By Dr. Charles Patterson, WCI ColumnistExpectations play an important role in your perception of success. While some may argue that lowering expectations is key to happiness, I don’t think that’s quite right—especially in an arena as personal and relative as personal finance. The individual investor has ample means of control: savings rates, investment selection, and even the amount of involvement and monitoring of a portfolio. With that much ownership, an entire universe of resources, and the wisdom of a support structure at one’s disposal, expectations for reasonable returns should be the norm.
For the moderate-income readers of this blog, it can be a bit of a bummer to read adverts for investment opportunities only to realize that your income or net worth does not meet the minimum to participate. It can be jarring to hear of colleagues whose tax bill is higher than your taxable income. FOMO ensues when we read of folks going rogue and filing their 8606 incorrectly. Golly, wouldn’t it be nice to have a problem like that? In reality, though, happiness and fulfillment are predicated on much more than income. And if you are the rare breed who does base your life satisfaction on the magnitude of your MAGI, you are likely the type that is capable enough of increasing it quickly.
This is a post about expectations: how to set them, how to manage them, and how to know when they are of utility (and when they aren’t). These words are not meant to assuage your dreams of a higher income or to placate an appetite for fulfillment. No matter your income, wealth is equally unlikely to be a wellspring of joy as it is discontent. These paragraphs are intended to explore the concept of “enough” and to order it appropriately in your financial life.
Setting Goals
What does it mean to have enough? What does financial contentment look like, and how is it achieved as a moderate-income physician? It’s unlikely that there is a universal answer to these questions, but there may be a common framework with which to answer them for yourself. To some, enough might be the means to achieve an early retirement with a steady and secure income source. Others may not be satisfied with the lifestyle that a moderate-income profession affords (there’s a fix for that).
In any case, enough and the contentment it provides are largely dependent on the completion of goals, freedom from financial strife, and the ability to live according to one’s values. The expectation should be that with a healthy savings and investment plan, “enough” will be achievable within a reasonable timeframe.
Expectation management starts with setting reasonable goals. Working from subjective to objective, it’s fair to desire and work toward financial independence, defined somewhat loosely as the capacity to never again exchange one’s time for money. The second of the more subjective goals might be something akin to eliminating the potential or actual toxic stress that money issues can bring. Finally, having established a sensible portfolio, one should expect to weather the periodic storms of markets and life. These more subjective goals—and the explicit, measurable, and timely goals that stem from them—confer an authority over financial matters that are too often illustrated as beyond your capacity to manage.
You should also expect that on your way, you will encounter pitfalls and setbacks. While history tells us that the market has returned more than 10% annually, it has done so in a completely non-linear fashion. There will be booms and bull markets, yes. But there will also be downturns, corrections, bear markets, recessions, and crashes. Some of these will be prolonged and uncomfortable.
In our personal lives, we can expect to wade through car repairs, water heater replacements, career shifts, and the unpredictable nature of illness and mortality, to name but a few. Emergency funds and insurance policies are logical responses to such expectations. I’ve yet to meet a person whose journey to financial independence was devoid of bumps and untoward deviations, but I’ve noticed that those who trust the process, live below their means, and diligently follow their plan tend to be those with an admirable ambivalence to the dustiness of the road.
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Tempering Reactions
The mental game for moderate-income physicians is particularly critical. By this, I mean that given a stable, long-term income stream that their profession provides, maintaining a healthy perspective (and investment approach) may be the only hurdle left in accomplishing stated goals. The virtues of patience, prudence, and indifference are invaluable shields from perhaps the greatest threat to success: deviation from your plan in the face of volatility (see also Dr. William Bernstein’s concept of shallow risk). There are other profound threats to your portfolio (I’m thinking here of failing to insure against catastrophe, setting inadequate savings rates, or overweighting alternative investments) that should be thoroughly considered—always with the understanding that buying high and selling low is a losing strategy.
