This is Physician Finance Interview #9, which is part of a series of posts is published each Friday. If you’d like to read the other PFI posts, you can find them here.
Today’s we interview a forensic scientist who is married to a different kind of doctor, a dentist. Though, we have interviewed one other dentist in a previous physician finance interview.
The focus of the interview is to investigate how other doctors have handled their money, income earning potential, assets, debts, and much more.
My questions are in bold. The answers then follow.
If you are a medical professional of any kind, email me if you are interested in being interviewed and sharing your stories and experiences. The questions below are emailed to the person being interviewed and responses are returned, formatted, and published.
Your Story & Background
Introduction: This post comes from Mike over at Miked Up Blog. Some of the posts on his site that you should check. Naturally, the one where he had me guest post two of my biggest wins and losses over at his site. The first two links below are also from his site! Check them out.
1. Take a second to tell us about yourself so that others can see if their story relates.
I’m a 32 yo forensic scientist, blogger, and practice manager for our family’s dental practice (my wife – Monica – is the dentist). We’ve been married for 7- years, have one 3 yo daughter, another on the way (don’t know the sex), and we bought the practice 1.5 years ago.
2. What is your financial background?
I managed to make it through undergrad and grad school without student loans (thanks to a graduate assistantship and generous parents), but for dental school and a portion of my wife’s undergrad – we weren’t so lucky (that total was in the $250k range).
Then during the financial crisis, I managed to lose 66% of our net worth ($20k at the time) by being an idiot (read: uninformed and overconfident mutual fund ‘investor’).
My financial education has mostly been via dealing with those hurdles and finding new (to us) and exciting ways for our family to make financial progress.
3. Were you given a head start in the financial world in anyway? Let us know if the opposite is true, too.
As I said above, my parents and a graduate assistantship paid for my schooling, but on my wife’s end of things, we had to deal with student loans in a variety of ways.
1) How could we pay off/refinance ridiculously high rate and old loans while she was beginning dental school
2) How could we reduce the total loan amount needed for dental school
3) What were we going to do about paying these damn things off.
Aside from that, I had the great fortune of watching my parents start and run 2 successful businesses during my childhood – which can only aid me in my current position. Couple that with the knowledge that both of our sets of parents wouldn’t let us crash and burn completely, and the safety net gave us some peace of mind.
But, while we knew our parents weren’t about to hand over $800k or more (for student loans, business debt, and our mortgage), we knew we’d have to venture out into this big bad world on our own. Which, maybe strangely, we were somewhat excited to do together (we love a good challenge).
4. What is your current net worth? List the assets that compromise your net worth.
We’re currently sitting at -$65,000, but given our last 7-ish years, I’m pretty pleased with that progress (we were near -$250k about 1.5 years ago). We should be in the positive by Q3 2019, and well on our way upward after that.
Assets include non-retirement investments ($15k), our home value above mortgage (about $100k), business value above debt and working capital (about $150k), and other minimal amounts in different accounts.
I don’t include my pension and our 401k investments in our net worth calculation. And we’ve got no shortage in the liability department (more on that below), which lends to our currently negative net worth.
5. When you finished training how much student loan debt did you have?
My wife graduated with about $250k in both undergrad and dental school loans.
Dollars & Debt
1. List your current sources and size of debt
Student loans: $148,000
Business debt: $237,000
Vehicle loan: $23,500
Until 3 months ago, my wife and I drove 11 and 10 year old cars, one of which is no more due to an accident (hence the vehicle loan).
2. If you had/have student loans, what is your student loan repayment plan?
When Monica graduated, we refinanced all student debts into one loan on a 10- year repayment plan. I honestly can’t remember the servicer we used initially, as it’s changed 3 times since, but the rate was much better than the 7-9% rates we had been paying. The interest rate on our re-fi is 5.25% and we’re on our way to have that debt knocked out in about 7-8 years of the 10-year term.
(TPP: I think of one site that will give you an even better refinance rate right now. Introductory rate reduction of 0.25% off the quoted rate ends at the end of October!)
We have the option to more aggressively pay off these loans (and the business loans) now, especially with me still at my separate full-time job, but we have decided to stick with these minimums (or $500 over) until the loans are paid in full. The interest rate isn’t killing us and we are more concerned with building some savings and emergency fund money.
Once we put the cash toward debt, we’d need to ask the bank for the money back, and I’m all good on doing that for a long while.
Part of this decision has to do with the importance of liquid capital needed to effectively run a business. It’s our lifeblood and our focus, at least in the short term.
3. If you have a mortgage, do you plan to pay it off early or invest in the market? Why? If you don’t, why did you decide to rent?
We do have the mortgage.
We’re in the year 3 of a 7-year ARM at 4.2%, and while we’ll probably refinance in year 6 – we’re currently in good shape with making these payments as well.
For the same reasons as above, we’ll be focusing on stocking away some cash for the next year or so. When we’ve got a significant cushion in that department, we’ll probably reevaluate and change course, but I’d say the mortgage is #4 out of 4 on our list of debts we’d like to knock out (student loans, business loans, vehicle, … mortgage).
