I get a lot of comments and emails from docs, and spend a fair amount of time on both physician-specific and financial forums. I'm often surprised to see doctors carrying debt that I see as completely unnecessary.
Unnecessary Debt
A Car Loan
The classic example is a car loan. It might be an attending physician several years out of residency going through their financials and they list a $5K car loan. Assuming no working spouse, this person grosses $15-30K a month. How long should it take to pay off a $5K car loan? Well, when does your next paycheck arrive? That's when it should be paid off. I'd be embarrassed to say I'm in debt for a car. Broke people have car loans. People with an income of $200-400K shouldn't be broke unless they have terrible money management skills. Therefore, if you are a doctor with a car loan, you probably have terrible money management skills. The status symbol isn't driving a fancy car; it's driving a paid-for car.
Credit Card Debt
The other silly debt I occasionally see doctors list is credit card debt. Now, take pretty much anything that came in the mail from a credit card company. Turn it over and look for a big box on the back. Read that box. Somewhere in that box it will tell you that borrowing money from that credit card will cost you somewhere between 15% and 30%. Now, if I could find an investment that paid 15-30%, I would buy as much of it as I could, take out a home equity loan and send my kids out to shovel driveways (it's December as I write this) to get extra cash to invest. If you are carrying credit card debt, you are somebody's awesome investment. As my 6 year old will tell you, interest is something you should get, not give.
An Emergency Fund and Debt?
Another interesting combination is people who say they have an emergency fund and yet still owe money. As physicians, we generally have access to all kinds of credit. I think I could probably run up $150K in credit card debt in the next hour if I wanted to. Emergency credit isn't usually difficult to get. So for us, the point of an emergency fund is to avoid going into debt if you have an emergency. If you are already in debt, YOU'RE ALREADY HAVING AN EMERGENCY. Your emergency began several thousand dollars ago. Use the emergency fund to take care of the emergency and pay off that credit card.
Debt Management?
There seems to be this popular concept out there that encourages people to “manage” their debt so they can use it to get wealthy. The arguments look good. The idea is basically to borrow at 4% and earn at 8%. Mathematically, there is great truth there. But behaviorally, people don't really seem to work that way. Once your mindset changes from debt elimination to debt management, people seem to get comfortable, savings rates go down, spending goes up, and 20 years later they wake up and find they are still in debt and really didn't take advantage of some huge arbitrage.
The other issue is that people don't really calculate out just how much this arbitrage is earning them. For example, let's say you are offered a 2% loan for a car. You have the $10K the car will cost, but think you'll do better than 2% investing. So you invest. Things go pretty well, and over the next couple of years while you carry this debt you make 6%. So you've made 4% a year for two years. What's 4% of $10K? $400. $800 for two years. And after tax? Maybe $500. How long does it take you to earn $500? What else could you cut out of your budget to get $500? Exactly. Obviously, if you're making $200K a year you can afford to service a $10K 2% debt. It's not going to break you. But it's kind of silly.
I also find it very unusual for wealthy people to have a significant amount of debt. As mentioned, there are good arguments to be made to carry debt throughout your career and even into your retirement. But in practice, I know precious few wealthy folks doing that. The same mindset that makes people wealthy also makes them pay off debt earlier than required and not take out any more. Dave Ramsey does “Millionaire Segments” occasionally. These are generally Millionaire Next Door types who made $60-150K throughout their careers and are now millionaires. Granted, these are a very self-selected bunch, but few of them ever still have debt (maybe a mortgage) and all deny that debt had any significant role in their wealth accumulation. Same thing with the millionaire retirees over on the Bogleheads forum.
Can you do some of it? Sure. I'm doing a little debt arbitrage with a taxable investing account instead of paying off my mortgage. My justification is that my effective after-tax rate (2.75%*56%=1.54%) is less than the rate of inflation. But guess what? At the time of this writing, I would have been better off sending the checks to the mortgage lender. I think that'll probably come around over the next few years, but there is certainly no guarantee. [Update 6/2015- I am now actually ahead, especially after tax loss harvesting benefits.] My wealth has not come from arbitraging debt. In fact, most of my financial success comes from the fact that I lived well below my means, eliminating much need for debt. The recipe is (almost) always the same- make a lot of money, save a big chunk of it, and invest it in some reasonable manner.
Long Student Loan Repayment Terms
I have a lot of student loan refinancing companies who advertise here. They laugh at me when I tell them I want my readers out of debt in 5 years and that I don't really care what their 10-20 year rates are. Why do they laugh? Because they know what you guys are actually doing. And you're refinancing into 10 and 15-year student loan terms. I think you ought to be a millionaire 10 years out of residency, not a debtor. But hey, if you want to still be in debt a decade after finishing your training, pretend your student loans are a house and get yourself a fifteen year fixed student loan mortgage. I look at it like this- the longest anyone ought to be in debt for med school is four years after finishing training, because that's how long it would take to pay for medical school via the HPSP “Scholarship.” If you can't get out of debt in four years, you'd be better off in the military.
One issue with a long-term student loan is that you get a crummy rate. Sure, 5.5% beats 6.8%, but if you were going to pay it off in 3 or 4 years, not only could you get a 3.5% fixed, but you would probably be comfortable with a 2% variable rate. And 2% is much better than 5.5%.
But the main issue is that you still have debt after 5, 10, or 15 years. It is a very rare doctor who is just as excited about practicing medicine 10 years out of residency as she was one year out of residency. It's not that she's burnt out (although that is the peak for burnout as well,) it's simply that life happens, other interests develop, part-time work starts looking more attractive etc. If your loans have been gone for years and you have a huge nest egg at that point, then you can cut back and pursue other interests. If you're still in debt slavery, well, sorry. Get back to work.
Forgiveness programs almost make things worse. With the possibility of federal forgiveness programs and employer loan payback programs hanging out there, many doctors start thinking maybe they won't have to pay back their loans at all. So they subconsciously take out more or delay refinancing and paying them back as quickly as they could.
30-Year Mortgage?
Yet another area of silly physician debt is a long mortgage on your primary residence. You might be surprised to learn that nobody used 30-year mortgages prior to World War II. GIs came home and were eligible for a 30-year VA mortgage. Prior to then, shorter mortgages were the norm. Why did they go with the 30-year? Because they figured a typical career was 30 years and wanted the home paid off prior to retirement. Do you really want the VA to decide how long you should be in debt for a residence?
My daughter and her cousins on Angel's Landing. Yes, we roped them up.
Now, if you practice in Boston, or Manhattan, or the Bay Area, you may not be able to afford to buy with a 15-year mortgage. The rest of you have no excuse. Don't buy a house so expensive that you can't pay it off in 15 years. Not only do you get out of debt in 15 years, but you get a lower interest rate too.
The flexibility argument is bunk (“I want a 30-year just in case something happens, I'll still pay it off in 15.”) Your mortgage ought to be such a small percentage of your income anyway that if something happened that kept you from making the payment on a 15-year, you probably won't be able to make it on a 30-year either. Plus, you have an extra decade and a half of exposure to “something happening.” Do yourself a favor and get the 15. If you want to be skinny, do what skinny people do. If you want to be rich, do what rich people do. Rich people use 15-year mortgages (and pay them off in less than 15.)
Personal Loans
I have had a lot of advertisers come to me and want to advertise their personal loan and personal loan consolidation services. I uniformly turn them down. (I took one, which also does business/practice loans. But I demanded they remove any reference to personal loans from their banner ad.) They thought I was strangely demanding, but I don't want you getting the idea that it's okay to have consumer debt. Paternalistic? Perhaps. I'd certainly be wealthier if I took their money. But nobody borrows their way out of debt, and nobody borrows their way to wealth.
Rich people don't “manage” debt. They eliminate it. Not stupidly, but reasonably and consistently. It's a behavioral thing, not a math thing. There's a reason debt makes you uncomfortable.
What do you think? Do you have “little debts?” Why or why not? Do most of the wealthy people you know carry a lot of debt? Are you “managing your debt” or “eliminating your debt?” Why? Comment below!
Your math re: car loans is off by an order of magnitude. Otherwise loved the post!
Ha ha, you’re right. How embarrassing. I’ll fix it.
I still have a bit over $100K at 1.5% med school loan and I’m 7 years out of residency. I just can’t get myself to pay it off yet. I throw a little extra here and there but nothing really substantial.
Although rates are very low, I plan to pay it off when my wealth is 25x the debt. Until then, I will keep throwing a little extra here and there just for fun.
I fully agree with WCI though. I don’t care how low the rate is. At some point the debt is just not worth having. I definitely don’t want it when I semi retire and go part time.
Your debt arbitrage numbers with the car loan are incorrect. 4% of $10,000 is $400 not $40.
Fixed it, thanks.
I generally agree with you with the exception of real estate investing. Carefully vetted rental homes can be a a great investment and quite tax favored. 30 year fixed rate mortgages at current low rates allow you to improve your cash on cash returns significantly.
And it’s also a very tax advantaged asset for the income it generates
That is true. But what’s the best way to maximize your cash flow as soon as possible? Pay cash for the property. So the closer you are to paying cash for the property, the sooner you will have maximum cash flow from it, which is usually the whole point.
And it’s nearly as “tax-advantaged” (mostly the depreciation) without the mortgage.
I am with you on being completely debt averse, but the only real financial advantage to rental property vs the stock market is leverage. If you can buy five homes with a 25% down payment each and they all cash flow well you will be better off in five years than if you had paid cash for one or two homes, assuming, of course, that you have done your homework and bought structurally sound, highly rentable properties with a an excellent (minimum 8%) cap rate. The whole point is not just cash flow, but also leverage. Without utilizing leverage, the investor would generally be better off in the stock market.
You can use leverage in both scenarios; real estate or the stock market. What happens when the market drops out from under you, or you happen to buy those five houses at the top of the market? Then your levered up, and illiquid.
