This one came in via email. I've obscured enough details to protect the innocent.
Q. How Do I Live on $350K in Hawaii?
I am a senior resident in my early 30s with a stay at home partner and three kids, $225K in student loans, planning to move to take a job in Hawaii with a 2-year partner track during which I will make $350K. In preparation for a new level of income, I have been trying to make a spending/allocation plan according to your advice and I am having a lot of difficulty with it. Currently, we rent, drive old clunker cars, and moonlight every chance I get with my total income of 100K per year. I have absolutely no retirement savings of any kind and quite frankly I'm struggling to make ends meet and that's in a non-high cost of living area.
I am living like a resident, don't splurge on anything, never go out, but I do send kids to a couple of extracurricular activities and take 1-2 inexpensive family vacations per year because I simply need them for my sanity. In Hawaii, we will rent, we need to upgrade our cars to something newer ( definitely not new and nothing fancy), we will start paying out loans and our 15K credit card debt and I will have 2 kids go to private school as Hawaii does not have any half-decent public schools. When I make my calculations I again have barely anything left to save for retirement. I look 7 years out and I just don't see it ever getting better. I feel like I will never be financially comfortable, will never own a home, and will never have enough saved for retirement for myself and my husband no matter what I do. I just don't understand where do people find the money to max out their 401K, IRA, and HSA every year let alone fund emergency fund or anything beyond that. What am I not getting? I realize that some physician families make even less than I do, but after taxes, school tuition, loan payouts, and rent in Hawaii I have nothing left. I just can't seem to find the answer. I would greatly appreciate any advice.
Let me see if I can help you wrap your head around this concept.
You spend too much money.
That's it. Seriously. It's that simple.
I don't know exactly where your money is going. And I don't think you do either, but that's why you can't hold on to it.
You Can Do Anything You Want, But Not Everything
This is probably a really good exercise for you to start budgeting with your attending income, but from your email, I suspect this is the first time you've ever done it. That's okay, it's hard in the beginning but it gets easier with time. Budgeting is really just making sure your limited income (and we all have limited income) is going to those things that you value most. What this proposed budget you are discussing is saying is that you don't value retirement or financial independence as much as some other things. That's fine, as long as it is a conscious decision on your (and your spouse's) part to have a long career and an impoverished retirement on nothing but Social Security in order to allow you to live in Hawaii, rent a nice place, drive nice cars, take nice vacations, and put your kids in private school. I know that all of that seems very reasonable to you to do. BUT, the truth is that you can do anything you want, but not everything. You're trying to do everything, and you can't do that and still make any sort of financial progress.
Ideas to Save Money
If you want to see where you can save money, I suggest you actually post your proposed $325K budget on the WCI forum and let forum members pick it apart for you. You can do it all anonymously, but I bet you get a lot of good feedback (and a few snide comments.) Here are some potential places you could save money:
10 Ways to Save as a New Attending
# 1 Don't Go To Hawaii
Instead of moving to high cost of living Hawaii where you'll pay a ton of tax, need to replace your cars, and where every vacation off the island will cost you a ton, move to Texas. No state income tax (just saved enough to pay for retirement savings right there), it'll cost you a lot less to move there, and you can even keep the cars you have for a couple more years since you can drive them down there.
# 2 Public Schools
Instead of putting the kids in private schools, you can find the best public school that you can and supplement it with some home study stuff until your student loans are gone and you can splurge on private schools.
# 3 Drive Beater(s) or Bike
Instead of upgrading the cars, downgrade the cars. I'm amazed what some people think is necessary in order to have a “reliable car.” I've had $2K cars that were plenty reliable (had to get one jump start in four years, drove over to AutoZone and got a new battery on the way home.) My next car was $4K. A great deal of the reason I was a millionaire 7 years out of residency on half of your income was that we didn't spend much on cars. Or here's an idea. Ride your bike to work. I did during residency and most of those first four years.
# 4 Avoid Retail Therapy
Figure out a different way to maintain your sanity than retail/vacation therapy. I'm not saying don't go on vacation, but now isn't the time for vacations that involve planes and hotels.
# 5 Crush Your Loans
Figure out a plan to get rid of those loans in less than 5 years. That'll free up a lot of money that can go toward saving and spending. Refinance your student loans and then send them a big check every month. They should be gone in 2-5 years.
# 6 Budget
Sit down with your husband every month and track everything you spend to the penny. I bet you find a lot of fat that isn't making you any happier that you could cut out.
# 7 Be Average For a While
Remember the average American household makes $55K. $55K. That includes lots and lots of people in Hawaii. Go figure out how they do it and copy them. Imagine what they would say if you tried to convince them you couldn't save money on $325K. They'd laugh in your face and deride you as an out of touch elitist. Part of that is they don't understand your big student loan burden and just how much you'll be paying in taxes. But part of it is simply that you spend a ton of money.
# 8 Don't Carry Credit Card Balances
For Heaven's sake quit using credit cards for credit. Pay them off with your first paycheck and never carry a balance again. Interest needs to be something you receive, not pay.
# 9 Fund Retirement Accounts to Cut Tax Bill
Remember that putting money in retirement accounts cuts your tax bill dramatically. So if you put $30K in there, not only do you knock $10K off your tax bill, but you still have all $30K to spend later! [Okay, that last part is slightly misleading.]
# 10 Spend Less On Housing
Rent a cheaper place. You can move in a year or two. Live like no one else so later you can live like no one else.
Hope that helps. I empathize with you. It's harder than most people think to live on $350K, but it's not THAT hard. You can do it. Just track your spending and meet with your spouse once a month.
What do you think? What advice do you have for this graduating resident (and the thousands of peers with the same question?) Comment below!