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YFP 133: Your Financial Toolkit for a Successful 2020

Posted on by yfpadmin


Your Financial Toolkit for a Successful 2020

On the first episode of the New Year, Tim Ulbrich talks about 5 ways you can accelerate your financial plan in 2020. This episode is full of resources you can use to put these ideas into action.

Summary

Tim Ulbrich shares five tangible ways you can crush 2020 in this week’s episode.

1. Get Clearer on the So What

Getting clearer on the “so what” pushes you to dig deeper into finding your why. Why are you focusing on your financial plan or financial goals for 2020? Is it because you are wanting to create flexibility in your job or time? Are you wanting to radically give? Are you hoping to have more control or choice in your life?

2. Build or Modify the Road Map to Achieve Your Goals

When you are clear on your purpose, it’s time to put your plan in place. Without a monthly plan, it’s easy to find yourself in a position where your financial plan is happening to you rather than the other way around. Creating a plan and executing your budget are key.

3. Get a Side Hustle off the Ground

Having a side hustle isn’t only a way to bring in additional income to accelerate your financial goals, but it also allows you to fill the creative expression you might be craving. Plus, it can also satisfy that entrepreneurial itch you may have! If you have an idea in place, what barriers are you facing on taking it to the next level? If you don’t have any ideas on what your side hustle could be, what’s one next step you can take to figure it out?

4. Set One Stretch Goal for 2020

A stretch goal is one that seems out of reach, but you’d absolutely love it if you could achieve it. These types of goals allow you to think beyond what’s possible. Set one big, audacious stretch goal for 2020 and focus on visualizing it into action.

5. Get a Coach

The value of a financial planner isn’t in choosing the right investments or allowing you to have the best return as you can ultimately learn anything online now. Instead, a financial planner carries the most value as being your accountability partner and coach. They help to see the bigger picture of what you’re wanting to achieve and help get you there.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Tim Ulbrich here, and excited to turn the page on the new year and a new decade. Wow, hard to believe here we are at the start of 2020. Now, I don’t know about you, but I’m over the whole 20/20 vision thing. That seems to be trending over the past several years leading up to this year. So I’m going to spare you any of the cheesy references to having 20/20 vision or having a clear vision for the future. But we are going to talk about five tangible ways that you can crush 2020 and accelerate your financial plan. Now, many of these things we have talked about before on the show. However, I don’t know about you, but I know for me, sometimes it’s helpful to hear things more than once or presented in a different way. As I mentioned in the introduction, we have an awesome giveaway to go along with this episode to kick off the new year the right way. And for me and my financial plan, finding great resources and tools has been a big part of the success and of the learning along the way. So again, this giveaway includes five winners. We’re giving away for each of those winners a one-year YNAB subscription, a copy of “Your Best Year Ever” by Michael Hyatt, and a copy of “100 Side Hustles” by Chris Guillebeau. So if you’re interested in that awesome giveaway, head on over to YourFinancialPharmacist.com/giveaway, and you can enter to have a chance to win.

OK, in somewhat of a rapid-fire format, I’m going to walk through these five things, five steps that I think you can take sooner rather than later to make 2020 an awesome year and accelerate your financial plan. So let’s jump right in.

No. 1, get clear on the so what. No. 1 here, get clear on the so what. So you’ve likely heard us talk about before several times on the show about finding your financial why. And that is exactly what we are talking about here in point No. 1. Why does this topic of money even matter to you? It sounds like such a simple question. But if you have thought about this in depth before, you know it is not that simple. This is really the “So what?” question. So before we get too deep into the x’s and o’s of whether it’s budgeting or paying off debt, loan repayment strategies, how to save for the future and think about asset allocation, nerding out about compound growth and real estate investing, all of these different things, this question is “So what?” Why does this even matter? When we talk about financial freedom, why does financial freedom matter? What does this mean to you? What is the ultimate goal of achieving this path?

So to give you an idea of a few things that you may have heard myself, Tim Baker, Tim Church or other guests on the show talk about when it comes to finding your financial why or really answering this question of “So what?,” it’s things that we have heard before like to have flexibility over how you’re spending time or even how you’re spending your money, to be in a position of control, to be in a position of choice, to be able to achieve goals around giving, or to be able to radically give, to put yourself in a position to leave a legacy, to travel and see the world without worry or stress or regret. Maybe it’s to start a business or a movement or a foundation or a charity. So these are some ideas of the bigger the vision in terms of the “So what?” question that we talk so often about on the show. So yeah, we can do a nest egg calculation and figure out how much you need to get to the point of retirement or we can talk about how to aggressively pay off $150,000 or $200,000 of student loan debt. We can talk about how to set up a budget and exactly what a zero-based budget looks like. But what is the ultimate goal of doing this? And that is exactly what we’re talking about here in point No. 1 of getting clear on the “So what?”

So my question here for you today as we roll the calendar into 2020 is what is your financial why? What is your “So what?” And how do you get to the point of defining this if you haven’t yet done this? And so to help you get to that point, I’d recommend if you haven’t already listened to episodes 032 and 033, Tim Baker talks with Jess and I about this concept of finding your financial why. So again, that’s episodes 032 and 033 of which we’ll link to in the show notes. I would also recommend — again, we’ll link in the show notes — there are three life planning questions that we’ve referenced before on this show. These are really big questions, big philosophical questions that are designed to help you answer this question of this “So what?,” finding your financial why. So we’ll link to those questions, the article about those questions, that you can spend some time answering those.

And so my request for you here today, as we enter this new year, which is an opportunity to really set a new path forward, is to put your “So what?” or put your why on paper, say it out loud, and share it with those closest to you. And then revisit this often. So again, I know it’s so easy to want to jump into the specifics of what’s in front of you right now, whether that’s the budget, whether that’s making that next payment, whatever it would be. But really taking a few moments to take a step back if you have not done this before, and to put down on paper your “So what?,” your why, say it out loud, share it with those closest to you, and revisit that often. So that’s No. 1 here, getting clear on the “So what?”

No. 2, build or modify the road map to achieve your goals. Build or modify the road map to achieve your goals. So once you get clear on the purpose, the “So what?” or the why, it’s time to put a monthly plan in place that will simply be the execution plan to see that your goals and vision become a reality. And that’s essentially the budget, the spending plan, and that’s how I like to think of the budget. It’s not necessarily overly complicated, overwhelming, restrictive, do I have to? type of activity, but rather it’s the execution plan of your goals. And we all know how months and at times, years, can fly by. I’m certainly feeling that lately with four young children. And without a monthly road map, without a monthly plan, without a monthly budget, it’s easy to find yourself in a position where your financial plan is happening to you rather than you dictating and directing what your plan is. You know, and credit here to Tim Baker. He does such a great job of this when he’s doing financial planning with clients — and I know I can speak to this firsthand with the planning he has done with Jess and I — one of the very first activities we did is that “So what?,” that why activity and really identifying what’s most important to us. And if we fast forward five or 10 years, you know, what should be happening that we would say, “You know what, things are going well, things are a success when it comes to making sure that we’re spending our money in the places that matter the most to us.” And then we really get into the spending plan and the budget. But he often then comes back to say, “OK, here’s where you’re spending the money. Here’s the budget. But here was the ‘So what?,’ the why we talked about. And does this picture, does this vision, align?” And often what we see is that again, it’s easy that time goes by quickly, it’s easy to get caught up in the month-to-month and sure enough, soon we find ourself in a different direction where the spending plan isn’t necessarily aligned with the vision and the goals. And I think that’s really one of the many values of having a coach in your corner to keep you on track.

So for those of you looking to either start, restart, reinvigorate, refresh your budget, I would encourage you to check out a few different resources: Episode 028 of this podcast, we talked about a budget, just actually I think two years ago. It was called “New Year, New Budget.” We also have a great article that walks you step-by-step, including a budget template that you can download. And that article is “Five Steps to Creating Your Best Budget.” We’ll link to that in the show notes. And then as a next step, as a follow-up once you get that budget template in place, in Episode 057, we talked extensively about how you automate your financial plan. So once you have that plan set, then how do you make sure that is happening each and every month and ultimately getting your own self out of the way so you can ensure success with that plan you set.

So you know, some resources here, obviously we’re highlighting one in our giveaway, and that’s the You Need a Budget software, relatively inexpensive. So whether it’s You Need a Budget, whether it’s another paid budgeting service like Envelopes, there’s certainly several others that are out there or maybe it’s a free tool like Mint.com, maybe it’s an old school spreadsheet that you do this manually, whatever the resource would be, it’s about finding a system that works for you. And so I would encourage you to check out our budget template, YourFinancialPharmacist.com/budget, you can download for free a zero-based budgeting template. And then that will help you get started. And then you can automate that into whatever tool works best for you. I would also point out — and credit here goes to Tim Church — we recently released a great tool that is essentially a financial checkup, financial assessment to see how you’re doing overall with your personal financial plan. So if you go to YourFinancialPharmacist.com, you’ll see that there on the main page. You can go through a series of some quick questions. Tim Church has done a great job of making that easy, quick, he’s put some humor in there. And then essentially, that will help you identify what are the areas that need the most attention when it comes to your financial plan. So if you’re trying to think about does my budget really reflect the areas that I need to be thinking about that may need the most attention, that tool will really help get you there. So again, if you go to YourFinancialPharmacist.com, you’ll see there that we have a tool — and we’ll link to it in the show notes as well — that will help you essentially do your financial fitness test is what we’re referring to.

OK, so that’s No. 2. And that is No. 2, build or modify the road map to achieve your goals.

No. 3 is get a side hustle off the ground. And again, that’s a book here that we’re highlighting as a resource and a giveaway. So yes, yes, the side hustle is by far one of the trendiest movements of the last decade or so and certainly something that we’ve been talking about extensively over the past couple years. So if you’ve been a part of our community for awhile, whether it’s on the podcast, in the blogs, in the Facebook group, you’ve probably heard us talk about side hustles and you know that we have a love for side hustles. And we think that for many, side hustles are a way to not only bring in additional income so that you can accelerate your financial goals and achieving those goals but also allows you to have a creative expression and allows you to work on something that is a passion of yours beyond the traditional 9-5 type of work. And so I think for many, I know this is true for myself, this can really satisfy the entrepreneurial itch that you might have but also can help you achieve your financial goals even faster. And we’ve got some great stories, people in this community that we’ve featured on the podcast, that people have started part-time side hustles and ultimately have turned those into full-time gigs, people that are continuing to do part-time gigs while they’re working full-time and is just something that they really love, but they’ve used it as a way to generate additional income. So I’d love to see when pharmacists are able to leverage the expertise and passion they have in their field and fill the needs that they’re seeing and their patience with the creation of a side hustle as well.

So a couple resources I would mention here. Episode 063 of the podcast — again, we’ll link to these in the show notes — we did an introduction to the side hustle series. Again, Tim Church did this, has done a great job with this. Episode 126, recently published, Brittany Hoffman-Eubanks is a great example. That episode is called “Going Beyond Six Figures Through Medical Writing,” has done a great job of really starting and scaling a side hustle business. And then recently, Eric Christianson came on the show, creator of Med Ed 101, in Episode 131 to talk about the secrets to building a successful side hustle. I would also obviously point you to the resource we have highlighted in our giveaway, “100 Side Hustles: Unexpected Ideas for Making Extra Money Without Quitting Your Day Job,” and that’s by Chris Guillebeau.

So my call to action here for you, my hopefully motivation to get you going in this area if this is something that you’ve thought about. For those that have already have a side hustle in place, you know, have you validated the idea and the business need? And if so, what’s the game plan to grow it? So maybe some of you have started something and for whatever reason, it stayed status quo and you feel like it’s been a good idea but you’re in somewhat of an autopilot mode. Have you validated the idea and the need for that business or that side hustle? If not, what’s the game plan to validate that? How could you do that? And if you have done that, what’s keeping you back from growing that? And what’s the game plan to really grow and scale that? Now, for those that have an idea but have not started the side hustle, what is holding you back? That’s really the question I want you to reflect upon. Have you identified whatever that barrier may be? And what will it take to knock down that barrier? Maybe it’s even multiple barriers that are in place. And who is going to keep you accountable to moving forward? So I think I felt this when I started Your Financial Pharmacist back in 2015. I know at first when you have an idea, you tend to want to keep it quiet and you’re not sure if it’s going to work and you’re not sure what other people will think. But I think there’s real value in talking it out loud with people that you trust and respect their perspective that not only can help you think through the idea but also can help you keep you accountable moving forward to get that off the ground, encourage you, and even to challenge you in a positive way. And I think that ultimately will make your idea and your side hustle or business even better.

Now, for those that maybe don’t even have an idea or maybe are thinking through this at a very early state, you know, my challenge to you would be is what’s the game plan to learn more? What’s the next step you can take to be able to be one step closer in this first part of 2020 to getting something off the ground. So you know, what are you listening to and reading to that can help stimulate more ideas? Who will you reach out to this year that has done this well to pick their brain and learn more? And so I think with side hustles, again, we featured several stories already on the show and we have more planned for 2020. I think it’s helpful to hear others’ stories, even it’s not directly related to whatever idea or interest you may have yourself. So if you’re just in the early stages of this, the challenge really is what are you listening to, what are you reading, what can you be reading or listening to? And who will you reach out to that you can pick their brain and get some additional insights and information? So that’s No. 3, hopefully get a side hustle off the ground or take some steps to be in that direction.

No. 4 is set one stretch goal for 2020. Now, you’ve likely heard of this concept of a stretch goal before. But if not, the idea is setting a goal that seems perhaps out of reach, maybe too audacious, too unrealistic, despite it being something that if you were to achieve, you would say, “Heck yes, that was awesome.” So the idea is that setting a stretch goal allows you to begin to think beyond what you believe is possible and really starts to help you visualize what it would take to knock down those self-limiting beliefs that often hold us back from our true potential. And of course, the power of setting a goal and visualizing a goal then becomes the increased likelihood of achieving that goal. And for those of you that have set goals and visualized goals, you know exactly what I’m talking about. You might them on paper, and you look at them at first, and you say, “That’s bold. I’m not sure how I’m going to get there. And then you start thinking about them, more and more you visualize them, you relook at them, maybe it’s daily or weekly. And all of a sudden, you’re beginning to just train your mind to say, this went from a “I hope” to “How will I get this goal achieved?”

So now, we obviously know that there’s a time and place for setting realistic goals. After all, if we set a bunch of goals that we didn’t achieve, we would likely get pretty frustrated pretty fast. We’d get defeated, and we might move on from this whole goal-setting thing. So here we are talking about one additional bold, audacious goal in addition to the other goals that you have planned for 2020. So of course we want those realistic goals, you know, those goals that we look at our budget, we look at our numbers, we look at our direction of our net worth and our plan and say, “OK. We think we’re going to be able to achieve those.” But here, we’re talking about one additional bold, audacious goal. So maybe it’s something like paying off an extra $10,000 on your debt this year beyond what you think is possible when you look at the numbers. Maybe it’s buying your first real estate investment property, despite not knowing a whole lot about what’s involved and where the cash will come from. Perhaps it’s maxing out your 401k or 403b contributions in 2020, $19,500, although you thought you’d be only able to contribute up to whatever your employer match provides. Maybe it’s giving 10% or 20% or 30% of your income to something that you care about, despite looking at the current numbers and saying, “How am I going to do that?” Or perhaps it’s taking a bold step to start your own business, despite your fears of, you know, what if this fails? Or what will others think? Or I don’t consider myself to be a business-savvy person, so why even bother?

So again, I think there’s lots of resources out there that can help in this direction. And one that I would point to that really has had a profound impact in my life is the book “Miracle Morning” by Hal Alrod. And whether you’re a morning person or not, this idea of establishing a daily routine that includes things like setting goals and visualizing those goals, that includes things like reflecting on your day and gratitude and having a place for silence or meditation or prayer, having a routine and a plan in place, especially at a time when you have potentially a busy professional and personal life is incredibly important when it comes to this topic of setting big goals and achieving those goals. And I would recommend that resource, it’s a quick read, it’s a great system you can implement, “Miracle Morning” by Hal Alrod.

So my challenge to you here is to set one big, audacious goal for 2020. So for Jess and I, our big goal for 2020 is to buy four more rental properties this year. Now, I don’t know exactly how we’re going to get there. We were able to achieve our initial goal in 2019 of getting one property, thanks to the help of many others that were able to wrap around their expertise and really provide us with their time and their wisdom and help us get there. We wouldn’t have gotten there alone. So four is a big stretch goal. I really don’t know exactly how we’re going to get there, but we need to be thinking about it. We know this is a goal for our family for a variety of reasons. And so we initially talked about two, and we decided the stretch goal for 2020 is going to be four. So we’ll see where it goes, and that’s the big goal that we have for 2020. So No. 4 again here, we’re talking about setting one big stretch goal for 2020.

Now No. 5 is get a coach. And I think it’s fitting here that we have this as No. 5 because in order to do all the things that we’ve talked about, these are big things we’re talking about for 2020 when we talk about Nos. 1-5, getting clear on your “So what?” or your why; building or modifying your monthly plan to get there, obviously that’s the budget piece we talked about; getting a side hustle off the ground; and setting a big, audacious goal for 2020. We can see here in No. 5 why a coach could be so valuable. And what we really see when it comes to coaching as it relates to personal finance is that the evidence is getting more and more clear that a financial planner, a financial advisor, a financial coach, their value really is not to help you choose the right investments or to get the best returns because ultimately, we live in a world here in 2020 where you can pretty much learn anything that you want. And what the evidence is really showing, specific even to investing, is that the more passive you are in that process, typically the better the returns that you will have. So a financial planner, in my opinion — and we offer financial planning, so this obviously is front and center for us — it’s not about hiring a financial planner like us to be able to say, “OK, we’re going to outperform the market,” or “We’re going to help you choose the best investments that are going to beat another financial planner.” Now, we obviously want to have success in that area, and we’re going to help you fine-tune your investments, but that’s just one part of the financial plan. And when you think about this bigger picture, the why, the “So what?,” the budget, all the goals that are swirling around, a financial planner and the value of a financial planner is really having an accountability partner and a coach in the process that can help you prioritize and achieve all of these different goals that are out there.

And I can speak firsthand that the power of this and working with Tim, as Jess and I have worked with him over the past couple years. Now, this also reminds me of Episode 124, where we talked with Dr. Daniel Crosby, the author of “The Behavioral Investor,” somebody who studies behavioral psychology for a living. And really what I took away from his book and his interview is that at the end of the day, the two most important things that you can do when it comes to your financial plan is to automate your financial plan, which we talk about extensively on Episode 057, and to hire a coach to help ensure that No. 1 barrier, which is often yourself, isn’t getting in the way of having success with your financial plan. Automation and a coach. And that has exactly been my experience as I reflect back on the past several years. Automating our financial plan and having a coach has helped us to achieve our financial goals.

Other episodes that I would highlight here that you could get additional information, episodes 015, 016, and 017, Tim Baker and I did an entire series on financial planning and the different types of planners that are out there, questions to ask financial planners, how they get paid. In Episode 054, we talked about the importance of fee-only and fiduciary and why that matters. And in Episode 055, we talked about why you should care how a financial plan charges. We also have a great resource if this is something you’ve been thinking about, here we are at the turn of the new year, not a better time to make this decision, to make this a priority in 2020. We have a guide we have created, which is nuts and bolts to hiring a financial planner. And you can get more information and download that guide for free at YourFinancialPharmacist.com/nutsandbolts. And if you are somebody listening today that is ready to take this step or ready to learn more to say, is this the right fit for me? Please head on over to YFPPlanning.com, again, that’s YFPPlanning.com, and you can schedule a free discovery call with Tim Baker where you can talk out loud what our services look like, talk more about your specific financial plan, and determine whether or not it’s a good fit for you going forward. And again, that’s a free discovery call. And you can get that going at YFPPlanning.com.

So before we wrap up today’s episode, I want to remind you again about the giveaway that we’re doing for this month. We’re giving away five winners each a one-year YNAB subscription, a copy of “Your Best Year Ever” by Michael Hyatt, and a copy of “100 Side Hustles” by Chris Guillebeau. You can go to YourFinancialPharmacist.com/giveaway to enter that today.

So here we are in 2020. We’ve got a fresh start ahead for this new year. And I hope you will consider these five things that we talked about as a way to have a successful 2020. And of course here, with these five or others that you think about, it’s all about being intentional with your financial plan, all about dictating your financial plan rather than letting that financial situation happen to you. And so I think it’s important to look back on 2019, to look at the trends, to look at the successes, maybe look at the challenges or failures as well. But looking back, while that is important, I don’t think we want to dwell too much on 2019. We need to look ahead to 2020 and say, “What did we learn? What went well? What can we replicate? What can we do a little bit differently? And what’s the game plan going forward for this year so that at the end of 2020, we will look back and be able to say, ‘Job well done?’”

So I hope you have a great rest of your week. Thank you so much for joining me on this week’s episode of the Your Financial Pharmacist podcast. And as always, if you like what you heard on this week’s episode and you have not done so already, please take some time to leave us a rating and review in iTunes. We’d greatly appreciate that as that will help others find our show. Have a great rest of your week.

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YFP 124: The Behavioral Investor with Dr. Daniel Crosby

Posted on by yfpadmin


The Behavioral Investor with Dr. Daniel Crosby

Dr. Daniel Crosby, New York Times best selling author, joins Tim Ulbrich to discuss his most recent work The Behavioral Investor. As both a psychologist and asset manager, Dr. Crosby provides a fascinating look into the sociological, neurological and psychological factors that influence our investment decisions and provides solutions for how to improve our behavior to be more likely to succeed with our long-term investing plan.

About Today’s Guest

Educated at Brigham Young and Emory Universities, Dr. Daniel Crosby is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. Dr. Crosby co-authored a New York Times Best-Selling book titled Personal Benchmark: Integrating Behavioral Finance and Investment Management and is the author of The Laws of Wealth. His most recent work is The Behavioral Investor.

He also constructed the “Irrationality Index,” a sentiment measure that gauges greed and fear in the marketplace from month to month. His ideas have appeared in the Huffington Post and Risk Management Magazine, as well as his monthly columns for WealthManagement.com and Investment News. Daniel was named one of the “12 Thinkers to Watch” by Monster.com and a “Financial Blogger You Should Be Reading” by AARP. When he is not consulting around market psychology, Daniel enjoys independent films, fanatically following St. Louis Cardinals baseball, and spending time with his wife and two children.

Summary

Dr. Daniel Crosby was ready to fully walk in the footsteps of his father and become a financial advisor. During a two year mission trip with his church during college, Daniel became fascinated with human behavior and decided he wanted to study psychology. Toward the end of his doctorate program, he was burned out on clinical psychology work and didn’t know if he was able to do that work full-time. He got a job assessing bankers before they were hired and his passion for behavioral finance was born.

Daniel shares that his new book, The Behavioral Investor, is written more for professionals where The Laws of Wealth is intended more for a mass audience. At conference Daniel attended, he heard people repeatedly sharing ideas that weren’t founded in science. This drove him to research behavioral finance to determine what was true and what he believed.

In this episode, Daniel discusses several aspects of behavioral finance and the research behind them. For example, Daniel shares that research shows that intelligent people can’t avoid behavioral bias. He says that we’re just smart enough to present a credible case to ourselves and that there is a negative correlation between intellect and the ability to navigate financial decisions.

