The Three Stages of Wealth: Why Financial Independence is About More Than Early Retirement.

“What is the main purpose of money in your life?”

If you ask that question to physicians at different stages of their careers, you will likely get different answers.

Ask a resident and they'll probably tell you it's for paying off student loans.

Ask a physician ten years into practice, and they might say it's for providing opportunities for their family.

Ask a physician who has achieved financial independence, and you may hear something completely different:

"It gave me the freedom to decide what came next."

None of those answers are wrong. They simply reflect different stages of wealth.

Most people think of wealth as a destination—a number on a balance sheet that someday allows them to retire. But after years of working with physicians at every stage of their careers, I've come to believe that our relationship with wealth evolves over time. As it grows, its purpose changes.

In my experience, wealth tends to move through three stages: Security. Opportunity. Freedom.

Why We Build Wealth

Most advice about wealth that you read about online, in finance books, or even given by financial advisors focuses on how to build it.  It is much rarer to ask why.  But understanding your relationship with money may be even more important than the mechanics of creating it.  Why is that?  There are a couple of reasons. 

First, whether we take the time to recognize it or not, we all come into adulthood with a relationship with money that was formed by our environment and experiences growing up.  That relationship often shapes how we view and handle our finances.  It may be either healthy or unhealthy.  It shapes our natural spending and savings habits.  It influences how we talk about money with our spouse and children.  It even affects how we view our work and compensation.  And none of us are exactly the same. 

It is important that we take some time to examine where that relationship came from if we want to understand and create a proper place for money in our lives  moving forward.  You can start by asking a few questions: What did your parents teach you about money? Was it by words or example? Good or bad?  How has that affected your current financial habits? How do you want to model that for your own children? 

What does money mean to you now?  Is that reflected in how you acquire and use it?  Now fast forward ten years, twenty years or thirty years.  What do you want money to mean then?  How do you get there from where you are?

As I speak with people who have reached financial independence on the Second Shift Podcast and elsewhere, their message is quite consistent.  Money is a tool.  The goal is a life that is aligned with your values.

As you are first starting on the journey, it can be difficult to imagine a day where money becomes more of an afterthought.  That's natural. But as wealth grows, its role changes. In my experience, it naturally progresses through stages. Let’s start with the first one:  security.

Stage One: Security

Am I going to be okay?

Before we go further, it's important to recognize that the vast majority of people in the world never leave this stage. Their main financial focus is keeping food on the table, clothes on their backs, and the fixed bills covered every month.  We are fortunate as physicians that—at least after our training is completed—the size of our paychecks creates a fair amount of discretionary spending.  By definition, discretionary spending means making choices.  And our first financial choices are typically about creating more security. 

What are we trying to protect against?

• Debt:  most of us come out of medical school with a large amount of debt.  That debt often looms over our decisions for another decade or two.  Sometimes we take on more debt as we build or buy into practices.  Trying to pay that down often accounts for a large chunk of our focus financially.

• Unexpected expenses:  The average American carries around $7000 in credit card debt with interest rates in the mid to upper 20 percent range.  It is not uncommon for physicians fresh out of training to carry a credit card balance as well, especially when they are required to finance the move from their training location to their first job.  A big early priority is to establish an emergency fund so that when these, and other, unexpected expenses happen (and they always will), you can absorb that without using those high-interest credit cards. 

• Disability:  frequently the only asset a physician has when they leave training is their ability to make money.  That earning capacity came at tremendous personal and financial cost. The worst thing that could happen is that you become saddled with the expense but not the income.  That is why disability insurance is so important early in  your career.   

• Death:  Our training and early career years are also the time that most of us are creating a family.  They have frequently been through the tough training years with you and will continue to sacrifice a lot for your busy career.  If you are the primary bread winner, you want to be sure that their futures are protected as well.  We do that through life insurance policies.

• Other family costs:  Life insurance is not the only way we protect our family’s future.  We also want to be sure our children have the same opportunities that we did to build a successful life.  The cost of education continues to rise faster than inflation.  An important early financial focus is saving to help our kids get through school and to provide them learning opportunities along the way.

• Retirement:  One of the most important financial lessons that we all must learn is how important consistent early investing is to our long-term financial outcome.  “Time in the market” is one of the most enduring principles of investing.  If we want to eventually retire, we need to create assets, and to do that requires investing a meaningful portion of your discretionary income. 

  
  

All of those costs are real.  Even on a doctor’s salary, it is easy to feel stretched when trying to protect against these early risks.  You certainly might not feel very wealthy then.  It is important to remember, though, that in the earliest stage of wealth, it isn’t about feeling wealthy—it is about creating stability and protecting your future. 

Money’s job here is to help remove anxiety.   Before wealth can create opportunity, it first has to remove fear.

Stage Two: Opportunity

Who can I become?

Once the basics are covered, wealth becomes your fuel rather than your protection.  If you have prepared well in stage one, your net worth should be growing in stage 2.  You may have paid off some of your debt and your buy-in costs. Your salary may have increased.  You are likely to have more discretionary income. 

Here, a lot of physicians fall prey to lifestyle creep—where spending rises to match increasing income.  But, if you truly want to be wealthy, this is a great opportunity to start creating the kind of optionality that will lead you right into the third stage of wealth. 

Instead of upgrading your lifestyle, upgrade your skills. 

Investing in your own human capital (the skills, experience, and knowledge that set you apart and make you less of a commodity) will pay huge dividends down the road.  And this is the perfect time to do it.  You have enough experience under your belt to feel like you are at the peak of your clinical performance, but you might even feel burnout starting to creep in. 

Use that extra money and carve out some time to invest in yourself.  Doing so will create options that can lead to a broader and richer career experience that aligns with  your changing needs and values.

For a physician, the opportunities are wide—limited only by your imagination.

• Add unique clinical skills that allow you to shine at the bedside or to teach them to others.

• Take a sabbatical to explore different interests.

• Start a business—either within medicine or not.

• Write a book.

• Do some research

• Find a teaching opportunity

• Say yes to an administrative position

• Do some coaching or mentoring.

• Create unique experiences with your family that will build lasting memories.

  
  

And perhaps the most important asset of all is to forge new or stronger relationships with colleagues or others that are doing what you envision yourself doing in the future.  Turn those “2 a.m. moments” —where you lie awake staring at the ceiling wondering how much longer you can keep it up—into action.  Another consistent theme taught by my Second Shift Podcast guests is that relationships are more important than resumes.  Meaningful transitions frequently start with a conversation, not a job posting. The people who know your skills and your character are often the ones who open the next door.

The important thing in this stage of wealth is to start building the courage and investing the resources (both time resources and financial resources) to try something new.  One of the quickest paths to burn out is not a path at all—it is stagnation. 

I learned those lessons during my own career journey.  Whenever I felt like I wasn’t learning and growing as a physician or a person, I started feeling dissatisfied in life—and anxious.  It was a gnawing feeling that was only relieved by starting a new project or setting a new goal. That process and those goals change for me at different stages of my life.  But having outside interests and passions helped me get through 30 years of clinical medicine. 

When it was time to leave clinical medicine, I had already created a pattern in my life.  I chose something that I was interested in, did a deep dive into learning more about it, and then allowed it to lead me on a new adventure.  The most recent one was creating a second career as a financial planner.   A longstanding interest in investing led to a master’s degree in finance which led to a CFP® certification and a new career.

But even now, I am not done discovering new passions.  Writing books, starting this blog, starting a podcast, speaking to physician audiences.  These are other things that have helped me turn my new skills and passions into something that helps others and keeps me relevant.  I am still working, not because I have to, but because I enjoy it. 

Opportunity isn't about spending more.  It's about becoming more.

Eventually, those opportunities begin to accumulate into something even more valuable. And that leads us to the third stage of wealth:  freedom.

Stage Three: Freedom

How do I want to live?

Many people think of financial independence as a way to retire early.  The whole FIRE (Financially Independent Retire Early) movement is built around that concept. To me, that  confuses the tool with the goal.  Money is the tool that leads to financial independence.  But what is the goal?  Is it really to retire early? 

Many people discover that when they reach that line, traditional retirement is entirely unsatisfying.  This is especially true for those of us who are attracted to high impact careers such as medicine.  There are major psychological, behavioral and identity challenges that accompany retirement for physicians, even when we are financially prepared to do so.  That is especially true if you retire early. 

None of my podcast guests have retired from working.  Not all of them work for money.  That is the difference.  When you are financially independent, money is no longer a major driving factor in how you choose to live your life. Financial independence, then, is not really about retirement.  It is about freedom.  True wealth—the third stage of wealth—means that you have gained full control over your time to spend it in a way that maximizes the meaning and joy in your life. 

If all you need from life is to play golf 5 days a week, then you can choose to do that.  I suspect that for most of us, though, that is not the case.  To be happy, we need purpose.  It doesn’t have to be the “save-the-world” kind of purpose, but we need something that we are passionate about that can help us structure our days and still feel needed.  

Jordan Grumet refers to it as “little p” purpose in his book The Purpose Code. And little p purpose is as unique as you are as a human being. 

The beauty of the third stage of wealth is that the financial restrictions that may have kept you from exploring your “purpose options” are now removed.  You are free to shape your best life. 

And that may not involve retiring at all.  Here are some options to consider:

• Leave your current job for one with better alignment

• Practice part-time

• Start a new career in a completely different area of interest

• Say no to the things in  your current job that you dislike but yes to the things that you still enjoy

• Spend more time with grandchildren

• Teach

• Mentor

• Volunteer  

• Write

• Create something new

  
  

The important point is that freedom is not doing nothing.  It is the opportunity to fully align your time with your values.  For me, that meant continuing work in a different field and creating content that helps others understand their own journeys better. I enjoy my work.  I don’t think I would be happy without it, or at least something like it.  Financial independence wasn't the finish line.  It was permission to begin my second shift.

Conclusion

As a financial planner, I spend much of my time building financial plans that are numbers-oriented and heavily based on statistical probabilities.  And they are helpful to define  a path for my clients in their current stage of wealth and to know how to get to the next one.   

But most financial plans are designed to answer one question:

"How much money do I need?"

Ultimately, the more meaningful question that I try to help my clients answer is:

"What do I want my wealth to make possible?"

Because money is never the goal. It's the tool. As we move from security to opportunity to freedom, we discover that the greatest return on our investments isn't measured in dollars.

It's measured by the life those dollars allow us to build.

Related articles on Financial Grand Rounds:

5 Signs Your Ready for Your Second Shift (Even If You Aren't Ready to Call It Retirement)

The Five Conversations to Have With Your Partner Before Retirement, Career Change or Any Major Life Transition

Are You Ready For Your Second Shift? Reflections on the physician retirement transition—identity, purpose, and what comes next

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Disclaimer: the material in this blog post is intended for general educational purposes only and should not be considered specific financial advice. You should always consult with your personal financial advisor to see how it might fit within your personalized financial plan.