False Blockades to Wealth Building

There are more than a few topics whose weight is disproportional to their effect. Way too many CRNAs stress about these areas but in reality, there are far better places to apply your energy. 

1099 versus W2

If you read the forums, you would think W-2 employment would keep you a peasant forever. LOL...untrue. There are pros and cons to the 1099 vs W-2 debate, but neither is a vault door on the gateway to financial independence. Much of this choice comes down to where you practice and what the job is offering.  

Yes, I pay a lower effective tax rate as a 1099 independent contractor. I would have still become a millionaire at 30 if I would have kept my W-2 job.  

I opt to work as a locum for many reasons, but it isn’t a defining point. If I were to move out of locum work and take a full-time employment position at any major city in the Midwest, I would have no choice other than W2 employment. 

The same concepts of personal finance apply to both. Pay your taxes, invest to meet your smart goal, and live off the rest. 

1099 deductions

Business deductions decrease taxable gross income. As a service business, deductions are limited. I have blog posts with my annual expenses as someone who travels full-time. After tax season, I’ll have an updated one.

There are additional deductions that I do not qualify for such as a Home Office deduction in the Augusta rule. Other expenses are limited to those being ordinary and necessary. 

Some section 179 content for vehicle deductions can greatly lower your taxable income. However, in many instances this is spending a dollar to save $0.40. If you have already achieved financial independence, this isn’t a bad way to go. If you’re in the wealth building stage, there is less advantage. It’s not what you make or what you deduct, but rather what you save and invest. 

Paying off debt versus investing

This discussion is endless on the Internet. It’s mathematically advantageous to hold debt with an interest rate lower than inflation because it will increase your buying power over time. If you have loans or mortgage at 5-7% and are wondering if you should pay those off or invest, here are a couple considerations. 

If you are investing in tax advantage accounts, this provides additional benefit on top of simply investing. Mostly beneficial because CRNAs are in a higher tax bracket than most. It’s reasonable to fill IRAs and 401K’s prior to paying down debt at 5-7%. 

At the end of the day, it comes down to actually doing something with the money. Put it to work somewhere. Mathematically inefficient options such as paying off a mortgage at 3% have far more benefit than not saving or investing elsewhere. Less analysis paralysis and more action. 

Investing

General recommendations are to invest in low cost, passively managed index funds. The debates goes on for days about whether to invest in a S&P 500 fund, a total US fund, or a world fund. 

There are times when the magnificent 7 will outperform the S&P 493. There are years where emerging markets will do well. There are years when precious metals and cryptocurrencies have their day in the sun. We don’t know who the winner on any given year period will be. 

At the end of the day pick a low cost, passively managed broad based index fund and invest. Maybe a blend of VTI and VT. Just go for it. If you want to diversify farther, go for it.  

The real difference maker is savings rate.  

CRNAs don’t have an income problem. If you are a house poor CRNA investing $500 per month, it doesn’t matter which investment you pick because you have far bigger problems to handle first. Learn how to increase your monthly investments from $500 to $5,000 to $50,000. Then we can discuss 6% vs 8% vs 10% annual returns.  

Precise budgeting

Proactive budgeting works really well for those who have a spending problem. Retroactive budgeting works well to track expenses over time. 

Keep it simple.  

ONE - Cover your taxes. TWO - Automate your investments. THREE - Live off everything else. 

 If you are an employee, the government helps you with step one. Simply automate your investments when the paycheck hits your bank account. SMART goals determine how much of your paycheck needs to go towards debt or investments. 

Mrs. TFC and I used to budget retroactively.  We spent 30 minutes estimating spending into 1 of 7 categories. It was quick and dirty. No need to give it more time because we were consistently exceeding our investment goal. 

Nowadays, we don’t budget at all. Living within our means is second nature. And traveling full time, our expenses are extremely low.  

We are saving a stupid amount -- Like 95% of our NET income when I did a back-of-the-napkin calculation a few months ago. I refuse to waste time optimizing this. This frankly makes budgeting a waste of time.

MMA vs HYSA 

Money Market Accounts and High-Yield Savings accounts are not the same. They have similar use, similar protections, and a similar rate of return. Don’t overthink it. 

I use a money market account because it’s tied to my brokerage. 

Credit card rewards

Retailers pass along the 3% credit card transaction to the consumer. This being said, 1 to 2% cash back is completely negated by the 3% fee of the credit card. Get 3% off your bill by using cash. 

Sure, you can research different cards finding which one gives 5x miles for fuel and a different card that gives 5x miles on dining out. If chasing credit card rewards is something you find enjoyable, go for it. Not optimizing your credit card reward system won't prevent you from growing your wealth. 

Mega backdoor Roth

About 90% of employers don’t offer a Roth 401(k); therefore, your only option is a traditional 401(k). Don’t think there aren’t places to save outside of employEE 401(k) contributions. 

We can call this an advantage to the self-employed, but not an excuse for failing to build weath. Most of the TFC wealth was built in a taxable brokerage account via index fund ETFs. 

Summary

We can make excuses all day about why we aren’t where we want to be. Introspection will tell us one of the few things. We may have our goals set incorrectly. We may aspire to own and achieve things that don't really bring us happiness. It’s a matter of readjusting the goal. 

The other side of the coin says we are making excuses as to why we can’t get there. Why is it taking so long to pay off the student loan debt? Why isn’t my portfolio growing? Why don’t I make more money? The list of reasons you give yourself, i.e. excuses, is limitless. 

Reflect on both and identify true barriers to where you want to go. Taking the most direct and efficient actions will lead you there in the shortest path. These actions are rarely desirable or easy, but they are necessary.  

CRNAs have the income. Manage the personal finances and you will achieve financial independence in a matter of years. There is a free personal finance course if you are looking for guidance. 

Thanks for reading!