Dr. Crosby also discusses why he has a financial advisor manage his money. He says that even though he likely knows more about markets than his advisor, his biggest impediment to managing his own money is that he gets anxious and freaks out. Having an advisor puts someone else in control and pushes him out of the way.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. We have a special guest for you, New York Times and USA Today bestselling author, Dr. Daniel Crosby. He was educated at Brigham Young and Emory universities as a psychologist, behavioral finance expert, and asset manager, who applies his study of market psychology to everything from financial product design to security selection. He’s the coauthor of the New York Times bestseller, “Personal Benchmark: Integrating behavioral finance in investment management,” “The Laws of Wealth” — one of my personal favorites — and his most recent work, which we will discuss on today’s show, “The Behavioral Investor.” He is the Chief Behavior Officer and Brinker Capital. His ideas have appeared in the Huffington Post and Risk Management magazine as well as his monthly column for WealthManagement.com and Investment News. He was named one of the ‘12 Thinkers to Watch’ by Monster.com, ‘A Financial Blogger You Should Be Reading’ by AARP, and named the ‘Top 40 Under 40’ by Investment News. When he’s not consulting around market psychology, he enjoys independent films, fanatically following the St. Louis Cardinals baseball team, and spending time with his wife and three children. Daniel, welcome to the show.

Daniel Crosby: Thank you. Great to be here.

Tim Ulbrich: On the Your Financial Pharmacist podcast, we preach the importance of behavior when it comes to managing money, and your work in “The Behavioral Investor,” “The Laws of Wealth,” and your other work so eloquently includes rich research, stories, case studies and cultural references that we can all relate to that make a topic interesting and applicable that, let’s be honest, has a tendency to be quite dry. So before we get into the weeds and talk about behavioral investing, before we get into the nerdy financial conversation, I need to know, how did you find yourself at the crossroads of psychology and personal finance? How does one get interested and make a career of this?

Daniel Crosby: Well, it’s interesting because I entered college, my dad is still a financial advisor, and so I entered college with probably a limited range of options just sort of parroting what my dad had done. And I said, ‘Oh, well, I’m going to be a financial advisor like my dad,’ just saw that that was a good life and indeed it is good work and a good life. But then after my first year of college, I went on a two-year mission for my church and there, I got a chance to interact with people, I got to do a lot of service and things of that nature and just became fascinated by the human condition, the human struggle and sort of came back with this added emphasis on psychology. And I said, ‘Nope, this is what I want to do now. I want to study psychology.’ Well, I finished my bachelor’s, began my PhD three days after I finished my bachelor’s. So it was the ripe old age of 23 when I started my PhD. And towards the end of my PhD program, I was candidly just burning out on doing clinical work because my PhD is in clinical psychology. And so I said, ‘Look, I love psychology, I love thinking deeply about why people do the things that they do, but I don’t know that I’m cut out for 45 hours a week of hearing about people’s most tragic life events and their hardest days.’ And so long story short, found my way back to this original love of finance and got a job out of college assessing bankers pre-hire. So before a bank would hire an executive, they’d bring me in to give them an IQ test and a personality test. And there in the bank, I sort of discovered behavioral economics and behavioral finance in earnest.

Tim Ulbrich: So at the very beginning of the book, Daniel, you mention that the aim of writing this book is to be the most comprehensive guide to the psychology of asset management that’s ever been written. And I think you did a fantastic job of that, but as I read “The Laws of Wealth,” I really enjoyed that work. What inspired you to build upon that that you felt the need to come out with additional research and work that you have here in “The Behavioral Investor?”

Daniel Crosby: Well, you know, for me, it was really two things. “The Laws of Wealth is written more for a mass audience, a retail audience, mom and pop investors. “The Behavioral Investor” is probably better suited for professionals or people with a little bit of background. So there was a bit of an audience shift. But a secondary and perhaps tertiary consideration were I would find myself at conferences with other professionals, other people who were in this kind of world of emotion and finance, and I would hear them sharing ideas that I didn’t think were founded in science, that didn’t sound quite right to me. So there was one conference in particular where I was just sort of frustrated with what was being shared. And I felt like it wasn’t quite right but that I didn’t have the resources at my disposal to rebut what was being said. And so basically, a lot of it was just for me to figure out what I believed. You have a duty — if you’re going to make your living by going around and talking about these things to people, I feel like you have a duty and a responsibility to be better versed than anyone else in these sort of things, and so a lot of the reason why I write is simply to figure out what I believe myself and to teach myself what to think and what to share with others.

Tim Ulbrich: And I think so much of personal finance can quickly become opinion or OK, what did my friend do or what did somebody else or what are others doing? What’s out there in the news? And I think for pharmacists, we are trained, it’s drilled into us to think about evidence-based medicine, and I like so much of what you’ve done here in presenting the research and really putting I think a lot of rigor in depth behind some of the financial principles that will be sound in terms of helping one’s financial plan. So you break the book into four parts, and in part one, you investigate the sociological and neurological and physiological barriers to making sound investment decision-making. And early on in the book, you state, “Humans who are capable of much greater complexity of thought are accordingly capable of much greater self-deception and irrationality.” And you go on to say that there are social norms that define us and that “trusting in commonness and what makes one human but learning not to is what will make you a successful investor.” Tell us more by what you mean by this.

Daniel Crosby: Yeah, so starting with that first point, you know, when we become aware of our tendency to be biased or our tendency to make cognitive errors, a lot of folks and perhaps maybe smart folks like the ones that listen to this podcast go, ‘Oh, well, that pertains to other people but not me because I’m a pharmacist, I’m a doctor, and this is sort of a Joe Six-Pack problem, but it’s not my problem because I’m smarter, I’m better.’ But the research actually shows that there’s a negative correlation between intellect and your ability to successfully navigate some of these things because oftentimes, we’re just smart enough to fool ourselves. Like we’re just smart enough to present a credible case to ourselves that what we’re doing is not, in fact, wrongheaded or biased. And so there’s a couple of things at play: One is that smarts can actually be your own worst enemy in the way that I’ve just said. But in “The Laws of Wealth,” I cited research that shows that people lose 13% of their IQ, basically their cognitive processing power, when they’re in a period of financial stress. And so even for parts of navigating your financial life where smarts are of us, we have least access to them when we actually need them most. So it’s sort of a double-edged sword, but you can’t really think your way out of this one. And it’s a case of what got you there won’t get you to where you want to go. And a lot of people misapply their smarts in this area.

Tim Ulbrich: And I think that makes so much sense. I think any of us can think back to personal financial decisions we’ve made and I think especially as you reflect back — I mean, sometimes in the moment but I think more so reflecting back — where you look at a decision you made and it’s like, what was I thinking? You know, in that moment of time, what was going on? And I think it really speaks to the power of the emotions that can take over some rational thought and as we’ll talk about later in the show, the power of having a plan and putting that plan on automation to really help yourself get out of the way to ensure that your plan can see through to success. Daniel, one of the things I really took away from your book is that while it may seem counterintuitive, you mention that a large body of research suggests that investors profit most when they do the least, you know, really building on what we had just talked about here a couple moments ago. So my question here is, why do we have a tendency towards action? And why can this tendency hurt us when it comes to investing and saving for things like the future in terms of retirement?

Daniel Crosby: Well, one of the hallmarks, one of the key takeaways of “Behavioral Investor” is this idea that things that have served us well evolutionarily or things that have served us well in other parts of our lives serve us poorly when it comes to the investing domain, in particular. And so this action bias, as it’s called, is a great example of this. You know, in many parts of your life, quite intuitively more action does lead to greater results. You know, if you want to get more fit, then you should lift more weights. If you want to get smarter, you should read more books. Taking action does indeed bring about results. But in financial markets, the reverse tends to be true. Myers Statten looked at 19 different countries and found that in every single country that he studied, the more active people were in markets, the more they traded, effectively, the worse they did. And that was a monotonic stepwise relationship. For every extra action you took, you did slightly worse both net of and gross of fees, and so it’s a weird thing to think just about anywhere else, if you want more good stuff, you should do more. But in this world, doing less tends to get you more.

Tim Ulbrich: Yeah, and I think we’ll talk more about automation as well, but I think this really gets to the point of when you can be aware of the potential negative effects of having an action bias or action type of mindset, I think there’s a tendency when it comes to our investments, our finances, to be wanting to check accounts. And certainly if those are reading the news or getting additional information, make quick decisions. And really, again, automation, take a step back, have a plan, have a coach, and really looking at putting that plan on automatic to get yourself out of the way. One of the things that I left with was in Chapter 2, which was titled “Investing on the Brain,” you summarize this study where the brain activity of individuals was measured, and they were making a series of choices that were either immediate or delayed monetary rewards. And I found this part really interesting and so applicable to how we handle our long-term investing strategy, this idea between rewards that are immediate or rewards that are delayed into the future. Can you talk more about what researchers found in this work and what the implications are when it comes to investing, especially investing for the long term?

Daniel Crosby: So what the study found was that when people were presented with a short-term reward, there was a flood of dopamine, which is sort of a neurological reward, if you will, but that no such dopamine rush was present when it was a longer term reward setup. So the key psychological concept here is salience, right? It’s how real, how vivid, how present to the mind, that reward seems. And so research has shown that when people are making long-term plans, what they have to do is make the long-term more salient. So to explain, like what’s happening to me right now is enormously salient because, you know, if I eat a donut or if I go on a walk or do any other pleasurable thing, I’m rewarded in real time. But something like saving for 80-year-old Daniel’s retirement is much more abstract, much more ethereal, much less salient. And so what we have to do is make the future seem more real. And so you see this in studies where people have actually aged their faces, there have been studies where people have shown you what you might look like when you’re 80 years old, and then ask you, do you want to save money now for retirement? And people save at a bigger rate when they imagine themselves vividly older than they are today. So with your planner, with your spouse, with whoever, we need to be having conversations about the future that make that future — if not just as real, much more real than it currently is because that’s going to entice us to do the sort of saving and preparing that we need to do.

Tim Ulbrich: And I think in your example in the book, I think long-term retirement savings, if we think about a traditional retirement model, you work for 40 years, you’re 70, 75, 80, whatever, you know, I think that one’s probably the most obvious in terms of OK, that’s so far off, and I have all these needs that are here today of which — and expenses that can happen, of course. But if I go to spend money today on a vacation or spend money on a home today or spend money on a car today, that’s an immediate reward. And that’s what you talked about in terms of the dopamine pathway being activated versus Tim or Daniel, 40 years from now, it’s a much harder goal to really see the urgency around. So I think that’s an obvious one. You know, one that I’ve personally experienced that maybe isn’t as obvious in a little bit shorter term is even something like savings for kids’ college. So I have four boys, my oldest is 8. And I can remember, I mean, it seems like just yesterday he was a newborn and we were talking about savings for college. And here we are at 8 and lots of needs have really been put ahead of saving for college for a variety of reasons. So while that isn’t necessarily a 40- or 50-year trajectory, it’s more of an 18-year trajectory, I still that gets to the point that you made well in the book of needs that you have today and really being able to work with a coach and a planner to help take those future needs and really making them as real as possible today to prioritize the savings for those. One of the concepts — and you link this well to the idea of keeping up with the Joneses — is you talk in this section of the book that we just referenced, “Investing on the Brain,” about anticipating a reward is deeply satisfying, whereas literally receiving the reward is far less gratifying. And I want to say that again because I think that’s a really interesting concept. “Anticipating a reward is deeply satisfying whereas literally receiving the reward is far less gratifying.” And again, you go on to make the connection here of how we easily can feel dissatisfied in the work and the money that we earn, how you kind of keep pushing that forward and that obviously leads to the concept of keeping up with the Joneses, feeling like you need more and more and more and it’s never enough. So my question here, Daniel, is is there a point where there is enough? How much is enough? And can money buy happiness? Is there a point where wealth can really produce happiness? That’s a question we all often hear and think about.

Daniel Crosby: Yeah, so I wanted to talk about why anticipation is more pleasant than the reward itself, and then I’ll move onto the happiness question. So there’s something in psychology called “focalism,” which is when we imagine a future event, we imagine sort of one dimension of it. We focus on one particular thing. And so if you’re imagining a trip to Hawaii, you focus on laying on the beach with a pina colada in your hand and not getting up at 4 o’clock to make your flight and getting stuck in traffic and everything that it takes to get there because even for something immensely pleasurable, there’s still some element of hassle and negativity associated with it. And we tend not to focus on that. So that is part of why preparing for an event, a vacation, a gift, whatever, is more pleasurable than the event itself. You know, I think about we bought our dream home a couple of years ago. And you know, looking on Zillow and dreaming about all the things we would do there and everything was a lot of fun, but cleaning all of the toilets in a big house is a lot less fun. And so this focalism leads us to sort of one-dimensional appraisals of things, and that is the way that it is. In terms of the literature on money and happiness, it’s really quite fascinating. So in a phrase, money is better at buying the absence of misery than it is at buying happiness. So money can make you not sad. Like people with adequate resources are happier or less sad than people with inadequate resources, and that increases exponentially up to about $75,000 or $80,000, up to about sort of a middle-class income. But after that, it plateaus very quickly because what money is good at doing is having you not worry about living in a safe neighborhood, not worrying about keeping shoes on your kids’ feet, not worrying about keeping food on the table. But once you’ve sort of provided for that lowest rung of Maslow’s Pyramid there, it gets much trickier after that. And after that point, money can buy happiness if you spend it on certain things. And so the things that money can buy happiness is if you spend it on time with others, like a vacation or time with others, if you give it away, so if you’re charitable, and if you buy yourself out of things that you hate doing. So like getting a maid or getting someone to cut your yard or whatever you hate doing, if you can buy your way out of that. And that’s about it. So it provides sort of a worry-free baseline. And then after that, you have to get kind of particular about how you spend it because if you’re not spending it on time with people you love and if you’re not spending it on making your life a little easier, it just doesn’t do much, candidly.

Tim Ulbrich: That’s so rich. And I love how in the book, you talk about the concept, along with keeping up with the Joneses and eventually getting to this basic level of happiness which money can buy of being able to cover needs. You talk about the concept of living on the hedonic treadmill. And I think we can all relate to that where we buy something, and the anticipation of it was much greater than the reality of that or that feeling, that dopamine rush over time subsides. But when we think about investing in things like giving to others and being philanthropic or investing in convenience is what I just heard you say there, investing in time and experiences, I mean, those are the things that really produce that true joy and happiness. And I think that’s such rich information that we all can think about and reflect upon with our own financial plans. Beyond the minimum, beyond taking care of our needs, are we spending our money and investing our money in the things that matter most? Which the literature supports really does buy happiness and hopefully doing what we can to minimize buying things that we know will not produce that same level of happiness. So shifting focus here for a minute, I want to talk about loss aversion because I think that is real for so many listening to this podcast, especially myself, and thinking of those that were significantly impacted, either directly or indirectly, by the 2008 recession. Can you talk further about the concept of loss aversion and how this may have an impact on one’s long-term savings plan?

Daniel Crosby: Yeah, so loss aversion is the observation in the psychological literature that people are about 2.5 times as upset about a loss as they are excited about a comparably sized gain. So if you go to Vegas, and you lose $100, you’re upset. If you gain $100 bucks, you’re like, yeah, whatever, it doesn’t change my life. So this is sort of this asymmetrical relationship we have between how we perceive loss and gain. So of course, this leads people to do a number of things in markets, notably, to take too little risk. Now this can be exacerbated, depending on sort of where in your life you encountered the markets. So for me, I just turned 40 last week, and so I got out of school in 2008, I finished my PhD in 2008. And so the first thing I did is I got out of school, I got a job, started saving, started investing, and immediately ran into the buzzsaw of 2008 and early 2009. And so there’s something in psychology called this primacy and recency effect. So we have increased memory, right, we hang onto things that happen early in a sequence or late in a sequence. And so for people like me whose initial foray into investing was getting their money chewed up and spat out, it can be a very discouraging thing.

Tim Ulbrich: And I think, Daniel, so I’m on the exact opposite. I also finished my pharmacy degree in 2008, but I was doing residency in 2009, so when I just started investing, I’ve only been on the other side of this 10-year run in the positive. So I have yet to experience that loss. I really bought at probably about the lowest point, and so I think that leads me to be somewhat of overconfident in what the markets will do. And I think you do a good job in the book of when you’re thinking about risk, truly assessing risk not based on one experience or one moment in time but really looking at the historical risk. And I think on the other side of that when I think of my experience is that I shouldn’t necessarily look at this 10-year period, as I may have a tendency to do, and expect that that run is going to continue going forward. And so I think there’s — I could see this on both sides of it as well. And I hope our listeners will pick up a copy of the book because in “The Behavioral Investor,” you do a great job — and we’re only talking about a few of them here, obviously loss aversion being one — but you do a great job of distilling what you say is more than 117 different types of behavioral biases into four types of behavioral risk: ego, conservatism, attention, and emotion. And you walk through each one of those in detail, you give strategies to overcome, and so I hope our readers will get the book to look at more of those in detail. So I want to shift to the topic of automation. And I think — and you mention in the book — you could have really titled the book and distilled it down to three words: automation, automation, automation. And I find the irony in your book of there’s so much complex research and so much rich data and ultimately, it gets to this concept of less is more, automation, and have a coach. And so talk to us about the power of automation and how that helps combat some of these biases. And I’d also be interested in, you know, how have you successfully navigated automation, even in your own financial plan?

Daniel Crosby: Yeah, it’s a fascinating thing because people make the mistake of thinking that a complex, dynamic system like the stock market has to be met or solved with equal complexity. And you remember from your stats class that to avoid overfitting, when something is complex and dynamic and always in flux, really the way to not overfit by solving that problem is to approach it quite simply and with just a couple of rules. And you know, you’ve touched on a couple of mine, which are automate and work with a coach. And so automation is great because it actually takes a human tendency to be prone to the status quo, to be sort of lazy, and it locks it in for our benefit. So you know, being lazy can lead you to never start saving and investing, and that’s certainly problematic. But if you begin a robust program of investing and saving, and then you lock that in and you automate it, that same laziness can work to your benefit. So that’s sort of the magic of automation is it just locks in this human tendency to be conservative and be status quo-prone and uses it, flips it on its head and uses it for our benefit. The second piece I’ve written about quite a bit is that I work with a coach, like I pay a financial advisor. And I mean, at the risk of being arrogant here, I probably know more about financial markets than my financial advisor. And so why do I pay someone to manage my money, to hang onto my money when I perhaps know more than they do on paper? Well, the reason goes back to our conversation about education and IQ and these sorts of things. The biggest impediment to me reaching my financial goals is not inadequate knowledge of markets. The biggest impediment is me freaking out.

Tim Ulbrich: Yes.

Daniel Crosby: And so I understand that I’m no different than the next person. Like I can’t write enough books to make myself rational or calm or cool-headed. And I know myself. And I’m, in fact, quite not level-headed. I’m quite anxious, and I’m quite skittish. And markets — and look, let’s call it what it is, just in life general, nobody goes into psychology because they’re well-adjusted, right?

Tim Ulbrich: Right, right.

Daniel Crosby: So I know this about myself, and I build a wall to keep me out of my own way.

Tim Ulbrich: Yeah, and I think the self-awareness — I share that with you as well — I think the self-awareness of that and then taking the initiative to say, OK, I need that coach, I need that accountability, because I think as your book highlights so well, we’re just hardwired toward getting in our own way when it comes to being successful with investments. And so I think if we can acknowledge that, be aware of that, call it what it is, I think that really gives us the humility to say, OK, we probably need somebody in our corner to help us out with this plan. I would also point our listeners to, in addition to Daniel’s book, we talked about automation in detail on Episode 057 of the podcast if you want to check that out. And a book I’ve talked about before on this show is “I Will Teach You to Be Rich” by Rahmit Sedi. I think he does a really, really nice job of talking about the power of automation and giving some examples of what that could look like. And in his plan, he talks a lot about that upfront time investment to develop the plan or work with a coach to do that. But then after that, you’re really saving yourself time and I would argue saving yourself a lot of anxiety and stress when you know that you’re going to be really just overseeing the plan as it’s hopefully functioning and running itself and not having to really wonder, am I achieving this? Am I not achieving this? What’s going on with certain parts of the plan? I want to end by talking about passive investing versus active investing, two terms that many of our listeners are probably familiar with. But then a third approach that you talk about, which is a new approach called rule-based behavioral investing and why that may be even a better approach than passive investing, which I think many of our listeners would probably be in favor of. So can you briefly define passive and active for those that are not familiar with those terms when it comes to investing? And then outline what’s different about rule-based behavioral investing?
Daniel Crosby: Yeah, so passive investing in its purest form is saying, I don’t know what the market’s going to do in the future. So I’m going to own the entire market, effectively, to use the S&P 500 as a proxy for the entire market. Instead of trying to pick the winners and losers from these 500 largest companies in the U.S. economy, I’m just going to own them all and own them in the sizes that they are. So the bigger the company, the bigger a piece of my portfolio it will be. And I’m not going to try and pick winners and losers. Active investing would be trying to pick winners and losers from among those 500, again, just using this as a simplified proxy, we’re going to try and pick the top 50 stocks from among these 500, hold those 50 with the aim of beating that benchmark, as it were. And so like many things I think in our day and age, the conversation around active and passive I think has sort of devolved into hysterics and people just shouting at each other from the other side, the other bank of the river. And so I wanted to look at this and say, ‘You know, what works about passive investing? And what works with active investing? And let’s just do that. Like let’s just do what works.’ So when I looked at what works, it must be said that the reason there are so many passive enthusiasts is that it’s just worked very well and it’s very cheap, on average. So if you look at 10-year periods over the last 10 years, it’s something like 85% of passive vehicles have beaten their active brethren and at a fraction of the cost, so that’s very compelling stuff. But passive investing still falls prey to a couple of mistakes. You know one of them that is somewhat controversial is market cap waiting, which basically says the larger a company is, the larger the size of my portfolio it will constitute in a true passive portfolio. Well, there’s research to suggest that larger stocks underperform smaller stocks. So you might want to do something as simple as equal weight or broaden your universe. There’s also interesting research that I think not many people are aware of. If you look at something like the S&P 500, this is the Standard & Poor’s 500. You know, the Standard & Poor’s is a rating agency. This isn’t mined from the earth, right? Like this doesn’t occur in nature. There’s a secret committee of people who chooses who will go into and out of the S&P 500. And at times, they have made poor decisions, just like we all do. They’ve made decisions to include, to break their own rules around profitability to include AOL right before the tech bubble burst. So they can break their own rules, they can make poor, wrong-headed, discretionary choices that can lead to some underperformance. So my thought was take the best parts of passive investing. It’s well diversified, it’s cheap, and do those things. Never overpay. Diversify to the hilt. Those are great things to learn. But you can also take rules from active investing or the best types of active investing, which is don’t use your discretion. Don’t leave it up to some external force to choose what’s going to go into your portfolio. You rule based on choosing affordably priced, high quality shares, weight them in a way that’s consistent with strong performance historically. So you know, before I get an angry army of passive investing enthusiasts after me, there’s so much recommended. For the average person, for the person who just doesn’t want to think about this stuff, passive investing makes all the sense in the world. But if you’re interested in these things and you want to take it just a step further, I think there are ways that you can improve on market cap-weighted passive investing that are very sensible and very affordable.

