Mastering Financial Decision Making

Show Trancript

Justin Harvey CFP: [00:03:00] Yeah. So I think Jimmy, you’re going to enjoy today’s discussion because we can address your philosophical roots and sort of get into what it means to be human and sort

Jimmy Turner MD: I’m all about it.

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Justin Harvey CFP: understanding. How to be operating as your best self and in the way that you want to be. And one of the things, as we think about decision fatigue, as we think about financial progress, it’s not just how do we like make less decisions, but figuring out what are the important decisions to make and even thinking about how do we, like, what are the things you pay attention to?

What are the things you focus on? The things you spend your time on, it gets to the most fundamental part of really it becomes your identity. And, we don’t need to go all the way to the foundation here, but the point is taking whole categories of financial consideration and removing them, not as like, Oh, I’m going to only make one decision at a time, or I’m going to try to minimize, but like, I am literally going to [00:04:00] make a decision about not making any decisions about this category of thing And use the bandwidth that is freed up by that and also the positive impact of not messing with it And i’ll use i’ll use a an example to make this concrete.

I’m not going to spend time Day trading any stocks. I don’t have to think is Google going to be better than Apple going to be better than Nvidia. Are there some small cap sleepers? Should I be looking at Bitcoin miners? Should I be looking at, whatever type of company or whatever sector by saying, you know what, I’m going to espouse an investment process.

That is VTS, AX, and chill as it were, or something similar. That’s going to be low cost, fully diversified, pretty tax efficient. And I’m not necessarily saying you should do that to your listener. Although you’d probably be better if you’re one of those day trading people, you would be better off if you did almost certainly statistically speaking, at least.

But whenever you make that decision, you’re not saying, okay, I’m now going to [00:05:00] like, Whenever I’m doing my stock research, I’m only going to do X, Y, Z, and then I’m going to put that aside. And then I’m going to do, you’re saying, I’m not even gonna spend any of my decision energy or emotional energy or the time in my day trying to make decisions like that.

I’m going to buy the index and I’m going to move on with life. There’s a number of areas in which you can make a similar decision to not make a decision. There’s zero decision energy. That’s going to be exerted in this area. And you’re also in the process, you’re espousing an approach that statistically speaking is going to improve your likelihood of success.

And you’re having the dual benefit of freeing up your time and energy to do something else.

Jimmy Turner MD: The way that I’ve always viewed that is this is the one decision that will make all the decisions. And so, which really frustrates me in medicine, by the way, just as a complete tangent. it really drives me crazy when we have to have committees and meetings and meetings about meetings to make decisions when it’s like if we just sat down and we decided like these are our five core principles.

For our department or institution, whatever the purview is for [00:06:00] the decisions being made. And then you put those stakes in the ground. He said, everything that we decide from here on out is going to be looked at through these lands, these five principles, and then the decisions make themselves. And index funds are a great example of that.

Like you just decide from the onset, Hey, I’ve done my research, I’ve listened to enough podcasts. I’ve read enough books, low cost, diversified index funds just make sense for a thousand reasons. And because you made that one decision, you never have to have that, , you know, that itch you have to scratch to go see if Amazon’s doing better than Google’s doing better than NVIDIA.

if I want to scratch that itch, it’s called fantasy football, and I’m gonna look up, individual players, and I’m gonna decide, oh, I think that this one’s going off, or hey, I think,this tight end’s better than that tight end, or I’m gonna make a trade with a, a buddy of mine from work that’s in my fantasy football league.

there are other ways to scratch that itch that feel the same aren’t. Day trading. And so, I like the concept of making one decision that makes all of the decisions.

Justin Harvey CFP: You bring up a great point. And I, I think I might’ve alluded to it on this podcast somewhat recently, as I, I was reading the, I was listening to the audio book [00:07:00] of the Walter Isaacson biography of Elon Musk and very interesting story in a lot of ways, but one of the things that struck me, he’s a guy who runs several complicated technical businesses in different areas of sort of technology simultaneously, but he does have these kind of like an operating system, the core principles, and there were a number of accounts where they’re trying to solve a complicated Technical problem.

And he goes back to, okay, what is the, what are the core, what is the core principle that applies to this question? And, one of them that I thought was funny, but it was so embodying his personality was there are no laws except for the laws of physics.

