Next month we’re going to switch over to the envelope system to help us keep our spending under tight wraps.  There’s no reason for us to accidentally splurge with a few excess expenditures so we’re switching over to make sure we’re on top of things in our budget.  We’re also going to keep our focus on the short term, medium and long term goals not losing sight of where we want to be in each of these stages.  I’ve started work on the online price book but my wife has also begun a paper based price book for the short term so that we can maximize our groceries.  The two major grocery chains near our house are King Sooper (AKA Kroger) and Safeway (AKA Tom Thumb).  So far she says that Safeway has slightly lower prices on many of the staple items and that the twenty cents savings per gallon of milk will not make up for hauling our two girls in and out of the car, through the store, and then back to the car again.  I concur.

What are your plans to make October a great month for your finances?

This evening at a company event for a client we played Laser Tag.  There’s nothing like laser tag to get your heart pounding, sweat going, and lungs aching for air without fake smoke.  It was fun but I’m glad that after two games we’re not playing a third.  I’m apparently in need of more exercise of a cardiovascular sort.  Time to kick my elliptical machine avoidance habit.  Here are some things I am reminded of in finances that were true in laser tag.

Everyone has the appearance of having the same equipment
Each person was given the same vest and the same gun was attached to the vests.  Jobs pay, but not all jobs are the same.  You’re going to need to figure out how your vest sensors work and how your gun operates quickly or else you may be hosed.  There’s no recovering from a bad first half of the game unless you work really, really hard.  The managing director that works over myself and other contractors and employees got a broken weapon and we ate him alive.  Watch out for the predators that are the creditors in the financial worlds - they’ll get you when you’re weak.

There is no ‘i’ in team except for at Apple.  We didn’t have a real team mentality in the first game and we lost bad due to  our lack of team work.  My wife and I have to cooperate as a team to make our finances work and be successful.  Don’t get spanked at laser tag or finances - work as a team.

If your team is going to run out in chaos you will more than likely get wiped out by a team with a plan when it comes to scoring.  If you get lucky you could be the tiny percent of people who win the lottery - but in reality the team with a plan is going to route the other team in wealth building if they start from the beginning with a plan and continue strong, adapting if needed, but maintaining an offensive plane with a legitimate defensive strategy as well.  We’ll assume that’s an emergency fund, which is good to have anyway.

And with those key parallels I’m going to bed - I’m tired!

If you’ve embraced the old maxim, “Ignorance is bliss.” then you’re possibly wrong.  You see not so long ago my wife and I were a bit distressed because we had debt of an unknown amount and bills coming in of unknown amounts kicking my sorry bum at unknown times.  Basically our ignorance of our financial state kept us spending with credit cards, panicking over those bills, and wondering where all our money was going.  We were ignorant and in despair.

However, after going over a very, very thorough plan of our budget we discovered that we had a lot more money left over if we were disciplined and that we could tackle the debt issue.  What you have to do is find out where you’re at so that you don’t step onto any land mines.  Just like the Windows game “Mine Sweeper” we were clicking in the dark with fear that we might be clicking on an explosive month with more month than money.  Now we’ve got a goal, peace and a plan.

If you’re frustrated with bills, now is the time to get ahead.  I’d strongly recommend reading “Your Total Money Makeover” by Dave Ramsey if you want a good plan and some motivation.

I got a mass-mailed letter from Discover card with large lettering on the top stating, “Get a 1.9% APR* and the tools you need to take control.” [they have orange text, so I made this orange] Here’s the killer: control of your finances means not in debt. But Discover does not want you to have zero debt, they want you to manage your debt at a constant volume of greater than zero. To help mask their real motivation with positive spin they have the following information as the main content:

Stay Informed

Go online for an up-to-date report of your current statement and account activity

Keep Organized

Review your past 12 statements and sort them by date, amount, description or category

Set your own limits

Stay in control by signing up for timely email reminders that alert you when you’re close to your credit limit or any other limit you set

You see - this isn’t debt. Nope, its financial opportunity, that comes with fees, high risk, and a false sense of security. Discover’s advertisement gives a false sense of control. There are two very prominent elements on the page that are orange and say control. But Discover wants to control your spending by giving you a false sense of control. Keep spending, you can quit any time you want to. You’ve set up your own limits underneath their limits.  The purpose of the advertisement is to help you feel comfortable with a constant level of debt in your budget.  Their vocabulary is entirely positive and makes all parts of their involvement in your life seem good and normal.  It is a lie and their rewards program gives you a tiny, tiny percent back in contrast the amount that they charge in interest.