Tim Ulbrich: Yeah, and you do a great job of this. Chapter 12 is called “Investing a Third Way,” and I found this very refreshing, to be honest. And confession time to my audience and community, I mean, I was one of those people, I am one of those people I feel like that is kind of on the side of passive investing, shouting across the riverbank to the people on the active side. And I think this was just a good reminder of, you know, as you mentioned, many things in life, it’s not one of two options, but there’s multiple options. And really taking a look to see what’s the best from both of these? And is there a third way and a third approach. And you do a great job in outlining this in a table in terms of what really are the advantages of what you’re referring to here as this rule-based behavioral investing. It’s got low fees, it’s diversified, it has the potential to outperform, obviously potential a key word there, low turnover, and manages bias. And in the book, you were very clear and your quote was, “To be as direct as possible, passive investing should be the de facto choice of those uninterested in the art and science of investment managing. By buying a diversified basket of index funds that covers a variety of asset classes, know nothing investors who often know a great deal are likely to beat more than 90% of active managers and have time to focus on pursuits more meaningful than compounding wealth.” And so I think that’s also a great reminder of again, there’s not one or two options. There’s a multitude of options. And this also depends on how involved and how interested you want to be in learning more about the process. So Daniel, thank you so much for taking time, for coming on the show, for, again, the work that you’ve done here in “The Behavioral Investor,” “The Laws of Wealth,” and the other work that you’ve put out there as well. So in addition to listening to your podcast called “Standard Deviations” and getting ahold of the book, “The Behavioral Investor,” which is available pretty much anywhere, where can our listeners go to learn more about the work that you are doing?
Daniel Crosby: I’m very active on Twitter @danielcrosby and also post a lot of my research on LinkedIn, so just Daniel Crosby, PhD. So thank you so much for having me.

Tim Ulbrich: Awesome. Thank you so much, Daniel.

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YFP 098: Lifestyle Creep: The #1 Threat to Growing Your Net Worth

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Lifestyle Creep: The #1 Threat to Growing Your Net Worth

Tim Baker, Tim Church and Tim Ulbrich talk through avoiding lifestyle creep, a simple but powerful philosophy for achieving wealth.

Summary

Tim Baker, Tim Church and Tim Ulbrich are in-person due to a quarterly YFP retreat for the recording of this episode. They talk about how to avoid lifestyle creep, something many new practitioners face.

Tim Church begins the episode by sharing an anecdote of a coworker, Serena. Serena was a residency trained pharmacist who had a great career, as well as a side job, and made $140,000 a year. She drove a Mercedes Benz, had a nice house, went on the best vacations, and ate at nice restaurants. It appeared like Serena had everything together financially, but she expressed to Tim Church that she was going into foreclosure on her home. When her hours were cut from her second job, she couldn’t pay all of her bills.

Tim Baker dives into becoming balance sheet affluent instead of income affluent. Income affluent means that your salary or income is good, but the money that comes in goes right back out. He explains that many pharmacists have the notion that because they will be making 6 figures, they don’t have anything to worry about in regards to their debt. However, a shift to being balance sheet affluent must occur, meaning growing your assets and net worth.

Tim Ulbrich explains that there are two reasons pharmacists feel like they are living paycheck to paycheck, despite making a great income. Lifestyle creep is a main reason and is caused by present bias and comparison to others. Present bias, as Tim Church explains, refers to the tendency to favor what is happening today or tomorrow versus several years from now. Tim Baker sees present bias affecting clients as it’s hard to picture yourself 10, 20 or 30 years older, but stresses the importance of placing yourself on a success timeline to envision what success looks like to you in the future. To combate present bias, things like automation can be effective.

The other factor affecting lifestyle creep is comparison to others. Tim Ulbrich explains that this can be subtle, but it’s impactful. Some items or experiences will temporarily bring you happiness, but it’s important to look at what a wealthy life is to you and work toward that without trying to be or emulate what you see others purchasing or doing.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast, episode 098. We’re two episodes away from episode 100. We’ve got some exciting things planned, which is going to be a lot of fun. But here we are, live in Columbus, Ohio, at the Ulbrich household. We’re going to talk about avoiding lifestyle creep, what we think is the #1 barrier to new pharmacy graduates achieving long-term financial wealth. So what’s it like? Here we are, Columbus, Ohio, live in person.

Tim Baker: Yeah, checking out the new digs since you moved to Ohio State. So last time, we were in Rootstown, Ohio.

Tim Church: Wait. Correction. It’s The Ohio State.

Tim Ulbrich: Oh boy.

Tim Baker: Sorry. I am a Buckeye fan, so I should know better. Yeah, I mean, lots going on. I feel like every time, every time we get together, and we get together — what? Quarterly? There’s just so much to talk about, so much to do. Just a lot of juice and buzz around I think kind of where the brand is headed and yeah, I always get so jacked up about meeting with you guys.

Tim Ulbrich: I think it’s going to be a fun episode. And we’ve got a great one coming for you next week as well. We’re going to talk about financial moves that we think every new pharmacy graduate should be making. Great time of year, obviously, graduation right around the corner. But here, we’re going to talk about this idea of avoiding lifestyle creep. But also, we have to mention, this is the first time we’re doing some video on the podcast as well. So while we haven’t yet done so, make sure to check our brand new YouTube. I don’t know if we even have a subscriber yet, but we’re going to build that up over time.

Tim Church: I don’t think we have any.

Tim Ulbrich: So you’ll be seeing more video from us, that’s a Tim Church goal in 2019. And so here we are, in person, live in video. I kind of feel like an old man a little bit, not going to lie. I think it’s — Joe Rogan and Elon Musk are smoking weed on their podcasts. And we’re drinking coffee like old men.

Tim Church: From a Dr. Juice mug.

Tim Ulbrich: Yes, from a Dr. Juice mug. Yes.

Tim Baker: Mine has brown in it. Brown coffee. Not brown liquor.

Tim Ulbrich: Alright, so Tim Church, let’s start about just this concept of barriers to a net worth mindset. And as we think about avoiding lifestyle creep, and I think in the book “Seven Figure Pharmacist,” you had a really neat story that really highlighted and I think sets a tone for this topic, and that was about a pharmacist named Serena. So tell us a little bit more about Serena and some of the background and into the concept of lifestyle creep.

Tim Church: Sure. So when we talked in the book about Serena, she was a pharmacist in her 30s, and she was doing extremely well in her career. She was residency-trained, had an amazing job, and she even had a side job working at another pharmacy. So she was making a lot of money. She was making about $140,000 a year, and that was even a couple years ago, which was way beyond what the median pharmacist’s salary was. So if you look at kind of her lifestyle and what she had going on, she drove a really nice car. I think she had a Mercedes Benz. She had a nice house, and she always dressed well, went on the best vacations, went out to nice restaurants. So on the outside, it really looked like she had everything together with her financial picture. But the reality was is that one day, she knew I was working with some personal finance and working with YFP, and she asked to talk to me about her personal situation. And basically what she expressed to me was that she was going to go in foreclosure with her home. And I just let that sink in for a minute. I just thought, wow. She’s making $140,000 a year. She’s a pharmacist, so obviously she’s very intelligent, knows a lot about pharmacy. But she didn’t really know that much about personal finance. And she was in a situation when her second job hours were cut, she was no longer able to make all of the payments that she had. She not only had a mortgage, but she had student loans, she had credit cards, she had her car payment. So she had all these payments going on, and then basically once that job was gone, she wasn’t able to make those.

Tim Ulbrich: So Tim Baker, when I hear that story of Serena, I think of “The Millionaire Next Door” and “The Next Millionaire Next Door,” you know, in their most recent book, really outlines this concept of being income affluent versus balance sheet affluent. And when I hear Serena’s story, which is true I think for many pharmacists — no judgment, something that I struggled with as well — but making a good income but is that income actually converting into long-term financial success? So tell us a little bit about that concept of income affluence relative to balance sheet affluence.

Tim Baker: Yeah. So I mean, I guess the first thing when I hear a story like that is that I look at Serena’s case, and even though she’s in a tough situation, I respect the fact that for a very intimate subject like finance, that you’re willing to lay the cards on the table and be vulnerable. In a position like a pharmacist or someone who is very highly educated, sometimes, it’s really hard to like say, “I don’t really know what I’m doing,” or “Maybe the people or ideas that I’ve surrounded myself with aren’t necessarily the right way to go about it.” So one of the things that I really try to impress upon clients is really shifting that mindset from income statement affluent to balance sheet affluent. So essentially, you know, in the case of Serena, the income statement affluent, that would describe her, someone who the top line revenue is coming in. $140,000, we understand that that’s well above the average household income in the United States. But nothing’s sticking. It’s all a sieve. You know, the money that comes in goes right out. So — and I think part of the problem that we see from the issues that we see is that pharmacists buy into that. It’s like, hey, my worries are going to be all gone when I start making that income, and I have nothing to worry about. And I think one of the things that we are trying to key in on is the well, not so fast — if I use my Lee Corso impression — not so fast with that. So I think it’s shifting the mindset to balance sheet affluent where, you know, money comes in. Income is the lifeblood of the financial plan. But what actually sticks is growing those assets and minimizing those liabilities and growing that net worth over time so the balance sheet grows over time instead of money coming right in and right out. So I think having that mindset — and I’ve seen clients that make $140,000, $240,000, and be very much income statement affluent where it goes in and it goes right out, and I’ve seen clients that make $40,000 or $50,000 and be wealthier relative to that comparison because they just get the fact that hey, I’m going to pay myself first. I’m not going to take on consumer debt, which is very predatory. I’m going to be intentional about my student debt. So I think it’s a mindset that we’ll probably talk about FOMO and YOLO a little bit later. It’s so hard to, you know, not compare yourself to others and think that that’s normal. And you know, “The Millionaire Next Door,” when he studies millionaires, the millionaires aren’t the people you would think are millionaires. A lot of that consumerism, it’s really facade. It’s a house of cards, Tim Church. So you know, it’s important to be aware of that.

Tim Ulbrich: Yeah, this hits home for me. As I think back to the journey Jess and I took is 2012 was really the pivot year for us. I graduated in 2008, did a residency in 2009. 2012, as I look back on that journey, had earned about $500,000 of income, but I had a net worth of -$225,000. I mean, it’s just a classic example of income’s coming in the door, but it’s not being converted.

Tim Baker: Right.

Tim Ulbrich: And we talk about this all the time on the podcast, when we’re doing presentations, a pharmacist’s income is an incredible tool. But that tool has to be put to work towards paying down your debts, growing your long-term savings, building income protection plan, and certainly lifestyle creep and what we’re talking about here today I think plays so much into that.

Tim Church: And I think what we are talking about is it’s going to be normal coming out of pharmacy school for most people to have a negative net worth. I mean, that’s, unfortunately, the reality for most people when they start out. But I think what’s more important is looking at that and looking at the change over time. You know, how much year to year is that net worth growing, trying to get to the balance sheet affluence?

Tim Ulbrich: Yeah, and that’s one of the things I like when we talk about the financial plan with you, Tim Baker, is net worth is top of mind all the time, right? So I know when Jess and I log onto the platform that you use, front and center, net worth, what’s growing over time? And I think that that’s a great indicator of your overall financial health.

Tim Baker: When we were tooling around Columbus today, I kind of went on a big rant, so there’s Tim Ulbrich in the driver’s seat, Tim Church in the passenger seat, and Tim Baker in the back like a little kid ranting. I’m like, “Why don’t more financial planners look at net worth? Like why isn’t that a thing?” And I think it’s because the industry is so focused on product and investments and things like that that it’s — I don’t get it. It was kind of a rant that I was going on. I don’t understand why that isn’t more of a measurement that financial planners use to help clients show progress and really value. I don’t know — to me, again, income is — our jam at YFP Planning is really how can we help you, the client, grow and protect income, which is the lifeblood of the financial plan, and grow and protect net worth, which is what sticks, while keeping your goals in mind? And to me, like anything outside of that, like I don’t get. Investments and insurance, it’s important, but it’s part of what feeds into all that. So yeah. Rant over.

Tim Ulbrich: That was a rant. And you know, normally I have three kids ranting in the back of my minivan. And today, it was Tim Baker ranting in the back of the car.

Tim Baker: Yeah, sorry about that.

Tim Ulbrich: So Tim Church, let’s talk about Parkinson’s law because I think that’s so much of this concept of lifestyle creep is Parkinson’s law. So what is that? And how does that play into pharmacists and ultimately, this concept here?

Tim Church: So this is a well known principal, and it’s been applied to many different areas. But initially, this was expressed as essentially, the work will expand for the amount that you have available. In other words, however long you have to get a task or something done, that’s how long it’s going to take. And I think probably many pharmacists and students out there can relate to that based on when you have an exam or when you have an assignment or a project due that sometimes, people will procrastinate. That’s just human behavior to normally do that. But the reality is that concept and that principal has been applied to many other areas. It’s been applied to eating and even whatever is on your plate or whatever you have in front of you, that’s what you’re going to eat.

Tim Baker: Small plates versus big plates.

Tim Church: Yeah. I think there was actually a study in I think it’s the book “Switch” by Dan and Chip Heath, and they talked about, they were doing an experiment about people going to the movie theater. And they wanted to see what their behavior was based on how much popcorn they gave them. And what they found was they gave people old popcorn, fresh popcorn and it didn’t even matter. It mattered how much they actually put in the size of the bucket in terms of how much they had to eat. But I think that concept really is exactly what we’re talking about here is that lifestyle creep is that tendency to spend whatever you make and even go above and beyond that. And I think that’s where we see a lot of famous people out there that they’re even in really high amounts of debt, despite making millions or even billions.

Tim Baker: Expenses rise to the level of your income. Right? So and I think we see this in lottery winners too is a lot of people will say, “Oh, I wish I made — my worries would be over if I could make 25% more.” But the science says that you’re going to spend 25% more. We see it even with tax refunds. Some people spend that even before it comes in the door. So you know, and this is why when we go through the foundation of the financial plan, it’s like, this is why budgeting is so important because we have kind of limits. We have a plan. It’s not intentional. I know that we’re talking about the podcast and coming up on episode 100, Parkinson’s Law was real for me to get the podcast edited early on. If I knew that we had a Thursday deadline, and I was running around with my hair on fire with clients and things like that, I would take all that time, sometimes more if you go back. Now we have Caitlyn, who’s awesome and keeps us on deadline.

Tim Ulbrich: Rockstar.

Tim Baker: But yeah, it’s a real thing. It’s absolutely a real thing.

Tim Ulbrich: And I think this really speaks to probably one of the most common things that we hear is “I feel like I’m living paycheck to paycheck, despite making a great income.” And you know, that’s getting pressed even further right now as we see some salary compression happening, the job market shifting a little bit, and so obviously lifestyle creep I think is more relevant than ever to pharmacists today and to pharmacy graduates today. So we’re hoping to capture those that are getting ready to graduate here in the next month, those that are still out even transitioning, never too late, but trying to do everything you can to lower those expenses and prevent that creep. So really, two big reasons why lifestyle creep occurs: present bias and the comparison to others. Let’s talk first about present bias. What is that concept? And how does that relate to lifestyle creep?

Tim Church: So present bias is really the tendency to favor what is happening today versus what is happening tomorrow or several years down the road. There’s a concept that’s also been described as hyperbolic discounting where we discount things that are going to happen in the future or that we anticipate that are going to happen. So it sort of makes sense that we want to enjoy ourselves today, whether that be with clothes, with purchases, with going out to eat. That’s the reality of kind of what’s happening there.

Tim Ulbrich: So Tim Baker, from the financial planning perspective, the concept of present bias, I mean, how do you see this play into reality each and every day while you’re working on a client with the financial plan? And what are some of the strategies that you use in helping them combat some of the aspects?

Tim Baker: Yeah, so you know, it’s so hard for us to really empathize with or really even picture our 30-year-older self. Right? So it’s hard for us to kind of get into that mindset. So one of the things when we talk about goals is really to lay out like what’s the path? What’s the success timeline, we call it? So Tim Church, you’re my client, I say, “Hey, Tim Church. What I want you to do is let’s get into my imaginary time machine.” So we get into the Delorean and we hit the dial for April 2021. We get out of the Delorean, you’re two year older, you’re two years wiser. What does success look like? And you know, we do that for five years, we do that for 10 years. And it’s hard. And at first, when I would do this practice, it’s like pulling teeth almost. It’s just hard for us. And the further out we get, the more it’s like that image of ourselves fades. I can envision myself at — let’s see, I’m 36 — I can envision myself at 38. Can I envision myself at 41? Maybe. At 46? No. But that’s kind of the exercise that I started to do is I would start to put you in that age. So I would say, you know, now you’re 10 years older and 10 years wiser. And at 46, these are all the things that kind of come into my mind that I want to achieve. So I kind of backwards plan it, and I try to transport you into that time and place. But it’s hard. It’s hard. And the further out it is, the more that we discount it. And I feel like what I say is, again, we’re trying to help grow and protect income, grow and protect net worth, while keeping your goals in mind. And if we don’t feel the push and pull between taking care of yourself today and your 30-year-older self, we’re probably doing something wrong. So it can’t just be about pedal to the metal, spend, spend, spend today, and we’ll just worry about it later on.

Tim Ulbrich: Absolutely.

Tim Baker: But it also can’t be stick your head and achieve a $10 million net worth for a purpose without enjoying your boys growing up or whatever that is. So it’s threading that needle, and how do you do that?

Tim Church: Well, that’s what I was going to ask you. So when you’re walking through this exercise with your clients, you know, obviously this is one of the biggest points that comes up with how you manage your money, right? Because these decisions, these micro-decisions that are being made are having a compound effect over time. So when you’re assessing clients’ situations, how do you ensure that both of those things are happening simultaneously?

Tim Baker: I think at the end of the day, it’s just asking good questions and getting the (bleep) out of the way. In reality, I joke around about that. But I think that’s what it is and really have the client or clients kind of have a period of self-discovery. And sometimes it’s not like a “Eureka!” moment. It’s a process. It’s a conversation. It’s, “Hey, we kind of left it at this. Did you guys mull it around? Where are we at with it? What’s the update?” And I think having a forum, an open forum for partners or really one-on-one to be able to talk through those issues becomes, it lays out a path for you. But it’s not like — it’s the same thing as like, should I invest? Or should I pay down debt? It depends. It’s kind of the same thing. And it’s a process. And you know, it’s not going to be a binary, this is what you should do.

Tim Church: Right. And I think that that’s one of the key concepts is that a lot of these things in terms of whatever the financial position one is currently in at the moment could be a culmination of habits that have manifested over time.

Tim Baker: Right. Compound effect.

Tim Ulbrich: Absolutely.

Tim Church: So it’s not just the individual decisions that come up. I mean, somebody could be used to spending x amount on restaurants, on clothes and things like that, month after month after month, and that’s just kind of the normal. And I’m sure that that’s probably sometimes hard to discuss with clients that you have to really take a hard look at that budget and what percentage of that is going towards your net worth?

Tim Ulbrich: Yeah, and I think this is a good time too to talk about what can you do to be combating present bias, right? What can you be doing in your plan each and every month to actually take some steps forward if this is something that you’re struggling with? And I think for me, this comes to the concept of automation a little bit in your financial plan.

Tim Baker: Yeah, get out of your own way.

Tim Ulbrich: Yeah, get out of your own way. And when I think about — there’s just a natural human behavior that if you go out and spend money, name the thing you like to enjoy, it’s a rush, right? I mean, I love buying books. I love shopping. I love doing lots of things. And that is things that you get positive feelings. That is a natural human behavior. Me stashing away an amount of money for 40 years in the future in my 401k, like dopamine surge does not happen, right? It’s just not as exciting. I mean, there’s maybe a few people that are listening —

Tim Baker: But isn’t that the one example, though, where it’s fairly automated for everyone? Especially with auto-enroll these days. Because that’s what I was just thinking when you brought that up is when you talked about automation, for most people, when they start a job these days and they have a 401k, their employer is going to automatically enroll them into a 401k. So you are completely on the sideline. You really don’t have to do anything. You don’t even have to pick the investment. You’re probably going to be defaulted into a target fund. So the fact that you’re kind of sitting on the sidelines, but then you wake up in five years, and there’s $100,000 there or whatever it is, like that’s kind of what we’re talking about. But to do it even more deeply in your financial plan with regard to other types of savings. That’s what it is. I mean, that’s a perfect example of getting out of your own way. You know, it’s so true with a lot of parts of the financial plan, sometimes, the more you tinker, the more that you screw it up.

Tim Ulbrich: Yeah, and I think this is — we talked about this in Episode 057, so for those that want to go back and listen.

Tim Church: How do you remember these episodes?

Tim Ulbrich: I don’t know, I spent a little bit of time memorizing them.

Tim Baker: I don’t.

Tim Ulbrich: Yeah, episode 057 on automation and we have a blog post on it as well. But for those of you that want to think about how to automate the plan and what that could look like, and we talk about sinking funds and buckets, but I think the essence of it is get out of your way. Set the plan, be intentional, and get out of the way.

Tim Church: Yeah, you have to protect yourself from yourself.

Tim Ulbrich: Absolutely. Absolutely.

Tim Baker: Yep.

Tim Ulbrich: So present bias, No. 1. The second thing is this concept of comparing to others. So not a new concept, comparing yourself with neighbors, keeping up with the Joneses, you name it. Obviously, I think for pharmacists, that’s a very real thing. So Tim Baker, talk to me about that. Is that something you see with clients? This comparison to other pharmacists or peers and this need to keep up financially in whatever way?

Tim Baker: Yeah, I think so. You know, it might not be as overt of like, hey, my buddy just got this car. I want one too. But I think it’s always there. I mean, comparison is the enemy of content. So I think any time that you’re not doing you, and you’re worried about what everyone else is doing — I sound like my dad — you’re going to run into some problems. Because there’s always going to be someone out there that’s more athletic than you, taller than you, smarter than you. And I think if you get caught up in that, you know, you’re never going to be satisfied. And it’s so true with money as well. And the problem is in a world where we’re so connected with social media and we’re running our highlights on Twitter and Facebook and Instagram, it’s a problem because we want to — there’s the Fear of Missing Out and You Only Live Once and all those concepts which you want to make sure that you’re living an enriched life, but you want to make sure you’re living your wealthy life, which sounds cliche, but maybe for some people, traveling the world is not a thing that they really aspire to. Or maybe someone doesn’t want to retire at age 50 or whatever it is or buy a luxury car. But sometimes, we get caught up in what everyone’s doing, and our own values, our own beliefs depend on — what is the saying? Like you’re the average of the five people that are closest to you. And you know, they obviously are going to affect your exercise habits, your eating habits, your spending habits. And I think those are just things to be hyper-aware of because the reality is, again, to go back to it, the people that from a financial perspective, that are typically the wealthiest and most content are socially indifferent to those things. And it’s one of the things that, you know, as a wealth-building factor for “Millionaire Next Door” is they can — I’m going to say it again — they could give a (bleep) what you’re driving, where you’re going, that type of thing. And they’re focused on their own financial plan and their own vision of what a wealthy life is, and that’s it.

