Pilots Can Reach Financial Independence Too with Captain FI | White Coat Investor

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 324 – Pilots can reach financial independence too.

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Welcome back to the podcast. I hope it’s been a great summer so far for you. As you are listening to this, I am back in Idaho floating on a river in the boondocks. So, if you’ve sent me an email about this today it runs, don’t expect a response for a little bit.

QUOTE OF THE DAY

All right, let’s do our quote of the day before we get to our interview. This is from Jack Bogle, the late Jack Bogle. He says, “I favor the all market index fund as the best choice for most investors. Don’t look for the needle, buy the haystack.” And that is a great tip from Jack.

All right, don’t forget about our paid surveys. If you want some extra income this summer, maybe while you’re traveling and your spouse is driving, not while you’re driving, you can hop onto whitecoatinvestor.com/mdsurveys and sign up for a few. They really do want your opinion. They really do pay for your opinion. The record I’ve heard so far is about $30,000 a year on surveys, but I’m sure somebody out there can beat it and will write in and let me know.

All right, we’ve got something unique. It’s summertime. Let’s do something a little different. Let’s get off the continent. Let’s go to Australia. Let’s talk to a pilot. We’ve actually got a surprising number of White Coat Investors who are pilots, according to our most recent annual survey. Pilots are a different kind of high income professional, have their own challenges while reaching their financial goals. Some advantages over doctors, some disadvantages, but lots and lots of similarities.

We’ve got Captain FI that we’re going to bring on. A pilot who now blogs and podcasts out in Australia about financial independence and retiring early and financial literacy. So, let’s get him on the line.

INTERVIEW WITH CAPTAIN FI

Our guest today on the White Coat Investor podcast is Captain Phi, Captain FI. Pete, welcome to the podcast.

Pete:
Good day, Jim. Thanks for having me, mate. It’s awesome to be chatting.

Dr. Jim Dahle:
Yeah. So, how do you pronounce it? Do you pronounce it Captain Phi or Captain FI?

Pete:
Yeah, Captain FI. I put it in one. So, look, it’s a bit of a funny one. It basically just came apart because, obviously, I’m a pilot. That’s what I do for my day job, although not anymore. I now spend a lot of my time writing and podcasting and FI, just financial independence, which was the whole theme of my book.

Dr. Jim Dahle:
Yeah, I think people have probably caught onto your accent at this point as well. Do you want to tell people where you are and what time of morning it is while we’re recording this.

Pete:
Yeah, I’m tuning in from Adelaide, South Australia. And yeah, it’s pretty early in the morning, but that’s okay because my lovely partner made me a cappuccino and I’ll be sipping on that whilst we chat this morning.

Dr. Jim Dahle:
All right, good times. It’s the end of our workday, the beginning of yours. All right, let’s start at the beginning. Tell us a little bit about your upbringing and what it taught you about money.

Pete:
Yeah. Look, I’ll preface with this say is sometimes I’ll start talking and you just need to give me a hint when it’s time to stop talking. I grew up in rural Australia and unfortunately my parents did split up. I didn’t have the greatest dad. He wasn’t very nice to my mom. My mom’s just the most incredible person. So, she got me and my siblings and we left the farm property and she basically started a new life in the city. I guess I would say it’s a fairly normal suburban upbringing.

I did have some issues at school. I think I bounced around to about 17 different schools, just some behavioral issues. But my mom always stood up for me. Yeah, she was absolutely lovely.

Unfortunately, because of the issues between her and my dad, my dad was pretty much completely out of the picture, so I didn’t really get to see him much. I’d sometimes see him once a year or every couple years, which made me sad, and he didn’t contribute financially to my mom’s household. So, mum did have it pretty tough. She was a teacher. She worked part-time to optimize between the cost of childcare and how much income she was able to bring in. But as a result she was below the poverty line here in Australia.

But not to be having a sob story, I had an awesome childhood and I’m so grateful for everything that my mom did for us. She always told us that you just need a little bit more income coming in than you have coming out. And unfortunately, my dear mom did pass away recently after a very long battle with cancer.

And before she passed away she had paid off her house, she built a nice retirement savings in her superannuation which is like an American 401(k). And she had built a wonderful family and was surrounded by everyone she loved. So, yeah, I guess in summary, I had had a wonderful childhood and really that’s just a testament to how wonderful my mom was.

Dr. Jim Dahle:
Okay. So, after childhood, you obviously had a little bit of issues at school for a while, but tell us about your education after that and your career so far, and what it has taught you about money.

Pete:
Yeah, of course. Sorry, I didn’t really answer your question when it comes to money and childhood. We never really had a lot of money. So, I did develop a bit of a scarcity mindset around money in that money is something to be saved and to be sort of scared of. And it was a bit complicated.

Fortunately, I was pretty good academically. Kids that are quite clever often get in trouble at school and I was very lucky that mom always stood up for me and as a result I was able to finish my education. I finished year 12 here in Australia, which is like, I guess when you finish high school. And I finished with a really good score and I was able to get a scholarship at university. I had a degree in aeronautical engineering paid for without any student loans and actually received an income whilst I was studying, which was really cool.

But then I went on to complete a masters in space engineering, but all the time wanting to fly and be a pilot. I would save all my money and put it towards flight training. I had a whole bunch of different side hustles, some more successful than others. I used to flip cars, clean graffiti, pick up garbage, basically anything that I could think of to make money.

I did spend, now this is Australian dollars, about $300,000 on my flight training over a period of about seven years. And yeah, I guess I was very fortunate in that I didn’t have student loans and I had this professional qualification that I could use to bring in income.

But basically once I’d finished my pilot training, I had still got my income coming in, but I no longer had this massive deficit. That was kind of the inception of my learning about personal finances out of a necessity because I basically couldn’t spend all of my income.

Dr. Jim Dahle:
So, let’s not talk necessarily just about you. You’re a pilot. You know other pilots, you worked with lots of pilots. How is the typical pilot with money and why do you think that is?

Pete:
Look, I’ll start first by saying not all pilots, but I would say the majority of air crew that I know probably are too switched on when it comes to money. And it seems to be something related to most professional careers and high income earners that money coming in seems to be equal to money coming out.

I worked with a lot of colleagues who financed their cars, financed their holidays, financed their home. Some debt is obviously sensible. My personal opinion is I don’t like consumer debt. I personally never had a credit card. I never had a car loan. The only loan I would take was for an asset. But again, not about me. This is about I guess the industry, the wider industry.

It can be difficult for young pilots, and junior pilots. I know some do resort to debt to get ahead. But one of the things that I didn’t really like about working as a pilot, there is an element of the keeping up with the Joneses, the popularity contest. To be seen as successful you need a C-suite executive car and perhaps for certain areas, say if you’re working in Outback, Australia, the car that everyone wants here is a Land Cruiser. And I’m not sure what the equivalent is in the US but a Land Cruiser can…

Dr. Jim Dahle:
A Land Cruiser.

Pete:
Yeah. They can spend $200,000 on one. I imagine it might be a similar culture in medicine. And I was actually recently chatting to a GP who interviewed me, and we were actually talking about this exact thing. There’s a lot of crossovers between medical and aviation worlds, including professionally.

But yes, I would not say all pilots are particularly good with their money. I don’t know. Jim, do you think maybe that’s just a trap with high income earners that always see this money coming in that it’s never an issue for them? What have you seen in the medical industry?

