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High income early in career

Home Mortgages and Home Buying High income early in career

  • Avatar WCInewb 
    Participant
    Status: Physician
    Posts: 1
    Joined: 07/10/2019
    Earnest refinancing bonus

    Hi all,

    First post here.  I don’t see this particular question on the forum, so apologize if already asked.  I was totally financially illiterate a couple of months ago, getting better but still have a lot of work to do (have recently read the basics: WCI books x 2, Boglehead’s Guide to Investing, Rich Dad Poor Dad, Millionaire Next Door).

    My wire and I are lucky, both in ROAD specialties one year out of training.  We are already combining for over $1M/year salary, with some room for growth but not much over time.  I think we are in a relatively rare situation because of how rapidly we reached that income, but it’s not a necessarily uncommon physician salary to achieve.

    We have definitely had some lifestyle creep.  We are pretty reasonable in some ways (vacation, clothes, food, cars) but we did make the common doctor mistake of the >$1M home right out of training (I know, I know).  Right now we have a lot of bad: student loan and mortgage debt, but at reasonable low 4% rates.  But we also have some good: investing 40-50% of our salary.  Most things I read say pay off the debt immediately (I do understand the more guaranteed rate of debt than investing, but our investments have also outpaced our loan rates so far), but I have been reluctant to do so since there is a possibility of a very lucrative buy-in opportunity in 1-2 years.  We already do all the standards (max out pension plans, max out IRA’s, etc.).

    2 questions: I am as dumb as most of the things I read say to have such an expensive house if it really isn’t such a crazy mortgage:salary ratio?  And I am foolish to invest a fair amount when still having a lot of debt when the debt is relatively low rate and has some tax benefits to it?

    Thanks for your insights!

    #229263 Reply
    Liked by Roentgen
    childay childay 
    Participant
    Status: Physician
    Posts: 919
    Joined: 01/09/2016
    2 questions: I am as dumb as most of the things I read say to have such an expensive house if it really isn’t such a crazy mortgage:salary ratio?  And I am foolish to invest a fair amount when still having a lot of debt when the debt is relatively low rate and has some tax benefits to it?

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    How much $$ are the student loans?  With that income you can easily pay down the loans and also invest in taxable.  Student loans aren’t helping the taxes.

    #229302 Reply
    Liked by Roentgen
    childay childay 
    Participant
    Status: Physician
    Posts: 919
    Joined: 01/09/2016
    I have been reluctant to do so since there is a possibility of a very lucrative buy-in opportunity in 1-2 years.

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    Also not following this.  Are you “investing” in order to fund this buy-in?  That should be saved in cash or similar equivalents (not stocks) assuming you don’t intend to go into more debt for the buy-in.

    #229303 Reply
    Liked by Roentgen
    Avatar Roentgen 
    Participant
    Status: Physician
    Posts: 65
    Joined: 03/02/2018

    Congratulations to you and your wife!  If you have read the books you describe, found this website (and this forum in particular), and really paid attention to what they contain then you are in a fabulous position, already wiser than 95% of your fellow medical professionals. Now you need to act on those principles and use your resources to meet the goals you and your spouse decide are important!

    However, its impossible for any of us to comment intelligently on your post unless you list out your debts, as well as the expected amount and nature of the “lucrative buy-in opportunity.”  The specific amounts matter greatly, as well as the form; student loans, car loans, home mortgage(s) with terms (15 vs 30 year, rate of interest, amount of equity so far in home). But if you list that you will likely get a really good analysis of your situation from forum members, who like to help folks just like you.  You already listed the income as $1 million, so that helps us understand the inflow part of the equation, but now we need to know the balance sheet.

    These forums are anonymous, so you shouldn’t have to worry about privacy/being identified.

    #229310 Reply
    Liked by SLC OB, Infinity
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1209
    Joined: 02/11/2019

    Max out your tax advantaged space.  Then invest in taxable to get to 20% of your gross income saved yearly for retirement.

    Then put as much to the student loans as possible.  If they cannot be payed off in less then 5 years then you need to look at your spending.

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

    #229312 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2492
    Joined: 05/07/2017
    2 questions: I am as dumb as most of the things I read say to have such an expensive house if it really isn’t such a crazy mortgage:salary ratio?  And I am foolish to invest a fair amount when still having a lot of debt when the debt is relatively low rate and has some tax benefits to it?