Tim Church: And I think one of the biggest misconceptions is that sometimes when we play that out and we have that comparison to others and what they’re doing, is that we think to ourselves that if we are able to do some of these things that other people are doing, to buy these purchases, to go on these vacations, that that’s automatically going to increase happiness level. And I think that’s the biggest misnomer that comes along with it. Now, of course, some of those things will, and it may be a temporary boost in happiness, but it may not be exactly what you were looking for.

Tim Baker: Yeah, and I think the other thing to is I see is pharmacists or young couples will come to me, and I’ll say, oftentimes when the pharmacist speaks with me, they share that they’re overwhelmed with student debt or some other type of debt. And they’re like, yeah, that’s me. And they start to like tiptoe into how much they actually owe. And I’m like, “Hit me with it. I’ve seen it all. So just tell me.” And you know, it might be like between the two of them, they might have $400,000 in debt. And when I — so I’m taking notes, and I write it down, and I think they’re waiting for a reaction. And I’m not going to give it to them. But what I say to them after we kind of go through the conversation about the debt and how they feel about it is, I say, “In a way, it’s all relative.” Because I have some clients that come on, and they have $800,000 in debt. I have some that come on that have $0, and they actually have a positive net worth. And I think that goes into this is like, if you’re comparing yourself to others — and you know, not everyone is in the same place financially. But we want to put ourselves there, and I think it’s just really, in my opinion, it’s really sitting down and asking yourself, what truly is a wealthy life? Not what your parents think, not what your neighbor thinks. Like what do you think is a wealthy life? And work towards that. Be intentional about that. And you know, it’s something that we tell Olivia, like why did you do this at school? And she’s like, “Well, it’s because everyone else was doing it.” And I’m like, “No, bro. Like come on.”

Tim Ulbrich: That’s not a good reason.

Tim Baker: Yeah. That’s not a thing. So she’s 4, we’re working on it. But it’s a lifelong struggle. Like I do the same thing.

Tim Ulbrich: Yeah. Absolutely.

Tim Baker: Small business owner, like I want to make sure the business is growing and have the things that owning your business affords, but it’s also like when you go down that path, you’re like, I’ve got to stop. Because it’s not productive.

Tim Ulbrich: Well, and I think it can be so subtle, and I think the impact of it happening can be subconscious. And you know, like what you said, just a reminder of we tend to follow the behaviors and patterns of those that we’re closest with, you know, your inner circle. And really taking a step back to say, is that true for you? And are you aware of that and what’s happening? So really evaluating the impact of your neighborhood and evaluating the impact of your coworkers and your friends. And changing the point of comparison. I was talking with the students last week at Ohio State, and I think often in the pharmacy profession, it’s very easy to play the pharmacist-to-pharmacist peer comparison game. And you see this so much with residency. You know, “Hey, I’m making $45,000 in residency. And my friend I sat next to for three years in therapeutics is making $120,000. Life sucks, so I’m just going to keep riding my loans out, and I’ll work on it in five years and kind of woe is me.” But I think if you take a step back, you know, the median household income in the United States for a family of four is about $55,000 a year. So if you’re a resident, single, making $45,000, and you change that point of perspective, how does that alter how you begin to think about your financial plan each and every week? So finding people that can come around you to encourage you with that, that will be on that journey with you to hold you accountable to live the wealthy life, plan for the future but also have fun today, and maybe that means a financial coach and a planner that can help you along in that journey as well. But I think the point is certainly real.

Tim Baker: And I think that’s where we hopefully think that YFP fits. You know, we talk about empowering a community, surrounding yourself with like-minded people. That’s what we want this community to be is that, you know, kind of example of like, hey, there’s other people like me that are struggling with a question about their finances or just the direction in general. And I think that’s healthy conversation, that’s productive conversation, and I think being open — and really, I think one of the things you said is how do you combat it? It’s almost like challenge everything. When we talk with clients that have more or less a spending problem and their credit card, challenge every assumption. We live in a society that’s like, well, I need this. I need that. And like do you? Do you really need it? So challenge it from the bottom up. Obviously, we need clothing and housing and food and all that kind of stuff, but I think approaching it from a very basic level and then working from there is a good way to approach it.

Tim Ulbrich: And I think hearing you talk about community is a great reminder of just what we’re trying to do is empower and build a community that is helping one another. And to be honest, without getting too sentimental, we’re going to talk about this in Episode 100, but that is what is most rewarding for us is seeing that community thrive and help one another. So if you’re not yet a part of the Your Financial Pharmacist Facebook group, please join us. We’d love to have you in the community. And we certainly think you have something to offer to our community. But we hope that that group is there for you as well. Before we wrap up, just a reminder, if you like what you heard on this week’s episode or you’ve been following the podcast for some time, please head on over to iTunes or wherever you listen to your podcasts each and every week and leave us a review. We’d love to get your feedback and a comment as well. And again, next week, we’re going to come back and talk about financial moves that we think the pharmacy graduate should be making and things to be looking out for, and then we’ll be following that up with episode 100. Have a great rest of your week.

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YFP 077: Making the Financial Transition from PharmD to Residency

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Making the Financial Transition from PharmD to Resident

On episode 77 of the Your Financial Pharmacist podcast, Tim Ulbrich, founder of Your Financial Pharmacist, interviews Dr. Michael Murphy, a 2018 PharmD graduate of THE Ohio State University College of Pharmacy and current PGY1 pharmacy practice resident in ambulatory care at Ohio State. Dr. Murphy served as the APhA-ASP National President from 2017-2018. In this episode, Dr. Murphy and Tim talk about his financial transition from student to resident, what he wishes he would have known financially during pharmacy school and how being involved in professional organizations has put him on the fast track to a successful career.

About Today’s Guest

Michael Murphy, PharmD is a PGY1 Pharmacy Resident in an Ambulatory Care Setting at The Ohio State University College of Pharmacy. Born in Columbus, Ohio, Michael attended Hilliard Davidson High School and then headed down the street to complete his undergraduate degree and attend pharmacy school at Ohio State. During his time at the College of Pharmacy, he found his passion in advocating for an enhanced educational experience for today’s student pharmacists and for the future of the profession. Michael focused on these passions through involvement in student organizations and has held several volunteer leadership positions where he served his peers and profession, including his term as the 2017-2018 American Pharmacists Association Academy of Student Pharmacists (APhA-ASP) National President. Michael is interested in pursuing a career in academia where he looks forward to training the next generation of pharmacists and advocating for the advancement of the profession.

Join APhA

Join APhA now to gain premier access to YFP facilitated webinars, financial articles, live events, resources, and consultations. Your membership will also allow you to receive exclusive discounts on YFP products and services. You can join APhA at a 20% discount by visiting www.pharmacist.com/join-now and using coupon code ‘AYFP18’. For more information about our financial resources, visit www.pharmacist.com/financial-education.

Summary

On this episode, Tim Ulbrich interviews Dr. Michael Murphy. Dr. Murphy went to Ohio State University and graduated from his undergraduate degree with no loans. He began taking loans out for his first year of pharmacy school and took out the maximum amount for four years.

Q: What would you have done differently then now that you know that borrowing the maximum amount isn’t the best option?

A: Dr. Murphy explains that he would have learned about budgeting, monitor your day-to-day spending and also shares the importance of not taking extra student loans out for vacations. After your first semester, you can figure out how much money you actually need instead of just continuing to borrow the maximum amount.

Q: What’s your strategy to make finances work well in marriage?

A: Dr. Murphy shares that communication, cutting costs where you need to, and working together to set fun goals helps are ways to help make your finances work well in a relationship.

Q: Did the indebtedness ever play a factor in deciding to continue your education/residency instead of getting a job right away?

A: Dr. Murphy said this definitely played a factor, but he has seen his mentors go through residency and be able to pay back their loans. He said that he looks at residency as an investment to move his career forward and knew that was the best choice for him.

Q: How are you deciding which repayment plan to choose?

A: Dr. Murphy says that originally he was very ambitious and chose the standard repayment plan for his loans. Now, he and his wife are working with a financial advisor to see what will make the most sense. They are going to switch to an income-based repayment plan and work on paying off other loans first. He has a goal of paying off his loans in 10 years.

Q: How did you make the decision to work with a financial planner?

A: Dr. Murphy said that he wasn’t familiar with student loan options, retirement or investments and thought that going to an expert was the best decision. They chose someone that other family members have used and they feel comfortable working with him.

Q: What tangible benefit do you feel like professional organizational involvement has played for you as a student but also in transitioning to residency?

A: Dr. Murphy said that it’s important to think about what brings value to the money that is being spent. APhA is always fighting for the future of the profession so pharmacy remains relevant and a successful provider. APhA provides resources to help you prepare and practice at the highest level. The relationships that have been formed, although intangible, provide so much value.

Q: After joining a professional organization, what advice do you have for students and new practitioners to further their involvement?

A: Dr. Murphy suggests to take a small positive risk like applying for a leadership position or starting a new project that you are interested in. If you are unsure of how to get more involvement, ask.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 077 of the Your Financial Pharmacist podcast. Excited to have a special guest on today’s show, Dr. Michael Murphy, past president of APhASP, current pharmacy resident at the Ohio State University, excited to talk with him about his transition from student to resident. And obviously, now I just officially began my new job at Ohio State. So excited to be here alongside another Buckeye who’s been a Buckeye for a long time. So Dr. Murphy, welcome to the show.

Michael Murphy: Hey, Tim. Super excited to be here. Thanks for having me on the show.

Tim Ulbrich: So I’ve only been at Ohio State, Michael, for a week. And man, the Ohio State culture and energy and that traditions and the legacy, it’s no joke. It’s a lot of fun. And you’ve been there awhile. What — nine years now?

Michael Murphy: Yeah, I’ve been there for nine years. And you know, I don’t think they can get rid of me. I love being a Buckeye, all of the opportunities that it provides to me, my career, and of course, getting to go to those football games, that’s fun too.

Tim Ulbrich: Absolutely. I have to up my game when it comes to Buckeye gear. I’m lacking the Buckeye gear. So as I’ve gone into work over the past week and been in other people’s offices and been there for a Buckeye Friday, I’ve realized that I’ve really got to up my game in that area. So why don’t we start by just tell us a little bit about yourself, including your decision to enter pharmacy school. Why did you want to be a pharmacist in the first place? A little bit about your journey through the PharmD and then ultimately, what led you to choose and pursue the residency training and the path that you’re doing right now?

Michael Murphy: Sure. I’d be happy to. So I am Columbus, Ohio born and raised. I grew up in Hilliard, which is a suburb of Columbus. And while in high school, I started taking some science classes. I took chemistry. And I knew immediately that I loved science. Actually, this is kind of funny. I was the proud only member of the high school chemistry club.

Tim Ulbrich: Only member.

Michael Murphy: Yes. I was real popular in high school. Around the same time, I started volunteering at the Ohio State Wexner Medical Center. I had volunteered, I would take patients from their rooms to their cars when it was time for them to go home. And I just loved seeing these patients on their best day because they were finally getting to go home. So I knew in high school that I loved science, I loved health care, and I was trying to find this way that I could tie those two ideas together. And around the end of high school, my grandfather ended up passing away. And he had been a pharmacist in the Cleveland, Ohio area for about 50 years. And it’s kind of funny how I just learned more about him throughout the process of, you know, him passing away and learned more about the impact that he had made on his community and his profession. And I’ll never forget going to his funeral and seeing all these community members come out that I had never really heard about before, but he’d made a huge impact in their life as this local community pharmacist. And I knew right there that that was the profession for me. I wanted to be a pharmacist so I could make as big of a difference in my community as my grandfather had. So I knew from 16 that I was going to be this pharmacist. And I went to Ohio State with that in mind and stuck around for eight years, and here I am.

Tim Ulbrich: Yeah, and I love that story, Michael. I remember when you were in your national presidency of APhASP, talking a lot about finding your legacy and finding that place that you have in the profession. And hearing you link that back to the inspiration from your grandfather is such a cool story. And so you go into Ohio State — and for those that don’t know and while it’s changing right now, Ohio State is a 4+4 program, so you do four years of undergrad and you do four years of pharmacy school. Obviously, you mentioned that you’re in year nine with your residency. So when I hear eight years, I think, holy cow, we’re starting to think about student loans. This is obviously a financial podcast. So talk me through the financial journey. Did you have loans coming out of undergrad in a pharmacy school? And how did that transition work?

Michael Murphy: So I was really lucky in undergrad. My parents were able to help me significantly with my undergraduate tuition, so I did not have loans coming out of undergrad. But going into pharmacy school, I went through the first year of applying for the FAFSA and seeing that transition. It was pretty significant. And I immediately started to feel that burden, just knowing that this money was not mine. But I should be spending it. It was a weird transition. But now, going through pharmacy school, I took out the max that I could for those four years. And I definitely — there are some things that I wish I had done differently, now looking back. I’m glad for my experience, it was a very positive experience during the pharmacy school. But there was definitely things I could have done differently to help myself now that I’m in this financial situation that I am today.

Tim Ulbrich: So let’s talk about that for a minute because I think you brought up an important point that is very, very common that obviously the trend I think is typically to take out the maximum amount of student loans. I did, and I didn’t really think about it in the way I now reflect back on it, right? Which is just part of lessons learned. So obviously, that being one thing you might do. What advice would you have back for your P1 self, looking and saying, OK, I came out of undergrad, I’ve got no student loans thanks to the help of my parents. Now I’m entering into pharmacy school and kind of starting to escalate that indebtedness because of the borrowing the full amount. What would you have done differently in terms of borrowing that money or budgeting through that phase? And what are some things you wish that you would have known during that time?

Michael Murphy: Well, one, I would have introduced P1 Michael to the word “budget.” I think that would be one thing. I watched my money somewhat. But I wasn’t too concerned when it came to little things like going out for dinner or getting lunch, cups of coffee, the normal things that every student needs to do. And when I was thinking about some advice that I could give to a first-year student pharmacist, I would say definitely don’t do what some of my friends did, which they took their extra student loans and they went on these extravagant vacations. Never do that. But also watch your day-to-day because looking back now, that is some of the times that I spent the most money because I would say, “Oh, I’m too busy to go to the grocery store on the weekend. I have to study.” So I would end up having to go out for dinner multiple times a week and go out for lunch. And that stuff adds up quick. So watching the day-to-day can be a significant change in what you can do to help with some of this financial burden. And then after that first semester, you can figure out how much money do you really need? You probably don’t need that full amount. You can budget for yourself to make financial smart decisions now so you’re not regretting them in four years.

Tim Ulbrich: Yeah, absolutely. And I think a couple things there that really stand out to me, Michael. Obviously, the concept of the budgeting piece, of course. But also just the reality of the nickel-and-diming of those expenses, right? And I think we all feel this now. I mean, I’m thinking of the last time I just logged onto my Huntington checking account, and none of those charges look extravagant, but something here, something there, something there, and obviously, those add up over time. And then I hope for the students that are listening to the podcast, you know, they heard that message of reevaluating how much you really need because we’ve been preaching before on this show at anybody who will listen that when you’re borrowing money in school, obviously that is accruing interest. And then that’s going to capitalize when you graduate and you get to the point of active repayment, which you’re just coming up on now and we’ll talk about here in a minute. And so I think it’s for those that have gone through this situation, and you’re looking at yourself in a situation like Michael and somebody who has around the average indebtedness or myself, somebody who had a little bit more, that certainly you want to learn from the lessons and the actions that you took. But obviously, there’s only so much value in beating yourself up. But for those students who are listening, try to figure out what could I do differently right now? And how could I pivot to be able to make some different decisions? So let me transition this a little bit — my understanding, you got married during pharmacy school to your wife, Robin. Is that correct?

Michael Murphy: Yeah, we got married right after my P1 year. So we actually got married about four days after my first year of pharmacy school. And that was a rough transition in itself because the idea is you’re planning about a year to a year and a half before the wedding. And starting pharmacy school and that transition, things just got put off initially to winter break. And then winter break, we were like busy with holidays and seeing family, and things got put off again. And then all of a sudden, we were scrambling. But everything turned out perfectly, as it always does.

Tim Ulbrich: And one of the questions that I always like to ask any couple or anybody on the show that’s working together with somebody else — and obviously, your situation being unique that you got married during school and you’re adding somebody else’s financial picture into the mix. But for you and Robin, what works well for the two of you? I mean, when you’re hitting all cylinders with your finances and you’re doing this well — we all know that that’s not all the time or we’d be lying, right? — but when it’s working well for the two of you, what is the strategy to make that happen?

Michael Murphy: So I think the most important thing is communication. Working with your significant other to set goals that work for both of you so that you can help cut costs where you really don’t need to be spending money. So I’ll use the example of eating out. That’s an easy way to make a pretty quick transition to you just going to the grocery store, preparing ahead of time, setting yourself up for success so you’re not going out to lunch multiple times a week. But also working together on setting fun goals. So part of financial planning, at least for me, is not just about cutting back but using your extra funds in a responsible and valuable way for your own experiences. And I think that’s pretty important. So you’re not just cutting back, but you’re really using those extra funds for something that means a lot to you. So if that’s for me and Robin, that’s going out and exploring a local craft brewery or going to a local restaurant and doing the things that we love to do or taking a quick day trip or for Robin, who is a dairy farmer, going out and seeing some of her favorite cows and maybe putting in a bid at an auction for a cow.

Tim Ulbrich: That’s awesome. I remember — correct me if I’m wrong — but when you were explaining to me before you recorded of what Robin’s doing, you mentioned something like the dairy farm equivalent of like APhA from an association standpoint. Is that right?

Michael Murphy: Yeah. So she works on her parents’ dairy farm a couple days a week. But she also works for the American Guernsey Association, which is what I liken to the APhA for dairy farmers.

Tim Ulbrich: That’s awesome. I love that. So let’s talk about this transition. So you go through eight years of school, undergrad, PharmD, you come out with roughly the average indebtedness, a little bit less than that. And one of the questions I often get — and my previous job was working with students, thinking about how this financial piece plays into the career decisions that they make. And I can comfortably say I felt like it was rare five, six, seven years ago that many people were thinking about this financial piece in a significant way of impacting the decision they made on residency or no residency. But that seems to be changing a little bit as the indebtedness continues to grow. And so my question for you is did the indebtedness — obviously you decided to pursue residency — but did the indebtedness ever play a factor that you thought, eh, maybe I will or maybe I won’t do this because of that dollar amount and the debt you had, versus just going out and getting a job and starting earning an income?

Michael Murphy: Hmm. That’s a good question. I mean, it was definitely a factor. I didn’t put too much weight into it because I’ve seen so many of my mentors go through residency and take that year of investment in their future and into their careers. And they’re able to still pay off their student loans, and it’s not significantly contributing to any problems that they see in the future. But it was definitely a factor. And I guess it depends on the way that I think about residency. Some people think that, oh, you’re taking a pay cut for that year. I think of it as me paying for this experience. And for me, I want to make sure that if I’m paying the difference between what I’m making as a resident and what I would be making as a starting salaried pharmacist, that that experience is worth it for me for my growth and for a springboard for my future career. So I felt like that investment made sense for me. It doesn’t make sense for everyone, but it made sense for me and for my career goals. Now, the idea of not being able to start paying off my student loans as quickly and as hard as I would like to, that’s definitely been something that I’ve been thinking about a lot lately, especially as now I received my first notice from Nelnet, the company that is managing my student loans, saying that my first paycheck is due to them.

Tim Ulbrich: On your birthday, right? Happy birthday.

Michael Murphy: Yeah, it’s due on my birthday, which is just —

Tim Ulbrich: That’s cruel. That’s just cruel.

Michael Murphy: But I’ve seen some of my friends now that started just right off in the community, and they’re able to put more of their monthly salary to their student loans. And you know, it’s just a difference in what we’re able to contribute at this time.

Tim Ulbrich: Michael, one thing I love that you said that just hit me — and I’m going to use this as I talk to student pharmacists, and I wish I would have this mindset — is looking at the residency training year as something you’re paying for — and I love how you said basically, the difference. So if you take a pharmacist is making $100,000, just for an even number, and you’re being paid as a resident whatever, $40,000 is an even number, that you’re making that investment of essentially — one way of looking at it is saying, “I’m taking a pay cut.” The other way of looking at it is say, “I’m investing $60,000 toward this component that’s going to advance my career and the skills and the development of myself.” And I think that’s huge as a mindset shift, right? I mean, if you think of it that way, all of a sudden, it changes probably how you’re getting the most value out of that experience and from your preceptors and the mentorship and all of that. So I love that. And I hope that you’ll continue to shop that message to anybody that will listen because I think that can be such a game-changer for people to make sure they’re getting the most of that year, to look at that year as an investment. So you make this transition into residency and now, as you mentioned, here you are. Here you are in essentially November at the time of recording this, and you get that happy message that hey, grace period is up. And I always joke on the show, I feel like the grace period is anything but gracious because the interest is still accruing, but you don’t have to make payments. All of a sudden you have to make a payment, nonetheless on your birthday. How are you going about making the decision of which repayment option you’re going to choose? Because so many people get hung up, as we’ve talked about before on this podcast, making that decision. So how did you and Robin work through as you’ve had this time in the grace period to say, OK, once I go into active repayment, this is the best game plan for us?

Michael Murphy: So for me, when I initially went through exit cousneling, I was a little bit too ambitious and thought that, oh, I’m going to be making x amount of dollars per month, I will definitely be able to contribute much more than I actually can. So I picked, initially, one of the standard repayment models, which with my student loans is over $1,000 per month, which is just too significant for what I can currently pay on a resident salary. So I’m now going through the process of working with Robin and working with our financial advisor, which is one of the first things that I did once graduating. I can’t advocate that enough to students is to find a financial advisor, start getting advice early on. But working with our financial advisor to find out which repayment plan would make the most sense for me, especially this first year in residency. And we decided an income-based repayment model would be the one that makes the most sense for us because right now, we can spend some time focusing on some of our other debt, like Robin’s car loan, like Robin’s student loans that are a little bit smaller. And then we can be paying off some amount to my student loans as well. And then eventually, we will be able to bring all of these payments together and be putting our full force towards my student loans. The idea that was shared with me is this idea of a snowball that you’re slowly building up steam over time and as the snowball rolls down the hill, it builds and builds and builds, and eventually, you’re putting your full force towards this one student loan.

Tim Ulbrich: I like that. And so what I heard there is essentially, you had jumped out of the gates and said, “OK. I want to do the standard repayment, the 10-year repayment.” The reality of that, of course, is a big payment if we’re looking at let’s say $150,000-160,000 of student loans, resident salary. So then you took a step back and said, OK. For you and Robin, what are the other financial goals you’re trying to achieve, what other debts are you trying to pay off? How much income do we have in our monthly budget that we’re working with? And then obviously, that led you down the path of one of the income-driven plans. And it sounds like you’re still kind of working through which one of those. Is it PAYE? REPAYE? Is it one of the IBR plans? The old IBR? The new IBR? But I know for many — and I’m guessing this is the thought for you as well — that that is a floor, but then obviously, as time goes on, you can of course make extra payments if you decide to in the income-driven plans. Is that the thought you have?
Michael Murphy: Yeah. Unfortunately, I am still very ambitious. And I think that my biggest goal would be to have these paid off in 10 years. And I know that’s probably unrealistic, but I believe in stretch goals.

