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White Coat Investor Podcast
WCI #458: Why Automation Beats Willpower for Doctors Building Wealth
01:00:33
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- [00:00]
A
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
- [00:16]
B
This is White Coat Investor podcast number 458. David Bach on becoming an Automatic Millionaire. Full disclosure, what I'm about to say is a sponsored promotion for locumstory.com but the weird thing here is there's nothing they're trying to sell you. Locumstory.com is simply a free, unbiased educational resource about locum tenants. It's not an agency, they simply exist to answer your questions about the how to's of locums on their website, podcasts, webinars, videos, and they even have a Locums 101 crash course. Learn about locums and get insights from real life physicians, PAs and NPs@whitecoatinvestor.com locumstory all right, our quote of the day today is from Peter lynch who said far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves. Isn't that the truth? We've got a promotion going for WCicon. This is for the virtual version of WCicon. The sale goes through March 25th. WCIEvents.com is where you use it and the code is WCICON100. That gets you $100 off the virtual version of WCICON. I think you can still come in person if you like. That code doesn't work for in person, but if you'd like to come on the virtual version of the Physician Wellness and Financial Literacy Conference, we would love to have you. Okay, we've got a great interview today. We've got David Bock on here. He wrote all kinds of books. You've heard of the Latte Smart Women Finish rich. But he just put out a 20th anniversary edition of the Automatic Millionaire, which I think is his most famous book. So let's chat with him about some of the ideas in that as well as what he's doing with his life now. And we'll be back afterward to talk some more. My guest today on the White Coat Investor podcast is David Bach, author of the Automatic Millionaire. He has been famous for a long time in the personal finance space. David, welcome to the podcast.
- [02:09]
A
Jim, it's great to be with you. Congratulations on all the good work you've done and you have been doing it a long time. So it is an honor to be on your show finally after all this time because you've been kind enough to review multiple times the Automatic Millionaire, which I appreciate.
- [02:24]
B
Yeah, I love the ideas in it. And the fun part about this interview is we are speaking intercontinentally. David is currently living in Italy. We're going to get more into that a little bit later in the show today. But first I want to spend some time talking about the Automatic Millionaire and the ideas in it. This is fun. This is the second edition, right.
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A
It's hard to believe. This is like the fourth time we've updated this book. This book's called. And I don't even. I should know what edition this is.
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B
But it's the 20th anniversary edition is what it is.
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A
And so it's a 20 year anniversary edition. It's out now in hardcover. I just spent the last year and a half completely updating it. So it was a complete revision and it's now timeless. It's a timeless book. But now it's been updated for the world we're living in today.
- [03:10]
B
Yeah. And you know, I've written books, I've updated books. It's a pain to update a book. Right. You've got to feel passionately about what you're doing. Why did you feel so passionately about the message in the Automatic Millionaire that you wanted to do a 20th anniversary edition?
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A
Boy, Jim, you. It's a model. It's a minor understatement. It's a pain in the. Complete that out later. Right. Like, it's so much work. I think I forgot how much work it is. But I wanted to do it another time because of all the work I've done. I've got 13 books out. I've got 10 New York Times bestsellers. This has been the book that's helped the most amount of people. And this is the book that over 20 years ago I launched on Oprah. It's helped so many people. The letters I get, success stories I get every day. Ordinary people who have built financial freedom. Sometimes these letters come in and they literally bring me almost to tears. They're almost not believable. But so much has happened in 20 years. So I've got kids and I've got a 22 year old and I have a 15 year old and, and I wanted a book for them and for their friends and basically the next generation. So I thought I'm kind of getting, I'm getting ready to wrap up my career here. I've spent 33 years in personal finance and I wanted a, a book to give my friends, kids and the next generation very cool.
- [04:28]
B
The main idea behind this is that it's hard for people to remember to keep doing the right thing over and over and over again. That you're basically telling them, automate things, make it automatic. And then, you know, I mean, there's no guarantees in life, but you're essentially guaranteed to be financially successful if you put the right habits in place in the beginning. And many of those you don't even have to do yourself. You can just set up a system, tell us what you mean by making it automatic to become a millionaire.
- [04:56]
A
So when it comes to money, money's the only thing you can automate, right? Like your listeners are doctors and the medical industry. You can't automatically make me eat well. It's not possible. It's just, I know I should eat well, right? But you can't unless no one's bringing me food. Automatically, money's the only thing that, that you can automate. So when it comes to saving and investing for the future and really everything, your emergency money, your retirement, your dreams, there are a couple ways you can do it. You can write checks, or you can transfer money yourself. But those ways, that doesn't usually work because we're busy. And even if we start off doing it, we, we fall off track. So when you automate your financial life, when you move money every time you get paid, so you get paid. Money moves right when you're paid or before you're actually paid taxes, you pay yourself first. When you pay yourself first, ideally one hour day of your income, I teach you save a minimum of 10%, ideally 15% right off the top. And you move that money without touching it to a retirement account, to an emergency account, to paying down your debt. It actually gets done. What I say on the back of this book is that wealth isn't a secret, it's a system. And when you make your money automatic, the system works for you while you sleep. And that sounds like an infomercial, but that's the truth. And what we now know, because we have 40 years of experience with this. We've had Retirement accounts for 40 years, 401k plans, IRA accounts, SEP IRA accounts. We know that people who save money automatically do really, really well and become millionaires. And we now have 24 million millionaires in America. When I wrote the Automatic Millionaire 20 years ago, we only had 8 million millionaires. So the book is about an ordinary couple that came into my office with an ordinary income. That year they came into my office, they made less than $55,000 that year, and they had saved automatically by the time they got into their early 50s, they were able to retire. And when I met them, I was a young successful financial advisor making six figures and spending everything I made. And they were my wake up call. Because meeting them I realized that if I didn't change, nothing was going to change. And the couple's name is Jim and Sue McIntyre in the book. And they were the ones that inspired me to realize it's one thing to teach people to make it automatic, it's another thing to do it yourself. And fortunately, after I met this couple, I realized I've got to change myself. Like I was making more and more money and spending more money. And this is typical for anybody who's in a high, a high income profession. You have lifestyle creep and when you make your savings automatic, you take the money off the top. You can keep increasing your lifestyle, but you have to pay yourself first before you increase your lifestyle. And that's really the premise of the automatic millionaire. Make it automatic so it moves while you sleep. Doesn't take discipline, it doesn't require a habit. The habit is the automation.
