High Income Isn't Wealth

Yeah. So, you know, last week we I talked a lot about the financial stuff and what some early career stuff doctors should do, right? I mean, we talked about a lot of things that uh medical students should be thinking about, residents should be thinking about. But, you know, I was kind of reflecting on that. I was like, you know, should we uh be talking about uh money and uh kind of financial uh strategies uh on this podcast?

And, you know, it kind of dawned on I was like you know I think I think it's very important topic for a lot of physicians and just for any professionals any uh young people coming out of college or coming out of uh uh medical school going into their professions you know uh especially with doctors I think what happens is we uh are in this delayed gratification mode right we we have delayed gratification for so long all our friends had job real jobs in their 20s and you know they were making money and we were pretty broke throughout our 20s and even early 30s.

Uh >> well, most most of life [laughter] >> most of life uh drowning in debt and uh all kinds of uh no no money to pay, living off some some of us living off loans and and then we start uh our careers and we start making money and I think a lot of doctors fall into the bad habit of uh just spending it right away, spending on things they've been wishing for and wanting because it's human nature to want things, right?

and and a lot of you you know a lot of doctors go ahead and buy their first million $2 million house and uh buy a fancy car and start spending on nice clothes and you know I think it's important for professionals to learn how to be disciplined especially when they start making money because yeah you're in your 30s and you know like we talked about time is money and time time in the market is what gets you wealthy rather than appearing rich right >> oh totally man I mean that's even you know it's like what you're mentioning you know the delay in having a higher salary if you go into medicine until your early even mid-30s.

It's not just a delay in the higher salary. It's a delay in your saving potential, right? It's a delay in all those years of being able to consistently put in money into whatever vehicle you choose, whether it's your retirement accounts, employer sponsored accounts, your personal savings accounts or strategy. So, it's a delay in both sides. So, you're really playing a lot of catch-up.

And um doctors do like to make a lot of expenses um and buy nice stuff when they get that first attending paycheck. And you know, it's kind of why there's so many websites and books and stuff targeted towards physicians, especially early career physicians on financial literacy and all. And that's that key thing we were talking about in the last episode too, live like a resident, meaning kind of stay frugal in your first few years of practice. I think that's exaggerated in a lot of ways.

Um, but it's, you know, if you look at banks and loans, they have that special like physician loan because they know that people coming right out of residency or fellowship, they want to buy like that million dollar, $2 million house, which is way above their financial level at that moment, but they have an almost guaranteed income and so the bank knows that they're going to get paid, right? So, it's a less risky investment for the bank uh to loan them the money.

They even have a doctor loan which means I mean if someone is targeting you with a profession specific loan it may not be the best thing. Um >> I mean this just to kind of talk about those doctor specific loans. I mean a lot of doctors you know come out and uh they they get a job and they're getting getting paid well and all of a sudden they're like I want to buy a house and it's easy for me to buy a house because I can get a a a doctor loan which pretty much means no down like >> Yeah.

Literally zero dollars down. >> Yeah. These banks know that, you know, you can get this physician who did not has not made much money, has not saved up too much money to pay a down payment for the house. Uh, and uh, you can we can get them in and have them buy an expensive house based on their earning potential, right?

And that's when the first trap is laid out for you to go in and and buy that very expensive house cuz you know I think the down payment when it's required right as a percentage of your total loan uh down payment is kind of that that litmus test. I be believe that what if you have, you know, $200,000 to put down and yeah, you're maybe eligible for a good 600, 700, $800,000 house versus if you have $400,000 to make a down payment, then you can maybe buy that $2 million house, right?

Or if you only have $50,000, maybe you're only a good candidate for that, you know, $300, $400,000 house. So, so I think that's the litmus test.

And a lot of doctors don't have that kind of money and right away they think okay I can buy any house right away and that's why they buy that really expensive house which is not the smartest thing for them because they really haven't built any kind of equity any kind of uh u savings and now they have this monthly mortgage payment with a high possibly a high interest rate and they're stuck and they're stuck paying a lot more money to the bank than they would have if they kind of kept themselves disciplined and kind of uh held themselves back because of the down payment.

Right. >> Yeah. You know, that that's the thing too that like it's one of those advices that a lot of people hear but very few people take cuz so many of my friends and colleagues, you know, early in practice within the first year of practice. A lot of them even while in their last few months of training bought a house, $0 down, use these physician loan vehicles. It's not wrong. It's just kind of locks you into a higher interest rate and it's a bigger risk.

Um, and the advice that I got uh that I took was just to rent initially for the first two maybe three years. For one, you build more money. Two, you really learn about the area in a different way.

Even if you're going back to a place that you grew up or where you trained in or something, when [snorts] the older you are and the more life happens, the more your family is around, which may not have been the case earlier, you may not have had kids when you lived in the same city or something previously, you evaluate things differently.

where you want to live, where the school zones are, what kind of stuff is around for your family in general versus when you were kind of a trainee who didn't do much other than go from your apartment to the hospital and back. So, I think there's a lot of advantages to not right away buying a home. Um, and that way it's also forced savings to be able to put that down payment and get a lower interest rate. >> Yeah. Yeah.

You know, and for me, I kind of came out a fellowship and as you know, I I started my own practice. So, as a self-employed physician, I was not eligible for that physician loan right away. So, that kind of uh saved me from over buying or overpaying for a house that I did not yet could afford, right? I I bought a house that was within my means because I needed to have money for a down payment early on. Uh uh and I bought a house maybe a year and a half or two years into my my practice.

uh but you know I was able to save the amount of money because as a self-employed physician it you need to show two to three years of uh at least two years of tax returns to uh to assure them that your practice is picking up and you are building a practice. So that's why you're not eligible for a physician loan. So for me I had I bought a house I think one year into my practice.

Uh but but that was that kind of kept me from overpaying but not everyone is going to pro and I could have easily fallen into the trap I think looking back of overpaying for house >> you know so these are some of the things you know you got to look out for because when you when you do start making money as a physician you work long hours there's a lot of responsibility there's there's you're making a lot of critical decisions and a lot of people's lives uh depend on your decisions and your treatment your availability for them and for that you you do get compensated well and and you need to know what to do with that.

