FIRE Crossroads 009: Dominating as a Dermatologist

Today’s interviewee first emailed me as a resident in early 2016. I had only been blogging for a little over a month at the time!

Five and a half years later, with a net worth of about $1.7 Million, about 1/3 of the way to a $5 Million FI goal, the dermatologist with a family of four starts to ponder the future.

It took me at least twice as long to reach a similar net worth, which shows you what’s possible when you make great choices with your career and your finances. Read on for advice from this physician on the fast track to fatFIRE and to see how you can help the good doctor plan his next moves.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

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Getting to Know You

 

Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?

I am currently in the early to mid-point of my financial independence journey so I probably could have done this guest post for either FIRE starter or FIRE Crossroads. I am relatively early in my career in terms of years out of training (FIRE Starter) but am off to a great financial start yet I don’t know how I want to structure my career, schedule, etc… in the next 5-15 years (FIRE Crossroads).

Our net worth is comprised of ~$300,000 in our primary home ($800,000 home value, $500,000 remaining mortgage), $100,000 in cash, and $1,300,000 in investments (all low cost index funds predominantly at Vanguard).

Student loans are paid off and we have no other debt. Therefore, we’re not quite at the halfway point for net worth but given our high income and strong savings habits, the number has grown at a dramatic rate the last few years. I am confident that with this head start, we will have plenty of options going forward.

Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?

I am in my mid-30s. Our household is a family of four – me, my spouse, and two kids under age 5. We currently do not support anybody outside of the home. We live in the suburbs in the Northeast.

My spouse is currently a stay-at-home parent but did work for most of my medical training which allowed us to contribute more to retirement and student loans than the average resident.

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

Dermatology. My career is off to a great start. There were definitely some practice adjustments and some curveballs the first few years but I am still at the same job I joined out of residency.

I like almost everything about dermatology and still, without a doubt, recommend it to every medical student who rotates with me. I’m biased but I do believe it is the best medical specialty.

The work/life balance and solid compensation is well known but the variety in the specialty often gets understated. I personally focus on medical and surgical dermatology with a great mix of patients but once accepted into derm residency you have an abundance of options.

This could be exclusively surgery (Mohs), entirely cosmetics, dermatopathology, complex medical dermatology, pediatrics, or some combination thereof. The specialty really does lend itself to creating the type of medical practice/career you want which I don’t think is as readily available in other fields.

The path to becoming a derm attending is the worst part. There was definitely A LOT of sacrifice to get to this point.

Getting elite grades and exceptional board scores required a huge time commitment on my part – often times much more than some of my closest medical school peers.

Additionally, given the competitive nature of the field, I did residency in a less desirable location away from family while many of my close medical school friends were able to go to their top choice program in highly desirable locations. I’d like to think there was a lot of front loading in my career.

One other more recent negative is the influx of Private Equity money/ownership that continues to creep into lucrative specialties. Although dermatology is still one of the few fields where you can start your own private practice, it is becoming increasingly difficult.

Most of my peers either joined a PE group or hospital out of training. And for many graduates that actually did have a partnership track, several had the rug pulled out from underneath them when the senior partners sold their stake to PE prior to the younger attendings making partner.

It doesn’t mean it is always a bad scenario but I think it is important for new graduates to be realistic about the state of medicine these days.

 

Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?

At this particular moment, I am not at a career crossroads but I likely anticipate I will face those first challenges within a year or two ( the reason why I chose FIRE Crossroads). At this point, I am still early enough in my career where I love what I do and want to “strike while the iron is hot” in terms of income.

Given that I am the youngest in my group, I am physically and mentally able to put in a lot of hours and handle a lot of responsibilities compared to my colleagues which is a benefit to my patients, my growing medical knowledge, and overall compensation.

However, I do anticipate a couple of crossroads arising very shortly:

 

At what point do I start cutting back my schedule and how best to do that?

I am at peak earning potential at the moment but I anticipate I’ll want to cut back as my net worth continues to climb. I’m not sure if that will mean 4-day workweeks, more vacations, shorter days or some combination thereof.

Additionally, knowing my Type A personality, it will certainly be a personal struggle giving up some of my income when I do cut back as I’ve never before had the desire or even the option to cut back. However, I do value my personal and family time which is one of the draws to dermatology to begin with.

 

What other entrepreneurial ventures or projects do I want to pursue?

I’ve always been interested in becoming an entrepreneur or having more control over my professional career. While my current employed situation is excellent and I’m very happy overall, there is no opportunity for partnership and therefore there is a ceiling as to how far I can climb…I’m essentially at the apex already which is uncharted territory along the medical journey.

I have an interest in real estate, consulting, teaching or maybe some other entrepreneurial venture but I don’t know what that will be just yet. I think having many options sometimes can make things harder…the premise behind the Paradox of Choice (book written by Barry Schwartz).

