[Editor's Note: This is a guest post from Joseph Chiweshe, MD, who blogs at Med School Financial. Joseph is a Physician in Preventive Medicine. Connect with him @ChiwesheMD and by signing up for his newsletter. His professional interests include health care leadership, personal finance, investments and the business aspects of medicine. We have no financial relationship.]
A good place to start this story is with the best and worst financial decisions I have made to date. To this day, the financial decision I am least proud of was taking a loan to buy my first car in high school. Instead of opting to drive a hand me down, I figured now that I was working, I would be able to quickly pay it off. Long story short, I learned the harsh economics of minimum wage and only working part time as a high-school student. Needless to say, I did not pay off it quickly and because of that decision by the time I finished paying off my first car, I had paid way more than I ever should have. However, there is a silver lining to this experience–It taught me a valuable lesson early in life about money, credit, loans, depreciation, and the concept of assets vs liabilities.
In contrast, the best financial decision was to invest in myself through education, like many of you here at WCI. However, with the rising cost of attaining a professional education today the issue of opportunity cost is one that many are having to wrestle with. Education has always been heavily emphasized in our household, and although I have not yet recouped a return on this investment, I am confident I will and thus maintain it to be the best financial decision I have made to date. It is an intangible asset with enormous growth potential and for that I am grateful.
Fast forward to present day where I am in the last few months of residency, and what better parting gift than to be staring at my very own personal mountain of debt? I have started to refer to my student loan burden as “the summer home I’ll never get to visit”. I call it the “summer home” partly because for roughly the same price I could be enjoying one, but mainly because placing it in this frame of thought has the added benefit of creating a sense of urgency to get it paid off in a timely manner as I don’t like making payments on something I don’t use.
The Benefits of Preventive Medicine
But first, a quick side note for some of you that may not be aware of Preventive Medicine as an option for training. I did not stumble onto preventive medicine until after I had already completed a year of surgery and in my opinion is perfect for those interested in the business side of medicine.
Preventive Medicine is the medical specialty that focuses on the health of individuals, communities, and defined populations. Its goal is to protect, promote, and maintain health and well-being and to prevent disease, disability, and death. As Benjamin Franklin is famously quoted as saying “an ounce of prevention is worth a pound of cure.” In my mind, bearing an immense financial burden without a clear path to financial independence should be listed as a comorbidity attributing to poor health and disease.
My Debt Elimination Plan
Now back to paying off “the summer home.” I am working to eliminate my debt using this nine step plan.
# 1 Financial Literacy
Platinum Level Scholarship Sponsor
Over the years I have made a concerted effort to build my financial literacy. It is not taught in our programs, so you have to become an “autodidactic” and have a passion for it. For better or worse, like most people, I learned about investing through trial and error. I started with small amounts in mutual funds, then direct stock purchase plans to save on cost, and eventually Sharebuilder to assist me with individual stock purchases.
I also tried to gather experience through direct application. I have always had an interest in the financial aspects of medicine and spent a couple years interning in a tech transfer office learning about how investments in intellectual property and patents are commercialized. Following my year in surgery, I worked for an investment firm focused in the health care space and then started considering specializing in population health. The firm was investing capital in areas that promised to decrease cost by improving how we deliver healthcare. Over the last couple years my masters in health services management has been concentrated in health finance, economics, and policy. As for my investments, now I simplify contribute to pre-tax and Roth accounts invested in index funds.
# 2 Spend less and/or Make More
As is commonly shared, the road to wealth is through spending less and/or earning more and investing the difference over time. However, the emphasis here is you have to do it to the point that you actually feel it, and on a resident salary for me I worked to spend less and capped myself to living on 24,000 or less a year.
# 3 Apply LEAN Principles by eliminating waste
Throughout residency I have kept a pretty LEAN lifestyle, by living in low cost studios and being disciplined about staying within the set budget. When I say LEAN, it's both figuratively and in the literal sense-I did not buy any furniture for my apartment nor internet for the past year which has allowed me to save more. I do all my work at the hospital or a local coffee shop.
# 4 Track Everything
I started tracking all my finances and kept myself on a budget. Initially I used Excel templates but with a lot of free software out now, I prefer the latter as it can keep updated on the fluctuations in my loans and interest.
# 5 No More Car Payments
Prior to intern year, I needed something more dependable so I purchased my second car and paid it off in nine months.
# 6 Max Out
From that point on, I calculated what I would need to save pre-tax to max out the retirement plan, and made sure that was done with no excuses. This was not easy but it is doable, even as a resident. I figure now is the best time to get in this habit as my expenses are currently low but will most likely increase over the years.
