Are you a current or future PA and have wondered how to get a better handle on your finances to become more financially literate? Have you wondered how in the world are you going to pay off your astronomically high student loan debt? Or have you ever experienced burnout and asked yourself, “Do I really need to work until the traditional retirement age of 65?” Let’s talk about financial independence, or FI, for Physician Associates.
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Pursuing financial independence as a PA can be the solution to help you take control of both your finances and your family’s finances, pay off your debt while investing for your future, avoid the temptation to spend on flashy luxuries, and enjoy your life now instead of completely delaying gratification until you hopefully can retire in the later years of your life.
Before we talk about why pursuing financial independence as a PA is important, let’s first define what financial independence is.
Financial independence (FI) is the point at which your investments plus your other passive or semi-passive income equals 25 times your annual expenses. The Trinity Study showed that if you have that amount invested, you have a very high likelihood to be able to live off of your nest egg for at least 30 years while withdrawing 4% of your portfolio every year.
It is important to note that your FI number is calculated on your projected annual expenses, not your current annual income, unlike what many retirement calculators out there try to do. Think about it, do you really have to spend your entire annual income every year in retirement? For some of you, the answer may be yes, and a few of you may possibly even want to spend more, but for many of you, you can likely live off of less, and your expenses may even be lower in retirement.
Some of you may already be familiar with the term FIRE, which is an acronym that stands for “financial independence retire early”. If you are familiar with this concept, you may be thinking, “But wait, if I do plan on retiring early in my 40s or 50s, then 30 years based on the Trinity Study doesn’t sound as though it would last me until the end of my life?” That is completely true, so if you are looking to truly retire early, you likely should aim for having 30 – 33 times your annual expenses in your invested nest egg combined with your other streams of income that are not your traditional working role.
The bottom line is that financial independence is the point at which work becomes optional for you, as you no longer need to work to be able to cover your expenses to live the life you want. To reach FI sooner, you’ll want to learn to cut costs in your life, earn more throughout your working years, and invest the difference to allow compounding interest to help you build wealth with time.
So why is pursuing financial independence important for PAs?
There are so many benefits to pursuing FI as a current or future PA! The following list is just a few of the top common benefits, but there are likely more benefits that are unique to you.
Once you reach FI, you have achieved the ultimate form of freedom.
Once you no longer need to work, you have the ultimate freedom of time. It has been said that time is life’s most precious, nonrenewable resource. Think about it: why do you value your time, why is it hurtful when others don’t respect your time, and why does it always feel like there isn’t enough time in the day? It’s because you want to have control over your own time to be able to spend it however you’d like.
Perhaps you want to have more time with your precious family and friends. Perhaps you want more time to travel our beautiful world and experience other cultures. Perhaps you want more time to pursue and practice other hobbies or endeavors. These are all very valid uses of your precious time.
However, gaining control of your finances on the way to FI, can actually allow you to gain more control of your time as well.
Once you’ve cut back on your spending, invest more for your future, and possibly even negotiate a raise, you may find that you could actually cut back on your working hours right now. Working a four-day workweek, and cutting back on hours has been a life-changer for me! Sure this decision will ultimately delay our FIRE date, but it has been wonderful to enjoy the journey a bit more while allowing me more time to live life on my terms, including working on creating content for PA the FI Way.
Both pursuing FI and reaching FI can help combat burnout for PAs.
Burnout is a syndrome that is a measure of the chronic stress of your role as a PA. The 3 key components of burnout are as follows:
- Emotional exhaustion: A feeling of emotional and physical depletion, which can lead to becoming more irritable and feeling downhearted.
- Depersonalization: Having a distant feeling toward patients that may lead to cynicism, negativity, sarcasm, or feeling emotionally numb. This is also described as “compassion fatigue.”
- A low sense of personal accomplishment or effectiveness: A lack of efficacy, or doubting the quality or meaning of your work as a PA.
Burnout amongst PAs has unfortunate risks, including the following:
- Higher risk for medical errors including misdiagnosing symptoms, which may lead to higher malpractice risk
- Higher turnover for PAs in the role
- Lower quality of care
- Less patient satisfaction in regard to their care from the PA
- Higher rates of depression, as well as alcohol and drug abuse, and even suicide
There are several contributing factors and causes of burnout for PAs including the following: not enough time, tedious EMR tasks, patients themselves, increased government interference, working on non-patient centered duties / too many bureaucratic tasks such as forms and charting, lack of control / not enough autonomy, unclear job expectations, work-life imbalance / too much time spent at work, and not enough compensation.
As you can see, burnout is an enormous problem for both you as the practicing PA as well as your patients. So how can pursuing FI and achieving FI help?
- Once you gain control if your finances and cutting back on expenses, you may be able to cut back on work. Cutting down to part-time hours or working fewer days in the week can help lessen how much stress you’re feeing with your role.
- You may have more time to prioritize self-care (exercise, sleep, mindfulness, hobbies, spending time with friends / family).
- You may have leverage either in your current role or a new role to gain some control over your schedule, decrease panel seize, adjust staffing ratios, increase length of visits, add admin time, and become more proficient in the EMR while creating shortcuts.
