Ether to FI: Obeying WCI’s Ten Commandments & Net Worth Update
Back in July, we met Ether to FI, an anesthesiologist, father, and husband just starting his career as an attending anesthesiologist.
Several months have passed, and the good Dr. E.T.F. has updated his net worth worksheet and written an excellent article detailing his compliance with the Ten Commandments of my business partner and mentor, Dr. Jim Dahle of The White Coat Investor.
As you may recall, E.T.F. has a goal to reach FI faster than I did (which was about 10 years into my career), and I’m rooting for him. He’ll benefit from a second household income and a wealth of online resources, most of which didn’t exist when I graduated from residency back in 2006. His goal number is $3.3 Million.
Enjoy the post, and be sure to stick around for the Net Worth Update below.
White Coat Investor, Did I Obey Thy Commandments?
One of my new colleagues asked me the other day, do you agree with the principles of the white coat investor? I answered with a resounding “YES”. That is like asking me if Jack Bogle is a saint, or if the stock series is helpful? YES and YES. Starting this new journey with residency in the rearview, it is time to take stock of the E.T.F. household. How well does our reality compare with our aspirational selves? Dr. Dahle’s Ten Commandments provides a good outline to gauge our success on the road to Financial Independence (FI).
Let’s see if the E.T.F. household is obeying the Ten Commandments.
1) Thou Shalt Realize Thou Hast A Second Job
In my first post, I already self-identified as a personal finance nerd. Evident by friends, family, and colleagues asking for advice. I am not a financial advisor, and I did not stay at a Holiday Inn last night. However, I love getting into the personal finance weeds. I read or listen to at least 2 books a month. I love financial podcasts. I knew I had a condition when my one year old picked up headphones and said “Daddy”, as Mrs. E.T.F. just shook her head.
Check and check on this one.
2) Thou Shalt Do Continuing Financial Education
I should start receiving Continuing Medical Education credits for my efforts.
[PoF: Two thirds of the talks at the WCI Financial Literacy conference, including mine, have been approved for CME. It’s full this year, but if all goes well, this may be the first annual conference.]
3) Thou Shalt Save 20% Of Your Income for Retirement Beginning the Day You Leave Residency
I was ruthless about this commandment. It is much easier to form a habit prior to establishing new lifestyle standards. Mrs. E.T.F. and I decided on a household budget prior to the arrival of my 1st paycheck. We direct deposited that amount into a checking account we call the “spending” account. The rest of my income and Mrs. E.T.F.’s paycheck is direct deposited into a checking account at a different bank.
This is our giving/saving/extra investing/major expense account. Prior to the arrival of check 1, we did an annual budget for the 1st 12 months of attending life. We spent everything on paper before the year began. We also do a monthly budget based on the fixed amount deposited in the spending account.
Using the same idea, we maxed out all retirement accounts based on the monthly proportions starting with my 1st paycheck. This is a combo for E.T.F. (Mandatory 403B + 127% matching + Voluntary Roth 403B + 457B + IRA’s for 2017 & 2018) and Mrs. E.T.F. (Voluntary Roth 403B + 457B + IRA’s for 2017 & 2018). Mrs. E.T.F. also has a percentage of her salary directed into a mandatory pension account. This will provide around 70% of her salary after she retires in her early 50s.
I did not include the pension portion in my FI calculations. The pension alone would provide 70% of our yearly FI spending. I see this money as a bonus, that will probably be spent on giving, and taking my future grandchildren all over the world. Summers with grandpa and grandma are going to be very interesting.
Other savings and investing goals for the first year include increasing our emergency fund and depositing $40,000 into 529’s. Our savings/investment rate based on gross income this year will be around 50%. [PoF: Next year, aim to meet the Live on Half Challenge based on take-home pay]
I am working hard to be the teacher’s pet.
4) Thou Shalt Insure Against Catastrophe
Offense wins games, but defense wins championships. Too bad most people only look at the box scores.
I grew up in a household that valued financial offense but played defense with blindfolds on. This meant you felt all the bumps in the road. I am doing everything in my power to avoid past potholes.