# 7 Have a Plan for Debt
I also made it a priority to start making payments that count toward the Public Service Loan Forgiveness (PSLF) program as a resident, so I could keep the non-profit sector as a possible option and part of the overall repayment plan. The earlier you start these payments, the more forgiveness you will eventually see, and the program can be especially beneficial for those with longer residency tracks.
# 8 Prevention
As I now embark on my first post-residency job, my plan is to keep the momentum I have started by continuing to live on the same budget as I do now until I have eliminated my educational debt. Engaging with others like Jim and the WCI community as well as my blog is part of staying committed and encouraging each other to reach financial independence.
# 9 Live LEAN, Max Out, and Pay off Debt
If you can maintain your lifestyle on less than $30,000 even as an attending until your financial house is in order you will undoubtedly set yourself up for success. 51% of the nation makes less than $30,000 with a median wage of ~$28,000. Thus, it is entirely possible to have quality of life and resist lifestyle inflation until you are financially ready for it.
[Editor's Note: You guys thought I was strict when I told you to live like a resident. Heck, I even tell you that you can give yourself a 50% raise after residency, just not a 400% raise. It just goes to show you that just like there will always be someone more wealthy than you, there will always be someone more frugal than you!]
What do you think? What is your plan for getting rid of your debt and achieving financial independence? How long did it take you to get rid of your educational debt? Comment below!
Great post…for #4 I do the same thing… Track everything but also recrunch the numbers every so often. When the politicians all am out with tax plans a few months back it was very easy to crunch a few numbers in excel and see how much my tax burden would increase. As for programs there are 2 I really like. I use mint on a daily basis and love it. When doctor expenses come up I can tag them as tax and very quickly find all of the trx around tax time. With a wife and multiple credit cards / bank accounts it’s hard to keep track of all incoming and out going money but with mint its easy. It’s also secure, free, web based (so I can use it on any device) and most importantly by intuit the guys who make turbo tax / quicken. I was thinking about doing a guest post on mint. Another program that I think is great for doctors (and their spouses) is experian credit tracker (I think that’s the name). It’s a bit expensive $20ish a month and I don’t use it for its intended purpose. I use it to manage / track debt on dozens of loans and make sure new accounts don’t pop up in my or my wife’s name (read between The lines here). Unlike mint where you have to add whatever you want to track experian tracker shows you all accounts in your name. It’s also helpful at this particular moment while doing loan consolidation / mortgage refinance / car loan. If you have a few months it can help you decide what you can do to raise your credit score.
I like personal capital better
I am fairly paranoid about who I give my personal info out to, the 2 companies I mentioned above already had my info before I used their products and are established companies, and I watched mint for a few years before I signed up but it’s nice to know their are alternatives. Is it completely free for simple budgeting purposes? I see in the faq their asset management fees are 89 basis points for less than a million
I use mint for daily expense tracking on the credit cards. I use personal capital for investments.
Is there any reason you don’t use mint for both? I haven’t used either to track my investments so I’m just curious.
I too use Mint to track expenditures and Personal Capital for investments. The dashboards and analytical tools in Personal Capital are much more powerful for investments than Mint’s. Completely free to use their software but they do charge if you have them actually manage your assets. For what it’s worth I also really like Mint Bills, which allows for easy identification and payment of things like credit card bills( been using them since before they were acquired by Intuit and were still called Check ).
Ok thanks for the clarification
Congrats on your frugality and ability to stick to such a tight budget.
May I ask, what is your long term goal?
Do you plan on retiring in 5-10 years?
I ask because as a physician at that level of spending you should be able to save up $1 million very quickly. Then what?
Hi EnjoyIt,
I currently have no plans to retire in the next 5 to 10 years. My goal is to reach financial independence and then pay it forward. The giving back aspect is something I feel is important and have committed to since starting MedSchool Financial.com with the goal of continuing to develop it as a valuable resource for readers. In 5 to 10 years with FI, I want to have the option to choose how I spend my time so as to continue doing the things I enjoy/want to do more so than needing to do based on finances or any other reason. I tend to be an entrepreneurial physician at heart and feel with the complexities of healthcare there will always be opportunities to add value, build, and hopefully have fun in the process. Thus reaching this goal is not an end as much as it is a first step to allowing me to expand my reach into various avenues.
Thanks for reading and sharing.
Best,
Dr. J
Quality post, Dr. J. You’ve easily got me beat in the frugality department, but I’ve got ten years of an anesthesiologist’s salary under my belt, and I’ve hit my FI goal, so I can afford to ease up a bit on my frugal tendencies. It’s not as easy as it sounds though, for better or worse.