- [08:17]
B
It's a behavioral thing really. Right. You're trying to set this behavior in place so that you don't have to have amazing amounts of willpower to keep doing this over and over and over again because you just set up the system in the first place. So I think that part of it's absolutely brilliant. But let's talk about what this means, practically speaking. I mean, I love the, the pay yourself first approach, right? A lot of people don't like budgeting. Budgeting is their least favorite thing in the world. And so they call it anti budgeting. Right? They just take whatever they're going to put toward retirement or whatever their savings goals are first and then they spend the rest. And they figure if it's in the bank account after I've already paid myself, I can spend it. Other ways that you can automate things, you know, you can set up your 401 so it'll be maxed out over the course of the year. You can make automatic payments out of your, into your taxable brokerage account. What are other ways people ought to be thinking about automating their finances?
- [09:13]
A
I love the way that you just said it's the anti budget approach. Right. And then I'll answer the question. When I was young and I first got married, my wife and I, I talk about this in my second book, Smart Couples Finish Rich. My wife and I fought about the budget because I was a financial advisor and I wanted a. Before I was automating everything. I wanted to figure out where all the money was going because I wanted to make sure we could save something. And finally I said to her, look, here's what I really want to do. I want to take 20, in my case, I want to take 20% off the top. So before you and I can spend the money, I want to move 20%, I want to move at least 10% into the 401k plan automatically. I want to move 5% into an emergency account, and I want to move another 5% into a buy a house account, called it a dream account. And so then after that, you can spend the next 80% and I won't fight with you about where we're spending the money. That approach works really well when you're married. It works really well even if you're not married. But it really works well if you're married. Because when you, if you're somebody who likes track where all the money goes, and anybody who's listening to you and who's a white coat investor, they're super into this. That's why they're here. There's a good chance they married somebody who's not super into this. That's how it works. We always marry our financial opposite. So when you automate your financial life, it reduces all the friction in your marriage. So that's number one. So now to answer your question, what can you automate? What are the key things you can automate in your life? Like I've got my, I got a hand up with five fingers here. One is your 401k plan or your retirement, whatever your retirement account is, it's automating your retirement account. Two, it's automating an emergency account. Now, what is an emergency account? Emergency account is you're putting money aside, ideally in a money market account that doesn't have checking attached to it. So you're taking. And again, in my case, I used 5%. You're taking a certain percentage of every time you get paid. You're putting it in an emergency account specifically for an emergency. Not to redo the kitchen, not to get a new car or boat. It's for an emergency. It's like times like Covid, you know, it's having that money set aside for when things go wrong, other things people ought to make money for. And I use my example of a house. I wanted to buy a house, so I set aside money for a house. Or maybe somebody wants to buy a second home, a ski home or, you know, a lake house. Those are Whatever it is you want, you can put money away automatically in a separate account for that. Now it can all be in the same brokerage account. It's just, it's designated for those things. College savings plans, 529 plans. Sure, a lot of your listeners and viewers have kids and the sooner you start a 529 plan for college or an HSA account, right? These health savings accounts, those are great accounts to automate. And then the last thing is debt. If you have a mortgage, you should automate paying your mortgage every month and you should automate paying it down early. And the way you can best do that is take a bi weekly mortgage, take a mortgage and split it in half and pay automatically half every two weeks. And you'll take a 30 year mortgage down to typically 25 years. And I recommend if you don't do that, you make one extra mortgage payment a year and you'll pay your mortgage off seven years earlier. You can run all these calculations online today. It's super easy. And credit cards should be paid automatically at a bare minimum. You should make minimum payments on your credit cards. I don't want you make minimum payments, but you should make those payments automatically too.
- [12:46]
B
You know, a lot of that automation is in the savings, it's in the contributing, you know, making the contributions into these accounts. One of the ways in which I think automation has most helped me in my life is we've taken an approach to our investing where we basically use a static asset allocation. We use a fixed asset allocations, same percentages. So basically 20 plus years ago, I took all of those decisions about what to invest in off the table, right? I wrote down a plan and all I have to do is follow the plan. What investments make sense for somebody who wants to become an automatic millionaire?
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A
So I really recommend for the average investor, like if you've got a 401k plan, you use a target dated mutual fund. Because a target data mutual fund does that asset allocation you just described automatically for you in one fund, right? So it might be divided among 10 asset classes and it's based on a timeframe. So if you're going to retire 20 years from now, you choose a target dated fund 20 years from now. That's how I think it's great for people to start. And there's now trillions of dollars in target dated funds as you start to have more and more money. And if you do manage yourself or you hire a financial advisor, they will build you an asset allocation model. And what you just do what you just Described is exactly what you should do. You should have a targeted asset allocation. So like in my case, I'm very conservative. My asset allocation is basically 50, 50. I'm 50% equities and 50% fixed income. So when I sit down with my financial advisor and I go over my account, as the markets go up, my accounts go up, I have to rebalance it. And every year, this is the time of the year where I sit down with my financial advisor and I have that discussion. It's been a great year. Right. The stock portion of my portfolio is up 19% for the year. So my asset allocation of stocks has gone up quite a bit actually. Now I have to decide and this is what everybody who's listening as it's easy for me to rebalance it in my IRA account, there's no taxes, so that's where I'll rebalance first. In my taxable account, it becomes harder to rebalance because I don't want to pay capital gains if I don't need to. But my asset allocation hasn't basically changed in like six, seven years. The individual investments inside it might change slightly. Like in my case, I moved money to global two years ago. Why did I move? I've never, I'm giving you like, you know, behind the scenes stuff, my own personal life. Well, I've never had global investments in my portfolio, specific global investments because I traditionally didn't feel they were necessary. If you're in a broad based U.S. index fund, you're getting global exposure. Global investing has underperformed for 20 years. So two years ago, the global investment markets were so cheap compared to the US markets that it just seemed to me like it was obvious it was time to start putting money into global investments. And now global investments have been up way more than the US markets. But I'm not switching everything global, I'm just switching a percentage. I happen to be one third global and 2/3 us.