Dr. Jim Dahle:
I think the truth is that pilots, doctors, they’re all people and most people spend all their money and then some. And so, I don’t know, that’s part of it, part of it’s status. You’re expected to spend, you’re expected to live a certain lifestyle. But I think most of it is we’re just regular people that do what regular people do. And without financial discipline, without financial knowledge, that’s what people do. And so, it’s not that unusual.

Now you go by Captain FI, and I’m curious, what got you interested in FIRE, in Financial Independence Retire Early? What got you interested in that movement?

Pete:
Yeah, okay. I guess I reached this sort of crux in my adult career where I think it’s around 2014 where I had achieved my professional qualifications. I had a frozen air transport pilots license, which is when you have a commercial pilot’s license and you’ve done all of your airline theory subjects and you’re basically ready to slide into the airlines.

And I was working as a flying instructor. In fact, I was working multiple jobs still, and I sort of had surplus income but I knew I needed to do something with it. So, I guess the first aspect is, okay, there’s some income trouble, something needs to be done with it.

Now, in my previous job as an engineer, I would typically want to optimize everything. And I think I fallen in the trap of over optimizing things. I knew I wanted to do something, I wanted to do it right. And probably starting to build up a little bit of money anxiety around that, because I wasn’t used to having money. So, I felt responsible to do something.

And actually before I started doing something useful, I started buying gifts for people. I bought my sister a car, laptops, paying for international trips for family. I started to realize, “No, actually I can’t keep putting this off. I need to do something clever with the money. I need to be responsible with the money.”

And it sent me down a rabbit hole of learning about different assets. I had money management, which performed very, very poorly, underperformed the market. I think the market was, if I look back, was doing like 10%, I was getting 4% with horrendous brokerage fees. Like a couple of percent each way, which was just shocking.

I think I made a lot of silly mistakes when it came to investing. I tried to buy an investment property, tried to haggle with the real estate agent, had no idea about property, and just embarrassed myself.

Yeah. I ended up picking up a book, it’s really popular in Australia here. It’s called The Barefoot Investor, written by Scott Pape. He used to write a financial column in a newspaper. Very, very popular. Probably very similar to Dave Ramsey in the US. And his book was great. And it’s sort of a no-nonsense book that sort of helps the majority of Australians get to a baseline level of financial literacy. And that was great.

And that kind of started me off. I think I read Robert Kiyosaki, Rich Dad Poor Dad, and I found about J.L. Collins, The Simple Path to Wealth and Mr. Money Mustache. I went crazy. And I was bingeing all of the podcasts. I was reading all of the blogs and I got really, really excited.

And it sort of helped me because there’s this culture, at my workplace, my old workplace. I kind of refer to it as the “Smoke ‘Em If You Got ‘Em” mentality. And I think that was where most people were in that paycheck to paycheck cycle. And it was kind of self-destructive.

Reading about the FIRE movement, it was so refreshing and I felt like, “Oh, these are my people. These are like other engineers, other professionals that are really interested in efficiency and setting up streams.”

And the idea that I could invest 25 times my annual expenses, and that I could be looked after financially for the rest of my life, it was almost too good to be true. It was like a safety boat had been thrown to me about my money anxiety.

And it was like security, something that I could latch onto. And I did, and I saw that many people on their FIRE tunes were documenting it online. And I thought, “I can do that. That can keep me accountable to my goal.”

And so, I started blogging about it. It wasn’t very successful. In fact, I had a couple of failed starts with websites. But yeah, I loved it and have met some wonderful people, some incredibly smart, successful, lovely people that have helped me so much in my journey. And yeah, I don’t think I would be where I am today if I hadn’t started blogging about my experience.

Dr. Jim Dahle:
All right. Well, when I look at your website, it says you retired at 30. Is that really true? I hadn’t even started my career at 30, and so, I’m curious how you define retirement and why you say you retired at 30.

Pete:
Yeah, look, I think it’s a bit of a soundbite really, Jim. I definitely don’t really consider myself retired in the conventional sense. I think of maybe semi-retirement or part-time. Look, I certainly spent a lot of time retired in the conventional sense, when I did leave work. I kind of switched one job for another, which was I became a full-time carer for my mom as she was in the final stages of her life. And that was hard. That was really hard.

When she passed away at around Christmas, that was where I felt that cliff of, “Oh no, what do I do? What do I do with my time? Who am I? What’s my purpose?” I was so motivated for seven years or so about saving, investing towards FIRE, that when it sort of happened, I felt really destabilized.

I had this existential crisis. I think a friend of mine told me to read Nausea by Sartre. And that definitely didn’t help that. That’s a difficult book to read. And yeah, I think I came to this conclusion and by speaking to quite clever people like yourself, we need something to do. And of course, I’d been blogging and podcasting along my journey to FIRE and I realized this is something that I want to continue.

So, yeah, I guess I would call myself semi-retired or I work part-time, actually run a portfolio of websites. And they just sort of tick away in the background. I guess it was an additional pillar. People talk about different pillars of wealth, investments, property, superannuation, 401(k)s, and then business. And under the business pillar that’s where these websites would fit.

I’m fortunate to have a brilliant team of outsourcers that work as contractors, and they do an amazing job. I really enjoy the SEO, and the keyword research aspect. So it’s very interesting when you look at content websites, they actually don’t really take a lot of time.

These days, I spend a lot of time with my dog, focusing a lot on fitness, myself, friends. I think recent events, the passing of my mom and the passing of a close friend of mine just recently, has definitely put this into perspective that you only get one shot at this life and you can make a few sensible and strategic decisions early, and focus on, I guess that delayed gratification. You really can free up your life to do what matters for you most.

But I don’t think you need to wait until you’ve got a FIRE number, like until you’ve had 25 times your savings so you should do the things you want. And so, I’m really looking forward to buying a hobby farm soon. I’m looking all the time, before bed, when I wake up, at properties. And my goal is to start planting as many fruit trees and a big veggie garden and have a lovely house and start raising a family.

I think there’s a lot of work ahead for me. It’s a lot of words, but to summarize, it’s not your conventional retirement. I’m not sitting on a couch. I’m not going to go to Bali and sit on the beach sipping champagne. In our lives, I think as humans we need hard work. Your body needs hard work, your brain needs to be stimulated. So, it’s just about reframing why you’re doing those activities.

Dr. Jim Dahle:
Now, as I read through your blog, you can throw a figure out there that your family spends something like $30,000 or $35,000 a year. Now I assume these are Australian dollars, which for those who aren’t familiar with the exchange rate, the exchange rate is about 0.67. Meaning an Australian dollar is worth about two thirds of a US dollar.

So, $30,000 to $35,000. Some families spend that on a two week trip to Europe. And so, I’m a little bit curious how that’s going. Do you think you’d enjoy being able to spend five times that much if you didn’t have to go back to work to do that? Tell us about why you’re chosen to essentially have that lifestyle?

Pete:
Yeah, look, it’s an interesting one, Jim, and money is something that I’m still working on. I talk to a therapist, and one of the things that comes up is spending more freely. In fact, he’s always gently encouraging me to spend more on experiences.