You you know there's a lot of physicians we both know that are well into their late 60s and 70s and are still working partly because they enjoy working but partly also because uh you know they did not save as well and did not discipline as well. Now their lifestyle creep has caught up and the amount of money that they're spending uh they have to keep working. Right. That's a big thing as well. >> Totally. That that lifestyle creep for sure. I mean it's it goes by so many names.

People call it like golden handcuffs, right? Where you just your lifestyle finds a way to elevate itself along with your income. So that you really never increase your savings or like the percentage amount that you save, it doesn't always go up. If every time you get so-called wealthier in terms of how much income is coming in, you go the next step. You buy nicer cars, you buy a nicer house, you get a bunch of watches, jewelry, you take more vacations, more expensive vacations.

Start going first class. you stay in fivestar only hotels, that stuff really adds up. And [snorts] if you keep living that way only because your income is coming in and it's high, you're really not saving a ton. And that that's really what we focused on last episode is some different ways to save. And there's even more to talk about. There's there's so many different ways to save besides just, you know, really those employer sponsored retirement accounts, which is what we focused on last time.

>> Yeah. You know, the the employer the I mean, you're absolutely right. lifestyle creep. Uh, you know, that's a big trap a lot of physicians fall into and a lot of people do not take advantages of these these these plans that we talked about early on. And as we talked about early on is when you have the most benefit in adding to these plans, right?

But you know, as we talked about these these government sponsored plans like the 401k, um the Roth IRA, the IAS, uh the the regular IRA and things like that are pretty much government sponsored plans, right? These are ways to make money and there's a lot of different philosophies in the financial world. You know, I've lately been nerding out about a lot of this stuff and there's different school of thoughts, right?

There's there's people like uh Dave Ramsey like you know he's he is the guy that uh preaches that oh just pay off all your debts for you know all your debt first uh save save save live very frugally uh similar kind of strategies are talked about in the white coat investor which is a lot of uh I think that's the only book for physicians out there right that's that's the only kind of financial uh strategy uh book that is out there for physicians and when and when I read that book Uh the first thing I thought was that man I really have been living like this like a resident all my life and I'm in my mid30s and still this book is telling me to still keep living like a res.

[laughter] Is that really the only best advice I could get? >> Yeah. Like the advice basically is summed down to like well just don't spend any money you know that's it. I'm like well >> don't spend any money. Keep paying down don't don't buy a house. Uh you know just don't don't have fun. >> Right. Right. And I mean this is stuff that applies. I mean like even though we're two doctors talking on here, this applies to everybody, right?

Like you need to make money, you need to save money and have some smart investments and then live your life and enjoy your life. And you know, it's I don't know. I just think that there's so many different ways to invest money that isn't just like savings, you know, it's not just these savings accounts, ways to invest so that it also that money also builds wealth u in an act. And so those are the four things, right?

I'll just reiterate them that everyone's got to make money, save money, invest their money, and then also live life and have fun. And so, you know, we talked a lot about saving vehicles last time. Uh, but investment in my mind is is different than just saving money. You know, investment is something that has the potential to make a lot more multiple on your money, but it's also riskier, right?

Like in technically all savings, you're putting it in something because you're not just leaving it in a checking account in the bank. you're still investing and it's something but those are very secure investments. Majority of them just follow the market.

Um but investing now the way I look at it and I think about it is I want to have several buckets at least that diversify my ability uh to have risk but also to have more reward you know like multif family um types of investments whether you directly invest into and buy a house and now you rent that house out to tenants or you do the same thing with a commercial property and you have several uh tenants who own businesses like a barber shop, a nail salon, a restaurant, whatever.

and you manage that. Um, versus you have syndicates where you are just one of many investors that invest their own piece of the money and you get your percentage equity depending on your investment amount and then over the life cycle of that investment like 3 to 5 years on average and a lot of these syndicated multifamily things you get payouts it can be dividends given every quarter and annual ones.

Um so those are all very simple and not very complex investment vehicles and I think those are things that anyone can potentially invest into. Uh if you directly buy a house or buy a commercial property those take a lot more capital upfront which is why these syndicated investments you can invest small amount some of them you can invest 15 20,000 25,000 bucks and get your piece of it and that's how you grow. It doesn't matter how much money you put in initially.

Everyone's amount initially is dependent on their income, their earning potential, and their savings. Uh, but it just allows you to get a piece in the game of something that's potentially a multiplier on your money and a higher potential payout. That that's how I kind of look at investing. These are just some examples, but I think these are easy initial examples to think about and learn about. >> Yeah, you know, I think that's that's absolutely true.

uh the the the the Roth IRA, the 401k plans, all that stuff that you put a little bit of money, you know, in every month uh and that money uh builds some uh you know gives some dividends, that dividends add up uh and that money continues to grow in the market. That's slow growth, right? That's slow timely growth over time. But uh uh I think a big uh important part of uh building wealth is also uh having different buckets like you talked about. So the there there is a bucket of cash, right?

There's cash bucket which is liquid bucket where you want to have that uh money available for emergencies in life, right? Then we have this long-term bucket, long-term save bucket like you talked about the retirement accounts, right? That's the money that we put in, safe money that builds up over time and that's accessible to us later in life that we can use to live off of. Uh then there's also like immediately, you know, there's a growth account.

There's always should be a growth account where uh you're putting a lot of money in that's growing over time, but al it's also available to you right now for uh different things such as you know investments, right? So I think that uh investments come into that growth account bucket.

uh and and a big part of uh you know the the growth account is using the money that you have now but making sure how much faster what with what what velocity you can grow it right so uh I think real estate investment is a is is a huge part of it like you're discussing buying commercial real estate uh buying either residential you know uh real estate or even um investing into the syndicates now as a as a business owner I think uh or even someone who has a W2 income.

I think real estate has a lot of different advantages, right? And that's why a lot of people uh like to go into real estate as a next step in their wealth building journey, right? Uh why is real estate such a such a big phenomenon? Why do all why do all people who are rich or who have uh any kind of money eventually go into real estate?

