This one came in by email. Enough details have been changed/obscured that no one will recognize this couple. Although I say it a lot, it's been a long time since I've written anything about living like a resident. So today we'll talk about what that means.
Q.
I am a senior resident with $250K in loans, a little credit card debt, and $25K in cash that we are holding because we may need it for IVF. So far we've spent a ton of money on it without success. In fact, we may change states after graduation to one that mandates IVF coverage in their insurance plans. I'll be making about $250K plus a signing bonus but we expect my wife who is working now won't be working then. I understand the best move for me will be to pay off that credit card debt, refinance the student loans and then start making payments toward the student loans but I had a few questions.
I've heard you talk about saving approximately 20% of your income towards retirement. Does that assume you have already repaid the student loans? Or should I be saving 20% of my income AND paying back the student loans at the same time? I guess this probably depends on the interest rate I can get after refinancing my loans. What are your thoughts on the IVF quandary? Also, I have a question about buying a house. I have heard you say that you should live like a resident for two to five years. Does that mean that you should not buy a house for two to five years? Should you not buy a house until your student loans are paid off? What about the fact that you are not earning equity during this time?
A.
Wow, lots of questions. They're all the same questions that every other graduating resident has though, to be honest. Let's start with the big picture and then talk about IVF at the end.
Here's the way “live like a resident” works:
You're Some of the Poorest People in the World
The main thing is to realize that you aren't rich. You're actually very, very poor, at least as measured by net worth. Your net worth right now is something like -$250K, right? So you're more broke than the bum living under the aqueduct down the street. So, knowing you're one of the poorest people in the world, you've got to ask yourself,
You: “Self, how can I stop being one of the poorest people in the world as quickly as possible?”
Self: “Well, it turns out the way to build wealth is to take some portion of your income and dedicate it toward building wealth. The larger a portion of your income that you can carve out for wealth-building, the faster you gain wealth. Anything you spend (whether it is on food, housing, or IVF) is money that cannot be used to build wealth. Whether the money goes toward student loans, toward investment accounts, or toward a home down payment, it all builds wealth. How MUCH you dedicate to it matters a lot more than how you dedicate it.”
You: “But I want a bunch of stuff, and besides, I deserve to have all this great stuff because I'm a doctor and my income is about to go to $250K per year. That's 5 times as much as I was being paid as a resident.”
Self: “In reality, your income is about to go from something like $100K a year to $250K a year because your wife is going to stop working for some reason despite you guys being some of the poorest people in the world. Plus, you have a major expense coming up that is pretty much mandatory if you want to reach your most important goal of having a family. So your gross income is only going up 2 1/2 times and your net income is probably only going to double, and that's without even thinking about some other major expenses you're going to have like retirement savings and student loan payback. The truth is most of that $250K has already been spent. You spent it 6 years ago on medical school tuition.”
You: “Oh, you're right. Crap. This sucks. I thought I was going to be a rich doctor and now it looks like I'm still poor despite being a doctor.”
Self: “Yes. It's unfortunate, but that's the way most docs start out their career. Some do something about it that allows them to reach financial freedom after just 15-20 years of practice while others actually live paycheck to paycheck most of their career and never build any wealth.”
You: “That sounds bad. What can I do so I'm not one of those docs who gets to be 63 and only has a net worth of $300K?”
Self: “Live like a resident for 2-5 years, use the remainder of your income to build wealth, then slowly grow into your income as slowly as you can and never grow into it all the way so you can always put 20% of your gross income toward retirement.”
You: “But what about IVF? We want kids!”
Self: “You can have anything you want, but not everything you want. You can do the IVF, but you can't do the IVF and the nice car and the nice vacation and the eating out and the fancy doctor house and have your wife stay home. You've got to pick and choose.”
You: “I see. Well, maybe my wife can continue to work at least until the baby comes.”
Self: “Now you're talking.”
You: “And maybe we can either rent a little starter house or perhaps even buy a duplex and rent out the other half to help pay for it. Then when we are back on our feet and ready to buy our fancy doctor house we can either sell it or just keep it as an investment.”
Self: “Now you're talking.”
