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Debt Repayment Strategy

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  • Avatar gasdoc86 
    Participant
    Status: Physician
    Posts: 41
    Joined: 12/29/2017

    So if I’m reading you correctly, you have 2.1M in cash reserves and 1.86M in debt.

    I’d pay it all off ASAP as soon as you have the liquidity. (not clear how much of the reserves are tied up in CDs).

    I agree with others, your finances are too complicated. Simpler is better. I am out of debt completely without even a mortgage (2nd year out of fellowship, wife and I are living in 600 sq ft apartment while saving for a house) and our finances our pretty simple. Try the simple approach, I think you might like it. It will take a weight off your shoulders.

    #237839 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1195
    Joined: 01/26/2017

    So if I’m reading you correctly, you have 2.1M in cash reserves and 1.86M in debt.

    I’d pay it all off ASAP as soon as you have the liquidity. (not clear how much of the reserves are tied up in CDs).

    I agree with others, your finances are too complicated. Simpler is better. I am out of debt completely without even a mortgage (2nd year out of fellowship, wife and I are living in 600 sq ft apartment while saving for a house) and our finances our pretty simple. Try the simple approach, I think you might like it. It will take a weight off your shoulders.

    Click to expand…

    Some people like making things complicated, if something is simple something must be wrong about it.

    #237840 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    What is the point in messing with credit cards at your level? It’s just an unnecessary hassle. I mean sure 0% is nice but is it really worth the hassle/ potential for error?

    Click to expand…

    Been doing it for 25 years. Borrow at 0, any return beyond 0 is a winner. 3% CD now. 50% sector fund returns in goldilocks economy. If you want to get ahead, take advantage of all opportunities. It’s more about the frame of mind with all opportunities than about the limited benefit of $50K on a card. At 3%, that’s a $1,500 benefit a year. At 50%, well you know. It’s also being prepared for the 50% opportunity in advance.

    For now I will just pay them off in a few months. Also, the monthly payments are autopay until the last large payment to pay off balance. Pretty passive. I don’t get a tenth of $1,500 for a patient visit, and half of the visit goes to overhead. Keeping it all in perspective.

    #237842 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1195
    Joined: 01/26/2017

    I guess my frame of mind is not owing anyone any money, works pretty good for Fatlittlepig. You should try it out.

    #237843 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    So if I’m reading you correctly, you have 2.1M in cash reserves and 1.86M in debt.

    I’d pay it all off ASAP as soon as you have the liquidity. (not clear how much of the reserves are tied up in CDs).

    I agree with others, your finances are too complicated. Simpler is better. I am out of debt completely without even a mortgage (2nd year out of fellowship, wife and I are living in 600 sq ft apartment while saving for a house) and our finances our pretty simple. Try the simple approach, I think you might like it. It will take a weight off your shoulders.

    Click to expand…

    Thanks, that’s the goal to return to debt free. I was debt free before building the office building.

    Just curious, is it complicated or just large amount of debt relative to what most are used to? It’s really just one home loan, one car loan, on office building loan and two credit cards. Payments are all automatic. Yes it’s nice to consolidate to 1 or zero, but it doesn’t feel so complicated.

    Congratulations on being debt free! You beat me to it and I’m two decades out of residency. Keep it simple.

    #237847 Reply
    Avatar Allixi 
    Participant
    Status: Physician
    Posts: 110
    Joined: 03/16/2016

    What is the point in messing with credit cards at your level? It’s just an unnecessary hassle. I mean sure 0% is nice but is it really worth the hassle/ potential for error?

    Click to expand…

    Been doing it for 25 years. Borrow at 0, any return beyond 0 is a winner. 3% CD now. 50% sector fund returns in goldilocks economy. If you want to get ahead, take advantage of all opportunities. It’s more about the frame of mind with all opportunities than about the limited benefit of $50K on a card. At 3%, that’s a $1,500 benefit a year. At 50%, well you know. It’s also being prepared for the 50% opportunity in advance.

    For now I will just pay them off in a few months. Also, the monthly payments are autopay until the last large payment to pay off balance. Pretty passive. I don’t get a tenth of $1,500 for a patient visit, and half of the visit goes to overhead. Keeping it all in perspective.

