[Editor's Note: This is a guest post I requested after a reader made a comment on the blog. You'll soon see why. It's a little long, but if you only read one guest post on WCI this year, make it this one. This doc wishes to remain anonymous and we have no financial relationship.]
I started medical school in 2002 with no debt (but no savings) thanks to public university and working part time. The cost of living in Boston is high and tuition at my med school was just under $50k per year with fees. Working part time while in medical school seemed like a bad idea to me (at the time). Without family help, I flirted with the idea of a military scholarship, but opted instead for loans. In for a penny, in for a pound, I maxed out subsidized, unsubsidized, and private loans – I even borrowed extra during MS-4 on a special loan for residency interviews. I also bought a vehicle on a note. So did my now wife. Between tuition and living expenses, she accrued about $60k from a masters in education that she earned while I was getting the MD. I do remember signing for the loans the first year and wondering if I was crazy. Tuition plus living expenses was about $65k per year. It was really more money than I could comprehend in my early 20s and it was compounded by the three subsequent years of school. It felt like funny money and it was remarkably easy to spend. What was an $80 restaurant tab in the land of a quarter million dollars in the hole? Another factor was that even though my soon-to-be wife worked as a teacher for most of the time, I borrowed the max partly because we had been splitting the bills and I wanted to keep up my end of things.
But We Live Modestly!
Please forgive me if you run the math on the numbers in my story and they don’t add up. I was in some serious denial and I truly don’t remember all the exact figures. Occasionally I do remember a nauseating feeling gripping me when I thought about the debt, but I shoved it deep, deep down. I paid no interest. I shredded the statements. Once a year I signed papers to re-up. I think I occasionally told myself I was living the life of a starving medical student or at least a modest lifestyle, but we ate out all the time, traveled a bit, and didn’t save at all. When I matched in the Southeast, my Yankee butt figured I needed a car with A/C so I traded up for a new one with a new higher balance auto note. My justification was that I would drive it into the ground. We rented a house intern year for $1,200 per month. Since I was already matched into 5 more years there, and we were now lawfully wed, we thought buying a house would be a good investment rather than throwing money away to a landlord. Our parents thought it was smart. So did our friends. This was 2007 – top of the bubble. We paid $350k with zero down at 6 point something percent interest, which came to about $2,400 a month with PMI and insurance. Well, we spent a lot of money above and beyond the mortgage over those five years. Ate out all the time. Horseback riding lessons. Paris. Dogs (get a cat instead). Water heater. Provence. Switzerland. Furnace. Germany. Coach for her. Filson for me. Spain. Leaking roof repair. Denmark. Well pump. On and on.
I also put the loans into forbearance every year of training. For whatever reason, the statements came separately for each originating year and sometimes for each semester of borrowing, even from the same company. If I wanted to know the total balance, it was up to me to add it together. I never did. I knew it was pretty high though. I learned a new financial term: capitalization of interest. Allowing myself to feel helpless, I kept my head deep in the sand.
On the flip side, I was quite cheap in other very unimportant ways. We heated the house with wood I cut. We enjoyed fresh produce from our garden we planted each spring. I saved money by not carrying life insurance. No disability coverage either. I came up with extra money to spend by putting zero into the 403b offered at my residency (that even had a match). Oh, and I did our taxes myself to save money. The spring of my PGY-6 year we W2’d $144,000 between her salary, mine, and a lot of moonlighting at VAs and a psych hospital. Hmmm… That seemed like a lot of money. Yet I was pretty sure we were broke. Somehow the absurdity of these juxtaposed realities really sunk in with us at that point. We didn’t do much big picture financial thinking before, but there it was added up for us by TurboTax. It finally seemed undeniably stupid and even a little shameful.