And look, we do sometimes spend more. That’s kind of my base spend. And that’s based on we live in a very modest place. In fact, we’ve got a two bedroom house, which is awesome. I previously always had a one bedroom apartment when I was living in Sydney. And so, I’m seeing to you now from our second room, which we’ve set up as an office, which is pretty luxe in my books. We have a dog, wonderful. Obviously, quite a lot of expenses relating to having a pet. And I think that’s awesome.

And I don’t think anyone should be shamed for spending or for not spending, but I just think it’s important to spend on what’s important to you. And for me, a lot of that stuff, lot of the spending is just sort of not important. And whether that was part of just growing up and not having that. We never went to see shows.

So I’m not really interested in, as much as she’s an idol, Taylor Swift coming to Australia, everyone’s going nuts for it. Some people spending like a thousand dollars on tickets, but that’s not something that I want to do. Maybe I’m a boring old man who’s older than his years, but standing in a concert with loud people screaming, getting sore feet, it doesn’t sound like a great time for me. I would love to be curled up next to a fire reading a book, maybe sipping a coffee or a glass of wine or something. Or out in the future on my farm building up my permaculture food for us and growing food for people.

I guess I enjoy activities that are low cost in nature or activities that produce some income. It’s kind of just how I tick. But having said that, we do have some expenses. Did you want me to go through the expenses?

Dr. Jim Dahle:
Well, I don’t know that you necessarily have to go through the expenses. I think a lot of our listeners would just kind of hear that sort of a dollar figure, adjust it for US dollars and just go, “Wow, that’s such low spending.” I talk to lots of people that would love to retire at 35 or 45 or 55, but not if it meant living on $35,000 a year. They would rather work longer than retire on that. Because the question, I think it was George Foreman who said this. He said, “It’s not what age you want to retire at, it’s at what income.”

Pete:
Yeah.

Dr. Jim Dahle:
And there’s a lot of truth to that. Obviously, in the FIRE movement, people understand the math behind that. But what would you say to someone that says, “You know what? 35 or 45 sounds great, but no way. I would rather work longer and be able to spend $80,000 or $100,000 a year.”

Pete:
Oh yeah, look, that’s totally fine. And that thing about personal finance is it’s so personal. I’ll just put out there the share portfolio that I have, that spits off about $42,000 a year in income. The investment property there’s another $25,000 of income. The websites, I had a couple of dozen websites and at the moment I choose to reinvest all into building the sites, paying my contractors, but wouldn’t be too hard for me to take another $10,000 a month, $120,000 from that.

Actually my investments, if I wanted to take the income now, could be actually my flying income, but I don’t want to spend that money. I like that it’s there, the potential is there. If I want to spend it, I can, it gives me the choice, the option. But for now, like I said, we’re still living in my mind an amazing lifestyle. We’re definitely not baked bean millionaires by any stretch of the imagination.

Food is probably one of our biggest expenses. We love good food. We eat out several times a week. And we’re really fortunate where we live in Australia, we’re really in like a food and wine capital here in Adelaide, South Australia. It’s a really wonderful place to live.

And we have everything at our fingertips. We can walk or cycle surrounded by beautiful national parks, beautiful beaches. The climate is lovely. We just don’t feel that we need to spend more to improve our lives. Whilst my car might be 17 years old, it drives like a brand new car, luxury Japanese built wagon, wonderful. Cruise control, power windows, power roof, giant moon roof. It’s just wonderful.

I thought what would make me happy? Should I buy a new Land Cruise? Would that make me happy? Should I get a caravan? And ultimately, no, they don’t. So, what I’m doing is I’m choosing to take all of that surplus income from the portfolio. So, taking the dividends, taking the franking credit refunds, getting that rental income and reinvest it.

And similar with websites, taking revenue from advertising partners, reinvesting that into content to hopefully build the capital value. And we’ll try to use that to buy this hobby farm, which will be a very big expense. And we will have larger expenses once we have the land because as anyone might know, you get a patch of land, you have fences, fences break, trees fall down. We probably won’t have livestock to start off even if we did maybe just a couple of sheep and chickens.

But there’s always issues with animals, property taxes. And then of course, starting a family will be a huge expense. That’s the big one that we probably get on. We don’t have kids yet, and hopefully in the next couple years we’ll be starting a family and those expenses will rise.

But we’re not total misers. We did spend $15,000. We spent a few months in the Philippines. And that was awesome. We learned how to scuba dive, learned a whole bunch of new skills, spent money that made us really happy on new and cool experiences.

So, I think if someone wants to retire on a higher income, that’s totally cool. But just think carefully about what actually makes you happy and you might be surprised by how little you actually need.

Dr. Jim Dahle:
Yeah. It’s interesting. While you were sleeping this morning, CNN put out an article, and I’m sure you haven’t seen this because you just got up and got on the phone with me. But they asked 2,500 US adults how much money they would need to earn on average a year in order to feel financially secure and the figure. And then they asked them another question, how much would you need to feel rich or to attain financial freedom?

I want everyone listening out there in podcast land to think about these two questions. How much would you need a year to feel financially secure and how much would you need to feel rich? And they’re talking about annual income, they’re not talking about net worth or assets or anything here. And the average was $233,000 a year. This is US dollars to feel financially secure and $483,000 annually to feel rich. What is your reaction to that survey?

Pete:
Yeah, look, that just blows my mind. That’s like over 300,000 Australian bucks, 350,000.

Dr. Jim Dahle:
Just to feel financially secure. That’s not even to feel rich, right?

Pete:
I don’t want to swear because we’re pretty crass Aussies, I know Americans have much better matters, but holy crap. That’s just ridiculous, mate. And again, are we talking before tax or after tax?

Dr. Jim Dahle:
Yeah, I don’t think they specified, but the sheer number, however you want to look at it is obviously pretty impressive, because remember, that’s an average. Half the people picked a number bigger than that.

Pete:
Yeah.

Dr. Jim Dahle:
So, it’s pretty wild what people think they need.

Pete:
Yeah, I think as humans, we’re not very good at predicting what will make us happy. Whereas what I like that passive income does is passive income helps you to subtract, it helps you to get rid of things you don’t like. For me, I don’t like ship work. I don’t like doing red eye flights. I don’t like taking off into sunset and landing after a sunrise. Man, that’s so bad for your body. And you mentioned that like a lot of doctors or professionals might be.

Dr. Jim Dahle:
You know you’re talking to an emergency doc, right? You’re preaching to the choir here. I dropped my night shift. It was the first thing I did when I got close to being FI, is drop my night shifts.

Pete:
Awesome. Yeah. Because you can take away some of these things that you don’t like and it builds this wonderful life. And so, I think maybe the people that are in this survey, maybe they’re looking at it from the wrong approach. It’s like a head in the clouds, la la la. Yeah, give me half a million income and I’ll be happy. I don’t know a lot of super wealthy people, but I’ve met a lot of financially independent people through FIRE, through the FIRE movement.

I’ve interviewed a lot of people with net worths around like $5 million to $10 million and they just seem like normal people. It doesn’t seem to change them. It doesn’t seem to change their happiness. I think to some extent it can create further issues. Wealth can create unforeseen issues.

Certainly giving unearned masses of wealth to people can be a huge burden. It can be really unfair. But I think if people are sensible with their money and they’re earning six figures, I always thought that that was a pretty good sweet spot. I’m not agreeing with some of the studies, but I sort of vaguely remember that there are a lot of articles written saying that around the six figure salary is the sweet spot in terms of happiness.

