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Low Savings rate with high WAR

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  • Avatar Tim 
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    Status: Accountant
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    Should I be concerned about such a low savings rate since we are aggressively paying down our debt?

    Click to expand…

    Are you concerned? Why? If you want some liquidity, put some in a taxable account. You can do that later. It looks like you might actually have your practice loan and student debt paid off earlier than 12/2023 (your interest expense is going to take big dips). Is that a big problem? You can build your taxable later, or sooner if you wish. I would be more worried about that compensation continuing to go up. Need to level things out.

    #228530 Reply
    Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 10
    Joined: 07/04/2019

    Thanks Tim.

    Not concerned, I was just curious if that low of a savings rate would make anyone nervous.  I am relatively new in the personal finance world, got rid of our advisor this summer and crunching all the numbers myself.  I got tired of arguing with him about paying down loans instead of buying taxable stocks.  I wanted some non-biased takes on my plan.  My (obvious from the post) personal preference is to get rid of the debt, then use that income to go into taxable in 4-5 years.   I have found I think about it much less if I just take the quarterly disbursements and immediately put them into the loans, makes me less likely to look at those big checks (usually 70-100k) and think about all the stuff I could buy.

    I do think I am close to a plateau on the income, currently the #3 producer out of 9 and my practice can’t get much busier.  Should I be concerned it’s not going to continue to go up, or concerned that it IS going to continue to go up? Please clarify if you can.

     

    WiscDoc

    #228533 Reply
    Liked by EM->CCM MD
    Avatar WiscDoc 
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    How do you pull a portion of a prior post into your post to reply or point out specifics?

     

     

    WiscDoc

    #228535 Reply
    Avatar Anne 
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    Status: Physician
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    How do you pull a portion of a prior post into your post to reply or point out specifics?

     

     

    Click to expand…

    If you are on mobile you can’t.

    Otherwise highlight the part of the post you want to reply to and hit “quote” (or just hit quote and it will include the entire post)

    #228537 Reply
    Liked by Zaphod, Lordosis
    Avatar WiscDoc 
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    Status: Physician
    Posts: 10
    Joined: 07/04/2019
    Otherwise highlight the part of the post you want to reply to and hit “quote”

    Click to expand…

    Cool, thanks.

    WiscDoc

    #228538 Reply
    Liked by Anne
    Rogue Dad, M.D. Rogue Dad, M.D. 
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    Joined: 03/07/2016

    How do you pull a portion of a prior post into your post to reply or point out specifics?

     

     

    Click to expand…

    If you are on mobile you can’t.

    Otherwise highlight the part of the post you want to reply to and hit “quote” (or just hit quote and it will include the entire post)

    Click to expand…

    You can sort of do it on mobile (as I am now). Using chrome you have to “request desktop site” and the quote option pops up. But it quotes entire post instead of just highlighted part.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #228550 Reply
    Liked by Anne
    Avatar Panscan 
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    Status: Resident
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    Joined: 03/18/2017

    How do you pull a portion of a prior post into your post to reply or point out specifics?

     

     

    Click to expand…

    If you are on mobile you can’t.

    Otherwise highlight the part of the post you want to reply to and hit “quote” (or just hit quote and it will include the entire post)

    Click to expand…

    wow I always wondered how you did that ,nice!

    #228551 Reply
    Liked by Anne
    triad triad 
    Participant
    Status: Dentist, Small Business Owner
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    Joined: 04/29/2016
    I do think I am close to a plateau on the income, currently the #3 producer out of 9 and my practice can’t get much busier. Should I be concerned it’s not going to continue to go up, or concerned that it IS going to continue to go up? Please clarify if you can.

    Click to expand…

    they are referring to risk of burn-out.  I think your advisor was probably right that you would be better off in a taxable account.  That being said, I did the same as you and paid off all debt (that was higher then inflation) ASAP and taxable account afterwards.

    #228553 Reply
    Avatar wideopenspaces 
    Participant
    Status: Physician
    Posts: 1012
    Joined: 01/12/2016

    I’m 5 years out of residency and I have found over time I’ve grown to value liquidity more than I hate debt. My original plan was to pay off our mortgage quickly, but I’ve shifted over to funding retirement and taxable in the past 1-2 years (rather than throwing extra at the mortgage). Once we have 1M invested, then I will pay off the mortgage.

    So my advice is to do what makes you happy and eases your mind. You have a good income and you are not overspending, so you will be fine regardless of how you go about building wealth.

    #228557 Reply
    Liked by Anne, Zaphod, MaxPower
    Avatar HumbleInvestor 
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    Status: Physician, Small Business Owner
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    Joined: 12/28/2016
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    Thanks HumbleInvestor.  Should I pay student loans first even if they are 3.2% fixed vs 5% on the practice loan?  Would feel great to just get the student loans gone.