Jimmy Turner MD: Ha ha ha ha.

Justin Harvey CFP: it’s like, Oh, you know, regular NASA regulation say that we can’t yada yada.

It’s like, No laws except for the laws of physics, like if we can do it cheaper and use the part from the car washing machine instead of the part that is tested 74 ways to Sunday that costs 120, 000 instead of this 37 washer that, you know, is used [00:08:00] in, industry here, like we’re going to use the thing that is used in industry and we’ll let NASA or the regulatory body come and sue us and then we’ll fight them and then we’ll show them that their idea is dumb.

That was kind of his M. O. and in so doing, So many decisions made themselves because of the Core principles that were laid at the outset

Jimmy Turner MD: Yeah, and I think that you can take that idea and bring it back, which is the part of finance that I love talking about, which is behavioral finance, right? So, so why are index funds outside of the, unbelievably strong evidence for why they’re better than active management? Like psychologically.

Why are they appealing? It’s not just because they do better. It’s appealing because it’s so simple It’s easy to ignore and it turns out that when things are not hard or not easy to ignore You check on them more often. You’re more likely to sell them. You’re more likely to do things with them There’s also the analysis paralysis and decision fatigue that comes from okay, great.

All right your jobs to go pick 37 stocks And there are thousands of them, right? So now you’re going to spend all this time trying to pick the 37 [00:09:00] right stocks and the amount of mental capacity and decision fatigue that goes into that. There’s something to be said about simplicity, right? And index funds, not only are they better in terms of returns based on lots and lots of studies, they’re also simpler and there’s a lot less decision fatigue.

And it is the one decision that makes all the other decisions for you. and so there, there are just so many behavioral finance reasons that it is fortunate that index funds are what they are.

Justin Harvey CFP: and related is as you’re thinking about the areas in which you’re going to exert mental energy, thinking about, am I even asking the right questions? Like what kind of investment is the right investment for me? Like, is that the. Is that a question that is a good kind of question to ask? And I think, you know, that is a good question, but there are a lot of questions that are just not even the right question.

So part of the benefit of having these core principles, is understanding the important questions to ask and then questions you don’t even need to bother answering. And I think, and Jimmy, I mentioned before we hit record, I have observed in the, [00:10:00] especially in the physician finance community, because Doctors do have this natural, like thirst for knowledge and aptitude at acquiring knowledge.

And they know how to learn and they have a really good at it. Cause they’ve done it all for a long time. There can be a, an effect where there’s this, whereas I think there’s a hierarchy of like financial knowledge, there can be a flattening of that hierarchy as you’re sort of diving into the blogs and the podcasts.

And you don’t necessarily have the topographical perspective to say, well, actually. What understanding the proper way to execute a backdoor Roth and understanding if I can get a solo 401k plan that allows for a plan loan is not the same as it does not have the same amount of importance and significance in determining financial progress as what if my savings rate is 12 percent versus 32 percent that is that question and getting a savings rate that is 32 percent rather than 12 percent it will literally dwarf any other financial consideration that you have in your life and will render them totally irrelevant [00:11:00] and maintaining that perspective to say, I understand that this is orders of magnitude more important than anything else.

And I could literally never go to any of those, any of the blogs, any of the, I could stop listening to Jimmy’s podcast permanently. But if I got my arms around this, then I would be okay. that can get lost.

Jimmy Turner MD: Yeah, I think it’s, there’s a lot of counterintuitiveness in personal finance. but there’s one reason why, like the subtitle of the physician philosopher’s guide to personal finance is the 20 percent that you need to know to get 80 percent of the results. And there are certain things that move the needle.

Yeah. And there are certain things that don’t right. One of the things that moves the needle more than anything that you’re looting to is a savings rate. if you save 30 percent versus 10 percent that is going to dramatically impact your trajectory financially. Whereas if you do it back to a Roth or not, it’s not like, that’s just not going to move the needle enough to like really, really worry about that.