 

Investing

 

How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

  • 40% Total US Stock Market and S&P500 (predominantly VTSAX)
  • 30% Total International Stock Market (VTIAX)
  • 10% REIT (VGSLX)
  • 10% Small Cap Value (VSIAX)
  • 10% Total US Bond Market (VBTLX)

 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

  • 52% Roth/Health Savings Account: this is a high percentage due to backdoor Roth for me and spouse + HSA contributions all through residency as well as big 401(k) conversions the year I graduated from residency.
  • 18% Tax Deferred
  • 30% Taxable

 

Do you have investments in an HSA? How about 529 Plans?

  • Health Savings Account: Yes, all invested in VTI through Lively/TD Ameritrade custodian. Total is ~$75,000
  • 529: one account for each child invested in our home state, all in low-cost index funds. Total between the two accounts is ~$100,000.

 

What has been your best investment?

I’m going to address this question from a few different angles…

  • Easily the #1 best investment has been my marriage. We’ve been together every step of the journey during the long and sometimes arduous medical path, through both the highs and lows. This has translated into a happy marriage, two children, and also significant financial security at this point early in our careers.
  • The best non-marital investment was my decision to pursue dermatology. As alluded to earlier, “front-loading” my investment in terms of time and effort has already paid dividends in terms of quality of life and financial security.
  • The best “pure investment” would have to be VTSAX. It is my largest holding and will likely be for the rest of my life. It is simple, effective, and continues to get the job done. Even though my portfolio is a little more complex, there’s a part of me that agrees with the FIRE philosophy of “VTSAX and chill.”

Your worst investment?

In my early years of investing (college), I took the advice of a family member’s financial advisor and invested almost all of my money into one stock. This was based upon a “hot tip”. The stock proceeded to shoot up by 80% in the first year and then come crashing down to almost nothing.

I lost about $10,000 which doesn’t seem like much (my family member lost much more) but it was almost my entire net worth. Years later, that financial advisor ended up being convicted of several felonies.

At the same time, however, the experience completely changed my financial future. It was that event that made me realize nobody cared more about my money than I did.

This subsequently led me to reading absolutely everything I could about all things financial. I’ve read almost all the articles on PoF & WCI (a big thank you to Leif and Jim for changing my financial future), am a Boglehead at heart, read a few financial books a year, and even read IRS documents to educate myself about the tax code when needed.

 

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Into the FIRE

 

Numerically, what is your FI goal?

This is a moving target but I imagine in the $5,000,000 range. A lot will depend on how much I still like practicing medicine but given my trajectory I think this number is very realistic.

I’m sure if I put in enough time I could get stretch that number even higher but I do believe my desire to work and earn will dramatically taper off once I find that I “have enough.”

 

When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?

This is also slightly a moving target depending upon when/if I cut back my hours at work, but I imagine I’ll achieve FI in my early-to-mid-40s (~$5,000,000). I don’t imagine I’ll retire abruptly, but it will likely be a transition to part time medicine coupled with other ventures.

However, things can always change. I’ve heard people love medicine more when FI so they continue to practice but on their own terms. I’ve also heard different people just want to give medicine up entirely when FI because there are other things they’d rather be doing instead. Time will tell for me, I suppose.

 

What are your post-FI plans? How will your life change? What do you look forward to the most?

I anticipate cutting back on my work schedule which will allow me to devote more time to my kids’ future activities, sleeping more and picking up new hobbies. I am most looking forward to gaining more control over my time and doing things on my terms and not what is dictated for me.

Additionally, I look forward to not having to worry about money. Even right now, it is a marked improvement to the penny pinching experienced in medical school and in residency.

At this point, I just don’t worry about the smaller purchases because we’re saving enough and meeting our goals. It’s a very liberating feeling. I look forward to taking that to the next degree when I’m post-FI where I won’t have to worry about the BIG purchases either…within reason of course.

 

Have you made any major changes in your lifestyle or investments to accelerate your FI path?

The biggest change to accelerate my FI path has been increasing my income over the last few years. This includes building my patient base, working more hours, and doing more lucrative procedures. I also have spent a great deal of time learning the tax code to further accelerate my path.

On the flip side, we have definitely inflated our lifestyle as our income has grown which has worked against us purely in the pursuit of FI. However, we’re still saving 40-50% of gross income so the increase in spending is still within our means and something we’re comfortable with. Life is a balance after all.

 

Are you facing any unique challenges making FI or RE more difficult?

We’ve been very fortunate that I haven’t encountered anything unique at this point. We’ve laid a great financial framework from the start, my career is currently in full throttle and we are heavily insured with disability and term life insurance to cover us for any major financial catastrophes.

