Today, we are answering a variety of questions from medical students and residents. We talk about the tax benefits of getting married and what to do with a whole life policy that was given to you. We tackle some questions about filing taxes as a med student and whether to sell a fully paid off house if you are moving states for residency. We answer a student loan question and give some advice on how to dive into learning about financial literacy.


 

Gifted a Whole Life Insurance Policy – Now What?

“My name is Tyler. I'm calling from the Northeast. I had a quick question. I think this has been addressed before. My parents transferred a whole life insurance policy to me when I was in medical school, once I got married. I'm now 35, married, one kid, fresh out of fellowship, working, doing urgent care. I transferred the whole life insurance policy into a variable universal life policy after doing some reading. I'm not sure if that was the correct action. That's what I did. The death benefit is $100,000, and currently, the net cash value is $6,693.29. Annual premium is $300. I would like to get rid of this as I feel like I have better use for that money, but I was hoping to get your thoughts.”

Lots of parents do this. They think they're doing you a favor by giving you a whole life insurance policy. I don't know who's selling it to them, whether it's Northwestern Mutual or Gerber or who it is. But they suckered your parents into buying this thing for you, and your parents did it with the very best of intentions for you. I think the most important thing to do here is to recognize that they are doing this with a lot of love and sacrifice in a lot of cases. The most important thing in this whole discussion around these gifts of whole life insurance is to say thank you, to thank them for what they've given you. It's really a very nice gift.

In essence, they've given you $6,000 or $7,000. You can do whatever you want with that $6,000 or $7,000, though. You do not have to keep it in a whole life policy. They will not be upset. You do not even have to tell them that you cashed out of the whole life policy. You could exchange it to some other insurance product—a variable annuity, a variable universal life insurance policy, a long-term care policy. But the truth is you probably don't need any of that stuff. We're talking about a very small policy. Your cash value is only $6,000 or $7,000 here. There's no sense in messing around with these exchanges into a variable annuity to try to save the basis and get a little bit of tax-free growth out of that.

First, make sure you've got your big fat term life insurance policy in place. You're a brand new attending. You've got a spouse. You've got a kid. You've got people dependent on your income. If you die, it's a financial catastrophe for them. So, you need a big fat life insurance policy, not $100,000. You need something that's going to last for the next 20 or 30 years until you're financially independent, that's going to pay them a seven-figure amount if you die. A million dollars is kind of the bare minimum for an attending physician that has other people depending on him or her. Most white coat investors have probably got $2 million, $3 million, maybe even $5 million in term life insurance. The first thing you do is make sure you have that in place. Whatever your amount is and how much you need depends on what your spouse is going to do if you died. Maybe some people need less than others depending on what you have or what your spouse does or what your lifestyle is like.

Then, what you do is you simply surrender this rinky-dink little VUL that some dirtbag sold to you after some other dirtbag sold your parents a whole life insurance policy. You walk away with your $6,000 or $7,000 and you use it to pay off your student loans or you use it for a down payment on your dream house or you use it to pay off your car or your credit cards or you use it for your Backdoor Roth IRA this year or your spouse's Backdoor Roth IRA. You don't technically put that money in there, but you live on that money while you use the money you were living on to go in there because it has to be earned income, of course, that goes into a retirement account. But my point is, you have a better use for this money than a VUL as an attending straight out of fellowship. The chance that this is the best use for your money is essentially 0%.

The truth is what your parents should have done—if you could go back 20 or 30 or 35 years, whenever they bought this thing—is put this money in a UGMA account or a 529 or something where it would've grown. If you go back and actually figure out what your rate of return was on this policy, it's going to be embarrassing. It might even still be negative after 20 or 30 or 35 years because for these little tiny policies, all the premium gets eaten up by the fees. So, they tend to have these terrible, terrible returns on these tiny little policies sold to parents. You don't want to keep this thing; you need to get rid of it. So, get rid of it and use the money for something else. No big deal. Just make sure you have term life insurance in place first.

More information here: 

Is Whole Life Insurance a Scam?

Why Whole Life Insurance Is a Bad Investment – Debunking the Myths

 

Filing Taxes as a Medical Student 

“Hi, I have a question in regards to filing taxes as a fourth-year medical student. I am starting residency on July 1, and during fourth year, I had some free time. So, I actually did some part-time jobs and made maybe a total of like $2,000. And I've been reading all on your blog, which has been extremely helpful. But a lot of the advice given was to file your taxes right after you graduate medical school and basically be able to put that you made $0. However, I made, like I said, maybe a few thousand, definitely under $3,000. So, my question is should I still file my taxes since I have that income or should I just not file them at all?”

You have gotten the right advice. Unfortunately, you don't understand why that's the right advice. Let me explain to you why this is the right advice. You are correct that you want to file a tax return for the last year that you spent the whole year in medical school. What that means is it's the year that you spent the last half-year MS3 year and the first half-year MS4 year. So, if you graduated in 2023, we're talking about filing taxes for 2022. The reason you want to do that is because when you go to certify your income with the government for income driven repayment programs and for Public Service Loan Forgiveness, you want to be able to show that you had a very low income. The easiest way to do that is just show them your tax return from the prior year. If you don't have student loans, this doesn't matter. But 75% of medical students have student loans, most of which are federal, so this matters. File a tax return your fourth year.

In your case, you made a little bit of money. Good for you. But you'll obviously have to declare that on your taxes. You probably don't have to actually file a tax return. The IRS doesn't require it, but they do allow you to do it and you won't owe any taxes because you only made a couple grand. There's no tax cost to doing this. The tax return will be very straightforward and it'll only take you a few minutes to file it, but you should file it so you have that to show the government so you can keep your IDR payments low at least after you get through the grace period. That can help you to get more money forgiven via the Public Service Loan Forgiveness. It can also just help your cash flow as an intern to be having to make lower payments.

Every now and then, you end up with these crazy moments like the pandemic. The people that certified their income from their MS4 year way back at the beginning of the pandemic, that was basically what the Department of Education folks used for their income throughout the whole pandemic. It doesn't really matter too much since they put the rates at 0% and the payments at $0. But that's what people have been using to certify their income. Even as they come back into payments this fall, they might be making payments based on their MS3 income even though they're now out of residency. It can be very beneficial to your cash flow and to maximizing your forgiveness. Keep that in mind. File all your taxes. Don't worry about the fact that you made $2,000. It's not going to make much difference. Your payment is still going to be very, very low. It's going to be slightly higher than if you had $0 probably, or maybe not even that. I'd have to run the numbers to know for sure, but don't let that stop you from filing.

More information here: 

How to File Taxes as a Medical Student 

From Fourth Year to the Real World

 

Sell or Rent Your House During Residency 

“Hi Jim. My wife just passed into residency in North Carolina for her intern year and then in New Jersey for her last three years. I will be a high earner, as well. I’m not in medicine but in other fields in software development. We currently live in North Carolina in a house that is paid off, and it's worth $400,000. And we don't plan on buying a house in New Jersey given your advice on buying a home during residency. And we'll only be there for three years after we move there next year. So, we need to decide what to do with our home here. Do we want to rent it out? Do we want to sell it when we move to New Jersey? We have never managed a property before, so we would probably use a property manager if we decide to keep it and rent it out. I don't know if it makes a big difference, but we don't see ourselves moving back in here after residency is over.

I sort of wanted you to help me discuss the pros and cons of renting the house out vs. selling it and investing in the stock market, for instance. I like the idea of keeping it just to diversify into real estate, which is a type of investment that we don't currently pursue. But I also see the fees of property management to be sort of a waste given that we'll be renting out a home here and paying rent in New Jersey.”

Wow, what a great and fortunate situation to be in. Sell the house. That's my advice. Let's talk about the pros and cons. The main benefit of holding onto this house is you have a real estate investment. Maybe in that community, home prices go gangbusters, and it doubles in value in the next four years. Something like that could happen. I don’t know that I'd count on that happening, especially with the direction interest rates have been going, but something like that could happen. You get some experience learning a little more about real estate investing. I think your experience is probably going to be bad, though. Most people have a bad experience when they are renting out a house that is in another state because you're being a long-distance landlord. You can't drive by and check on it every time something goes wrong. You have to pay somebody to go out there and do it. You have to trust the property manager. That's one of the hardest things to hire of all financial professionals. It's just not that fun.