     

     

    Click to expand…

    Depends on your income level and if you are running in to what I said above. Have your accountant run some numbers and decide. As for putting them in taxable, it may be the right move over long term but my personal preference for the next year is to retire debt with any disposable income.

    #228566 Reply
    Avatar Brains428 
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    Status: Physician
    Posts: 295
    Joined: 11/09/2017

    I’m 5 years out of residency and I have found over time I’ve grown to value liquidity more than I hate debt. My original plan was to pay off our mortgage quickly, but I’ve shifted over to funding retirement and taxable in the past 1-2 years (rather than throwing extra at the mortgage). Once we have 1M invested, then I will pay off the mortgage.

    So my advice is to do what makes you happy and eases your mind. You have a good income and you are not overspending, so you will be fine regardless of how you go about building wealth.

    Click to expand…

    Have you ever thought about liquidating taxable to pay off the mortgage?

    I was listening to a ChooseFI podcast and one of the people ran the numbers about the differences in payoff time if one paid $500 extra/month on the mortgage vs putting $500/month into VTSAX with a 6% growth and then paying the mortgage in a large lump sum later. It would be a reduction in a few years on a mortgage payment (13 vs 16 years on a 30 year fixed). Problem with their calculation is that they didn’t include LTCG (which for most of us is 20%). I suppose this would be a viable option if said taxable account was for paying off a mortgage, but with assumption of risk?

     

    Back to the OP… I’m in a similar dilemma of savings rate vs paying student loan debt. Luckily, I’m on pace to finish loans off in 17 months from finishing fellowship (so 5 months from now). Aside from saving a house down payment, I can put the rest to retirement in one way or another. The WAR calculation does make me feel a little better. My retirement accounts are still what they are, though.

    #228572 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2573
    Joined: 09/18/2018

    “I do think I am close to a plateau on the income, currently the #3 producer out of 9 and my practice can’t get much busier.”

    Paying off loans takes a pace and time. 2 years to get started and 2 yrs to run with the lead pack. A career is a long time. Just make sure your stride is smooth and sustainable. Up, down or sideways make sure it’s sustainable and tweak when necessary. It’s not all about paying off student loans or building a taxable account. You have the option of practicing as you wish. That is a sweet gig. Don’t screw it up trying to sprint.

    #228582 Reply
    Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 10
    Joined: 07/04/2019

    Thanks, Tim.  That is actually great advice.  I think I’m at a point now with a close to established practice where I can start making some long term plans instead of just trying to build the practice.  It is a sweet gig and I know I’m lucky to have it.

    WiscDoc

    #228593 Reply
    Avatar wideopenspaces 
    Participant
    Status: Physician
    Posts: 1012
    Joined: 01/12/2016

    I’m 5 years out of residency and I have found over time I’ve grown to value liquidity more than I hate debt. My original plan was to pay off our mortgage quickly, but I’ve shifted over to funding retirement and taxable in the past 1-2 years (rather than throwing extra at the mortgage). Once we have 1M invested, then I will pay off the mortgage.

    So my advice is to do what makes you happy and eases your mind. You have a good income and you are not overspending, so you will be fine regardless of how you go about building wealth.

    Click to expand…

    Have you ever thought about liquidating taxable to pay off the mortgage?

    I was listening to a ChooseFI podcast and one of the people ran the numbers about the differences in payoff time if one paid $500 extra/month on the mortgage vs putting $500/month into VTSAX with a 6% growth and then paying the mortgage in a large lump sum later. It would be a reduction in a few years on a mortgage payment (13 vs 16 years on a 30 year fixed). Problem with their calculation is that they didn’t include LTCG (which for most of us is 20%). I suppose this would be a viable option if said taxable account was for paying off a mortgage, but with assumption of risk.

    Click to expand…

    *If* things go according to plan, we would just pay off the mortgage in 2 years, in 2 chunks of $250k per year, that we would just keep in a savings account. I wouldn’t want the risk of potentially losing the money in the market, plus with such a short period of time, I think we’d end up losing money, right?

     

    We are just starting a taxable this year because we both just changed jobs and no longer have access to over 100k/ year in tax protected retirement space, that we previously had.

    #228596 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 537
    Joined: 06/18/2018

    “Should I pay student loans first even if they are 3.2% fixed vs 5% on the practice loan?”

    “Have your accountant run some numbers and decide.”

    Do people really bother asking an accountant something like that? I guess ever present calculators really have impaired our math abilities.

    #228610 Reply
    Liked by Zaphod, MaxPower

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