The last element on the page is the concept of getting only 1.9% APR interest charged on new purchases between now and February 25th 2008.  Your old balance, which has a higher interest rate, will get payed off first when you make payments so that if you keep a balance over this time period your spending will eventually get the higher interest fees.  The wolf sneaks up on the innocent sheep hoping to not be detected.  The sheep, thinking that he’s safe walks right into the trap.  The debtor is slave to the lender Discover.

If you like McDonalds, I apologize. I really, really don’t like their food. When I travel across the country in a car I stop there to use their clean bathrooms, often buying something to support their restroom cleaning staff, but outside of that we don’t frequent their establishments. I was listening to music on Pandora.com, my favorite place to get legal, free music online, and I noticed that they had an advertisement for McDonalds. A very, very sad advertisement referencing “Dollar Menunaires.” I’m pretty sure that eating out there regularly is going to reduce your chance of being a millionaire.

Consider being a millionaire with dollars saved, invested and multiplied in contrast to dollars spent, plus tax, then having to exercise even more to handle the caloric intake.  I’m pretty sure that the wealthy people I know don’t eat McDonalds and think, “This is the rich life.” I do, however, know that they enjoy going to fine restaurants that offer quality food, better nutritional value, and buns that don’t taste and have the texture of cardboard.  It could just be me, but I think that the rich life is has nothing to do with golden arches, but instead being goaled.

What does the median income of the nation mean for frugal households?  Probably not much.  If you’re a frugal consumer then you’re going to be impacted by the rise of income, but averages, no matter what they are, don’t take into account personal habits.  The person who has a house, two cars, seven credit cards, four dogs and a partridge in a pear tree that they’re paying for in a median income scenario is not impacted by the median income.  They’re impacted by their spending choices.  Just remind yourself of this when you find that your income is more or less than the numbers in that article.

The median yearly income for the United States in that article is
48,451.00.  Or, in a monthly scenario that’s four thousand thirty-seven dollars a month.  Thinking ahead you should be able to maximize your use of that money no matter where you land.

So a reader (disclaimer: and personal friend whom I’ve known since elementary school) asked on another post, “Is sending your husband to medical school a good financial plan? I’m starting to wonder…” As with all financial advice its personal. Personal means that outside advice is probably going to be invasive. That’s why I’m going to address the greater question of education rather than try to stay completely narrowed down to just this one question. However, once we look at what the options are and their consequences we’ll dig into this one particular case to evaluate its potential.

We’ll start from my personal favorite of the options: paid in full schooling.

Higher Education and No Debt (Pay as You Go)

Higher education without debt is not as common as would be good for the economy and the world’s population. This would be my personal first choice. It is probably unlikely because this approach will either require a well paying first job (or dual incomes that are still high) or taking classes at a much slower pace. Since we’re talking about a medical degree I’m going to assume that the student would be on medicare before finishing school. The slowly taking classes approach would mean that there would be no debt, but certainly medical technology would be updated faster than the student could take classes. You’d possibly get a degree, but you’d have to learn about the newfangled devices if you took the slow, but paid route.

The paid, but quicker route could also come from other areas like a family gift from a well-off relative. This isn’t likely, but could be a possibility. I can humbly and thankfully say that my parents paid for all of my higher education and I have no debt due to education. When I took a class at my local community college to get some continued education I paid for it myself with no debt being accrued.

This method will lead to a larger chance of making money as a medical professional down the road. Read the last section of this post about costs of medical businesses/practices to consider some of those issues.

Higher Education and Student Loans

Higher education and student loans are just assumed in many cases. A student loan is often described as having ‘low interest’ because the interest for the loan is lower than credit cards (which are often in the high teens when it comes to interest). These student loans are for huge amounts of money though. Some students end up with student loans that are much higher than their actual house loan which can be very, very stressful.

Assuming a medical degree will get you six figures of income per year you will need to chunk away a large part of that upon finishing school just to pay student loans off. Student loans are one way to fund an education but they are expensive over time due to their longer term loan terms. It is also important to remember that student loans cannot be bankrupted - you will pay them off, even if you defer their payment until after finishing school or defer them due to hardship.

This option is common but you have to determine the cheapest way to possibly go to school for this to be plausible long term. The alternative is just paying for school until you retire.

Higher Education and Private Loans

Private loans may possibly have low, low interest rates or could have high interest rates. If you were to get a loan from a family member you may run into political issues where every time you see them you feel guilt or awkwardness takes place. It is possible that you don’t personally have any issues like that, but if you are in any way concerned about it: don’t do it.

If your motives are humanitarian you may want to choose something else that is humanitarian and not so darn expensive.

Higher Education with a Family

Families are important. Very important. More important than actually having money. If you’re going to school you need to make sure that your schooling, while you have a family, doesn’t kill off precious time with young children that you’ll never get back. My dad was working a full time job (with overtime) and taking classes at night while I was a younger child. This cost him time with his family and he later apologized for it. Don’t let higher education, the call of more money, or the call to serve others at the expense of your own family fool you! It may be that the higher education is a good thing for you to go after, you just need to make sure that it doesn’t own your life and destroy your family-life.

