Episode 58: Four Money Mindsets To Make You A Top Quintile Wealth Accumulator

As many of you know, I am a financial planner and investment advisor. I have been in the industry for over a decade now and recently I have been reflecting back on many of the clients I’ve worked with over the years. In this episode, I talk about four money principles for physicians to help them become top quintile wealth builders. These are four principles that I’ve seen play out over time. 

Justin (00:53):
What’s up, everybody. Welcome to this episode of the anesthesia success podcast, episode 58, I’m coming to you solo today and really excited for today’s content. I’m going to talk about four money principles for physicians to become top quintile wealth builders. And that’s an intentionally chosen ratio. You’ll find out about later. These are four principles that I’ve seen play out over time. Many of you know, I am a financial planner and investment advisor. I just passed over the decade, Mark in the industry and maybe reflect back on many of the clients I’ve worked with over the years. All the interesting people I’ve gotten to meet some of the funny and unusual stories that I’ve encountered. Financial planning is a funny thing because you interact with people in a different way than most others do. And frankly, you’re led into a pretty sacred space and you see parts of people that no one else really sees.

Justin (01:45):
It’s. This is similar to what happens in medicine where, you know, you don’t have your medical records taped in your forehead. Similarly, people don’t walk around with their net worth floating above their head. And that’s one of the things I really love about what I do is just you, you learn interesting things about people and you can see how dynamic and real and actual human beings are as well as their challenges and things. So as I was thinking about, you know, the years gone by one of the crazy stories that I recalled included, helping the daughter of a very rich client of ours by a new range Rover, I was about 18 months out of school with my shiny new finance degree. At that point, working with an investment advisor that served very rich clientele, eight and nine figure net worths. And one of these clients wanted to help their daughter buy a range Rover.

Justin (02:31):
So I spent the better part of one morning, about four hours. You can picture this I’m in an open office. There’s like 20 people. If you kind of stand in the middle and look around, it’s mostly quiet. People are tapping away on their keyboards. And I get this email. It’s like, Hey, we got to help bricks daughter buy a range Rover. Justin, can you like handle that? So I’m like, Oh sure. Like, you know, 22 year old, Justin probably doesn’t realize that this is not a normal part of the financial advisory relationship, but I spent the handful of hours that day cold calling range Rover dealerships saying, okay, I need the maroon paint job, the Chrome trim, 22 inch alloys and the sandbar Brown leather all thrown in. Can you get me pricing on that? And I’m going back and forth to all these different dealerships.

Justin (03:12):
And at one point, one of the managers is standing behind me behind my desk without me realizing, and I hang up the phone and he’s like, Harvey, what the heck are you doing? Not realizing that this was my task for the morning for a client. So, you know, that that is obviously one memory that I have, but, but many other things that have stuck with me over the years are the things that I’ve gotten to experience as a part of the lives of my clients, working closely with individuals and families who are in some cases really good and then some really bad at building and protecting wealth. But I want to spend today’s episode unpacking the things that I’ve seen and sharing some of the conversations that I’ve had with clients who really understood how to do this well and effectively, and who walked the walk of effective wealth building.

Justin (03:56):
So these four principles, these four mindsets I’m going to describe today or ones that I’ve seen physicians utilize, and that has set them apart from their peers to make significant financial progress, to destroy their own financial stress and live a life of alignment with what they really want. So real quick, I’m just going to run through these and tell give a little bit of background on each, the hope being that if you want to build wealth more quickly than your peers and reach your goals more quickly than maybe you even thought possible, you can consider some of these mindsets and allow them to spur you on. So number one is acknowledging the reality of financial entropy. What I mean when I say this, I should say is entropy obviously is a nature. The forces of nature, breaking things down and things degrading over time.

Justin (04:50):
And in personal finance, this is very true where we have the forces of financial nature and I’ve got my son, Calvin here live in studio. So if you hear a little bit of background noise, that’s, what’s going on. The forces of nature in finance are sociological relationship, human behavior and psychology forces of nature that conspired to prevent progress the same way that entropy acts on nice cube, where you take out of the freezer, put it on the kitchen table and it melts, or the same way that, you know, I have a back patio at my house, which I very carefully and painstakingly created a little sacred space in our backyard with a little herb garden and a little, our meat smoker back there. But over time, if you don’t tend to it, the entropy of nature and acting itself on the human environment is, you know, you get weeds everywhere.

