MD Cents: The Greatest Gift of All…

As we finish up a year many people become introspective about their lives and begin to make plans for next year. Resolutions and promises to our selves to do something better or stop doing a negative habit are commonplace. At this time of year, it is also common to give gifts to people that are special in our lives. Since this blog deals with financial issues, in this gift-giving season, I encourage you to consider giving a gift (or more) to your favorite charity. According to the association of fundraising professionals most charitable organizations bring in between 33%-50% of their annual budget in the last 3 months of the year.

Giving charitable gifts has many benefits to the giver, the least of which is the tax deduction you get for giving the gift. What are some of these benefits? Let’s talk about some of them.

Charitable giving is good for your health! A 2003 study showed that if you give regularly to charity (time or money) you have a lower risk of dying over the next 5 years. Another study demonstrated that if you give, you are happier than study participants that didn’t give.

The bottom line is give. Whether it is 10% of your income dictated by many religions or another amount you and your family are comfortable with please be charitable this Holiday Season. We are blessed as physicians with an above average income and as such should have extra in our budgets to give and use our dollars to do good work through organizations in our communities and around the world.

 

No has ever become poor by giving.

–Anne Frank

 

The Federal government subsidizes charitable giving by providing a tax deduction for those who participate. The deadline for giving for it to benefit you on your 2016 tax return is December 31st, 2016. You must make the donation by that time to be able to claim it on your tax return this upcoming spring.

 

Most people think of donating money when they consider charitable giving but there are other ways of donating things to charity that still will give you both intangible and tangible benefits. You can donate property (i.e. clothes to the Salvation Army or Goodwill, a car to a veteran’s organization, or a prize for a church fundraiser), or you can donate stocks/mutual funds you own. Donating stocks or mutual funds that have gone up in value can have a wonderful double benefit for you and the charity you donate to. This strategy will really apply to folks who have investments that have really increased in value and selling them would generate a very large capital gains tax bill to the person(s) holding them. Usually this won’t be folks just starting out in their careers, rather this is usually going to be someone nearer the end of their investing career. For most of us, we haven’t been investing long enough for our investments to have gone up so much that they would generate a large tax bill if we sold them, and for that matter, most of us shouldn’t sell any mutual funds we have as they need to grow for many years to enable us to have a large enough nest egg to retire with!

 

The benefit of donating stocks/mutual funds that have increased greatly in value (what are called appreciated shares) benefits the giver and the receiver (the charity). The giver gets to deduct the full value of the appreciated shares they donate to a charity on their tax return. The charity gets the full value of the donation without paying any tax on it. It is a win-win situation. You get to make a big donation without paying tax on anything and the charity gets the full value of the donation to do whatever good work they can with your donation.

 

Last but not least, make sure the charity to which you donate is highly rated by one of the charity rating systems, like Charity Watch so that you are sure your donation is actually going to help the people or cause you desire and not lining the pockets of an unscrupulous individual.

 

What do think? Do you donate to charity and if so make sure to do so before December 31st!

Nothing in this post should be considered to be offering legal, investment, or tax advice. Please consult a professional before employing any strategy discussed.

MD Cents: It’s a Marathon, not a Sprint!

Last night the Dow futures went down almost 900 points. People were writing all over the internet about potential gloom and doom that might happen if the stock market were to continue on this pace. (Thankfully the market is back up to a new high at the time of this writing.) I went to bed without a worry in the world—I couldn’t care less if the stock market goes down or if it goes up by a large amount on a day to day basis. I do care if it goes up over the long term, which it has over its ENTIRE HISTORY.

I was able to sleep like a baby for two reasons: 1. The Dow isn’t a good representation of the “stock market” and 2. The day to day ups and downs of the stock market are just noise and have little to do with the LONG TERM trend of the stock market.