But in the financial space, it’s all the rage and people like what do you mean you don’t do it backdoor Roth Jimmy I’m like, [00:12:00] I don’t know like I just I didn’t see the need for it And I like the flexibility of a brokerage account and honestly is it a little more efficient if I had one probably But it just doesn’t move the needle off to make me care Right and so for me, it’s all about moving that needle So I like the way that you’re kind of picturing that and we shared before the show, you know We hit before we hit record that It’s also very counterintuitive to doctors, right?

Like you went to medical school after undergrad, then you went to residency and all of that taught you that if you work hard, you can achieve your goals and working harder in personal finance, particularly as it comes to some of these things that are smaller and moving the needle. it doesn’t necessarily mean you’re gonna get better returns.

It doesn’t mean you’re gonna get a better return on your investment. and so that’s very counterintuitive for doctors, I think because we’re just like the hard work pays off, and that’s not always true when it comes to personal finance. Sometimes. Sometimes the things that actually move the needle are not that hard at all I

Justin Harvey CFP: because there are certain decisions and, you know, maybe we’re talking about financial independence and savings rate and other things. You’re like, [00:13:00] those things aren’t as important to me as. Fill in the blank, the way that you’re structuring your life and your existence with your family and the way you spend your time, pursuit of hobbies, travel, et cetera.

and so starting there with the quote unquote first principles, the found, the seismic plates, tectonic plates of the, what you want your life to look like. And then. And figuring out what are the key, the couple of key pillars. And I do think that you can get to two or three of them. And I would say in terms of financial progress, savings rate really does stand head and shoulders above most others, but in the same conversation are like, what part of the country should I live in?

What specialty am I going to work? am I living in the city or. In the burbs or in the country, those types of questions. Cause then you get into, well, am I spending 2 million for a tiny house or 450 for a five bed, five bath with seven acres, and I have clients who do both of those things. And I can tell you that the rate of financial progress is very different between them, but it [00:14:00] doesn’t mean that either decision is superior or inferior.

It just means that the paradigm is different and the, those like key financial. Pillars, where are we going to live? What are we going to do with our time? And then with those decisions, how much of the economic value we’re creating, can we afford to push towards wealth building? So when I’m talking about a savings rate, I define that as.

Money put towards a wealth building activity, which is paying off debt or building up assets. So we’re saving cash, putting money into retirement accounts, doing that backdoor Roth, paying off student loans, paying off car loans. Any of those would be accretive to your savings rate. How much can we push towards a wealth building activity based on the economic value we’re creating?

And then, where does that percentage go? Land us in terms of the progress we want to make so this is a it’s obviously a personal conversation, but I The longer you wait to do this kind of thinking and often what you’ll find [00:15:00] Jimmy And I’m sure you’ve run into this is you’re making these decisions like subconsciously so you have this values Oh, I would never consider living X, Y, Z, or of course, I don’t want to do those specialties like these two are the ones that I would want to match into.

And, then once you’re, oh, I would never work for that kind of group. I must be in this area and therefore I’m going to be in a certain type of practice with a certain type of pay scale and a certain type of cost of living. Those values are often baked in. And so the time to question this. Values construct is as early as possible before it gets concrete.

Cause once you’re, you know, you’ve been attending for nine years and you’ve got three kids and they’re all entrenched in their educational experiences. And for you to say, you know what, I’m not going to live here. I’m going to live there. You’re there’s a lot to uproot and that’s very difficult and often not worth it.

Jimmy Turner MD: I feel like you’re talking to my personal situation right now. It’s getting a little close to home but no, so it’s a big picture right the one decision that makes all decisions and then [00:16:00] Another thing that you’re kind of you’re kind of hinting at Or that’s worth discussing at least is batching your decisions And so one of the ways that you can do that is and i’ve referenced this before on the show But the three kinder questions to clearly go through like what is important to you?

Like where are you going? What are you doing? What are you trying to accomplish with your life? And those are not financial questions. They just have financial implications. All right, what you want to do with your life and why you’re doing it Has money as a means but it’s not the end itself. And so Because of that, you really have to think through those questions, and you can find them, Google, on 3kinderquestions, K I N D E R, kinder, but it goes by kinder, never understood that, by the way.

But, yeah, those questions can help you, and you know what? Print them off, take them on a date with your partner, sit down, and, talk through them. And, in fact, I encourage you to look through them separately, and then go on the date and discuss your answers after you’ve already figured out what your answers are.