Justin (05:36):
You got stuff, getting overgrown and it’s uninhabitable before long. So maintaining these conscientiously, it requires energy and effort. So for people out there, physicians who are just transitioning into practice, you’re at the starting line of your wealth building career. Everyone’s at the starting line with essentially the same assets, the same two fundamental components, which are time and human capital entropy financial entropy gradually reduces both of these. What you need to do is somebody who is intentional about building wealth is utilize these while you have them and push back against the forces of entropy. So time, obviously it’s just the years that you have of earning and human capital is your ability as a physician to earn a significant income over time. Both of these timing, human capital go down as time passes at the outset, they represent the potential to build wealth, but not necessarily wealth built.

Justin (06:34):
So you need to utilize them in a certain way in order to translate them into wealth for yourself. So in the same way that you can keep an ice cube frozen, but it takes energy because you’ve got to put it in the freezer, which has a compressor and requires electricity to maintain this temperature differential and the same way that I can keep my backyard. We didn’t looking good, but it requires ongoing maintenance in order to intentionally steward your time and your human capital, you need to create space and systems to turn your potential wealth into actual wealth. So by creating space to combat this entropy, what I mean is this is especially true. If you have a spouse, but even if it’s just you, this is still true. You pick a time, you go out to dinner, you order a pitcher or a beer, and talk about your vision for your future, the things that you want and that you aspire to, and your goals, values, priorities that the, the, the life that you want to live, there’s some great resources out there.

Justin (07:28):
I had a recent conversation with my friend, dr. Jimmy Turner on this show. We’ll link to that in the show notes about, he has this idea of the money date. Basically take your significant other out and have a conversation with them about even the whole time set aside to talk about financial goals and priorities. That’s, that’s one way to do it. Obviously there’s others. But if you start with this, creating the space, intentionally creating the space that is going to really help you to ask the right questions to, to be a catalytic moment for you to create them this, the systems which we’re going to talk about in a little bit, the systems to turn that potential wealth time, plus human capital, turning that into actual wealth. So that’s number one is acknowledging the reality of financial entropy and the way that you need to interact with that reality as somebody who wants to build wealth more quickly than your peers.

Justin (08:19):
Number two, the second mindset that I’ve seen physicians understand that internalize to build wealth more quickly than their peers is creating transparency to the important things in your financial life. You need a system to be able to see the critical variables you need to be able to at a glance, understand where you’re at, where you stand, how your progress is, is mapping on to what you hoped. And whenever you’re doing us, creating a system to have transparency, simplicity is key. Sophistication generally equals a high mental load. Meaning it’s a lot of effort. It’s a lot of work. It’s a lot of time and it’s just not sustainable. Sometimes through automation, you can create by yourself, some sophistication or in conjunction with working with a financial advisor or their professional. You can create some sophistication, but really

Speaker 3 (09:08):
Simplicity is adequate. And

Justin (09:11):
If you create a simple system that you can actually use repeatedly over time, it will work. And I’m going to talk about some of those simple systems in a minute, but the reason that the simple is better than the sophisticated is because it’s one that you’re actually going to utilize. It’s not something that’s going to collect. Dust are really simple, elegant solution to be able to track your cashflow and your spending, to be able to understand investment performance, to be able to see your net worth, that can be a real catalytic. Like it, it motivates you, it, it energizes you. It helps you to see the goal and envision the progress and keep going. That’s really, really important. There’s a lot of tools out there. I would point you to the resources page on my website, anesthesia success.com/resources, where I’ve aggregated a lot of the tools, which I really like and recommend. They’re almost all free. If you want to see

Speaker 3 (10:04):
Some of the simple systems,

Justin (10:07):
You can create to be able to track your progress and motivate yourself to continue to make make progress in the important areas. There’s two that I want to just point out two areas to create a simple system, to be able to understand progress over time at a macro level, your net worth is something that’s really important to track. And to be able to track without a lot of effort, net worth means everything that you own own minus everything that you owe WWII. So for many residents in early career attendings, this, this could be negative. And then as your income grows over time, and you pay off your debt and you build investment accounts and you pay off your mortgage, your net worth becomes positive and hopefully ultimately significantly positive. And being able to monitor that over time, monitor the growth of your net worth and track with it.

Justin (10:52):
That can be really motivating or conversely if, if it’s not moving that can, that can also be motivated. And, and similarly on a more micro level. So if net worth is the macro, the micro level would be monthly free cashflow, meaning a system to be able to understand on a monthly basis, how much came in to my checking account, how much one out and how much was the leftover. I’ve got a system that I recommend that anybody can set up. I discussed this in episode 42 with dr. Aaron Lewis, my friend, over@moneynerdmd.com. So if you go to anesthesia success.com/ 42, you can see the micro cash tracking system that I recommend that is very simple, elegant. It takes really no effort. And it gives you that visibility to what’s happening on a monthly basis that transparency, this can give you the sort of the Canary in the coal mine warning, where you’re going to have a very early on indication of what’s happening with your finances.