Tim Ulbrich: Yes.
Michael Murphy: If you shoot for the stars, you may not get to the stars, but you’ll probably get a lot farther than you would have if you’d aimed low. So I figure I’m going to aim for 10 years, get everything paid off, and if it ends up being 12, hey, at least it’s better than 20.

Tim Ulbrich: So Michael, my prediction — just knowing you and working with other people — my prediction is it’s going to be 5 or less for you. And I think that’s why I think that’s going to happen is as I’m sure you’ve talked with other people, I know I experienced this myself, once you start catching the fire of actually seeing that snowball rolling down the hill and getting some momentum, you just get fired up about making it happen quicker, and it impacts how you make other decisions. So certainly no guarantees, but we’ll touch base and kind of follow the journey. But that’s my prediction here is 5 years or less. But I like what you said there about the timeline. So you did mention, which is interesting because not many new graduates choose to work with a financial planner or financial advisor. And I know many new grads, myself included when I graduated, struggle with evaluating the benefits of what that planner can provide versus obviously the investment in doing that and engaging that relationship. So how did you and Robin make the decision that for you, it was best to pull the trigger to invest in and purchase in terms of the value of working with a financial planner?

Michael Murphy: So for me, I mean, this is going to be showing a little bit about myself, I guess it came down to my naivete. I wasn’t too familiar with some of these different student loan options that I could choose between and also just this idea of investing in my future and in a retirement plan and trying to set up some of our investments. I’d always heard this idea that you need to start early, but that’s kind of where the advice ended. I didn’t really know where to go from there to start early. So I figured that I should probably reach out to someone that has more experience than me, just like how our patients come to us for advice on their medications, I figured I should probably go to the expert for advice on what to do to set myself up for success. So that’s the reason that Robin and I reached out to someone that had worked with members of our family before to help them plan for their finances. It was someone that we knew and trusted and we knew that we would feel comfortable with. And we reached out to them, and our first visit was very positive. They talked us through what the next six months are going to look like and what we can do to help start paying off our student loans and at the same time, start investing in our retirement and 40 years down the line and what we want our future to be. And I thought that was interesting because initially, I was just going to think about my student loans. But if we start investing now, we’re going to see significantly more benefits later on than if we waited. So I thought all of that advice was really impressive. And it gave me a lot of confidence that I made the right choice to reach out to someone for help.

Tim Ulbrich: I really appreciate your maturity for you and Robin. I feel like — as probably other new grads can relate — I felt like coming out of school at 24, and even though I had $200,000+ of debt, I felt like I liked the topic enough and want to learn about it that I’ve got this myself. And the piece I forgot and it took me awhile to realize is that so much of this, especially for new practitioners, is so complicated with all these moving pieces and parts. But also, so much of this is so behavioral that even if you have the knowledge and especially I think in a situation with a spouse to have a third party help work through a financial plan can be incredibly powerful and keep you accountable in that plan, even if you have the right knowledge. Ultimately, so much of this topic can be behavioral. And Tim Baker and Tim Church just talked about recently about the behavioral biases that come with investing. And so we have been advocating over and over again on this show about the benefits — and while it may not be for everyone — what you should look for, questions you should ask to make sure you’re working with somebody that has your best interests in mind. YourFinancialPharmacist.com/financial-planner, we’ve got lots of information that will help you hopefully find and ask the right questions to be working with somebody that we think will help you holistically and comprehensively work on your financial plan and not just focus in on one piece. And I like what you said there, Michael about obviously, it’s just much bigger than just one part, whether that be student loans, investing or any part of the plan. So finally, I want to shift gears and talk about your involvement in professional organizations because obviously, you had a very notable role as the national president of APhASP and for those that don’t know, again, correct me if I’m wrong, Michael, APhASP I believe is 22,000+ members strong. Does that sound about right?

Michael Murphy: So depending on the year, we usually hang out around 30,000 members.

Tim Ulbrich: OK. I’m underestimating. So incredible number of student members, all colleges across the country. Obviously, a very highly sought-after position. And in my opinion, the office of the president of APhASP is a reflection of really the cream of the crop of students across the country that are seeking this position. So first of all, congratulations and kudos on getting selected for that position. I know I got to see you kind of work throughout that year and had a chance to have you on campus at NeoMed and visit with our students, which I know you provided them a lot of inspiration. And so one of the first questions I want to ask you is, what tangible benefit — and I’m sure there’s more than one here — but what tangible benefits do you feel like professional organization involvement has played for you, both as a student, but also in this transition because I know I hear from many new practitioners, they struggle with the tangible benefit of the membership. And they’re purely looking at maybe the cost of joining and can’t necessarily see how that’s going to play a role in their professional development or other areas. So what did that mean for you as a student and mean for you as you’ve made this transition into residency?

Michael Murphy: So for me, now I think that is a very important question because we need to think about what brings value to the money that we’re spending. I think that’s what is so important about this podcast is thinking about what we are spending our money on and making sure that it is all of value. And one of those valuable experiences that I always know that I will spend money is my membership to APhA. And that’s because it brings value to me when I was a student, it brings value to me as a new practitioner, and it’s going to bring value to me throughout my time as a pharmacist. And that’s because APhA is constantly fighting for the future of the profession to make sure that the pharmacist will always be a relevant and accessible healthcare provider. So for me as a new practitioner, some of the tangible benefits that I have been able to get are resources. So it can be overwhelming all of a sudden going from this shift, from student where you have this safety net to the pharmacist. And it can be scary of all of a sudden thinking that, whoa, I am the last line of defense. I need to make sure that I am as skilled, confident, as possible so that I can take the best care for my patients. And I think that APhA, through their practice division, provides a great level of resources so that you can practice at the highest level of your potential. Additionally, I know that some of the resources that you can gain through attending their conferences are out of this world. I just went to the MP Day of Life for the first time in July in Washington, D.C., and I learned about this woman’s health initiative out of Indiana, and we listened to a woman’s health pharmacist and learned about some of the different resources that they use in their practice to ensure that they’re using the best oral contraceptives for their patients. And I took that resource and I use it just about every day in clinic, where I’m getting questions from different physicians, asking which oral contraceptive do I pick? There’s so many different ones with different ideas. Which one should I use? And it’s nice having this resource that I was able to get because I attended an APhA conference. And then I mean, the tangible benefits, I can go on and on. But for me, some of the greatest value is in the intangible — the relationships that I’ve been able to form with my friends going back from 5-6 years ago when I first started getting involved in APhA to the relationships that I’m forming every day with different APhA members. And one of the things that is nice about APhA is not just health systems pharmacists or community pharmacists or managed care pharmacists. It’s everyone. And you can really find different ways that you can get to know pharmacists from across the spectrum so that you can find out ways that you can help them, and they can find ways to give back and help you in your career.

Tim Ulbrich: Yeah, that’s great stuff. I couldn’t agree more. And I had the opportunity to serve as our chapter advisor of APhASP at Neomed and, you know, what I always heard over and over again is there’s a hesitancy from some students to jump in. But once they jumped in, they got involved in the meetings, they attended a national meeting, maybe a mid-year meeting, they got involved in advocacy — once they saw it, you know, and it became real to them, obviously they caught fire. And that was so much fun to watch. And the follow-up question I have for you is I think we have many students and practitioners that are listening that are thinking, OK, maybe I’ve joined an organization before, but I didn’t go anywhere beyond that. And so they didn’t necessarily see the value in continuing that membership. So outside of, of course, making that initial decision to join, what advice would you have for students or new practitioners to then further get involved so they can really experience the value of their involvement?

Michael Murphy: So I think one of the best things that you can do is to take a small positive risk. And if that risk is you saying that you’re interested in running for a leadership position, let’s say one of the new practitioner network standing committee applications that are going to be due on Dec. 1. Take that small positive risk. If you want to get more involved, you can do it. Take that risk. If you’re a student pharmacist, and you’re saying that “I want to make a difference in my community,” start a new patient care project that follows your passion in your community and reach out to your chapter executive committee to find ways that you can get involved and make a difference out in the community. There are so many ways that you can get involved, but what you need to do is ask. Reach out to your local leaders or to your leaders within the new practitioner network, and find out ways that you personally can get involved. I just heard a interesting quote from one of my preceptors the other day. And I think it’s just perfect. And the quote was, “A hungry person with a closed mouth never gets fed.” So the idea is if you don’t ask for food, you’re not going to get fed. You’re not going to get fed with what you need. But if you reach out, you ask for what you need, then you will see results immediately. So reach out to your local leaders, reach out to the new practitioner network, the new practitioner advisory committee, and they can give you the resources that you need to get involved more, get that full value from your membership.

Tim Ulbrich: I love that. It reminds me of one of my favorite books I read a couple years ago called “Start” by Jon Acuff, and it’s that idea of taking that idea, taking that risk and that next step and inevitably, any time you do that, the next door opens and it keeps going from there. And I think it’s just part of that mindset that you spoke of earlier. OK, we’re going to finish up the show and have some fun. We’re going to put Dr. Murphy on the hot seat. I’m going to give four questions in a rapid-fire format. Quick question, quick answer. So first question I have for you, Dr. Murphy, the greatest opportunity you feel like we have as a profession right now here in 2018?

Michael Murphy: I think our greatest opportunity as a profession is to realize the impact that we can have out in our community. I believe that the future of pharmacy is in the community and is a mixture between the community pharmacist and an ambulatory care pharmacist, working almost as a primary care pharmacist. But we need to advocate for ourselves to our patients and our legislators so that we can make a difference in providing preventative care for our pharmacists.

Tim Ulbrich: What do you think is the greatest threat that is facing our profession right now?

Michael Murphy: The greatest threat, that is a good question. For me, I think the greatest threat is feeling content, feeling like this is as great as it can be. I always know that any situation can be better if we have an innovative stage of mind and we realize that through hard work today, we can see positive results in the future. We just need to get to work today. So I think our biggest threat is just feeling content. But I know that we can overcome that if we get to work today, and we will see results tomorrow.

Tim Ulbrich: What’s one step that those are listening can take to help advance the profession of pharmacy?

Michael Murphy: Reach out to another healthcare professional or to your patient and ask them to write a letter to their local legislator about the impact that pharmacists can make in their lives. And this will show that pharmacists don’t just make an impact, and pharmacists aren’t just fighting for themselves, but other members of the healthcare team and their patients can see the impact of pharmacist-provided care. And that will help advance pharmacy on a state level and the national level.

Tim Ulbrich: Awesome. My last question is I know you’re a learner. So what are you reading these days, either for fun or even to help develop yourself further?

Michael Murphy: Sure. So one of the books that I’m reading right now, and I feel like I’ve been reading this for awhile because residency sure is busy is the biography of Harvey Milk. And he was the first openly gay city legislator of a major city in San Francisco back in the ‘70s. And it’s really interesting reading about how this person fought against all the odds. He fought against all these people that were saying that he didn’t deserve to be a leader, but he knew in himself that he was a leader. And he didn’t listen to those people that were trying to tell him the type of person that he needed to be. He listened to himself. He listened to that voice inside that was saying that he should go out and make a difference in his community. So I love reading biographies because I love reading about how great people became great. And it reminds me of this idea that I once heard from one of my favorite professors — that if I read about how great people become great, maybe someday I can be great. And that’s what I strive for every day.

Tim Ulbrich: I love that, Dr. Murphy, and thank you so much for coming on the show today and for being an inspiration for me and many others as well and, of course, for your commitment to the profession of pharmacy. I really do appreciate it and think many listeners are going to get great value from today’s episode.

Michael Murphy: Thanks for having me, Tim. It was a ton of fun.

Tim Ulbrich: So before we wrap up today’s episode of the podcast, I want to again thank our sponsor, American Pharmacists Association.

Sponsor: Founded in 1852, APhA is the largest association of pharmacists in the US with more than 62,000 practicing pharmacists, pharmaceutical scientists, student pharmacists, and pharmacy technicians as member. Join APhA now to gain premier access to YFP facilitated webinars, financial articles, live events, resources, and consultations. Your membership will also allow you to receive exclusive discounts on YFP products and services. You can join APhA at a 20% discount by visiting pharmacist.com/join-now and using coupon code ‘AYFP18’. For more information about the financial resources we offer in partnership with APhA, visit www.pharmacist.com/yfp

Tim Ulbrich: And one last thing if you could do us a favor, if you like what you heard on this week’s episode, please make sure to subscribe to in iTunes or wherever you listen to your podcasts. Also, make sure to head on over to yourfinancialpharmacist.com/ where you will find a wide array of resources designed specifically for you, the pharmacy professional, to help you on the path towards achieving financial freedom. Have a great rest of your week!

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YFP 068: Pros/Cons of Dave Ramsey’s Baby Steps

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Pros/Cons of Dave Ramsey’s Baby Steps

On Episode 068 of the Your Financial Pharmacist Podcast, Tim Ulbrich, Founder of Your Financial Pharmacist, and Tim Baker, YFP Team Member and owner of Script Financial, discuss the pros and cons of Dave Ramsey’s Baby Steps and how they apply to the pharmacy professional.

Summary of Episode

Tim Ulbrich and Tim Baker discuss Dave Ramsey’s baby steps in this week’s episode by sharing their own experiences and answering questions from the YFP community. Dave Ramsey’s 7 steps include:

Step 1 = Save $1,000 for a starter emergency fund

Step 2 = Pay of all debt using the debt snowball

Step 3 = Save up 3-6 months of expenses in savings

Step 4 = Invest 15% of household income into Roth IRAs and pre-tax retirement accounts

Step 5 = Save for kids college

Step 6 = Pay off home early

Step 7 = Build wealth and give

Overall, Tim and Tim feel that Dave Ramsey’s baby steps lay out are a great framework for an individual or family to follow and then iterate to their own needs. However, these steps aren’t a financial plan and shouldn’t be used solely as one. There are so many scenarios and possible financial goals and plans that differ from person to person. For some, it might make more sense to follow the steps in a different order or to adjust the amount of savings or contribution toward retirement. Often times steps 5, 6 and 7 are happening simultaneously instead of consecutively following one another once the previous one is completed. It’s important to weigh the emotional part of your financial journey, your attitudes, and feelings toward debt and your goals, and what time frame you are working with when thinking about paying off your debt. These steps don’t include other important aspects of creating a financial plan, such as obtaining disability insurance, potentially using the avalanche method when paying off debt, or really take into consideration the amount of student loan debt a pharmacist graduates with.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Welcome to Episode 068 of the Your Financial Pharmacist podcast. Tim Baker, excited to be back together on the mic. I think it’s been awhile, right?

Tim Baker: It has been awhile. I feel like we cultivated this baby in the podcast and I’ve, like, been absent for the last few weeks. So I’m excited to be back on.

Tim Ulbrich: Yeah, we had a great month in the month of September doing home buying, all things home buying. Nate Hedrick, the Real Estate RPH joined us. Excited about the partnership with Nate. Excited also to jump into the topic we have today, discussing the 7 baby steps that many are familiar with, recommended by Dave Ramsey. We’re going to talk about the pros and the cons and how we think they do and don’t fit to a pharmacy professional. And we’re going to weave in throughout the show feedback from you, the YFP community, that we’ve gotten via email, the YFP Facebook group and via LinkedIn as well. So Tim, it’s my understanding you’re out at the XYPN meeting right now, correct?

Tim Baker: Yeah, I’m in St. Louis for XYPN Live. I think this is the fourth annual meeting. So XY Planning Network is a group of fee-only CFPs that are trying to bring financial planning to kind of the Gen X, Gen Y generation. So yeah, it’s been good to, you know, rub elbows with some of my colleagues and just get good ideas and bring them back to Script Financial and see how I can better serve clients. So it’s been a good week so far.

Tim Ulbrich: And you’re rocking your YFP T-shirt today? Is that right?

Tim Baker: Yeah, I’m flying the flag, Tim. So you know, we’re going to be talking to a lot of different vendors and things like that. Actually, it’s funny. I was telling you before we started recording that people, you know, my colleagues have kind of noticed what we’ve been doing on the YFP side of things and have taken interest in that. So it’s kind of cool to see that, and yeah, so definitely rocking the YFP T-shirt today.


Tim Ulbrich: Exciting time. So let’s jump into this topic. You know, when I think of the Dave Ramsey 7 Baby Steps — and we’re going to link to them in the show notes, and I’ll talk about them briefly — but for those that are not familiar, we’ll go through them quickly and link to more information. This is such an emotionally charged topic, and so when we posted this week, I said, ‘Hey, YFP Facebook group, YFP community, we’re going to do a podcast recording on the Ramsey 7 Baby Steps. What do you think the good, the bad, how does it work? What are the pros and cons? How does it apply to a pharmacist or not? And for our community personally, those that have walked through this step, what are some success stories or challenges they’ve had?’ So I think based on the response that we got in that post, we’ve got lots to talk about. So you ready to do this?

Tim Baker: Let’s do it.

Tim Ulbrich: Alright, so onto the show. Here’s what we’re going to do. I’m going to walk through briefly the 7 baby steps, so for those that haven’t heard of them before, are not familiar, I’m going to talk about them very quickly. Then, I’m going to get Tim Baker’s thoughts on his opinions at a high level. What does he think about the baby steps? Where do you they work? Where are maybe some areas that need more flexibility? And when it comes to advising his clients, where has he seen these work in both the success route but also in maybe areas that he may disagree with. Now, we’re going to weave in some comments and feedback from the YFP community throughout. So Dave Ramsey’s 7 Baby Steps. If you haven’t heard them before, here they are in order:

Step 1 is save $1,000 for what he calls a starter or a baby emergency fund. Now, we’ll come back and talk about this. We talked in Episode 026 baby stepping into your financial plan, two things to focus on first, which an emergency fund was one of those. We’ll link to that in the show notes. And we also have a blog post on why having an emergency fund matters, so if you want to learn more about this topic, we’ll link to that as well. So Step No. 1, baby emergency fund, $1,000. This is all about getting a quick win and making sure you’re starting to build some protection into your financial plan.
Step No. 2, probably the step, Tim, that causes the most debate — pay off all, all debt using the debt snowball.

Tim Baker: Right.

Tim Ulbrich: So this is referring to credit card debt, student loan debt, car debt. The only exception here to the word all is mortgage, the primary residence, which we’ll talk back and we’ll come back to this in Step No. 6. So Step No. 2 is pay off all debt except for the mortgage using the debt snowball. And we’ll talk about what that means and we’ll dig into that further.

Step No. 3 then is save up 3-6 months of expenses in an emergency fund. So we mentioned Step No.1 is save $1,000 for a starter emergency fund. Step No. 3 is to build up a full emergency fund, which is 3-6 months of expenses. Now, one that he doesn’t publish on his website but he talks often about is Baby Step 3b. And this, I think, Tim, is codeword for “Woops, I didn’t really think about a home. Where should I put it?” So it’s Baby Step 3b, which is save 10-20% down for a home. And I’ve actually heard him reference 10% in some areas, his Financial Peace University class, but also 20% on his podcast. So that’s Step No. 3 and 3b.

Then Step No. 4 as we’re working through these one by one is invest 15% of household into Roth IRAs in pre-tax retirement accounts. So invest 15% of household income into Roth IRAs and pre-tax retirement accounts.

Step No. 5 is save for kids’ college.

Step No. 6 is pay off the home early.

And Step No. 7, probably the most nebulous one, is build wealth and give.

OK, so those are the 7 Baby Steps, and I think it’s worth noting that his recommendation that I’ve heard throughout the podcast and listening to it over the past several years is that steps No. 4, 5, and 6 are actually happening together. So of course you’re not going to invest in 15% possible income into Roth IRAs and pre-tax retirement accounts and be done and check it off. That’s going to be ongoing. Saving for kids’ college is going to happen over a period of time. And paying off the home early will happen over time as well. So steps 4, 5, and 6 are happening over time. So there you have it, the 7 Baby Steps. And I can speak a little bit from personal experience. My wife and I used the 7 Baby Steps in our journey paying off $200,000 of student loan debt. And we worked through them, we made some modifications along the way, which I think is going to lend itself nicely as we get some questions and feedback from the YFP community. So Tim Baker, your thoughts and opinions at a high level on the 7 Baby Steps. Where do they work? And in your experience working with clients, what are some of the successes you’ve seen in clients using these seven baby steps? And where do you think they maybe have a little bit more downside or maybe points of contention?

Tim Baker: Yeah, I think that as a framework, I like it. Now, I think that’s part of the problem with financial planning — because this is essentially like a framework of a financial plan. And I think a lot of people will throw some shade towards Ramsey because, you know, they say, well, it’s not a one-size-fits-all. And I think financial advisors will sometimes give him some backlash because of, you know, he’s too focused on the debt. And if you remember me talking through like, you know, a lot of advisors are paid based on investments. So they’re not incentivized for you to work through your credit card debt or things like that. And then I think there’s just some disagreements about like his particular investment choices. But as a framework, and I think in some of our engagement with the Facebook group and LinkedIn and things like that, there are people that are identifying, saying, ‘Hey, we’re in Step 2. We moved to Step 3, and then we had to move back,’ things like that. So it is more or less a working financial plan that people can identify with and at least benchmark off of. So I’m in favor of that, and I think it’s good to kind of get the blood up a little bit and talk about these things. But I think there are some people that maybe are a little bit more financially savvy that, you know, have their ducks in a row. And they say, ‘Well, this isn’t necessarily how I would do it.’ But for a lot of people that aren’t in that position — and I come across a lot of them, and they eventually become clients, which is a good thing. Where should I put an emergency fund? How much? Why 15%? And what’s a Roth IRA? That type of thing. And I’m not really being facetious, I think some of these things are, they’re true. So for people that go through Dave Ramsey stuff, you know, there’s an assumption, I think, afterwards that they’re going to know more or less which direction they need to go. And from a financial advisor’s standpoint, they don’t necessarily make good clients because they feel like they’re set. But I do think that there are some strengths but also limitations to me overall to the 7 steps. So for example, you know, if I look at the first one, save $1,000 for your emergency fund. You know, I do have clients that are in this position where they have, you know, hundreds of thousands of dollars of student loans, but they have $30,000 or $40,000 worth of credit card debt. So you know, we’re just trying to dig our way out of, you know, paying through the credit card debts but then, you know, having a buffer of like $1,000, that’s a huge step in that direction. So even — you know, some people might look at this like eh, this isn’t for pharmacists. I would say not so fast. There are some situations where that’s going to be true. So like the way I talk about, and I think we talked about this in Episode 026 of the podcast is, you know, let’s baby step our way into that kind of the foundational part of the financial plan, being the emergency fund. So I look at it as kind of look at it in phases. So maybe Phase 1 is $1,000. And as we work our way through some of the — and I think about more the consumer, not predatory debt, but in that where you’re 16-17% — to focus on that first and really not tend too much to the emergency fund. But as you work your way through that, Phase 2 might be to get that to $5,000 because the fact of the matter is, if you’re a single pharmacist and you have a good amount of credit card debt and student loan debt, that alone with your rent could put your emergency in the $20,000-25,000 because you’re multiplying that monthly number by 6, essentially. So for a lot of people to get to that number, they’re going to default on their credit cards before that happens.