- You can use your PTO / vacation time knowing that doing so can help you recharge. Consider utilizing travel rewards for free travel! Learn more here.
- You could even consider taking a sabbatical while on your journey to FI. Check out episode 40 of the PA the FI Way podcast to hear the story of a PA-C who has done this!
- If you decide to continue to work a full-time schedule, or perhaps even pick up shifts to reach FI sooner, you can remind yourself that you don’t have to work until traditional retirement age of 65. Remember, retirement is not an age, but rather your FI number. Knowing that I don’t have to work for more years than I’ve already been alive has truly helped with my mindset and has helped lessen my burnout symptoms!
If you want to learn more about burnout, take a listen to episode 33 of the PA the FI Way podcast.
Unfortunately, not even PAs are guaranteed to always have consistent income.
The COVID pandemic has taught us many things such as how important our time with our precious loved ones is, but it has also shown that even medical providers are not guaranteed to have consistent, steady income or work. Many PAs had their pay cut during the pandemic, and some PAs in various specialties were even laid off. Imagine the financial stress that this news could have caused PAs and their family members, especially if they didn’t have a robust emergency fund in place! Again, you need to ensure that you have control over your finances as well as your income.
How can you determine how close you are to reaching financial independence?
You are now convinced at the importance of pursuing FI as a PA, so let’s discuss how you can find out how far away from FI you are at this point of time. You first would want to assess your current financial situation by figuring out what your net worth number is. Your net worth is a simple equation: your assets – your liabilities = your net worth. Your assets consist of things of value that you own. For example, if you have some money invested in your 401(k), Roth IRA, and your HSA, those amounts would be added to your asset column. Your liabilities are things that you still owe money on, such as your student loan debt, credit card debt, automobile debt, etc. Sometimes, an item can be both partially an asset as well as a liability, such as your primary residence.
Read more about the steps to calculating and tracking your net worth here.
If you find out that your net worth is negative due to the amount of debt you have, fret not. You can learn many steps to dig yourself out to get into the positive. Your future self will thank you.
Once you know your current net worth and total investment amounts, you can use that information as a starting point to determine how many years achieving FI is away from you. An excellent tool to help with this step is a compound interest calculator, such as this one. Keep in mind that this tool is used for your assets that are invested (such as your retirement accounts like your 401(k), 457(b), Roth IRA, HSA, or your taxable brokerage account).
The compound interest calculator allows you to enter how much money you’re expecting to contribute per month to your investments, and then you can enter in a reasonable estimated interest rate (such as a conservative 7 – 8% or an optimistic 10%) to see how much your investments would be expected to grow and compound over whatever timeframe you choose. Go ahead and play around with a compound interest calculator and your numbers to determine a rough estimate of when you’ll be able to reach FI! Doing so will likely give you more motivation to try to invest more for your future.
Besides investing in the stock market, another tool to be able to reach FI sooner is to utilize another income-generating asset that can cover your annual expenses, such as either a business or real estate investing. For example, some in the FI community will own enough real estate properties that are either long-term rentals (where they are essentially landlords renting to tenants) or short term rentals (where they have AirBnB or VRBO properties) or a combination of the two, and the annual income of these is at least the total amount of their annual expenses. Once you reach the number of properties needed for your situation to reach this point, then you are considered to have reached FI as well. Some people will have reached FI by a combination of real estate investing and traditional investing in the stock market.
So, what is your “Why of FI”?
In order to become and stay motivated on your way to financial independence, it is important to really think deeply about why you and your significant other are wanting to reach FI. Talk about your goals, and what you see for your life in the next several years. Think big. Share your dreams with each other.
On the way to FI, it is also vital to enjoy the journey, because it can take several years to get there. You don’t want to live a life of deprivation for many years. Instead, focus on spending intentionally. Does that $4 latte in the morning bring you absolute joy? Then don’t cut it out of your daily routine. But does that $500 purse serve the same purpose and look pretty close to a $50 purse? Then consider getting the $50 purse instead. You can afford many things with your PA income, but you cannot afford every single wish and desire in your life.
Unfortunately, my husband and I both share a similar background story in that our fathers each passed away before traditional retirement age, mine in his early 60s and his in his mid-50s. These experiences taught us that we are not guaranteed to even live until age 65 and beyond. Additionally, many of my patients have also, unfortunately, taught me that their health hasn’t been great once they reach traditional retirement age either. I have lost count of the terribly sad stories ranging from a spouse suddenly dying or another spouse getting an awful diagnosis of either an aggressive cancer or a disease like ALS shortly after retiring. For my husband and me, trying to achieve financial independence with the option to retire early if we chose to do so before the traditional retirement age is a huge goal for us. However, it is absolutely vital to us that we enjoy our journey to FI, and what this means for us is spending quality time together and with our families and friends, as well as enjoying our favorite hobbies such as ice fishing and traveling in our beautiful country and world that we live in.
So what do you say… Are you ready to join me in being a PA the FI Way?
Becoming financially literate is the best-paying hobby out there, and no one cares more about your finances than you do. In addition to the PA the FI Way podcast and blog, I have also curated a list of amazing books that have helped me during my journey to pursue FI.
I’d absolutely love to hear from you!