No. 2, it's incredibly risky. Your entire real estate allocation is in one property. That's not exactly diversified, and you don't sound like you want to get into real estate investing. If you want to get into real estate investing, maybe the way to do it is to take half the money out of this house and use it as a down payment on another house. Now you've got two properties, and hopefully one of them is near where you live. But that's going to be hard with all the moving around going on in the next couple of years. But I'm not getting the impression that's something you really want to do right now. The truth is now is probably not the time to do it. I would certainly tell your spouse that. You're busy during your training, your internship, your residency. You're busy. You don't need the distraction of being a real estate investor on the side. Get your training; become a good doc. You can do real estate investing later. It's much easier. You have more time and you have more income.

More cons: you could lose money on this house. You're definitely going to have serious hassle with it. Yes, you're going to have to pay property management and everything else that happens out there. You're not going to be very diversified. Lots of cons here. I think the cons outweigh the pros. I would sell it. But the big risk, of course, that everybody worries about is,“What if home prices go up a lot and now I have trouble buying a home?” That's not going to be a problem for you. This thing's already paid off. You've got two high earners here. You've got a big chunk of change. Even if you don't even really invest this money, it's certainly going to be enough to be a good down payment on your doctor home when you're done. It might even pay for the entire home, especially if it grows significantly.

What would I do with it? I would try to make it grow. You know you're going to need it in four years, though. So maybe not a crazy, risky investment. You might want to put it into a mix of half stocks, half bonds or one-third stocks, one-third bonds, one-third cash, something like that. Maybe an income-focused fund like a target retirement income fund. These sorts of investments that aren't maybe as volatile as something else. Another approach that somebody might take is they say, “Hey, this is real estate. Let's put it into something that will do well if real estate does well. If it does poorly because real estate does poorly, that's OK because then maybe I'll be able to get my house a little bit cheaper as well.” That's an option. You could put it into a real estate investment. I don't know that you're going to qualify as an accredited investor and have access to one of the private real estate funds. You're probably limited to something like the Vanguard REIT Index Fund. But that's not only 100% stocks. It is a fairly volatile sector of stocks. Bad things can happen there. I lost 78% of my investment in that fund in the 2008 meltdown. I don't know that I can in good faith recommend you put your whole house fund in there. But that would be one approach that some people take.

I would probably just put it into a mix of stocks and bonds and cash. Maybe even do something like a four-year treasury bond or a four-year CD so the money's there when it comes time for you to buy a house again. You'll make 4% or 5% on it a year; it'll be a little bit bigger than when you got there. Probably keep up more or less with inflation between now and then. Maybe not inflation of houses because we don't know what that's going to be but general inflation. But I'd sell it, I'd invest the money and not worry about it and enjoy renting for the next couple of places you live until you get into your longer-term jobs and the jobs like you. Then, when you like the jobs and it's time to buy a house again. I think you'll be glad to have all that cash sitting there ready to do so.

More information here:

The Case Against Resident Homeowners

 

If you want to learn about the following questions, be sure to check out the WCI podcast transcript below

  • Student loans for new medical students.
  • How to improve financial literacy and begin growing wealth.
  • Should you get married for tax purposes?

 

Milestones to Millionaire Podcast

#125 — Psychiatrist Pays Off Half a Million in Loans and Becomes a Millionaire and Finance 101: The Savings Rate

This psychiatrist paid off over half a million dollars of student debt in just over five years! Not only has she paid off this massive amount of loans, but she bought a house and reached millionaire status. They made sacrifices while they were tackling the loans, including living with family for over three years. This doc originally planned to go for PSLF but decided against it when a higher-paying job opportunity came up. She shares that the security that came from getting out of debt made writing those big checks feel worth it.

After the interview, we will be talking about savings rates for Finance 101.

 

Finance 101: Savings Rate

Saving for retirement is a crucial aspect of financial planning. The recommended savings rate is around 20% of your gross income. Successful investing is closely tied to being a successful saver. By consistently saving 20% of your income throughout your career, you can retire with a standard of living that is very similar to your working years. Even average investment returns are enough to ensure a good retirement. It is important to calculate the savings rate using gross income and include things like spouse's income, investment income, and employer matching contributions.

The relationship between the savings rate and early retirement is significant. Obviously, a higher savings rate allows for earlier financial independence. Tables from the FIRE community demonstrate that saving 20% of your net income leads to retirement after a full career. For those of you who want to retire early you will likely need to save quite a bit more than that. Be sure to calculate and track your savings rate annually and make any necessary adjustments to try to stick to that 20% savings rate.

To increase your savings rate, several strategies can be employed. Avoiding lifestyle inflation and resisting the urge to spend all of your income are the quickest ways to save more. Take advantage of tax-deferred retirement accounts and pay attention to major expenses rather than focusing on small daily expenses. Increasing income, reducing fixed expenses, and using cash-based systems instead of credit cards can help raise your savings rate. Tracking your savings rate regularly is helpful for making progress toward achieving your financial goals.

To learn more about the savings rate, read the Milestones to Millionaire transcript below

 


Sponsor: MLG Capital

 

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WCI Podcast Transcript

Transcription – WCI – 322

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 322.

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All right, welcome back to the podcast. We're recording this on… What's today? June 12th, and publishing it on July 6th. So it's July when you're listening to this. I just got back from a really cool trip I want to tell you about. A lot of people have heard of Zion National Park. This is one of the mighty five parks in Utah. People make treks from all over the world. Lots of east coasters, lots of people from Europe and the Far East come to Utah to see the National Park. One of which is Zion National Park.

And hikers in particular are drawn to a couple of hikes there. Angels Landing, which now is a permitted hike, as well as the Zion Narrows. These both show up on top 10 hikes in the world all the time. And so, it's very difficult to go to the Zion Narrows. If you want to hike the whole thing from the top down, you have to get a permit. And it's not an easy permit to get. I've tried a few times over the last few years and haven't been able to get a permit. The last time I did that hike was 20 years ago. I was a resident and came up from Arizona and Katie and I did that hike.

And so, what that forces most visitors to Zion National Park, which is like 6 million people a year now to do in order to do this hike, is they ride the bus throughout the park, throughout the canyon, get to the end, get off the bus, and they walk a mile up this paved pathway called the Riverside Walk. And then they get off the pathway into the river, the Virgin River, and hike up the river into the narrows. Because what the narrows is, is a river. It's a river running through some canyon walls that go up 500 feet, maybe a thousand feet at times above you. Very sheer walls. It's wall to wall water in there. And so, it's a pretty unique hike.

The truth is though, it's a brutal hike. If you do the whole thing from the top down, it's like 13 to 16 miles. And at the beginning you're in and out of the water doing a whole bunch of water crossings. Toward the end, you're just in the water and you're in six to 12 inches of water walking on submerged slippery bowling balls, smashing up your ankles, smashing up your toes. You're exhausted because it hikes like it's 30 miles long because you're in water the whole time. And if you start getting blisters, there's nothing you can do about it because anything you want to put on your blisters is going to wash right off. And so, despite that, it’s this super desirable hike that people want to do. It's very hard to get permits.

But I learned something this year. The easy way to get a permit to do this hike is not to hike it at all. Float it instead of hiking it. And so, what you can do most years, not in a drought year, but most years, for a few days or maybe if you're lucky in a big snow year like this year, a couple of weeks, you can get a permit to float the Zion narrows. It's not competitive. You can just walk right up the day before and get it from the back country desk. And then you drive up and around. And when we went, the water level was 200 cubic feet per second. And they'll give these permits out anywhere between 150 cubic feet per second and 600 cubic feet per second. That's obviously the flow of the river coming down the canyon.

Below 150, they'll let you get the hiking permits and they won't give you a floating permit, but above 150 you can get a floating permit. But at 200 it's still a relatively chill float. Yes, you have to get out when you get to the nasty rapids and walk past them because there are a few nasty rapids in there. But the rest of it is probably only class three and very doable in a pack raft, which is what we took. These cool little basically an inflatable kayak that weighs eight pounds and you can carry in your backpack.

And we had to do the first four hours of hiking of it or so, because there wasn't enough water in the top part until the big creek comes in. And we inflated our pack rafts and did what's usually a six or eight hours of hiking in a two hour float. I don't think I'm ever going to hike the narrows again because floating it was so much better.