Tim Ulbrich: And I think that’s probably the most common thing we hear from pharmacists is they look at this and say, ‘OK, Step 1 is I need a $1,000 baby emergency fund. Step 2, I have to pay off all my debt.’ And so they may be looking at who knows? $200,000 in student loan debt, $20,000 in credit card debt, a $20,000 car note. Then I need to get a full 3-6 months of an emergency fund and then I start thinking about investing. I think that’s the piece where people are like, wait a minute. I’m not going to be investing for 10 or 15 years? And we’re going to come back to that because I think that, you know, the framework, as you mentioned, obviously — and Dave would admit this — is that mathematically, this is not the most advantageous framework to operate from. It’s really a behavioral framework to help people really get the motivation and the mindset and to have some structure around the steps they’re working through. And if we have a thousand people listening to this podcast when we release it, at the end of the day, we have a thousand different financial situations. And I think that speaks to — to your point — that speaks to that this plan by itself probably should not, in my opinion, stand alone but could be paired with the work of a financial planner, could be customized. And I think that if you look at the plan in and of itself, it’s not meant to be a standalone. It doesn’t deal with issues like insurance, end of life planning, investing strategies. You know, we got some feedback from the Facebook group, which I thought was cool. Matt said that he agrees with a lot of the baby steps in terms of them being introductory and getting yourself on track. They’re a good blueprint to getting out of debt. The only problem is what to do after the steps are complete, so they’re not wealth-building steps. And so if you look at Step 7, this idea of building wealth and giving, obviously that’s not necessarily a blueprint for what you should be doing in terms of investing and saving and strategies and end-of-life planning and all those other things that come along with it. However, I will say for those that are listening — and my wife and I just experienced this firsthand — if you feel like you are extremely overwhelmed, don’t know where to start. If you and your spouse maybe where applicable are having difficulty getting on the same page, I think that these steps or it could be another stepwise approach, but having a stepwise approach that you’re working together and achieving and feeling like you’re getting momentum forward, even if that’s not necessarily the most mathematically advantage approach, you can’t speak enough to the value of getting momentum and getting those wheels going forward. Because Tim, how many people do we talk to that say, ‘I’ve been spinning my wheels for seven years, and I feel like I haven’t made much progress,’ right?

Tim Baker: Right. And we’re proponents of — I think there’s some weight to the emotional side of the — we talk about this in the student loan course over and over again. It can’t be just about the numbers. And of course, we’re talking about, you know, for a lot of people, does it make sense to look at PSLF versus not? And in this scenario, in these seven steps, PSLF I don’t think would even be entertained because if you’re trying to pay off in Step 2, the non-mortgage debts as quickly as possible, it’s not even a thing. So if you’re someone that has a lot of student loan debt, and you have the emotion behind it that, hey, you’re anxious or you’re concerned, you can’t sleep at night, these are all things that people have said to me. Then we weight that somewhat heavily because it doesn’t make sense to take a more maybe of a reactive approach, say from a Public Student Loan Forgiveness, and you want to just be more reactive to that. But I think to your point, Tim, that people get riled up about this because potentially in some situations, especially for pharmacists, you might be waiting 10+ years to start putting any money towards retirement and not, you know, capitalize on match and things like that. And I think that’s where I fundamentally disagree with this model.

Tim Ulbrich: So before we go into some of the more detailed questions, let me read off some of those that commented from the Facebook group that talk about the support of this model and I think some of the positive aspects of the success that it can lead to and the behavioral aspects of the model. And then we’ll dive a little bit deeper into maybe where tweaks could be made to this model, depending on individual situations and scenarios.

So Scott says, “The plan is great. It teaches you to focus on just a few things and do them with intensity. You also need to keep in mind that he only teaches very low-risk strategies. If you lost everything like he did, I’m sure you’d have a similar mindset.” So what Scott’s referring to there, if you haven’t heard his story before, Dave essentially — I think it was in his mid-20s — got pretty deep in real estate investing, kind of lost everything. But I do think to his point, as I think through Jess and I going through this approach, intensity is a good word, right?

Tim Baker: Yeah.

Tim Ulbrich: Because when you’re going all in on one step and you’re singularly focused — and yes, to the comments we received, yes that may be at the expense of other things — but that singular focus has to be factored in somewhere into the equation with the mathematical components as well.

Tim Baker: And I think he uses — what does he use, like gazelle-like? You want to be gazelle-like. I think that’s his term. And I see that, you know. I have clients that come in, I want to buy a house, I want to travel the world, I want to start saving for my kids’ education. There’s I want to pay for my wedding, there’s a million different things. And part of my job is to cut through some and say, OK, what’s most important? Because you can do a little of a lot of things, or you can do a lot of one or two things. Typically, the latter is a better prescription for that.

Tim Ulbrich: Dalton says, “You can’t really argue with its effectiveness. The number of people who have gotten out of debt and built wealth through his plan are incredible. He even acknowledges that the plan doesn’t necessarily make mathematical sense all the time because the benefits of compound interest and retirement savings but always follows that up with the fact that being in debt doesn’t make mathematical sense either because if personal finance was all about math, people wouldn’t spend more than they make. I think that it makes sense for pharmacists mostly if they live like a college student still after graduation. You could actually pay off your loans decently fast, as long as lifestyle creep doesn’t happen.” And then he goes on to talk a little bit more about Baby Step No. 2. So let’s jump in there because I think we had a couple questions from the group about Baby Step 2, which makes sense, right? Because pharmacists are facing average debt loads of $160,000. So Dave Ramsey, in speaking to whatever, 5 or 10 million listeners every week, obviously their average debt load is not $160,000. So that is a unique piece to our audience. And Cole asks the question, “I’d love to hear your thoughts about stopping retirement investing and losing the match while in Baby Step 2.” So talk to me about your thoughts as you’re working with clients, typical pharmacist, $160,000 of debt, maybe you’re thinking about this in the frame of these baby steps. We’ve talked before about the match being a no-brainer, let’s take it. But how do you balance this retirement and student loans or at least looking at the match component while in Baby Step 2.

Tim Baker: Yeah, so just a comment on Dave and like the student loans. Like, I think when I first started hearing some of his stuff about the student loans, like he would almost fall off his chair when like a doctor — I think for awhile, I think a fair criticism of him was that he was a little out of touch. And I’ve seen some things where he’s like almost browbeat people, and that’s not productive. But I think in more recent times, he’s come around and he understands a little bit more about the student loan picture. So that’s the first thing. I think the third thing for me personally is — and I say this when we speak to pharmacy schools and, you know, different organizations is — you know, they say the two certainties in life: death and taxes. And I would add that you should, for the most part, match your 401k or your 403b. I think that is for the majority of people the thing to do because it’s one of those things that the whole thing, it’s free money. Unless you’re in dire, dire straits from a predatory or some type of debt, I wouldn’t do it. If it’s student loan debt, absolutely. You need to be doing the match.

Tim Ulbrich: So death, taxes, and the match are three certain things in life?

Tim Baker: I think so. That’s Tim Baker’s amendment to that. So I think by and large, if you’re not doing that — because most of the time, especially because it comes out tax-free, you’re not missing it. So if you’re an employer — and most employers, it’s 3%, 5%. It’s not like you’re asking to give up 10%. Some are structured like that to get the full match, but to get the full match is typically a small percentage of your income. So that would be my thoughts there. And you know, I kind of with the invest the 15% of household income, I kind of say as a general rule of thumb, which these are, to start getting it in your brainpiece for newly minted pharmacists and new practitioners is a race to 10%. Because what often happens is that you do get the match, you get 5%, and you have the 401k inertia. I talk to you years later, and you haven’t increased it at all. So in their mind, I try to plant the seed. It’s a race to 10%, so if you couple that with the match, you know, you are in that 15% range. And that’s typically, when we do the nest egg calculations, which we did on the APhA webinar here recently, the Investment 101 and 102, the nest egg is going to show that that is, more likely than not, true to be in that range.

Tim Ulbrich: Yeah, and I think this is a great example as you think through Baby Step 2 and this question that Nicole throws out there is that this is not a black and white framework, as we’ve already talked about, especially with everyone’s customized situation. So if you’ve heard Dave talk on the podcast or taken any of his courses like Financial Peace, I think he uses an average time range of debt repayment too of about 18 months or less. So again, a pharmacist with $160,000 as a graduate does not match the national average of somebody coming out from undergrad with $25,000-30,000. Now of course they have a higher income potential, but he’s then under the assumption — when you think about steps 3, 4, 5, 6 and so on — that that debt in Step 2 is going to be gone quickly. Now, if you’re somebody listening that’s got $30,000 or $40,000 of debt, maybe that’s the case. But if you’re somebody that has $200,000 of debt, you know, unless you’re hustling like Adam Patterson-style, Tim Church-style, that’s probably not going to be happening. So now, you have to have this discussion and balance and work with somebody like you as a financial planner to say, OK, what is this timeline of debt repayment? Not that we’re going to carry this on forever, but what is the debt repayment strategy? And then how do we now fit retirement savings into there. Because you and I would both agree that if somebody’s paying off their loans for 10 years, probably not contributing to retirement is not a good idea. Not probably — it’s not a good idea.

Tim Baker: Right.

Tim Ulbrich: But if somebody’s hustling for 2-3 years, that conversation is very different, especially if there’s some behavioral momentum that’s going to be happening. Now, I would agree with you 100% that that match is a given in all of those situations, it doesn’t matter whatever the debt repayment period is in my opinion. I think that that should be there.

Tim Baker: Yeah, and I think the other thing to take note of, call out here that I commend for him is, you know, he’s talking — again, I’ve listened to him talk to doctors that have a truckload of debt. And he’s like, “Oh, you’ve got to hustle.” Even though the make hundreds of thousands of dollars, he’s encouraging them. He’s like, you’ve got to take up, you’ve got to get extra shifts. So he’s not resting on your laurels just because you make a six-figure income. So you know, the people that we’ve highlighted, the Pattersons, the Churches, they’re trying to hustle. They’re thinking of additional ways to increase income, which I think is something that kind of falls by the wayside because we’re always talking about how can we cut our expenses? But it’s a two-sided equation. So I would say that that is something to focus on as well.

Tim Ulbrich: Yeah, and just to wrap up this Baby Step 2 and how do you balance the loans with the investing and what’s your time period, I would say that, you know, for many listening, the answer’s going to be different. We’ve talked a lot on the podcast before and live events that we’ve done about how do you make this decision between investing and paying down loans. I don’t think we need to get in the weeds here, but this really comes down to the factors like interest rates, what is your feelings toward the debt? How is your investing style? All of these things, and for everyone listening, that answer’s going to be a little bit different, which will obviously help determine where you’re going to go with that. Tim, Tyrell asks that he says that he’d like to hear pros and cons of paying off house versus student loans if working toward PSLF or towards PSLF or other forgiveness components. So he’s talking about working for a qualifying company, pursuing Public Student Loan Forgiveness, and obviously then that changes your strategy about paying off your loans, correct?

Tim Baker: Yeah, because, you know, typically, the way to optimize that strategy is to take, you know, Step 4, which is invest 15% of Roth IRA and pre-tax retirement accounts and really cross off the Roth because the Roth is after-tax and put as much money as humanly possible into pre-tax retirement because what that effectively does is lower your adjusted gross income, which affects how much you — which is the number that calculates your payment for student loans. So the lower that your AGI is, the lower that your payment is, and the more that you potentially will be forgiven. So there’s a lot of moving pieces to that. So I would say if you’re weighing paying off a house versus student loans, to me, the picture is are we getting the $18,500 into the 401k or the 403b maybe since it’s a nonprofit. Are we maxing that out? You’re probably not afforded a pre-tax IRA deduction because pharmacists typically make too much. But are you maxing out the $3,450 or the $6,900 if you’re a family in the HSA to get that if you have a high deductible plan. Once those things are checked off, then I would say, OK, you know, what are the goals? And maybe paying off the house is that. But if that house is, you know, if the rate’s 3.25, I don’t know. I don’t know if that’s the best way to go. Some people, again, I know Leah Donnells made a comment on this, and she’s a client of mine, and her mantra is, their mantra is they want to get through the debt as quickly as possible. So they, regardless of what the mortgage or interest rate is, they want that out from underneath them. And I can’t blame them because if you think about, hey, we’re striving for financial independence, what is a greater measurement of that when you don’t have to pay the bank your rent or mortgage anymore? So Tyrell, that’s a good question. But again, there’s a lot of moving pieces and I would say focus on the pre-tax accounts and max those out before, you know, throwing more money towards the house.
Tim Ulbrich: So Tim, you know Dave’s a big advocate in Step 2 about the debt snowball. And Ryan in LinkedIn says, you know, as he’s talking about the pros and cons of this model, he says, “Why should I use the debt snowball method? It works great for those people who really benefit from the psychological impact and reward of paying off small debts. But for those who don’t benefit from it will potentially spend more money in the long run.” So give us the quick overview of the debt snowball, how that contrasts to the avalanche method. And as you’re working with clients, how do you guide or advise them in terms of which of those methods may work best for them?

Tim Baker: So the debt snowball method is basically where you write out all of your or you have all of your debts laid out: what kind of debt it is, what the interest rate, what the minimum monthly payment is, and what the balance is. And the idea is to pick the debt that has the lowest balance and pay the minimums on all the other debts. And then for the one that has the lowest balance, you want to pay as much toward that as humanly possible. So when that one falls off, when that debt is paid and dead and gone, then you roll that payment into the next lowest balance. And then when that one falls off, you roll that payment into the next lowest balance. So this is really trying to clear liabilities from the balance sheet. And the idea is that that gives you, if you focus on the lowest one, it gives you a psychological advantage, it gives you momentum, that type of thing. The avalanche method, in contrast, is where you do the same thing except the priority payment is based on the interest rate, not on the lowest balance. So you want to focus on the highest interest rate — this is typically credit card debt and that type of thing — and you pay the minimums on everything else. And then when the highest interest rate falls off, then you direct your attention to the next highest interest rate. So from a math perspective, this makes the most sense because you want to clear those debts off that you’re paying the most interest on. So that’s really the difference between those two. Now, working with clients, theoretically, I coin flip. It’s one of those things where from a math perspective, yes, it does make sense to do the avalanche. But it’s the same thing with everything else. If you’re doing this on your own, don’t get into the paralysis by analysis. Just pick one method and go. For a client that I have, you know, $30,000 of credit card debt with that’s spread out across 20 different cards, to me, it’s just about clearing the balance sheet so she can, you know, work through those effectively. So now, it’s more of an organizational thing. So in that situation, we’re employing the snowball method because it’s almost unwieldy to handle. So it just really depends on where your mind is, if you’re running the math and you’re maybe less emotional towards it, avalanche. If you’re thinking that, hey, it’d be really nice to log into your credit card account or if I plug my client portal that you can sign up for on my website, Script Financial, you can see all of your, you can link all of your accounts and see a dynamic net worth statement. If you see a list of liabilities there that’s $10,000, $12,000 deep, and you really want to log in in six months and see $6,000, then I would say probably the snowball method would be the better route to go.

Tim Ulbrich: Yeah, and I think the time period is critically important here as well, right? So if you’re talking about a wide array of interest rates over a long period of time, say 10 years, obviously the math on that is going to become more advantageous toward the avalanche method. If you’re talking about I’m going to pay off whatever debt we’re referring to in a short period of time, and the interest rate’s aren’t that different, or some combination of that in a couple years, then obviously the math doesn’t matter as much. Does it still matter? Yes, of course. But you have to, again, make this determination about your own behavioral patterns and choices and how important that momentum is or is not. And as I think back to the journey that Jess and I took, that momentum for us was critical, even at the expense of paying a little bit more interest because as we were going through whatever step, let’s use Step 2 as an example, if we were going through a snowball method, if I knew we needed $2,000 more to pay off this loan to get to the next one, we were that more motivated to stay on budget or to look for additional opportunities to earn income, whatever it be, that I’m not sure for us collectively as a couple, we would have been as motivated if we would have been working that through the avalanche method. So did we spend a little bit more interest? Yes. But did we get it paid off faster? For us, I think we probably did. But again, back to the point of customization for somebody else listening, somebody else commenting, that may be a very different situation if for them, it’s very black-and-white, and they can work the system going through the interest rates. I want to encourage for a minute. Amber posted on the Facebook group that, “My spouse and I follow these baby steps, and they are great for getting out of debt. Our problem keeps showing itself on Step No. 3, which is the full 3-6 months of emergency fund. We complete it and are ready to move on, and we have somewhat. But then, wham, something happens and we are right back on No. 3. We’ve been stuck like that for several years now, but living without debt is really freeing and wonderful.” So I think again, it speaks to the power of getting out of debt. But I think is something Jess and I felt as well is that when you talk about something like paying off debt, it can be very exciting to see that balance come down. When you talk about investing, it can be very exciting. Building an emergency fund is not necessarily super exciting. And so obviously, they’ve had some things come up that have derailed them from doing that. But I think for those that are in the grind of building an emergency fund, to your point earlier about how much that could be, $15,000, $20,000, $25,000, $30,000, $35,000, that’s not super exciting. But it’s certainly a critically important step and a foundational part of a financial plan. Tim, wanted to get your thoughts on this. This I think speaks to I think maybe where you have some customization to this seven-step plan. Katie says, “After graduation, we DR’ed our way to becoming debt free.” I love that he has his own DR.

Tim Baker: Yeah, when do we get YFP’ed?

Tim Ulbrich: Seriously, YFP our financial plan, right?

Tim Baker: Can we hashtag YFP’ed? Get that trending on Twitter maybe?

Tim Ulbrich: I like that. Be a trademark, yeah. “The main tweaks we made in the beginning were splitting steps 2 and 3 equally, so equal amounts going toward the emergency fund and debt reduction until we had enough saved, and then we maxed out our own tax-preferred accounts before kids college. It’s not a perfect system, great for debt elimination, not ideal for investing, but it’s simple and gives a roadmap for those starting out. It worked well for us.” So what do you think about that idea of balancing the savings for emergency fund with paying off student loans or other debt?
Tim Baker: Yeah, I mean I think that’s exactly what the point is is like, this is a template for then people can iterate off of. And this is what I was talking about with like having, you know, Phase 1, Phase 2, Phase 3 in terms of, you know, Phase 1, it might be get the $1,000 or $2,000. Have a emergency fund that probably covers 80% of emergencies in your situation. And then from there in Phase 2, now maybe go through and start paying off debt and apply maybe little. I think this is a perfect example of how, you know, they looked at the situation and said, well, this doesn’t work entirely for us, so we’re just going to iterate. And again, bias, you know, I think they did it well themselves working off the two of them, but this is where I think a financial planner can come in and provide a little bit of guidance and objective opinion and say, this is what I would do and these are the recommendations. So I think that’s the power of this is people look at it as a benchmark and then they can iterate off of it and apply it to their own lives.

Tim Ulbrich: Absolutely. And so just to build on this a little bit more, Mark asked and has a comment in the Facebook group, and I can speak to this one. I dealt with this last year. He says, “I’m on Baby Step 2 and I’m really concerned about this idea of not having a credit score. Has anyone used manual underwriting to buy a house? And probably because I don’t fully understand a credit score, but I’m a little concerned about not getting a job because of it.” So I think what he’s referring to is that Dave’s a big advocate for no credit cards, cut them up, get rid of them, pay off all your debt, etc. And obviously, there’s some concern about having no credit when it comes to purchasing a home. If you currently are paying a mortgage, Mark, what I learned throughout this process is that that mortgage payment will still provide you with a credit score. Now, if you don’t have a mortgage and you have no credit cards, then obviously after a period of time of having no credit cards and not making mortgage payments, your credit score will effectively be reduced to 0, which could present problems when it comes to purchasing a home. You certainly could do manual underwriting. There is lenders that are out there that do that, just give yourself some more lead time. It will probably take more time. And we didn’t experience this or get to this point, but I’ve heard — Tim, I don’t know if you’ve heard — that sometimes in a manual underwriting process, you may end up paying a little bit higher of an interest rate.

Tim Baker: Yep.

Tim Ulbrich: So something to balance and think of throughout that process. Tim, want to get your thoughts on this. Lisa says, “I definitely don’t think Step No. 4 should be No. 4.” So No. 4, again, is 15-20% into retirement savings and tax advantage accounts. She said, “It should be closer to No. 1. I have always been taught that saving for retirement as early as possible is a necessity and you should think of that 10-15% money as unusable for anything else. So whatever your net income is, write 10-15% off, and that is your new net income. It’s very easy to push that kind of saving off.” So here she says, “For me, it was more like year one post-graduation, it was Baby Step 2 was immediate, very high interest debt like credit cards.” Then she went to Step No. 4, setting up 401k. Then went to Step 1 and 3 of saving an emergency fund. And then as she went into year two post-grad, she further went into Step 4, saving enough to put max in a Roth IRA, into retirement. And then year three post-graduate, she went back into Step 2 to pay off student loans. So I think the risk that I would have with this — I certainly fundamentally agree with what you talked about before of getting that race to 10%, right? Getting that behavior set up for retirement. But doing that at the expense of any emergency fund, I think you’re putting yourself in a risky situation. Would you agree?

Tim Baker: Yeah, I would. I mean, I probably would put it as, you know, maybe 1a. So I think — you know, I was talking to a prospective client the other day, and I was asking him, you know, if something were to happen from an emergency standpoint, what would you do? And the answer is kind of like, eh, credit card or bank of mom and dad. And I think those are two habits that we probably need to wean off of and break. So I’m always — you know, it’s not the sexiest thing, although I get jacked up every time, you know, an interest rate happens. We’re both Ally proponents. Whenever you get the interest payment in your emergency fund, I think that’s cool. But I’m a big proponent of having some cash set aside for those emergencies and then get serious about at least getting the match. That’s kind of how I view it.

Tim Ulbrich: So as we wrap up this episode, Tim, I think that as we look at this framework, I think you and I would both agree that it’s meant to be exactly that. It’s meant to be a framework, it doesn’t apply to everyone’s personal situation, there’s caveats. And again, I think that speaks to the power of individualized, customized financial planning. And I would highly encourage our listeners, if you’re not a part of the YFP Facebook group, head on over, join the group, there’s great conversation going on on this topic as well as many other topics related to your personal financial plan. And that group is really all about encouraging, motivating and inspiring each other in this community of pharmacists, all committed to being on this path towards achieving financial freedom. So Tim, any last thoughts here on the Ramsey plan as we begin to wrap up the episode here?

refinance student loans

Tim Baker: Yeah, I would just say, we didn’t focus too much on 5, 6 and 7. You know, I would just say that, you know, the whole saving for kids’ college, that’s not a given for a lot of people, even pharmacists that have gone through kind of student loan hell. That doesn’t necessarily mean that they’re in a position or even there’s a want to do that. So that might be something that we can, you know, address a little bit more in the future about different strategies to do that. And I would say paying off the home early, we addressed that a little bit. It also depends, and finally, I think No. 7 is kind of like, you get to the end of this and you’re kind of released out into the wild and to build wealth and everything is good. But you know, for build wealth — for what purpose? You know, I often say that typically the way that I price my services is based on income and net worth, which is great because I’m incentivized to kind of help you grow income and help you grow net worth over time. But if we fast forward 20, 30 years, and you’re sitting on $10 million but you’re miserable because you haven’t done the things that you’ve wanted to do, then that’s not a wealthy life. So I would say build wealth, but to what end. So last year, you know, you did an episode on giving, which is part of kind of 7b in the build wealth and give. But not everyone has that same worldview, so you know, some people are, they want to give 10% right off the bat of their income, you know, even if they have debt. Some people are even if they don’t have debt, they don’t really feel inclined to give. So it’s just different. But I would say that a big one that’s probably missing from here, especially from a pharmacist’s perspective is disability insurance. If you don’t have any coverage at all from an employer, the ability to work and earn really needs to be protected. So that would be one of the things that I would probably edit from a pharmacist’s perspective. But I think it’s a great list, it’s a great template to look at and to build off of and to iterate for your own purposes. So I think this is a great episode because we had a lot of engagement on the Facebook group, and I hope it keeps going because I think people learn when we shine a light on it.