Monopoly Money Comes Due
Nearing the end of training, I knew the cards would be getting called soon – I knew I was on the hook for a few thousand a month for our student loans. I could not have quoted you the balance at the time. It was some nebulous, yet enormous, and seemingly meaningless sum (but it was in fact $445k after all that interest accruing and capitalizing). We still carried debt on two cars at $12k and $10k a piece. We also discovered our house was now worth maybe $300k at this point. Down $50k and we paid only $25k in principal over those 5 years. We paid $120K in interest to the bank though – glad we didn’t throw away $70k to a landlord. And the constant maintenance likely negated any tax deductions. It also needed about $10k of final fixing up for selling, which I had to borrow from a family member because my credit card was maxed out at $10k and my wife’s at $7k. When we finally got an offer on the house, it was so low that we couldn’t write a check for the difference so we had to rent it out at $1,000 a month for a year. Such was the market in 2012. Maybe it would rebound – that was our hope.
That Critical First Year Out
Several job opportunities were available to me at the end of fellowship, but two really stuck out. One was a job in an awesome town we had friends in. Lots of outdoor activities, wineries, skiing, fancy things to do and see. Great balance clinically and good guys in the group. Ample time off and very reasonable call. The problem was the salary was $180k to start with gradual increases on a 4-year partnership track finally up to $400K (OK, it’s good to have a specialty in demand). The other job was damn near the Arctic ocean drainage; call was 24-7 every other week with 5 weeks off. Also, the clinical work was fairly narrow. Have you seen Fargo? This job was in a more remote and colder part of the upper Midwest. Flat as a pancake and we didn’t know a soul. However, the salary was stellar: $540k to start.
We finally surmised we were in a bit of a mess financially and felt willing to make a few adjustments. I began to face my finances and start thinking about it again. But is was just a start at that point. We wanted to not be in debt till retirement; we also didn’t want to “be poor”. The starting salary near the North Pole was three times that of Happy Valley. But, just having removed my head from my…, erh, the sand, I realized the divide was wider than that. We were living on roughly $100k per year after taxes. At a 30% effective rate and $180k per year, that would leave only $26k after taxes and bills to put at the debt. But $540k, even after a 40% effective tax rate, was $324k – and after bills that left nearly a quarter of a million dollars. The 3x higher salary would actually put us ahead an order of magnitude faster.
The Bad Decisions Continue
We got excited about this. We would be able to get a nice house, upgrade vehicles, travel, pay off debt faster, and “not have to worry about money.” Essentially our plan was to out-earn our lifestyle and debt. So we moved to the tundra. I was very anxious for that first pay check because we really were broke and we finally began to think at least carrying the credit card debt was silly. A local bank was willing to lend us $460k with a couple of thousand down to buy a very nice house with a horse barn pretty close to the hospital. Trouble was, the driveway was fairly long and it snows a lot there. Solution? A small, reasonable, brand new, tractor with a snow blower and a heated cab. $30k. We were still shopping around for the new vehicles. Didn’t want to make any hasty decisions with big purchases…
Saved by Ramsey
My new commute was 15 minutes. While driving, I’ve always listened to talk radio, from NPR to AM, a habit I picked up as a kid when my dad drove me to school on his way to work in the the next town over (so no bus). My new choices on the way in to the hospital were the farm report, religious radio, and this Southern guy I hadn’t heard of before named Ramsey (don’t worry, I am not a crazy Ramsey acolyte, just a big fan). There were some very compelling stories of people getting out of debt fast and they seemed pretty stoked about it. Getting out of debt completely and as quickly as possible became an enticing fixation in my mind after hearing the exhilaration and joy in the voices of callers doing their “debt free screams” every day with Mel Gibson from Braveheart screaming ‘FREEDOMMM!’ in the background.
We now wanted to rip off the Band-Aid quickly to get to financial freedom ASAP, which I define loosely as no debt other than a reasonable mortgage plus a year of savings in the bank (whereas financial independence is not having to work). The other key element was realizing we had a behavioral problem and not a math problem (and we had a math problem). Our spending outmatched our savings. Ramsey’s solution is to list debts smallest to largest regardless of interest rates and attack them as fast as you can in order. The advice was sage for us as we knocked off the small ones quickly and felt like we were winning for a change. I made a spreadsheet of all the debts that I updated by the month. This helped me maintain enthusiasm. At this point, our total debt excluding mortgages was $526k (car 10k, car 12k, credit card 10k, credit card 7k, personal loan 10k, tractor 30k, student loans 445k). Throw on the two mortgages and you get $1.3M of debt that had our names on it. We were astounded.