Very cool trip. If you're going to Zion and you enjoy pack rafting or that sort of a thing, I would definitely look into it. If you've never paddled anything, this might not be the paddle for you. But if you have some experience pack rafting and you're not trying to go at 600 CFS, it's very doable and a pretty cool trip. Pretty special float.

All right, enough about me. It's summertime, so I'm trying to get out and do cool trips. I'm an emergency doc after all, and in a lot of ways, we're all about the outdoors.

All right, let's take our first question today. This one is from a med student starting in August. If you'd like to get your question answered on this podcast, by the way, you can do that at whitecoatinvestor.com/speakpipe. Just record it, we'll get it on, we'll get your question answered. Anyway, a med student that's going to be starting here shortly has question about student loans. Let's see if we can answer.

 

STUDENT LOANS FOR MEDICAL SCHOOL QUESTION

Speaker:
Hi, I'm an avid listener of the White Coat Investor and I'm excited to asking my first question. I'll be a medical student starting this August in Providence, Rhode Island, and my question is on student loans for medical school, which I'll be taking out in April.

For a little bit of background, I’ll have to take out loans to cover my tuition and school. That's $67,300 per year. I'm planning on taking out federal loans, although I do not know if I want to do academic versus private medicine. I still feel like public service loan forgiveness is the way to go.

No matter what I eventually decide, even if that means staying in the hospital longer, I have the money saved to cover living expenses during this time, but I'll not be making a sizeable income during it, besides picking up some shifts as an EMT. I also have about $10,000 in undergraduate federal loans.

My question is, if I'm planning to go for public service loan forgiveness, should I take out loans for the full cost of attendance instead of just tuition? My worry is that if for some reason public service loan forgiveness does not work out, like it gets dismantled governmentally or the horror story is people being denied, then I'll be stuck with hundreds of thousands of dollars more in debt versus the baseline tuition loans I have to take out.

And a secondary question, if I take out the cost of attendance loans, do you think that I should put the money that I've saved to pay for living expenses in a savings account or a mutual fund? Thank you so much for any advice and everything that you do.

Dr. Jim Dahle:
Well, that is the very definition of moral hazard. Now, for those of you who aren't familiar with this term, this is an economic term. This has nothing to do with your morals. You're not morally deficient if you are experiencing moral hazard. That's not what moral hazard is.

Moral hazard is when there's kind of an unintended consequence of a policy. In this case, the policy is public service loan forgiveness. The intent of this policy is to help those with massive student loan burdens who have taken these very charitable jobs serving the public, but have this terrible student loan burden and help them to deal with that so they can stay in these public service kind of jobs.

But what happens? Anytime you put in any sort of government policy, anytime you're giving out free money, which let's be honest, this is what this is. That's what public service loan forgiveness is. It's free money, not free, because taxpayers are paying for it, but it's free money to the person getting it. It's like a big fat check for you.

Anytime you're giving that out, there's going to be some unforeseen consequences. One of which is every medical student is now facing this dilemma. It used to be when you knew you were going to be paying back your student loans, that you would minimize how much you take out in student loans because the less you take out, the less interest you pay and the sooner you can pay them back later.

But now, with free money at least available, assuming you comply with the terms of public service loan forgiveness, new med students are starting to wonder. “Maybe I should take out all the money I can get and just hold onto it or spend it even, spend it on a car, a nicer car is useful in medical school. Maybe I could live in a nicer place.”

So, a few things to think about here. One is the risk you've identified. That something happens with your career. Maybe you don't match, for instance, or something happens and you decide, “I really do not want to stay in academia and I'm going someplace in my specialty where there are no PSLF jobs. Now I've got to live somewhere I don't want to live. Why did I do this?” You've got that risk out there. That's definitely a possibility.

The other thing to keep in mind is your contract. When you're signing these student loans, you are telling them, “I'm going to use this money for school.” That's what you're contracting to do when you take out a student loan. It's in the contract. So I think if you're going to sign a contract, yeah, I'll obey the terms of that contract.

Now, in your case, money's fungible. You can use the money you have in cash or you can use the borrowed money to pay for school. It's really fungible. But for those people who are taking the money and investing it because they're borrowing more than they can even spend, you're really violating the terms of your contract and probably shouldn't do that.

And then of course, in the end, I'm a bit of a traditionalist. I think you probably shouldn't borrow money you don't need for school. I would probably just take out what you need. I would not try to make some sort of windfall profits off the PSLF program, but it's a hard decision. I get that there's a moral hazard. It's not illegal. I don't even know that it's unethical. I don't know that it's immoral. You'll have to decide that.

But every medical student is now facing this dilemma given the terms of public service loan forgiveness. So, good luck with your decision. I think it's a hard one to make and I'm sorry you have to make it. I think it's bad policy that you have to make it. But here's where we are in life.

Okay, let's talk about a dentist now, at least a dental trainee.

 

IMPROVING FINANCIAL LITERACY AND GROWING WEALTH QUESTION

Johnny:
Hi there, I'm Johnny and I'm a dentist. I'm also currently in a postgraduate program training to be a specialist in one of the fields of dentistry here in New England. I have to admit, this is not the first time I've heard of the White Coat Investor. My brother who's in medical school referred me to you guys a few years ago, but I've only really had the time to do my own research now.

I'm really in amazement and in awe of the community that you've managed to cultivate over the years. And I want to thank you for all the information you've shared through your blog and through your YouTube channel.

Now, I'd like to admit here that I am in quite a unique scenario where I do not owe anyone any money, nor do I have any loans. And I'm trying to really improve my financial literacy, which I've really been able to do through the help of your blog and your YouTube channels and through other readings that I've found online.

I wanted to ask you for someone like myself, how do you recommend I prepare for the future? Do you recommend I take any loans to try to take advantage of the economic situation at the moment? Do you recommend not doing any of that? Starting maybe a small investment somewhere? I'd like to hear any advice you can share. Thank you very much.

Dr. Jim Dahle:
All right, I don't know that I've ever had this question. This is a great question. I find it fascinating where you think about financial literacy and how to get started and the first thing you think about is borrowing money. You've done such an awesome job to this point. I don't know if that's from family helping you or scholarships or how you got to this point in your post-graduate training that you don't owe any money. That's awesome.

And I don't know why you seem to feel bad about that, like you need to go borrow some money. You don't need to borrow money to get rich. That's not how most people get rich. Yes, you can invest with leverage, but for the most part, people do that because they have to do that. They don't do that because it's like something you have to do to go get wealthy. So no, don't go borrow any money.

You do need to become financially literate. There's lots of ways to do that. We have tried to spoon feed this to people in a course we have. It's called Fire Your Financial Advisor. There's also a version that qualifies for both medical and dental CME. That version is called Financial Wellness and Burnout Prevention for Medical Professionals. It costs a little more, you can use your CME funds to buy it.

But I recognize that everybody learns a different way. Some of us learn best from books and online forums. That's kind of me. That's my style. The nice thing about that is it's kind of inexpensive. The downside is it's a little bit disjointed and you have to really dig around and kind of become a hobbyist to learn that way.

Other people that are very much not hobbyists when it comes to finance, they go and hire a financial professional to help them and teach them this stuff. And that's also an option. We keep a recommended list of financial advisors at the White Coat Investor.

But however you choose to do it, you need to get a written financial plan in place. That's the key. Once you have that plan, all you have to do is follow it. And things get very simple after that. Katie and I have just been following our financial plan for the last two decades. We don't have to think about what are we going to do? Are we going to go borrow some money or should we start some investments? We already have the investments. We just add money to it.

Like this month, I took all the money we made last month, we paid our expenses, we put a certain amount aside for taxes, and the rest we invest. Whether that income came from investments, whether it came from my clinical work, whether it came from White Coat Investor, whatever. And it went into the investments we already have.

I can tell you the four things I invested in this month. I invested in Vanguard Total Stock Market ETF. I invested in the Vanguard Total International Stock Market ETF. I invested in the Vanguard Small International Index fund ETF. I can't remember what that one's called, but that's what I invests in. And then I invested into a municipal bond fund. That's where the money went this month. Those were the things that were behind in our asset allocation.