- [15:57]
B
That's actually precisely what I've been for the last 20 years. And you're right, the last 15 years, up until 2025, that didn't pay off that well. But 2025 sure did. That's for sure.
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A
This year is amazing. You're up over 30% on your global investment. Yeah.
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B
And if you're invested in something like international small value, it's closer to 50. I mean, they've just knocked it out of the park in 2025. Okay, let's talk a little bit about the downside of automation. Some of the things that you can't make automatic you basically, if you've chosen to have an automatic life, you've kind of chosen not to do these things. The first one might be tax loss harvesting, right? Which is significant for those who have a significant taxable account, especially if you're automatically reinvesting dividends so you can maximize the benefit of that. You've always got these small tax lots coming in, causing you to have wash sales if you didn't want to go tax loss harvest. But tax loss harvesting by its very nature is pretty manual. It's a pretty manual process. Another thing that tends to be difficult if you're automating is doing your backdoor Roth IRA process every year. Right? I mean this is kind of a manual thing. You don't want to trickle in money every month, all year into your traditional IRA and invest it and then try to convert it at the end of the year. It just makes for a big paperwork mess on your form 8606. And sometimes doing asset location things where you've got different asset allocations in your taxable account versus your 401k, et cetera, et cetera, to try to maximize the tax benefits of each account, that's difficult to make automatic as well. What do you see as the way to balance those issues with the behavioral benefit of making everything as automatic as possible?
- [17:38]
A
So it's interesting because I actually don't know. Let's assume your clients have hired a financial advisor. That's the job of the financial advisors to do tax loss harvesting. Now most financial advisors do taxes harvesting without calling you, right? If you've got a fiduciary who's a registered investment advisor, that's their job. They have a system in place. It's all automated. I mean, it's not the individual advisor that's going in there and going, oh, I think I should sell this and I should buy that. Usually it's a, a computerized system that's automated. It right? When you look at asset like I just was the co founder of a registered investment advisor. You heard me speak@fincon. I was just launching this firm with two partners. That firm today has over $40 billion under management. I've sat on the investment committee for the last eight, for eight years, I've gone through every quarter 90 pages of investment reports where we have our board meetings, right? With, with our CIOs. Most of that money's automated. Most, most big, large model portfolios, including institutional money, is automated. So in terms of tax loss harvesting, if you're doing it yourself, you can't automate it, you've got to go in and look at it yourself. If you're working with an advisor, then you should at least be agreeing on when you're going to do this. Most tax loss harvesting takes place at the end of the year, or it takes place if there's a major drop in the market. If market drops 5% and you have a good advisor, Chances are they're. They're harvesting those losses. That's one thing. The second thing I was on the Roth question, which is a good question. Some people actually choose to do Roth conversions automatically so that they don't have to think about it. They actually sit down with their advisor and say, you know what I want to take? They decide I'm going to take $100,000 out of their IRA account as an example. I'm going to convert that. But I don't want to make the decision at once because I don't know what the market's going to do. So I want to just take whatever it is. I'm going to take $100,000 by 12 months and divide it and I'm going to dollar cost average out of the IRA account. Just like a dollar cost averaged into the IRA account. I'm going to dollar cost average into my Roth conversion. That's what some people do.
- [19:42]
B
Let's talk about another idea that I think you've made. Maybe it might be your most popular idea, your biggest contribution to the personal finance space over the years, which is the latte factor. The idea that a little bit of money every day adds up to a massive sum, especially when compound interest is applied to it over the long term. You know, if you skip a latte every day for the next 30 years, you could be a gazillionaire. You know, that's basically the idea. And the pushback I hear about this idea is that it requires a great deal of behavioral willpower to focus on the small decisions, that instead you should focus on getting the big rocks right. Get your housing costs right, get your transportation costs right, you know, get your schooling costs right. And then you can treat yourself to the lattes because you're doing the big things. Well, what do you think about that pushback and how would you respond to that?
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A
Well, first of all, you're right. The latte factor is. Is be. Probably become one of the most famous things I've ever taught besides pay yourself first. The latte factor is what everybody knows me for. And the latte factor was always this metaphor around how we spend small amounts of money on little things without thinking about it. And it started with me telling a story about a young woman named Kim who said she couldn't use her 401k plan. She couldn't pay herself first automatically, because she didn't have any money. And as she was telling me that, she was drinking a Starbucks latte. And I asked her how much it cost, and she told me. And then I went up to a chalkboard back in the day and ran the math for her and showed her, well, you know, she's Kim. If you didn't have the coffee and you didn't go to Jamba Juice and you brought yourself an apple and you make. You had the coffee at Free. She worked at the Gap, like, and you save $10 a day, and the gap matches your 401k plan, you'd have over $1 million by the time you reach retirement. And she's like, are you trying to tell me my lattes are costing me? And the number of times I want $1.2 million, I'm like, yeah, actually, that's. I didn't say it. People in the audience were, like, turned around. Like, that's exactly what he's telling you. And so everybody, when I left that class, that's what they were talking about. Like, they were. They weren't talking about, should I stop going to Starbucks and having coffee. They were talking about, what was their latte factor? Because everyone's got a different thing, right? And is it going out and having cocktails today? Is it taking Uber everywhere? Is it having Uber eats every day? Is it paying for subscriptions that you don't use today? It's not $5 a day. Today we're wasting 10, 20, $30 a damn little things. And, you know, I don't know if we sent you my famous latte factor mug, but in the automatic Millionaire now, I talk about.
- [22:27]
B
I got one. I got one of those. It's beautiful.
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A
There was only only a hundred of these. Jim, this thing, you got to hold on to this now.
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B
It's a collector's item.