My wife and I agreed to this plan. We thought it would take us about three years to get out of debt other than the mortgage for our primary home. Incidentally, this was faster than the partnership tract at the Happy Valley job I passed up. We agreed to sell the old house soon to get it off the books, so to speak, and lower our risk exposure, despite losing some money by not waiting for the market to come back. We stopped eating out. No vacations for three years. Really. No new cars. Instead of getting more horses, my wife boarded horses on the property for some extra cash and tax advantages. No toys (but I did keep the tractor because it really did snow a lot). No cable/dish. No new books. No premium beers. No new clothes. You get the picture. Frankly, there were times when this seemed hard, but we kept each other grounded. Some of our friends and docs I worked with thought we were nuts. What were we trying to prove? Although I do believe that our austerity, such as it was, was easier to accomplish in the upper Midwest than on the coasts. This is because things are cheaper, luxuries are less available, and extravagances are encountered less frequently on a social level. We were living on less than what we were living on during training. Meanwhile, the job was great. People were gems. My partner was gold. Best staff ever. Even the administration was not terrible. Medicine was much more advanced than I thought there and the other docs, mostly originally from the region, were trained at fantastic and well-known programs.
I listened to Ramsey every day and found online sources for encouragement and guidance too, like Mr. Money Mustache and the White Coat Investor. I began to get excited not only about financial freedom, but also about the amazing wealth we would amass in the future. One anti-debt mentor I met along the way put it this way: “you have to pass through zero before you get rich.” We read the WCI, the Millionaire Next-door, and other popular personal finance books. We picked the low fruit with relish. I became a little obsessed. I picked up a million in term life insurance. This was easy. I bought great own occupation, non-cancelable disability insurance. Also easy. I maxed out my 403b and a 457b (which goes against Ramsey’s advice, but for a high earner, I think this is an obvious exception to make at 50% marginal taxation. The other Ramsey rule we broke was to keep $10k in savings rather than $1,000). I started a backdoor Roth IRA for my wife and me. The day our new baby’s SSN came in the mail, I opened and funded a Utah 529 plan. And we still drive the same cars with a combined 263,000 miles on them.
Financial Freedom Provides an Opportunity
After just 30 months, another job came along for less money, but in a better part of the country for us. Actually, this was a near ideal location for us and with good time off. If this opportunity had come while we were still mired in debt, I think we would have passed it up. So we sold the house and the tractor and moved into a rental in the new town. The salary now is about half what I made previously. When the check cleared on the house in the tundra, we were officially 100% debt free, just a month after our first born. Not only that, but we had a positive net worth. Our two cars were paid for and were worth about $10k a piece. My wife’s 403b was worth about $60k. Our backdoor Roths (at $5,500 x 2 x 3 years) were at $33k. And my new retirement funds were over $90k from maxing them out plus the matched contributions. Plus our $10k emergency fund. That equals $213k!!! Since then the money keeps coming in and piling up. We’re now getting close to halfway to millionaire status.
We’ve learned a lot about personal finance over the past four years and picked much of the low fruit (eliminate debt fast, get term life & disability insurance, max out retirement and other tax advantaged savings, don’t buy stuff you can’t afford). However, we’re still not great with the finer points and we continue to learn. For instance, I don’t truly know how bonds work; we may be a bit underinsured; our savings are in cash since we are looking to buy a house within a year or two. So we have yet a math problem, but I think we’ve fixed the big behavioral issues. The security of no debt has had a profound positive impact on our happiness, our marriage and growing family, and even my career. I have a new sense of control and freedom.