Not exactly AK. I invest in rental homes. While there are obviously risks in anything, I am investing for rental cash flow. If my house nets me 350 a month, it doesnt matter how much the house itself is worth. The risk there is having a vacancy, but its nothing like the stock market. The bank isnt going to call my margin loan if the house drops in value.
You know, we’re all arguing back and forth here about 15 years vs 30 years and how much leverage to use on rental properties. Meanwhile, most residents are graduating while owing $30K on their car and another $25K on their spouses’s car, $15K in credit cards, $300K in student loans, and just bought a house with $0 down.
Let’s not miss the forest for the trees. The main point is most doctors are too comfortable with debt, and becoming less comfortable with it would probably do wonders for their finances.
this is like when a resident asks me whether to put their extra 5k into an IRA or make a loan payment.
“i think you should take a minute to realize that you’re about to make a very good decision.”
There are other advantages to real estate- low correlation to the market, some significant tax breaks (primarily depreciation and exchanging), the ability to watch it very closely etc. Leverage is not the only advantage. Heck, you can use leverage to buy stocks if you want. Margin terms usually aren’t as good as what you can get with a real estate investment, but you can borrow against your house or other assets to buy stocks if you want.
Margin is dirt cheap. 1.87% at Interactive Brokers up to 250k and decreases from there.
Those benefits to real estate are significant, as well as there is rarely an examination and recalculation of your margin and fitness for carrying it. Thats a lot less stress than knowing your brokerage might be liquidating your positions in the next flash crash.
I agree.
Your arbitrage math is not just wrong, it is incomplete. In your example, even if the math is wrong the investment return is infinity percent, because you get $40 on zero risked or put up. Let’s try again.
Let’s say you put up 1000 of the $11,000 needed to buy a car, borrowing $10,000 and getting the return of 4% you cited. That is $400 not $40. And it is after only putting up $1000 of your own money. That is an “investment” return of 40% on what you had to put up.
The math was definitely wrong (now fixed.) But it was a general example on what arbitraging debt does. Looking at it as an investment on your down payment seems silly. The proper way to do it is to compare the opportunity cost of the money you have in your investment account that you could use instead of the loan.
While I agree with the premise, there are just some issues here that don’t apply to everyone. For example a family vehicle. After a lot of research of safety, economy, etc, the minivans I want to get, even used, run upwards of $20,000. This isn’t for anything flashy. This is for longevity. I want a vehicle that I can transport the family and run into the ground (I had had a 1996 Corsica until 2012 when the transmission failed and then got a 2006 Honda that I still drive. My wife drives a 2003 Kia that is rusting… we don’t do flashy cars, we do utility).
We will be taking a loan but will be shopping around. We should be able to get a car loan for under 3%. Why do we need this? Well student loans for one.
You talk about 5 yrs. That is a great ideal. However, if you are like my wife, the first to go to college, let alone medical school, then you borrowed a lot and made a few mistakes on students loans in the interim. At the worst, we owed $330,000 in loan debt!!! We are now under $200,000 (and yes this is 100% her loans for undergraduate and medical school… again nothing flashy, etc). We are now in a 10yr variable loan (prior we had a 15 yr fixed that yes we always payed extra). Additionally, he practice buy-in is $214,000!!! (Another mortgage). We borrow form the clinic at 2% variable and pay back $1600 just for the buy in.
Our home we are partially guilty of going too big. But neither of us wanted to move again. We wanted to buy big and grow into it. We were able to sneak in with a 30yr fixed mortgage at 3%. But we never have to buy again (we hope). This is it. We moved enough during medical school and residency, we are done. We have children we are here. Furthermore, the mortgage is the only tax deduction we get. Thank to AMT and her salary, we get no other deductions and owe money, so the mortgage is it.. thus it is costing a little less because of that.
You mention using credit cards as emergency funds. On this issue I whole-heartedly disagree. We have over $80,000 available in credit card limit. However, $15,000 is at 4.9%, $10,000 is at 8.9% (went up due to changes in credit card agreements) and the rest is over 12%. Why would we count on credit cards as an emergency fund if we may need to carry a credit card debt (adding to the stupid debt of credit cards that I agree with you 100%), rather than have 3months saved in the bank (at 1% growth) that we can use in conjunction with disability insurance (assuming disability) that we’d pay no interest on. While the growth of the 1% is less than eliminating the debt that grows at 3%, it is there and will never turn into negative 5%, 9% or more. This is more a piece of mind issue.
Again, I agree with the premise of your article and like how you identified bad debts, but it doesn’t fit everyone and just because a doctor carries a car loan, a longer term student loan, or mortgage, doesn’t mean they have stupid debts.
I owe 25% of my income on my only debt, a 15 year fixed mortgage at 2.75% that I could pay 3/4 of off today if I wanted to. I’m a multi-millionaire, have almost zero money related stress, give large sums to charity, am nearly ready to retire a decade out of residency, and save a huge percentage of my income each year.
You “borrowed a lot”, “made a few mistakes on student loans, owe money on a 10 year old car, had about two times the average student loan debt coming out of school, have a 30 year, 3% mortgage on “a big home”, think there is “good debt,” think a credit card is equal to an emergency fund, disagree that car loans, long term student loans etc are “stupid debts,” and presumably have a relatively low net worth.
I guess readers can decide which of us they prefer to take debt-related advice from. Obviously, I disagree with your last sentence or I wouldn’t have written the post. I’m sorry you have so much debt, but I think you’ll be in a much better financial position if you go nuts on it and pay it off ASAP. It isn’t that I’m calling YOU stupid, I’m calling your debt stupid.
Could you clarify something from this comment? You’re saying that ACB550 “think[s] a credit card is equal to an emergency fund” yet above you discuss having an emergency fund plus debt doesn’t make sense and specifically imply that you could run up credit card in an emergency. What kind of debt are you referring to in the article? Are you saying to throw all of your emergency fund at any debt and not have an emergency fund? Or are you referring specifically to credit card debt?
I like the Dave Ramsey approach to emergency funds. He says get a “baby” $1000 emergency fund, pay off all your debt minus your mortgage, and then save up a real emergency fund of 3-6 months of expenses. Now, if you have low interest student loans you want to throw into that mortgage category, fine, I think that’s reasonable. But credit cards? No way. If you have a credit card balance you already have an emergency. Use the emergency fund to pay it off.
I think an emergency fund should be thought of as money so that you will not be tempted to run up credit card debt!
Right, which is how I viewed it but the article seemed to suggest otherwise. However, with only a baby emergency find, any short term leave will result in credit card debt most likely.
The only way I can agree that your school debt and home debt are not stupid debts is if you are also saving a large sum of cash as well. Are you saving 20-30% of your income? If so, then save away and one day you will find that your wealth is just large enough that carrying a car loan is not worth your time or effort.
For example if your debt is 3-4%, but you have the opportunity to save $53k in a 401k and $6650 into an HSA account to protect 33% or more from taxes, then please save away.
If on the other hand you have all that debt, and saving very little, then indeed it is stupid doctor debt and you are living beyond your means.
Anyone can rationalize anything they want and make it sound like a good idea to themselves.
Famous physician justification for debts….I work so hard so I deserve this item I am financing.
Hatton1 this has been the eternal argument between my wife and I. When she was in med school / residency I could say I believe that you do deserve [name of frivolous item goes here] but the market says otherwise. That argument is becoming weaker as we make more money. It’s kind of like a Malcom Gladwell book (don’t remember which one but it wasn’t tipping point) where it talks about how when you have kids and make a lot of money it’s a lot harder to explain why they cannot have something they want. It’s easier to say “we cannot afford it” … With my wife I cannot say that expense will bankrupt us but I have to keep reminding her that each time we veer off the road to Dublin the longer it will take to reach the goals we both want.
Haven’t read that book. From our experience, it is easy to explain to the kids why they cannot have everything they want when you set the example for them by not getting everything you want the minute you want it. They didn’t listen to what we said as much as they internalized how we lived.
I highly recommend all of Malcom Gladwell’s books but I was referring to “David and Goliath”. He talks about James Grubman and” immigrants to wealth”. It sounds like your doing the correct thing with explaining why they cannot have what they want. As someone who doesn’t have kids yet it seems difficult to explain “no we won’t” instead of ” no we can’t “, but You are more experienced than I on this subject
By even thinking of parenting issues relating to finance at your early stage you are far ahead of where we were. Your comment to Hatton reminds me of how far my husband and I have come. I was the spouse who thought I deserved luxuries we couldn’t afford back then. He was the financial adult in the room. Having kids and wanting more for them was my main motivator in learning finance. Thanks for the book rec. Left you one on WCI’s last post on risk tolerance.
I recognized several years ago that “retail therapy” is just not worth longer working years. Little indulgences over several years will keep you working until Medicare eligible!
Great comment as always Hatton! We helped our daughter learn this her senior year in college by refusing to increase her budget when she ran out of spending money. She got a part-time job and immediately started making better financial decisions. Natural consequences of our actions are elegant teachers. She is a year past graduation in her first job as a Chem E. Maxing out an HSA and already up to 15% deferral into 401k. So proud!
Agree, if they dont see lavish spending on you they wont even think about it. If they do, I explain succintly in terms like, “no” and “too bad”. They can get a low paying job if they dont like it, which teaches them how much work it takes to get so little. The goal there is to make education seem ever more important to increase their earning power.
ACB550-I used to think like your comment. What helped me understand what we needed to do financially was simply plotting our net worth every year in January. With your student loan debt, practice debt, and mortgage debt, your net worth cannot possibly warrant buying a car on loan unless there are some huge assets on your ledger you are not including in your comment.
We were where you are…ignore WCI at your peril. You are reading this site and posting which is great. So, some part of you gets that your path might not be the only way. Nurture that part.
A great article! My question is, how did you rope the girls? Tied to you? Or just to the chain? Hoping to start taking my kids on bigger outings but really haven’t learned the logistics of using good protection with kids for such scenarios.
