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What should a 2nd year med student do with a $200,000 gift?

Home Personal Finance and Budgeting What should a 2nd year med student do with a $200,000 gift?

  • Avatar medicineman10,000 
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    Status: Student
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    Joined: 08/17/2019

    Hi WCI community,

    I have a fortuitous situation on my hands, and I would like to get your opinion on how I can best leverage my options. I am a 28 year old second year medical student at an osteopathic program. I am married (wife is a ER nurse), no kids. Recently, I learned that we would be receiving an inheritance of about $200,000 at the end of the year. We are ecstatic, but we do not really have a plan for what to do when the money comes. I am going to list details of our financial situation. I would love to get some insight and opinions on what I could do put this money to best use to set my family up for financial freedom..

    (I am a novice in the financial realm so please explain your answers simply)

    Debts:

    1) Student loans: Currently about $83k. Tuition is roughly $25k per semester, plus we take out about $6k per year of Grad PLUS loans. I plan to have about $250k in loans when I graduate.

    My wife is planning on applying for Nurse Practitioner school this year, so add $60k to that final number of student loans.

    2) I own a house in our hometown that we bought and renovated. Paid $72k for the house + renovations, it appraised for $92k. The mortgage is $500/month, we currently have it rented out for $1,000/month. (We plan on living in this house during my 3rd and 4th year of med school)

    3) Car payment: Owe $27k on the wife’s car, payment is $333/month

     

    Currently, my wife makes around $50k a year as a nurse, but that will decrease if she starts NP school. That allows us to live comfortably while only taking student loans to pay tuition.

    Of course, I plan to seek professional advice from someone that understands medical loans to help me navigate this investing process, but I would like to hear your thoughts as well. What could I do now with this money that would set me up best in the future? I feel blessed to have this opportunity and want to make the most of it! Thank you for your time and interest.

     

    Regards,

    MedicineMan10000

     

    #239518 Reply
    Avatar Benji 
    Participant
    Status: Physician
    Posts: 21
    Joined: 01/20/2019

    That’s exciting—Would pay off the highest interest rates to start on loan interest that is non-tax deductible and work backwards from there. As it looks like you’ll have at least 347K in debt (Med + PA + Car) that should just about cover all of it.

    #239529 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    My usual answer to start:  take your wife out to a nice dinner and get a nice bottle of wine to toast your benefactor.

    For your specifics: put a fair bit into money market fund or high yield savings account to cover a) 3 mo emergency fund, b) future tuition for you and wife c) residency interview costs.

    I would probably put extra into VTSAX after paying off car, but could also make case for paying off school debt after paying off car.  Oh, also fund his/hers Roth IRA (ideally you’re doing that already?).

    Be cautious about seeking that professional advice.  What are you hoping to gain?

    #239531 Reply
    Liked by adventure
    Avatar SLC OB 
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    Status: Physician
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    Joined: 06/23/2018

    Questions: Do your loans accrue interest now? If so, I’d work on paying those off… and not taking any more out.

    The car was too big of a purchase when you are going into debt, does she need it? Could you sell it and get a nice car for $10K?

    Can she wait to start NP school until you are working? If so, then I would cash flow the rest of school. Then you can cash flow her school, when you are in residency. While waiting to cash flow school, place this money in a high interest savings account (usually 2-2.5% interest). I would not buy stocks (VTSAX) at this time, when you plan to use it in the next 2-3 years.

    I like the idea of funding the Roth but I’d rather you not have any debt when you do that.

     

    #239532 Reply
    CordMcNally CordMcNally 
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    Status: Physician
    Posts: 2847
    Joined: 01/03/2017

    What are the interest rates on your debt? I would probably make sure I had an emergency fund, keep enough to fund some Roths for a few years, then put the rest towards debt.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #239534 Reply
    Liked by Lordosis
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    Years that you have earned income I would do Roth IRAs. Use it or lose it.
    I would not take out any more loans. So i would put the money in a high yield savings or mmf.
    Coming out of med school with no or minimal debt is a high deal!
    Good luck.

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

    #239540 Reply
    Liked by jfoxcpacfp
    Avatar ZZZ 
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    Status: Spouse
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    Joined: 06/18/2018

    “Of course, I plan to seek professional advice from someone that understands medical loans”

    And who might that be?

    “I plan to have about $250k in loans when I graduate”. Ouch. It’s crazy those DO schools charge that much.

    Pay off your highest interest debt. Cashflow school unless you plan on doing some sort of loan forgiveness. Save an E-fund.

    And take this opportunity to educate yourself such that you can manage your own finances effectively moving forward.

    #239541 Reply
    Avatar EndoRobert 
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    Joined: 01/12/2019

    Do you have any other debts?

    If your wife makes 50 why are you needing to take out loans beyond tuition?