    Click to expand…

    Yeah but it’s $1500 before taxes, for someone who make 7-figures per year. It’d be like me bending over to pick up every penny on the sidewalk (which I used to do but have since given up). If you find it fun that’s one thing, but let’s not pretend it’s doing anything for your net worth.

    #237851 Reply
    Liked by Lordosis
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3067
    Joined: 09/18/2018

    I would suggest one focus on NW results rather than debt management.

    Ben Carlson on a Wealth of Common Sense had this post today. The last one is really well known to be successful. Try it, you may love it.

    —————————————————————————-

    Here’s what I came up with:

    *******

    The Intelligent Investor by Benjamin Graham

    Give yourself a margin of safety because Mr. Market can be insane.

    *******

    One Up on Wall Street by Peter Lynch

    Buy what you know.

    *******

    Reminiscences of a Stock Operator by Edwin LeFevre

    The trend is your friend.

    *******

    Where Are the Customers Yachts? by Fred Schwed

    Wall Street can be an unforgiving place.

    *******

    Common Stocks and Uncommon Profits by Philip A. Fisher

    Buy high-quality stocks and never sell.

    *******

    The Black Swan by Nassim Taleb

    Shit happens.

    *******

    The Money Game by Adam Smith

    The stocks don’t know you own them.

    *******

    A Random Walk Down Wall Street by Burton Malkiel

    Don’t try to beat the market.

    *******

    The Alchemy of Finance by George Soros

    Markets are one giant feedback loop.

    *******

    Liar’s Poker by Michael Lewis

    Greed is good for Wall Street.

    *******

    Stocks For the Long Run by Jeremy Siegel

    Buy and hold.

    *******

    The Little Book of Common Sense Investing by Jack Bogle

    Costs matter.

    *******

    When Genius Failed by Roger Lowenstein

    Temperament is more important than IQ.

    *******

    Against The Gods by Peter Bernstein

    Risk is in the eye of the beholder.

    *******

    Winning the Loser’s Game by Charles Ellis

    You win at the game of investing by avoiding mistakes.

    *******

    Your Money & Your Brain by Jason Zweig

    We’re not hardwired to be successful investors.

    *******

    Simple Wealth, Inevitable Wealth by Nick Murray

    The triumph of stocks.

    *******

    The Millionaire Next Door by Thomas Stanley

    Live below your means.

    *******

    Poor Charlie’s Almanack by Charlie Munger

    See here.

    *******

    I would never put my own work among this list of classics but if I had to sum up my books in one phrase it would be this:

    KISS (keep it simple, stupid)

    #237855 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    What is the point in messing with credit cards at your level? It’s just an unnecessary hassle. I mean sure 0% is nice but is it really worth the hassle/ potential for error?

    Click to expand…

    Been doing it for 25 years. Borrow at 0, any return beyond 0 is a winner. 3% CD now. 50% sector fund returns in goldilocks economy. If you want to get ahead, take advantage of all opportunities. It’s more about the frame of mind with all opportunities than about the limited benefit of $50K on a card. At 3%, that’s a $1,500 benefit a year. At 50%, well you know. It’s also being prepared for the 50% opportunity in advance.

    For now I will just pay them off in a few months. Also, the monthly payments are autopay until the last large payment to pay off balance. Pretty passive. I don’t get a tenth of $1,500 for a patient visit, and half of the visit goes to overhead. Keeping it all in perspective.

    Click to expand…

    Yeah but it’s $1500 before taxes, for someone who make 7-figures per year. It’d be like me bending over to pick up every penny on the sidewalk (which I used to do but have since given up). If you find it fun that’s one thing, but let’s not pretend it’s doing anything for your net worth.

    Click to expand…

    Thanks. I look at it this way. $100 patient visit. 50% overhead. Then 30+% Federal taxes on profits. Then 10% state income tax (if you have that). Then 7-10% sales tax. Then gasoline taxes if you drive a car. Then family wants to buy this and that. Then the tip at the restaurant. Now, found that penny!

    The effort to open a credit card is no more difficult than a patient visit but the 3% CD reward is 15 fold the office visit due to ongoing (monthly) reward.

    Put another way. Transferring $50K annually at 0% for 20 years (as I’ve done +/- amount) is $1M debt transferred to 0%. Still no impact on NW?