Justin (11:46):
If you’re tracking things at this level, you’re just, you’re not going to wake up one day with a terrible surprise that could have been foreseen because you can see every month what’s happening with your cash flows. You can see every month what’s happening with your net worth and keeping an eye on these things can be really helpful. So that’s number two is mindsets that can help you build wealth is having it a system to create transparency in your financial life, to the important things. The third principle, the third mindset that I’ve seen utilized a good effect to build wealth quickly is creating financial touch points. And this is very important. Put them in your calendar. So for example, every month, you know, looking at net cashflow every quarter, thinking about financial goals every year, looking at your big priorities and monitoring your, your net worth, whatever it is, putting it in your calendar is essential.

Justin (12:39):
And this is a trick I’ve learned recently because I’ve been reading lots of books on personal productivity and understanding what is it to actually make progress on the things that matter. How do you take back your day and your time and your own productivity. And one of the things that were recommended in some of these books specifically deep work was one that I really liked by Cal Newport. We’ll link to that in the show notes, highly recommend. And some of the benefits therein are a separate conversation, but one of the things that mr Newport recommends is putting things in your calendar, your calendar, or your own priorities for yourself, whereas your email inbox is other people’s priorities for you and your task list. It’s sort of like a place where you go to feel bad about yourself when you look at it, you know, at the end of the day, but, but your calendar is where your, your actual priorities for yourself reside.

Justin (13:28):
And so if you have things that you really, really want or need to do, understanding that putting them in your calendar allows you to prioritize. You know, when I talked in number one about creating the space intentionally to have those critical conversations, the first step to actually doing that as blocking out the time, putting it in your calendar and making sure that no one else can capture your time or attention at that time, having your spouse do the same, then actually, you know, prioritizing that interaction. This will force you to confront whatever awaits you, as long as you create that touch point intentionally. And then the fourth and final mindset for physicians who want to build wealth intentionally and be a top quintile wealth builder, is this own, the Paraiso principle, and really internalize this and apply it in your own personal finances, the parade principle.

Justin (14:18):
So it’s P a R E T O. You’ve probably heard about this. I’ve discussed it on the show before named for this guy, Vilfredo Federico Damaso Perato, I’m probably butchering that name. He was born July 15th, 1848 in France. He lives most of his life in Italy as an engineer and economist. And he famously observed the distribution of wealth over time, across different swaths of humanity. So he had a bunch of different records of wealth distribution over different geographic locales, different time periods, some of them centuries and miles apart. And what he discovered was that the curves representing wealth distribution looked strikingly similar even across different populations where 80% of the wealth of a given country or given locale was regularly owned by 20% of the people. So we took this principle, this 80 20 rule and applied it to other areas of study during his lifetime economics and others.

Justin (15:13):
It wasn’t until much later Joseph Zeron, a Romanian engineer discovered Perino’s work. Jaron was a quality and process engineer and consultant, and he was born on Christmas Eve, 1904 in Romania. And this was the guy who really brought parade hose work into the public eye. And the way that we now understand it, Juran stumbled across Perino’s work. And he noted this 80 20 rule as it’s now colloquially known. And he took the application of this into manufacturing and industry. If, for example, most defects in production you’re on discovered can be traced back to a small percentage of sources. Most sales from have a product come from a small number of salespeople, et cetera. This, this relationship holds in a lot of different ways and understanding these relationships for Iran as a quality engineer, allowed him to focus his efforts on the highest yield areas.

Justin (16:06):
Imagine you’re a consultant trying to solve problems in production on the line. Your time is very valuable. You want to have the highest impact endeavors, you know prioritized. So if you have 10 machines, each forming a part of a production line to create a finished product, Yuron understood that addressing issues with only two of those 10 machines, statistically reduce the rejected widgets by 80% and create a massive cost savings with a less lesser outlay of resources. So this is all a long winded way, obviously a backstory of describing these truths about this, this ratio, this 80 20 rule. And the reason I’m telling you this background about this old German named Italian in his Romanian industrial counterpart, is that because this rule is really critical in personal finance as well. If your personal financial life is align of 10 machines humming, that’s a lot of stuff to think about 10 different, really important areas as you perceive it.

Justin (17:06):
If we look at every area equally, but it’s really important and possible to isolate two of these machines that are the root of 80% of your problems and get them working really well. If you do that, you’re going to eliminate 80% of your problems and not waste time on the other eight machines that you could have fucked around with to quote my friend, Dan Soderbergh, this for me, falls into the category of things that I think, but can’t prove. And anecdotally, I’ve seen this play out so many times. I’m absolutely convinced of it that if we take this 80 20 rule and we apply it in a personal financial context, it’s just immensely powerful. It’s difficult to envision how you could write a white paper on this. I wish someone would, but that doesn’t in my mind diminish the importance of this idea. So if you’re a physician, who’s building wealth and I’m assuming this is like zero to seven years in practice.

