This is Physician Finance Interview #10. You can find all of the other PFI posts here.
As the interview has progressed, we have broadened the category of people being interviewed. Each person interviewed is either a medical professional of some kind (or married to one). Sometimes that’s a physician. Other times its a dentist, PA, CRNA, or another health care professional.
The interview allows us an in depth view of their life and financial decisions. 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 health care 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
[TPP: Today’s post comes from KPeds over at Pediatrician Finds FI where he chronicles his family’s journey to pay down $450,000 in debt in their pursuit of FIRE. While we focus more on financial independence – and less on early retirement – on this site, Kpeds keeps it real and is worth checking out. Take it away, KPeds!]
1. Take a second to tell us about yourself so that others can see if their story relates.
Hi everyone, Kpeds here. I am a 34-year-old pediatric hospitalist married to a lovely physiatrist (PM&R for those not in the know) wife who was recently kind enough to host a fetus for a while. Our son, Baby-Kpeds, is just about 5 months old and living the good life of “eating, sleeping, peeing, and pooping.”
It’s as if he is FI already…
We are both three years out from finishing our training and live in one of those big coastal cities with a very high cost of living. Trading in our city streets for some maples and oaks sometime in the next year or so is going to be nice.
We will be moving closer to family but still in a stupidly high cost of living area. Family ties are too strong to geoarbitrage ourselves into an even earlier retirement.
2. What is your financial background?
I had little formal financial education growing up. My dad owned a bunch of IBM stock that did rather well over the years. It spits off about $15k in dividends.
Granted, not as well as an S&P fund would have done during the same time…He also did some day trading for a while and gave himself an ulcer and some new hardwood floors. He called it quits after the floors went in figuring he should stop while he was ahead.
But for most of my childhood and young adulthood the bulk of the direct financial advice boiled down to one very salient lesson. “Credit cards aren’t for credit. If you don’t have the cash to pay for it then you can’t afford it.” That stuck and to this day I’ve had the good fortune to never need credit outside of med school and have never purchased any item I can’t pay for in full when the bill comes due.
Only recently did I realize that the most important personal finance lessons from my youth were not explicitly taught, but modeled by my parents. My mom stayed home for 12 years to raise us as my dad slowly crafted his two small businesses into income streams that eventually only required a few hours of work a day. They were frugal and lived off one income.
Then my mom went to kindergarten when my sister went to first grade. My dad stayed home more and more until he eventually “early retired” to his garden, an online university to get a masters degree (he couldn’t bear being the only member of the family without an advanced degree ?), and a second career as a college professor.
My personal finance education really started like most of you, by stumbling on the White Coat Investor. I fortunately did so in residency. Initially it was a casual endeavor.
Down the Rabbit Hole…
For all of residency personal finance, money, and what to do with it, still seemed like something to worry about later. The most important lesson I took from that time is to keep living like a resident and not inflate my lifestyle after “hitting it big.” For the most part my wife and I did that pretty well. Granted a little too much lifestyle inflation had already crept in during residency…
Then last August I found FI and got majorly Red Pilled. I’m now working on my 4th personal finance book for the year, after binging on the Mad Fientist, JL Collins, Mr. Money Mustache, Choose FI, POF, WCI, etc… Everyday I’m learning more from this community and digging the new outlook on life.
3. Were you given a head start in the financial world in anyway? Let us know if the opposite is true, too.
I was fortunate enough to not have any undergraduate loans (thanks mom and dad) and only took on medical school debt. In most ways I’ve had a pretty “easy” life: loving family, two parents, lots of upper middle-class accouterments. I pretty much grew up with the understanding that if I am not successful then it is my own damn fault.
4. What is your current net worth? List the assets that compromise your net worth.
Our net worth is around negative $20,000. We are so close to zero. Considering we were at negative $450,000 when we started 3 years ago, I think things are going pretty well. Hitting zero will feel good!!! I’ll probably have a mini-mental-net-worth party.
