't the people cutting corners, doing poor work, and making more money still set up their money (and the extra money) in good investments, thereby making even more money? I'm not advocating for cutting corners, but I don't get how the ability to invest is really an alternative to the extra work instead of an add-on available to all.

Also, I was thinking about this yesterday.

Taking an arbitrary number of half a mil, having 500k of earned income is a lot less efficient than having 500k of investment gains. For instance, out of the earned income (assuming you live in the states, filing jointly) you have a marginal rate of 35%, in addition to FICA, and state taxes. Whereas that same 500k of investments would only be subject to a 15% long-term marginal capital gains tax, plus state. If you tax loss harvest to offset your gains, it is theoretically possible to reduce your taxes on half a million investment income to as close to zero as possible.

I'm sure there are loopholes for reducing taxes on earned income too probably (there are godly enough accountants out there who knows every legal loophole under the sun), but my point is a dollar earned and in hand is a lot more effort.

 

[psychmd03]

Also, I was thinking about this yesterday.

Taking an arbitrary number of half a mil, having 500k of earned income is a lot less efficient than having 500k of investment gains. For instance, out of the earned income (assuming you live in the states, filing jointly) you have a marginal rate of 35%, in addition to FICA, and state taxes. Whereas that same 500k of investments would only be subject to a 15% long-term marginal capital gains tax, plus state. If you tax loss harvest to offset your gains, it is theoretically possible to reduce your taxes on half a million investment income to as close to zero as possible.

I'm sure there are loopholes for reducing taxes on earned income too probably (there are godly enough accountants out there who knows every legal loophole under the sun), but my point is a dollar earned and in hand is a lot more effort.

This is very true. You get penalized as a high income earner if it’s personal income. If it’s business/real estate/investments you get rewarded by much lower tax rates.

That’s why imo the best way to do it is to hustle and make some time sacrifices early in your career to build an investment nest egg to get it growing. Get other investments if you like. And you will both lower your tax burden as well as buffer yourself from any large changes that may come with healthcare.

 

[dl2dp2]

This is very true. You get penalized as a high income earner if it’s personal income. If it’s business/real estate/investments you get rewarded by much lower tax rates.

That’s why imo the best way to do it is to hustle and make some time sacrifices early in your career to build an investment nest egg to get it growing. Get other investments if you like. And you will both lower your tax burden as well as buffer yourself from any large changes that may come with healthcare.

In principle, you want to make a lot of money early in life.

In practice, when you are able to make a lot of money, you often have other interesting pursuits (i.e. children) that make it harder to do so. And that is totally okay. When you are older, your children won't be around, and you'll never be able to enjoy them again. So you are in essence buying something that's virtually priceless. But the enjoyment with children is not infinite, and as they grow older they want less of your attention and have more of their own lives. So consideration in time and tradeoff in value needs to make sense. These aspects cannot be measured materially by simplistic time-by-compensation calculation. It is also dictated very often by a set of circumstances that varies across individuals and their families.

This is why psychotherapy exists. This is also why individualized financial planning exists.

These aspects are oversimplified in these threads, where people cook up imaginary scenarios in their heads. I advise people all day on these issues, and it's rare that one needs to comb through these possibilities with a fine-toothed comb.

Also, very often the amount of time you spend on an activity dwarfs in importance to the per hour rate paid by that activity. As an example, my colleagues in academic medicine can spend 80 hours a week writing grants and conducting research and getting paid a fraction of what I get paid if you consider this by the hour. Big decisions like whether you go into academia vs. private practice make a much bigger impact than a decision about whether you work 40 hours a week or 50 or 60.

 

[clausewitz2]

We are stuck on this rock for 3 score years and 10 (if lucky) and sadly will leave empty handed when the time comes. Beware of the hedonic treadmill and live simply.
"I hated all for which I had toiled under the sun, because I must leave it to the man who comes after me. And who knows whether that man will be wise or foolish? Yet he will take over all the labor at which I have worked skillfully under the sun. This too is futile."

should I be worried that this is the second time on this forum that I have felt the need to chime in to a post with "Vanity, vanity, all is vanity"?

 

[FlowRate]

If the stock market is returning that little consistently, it's likely because central bank interest rates are still pretty high and government bonds, bills, CDs and savings accounts are returning so much that capital is shifting into higher returns in these areas rather than stocks. So just means its smarter to park more money in these until central banks start lowering interest rates again. Remember that during the 1980s, ONE YEAR CDs were returning 11%. Already my high yield savings account is at 2% and 18 month CDs are at 3% for absolutely no risk.

The downside to actually shifting to alternative investments is that you run the risk of missing the most impactful bull days. It's basically market timing.

The currently rising bond rates are making the historical suggestion to have at least some amount of money invested in bonds (even if in an aggressive/early stage of investing) more relevant. For the last 15ish years, thanks to very low interest rates, bonds were purely a drag on performance with little benefit from the diversification/risk reduction.