    If it were me:
    Be thankful you’re getting this break.

    Get on a written budget and use mint, personal capital etc, to see where your every dollar is going.

    Sell the car (you’re probably upside down) and drive a $5k car throughout school and training.

    Skip the NP program unless you are very confident she’s going to be able to find and work (what’s your plan re: kids?) a job making six figures throughout the rest of school and your training.

    (That takes care of about $90k in loans.)

    Max Roths and any 401k matching your wife may have the next 3 years.

    Cash flow the rest of school.

    Use whatever’s left to pay down the $83k.

    #239542 Reply
    Liked by portlandia
    MPMD MPMD 
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    Status: Physician
    Posts: 2509
    Joined: 05/01/2017

    1. Pay of loans that you have

    2. Sell that car, use the cash to cover the upside-down, and buy something <1/2 the price. There is no reason to drive a car like that when you are both in school.

    3. Use the rest of the money to cash flow school.

     

    #239543 Reply
    Lordosis Lordosis 
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    Status: Physician
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    Really guys. Sell the car even at a loss? It is not like he is starving. I agree that it was a bad idea to finance an expensive car in training but to fix it now seems not worth it. From a behavioral point it might be but practically it would be a pain and not really save all that much.

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

    #239544 Reply
    Liked by Craigy, jfoxcpacfp
    Avatar jhwkr542 
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    Status: Physician
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    Joined: 02/15/2016

    I’d pay off the car and student loans. Then stash it in a high yield savings account and spend it down before taking out more student loans (which you eventually will need).

    #239550 Reply
    MPMD MPMD 
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    Status: Physician
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    Joined: 05/01/2017

    From a behavioral point it might be

    Click to expand…

    that’s why i think OP should do it, mostly.

    but they are also both planning to accumulate more debt even after this windfall, i don’t think getting out from under a car they can’t afford is a bad idea.

    think of what a bad idea that car was before the inheritance came into he picture. heading for ~$300k in loans, paying a car payment on a car that as more than 1/2 their annual income.

    #239551 Reply
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    I see your point but selling at s loss would be a costly lesson.
    Hopefully OP can learn from the mistake and move on. All future cars purchased in cash.

    A lot depends on the details of the car note. If it is 27k owed on a 30k car that is a year old and they would be lucky to get 20-25k then selling would hurt.
    If it is a 60k car and they can get 30k back then yes sell immediately.

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

    #239552 Reply
    Liked by Craigy, jfoxcpacfp
    Avatar EndoRobert 
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    Posts: 70
    Joined: 01/12/2019

    Really guys. Sell the car even at a loss? It is not like he is starving. I agree that it was a bad idea to finance an expensive car in training but to fix it now seems not worth it. From a behavioral point it might be but practically it would be a pain and not really save all that much.

    Click to expand…

    You’re right. They aren’t starving. (And im admittedly way more debt averse than most here no matter the math) That’s kind of my point. Spouse makes $50k yet they’re taking out loans above tuition. Maybe car is representative of other spending going on?

    And I agree, it’s totally behavioral. But he’s talking about having 400k (med loans, np loans, car, mortgage) in total debt at the end of medical school.  To me, that’s a lot.

    (No sarcasm). Maybe I should’ve said, park in high yield, ace step one, become radiologist and very few financial decisions will sink you. Or make sure wife lands derm NP gig.

    #239554 Reply
    Liked by Lordosis
    Avatar antheus 
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    Joined: 04/18/2017

    I wouldn’t sell the car, while a not insubstantial amount of money, that sounds penny wise and pound foolish. It would probably cause a bit of resentment telling your wife that you’ve just inherited $200k and so now she has to sell her car at a loss and buy a beater. What’s the rate on the car? That being said, moving forward I would avoid financing big purchases like that in the future, especially while you have no income.

    Is there any way that your wife could delay NP school until you have an income? What would her career prospects be if she were to get an NP? I know a lot of NPs who work at nurses because they either couldn’t find a satisfactory NP job or make as much or more as an RN (I live in the northeast, nurses make substantially more than in the south). Having at least one income would not only minimize the debt you take on, but it would also allow you to take advantage of things like the lifetime learning credit or to contribute to an IRA.

    To summarize:

    What percentage is the car loan? If it is 0.9-1.9% I would just keep making the minimum payments. I’m not going to obsess about this but it was obviously a poor financial decision to begin with.

    Can your wife delay NP school until you have an income? Doing so would likely save you $10k+ in lifetime learning credits ($2k a year) and give you the option to contribute to some retirement accounts. You lose these options if neither of you have an income.

    Pay off your gradPLUS loans and don’t take out anymore. Then pay off your unsubsidized Stafford loans. Continue to max out subsidized staffords each year while paying the rest of your tuition off.

    #239557 Reply

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