As residency was winding to a close, I used Set for Life Insurance to buy new life and disability policies to supplement the amount available from my new job. Mrs. E.T.F. has a private life insurance policy to supplement insurance through work. Her disability is the 60% of her base salary through work.
A year prior to starting my new job, I decided to increase my automobile and homeowner’s policy to the maximum coverages available. This did not change the price of the insurance because I also increased my deductibles to the maximum. The deductibles represent a small portion of our emergency fund, so that is a risk I am willing to take to ensure the insurance company covers a much larger bill.
The last addition to this piece de resistance was an umbrella policy. I also maxed this out with the same logic. Umbrella insurance is very cheap. There is something very comforting about insurance company lawyers sitting between me and those looking to make a quick buck.
Commandment 4 gets a star.
5) Thou Shalt Not Mix Insurance And Investing
I agree completely with this commandment. I have insurance, and I have investments. Never the two shall meet.
Check on this one.
6) Thou Shalt Favor A Passive Investing Approach
Our net-worth statement demonstrates we believe in passive investing in the E.T.F. household. Keeping expenses low is paramount. In a perfect world, Vanguard would be my provider of choice for all my investing. Since that fantasy world does not exist, I must use investments chosen by my job. Luckily, I still have some great low-cost options. My average expense ratio is .068 across all investments. Our goal is to get as close to zero as possible.
We are obeying this commandment.
[PoF: See Passive Income MD for more info on passive investments.]
7) Thou Shalt Hire Only Competent Advisors
As WCI stated, “by time you know enough to select a good financial advisor you know enough to do it yourself.”
We will continue to manage our finances ourselves, but will not rule out using a fee-only financial advisor on an hourly basis for specific questions.
Until then, PoF needs to keep up the output, I prefer free advice. [PoF: I can do that!]
8) Thou Shalt Minimize Expenses And Taxes
As stated in commandment 6, our average expense ratio is 0.068. There is always room for improvement, and I fully support the race to the bottom among mutual fund companies. Any company that lowers fees on a consistent basis is an organization I can support. Looking at you; Vanguard.
We are not maximizing tax sheltering because we are investing in Roth 403Bs. Early retirement aficionados probably are scratching their heads on this choice. Just a reminder, I am not retiring early, and one of my goals is to have an RMD problem with all the investing I plan on doing.
We will let the crowd score us on this one.
[PoF: I like to take every deduction possible, so the only Roth contributions are via the backdoor with Vanguard, but I can say with some confidence that I will be able to access tax-deferred contributions in a lower tax bracket after an early retirement.]
9) Thou Shalt Minimize Debt And Manage Necessary Debt Well
“I AM DEBT FREE!!!”
Sorry, I forgot I am not on the Dave Ramsey Show. We don’t have any debt and are not planning on acquiring any debt. We will see if the plans change with a house purchase.
[PoF: Most people consider themselves to be “debt free” when they are free of consumer and student loan debt, but still carry a mortgage. Like you, I am 100% debt free, but I wouldn’t discourage you from taking out a reasonable mortgage if it makes sense for your family.]
We plan to keep playing strong defense, get professional help when its necessary, and ride the waves up and down. This journey is going to be long, but we plan on having fun the whole way through.
Talk to you guys sooner, rather than later, I will increase my writing frequency, expect bi-monthly updates unless something interesting happens.
Ether to FIRE Net Worth Update
[PoF: It’s been a good few months for E.T.F. and family. When we first checked in as he finished residency, they had a net worth of about $80,000. Between investment returns and new additions, they are easily on pace to double it this calendar year.
Here is the breakdown:
Since the summer, they’ve been able to add three accounts; her 457(b), and his voluntary and mandatory 403(b) accounts are all new.
They are currently 4.4% of their way to the $3.3M goal.
If they continue to follow WCI’s Ten Commandments, I expect them to reach 100% of their goal eventually.]
Are you breaking any of The Commandments? Do you think the E.T.F. family will reach their big, audacious goal of $3.3 Million within ten years? Sound off in the comment box below!