And so, that's what we invested in. But it's super easy. We just follow the plan every month. Every month we have additional income, every month we invest it. Every month we're wealthier than the one we were before. Obviously in a bear market that doesn't necessarily happen, but most of the time we're wealthier than we were the month before. And that's how you do this. It's not that complicated.

So, figure out how you learn. It sounds like you like the YouTube channel. Watch the YouTube channel. All the podcasts are there, plus a whole bunch of other stuff. If you like the blog, read the blog. There's a “Start here” tab on the blog. Go to that, read the basic stuff, it'll help you. I wrote it with you in mind. You are the avatar. And I'm writing blog posts too, when I write blog posts.

If you like forums, we got them in three flavors. There's a classic forum at forum.whitecoatinvestor.com. We've got a subreddit, if you're into Reddit, check it out. r/whitecoatinvestor. If you like Facebook, I don't know why people like Facebook, but I know a lot of you like Facebook. There's like 90,000 of you in the White Coat Investor Facebook group. Then go to the Facebook group. You can ask and answer questions and discuss stuff there. The communities are there to help you learn. And yes, you'll have some abrasive interaction every now and then with somebody in there. That's just the way the internet is but you can learn there.

If you like podcasts, we have two podcasts. We have the Milestones to Millionaire podcast where we do interviews with people who've had some sort of success. We want to inspire others to do the same thing. We tend to combine those now starting this year with the discussion of some of the basics of finance. Kind of a back to basics approach on that podcast.

And we have this podcast where we do both interviews with authors and financial advisors and authorities out there in various topics as well as answer your questions, the ones that are left on the Speak Pipe.

So if you like podcasts, listen to the podcast. We've been trying to get you financially literate for the last 12 years, and I know you got referred to us and that's fine. When the student is ready, the teacher will appear. But the nice thing for you is there's a 12 year backlog of all this stuff and you can go back and you can search for the topic you're interested in. And it's just in time learning. All this stuff is here to help you become financially literate.

But no, the first thing you should do is not to run out and take out another loan. That is not the secret. If you've got some additional income, if you've got some additional money on the side that's just sitting in cash right now, yes, you need to invest it. Before investing, you should have some sort of a written investing plan rather than just willy-nilly selecting investments though. So, let us help you try to get an investing plan in place.

By the way, I mentioned that course. Everything's going on sale. This is kind of been a tradition. Start of the medical year is always July 1st and we have got a sale going until July 10th. So, just a few more days after you hear this. This thing drops on July 6th, so you only have to the 10th, but everything's 20% off at WCI. All of our online courses. That includes Fire Your Financial Advisor and the version with the CME, but also everything else. CFE 2023, that one's on sale, 20% off. The real estate course. Now that's a huge discount 20% on that because that's our most expensive course. All the books at the White Coat Investor store, 20% off.

Our merch. Yeah, we got t-shirts and stickers and all kinds of stuff. If you go to whitecoatinvestor.com/store, you can see all that merch, all of that can be purchased. Many of those courses can be purchased with your CME money. So, that's like monopoly money you can use to purchase real courses. so you should check those out. And it's great. So be sure to check out those options if you're going to be buying, especially this month. The time to do it is before the 10th, it’s 20% off. Great sale.

All right, here's a question about our favorite subject, whole life insurance. It's a medical student asking the question though, so let's take a listen.

 

WHOLE LIFE INSURANCE POLICY QUESTION

Tyler:
My name is Tyler, I'm calling from the Northeast. I had a quick question. I think this has been addressed before. My parents transferred a whole life insurance policy to me when I was in medical school, once I got married. I'm now 35, married, one kid, fresh out of fellowship, working, doing urgent care. I transferred the whole life insurance policy into a variable universal life policy after doing some reading. I'm not sure if that was the correct action. That's what I did. The death benefit is $100,000 and currently the net cash value is $6,693.29. Annual premium is $300. I would like to get rid of this as I feel like I have better use for that money, but I was hoping to get your thoughts. Thank you so much for what you do.

Dr. Jim Dahle:
Okay, Tyler, good question. Sorry, I thought you were a medical student. I guess you got the policy given to you as a medical student. Lots of parents do this. They think they're doing you a favor by giving you a whole life insurance policy. And I don't know who's selling it to them, whether it's Northwestern Mutual or Gerber or who it is. But they suckered your parents into buying this thing for you and your parents did it with the very best of intentions for you.

So I think the most important thing to do here is to recognize that they are doing this with a lot of love and sacrifice in a lot of cases. Because many of our parents are not all that well off. Sacrifice to try to give you a leg up in life. And so, the most important thing in this whole discussion around these gifts of whole life insurance is to say thank you, to thank them for what they've given you. It's really a very nice gift.

In essence, they've given you $6,000 or $7,000. That's what's happened here. You can do whatever you want with that $6,000 or $7,000 though. You do not have to keep it in a whole life policy. They will not be upset. You do not even have to tell them that you cashed out of the whole life policy. You could exchange it to some other insurance product, a variable annuity, a variable universal life insurance policy, a long-term care policy. You could exchange it to all kinds of other policies.

But the truth is you probably don't need any of that stuff. And we're talking about a very small policy. Your cash value is only $6,000 or $7,000 here. There's no sense in messing around with these exchanges into a variable annuity to try to save the basis and get a little bit of tax free growth out of that. There's no point. This is $6,000 or $7,000.

So, make sure you've got your big fat term life insurance policy in place. You're a brand new attending. You've got a spouse. You don't mention what your spouse does, but you've got a kid, you've got people dependent on your income. If you die, it's a financial catastrophe for them. So, you need a big fat life insurance policy, not $100,000. They'll burn through that pretty quick if you died.

You need a term life policy. Something that's going to last for the next 20 or 30 years until you're financially independent, that's going to pay them a seven figure amount if you die. A million dollars is kind of the bare minimum for an attending physician that has other people depending on him or her. Most white coat investors have probably got two, three, maybe even $5 million in term life insurance.

So the first thing you do is make sure you have that in place. Whatever your amount is and how much you need depends on what your spouse is going to do if you got disabled or if you died rather and maybe some people need less than others depending on what you have or what your spouse does or what your lifestyle is like.

But get that big policy in place first. And then what you do is you simply surrender this rinky-dink little VUL that some dirtbag sold to you after some other dirtbag sold your parents a whole life insurance policy. And you walk away with your $6,000 or $7,000 and you use it to pay off your student loans or you use it for a down payment on your dream house or you use it to pay off your car or your credit cards or you use it for your backdoor Roth IRA this year or your spouse's backdoor Roth IRA.

You don't technically put that money in there but you live on that money while you use the money you were living on to go in there because it has to be earned income, of course, that goes into a retirement account.

But my point is, you have a better use for this money than a VUL as an attending straight out of fellowship. The chances that this is the best use for your money is essentially 0%. There's no way this is the best use for your money right now in your life. So, take it out of there and use it for something else. If nothing else, you can put it in a 529 for that kid.

Because the truth is what your parents should have done, if you can go back 20 or 30 or 35 years whenever they bought this thing, what they should have done is put this money in a UGMA account or a 529 or something where it would've grown.

Because if you go back and actually figure out what your rate of return was on this policy, it's going to be embarrassing. It might even still be negative after 20 or 30 or 35 years because these little tiny policies, all the premium gets eaten up by the fees and so, they tend to have these terrible, terrible returns on these tiny little policies sold to parents.

But yeah, you don't want to keep this thing, you need to get rid of it. So, get rid of it and use the money for something else. No big deal. Just make sure you have term life insurance in place first.

All right, our next question, I think actually is a medical student. Let's take a listen.

 

FILING TAXES AS A MEDICAL STUDENT QUESTION

Speaker 2:
Hi, I have a question in regards to filing taxes as a fourth year medical student. I am starting residency on July 1st and during fourth year I had some free time. So I actually did some part-time jobs and made maybe a total of like $2,000. And I've been reading all on your blog, which has been extremely helpful. But a lot of the advice given was to provide to file your taxes right after you graduate medical school and basically be able to put that you made $0. However, I made, like I said, maybe a few thousand, definitely under $3,000. So, my question is should I still file my taxes since I have that income or should I just not file them at all? Thanks.