Cash ≈ $161,000
529’s ≈ $8,000
403b’s ≈ $140,000
457 ≈ $18,500
Roth IRA’s ≈ $25,000
Taxable ≈ $35,000
Car ≈ $4,500
5. When you finished training how much student loan debt did you have?
Oh boy, the pile of Bristol 7 in the room that no one wants to think about during training and that you invariably step in after residency is over. Between the two of us we had just north of $450,000 in student loan debt.
Dollars & Debt
1. List your current sources and size of debt.
My student loans are sitting at about $250,000 and my wife’s are $157,000. Other than those two behemoths we are debt free.
2. If you had/have student loans, what is your student loan repayment plan?
I am banking on the wizardry of Public Service Loan Forgiveness and Mrs.-Dr.-Kpeds refinanced her loans. I have about 5 more years of IBR payments and then will be debt free. I’ll probably end up paying back about $80,000-$100,000 total over the 10 years.
Wifey refinanced with SOFI a few times to keep getting better rates and now has a 7-year loan with a variable rate of about 3% [TPP: I know a GREAT site that can give you 0.25% of the SOFI rate you’ll find anywhere else ;-)].
She doesn’t quite view debt like I do and still doesn’t think that we have a pants on fire debt emergency that needs to be destroyed as quickly as possible.
We will likely drag out paying her loans for a couple more years and buy a house instead of using all that cash you saw up above to pay off her loans. You know what they say…“happy wife, happy life.”
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 currently rent. We weren’t sure how long we were planning on living in this city and didn’t want to rush into anything. Initially, we thought we would be here for 2 or 3 years and that ended up being pretty close. We plan on skipping town sometime next year.
We do happen to be live in one of those insanely appreciating areas. So much so that I wouldn’t be surprised if you could turn a profit in 2 years of ownership, especially if house hacking was involved. If I could do this one over, I’d definitely buy a triplex and house hack my way to a cash flow neutral living situation.
Income & Spending
1. What is your household annual income and will it be changing in the near future?
Being a pediatrician means I’m on the “low end” of the physician pay hierarchy. That being said I still happily make $155,000 plus a 6% employer contribution to an employer sponsored retirement plan. My sugar-momma-wife was making $240,000 pre-Baby Kpeds but just returned to work 3 days a week so will be making $160,000.
We will eventually move out of this city and by most accounts our cities pay less than other areas so hopefully we will see a pay increase, but there is no guarantee. We won’t count on a significant change in our incomes until she goes back full time, which she has no plan on doing in the near future.
2. Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending.
After reading Your Money or Your Life in April I started meticulously tracking my spending. I use Mint to collect all my transactions, download them and then use my very own dorky excel spread sheet. I don’t like Mint’s actual budgeting software and prefer to do it myself. Copying each expense over line by line makes it all feel more tangible.
We are a typical millennial couple in that our finances are half mixed. We have a joint savings account but our paychecks and credit cards go through our individual checking accounts. I’m still working on getting her on board with this financial independence and personal finance business so I don’t quite have her monthly expenses.
That is going to change soon since we will be having our first budget party this week!! Whoop whoop!
Our major expenses are rent, student loans, and food. Our rent is an embarrassingly high $2975/month. We drop about $3,500 each month on student loans and easily $500-$750 a month on food.
We have a car that is paid off and rarely used but somehow still costs around $1500 a year to maintain. They are money pits. I mostly bike to work which costs me about $100 a year in busted tires, brakes and other maintenance.
We won’t have any day care costs. Between my wife and the two grandmas we have all 5 week days covered. Granted my mom will be staying with us in our one bedroom 600 sqft apartment. It definitely pays to spawn the first grandchild!
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?
Not yet. We are mostly focusing on building our nest egg.
Saving & Investing
1. Do you have an emergency fund? Why or why not?
We currently have a boat load of cash that we are hoarding for a house down payment. With $160,000 in cash sitting around I can’t stomach the idea of any other cash accounts or even any bonds!
After this house gets purchased I think I’ll take Big ERNs advice and mostly skip the emergency fund and instead keep it all invested. We will probably keep $10k or so in cash so we don’t have to worry about cash flow. If we have an emergency then we will either sell some assets or use a HELOC.