You: “Maybe we can really investigate IVF and find a place that does it a little cheaper or figure out a way to get insurance to help us with it.”
Self: “You've got it now.”
You: “I wonder how quickly I could get these student loans paid off. Maybe if we live on the average American household income of $50K, pay $50K in taxes, put $25K toward retirement and put $25K toward a house downpayment, we could put $100K a year toward the student loans. Then they'd be gone in 3 years. We'd also then have a good downpayment for our doctor house.”
Self: “There you go. That's living like a resident. If you do it right, you only have to do it for 2-5 years. By living like no one else, you can later live like no one else.”
Hope that helps.
What to Do with Fertility Treatments
As far as IVF goes, it's clearly a major priority for you guys. So prioritize. Figure out what you're not going to do so you can pay for that. What you do with that $25K in cash pales in comparison to what you do with the $250K you make next year and the year after that and the year after that. Focus on that. Figure out what matters most to you, buy that and avoid spending on anything else (including a big fancy doctor house that isn't going to make you much happier anyway) so you can take care of business with your finances.
I don't care if you rent or buy during the “live like a resident” period. Either is fine. But you can't buy the doctor house. Remember a house is both an investment (the dividends are the saved rent) and a consumption item. Consume as little as possible while living like a resident so you have the money for what you really care about and to buy your financial freedom.
What do you think? How does a couple like this live like a resident? How do you balance priorities? Did you have IVF related financial issues? How did you address them? Comment below!
Living life a resident is white coat cannon and was our first step to financial independence before I even knew the term. Thank you to Jim for that.
Living like a resident (an average american) pays huge long term. Even more if you extend your time frame. Why stop at 3 to 5 years? If you keep lifestyle inflation under control for your entire career and save not 20% but over 50% of your take home pay then you only need to work for money for 15ish years before you’ve saved and invested enough to live off of! Financial independence here we come.
I guess the reason to stop at 3-5 years is that your goal isn’t to FIRE at 10 years and you’d like to spend some of this money you’re earning. It certainly isn’t required to live like a resident for 10 years to be financially successful.
I have a post on my site about our ivf costs. It was not cheap but worth every dollar. We did not have insurance coverage for ivf but would highly recommend trying to get it if you can. As for our wealth, it did hinder growth but we just worked harder to pay down those debts and now are fine 6 years out of training.
I’m glad residents these days are having the common sense to ask for financial help. That puts them way ahead of the game of the typical physician who graduated decades before who had no resources such as white coat.
I made pretty much every financial mistake possible and learned about FIRE by having my own trial by fire.
The good news is even with this late financial awakening it is still possible to make a dramatic turn around given just the sheer size of our income. You can dig yourself out of debt much faster because we have bigger shovels than most (although our pile of debt starts out much bigger too).
That’s true, fortunately. Our high incomes can make up for a lot of really bad mistakes, provided we have a high savings rate and don’t leave it too late.
Great points and use of phrases. Especially Paula Pant’s you can afford anything, just not everything. 25k seems like a huge bill now, but that pales in comparison to how much we spend on depreciating assets (cars), and unnecessary/extravagant housing. If having a family is important, than make sacrifices the biggest categories most Americans spend is on housing and transportation so start there.
Live like a resident=delayed gratification= recipe for a better and more intentional life.
Also I believe I heard on choosefi podcast about a couple who went to Europe for IVF as the cost was significantly less and made a vacation out of it. That way if it didn’t work they still had a vacation and an experience. I know medical tourism is probably frowned upon, I know I wouldn’t recommend my patients go overseas for their care, but for IVF I think it would be worth doing some research.
I’ve heard Paula speak, but never attributed that phrase to her. It’s in pretty common usage in the finanicial blogsophere.
The idea that you can probably have anything you want, but cannot have everything is spot on. One or two things can change when you take the “big step up” in income, but not everything.
My wife and I are living like a resident for two years after I finished training, will have 190K in student loans paid off in 20 months, and still had a small (I espouse a 10% rule on my website) bump in lifestyle when I finished.