Both. Kids to me, me to the chains.
you’ve mentioned many times that a general rule of thumb is to keep your mortgage balance less than 2x gross income. i always assumed you meant a 30 yr mortgage. when I look at my rough numbers on a 15 yr mortgage, my monthly PITI would come out to 30% of NET monthly income (following your rule of thumb). seems high, but is this what you would say is a comfortable payment? do most of the other readers fall into this range?
I have two rules of thumb- balance no more than 2X gross and all housing related costs (including utilities) no more than 20% of your gross income.
I don’t know if most readers fall into that range or not. I hope so.
My current payment currently comes in at 3-8% of my monthly income (I have a highly variable income.) That seems VERY comfortable, almost trivial. I don’t think you need figures that low, and they weren’t that low the year we bought (income was lower than), but you get the idea.
I haven’t understood this – Why do the general “rule of thumbs” for mortgage payments (not just here, but all over the web) , always consider GROSS income as opposed to net? I just imagine that it would be more relevant to take into account what you actually have in your pocket every month, given that individual tax burdens vary.
Net burdens vary depending on your choices- do you own a house, how much you give to charity, how much you save for retirement etc. It’s just a rule of thumb. If you want something specific to you, open up Excel and write it out.
I’m in the same boat – I guess mine is 2.5X gross income and comes out to 25-30% monthly income depending on time of year (I’m towards the lower end of physician salaries). Sure 3-8% would be lovely, but really I have plenty of money left over to max out our 401k’s, have paid off our student loans (thankfully not as bad as many here), etc. This forces me to live on the money I have and I’ll be done in 15 years, unlike many of my colleagues who feel stretched with their 30 year mortgages (in a very HCOL area to be fair).
You’ve stretched a bit due to your HCOL area, but you stretched to 2.5X, not 6X, and that’s on a 15 year. Again, not the picture of a financial disaster. As I said earlier, commenters on this thread are generally the physician financial superstars of the world.
Our mortgage is 1.4x gross income and 20% of monthly net income. To be honest, we have a 30 year mortgage (which I know is not WCI approved), but pay extra each month so that it will be paid off in 15 years. And that amounts to 20%. If we only paid what we owed on the 30 year mortgage, it would be 13%.
Sounds like you’re doing fine to me.
So true. My coworkers made fun of me for paying cash for a Toyota when my ancient car died. They drive the newest Lexus/Tesla/Mega-SUVs, but they’re in their late 50s and still working tons of night shifts and holidays and are stressed out. I’m working part-time days only. They still make fun of me for being frugal…
My point isn’t to be frugal forever. Just be frugal for a little while. Get that Mega-SUV at 40 instead of 30. That’s what I’m talking about. You can have it all, but you can’t have it all right now.
Don’t let the comments bother you. Lots of my co-workers still wonder about me when I quit OB 2 years ago.
Agree completely WCI.
I have been completely debt free for a very long time. It has been great. I could always go back into debt if I really missed the servitude or duty of making payments to someone but that hasn’t happened yet.
I currently rent, but am looking at buying a house in the next few months, I’ve tried to do all the WCI approved financial advise, I am now just over 1 year out of residency. I have paid off all of my student loans, residency car (2003 honda civic) died 5 months into my first year of practice, I was really sad my goal was to keep her another 2 years but I bought a used Passat TDI in cash, I have maxed out my Roth, 403, 457 and have a newly started taxable account with about 50K in it. I have no debt, but thinking about getting a mortgage scares me a little. I was looking at a house that was approx 1.1x income, but talked myself out of that as it was way too big and the cleaning, maintenance, and yard work would just be too much. I am now looking at a home that is approx 0.6X income and those payment numbers are looking much better. I am considering a 7 year mortgage then trying to pay it off in under 5. Still makes me nervous to elect to go back into debt.
I have partners I talk with that seem to live pretty high on the hog and the things they tell me about their investments, and spending habits would give me an ulcer. I am so happy I found this blog when I did (1st year of residency). I am private practice but we have some med students rotate through occasionally and I always tell them about this site. I also tell them not to buy a house as a resident 🙂
Whatever you decide, you’re obviously doing awesome. Renting and driving the old med school car for 2 years after residency put me in a good position when buying my home 2 yrs ago, too. There are some positives about a 80% LTV low-interest 15-yr mortgage (play against inflation, hedge against currency risks) that allow me to embrace one, but, heck, delay your home purchase for a couple of years and you’ll be able to pay cash for it at the rate you’re going!
I’m 4 years out of residency and my wife and I paid off over 500k in student load debt alone. We had auto debt, personal debt, credit cards, and two mortgages on top of that. Finally occurred to us how stupid it all was and that it had a very real impact on our happiness. We made a plan, skipped vacations, eating out, etc. and got it all taken care of (we sold both houses) in just under 3 years. Now we have zero debt and money keeps piling up despite a “bad” year with medical bills, broken down vehicles, and a new addition. We rent and we’re waiting on the sidelines to buy. I sleep like a baby at night and put up with a lot less BS at work than I did when I was indebted. I’d never go back.
Nice work. Very impressive- $500K in 3 years.
Congrats on your self-discipline.
i hear you on that “money piling up thing.”
when you start making good decisions you have those months where you get a paycheck and like “hmm, WTF am i going to do with this?”
put another way: it’s awesome to be at a point where you could not get paid for a month and basically barely feel it.
pretty sure that is financial nirvana for those of us just a few years out of residency who can’t claim to be multimillionaires just yet.
Nice summary of the perils of debt. While I agree with all the points in general, I think your view that a 30-year mortgage is always wrong is a bit off (though I am a proponent of the 15-year mortgage). I think the perils of a 30-year mortgage are often compounded by physicians who are using the “physician loan” so not making a 20% down payment on their “attending” home and thus have a monstrously high payment from the beginning.
However there is a case to be made for the arbitrage of using a 30-year mortgage and using the “flexibility” to maximize retirement accounts early in your career. In many areas of the country, even normal midwestern cities where I am (St. Louis), a reasonably nice 2500 sq. ft house in an area with good school districts that isn’t an hour drive from work will cost $500k (or well beyond that — I have colleagues buying homes that are $800k-1 million for the best school district in the closest areas to our hospital).
Assuming 20% down, a physician in a higher paying specialty can afford a 15-year mortgage payment in that range without blinking, but for someone in a lower paying specialty, the extra $1500/month in the mortgage will make contributing to a Roth and/or maximizing 401k difficult. Early in one’s career, I think maximizing those accounts is more important than eliminating the house payment, and that isn’t a given for every physician. Once those are established then additional money can go to a mortgage.
Obviously the counter argument is to buy a cheaper house or to rent, but rentals are often higher monthly payments (even taking into account reduced costs for maintenance) and a cheaper house often has tradeoffs that decrease general life/work satisfaction and which also make it harder to reach FI (higher maintenance costs for an older home, worse public schools for the kids, longer commutes).
While my “starter” home was a 15-year mortgage in a relatively cheap house (relative to what most attendings are buying), I just moved to my “attending” home and my only debt right now is my new 30-year mortgage. While I’ll pay it off before 30 years (I also don’t want to be locked in to a job forever just to pay it off), I’m only 3 years out of training and my primary goal is maintaining our habit of retirement savings, college savings, and other savings. When we are talking about 30 year time horizons, the arbitrage between a 3% mortgage or a 7% retirement account adds up (if we’re talking $1500 a month that’s a $1 million dollar difference in 30 years).
This also provides flexibility, but not the type you mention. For me, if my wife wants to go part-time for awhile to be home more with the kids we can still afford the payment without major issue. I think that type of flexibility is what you are overlooking in your post.
I guess if you feel like being in debt for 15 years longer gives you “more flexibility” than not having a mortgage payment for those 15 years, then sure, get a 30 year. I don’t care, I don’t have to make the payments.
But you’ve got to ask yourself, “If I can’t max out my retirement accounts and make the payment on a 15 year mortgage, am I living a little too high on the hog?”
Now if you live in the Bay Area, perhaps you’ll have to do something a little different. Perhaps you’ll have to get a 30 year. Perhaps you’ll have to eat out less, go on fewer vacations, drive a crappier car, and work five years longer. But Saint Louis? You really can’t find anything acceptable that you can make 15 year mortgage payments on? The average house in Saint Louis is $104,000. I would think you could get something pretty nice for 4 times that. Maybe it isn’t in the neighborhood where all the other doctors buy houses. But maybe those doctors inherited money, are married to a radiologist, had daddy pay for school, etc. I can tell you this- the average house in my town is almost $250K, and twice that buys you a mansion with a view in a great school district. Are there more expensive houses out there? Sure. Should you buy one? Not within a few years of residency graduation.
Now, if you isolate the question to whether it is better to put money in a Roth IRA than to pay down your mortgage with it, I’ll probably go for the Roth IRA almost every time, but taking a bigger picture view leads one to a place where you can max out the retirement accounts, pay off the student loans within 2-5 years of graduation, and buy a house with a 20% down payment on a 15 year mortgage. How do you do that? You live like a resident for a few years after residency. Easily said, rarely done.
WCI, I have agreat deal of respect for you and your work, but you need to eliminate your passive-aggressive tendencies when responding to comments. Obviously my mortgage payments are materially irrelevant to your life, however you clearly DO care, as evidenced by the existence of this blog and your 330 word response.
To address your comments (which contain many false assumptions) — we accelerated our plan to purchase a new home as we’re expecting baby #3 in a few months. Our old home just didn’t have space for 3 kids to sleep (let alone room for them to play inside or outside).