I chipped away at my loans for 7 or 8 years, then knocked them down with one fell swoop after receiving a large signing bonus. It was a beautiful thing to be debt free by forty.
Hi POF,
Hope all is well and congrats on reaching the debt free phase. I agree, the consistency of chipping away coupled with the years of higher salary definitely accelerates the FI goal. My plan is to work on eliminating the loans in the next 3 to 5 years.
One positive aspect for physicians entering the marketplace now is the inertia from the increased conversation around loan/debt repayment programs and options as states and institutions work to tackle this issue. This hopefully opens the door to having tangible conversations with future employers around ones loans as it is important to have a working framework around the matter, especially when starting out.
Best regards,
Dr. J
Way to go!
By all means, continue to live like a resident until those loans are paid off, but don’t forget to budget for attending costs like your license fees, hospital dues, credentialing fees, DEA fees, and disability insurance, life insurance if you have a spouse or kids, moving expenses, and association dues if you feel that the cause is worthwhile.
It also never hurts for the new doc to bring food for the nurses every now and then…talk about a good investment!
Hi CBL,
Great point on investing in the human capital aspect of the equation! A good team is worth their weight in gold and never something to take for granted.
The majority of fees do tend to add up and have an insidious effect if not accounted for. On the bright side, these fees can be included as part of ones contract to a certain degree which helps quite a bit.
Thanks for sharing,
Dr. J
Also look into state specific fees. We found out Virginia has a random few that only Doctors have to pay just so they can say no state money was used in that program
Impressive debt elimination plan, way to go! Nice to read a bit about your personal history, too. Making a financial mistake early in your career actually has a silver lining, if you’ll recognize and learn from it, as you have.
Hi JFox,
Yes, learning from my mistakes has been key. I have also been a fan of the saying that its just as important to learn from the mistakes of others because there are way to0 many to learn them all on our own. The latter approach also doesn’t make for the most efficient way to lead ones life as well. Its always great to hear from you and hope all is well.
Best,
Dr. J
save like crazy, live beneath one’s means, and invest passively-nothing earth shattering
sadly most professionals fail miserably lacking just common sense and too big of an ego
“Common Sense, applied vigorously” is the way to financial freedom, but unfortunately a lot of people continue to live with financial stress when its entirely possible to make the right choice the easy one.
Thanks for Sharing,
Dr. J
.financial autodidact………..love the term. Will use it.
Great work! I wish that I had started my financial education earlier. Pretty strict budget, I might say. My spouse might leave me if I went to those extremes. 😉
Keep up the discipline!
Oh you guys don’t know what true saving is. How about 66% savings rate as a resident. 🙂
I live on 33% of my intern salary…and our hospital makes well below the national average residency salary. Living on 16,000 a year, all-inclusive costs. 🙂
cheapASIANperson you are! That’s awesome. Let me guess – you are not married and do not have children. How much longer until graduation?
Yes, single and independent. Two to three years left.
Oh my unmarried colleagues are living on 30,000+ a year in the same area/hospital.
I just live with housemates and live like a hobo. I used to live a lot cheaper, a lot closer to the poverty line when I didn’t use a car. In MS1 year I rode a bike the first six months everywhere; bike panniers when going grocery shopping.
In college a few years ago I was living on $100 a month for food in our average cost living state–finding deals is actually not that hard and you can have a lot of fruits and veggies.
As an attending I’m hoping to live on 48,000 *net* a year which will be like living like a spendthrift for me; I don’t even know how I could even spend so much haha.
hmmm…curious – so what are your long-term goals?
Even in my low-paid specialty I will probably work in a high-income, low-cost area (read: boonies) .
My long-term goals are to die with about 16 million or so and have a relatively modest merit-based scholarship fund to honor deceased family members. My excel spreadsheet calculates that with aggressive investing (in index mutual funds still) and living on 48,000 NET a year.
A lot of doctors and other high-income people forget that most American families survive on *much* less. Money doesn’t make me happy but my very inexpensive hobbies do. The money I accrue *will* be available for others, like how my grandparents never made a lot of money but saved/invested a very high-percentage of what they had. And I got a small amount of help for medical school. 🙂
I am worry that you will die without the 16 million or so you have saved. .( I do not know of anybody who would have managed to take it with them when they die).
Did you do the Firecalc and is that how you came up with 16 million? I hope to make it to 100 and by that time you may have made it to mulitple of 16 million
I like the idea of your merit based scholar fund, but why honor deceased family members,
Why not celebrate the living deserving scholar ship seeking, you enable? Ofcourse it is your money and I think your way of being to give back to society is a great.
