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• Production vs consumption

Our relationship with money is often as follows: it enters our life, and it leaves. Sometimes this is expressed as income and expenses. But a better way of framing this is ones production vs consumption. For most of us, we have an issue with consumption. And when fixing this, it may be best to first draw awareness to us as a consumer. Using a budget and tracking your expense is the best way of starting. A common strategy in personal finance is building an ‘emergency fund’, a fund that holds 3 – 6 months’ worth of expenses – enough so that if an emergency were to ever occur, we wouldn’t have a problem financially supporting ourselves through such an occasion. Production is then about increasing the amount of value you can bring to a society. People are paid in proportion to their perceived value in the marketplace, and one of the best ways of increasing your perceived value is by solving a problem in the market, then selling this solution through a business at scale. This is the entrepreneurial route.

Why can’t physicians who worked full time for 30 years during the true golden years of medical incomes retire? Why on earth not? Since they lived like doctors all those years. There is a big difference between spending and saving; flashing wealth and accumulating wealth. Many of the physicians I have worked with have extremely opulent homes. Sometimes they spend money on a new home every three to five years just for pleasure and the thrill of constantly moving further and further up the scale. Some have million dollar homes with corresponding mortgages. Many have one or more vacation homes. They wouldn’t think twice about blowing ten grand on a short vacation. They drove the most luxurious of cars - Mercedes, Jaguars, Lexus’s, and Corvettes. They got new cars every two years, solely for fun. I knew one physician whose cars were worth more than my home. I worked with one doctor who had bought an extremely expensive car. He would complain that he wasn’t all that happy with its size and performance. I asked him why he bought it. He said that he liked the fact that people stared at him and his car with envy when he stopped for a red light. My goodness! This very same doctor told me that his DAILY expense on principle and interest on his various mortgages, car leases, etc., was $300 - just on loan payments! This is before paying for food and other necessities. That doesn’t leave much left over for investing, even on a doctor’s salary. These physicians never really invested seriously because they all thought the gravy train would last forever and somehow retirement would take care of itself. If they did invest, it was often in crazy, hard-to-understand limited partnerships or exotic-sounding initial public offerings of risky technology stocks or other fad investments. These were investments made on hot tips without having done any fundamental research. They figured that they were smart enough to be doctors and therefore they were smart enough to figure out really cool and complicated investments. At work, nurses, staff, and even patients jumped at their every command. They reckoned that their investments would also obey ‘doctor’s orders’ and go up, up, up. More than one had a retribution when he or she realized that unlike underlings in a hospital, risky investments do not follow orders. Many realized too late that just because he was smart enough to be a physician doesn’t mean he knows anything about investing. To be fair, physicians are usually very very busy and really don’t have time for investment reading. The main culprit keeping my colleagues from true longtime financial security is the lifestyle of: spend, spend and spend. They assumed that wealth meant living wealthy. It doesn’t. Wealth comes from saving and investing and living simply. The average millionaire in America is not Donald Trump. The average millionaire in America (and there are several million) lives in a simple house in a small town. He drives an old car. He has been married to the same woman for his whole life. He owns a simple business and still works hard. The average millionaire does not live like a millionaire. Peter Lynch has stressed in his books and articles that you should be able to clearly express, in less than a minute, to even a financially uneducated listener, why you bought stock. The story should be concise, clear, and convincing. If you are in a high-tech stock which you do not begin to fathom, you have no idea of its financial fundamentals, and you only bought it on a hot tip from a golfing buddy, there is no way you can explain in a rational way in two sentences or less why you bought it. But if you carefully researched a stock, and you understand its business, the overall industry it’s in, and its financial fundamentals, then a brief rational synopsis is easy.

The Meister Plan pages 57-58 and 128.