1) I don’t know where you got that median home price for StL. Perhaps it’s for the City of StL, which is separate from StL County. The City of StL has awful public schools (just recently got reaccredited) with dismal outcomes. There are a handful of reasonable charter/magnet school in the city that are free, but a spot in them is not assured just by living there
2) The good public schools are in StL County, which is divided into a zillion municipalities, has schools ranging from excellent to terrible. To buy a good home in one of the best school districts (which perhaps you would consider a luxury or excessive) is not going to happen for $100k or $200k or $300k and only rarely for $400k in the best school districts that aren’t a zillion miles from where my wife and I work
–Just so you can understand: look up 4br2ba 2000+ sq ft homes, which I would not consider a mansion. Look first on Zillow in Clayton, MO (best public schools in St. Louis, probably best in all of MO). You will not find a single home below $500k, with most over $700k (having looked at many of these homes in person, $700k gets you a home needing a lot of updates).
Now look up Ladue, MO, and then look up Kirkwood, MO (both excellent areas, though the schools are not quite as good). Prices are as high in Ladue as in Clayton. Kirkwood has more reasonably priced homes, but to find one in good shape not needing a lot of overhaul will easily cost $400k and likely $500k. Having looked inside many of the “cheaper” homes in these areas, I can tell you that many of the ones in the $500-600k range are not in good shape. My wife and I aren’t of the mindset to rehab a home ourselves, so we want something that doesn’t need to be half-remodeled to be comfortable.
3) I didn’t buy in any of the areas listed above — the home I did buy is about 2.3x our gross income, though since we put 20% down the mortgage is about 1.7x my gross income. I believe that falls into your guidelines. There was a negligible difference between the 30 year and 15 year rate. I’m not keeping up with the Joneses — I’m actually paying less than most of them. If this same home was plopped into Clayton (where I wanted to buy) it would cost at least twice what I just paid (into 7 figures).
4) I have no other debt, no second home, no boats; we drive a Honda and a Kia. But unless I want to strap a car seat to my hood, I need a bigger car. The cash from the sale from my old home will allow me to purchase a minivan without a loan.
5) My wife’s income will go down on maternity leave, and then we’ll have increased daycare costs when she returns to work. At some point she may want to go part-time or quit, I have no idea. A 30-year mortgage now with the cash from the old home sale (the 20% we used as a down payment was separate from the equity from the old home) gives me the opportunity to not worry about cash on her maternity leave. After she goes back to work we can make extra home payments or other savings as needed.
6) You actually don’t know my gross income or how much I’m saving for retirement. We’ve been saving 20% of our total income into retirement accounts (not including 529s or cash as we saved for the house) for a few years. We have both saved into a Roth every year of our marriage (that covers every year I was in training), plus we’ve maximized our work retirement accounts for a few years, plus other cash savings. Our overall savings level is over 20%.
7) My old home was under $200k and on a 15-year loan. I plan to pay off my new home in under 30 years, but there’s nothing magical about 15 years. If you’re going to accept a mortgage as an acceptable form of debt, then the goal is to get it paid off as quickly as possible without it limiting your lifestyle and career choices, and the exact # of years is meaningless, the goal is just as fast as it can be achieved. Otherwise you just need to say that a doctor shouldn’t buy a house they can’t pay for in cash, just like anything else.
I am not looking for FIRE in the next 5 years. I’m building my career as a physician, already looking towards what jobs I can do outside of the ED so I don’t kill myself doing overnight shifts at age 60, and if you looked at my finances I think you would say I did live like a resident my first 3 years as an attending. The only material change I am making now is a more expensive home, which is still going to be far less than the rent of a 2 bedroom apartment in Manhattan.
I think you’re missing the boat when it comes to income flexibility related to changing work schedules and changing life circumstances. I know you’ve gone through these changes yourself, but it seems like now you’ve decided anyone who is trying to temporarily adapt their finances to changing circumstances is irresponsible. As an avid reader of the blog whose corresponded with you before you should know that I’m likely a bit more financially savvy than the “average” physician. I respect your pulpit, but sometimes you need to get off the soap box.
Sorry if I’m coming across as passive aggressive. That’s not my intent.
If you think your life is more flexible paying an extra quarter or half percent in order to have a 30 year that you plan to pay down in 15 years, then go ahead. You know as well as I do that you don’t need my permission. But I disagree that you’re getting much extra flexibility. Not only are you paying more for that privilege, but you are adding additional inflexibility by having payments for more years.
The median St. Louis price came from Zillow. For St. Louis County, it’s $160K. Adjust your figures accordingly.
When I was fresh out of residency we lived in an area with places like Ladue and Clayton and whatever. We deliberately chose NOT to live there for a little while, so that we could live there later comfortably. I suggest new attendings do the same. That’s part of my whole “live like a resident” philosophy. It worked very well for me and now I have lots and lots of choices in life. For example, you talk about how you don’t want to do nights at 60. I just dropped my overnight shifts this month. At 40. That’s the flexibility and choice I’m talking about.
I’m not attacking your financial life or progress. I think everyone would agree you’re doing just fine. I’m simply attacking the idea that buying a “standard” 30 year mortgage is a wise idea. I don’t think it is. But if you want a 30 year and think it makes sense for your situation, knock yourself out. It doesn’t affect me one way or the other.
And no, I didn’t look at who made the comment before responding to it (although I have now), so certainly don’t take anything personally.
I fully agree with your sentiments. I’m now about 3.5 years out of training (fellowship). We lived in the city limits for the last 6 years (during my fellowship and first few years as an attending). When our first child hit school age we examined private schools as the local public school was not good. The $18k tuition bill for private school Kindergarten scared us away, but we were able to find a spot in a charter school in the city. It has some great things about it but ultimately has left several things to be desired. Given that we also needed more room for the family, we elected to leave the city limits and head to greener pastures (literally — our first home didn’t have a backyard, just rocks, and we wanted some actual grass for the kids to run around).
Our current home is in a very nice area, but our home price is well below the high end areas we aimed for originally, and well below the new homes being constructed across the street from us (some of the homes directly across the road from us are 7 figures as well). The home we just sold was well without our means during training, and way below my means as an attending.
I’m not okay paying the oodles of interest — before we even closed on the home I was talking to my wife about making extra payments, an approach with which she does not quite agree as she wants to get through the new baby etc. before worrying about it.
However, assuming my wife and I both continue to work full-time after child #3, we will not have issues making many extra payments and paying off way before 30 years. However with 3 young kids I also want the flexibility to let my wife decrease her workload at some point if she so chooses — her salary is roughly 50% of mine — enough to make a difference in our lifestyle if she stopped working completely.
Also when I closed on the home the interest rate difference was only 0.125% for 30 vs 15 years at BOA using a conventional jumbo. Maybe I should have shopped around more, but that interest rate difference wasn’t that enticing.
St. Louis sounds like hell on earth. What’s the point of dealing with an unattractive landscape, horrible weather, and a rust belt economic woes unless they come with cheap housing, well-paid medical jobs, and great schools?
You must have some MAJOR ties to the area to be willing to pay SF prices with worse schools, fewer amenities, poor salaries, terrible weather, and no outdoor activities. Awful.
I think you said out loud what many of us were thinking. I have visited St. Louis a few times. It’s a reasonably nice city, but not a place I’d live voluntarily for anything but a short period. Residency or something like that maybe.
🙂
I would really prefer not to get into a debate on the pros and cons of StL in the WCI comment section, but I must defend our honor. I do have ties to the area so am absolutely biased, so take everything with a grain of salt.
Having lived elsewhere and having many friends in both large and small cities across the country, including the coasts, I can tell you that many of your impressions are not accurate.
StL absolutely has issues, the biggest of which is our racial divide. However unlike CNN/news portrayals it isn’t a war zone or on the brink of economic collapse, and it’s a departure from reality to think problems here are different other medium size or larger cities. It has many positive attributes, including a tech startup community as good as anything outside of CA. Also, we just got an Ikea. 🙂
I love many other cities in this country, but the weather sucks a large part of the year at SOME point in almost every city. I’ll take StL weather any day over the snowpocalypse in Boston or the mosquitos the size of birds in Houston (though I love both those cities). If you like hiking, fishing, hunting, biking, parks, trails, sports, a cheap/free world class zoo and museums, a great symphony, plenty of music and plays, lots of food, etc then there’s plenty here to do. If you want a mountain and canyons then you should live elsewhere.
The physician jobs outside of academic peds pay much better (my close friend in private cardiology probably makes over twice what I make if not more). The public schools in the suburbs and the private schools are as good as those elsewhere in the country. I limited my housing search to a close radius to my hospital (15 miles is paltry compared to the commute in any larger city). I could have this same quality house at a much cheaper price if I was willing to live farther west in our suburbs and have the same quality of schools as I do now, or if I wanted a 3br instead of 4br.
I’m curious — how many physicians in SF that work in the city limits also live in the city limits and send their kids to city public schools? Or in NYC, Chicago, Philly, LA, or Boston? Most of them are commuting twice as long as I did today to live far from the city because even a small 3br house in SF 15 miles from the city is $700k and/or are still paying for private schools or using public schools 50 miles from where they work. I also know my academic salary is actually about the same or higher than many of those cities despite cheaper housing and a lower COL. A quick zillow search of SF shows that to buy a comparable house in a comparable location (outside the city limits, similar size/drive) to what I just bought would probably be $1 million at the low end, and in the city limits would be about $3-5 million. I don’t know where you live, but my house seems cheap compared to that.
I left my house at 0745 today, dropped one kid to camp, another to daycare, and walked in the building at work at 0830 despite hitting “traffic” and then walking the 2 blocks from my garage to the hospital. Our light rail sucks compared to larger cities, but it actually can get you to major destinations in the city (which isn’t true in many other comparable sized cities).
