[Editor's Note: I often get “thank you” emails from doctors and other professionals that have really been helped by what I've written on the website and in my book. This guest post grew out of one of those emails. It was written by the spouse of a physician and a regular reader about their financial journey through the training years. I thought readers might find it inspirational and motivating. I'm going to preserve anonymity as much as possible, but if the author chooses, she may answer any follow-up questions in the comments section. Enjoy!]
My husband is three shifts away from completing his residency in Emergency Medicine. It’s been quite a financial journey! I’m the family CFO, looking to share the beginning of our journey with those just starting theirs, and learn more from those who have climbed successfully out of the pit of student loan debt and on to financial freedom.
Medical School Sticker Shock
I remember feeling nervous at the sight of so many zeros. Seven and a half years ago, my husband (then boyfriend) and I were looking at the financial aid package offered by one of the medical schools he was accepted to. It was all loans. At a private medical school. We quickly realized he would finish with close to $300,000 in medical school debt if we took the maximum loans allowed. We wanted to stay together while he started medical school and I started graduate school. That left two cities, both with similar medical school costs. After chatting about military service and delaying medical school a year to re-apply to cheaper schools, we decided to take out the loans, start school right away, and then we would be able to pay off the entire debt the first year after residency with the salary he earned as an attending. (A bit of wishful thinking now, looking back, but I would make that choice again today). As a Ph.D. student in the sciences, my tuition would be covered by the school and I would receive a small stipend that we would live off of. We decided to commit to frugality and try to finish with less than $250,000 in debt.
Budgeting in Medical School
At the start of medical school, we had a monthly spending plan that we tracked in Excel, then YouNeedABudget. [This firm is local to me, BTW, and I once had dinner with their CFO. Great product. -Ed] I credit this plan with keeping us frugal and preventing us from building up more debt. The money we saved in each category could roll over to the next month, and provided a bit of guilt-free spending money in the midst of all the debt. I was also determined to save for retirement. I contributed $60 a month to a Roth IRA until I found out the graduate student stipend was not earned income and we were ineligible to contribute to an IRA. Undeterred, I contributed the money to a general investment account. I learned by accident the importance of tax advantaged retirement accounts when I did the taxes that year and saw the mutual fund related taxes.
Our Net Worth
You can see the effect of the 2008 great recession on those investments on the Net Worth graph. And the effect of getting married in 2009 when I added the medical student loans to the net worth. It was worth it.
It was hard to watch the Net Worth drop every six months at the disbursement date. It was equally confusing trying to keep track of the 26 (or 34, I still can’t tell) Grad Plus, Stafford Subsidized/Unsubsidized, and Direct/HEAL loans at 3-5 different loan companies that kept selling the loans to different companies during the collapse of the economy. The goal of not crossing the ‘quarter of a million dollar mark’ kept me committed to tracking the net worth. In 2011, my husband finished medical school. My notes say we took out $221,000 to pay for medical school, plus $19,000 from Undergrad with interest rates ranging from 1.88- 8.5%. At $240,000 total, I was pleased that we didn’t cross that mental threshold of $250,000. But it was still a lot of zeros.
Loan Repayment Options
We were researching loan repayment options and settled on the IBR plan, consolidating the loans to a single subsidized loan and a single unsubsidized loan. The Accrued interest was capitalized to principal and we now had $271,000 of loans to repay at a 6.25% interest rate, crossing the quarter of a million dollar mark despite our best efforts.
Should we pay off student loans or invest?
With a simple interest rate of 6.25% on the loans, we were in the grey area of financial advice to aggressively pay off loans greater than 8% interest, or slowly pay off loans less than 6% and invest the difference. We decided to invest. I took the general investment account and maxed out a Roth IRA for him – then learned that one spouse with earned income could contribute to an IRA for each spouse – so I maxed out a Roth IRA for myself that first half year of residency, too! As I began my postodoctoral fellowship and life as a scientist, we decided to continue living off of his residency salary, and save my salary for retirement maxing out Roth IRAs for each of us as well as contribute to a 403(b) for him and a 401(k) for myself. We’ve nearly maxed out each of the retirement accounts since his second year, now saving about 35% of our gross income for retirement.
I do think contributing to the general investment account, Roth IRAs, and 401(k)/403(b) during the training years helped us learn quite a bit with small sums of money. I also find that we don’t fear investing like many of the other residents who are about to have a significant pay bump, and don’t quite know how to handle it. But it does mean that the student loans have accrued interest faster than we’ve been paying it off during the residency and are now sitting at close to $300,000 (Ouch!). However, our investments during the training years experienced an outstanding bull market, and it’s been nice to see the net worth start increasing – and gain momentum.
We’ll be worthless in about one year, and will celebrate with Coke Zero and Cheerios. We won’t have all of the loans paid off that first year like we planned – that may take about three years from now. A bear market could change those predictions, but we’ll continue investing (and appreciate the opportunity to buy stocks on sale) while also looking forward to celebrating when we finally get the student loans paid off.
The Next Chapter
As my husband begins working as an attending next month, I already see most of the money going to pay for taxes, insurance, retirement, and student loans. Thanks in large part to this blog and community, we have plans for which index funds to continue automatically investing in, and know how to contribute to a Backdoor Roth IRA if we need to. We’ve also picked up disability and umbrella insurance (something I didn’t realize he needed before finding this blog – thanks WCI!). We’ve decided at this point to aggressively pay back the student loans, instead of saving for a down payment on a house. We’ll try “borrowing money from the IRS to pay off the student loans.” This could save us $5,000-17,000 in interest depending on if we continue investing or stop investing to pay off the loans. Thanks to WCI and the community here for your inspiration and positive influence on our net worth and financial health!
What financial decisions did you make during med school and residency and what was their impact on your net worth? Comment below!