Another topic worth mentioning is that we’ll be instituting and offering a company-sponsored 401k plan at the office sometime in Q1 2019. This will increase our current retirement contributions and also help in some other areas (I see you, taxes).
Income & Spending
1. What is your household annual income and will it be changing in the near future?
We currently bring in about $150-$200k as a pair, with $75k coming from my state job and the remainder coming from the practice.
During the last calendar year, or so, while we were buying and relocating our practice , Monica hardly took a salary at all. All-in we probably shelled out $80k cash from our personal accounts in legal fees, contractor expenses, moving expenses, and equipment purchases during the practice move – all so that we could keep the business running and profitable during that time.
As we continue to grow ( 18.5% in Year 1 ), the practice will more likely support our family and the other expenses we have.
I have also been working hard at turning my blog into a business before 2018 comes to an end. That, in combination with an announcement that’s coming in October, should help boost some side hustle income the family will see moving forward.
The goal has always been for me to be able to work full-time in the practice and eventually leave my state job. While that’s approaching at some point, it will also bring with it a decrease in income and an increase in expenses for health care and other benefits. These are some of the large-scale items we’re weighing nowadays.
2. Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending.
We do not currently budget, but I track our net worth and monitor business and personal expenses daily. This is more to keep an eye on potential fraud and because I’ve been hyper-focused on making it through our purchase and move without going bankrupt.
(TPP: I like to track our spending, too. We use Personal Capital to do this and follow our net worth as well)
Our typical monthly expenses (for a family of 3 that will be 4 in January 2019) are in the $8-9k range and look like this:
Student loans: $1,952
Gifts (Christmas/birthdays/church): $150
Campaign contributions (my brother-in-law is running for State Senate): $75
Miscellaneous: $200-800 (depending on the month)
Now that we’re on more stable footing with the business, and as our income increases and remains steady, I’d expect gifts, savings, travel, and childcare (baby #2) to all increase in the coming months.
3. Does giving to charity or causes you believe in play a part in your financial life? If so, what percentage of your annual income goes towards this endeavor?
It does, but right now this is an embarrassingly small number. As I said above, we’ll probably be significantly increasing that number in the near future.
Saving & Investing
1. Do you have an emergency fund? Why or why not?
This is currently in progress but sits at about $1,000 to start. We’ve been using the business working capital account and our personal accounts interchangeably through the acquisition and move, but we’ll see a significant separation moving forward.
So, for those keeping track, that’s 1-month saved.
2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?
Because of my pension, we’re currently at about 5% – we cut 401k contributions to $0 for the last 2 years to build up for and fund the business purchase. But we’ll be in the 15% range come Q1 2019.
This is the current level we could comfortably sustain – a happy medium with saving for our future selves while also responsibly living life to the fullest today.
I’d say that in an ideal world, we’ll be at a 25% savings rate by 2021.
3. You mentioned your assets above. What is your investing philosophy?
I was burned bad during the market crash by speculating and investing in funds which I did not know. My current philosophy is to diversify as follows (with roughly an equal share in each bucket):
–Passive index funds for retirement accounts and individual brokerage accounts
-Real estate – including our personal home, potential future commercial properties, and maybe rental income properties.
And the other thing that 2007-2009 taught me is that we need to be diversified in income as well. That’s why I’m hustling so hard to make money blogging (and with the additional announcement in October).
4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?
Live like a student for as long as you can… It’s really the best way to go.
You bust your ass (can I swear?) [TPP: Yes, yes you can…debt makes me mad, too] for years – or over a decade – just getting the ability to work, and then when that paycheck comes in you see all the zeroes and your spending adjusts proportionally… Or sometimes disproportionately higher… And before you know it, you’re underwater with purchases made that you either didn’t need or couldn’t really afford.
So live like a student for as long as you can – this philosophy is what allowed us to buy our business and to do the things we choose to do.
5. If you have kids, are you saving for their college education? Describe where and how. If you have kids, and don’t plan on saving for their college, please tell us why.
We currently have 1 daughter with another child on the way, and we’re saving all of her birthday money, Christmas money, or any other gift money she has received in a UTMA. We chose this account because of the increased flexibility with which it can be used to pay for direct school expenses or indirect expenses relating to school (housing, vehicle, other living expenses, etc.). Her account is currently around $3,000 and she’s a 3.5 yo… Not too bad.
She’s not missing out on presents and we’re happy to use our income to provide the things she needs and some stuff she wants. But if this plan needs adjusting as she nears college-aged, we can do so (i.e. make additional contributions to her account or open up different accounts.
Retirement Goals & Gaffes (Mistakes)
1. What is “your number” and your age that you feel will allow you to retire? How’d you arrive at this number; give us some details.
I’ve thought about $4 million as a potential target but as you’ll read below – that’s in no way based on sound research.
Call me crazy, but we don’t have a number or target retirement age. We’re attacking the “retirement” challenge from a completely different angle – FI specific. We’re designing our lifestyle around work that we actually enjoy with a time required that leaves us some flexibility. What do I mean?