It’s amazing how quickly you can build wealth when you don’t inflate your lifestyle. We are using a lot more than 50% of our take home pay to build wealth (student loans, 403B contribution, back door roth, 529, etc). But after doing this for two years, we are going to be well on our way. When the student loans are gone we will have an additional $5500 per month available to us. Half will go to a mortgage payment, and half will go towards investments in a taxable account.
All the while, we feel like we are living a great life in the present moment!
Such an important lesson for everyone.
TPP
Just live beneath your means, save 10-20% invested in index funds, and you will be financially independent 65-70
mere common sense
Or a higher percentage to reach FI sooner. Not better investing. Just higher savings. I averaged 38% gross savings rate and became FI in 17 years (in my late 40’s). I used to think it is ok to save less but the FI doctors in their fifties are much less stressed out and could leave anytime they like. Err on the side of too much savings. You won’t regret it.
I’m nearing the end of year #1 in practice. Besides those things yoked to income (taxes, charitable giving, disability insurance premiums, etc.), our spending will be within about $2,000 of what we spent my last year in training.
Along with allowing for greater income, moving to a LCOL area (a 4-bedroom house on an acre rents for little more than our old apartment) has allowed us to increase our “consumption” without increasing our spending.
Sounds like a recipe for financial success to me.
Don’t take it harshly, but continuing to live like a resident only works if you were doing it right to begin with. No resident should have credit card debt. You make 50k/yr as a resident. Figure out how to live on it, it’s more than the avg family of 4 makes. Start paying off your student loans while you’re still a resident, or at least pay the interest. 100k/yr is more than my wife and I made, and we paid off 70k in 1.5 years (and yeah I only had 70k, because I’d spent college living like a real college student, and medical school living like a real medical student, aka eating free food, working as much as possible, and finding cheap rent). You can do it, trust me. And in the long run it pays off. We have lived on 120k/year since I finished residency 3 years ago (buys you a great lifestyle in the middle of the country), and personal capital said we have saved about 1 million (humble brag). Good luck with the IVF, have had the same issues, and certainly adds some stress. Just don’t add financial stress on top of it.
That “new attending salary” can be very deceiving. It may seem like a lot more than a resident salary, but your attending expenses are exponentially higher than resident expenses. Your effective tax rate jumps from ~10% to ~30%. Your state tax rate will most likely go up. You may have to pay for your own heath insurance and malpractice insurance. You should increase your disability insurance, which will cost you. Don’t forget that your student loan payments will go up if they are based on income. You need to save 15-20% of your income if you actually want to retire some day, more if you want to retire early. Suddenly you realize your net income won’t be 5 times higher; it may only be 3 times higher.
“You can have anything you want but not everything you want”. GREAT advice. Obviously the IVF is important and you shouldn’t put it off (because, biology). What that means is cheaper vacations, used cars, renting instead of buying. At the very least during your live like a resident years. Although I hate to break it to you, daycare aint cheap so your fertility/pregnancy/child expenses probably won’t go down much they’ll just shift to other items.
The reader worried about not earning equity. Please don’t worry about that. Equity isn’t guaranteed. Especially if you plan to get the doctor house in 5 years or so. I’m sure new grads who bought a starter home in 2007 because they wanted equity instead of renting sure were kicking themselves a few years later. We don’t know when the next 2008 will be. Renting is a guarantee you won’t LOSE equity. Plus, what if you hate your new job and find another in a different area? Renting at first has a lot of pro’s going for it
I would again emphasize the comments about the cost of IVF. We went though it and were fortunately successful. It seems like a lot at once, and it is hard to think past it to actually HAVING kids, but the “cost of kids” never goes away. Those of us that paid for IVF really just started to put kids in our budget a few years earlier. Also, before you move to another state for insurance coverage for IVF, check out the details carefully – some only cover the first attempt, and/or part of the services. I am not saying it is not something to consider, but it shouldn’t keep you from a better job or situation somewhere else. In fact if you are going to move somewhere just for financial reasons, take a job somewhere that will pay off your student loans! Also factor in the cost of moving again later, if in a few years you will want to raise your family somewhere else (like where there is family to babysit). Bottom line is the issue of fertility can be consuming and stressful, but try to not let it influence your other decisions too much, financially and otherwise.