And it’s worth noting, I spent a lot of my career working in developing countries, spent a lot of time in Asia and the Middle East, and the poverty in some parts of the world is just crippling. And even in Australia, you’re living in the poverty line in Australia. I don’t have the stats in front of me, but that still puts you something like in the top percent wealthy people in the world.

And so, I don’t know, I’m just going to say people who are saying that they need a half a million dollar income to be happy, that’s just delusional, Jim. That is just delusional.

Dr. Jim Dahle:
All right. Well, I don’t get to talk to Aussies very often and I’m curious what you see as the most significant differences between personal finance in the US and personal finance in Australia?

Pete:
Okay. The context I guess I would say that property real estate is more of a religion than an investment here in Australia. So, the gospel is, “Thou shall only go up.” Sorry, I hope I haven’t offended any religious people. But yeah, everyone wants a property here in Australia and it’s pretty unaffordable in the two biggest cities Sydney and Melbourne, and to some extent Canberra as well.

I live in Adelaide, which is seen as a less desirable place. It’s a much smaller city. So, real estate is obviously much more affordable, cost of living is much more affordable. That’s probably the big one is the Australian Dream is sort of owning your own home, a quarter acre block, and getting your Land Cruiser or your HiLux.

We have I guess probably similar financial setups. The taxation is probably similar. We have one level of tax, like a federal tax, so we don’t pay sort of state taxes. You do tend to pay on a more of a user pays base here in Australia. So, we do have our council rates, which is kind of like property taxes and we pay GST.

I think depending on your level of consumption, you can end up paying more taxes here in Australia, if you consume more goods and services, which is kind of fair. But we’re so fortunate here, Jim. Medicare. We have World-Class Healthcare and it’s totally free. We pay like a 2% Medicare surcharge if you are a high income earner. But for the standard of living that you get in Australia, it’s so worth it. And I say as someone who’s traveled through a lot of developing nations and seen a lot of horrible things. And man, I’m just so grateful to live in Australia. I feel so blessed and privileged.

I know that the medical thing in America can be really tricky. And it comes up a lot in the FIRE movement. People talk about, “Oh, if you retire early, where are you getting your healthcare from?” In Australia you don’t really need that. You can have private health if you want and a lot of doctors recommend having it. But I said we have a World Class Medicare system and if you don’t consume, you don’t spend a lot. If you have a very modest lifestyle here in Australia, it’s very achievable, it’s very affordable, very safe.

I must say I don’t know a lot about the US. In fact, a lot of my knowledge of US culture comes from the media, comes from places like The Simpsons. I have been to some parts in the states, but I haven’t spent time in the mainland or continental US.

So, I don’t know really how to answer the rest of that question other than just to talk a little bit about some Australian centric stuff. Yeah, we don’t have a Roth IRA. If you put money into super, it’s locked until preservation age 65. There’s probably a more of an emphasis in Australia of investing in property and conventional taxable brokerage accounts, which gives that freedom to access that money early.

Whereas I know that it’s beating in the states to max out your IRA and Roth IRA conversions and backdoor Roth. There’s a lot of awesome documents on that, the Mad Fientist has got some great guides on his site, but thankfully it’s probably a little bit more straightforward here in Australia.

Dr. Jim Dahle:
Yeah, ours is a mess of alphabet soup for sure. But you’ve got some interesting investments and investment history. For example, I think I read somewhere that you had kind of a bad experience in short term rentals. Tell us what happened.

Pete:
Oh God. Yeah. I haven’t thought about this in ages. You’ve done your research, Jim.

Dr. Jim Dahle:
Sorry to bring back a bad memory.

Pete:
Yeah. It was a really close friend of mine, an engineering colleague. We actually ended up successfully finishing a small development recently. And of course, that’s not a short term rental thing. This would’ve been around 2018, 2019, we were getting really excited about money and I think when I just recently started blogging. And so, I thought I needed to do everything and have fingers in every pie and maximize the chances of reaching FIRE.

And so, yeah, we set up a company for short term rentals. We would try to lease properties. We take a six to 12 month lease and then release sublet of ownership on the short term market. And we also had another avenue where we would basically manage for owners. We would go directly to landlords and say, “Hey, look, we can manage your apartment for you and get a better rate on the short term market” and then charge some for the privilege.

We were really gearing up for that. Then the pandemic happened and thankfully, it wasn’t too much. I think we probably had a $20,000 loss or something.

Dr. Jim Dahle:
Australia was pretty locked down during the pandemic as I recall. So I’m guessing there weren’t a lot of people traveling and using short term rentals, huh?

Pete:
No, no. It went from really thriving demand to basically zero overnight. Yeah, did feel a bit foolish. But I think I learned a good lesson about business, capital, risk, and my personal risk tolerance. It took a lot of time. It took money risk and it turned out it wasn’t suited to do something like that. My partner and I might look at it in the future, something like a farm stay bed and breakfast kind of thing on our property in the future. But certainly I’m not going to be subletting or trying to run a property management company.

Incidentally, we still have the website. It still generates a lot of traffic and my business partner sells leads to other real estate agents. So still, something good is coming out of it. Certainly, it’s taught us more about value of online business and LinkedIn. So, it wasn’t necessarily a waste.

Dr. Jim Dahle:
Yeah. Speaking of websites, this sounds like something you invest a significant amount in, and I’m curious what you think about website investing for most people. Do you think most people can be successful investing in websites or do you think that’s kind of takes a special person?

Pete:
Yeah. I would say it’s definitely a big reach for everyone, but it’s not a panacea. It’s not easy. It’s not something you can just hop in, make all this money. A lot of people see it as something that’s too good to be true and often it’s something too good to be true.

It took a long time for me to see income from my website portfolio and I think it’s really about a front end load. So, if you’re able to put in a lot of time and lot of the effort or alternatively, invest capital in buying a quality website that someone else has put in time and capital into, meaning content and backlinks, yeah, you can get a wonderful cash flowing asset, but unfortunately, a lot of people don’t seem to be able to stick with it.

I’m not sure what the stats are, Jim, in the US, but in Australia, I think it’s something like nine out of 10 businesses fail in the first year. And it kind of just gets harder from there. And I’ve personally seen this in one of the training courses that I’ve done here in Australia. Quite a lot of people do the course. And yes, there are a lot of people that are successful, but a lot of people do tend to just give up or fade away.

And ironically, that’s actually the best time for the successful people to swoop in and buy those websites. It’s one of those things where I think you just need to stick with it. And if you are able to produce good quality content that people are interested in reading, and you provide value to your audience, you don’t try and over saturate them with advertising and offers and you genuinely providing value, then yeah, I think your site can be successful.

It isn’t rocket science. It’s really just finding sensible keywords that demonstrate what people are searching for, then writing good long form sensible content that answers people’s questions and then links. Providing appropriate links for them to then go and have further reading and then also getting people to link to your article.

And if you’re able to do that, and you’re able to do that for a couple of years, you can build up an awesome asset. But if you are not able to do that, you are not willing to put the time, effort, or money into it, then yeah, it’s probably a waste of time for some people.

