Over the past six months or so, I started to listen to Dave Ramsey. He is a no-nonsense straight shooter who gives excellent financial advice to folks who call into his show. Moreover, he has an infectious laugh and is very witty. If the topic of finance interests you, once you start listening, it will become addicting! Nevertheless, we as radiologists must be careful when we take some of his advice at face value. Some of his advice does not apply well to late-blooming indebted radiologists who make a very high income. So, what parts of his advice should we think twice about? Here are several recommendations that probably will not apply to you.
Save Only 15 Percent Of Your Income
As radiologists, we are late bloomers. We enter the workforce much later than non-physicians. And we start working a bit after our general medicine colleagues. Therefore, the time value of money does not work in our favor. This rule makes a lot of sense for most people who start working somewhere in their twenties and continue working through retirement. But, for us, we cannot capture the benefits of compounding interest. Therefore, we need to save far more than 15 percent. Fortunately, most of us can do so, given that our salaries are far from the average worker in the United States.
Buy No More House Than 25 Percent Of Take Home Pay With A Fifteen-Year Fixed Mortgage
On this point, we partially disagree. Dave Ramsey is not steadfast with this rule but recommends this protocol to his callers. Spending less on the house allows us the freedom to save for other events like college for kids or retirement savings. Nevertheless, many of us have rapidly rising incomes right after residency. And just because you are making a particular salary directly after you finish does not mean you will stay at that number much longer. Many of you will become partners and shareholders in practices and may have buy-ins that will temporarily decrease your salary. And, you may live in an expensive part of the country. With the expectations for increasing wages, you should be able to buy a bit more house based on a than 25 percent based on a reasonable expectation of making more money in the future. So, consider your future earnings when you buy a house so you don’t have to move twice!
Use Managed Stock Mutual Funds With A Great Track Record Instead Of Low-Cost Index Funds
Generally, most index funds beat managed funds over the long term as an investment vehicle. Dave Ramsey tends to say that his managed funds tend to outperform. But, for most, the outperformance is usually limited in scope and doesn’t last for long-term managed mutual fund holds. Furthermore, the fees in an actively managed fund tend to be a bit higher. So, consider opting for the lower-cost index mutual fund if possible!
Dave Ramsey Financial Advice Doesn’t Talk About Real Estate Syndications As An Option
Since we are high-income professionals, many of us don’t have the time or inclination to buy and take care of houses for investment. Additionally, buying stocks in taxable accounts can cause radiologists to pay significant capital gains and dividend taxes (as high as 33 percent or more if you include both federal and state taxes!). One excellent option he does not discuss is using private syndications and real estate funds as an investment tool for increasing wealth and cash flows and decreasing the tax burdens you might face with other types of investments. These investments can be low maintenance and strategies for building wealth for the high-income professional!
Dave Ramsey And Financial Advice
Dave Ramsey does a great job of spreading great information to the average financial media consumer. But no one is perfect, and personal finance is personal. Therefore, one talking head that generally gives excellent personal finance advice may not apply to your particular situation as a radiologist. So, although this show is entertaining and often relevant, do your due diligence when considering your options!