Sunday, December 3, 2017

Set It And Forget It

I am really lucky to have had a Dad who was an insurance salesperson and later a financial advisor.  From the time I was a kid, we had long talks about money and economics and saving for the future.  I had a university savings account from the time I was five, and half of my $2 a week allowance got put into it.  When I turned 18, my Dad gave me a $500 RRSP and a copy of The Wealthy Barber for my birthday, complete with the advice to always put 10% of my earnings directly into savings.

"Even when I'm a university student and I can barely afford to pay my tuition", I asked?

Yes.  Even when I was a university student and I could barely afford to pay my tuition.  Always.

Along with the recommendation to save at least 10% of my earnings, my Dad advised me to "set it and forget it".  Pick a good investment vehicle (or vehicles), set up a monthly direct deposit, and then almost never look at it.  Check it every 3-6 months to make sure the investment strategy is still sound, adjust as necessary, and then ignore it.  Don't get caught up in the day to day fluctuations in the market, which cause people to make damaging emotional decisions, and just focus on long-term wealth building.

This strategy served me well.  I followed his advice through my 20s, and by the time I started medical school at 29 I had a nice chunk of savings, which I kept for retirement instead of putting towards school.  And I kept up the 10% rule through medical school and residency, so even though I became a wild spending machine, I was still building some savings.  (Although not nearly as rapidly as I was building debt, sadly.)  The best part of the "set it and forget it" advice was that I could do just that:  forget it.  I included savings in my budget, they came out automatically, and I could rest comfortable in the knowledge that I was preparing for the future.

All of that changed when I became an attending.  As a fee-for-service physician, I was no longer earning a regular paycheque.  The amount I took home fluctuated wildly depending on whether I was on call, how busy my clinics were, and whether I took vacation.  This year, for example, there was a four-fold difference between my best and my worst paid months.  I'm not complaining at all about how much I am paid - it's wonderful to earn enough to save over 2/3 of what I'm earning without having to adopt Frugalwoods-level frugality - but I have struggled a lot with the variability of my income.

In good months, when I am earning and savings lots, I feel great.  In months when I'm not on call or I lose a lucrative Monday clinic to a long weekend, I feel anxious.  What if I don't save as much as I normally do?  What if this is the beginning of a decline in my income, and I'm not going to be in a position to retire in 5-7 years?  What if I burn out and can't keep working until I FIRE?

I hate it.  I hate that I'm earning way more than I need to live and yet I'm just as anxious about money as ever.  I've tried not looking at my net worth, and it did help to reduce my anxiety, but I'm not very good at ignoring my net worth on an ongoing basis.  I'm good enough at mental math that I can generally estimate my net worth even if I'm not looking at my spreadsheet.

I've been thinking a lot about this anxiety, and I realized that a lot of it stems from having set a very aggressive FIRE target for myself.  Based on the amounts I've been saving to date, I could retire on a reduced budget in about 5 years and retire more comfortably in about 7 years.  So January 1, 2025 has become my tentative FIRE date.  But that FIRE date requires that things stay essentially the same.  It doesn't allow me to buy a house, nor does it account for the very real possibility that physician payments may be cut, or at the very least will not increase at the rate of inflation.   It's an anxiety-provoking FIRE date, rather than a liberating FIRE date.

So this weekend, I came up with a plan.  I've figured out how much I would need to save to FIRE in 10 years, when I will be 50, and it is about 2/3 of what I've been saving to date.  I'm going to take that amount and put 75% of it into investments and 25% of it towards repayment of my line of credit, thereby reducing my remaining time to pay off the LOC to another 4 years.  (Initially it was supposed to take 10 years, but thanks to a lump-sum payment this year and increasing my repayment rate, I've cut that by almost half.)  In the past year, I achieved this level of savings in all but two months (both big travel months), so it is a comfortable amount to set aside.  And I know that it is enough, so hopefully I can relax more knowing that I am meeting good savings targets.

The funny thing is, it won't really change much on a practical level.  I'm not going to go out and blow the 1/3 that I had previously been saving, as I am pretty happy with my current lifestyle.  Any extra money will simply go into a high-interest savings account, where it will act as a bit of a cushion for the months when I'm spending more or earning less than usual.  When it gets too big, I can either put it towards more investments or use it to pay down the debt more aggressively.  I'm not really changing how much I'm spending and saving, but I'm hoping that a bit of financial hocus-pocus will allow me to stop thinking about it so much and just focus on enjoying life.

17 comments:

  1. Kind of sad how, after having spent years in education, you just can’t wait to retire. Or maybe I’m just so naive so I expect to love medicine as much as I do now forever.

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    1. For me it's actually more of an anxiety thing than a wanting to quit work think. Not having enough money to retire makes me feel vulnerable - what if I get sick/burn out/get sued or something else happens that would prevent me from working as a physician. Saving money, and eventually having enough that I could retire, makes me feel much more secure in my job. I doubt that I will actually retire in 5-10 years, but once I have enough that I could, I will focus my work as much as possible on what I want to do/what is good for my patients, without having to think at all about how to earn enough money.

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    2. That’s what disability insurance is for.

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  2. I totally get you. For me, money stress definitely has been going down as we accumulate more wealth. We didn't set goal deadlines ... I'm not sure if those would have stressed me out or not. I know some people need them for motivation, but for us it was always a lookback kind of thing, oh hey, we paid DH's student loans off, oh hey, we have enough money for a house downpayment, etc. Like we'd set the goal and throw money at it, but without a timeline. If there was an externally imposed timeline (like with sabbaticals) we'd make plans based on what was saved.