This issue is really common among docs especially because we delay kids longer than the average person. I mean, if you don’t get out of training until 35, and you wait until then to start a family, the likelihood of not having any trouble at all having kids seems low.
Second the notion on investigating the insurance coverage. Only a handful of states have mandated IVF coverage and the areas tend to be high cost of living (HCOL). On average about 20% of patients in non-mandated states have infertility treatment coverage. Some policies may have restrictions regarding a certain number of lower level treatments prior to moving to IVF. Although expensive, IVF success can be good depending on factors especially maternal age. For poor prognosis patients some clinics will offer bundled multiple attempts so it’s definitely be worth doing your homework! I agree that it’s wise to arrange your financial plan on what’s most important to you first and the rest of the pieces (house, cars etc) will fall into place later.
The contrasting ideas of “live like a resident” (restrict consumption and pile up money early and pay off debt) vs “consumption smoothing” (higher consumption, tolerance for debt, and slower, smoother payoff rate) are intriguing. It’s a values-based judgement in the end. The more extreme your circumstances (higher debt and lower pay), the more it matters to “count the cost” of your actions.
For example, if you have relatively high doctor income and lowish debt, it probably doesn’t matter as much if you buy a doctor house a bit earlier than WCI would (or Dave Ramsey) recommend. If you have $500K debt and lowish doctor income, then you home decisions will have a significant impact on decades of your career.
My own take is that the most freedom for my future self is what I value, so I lean toward the “live like a resident” end of the spectrum (even 9 years out of training). All things moderated by the fact that you never know how long you’ll live, time passes and children grow up, your’re only young once, and sometimes it makes sense not to be ultimate “hardcore” in all things financial.
The “live like a resident” mantra is especially needed when there are early career MDs who are clueless and/or overly casual about how extreme their situation is. They simply have not done the math. It’s a wake-up call, or a wet sponge in the face.
Nicely put. But I do care if they rent or buy. If they buy and find out they do not like the job they picked and move in 2 years, the house is at great risk of costing them a lot of money if they bought. That could be a big set back to their net worth. Buy a house after you have been in the job for 2 years and know you are going to stay. That has the best odds for success.
Dr. Cory S. Fawcett
Prescription for Financial Success
I remember when I first read WCI and came home and told my physician (at the time a resident) husband that we needed to live like residents for 2-5 years out of residency…. his response was “great! We get to live like ballers!!” So many (really the majority) of the residents and fellows he trained with were very spendy. Nice homes, furniture, cars, eating out, vacations, you name it!! Sadly, the residents he works with now are no different…. they live with a future me and income perspective.
When people talk of IVF, it reminds me of some friends of ours. They went through eight (!) rounds of IVF before it finally worked, and they had twins. Then a few months later the guy ran off with one of the nurses from the NICU where their twins had been.
That is a terrible story.
I have seen infertility result in stress in the marriage unfortunately
This email reminds me so much of myself coming out of training (except for the whole IVF thing, I really feel for whoever sent that email, it must be awful to want to have kids and have fertility issues). My wife and I struggled to make ends meet as residents but assumed things would get better once we were in private practice.
We had to learn the hard way that if you can’t live within your means when your combined income is 80,000 dollars per year, you will not be able to live within your means when your combined income is 400,000 dollars per year. The underlying spending habits are the problem, and more money doesn’t fix the habits, it just changes the numbers.
I stumbled across this blog about 1 year too late to avoid going off the financial cliff. We have since made some hard choices and slowly clawed our way back. It is my hope that sites like this will become more and more widely read, especially by residents and medical students who have not yet reached the long awaited income bump. It is possible to right the ship, but it is a whole lot less painful to keep the level of consumption well below the new level of income, at least for the first few years out.
– Ray
So true. It’s really the same game we played when we made $20K.
I know this comment is going to be unpopular
But: how about considering not having children?
Just something to think about regarding the cost of living. And about life in general.
Life isn’t all about money. But yes, not having kids is much cheaper. No fertility treatments. No diapers. No 529s. No worry about leaving money behind.
Whoa…a comment about life not being all about money from the white coat investor!