There's a joke that I see all the time where uh you know you're like you know I see it all the time like oh a guy starts making money or a girl starts making money and all of a sudden their spouse is a real estate agent. Why are there the [laughter] reason for that? Right? Because uh real estate provides massive tax advantages to a lot of people right people who invest in real estate can benefit from saving a lot of money on taxes.

So, the way and and and maybe you can go into how that works is why real estate is such a good investment because there's two things that real estate does where you have maybe you know 50 60 $70,000 or even more and you can make a a down payment on on some kind of a real estate property um buy the real estate property. That real estate property can also be a cash flow engine for you, right? it.

You rent it out to someone uh or use it for some kind of inventory storage as a as a warehouse and that uh creates rental fees for you for as a monthly um cash flow that comes to you. But sometimes that's not that big of a big chunk of money. That's a smaller chunk of money and maybe you can use that to continue that uh the payments on the loan for that building. But uh the building also goes up in price over time.

But the big advantage is the depreciation because any any building that's built in has raw material used to build with bricks and wood and you know window panes or whatever uh has depreciation. Even the furniture that's in there has depreciation. And depreciation is uh the amount of money that uh it goes down in terms of its its value over time. And there's different rules for different states and different countries uh of how much uh you can depreciate a property.

over how many years I believe for for uh commercial properties is 39 years and residential property is you know 30 years where you can depreciate so if it's a million dollar property you can depreciate 30 million dollars divide by 30 and that much uh that amount of money you can depreciate every year from your W2 or your investment income but >> yeah there's like a there's like an art to it too because you know you can have different weights like how much percentage of the depreciation you're going to frontload versus backload.

I mean, that that's stuff that is way above my head to be honest with you since I I don't have my own business like that where I'm depreciating any assets. It's just, you know, when you talk like I have a bunch of friends and so do you that own their own businesses like restaurants and things like that who you have a ton of inventory. Inventory is stuff that's depreciable because it's physical goods.

And a lot of them will talk about that stuff that you can depreciate, you know, this chunk of the value in the first year if you really need a tax break. I'm like I mean that stuff [snorts] is very interesting to me but it's frankly stuff that I I >> bonus bonus depreciation which has it's a big phenomenon where you can depreciate almost 70 to 80% of the total value.

So for example you you bought a million dollar commercial real estate building uh and if you're actively involved in it you can depreciate almost 80% of it towards that year's tax saving income. Right? So almost $800,000 could be saved towards it to go can be uh depreciated right away in that year and that could be deducted from your tax from your tax burden completely, right?

And that year because of that depreciation, you may not be eligible for your tax or you might get some money back u because and depreciation doesn't go away. It rolls over to next year if you don't use all of it, right? It rolls over, it rolls over and you can keep using it for future years as well. Um, so that's that's and there's there's a lot of nuances to depreciation. I mean, you know, you should always have a tax advisor uh or an accountant that to to kind of guide you on that.

But, you know, I've been reading a lot of a lot about these things and depreciation can help in many ways. What what people do is uh you know they become serial real estate investors uh where they uh buy a property, they you know use it uh as a cash flow engine for a couple of years. they depreciate and have some tax savings.

Uh but then they sell it and then you know they can they can make some money on the appreciation of the property but instead of using that cash they can invest it into another real estate building.

uh and um save additional money on the capital gains tax which is capital gains tax is pretty much any tax that you uh can be t any kind of increase on the the value of that building any increase you can get taxed almost uh 21% on that right 20% 21% on the capital gains tax and so you can save that if you reinvest into another real estate property so there's these people uh out there that do serial exchanges where they keep going and buying new properties every year or every other year.

>> Yeah, like a 1031 exchange. >> Yeah, >> it is pretty strict rules on that. I think it's you have like a six-month window and you have to find a property of similar or greater value, but like yeah, it's definitely possible. And um it is a good way to avoid that capital gains tax. I mean, if you can avoid having to pay an extra 20% through a totally legal method, I mean, that that would be awesome. >> Yeah.

So apart from these uh the basic saving plans that we talked about, I think the investment uh strategy for a lot of people and a big a big chunk of the investment strategy for a lot of people is how to save money on taxes as well, right? Uh you know there there's a interesting book I've read that kind of changed my whole whole mindset on what taxes are. and taxes. A lot of us think of taxes as some a boogeyman that comes and you know tries to find us and charge us money.

But pretty much what how we need to think about taxes is taxes are a way for the government to incentivize you, right? So if the government wants you to build a business, they give different businesses, you know, tax breaks or tax credits or uh tax incentives to go and do those things, right? uh if they want you to invest in renewable energy, they'll give a bunch of tax credits on renewable energy because then they want businesses to invest in that.

And if you invest in that, you'll get those tax breaks. So, uh saving money on taxes a lot of times is not you cheating the government and not paying your fair share. It's pretty much the government telling you, "Hey, go ahead and do this so you can create more jobs and more value for the for the country." Uh and that and in that way, you'll also get some benefits, right? So, >> Oh, totally.

I mean then it's very legitimate, you know, because it's to stimulate certain sectors of the economy that that's really like why those tax incentives are built in. They're like oil and gas has a ton. Um obviously because historically oil and gas has been a huge money driver and a huge job creator. So it stimulates the economy across the board. Um and so they have a ton of stuff like that um that's built into the tax code to get like one of them, you know, this is interesting.

One of my uh my actually my accountant brought this one to me. I haven't done this one personally, but it's a remarkably a huge savings potential. It's called an earned income tax credit for oil and gas investment where you can take whatever money. Let's say you put 100,000 bucks to use round numbers into this investment. The investment is really an oil well that these companies have. These companies usually have a ton of different wells that you can invest into.

You just invest into a single well. And so if you put let's say 100k in, you can offset 80% of the cost of that well through something called an IDC, which is an intangible drilling cost because the total cost of drilling is so many different factors. The man-hour, the machine itself, figuring out where to drill, all of that stuff, the time involved.

So it's termed an intangible drilling cost which that company usually in the first or even up to the first or second year which is really where they're doing a lot of the drilling and having the cost of that drilling is the highest up to 80% of your entire initial investment can be termed an intangible drilling cost and that completely is able to offset from your taxable income.