Dr. Jim Dahle:
Yeah. Now you, like some bloggers, published your net worth. Starting at about $579,000 in 2019 to just over $1.8 million recently, obviously in Australian dollars. Anything bad happened to you as a result of being so open? And I’m curious, over time, as your net worth has climbed over a million dollars, how the reaction to that revelation has changed?

Pete:
Yeah, absolutely. Now, the first thing in that and that maybe you appreciate this as a medical professional, as a doctor, as I can say, it was a double-edged sword for my mental health. On one aspect, tracking the number is useful because you’ve got a trend. My engineering brain loved it, my pilot brain loved it. But my human brain, my ADHD brain, it was probably a little bit risky because I started to complicate the idea of my net worth being my value as a person.

I try to refer to as like a net wealth. That’s my little subtle thing that I’m trying to shift. And that’s something my therapist had mentioned because first of all, your net worth, it’s not your self worth.

And yeah, one of the reasons that I was blogging is because I wanted to reach financial independence and I saw a lot of successful people before me did that, and it worked for them. And I thought, “You know what? If they can do it, I can do it too.”

And I just stayed anonymous online. I didn’t have pictures of myself, I didn’t have videos, I didn’t talk about my job, I still don’t. And that made me feel safe enough to put these very intimate figures about saving and income and expenditure and investments.

But yeah, unfortunately, you are never truly anonymous online. Yeah, people did find out, work did find out and it did become an issue because obviously the theme of the website is about becoming financially independent and not having to work. And when my boss found out about that, obviously weren’t very impressed with me at all. And yeah, it ended up being a less than pleasant retirement process.

Dr. Jim Dahle:
I noticed that it seems like there’s a lot of cheerleaders for people building their net worth across the blogosphere up until the time they get to about a million dollars. And then it feels like a lot of jealousy crops up and people aren’t cheerleading nearly as loud as your net worth moves into the seven figures. Did you ever notice that?

Pete:
Yeah. On my platforms, on my blog and on my social media, I could count on one hand, just with a couple of fingers, the number of ***** I’ve run into. Most people have been incredibly supportive. Maybe people are treating me a bit gently because I’ve been through some really difficult things in my personal life recently. And I’ve been pretty open about I guess my experience with the death of my mom, my dad and palliative care, loss of my friends, and I guess just working on my mental health. I found people have been really, really supportive and really loving and gentle and kind towards me.

Having said that, if you dive into some dark places, like Reddit, yeah, there’s a lot of tall poppies. In Australia, we have this thing called tall poppy syndrome. And the crux of it is the flowers grow and if one grows above, then you’ll come along and sort of chop it off so that everyone’s the same.

I certainly experienced this in my work, working in small teams and sometimes with larger teams that the needs of the team often outweigh the needs of the individual. And so, sharing is important and people do sometimes get their nose out of joint when there’s a perceived inequality.

Having said that, I think in general, in the FIRE community, everyone’s really quite supportive. I think maybe it’s probably when you start opening up and being viewed by the wider society. Yeah, there are people that have different political beliefs about wealth creation and wealth accumulation that some people don’t think it’s ethical. And I think everyone’s entitled to their attitudes and opinions.

But Australian society is probably very similar to American society. Going back to your question about the personal finance differences, it’s a democratic capitalist society. We can own property and the choices we make, to specialize and build wealth through making decisions, to spend less than you earn and save, you can really build huge, huge amounts of wealth. Not everyone stops at the same level and not everyone is playing in the same field.

Generally speaking, there is this opportunity to save and build wealth that most people have an ability to do it. I don’t feel bad. And the people that do have a go, maybe there are other things going on in their lives, so you never know.

Dr. Jim Dahle:
Yeah. All right. Well, time’s getting short here, but we have a fair number of pilots who are White Coat Investors who listen to this podcast, who read our blog. And I’m curious what your best tip is for pilots who want to become financially independent.

Pete:
Yeah. Cool. First up, get a high paying job and fly as much as you can. If you can get on longer flights, if you can go from domestic to international, get on more trips, it’s obviously more income.

Advance your careers, do your ATPL subjects. Do them as soon as possible. Get them out of the way because if you’re a junior pilot and you’re just sort of starting out, you don’t really want to have a big break from active flying when you are taking time out to go and do all of your theoretical subjects, where you’re not earning and you’re potentially losing currency. And potentially even left a job, left a role to do that. So, that’s the first thing. I would say if you’re going to study as hard, do the CPL, ATPL, get them done, MCC, the multi crew cooperation course. Get all of the academic stuff sorted early.

I don’t think you need necessarily a degree. It’s becoming less and less prevalent that you need a degree to work in the industry. Some employers are removing the requirement. Bachelor of aviation is useless. Don’t waste your money on it, literally. Get your ATPL subjects done, try and get a few deals under your belt.

And then look at operators that have complex flights. Everything from scenic flights in your assessors, all the way up to complex twins and pressurized turbine engineer aircraft. Look for a large fleet operator that you can progress within the company. Because it’s probably easier to progress within a company than to continually be job-hopping.

But otherwise, keep networking, going to events/ If you can get involved with any aviation blogs or organizations, get involved, start volunteering junior pilots, get out there, produce content, write articles for magazines, become an expert at your job and you can basically increase your income faster than a traditional pilot pathway.

But having said that, that’s only one side of the equation. You need to be saving and investing that money. Whilst it’s might be important to spend some money on professional memberships, networking events, and that kind of stuff, don’t fall into the trap of “I need to buy this, I need to have this really expensive watch.” Not everyone needs a new watch. That money could be much better off invested. Not that I’m trying to shame you if you really want a bling bling watch, get one. But I’m pretty sure iPhones are more accurate than a watch.

Dr. Jim Dahle:
It sounds like your tip has worked on the offense but also work on the defense, both sides of the equation.

Pete:
Yeah, you got to play both sides. A lot of pilots, I know I’m probably just as guilty, once everything’s settled, once everything’s calm, you just basically up there, there’s a lot people you chat. You chat business.

So, don’t get sucked into stupid things financially. A lot of pilots will have these business ventures. A lot of them don’t work out. Just think carefully about how you’re going to invest your money with the defense. Boring low cost index funds have worked for me. Property has worked for me, and websites have worked for me.

In fact, I spent a lot of my time in the cruise blogging on an iPad. So make use of your time, make use of your travels. Sometimes it can be quite weary and you won’t actually enjoy all these quick stays and quick turnarounds. But try and enjoy the travel, enjoy the lifestyle because when you stop flying, you’ll miss it because I do.

Dr. Jim Dahle:
Awesome. Well, we’ve been talking with Pete, he’s Captain FI. You can find out more about him at captainfi.com and we appreciate your time coming on the White Coat Investor podcast today and sharing your story.

Pete:
Oh, absolutely. My pleasure Jim. Thank you so much for inviting me. Awesome to connect and now I look forward to chatting in the future.

Dr. Jim Dahle:
All right. Bye-bye.

Pete:
Cheers mate. Bye.

Dr. Jim Dahle:
All right, I hope you liked the interview. The accent, despite it being complete and perfect English, can be a little bit tough. I know my ear sometimes has a little bit of trouble understanding that, but we hope we got good quality audio for you so you’re able to follow most of that conversation.

Lots of interesting differences between countries, even among countries that were at one point part of the British Empire, there are significant differences. I thought it was interesting to hear his perspective about medical care in Australia and how little he worries about paying for that whereas it’s a big concern here in the US. Even among White Coat Investors it’s a big concern.