Having known many coastal transplants in StL, they are absolutely shocked by how relatively cheap housing is here and how much there actually is to do here once you get to know the city. I complain now because I was accustomed to almost no commute and living cheap in the city limits and being within 5 miles of almost everything. However when you compare StL (city or suburbs) to Chicago, NYC, Boston, Philly, LA, or SF, there’s no comparison in total cost of living, even in my relatively “expensive” suburb. Having lived in a “smaller” college town of about 100,000 for school, I can tell you that I don’t want to live long-term in a small town in Alabama and make $350,000 because I would be bored out of my mind fairly quickly. StL doesn’t have the diversity or culture of Chicago, but it has far more than any town in Alabama, or Oklahoma, or many other cheaper places with higher salaries. Also, as a non-white, non-Christian I value that as well. I know WCI loves Utah, but I would have no desire to do more than visit there for some outdoor activities.
I don’t really count people who have to take an hour long train ride to work in Chicago or a 50 mile commute to Manhattan as living in those cities. Talk about hell on earth, I don’t want to spend that much time each day just getting to my place of work. However those folks take that tradeoff — hellish commutes for all the pluses that come with being in those areas (and there are pluses).
Also, we have toasted ravioli (google it).
I will refrain (with great difficulty) from further comments on StL. Although I do love me some mountains.
I can’t speak for SF, but the main reason docs practice in NYC, with its abysmal salaries, is to live in the City. There are plenty of much higher paying jobs in the suburbs for those that prefer to live there. There are OUTSTANDING schools within the city limits, both public and private, so of course docs would prefer to send their kids there. The suburban schools are fine, but simply not the same caliber as within the City.
Chicago? Culture? Not unless you count watching the Bears. And I lived there for eight years. Shudder.
You’re also completely missing the fact that the suburbs in StL are 10-20 minutes from the city. Our city public schools are not good, however living in the suburbs here doesn’t mean a trek into the city is an ordeal. Even the REALLY faraway suburbs which are basically different towns completely are only 25-30 miles, which without traffic is a 25-30 minute commute. NYC is huge — the city itself has immense resources. In StL, the suburbs often have more educational resources.
NYC is a phenomenal place and I’ll trust that it has great city schools (I have no idea), however a benefit of a medium size city is that the city is easily accessible without living in the city.
Our private schools (some in the city and some in the suburbs) don’t have the catchet of NYC because they aren’t east coast and don’t cost $30k, but I’m fairly confident our top schools measure up well. NYC has more of them, but that’s as it should be since it’s way bigger.
I don’t count the NFL as culture — I consider it the opposite of culture. NYC has more culture than just about anywhere in the US — I’m not going to ding it, since there’s no comparing StL and NYC as far as that goes.
You’re welcome to insult StL as much as you want — 1st amendment and all that jazz. Many people who live(d) in Chicago take a dismal view of StL as a matter of civic pride. I won’t spend any more time on the this discussion since it’s clear you aren’t looking for a different perspective.
WCI — if you have occasion to come to StL for any reason (speaking engagement or whatever) let me know and I can try to show you around town a bit.
ha. those were my thoughts as well.
Pemdoc I did not insult Stl. I have been there a couple of times. I think most people b from Alabama are used to insults so I just roll with it. We have no NFL here there is no need.
Yikes, you might as well be living in San Francisco. What is the point of living in Missouri if you have to pay for a place and commute like its California? I thought the whole point of these areas was LCOL and higher pay, maybe the pay is great.
Oh, obviously if you have family or some such thing that is an important consideration. Just those prices are shocking, and not even all the schools were great. In my town (cali) we have several very affordable areas with schools ranked 8-10 for all levels, a whole sector with several different schools has the same. Feeling pretty lucky rn, and I cant stand commuting, 15 mins by car max is my limit, and I sometimes bike or run.
Could you live in a decent/safe are on the fringe of those with better overall price/distance and go private for the difference or even save? Though, nothing is inherently wrong with that range, but I would not have guessed it.
Zaphod — StL is weird outlier. The salaries here are LOWER than other comparable midwestern cities (KC, Cincinnati, OKC) in the academic world.
Part of my issue as a PEM doctor is I have limited job opportunities — most hospitals here don’t have or need PEM doctors. There are 3 places I could conceivably work, 2 of which are in the city, and the private place which has a low clinical acuity and thus not very enjoyable.
I ended up in an academic setting, but even if I went to the private practice job in town my salary would only bump about 20% (for peds EM) — the difference in salaries is far greater academic vs. private for the adult specialties (2x difference in many scenarios).
We actually wanted to keep to a 15 minute commute, but the places at that distance from my work with good schools are also the ones where updated or newer homes are selling for $750k-$1million very quickly. We both detest long commutes, and our entire marriage have lived less than 5 miles from our jobs (during my residency we were 3 blocks from work).
We’re about a 20 minute drive from work w/o traffic where we ended up, however to get to the $300-400k range I would have had to go another 10-20 minutes west (add more time with traffic). Given my wife and I each have to drive separately each day because of completely different schedules, a 30-40 minute commute one way for each of us 4-5x/week would be intolerable.
A note I didn’t mention. Our particular academic institution often hooks people with a nice tuition benefit — if the kid is accepted to the university they give 4 years free tuition to my kid (a $200k value per child, no limit on # of children). It’s a top 25 school (I think, I haven’t looked recently) so is a nice benefit if the kid is accepted and will stay in town.
BUT, of they go anywhere else, the university pays 40% of the tuition value towards that other school. Tuition here right now is $50k/year, so if my kid goes to the big state school (or Harvard), he will get $20k/year in tuition x 4 years from my university. They used to pay 50% towards other schools, but as their tuition were going up they decreased it to 40% several years before I joined.
FYI this benefit isn’t just for the doctors — our division secretary also gets it, as does a janitor, etc, as long as you’ve worked for the university long enough. It’s a much bigger carrot for people who don’t have much higher salary offers elsewhere (our secretary can’t go to private practice and jump up her salary by $100k), but it does make the lower salary more palatable for me even if it is a net loser overall compared to much higher paying jobs elsewhere.
Our academic university competitor down the street will give me about a 10% pay bump, but their tuition benefit isn’t as good and my clinical hours in the ED would likely go up, so overall doesn’t make it a no-brainer move financially (putting aside whether it’s even a good fit for me).
I had no idea St Louis was so expensive. I live in Alabama in a medium sized town one mile from my hospital. I feel so lucky.
It doesn’t HAVE to be that expensive. If you want to use catholic schools (extremely popular here) you can buy a cheap house in the city and have cheap tuition.
If you’re happy with the city charter/magnet schools (the charter schools are based on availability and a lottery if too many applicants, the magnet schools require your kid testing as “gifted” and then entering a lottery) you can live nicely and cheaply in the city.
If you want to live in a cheaper suburb close to the city itself to get more home for the money you can, but the public schools are of varying quality as are the homes.
If you want to move to the far reaches of the suburbs you can have a really cheap house with really good public schools.
My wife and I are not catholic (I’m not even Christian), and paying $18k for Kindergarten seemed a bit much to us. We liked but didn’t love the charter school we were using, so bit the bullet and moved to a nice suburb that is 15 miles from work (the max distance we were willing to go).
If we had jobs further west we would have moved further west and had a much cheaper house with good public schools. But we both work in the city limits so a 25-30 mile commute each way wasn’t something we wanted.
A “bit” much? I wonder how different my finances would look if I were paying $18K a year for each of my kids. Seems you could buy a very nice house in a very nice neighborhood with very nice schools for $72K a year plus whatever you were going to spend on housing before.
It’s even more in California. Some of those private schools are $30K a year per kid. Nuts.
$18k is just for K. It’s in the 20’s for high school. Still not as bad as the east coast though.
And as you probably do, I know many people willing to pay.
It’s a lot fewer where I live, but 4-6 kids is also common around here. Those with only one or two are much more likely to use a private school. The big thing around here is school choice, so people are driving their kids all over town to go to charter schools, magnet schools, and just a different school across town they think is better. Half of my neighborhood commutes to a junior high 20 minutes away instead of the one five minutes away.
It’s higher than that.
In Silicon Valley, it’s 25k + for kindergarten at the best schools. It goes up 1-2,000 each year. High school is about 45-47,000 per child per year, plus often extras ( special programs, after-school activities etc). The good news is that if you’re sending your kids to private schools, you don’t have to worry about paying for college or med school, because you’re paying that much already for high school.
Exactly this. I am in Indiana, medium sized city. 350K gets you 4000sqft 3 car garage 4bed 3 bath, excellent school and 3 minute commute to work. Along with great doctor pay. Why live anywhere else, I am also 20 minutes from the airport. The only downside is if I am not going to one of like 10 places there is a connection. But whatever, I only travel a little.
“LCOL” and going off of median home price can be misleading. Houston (admittedly more MCOL) median home price last month is < 250k, but if you're looking to be within a reasonable commute to med center and well rated public school you're looking at similar numbers as PEMDoc and property taxes that basically negate the no-state-income-tax benefit.
Plenty of great private schools happy to take you though… best is only 26k a year… great deal
In WCI’s defense. Being immovable on certain things promotes controversy which promotes readership, both spreading his message farther as well as making his website a bit more prosperous. Whether he does it for the readership, or if his success is a direct result of him taking a hard stand on certain issues, I guess we don’t know. Maybe a bit of both. Either way it’s working!
Also, I live in Kirkwood! (Fell into a great deal renting a condo) I didn’t realize the cost of housing was really that high here because I’ve only looked at rentals, but I can agree that the public schools here have an excellent reputation and if I end up staying here for residency it will be hard to decide between moving closer to the hospital and into a home (my kids would love a yard), or staying here at this great price and great location.
I realize I’m years behind you in your career and financial situation, but I think it sounds like you’re doing awesome! An inspiration to those of us still in training.
105 comments so far on this two day old post. Must be working. 🙂
If you don’t have kids and don’t know if you will be in StL past training, living in the city limits (rent or buy depending on other factors) is a great choice.
Kirkwood is a great area, but it’s somewhat overpriced if you aren’t making use of one the core benefits — the school system and don’t have another reason to live there. At least it is for home purchases — I know nothing about the apartment/condo rental market.