So if you put 100k in this investment in this oil well and the company [snorts] shows that 80% of that in the first year was going towards this intangible drilling cost then overall your net income not just this investment but your net income from your life that year 80,000 bucks 80% of that 100,000 investment is offset. So now your total taxable income is 80,000 less because of this intangible drilling cost. And that's a very legitimate investment.

It's a real thing that happens every single day that people use this tool. It's written in the tax code. Um and then the your investment that 100k you put in is still there. It's still your portion of equity in that well. The well runs for several years and usually that sells the life cycle of four or five years after you hold the well. And it sells to one of the bigger players like Shell or Exxon or something like that.

And usually it sells between a 2 to 3x multiple of your initial investment which is not a bad gig in 3 to 5 years.

And that's a very real thing that people invest in especially towards the end of the year you know and timing is another thing maybe we should touch on is the timing of a lot of these we could call them tax advantaged investments like if you have spare cash or whatever at the end of the year someone who sold a business or sold a rental property or something towards the end of the year you have a lot of cash um you can use that to offset your potential profit your capital gains and stuff on your rental property that you sold and put it right into something like this that's that's something that a lot of people do.

>> Yeah, definitely. I mean, that's and you know that it's not just that you're you know people are saying, "Oh, yeah, you're paying $100,000 to get uh maybe a $30,000 advantage on taxes." Yeah, that's that's $30,000 $40,000 that you're saving on taxes right now based on your tax bracket, right? But that money is also multiplying, right? It's producing income for you. It's it's it's it's multiplying for the next four or five years and it grows and then you get uh returns as well.

>> Yeah, that that's true. Maybe I wasn't clear. It's like it's an investment just like anything else which you put money in and over time it grows, right? Obviously assuming it does well, but it has this additional X factor, this bonus factor of being a big big tax break for you for that year with this intangible drilling cost. There's a lot of investment stuff like this. This is just one example that I think is honestly pretty fascinating and simple to understand. >> Yeah.

I mean that's that and that's exactly the same kind of principle with real estate as well where you you or commercial real estate or residential real estate is where you get that bonus depreciation and you're getting that uh tax advantage early on. But it's not that you just spend that money and that money went away. That money is invested into a property and that money is growing and producing cash for you and it's growing.

Uh I think uh one thing that a lot of physicians are very scared of early on is is leverage, right? And debt and taking out loans to pay for certain things, right? So that's another thing I think we should kind of touch on. Uh because when how a lot of times you we're talking about these big investments, right? Oh, yeah. invest this much money or buy a $2 million property or or but not everyone has a million dollar $2 million just laying around uh to to just pay for it out of cash, right?

That's not what most people do. Uh that's why a leverage is a very important uh word in business. What does that what does leverage mean? Leverage means you do not use your own money. Your your own money should be out there in the market growing, right? And you use uh money that you borrow, right? a smaller amount of money that you borrow uh uh that you're putting in and you know you put in a down payment, right?

You use a little bit of your money, maybe $50,000 of the $2 million that you're borrowing. And that small amount of money that you're using to build much larger wealth because you're buying a much larger property on that and that grows and and produces returns for you. And once you once you uh you know sell that property that loan gets paid off and you you make c uh a certain profit. So leverage is pretty much using a little amount of money to make a lot more money from that right.

And that money a lot of time is borrowed money as loan. >> Yeah. It's basically using debt to your advantage. Right. >> Yeah. I mean that's and if if you if you look at a lot of companies uh a lot of corporations use use debt to their advantage. I mean, debt is not a bad thing. Yeah, it's a bad thing if you're buying if you're consuming it, right?

If all you're doing is putting money on your credit cards and buying things from it and just buying uh clothes and buying groceries and going on and buying u uh nice clothes and paying for your uh everyday consumption habits and that's bad debt, right? But good debt is where you use that money to make more money. and that at a much higher rate than what the interest rate you're being charged at.

And that arbitrage of the the interest rate, if you're being charged at a 4% interest rate on a loan, but you're getting seven 8% returns on the investment you made, that that percentage difference is a huge benefit. And that's why a lot of people that that have made a lot of money don't even use any of their money for any of even living expenses. A lot of people borrow against the assets they have and use that uh the debt to live live make investments and make even more money.

So I think using using borrowed money for the right things is very important uh uh and that's a good concept for a lot of people to understand, right? >> Yeah. It's I mean like business is built off of that. You look at all every company is in in debt in some way. I mean they're taking loans for stuff and especially new projects, new developments. No one is paying cash outright. Very very very few are doing that. Um but it can be hard to stomach, right?

I mean even me personally um like currently the the only loan or debt that I have is the mortgage on my house. Um but you know the idea of taking another loan there is just an an emotional aspect to it too of just like you don't want a lot of debt. And so you mentioned earlier, I think you're spot on that a lot of physicians are hesitant about that.

Um because almost all physicians have student loans and student loans weigh on you because from the moment you take that student loan when you're basically, you know, almost like a child in your like teens for a lot of people going to college or even in their early mid20s when you go to med school or law school, whatever professional school, you're like burdened by this. It's on it's on the back of your mind all the time that I got to pay this off. I got to pay this off.

And now the prospect coming into initial practice and your wealth growing in your early and mid30s, the idea of taking another loan for the purpose of investing in business when you still have potentially other loans like your student loans to pay off. I I can understand why it's difficult for sure. >> Yeah, I mean student loans are definitely not the best thing and not ideal, but it it is kind of a leverage too, right?

you you borrow some money to kind of catapult you into the into the different category of income like you know it gives you educa it allows you to get education get training live uh life and then eventually be able to make that money to pay off the loan and then make more some more money right so student loans are kind of leverage but a lot of people do not where people get in trouble is where they take large amounts of student loans and do not go into the fields that could possibly help them pay off those loans and that's where they get stuck uh taking on debt for the the for the purpose of making more money is a very good thing and a very useful thing and I think more people should uh you know people shouldn't be as scared of it right um so the there's a lot of advice you get from a lot of people and that's the other thing I wanted to ask you about like you know there's there's this idea of different adviserss having different adviserss in your life there's this whole idea of having a home office right um who do you think should be in in in your home office as people that you can rely on.