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A
Collector's item. So this mug, what we talked about in the update of the book was, was, what does it take to blow $10,000 a year? And that was the most viral post I ever put out was, what does it take to blow $10,000 a year? How much money is it per day? And the answer is $27.40 a day at the end of a year is $10,000. $10,000 is so much more money than the average American has. Like, six out of ten Americans cannot get their hands on $10,000. They can't even get their hands on $1,000. Six out of ten Americans. So I've been using, you know, in the latte factor mug, I showed you $27.40 a day invested in the stock market. If it only earns 10% annually, the stock market has earned the last 10 years over 13%. If it only earns 10%, you'd have $1,644,000. In 40 years, you'd have over $4,424,000. Now. What do people say today when they hear about this? They say the same stupid things that they said 20 years ago. They literally say, well, in 40 years, $4,442,000 isn't going to be worth that much. It's going to be worth a whole lot more than zero. They say, I don't waste $27.40 a day. Oh, my God. Tons of people do. You live in any major city and you go out for a drink, and that's how much you spent on a cocktail or two. I was just in New York City, and I stayed in a beautiful hotel, and the drinks were $31 without a tip. And the bar was full. Bars absolutely full, like standing room only to get a drink for $31. I said to my wife, there's no way everybody in here is saving $10,000 a year. They might be making $150,000 a year, but they're probably still broke. And they're spending at least 50 to $100 tonight just having a cocktail. They haven't even had dinner yet. So I'm not trying to take away people have your coffee, smoke your cigarettes, have your cocktail. But if you don't believe you can save $5 a day, $10 a day, $20 a day, you're never going to fix the big things. And what I found with the latte factor is it was the emotional light switch that made a whole lot of people who didn't believe that they could start saving realize, you know what, Maybe I'm richer than I think. Maybe I could start saving. And also made people realize that you don't have to be rich to become an investor. So, like, you know, if my legacy's been any will, hopefully been anything, I will have helped a whole lot of people realize you're richer than you think. You don't need to make a lot of money to become an investor. And small amounts of money can change your whole life. And if you make it all automatic, everything's easier. You'll turn around in 20, 30 years and you'll be financially really well off. This is not a get rich quick approach. This is a build wealth over your lifetime approach. And not everybody wants that. A lot of people want to try to get rich quick. Problem is, I don't know anybody who has successfully gotten rich quick. And I've been doing this a long time.
- [25:46]
B
I've met a few over the years. But the way they did it is never reproducible, that's for sure. They basically got lucky.
- [25:52]
A
You know, sometimes they get lucky, right? But a lot of times if someone gets rich quick, they don't keep it.
- [25:58]
B
They don't have the habits. It's the classic problem. And this is a good time to kind of segue into the financial life of doctors. But when you're a small business person, by the time you've built wealth, you know how to manage money. That's not necessarily the case. When you spend the first 15 years of your adult life in school and training and you come out and someone hands you a $400,000 income, you don't actually have any training in managing money in business and personal finance and investing. And so just like somebody that becomes rich quick, you, you don't necessarily know how to stay rich. Just like doctors don't know how to build wealth, despite the fact that they make 200, 300, $400,000, sometimes much more that they struggle to build wealth. What's your experience been interacting with doctors over the years as far as their wealth building habits go?
- [26:51]
A
Well, so my experience in the real world, number one, is that doctors come out of school with a lot of debt, right. So often the debt in the beginning days is suffocating. It can be hundreds of thousands of dollars of student loans. But then in the very beginning, they don't make a lot of money. Then their income starts to grow. And I've seen doctors that as their income grows, they get a nice house, they get a nice car, they get a country club membership. Their job's hard, but they're not actually building any wealth. That's one type of doctor that's a very tough place to be in your early 40s. I've seen other doctors that have, they follow you. Right. They become a part of an organization like White Coat. They've heard horror stories from older doctors and they realized in medical school or right out of medical school, I need to get my finances right early. Those doctors tend to do a really good job. They have a defined benefit plan. They're putting A lot of money away into retirement accounts. They're thinking early about how do I crank the savings in the first 10 to 15 years. Because they also see the writing on the wall that it's very hard to maybe be a doctor as you get older. Can't handle the hours, stress can kill you. There's a lot of difficulties to being a doctor. Medical industry is a tough place to be right now. So I see doctors who are serious about it maybe earlier than they were 20 years ago, like younger doctors today, are way more sophisticated, I think, when it comes to investing. And then the sophisticated doctors, if they're a part of a practice or if they're an entrepreneurial doctor, they have learned. And if you haven't learned, you want to learn this. They have learned that one of the greatest ways to build wealth as a doctor is to own the building that your medical practice is in. So when I look at my doctors that I know who have built substantial wealth, in many cases, they either owned the building where their medical practice was, or they owned a part of a building where their medical practice was. And if they didn't, they took money and they also invested in real estate. And it's interesting because I started my career in commercial real estate and I started in. I'm from California and I worked in an area of Pleasanton, California. And the first building that I had a listing on was this beautiful building in downtown Pleasant. Still there. It's gorgeous brick building. And the owner was a doctor. His name was Dr. Bob Bendy. Remarkable man. And he was an individual. He was a doctor, he had a medical practice. And he had taken his money and he had bought real estate. And I was like, how did you afford to buy this beautiful building in Pleasanton? He's like, well, I started off small. I had one, I had one. And then I had, you know, house, and then I had a duplex. And then I got a little bit bigger and I ultimately rolled everything into this building. And then he, you know, later he was in one of my books. Later he rolled that into another property. So to answer your question, there's different levels of doctors. And I've seen, you know, as a doctor, when you're making good money, you have to appreciate your money. Almost like an athlete. You know, athletes careers are very short. Doctors careers are not necessarily short. But you should look at the 15 year time horizon and say to yourself, I got 15 years here. Make a bunch of money. I need to make sure I'm cramming that money into investments that make me money. So I have the option to not work if I don't want to work.