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    1)no

    2)no

     

    #229317 Reply
    Liked by Zaphod
    Avatar cozmopak 
    Participant
    Status: Physician
    Posts: 67
    Joined: 01/08/2017

    I’m in a similar situation earning north of 1mil albeit with a relatively low student debt burden given that we’re a two physician couple.  We bought a 1mil house and don’t regret it at all.  Very few ways of screwing up when you’re making that kind of money if you’re even halfway intelligent about it.

    Our strategy is to pay off loans as quickly as possible while still maxing out both 401k, backdoor roths and 529s.  We hate debt and are also seriously considering cutting back in 10 years.  We’re going to toss all of our emergency funds (over 100k sitting in Ally) at our mortgage and refinance to a 15 year loan with an absurdly low interest rate.  Plan to have all debt, including mortgage, paid off in 5 years.  But that’s just us.  Many ways to be smart.

    #229346 Reply
    Liked by SLC OB, Eye3md, childay
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1210
    Joined: 02/15/2016

    With your salary, you can make a lot of mistakes. With the house, it sounds like you have about 1:1 mortgage:income ratio, which is good with the likelihood of lowering it. Nothing you’ve mentioned is a red flag. I’d probably pay the student loans off instead of investing but to each their own. Would you borrow at 4% to invest? That’s effectively what you’re doing. But if you’re saving for a practice buy in soon, that probably needs to be in a very safe vehicle and not invested.

    It sounds like you need a plan more than anything. Paying for professional help would certainly be worth your time and money. You need to actually stop and think about what expenses you have now and in the near future, how you want to spend your money, when you want to retire, and how you want to retire. Getting these questions answered early on will save you a lot of financial worry. You won’t have these types of questions because you know you’ll be hitting your savings goals. Don’t lose the forest through the trees. The goal isn’t to save as much money as possible. It’s too live a happy, fulfilling life both now and in retirement.

    #229352 Reply
    Liked by DCdoc, childay
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 473
    Joined: 06/14/2016

    Lack of details provided will result in a lack of actionable advice that you will receive.

    #229367 Reply
    Avatar jz 
    Participant
    Status: Physician
    Posts: 654
    Joined: 01/09/2016

    —-the WC guideline is mortgage < 2x annual income
    —-What “tax benefits” of paying mortgage and student loan interest are you referring to? I can think of none.
    —-regarding the buyin in 1-2 years: any money that you need within 3-4 years should not be invested in the stock market.

    #229376 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2331
    Joined: 08/01/2016

    Pay off student debt.

    Reduce mortgage debt to reasonable levels.

    Invest the rest.

    #229384 Reply
    Liked by Tim
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 53
    Joined: 05/25/2019

    Answers are No and No.

    You are in great shape as you earn very high incomes.  You can do almost whatever you like and still come out ahead of most of us.

    If you save 50% of your incomes (~500K/yr) in low cost index funds and if it goes up 7%/year, your net worth will be $10M (minus your debts) in 10-11 years.

    If it does not go up at all you still have $5M!

    Well, congratulations for such a great start at the beginning of the career.

    #229387 Reply
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 473
    Joined: 06/14/2016

    Income > 1 million. 1 year out of training. House mortgage 1X income. Low interest mortgage, student loans. Saving 500k/year. You can basically do anything you want and win the game.

    #229391 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3945
    Joined: 01/08/2016
    We are already combining for over $1M/year salary,

    Click to expand…
    investing 40-50% of our salary.

    Click to expand…

    your more important question is what is your AA, what does your portfolio look like, what is your estate plan, etc?

    you have invested more in 1 year than we have ever……..

     

    #229426 Reply
    Liked by Lordosis
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 147
    Joined: 12/28/2016

    You are not getting any tax advantage for paying either the student loan interest and possibly mortgage interest because of your income level. Unless your investments return around 6% for the duration of the time you keep your loans, you may not break even after taxes. I would aggressively payoff the student loan and mortgage loans first and lock in those returns the easy way. If your buy-in opportunity comes along in 2 years, banks will line up to loan you money with that kind of income and potentially debt free or minimal debt by that time.

    #229431 Reply

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