Many physicians have found that having a hobby that will actually pay them can be very beneficial.
In Thomas Stanley and William Danko’s seminal work, The Millionaire Next Door, they noted that “millionaires allocate their time, energy, and money efficiently in ways conducive to building wealth,” where as “under-accumulators of wealth” did not. In short, that means they use their time in ways that will allow them to build the most wealth. This approach can be applied not only to your professional life and practice, but also to your hobbies. Many physicians have found that having a hobby that will actually pay them can be very beneficial.
I have seen a wide range of hobbies among physicians that actually function as a side job. It may be writing a column, authoring a book, or keeping a blog. I know of at least one doctor who applies to various credit cards and “manufactures spending” in order to get all the sign-on deals associated with those cards. He then takes several international vacations a year with the proceeds. Other doctors may have a side job with an insurance company or start their own business where they manufacture medical equipment. Others may do medicolegal work, chart reviews, or insurance exams. Doctors can also make money from the comfort of their own home, by taking online surveys, giving lectures, or participating in online forums. I know of many physicians involved in real estate investing in one form or another. One of my colleagues has even considered working a couple of afternoons a month in a bicycle shop! I started The White Coat Investor over 3 years ago as a hobby. Not only have I been able to help a lot of people, but it has also provided significant side income. A hobby that pays you may be the best kind of hobby, and it might even provide an opportunity to move entirely out of medicine should you need or desire that change.
Even if you decide not to pick up a hobby that pays you (and who could blame you given the stress and time involved in medical practice), you will likely to find it beneficial to at least consider the cost of your various hobbies. I have a number of hobbies, ranging from very inexpensive to very expensive. Running and playing basketball are very cheap. Ice hockey, rock climbing, and mountain biking can be moderately expensive. Boating, race car driving, small plane flying, and owning horses can bankrupt even high-earning physicians if they’re not careful. Not only is there a high cost to start these hobbies (priced out an airplane lately?) but there are significant ongoing insurance, maintenance, and fuel expenses. Consider how much enjoyment you get from each of your hobbies, and if the enjoyment is similar, choose the less expensive ones, especially if you’re having trouble reaching your financial goals.
One of the most lucrative hobbies any physician can have is doing his own financial planning and investing. Now, too many doctors simply don’t do any financial planning and invest haphazardly. That’s not what I’m talking about. I’m talking about actually dedicating some serious time up front to learning about personal finance and investing and developing the knowledge and discipline required to successfully invest. Of course, some ongoing time and effort will be required. The last thing you want to do is hire a bad advisor (yourself if you don’t have the necessary knowledge or discipline). There is no price too low for bad advice. But when you consider the cost of hiring a competent advisor to perform these tasks for you, it quickly becomes obvious just how much this hobby could “pay you” (in savings).
Consider a physician investor who uses an advisor to make his investments. He invests $100,000 per year for 30 year and earns 8% on average before expenses. The advisor charges 1% per year, so after expenses, he earns 7% per year. After 30 years, the investor would have $10.1 million if he used the advisor. If he had instead learned to do that himself, he would have had $12.2 million. That hobby could have paid him $2.1 million. Not too bad for a side hobby. If this example seems extreme, tone it down a bit. Let’s say $50,000 invested a year for 20 years, on a portfolio that earned 7% a year before expenses and a very low-cost advisor who only charged 0.5% per year. The difference is still $125,000, or over $6,000 per year. That “hobby” would at least pay for a nice vacation every year.
In retirement, these costs matter even more. As a general rule, you can spend about 4% of your nest egg each year and expect it to last throughout a 30-year retirement. But that number is pre-expense. If you wish to pay an advisor 1% a year, then you can only spend 3% per year. This requires a portfolio that is 33% larger to provide the same payout. That may mean 4 more years of working and saving compared to a competent do-it-yourselfer.
Learning to manage your own investments is easier than learning medicine, but it does require some interest, a fair amount of discipline, and some time, especially up front when designing the plan you are going to follow. However, a few hours spent managing your own investments can be the highest-paying hours you work each year. Choose your hobbies wisely and you may find they not only bring you a great deal of enjoyment, but also allow you to become wealthy.
Dr. Dahle is not an accountant, attorney, insurance agent, or financial advisor. He blogs as The White Coat Investor and is the author of the best-selling The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing.