3581: The Diminishing Returns of More Hard Work by Dr. James Dahle with Physician on Fire on Burnout And Efficiency

[00:00:00] Hey, it's Justin from Optimal Living Daily. Before we start, I want to share a super powerful practice I use called NSDR or Non-Sleep Deep Rest. In just about 10 minutes or so, this Yoga Nidra practice leaves you feeling as refreshed as after a nap without actually sleeping. Experience it for yourself on our guided podcast. Search NSDR and look for the one from Optimal Living Daily.

[00:00:26] This is Optimal Finance Daily, The Diminishing Returns of More Hard Work by Dr. James Dahle with PhysicianOnFire.com I was recently asked by a reader how to decide when it just wasn't worth it to work more hours. He noted that he'd been cutting down on his hours due to a high marginal income tax rate. I felt like the subject deserved a little bit of a broader treatment. Four factors to determine how many hours to work.

[00:00:56] Number one, marginal utility of money. Determine your own marginal utility of money. Analyze how much you enjoy your job and your hobbies. See if there isn't a way you can either increase your hours or decrease your hours to get the mix just right for you. It might mean bringing on another partner, paying other doctors to take your share of call, or changing the hours the practice is open. But be open to change.

[00:01:24] First, the concept of marginal utility of money. This is the point at which having more money doesn't improve your life at all. Working, aside from those lucky few who enjoy every minute of their jobs and have no outside hobbies because they prefer practicing medicine over every other activity, is, in the end, essentially trading your time for money.

[00:01:45] At a certain point, you'd rather have more time off than more money. This point is different for everyone and different for the same person at different stages of their career and perhaps even different seasons of the year. I work with a group of emergency physicians that is pretty lifestyle focused. The average doctor in the group works about 100 hours a month in the emergency department.

[00:02:08] Come summertime, several of them want to cut hours even further so that they can spend time traveling or playing in the outdoors with their families. The younger doctors, with a large amount of student loans, small portfolios, and big mortgages, are usually willing to pick up those shifts. In September, when the kids go back to school, the older doctors want to work more hours. In short, their marginal utility of money increased. In August, they'd rather have the time. In September, they'd rather have the money.

[00:02:38] Number two, marginal tax rates. Second, consider the impact of marginal tax rates on your marginal utility of money. This is a widely misunderstood concept. Lots of doctors assume that there's a point at which it isn't worth working because Uncle Sam gets everything extra you make. That is very rarely true. In fact, it's even possible for a doctor making $300,000 to have a lower marginal tax rate than one making $100,000.

[00:03:07] How is that possible, you ask? It's possible because not all the taxes you pay on your income are progressive. Social Security taxes are regressive. And Medicare taxes are flat. When you average it all together, it turns out the curve isn't nearly as steep as most think it is. At least once you make as much as a resident physician. Now there's some additional steepness added in by phase-outs that affect higher earners,

[00:03:35] but in general, this shouldn't have a huge effect on your marginal utility of additional income. Number 3. Fixed Overhead Expenses The last factor worth examining is the concept of overhead. Some of your overhead is variable, but most of it is fixed. With fixed overhead, everything you make once you pay off the overhead is profit. Taxable profit to be sure, but profit nonetheless. Many business expenses are fixed.

[00:04:04] Your electric bill, rent for your clinic, base salaries for staff, malpractice premiums, billing and coding expenses, etc. My malpractice carrier doesn't care if I work 100 hours or 150 hours a month. There isn't a break on my premiums unless I drop below something like 75 hours a month. Some business expenses are variable, of course.

[00:04:27] If you're going to work more, you'll probably spend a little more on nursing salaries, but that's likely a small amount compared to the fixed expenses. Remember that business overhead isn't the only overhead in your life. Your personal budget has lots of overhead in it. Some costs are fixed, such as your mortgage, utilities and insurance. Some may be variable, such as retirement contributions or charitable contributions that you might fix at a certain percentage of salary. Mental accounting, of course.

[00:04:57] But once you've paid off your fixed expenses, every dollar you make, at least after tax, is yours to do with as you wish. Flashy car, nice vacation, nice dinner out, etc. This factor obviously has to be weighed against the diminishing utility of additional income or wealth that we all feel as we work more. Also, bear in mind that lowering your personal overhead or expenses can dramatically lower the point at which you'd rather have more time than more money.

[00:05:27] Once your house and student loans are paid for, you may find working three weekends a month isn't exactly what you want to do for the rest of your career. And number four, determine what will bring you happiness. Somewhere at the intersection of the marginal utility of money, progressive tax rates and overhead expenses, both business and personal, we'll find a point at which making more simply isn't worth it to us personally.

[00:05:54] Unfortunately, that point is at a different place for everyone and changes throughout your career. As Socrates said, quote, an unexamined life is not worth living, end quote. Both time and money are limited and fungible or exchangeable. And it's up to you to spend them as you will to do the most good and bring you the most happiness. So I'm sorry I'm unable to specify exactly when you should quit working.

[00:06:19] But hopefully I've given you some things to think about as you make that decision for yourself. You just listened to the post titled The Diminishing Returns of More Hard Work by Dr. James Dahle with PhysicianOnFire.com. Summer's almost here and I've been daydreaming about our next vacation, not stressing about whether we can afford it. That peace of mind comes from organizing my finances so I can enjoy the trip knowing the money's handled.

[00:06:49] Monarch is the personal finance app that tracks everything, accounts, investments, savings goals and spending. Get your first year of Monarch Core for half off, just $50 with promo code OPTIMAL. Monarch has completely taken the mental load of tracking my finances off my plate. And their weekly AI recap can even catch a spending spike before it becomes a problem. It's like having a financial advisor in your pocket. The AI assistant is a game changer.

[00:07:19] I can ask, how much did I spend on travel last summer and get an instant answer. Use code OPTIMAL at Monarch.com to get your first year of Monarch Core half off at just $50. That's 50% off your first year at Monarch.com with code OPTIMAL. I love that this article addresses a topic we rarely think about because we mostly assume that making more money is always the better choice.

[00:07:47] But at a certain point of financial stability, your risk flips from running out of money to running out of time. I personally believe that there are diminishing returns to making more money that you don't need. But in order to determine if you're at that point, you need to get really clear on your optimal level of spending. I have a friend who's very financially secure, but she doesn't feel like she can take her foot off the gas until she reaches a million dollars in net worth.

[00:08:17] While she quit her full-time job years ago, she takes on various consulting projects and side gigs. She recently took on a project that paid just $1,000, but the client was difficult to work with. As she was telling me about it at the start of the project, I pointed out to her that she's in the financial position to be super picky about the work she does and who she works with. But her ingrained way of thinking is that if someone is offering to pay her, she should take it.

[00:08:46] When it was all said and done, I asked her again if the headache was worth the payment, and she agreed that it definitely wasn't. Most people never get to experience having full autonomy over their time. So if you're in the financial position to explore that, I would encourage you to do so. Well, that will do it for another edition of Optimal Finance Daily. Finally, I'll be back tomorrow as usual. So I'll see you there on the Wednesday show where your optimal life awaits.