Income Versus Wealth

doctor_piggy_bankI had a conversation recently with a younger doctor that I have known for some time and whom I initially recruited to join our local hospitalist group.  He was asking my advice concerning an offer he had received from a competing hospital system for essentially the same job and benefits, but a higher salary.  The salary differential was about 5% of his current salary.

This doc, who we will call “Ben”, was tempted, as several other hospitalists in the area have been, to hop around various hospitals in the state in order to edge up their salaries.  Ben is an excellent physician, and I certainly wanted him to stay around locally as I might need his services acutely someday.

But I tried to be objective and business-like, and give advice appropriate to his situation.  I asked him, “Ben, do you want to chase income or do you want to become wealthy?”

He looked at me quizzically and said, “Aren’t they the same?”

“No, grasshopper, they are not the same.”

As my father used to say, it’s sometimes not how much you make; it’s how much you keep.  If you increase your salary, but then just increase your expenditures, you are no better off other than the fleeting improvement in your lifestyle.  In Ben’s case, his increased commuting costs and the aggravation of learning a new EMR system made this increase in salary a wash.

doctor_walletHowever, I saw this a teachable moment to discuss my financial philosophies to the next generation of physicians.  I told him that his current salary is a good base from which to start.  His emphasis going forward should actually be to develop more than one stream of income.

For physicians, “moonlighting” in off hours is a common mechanism for another stream of income.  Over the years, starting in residency and extending well into my practice years, I did extra work in ERs, covering various inpatient services and nursing homes on call to supplement income.

Budget-Clip-ArtIn my financial psychology, I used the extra income for a specific purpose, meaning that it did not just go into the general household budget.  Since it was extra income, I assigned it saving for a next vehicle (I haven’t had a car loan in 30+ years), paying off residual debt such as a student loan, paying down a mortgage, kids college loan fund, or more retirement savings to reach whatever was the maximum allowable contribution at the time.

True wealth, I told Ben, comes from financial freedom.  It comes from having the ability to pay for what you want to have or do without worry about the future.

As I said above, I haven’t had a car loan in over 30 years.  My wife and I paid her law school tuition and the college expenses of both of our sons in cash and without loans.  Any mortgage we have had on our properties has been, or will be, paid off early.

doctor-cashWe have always contributed the max to our IRAs and 401Ks as allowable by law at the time.  As a result, we have no non-deductible loan interest, rapidly decreasing mortgage balances which will be paid off well before we retire, and a very healthy and steadily increasing retirement fund thanks to continued contributions and the markets.

Ben was skeptical in that no one had ever talked to him in these terms before. Not his parents and not any medical mentors.

Time will certainly tell because in a financial plan, time can be a blessing or a curse depending on how much you have.  The power of compounding rewards those who make even small changes early on.

Otherwise, they are going to need to make painful changes later.  I personally never want to be one of those people who bemoans their retired years because they are “on a fixed income.”

Just 1% Better

one_moreI had promised previously in this blog that I would address some of the techniques that I have used over the years to accumulate my “medical millions”.  The principle I will discuss today is very simple actually, but I have found that many find it very difficult to implement.

This is a technique that I have used unconsciously and instinctively since a very early age.  Consequently, it has made me and my business highly productive.

A little background first, though, by way of explanation.  Although I was and still am a diehard Boston Celtics fan, I did read an autobiographical memoir written by Pat Riley about his days coaching and managing the LA Lakers during their heyday years (i.e. the 1980s) when they were trading championships with the Celtics year after year.

He discussed how difficult it was to motivate superstar athletes when they had achieved so much success.  Despite the fact that these stars, including Magic Johnson most notably, were obviously very motivated to get to that peak level in their careers,  achieving their ultimate goal of a championship made them less hungry and harder to motivate to go for that goal again.

pat_rileyPat Riley’s solution was simple yet brilliant.  He would go to each player and review their statistics (in terms of points, assists, free throws, etc.) for the previous year.

Then he would ask them one simple question: “Can you give me just 1% more?”  Unanimously, they would shrug their shoulders and say, “Sure, Coach. That’s easy.”