Celebrating milestones, focusing on timelines, and minimizing comparison are three solid strategies for moderating enthusiasm in the “good times” and taking downturns in stride. Milestones should be celebrated! Whether it’s breaking even, making that first attending paycheck, or hitting a savings goal, emphasizing accomplishments can have an understated yet important effect on fiscal demeanor. Celebrating builds inertia, reinforces good habits, and strengthens bonds with those walking the journey with you.
When riding the tides of career and family life, just as the market experiences cycles, I am keen to remember four words: “This too shall pass.” White coat investors are far-sighted, and quick moves, alternative strategies, and new fads should enter our conversations in an almost exclusively academic sense. Changes should be slow and carefully considered. Proactivity is preferable to reactivity. The investing horizon is long, with some goals outlasting our own needs. Wherever the economy finds itself, it’s uncommon for it to be there for long. This too shall pass.
Remember, too, that personal finance is a single-player game. There can be support persons, advisors, trustees, and any number of additional involved parties. But ultimately it is you and you alone who is responsible for your portfolio. As moderate-income physicians are exposed to the elevated lifestyles of their higher-income colleagues, the tendency to compare and contrast is a danger worth highlighting. “Comparison is the thief of joy,” a phrase often attributed to Teddy Roosevelt, is a truism that applies nicely. Your goals, timeline, and plan are tailored for you and by you. Your expectation of success can be compromised in myriad ways, but comparison is certainly a road to perdition. Find cause for patience in the long game and stay the course.
More information here:
A Moderate-Income Physician’s Approach to Alternative Investments
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The Bottom Line
Of the personal and professional mentors with whom I’ve found inspiration, one in particular comes to mind. I’ll call him Allen. Allen is a moderate-income physician with four kids, a stay-at-home spouse, and a moderate but very stable income through his work as a physician. His investing horizon was 30 years, and his habits of saving and investing were subdued, unexciting, and frankly boring. Allen set reasonable goals for financial independence, his children’s education, and paying off his mortgage—with ample leeway to respond to the volatility of life’s happenings. He carried an appropriate amount of insurance. When the market was up, he responded to my enthusiasm with a shrug of indifference. When the market was down, he expressed an equally cold disregard (though I was sometimes treated to a muted, if enthusiastic, expression of, “Great, my index funds are now on sale”).
But one thing Allen never expressed was anxiety or stress over his finances. He had long since established a reasonable plan. He was seasoned through different market cycles, and he was unflappable through thick and thin. Unmoved by others’ prospects and prognostications, his expectations were underpinned by habitual saving, investing, and lifestyle moderation. Allen became wealthy, sure. But the trait I admired most about his financial life was the ease with which he conducted it. Because of his foresight, diligent planning, and reasonable expectations, money was a source of neither consternation nor delight—it simply worked so that he didn’t have to.
I’ve heard it said that happiness is the result of reality minus expectations. I don’t know if that’s true, and if anything, it seems to be a promotion of lowered expectations. You shouldn’t have to lower your expectations or set them low from the start. Ownership of your time and understanding of your earning potential are quick remedies for physician-income FOMO. I am not a neurosurgeon, and I shouldn’t expect to be reimbursed like one.
I am thankful that brilliant folks decided to pursue that path for themselves and their patients and even more thankful that I didn’t endeavor along that training pipeline. My income now may be modest by physician standards, but it’s pretty darn good by American standards. It’s not the Joneses I need to keep up with; it’s my own sense of enough. I have come to expect a few things from my career: that I will work hard; that my family will be well tended; and that, on the whole, my reimbursement is both monetary and relational.
Enough, for me, started as a number and a date. With time, enough has evolved into something much more vibrant, something that nods to a number but has much more to do with time and family and the ability to tend them. To me, expectations have been a conduit to understanding that contentment is the product of patience, habit, and gratitude.
No matter where you are on the spectrum of income, how have you managed your expectations? What is “enough” for you?
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