And if you do that, you’re going to get that, like, that big picture tectonic plate kind of stuff that you’re talking about, Justin, figured out. And it’ll allow you to do it in a date that, of course, is going to be an evolving conversation over the years, [00:17:00] but it is a way to batch that financial decision into a single night and often money dates, similar things like, hey, if things are not going the way that you want, or you got different goals or you need to remeet and kind of have conversations to revisit, batch those decisions so that you’re having them in one meeting instead of having 47 decisions throughout the day over two months.

So make one decision that makes all the decisions. And then if there are multiple decisions that you need to make, try to batch them together when you can.

Justin Harvey CFP: And the good news is. There’s part of this that is that only you can do part of this process that only you can handle. And then another part that is delegatable or delegable. I’m not sure what the word is there.

Jimmy Turner MD: I’m gonna go with delegatable.

Justin Harvey CFP: I can tell you for clients that I have that. They have a high degree of self knowledge.

They know what they want. They don’t know all the mechanics. They don’t know Oh, should I be max funding a 529 right now? If an advisor knows them and they know themselves and they can communicate to an advisor who they are and what they want then an Advisor can say hey listen, here’s [00:18:00] the six things you should use the tools that you may not even know exist But here’s the things you should be doing that are going to reflect the Values that you have constructed within your family.

So if you’re intimidated by, Oh my gosh, okay. We, we got the two or three pillars that we’ve made the big life decisions. And now we get to the part of the hierarchy where all of the tactics, the backdoor Roth and the five 29 funding and the, do we need a a trust for our kids, like all those things, those can, I mean, you can sure by Jamie’s book and you should be an informed investor.

There are some, a small percentage of doctors who are equipped to like really do that themselves, but this is a part of what professionals will help you with. And if you can communicate to that professional, the important parts about who you are, a good advisor is going to be able to draw that out of you anyway, but if you can go in and you know, what’s important to you and you can.

Put that on one or two pieces of paper then a good advisor will say here’s the tools

Jimmy Turner MD: Yeah, but I think that’s an example of the decision that makes all decisions. Like, for me, if I can outsource [00:19:00] something that I don’t enjoy, I do. Like, we pay 500 a month for our lawn care and, you know, all of the stuff around the, I mean, that makes my pretty flowers grow. Like I want those things to happen.

Do I want to do them myself? Like absolutely not am I willing to pay six thousand dollars a year apparently, you know, and so, Like I have no issue with that and i’ve just made the decision like I outsource things that I don’t want to do And sometimes that means picking up an extra shift or sometimes that means I need to earn extra money in other ways Sometimes that means I might have to spend less money in another category.

I care less about But what I have decided is that if I can outsource something that I don’t enjoy, I’m going to do it. Now, fortunately, it’s become less expensive because my father in law moved to town in October, and he’s a handyman. So, a lot of those things that I don’t like to do are things that he actually enjoys and gives him something to do.

So, it’s been, it’s been a beneficial relationship. but, yeah, I mean, that, that is something to consider. Like, what are the steak tables in the ground, right? Like, I’m gonna spend,money on my kids activities. I’ve talked about that on the show before, right? I’ve already made that decision.

If something comes [00:20:00] up, you know, big picture decision like my life. If something is the right thing to do, I do it like I don’t care about the like, how’s this gonna happen? I make the decision. It’s the right thing to do. I’ll figure out the how and that actually saves from some mental gymnastics. I have to do like, Oh, is this really worth it to do this or do that?

if it’s the right thing to do, just do it. And so if you put the finally stable table stakes for you and your life based on your values and what you want to do, it can help you figure that out. and I think that’s important because it minimizes the decisions you have to make down the road.

Justin Harvey CFP: Yeah, and that’s why for me the savings rate is it does stand head and shoulders above the others because it does give you The autonomy the ability to say, you know What my kid is gonna do one sport and one cultural pursuit at all times if that was the decision you made and that way You’re not like, oh my gosh a piano lesson is 75 for 30 minutes that seems kind of ridiculous if you can comfortably accommodate that within your free cash flow then It’s, you know, it’s not a big deal.