Life With No Payments
Now, with a year of savings in the bank and no payments to make, I can turn down shifts, quickly take another job if need be, or more comfortably go out on my own. This new confidence helps me negotiate at work and I put up with a little less BS (or maybe it just bothers me less). This past year brought us a cancer scare, three surgeries, a new baby, and numerous other unexpected expenditures. Because we had insurance, cash on hand, and did not need to take on debt to tackle these issues, the emotional and numerical impact of the financial hit was low. I knew my family now had significant savings in the bank, no payments, and adequate insurance to make it without my salary should I die or become permanently disabled. I’m not arguing against arbitraging the difference between student loans and the market, leveraging debt to invest, or getting a more expensive house soon after residency. But for low discipline, finance-challenged people like us, I think I make the case for the advantages of getting out of debt and fixing your financial house quickly. I know we feel like we made it just in time.
Pretty awesome story huh! What do you think? What impressed you most in this story? Would you take a job in nowheresville to get to a positive net worth shortly out of residency? How common do you think that level of denial is among med students and residents? What did you do to overcome the denial? Comment below!
A great story. Thank you for sharing!
As for moving to the middle of nowhere after residency? I’m all for it! My wife? She’s not totally convinced yet. Maybe I’ll have her read this post.
What a great story. This could have been me had I not ran across the WCI in my last year of residency. I’ve made some mistakes that will linger, but most will be undone quickly once an attending. Good for you getting it turned around. My hope is that by spreading the message of sites like WCI – less people will start out their attending life so “head in the.. Sand” about finances. Scariest to me – you justified not having adequate insurance as a way to save money! Imagine if something would have happened in the middle of the 500k debt. Thank you for sharing this!
What an inspiring story. You are an awesome writer. Maybe a backup career option? The point that jumped out to me was how surprised you were by the people you met in the tundra. We have found the same in small town Alabama and liked it enough to stay. Sometimes what we need turns out to be what we want. Who knew? Thanks so much for sharing.
Also in small town AL- SE corner. You? And this location enabled us to retire early while living in a (poorly located but roomy and gorgeous and with a huge yard for my gardening obsession) house which would’ve cost 10-20 years of salary elsewhere- two years here at the top of the housing bubble. If only they had more foreign restaurants- but there is travel and an international food festival annually.
This is quite possibly the most impressive post I’ve seen yet on WCI. Fantastic job!
Very inspiring post. As for moving to the middle of nowhere to get out of debt, I don’t think I could do it. There is some aspect of you only live once so you have to have some fun even if getting out of debt is a priority.. You don’t do yourself any favors if you end up depressed and in debt. Now if I liked the town it might be a different story. Now if it were the difference between getting by and living in a gutter then my perspective changes
Isn’t it amazing how debt can create such bondage? Forced to take a less desirable job (although it’s great when those work out) b/c your financial position forces you into decision. I’m no Ramsey head by any means, but he’s right sometimes the math doesn’t matter. Although the numbers don’t always (or usually) make sense and you’re losing the power of compound interest, I would rarely, if ever, argue against someone paying back debt ASAP. The recurring gift of financial freedom (as the author defines it) creates more happiness then an extra $50k in a 401(k).
Stories like yours are why I started a flat fee student loan consulting business after helping my urogyn girlfriend figure out whether to go for PSLF or refinance and pay it off in 15 months. Most people that I work with are in the same boat where they just signed up for everything without thinking about any of it. Many of my med school friends in Philly lived in the nicest housing in the city bc they could get big loans to pay for it
Hey MM, just for the record went to glance at your blog and all i get is 404 errors on the post.
Very well-written and heartfelt. Thanks for sharing your success story.
Life is all about choices and priorities. I knew that I wanted to move back home after residency even if it meant working at McDonald’s (thankfully that didn’t happen), but I was more than willing to give up the fancy cars and shiny stuff to make that happen and pay off loans.
I hope this post becomes required reading for all med students and residents.
Great story. It doesn’t hurt having an income of $500,000+ to get out of debt, but this story is relevant for every high income professional. It’s very easy for doctors to feel like they need to treat themselves because of all the years of low salary and sacrifice. This author seems very humble about the life choices and mistakes he made, and his hard work to get out of debt. It’s unfortunate that so many young physicians are making a lot of the exact same decisions once they leave training. Thanks for sharing!