Dr. Jim Dahle:
All right, great question. You have gotten the right advice. Unfortunately, you don't understand why that's the right advice. So, let me explain to you why this is the right advice. You are correct that you want to file a tax return for the last year that you spent the whole year in medical school. And what that means is it's the year that you spent the last half year MS3 year and the first half year MS4 year. So, if you graduated in 2023, we're talking about filing taxes for 2022.

And the reason you want to do that is because when you go to certify your income with the government for income driven repayment programs and for public service loan forgiveness, you want to be able to show that you had a very low income. And the easiest way to do that is just show them your tax return from the prior year.

And that's why you want to file that taxes. If you don't have student loans, this doesn't matter. But 75% of medical students have student loans, most of which are federal, this matters. File a tax return your fourth year.

In your case, you made a little bit of money, good for you. It's true. You actually can make money in medical school. For most people that's the summer between first and second year, maybe last half year, fourth year, those sorts of time periods. It's not your OB rotation during your third year obviously, but you can make a little bit of money in med school. And that's good. It helps keep your loans down. But you'll obviously have to declare that on your taxes.

Now, you probably don't have to actually file a tax return. The IRS doesn't require it, but they do allow you to do it and you won't owe any taxes because you only made a couple grand. So no big deal. There's no tax cost to doing this. The tax return will be very straightforward and it'll only take you a few minutes to file it, but you should file it so you have that to show the government so you can keep your IDR payments low at least after you get through the grace period.

And that can help you to get more money forgiven via the public service loan forgiveness. It can also just help your cash flow as an intern to be having to make lower payments.

And every now and then you end up with these crazy moments like the pandemic. The people that certified their income from their MS4 year way back at the beginning of the pandemic, that was basically what the Department of Education folks used for their income throughout the whole pandemic. And it doesn't really matter too much since they put the rates at 0% and the payments at $0. But that's what people have been using to certify their income.

So, even as they come back into payments this fall, they might be making payments based on their MS3 income even though they're now out of residency. It can be very beneficial to your cash flow and to maximizing your forgiveness. So, keep that in mind.

Yes, file all your taxes. Don't worry about the fact that you made $2,000. It's not going to make much difference. Your payment is still going to be very, very low. It's going to be slightly higher than if you had $0 probably, or maybe not even that. I'd have to run the numbers to know for sure but don't let that stop you from filing. Still file your taxes even though you made a couple grand.

And thanks by the way. I get great hope from seeing medical students. I just wrote a letter of recommendation for a pre-med student who's trying to get into medical school and it gives me all kinds of hope for our profession to see such idealistic people matching into their specialties, going into medical school. I hate that that idealism tends to get beat out of us somewhere in that process, but it gives me great hope to see wonderful people still going into this great profession.

 

SELL OR RENT HOME DURING RESIDENCY QUESTION

Dr. Jim Dahle:
All right, the next question is somebody that's got a house in medical school. That's cool. Let's listen to their question.

Speaker 2:
Hi Jim. My wife just passed into residency in North Carolina for her intern year and then in New Jersey for her last three years. I will be a high earner as well. As a spouse I’m not in medicine, but in other fields in software development. We currently live in North Carolina in a house that is paid off and it's worth $400,000. And we don't plan on buying a house in New Jersey given your advice on buying a home during residency. And we'll only be there for three years after we move there next year.

So, we need to decide what to do with our home here. Do we want to rent it out? Do we want to sell it when we move to New Jersey? We have never managed a property before, so we would probably use a property manager if we decide to keep it and rent it out. And I don't know if it makes a big difference, but we don't see ourselves moving back in here after residency is over.

I sort of wanted you to help me discuss the pros and cons of renting the house out versus selling it and investing in the stock market, for instance. I like the idea of keeping it just to diversify into real estate, which is a type of investment that we don't currently pursue. But I also see the fees of property management to be sort of a waste given that we'll be renting out a home here and paying rent in New Jersey. So, I like your opinion on it if you have something to help me out. Thank you again for what you do.

Dr. Jim Dahle:
Wow, what a great and fortunate situation to be in. Sell the house. That's my advice. Let's talk about the pros and cons. The main benefit of holding onto this house is you have a real estate investment. Maybe I can't even remember where you said this house was. Maybe in that community home prices go gangbusters and it doubles in value in the next four years. That's the pro of holding onto it. Something like that could happen. I don’t know that I'd count on that happening, especially with the direction interest rates have been going but something like that could happen.

You get some experience about learning a little more about real estate investing. That's not a terrible bad thing to have, some experience. I think your experience is probably going to be bad though. Most people have a bad experience when they are renting out a house that is in another state because you're being a long distance landlord. You can't drive by and check on it every time something goes wrong. You got to pay somebody to go out there and do it. You got to trust the property manager. And that's one of the hardest things to hire of all financial professionals. It's just not that fun.

Number two, it's incredibly risky. Your entire real estate allocation is in one property. That's not exactly diversified and you don't sound like you want to get into real estate investing. If you want to get into real estate investing, maybe the way to do it is to take half the money out of this house and use it as a down payment on another house. So, now you've got two properties and hopefully one of them near where you live. But that's going to be hard with all the moving around going on in the next couple of years.

But I'm not getting the impression that that's something you really want to do right now. And the truth is now is probably not the time to do it. I would certainly tell your spouse that. You're busy during your training, your internship, your residency, you're busy. You don't need the distraction of being a real estate investor on the side. Get your training, become a good doc. You can do real estate investing later. It's much easier. You have more time and you have more income. And so, it's not nearly as risky for you and it just works out okay.

The cons, you could lose money on this house. You're definitely going to have serious hassle with it. Yes, you're going to have to pay property management and everything else that happens out there. You're not going to be very diversified. Lots of cons here.
I think the cons outweigh the pros. So, I would sell it.

But the big risk, of course, that everybody worries about is “What if home prices go up a lot and now I have trouble buying a home?” Well, that's not going to be a problem for you. This thing's already paid off. You've got two high earners here. You've got a big chunk of change. Even if you don't even really invest this money, it's certainly going to be enough to be a good down payment on your doctor home when you're done. And it might even pay for the entire home, especially if it grows significantly.

So, what would I do with it? Well, I would try to make it grow. You know you're going to need it in four years though. So maybe not a crazy, risky investment. You might even want it 100% in stocks. You might want to put it into a mix of half stocks, half bonds or third stocks, third bonds, a third cash, something like that. Maybe an income focused fund like a target retirement income fund. These sorts of investments that aren't maybe as volatile as something else.

Another approach that somebody might take is they say, “Hey, this is real estate. Let's put it into something that will do well if real estate does well. And if it does poorly because real estate does poorly, that's okay because then maybe I'll be able to get my house a little bit cheaper as well.” That's an option. You could put it into a real estate investment.

I don't know that you're going to qualify as an accredited investor and have access to one of the private real estate funds. You're probably limited to something like the Vanguard REIT Index Fund. But that's not only 100% stocks, it is a fairly volatile sector of stocks.

And so, bad things can happen there. I lost 78% of my investment in that fund in the 2008 meltdown. I don't know that I can in good faith recommend you put your whole house fund in there. But that would be one approach that some people take.

I would probably just put it into a mix of stocks and bonds and cash. Maybe even do something like a four year treasury bond or a four year CD so the money's there when it comes time for you to buy a house again. That's not crazy. And you'll make, whatever, 4% or 5% on it a year, it'll be a little bit bigger than when you got there. Probably keep up more or less with inflation between now and then. Maybe not inflation of houses because we don't know what that's going to be, but general inflation.

But I'd sell it, I'd invest the money and not worry about it and enjoy renting for the next couple of places you live until you get into your longer term jobs and the jobs like you and you like the jobs and it's time to buy a house again. And I think you'll be glad to have all that cash sitting there ready to do so.

 

QUOTE OF THE DAY

Dr. Jim Dahle:
All right. Our quote of the day today is from Ayn Rand. Something is controversial, it turns out. This is the author of Atlas Shrugged. She did a bunch of similar books. Really conservative people think this is like the Bible. Liberals just think she's the devil. But I don't even know if it's a she. It might be a he. I don't know. Is Ayn a she name or a he name? It's a woman. Yeah, I think it's worth a read. I thought it was interesting. If nothing else, you'll understand what people are mean when they say who is John Galt or Atlas Shrugged. I think that's worthwhile as a little bit of a financial education.

But be aware it's a fairly conservative person that wrote that book. But I agree with her quote, which is, “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” And I don't see how anybody can disagree with that no matter what their political persuasion.