What Riley found was that psychologically his players could give him more effort because he was only asking for a small improvement.  He also knew that if he could get each of his players to improve even by only 1% (they almost all improved significantly more than 1% over the season), the compound effect on the whole team would be exponential.

Back to medical practice.  In my office, I always kept track of my patient load.  I could tell day to day, week to week, and month to month how many patients I saw.

Then, I would approach my staff and look at my schedule and see how and where I could see one more patient per day. Even the most recalcitrant staffers who tried to manipulate the schedules of our various providers so they would be out of the office exactly at 5 P.M. could not argue with the small request.

But I knew the numbers.  Remember, this was private practice and I could only “eat what I killed”, or profit only by the patients that came into the office, not by just having the office.

doctor_&_patientSo to simplify, let’s say I only cleared an average of only $50 per patient, considering payer mix and coding variables.  That one extra patient per day would mean $250 per week extra, $1000 per month extra and approximately $12,000 per year more to my bottom line.

Not too bad for a seemingly small effort!  This amount would obviously compound further over the following years.

After a period of time and once everyone was used to that extra patient, I would repeat the process again and again and again.  I and my nurse got more and more efficient.

We constantly tweaked our flow and interactions to improve patient care and efficiency.  In my practice group, I was always the most productive doctor by a country mile.  Also, when I looked at others in my medical community in my role in our local physician-hospital organization, I saw only one or two other primary care docs even in my ballpark.

Small changes compounded over time can make big differences down the line. I know everyone knows that intellectually, but very few are willing to make the changes necessary to accomplish the task.

They would look at my patient load and say “I could never see as many patients as you do”.  My response was always “Yes, you can! It’s really not that hard.”

In a near-future blog post, I will talk more about how to enhance reimbursement and income within the patient load you already see on the road to your “medical millions”!

Gronk vs. Wedding Loans?

gronkTwo different, separate information items inspired my blog writing for this week. Both are related to money, and how we treat and use money in our lives.

The first was a small note in a sports section of my local newspaper. The article was related to Rob Gronkowski, nicknamed Gronk, who is a well-known tight end for my favorite team, the reigning Super Bowl champ New England Patriots!

This article specifically highlighted Gronk‘s finances. It noted that over the course of his career so far, he has received over $10 million in signing bonuses and pay from his work as a pro football player.

What I found most interesting is that he has not spent a single penny of that $10 million yet. It is all saved and invested.

gronk-flakesInstead, he lives on the money that he has obtained from endorsements stemming from his celebrity as football player. He had had multiple endorsement deals including Dunkin’ Donuts.

When asked to comment on the strategy, Gronk said that he knows that his football career will be short-lived, and he will need money to support himself for the remainder of his life.

wedding-loanMy second money-related thought was stimulated by driving by a local bank the other day which had a sign out front advertising wedding loans at a low 4.99%. As I was looking at the sign, I was also saying to myself “Wedding loans? Wedding loans!?!”

I know that I am frugal (and I don’t have any daughters).  However, as far as I’m concerned, if you have to get a loan to finance your wedding, you either shouldn’t get married or you should have a much cheaper wedding.

wedding-piggybankI know that some will tell me that the average wedding in the United States now cost $35,000. Basically, though, you’re spending a lot of money for one party on one day.  That money could actually be used for a down payment on a house,  to furnish an apartment, or to pay down other debt.

I was heartened to hear that a professional athlete, and an enormously popular one at that, was being financially responsible and planning for his future. I was also disheartened that some people are seriously willing to go into debt for a one-time party.

wedding-savingsAs befitting the theme of this blog, I feel that doctors and other medical professionals should be more like Rob Gronkowski (even if they are not Patriots fans like I am) and save for a financial future for which they will be responsible.  I also definitely feel they should not be like the wedding couple or family that goes into debt for a short-term, and quickly depreciating, event.

In summary, be more like Gronk. Also, before you or your child meets the future spouse of your or their dreams, save (don’t borrow) for that wedding day!