Our mortgage is also less than 1x annual salary so we’re not burdened with a high mortgage should anything arise.

 

What advice do you have for others who are seeking financial independence?

Educate yourself. Read as much as you can. Bogleheads, PoF, WCI, are amazing resources to start that will get you 90-95% of the material you need to be successful. If you don’t understand something, just like in medicine…go look it up. Ask questions. Trust but verify.

I also encourage you (with your spouse if applicable) to spend some time thinking about what is most important in your life and then working to create your “ideal life.” With a physician income and good savings habits early, you can then really set yourself up to enjoy what is most important in your life.

After all the hard work, I think it is important to then spend your money on what makes you most happy. For instance, location (near family and with great schools) was a high priority for us so we directed our money towards making that a reality.

Other more material things such as a lavish house or cars just don’t matter as much to us, so we’ve saved money there. This has allowed us to enjoy the journey to financial independence and not just look at it as the destination. It’s worth googling Ramit Sethi’s Money Dials for a better framework on this concept.

 

 

What are very specific, actionable tasks you can take to be financially successful?

In no particular order…

 

  • Live below your means. Live like a resident.
    • “If you will live like no one else, later you can live like no one else.” – Dave Ramsey
  • Don’t take out more loans than you need to. Can you go to a cheaper medical school?
  • If you are torn between two specialties, consider the higher paying one.
  • Learn billing and reimbursement in your specialty.
  • Invest in low cost index funds. Consider the Bogleheads three fund portfolio as your template.
  • Save as much money as you can. Push yourself until you really feel it…then back off to find the sweet spot.
  • Invest in your marriage, kids and family. Periodic date nights may be one of your best investments.
  • Buy term life insurance when others depend on your income. Avoid whole life insurance. Consider laddering your policies as it’s cheaper and your financial needs decrease with time. For instance, $1 million for 10 years + $1 million for 20 years + $1 million for 30 years may be better than a $3 million 30 year policy.
  • Buy disability insurance in residency when you’re healthy and buy from the right person.
  • Track your financial progress. What gets measured gets improved. Consider excel spreadsheets, Mint, Personal Capital, and YNAB.
  • When in doubt where to keep/invest your money…choose Vanguard.
  • Max all of your tax protected space: 401(k), Roth IRA (via Backdoor), HSA, 529, 403(b), 457, etc…
  • Try to simplify your financial life: fewer brokerages, fewer credit cards, bundled insurances, combine your accounts with your spouse, etc…
  • Develop an estate plan. This is an absolute must after you have dependents.
  • You can play both offense and defense on your way to FI – increase income and cut expenses. Both work well, but it’s more powerful if you can do both simultaneously.

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

 

The two main areas I’d solicit opinions on are:

 

When and how to cut back clinically?

I currently already have a pretty great work/life balance being in dermatology with an amazing commute, so I don’t feel like I’m missing out on too much…but I’m still definitely interested in reducing hours at some time in the future.

Financially, our family is in a great position to gradually cut back on time but there’s also a part of me that doesn’t want to give up any extra income because I’ve worked so hard to put myself in such a position. It’s probably my Type A personality at work.

Also, this topic isn’t something I can discuss with peers, friends, or family because the concept is a little foreign to them but I think it is perfect for the FIRE/physician community. I’m more or less looking for guidance from those who have done it and knowing when it “felt right” to them.

Was it a number (FI, lean FI, a certain NW), when they felt like they were missing something in their life (time with family for instance), or some other factor. I was toying with the idea that every 3-4 years I’d give up a 0.5-1 day of work per week (4 days, 5 days, 3 days, etc…) but nothing is set in stone.

 

What is the general consensus on private equity real estate and other alternatives?

I have been very successful with a basic 3-fund portfolio and slight tilt to Vanguard REIT/SCV and I’m 100% sure I can be successful and meet all my goals continuing the status quo with a high savings rate doing the lifting.

However, everywhere I look (PoF, WCI, PIMD, etc…), there is now discussion of private equity real estate which I would consider for a small portion of my portfolio (5-10% to start).

Perhaps there is a component of FOMO, but at the same time, is this something I should be considering as I have no interest in being an active real estate landlord.

 

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I’ve shared my feedback privately with today’s guest. I wouldn’t want my opinions to influence yours. Please give your take in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.

 

8 thoughts on “FIRE Crossroads 009: Dominating as a Dermatologist”

  1. Great post! I love all of the specifics here. It is much more relatable to to most docs compared to someone who started a business and has $50mil in the bank who initially did not share any specifics about his company.