Who are some people that I think are good to have in your life as people you can just call or talk to and then they can give you advice on? And we've we mentioned CPA a couple of times, right? A CPA I think is a is a must. >> No, for sure. I mean, I think having a good accountant that you trust, not just for like tax season, not just like, okay, well, you know, April's coming up, I got to file my taxes. Let me talk to my CPA. And then you never talk to him until the next year at that same time.

I mean, I think having like a real strategy and a almost like I guess you could term it like a proactive accountant [snorts] and a proactive strategy to bring up ideas kind of like we were talking about with these tax advantaged ideas like the oil and gas thing or anything like that or how to structure your business, how to do business expenses. Um, how to divide between business and personal stuff. Um, and really utilize everything that you can within legal bounds to keep more of your money.

I think that's huge. So having a good accountant that isn't again just for tax season I think is really important. [snorts] A financial planner, this is kind of plus minus. I mean there there's not consensus on this and it's controversial. A lot of people just manage their finances themselves because you can self-manage all of this stuff that we've been talking about. But having a financial planner and financial adviser I think is really helpful.

It has been very helpful for me because like other than just putting your money in some investment accounts and syndicated investments and things things like life insurance and you know term and whole life um I'll be very honest I mean before I started talking with my financial adviser I really didn't understand or know much about whole life insurance and the mindset was just what I had heard was that term life is all you need. It's a checkbox item.

That way, okay, something happens, you die, at least your family's taken care of. And I was like, whole life, okay, I don't really need it. But, you know, it opens your eyes like whole life is a potential huge investment vehicle that's t tax advantage. It's almost inappropriately named whole life insurance. It's not even really life insurance.

Um but so you know a CPA, a financial planner and then I think someone who is at least in a similar field as you like for me as a surgeon, an orthopedic surgeon like someone who's in a similar field as you but has a lot more experience to see what they went through at the same stages in life and to really talk about finances and what worked for them and what didn't because there's so many things that are like industry and career specific that you can get into as investment opportunities whether you know it's something like industry consulting or legal witness work, expert witness work, um how to get involved in stuff like that.

You're really only going to know that if you're in the trenches and you've done that before. You know, no outside person is going to know that because they don't have that perspective. I I think that's a huge avenue that you can get advice from that anyone in the world can get advice from regardless of your career of someone who's gone through your shoes and willing to advise you. You know, someone who has 5, 10, 15 years more experience than you. I I think those three things are huge.

you know, two real professionals in their thing, a CPA and a financial adviser, and then someone who kind of knows the ropes of what you're doing. They just have done it for longer. >> Yeah. You know, the financial adviser, you kind of reminded me, the analogy is a lot of people can, you know, go out and uh design a workout and work out on their own, but the financial advisor is like having a personal trainer, right? They're they're they're keeping you accountable, right?

You're going in, you're going to the gym, working out, the personal trainer is making the workout plan for you, and make sure you follow it. Make sure you show up. And I think financial planner kind of plays the same role where they're making some kind of financial strategy for you to help you grow wealth, but they're also >> they want you to be financially jacked, right? >> Yeah. [laughter] You know, they're they're keeping accountable. They're making sure Yeah.

They take a little bit of, you know, personal trainers are expensive, too. And so our financial advisors, they you are paying them, you know, money to kind of uh manage your finances, but they're they're helping you kind of stay cal and bringing you ideas.

This is someone you can you can call and be like, "Hey, I'm about to make this this type of investment or this kind of uh this kind of uh you know, I'm going to depart with my money." And then they they walk you off the ledge and be like, "Hey, hold up, hold on. [laughter] Is this is this the right thing to do for you? Let me think about what you can do.

Let me let me draw out some different ideas for you." So I think financial planner is good but sometimes you know if if um I think a tax advisor and not all CPAs are are tax adviserss right so having a tax advisor on top of your CPA or if your CPA is a great tax adviser that's a very good combination a tax advisor can be a very good part of your office and the last one I'd say is an attorney you know having having a lawyer uh easily accessible be it uh and I'm not talking about attorney that that's for medical malpractice, you know, that hopefully none of us get get in that kind of trouble.

And they should you should have some contact for medical malpractice attorney, but I'm talking about uh either estate planning attorney or a tax attorney, right? Uh estate planning is a huge part of uh uh you know, making sure your kids, your wife, your family will be okay after you.

uh and having someone like that in your home office who has your uh your living will and your um you know estate plan uh handy and can kind of guide your family after you what what are the next steps you know is a very useful person to have in your home office as well. >> Dude, I agree that that's actually huge. Um I didn't mention it but yeah having an estate plan and [snorts] an attorney to guide you through that and make it but not just make it one time and be like oh it's done.

uh because your estate evolves, right? Your life evolves. You add new kids to the family, whatever happens. Um it needs to be a dynamic document and it can be updated and it should be updated regularly. And I um you know, like me and Sammy, we have a will. Um you know, in hindsight, I wish I had just made a trust from the beginning. We've talked about just converting our will uh into a trust.

There's a lot of reasons why, but a trust, I think, is a far better estate planning vehicle because it includes everything a will has, but it's better. Um, and honestly, we just went with a will initially because we were in a time crunch. We were uh we were traveling the first like international vacation we were going to take as a couple um after Rion was born and we were going to leave it with my parents and we were both kind of like I mean it sounds morbid to say, but like what if we die?

Like what if the plane crash or something like we don't have a will? there's like nothing to, you know, what little assets we had, what going to happen to them. Um, what's going to happen to Rayon, you know, like it would just be left up to the state and then battle it out on court and that would suck. And so we kind of just scrambled in a few weeks before we left and we made a will that addressed all of those things.

But, you know, in hindsight, after learning more about it, like wills still go through probate court, meaning the information is accessible. It's not confidential. um anyone can still lay a claim to you or estate um you know by showing up in court and making a claim versus a trust where everything is contained in a trust. It's confidential. It does not go through probate court upon your passing. It just happens as you listed out and there's a lot of different ways you can divide your trust.