- [30:17]
B
It's interesting. They do surveys periodically, and like any survey, the data is not perfect. But after talking to thousands and thousands of doctors, I think it's close enough that we can use this information. But they do surveys where they ask doctors, what's your net worth? And no surprise when you ask a doctor in their 30s, what's your net worth is negative, usually, right? They've got a bunch of student loans still. But the concerning part to me is when you talk to doctors in their 60s and what you discover if you do that is that about a quarter of doctors are not millionaires. 11 to 12% of them do not have a net worth of even half a million dollars. And about half of them are not multi millionaires, which, you know, this is. I know there's some doctors doing just fine, and I'm not really writing for them. I'm not really working for them. I'm trying to work for the ones on the other end of the spectrum and try to avoid this issue because I think it's a super shame to make 200, 300, $400,000 a year for 30 years and not even be a millionaire yet. I wrote a post a couple of weeks ago where I basically said, you know, doctors should retire as multimillionaires. That should be like the basic standard. It's not that hard for somebody making 200, 300, $400,000 a year to end up with at least a couple of million dollars in net worth by the time they're in their mid-60s. And you wouldn't believe the pushback that came on that post, that basic idea that doctors shouldn't focus on that shouldn't be multimillionaires. And so I hear all kinds of sob stories. Well, I had a divorce. I had to put my kids in private school. I focused more on my patients than on my money. You know, and the pushback that came from that, and it's appalling because I could demonstrate financially that if you just, you know, save 20ish percent of your income, even if you cut it in half once, even if you got a, you know, even if you're one of the lowest paid doctors, even if, you know, you got a late start, you still ought to get to a couple of million dollars. But people don't necessarily like hearing that. And they don't want to be told they're a financial failure because they didn't build any wealth at all despite making tons of money during their career.
- [32:31]
A
If you went out and surveyed your community and you asked a question, knowing what you know today, what is your single biggest regret when it comes to money? You should do this, actually, if you haven't already done it. What you're going to find is they're going to come back and they're all going to say, I wish I had started saving and investing right out of medical school or even in medical school, younger. And I wish I had taken it more seriously and saved more. So I wish I had started younger. Wish I had saved automatically, and I wish I had saved more. And it doesn't not we're talking about doctors, but I mean, it doesn't matter what the audience is. Like, I just did an event in Arizona and I asked this room, super successful entrepreneurs, right? You know, people who are paying 35 to $100,000 a year to be in the room. This was a Joe Polish Genius Network event. You probably know Joe. I asked the room how many of you wish you'd started when you were younger. And everybody's every hand went up, right? And then there's a room of young people. And I'm like, look at all the hands are going up. You know, one of the things you wish when you get to your 50s or 60s is usually you wish you had started doing more earlier. And when you're young, you have so much energy and you're so unstoppable, and you think, you think you're actually going to always be like that, right? And people in their 50s and 60s tell you, you know, it's going to go by really quickly. You're going to go like this, you're going to blink your eyes and you're going to be in your 50s, and then you're going your 60s, and you're not going to want to work as hard.
- [33:54]
B
Boy, I know how that feels. I turned 50 this year, right. I just, I just got done turning 50. And if ever there's a sobering moment, becoming half a century old has got to be one of them. Yeah.
- [34:04]
A
When I just turned 59. And I got to tell you, by the way, if you want to know the difference between 50 and 59, big. Like, I'm sending out an email next week telling everybody. I've been doing emails since 1990, 1997. I'm about to just totally wrap up. And you're one of my last podcasts, too. So there comes a point where you.
- [34:23]
B
Just want to go have fun.
- [34:24]
A
And so as a doctor, for many of the doctors listening, there's going to be a point that you're like, I don't want to do this anymore. Even if you love your patients 10 years from now, you might not want to do this anymore. So you need to take care of your future self. Wherever you are today, try to take yourself out 10 years from now. Just like you would tell your patients, you got to take care of your health so that in 10, 20 years, you can do all these things. You need to take care of your wealth. Health's the most important, right. Like, you know, you're 50. When clients in their 50s would come into my office and they want to talk about their, their finances and their net worth and how much to save, I'd say, Jim, let me ask you a question. When's the last time you went in for an annual physical? Wife's like, I've been telling them to go in for an annual fiscal. And you know, and I'm like, I know. Why are you asking me about that? Because there's no point in getting to the age of retirement and then not being healthy enough to enjoy it. You're a fit guy. But a lot of doctors also don't take care of themselves. It's funny, because I live in Italy, people smoke. I just went to a. Went to an appointment at the hospital and I'm like, I'm walking through the hospital and I can smell smoke everywhere. And I was. I mean, I'm pretty sure you probably aren't supposed to be smoking if you're a doctor.
- [35:41]
B
Yeah, that's a good segue. I wanted to spend a little bit of time talking about this. A few years ago, you made a decision to go spend a little bit of time in Europe. And I think this is a common thing for people. They want to try living outside the United States. They want to try geographic arbitrage. Sometimes they realize their money will go a lot further, further if they retired to Guatemala or whatever. Tell us a little bit about your experience living outside the US Both financially and non. Financially, what that's meant for you and your family.
- [36:15]
A
Sure. Well, first of all, we did it for the adventure. And really what I wanted for my family was a transformational experience as a family. So I had two kids, I still have two kids, and they were young, and I wanted to move abroad for one year before they went to college. So I intentionally moved the family abroad. When my older son was going to be a sophomore. He was going to be. He was 15. He was going to be 15. And we moved abroad because that. We felt that was the one year in high school, we could move abroad and then come back to New York so he could finish high school. So that was kind of how we structured when we went. And then I had a younger son who's younger than him. So we got to. We chose Florence, Italy, because we came from New York City. I wanted a smaller city. I loved Italy. And, you know, there was a good international school. And we didn't know anybody who lived in Florence. We just thought it would be fun. It's nine months. How fun would that be to live in Italy for nine months? And we came here and it was fun. I mean, it was so much fun. And like 90 days later, my son, who we really thought would be hard to get him to even move to Italy, he came to me and said, dad, is there any way you would consider staying so I could finish high school? Could you work from here? And my wife was like, God, I would love that. Could we stay? I'd rather not go back to New York now. So we did, we stayed, and now we've been here six more. You know, we've been here six years. My older son graduated, went to college. He's at Northwestern Chicago. He's about to move to New York City for his career. And my younger son is in 11th grade and has one year and a half left. And so that's how it started, you know, now the things that we found out in living abroad is that our whole lifestyle changed. You know, our life became about experiences, completely about friendship, food, fun, travel, kind of all the things you dream that retirement would be like. We just kind of moved it up a decade. And, you know, I've slowed down how much I work because I. I live abroad. I don't work as much as I slowed down. I'm retired, you know, basically kind of sort of started to retire two or three years ago. And, you know, the arbitrage thing turned out we didn't. We didn't move abroad because it would be less expensive, but coming from New York City, I mean, the arbitrage was unbelievable. Money goes further abroad, but the quality of life is so, you know, I don't want to depress people in the States, but quality of life, especially in New York, Yeah, I mean, quality of life is just really phenomenal. And, you know, I love visiting New York City. I loved living there for 18 years. And I'm really happy in Europe now. I mean, when I get done with you, and I've got like another week of stuff here, and then I go to Switzerland and I ski for a month, and then I'll go to France and I'll ski, and, you know, it's just fun. We just have a really. And I have. I've inspired a lot of friends to move abroad because they saw me do it first. It's like you put your foot in the water, and then. And then it's like, oh, he's okay. And so quite a few of my friends from New York City have moved abroad. They haven't all come to Florence. They've come to. They've gone to Madrid, they've gone to Barcelona, they've gone to Lisbon. Once you do it in the beginning, it's not that it seems like it's a huge challenge. And once you actually do it, it's not that hard. And I think what happens is when you change your location, you really changed your life. We had a great life, and I think we've just gotten to go on a whole new adventure. It's been really, really fun. I highly encourage people, too, to take breaks, and if they have any part of them that's thinking, I'd like to do that. I know it's harder to do that as a doctor. Nurses do it all the time. But I think not working until you're 60 to retire, but instead taking an intentional month or two months, maybe in the next year or two off and doing a mini sabbatical. I call it in the book in the Automatic Millionaire to call it a mini retirement. Don't wait. Take a mini retirement in Europe. They just call that summer.
