Well-known financial author Dave Ramsey proposed seven baby steps to aid in reaching financial freedom. These steps are crucial when one is just beginning their financial journey. Small, consistent steps build confidence and momentum. However, for the high-income professionals in The White Coat Investor community, significant adjustments are needed.
Unlock Financial Freedom with These White Coat Investor Baby Steps
#1 Crafting a Written Financial Plan
In a 2024 survey of white coat investors, a shocking 46% had no written financial plan. A written plan significantly increases the likelihood of achieving financial freedom. It's simple and feasible. Take a piece of paper and list topics like education, emergency fund, debt, insurance, giving, and retirement. Your first plan may not be comprehensive, but it's a start. Answering these questions helps: What financial education do you need? How much emergency fund do you have? Do you have the right insurance? What debt do you have and how to pay it off?Even discussing this with your significant other is a big step. Check out the Fire Your Financial Advisor course for a step-by-step guide to creating your own path to financial freedom. There are separate tracks for attendings, residents, and medical students.#2 Regularly Giving to Charity
Giving to others makes us happier and wealthier. Well-known author Arthur C. Brooks stated that people who give to charity are 43% more likely to be very happy. Giving blood also makes people happier and can even lead to higher income. You can decide to give blood once a year, volunteer at a local food bank monthly, or give 10% of your income to charity. It pays off in multiple ways.#3 Establishing a Regular Financial Education Routine
In the emergency department, regular education improves preparedness. Similarly, for financial success, regular financial education is essential. This can include reading financial books, following blogs, or listening to podcasts. For example, my personal plan is to read or skim the WCI daily blog post, listen to the WCI podcast weekly, and read 2-3 financial books per year. Listening to the podcast at 2x speed takes 20-30 minutes while at the gym or driving. Even a small goal like this can have a big impact on your financial thinking and motivation.#4 Securing the Necessary Insurance
Protecting your future income is crucial. Just out of school, everyone should have a robust disability insurance policy as our professions are high-stress. Term life insurance is also important if you have dependents. Umbrella insurance provides additional liability protection. There are other insurances like auto, home, and domestic asset protection to consider. Learn more about how much disability insurance you need here.#5 Building an Emergency Fund
Having an emergency fund to cover 3-6 months of expenses is essential. Analyze your expenses and predict potential emergencies. Are you prepared to lose your job? Deal with injuries until disability kicks in? Cover car repairs or appliance replacements? Emergencies happen often. Create a fund that gives you peace of mind at night.#6 Creating a Debt Management Plan
In medical school, I was inspired by a conversation with Jim to pay off student loans. If you have high-interest debt like credit card debt, it should be prioritized. Use the snowball method to build momentum. Create small milestones and get on track to pay off consumer and student debts within 2-5 years. Even if applying for student loan forgiveness, having a plan is important.#7 Investing for Retirement
With a long training time, our careers start later. While Ramsey suggests saving 15% of gross income, high-income professionals should save 20%-25%. Analyze your savings and investment last year. Find ways to increase savings, like cutting expenses or making it automatic. Max out tax-advantaged accounts first and then invest in taxable accounts.#8 Saving for Your Family's Future
Each family's situation is different. For parents, discuss their financial plans and help them with advanced directives, wills, trusts, and medical insurance. For children, decide how to prepare for their educational or life expectancy expenses. It could be through 529s or a savings fund. Once the previous steps are in place, focus on helping your family.#9 Regularly Reviewing and Adjusting Your Financial Plan
Your financial plan is only effective if you follow it and review it regularly. It's good to review at least once a year and aim for every six months. Make it a special time with your partner, like having breakfast together and discussing finances. According to marriage researcher John Gottman, couples who talk about their hopes and dreams are more likely to be happy.#10 Progressively Achieving Financial Milestones
The first nine baby steps form the foundation of your financial life. With time and effort, you should be progressively checking off financial milestones. It could be going from being in debt to achieving financial independence. Wherever you are on the path, keep going. Celebrating progress motivates more progress. Share your thoughts and suggestions in the comments.