Um so I just to be forthcoming I wish we had done that from the beginning and we're we're talking [snorts] about changing it to that because I just think it's better. >> Yeah, that's what we did because you know a trust the trust has three components to it. the trust uh has a benefactor, right? And then there's a trustee and then there's the one and then there's the the >> there's an executor. Yeah. >> The beneficiary. Yeah.

So the the beneficiary and so the parents are usually the benefactors and then there's a trustee assigned someone that you trust that will you know that will be able to assign uh and and distribute whatever whatever you've left in the trust to the kids according to the rules that you set. And then you have the uh the bene the you know the beneficiaries like your your kids. So I think having that is very important because probate is the worst thing your family can go to after your death right.

Uh probate means that all your business public and everyone sees that and when when your will goes to when your um wealth uh is is displayed on public many people come after it, right? And there's all kinds of scammers that can come after your family offering them different different ideas and different plans and and who knows if your family will fall for it or not afterwards.

And it's very important to protect them from that and not have to go through the whole idea of probate and have an exact plan and uh you know stable plan for for when you do pass away or timely or untimely right and a lot of times when you have young kids it's very important because you know you have to decide many different things. That's part of the the will but it's also knowing who is there in the family that you can trust.

Uh you don't want your kids to get the money right when they're 17 year old. Like you know, you don't want any uh any wealth you built and all and a 17-year-old to all of a sudden have uh all this money that you built for them or uh the life insurance money that that you you know you might might come on from you passing away. So there has to be a plan at what point in their life should they be able to get access to this kind of money and until then who will take care of that money.

So I think that's very important to have a trust or have some kind of state plan, right? >> Yeah, totally. I mean, because like what you just mentioned is huge because if you pass, you know, so-called prematurely and your kids are still young, them getting a lump sum of money is kind of like a winning a lottery ticket in a way that your average person who wins a lottery ticket burns through that money and never saves it, never uses it for anything tangible.

They just waste it because they're not used to handling it. It's like I guess like 50 Cent said, more money, more problems. uh you're just not mature enough to handle it. Um and so a lot of people will use like a a 25 30 35 rule, but you can set whatever ages you want that you get x amount of this age, x amount of this age, x amount of this age.

But before that, um your trustee, the person you designate to take care of your children, obviously has the ability, and it's written in there, they not just have the ability, they have to, you know, fund their education, living expenses, whatever, all that stuff, but it's not just free reigns. Um, and so you can put whatever any and all stipulations that you want in uh in your estate plan, which I think is beneficial because it can set, you know, hopefully your progeny up for success.

Um, I also think it's like a I don't know what you think about this, but I think, you know, a lot of people of our generation, you know, people that are in their mid30s, we all have parents that are like in their late 60s, early 70s, you know, in that age.

like our our parents are mostly of that generation which you know it sounds maybe morbid to talk about but life is life they're getting to the age where people are passing away uh whether from chronic disease an accident a fall whatever and a lot of people at that age group I mean I was just talking to my parents and my parents' friends like over a prior holiday a lot of them have like no will no trust no estate plan nothing and I was like it's almost like weird to talk about I don't know I felt weird talking about it with them but like [snorts] you got to have a plan what are you going to I mean, really, what are your kids going to do?

They're grieving the loss of a parent. You know, they're sad. It's like a problem. They may not live in the same state or city, and now they got to show up to court. They got to bring all these documents and all that stuff. I mean, it's a huge nightmare in a lot of ways logistically, time-wise, and the stress of emotions going through that process. I think it's a very prudent thing. Yeah, I think it's a very prudent thing. >> Yeah.

I mean, I think everyone should really discuss with their parents.

um you know like what's the plan and maybe that's like a nice thing you know it's the holiday season right now everyone's getting together for the holidays talk about it and see because you know in addition to parents leaving inheritance for the kids you know they've built up their wealth and everything and it's nice to pass it on you also don't want to pass on problems so if it's something that you could basically address and ameliate issues down the road in the here and now I think that's a very nice thing to do >> yeah I think a lot of people don't even know what happens like they They just think >> which is crazy but it's true.

You're right. >> They think that when they die the the kids will just kind of work it out and they but what they don't understand that there has to be legal ramific you know legal processes that you have to go through and that legal those legal processes are not as safe that they're just not as easy. They're not as simple. You have to go to court to probate to kind of prove what is theirs what is there's not.

and all these people then get public access to this information who know what these people had and they they can come after them in one way or the other right so that's you know we were kind of talking about [laughter] a lot of morbid things and the other thing you kind of touched on um earlier I think this this kind of segus uh well into that is uh the life insuranceances right so there's there's there's two types of life insuranceances as we've talked about uh and one is term life and there's whole life plans plans and term life plans are pretty much you know you uh you set a limit that maybe up till 25 years of a 25 years uh for from here on maybe until your kids are in college and independent you'll pay a certain amount which is most of the times pretty cheap.

You'll pay a certain amount a month and based on your health uh your kids will get your family will get a certain amount of money until they're 25 and after that it goes away. Right? So, it's all this money that you've paid up and paid up and paid up just as an insurance um for your kids to get that money when when you do pass away untimely so we can fund their education, maybe pay off a house and you know make sure it gives them a proper life.

So, that's that's term life insurance but but whole life insurance is a uh it's a whole different beast and whole different phenomena. There's a lot of controversy about it, right? There's uh there's two groups of people. Uh there's people that believe that whole life insurance is a scam that uh your your uh the insurance agent is selling you because they get tons of money from it and they make a lot of profit from it and they get commissions.

So they're just trying to sell you these whole life policies and then there's a group that sees a certain amount of value on it, right? They see the value of the the banking system that you are creating your own bank using these whole life policies.

uh there the I think there's a lot of uh misinformation about whole life policies because there are certain types of whole life policies like uh you know there's IL the index uh uh I forgot IVL or IL and these are plans that a lot of times do not pan out that well but actual whole life insurance plan that's designed properly to be a banking system can be a big source of liquidity uh and we talked about liquidity as a as a bucket Right.

And uh whole life policies if you contribute the right amount uh with the right premium and with the the right term writer. Um and these are terms that anyone can look up uh and or we can explain it. But you know the if you design it the right way, it can be a huge source of cash uh that you can borrow against later in life uh as a way to few do few things, right? You can you can um a lot of times pay for your kids college. you can buy them cars or you can use that as investments, right?