Also interesting to hear that they can’t break into their retirement accounts until 65. Not the case here where you can get into your 401(k) at 55. You can get into your IRAs at 59 and a half. You can get into them at any time, but that’s the without penalty or exception ages. So, lots of interesting things there.

The thing that always makes me want to share the FIRE community, the FIRE experience with White Coat Investors is to help people realize that there are all kinds of folks out there living on dramatically less money than you’re spending who are perfectly happy, whether that’s $30,000 a year or $60,000 a year, $100,000 a year or whatever.

I think it’s important to recognize that most of us have an income that puts us in a pretty privileged place. And if really you’re not enjoying working as hard as you’re working, you don’t have to. You can survive on less income. There is a whole community of blogs and podcasts out here that will teach you how to spend less money so you can reach financial independence faster, so you can work less, so you can do whatever your financial goals are.

And I’m always impressed when I talk to them and think about how terrible my spending habits are compared to what they’re doing. Just today I think I spent $3,000 or $4,000 trying to get secondary water connected to my lawn. And I got to buy a new lawnmower for $650 because my son kind of tried to mow something that shouldn’t have been mowed. And I just had to put shocks and shuts on my car. That stuff all adds up, several thousand dollars and there are people living on less than I spent on just maintaining the stuff I’ve already got.

And it’s really pretty amazing how little you can live on and be happy. You only get one trip around this world. Let’s make sure we’re spending our money and our time on what we care about the most.

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Here’s one from Gail. It came in just this year. He said “My go-to financial podcast. I have been listening to this podcast since its inception. The more I listen, the more I learn and am inspired. I appreciate the diversity of invited guests and the positive messages and celebrations of those who are interviewed on Milestones to Millionaire. Dr. Dahle and his staff are providing an invaluable service. Thank you for all you do.” Five stars.

And I echo those words. Thank you for what you do. Keep your head up, shoulders back, you’ve got this and we can help. We’ll see you next time on the White Coat Investor podcast.

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This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 127 – Veterinarian starts her own business.

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Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options at whitecoatinvestor.com/mortgage.
You can do this and the White Coat Investor can help.

All right. Our guest today is not our typical guest on this podcast. We often get feedback saying, “Eh, too many people that are decamillionaires and make a gazillion dollars a year, how come there’s nobody like me on the podcast?”

Well, today we have somebody that may be just like you, may even be making less money than you, yet still accomplishing great things in her financial life. We’re going to get her on the air here shortly. Let’s stick around afterward. We’re going to talk a little bit about 457(b) plans before we go today. So, let’s get into our interview.

GUEST INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Jessica. Welcome to the podcast.

Jessica:
Thank you.

Dr. Jim Dahle:
Tell us what you do for a living and how far you are out of your school and training.

Jessica:
I’m a veterinarian. I graduated from vet school 12 years ago, which seems like a long time now. I feel like I just graduated.

Dr. Jim Dahle:
Awesome. So, what’s your practice consist of now?

Jessica:
Right now I have a practice that is mobile and in New York City, limited to end of life care of pets. 95% of what I do is home euthanasia for dogs and cats and I also manage taking care of the deceased patients afterwards. And I started that business about a year and a half ago.

Dr. Jim Dahle:
Somebody’s dog gets really, really sick and you come out to the house, gather the family around and put them to sleep. It sounds like it’s a lot of your practice.

Jessica:
Yeah. Yeah. That’s most of my practice. I came to this because I was working in a small animal emergency for a long time and unfortunately you do a lot of euthanasia in the emergency room and it’s just stressful for the pet. It’s stressful for the owners and people often have to make these difficult decisions about when to say goodbye because there’s a lot of things we can do in medicine now, but sometimes doing more isn’t necessarily the appropriate thing and acknowledging that the end is here and doing it in a peaceful way is the best thing for the animal.

Dr. Jim Dahle:
All right, so what milestone are we celebrating today with you?

Jessica:
I did just start this business about a year ago and it’s been profitable and I just hired my first veterinarian. So, I’m not a solo doctor practice anymore. And so, that’s a milestone for me.

Dr. Jim Dahle:
That’s one of the hardest things in business I think is when it’s no longer just you running the show and you have to hire.

Jessica:
Yes, yes. It has been quite the process hiring person. And I think I heard you on one of your podcasts saying hiring your first person is so hard. So I just wrote all the protocols step by step as I went through everything and I’m like, “Okay, now I can hire another doctor and it’s not going to take four months to get them on board.”

Dr. Jim Dahle:
Exactly. Yeah, it definitely gets easier with time, especially if you hire somebody to do the hiring after a while. I discovered that’s really the key.

Jessica:
Yes. The complexity seems to grow infinitely. My first employee was like, “Oh, gosh, I got to manage a human.”

Dr. Jim Dahle:
Yeah. Okay. Well, you’ve had a pretty interesting, I don’t know, financial career is the right description, but let’s kind of hear your story, because it’s one that I think will give a lot of people, both veterinarians and people in medicine, dentistry, law, whatever, some hope in their situation. So, let’s talk about, take us all the way back to school and bring us through your financial life over the last 12 or 15 years.

Jessica:
Sure, sure. As many people who go to vet school do, it is a career chosen out of passion. It’s often an irrational financial decision based on the fact that when you’re 20 or 22 you’re like, “I don’t care at all about money. I just want to be a vet. It’s the only thing I want to do.” And in my case, I wanted to be a horse vet and I was a horse vet for the first few years of my career. And it is so easy to take out student loans. So, I ended up taking out just under $300,000 of loans to cover my education between college and vet school.

Then you graduate and my training, my first job was $28,000 a year. So, I tried to make payments on my student loans but was not that successful. And this was really at the height of the recession. And so, once I finished my internship in horses, I was getting job offers offering me $40,000 a year, seven days a week on call all the time and you better never complain.

And I applied to all those jobs and I did end up getting a job as a horse vet, but after a couple years it really wasn’t for me. It’s very physically demanding and I never cracked $50,000 a year even with all that debt.

So I went back and I trained more because I ended up liking in my small animal internship emergency medicine. I actually went into emergency medicine after some more training as a small animal veterinarian. And I did what you guys would call locum tenants. We call it per diem, where you’re just an independent contractor and work at different hospitals.

And then my finances changed. Doing that, the industry started to grow, the economy started to grow. Veterinary medicine got huge and my salary doubled, tripled, and then I was able to really make a dent and I paid off all my loans by 2019.

I am pretty frugal by nature. I’ll eat rice and beans in order to pay off my debts. And so, that’s kind of my financial story. And then something possessed me in the middle of the pandemic. I think partially it was getting pretty exhausted from really long tough ER shifts and partially because I feel passionate about end of life care and pets, I started this business doing mobile end of life care.

Dr. Jim Dahle:
And in there you had some personal challenges as well that led to a little bit more financial difficulty. Can you tell us about that?

Jessica:
Oh, I did go through a divorce. I think that was 2017. One of the good things about not having many assets is divorce is a little easier in many ways. We had a small amount of money in a 401(k) and $70,000 of equity in a house. I was like, “You take the money, I’ll take the house. Bye-bye. It’s all good.”

