I describe myself as an unrepentant Californian. I grew up hiking along coastal foothills and spent my youth learning respect for the Pacific Ocean. I'm at my happiest sporting shorts and sandals. When I wanted to impress girls in high school, I'd wear my good flannel (that was really a thing). I love it here.
When you live in Eden, you have to pay the gardener's bill.
At the same time, living in a High Cost Of Living (HCOL) state like California is an enormous financial strain. The physical beauty of the environment (and, depending on your tastes, the people) are a draw for many, but paradise comes at a steep price.
How do those of us who live here pull it off?
Mostly by the skin of our teeth.
Also, by adhering to a few rules of thumb.
Golden Rules For Living In The Golden State
- Every day is bring your spouse to work day. Meaning your spouse will need to work in one capacity or another, either generating income or holding down the family fort to save on child care costs. Even trophy husbands and wives are expected to work in California.
- Know why you live here. Is your family in the area? Are you a tech or media person where a region of California offers you the best chance for career growth? Understand what brought you here, and periodically reassess if it's enough to keep you here. There are lots of wonderful places in the world more affordable than California.
- Save like a doctor. With great incomes come the need for great tax-deferred contributions. If you are not maxing out your 401k, backdoor Roth, and any other pre-tax vehicles available to you, both Uncle Sam and the State of California are consuming a bigger piece of your pie than they legally need to get. Given a ~10% state income tax rate at most physician income levels, you'll soon realize it's called the Golden State because it will conspire to take your gold. Give the minimum required by law, but don't leave a tip.
- Do It Yourself. Doctors in California snake toilets and spackle walls. They conduct small home repairs and even minor remodels. While I dabble in minor toolbelt machismo, I consider my greatest accomplishment having become a DIY investor who learned to manage my own portfolio. Mastering this big expense will save me hundreds of thousands of dollars over my investing lifetime.
- Eat what you kill. If given the choice or opportunity, be a business owner and not an employee. The only reason you are offered W-2 employment is because your employer is making a profit above the cost of paying you. Preserve that profit for yourself if at all possible by pursuing the unicorn job opportunities that will enable it.
- Leverage the public schools available to you. Sometimes this may mean buying a less nice, more expensive home in the right district. It will hurt to pull the trigger, but do it - the home might preserve its value, but money spent on private school will not. Of course there exist perfectly legitimate reasons for people to enroll their children in private school - the problem is that in California, it's hard to afford after all the other expenses are factored in.
- Don't buy an unreal estate. The size of your house will be inversely proportional to the size of your net worth. If you are a size matters kind of person, allow me to assure you that the latter measure is of far greater consequence than the former. I recently saw a dated 1600 square foot 3 bedroom/1 bath teardown bungalow with original 1950s decor on a postage stamp sized lot listed in excess of a million dollars in a coastal area with good public schools.
- Be selective with your pleasures out of proportion. Find activities you love to do that don't cost an arm and a leg, if possible. Expensive weekend warrior hobbies are for physicians who earn like you but live in affordable non-coastal states. Your buddy from residency who took the job in Texas gets to board his steed at the polo club - you focus on captaining the weekend ultimate frisbee team. California hobbies should include hiking, cycling, and ocean sports, which combine fitness with low financial barriers to entry. Surfing would be a yes. Sailing? Maybe in a couple of decades, Popeye.
- Don't assume you'll always love your job. Some physicians opt to buy the doctor house, pop the kids into private school, and skimp on the retirement savings. They put nose to grindstone and create a retirement plan that is based on working 70 hour weeks until age 70. "I love what I do," they sing, as if that will magically inoculate them against burnout, illness, and the other plagues that routinely force physicians to take a detour from the work force. By all means plan to work until age 70, but save for retirement as if you'll be forced to stop working by age 55. If you get lucky, you'll have the umbrella and it won't rain.
- Remember you can always course-correct. Sometimes wrong, never uncertain characterizes a lot of decisions we make in medicine where immediate action is essential. Problems arise when a wrong decision is compounded by an inability to recognize an error and appropriately alter your trajectory. Bought too much house? Sell and right-size your living situation. A physician salary can forgive many mistakes, but only if you take the initiative to stop and redirect.
Physicians living in California will endure significant trade-offs for the pleasure of residing here. The more of these ten rules you use to guide your spending decisions, the likelier those trade-offs will prove worthwhile.
What rules would you add that I left off the list?
Comments 11
Very helpful tips for those living in VHCOL areas which California certainly qualifies for. I am blessed by having lucked into a place I love that is in a VLCOL area. That is probably the biggest reason I have been able to pile money into my portfolio as a larger % of my income is money I get to keep and not give to the tax man.
I am not sure if this applies everywhere, but I thought that getting a good public school in California is more of a lottery type setting and not based on your home location (I know Sam from Financial Samurai spoke of this in San Francisco). Not sure if that is a state wide issue though.
Author
San Francisco is same planet, different world as the rest of California, so Sam’s advice is very Bay Area focused.
Once you reach the suburbs, there are places known for enclave public school districts where highly educated parents set high expectations for high-performing kids and (without getting into the inequity of the existence of local education foundations) fund those districts generously.
As I recall, you broke TLC’s dictum to “Don’t go chasing waterfalls” with your property (which sounds surreal) and as a result you reside in a VLCOL area with a VH quality of life (more power to you for figuring out a way to pull this off!).