All right, let's take our next question. This one is about marriage.

 

GETTING MARRIED FOR TAX BENEFITS QUESTION

Speaker 3:
Hi, Dr. Dahle. First of all, thank you for all that you do. Since I found the White Coat Investor about a year ago, it's truly changed my life and I know it has done so for many of your listeners.

My question is, my partner and I of seven years have recently gotten engaged and although we don't plan to have a ceremony in the coming two years, we have considered getting legally married for any tax benefits.

I was wondering if you could explain about tax benefits of being married and any downsides. For some context, my partner is finishing residency this next month and starting as an attending hospitalist at $240,000. I'm an MBPH student and my yearly stipend is $34,000 and I have three more years left of training.

I would appreciate any insight if there are any tax benefits to us being married. Thank you again for all that you do and I look forward to listening to your response.

Dr. Jim Dahle:
All right, it's a good question. One that I get a lot. It's actually one of my least favorite questions. I hate this question because it reduces something that I see as being very valuable, very important, very special in my life to dollars and cents. And I kind of hate that, but I get the question. People ask it all the time.

There are both tax benefits and tax penalties for getting married. And just like we can't expect people, as I was talking about at the beginning of this podcast, we can't expect people to ignore the fact that PSLF is out there when they're deciding how much to borrow for their student loans, we can't expect people to not think about the financial implications of getting married. And there are many.

In your case, I suspect getting married is going to lower your overall tax bill. This is mostly because your husband is going to pay less in taxes because he's going to be able to pay taxes on most of his income as a married filing jointly rather than a single. It's actually going to raise your tax bill, but the overall effect will be lower on the taxes paid because of the huge difference between your incomes.

I have no doubt that getting married is going to save you some tax money. It could cause a few issues with student loan management, but I don't think that's an issue for you guys. You're on an MD PhD program, so I'm assuming you don't have much in the way of student loans. And for him as the higher earner, married filing singly and enrolling in pay probably isn't going to be the right move for him. So, I don't think there's a lot of downside here financially for you guys to get married.

But this isn't like it's a mystery. Go get some tax software, put everything in as though you're married, and then put it in as though you're single and run the numbers and see what the difference is. And I would bet that it's going to come out to be a pretty significant difference, thousands of dollars in taxes.

But I would not tell you to get married for tax reasons, and I wouldn't tell you to not get married for tax reasons. It's like having a kid for tax reasons. Yeah, there's some tax breaks associated with having kids, but if you're having kids for the tax breaks, you're doing this all wrong. Same thing with marriage.

So, seven years, you guys know each other well whether you want to spend the rest of your lives together or not. If you do, go get married. If you don't, break up and go find somebody else.

But seven years is plenty of time. You guys should go get married and quit worrying about the financial implications of it. You guys are going to do just fine financially. Even if this were going to hurt you financially, I would still tell you, go and get married if you guys are going to be together the rest of your lives. It's a beautiful thing. And in your case, I think it's actually going to be good financially.

Now, there are some people out there, they get married and actually cost them money, and I think it's a lot harder decision for them. But for you, I can't see any way this is going to cost you more money to be married unless you turn around and get divorced.
So if this is right, you love each other, you're going to be together forever, then go get married.

 

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Don't forget about our sale. It's only through July 10th. You can check that out at whitecoatinvestor.com/courses. It's 20% off all of them. Fire Your Financial Advisor, the CME courses, our CFE 2023 course, the real estate course, all 20% off for the next few days. You don't have to take the course in the next few days, you just have to buy it. Once you buy it, it's yours forever. You can take it this fall or something if you want.

And some of those courses are going to be purchased with CME money. So it gives you a whole other pot of cash for those of you who have CME funds. The merchandise, water bottles, t-shirts, our books that we sell in bulk through the store, or even just single copies, t-shirts, stickers, whatever. It's all 20% off through the 10th. So, be sure to check that out. The store is at whitecoatinvestor.com/store. The courses, same thing, whitecoatinvestor.com/courses. All 20% off.

Thanks for those of you who've left us five star reviews. That helps us actually to spread the word about the importance of financial literacy on doctors and other high income professionals.

Our most recent five star review came in from AdamHenry who said, “Young doc improving his financial wellness. Incredibly important information for maintaining a healthy financial lifestyle. Highly recommended.” Five stars. Thank you so much, Adam, for that review.

For the rest of you, leave your questions on the Speak Pipe, send us feedback. When you like something, when you don't like something, shoot an email, [email protected]. Let us know. We do make changes based on your feedback. The annual survey is especially important, but even feedback in between annual surveys does affect how we run this podcast. We want to be giving you what you're looking for with this podcast. We want it to be useful and high yield and all that.

So keep your head up, your shoulders back, you've got this, and we can help. We'll see you next time on the White Coat Investor podcast.

 

DISCLAIMER

The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

 

Milestones to Millionaire Transcript

Transcription – MtoM – 125

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 125 – Psychiatrist pays off half a million dollars in student loans and becomes a millionaire.

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All right, we've got a great interview today. You're really going to enjoy this. We're bringing on somebody who had a lot of debt, lived in a high cost of living area and still has become very financially successful. So, let's get her on the line here and we're going to chat about that.

But stay tuned afterward. I want to talk a little bit about a concept we call the savings rate around here, why it's important for you to actually calculate yours and how to do that.

 

INTERVIEW

Dr. Jim Dahle:
Our guest today on the Milestones to Millionaire podcast is Christina. Welcome to the podcast.

Christina:
Thank you for having me.

Dr. Jim Dahle:
Tell us a little bit about yourself. What part of the country do you live in? What do you do for a living? How far are you out of training?

Christina:
Sounds good. I live in Long Island, New York. So, in the Northeast. I was born and raised in New York, which is not great for me for cost of living. But I'm an adult psychiatrist and I'm an addiction medicine specialist. I finished my training in 2017. I did my training at Columbia University. I was a resident there and then did their public psychiatry fellowship, which is like a one year fellowship program.

Dr. Jim Dahle:
Okay, very cool. And tell us what milestone we are celebrating today.

Christina:
We technically have two milestones. Me and my husband paid off about $520,000 of student loans that I had from going to just GW Medical School for training. And then subsequently we've reached over a million dollars of net worth since then.

Dr. Jim Dahle:
Oh, very cool. And I understand you got a house recently too.

Christina:
Yes, we did get a house. So that kind of a bit delayed. We could have paid off our loans quicker, but we decided to do the house first and we're happy with how we did that.

Dr. Jim Dahle:
Tell us about the family. There's you, there's your husband, there's a few kids.

Christina:
Yeah. I have one nine year old son, who's going into the fourth grade this year. I have one four year old son who’s going into kindergarten and I'm nine months pregnant with our third son right now.

Dr. Jim Dahle:
Oh wow. Congratulations. That's exciting.

Christina:
Thank you.

Dr. Jim Dahle:
And what does your husband do for a living?

Christina:
He's an electric engineer. He works for an EV company, electric vehicle company.

Dr. Jim Dahle:
Okay. And so, these student loans, I mean its $520,000. This was all just your medical school?

Christina:
Just medical school. When I went to GW, the first two years I think were around like $85,000 a year. The last year was a little bit more around closer to $90,000 a year. My family, I'm a first generation American, so they didn't have the ability to support me through medical school. So I took out all loans for the school and for cost of living while I was at medical school in GW.

And when I graduated, I think it was around like $375,000. That was the total, but then I did the public service loan forgiveness or I was planning to do that when I went into residency. And so, I did that, consolidated the loans and so it just kept growing. So, just the interest alone just kind of compiled on top of it. And I believe my interest rate at that time was around 7 to 8% from the federal government.

Dr. Jim Dahle:
Wow. So it's just compounded and compounded and compounded growth from $375,000 to $520,000 during your training.

Christina:
Yeah. I remember being a resident and having nightmares about how it just keeps growing and I'm like, “What am I going to do? This just keeps getting larger and larger.”

Dr. Jim Dahle:
Yeah. Do you remember back in medical school, you're taking out these loans? How do you feel about loans in medical school? Do you remember?