Let’s look at the first point. When people talk about the stock market they often speak of the Dow, which stands for the Dow Jones Industrial Average. It is a collection of 30 companies in the USA that are traded the most in America and are thought to be good investments by a group that oversees the average. Is this true? Does the Dow represent the overall us stock market? Yes and no. It contains no companies that are involved in transportation businesses or utility businesses. The Dow only has very large companies but doesn’t contain any small or mid-sized businesses. This misses a large part of the stock market in the United States. There are over 4000 companies in the United States that are traded in the stock market, surely 30 isn’t a good representation. So what is a person to do? Simply buy a mutual fund that represents the entire market. There are mutual funds and exchange traded funds that allow you to purchase part of every publicly traded company in the US stock market.

In all fairness, last night the entire US stock market was down as represented by the Dow, the NASDAQ, and the S&P 500 indices. Together these 3 indices do represent the vast majority of the US stock market (~3700 companies). While I am glad that the stock markets have come back to even, I would still be okay if they had continued to lose today because I expect that there will be good days and there will be bad days as an investor but I expect that overall the stock market will have a increase over my investing lifetime.

This brings me to point number 2 in that investing is not a sprint it is a marathon meaning that you don’t win the investing game (meaning having a successful retirement savings and being able to meet your financial goals) in the course of a day, month, year or even a few years. Investing is best viewed through the perspective of a 30-40 year investing career. Here is a link to graphs showing the stock market trend (as represented by the S and P 500) over many years I found on the economic greenfield website:

available here

As you can see stocks go up over time. There are downturns even for a few years at a time, but the overall trend is up over time. The only way that most people can accomplish their financial goals is to invest in the stock market over the course of their working career (meaning 30-40 years). Don’t be persuaded by all the commercials you see on television promising easy stock trades for $, or having the best information/analytics so you can be a successful day trader as all experts do not think this is the way to approach the stock market and makes investors focus on the day to day changes of the stock market rather than focus on the long term trends. Don’t take my word for the benefit of running a marathon when it comes to investing rather than running a sprint by jumping in and out of the stock market based on good or bad news. I will leave you with the words of John Bogle the founder of Vanguard:

“The historical data suggest one conclusion with unusual force: To invest with success, you must be a long-term investor.”—John Bogle

All the above should be considered as for entertainment purposes and should not be considered to offer legal, tax, or investment advice. We encourage you to obtain professional legal, tax, or investment advice prior to acting on anything contained in this or any other entertainment article.

MD Cents: Check Up Time  

As physicians we all hope that our patients are getting regular check ups! For us as PEM providers, those regular well child checks allow our generalist colleagues to dole out the immunizations, provide anticipatory guidance, and identify trouble spots early while there may still be time to take corrective actions. Whenever we take our kids in for a well child check we try to have a few questions to ask the pediatrician to answer for us and internally are hoping to hear—everything looks good! Just like we need regular reassessments of our physical health, our financial health deserves regular attention as well.

Doing an annual financial Checkup can help you save.

–Adam Shell, USA Today

If you Google annual financial check up you will get over 586k results! Many people have produced forms that can assist you in going through an annual financial check up. Nerdwallet and Fidelity provide some really good ones that you can even print off and use for free.

Just as most appointments in the office shouldn’t take too long (and for PEM folks we really don’t want them to take that long!) your financial assessment shouldn’t take too long either.

First, gather up all your financial statements in one place, or more likely, open up browser tabs with your bank site, investment site, insurance site(s), student loan site(s), consumer debt sites (car, mortgage, etc…), and credit card sites.

Second, have a systematic way of approaching each aspect of your financial life.

Third, look at your budget—I know, deep breath. Look at the various categories you have in your budget and then compare what you actually spent in these categories over the past year. You may be surprised. My wife and I just did this yesterday and realized there were some areas we needed to adjust. Hopefully you will find that what you have coming in each month at least equals what you have going out. If you have more money spent each month than you make, it is time to make hard decisions about where you must cut spending. Before anyone asks, credit cards are not a way to make your budget work long-term! Included in your budget should be your debt payments, savings for emergency fund and retirement, and any other longer-term financial goals you have.