And that's what I was talking about leverage wise where you can borrow some money to invest uh that can make more money for you. So whole life policies are a huge source of cash for a lot of people and many you many people use it very smartly for the for those advantages. >> Yeah, I mean that's something that I you know like I was mentioning after our financial adviser brought it up. I I don't know. I I like never discount anything someone says.

I I try to like look it up because I had no idea about this. I was like, whole life insurance? That's just something I've always been told my whole life, nah, you don't need that. Just get term and you're good. But like, it's not even really insurance. It's just the ability to have an extra source of cash that you've put money into that grows and and really grows tax-free. And it actually has a direct cash value.

I mean, every whole life policy has like a set table of like [snorts] time versus how much that investment grows over time. and the cash value within that life policy. I almost think of it almost as like it's like an account rather than a so-called policy. I mean, it's just like a an account like anything that has money in it that grows. The cash value grows over time, too.

And there's like a break even point and every policy is different, but the break even point is basically now the amount of money you've contributed in versus the growth of that. The cash value is going to flip. And so now it's just a net positive. And the where where that flip happens obviously depends on like you're saying what your premium is, what type of policy you have, but it overall it's really just an investment vehicle. It's not I don't think it's insurance at all.

I think it's really an investment. >> Yeah, it's taxfree income.

So for example right uh if you and I are saving up money to make a big investment down the line and next 10 years we know that we want to buy some kind of commercial real estate property and we start adding money and you just don't want to keep cash because there's inflation and you know you want your money to grow so you invested into a brokerage account and that money is growing at a p at the rate market rate at 8% 9% 10% depending on how the stock market is uh or how the S&P is or whatever whatever index fund is right so that grows over time and over the next 10 years that that amount of money is at a certain level, right?

So it you just to keep things simple, you uh you know put in $1,000 and you kept putting $100 each month and that money grew and grew and grew and got to maybe you know $5,000, right? And it could keep growing, you know, based on how much money you're adding. Now you have this money to invest.

uh but if you take it out first thing happens is you have to pay all the money that accumulated and you the the the growth on it you have to pay uh the capital gains tax on it right so the first thing that happens that is that get that money gets taxed now when it's out of that account it no longer compounds and and what we've talked about is compounding is the key right time that money spends in the market uh it grows on top of each other and keeps compounding and that's that's very important Now when if you're in a brokerage account and you want to make that big investment um you know now you take out the money it no it's no longer compounded it's no longer growing right um take now if that money goes into your whole life policy for example and and you should have both right you should have that fast growth money but whole life uh growth account it's it grows at a much slower rate there's a break even point because you add and add and add you see you don't see that cash value rising but at some point there's a breaking point and that cash value grows and now you have a lot of cash.

What happens is that money is taxfree. Now when you and a lot of times what happens is you don't just take the money out. What you do is you borrow against that policy. So it's if you now have a cash value of 150,000 in there and you want $50,000 from an investment, you would borrow $50,000 at a small predetermined interest rate. So maybe 4% 5% for a lot of policies and you borrow that money. Now, that $150 cash value that was in there, that's not gone. That's still there.

And it continues to compound on top and keep growing while your money that you borrowed at a low interest rate is now invested and also growing, right? And it's maybe growing at a 8% rate, 9% rate, and is giving that difference of uh the borrowed money that you borrowed at 4% interest rate and it's now growing at 9% rate. That 5% that you're making on it is hugely beneficial. And then at some point you could pay back that money that you borrowed.

And if you don't pay back, it's just comes out of your death benefit that goes to your kid, right? So if your debt benefit is, you know, $5 million, for example, if you borrowed four $50,000 that in the end, your kids will get $50,000 less plus the interest that it accumulated. So that's that's just something you have to be mindful for. But you should always use that money as a different bucket for investment and growth, not as something you just taking out to use or you know whatnot.

So what a lot of people do is use that money for either investments or you know uh they use it as their own bank. All right? So if a lot of time people go and buy their kids a car you know and the car is $40,000 what what people do is they borrow that money from a bank $40,000 and they over time pay for it.

So people who have a lot of cash value in their whole life policies, what they do is they borrow from their own policies and then they pay that policy back instead of paying a bank and that way your money continues to grow. You did not pay a bunch of interest to the bank. >> Yeah. It's almost like just keeping it in the family. It's like borrowing money from a rich uncle and paying them back eventually rather than giving it to some third party bank because it's it's your policy.

It's your account. >> It's your policy. It's your account.

So there's a lot of and there's a lot of people that might might still think of it as a scam because your money is not growing at the right rate but I think in the end uh there has to be diversity right there has to be flexibility so you have to have that growth account which is growing fast in the stock market you have to have your retirement accounts but you also have something like this where you can use it uh as leverage uh in the future for for better investments out there.

Yeah, I I think it's just that's the key is having different stuff, you know, like diversification is the biggest cliche word used in finance, but it is really important because if every single thing that you invest in is just a different flavor of investing money into the stock market, [snorts] it's just going to go up when the market goes up and down when the market goes down.

Having stuff like whole life or investment in real estate or anything else, anything that's like a tangible business or a whole life policy that is not dependent on the stock market, I think is a huge factor. You just don't want all of your eggs really in that one basket. >> Yeah. And this this, you know, this is it's kind of interesting uh because a lot of the tools in the financial industry are still developing.

uh people in general did not have this much money uh back in the 20s or 30s or even even before that you know they did not have this much accumulated wealth people did not live as long uh there are more millionaires now uh than ever before right people who saved up all their life and accumulated wealth through a lot of the stock market growth right these markets did not exist uh so the financial strategies that were used by people in their 60s for, you know, people who are much older than us, you know, people who were raised in the 60s and 70s and 80s.

Those financial strategies have changed and now people that are living in now in in current times in in the 21st century or you know uh people who were currently in their 30s or 40s right now will have different strategies, different tools to grow their wealth, right?

