Are you a physician, other medical professional, attorney, engineer, or in another profession requiring advanced education to obtain a high paying job? If so, you’ve spent years of your life going to school. You’ve spent tens if not hundreds of thousands of dollars obtaining degrees that allow you to be a highly compensated professional.
But despite spending all of this time and money to gain the skills that enable you to be a high earner, you've likely received very little education on how to manage all that money you'll earn.
The combination of a high salary and a low financial IQ places a big target on your back every time you enter into a financial transaction. You’re at a distinct disadvantage every time you meet with an investment advisor, insurance agent, or real estate agent. While there are some true professionals in these fields, the majority are merely trained salesmen with clear conflicts of interest to your own.
Your high income also places you directly in the cross-hairs of the IRS. The U.S. tax code is extremely unfriendly to high wage earners, especially those who haven't invested the time learning to navigate the details.
There’s also pressure to keep up with other high earners who are your peers. Many people reflexively upsize their homes, drive fancier cars, and wear more expensive clothes in accordance with their reputation and income. For many high earners, spending keeps pace with or grows faster than growth in income. Instead of owning your stuff, your stuff ends up owning you.
The White Coat Investor
You may have figured some of this out on your own, often through the school of hard knocks. Worse yet, the above may apply to you and you haven’t figured it out yet. If either of these descriptions fits you, then James Dahle, MD wrote The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing to help people like you keep and grow more of the money you earn.
Dahle is a physician and wrote this book specifically as a financial guide for other physicians. I am not a physician, but I had the book recommended to me as applicable to any high wage earner. The following review is from the perspective of a non-physician.
The Bad News Before the Good
Dahle opens the book with a grim scenario. He takes on the conventional wisdom that doctors, lawyers, and other high wage earners are rich. He then explains that this is a false assumption for many high wage earners. He presents three factors that he calls "The Big Squeeze."
- Education costs continue to increase above the rate of inflation.
- Wages are growing at a rate less than inflation or even shrinking.
- Liability and compliance concerns make jobs less pleasant and add ongoing expenses.
While Dahle writes from the perspective of a physician, he acknowledges that other professionals, such as attorneys, have it even worse.
Despite the challenges facing physicians and other professionals, Dahle notes that living “the good life” is still very much in reach for these high earners. He openly shares his story of becoming a millionaire by age 40, only one decade after his medical school graduation. He did it with a below average income (compared to other physicians) as a military doctor, in a one-income home with multiple children.
His methods are no secret. He did it with a healthy savings rate averaging around 30% per year. More importantly, he describes a life with little sacrifice to achieve these results. He and his wife “never fight about money.” They have a nice home and some toys, take vacations and are able to do what they choose with their family. He also includes the stories of several of his blog readers who had similar stories, showing that with a few good decisions, this lifestyle is very possible.
Personal Finance 101
The strength of this book, in my opinion, is Dahle's ability to condense and simplify complex personal finance topics and focus on the things that are truly important in this concise 157-page book.
The book gives an excellent overview of turning a high income into wealth that allows for a better way of life. Chapter 3, "If I Had a Million Dollars," gives perspective on the value of a million dollars today and summarizes wealth-building principles based on Tom Stanley's research from The Millionaire Next Door .
The chapter explains why high incomes often don’t equate with wealth. Chapter 6, “The Secret to Becoming a Rich Doctor,” outlines principles that allow you to live well while living below your means. It also discusses the concept of slowly growing into your income.
Chapter 13, “Income Taxes and The Physician,” explains the key aspects of the tax code that we all need to understand to develop a sensible plan to minimize our taxes. This includes explaining terms like tax deductions vs. tax credits and effective tax rate vs. marginal tax rate. He then ties it all together with the advice “don’t fight the IRS.” Instead, he shows how to use the tax code to your advantage to greatly decrease your tax burden.
Chapters 7 through 9 tackle getting started with investing. While this book doesn’t give much actionable advice to actually get started investing, it’s strong in explaining what you should avoid. The author focuses more on pointing readers in the right direction and then recommending more advanced resources for this topic.
Dahle is at his best when writing from the perspective of a consumer advocate. He initially started The White Coat Investor after he “finally got tired of financial professionals ripping me off.”
The White Coat Investor is written to introduce all of the important financial decisions that need to be made through your adult life. It spans choosing and paying for college through estate planning to be sure your assets are directed appropriately after your death.
However, the author acknowledges that most people won't have the desire or commitment to actually do many of these things themselves. He tackles this in Chapter 10, "Paying the Help." This chapter lays out why even if you choose to hire a professional to help you, you must be educated to avoid being taken advantage of. He lays out the conflicts of interest faced by those selling investments, insurance, legal advice, and real estate products.
Several quotes from this chapter stand out as advice we all should heed:
- "Good investments and good advice are bought, not sold."
- "Bad advice is too expensive at any price."
- “The main difficulty with choosing an investment advisor is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own.”
Dahle's book and blog of the same name are written and marketed towards the specific needs of physicians. However, as a non-physician who is a semi-regular reader of the WCI blog and now the book, I feel that the biggest weakness of the WCI brand is that it is not more inclusive of non-physicians as well. As Dahle himself points out in the book when criticizing financial professionals who call themselves experts in issues facing physicians, they are generally "expert at marketing to physicians."
Physicians do face some unique challenges, most notably related to their extensive education requirements. These include high debt and getting a later start on their careers. However, most of the topics covered in the book are directly applicable to any high earning professional.
If you are a physician reading this review, The White Coat Investor provides an excellent step-by-step guide through every phase of your financial life from choosing the right medical school and area of practice, learning to save, grow and protect your money, retirement planning, and estate planning.
It fills the information gap that is missing in professional education programs that teach skills to make money, but rarely even touch on what to do with money once you have it. To spend the amount of time and money required to become a physician and not spend the time and money to purchase and read this concise book would be the ultimate example of being penny-wise and pound-foolish.
For non-physician professionals, this is still a useful book packed with important and applicable information. However, you’ll have to skim through a few chapters that have little relevance for non-physicians. It also will require scaling some of the information to your needs that are likely to be somewhat different from those of the average doctor.