Mr. M.D. with a Family

Depending on the type of doctor you’re going to become you need to consider what time restraints that will put on your family choices. Single doctor offices have to shut down when a doctor takes a vacation. This can cost business. Doctors can be on call for various times of the day that non-doctors are not. If you are responsible for responding to emergency calls due to children who are sick, or just swallowed a gallon of bleach, or did something else in an attempt to merit a Darwin Award then you have to be the one to respond to the emergency. You signed up for it and your children’s soccer game is second in priority. This shouldn’t make you think twice about being a doctor, it should make you think five or more times about being a doctor. Busy doctors with families are usually spread thin. Wives get lonely, children feel neglected and dogs miss being loved.

Future Expenses to Consider

Clinics

If a doctor wants to work at a clinic or group practice there is often a low barrier to entry and the cost of working goes down. This also reduces the potential for revenue. If you’re getting a degree to be a doctor for higher, more morally motivated reasons then kudos to you, but in the end as a person with a family (at least in this case) you need to make sure that you are providing for them. Starting your own practice or buying out a retiring doctor’s practice can be a significant expense. I heard of one person who paid millions to buy into what would potentially be a lucrative practice. Potentially. As in not for sure. Consider your risks when you consider buying into or buying out a practice. If you have to borrow half of a million dollars to buy into a practice on top of student loans of a quarter million dollars you are giving away future earnings for much of your career if not all of your career.

Licenses

Medical professionals have to be licensed, they need to have continued education, and they need to continue to be licensed over time. If you try to run an office there are licenses that are required by the local or state governments. Taxes are everywhere so the entrepreneur has to work hard to maintain all of the legal requirements while attempting to minimize them. If licenses, continued education and malpractice insurance are a constant cost that will probably go up, you need to consider this expense for after school.

Cost of Business

The cost of business in medical equipment, supplies, staffing, technological investments like computer networks and such can be huge. Small offices can operate with little overhead in staffing, but equipment is almost always going to be a running expense as well as supplies for hygienic waste. Rubber gloves are cheap per glove, but at the rate that they are used in a medical office the cost can become a nagging and constant expense.

Computer technology doesn’t have to be replaced every year, but software that is used needs to be upgraded and updated, especially when federal, state or local laws require new things that you could automate with a computer application rather than hiring a full-time staff member.

On top of all of this taxes for employees are a real cost. A paid employee with benefits and social security taxes is on top of the salary of the employee. An employee making $45,000.00 a year will cost you more with taxes, they become a (theoretical) $60,000.00 expense.

Insurance

Insurance companies don’t want to pay doctors. In fact some companies exist to help insurance companies pay less.
Those companies will actually search out other medical practices that charge less than your office and then split the difference of the ’savings’ of the insurance company so that the parasitical company make money and the insurance company (that others would argue is also a parasite) spends less on doctor’s fees. Doctor’s offices often have a part time or full time employee in charge of wrestling with insurance companies. The cost of doing business in the modern medical world in the US is complicated in part because the insurance companies preemptively limit doctors from practicing medicine. A doctor’s office will have to either take in more patients to increase volume to make more or the same amount of money, thus sacrificing service and patient relationships, or count the loss of revenue as worth while to offer higher quality service.

Conclusion

I wouldn’t be a doctor because I’m lazy.  I’ll own up to that.  I don’t want to go through all of that training and I don’t want all of the stress of people’s lives being risked at my call.  I don’t want the burden on my family.  I think this post is quite clear about that.  However, the personal nature of livelihood, the personal nature of careers, and the personal nature of motive make this post only a tiny bit of the whole equation.  Do you get the higher education and become a doctor?  Maybe.  Do you become a doctor and become a millionaire?  Maybe.  Whatever it is you do you need to think about the short term, the long term and the mid-term risks.  You need to evaluate the financial, the physical, the emotional and the spiritual costs of your choice.

I’m very glad that some people feel called to medicine because they’ve helped me and my family.  I would just encourage people to count the costs on every single level, explore the opportunities that are available for both paying for the schooling as well as routes for managing the lifestyle your profession will bring.

Today’s USA Today had a tiny survey at the bottom of the Money section that had the following statistics outlined in a pie chart:

68% of people surveyed understood their paycheck deductions completely
24% of people surveyed understood some of their paycheck’s deduction
8% of people surveyed  did not understand their deductions

What I see in this is that a majority of folks grasped their paychecks deductions.  Super.  After the paycheck’s deductions did they track their money?  Did they grasp all of their tax saving opportunities?  Were they taking advantage of their 401(k) opportunities? We don’t know.  However, as a reader of this blog I encourage you strongly to figure out what deductions you’re having taken out of your paycheck, and then look for other areas where you can save on taxes or save via pre-tax spending.