So, it wasn’t that much of a financial challenge, but it did actually kind of laid a fire under me because I realized I was just sort of coasting along, paying what I could on my debts, being like, “I don’t care about money” And I realized that I really needed to get my finances under control or I was going to be poor when I was 60.

I really started aggressively paying on my loans, working a lot, taking overnight shifts, which pay more. And between 2016 and 2019, I paid off the remaining balance of my debt. I took a roommate into my house so that I had no payments, my mortgage was like nothing and lived very, very, very frugally and then paid off my loans.

And during those ER years, I was probably making about $150,000 a year, $200,000 maybe, depending on the year. But it was working hard shifts and working a lot and I was like, “I’m just going to pay off these loans and did it in three years pretty much.”

Dr. Jim Dahle:
And you mentioned in your application to come on the show that you failed a lot. Can you tell us about some of your financial failures and what you learned from them?

Jessica:
Yeah, I don’t know if my failures are really all that financial. I went to vet school because I wanted to be a horse vet. That was the only thing I wanted to do in my life. And I hated it. I really didn’t like it. It was extreme physical labor. I got kicked in the face at one point. I hurt my back and I was making no money and I was exhausted all the time. It was really difficult. You get some pride when you’re really committed to one thing and you have to admit that that’s not actually a good thing for you.

So, I felt like a failure when I failed as a horse vet and moved onto something else. But a lot of failures are really opportunities and it’s just hard to see them that way. I think I’m much happier as a small animal vet because I really like the bond between humans and their animals. And horses are often for sport or money. There’s not that connection. There’s not the love that you see between dogs and cats and their owners.

When I went back to training, I wanted to become a veterinary ophthalmologist. I applied to that several times and I failed three years in a row. I failed to get an ophthalmology residency and I was like, “You know what? I think I like the ER better anyway. I’m not really the specialist type of person who wants to just do cataract surgery all day long day after day.” So I think it was a blessing in disguise.

Dr. Jim Dahle:
So now that you’ve moved from the realm of being an employee or independent contractor to actually owning your own business, having employees, what lessons do you think you’ve learned there that you could pass on to other White Coat Investors?

Jessica:
Lessons, I’m definitely still learning. Yeah, it’s such an eye-opening experience. I love learning new things. Running a business is like a totally new skillset. You start to see money differently when you run a business. It’s kind of strange and I sort of wish every employee could see that so they could advocate for themselves better within a business and know how they can contribute to the business and get something out of the business.

I wish I’d known that when I was an employee, really understood what my value was. And I think people could negotiate better salaries if they knew just what they bring to a business. I think a lot of the time you’re like, “Well, I’m just the doctor. I’m just going to doctor and that’s my job.” But there are many ways that you can contribute to a business as an employee that can bring value to the business. And then if your employer is happy with that, you can get more money, you can be more fulfilled in your job. When it’s viewed less, it’s just this transaction between employee and employer.

Dr. Jim Dahle:
And when you’re contributing, you have a lot more opportunities to kind of control your work environment and influence it as well.

Jessica:
Yeah, absolutely.

Dr. Jim Dahle:
Well, this is pretty cool. You’ve accomplished a lot. It’s no small feat to start out with $300,000 in debt. Just paying that off is a huge milestone.

Jessica:
Yes. That was, I had a party. The only downside of that was I paid that off at the end of 2019 right before the debt moratorium and I was still happy I did it. I had a big party and I was like I’m going to do one month of student loan payments and throw a really good party. And it was. But I’m still glad I paid it off because then I’d still have that looming over me right now if I just sat on all that money for 2020 through 2022.

Dr. Jim Dahle:
Yeah. It’s interesting, people used to do that a lot more. They would throw a mortgage party when they paid off their mortgage. And that was kind of the guideline, was what you were paying for the mortgage, it’s what you spend on the party.

Jessica:
Well, that’s so funny.

Dr. Jim Dahle:
You don’t see it anymore. I don’t know if that’s because nobody pays off their mortgage anymore or if it just feels like humble bragging or what when it happens. But that was a big thing for the generation before ours. But very interesting.

Well, this is cool. You’ve done a lot of great things and probably can demonstrate I think to a lot of physicians out there that think they have it hard. They just don’t look around at other professions and realize that human medicine has it pretty good still compared to a lot of professions as far as debt to income ratios go. A lot of vets end up with similar debt to physicians and obviously usually significantly less income.

Now let’s say there’s somebody that’s kind of back where you were 10 or 15 years ago. They want to go to vet school, they’re in vet school, they’ve got lots of debt, they’ve just come out and they’ve got a terrible debt to income ratio. What advice do you have for them?

Jessica:
Yeah, I think that one, educating yourself financially about how to take care of your finances is really important. It’s easy to just sweep it under the rug and say “I just want to be a vet. I don’t care about money.” And then just kind of let the problem go away. But then it stays with you forever.

And I think kind of tackling it head on, making smart decisions. Before I found your podcast, I had money in a little 401(k) account. I didn’t even move it out of the money market account because I just thought that it just went in there. I didn’t invest the money. It sat there for eight years because I didn’t even understand what a 401(k) was. There was so little financial education for me. And if I had understood how money works, how purchasing a house could get me leverage to do other things with my money from an earlier stage in my career, then I would’ve done much better.

I would say educating yourself financially and not just sort of pretending you don’t care about money because you do, it matters and it’ll make your life better if you’re sensible about it.

Dr. Jim Dahle:
Very cool. Well, I appreciate that advice. I appreciate you coming on and I know your experience will inspire others to do the same. So, I thank you for that and I wish you the best of luck in your career and in your finances.

Jessica:
Oh, thank you so much. Thanks for having me on.

Dr. Jim Dahle:
All right, I hope you enjoyed that discussion. I think a lot of you, your jaw dropped when you heard $300,000 in student loans for a job that paid $28,000 a year. Obviously, that’s a terrible debt to income ratio, a terrible financial decision to borrow that kind of money to get a job that pays that sort of an income.

But that is the case in many professions. It’s not all that different from what happens to many attorneys. It’s not that different from pharmacy. It’s not that different in some ways from dentistry and podiatry.

And a lot of physicians don’t realize that as much of an uphill battle as they may face sometimes. They’re sitting pretty compared to lots of these other professions and they can have a lot more difficult time with their financial careers, building wealth.

Lots of physicians, yes, they come out owing $200,000, $300,000, $400,000 but very few of them once they’re attendings are making less than $150,000. The average physician these days is making $275,000. And you know what? Borrowing a couple hundred thousand dollars for a job that pays you $275,000 is still a very good financial move.

And the truth is because of that income physicians, honestly, they can screw up a lot. You don’t have to do everything perfectly right and you’ll still build wealth and be okay. That’s not necessarily the case in lots of other professions. She mentioned a lot of times how she lives frugally. Rice and beans, all her money going toward debt.

And that’s what most people in this country have to do. If they want to be millionaires and multi-millionaires, they have to live very frugally. They have to work very hard. That’s not necessarily the case for many White Coat Investors out there. Yes, you work hard, yes, you’re relatively frugal, but you know what? You add up what you spent last year and it was a couple hundred thousand dollars. That’s just not the same as living on $40,000. It’s a very different life.

And I think a lot of us, if we spent a little bit more time talking to and reading and listening to people like that, it would probably help us to focus a little bit better on our finances and be a little bit more successful.