Tim Ulbrich: Yeah, and to your point, I think we’re going to come back and do a lot more on all of these topics, but especially in 5 and 6, you know. We haven’t done a ton on college savings. And that’s an interesting one because I think especially as we think about pharmacists coming out with such high debt loads, I think there’s a tendency, myself included, to maybe put that one at a different priority than it should be because you’re compensating from your own experiences, and you don’t want to put your own children through that. So you know, 529s, ESAs, what’s the strategy? What’s the timing of that? How do you balance that with retirement, your current debt, all those other things? And then as you mentioned, even in Step 6 and the home, how you prioritize that, what’s your interest rates? What’s your other goals related to real estate? What’s your motivation? Do you care about the debt? Do you not? How do the new tax laws impact all of that? We’re going to come and talk more about that into the future. So I think there’s lots of people that are out there listening today, Tim, to this episode, that are thinking of the Ramsey plan, thinking about the framework but are finding themselves spinning their wheels with their own financial plan, lots of competing priorities coming at them, not sure in what order and how this applies to their own personal situation. And as we talked about, this plan is not intended, the Ramsey steps are not intended to be a standalone financial plan. And so I know personally, you have lots of clients who know these steps, maybe some are following them to a T, others are not. But they still value the one-on-one approach in terms of working with you and working with a financial planner. So for those that are listening that want to take that next step, get engaged with you as a financial planner to learn more, what’s the best next step they can do to do that?

Tim Baker: Yeah, Tim, it’s super easy. You can either go to the Your Financial Pharmacist website and click on the “Hire a Planner” tab at the top and then you can schedule a free call on that page. Or just go to ScriptFinancial.com and on the homepage, you’ll see a “Schedule a Free Call” button there. So those are really the two ways to find me and schedule a free call.

Tim Ulbrich: So again, that’s YourFinancialPharmacist.com. You can click on “Hire a Planner,” and then from there, you can schedule a free call with Tim Baker to discuss next steps. So Tim, great to be back on —

Tim Baker: Yes.

Tim Ulbrich: the podcast with you. Have a great time at the XYPN conference. And we’re certainly looking forward to having you back as we continue with some great content coming forward.

Tim Baker: I’m going to be YFPing this conference. Trending on Twitter.

Tim Ulbrich: Awesome. Love it. Love it. So as we wrap up today’s episode of the Your Financial Pharmacist podcast, I want to take a moment to again thank our sponsor, Splash Financial.

Sponsor: If you’re looking to refinance your student loans, head on over to SplashFinancial.com/YourFinancialPharmacist, where in just a few minutes, you can check your rate. Splash’s new rates are as low as 3.25% fixed APR, which can literally save you tens of thousands of dollars over the life of your loans. Plus, YFP readers receive a $500 welcome bonus for refinancing with Splash. Again, that’s SplashFinancial.com/YourFinancialPharmacist.

Tim Ulbrich: Thank you so much for joining Tim Baker and I on this week’s episode of the Your Financial Pharmacist podcast. Next week, Tim Church and I will be tag-teaming some updates related to student loans, including the latest on the Public Service Loan Forgiveness program. Also, for those graduates that are getting ready to come out of the grace period and enter active repayment, we will talk about repayment options and strategies. If you like what you heard on this week’s episode, please make sure to subscribe in iTunes or wherever you listen to your podcasts. Also, make sure to head on over to YourFinancialPharmaicst.com, where you will find a wide array of resources designed specifically for you, the pharmacy professional, to help you on the path towards achieving financial freedom. Again, thank you for joining us, and have a great rest of your week.

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YFP 053: One Pharmacist’s Journey from Financial Ignorance to Financial Independence

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On Episode 053 of the Your Financial Pharmacist Podcast, YFP team member Tim Ulbrich interviews Dr. Tony Guerra, an author, podcaster, entrepreneur, real-estate investor, educator and father to triplet girls that has an incredible story to share going from financial ignorance to financial independence. Tony talks about his financial journey, his various business ventures, and how and when his mindset shifted that allowed him to be on the path to financial independence.

About Our Guest

Tony Guerra graduated with a Doctorate of Pharmacy from the University of Maryland in 1997 and has followed a non-traditional career path to best suit his needs and interests. Tony has taken on the roles of pharmacist, homeowner, professor, real estate agent, author, mentor, podcast host, husband, and father of triplet girls while continually striving for financial independence. Through motivation and creative entrepreneurial thinking, Tony has created a lifestyle that allows him to focus on his family and his passions.

You can learn more about Tony and his work at http://MemorizingPharmacology.com

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 053 of the Your Financial Pharmacist podcast. We have an awesome episode in store for you today with a special guest, Dr. Tony Guerra that has taken a nontraditional path with his pharmacy career, which has allowed him to be on the path to financial independence. And I’m excited to have him on the show to share that story and journey today. And ever since I heard about Tony’s work more than a year ago and having the chance to learn about his background, I’ve been excited to get him on this show and to share his story with you, the YFP community. So Tony, thank you so much for taking the time to come on the YFP podcast.
Tony Guerra: Hey Tim, thanks for having me on.

Tim Ulbrich: So to be honest, Tony, there’s lots to talk about today. The more I dug into your background and story, the more I thought, where do we even start with this? We’ve got your fascinating pharmacy career, the real estate that you’ve been involved with, successful business ventures, and so I think maybe the best place to start is let’s go all the way back to when you graduated from the University of Maryland in 1997 with your pharmacy degree. So tell us a little bit about your first job out of school and what was your financial situation right away after you graduated?
Tony Guerra: Well, first, thanks for having me on the show. I actually listen to every single one of your podcast episodes, so I’m honored to be No. 53.

Tim Ulbrich: Thank you.

Tony Guerra: And my journey was a little bit different in that, you know, so many students right now are graduating, want to do residency, do 40-60 hours a week. When I sat down for the interview to work for Walgreen’s when I graduated to go to the Phoenix area, I actually asked to work only 24 hours a week or three days a week. And he talked me into four days a week, or 32 hours a week. So I had no interest in maxing out the number of hours I had, and my situation’s a little bit different because they had doubled our tuition from BS to PharmD, but my tuition was $4,000 a year.

Tim Ulbrich: Wow.

Tony Guerra: So I had $16,000 total in tuition. So my situation there is a little bit different, and before people hang up like, this guy doesn’t have any problems, let me talk about the mistakes that I made. So the issue with Maryland is that New Jersey and Atlantic City is not that far of a drive away. So a lot of times my buddies and I would go up to Atlantic City, and the most important thing that we had to do was because in New Jersey you can’t pump your own gas, we just had to have enough money left over to have a tank of gas or at least half a tank of gas to get us back to Maryland. So when I talk about finances, it was truly monopoly money that I was playing with back then. I had $20,000 in credit card debt, I had the student loans, and then I bought a $20,000 car, brand-new car, just out of college. So I had absolutely no concept of what it meant to owe money at the end. So in terms of graduating, the only budget I did was to make sure that I could work 24 hours or 32 hours, so I worked four days a week. And I didn’t want the pharmacy life to take over my life. So I was going to the Phoenix area. I wanted to go to a destination area. After seven years of college, I didn’t want to work 40 hours a week. I only worked 32. But I’d made some mistakes with finances, and eventually, it did catch up with me.

Tim Ulbrich: Couple things there that really stick out to me is, you know, even the student loan numbers, which obviously are very small relative to our indebtedness we’re dealing with today, right? $160,000, $200,000, depending on public-private, whatnot. But also, you’ve got to remember context of, you know, 20 years ago. But that I think does highlight how much that has increased in that period of time, which is obviously shows you —

Tony Guerra: 1,000%, right?

Tim Ulbrich: Yeah, and I think to your point about Monopoly money, I know we just talked about this on your show as well is that we’ve got to change that conversation that it’s got to hit us, have a little bit more of an emotional reaction to that debt. And when we see a number like $160,000, we should be like, ‘Holy cow! What is that?’ One of the things I wanted to ask you, though, which is intriguing to me is your intentional choice to not work full-time. And the reason I want to ask this question is that as you know, right now, there’s a trend going on nationally where some pharmacists are getting cut back to 32 hours, and they’re not getting full-time work because of various reasons, saturations of markets and whatnot. And here you are, and I think a lot of people out there are obviously unhappy with that. They maybe financially feel pressed that they need their full salary, but here you are intentionally not choosing to go full-time. And I heard in your conversation, I heard a little bit of a strategic decision that you didn’t really want maybe to get burned out, you wanted to give yourself other options. Talk more about why you made that choice to not go full-time right away.

Tony Guerra: Well, I can connect the dots looking backwards. I think Steve Jobs said in that famous graduation speech at Stanford, but I call the other eight hours, the Entrepreneurial Eight. And so what I wanted to leave was that other day just for kind of entrepreneurial ventures, and I was taking classes in journalism and writing. I never had a plan to become a journalist, but I knew I wanted something besides pharmacy. I didn’t like my job after about three months, and I kind of knew that that was coming. I’d been in retail for 3-4 years, so it wasn’t a surprise that I’m like, ‘Gosh, this kind of got repetitive.’ And I did try to make changes. I would change my days, I would go to overnights, I worked as a pharmacy manager in a grocery store, I worked in mail order. But it just — I just wanted to minimize that. What I found was that it was OK — I enjoyed the people I was with, and so I focused a lot more on the people I was with and the people I was serving. But if I had that one day a week that was completely dedicated to creative work and making money a different way — and now we call them side hustles — I just wanted a creative outlet. So I think making room for that intentionally before you graduate was something that I really wanted. The residency burnout is much lower in pharmacy than it is in medicine, but to have to dedicate 50, 60 hours at that salary — and it works out to I think maybe $16 an hour as a resident if you work 60 hours a week, that’s deflating. And I didn’t want that to happen. So if I’m going to go to a destination, I wanted to have time to enjoy it. So I knew early that I wanted to be a writer, but that success didn’t come until much later. But the entrepreneurial space — I always made room for entrepreneurial space.

Tim Ulbrich: Yeah, I remember, Tony, my whopping $31,000 salary during 2009.

Tony Guerra: Ouch.

Tim Ulbrich: And I think it’s an interesting point you bring up there, and I’m so glad — and I hope our listeners can stop and listen and absorb the wisdom that you just shared. The Entrepreneurial Eight, I love that term because I wouldn’t say I have many regrets. But if I look back and now with a family of three young boys, every year that goes on since graduation, my tolerance for risk is looking more — looks different with each passing year, right? Because you have more things that you’re accountable for, you have more things that you’re responsible for, and I think as I envision where the profession of pharmacy is going, and as I think about some of the new grads being frustrated with either the options that are available to them or maybe the work environment that they’re in, I love that concept of why not carve eight hours a week? Why not work part-time? Why not put yourself in a financial position that you can do that? Because I think while it not only positions you for potentially long-term other options, business ventures, things where you can control your own destiny, that one day of creative outlet I’m guessing made some of the other time more palatable, whatever you want to call it, that you knew you had that day of the week that you could ultimately turn to that creative outlet. So I hope the new graduates, some of those in their mid-20s where maybe they don’t have a lot of things that are going to hold them back risk-wise, obviously besides student loan debt — is this the time potentially to think about some of those entrepreneurial risks that somebody could take? So what — as you look back and kind of think about the graduates, I know you take a lot of APPE students on rotations, what advice do you have for them? Maybe mistakes that you’ve made? Things you wish you would have done differently? Obviously, you mentioned credit card debt, new cars, and I’m guessing there’s just a certain set of advice or points that you give to your APPE students to say, hey, if I were in your shoes right now, these are the things I wish I would have done differently. What are those things?

Tony Guerra: I find that money and budgeting is kind of deflating. And so what motivates me is doubling my money. So I find places where I can double it. And I want to be very careful not to say, I can double a pharmacist’s salary. I don’t know how to do that. But I can certainly double $400, $5,000, even $40,000. And maybe I can go through some of those stories where I’ve done it or where I understand where I’ve doubled my money. But I find that what you have to do first is what you’ve taught — I think when you’ve talked about your student loan course — is you have to have everything in place before you start playing with this double-your-money game.

Tim Ulbrich: Yes.

Tony Guerra: To put the money somewhere because you can get it, you can always lifestyle creep up to whatever you spend. But I’m actually taking on debt right now so I have a place to put the money so that’s something you also talked about in a recent episode is that people that are high earners that have no debt really struggle to know where to put their money.

Tim Ulbrich: Yeah.

Tony Guerra: So I’m taking on debt in the form of a third home, I just bought it yesterday. And that’s where it is. But maybe we can talk a little bit about some ways to kind of double your money. And we’re not giving investing advice. And I’m going to take this on instead of you guys taking it on because you guys have a very good, methodical way. But maybe we can just talk about how to double $500 to start with.

Tim Ulbrich: Yeah, let’s do it. And I know you’ve been involved in different things. As I mentioned in the intro, you’re an author, so you’ve written a couple different books, and we’ll link to them in the show notes, so “Memorizing Pharmacology,” “How to Pronounce Drug Names,” what am I missing, Tony? What else have you done on the book front?

Tony Guerra: The new one’s “Memorizing Pharmacology Mnemonics.” It’s meant for APPE students. And it should be free on Audible if they’ve never had an audiobook before, but something they can listen to back and forth on their way. You know, I think that really, as you get into the APPEs and you get into the internal medicine one and then the grueling critical care ones, you’ve got to have the basics down. And by having the basics down, I wrote that book and made it into an audiobook with another pharmacist out in New York, so “Memorizing Pharmacology Mnemonics” is where I would start if I was an APPE student.

Tim Ulbrich: So we’ll link to those in the show notes, and I’m guessing — and we’ll talk real estate here in a little bit — but I’m guessing your authorship, and I know you’ve put these online, so you’ve done audiobooks, which if I’m right, one of these has landed its way onto the Audible.com best seller list. And so you’ve obviously had success here. So talk to us about even just that journey of, wow, I want to write a book and how I did that, what impact that’s had for you financially but also maybe just the scratch that entrepreneurial itch that you’ve had all the way back to graduation.

Tony Guerra: I found that I couldn’t write a book until I got mad. So I had to do something to get mad about the book, and so what I did was I was taking classes up at Iowa State, and I went into a class that I knew I was going to get kicked out of. And so there’s an MFA program, a Master of Fine Arts program there, and there was a class on nonfiction creative writing, and this is a class I wanted to take. And I knew I was going to get kicked out. I knew the teacher, and I knew the people there. I said, ‘Hey, you know, I signed up for your class.’ And she said, ‘No, no. You’re not in the MFA program.’ ‘Yeah, but I’m allowed in. I’m in an English program, and part of the department.’ ‘Yeah, we’re just going to stick with what we have here.’ And I knew that would — I didn’t know for sure she’d kick me out — but she did kick me out, wouldn’t let me in the class, so I was excluded. And the one thing that makes me mad is being excluded, and I knew that would happen. So it made me mad enough to write the book, and now the book actually makes double the salary of the professor herself, so I won’t name the person, but it just makes me mad. So I think 98% of people, they say, want to write a book but only 1% do. So some kind of emotional reaction — and I think in your writing your book, “The Seven Figure Pharmacist” with Tim Church, I think that it was an emotional response to what had happened with your stories as well. So to write a book or to get there, you really have to. And what I think I’ll point to is actually another author, Dr. Richard Waithe, who was the host of Rx Radio podcast, I think he probably put about $500 into his book, and I can’t remember the name, but it’s like “The New Pharmacist” or “First Time Pharmacist,” that’s what it’s called. Yeah, “First Time Pharmacist.” And I just by seeing his numbers and knowing how much he makes from each book, he’ll probably double his money I would say in four or five months. But the way that I would — and I don’t mean to be self-serving to your course — but the easiest way to get make $400 on $400 is to invest in your course because the return could be close to $100,000. And that’s one of those returns that’s so big that you don’t even do the math on it. You’re just like, I put $400 into the course, and I saved $100,000. Or in your case, if you had had — if we could go back in time and you wrote the course for yourself, you would have saved $300,000.

Tim Ulbrich: Oh my gosh. I try not to think about it.

Tony Guerra: And I would have saved tons of money. So that’s an easy way to double $400 or $500 — either write a book that you’re passionate about, put maybe $400 or $500 into it or take the student loan course. That’s where I would start with $500. And then maybe we can talk about $5,000 is the next way. But I would recommend being a little slower with this one. But I can tell you how I doubled $5,000 as well.

Tim Ulbrich: Yeah, so before we go there, just talk me through — obviously, you got mad, which I think obviously there’s an emotion there which inspires action. I’m with you, I need something to fire me up, especially if you’re going to sit down and start writing and typing. I remember lots of early mornings, lots of late nights, and it’s a grind, right? As you’re kind of working through the process. So you’re mad, but you obviously were very strategic about, you know, I’m not going to write this just to write this, I want to write something that’s going to provide value and is needed in the market and is something that I have expertise in. And so I think a lot of listeners might be hearing that, hey, I do this every day, and there seems to be a need for something, whether it’s a book, a course, a Webinar, whatever. Talk to us, though, about how you put those pieces together that it’s not just writing a book to write a book, it’s that you want to put something that had value, that was needed and lined up with your expertise. And does that connect with your day job and what you do as a professor right at Des Moines Area Community College? Were you able to sync those experiences up to maximize your time?

Tony Guerra: I actually think you have to sync it. So my recommendation to anyone who’s always wanted to write a book is instead of worrying about writing a book, just write the curriculum for the course that you’re going to teach or that you would want to teach and just put it in book form. And then when it comes to audiobook, it took — when I first talked to my narrator, I never had hired a narrator. He was $400 per finished hours, so that means for a 7-hour book, it’s $2,800, a ton of money on something I had no experience with. And he said, boy — because it was a two-month lag between when I could have him do it — he’s like, ‘Boy, you’re going to really have a heck of a time making this for the ear.’ And what he was saying is is that if you can make nonfiction into something that is listenable, people will buy it. And so that’s really where it came from is the two steps are 1, what course would you teach if you could? And then write the course for something that you actually are maybe doing. It’s a lot easier for professors and things like that that have it. But if you’ve got technicians or you’ve got other people that work for you, what would be the course that you would write for them? Or if you, you know, with you guys and teaching about money, how would you write that course? And the second part is is make it for the ear. So you take that course, and then you just read it. And then you just continue to revise it but make it as if you are talking to someone. So those two components, writing for a need — and the pharmacology books, the need was that many nursing students have to take pharmacology but don’t get chemistry before it. So imagine hearing beta lactam or N-acetyl para enol phenol and all of these things, and you’ve never had chemistry. So that was kind of the need that I filled. But the way to get a book done — align it with what you do anyway, and then No. 2, then read it and re-write it as if you’re reading it to someone rather than ‘Here, I’ve wrote this book.’ And if you read Dr. Richard Waithe’s book, it’s really conversational.
Tim Ulbrich: Yeah, I love that. And I think for those that are listening that maybe are not fully satisfied with your job, and you’re looking for a creative outlet, you’re looking to create something, obviously the money that we’re talking about here and how you can generate revenue to help accelerate your financial plan is an important piece, but you can’t underestimate the positive energy and the feeling and momentum that you get from being in the creative process. And so you know, I would ask, outside of your time, of course, what is there to lose to potentially consider a path like this, thinking of the work that you already do? I want to take a brief moment before we jump into the second part of the show to highlight today’s sponsor of the Your Financial Pharmacist podcast, which is Script Financial.

Sponsor: Now, you’ve heard us talk about Script Financial before on the show. YFP team member Tim Baker, who’s also a fee-only certified financial planner, is owner of Script Financial. Now, Script Financial comes with my highest recommendation. Jess and I use Tim Baker and his services through Script Financial, and I can advocate for the planning services that he provides and the value of fee-only financial planning advice, meaning that when I’m paying Tim for his services, I am paying him directly for his advice and to help Jess and I with our financial plan. I am not paying him for commissions, I am not paying him for products or services that may ultimately cloud or bias the advice that he’s giving me. So Script Financial specifically works with pharmacy client’s. So if you’re somebody who’s overwhelmed with students loans or maybe you’re confused about how to invest and adequately save for retirement, or maybe you’re frustrated with just the overall progress of your financial plan, I would highly recommend Tim Baker and the services that he’s offering over at Script Financial. You can learn more today by going over to scriptfinancial.com. Again, that’s scriptfinancial.com.

Tim Ulbrich: Alright, so we’re back with today’s show. We’re walking through with Tony Guerra to hear about all of his work. We’re talking about some of the books that he’s written, and he’s shared with us kind of that first step he took to earn income. And now we want to talk, Tony, about the next step that you took. So we talked about getting to that $500 point, and now we’re talking about that next level of $5,000. So talk us through for you kind of that next level of the business venture.

Tony Guerra: So the mantra is invest in yourself. And right now, you guys have an only $400 course, but I expect that if you guys continue on your path, there’s going to be a $5,000 course that you guys are going to have in your future where maybe we go to a destination, we get everything done with the finances and things like that, but then we start talking about investing, then we kind of create our own group. So somebody that has done that in the real estate space is Brian Buffini. He came here from Ireland and was one of the best realtors in the country but then created a coaching company. And the $5,000 I spent — I remember these exact words to my coach, and we’re very similar in that we want return on investment mathematically, where my wife is completely different. She would want certain feelings that come out of it. But when I talked to my coach, I said, she said, ‘What do you want to get out of this?’ I said, ‘$10,000. I want my $5,000 back, and I want $5,000 more.’ And that was it. And I ended up making $22,000 as a real estate agent. But what I invested in was $400 a month to get one-on-one coaching, 30 minutes, every two weeks, and what I was basically doing was following the path of somebody that had done these steps and was able to articulate how to do it. And then years later, I want to say five or six years later, just before the crash, my income — and I didn’t take all of this home, I had a little bit of group of people, of real estate agents, but my income — I had to leave pharmacy because it had just gotten away, and it didn’t make enough money. But I made $253,000 in that coaching program.

Tim Ulbrich: Wow.

Tony Guerra: So that $5,000 at first got me to $22,000 in the first year but then I was making $253,000 that last year. And I would have stayed with real estate even with the crash because that’s when people really needed me, but my wife made it clear that we’re moving to Iowa. And so I moved to Iowa, and I completely gave up the real estate business. But to spend $5,000 and make $5,000, I would invest in yourself in some kind of program. I think Blair Theilemier has something that’s a couple thousand dollars or something like that. But those kinds of things, that’s where I would put up to $5,000 in terms of investing in myself. And where I wouldn’t go is into some kind of postgraduate Master’s degree or something like that because you have to wait until you graduate to maybe get a return on that. I’m talking about things that you can — like a real estate license, it’s like $500 — that you can get returns immediately, that you can start making your money right away. But that’s how I’d put $5,000 in and get $5,000 back.