I guess I agree with your sentiments and I hope that I will leave lots of money behind for the needy.
Osiris
Seems like it would be more fun to give it to them while you’re still alive to me.
Yeah my plan was to fund like 30,000 a year split between three scholarships.
My calculations assumed 200,000 gross income, living on 48,000 net a year,
Investments were going to aggressive in mutual funds, growth of 10% in roth funds (which are HEAVILY tilted towards stocks since they’ll be for my loved ones) and 8% in my retirement funds with mix of bonds and stocks.
Hopefully I’ll be with another doctor too. 🙂
Obviously with 30k a year going to this scholarship fund my net worth will not be 16 million as an 80 year old. Haha.
My grandparents never made a lot of money but had a lot in their nest because they saved almost everything and invested.
Forgot to add that it’d be 16 million in *today’s* dollars. 🙂
16 million in 50 years or so would be worth roughly 5 million now.
Hey cheep
I’m trying to reproduce your calculations in excel to get to 16 million and I don’t want to make assumptions based on the above
-How much (exactly) are you saying you contribute each year… Your assuming same contribution each year right (your calculations are not increasing it)
-interest rate / return after fees etc
-years until you stop working
-inflation rate- (if you account for it)
Assumptions were:
Making roughly 144,000 net a year (I’ll likely go for morr money in boonies)
Living on 48,000 a year net
Investing rest.
Gains were 7% for roth ira (incorporates 3% inflation)
5% for non roth ira investments (again 3% inflation)
No other numbers changed to get real instead of absolute numbers.
Work full time until 55 then half time until 60 and then barely any until 65.
I didn’t put in costs of 30,000 a year in real scholarship costs dream.
That 16 million in real money (today’s money) would obviously be a lot lower with the scholarship fund. Just put numbere in excel quickly –ain’t that hard. 🙂
I don’t recall what stage of training you’re in, but if you live on $48K while making $200K for your entire career, you deserve to leave $16 Million behind.
I once thought that I could live on an extraordinarily low amount throughout my career, but it is not easy not growing into your income, no matter how much debt you have. If you spend your twenties studying medicine and saving lives, you probably deserve to eat sushi every now and then.
There are people out there who work a lot less and still enjoy life a lot more than you.
“There are people out there who work a lot less and still enjoy life a lot more than you.”
Not really. I never was going to do surgery and similarly hourly-intensive specialities since I care about my free time.
You don’t have to spend money to be happy. Once you’ve lived without running water, electricity, internet, and the like, these basic entities make you feel like a king or queen.
What makes me personally happy is free; my hobbies are extremely inexpensive and make me very happy. Well aside from traveling but that can be done on the cheap.
–intern (soon to be resident)
I think people are just a little skeptical because they’ve watched their peers ramp up their spending as the income ramps up. Since your income hasn’t ramped up yet, they’re justifiably skeptical. Check back in with us in 5-10 years and let us know how your plan to spend 1/4 of your income is going, especially if there is a partner involved. This is apparently so hard that I have a hard time getting people to do it for 2 years after residency, much less an entire career.
I’m older than most interns and live on 16,000 now and have already ramped up my spending.
I have a car now. 😛 I go out and eat now and live on probably two thousand more than med school. I’ve been living on like half of what my peers have lived on for many years.
Plus I’m hard-core Asian. We really do deferred gratification to the extreme. My Europe trip before residency also wasn’t that pricey; cost about 2,000 with the ticket included.
I had free housing the last three months of med school picking rotations that offered that.
I’m actually planning on living on 24,000 a year net while single as an attending; the 48,000 net would be with a family. Once you’ve been living in third world conditions you kind of have your perspective changed.
Once again, it depends what makes you happy. I really don’t care about material stuff aside from a 16-20,000 used luxury car. 🙂
The europe trip was for five weeks too. 🙂
What!? You’re going to spend a year’s “income” on a car? 🙂
Yeah it’ll be my one luxury. 🙂
One person posted once that indulging a bit could save you money long-term. So they got a nice apartment post residency so they WOULDN’T get a swanky 1.5 million dollar house. That idea has merit.
You could let the pent up delayed gratification make you crazy and do something financially irresponsible haha.
Absolutely. It is important to not feel like you’re sacrificing/delaying gratification. Way easier to delay gratification if you don’t think you’re doing it. That’s what slowly raising your standard of living is like. You always feel like there is money coming out of your ears, yet you’re putting away hundreds of thousands.