One technique that some have done is to change their w-2 exemptions at the start of the year and fewer deductions taken out at the start of the year and save or invest the increase.  Then at the latter half of the year they’ll change their exemptions to have more deductions taken out of their paycheck to compensate the second half of the year.  What this allows for is for you to not give the IRS the opportunity to have an all expenses paid, interest free loan on all of your money all of the year.  Instead the tax payer watches and manages their money so that at least part of the year they are maximizing the use of their money.  I’m not suggesting you do this, but more that you way the various places that you’re letting others make money on your money.

When you think smarter about your money you’ll discover that there are plenty of opportunities to eek out small savings, small earnings and generally get ahead.  Its the old saying, “a penny saved is a penny earned,” in larger scale.  It is the appreciation of the ant saving up for the winter.  One kernel at a time.  One dollar at a time.  The paycheck deduction is a start, its financial knowledge to a point.  However, you don’t want to stop learning.  My father was on a committee at one job that was in charge of putting together benefits packages including investment opportunities that were offered in the company’s 401(k).  Under the direction of the team and in part due to the help of my dad, the employees at the company were able to save thousands of dollars in taxes and earn thousands in investments that were wisely chosen.  Employees could maximize their savings for each paycheck.  Are you?

I have had a few search engine link-throughs where people have been looking for money make overs. I hadn’t thought about a money make-over before, but after some thought here are some things to consider in comparison and contrast with reality television make-overs:

So you can see that there are a few similarities but also a lot of differences. But when it comes to extreme money make overs we’ve been conditioned to not be so extreme. When I first looked at my budget for areas to trim off expenses I didn’t consider many areas that could be trimmed because they were comforts that I wouldn’t dare part with. They were financial expenses that were draining the life blood of my budget but I couldn’t see them as leaches, but instead I saw them as bandaids to make the pain go away. In the end I had to own up to my pride and discuss with my wife areas that we needed to cut back. Not an easy task but something that had to be done.

Ford isn’t going to donate a car to my family and country super-stars are not going to come sing benefit concerts for my middle-class family that has only mild medical needs and no house being knocked down by mud-bogging vehicles. However, if you look at the very core needs of your household you won’t find cable on the list. You won’t find internet connectivity on the list. You won’t find traveling to the Bahamas on the list either. The list is short. The extreme nature of the extreme money make over is that its not fun, but that its extreme.

Consider your own extreme money make over on a virtual level. How much money could you trim your budget down to right now if you kept the same providers, but cut out all unnecessary expenses? I challenge the readers of this blog to post anonymously if they want to, but post nonetheless, the actual minimal amount of money that they could live on based on their current financial obligations for food, clothing and shelter [plus utilities]. Mine would be roughly $2,500.00 a month. Adding our car to the equation adds $400.00 a month due to our payment on the car and gas.

When you’re talking extreme things start to look rather stark, but the point of this post is to get first world people to think about their affluence and what that means for their lifestyle. How little could you live on a month for your family?

Tomorrow I will be going in for a review of my contract with a major client (I am an independent software developer/contractor) and I’m hoping that all of my hard work will pay off and they’ll award me a contract that will at least cover inflation.  If its more my wife and I have already discussed how we’re going to handle an increase in stable income.  Its not that we’re focusing on getting more money, more money won’t make us happier or better people, but instead we’ve already planned where our income will go so that it doesn’t simply become outgo.

Many people get a raise and then immediately find somewhere for that money to go so that they can have more stuff or attempt to keep up with some trend.  While this isn’t absolutely wrong on a moral level I would encourage readers and folks to consider the options that they have when it comes to saving or investing your finances.  We haven’t got six months of living expenses saved up and we’re interested in getting to the point where that is the case so that we can further tackle strong investing ideas.  I have a friend whom I will call Mark who has said for about as long as I’ve know him that whenever their family is the beneficiary of a raise they just tuck the difference from their old salary and the new salary away into the bank.  What this means over time is that if they have to take money out of their emergency fund they can because it is well stocked, and otherwise other than inflation and areas where their cost of living might go up they don’t automatically spend the difference.   They don’t treat it as windfall money, they don’t treat it as spending money, the treat it as an investment into their future.

If you can preview your budget and plan out ahead you will more than likely find events like raises and bonuses to be quite liberating and not a new distraction.  The future you will know how to handle the scenario because you’ve already got a plan for the money and the implementation won’t be something new to handle either.  Keep your focus on your plan and you should see growth accumulating again and again.