Fondly,
CD
I love this post. It is exactly on point. Retirement planning is not about doing stupid maneuvers to save a lot by ultra frugality, it’s about making life sustainable decisions designed to grow wealth in communion with all the other needs and wants in your life. You choose to live in Cali in view of the Pacific. I choose to live in FL a mile from the Atlantic. My choice allowed my wife to quit her practice and rear our children in a classical home school education. If I’d lived in Cali that would have been tough. Not impossible but tough. I never thought about it but the tax situation there might change my bias toward owning a brokerage vs “max out the pretax”. Max out the pretax might be a better strategy especially if you retire to a LCOL situation late in life. What you chose to do is what was essential to your particular situation to make the situation sustainable and optimized. THIS IS WHAT NEEDS TO BE TAUGHT IN FIRELAND not the easy peasy one size fits all crap over in the bogglehead blogs. It’s this level of granularity that will make you rich. I notice you do not have a time frame to your achievement of wealth. Instead you have a sustainable life where wealth takes care of itself organically un-driven by the pressure of hating your life.
Author
You are very kind in your assessment, for which I am grateful. I started out hating but a steady series of course corrections (begun as baby steps) led to a pleasant feeling toward continuing a remunerative hobby – not doing too much of it was key.
I tend to view Boglehead investing (and the three fund lazy portfolio) not as a final say on how to invest but as less intimidating, entry-level engagement. In the way I’d encourage someone discovering a topic they’d not found beautiful until recently, I appreciate the Bogleheads for simplifying and democratizing an approach to investing that allows people who might feel threatened or insecure to digest material in the hopes of cultivating a deeper understanding. A fraction of those will change the management of their finances based on what they develop as a lifelong learning habit.
Your point is well taken that overly zealous people can mistake a superficial understanding of finance as sufficient to make consequential decisions; I’d imagine some of those folks may make consequential decisions poorly regardless of the compass they adopt in guiding their decisions, and the Bogleheads are (relatively speaking) a less harmful compass by which to get bearings and set coordinates.
FIREland may well be a fantasy, but FIland seems to me a more achievable reality for many. Then again, I’m a novice player and your experience far exceeds my own, so I may come around in good time as I encounter more believers who bit a shiny lure and ended up in the frying pan…
The profound thing about boggleheadism is people actually right size their lives. They get out of debt, reduce consumption, stuff a little dough away for the future, use an investment strategy that is pretty well guaranteed to yield some nice returns as long as the economy cooperates. This is the path to FI and you get no argument from me about the value of that. The only difference between a 3 fund and a 2 fund is quantity not quality.
I find it both interesting and inspiring the moderation that seems to be happening discrediting the ultra early retirement crowd in favor of simple FI. FI is so much more rational than FIRE. I listened to a “what’s up next” podcast where a camp FI crowd were asked questions by the panelists regarding the place people thought they were in their journey. People with just a few K in the bank were calling themselves FI. So what is FI? A few K in the bank or a few thousand K in the bank? A plan that has a 58% chance of success, or a plan that has a 98% chance of success? All we can do is add droplets of realism to the discussion. A dab of yeast raised the whole dough. Do not FI-ers deserve a dab of yeast?
This is a nice list. And for the most part, I agree.
The parts I don’t necessarily agree with is #4 and #5
#4 Do it yourself – I think it’s great to DIY. I try to do it whenever its convenient and sensible. But for some things like home repairs, I think it makes more sense for physicians to outsource work when it takes someone else less time to do it (and they are probably better at it than you). I’m definitely onboard with DIY investing, but even then it can still make sense to have a planner, manager, or coach. We can’t do everything, save lives, and save the world at the same time 🙂
#5 Eat what you kill – In general, I agree it is better to be a business owner. At the same time you are assuming all of the risk and responsibility of your business. There is no paid time off; when you take vacation, there is a real opportunity loss there with a loss of business and patients. IMHO, there is nothing wrong with being a W2 employee, especially a highly paid one. The price of “answering to someone else” could be worth the cost of added risk. Depends on one’s goals and values.
I think owner or employee depends on your burnout sensitivity and who your boss is and what your job is. If you are expected to perform at 3 SD and you’re a 2.5 SD kinda guy, your assumed risk may well exceed that of a self employed dude who calls his own tune. I’ve been both and the corporate mickey mouse drove me nuts.
Hmm.. that is so true. Owner vs employee does depend on a lot of factors. And one person’s perceived risks could be not a risk at all to another person.
Independence, autonomy, and total control of your time, money, and creativity pursuits can only happen if you are an owner.
Author
Points well taken, DMF.
I’d reply for starters that you are absolutely a DIYer, and an incredibly talented one – in your case you choose to leverage tremendous expertise in credit card point luxury travel and optimization, and spend time finding creative solutions because you’ve gamified this particular way of being frugal so it’s become fun.
When I look at your manufactured spend posts (buying fee-free VIsa gift cards on sale at Staples precisely when quarterly rewards are 5% for one of your 22 credit cards) I am dazzled by your prowess, and also stunned at the clear investment of careful thought, clever advance planning, and time!
My sense is we all find the DIY projects that are most enjoyable for us – they take time and we love to learn how to take them up a notch.
As for eat what you kill, owning a business still seems key to being a more highly remunerated doc. Sure, certain specialties and sub-specialties are sufficiently remunerated that W2 will make you a fine living with less tress, but I suspect the intraspecialty differences in remuneration (as WCI pointed out in Doc G’s interview on the WCI podcast) are huge when you compare business owners with W2 employees.
You are right that many docs don’t want the hassle – but the decisions you leave to others, implicitly or explicitly, may become the seeds of your eventual exploitation. Over time I’ve become more involved administratively, not because I enjoy admin work, but because I’ve learned I ignore it at my peril.
Goals and values are key but they should be balanced with vigilance – no one will ever care about your money, or the stability of your livelihood, the way you do.
As always, I appreciate your thoughtful response. 🙂
If you like your California, you can keep your California.