    Congrats to the interviewee. My biggest takeaway is impact of choice of speciality and the importance of “front-loading” your career. I, too, remember putting in countless hours in med school to match into dermatology. Every little rotation, test and research project matters because it’s so competitive. It’s crazy how the decisions and time commitment you put in in med school can literally be the difference between earning $6mil over a 30 year career (Peds, FM) and $15mil over a 30 year career (derm, ENT, plastics etc). When you start getting into that $5-10mil net worth range, you’re talking generational money in my opinion. I’m not sure if a lot of med students think about this way. While money shouldn’t be the number one factor in career choice, I think it should be #2 factor, especially if you have loans.

    Reply
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  3. Great post! OP realizes the benefits of compound interest and how saving early and often opens up doors early and often. OP says he hasn’t discussed cutting back with family but I hope he has at least with immediate family as that is important. I think the OP can cut back 1/2 or 1 day a week already but it sounds like he isn’t ready to because he is content now. I don’t think cutting back it when you reach a specific number or %age to FI. I also don’t understand though people who cut back once they are FI…they could have done so much sooner!

    OP, you are young still. My physician wife cut back once she felt she had enough periods of too much stress at work. I’d just wait until you feel that weight on your shoulders, and it will come at some point. Souds like you are very content right now and killing it so I’d just reassess how you feel every 6-12 months.

    As for real estate, I wouldn’t worry about it. If you’re not comfortable then don’t do it. It might hasten your path to FI but if the current path is working fine for you, why change? If it ain’t broke, don’t fix it. POF and WCI do have a real estate sub-focus but I ignore it because I’m not interested and content with the journey we laid out and we’re doing just fine. Be content with your current financial plan…it sounds like it hasn’t been the wrong decision and it’s gotten you to where you are now so there must be some value in continuing that.

    Reply
  4. Great progress so far. I see a lot of similarities between us (though different speciality). I think your plan to gradually cut back every few years is a good one. For me that is at 3MM family net worth which is a 120k a year. 10k/mo figure which I am very comfortable with and matches our current level of spending. I ultimately expect to retire with 5-10MM but that is with another few decades of part time work. I also have never had a high income during a big recession and figure that staying full time with a big shovel during such a time period will have lots of financial opportunities that I just haven’t been exposed to so far (I wish I had my current income and savings rate back in 2008-2010 for example).

    Regarding private equity- I think you certainly don’t need to do it. However you have a public ally traded reit in your investments and for me I think that a diversified mix of private options would be better. You get pass through depreciation so much more tax advantages with protected income especially at a high tax bracket. I also think that a few good operators are likely to outperform a huge lumbering REIT like VNQ. That may just be 10% of your assets now which isn’t a huge commitment. I am actually pushing towards 30-35% as the cash flow portion of syndications helps a bit with my neurosis and comfort cutting back.

    Reply
  5. Great post. Congrats on figuring out your financial life so early. I think you will find as your net worth grows you will not want to put up with crap of any kind and will start cutting back.

    Reply
  6. Wow – I could have written that comment about sticking with index funds due to a high savings rate myself.

    I think part of the FOMO about private real estate deals comes from the fact that many in the FIRE space are well-paid by advertisers to promote them.

    I do find it odd that most of us got here by saying “Cut out the middleman. Avoid fees. Avoid active managers.” And then race to throw those principles out the window and pay a syndicator or other middleman to handle your money in a multilayered nonpublic opaque deal that guarantees their exit strategy but not yours.

    Reply
    • When investing in publicly traded stocks, which is what I do with 80% of my portfolio, it is simple to cut out the middleman, avoiding fees and active managers. I heartily promote a three-fund portfolio or variation on that theme of index fund investments for the bulk of your investing dollars.

      When investing in residential and commercial real estate, which I do with ~ 10% of my portfolio, the best way to cut out the middleman, avoiding fees and active managers is to do find properties, do the due diligence, line up financing, screen tenants, prepare and execute contracts with those you select, manage the properties, etc… Some people love doing all of that as a side hustle or primary profession, but not me. Real estate syndications and funds take away many of those steps for a fee, although an investor still needs to do some due diligence in addition to what’s been done for them.

      Yes, there are advertising dollars involved, and I am transparent about that. If I accept an advertiser in this space, I am comfortable investing my own money in them, and I’ve done so in most cases. A rundown of my personal investments can be found here.

      That said, it is an optional asset class. It can add diversity to a portfolio, but there is no requirement to do so.

      Best,
      -PoF

      Reply
  7. Well written post and congratulations on you and your family’s progress!

    We have a lot in common (age, family, specialty, progress toward FI, employed doc, investment philosophy, goals). I grew up in the Northeast but am in the upper Midwest now.

    I’m always looking to connect with fellow docs at a similar stage and with similar values/goals. If you’re interested, drop me an email at [email protected]. Either way, best of luck to you. It was nice to see a fellow dermatologist in this series.

    Reply

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