Soon to be 3 kids, so if we stay for residency, they’ll definitely be doing school here. I think our location really is a rare deal.
I do miss the mountains (rock climbing). That’s about the only thing StL has me missing. Otherwise, I find it to be a pretty fantastic place for a family.
Wow — 3 kids in residency. That’s tough to do. You also must have started with kids before residency or have a long residency. 🙂
Tell the others on this thread that StL isn’t a cesspool. 😉
I’m a 4th year med student. Got an amazing wife who wanted to start gone with the kids, so we make it work. St Louis has so many awesome free things to do as a family. We enjoy it a lot, though I couldn’t live here forever. I NEED mountains!
Enjoyed reading your comments, PEMDoc. I’m also in St. Louis, six years out of training and just moved from the city to the county. We had the same thoughts on Clayton and Ladue, but settled on Olivette because it seemed like a much better value. It was still definitely more than we would have liked to spend (700s) but seems well worth it for a larger house, Ladue schools and great neighborhood. We enjoyed the city before having kids, but didn’t like the thought of their quality of education depending on either winning a lottery into a decent school or forking over $20K/year per child to go private. We’re on a 30 year also and so far seem to be hitting all our savings goals. We could have managed a 15 year but I happen to agree with you on the flexibility point as well. Hope things work out well for you in your new place.
Lol — sounds very similar.
We tried to buy in Olivette first (Ladue schools) and got outbid on a home despite offering above asking (similar price range to yours).
We ended up in Des Peres but inside Kirkwood school district. Longer commute (still not cheap but not in the 700’s) but otherwise seems great. We’ve only been in the home 10 days, but hopefully will be here awhile.
10 days!? Congratulations!
With all this talk of public schools I just realized we haven’t actually registered our son in the new school district yet.
Probably need to take care of that…
I’m 18 years out of fellowship training, have a net worth of about 2.4 mil, and still have a car loan! Perhaps my debt is stupid, or perhaps my cash flow management is stupid, but I don’t think so. My MD wife and I gross over 500K (she works part time), have a 3.25% home mortgage (about $380K balance) with 11 years left, and we have no student debt. We max out two 403Bs, one 457, two 401As, plus contribute another $20K-$30K to my state defined benefit pension. We’ve been saving into three 529 accts for our kids with a plan to pay all their undergrad tuitions. We carry no CC debt, and have 2 paid off subarus. I took a 0% car loan for our 3rd car (18K left on the loan) because I didn’t want to touch our emergency fund. I don’t think every car loan debt is stupid.
I do, as noted in the post above. Would you borrow for a dishwasher if they offered you 0%? Why would you have to use your emergency fund to buy a new car when you have an income of $40K+ a month and a net worth of $2.4M? If you don’t have $20-30K sitting around somewhere right now, you will within a few weeks. But as I noted in the post,
Why kind of silly? Because it is totally unnecessary. I guess I’d be embarrassed to ask someone to loan me money to buy something like that. Where does it stop? A new roof? A dishwasher? Lunch? Surely there is some object in your life that you would pay cash for just to save the hassle of filling out the paperwork required to get the loan and service it. I think for a couple with an income of $500K+, an $18K car falls below that threshold. Are you going to be fine with it? Obviously. Does that change the general rule that borrowing when not necessary keeps people from accumulating as much wealth as they otherwise would have? I don’t think so.
I do have more than enough sitting in an emergency fund to buy the car with cash. However, I have to sit there anyway to fill out title and other dmv info, so for me the incremental benefit for 20 extra minutes to get a 0% loan and set up monthly autopay for a $25k car seemed worth my time. I agree with you about a dishwasher, and I bring my lunch to work everyday, but if I could get a 0% loan for a $30k roof that I was going to purchase anyway, I would do that.
Who in the world offers 0% loans?
It was a promotional offer from the car dealer. They offered a lower price (about 1500 below Kelly blue book) or 0% interest, but not both. So I waited until the end of the month at the end of the year. They called me back and said I could have both. As it happens, it was a VW TDI Sportwagen. Now, they’re buying it back for pre-diesel scandal value and they’re compensating me $7K for their cheating software.
It was a temporary promotional offer. Initially they offered 1500 below Kelly blue book or 0% interest, but not both. After waiting so few days, they called back and offered both. I am not too proud to accept 0% from a car dealer or a bank.
Just remember your flexibility comes at a cost. We split the difference by taking out the 30 year but always sending in one extra principal payment per year, which cuts off about 7 years of the term. You should be able to easily swing that and meet your other goals as well, unless you bought too much house.
I’m with you. I agree with WCI on everything else. I just took a 30yr. The difference was only 0.5% up from a 15yr. I don’t plan to carry the mortgage for a full 30 years but I like having the option. Though we could afford the payment of a 15 year and still continue to max out 401ks, Roths and an HSA I asked myself why? Like you, we can just make an extra payment or two towards principle each year as we see fit.
This way there will be no stress from making the extra large mortgage payment each month. The house was more expensive then I wanted to go, but I’ve learned to get what you want, where you want it in the real estate world you often have to pay more (in this case in the perimeter ATL) . Not everywhere is Utah WCI!
Lastly, in the back of my head I was also thinking what if mortgage rates are 7% in 15 years? I’ll be in no hurry to pay it off then when I can invest in a CD that will pay much better. No one can predict interest rates, but I think odds are good that they’ll be higher in 15 or 20 years than they are now.
If there was a huge difference in the rate, I’d probably squeeze into a 15yr. But given the slight difference and the freedom to direct extra either towards the mortgage or towards other taxable investments I’m going 30 and I doubt I’ll regret the decision.
I’d highly recommend just adding a set amount to your monthly payment instead of remembering and deciding annually about sending in that extra payment. Automate what you can in finance. It’s easy to stop them online if ever needed or desired.
Is Atlanta expensive? I heard it was up and coming. I mean, Salt Lake is hardly Indianapolis. Zillow says average home price in Atlanta is $185K. More than St. Louis, but less than Salt Lake.
Jim I consider your advice almost perfect but I really think you need to stop looking at these “average home prices” in big cities. For most of us on only meaningful number is what you have to spend to get a place big enough for your family in a safe area where you want to live. Especially in bigger cities the average tells you almost nothing.
Where do you suggest I find that data? If there were a “90th percentile” number I could use that, but I don’t know where to get that kind of data.
I have to admit, we did the same thing-chose a 30 year mortgage over a 15 year one for the payment flexibility. We have done everything that WCI outlines in this post, except that one thing. And we did it for the same reason-we knew we wanted to try for one more kiddo, and that if that kid came along, I’d do a 3 maternity leave, plus go VERY part time for a couple of years after. And since our income would nearly be cut in half by doing that, I didn’t want to worry about the mortgage payment and I didn’t want to to have a mortgage dictate how much I needed to work. That child is now incubating and I’ve been crunching the numbers and somehow, we’re going to be able to keep making the extra mortgage payments (so would have been fine taking on the 15 year mortgage) and putting 20% into retirement. But there wasn’t any way to know this 2 years ago. I’m not sure if it makes sense to refinance into a 15 year mortgage at this point since our interest rate is pretty low-3.7%. Anyone have any thoughts on that?
You might get 2.75% on a 15. That would be worth it for me.
Just got one at that, with no cost to close and no points.
I’d stick to your original plan. Have baby 3, get back to work, and then decide. Number 3 is a different world as kids outnumber parents. It was great, but extra crazy working even part time after the third. Very different than after first and second. Keep the flexibility of your original plan till you see for yourself. Who knows, rates may be even lower when you are ready. Congratulations!
Our 3rd boy is due in 3 months and our future income stream is uncertain. The only thing that is certain is our house will be very loud.
Congrats also! Enjoy the mahem.
Several of these comments have turned into debt free vs investing while maintaining some debt. Mathematically it makes a lot of sense to keep low interest debt and invest at a higher rate but behaviorally I know that long term I wouldn’t be disciplined enough to maintain a less affluent life style while I see money rolling in. I might have a plan to keep a 30 year mortgage and invest 30% of our take home pay but there will always be that one thing that we need to spend money on this month and I won’t invest as much as I plan. I try to position myself to pay myself first (although in this case I guess I should say pay the bank first), so that means short mortgages / student loan payments.
Amen. The behavioral aspect matters at least as much as the math, and that’s even among the crowd who comments on this blog, who are literally the superstars of physician personal finance.
I think thats true for a great majority of people. Sometimes the issue on the blog is that the people its aimed at (and the largest group as well) and who need to “hear” it, are not the fervant followers of the blog and they are two totally separate groups behavior wise. Many will still choose to be totally debt free and is their prerogative.
To me if you have done the math and realize the difference (and are young with basically zero savings) and willing to pay down your debt, I dont see why you suddenly become unable to save if not paying down sl/mortgage. Not saying you should, but if you’ve made it that far and have the discipline to pay student loans why wouldnt you have the discipline to save in another vehicle? Not saying it doesnt happen, just it might be easier than people give credit to it within this small saver subset. My and likely most peoples views will change when circumstances of debt, net worth, etc…do as well, I’ve no illusion of that either. I’ll probably be on the no debt side once I feel a proper nest egg has been started.
I will continue to hold my student loans/mortgage where it is (I do pay a nominal above min payment amount to both) and put everything else into taxable accounts after SEP, HSA, etc…Also thinking of adding DB plan this year, we’ll see. I could do both of course, but thats less to the taxable side and for now Im content filling that up a bit. Maybe in a couple years I wont feel that pressure to build and will switch to loan pay down as a focus.
It all improves your net worth.
I just did the math and the 15 yr mortgage my wife and I just took out will be 8.7% of our gross monthly income and as soon as she starts her attending job it will drop to 7%. We still have student loan debt to the tune of 225K but plan to eliminate that within 12-18 months of her job change. After that I don’t plan to shift all of the money to the mortgage but will probably double the payments and invest the rest in taxable. I wouldn’t mind to be debt free by 40.