This brings us to the fourth item. Make sure your emergency fund is still at the level you desire it to be. If you planned to have 3,6,9 months of savings “just in case” make sure you still have it in the bank. You might have dipped in for any emergencies encountered over the past year, now is the time to fill it up.

Fifth, look at your debts and any plan you have for paying them off. If you are part of PSLF or PAYE then keep on making those government mandated payments. If you aren’t and are paying them off on your own schedule, keep it up and consider paying them off faster with any extra funds you have. Remember, in this sideways stock market, every dollar of your loans (or car payment, mortgage, etc…) paid off get’s you a return equal to the interest rate!

Sixth, look at your retirement accounts and see how they have done. Make any changes to your contribution to your 401k, 403b, 457b, SEP IRA, cash balance plans to get your nest egg up to the level you need it to be to give you the kind of retirement you desire. Use a retirement calculator to help figure this out. FIRECalc is a great one that is FREE!

Seventh, make sure you have adequate disability and if your situation calls for it, life insurance. Umbrella insurance is also a good idea if you are ever named in a lawsuit (car accident, malpractice, accident at home, your dog injures someone). This coverage allows your extra insurance to pay for judgments rather than your bank accounts or other assets!

Umbrella insurance is the best buy in the business

–Bankrate.com

Eighth, check your credit report for free from each of the three major bureaus (Experian, Equifax, Transunion). Make sure there are no errors in these and if you see yourself applying for a loan get your FICO score as well. Some credit card companies offer this score for free, which determines the rate you pay on loans, your cellphone plan and even rent for your apartment.

By the calendar we are still in Spring so before we move into Summer, do some Spring cleaning of your financial world and make sure you are in tip top shape!

What do you think—do you do an annual financial check up or do you run the other way or cringe at the thought?

All the above should be considered as for entertainment purposes and should not be considered to offer legal, tax, or investment advice. We encourage you to obtain professional legal, tax, or investment advice prior to acting on anything contained in this article.

MD Cents: What is Your Time Worth?

Time is Money—Benjamin Franklin

I have often heard people quote Benjamin Franklin when talking about time.This is often in the context of a work life balance lecture at a national conference or hospital CME program. At first this quote seems to push one to maximize the time at work, but on my second glance made me see it in an entirely different light. I began to think of the time our job can cut into the time we have to spend on different pursuits. Obviously, we need a job to fund those pursuits and our job is one that is immensely rewarding, but nonetheless it still has a time cost in terms of our relationships and outside pursuits.

We had a lecture during fellowship from a physician outside of the department of emergency medicine that told us to “hire out as many things as you can to free up your time.” At first, I dismissed this as advice from someone who didn’t have the same financial plans as me. I was of the thought that “a penny saved is a penny earned.”

While this is another quote from Benjamin Franklin, again it has two meanings. Initially, I used this quote to mentally say that if, I drive just a few minutes out of my way to save money on gasoline and I save a couple of dollars per tank that those couple of dollars will add up significantly over the course of a year. While true, I never thought about the opportunity cost of those minutes that I was using to save the 2 dollars. Another area for me that I refused to spend money on was mowing the lawn. Given our sporadic schedule with many nights/weekends and the vagaries of mother nature with rain, it was hard for me to regularly mow the lawn. You can just see the mental accounting now, “should I mow the lawn or play with my kids (insert anything else here you like to do).”

Let’s use the gasoline example to flesh this out. Until recently, I would totally drive 5 minutes out of my way to save 10-20 cents/gallon of gas at a local warehouse club. If you drive 5 minutes one way to save 10 cents per gallon of gas, that is a total of 10 minutes. Extrapolating out the costs, unless you value your time at less than $12 per hour you shouldn’t drive the 10 minutes to save 2 dollars. How did I come up with that? Let’s see:

2 dollars saved cost 10 minutes of driving. Multiply each by 6 to get the rate per hour and this gives you a rate of $12/60 minutes of driving. Most of us are paid more than $12 per hour after taxes.