You just do the thing that is in accordance with your values and you move on. Or [00:21:00] if your friends invite you out to lunch and it’s, Oh my gosh, that place is kind of expensive. And I wasn’t, my value is people are important to me and I have a free lunch. I’m going to spend that with somebody I care about, which is how I operate.

And if you live your life with enough margin, then you can do that. In a way that decreases the emotional energy required to live on that kind of plane. But if, if you make the trade off decision to live in an area where you have less margin, then it does increase the energy, the emotional engagement required to say, Oh my gosh, like this is the third time that’s happened this week.

And I already had two lunches out and I’m, things are feeling tight. I do, Jimmy, I’ve had clients that make five to 700, 000 a year who were like, I was a little stressed. When I was at the restaurant last week that maybe I had gone to the restaurant too many times this month. And I can tell it like, maybe you can tell that we were a little earlier on in our engagement.

I said, my job is to make sure that never happens again, either [00:22:00] because we, and usually there’s just a deficit of knowledge to understand, what is the plan? And there’s this vague sense of, Oh gosh, I feel like I’m going to I’m going to sling into Justin’s office and he’s going to hit my knuckles with a ruler for, eating out too much this month.

But that’s obviously the last thing I want to do. But the point is you can have a high income and you can still have latent anxiety or emotional,stress around these decisions. And often it’s as a result of, not properly calibrating some of the

Jimmy Turner MD: Yeah,and some of those things, savings rate, I think is really, A big take home and the reason why is because it is The decision that makes all the other decisions and so if you have a savings rate, you’re like, hey, i’m saving 25 Right and that that’s financial goal. Number one that will happen come hell or high water.

I’m saving 25 of my money and then Every other financial decision like that money’s already taken off the table Like it’s not even part of the consideration You’ve got this other 75 of your money to make decisions for all the other things we’re talking about [00:23:00] You and I think that’s really important because, you know, you might just say, like, hey, I, I know that even if I have student loans, I’ve made a decision, I’m going to fill up my 401k every year because, or my 403b every year because that’s important to me and I want to save and I’m trying to build my wealth and maybe you count your student loan payments towards that savings rate as you alluded to earlier, things that are building wealth, but that one decision does kind of make all the other decisions, but in order to make that decision, you have to go back up to those kinder questions and say, hey, What age do you want to be financially independent by because that’s going to dictate how much you need to save each year To get to that goal, right that has to do with those bigger ethereal philosophical questions And that money date that you need to go on with your partner if you’re married or with you know A best friend if you’re single, you know, because it really does make the rest of the decisions

Justin Harvey CFP: And this is where a resource like the book we discussed the other day, die with zero, which I don’t like all the stuff in it, but it does expand your mind in terms of some of the goals and some of the ways that you can build your life in an interesting way. [00:24:00] In a personal way that reflects what you want it to look like you can take some of those Ideas and because I do think you know, I jimmy I probably told you this My wife and I sat down with a financial planner one time we were getting a free financial plan from our the practice 401k and We said I was really just enjoying this interaction You can imagine as a cfp of 10 years at this time and this other cfp says the first question he asks us Is Is okay, guys, when do you want to retire?

I just thought that is the most, it’s such an important part of the relationship. Like we’re talking about where we’re going to go together and you’re asking me the most inane question that I have no idea. I’m 30 something and I’m going to work till I die. Like, what, what do you want here? so starting with those kinds of questions with your partner is probably not the most productive.

obviously you want to have autonomy and the ability to make decisions that are, Going to give you flexibility in life, but along the way, you want life to be [00:25:00] full of what’s important and you don’t need to wait until you’re financially independent for that to happen. It can start. Much sooner than that, but it does require that you create some intentionality around it.

Jimmy Turner MD: Totally. I mean, that’s one of the things that moved our savings rate down was determining that we wanted to live a little more now and still be able to retire by a reasonable age for us. But that number actually moved backward for us when we kind of sat down and thoughtfully. Alright everybody, thank you so much for listening to the show.

Make sure to share Money Meets Medicine with your colleagues and friends in medicine. And don’t hesitate to reach out if you have questions, comments, concerns, thoughts, perspectives that you want us to share at Jimmy at MoneyMeetsMedicine. com We will see you next week. Cheers.