- [40:19]
B
They do it every August.
- [40:21]
A
They do it every August. I know, totally. And those are the ordinary people. These are people who aren't ordinary. They take the whole summer off, but everybody takes off.
- [40:31]
B
All right, well, let's talk about your Olympic plans. I mean, I was here in medical school in Salt Lake when the Winter Olympics came to Salt Lake. It's going to come back here in a few more years. The Olympics is not very far from your home. Do you got any Olympic plans coming up?
- [40:43]
A
Okay, it's really funny. You're the second person to ask me this. So the previous podcast asked me this question. I'm going to Verbier in another week. I'm probably going to stay in Verbier. The thing is, I love skiing the Dolomites and the Dolomites. I don't think I want to be there during the crowded time, you know, because if you actually have been in the Dolomites and you've been to Cortina and you've been to all these places, getting there is enough. When there's not crowds.
- [41:09]
B
Right. For sure.
- [41:10]
A
So I think. I think I'll avoid those two weeks and then I'll go back up the Dolomites after. But Lindsey Vaughan, go. I'm rooting for Lindsay and I love the Olympics, so. But I don't know that I'm going to actually go watch anything. I think I'm going to be skiing in Switzerland.
- [41:24]
B
Yeah, I drove through Cortina about three months ago. Three, four months ago. They didn't look like they were quite ready when I came through. So hopefully they pull it off.
- [41:34]
A
You know, I've heard that in the last month or two, too. I'm like, somehow in these Olympics, they always pull everything off. There's an issue of snow. The snow's late this season, but snow has been laid everywhere.
- [41:47]
B
Yeah, yeah, it's terrible here in Salt Lake. We've had maybe the worst winter that I can remember in a couple of decades of living in this state. So hopefully that hopefully it resolves itself.
- [41:58]
A
You happen to live in my second favorite place other than Florence. Now, what my original plan had been when I moved to Florence was to move to Park City after Florence, which is talk about booming everywhere around you has boomed.
- [42:11]
B
Yeah, for sure. People, the secret is out for sure about Utah. Okay, I want to spend a little bit of time talking about another idea. You've actually been advocating for a very interesting government policy change, a tax policy change. Tell us about it and why you think it's such a good idea.
- [42:27]
A
All right, so the IAD is called. You can go to my website. It's iraflattax.com so iraflattax.com here's the idea. For anyone over the age of 60, I'm proposing that the government do a policy that would take ordinary income on withdrawals from IRA accounts to a flat tax. So just like people do Roth conversions and they pay ordinary income tax, they move into a Roth. What I'm suggesting is they have an eight year tax policy and they drop the taxes down to. And we ran a whole white paper on this. 10%, 12% or 15%. I think 12% is the sweet spot. And I'm suggesting that the government look at doing this because. Because what it would do is it would start to unlock retirement money. So what's happening on the good side is a lot of people have saved a whole bunch of money. So there's 44 trillion. There's actually now 45 trillion dollars in retirement accounts. That's the good news.
- [43:24]
B
Most of which is tax, deferred tax Deferred.
- [43:28]
A
The bad news is the money's not leaving these accounts. So 83% of retirees who are over the age of 68 out of 10 will not take money out of their IRA account until they hit RMD age. So for anyone who doesn't know what that means, RMD age is the required minimum distribution. Government requires you to take at least about 4% out of your IRA account at age now 73. Or like for the young guys like you and I, it'll be 75. When people hit RMD age, they're only taking the minimum. And 25% of people aren't even taking the minimum out. They don't even, they don't realize that they need to do it. And there's a 25% penalty if you don't do it. So again, why don't they take the money out? They don't want to pay taxes. I said people would rather die than pay taxes. Kind of a joke. But like some cases, it's true.
- [44:24]
B
It's totally true. It's unbelievable what people will do to avoid paying taxes. They'll make less money, they'll have lower investment returns, they'll manage their money in some cockeyed way just to pay lower taxes. It's amazing.
- [44:35]
A
Yep. They'll risk all their net worth to pay lower taxes than lose their money. So my idea is like, look, if Trump were to come out, because they're trying to look at things they can do to stimulate the economy. If Trump were to come out and announce an eight year tax policy on it with a flat tax on IRA distributions over the age of 60, I think you'd see trillions of dollars come out of these retirement accounts sooner. Now, where would the money go? Lots of places. Right? It could just go right into a taxable account and leave, leaving the same investments. It could go into buying homes, it could go into second homes, it could go into RVs, it could go into vacation travel, it goes into the community, goes into the economy. It also pulls tax dollars forward for the government because the government's not getting these RMD taxes, but they're budgeted to get R and D tax money, but it would pull forward revenue. So that's my idea. And then if I were to supersize the idea, I would. If I were sitting here with Trump, I haven't got a chance to talk to Trump yet. I'd suggest Trump that he do a Trump IRA account. So instead of a Roth ira, I do a Trump ira. And what I do is I create an eight Year window, take the money out. Instead of doing a Roth conversion, I do a Trump conversion and I convert the money into a Trump IRA and then I'd give them like 10 years. Give you, you know, you can put it in a Trump IRA for 10 years. It's got to come out, come out tax free, but it's got to come out. And I think you would just see a lot of money come out. These IRA accounts go into a Trump ira. It'd be like a mini powerful version of a Roth ira, but it have Trump's name on it. And you probably see $5 trillion at least come out of these accounts.