I do however carry a car loan of about 12k on a car at 1.8%. I don’t have a problem with this currently, but I don’t plan to ever take out another car loan either. We don’t look at our bank accounts to see “how much can we spend”. At the end of each month, all extra funds above the minimum emergency fund are put to work on eliminating debt by order of interest rate. Loans 149K at 5.5% (currently refinancing, thx WCI), 77k at 3.5% (at DRB already), 384K at 2.875% (15 yr mortgage), and yes my silly car 12k at 1.8%.
We were disciplined enough to save up a 20% down payment for our mortgage in about 1 year. I think the behavioral routine that it took us through will continue to pay out over time. Plenty of folks here will balk at buying a house before eliminating debt but I think if it is kept to a small portion of gross income then you shouldn’t worry quite so much about it.
The truth is most docs make enough money to make tons of “mistakes” and still come out okay. A family that only makes $50K for its entire career can’t afford to make those same mistakes. But as I mentioned in the post,
I’m glad you agree your car loan is silly and is on its way out.
I am highly leveraged. 34, 2 years out of fellowship, with a net worth of about 0 (~$900k in asset and liability columns). I even have the dreaded 30 year fixed mortgage.
I’m actually ok with this since this is all at very low rates (highest is our mortgage at an effective ~2.675% or so, lowest being my PSLF loans at ~0.4% projected). I max out a 401(a)–ok, this one is mandatory so I don’t get credit, a 403(b), a 457(b), and an HSA. My kid-related expenses are about as high as they’ll get (preschool isn’t free).
What I get in return for this pile of debt is a house that’ll last me and my family through retirement with a good public school district and a short commute; two reliable, safe vehicles; and a reasonably paying subspecialty job with a good enough lifestyle that I can enjoy life _now_.
I see the downsides of the “I want to have it all now!” mentality but given that I max out my ample tax-deferred spaces (and contribute excess to my Betterment taxable account that acts as a buffer for month to month cashflow) I allow myself the luxury of debt and feel no urgency to rid myself of it before its term. When my expenses go down (first up will be preschool costs for the two kids and then the ridiculously low rate car notes, followed by my wife’s then my student loans) I will have loads of money to throw at Betterment since my lifestyle is already pretty much established at this sane-to-me and sustainable level.
Getting to zero by year two out of residency is no small feat, good job. It’s a lot of debt, but it’s low interest, you’re concentrating on your net worth, you’re saving a lot, and you have high income. Not exactly the picture of financial disaster.
Great post. I hate debt and think anything over 4% should be attacked like crazy. When you live lean and eliminate debt there is a freedom that develops. It is a bit painful at first, but eventually feels like that good post-exercise soreness.
Remember, there will be a future you that is slightly older, more tired, perhaps a little burned out that will appreciate the current day you paying off the debt 🙂 Be kind to the future you!
I went 30 year mortgage after residency and just can’t get away from it because it is around 3%. The thing is I’m extremely disciplined. My spending and savings rate are not really affected by the mortgage payment, and I fully expect to be in a position to pay it off when I retire. With the way mortgage rates have gone I made a good decision (adjustable rate), but I think WCI is correct in that most people should just get a 15 year fixed and be done with it. If I was not naturally a frugal person I would be even more inclined to shorten the mortgage term as a way to ‘force savings’
Thoughts on pulling $150k in home equity out and refinancing to a 3% 15 year fixed to pay off federal student loans that average 7%. Total combined monthly payment would be identical. Will take another 7 years to pay off student loans with where they are now.
I like 3% better than 7%, but 7 years is a long time to have student loans. How much are the loans and what is your gross household income? There’s someone up this thread that paid off $500K in 3 years. I bet he could tell you how to pay yours off in less than 7.
I liked your comment somewhere (I’ve been on vacation so am playing WCI blog catchup this week) about paying loans off in 4 years and if you can’t do that military may be a better option. I never thought of it that way, but I think that will be the rule of thumb for my kids. Granted, I hope they can just pay it off in under 4 without the military thing.
To piggy back on above post, I am currently refinancing my 3.625% 30 year fixed into 3.25%. My mortgage payment will go down ~$400/month. Thinking about pulling out 100-150K and throwing it into taxable. In that case, mortgage payment will remain the same. Thoughts?
I don’t think I’d borrow against my house to invest in stocks in taxable, so I can’t recommend you do so. Maybe if you had some business opportunity that you had thoroughly vetted that looked like it was going to give you 50% returns or something, but just to buy some index funds that you expect 5-10% out of before tax? I probably wouldn’t.
Know yourself. If you are disciplined enough to actually save money that is not put toward loans, you can feel quite comfortable borrowing. The key principle to keep in mind is that the advisability of a purchase is independent of how you pay for it. The cost of something is typically minimally impacted by how you pay for it (assuming you aren’t using stupid CC debt etc.) If you are buying too much car, it doesn’t matter if you are paying cash or financing or leasing it. It is too expensive any way. Now people typically are more inclined to buy too much car or house or toy if they don’t have to come out of pocket for the full cost i.e. borrow to buy it. But this is a crutch. Evaluate how much car/house/toy you can buy based on net worth, income, saving rate, and income stability. Once you have determined this, decide the best way to purchase it. Low rate, fixed rate, non-callable debt is a useful tool.
I smile when my car payment is sent each month – while I am paying 50% of my after tax income.
Not sure how my comment above way mangled it should read:
Know yourself. If you are disciplined enough to actually safe money that is not put toward loans, you can feel quite comfortable borrowing. The key principle to keep in mind is that the advisability of a purchase is independent of how you pay for it. The cost of something is typically minimally impacted by how you pay for it (assuming you aren’t using stupid CC debt etc.) If you are buying too much car, it doesn’t matter if you are paying cash or financing or leasing it. It is too expensive any way. Now people typically are more inclined to buy too much car or house or toy if they don’t have to come out of pocket for the full cost i.e. borrow to buy it. But this is a crutch. Evaluate how much car/house/toy you can buy based on net worth, income, saving rate, income stability. Once you have determined this, decide the best way to purchase it. Low rate, fixed rate, non-callable debt is a useful tool.
I smile when my car payment is sent each month – while I am paying 50% of my after tax income.
It keeps cutting up the comment – my last try, what I have to say isn’t that important:
I smile when my car payment is sent each month – while I am paying 50% of my after tax income.
I don’t get it. You mean saving 50% of your after-tax income?
My comment was correct when I hit “submit” but was posted completely wrong. What I actually wrote was:
I smile when my car payment is sent each month – while I am paying 50% of my after tax income.
I’m sorry to have six comments here – but I think I discovered why the comment isn’t posting correctly. I used a less than sign and later a greater than sign, and the text in between disappears. This is the comment in its entirety.
Know yourself. If you are disciplined enough to actually safe money that is not put toward loans, you can feel quite comfortable borrowing. The key principle to keep in mind is that the advisability of a purchase is independent of how you pay for it. The cost of something is typically minimally impacted by how you pay for it (assuming you aren’t using stupid CC debt etc.) If you are buying too much car, it doesn’t matter if you are paying cash or financing or leasing it. It is too expensive any way. Now people typically are more inclined to buy too much car or house or toy if they don’t have to come out of pocket for the full cost i.e. borrow to buy it. But this is a crutch. Evaluate how much car/house/toy you can buy based on net worth, income, saving rate, income stability. Once you have determined this, decide the best way to purchase it. Low rate, fixed rate, non-callable debt is a useful tool.
I smile when my car payment is sent each month – while I am paying less than 2% on my car loan, the money I would have spent had I not obtained the loan is making 12%. Having cash invested in the market or available for unexpected opportunities is worth 2% per year to me, and all my debt is at less than 2% after tax.
If paying cash is not an option, you are buying too much car/toy, and maybe house. My savings rate remains greater than 50% of my after tax income.
What is the length of your car loan? YTD on sp500 is less than 2%; I’d be smiling too if I had a secret 12% return investment.
5 year term on car loan, the longest that would give me the best interest rates (1.9%). I had an opportunity to buy some commercial real estate with an excellent return. Obviously there was more money involved with that than the cost of my car, but being able to write a check to a motivated seller for the downpayment helped close the deal.
For reasons I don’t fully understand, car loans have the best rates and terms of any loan I’ve seen. Local credit unions are extremely competitive, and sub 2% interest rates with no application fees, no processing fees, no appraisal fees, no fees of any kind actually. Mortgages have thousands of dollars in fees. Business loans typically have loan fees (points essentially). Car loans have none of that. Money is fungible, and when car loans are the cheapest, I would get that.
If you have a 50% savings rate, even of your net income, you can pretty much do anything else you want financially and be just fine.
How does a recent resident graduate pay off 500k in debt in 3 yrs
Does the wife have income or wealth
Why do hi earners need an emergency fund
Be fully invested as all stock/ bond investments are quite liquid
Fellowship grad in good sub specialty – not residency – sorry about that. Six years total after med school. Have you seen Fargo? I took a job in a more remote and colder part of the upper Midwest for great money for 2 years, then moved to a great location for nearly half the salary. But we lived on $70k per year for those 3 years, no vacation, no new cars, no toys, and nearly no eating out (which was easy where we lived). We were idiots with money during med school and residency, so this was a plan to atone for our financial sins.
Average $170k for 3 years pays off $500k. So at $400k per year even at 40% effective rate – that’s $240k after tax per year. We hit zero net worth a year ago. My wife is a teacher and although she did not contribute too much financially to getting out of debt, she was pivotal in going along with moving to EBF, living on $70k, and helping maintain the enthusiasm. I’m not sure if the bottom line will be better for us in 20 years from now vs someone who invested that money and kept the low interest rate debt, but for us it was more a a lifestyle decision than a financial one.