I always find it interesting to read FIRE blogs, Financial Independence Retire Early bloggers and see just what kind of sacrifices they’re making to essentially get the same financial freedom that most doctors can get while spending six figures a year.

And so, I think it’s good to have perspective. It’s good to be grateful for what we have and of course, optimize whatever your situation might be. Whatever your income, whatever your debt to income ratio is, do what you can to optimize it.

But you can see from this example that it’s possible to be financially successful on just about any income and on just about any kind of financial situation. Whether you’ve been divorced, whether you had a terrible debt to income ratio, whether you had to change careers, go back for more training, whatever. Whether you didn’t even know how a 401(k) worked, you can still be financially successful.

FINANCE 101: 457(b) PLANS

All right, I promised you we were going to talk about 457(b) plans. So, let’s talk about those. 457(b). This is different from a 401(k) and a 403(b). Think of a 457(b) as deferred compensation. It’s technically still your employer’s money. They just haven’t paid it to you yet. Because of that you haven’t had to pay taxes on it yet, most of the time. They also have a Roth option for 457(b)s, but most of the time it’s a tax deferred investing account.

The nice thing about it is despite the fact that the employer hasn’t actually paid it to you yet, you still get to control the investments just like you would in a 401(k) or a 403(b). And most of the time they’re similar mutual funds, they’re all getting better over time, lower costs, more index funds and these sorts of plans and you can control the investments. Then the money grows in a tax protected way like any other retirement account until you take the money out. At which point you pay taxes on it unless it’s the Roth option.

But the difference between a 401(k) and a 403(b) and a 457(b) is that it’s not your money yet. It’s technically not available to your creditors. So, that’s great for your own asset protection, not so great for your employer’s asset protection. Technically, if your employer were not doing well, they’re going bankrupt, there’s a possibility you could lose that money because it goes from your employer to some other creditor.

Now I have yet to meet a physician that this has actually happened to and there’s lots of docs out there whose employer is not in a good place and they have a 457(b) with them. So, if you know anybody that actually lost 457(b) money due to an employer issue, I’d actually love to hear from them or at least hear about them because I haven’t met one yet in all my years doing this. But it is a risk.

It’s really only a risk with non-governmental 457(b)s. Lots of 457(b)s are governmental. The employer is the state or the federal government. Actually, I don’t know if the federal government has any 457(b)s but it’s usually a state government or a municipal government or something like that that’s offering this 457(b). And those are a little bit better protected.

They have a few other advantages as well. They’re better protected because that entity usually has the ability to tax and so your municipality isn’t going out of business like a hospital could.

But the other advantage of these governmental 457(b)s is when you leave because they have the option to be rolled into an IRA or another 401(k) or something like that. Instead of the only option for a non-governmental 457(b) is to be rolled into another non-governmental 457(b). And that just isn’t always available. It probably usually isn’t available.

And so, you’re stuck with the other options to get your money out and sometimes there aren’t good options. A plan might allow you to take all the money out over 10 years or to wait until you’re 65 before you start taking it out. It might give you some decent options, but occasionally I’ll run into one that somebody has where all the money has to come out in the year you leave the employer.

And if you saved up $400,000 in that 457(b) and you have to take it all out in one year, well, you’re going to pay taxes on that mostly in the top tax bracket, if not the top one or two tax brackets. So, that’s not actually a great deal for a lot of people.

The first thing you look at when deciding whether to use a non-governmental 457(b) is what are the withdrawal options and is there an acceptable one there? If it lets you spread it out over five or 10 years, that’s probably okay. If it lets you leave it in there for a few years before you have to start taking it out, that’s probably okay. But the point is you want some options to get that money out. If it’s a governmental 457(b), just treat it like an extra 401(k). That’s all it is.

The second thing to look at is the investment options. And if they’re absolutely terrible, maybe you don’t want to use a 457(b). And when I’m talking about absolutely terrible, I’m talking about expense ratios are 2% plus and there just aren’t very many of these left out there. Most employers and their advisors have realized that this is a serious fiduciary risk to offer terrible retirement plans to your employees.

And so, there’s not that many that are just absolutely awful anymore. But you want to look at the fees, you want to look at the expenses, you want to look at the investment options and make sure those are okay.

And then again, if you’re in a non-governmental 457(b), you want to look at the stability of your employer. If they’re already entering bankruptcy, this is probably not an account you want to be using. Just skip it, invest in taxable, whatever.

A 457(b) is usually one of the last retirement accounts you’re going to use anyway. You’ve usually maxed out a 401(k) or 403(b), maybe you have a solo 401(k) if you got some side gig income, backdoor Roth IRA for you and your spouse if you’re married, your spouse’s retirement accounts. All that stuff usually comes before you would fund a 457(b) anyway.

You can always invest more in taxable if it makes you nervous at all. Or you can just fund it halfway or fund it for a couple of years. It’s not like it’s an all or none decision, but keep that in mind.

Now, 457(b)s do have some catch up options. They’re different from what you see in a 401(k) and a 403(b). So, read your plan document carefully to see what options you might have there. But as a general rule, the contribution limit on these is $22,500 in 2023. So, basically this is a completely separate $22,500 than what went into your 401(k) or 403(b). It’s totally different. It doesn’t share that limit, it doesn’t share any limit with any other account. It’s just another great usually tax deferred retirement account that you can use to help you to save for retirement.

Another great thing about 457(b)s is the age 59 and a half rule does not apply. When you combine that with the fact that it’s technically still your employer’s money, this is often the first thing people spend in retirement. If you’re into FIRE, if you want to retire early, a lot of times what you’ll spend that first five years is your 457(b) money. That would be pretty typical. So, if you have a 457(b), you probably want to use it, but look into the details, the devil is in the details and make sure you understand what you are investing in.

SPONSOR

All right, at some point in our financial lives, it’ll be time to buy a house. And while a physician mortgage can be a good vehicle for a young doctor who’s just out of school and has a more effective place to use their money than a big down payment, there are other mortgage loans out there.

And here at the White Coat investor, we want you to know about all kinds of mortgage loans that may work for you. The nice thing about a physician mortgage is you can put down less than 20% and you still don’t have to pay private mortgage insurance. That mortgage you use that protects your lender from you defaulting. It really doesn’t do anything good for you. So, it’s nice to avoid. And that’s the great thing about a physician mortgage.

The nice thing about a conventional mortgage is you just have a lot more options. Usually you get a better rate, you get lower fees. Obviously, you put more money down so your payment is lower and more affordable and you have a little more protection in the event the market drops and you have to sell. But a lot of times early in our careers it can make sense to use a physician mortgage.

But wherever you might be in your financial journey, make sure you use the mortgage that’s going to be most financially beneficial to you. So, hop over to our recommended tab to learn more about all of your mortgage and refinancing options at whitecoatinvestor.com/mortgage. You can do this and the White Coat Investor can help.

If you’d like to come on this podcast, you can do so. Apply at whitecoatinvestor.com/milestones and we’ll celebrate your milestone, whatever it might be. I don’t care if it’s paying off your car, paying off your mortgage, becoming a decamillionaire. Whatever your milestone might be, we will celebrate it with you and use it to inspire somebody else to do the same.

So, until next week, keep your head up, shoulders back, you’ve got this. We’ll see you next time on the White Coat Investor.

DISCLAIMER

The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.