There is a wonderful online tool that can help you figure out what an hour of your time is worth (not what you think it is worth) using data from your current job.

Go to: http://www.clearerthinking.org/ and scroll down just a bit in the left hand column and choose the “value of your time” calculator. It will ask you several questions and takes about 10 minutes and will give you a lot of FREE feedback on how you value your time. It will also give you many real world examples you can use to aide your decision making on whether doing a task or paying for help is worth your time. It will ask you for your email at the end, but you don’t have to give it to get your results.

All of this discussion is predicated on the fact that you already have a good financial plan in place. This means you have an emergency fund, have plans for retirement savings, college (if need be), insurance (life and disability), and other financial matters in place. Hiring out tasks is great but if you need to squeeze out margin in your budget to make an emergency fund happen or to make a retirement contribution, by all means do it! The compound value of a retirement contribution makes the original value of the money much larger than it would first appear. If you have a good financial plan in place than consider thinking about the value of your time and using services to maximize your time. Services like task rabbit (you have people bid on doing errands for you), hiring a local kid to mow a lawn, or painters to paint your apartment/house, or something like amazon express/google express to deliver items directly to your door can save you the most valuable resource you have—your time!

Nothing in this article should be construed as offering specific legal, tax, or investment advice. Please consult the appropriate professional about your individual situation before acting on anything you read here. This is offered for entertainment purposes only.

MD Cents: How Much Should I Spend on a Car?

How much should I spend on a car is a question I recently have asked myself. Kudos to you if you live in a city where owning a car isn’t necessary or desirable. As my family populates the suburbs of a midwestern city, a car is a necessity. I know what kind of car I would like (a sports car), what kind of car my family needs (something safe with room for 2 growing boys), and what I would like to spend (nothing). As you can see these priorities don’t line up as I am not aware of a sports car that can haul a family of four and not cost anything. I come from a “car” family where we really like cars so this is a big decision. For some people this decision isn’t a big deal at all. I wanted to write on this topic because it is also a part of a person’s financial life that, if not kept in check, can short circuit even the best financial plan and make you miss your financial goals.

The average price of a new car is $33,340–US News and World Report

33k is a lot of money to plunk down for a steel box with wheels and yet many of our colleagues happily fork over much more than that amount for their transportation. Just because other people spend a certain amount on something doesn’t make it right or wrong, nor does it mean you should spend the same amount.

You should spend no more than 1/10th of your gross income on a car.–The Financial Samurai

The total cost of all things that move you own shouldn’t be at 50% of your income.–Dave Ramsey

These two quotes above give different answers to a physician. If we assume a $150,000 salary the first quote says you shouldn’t buy a car over $15k and if we take Dave’s advice you can have a car(s) that cost up to $75k. There is a big difference between 15 and 75k. That’s the difference between a Honda Fit and a Tesla (or Corvette, or Porsche, or BMW, or Escalade). So what is a newly minted (or not so newly minted) PEM fellow/attending to do?

Ultimately, you should purchase a car (or any large ticket item) that still allows for you to execute your financial plan (you do have one right)? If you find yourself looking at items that won’t allow you to continue to build your emergency fund, save for retirement (at the appropriate level), fund a college account, eat, or whatever else your plan dictates, you should start looking at something less costly. Ultimately, a car is a steel box to get from point A to point B and  not the status symbol/lifestyle statement the car companies’ marketing departments would like us to think they are.

In the end each person/family must be comfortable with their purchases and with not having that same amount of capital invested or otherwise helping them to accomplish their goals.

What do you think–how much could you reasonably spend on a car without it derailing your financial plan?

The above is intended for entertainment purposes only and should not be construed as offering tax, legal, or investment advice. Each person should consult the relevant professional before making any financial decision.