Justin (17:58):
I think [inaudible] these, these areas, the two machines of the 10 that are very important. I think they do change over time, but I’m going to give you what I think these two machines are for. I call them early approaching mid career physicians. The two machines that you want to spend 80% of your time focusing on are big decisions and your savings rate. In other words, these two machines of all of the others, investment returns and asset allocation and you know, insurance decisions and where do I, or am I going to be doing banking and all these other things, those are all machines in the line of your financial life. But the two machines we want to focus on are big decisions and savings rate, big decisions is like, how much of a home are you going to buy? Are you going to buy a home the cost of half a million or a million or 3 million or 4 million?

Justin (18:45):
If you spend sufficient time evaluating that, the question it’s going to have an outsized impact on your financial life for years and years to come, another big decision might be picking a job with good pay or negotiating a contract. Well, if you negotiate a contract well, and you’re getting a good rate of pay, or you’re getting, you know, a better percentage of production, if you’re, if you’re in pain management, that the good fruit from that decision is going to be manifest every year with every single paycheck that you get. And so it warrants an outsize amount of your attention. This also expands to other things, things like, who are you going to marry? This is obviously a nonfinancial question in some ways, or at least an intangible one, but are you going to marry someone who’s aligned with you philosophically when you’re thinking about how you want to build your life and your future or it or not.

Justin (19:35):
And obviously the finances are a place of significant relational challenge frequently. So spending 80% of your time on machine, number one on your production line, the big decisions to the exclusive illusion of all others is going to have an outsized impact. And then the second machine that I recommend that everyone focuses on is your savings rate. What I mean by that is are you regularly reliably having significant extra cashflow to put towards wealth building activities? And can you tell, well, this goes back to what I mentioned earlier, having a system that gives you transparency is really important, but being able to have a savings rate that is healthy 20%, 30%, 40% of your gross income is going to put you on a very, very fast track to financial independence. And if your system is simple and gives you visibility to these things, then you can you know, you can without significant mental load understand at any given time, Oh, the month of July was really awesome because we were plus $7,000 in net cashflow in June, we were plus $9,000.

Justin (20:36):
And you can know that at a glance, just looking at your checking account in the last day of the month. But if you have seven different checking accounts and 12 different credit cards with a bunch of auto payments, and money’s bouncing all over the place, you don’t have the, you need to discern your savings rate. So get the transparency, go back to episode 42, if you want. And listen to that, how I describe a good system there and then see what that tells you. And then once you develop that free cashflow, you want to think about how do I direct this towards the goals, towards the places that are going to really help me build wealth over time. So that’s it for this week, the four mindsets that characterize top quintile wealth building positions, it’s acknowledging the reality of financial entropy and addressing it. It’s creating transparency through systems, to the important financial things in your life.

Justin (21:24):
It’s creating touch points and putting them in your calendar to force you to have those moments of self analysis. And then number four is just really owning the parade of principle, internalizing it and allowing it to work for you. Identifying those two machines on the 10 machine line that are going to give you 80% of the results. If you focus on those big decisions and focus on driving that savings rate as far northward as you can, then you’re going to be just absolutely crushing it. And you’re going to be in a, as I said, that the top quintile of physician wealth builders and in closing, interesting fact, Joseph Juran, who I mentioned the Romanian engineer who popularized, and I would say internalize the parade of principle and applied it all over the place. He, he got married to a young woman, Sadie Shapiro in 1926, Joseph died in 2008 at the ripe old age of 103.

Justin (22:20):
And Sadie passed shortly thereafter in December of 2008, also at age 103 incredibly. So whenever I hear stories like that, I always wonder what creates that kind of longevity in a relationship where you can be married, married to the same person for 82 years, which is it’s just crazy. It’s more than twice as long as I’ve been alive right now. And I can’t, I couldn’t help, but wonder if it’s because these two perhaps understood how to focus on the important things and not get stressed by everything else. So it’s just pure conjecture on my part, but I would not be surprised if that did play a role as always. Thanks for tuning into this episode

Justin (22:59):
Of the anesthesia success podcast. Talk to you next week. If you liked what you heard this week, head on over to anesthesia success.com, where you can find more content and free resources to help you build a successful career in anesthesiology and pain management.

Justin (23:13):
If you want it to leave a review in iTunes, I would also really appreciate it. Thanks for using some of your valuable time to join me today on the anesthesia success podcast.