People obviously have strong feelings about having children. I guess I was just saying that having kids shouldn’t be a knee jerk auto pilot kind of decision. People should consider what kind of parent they would be and honestly if they are prepared to raise a human being and discover who their child is. Also, to take into consideration what kind of world that child is being born into.
The world is overpopulated anyway and there are plenty of other ways to give to the world besides having a child.
Also, child rearing tends to fall disproportionally on women who don’t receive any benefits whatsoever-no retirement plan, no pay, no health insurance. Which is not fair.
Ha ha, very funny. I talk a lot about stuff other than money, but it is a financial blog so I do have to focus there.
I agree that parenting is a serious choice and responsibility.
I am curious, however, about your comment that the world is overpopulated. What do you think the appropriate population for the world is? 2 Billion? 5 Billion? And how did you arrive at that conclusion? I mean, it’s pretty clear to me that the Bay Area and D.C. are overpopulated, but I didn’t really think Oklahoma was.
Whoops! I replied to the wrong link…
Here it is in the correct thread.
It’s not about numbers. It’s about the fact that our planet and other species are being either being trashed or crowded out (respectively) by humans. I don’t think the plant needs another human who is simply going to consume endlessly until the world resembles a one giant overflowing trash can.
You know that we are all going to be outlived by that plastic cup from Starbucks right? The one that is paper on the outside but coated in plastic on the inside, which makes it practically impossible to be directly recycled.
So the planet isn’t overcrowded then. People are just wasteful consumers. I guess I can support that point of view. I assume you don’t own a car, right? 🙂
A more cynical person might suggest that if one really thinks there are too many people there are solutions to that.
So often it seems to be less about loving Mother Gaia and more about just disliking other people. It’s misanthropy wrapped in the virtuous green cloak of environmentalism.
My charriot has two wheels…:)
Birth control is good. No cynicism here.
I just got back from a two hour ride myself.
Seriously though, I think there is this idea out there that the Earth is overcrowded but I’ve never been able to pin anyone down on what “the number” should be.
Interesting factoid that I heard…looked up…and is remarkably and surprisingly accurate.
If you took all the people in the world and kept them at the same population density but somehow herded them all together, they would occupy a land area the size of Texas.
Now Texas is a pretty large piece of land but the world is such an enormous place. I think we (humans) have a difficult time grasping the enormity and beauty of this planet we call home.
I wish the best for this couple. I went through several cycles unsuccessfully right in middle of busy residency. So one has to try. But ultimately Infertility clinics are a business. 20 years ago the success rate was 11 percent. I hope that has changed. You have to have your own “limit” as I don’t find that the Fertility doctors quit trying. I ultimately adopted (not an easy process either) and that has worked perfectly for me. But everyone has to handle it their own way. On the flip side, I am probably working an extra five (to 10) years because of kids and I don’t regret it. Although I will say I am in my early 60s and emergency evening surgery tonight and Call is getting very old. It’s not all due to having kids, it was not understanding Net Worth early on and just spending all my paychecks. “Future me” has a much louder voice these days and I dutifully save half my after tax paycheck for retirement in addition to contributing pretax to all available tax deferred plans. Live like a resident in your 30’s, not in your 60’s.
I totally recommend going to a state that covers IVF. We did two cycles out-of-pocket, and we’re trying to keep it as cheap as possible. So when the doctor would say, “You can also do this test, but it isn’t really necessary,” it would totally just stress us out. Should we spend the extra, or just pay for the essential meds? And of course, some of it went on a credit card. We paid for two cycles out-of-pocket that way. Then we did a third in Chicago, where once our relatively low deductible was met, everything was covered 100%. And the great thing about the states that mandate IVF coverage is that they have some of the best success rates in the country (The CDC mandates that all IVF clinics publish their success rates—check out the SART charts for the info). Anyway, it was so great doing everything the doctor recommended and having insurance cover it all. In Chicago, all the totals insurance covered were $45,000 (the other were $15,000 and $5,000 each that we paid). We now have a sweet little one-year-old, and it was all worth it, even in the craziness of school and residency. And we actually weren’t able to get pregnant through that IVF, but all the information and meds from it really helped my body get back into normal. And I since have gotten pregnant again 🙂 best of luck!