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    1. I think the goal deadlines are a huge source of stress for me. Partly because I've met some big but achievable ones (net worth zero, money for downpayment), and now the ones that are left are enormous and years away (pay off >$100,000 on line of credit, save >$1 million for retirement). There also isn't much more that I'm willing to do to achieve them, as I don't want to work more, and I am already spending a pretty small amount for someone who is earning what I'm earning. So I'm trying to ignore the goal deadlines and focus on actually enjoying life.

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    2. I think the knowledge that we *can* live on less if we need to also helps with the not having hard deadlines. Like, if we'd saved less of a downpayment, we would have bought a smaller house (or possibly waited to buy). If we'd had less saved for leave, we would have rented smaller places in less desirable areas and we'd have eaten out a lot less. And so on.

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  3. Before Premed, I was a consultant, which meant I earned feast or famine rates. So I chose a very safe vehicle to park my additional earnings, and would calculate what the 80% of my average earnings were. I would withdraw that 80%, and use it for all of my spending, saving, and long term plans. Everything else would sit in the supremely safe account.
    I wouldn't use it to pay down debt, or with any sort of risky investments, because there were times where I would need to withdraw due to lack of employment. My goal was to have 12 months of expenses stashed away. I could stretch that to 2 years by eliminating all unnecessary expenses if I was worried about market conditions.
    This could also help your anxiety in terms of worrying about burnout. If you needed to take a long break, you would have enough to take a break and recover before resuming work.

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    1. That's a good suggestion, and something I'll have to think about. I've always been opposed to having any sort of emergency fund when I have a line of credit to pay off, but it might be worth it for the peace of mind.

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    2. An emergency fund is ultimately what you're building with leaving some money in a high interest account instead of investing that. I really like having a solid emergency fund, even though we've found we very rarely dip into it. It's ostensibly emergency plus vacations plus fun spending, but we usually manage to do our fun spending out of cash flow.

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  4. I have also found myself in this weird money anxiety even though I really have no reason to worry about it moment (not trying for FIRE, just being reasonable) and honestly I've realized a lot of it came from reading financial blogs.

    I think for me the line is fine between them being inspiring/interesting and just straight up stressful.

    You're probably ahead of like 92% of Canadians and 98% of the world, even if the internet makes it seem like the everyone has retired at 32 and is living the dream in Bali.
    Even if you couldn't work as an attending, I have no doubt you could figure out something to do!

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    1. Have been appreciating some of Cait Flanders stuff since she talks about money and also other parts of life... and really appreciated this post:https://caitflanders.com/2017/10/19/you-can-change-your-mind/

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    2. Yes! This! I totally think reading financial blogs is contributing to it. When I was 18 and saving 10% of my earnings, I was way ahead of my friends who were racking up credit card debt, and I felt very comfortable with my tiny savings account. I'm probably still ahead of most of my friends, and certainly most people my age, but now I have crazy FIRE bloggers to compete with. I may actually stop reading some of them, because I find it demoralizing to read about another person who is retiring 10-20 years before I will.

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  5. I like goal deadlines but they are also anxiety inducing so I have to take that into account. For example, I don't have a specific need for a FIRE date right this second but not having one gives me a generalized worry that I'm doing something "wrong" since I don't have a goal to work toward. It's a bit silly but know thyself, and all that.

    I love that fiddling with the date gives your anxiety a rest!

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    1. It's amazing how much money anxiety can cause, even when one's financial situation is good/great! It's funny that I was feeling anxious about having too early a FIRE date, while you're feeling anxious about not having a FIRE date. I guess we all find reasons to worry.

      I'm hoping that changing my estimated FIRE date will reduce my anxiety. Every time I start to do net worth calculations in my head, I try to stop myself by saying "set it and forget it". It works sometimes, but the constant focus on money is a habit that will definitely take a while to break.

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  6. I didn't know what a FIRE date was until I read this post! I lt's awesome that you're so on top of this but I'm sure I would feel just as anxious as you if I was paying more attention to this area of my life. Money is so stressful. I'm just hoping that we will actually be ABLE to retire one day. We're debt-free (except our mortgage) and we try to put money away every month and then every year, around RSP time, we look at each other and say "We should get a financial advisor!" and then don't. HA ha! Maybe I should start reading financial blogs...

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  7. You might enjoy this portion of a blog I like about Money & Happy: https://www.yesandyes.org/category/money-and-minimalism

    She has ecourses and such, but I find her blog posts enough. She basically talks about how money is just a tool we use in our life. It's helped me a lot to balance out pushing to earn more/save more versus spending to enjoy. I tend to be super tight-fisted about most things, sometimes to my detriment, and it's been good to loosen up a little.

    Conversely, her blog also helped me make the decision to not take on a summer job. It was a good amount of money, but I'd rather have time with my kids now. As alluring as it would be to FIRE, I don't want to lose the time and ability to do fun stuff with my kids when they're little. We're on track to be able to retire 5-10 years early if the market works well for us, and that's good enough for me. Or earlier if the US keeps raising the retirement age ;-)

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  8. Reading other PF/FIRE blogs definitely can give me anxiety about money and my timelines. I have to force myself to remember that I only want to do lite-FIRE anyway. I just want to build a big enough nest egg that it can compound happily while I quit one job and only do my business as much as I want. But it is hard.

    I had terrible parenting examples, but I also saved 10% of all income through the end of grad school. Unfortunately, starting a business and some medical debt (damn, America!) and some random purchases have changed that for me. It still doesn't "feel" like savings when I am using significant portions of my income to pay down debt. I don't trust my inner feelings; inner feelings come and go. (~my fave Canadian)

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