Um so that's that's uh that's another thing to think about that yeah use advice from a lot of older people you know like your parents your uncle uh another advisers mentors use their advice but also know be open to different ideas because what wealth used to be back in the 60s and 70s and the the tools that we have are different now when what than what they had right so >> no that's very true that that's an interesting thing to think about but it's like there's just the way that people invest and grow wealth and keep wealth and with our longer lifespans.

Uh it's very different than, you know, the so-called baby boomer generation. It's totally different. And even cost of living, cost of a home, all the stuff that was baseline thought of as, okay, it's just it's a no-brainer. Yeah, everyone's going to do it. Everyone will buy a house. I mean, all of those old school so-called points of wisdom, they a lot of them don't apply anymore. And it's there's like new rules to the game.

So you always got >> they apply or ready >> they apply or they're maybe outdated at some point right they still apply in certain areas but in certain areas they're outdated and some of those old thinkings are >> are you know people have made so much money of cryptocurrency right and people made so much money of bit from bitcoin now who is to tell them that no that's not a good good investment why are you putting some amount of your money into bitcoin it's unreliable right but there are people that you know are putting a certain percentage of the money they're making into cryptocurrency because that's another tool that we have that we did not have maybe 15 years ago, 10 years ago, right?

>> Yeah. >> So that another thing I was you know that's that's one thing.

I think the other thing I was reading is uh you know a lot of times now newer companies a lot of these AI companies a lot of uh younger corporations before the norm was they go IPO uh they they you know people invest people buy stocks and they make a lot of money like that's what how Apple grew that's how Amazon grew right they went IPO a lot of normal people were able to make a lot of money from it but now a lot of the different newer age uh companies they're not even opening up their investment and stocks and shares to to uh the general public until until it's uh until it's gone through a lot of growth.

They're opening up to a select few investors, right? They're going to maybe 500 people that have built connections over time through different brokers or investing opportunities where they've invested in certain things and they've grown their money. And at first, a lot of these people are getting opportunities to invest into these companies. So, the money can grow much faster at that angel stage.

And then once that company is in the growth phase and is maintaining then it gets open at a much higher rate uh at on the IPO level. So everyone else can take advantage and that growth at that time is not that much higher right. So those are another things to think about is where you want to invest right now wisely. So maybe you can be in those circles where you do get invitations to invest in these uh high growth companies as a as a angel investor, as a venture capitalist, right?

Cuz at some point if you use your money wisely right now, you could be in a position where you might be able to invest in upcoming new companies like that can possibly give you huge growth, right? As as a venture capitalist. >> No, totally. And it it doesn't even have to be on the scale of like, oh, we're waiting for OpenAI's, you know, IPO, you know, like there's a lot of stuff even on the local level, much smaller scale that you hear about it word of mouth.

You hear about it through connections you make, and it's really about staying open-minded, you know, that's how you hear about a lot of stuff. A lot of stuff that comes out of local incubators or local um tech stuff.

Like here in Houston in the med center there's so much tech especially like health related because of the med center there's a lot of med tech that's happening and you hear about it by staying connected going to random happy hours talking to postocs or residents that have good ideas and stuff or they know somebody who's coming up with something wants to patent something that that's how these things grow organically so it's like you know Maya what you're talking about is totally true that the IPO game has changed especially with tech companies and a lot of these AI companies you know that's on another echelon of wealth than you know people like us.

But there's stuff that everyone can relate to on their own local level. Businesses that you've seen succeed or everyone knows a friend or a friend of a friend who had an idea and actually executed and made it work. Um that stuff happens and that stuff comes onto your plate by making connections, talking to people, being open-minded rather than just dismissing things.

I think that's a huge factor also in this whole bucket of investment is you can only invest in stuff if you know about stuff and not everything is going to be just oh okay here's a multif family investment here my CPA told me about oil and gas there's so much other stuff and that other stuff isn't there on Google that other stuff is just burgeoning it's happening live you just got to know it >> yeah that bucket is the fun bucket where you you should >> the fun bucket that's true >> that's the fun bucket that's the bucket you just keep because you know that you either you're going to make a lot of returns or you're going to lose all the money because [laughter] when you're in the venture capitalist stage and when you're investing in early startups, there's a big chance you'll lose all your money.

So, if you're investing there, you should be able to lose that money and No, but that's another bucket to have though, right? You should >> Yeah. It should be your smallest bucket, but it's probably the most interesting. >> Yeah. Yeah. So, you know, you're kind of reviewing the buckets, right? There's a the the retirement bucket which is slow growth over time builds up. You have your liquidity bucket for emergencies, right? There's a growth bucket, right?

Uh and then there's this fund bucket where you're maybe learning how to do options or uh investing in random stocks that you think are interesting companies or maybe investing in small startup companies where you think that the product is good and maybe it'll get you a return. So, but that's the money that you should be willing to part with or or maybe having crypto as part of the bucket too, right? Crypto could also be part of that fund bucket.

So, I think think of your wealth as a as different buckets, but make sure you uh move in priority, right? There's a priority of the safe buckets first that will set you up for your for your uh generational like you know living off retirement and being comfortable later in life. Uh, I don't think most people should start off with a fun bucket right away. >> Yeah, definitely not. You need you need the foundation before you get fancy.

You got to have you got to have the safe stuff and secure yourself um before you start playing around. >> Yeah, even things like real estate, right? I mean, a lot of people keep talking about passive income and real estate. But unless you have your basics set, unless you have a foundation, dabbling into real estate and these passive income opportunities is not a good idea because there's a high chance of losing your money and losing liquidity and getting in trouble, right?

And and that's where we have to be very careful as physicians because once you are a physician and people know that you are making this amount of money, there's a lot of opportunities that come your way. People come to you, they they say, "Hey, invest in this. This is guaranteed return." And as as illiterate we are about financial uh tools uh we end up making mistakes. So just got to be careful.

And that's why I think it's important to do this podcast where uh you know we're still young, we're still learning uh but there are some things we've learned uh from our personal uh you know uh being inquisitive and discussions and talking to other people that maybe some other physician that's in early stage can also learn from. >> No totally man. I mean, we're we're all learning from each other's experience, for sure. >> All right. Well, >> all right, guys.

>> Here's another episode to do one mic. Thanks for tuning in. All right.