2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?
Our goal is to save over 50% of our net income each year. Last year we hit that goal!
I chose this because it would make the amount of time needed to hit financial independence about 15ish years. This seemed reasonable. Also, it was an obtainable goal last year. This year though, I’m not sure yet how things are going to shake out with my wife taking 4 months away from work and then going back part time.
Seeing that savings rate go down will definitely motivate me to make some changes!
3. You mentioned your assets above. What is your investing philosophy?
We are on The Simple Path To Wealth that JL Collins so eloquently articulates. Low fee, passive index funds all the way for now. Our invested assets are about 95% stock. I’m going super aggressive here since we got plenty of time. I have zero concern that I will panic in the next downturn and we have so much cash sitting around.
Once we buy a house I’ll likely diversify the portfolio with Vanguard’s total bond fund. I also really want our home to have a rental unit to help offset the mortgage. Adding some house hacking into the mix is a big change in perspective that I slowly warmed to over the last year.
I’m not much of a gambler so most everything else is out of the question.
4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?
Go read The Shockingly Simple Math Behind Early Retirement by Mr. Money Mustache (TPP: linked above!) and prepare to have your brain blown to little bits. Go play with that savings rate calculator. The one that basis how many years you need to work on what percent of your income that you save. To say that the effects can be life changing is no hyperbole.
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.
Baby Kpeds is just about 5m so we have a long way to go before college. We are advocates of public school in a decent district which will be reflected in our property taxes. We are currently saving in a couple of 529’s and expect to fund them sufficiently for an undergraduate education.
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.
Our goal is Financial Independence, FI. We will see about the RE [TPP: Now, you are talking my language]. Hopefully we can keep making good decisions and hit FI in about 15 years.
We both currently like our jobs and would like them even more if they were part time. Or maybe we do some locums to get paid to travel once the munchkin goes off to college.
We are shooting for $2 million throwing off an annual income of $80,000 per year (4% rule of thumb) and to use some of community’s tax wizardry to realize most of that $80,000. Our current spend sans the loans and rent is just over $50,000 a year. I already feel like we have enough and have no plans on becoming very fancy with very fancy things.
I haven’t gotten too deep into drawdown strategies. Big ERNs series is on the to do list. We will likely have a sizable taxable account by then so will initially draw down from that while making a Roth conversion ladder.
2. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?
Oy, I’m assuming things are going to be so F-‘d up 15years from now that the question is essentially unanswerable. I’ve pretty much gone full ostrich on this one for now but I’ll probably just factor in whatever the cost is into my FI number. If that means working part time for a bit longer, so be it.
Advice & Farewell
1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?
Stop pretending you don’t need to know this stuff and go pick up a book. [TPP: Amen, brother. Amen….and actually – I am writing such a book!]
Learning a little personal finance, the basics of index fund investing and how not to get ripped off could be the greatest ROI (return on investment) of your life.
2. What is the toughest challenge facing physicians who are just finishing training?
Student Loans is by far the biggest. I think a close runner up is having no idea how to figure out how much you are worth and negotiate a fair contract.
3. What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?
Being woefully ignorant about the very basics of investing and personal finance. Most of my residents can barely open their 403bs and have no idea what they are selecting.
4. What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?
For physician centered personal finance, none other than The White Coat Investor. JL Collins’ the Stock Series is a fantastic introduction to index fund investing.
If you are digging the idea of Financial Independence then check out Mr. Money Mustache’s and the Physician on FIRE’s blog or The ChooseFI Podcast to get motivated. Brad and Jonathan have great chemistry are fun to listen to and pull in all sorts of topics under the FI umbrella.
Your Money or Your Life by Vicki Robin is an incredible book that may just empower you to change your relationship with money and convince you that FI is the greatest luxury you will ever purchase.
5. What questions do you have that TPP readers might be able to answer?
How do you convince your spouse to take the Red Pill and catapult themselves down the FI rabbit hole?
Would you diversify your portfolio with a larger bond allocation now or also wait a bit?
Thanks for being willing to take the Physician Finance Interview!