It’s Not All About The $$$: Endpoints in Personal Finance

Every physician, especially those who work in oncology, have read their fair share of clinical trials. In order to advance the field of medicine, you need to test new drugs against the current best treatment, or the standard of care.

Some trials succeed, and we make progress in our fight against cancer, or hypertension, or HIV. Some trials fail, and these new treatments are discarded.

When designing a clinical trial, you need to design your study with an endpoint in mind. Not every clinical trial has overall survival as the primary endpoint.

Similarly, when evaluating two financial decisions, you need to decide what is the endpoint by which you’ll judge your choices. Is it all about maximizing money, or is it about something else, such as maximizing happiness?

Endpoints in Medicine

Overall Survival (OS)

Overall survival is the gold standard endpoint. After all, isn’t living as long as possible the goal of medicine?

This is the ideal endpoint studied in oncology clinical trials. However, studying overall survival is difficult, because making progress in medicine, especially in oncology, is a series of small incremental improvements. Unfortunately, wonder drugs in oncology do not come often, and most of our progress occurs in baby steps, incrementally adding months or even weeks to overall survival. These baby steps over time have led to large improvements in our cancer treatments.

Quality-of-life (QoL)

While overall survival might seem like the only endpoint that matters, there has been an increasing interest in studying quality-of-life in addition to overall survival. For many patients, it is not just about the quantity of life a treatment can provide, but also the quality of life. Especially in oncology, many chemotherapy or radiation treatments may help you live a few weeks or few months longer, but at what cost? Chemotherapy and radiation can cause debilitating, life-altering, or even life-threatening side effects. Of course, if the cancer is not well-controlled, then the patient may develop worsening symptoms of disease and their quality-of-life could decline.

On the other hand, radiation therapy is often given in metastatic cancer to help alleviate symptoms such as bone pain. It is not expected that radiation will extend the person’s life, but it will make their quality-of-life better by reducing their pain.

Quality-adjusted-life-years (QALYs)

Quality-adjusted life years combines the endpoints of overall survival and quality-of-life. QALYs are calculated by multiplying life expectancy with quality-of-life. For example, if a treatment is expected to give you 1 year of excellent quality-of-life (QoL = 100%) and 1 year of so-so quality of life (QoL = 50%), then the treatment is said to give you 1.5 QALY (1 year x 100% + 1 year x 50%). This metric helps combine the dual endpoints of quantity and quality of life into a single metric.

Endpoints in Personal Finance

What does all of this have to do with personal finance? We all have to think about the effects of each of our personal finance decisions on various endpoints. What are the endpoints in personal finance?

Money ($$$)

You’d think that in personal finance is all about the money. After all, 95% of the strategies on this blog are meant to increase the amount of money you have during life.

But after a certain point, the benefits of more money begin to diminish. At that point, having more money would make you only incrementally happier.

And if you burn out trying to work 80 hours a week in a job you don’t like, all the money in the world wouldn’t make you happier. So for most people, making more money shouldn’t be the only endpoint in personal finance.

Utility/Happiness

Perhaps a better endpoint is utility. While utility has a formal economic definition that’s not easily conceptualized, essentially we mean happiness. Unfortunately, utility is not as easily measured as money, and what’s important to one person is different from what’s important to another person. Utility/happiness is subjective, while the amount of money a personal finance decision will cost you is measurable and objective.

Takeaways

It’s OK not to maximize money

Your personal finances should not be solely about maximizing the amount of money you have. You are not a corporation who has shareholders and board members to please. You are only accountable to yourself, and I’m pretty sure having the most money, in and of itself, is not your primary goal in life.

Seek a work/life balance

Burnout is real in medicine. Especially early in their careers, many new attendings may seek to maximize their income by taking more shifts or working longer hours. However, you should be cognizant that the additional few dollars you might earn may not necessarily worth it in the long run if it leads to burnout. Sometimes the money is simply not worth it.

The best mathematical decision may not be the best psychological decision

For most physicians, the endpoint you should be maximizing when evaluating personal finance decisions should be utility/happiness, not money.

For example, being 100% stocks may be the best mathematical decision, but it’s not the best personal finance decision if you lose sleep at night thinking about the stock market falling.

You might be able to save money by cleaning your own house or mowing your own lawn, but you might be happier if you could spend more quality time with your children and hire someone to do these chores for you instead.

Some people may choose to live in a low cost of living area to take advantage of the geographic arbitrage of higher pay with lower cost of living, but if you really value being close to family or having the perks of city life, then you might be willing to take the pay cut and higher rents to work in New York City or San Francisco.

Conclusion

Many patients, especially those with a terminal illness, talk about quality-of-life rather than quantity of life when making treatment decisions. Most people, when making personal finance decisions, should take a similar approach, focusing more on quality-of-life rather than maximizing money. Focus on maximizing how to best use your money to enjoy life and do good, rather than treating money as the scoreboard and trying to run up the score.

What do you think? What are your endpoints when it comes to personal finance?