    What happens if it’s no longer a $1500 benefit on a CD, but a 30 fold 10-year return on the $50K annual investment in my funds? That’s $1.5M on the first $50K assuming 10 years same as past performance. Still no impact on NW?

    Also, it’s not just a $1500 benefit in a vacuum. CD’s/savings earning about $50K/year passively. 1-3% cash back on credit card (spent $100K on this card last month alone). $1500 back Ebates so far. Travel rewards. Online physician surveys. Hundreds of thousands saved on value purchases (I spend about $1.9M/year). I do all this, not everybody should if they want easy.

    All the little things plus business ownership, commercial real estate is how I figured out how to get to 8 figure NW mid 40’s as FP. Not usually one large windfall for most, for others though it may be a very generous inheritance (we’ve not received ours yet), a major lottery win, Vegas luck, etc.). As FLP notes, we may be working too hard but to date, satisfied with the reward. Makes it easier to RE if I ever wanted to or was forced into it (ie. health), that’s another benefit.

    #237864 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    Thanks Tim for the recommended reading.

    #237866 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1853
    Joined: 02/11/2019

    Now those sector funds are up to 50%?

    “Never let your sense of morals prevent you from doing what is right.”

    #237877 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    Now those sector funds are up to 50%?

    Click to expand…

    Just checked. Right now up about 40% YTD. It was over 50% YTD for a while until last week (shown to moderator directly from my account, although I know you don’t acknowledge moderator verification), that was the number that was in my head. I’ve seen the numbers up in excess of 80-100% 1 year returns during certain very good periods over the decade. Best year 2009 Morningstar showing over 140%. return.

    The 30-40% was the 10-year annualized number. It was over 40, but with the markets going sideways last 18 months or so, that number now dropped into the mid 30’s. VFIAX is a very respectable at 13.5% 10-year today. I did not want to report the 40 number before, you were in disbelief at 30.

    #237885 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1195
    Joined: 01/26/2017

    Now those sector funds are up to 50%?

    Click to expand…

    Just checked. Right now up about 40% YTD. It was over 50% YTD for a while until last week (shown to moderator directly from my account, although I know you don’t acknowledge moderator verification), that was the number that was in my head. I’ve seen the numbers up in excess of 80-100% 1 year returns during certain very good periods over the decade. Best year 2009 Morningstar showing over 140%. return.

    The 30-40% was the 10-year annualized number. It was over 40, but with the markets going sideways last 18 months or so, that number now dropped into the mid 30’s. VFIAX is a very respectable at 13.5% 10-year today. I did not want to report the 40 number before, you were in disbelief at 30.

    Click to expand…

    No interest here in leveraged funds. Foolish, but it kind of fits into your whole take on personal finance.

    #237889 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1853
    Joined: 02/11/2019
    Earnest refinancing bonus

    Seems awfully silly to keep 2 million in cash when you know of funds with that kind of return.
    Doesn’t really add up.
    Your right I don’t believe it!

    “Never let your sense of morals prevent you from doing what is right.”

    #237897 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 328
    Joined: 06/10/2019

    Seems awfully silly to keep 2 million in cash when you know of funds with that kind of return.
    Doesn’t really add up.
    Your right I don’t believe it!

    Click to expand…

    One day I’m going all in again. One day. You have to find the opportunity, not try to force it. Rather take advantage of other opportunities in the meantime while risk is (my perception) currently too high. Right now it’s focus on debt retirement.

    That’s what I was explaining before in the other string. You can do yourself a lot of harm with the names and a poor understanding of market cycles. You can also have a horrible year. You may think it’s a mummer’s farce. Whippersnapper, you’ll only understand one day this old man’s intentions. Not today.

    I am silly. Not too serious. Emotional responses not good in the markets.

    #237903 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3067
    Joined: 09/18/2018
    Is there a general rule regarding debt repayment, or is it specific to one’s own circumstances

    Click to expand…

    The general rule is not to have cash invested in cash equivalents and carry debt regardless of the rates. Net worth in quality assets without liabilties is so much cleaner that your local banker will rate you AAA. Complexity alone will lower your rating to AA- or A-.

    Of course, what would a banker know.

    #237916 Reply

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