Editor’s note:Urology Times welcomes Jeff Witz, CFP, and David Zemon of MEDIQUS Asset Advisors, Inc. as the new authors of Money Matters. We also extend our gratitude to Joel M. Blau, CFP, and Ronald J. Paprocki, JD, CFP, CHBC, for their excellent authorship of this column over the past several years.
I have been practicing urology for a little over a year. I thought that with my full-time salary I would feel more financially secure, yet sometimes I still feel like I’m living paycheck to paycheck. Am I doing something wrong?
This is a common experience for many of the physicians we speak with. Whether you come from meager or modest beginnings, it’s likely you are making more money than you ever have in your life. You struggled through medical school and residency, and you may still be struggling through payment of your student loans. It is easy to look at your account balance and projected wealth and think it’s time to start treating yourself. Well, proceed with caution and watch out for a trap known as lifestyle creep.
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They call it "creep" because it's sneaky and happens to just about everybody whose earnings have increased significantly. It begins innocently enough-you survey your surroundings and decide it’s time to upgrade your home, your car, your furniture, your cuisine, and so on and so on. Then, instead of your usual bottom-shelf bargain wine, you move up to a more expensive cabernet sauvignon. Soon, items that used to be a luxury become the norm. You're spending more because you can, not because it's truly necessary.
You gradually make a complete shift with regard to what's "normal," and over time things that used to lie quietly in the “want” category call loudly from the “need” category. You hardly notice the lifestyle creep because it's happened so slowly, like the tortoise catching up with the hare.
Next: "When you've become accustomed to wine and fondue, it's hard to revert to Kool-Aid and Velveeta."
Unfortunately, we see physicians in full-blown creep mode far too often. They worry about money on a monthly basis despite earning $300,000 or more per year because they aren’t fully prepared for the higher standard of living they’ve embraced. Nip this phenomenon in the bud now! Once you creep forward, creeping back is tough. When you've become accustomed to wine and fondue, it's hard to revert to Kool-Aid and Velveeta.
Consider the long-term financial impact of your purchasing choices. Do you need to buy a brand-new home with a hefty mortgage, or can you live comfortably in a more modest condo that you’ll pay off in few years? While the former may be a status symbol, the latter could be the better long-term financial decision. The less expensive condo ensures you are not strangled by mortgage debt and can free up cash for other important financial goals like traveling or saving for your children’s college education and your retirement.
You may be asking yourself, "Why work hard to get ahead if I can’t enjoy my money?" You absolutely can and should! However, you should do it in a deliberate manner that fits your overall financial plan. Upgrade your life in such a way that you don't wind up earning two, three, or even four times as much money only to find that finances are tighter than ever.
You need to control the creep. Start by being truly honest with yourself about which aspects of your lifestyle are most important to you. Then construct a financial plan that will keep you dedicated to your most important financial goals. The financial plan will force you to be accountable to yourself and your family. Wealth can come in many forms, and the more committed you are to your financial plan, the greater chance you have of becoming truly wealthy.
We just celebrated my mother’s 100th birthday! However, when helping organize her life insurance policies, I saw that her whole life policy matured at age 100. What now?
Many older life insurance policies mature at a specific age, typically 95 or 100. If the insured individual attains that age, the policy's cash value may be paid out to the policy owner in lieu of a death benefit payment. This payout may be taxed as ordinary income on the amount that exceeds the policy owner’s cost basis (that is, the sum of after-tax premiums). The after-tax amount would then become part of the policy owner’s estate and may be subject to further taxation upon the policy owner’s death. This taxable risk may be mitigated through a maturity extension rider, which allows the policy to continue until the death of the insured.
Many newer life policies come with a higher maturity age (for example, 120) or an indefinite period.
Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.
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