Christina:
Yeah, it was a good question. I listened to your books, I listen to your podcast and so I think a lot of people were just like, “Hey, you're going to be a doctor. You'll be able to pay it off.” And it's like, I wish I was just a bit more conservative about how much loans we took out during that time. Me and my husband, we've been married for 12 years, but we've been together for like almost 20 years. And so, we were together during that time he was working. And so, we would talk about, “Hey, how much loans are we going to take out? How much I need?” And I just wish people were just more like, “Hey, take out the minimum necessary amount of loans that you need because it's just going to compound over time.”

And I remember I got accepted to a state medical school in New York and my advisor was like, “No, go to GW. Don't go to state school.” And I'm happy with where I am right now in my career. So, I think I made the right decision, but if I would've went to the state school, my loans would've been half the amount of loans that I had.

Dr. Jim Dahle:
Yeah. Wow. Tell me about the nightmares. Do you remember any of the specifics?

Christina:
Yes. I would just get anxiety, checking, having to pay off the amount and then just seeing it's more than last month and I'm paying like a thousand dollars and it's not covering the interest and just being, “How are we going to pay this off? This is a lot of money and I'm making $50,000 a year right now.” And so, that was the thing that I was just “I don't know how this is going to work. I don't know how long it's going to take.”

During residency that I had, I listened to Dave Ramsey's book first. And then we started talking about, “Hey, how we're going to keeping our credit card low, how we're making a budget, sticking to the budget, coming up with a plan to save.” I also had my first son during residency, so when we bought our first car, it was a used car. All of our cars are used cars. And so, kind of just getting that basics down.

And then I read your book afterwards and I kept on reading and learning more about. We did your course as well. We had a financial advisor. I fired one and we got another one because they were making mistakes and I was like, “If I can pick up your mistakes, this is not a good situation.”

We just put a lot of effort into it during residency. And so, how we paid it off is actually when I started residency, we bought a house in 2012 and we bought the house for under market value. My husband also does real estate on the side. So, we bought a house for under market value and then we sold it in 2016. We basically did a live and flip and we made $100,000 off of selling that house.

Then we used that money, and we flipped another house in 2017 while we lived with our in-laws. We didn't make as much money off of that house. I think we made about $25,000. But then we just used that money and the money that we had been saving and we paid off half my student loans in 2018 when I made the decision to not do public service loan forgiveness anymore, which was a really tough decision because I had been doing public service loan forgiveness every year in residency. I got my form filled out, I submitted it, got all my payments calculated, but then I had an opportunity to join a healthcare startup that was more money, more flexibility.

And so, I made the decision to join a startup and with that I lost the public service loan forgiveness. But then we did some calculations based off of how much money that we could make that it would be better to do that then wait for PSLF and then not be sure if they're even going to pay off our loans. And we've heard a lot of stories about them not counting payments in that process. And so, I was worried about that and not being secure. I always bet on myself and depending on externally, I was like, we can just pay it off. And so, that's the route that we went through.

Dr. Jim Dahle:
So you took the money you'd made with a couple of flips, you took your savings, you threw half of it, wiped out half your loans, but you're still sitting there a quarter million dollars in debt.

Christina:
Yeah.

Dr. Jim Dahle:
How did you pay the rest of it off?

Christina:
Yeah, we refinanced with First Republic, and I got a really good rate.

Dr. Jim Dahle:
Do we have to say rest in peace after you mentioned First Republic?

Christina:
I know, although, I still have my account with them. They haven't merged with JP Morgan yet. So, I took out the loans with them, got a really good rate after I paid it off because they wouldn't refinance over $400,000. So I had to pay off half of it first and then refinance $200,000 with them. And then I was making essentially double payments. I was doing the minimum payment and then on top of another payment every month.

Dr. Jim Dahle:
How big were the checks you were writing every month?

Christina:
Like $7,000 a month.

Dr. Jim Dahle:
$7,000 just gone in after tax money.

Christina:
After tax money.

Dr. Jim Dahle:
So, you had to earn $10,000 or whatever just to make that payment.

Christina:
Yeah.

Dr. Jim Dahle:
How that feel to write those checks?

Christina:
Not great. Thinking about all the things that I can do with that money, but I think just the security that comes, especially when you have kids, like “Hey, if I was to lose my job, we'd still be okay. I'd be able to financially support my kids if god forbid something was to happen.”

And so, I think that when you think about, the rate was low at 2.25%, but just the emotional value that I get out of not having to worry about having to pay off half a million dollars or a quarter million dollars is really important for me. We made a plan, we made a budget, we set aside $7,000 a month to pay it off.

Now, when we were saving, we bought a house in 2020 during the pandemic. And so, we had paused the double payments at that time, but we were still making the regular payments. And that was just a decision that we made together. But then once we finished, we went back to making the double payments immediately.

Dr. Jim Dahle:
Cool. So, all in, it took you five and a half years to pay it off?

Christina:
Yeah, about five and a half. Yeah. We started paying it off in 2018. I graduated in 2017. The first year, I thought I was doing the public service loan forgiveness, but then in 2018 we were like, “No, we're not going to do.” So we started making the double payments then.

The thing that helped is that we lived with my in-laws for about three years and so we were fortunate to not have to pay for housing or renting. And so, that's how we were also able to make the double payments as well.

Dr. Jim Dahle:
That's a big deal in New York, isn't it?

Christina:
Yeah, we did for one year. We were living in Brooklyn and we were paying $4,000 just for a two bedroom apartment. That was like 700 square foot and that was probably not a great decision, but we moved back to Long Island and then we just continued making the double payments.

Dr. Jim Dahle:
Well, everybody's in a unique situation and you got to take advantage of the pros in your corner and take care of the cons in your corner. You had a big fat debt, but you also had some in-laws that could help out. So, take advantage of both. Okay, well, this is very cool. And now you're millionaires, you said?

Christina:
Yeah, our net worth right now is about $1.3 million, which we're excited about, but we don't feel like millionaires. That's probably because we live in New York.

Dr. Jim Dahle:
This is what millionaire feels like in New York now.

Christina:
Yeah. Our goal is to get to $3 million to be financially independent. So, that's what we're working on right now.

Dr. Jim Dahle:
Well, you guys are doing great. You should be very proud of what you've done. Just paying off the debts is a huge milestone. Some people drag that stuff out for 25 years of their career and here you've knocked it out in five. You're into your dream house, you're building wealth, you're millionaires for crying out loud. You're doing awesome. So congratulations to you.

I hope this is inspiring to other people out there who might be first generation Americans, who might have had to pay for their entire expensive medical education with borrowed money that this can be done if you just take care of your financial business and concentrate on it, make a plan, work the plan, this works. So congratulations to you.

If somebody else is out there, they're sitting in the same situation that you are or you were five or six or eight years ago, what advice do you have for them?

Christina:
I think the advice I would have would be to be patient, to make a plan and know that it's possible. When I was in residency, all I thought about was, “When am I going to pay this off? How long is it going to take?” And we paid it off within the five years and were able to buy a house and we own half our house and we have a net worth of $1.3 million.

I think we achieved all of that pretty quickly given what we were doing. We made sacrifices. A lot of people would be like, “I would never be able to live with my in-laws for three to four years.” And it was just like, “Well, sometimes you have to do with the cards that you're dealt and this is what we had.”

And so, making a budget, sticking to it, understanding where you can save money on, where you're able to sacrifice on and what you're not able to sacrifice on. And so, while we lived with our in-laws for three to four years, we still traveled and that's really important for me and for our family. We still went on vacations and things like that. We tried to use our points, credit cards but that was one thing that we did as well.

And then I also moonlighted a lot too as well in residency and afterwards. I also looked around, one of the reasons why I left, I worked for a lot of academic institutions in New York, but I made more money not being in an academic institution. And so, I left that and that was a really hard decision that I made and a lot of people close to me were like “Don't do that”, etc.

But it just really helped with our financial goals because I was able to get a higher income and I went and found another job and each time I left I got a higher salary and was able to negotiate a higher salary. And so, that was really important because staying at some academic centers and stuff like that, your ability to negotiate a higher salary once you're there is a lot lower than when you're joining a new company for the first time. So, I found that was really helpful for me too.

Dr. Jim Dahle:
Awesome. Well, congratulations to you and thank you so much for coming on the Milestones to Millionaire podcast to share your success and hopefully inspire others to also become successful like you have.

Christina:
Thank you so much. Thank you for having me.