Awesome story. Thank you for writing this up. What makes this so real and urgent for me is just change a few of the details and imagine what happens. Replace a high paying specialty with a low paying primary care field. How about major burnout 5 years into practice. How about marital problems, divorce, major medical disaster, etc. The options become few and the trade-offs costly. Life problems are best faced with a financial margin of safety. Money isn’t a panacea, but lack of it usually compounds problems. Congrats on making the necessary changes to your finances to become free.
You’ve lived quite a life! Thank you so much for sharing your tale of debt and redemption.
We’ve got a fair amount in common. MMM and WCI as inspiration, taking advantage of geographic arbitrage (I, too, live in a winter wonderland), and I wouldn’t be surprised if you’re also an anesthesiologist.
I was finished with medical school the year you started, made a few mistakes early on, including building way too much house at the peak of the housing market, but have recovered nicely and can call myself financially independent. With the habits you’ve adopted, you should be well on your way.
Cheers!
-Physician on FIRE
Great post, very inspirational. WCI Classic? or at least be listed in the “for beginners” section?!
Lots of bad decisions can be made up with a $500k+ salary.
This!
Still have to be willing to move to BFE to get that salary though.
This post was very touching. It is nice to see how you were able to turn things around. When I think about how many people have been financially impacted by Dave Ramsay (it seems like every day I’m reading one of his success stories), it makes me want to read his material.
Ramsay is particularly good at motivating people to get out of debt, educating about certain traps (credit card debt, car leases, et al), and helping people with relational problems that involve money. In my opinion, his advice about investing is conflicted and faulty. Sadly, his ego and conflicts of interest make him very, very angry when confronted about his errors.
nice story
my point that I truly believe in is to max out ret plan contributions before debt pay downs
those lost yrs are the most crucial for wealth creation
This beautiful post brought tears to my eyes, congratulations to the doc and his young family for such an achievement. I myself finally reached a positive net worth in just the last couple of years (graduated med school in 1997) on a PCP salary in a HCOL area. What a relief to not feel wracked with anxiety when trying to fall asleep at night or wonder if you will ever be able to stop working! Focusing on building wealth and reaching FI is so much more fun than trying to dig out of an enormous hole! Thank you for sharing.
This post read like a thriller – I couldn’t stop reading and didn’t want it to end (well, except I’m glad there was a happy ending). Congratulations and many thanks for sharing. I’ll be sure to send others to this page. Best of luck in getting to millionaire status soon.
I can relate to this, for sure – especially the part about feeling disconnected from your debt, and spending amounts of money in school/residency which seem unremarkable at the time, but later on look astoundingly ridiculous. Every time I think about taking my wife to the movies, or out to dinner when we were in medical school or residency I wish I could go back in time…
Isn’t it crazy that you get out and start making legitimate, obscene amounts of money, and suddenly you become obsessed with finances, and wind up living with much less spending (aside from debt, etc) with attending income than when you were a resident? That has been our story –
This story sounded so incredibly familiar to mine; no undergrad debt, worked all the way through – but spent an asinine amount in medical school/residency (in retrospect), down to the turning down great but lower paying jobs due to the perceived need to make more money – I was really down on this for a while, but I like the author’s attitude and making the best of it; definitely got started thinking about things by listening to Ramsey, then WCI, then MMM…ended up making excel spreadsheets…man, this whole story is eerily familiar. Only difference is less time capitalizing, and lower income specialty, but relatively the debt to income ratio winds up being the same…Behavior>Math for so much of this.
Love the story. The snow tractor was icing on the cake 😀
Goes to show how the incredible physician earning potential can wipe out even the most daunting debt burdens. Move to the sticks for the job nobody else wants, keep costs low, and any debt is surmountable.