- [46:13]
B
Okay, so let's say the policy changes, right? What you've advocated for has just now been implemented. I'm coming in, you know, I've got, you know, Roth accounts, I've got tax deferred accounts, I've got taxable accounts. Now I'm asking for advice on what to do with this policy in place. What would you recommend people do?
- [46:33]
A
So here's what'll happen in the real world, and you're asking me a really good question, right? What will happen? Financial advisors will sit down with the client and they'll go through your options and they'll say, look, you got eight years. One option will be wait for eight more years. You got eight years of tax deferred growth and in year eight, take it out, pay the flat tax. We'll see what tax brackets you're in. Take it out because it's got to come out before the RMD age and then we'll see. What do you want to do with the money? Do you want to put it in a taxable account? Do you want to put it in an annuity? Do you want to put in an insurance policy? Do you want to give it to your kids?
- [47:08]
B
We'll just see.
- [47:09]
A
That's one option, right? Another option is, hey, I know it's an eight year tax policy. This is how conversations go. I know it's an eight year tax policy. But you know, tax policies are funny. They usually stick. But what if they change? Maybe you want to take it out immediately. Maybe you want to take the day it's available. Take it out. Some people will take it out the day it's available. Other people will say, you know what, why don't we take it out over all 8 years? Why don't we dollar cost average out so people will do it all differently. Now if you ask me, what would I do if this really got done? I'd probably move it all out Immediately. And why? Because I don't trust the government. I want the money in my account. It's the same reason I have a retirement account. I'd rather have my money in a deductible retirement account than pay the government upfront. So, you know, why are there $45 trillion in retirement accounts? Because everybody didn't want to pay taxes and they wanted to control the money. So, you know, what's happening with these IRA accounts is a lot of people do have actually very large accounts. You know, if you have a million dollar account right now, then in 10 years it's 2 million. You know, literally in 10 years is probably a $2 million account. In 20 years it's 4 million. Now if you look at the last 10 years of the stock market, because that means money's doubled every six years. It's actually not a million to 4 million. It's more like a million to 6 million. So what's really happening is we're going to end up in another 20 years with, believe it or not, a lot of eight figure retirement accounts. And I was on calls with senators last week discussing this idea and they were very honest with me. They're like, you know what? All the energy has been put into putting money into these accounts. We've created everything to put money into these accounts for retirement. We wanted people to save for retirement. I don't really spend a lot of time thinking about how this money is going to get out of these accounts. They spent a little time on it. That's why the Roth IRA came around. The Roth IRA came around because on a bipartisan group of people, they sat down together and realized, if we get people to pay taxes money upfront, we could use this tax money. What's the carrot we give them? We give them tax freedom forever. Huge carrot. By the way, the Roth IRA is a huge carrot. The truth is, the Roth ira, that wasn't thought through either because you start to put money away in these accounts forever. The government can't run without income. We have a $38 trillion deficit that's just growing. The interest on our debt now is greater than our gdp. So none of these tax policies are ever actually permanent. We take for granted. It's always going to look like this 401 plans didn't even exist 50 years ago. So some of this has got to be looked at, I think with fresh eyes.
- [49:59]
B
Yeah, you know, the bigger issue for these people with large accounts, and there are plenty, and there are plenty of people in this audience that either already have this problem or soon will have. The problem is not so much whether the money's in a tax deferred account or a Roth IRA or their taxable account or a Trump ira. The issue is people don't spend, right? I mean, there's really two problems in personal finance. And once you solve the first one, which is that you don't save enough money, you pretty much almost instantly end up having to fight the second one, which is how to spend your money, right? And so what advice do you have for somebody that's done a great job saving for retirement? Now they're 50, 55, 65, whatever, they've got millions of dollars. How do you help them become a better spender?
- [50:46]
A
So you just, you hit the nail on the head. It's so interesting, Jim. There's two sides to this story. Save and invest. That's the accumulation side. And then spend and enjoy. And all the work that's been done, including my own work, has been on the save and invest side. I've spent more time the last 10 years on the spend and enjoy side. And what I would tell anyone who's listening is this, and you've probably talked about this. They say in the financial service industry that there's three stages to retirement. The first stage is what they call the go go years, right? It's the first decade. And then the second stage is the slower go years. It's the second decade of retirement. And the third decade is the won't go years. And that's the years that the husband usually won't go anywhere because he doesn't have the health. And what I would say to anyone is you really want to maximize your first decade. You want to get the moment. You. I just moved it up a decade. I decided to just maximize my 50s. But in your. And you're. And everybody's listening, they're doctors. If anyone should know the importance of this, it should be doctors. Because I talk about this in the automatic millionaire health expectancy in America today, not life expectancy. Health expectancy is age 63. That's the age that we know in the U.S. typically, someone gets sick and it permanently affects their quality of life. Well, you have people retiring at 65, right? So I would have a financial plan, I would have financial planner, and I would maximize that first 10 years. People don't run out of money. Typically, people who have saved, invest. Their issue, just like you said, is not running out of money. The issue is they run out of health time and they miss out on fun time. So don't wait, don't wait till your 70s. And if you're in your 70s, then start spending money now and enjoying it and start giving money to people that you love. Like so many people. Wait, they're in their, in their 80s and they're gonna, and they're not giving money to their kids or their grandchild. They're gonna give the money when they die, but then they're dead. They didn't even get to enjoy giving the money or give the experience. Take your kids on a cruise, take your kids on a trip. I don't know, whatever your values are, use the, you work. So many people work for decades to build wealth and then they barely enjoyed and that's a mistake.