The practice is currently open 4 weekdays 8-4:30 and 1 Saturday morning a month, and it’s growing at a rate that will support our expenses comfortably in the short term. My wife is free to do what she needs on Friday-Sunday’s save for the 1 Saturday each month. On top of that, if she needs to take an appointment or meeting during normal business hours, we just adjust the schedule. No requests for time off, no coverage, and no worries. [TPP: That sounds amazing!]
As we get further into running our business and further along in our savings goals, we’ll have more freedom to work more or less often, as we see fit (by adjusting our business accordingly – changing hours, hiring an associate, etc…).
Personally, I’m currently working a ridiculous number of hours, but when the full- time job is no more, I’ll be able to handle most of my responsibilities during normal business hours on weekdays. As I get further along, I’ll also have more freedom to work on my own time – as I see fit.
As long as we continue increasing our savings rate while enjoying the journey, retirement can be whenever and whatever we decide it should be. But I’ll tell you one thing, we’re not losing sight of the present moment, either.
We’re trying to responsibly live the dream.
2. How much will you be spending annually in retirement? Give us some details.
I’ve tried to plan for only a year in advance multiple times throughout my life only to have those plans changed or adjusted severely. What I do, then, is to make sure I’m living my life in accordance with my financial values.
Maybe this is stupid and short-sighted, but we’re going to work and save now until we feel comfortable. Retirement is most likely going to be a long ways off for us and I imagine it will be a gradual change over time as we phase out of the practice and other business endeavors.
At the same time, there are still multiple businesses I’d like to start and a ton of work left to do… So I haven’t given much thought to what we’ll spend in retirement. We’re accumulating and achieving our personal and professional goals now – and as long as we are somewhat successful and keep saving, we’ll figure out the rest later.
For “saving” though, this will be in some combination in pre-tax, post-tax, and individual brokerage accounts, in combination with business assets other passive income sources we’re working to establish.
3. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?
This is one thing we’ve had to work on now (at ages 32 and 30). We have been preparing to establish our business’ own health care plan and will be paying for our own coverage starting in 2019. So although these options will be much different in retirement (and we probably will be seeing an entirely different market then), we have examined and weighed many plans to this point.
The healthcare plan for retirement is to keep monitoring options and prices, and when the time comes to create our potential retirement budget – to overestimate the cost of healthcare by a significant portion.
Advice & Farewell
1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?
As I said above, I’d recommend living like a student for as long as you can. Find comfortability in what many may feel are uncomfortable situations. Ask for discounts, drive older cars, don’t buy too much house, and invest wisely – in things you know, understand, and (if possible) have some control over.
On top of that, make personal finance your business. Seek out knowledge and new ways of doing things, then apply what may work for your life and adjust course moving forward – rinse/repeat.
2. What is the toughest challenge facing physicians who are just finishingtraining?
Personally, we’ve seen this as the difficulty with paying off massive student loans while raising a family and starting a business. We don’t do well with patience and these are all things we wanted to tackle now – so finding a way to navigate that tightrope was our largest difficulty… And honestly, (as you can probably tell if you read above) we’re still working to figure that out.
3. What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?
1- Only take out the minimum amount of loans needed to get your education. Go Spartan and figure out a way. [TPP: Preach, brother]
2- Don’t go crazy on spending right when you start earning that bigger income. If at all possible, keep your current expense level for 6-12 months and save the difference. You’d be so far ahead financially if you took this advice.
4. What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?
1) Extreme Ownership: How US Navy SEALs Lead and Win by Jocko Willink and Leif Babin – I write about this book just about anytime I get the chance to because it’s had such an important impact in
my personal and professional life. I swear by this book and the philosophies and lessons it describes. In fact, I’ve used it as our on-boarding program as required reading for all new hires at the practice.
2) Find a friend, family member, or someone you’d like to get to know better who either owns a business or has owned a business and offer to take them to lunch, coffee, beers, … you get the idea. Tell them you’re interested in hearing about the top 3-5 things that either determined their success or failure as a business owner – then take those lessons and apply them to your life.
What? You don’t own a business? No worries – you are the CEO/CFO/C_O of your household; act accordingly
3) Read: It’s Your Ship – Management Techniques from the Best Damn Ship in the Navy
Sorry – I’ve been focused on leadership and personal development for the past 3- 5 years, but business owner or not – this book (like Extreme Ownership) is packed full of actionable tips and advice to apply to your life.
5. What questions do you have that TPP readers might be able to answer?
Go easy on me here, but why do you think I should be focusing more on our retirement plans (if that is your opinion), and what exactly should I be thinking about to do this?
Thank you SO MUCH, TPP, for allowing me to take part in this series and for letting me con you to think that my opinions are worthy of your digital pages. I hope this interview has helped spark some interest and or excitement in a few readers so that they can move forward for the better.
[TPP: No, thank you, Mike! What a great and thorough interview! I think this will be really helpful to others who are in your shoes. I appreciate you providing an honest picture of what it’s like for you guys.]