Lots of bad decisions…followed by 1 great decision (taking the job in the Tundra). As Walter Hagen (golfer) use to say, you only need one good shot a hole to make a par. That one great decision turned your financial life around. A wake up call for those still making bad decisions. Had you taken the other job I would be willing to bet you would still be swimming in debt and maybe have even more.
One could argue that his first great financial decision was to take a high paying specialty. Hard to imagine paying off that debt in anyway, shape or form quickly on a pediatrician salary, no matter how tundra a location.
Personally, I myself started off medical school (an expensive one, in an expensive town) wanting to work with ze tiny baby kids but foresaw very quickly the economic troubles that would get me and switched to EM and moved to Texas.
Life’s great and fantastic currently and I see a high volume of munchkins in my practice but I imagine still sometimes what life would be like as full time kids doc.
Current reimbursement policy in America is weird and I wonder how many more wonderful primary care doctors we would have if pay was less sharply different across specialties or if med school were cheaper.
If you want my opinion I think very few med students (probably too few honestly) are dissuaded from primary care due to financial issues. MS3 is a very optimistic time of life and few med studs have much financial sense. I certainly didn’t.
I disagree that there was only one great decision, even if that one great decision had such a huge effect.
The most impressive part of this story to me is the behavioral changes that the author and wife made. By temperament and habit I’m frugal (seems that I’m Doctor A in WCI’s “The X Factor,” after all), so my issue is learning from my wife how to loosen the purse strings. Not sure I could easily cut my lifestyle as drastically as this couple did. Great example of how focusing on the big things (“low-handing fruit,” he calls it) has such a large payoff. I appreciate his sharing his story; no telling how many lives it may benefit.
Thanks for sharing your story.
I grew up, went to medical school, and am currently doing my internship in BFE, Tundra version (actually, probably not too far from where you took that first job post residency) before moving to a slightly less BFE location for the rest of residency in June. Quite honestly, being a single, rather left leaning, secular guy and considering my folks are likely to move elsewhere at some point, I’m motivated to make good financial decisions during residency so that I won’t feel forced to move back to the area afterward solely for low cost of living and/or higher salary. Not to disparage others who might move here for those reasons, but I’m desperately hoping for future geographic flexibility. Thus, I’m living rent-free with my folks during the internship, have my disability insurance set up through MetLife (got it before they went out of the business), consolidated my student loans to begin RePAYE early, am paying down ~$14k worth of state-sponsored student loans from undergrad this year, plan on driving my paid-for 2010 Honda Civic into the ground, have maxed my 2016 Roth IRA and plan on doing so annually during residency, am building up a ~$10k Ally Savings Account for emergencies, and plan on renting something vs. buying when I move next year. Fingers crossed.
I could easily see myself working in some not so nice place to get out of debt. There are many lessons here and I would like to add one more. Generally you can be successful with a variety of programs, but only if you apply them diligently. So while I don’t don anything 100% many programs can lead to no debt followed by wealth.
This should be part of your ‘start here’ post for newbies coming to WCI. Agree with previously poster read like a horror story! Inspiring, congrats to OP!
Two points. I made as good decisions as I could in medical school and residency. I had roommates in a low cost area, drove and older car, did IBR payments the first year they were available, but I still had to take out $211,164.00 in loans and made $296,929.17 in total student loan payments (paid off two years after residency). This is still an enormous amount, even if it looks great compared to the article writer. So even frugal people need to follow this advice.
The second point is that living in the middle of no-where is really not that bad. In most small cities you can find most of the major amenities you might want, just not as many of them. There are also less traffic and far nicer living accommodations for the price (lower cost of living). Evaluating what actually brings happiness can save a lot of money (MMM has some nice philosophy on this).
I agree with both of your points – will be finishing up my loans (Med school ~ $235,000, + some of husband’s undergrad) but I’m already “frugal” and most of my partners think I’m nuts. I’ll be 4 years out of residency (with 2 maternity leaves) when we pay them off. And part of how I CAN do this is living in a less desirable area – I’m actually enjoying it quite a bit and I can easily travel to anywhere from here – great house, great area, great people.