- [53:10]
B
Absolutely, totally agree with you. You know, the big famous book the last few years out on this subject, of course, is Die with Zero, right? Which is not a perfect book. It's got a few issues, but the main point of it is exactly what you just said. You know, we're not going to live forever, we're not going to have excellent health forever. And your, your ability to turn money into happiness does decreases as your life goes on. So don't be afraid to turn money into happiness, your own happiness and that of others, as soon as you can. It's good advice. All right, David, Our time is now gone. It has been time well spent. I think those of you interested in learning more about David's ideas and writings, you can pick up the Automatic Millionaire. It's available at Amazon just about anywhere. Books are sold and make things automatic. There's no reason you can't become a millionaire even if you're a doctor. You know, I got all this pushback recently that doctors can't become millionaires or multimillionaires. It's just not true. It's easier with high income than it is with the low income. But you do have to manage the money. David, what else have we not talked about today that you think people need to hear?
- [54:16]
A
Well, first of all, Jim, I've loved our time together. Congratulations again on all the good work that you do. I really appreciate being here. I would say first of all, come over to my website, davidbach.com, and you know, if you're a woman, read Smart Women Finish Rich. It's like a full blown financial planning book for women and money. It's the first book I ever wrote. If you're a couple, Smart Couples Finish Rich is a phenomenal book, can teach you how to work together on your dreams. And then the Latte Factor, which was my last book is a parable. So for your young kids, you know, the kids that probably won't read a financial book, give them the latte factor book because it's a story and they can read it in 90 minutes and learn the basic lessons of personal finance that should have been taught in school, and hopefully that work can help them.
- [55:01]
B
Awesome. Well, thank you for writing them. Thank you for sharing them. Thanks for being willing to come on the podcast.
- [55:05]
A
My pleasure. I'm glad. And thank you for answering your email when I sent it to you to want to do this show. I appreciate you.
- [55:12]
B
All right. I hope that was helpful to you. It's interesting. The longer I do this, the longer I try to help people become financially literate and financially disciplined, the more behavior matters far more than the math, right? Personal finance is both personal and finance. It's both behavior and math. But the truth is it's about 90% behavior. And all we're doing, all we're talking about in the WCI forum and the WCI subreddit and the WCI Financially Empowered Women Group and the WCI Facebook group, all of that seems to focus more on the math and less on the behavior. Trust me, get the behavior right, right? Make things automatic, become a saver. If budgeting's hard for you, do the anti budget. Just take your 20% off the top and spend the rest. Get the behavior right, and you'll be amazed how successful you can become. By the way, I got to talk about the WCI Facebook group. I'm not sure exactly what happened with the Facebook group, right? We started this Facebook group years ago. It grew like crazy.
- [56:21]
A
Grew, grew, grew, grew, grew.
- [56:22]
B
And it gets to like 99,800 people and, like flattens out. It's been amazing. For like two years, we've had between 99,500 people and 100,000 people in there without ever actually crossing the 100,000 people mark in the Facebook group. So if you're on Facebook, if you do Facebook groups, join the White Coat Investor Facebook group. It would be awesome to have you in there. It's a great group. There's lots of people there helping each other with their daily personal finances. But for some reason, it's starting to irk me that it can't cross the 100,000 person line. We actually hit 100,000 in the in the WCI subreddit faster than we did in the WCI Facebook group, despite starting it years earlier and getting to 99,000 first. So it's pretty amazing. If you like Facebook, check out that Facebook Group. Okay, full disclosure, what I'm about to say is a sponsored promotion for locumstory.com, but the weird thing here is there's nothing they're trying to sell you. Locumstory.com is simply a free, unbiased educational resource about Locum Tenens. It's not an agency. They simply exist to answer your questions about the how tos of locums on their website, podcasts, webinars, videos, and they even have a Locums 101 crash course. Learn about locums and get insights from real life physicians, PAs and NPs@whitecoatinvestor.com locumstory they've actually been advertising with us for a long, long time. And it's one of those easy things to advertise because it works so well for so many people, right? You can do locums at the beginning of your career when you're not sure what you want to do exactly. You can do in the middle of your career kind of as a sabbatical sort of option. You can do it at the end of your career as you're winding down or there's all these people out there like, oh, I have to work full time, I'm a general surgeon or I'm a thoracic surgeon or I've got a practice or whatever. Well, you don't have to at the end of your career if you don't want to. You can sell the practice if you have a practice or leave your full time employment job and you can do locums. Right? There are all kinds of general surgeons and thoracic surgeons and whatever who, who would love to take two, three, four weeks off. Trust me, they're out there, but there's no one to cover them in their small town or medium sized town or whatever. Wherever they are, they would love for you to come in and cover them for two weeks, for a month so they can go take some time off. And you could do different places three or four times during the year and have eight months off. Right? There's no reason why you can't create the life you want. And a lot of times locums will help you do that. So it's fun to have them as an advertiser check them out. Okay, I mentioned earlier, WCICON is $100 off the virtual version until March 25th if you use code WCICON100WCIEVENTS.com is where you sign up for that. Thanks for leaving us five star reviews. Thanks for telling your friends about the podcast. A recent five star review came in from Jagster said jump started my financial education. Love the show, only wish I found sooner. Great primer to stimulate learning about finances for a doc, especially for someone who isn't quite ready to dive into reading a few financial books. Five stars.
- [59:30]
A
Lovely.
- [59:30]
B
If you can listen to podcasts, hopefully we can get you to the same place you'd get if you read a few financial books. But if you prefer books, that's great too. I'm kind of a book and forum kind of guy. I've never been a big podcast listener, so here I am making a podcast. To cite not being a big podcast guy, but we're trying to put this information to whatever format you like to learn it in. If that's the email, newsletters, if that's books, if that's online courses, blogs, podcasts, videocasts, social media, we're trying to get it to you. Let us know how we're doing, ways we can improve. You can always Send us feedback. Editorwhitecoatinvestor.com in the meantime, keep your head up and shoulders back. You've got this. We're here to help. We'll see you next time on the White Coat Investor Podcast.
- [60:13]
A
The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.