Dr. Jim Dahle:
All right. I enjoyed that interview. That interview was really great. We didn't get a chance to get into as much as I wanted to because she's accomplished so much. We talked after we stopped recording about the importance of boosting income. And that was what caused her to kind of abandon the PSLF plan for those student loans was that she saw opportunities to really increase her income. Not only has she left academia and gone into the industry, but she's also opened her own practice and all these things have helped her to increase her income.

And while you lose out on the free money from PSLF when you do that, that income lasts through your whole career and can make a huge difference. Doctors as a general rule dramatically overestimate the difficulty of doubling their income.

There are doctors just like you, same training, making much more money than you're making. If you can figure out what they're doing and see if that's how you want to structure your practice, your financial life, everything else gets easier. It's easier to pay off debt, it's easier to buy things you want. It's easier to build wealth. Everything becomes easier with a higher income.

So, pay attention when you see doctors who aren't all that different from you making lots of money and see what you can take from what they're doing that you can benefit in your life. Not only will that help you to be more financially secure, but it'll help you to be a better doctor. You'll be able to concentrate more on what your patients need because you won't be worried about your own finances.

Plus, as you build wealth, you'll find ways to be ridiculously generous and be able to help other people. You can really help other people a lot more from a position of strength than you can from a position of financial weakness where you're worried about just keeping the lights on and the food on your table.

 

FINANCE 101: SAVINGS RATE

All right. I promised you we were going to talk about savings rate. And this is something I throw out there a lot. I tell you to save 20% of your gross income for retirement. We say this all the time. Why is it 20%? Well, that's what it takes for a high income professional. Because you start earning later, you don't get as much of a benefit from social security as the average American, but even the average American needs to be saving 15% for retirement. And most people, including most doctors under save. You just got to put the money in the account.

The key to being a successful investor is being a successful saver. If you put 20% of your income into your investing accounts every year throughout your career, you'll retire with a similar standard of living to what you had during your working years. That's the way the math works. You just got to run the numbers and you'll see this. You don't even have to have spectacular returns in order to do that. Just the average easy to get returns by investing in index funds and staying the course will get you that result. But you have to save 20%.

So, how do you calculate your savings rate? Well, it's gross income that we're calculating. So if you're making $400,000, that's the denominator. But include things, you got to include your spouse's income for instance. You should include your investment income, if you got a bunch of investment income coming into your taxable account or your rental real estate income. Things like that should be included.

If your employer is giving you matching dollars, that goes in that denominator as well of this calculation. A matching dollar is part of your income. Leaving that on the table is like you didn't even want your whole salary. So, always make sure you're getting the match.

Now, in the numerator you include everything that's going toward retirement. Nope, paying off your student loans doesn't count. Nope, putting money in an HSA doesn't really count unless you're really using that HSA for retirement savings. 529 contributions doesn't count. Saving up for a down payment or a Tesla or a fancy European vacation, that doesn't count.

Matching dollars count. Those are going into your retirement accounts. Money saved in a taxable account that you plan to use for retirement, that counts. Anything you're putting toward a pension for instance, that counts. That sort of stuff all counts. So, that's your numerator. You divide it by the money you made and if it's 20% or more, you're there, you're going to be fine. Assuming you work a full career.

Now if you want to retire early, it's mostly a function of your savings rate. The more you save, the sooner you can retire. Because the more you save, the less you spend and you're burning both ends of the candle there.

One of the most insightful blog posts in the FIRE community over the last 20 years is the one Mr. Money Mustache threw out there that he called something like the surprising math behind early retirement. Let me see if I can find the shockingly simple math, I think he called it.

All it was really was a table. And the table used some reasonable assumptions and basically says this. And he used net income, by the way, on this table, not the gross income that I typically use. So these are net income savings rate.

But if you save 5% of your net income, you should expect to work about 66 years until you can retire. So, if you're coming out of residency at 30, that's working until you're 96. Probably not very attractive, right? And so, that's not an adequate savings rate.

If you bump it up to 10%, you retire after 51 years. You bump it up to 15%, 43 years. 20%, 37 years is what they're saying. So, that's kind of a full career, 20%. That's 20% in nets. So the number I'm telling you is a little bit higher than that. At 25%, 32 years. At 30% is 28 years.

But what if you get really crazy? What if you save 50% of your net income? 17 years. At 60%, it's 12 and a half years. At 70%, it's 8 and a half years. Obviously, if you're saving 100% of your income, you're already financially independent, you're retired.

But the point is, the sooner you want to be financially independent, the more you need to save. And the more you save, the sooner you'll be financially independent. So, this is savings rate and it's an important number and I think you ought to calculate it every year and write it down and compare it to the year before.

And if you find yourself consistently struggling to get to 20%, well, there's a few things that you can do that you can use to increase your savings rate. The first thing to do is recognize that the easiest time to boost your savings is when your income goes up.

The biggest jump for most doctors is when they leave training and become an attending. If you can just avoid growing into that income all the way, boom, you've done it. You can have a very nice life on 80% of an attending physician salary. Trust me, it's really nice. You can do lots of fun stuff, buy lots of fun stuff, have a great time, never worry about money. And you just never grew into that income. Likewise, when you get other raises for whatever reason or windfalls, save that money and all of a sudden it becomes relatively easy, no sacrifice required at all.

Another thing you can do to boost your savings rate, it's just by taking advantage of tax deferred retirement accounts. But when you're using retirement accounts, that money is basically saved pre-tax. So, it lowers your tax bill and all of a sudden instead of giving money to the tax man, money is now going into your retirement accounts. And so, that's a great way to boost your savings rate.

Another important thing is to just watch the big items. It's not the daily latte that's killing you, it's the fact that you're paying $4,000 in New York City for your apartment. It's the fact that you've got this $1,500 a month Tesla car payment. Now it's the big items that sink you. It's the fact that you got three of your kids in $30,000 a year private school. That's why you're struggling to save money. Watch those big items and you can not have to worry about the little items nearly as much.

Fourth thing you can do to boost your savings rate is to simply make more money. Earning more money makes everything easier, I promise it does. And to a certain extent, obviously at a certain point, more money, more problems. But it's way easier to save 20% when you're making $400,000 a year than it is when you're making $250,000 a year. It just is. Even though it's more money you're saving and you're paying more money in taxes, it's just easier. So, that's an option is to boost your income.

You can also work on the other side of the equation. Decrease your expenses, particularly fixed expenses. And I love seeing people reduce their fixed expenses because when something bad happens, you can't change your fixed expenses, you can change your variable expenses. You can stop going on vacations. You can stop paying $300 for a round of golf. That's easy to drop when something happens to your income or some new expense comes up.

But it's a lot harder to cut back on something that's fixed. Your housing costs for instance, your transportation cost is much more fixed than most things. So, be careful as you add fixed expenses to your budget.

Another great way to save money if you're having trouble saving 20%, cut up your credit cards. It's amazing how much easier it is to spend when you just whip out a piece of plastic and spend with it. Maybe you need to go all the way to using cash. If you have to hand over the green stuff every time you want to spend, it's amazing how much less you spend. So, watch the credit cards.

I tell people all the time that are kind of miserly, scrooge types naturally like I am, that if you need help spending more money, use credit cards because it's less painful to spend, it's easier to spend, it's more convenient, et cetera. Don't carry a balance either way, but what I'm saying is don't even use those credit cards if you're having trouble getting to 20%. Don't use them at all. Go to cash system.

And then lastly, just track this thing. Track it once a year, what you measure improves. It's a well-known tentative business. If you track your savings rate each year, you're likely to improve your savings rate each year. So, do calculate it, do track it, and you'd be surprised what a difference it will make in your life.

These are the things that really matter. Everyone's focused on investment returns. What they should be focused on is their income and how much of it they're saving and putting it toward their financial goals.

 

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All right, we've come to the end of another great podcast. I hope you're having a great summer. I think this drops the week of July 4th. So, Happy Independence Day, thanks to those of you out there who are helping us to maintain our independence. Thank you for your service.

And for the rest of you, man, I love the middle of summer and I hope you do too. I hope you get a chance to get out and enjoy it with your family or those you care about. And good luck with your careers and with your finances.

Keep your head up and shoulders back. You've got this. See you next time on the podcast.

 

DISCLAIMER
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.