Tim Ulbrich: Yeah, and we think about — we’re always harping on our students, professional development, professional development, professional development. It’s the same thing when it comes to your finances, real estate, a business coach, whatever, you have to look at those opportunities and say — and I’ve done the same thing with business coaching, I’ve done the same thing with hiring Tim Baker to help me with my finances — and I’ve realized all of those and said, ‘That’s an investment. I’ve got to write a check.’ But I realize the return on it is going to be much greater than what I’m investing. And I think that’s true for so many different areas of your life is you have to look at those things and say, OK. I’m going to try to go at this all myself or what are the opportunities I can really hire somebody who’s taken this path that can really keep me accountable and has the expertise to get me to the goal that I want to achieve. So let’s segway, then, into the real estate investing. So you alluded to the fact of being a real estate agent, you got your license, you’re selling real estate. But you’re also now getting into real estate investing. So as I know, you now have three properties, is that correct?

Tony Guerra: Yeah, we’ll close on the other one the first week of July. But I’ll have three again. And we kind of talked through the very first things that I did and then — so I have a 20-state, 20-year real estate career. And this will be my 10th property that I’ve moved in some way or another.

Tim Ulbrich: OK.

Tony Guerra: But I only own three. I only own three right now.

Tim Ulbrich: So why don’t we — obviously, you have the primary residence, and we’ll come back and talk about that because I think there’s some due diligence that people need to do in buying their primary home. But specifically from the real estate investing side, why did you look at this area and say, ‘As a pharmacist, this is something that I want to get into in the long run?’ You mentioned currently owning three. You’ve been involved in 10 properties. So talk to us a little bit about your mindset around real estate investing as a category or as an area. And maybe for you, where did that fit in while you’re also looking at more traditional streams such as a 401k, 403b, and the timing of those.

Tony Guerra: OK. So let’s kind of go all the way back to graduation and you know, should I rent? Or should I buy a home? And the first thing that I did, and when I did look at my student loans, I heard, I was like, why is this not tax-deductible? And your student loan interest is not tax-deductible, but it is deductible on a home loan. So my parents owned a vacation home, and the first home I bought was for $1. I bought it from them for $1; they were able to transfer it to me.

Tim Ulbrich: Sounds pretty awesome.

Tony Guerra: Yeah. Well, they took back the loan. So then I had to pay them monthly payments, but then I immediately put a mortgage on the property and then paid off the student loans so that now, the interest that I would have had on the student loans was now tax-deductible.

Tim Ulbrich: Got it.

Tony Guerra: So that was kind of the first deal I made. This is a deal that’s very common now with the new graduates in all fields in that they’re deciding to rent where they’re going to live, but they’re getting in the real estate market in a different area. So for example, if somebody wants to move to San Francisco, it’s a lot easier to find a rental with maybe rent control or something that’s a little bit more manageable and then buy something maybe in Nevada that’s maybe a vacation home or something like that. So the first thing I did was recognize that a home is a commitment as much as it is a marriage. And you don’t go into a marriage just saying, ‘Oh, look, I qualify for this marriage. Time to get married.’ You know? And I think a lot of people do that. They’re like, ‘Well, I think I should buy a home because it’s supposed to be tax-deductible interest.’ And that may or may not be true with the new tax code. So the first thing I would say is, find a place you want to live and get to know it. And so I lived there a year before I ever bought a home in Tempe. So I didn’t — my first piece of advice is to not buy a home in an area that you haven’t known for at least a year.

Tim Ulbrich: Amen. Yes. Yeah, that’s a mistake actually my wife and I — we had been in the relative area for a year but didn’t know well enough. And we were kind of itching from a renting standpoint, and as I look back, a little bit more patience would have done us a lot of good in terms of the rest of our financial plan. We’ll link in the show notes, there’s actually a good calculator the New York Times has to do a rent-to-buy comparison because I think a lot of times I hear people say things like, ‘Well, my rent costs $1,000, and the mortgage costs $1,000.’ But as you know, that’s not an apples-to-apples comparison. So really trying to look at your financial situation and look at all the pieces to say, where does this fit in in terms of the buy of knowing the area? But also where does it fit in with rest of a financial plan? So where did you then see real estate investing beyond your primary home come into play? And how did you determine it was a right time to get involved in that? Was there a certain point where you said, I’ve got enough equity in my primary home, I’m on the path with my other retirement savings, so now’s the time? When did you make that jump into investing?

Tony Guerra: Well, I first thought I didn’t agree with you on this, but now I do agree with you on this — when I had 20 percent to put down.

Tim Ulbrich: OK.

Tony Guerra: And because I had bought this vacation home, which was in Ocean City, Maryland, so I actually never lived in it more than the 14 days you’re allowed by the tax code as a rental, that I decided to just buy something in Tempe. And the first thing I would say is don’t ever try to time it. The market is crazy. You know, right now, you would say, ‘OK, well now prices are going up. So now maybe I shouldn’t buy because they’re going up, and I shouldn’t do it.’ But then you’ve got this investing coming from China, and I just saw in the news that a house in San Francisco went $1.6 million over asking.

Tim Ulbrich: Gees.

Tony Guerra: So you know, you might say, ‘Oh, well you know, the student loan bubble’s coming and all these things so prices are going to drop, you know, in a couple years.’ And then you have this weird investing thing coming from another country. Timing it is not the way to go in terms of like trying to time when the best time to buy is. But what I liked was that once I had 20% to put down, I don’t want to say I was a bully, but I was kind of a bully. When you make an offer, and you’re putting 20% down, all of a sudden because of the savings rate in the U.S. and all of these things, you are in the pull position. All of a sudden, that seller is like, ‘Whoa. I don’t want to upset this person. I want to get them.’ So when I offered on my Tempe home, I offered under asking in what is a white hot market. The summer, right by Arizona State, to the east side of Arizona State University, is a white hot market. And I was able to offer a little under asking because I had 20% to put down. So when I talk about timing, don’t time the market. Time yourself. Time your own situation because if you have built up 20%, that 20% is actually — I don’t want to say a symptom — but that 20% represents that you have gotten your financial house in order and that you are ready to buy a home.

Tim Ulbrich: Yes.

Tony Guerra: That you are financially ready, and a lot of the things that you put in your course and things like that. So don’t look at 20% as I have to do this thing first, it’s 20% will come if you do all the steps right. And I did a lot of things right in that year, and I took a little money out of that deal I did with my parents, and I bought a house that was $90,000. So the 20% wasn’t a ton of money.

Tim Ulbrich: The other thing — and I would love your input on this — the other thing to me, and my wife and I are hopefully going to be dabbling in this a little bit more here in the near future, but one of the things that interests me about real estate investing is that it has an opportunity, if done well, it has an opportunity for a cash flow on a monthly basis that is not waiting until a traditional withdrawal age for a retirement account of 59 and a half like a 401k, 403b or a Roth IRA. And so I think as people are out there maybe thinking, Oooo, I like pharmacy, I don’t love pharmacy, maybe I want to do something different — at the right time, and if done well, I think real estate investing or business ventures like we’ve talked about the work you’ve already done are alternative revenue streams that aren’t having to wait to a certain age to be able to draw down money over time. And so when you looked at this most recent one you mentioned is out in Tempe, right?

Tony Guerra: Mmhmm. Yep.

Tim Ulbrich: Was that connection because you know the area from being out there previously? Or how do you, I guess how do you approach real estate investing outside of your backyard and feeling comfortable — I’m assuming are you working with a property manager? What does that look like kind of day-to-day on those rentals?

Tony Guerra: OK, well let me give you the big picture. And again, this is kind of advanced investing. Let me actually talk a little bit about just buying a home, and then I’ll talk about this more advanced investing. So if you are — let me talk first about a single person. If you’re a single person coming out of college, and you’re going to buy a home, buy a home as if it were a — my thought is to buy a home as if it were a rental, and make sure that you have at least two other rooms that you’re renting out to other people or at least one other room. Don’t buy a house with just one toilet. Make sure there are two toilets because if you have one toilet, it’s an emergency if it doesn’t work. And that’s my first thing is get cash flow from the place that you’re living in. If you are married, and you’re like, I am not living with anyone anymore, that time is done, we are grownups now, I’m not doing that — and that was — but my wife and I did have somebody always in the basement while we were in residency here. Then my thought with maybe what you and Jess are thinking about is to start thinking about using a team approach. So my wife is a great lurker. She loves to look at homes, so if I say, ‘Hey, can you look at houses here?’ and so forth, that would be something she would be all over it. And then I would be the one that’s crunching the numbers, like, ‘Oh, that’s not going to cash flow at all.’ ‘But it looks so good!’ ‘No, the cash flow is terrible.’ You know? So when I looked at this Tempe home, I almost pulled the trigger on a house — and this is how hot the market is. They asked me to waive the appraisal. So I would pay in if it didn’t appraise. And I was close to doing it. It was $185,000 for a two-bedroom, and I just couldn’t do it. You know, my sensor was going off, like don’t do it, don’t do it. But you want the house! Don’t do it, don’t do it. And then I talked to my wife, and she’s like, ‘No. That’s dumb. Don’t do that.’ So always bring your wife in. She’s turned down a number of the ones that I was like, ‘Oh, I love this one!’ She’s like, ‘No. Why? I just don’t feel good about it.’ And I’ve learned over my 10 years, now almost 11 years of marriage, ‘I don’t feel good about it’ — you want to listen to that sentence. Always, always. But when I went from the two-bedroom that I didn’t buy, I bought a place that’s now a three-bedroom, two-bath in the same place. It’s a mile from a Starbucks and a Target. That seems to be — follow people that are smarter. If you’re trying to go into an up-and-coming area, if you see a Target moving in and then a Starbucks, those are really smart people. Follow those guys. But if you’re going in, if you and Jess are looking for a place, I would start in terms of looking at one, but the other caveat is that I was looking in four different areas of the country so I could see what’s going on. So at Tempe, 85281, 85284; I was looking in Baltimore, 21230, 21224, where I think Tim Baker is, I was looking in Gainesville, Florida, I don’t remember the zip code, and then I was looking in Ocean City, Maryland. So four places I knew, but I was looking at four different markets. And Tempe, in many ways, I just wanted it. My parents are going to end up moving to Arizona, there are a lot of reasons I picked it, but I was looking at different areas, so I didn’t have this kind of myopic view. And I think, not to keep talking too long, but when you’re looking at pharmacy school admissions — I help a lot of pre-pharmacy people — if you’re trying to get the best deal from one school, you might not get the best deal because you’re not looking at all the schools. Just as you know, you’re looking at one repayment plan. You want to look at all the repayment plans. But that was my kind of thought. And in terms of who I had there, Lisa Schofield (?) is my contact there in Arizona, she’s been a realtor for 17 years, I’ve done other deals with her when I was there. Having somebody that’s knowledgeable with investing. You don’t want just a real estate agent, especially not someone that’s related to you. You want someone that specializes in working with investors.

Tim Ulbrich: Great stuff. And to wrap up this section on real estate, I would reference listeners back to episodes 040 and 041, we had Nate Hedrick, the Real Estate RPH on, we talk about 10 things every pharmacist should know about home buying. And I think, Tony, I really appreciate — we haven’t talked as much on this podcast about real estate investing, but I think right time, right place, for many pharmacists, it’s a great move to think about obviously building your own financial foundation and house in order first, but when the right time is there — and I think for many listeners, that may already be there — to be pursuing real estate investing as an alternative way to diversify their investments at large. So I have a couple kind of next-level questions that are not related to any specific topic here, but as I hear this conversation to you, what sticks out to me is that you’re incredibly motivated. You obviously have a significant drive. You have an entrepreneurial mindset. You’re creative in the way that you think; you see alternative revenue streams. You’re willing to look at things that are in an outside-of-the-box way. Where does that come from? Where do you attribute to having that skill set? Is that something you feel like was taught by your parents? Have there been mentor that influenced you? Where would you say that’s come from?

Tony Guerra: This might be disappointing, but its fear. Absolute terror. And it comes from when I started, and I came back to Maryland after four years of being in Arizona, I had something go on with my leg, and I thought it was some kind of rheumatoid arthritis or something like that. It ended up being that I was standing 12 hours a day, and my IT bands were pulling so hard on my knee that I was in knee pain, but I actually, you know, I had to get it so I had a stool that I could sit on, and then I really thought I was going to lose my career. So I thought I was going to go to — I didn’t know what I was going to go to. And so that fear and then also watching the collapse of the real estate market, I was a little better prepared there, but I went from a $253,000 income to doing residency with my wife. So I went from $253,000 to $40,000. So seeing those two drops, I wish I could say I’m motivated by some great, entrepreneurial spirit, all these things, but it’s just fear of not having money. And I think people that maybe have gone through the Great Depression had this kind of mindset, maybe people that were crushed by the drop in ‘08 had this mindset. But really, it’s just that I was really fearful. But the most important caveat in terms of entrepreneurship is to give, ask and receive. So I continue to give without hope of getting anything back, and things come back to you. But that’s kind of my mindset. I’m a little bit scared about money, and that’s why I have two years’ worth of income in my savings account. That’s pathologic to have that much there. But I’m just scared of going through that again, and I never want to have to take a job or a career that takes me away from my children, makes me into a person that comes home that is just so dissatisfied with my work that I’m taking it out on my family, and I feel like that maybe happens a lot. And I just didn’t want to go back there again, ever again.

Tim Ulbrich: So obviously, there’s the fear of money there, which obviously is real. But as I also look at the work you’re doing on the Pharmacy Leaders podcast, I can tell there’s a very intentional pathway of shaping future leaders of the profession that is beyond just wanting to create revenue streams. So as you think about the work that you’re doing there and even some of your other entrepreneurial work, what are you hoping down the road to look back and say, this is what I was trying to do, this is what I was accomplishing. It’s a thought that’s been hanging with me a lot over the last year of, when I’m 70-75, you’re in retirement, what am I going to look back and say, this is what I was trying to achieve, this was the goal that I was going after. So with your work around the pharmacy leaders podcast, developing future leaders, maybe even modeling kind of entrepreneurship, what is that goal for you? What is that pathway?

Tony Guerra: I see time differently. I can’t see really past dinner. I’m very short-term; my wife is very long-term. And usually, people come together that way. So something will really bother me that might be due three weeks from now but I feel like I have to get it done now. So I guess when I look at what’s going on with pharmacy, I see, I guess I’m really scared for them in many ways as a parent who looks at it, and I know that certain students are going to be absolutely fine. These are the kind of national candidates, I look at their resumes, their CVs, what they’ve done, and what they’ve done differently is they’ve invested in other people. And I guess I just fear for them, and that’s why I keep interviewing them and giving them a space to be interviewed so that they can share what they have with the other people that may be making some mistakes. And you can never change someone’s mind, but what you can do is put out the people that are doing it right and expose them to those people. Casey Rathburn, for example, from the University of Houston, comes up, Dallas Tolburg (?) from University of Maryland, (inaudible name) are names that come to mind. These are the people that have invested so much in their pharmacy education in helping other people while they were in pharmacy school that it all came back to them — in the residencies they wanted, the career and eventually the careers they want, so I’m just seeing that if you just try to get through pharmacy school and you’re not known for anything, as Blair Thielemier says, you’re going to be in trouble. But if you continue to invest in other people as Ahmad Ahmad (?) who just started the Your Power Pursuit of Purpose podcast, those are the kinds of people that are going to have no problem. So that’s what my drive comes from. It’s just like, look, I made a bunch of mistakes when I came out. I think I can help a lot of people if I can expose other people to these leaders that are moving and shaping their own lives and other people’s lives.

Tim Ulbrich: Great wisdom there. And if our listeners have not yet checked out the Pharmacy Leaders podcast, please do. You’ve done an awesome job with that podcast, super inspirational, I think motivational for students and really helping shape the future of these leaders. I think you’re, what? 129, 130 episodes in already? Something like that?

Tony Guerra: Yeah, like I said, that’s kind of pathologic too. I mean, I do 3-4 episodes a week. Casey Rathburn (?) said, ‘Hey, can I do some episodes?’ I was like, OK, and she gave me seven episodes in three days. So you know, I wanted to make a space, but again, it’s so in line with what I do. I’m just a people-y person, so I like to talk to people. So it’s not work. And you know, if you’re doing something that you love, you’ll never work a day in your life.

Tim Ulbrich: So we’ll link to that in the show notes. Again, that’s the Pharmacy Leaders podcast. Now, one final — it’s actually kind of a split question — but I want to end here because I would be remiss if we didn’t talk about family. I know it’s important to you, you’re a father of triplets. You’ve got all of these things going on, your day job and your real estate investing, your book, your podcast. So two questions I have here for you that I know will be inspirational for me and probably even help me as well in my own journey. How do you balance all of this with the kids and obviously a marriage? And then second to that, how has some of these ventures in your financial success allowed you and created the space to enjoy the time with family that I perceive to be so important for you?

Tony Guerra: OK. You know, marry the right person.

Tim Ulbrich: Yes, Amen.

Tony Guerra: I hate to say that, it’s kind of a cliche. But man, marry the right person. But the one thing that we did was we did the Five Love Languages book. And I’m physical, which means that it’s better for her to tap me on the shoulder than to say anything to me when she comes home. And hers is service. And I can’t believe I didn’t know this until about seven or eight years in our marriage, but that means that the things that I do, making sure the house is clean when she comes home, it’s the first thing she sees is clean house, not extra work to do after a long day at the VA. So that’s my first recommendation is figure out which love language you have and which love language your spouse has because then you can know what’s important to them. So that allows the marriage to work well. And you’ve talked about “The Millionaire Next Door,” and most millionaires are married with three kids, and that’s the first thing. That’s the strength. But the other thing was — I guess I took for granted, and I didn’t do the episode, I should have, but the Father’s Day episode — I took for granted that 100,000 pharmacists each Father’s Day are probably working, you know, men and women. And I took for granted that this Sunday, I could be with my kids, coach their soccer team, and I think that was the other part is that I work so much because I’m fighting for that time to not have to ever say, ‘Dad’s got to work.’ And my one daughter just absolutely threw a dagger at us one morning. She’s like, ‘Daddy, you always get to come to the parties on Friday. Why does Mommy never get to come?’ And I was just like, oh my gosh, how do I answer this? And so I made sure to — I was like, ‘Daddy just doesn’t make enough money yet. And when Daddy makes enough money, then there’s going to be no problem with Mom coming to everything.’ She’s like, ‘Well, Daddy, you just need to work another job.’ And so I think too many pharmacists accept that that’s just how it is, I work weekends, every other weekend. And I have to tell you, if you follow the steps that you have in your loan course, I can tell you that once they get out of that debt, they could do a 32-hour week or a 24-hour week, no problem. And then they would have, they could stop having those conversations with their children, and they could have really good conversations like, you know, wasn’t that a great game that we had on Sunday?

Tim Ulbrich: Tony, great stuff. And I know your work has been an inspiration to me. I appreciate you taking time to come on this podcast, I appreciate your support of the YFP podcast. And I’m sure we’ll be finding lots of opportunities to partner in the future. So thank you again for coming on today’s episode, I appreciate it.

Tony Guerra: Yeah, I appreciate it too. Thanks so much, Tim.

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YFP 037: Making the Transition from Student to New Practitioner: Guest Interview with Drew Register from the American Pharmacists Association (APhA)

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On Episode 37 of the Your Financial Pharmacist Podcast, we spotlight a new practitioner leader, Drew Register, who serves as the Associate Director of Membership Engagement and Communications with the American Pharmacists Association. The team at YFP is excited to be partnering up with APhA to provide financial education services that are designed to help its’ members achieve financial freedom. On this episode, we ask Drew about his successes and challenges transitioning from student to new practitioner and what the APhA-YFP partnership has planned for 2018.

About Our Guest

Drew Register received his Doctor of Pharmacy degree in May of 2016 from the University of Louisiana at Monroe School of Pharmacy. He completed an Executive Residency in Association Management & Leadership at the American Pharmacists Association Foundation and currently serves as the Associate Director of Membership Engagement and Communications at APhA. He is a passionate and driven leader aiming to impact and shape the future of the profession of pharmacy through his career. His strengths and interests include drafting and editing publications, organizational leadership, public relations/communications, pharmacy advocacy, and developing innovative tools for patient outreach.

Join APhA

Join APhA now to gain premier access to YFP facilitated webinars, financial articles, live events, resources, and consultations. Your membership will also allow you to receive exclusive discounts on YFP products and services. You can join APhA at a 25% discount by visiting www.pharmacist.com/join-now and using coupon code YFP. For more information about our financial resources, visit www.pharmacist.com/financial-education.

 

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YFP 036: A Pharmacist Couple Working to Row Their Financial Boat in the Same Direction

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On this episode of the Your Financial Pharmacist podcast, we finish our month long focus on how couples work together on their finances.

In Episode 36, we speak with Andria and Tim Church who share their story about how they first met and how their approach to their finances evolved over the course of their relationship. Andria and Tim share their wins and their struggles and impart valuable advice to other pharmacists and couples that are working together on their finances.

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  • How Tim Church used Andria’s interest in primary care to court her
  • The Church’s struggle with budgeting, combining finances
  • Their “gazelle intensity” towards their student loans enroute to payoff and acquiring the Church family cat
  • How being budgeting, being frugal, side jobs and student loan refinance helped along the way
  • Advice to other couples
    • Live like a student for a few more years
    • Know what your goals are
    • Educate yourself on personal finance
    • Don’t take out more loans that you need
    • “It’s our money…it’s our debt.”

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YFP 035: The Science of Behavioral Finance: An Interview with Sarah Stanley Fallaw, Ph.D

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On Episode 035 of the Your Financial Pharmacist Podcast, Tim Baker, CFP interviews Sarah Stanley Fallaw, Ph.D, the founder and President of Data Points and they discuss money tips and behavioral finance. Sarah is continuing the study of wealth in America started by Thomas J. Stanley, Ph.D. using analytics to identify and develop wealth potential.

 

Show Notes
  • How Sarah’s company applies the lessons in The Millionaire Next Door by Dr. Thomas Stanley
  • Discussion about the factors that measure our propensity to build wealth
    • Frugality
    • Confidence
    • Focus
    • Social Indifference
    • Responsibility
    • Planning & Monitoring
  • The importance of net worth
  • How to apply behavioral finance between couples
    • Role responsibility
    • How to approach if partners are dissimilar and similar
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YFP 034: Working Together to Walk Through the Valley of Debt

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On this episode of the Your Financial Pharmacist podcast, we continue our month-long focus on how couples can work together to manage their finances.

In Episode 34, we interview Ellen & Ethan Ko who chronicle their journey walking through the valley of debt as a young couple, how they have managed to work together through financial hard times and what they are doing differently to be on the path towards financial freedom. Ellen is a 3rd year pharmacy student at VCU School of Pharmacy and Ethan is a physician that is trained in internal medicine with a subspecialty in nephrology.

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