You should send in a guest post about that. Many would find it very inspiring but few will see it way down here in the comments section.
Newbie I would certainly read it. I work in the tech sector but my wife is making the transition from training to attending. Which means a whole new financial way of life. We have credit card debt, about 500k in student loans, mortgage, and soon we will have a car loan. You are where I strive to be in 5 years, but a lot of decisions I make in the next 6 months are going to set me up to achieve that goal or not. So I would definitely be interested I reading more about what you did over the last 5 years
+1
Yes It is hard to absorb this many comments but I would read the guest post!
That’s part of the reason I started the forum- it’s easier to manage 100 posts. But it’s actually rare to get a 100 comment thread in the forum and they’re becoming more and more common on the blog. Oh well.
It’s because your posts are a great launching point for discussion and have a wider audience than any new forum thread.
The forum is great for a de novo discussion, but doesn’t get the eyeballs that your posts do.
I would read it just to find out what’s colder and more remote than Fargo.
Grand Forks, maybe? Why not Minot?
p.s. I like the new “I’m not a robot” captcha. The old captcha had a nasty habit of eating my comments.
I also like the new captcha robot.
Me too. You’re welcome.
Why not Minot is very close! I’m in the midst of writing the post, but the names will be changed to protect the innocent. It’s actually a little painful to write, but there’s a happy ending. I appreciate the encouragement.
Can’t wait for the guest post 😉
Loans for my wife and I were about 300k. After completing residency, we just didn’t change our spending habits and were able to save 100k to down on a house in 5 months, and then pay off our loans over the next 2.5 years. We also had 2 kids during that time also. Just got to have the discipline to not change your spending habits are your income increases. It’s not easy with everyone else living the “attending” lifestyle, but the discipline will pay off in the end.
We paid off 300k of student loan/ car loan debt Starting in January 2014 ending April 2016. Very possible. And I might add inspired by this website.
Now WCI is giving me a guilt trip about taking out a 30yr mortgage for our new dream house! Cut a guy some slack bro.
Wow! Now the internet wants me to cut it some slack after all the crap I get about owning a boat! 🙂
For your mortgage just make addl monthly principal payments
Will knock down the term nicely
Gotta maximize ret plan contributions before paying down any mortgages and loans
If 30 yrs accomplishes that take that route
As it is your investing career starts later than we poor dentists
I’m sure you sound to me what Dave Ramsey sounds like to you.
There is a lot of truth in what you say, but at the end of the day there certainly exist mathematically correct spots where taking a loan at a low rate in order to invest at a higher rate is the best course of action.
Of course, taking advantage of these situations requires discipline. Just as it requires discipline to live like a resident for a few years after you get your first real job, it also requires discipline to take advantage of these arbitrage situations. And if taking extra debt is going to make you spend more or differently than is optimal, then attempting to take advantage of these situation is not for you.
That last sentence, probably characterizes a large majority of your readers. And for that reason, I think you’re second order Dave Ramsey approach makes sense. You’re probably doing most readers a service by just keeping the advice simple. Following the advice that you’ve given is likely the best option for most and it is, at worst, a small mistake for a few. But those people definitely do exist. However, I suspect almost all of them are sharp enough to take your post in the spirit it was intended and will not be mislead. So, the fact that your post is somewhat of an oversimplification is of little consequence.
I agree.
This may be a stupid reason to carry debt, but I do it so that I can have the cash on hand to live spontaneously. I could pay off my car in a couple months if I wanted to, but I’d rather have the freedom to go on a last minute trip, as well as continue saving at my current rate. I have my 403b, and 457b maxed out, as well as a roth IRA. My total monthly savings is around 50% of my post tax income. It’s only costing me $800 a year to finance my car, and to me it’s worth it for the flexibility.
My car is paid off and I still have that freedom. The two are not mutually exclusive!
In order to pay off my $40k car, and live spontaneously I’d have to not save as much for a few months, or drain my emergency fund. Not that it’s a big deal, but I didn’t want to be patient so I chose to finance. I really think it’s all about preference….my car loan really is having no major impact on my financial future, so I went with what worked for me.
Exactly….”I didn’t want to be patient, so I chose to finance.” I’ve done the same, but let’s recognize it for what it is.
If you have a 50% savings rate, even net, do whatever you want. As I mentioned earlier, this comments thread is like the Super Bowl of physician financial folks.
I think it’s funny when people say them keep debt to have freedom. I have some debt, but don’t think that gives me more freedom.
As a Private Banker I have worked with a lot of physicians over the years, and it has always amazed me how much debt they are willing to take on. They are preferred banking clients for a reason: they borrow against everything, stay levered up indefinitely by increasing or taking out new loans every couple of years, and they have nice secure high incomes to justify all the debt service.
Go ahead and justify the practice loans and student loans if you must, but borrowing to pay for consumer spending (car, boat, home, property taxes, weddings, etc.) is clearly not a winning financial strategy when it comes to building wealth. In either case though, beware the argument that you can make more on your money by investing instead of paying down debt. In my experience keeping debt around simply enables people to spend more – or at best, to keep more money in cash.
Awesome comment! Hope many readers make it this far in the comment section to get to this pearl.
I agree that consumer debt in general is best avoided, and certain types of debt should be avoided at all costs (credit cards, payday loans, etc). However saving up enough to pay for a home in cash isn’t realistic, even for most fiscally responsible individuals.
Student loan debt is a necessary evil to some degree, but given the higher interest rates and given the newer loan payoff options currently available, I think retiring those should happen before retiring a mortgage (if someone has both).
I’m certainly not against mortgage debt or against using leverage in general. I have a mortgage and a handful of rental mortgages as well. My point is just that the “investing pays more” argument only works if you ACTUALLY invest the money you are borrowing. And that is hard to do, even for the most disciplined investor.
Few people buy a car with a car loan and then immediately shift the amount of that loan from cash reserves into the stock market. They simply maintain higher cash reserves. And they probably buy more car than they otherwise would have if they had to stroke a check. And they keep taking and probably upgrading the annual vacation to Hawaii and the home renovations because they feel flush, which is because their cash reserves are high – even as their debt balances remain high or even increase each year with car and home and other lifestyle upgrades.
Tracking net worth has been a great way for me to face the numbers head on. Whatever games I might be playing with leverage or transfers can’t be avoided when I’m face to face with the net worth figure each month. Leverage can be beneficial, but you have to remember the reason you’re borrowing is to plow money into investments instead. If that process isn’t automated then you may do more harm than good over time to that net worth figure.
The more time I spend doing this, the more I realize that behavior usually trumps math. I like the idea of tracking net worth and have been doing it for years. I only calculate it once a year, not once a month though.
Agree this is true for probably greater than 90% of people, and you must check on yourself often to make sure you dont fall into it as well. Oddly enough tracking net worth and its agnosticism to how it changed is what switched me from debt pay down maniac to investing maniac.
I dont know why someone would just increase their cash reserves, that doesnt make any sense to me, but I believe you that it happens. I have a target nominal cash reserve and everything above that is “swept” into my taxable. I estimate it at the beginning of the month and sweep some over, and if I did better than anticipated then I sweep the rest.
I have spreadsheets with all this info to track myself, targets and stay on goal. Again, yes not likely for everyone, and the second I start slipping I’ll have to check myself as well.
I also only track NW once a year, its just too volatile otherwise. Like WCI my monthly pay can vary dramatically, from worst to best is sometimes a factor of 6.
Time and age might help you see the value of increased cash reserves. Happy for you if they don’t though! Like you, I have a target but it has increased over time. As our last kid launches, it will fall again. It has been one of our wiser financial moves to have cash on hand as we’ve rolled with life much easier with it.
I love Dr. Mom, for she is wise.
Thanks for the laugh! After reading your posts below I’d challenge you to try loosening up your budget a little and spending more time playing. Maybe you are being more frugal then necessary?
You know, I try, but I just can’t! I spend one weekend a month traveling, live in a beautiful resort town, eat amazing home cooked and gourmet food, travel to Europe once a year at least, have most of the outdoors toys I want, and spend a ton of time playing.
What I would like, wise Dr. Mom, is to cut downy hours and jettison my night responsibilities. This is proving a challenge. Advice in that area would be appreciated!
Stop analyzing and act..
Ask for what you want. Have a plan for how they will make up for what you will no longer be doing. Be polite, firm, ready to leave.
Good luck.
Zaphod I agree with Dr Mom in that as you get a little older you will want some cash around. For many years I kept no cash except for the working capital in my business. I anticipate retiring in the next one to two years so now I have a cash position. My returns will not be as high but it is just a necessary step at this phase of my life.
Sure, I do not disagree with that kind of thinking whatsoever. Like I said, I have a target that I keep full in that bucket, but that doesnt mean its a stationary target. Im sure as I age and possible costs rise this target will increase to keep things within the same degree of security as before.
My comment was on the bankers experience of people basically just increasing cash reserves because they werent paying attention or couldnt think of anything else to do with it I suppose. That makes no sense to me, I assume many also just spend in that instance.
I think it all boils down to having a plan and long term goals mapped out and periodically checking progress to keep you from straying too far off for too long.
While a mortgage and medical school (not undergraduate) student loans probably are a necessary evil for the vast majority, the amount of each you take out can be dramatically different based on decisions that are completely within your control.
A private banker/wealth manager patient of mine admitted to me last week that one of her clients (a Doc) made 2.5Mill/year but was 8 mill in debt. Shocking but not surprising.
How does one get 8 million in debt?
A couple of Teslas, $200K in credit card debt, a six million dollar house, $400K in student loans, and a $2M practice loan. Same game, more zeros.
The banker told me he has some type of fighter airplane amongst other toys.
How does one make 2.5 million a year? ??
Easy. Busy GI with own surgery center, pathology lab and hired CRNA for anesthesia. Or a busy spine neurosurgeon with own surgery center. $$$$