This is Physician Finance Interview #2, which is a series of posts published each Friday. Each person interviewed is either a doctor (or married to one) and the purpose is to allow outsiders in to the financial mind of other health care providers.
My questions are in bold and the responses follow.
If you’d like to read other recent Physician Finance Interviews, check them out here:
Physician Finance Interview #1
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.
Today’s post comes from a fellow physician and blogger over at Smart Money and Travel.
Your Story & Background
1. Take a second to tell us about yourself so that others can see if their story relates.
I’m a 32 yo hospitalist. I recently moved to Northern California but am still keeping my traveling job in the Midwest. I graduated from residency 2 years ago and have been married for 1 year.
2. What is your financial background?
I didn’t know much about personal finance growing up. When I started dating my investment banker husband, I became more exposed to money. Yet, I didn’t want to learn. I thought of people investing in the stock market as gamblers.
I paid for everything in cash and believed in saving cash like most Asian people. I completely disregarded inflation! It took my husband a long time to convince me otherwise. Now I use credit cards for everything to maximize travel hacking. However, there’s no credit card debt as the balances get paid off in full monthly.
For a while now, my husband has talked about wanting to retire early (without knowinguntil recently, about the term FIRE). I was initially against that idea. In my mind, I assumed everyone has to work hard then retire at age 65.
It wasn’tuntil the end of 2017 that I discovered the FIRE community. Reading these blogs opened up my eyes and encouraged me to learn more about personal finance. I started to understand what my husband was talking about, and now I am on board with trying to reach FIRE by 40.
3. Were you given a head start in the financial world in anyway? Let us know if the opposite is true, too.
My husband’s parents left Vietnam on a boat in 1983 and ended up in a refugee camp in Thailand. After several years, they came to America with $50. Both worked two jobs while raising two boys. Combined, they made less than $25k/year in the late 1980s. Eventually, they saved enough to start a small business and their combined income grew to about $50k/year whenmy husband was in high school.
My father served in the South Vietnamese Army. After the war, he spent several years doing hard labor in a reeducation prison. Because of that, we were approved for immigration in the mid 90’s and came to the US with a negative net worth. My parents took out an interest-free loan from a Catholic charity to pay for our one–way flights. Both worked odd jobs making about $20k/year total. Eventually, they found better jobs and made $40k/year combined while also raising two children.
Life in Poverty
We both grew up in poverty but didn’t lack any essentials. Our parents saved money to move us to nicer neighborhoods to attend better (public) schools. Therefore, we didn’t get to go on vacations like other families. This period in our lives served as a motivation for us to work hard to improve our lives to where we could buy whatever or travel wherever our hearts desire.
In high schools, we focused on taking difficult classes and earning good grades. We both attended universities in our respective states and worked part-time so didn’t have much undergrad loans.
When I decided to pursue Medicine, my parents sacrificed what little financial stability they had to support the first two years of medical school to lessen my debt burden. I had a part-time job at Payless Shoes during my clinical years to help pay for living expenses. Therefore, my loans were not completely outrageous like other doctors.
4. What is your current net worth? List the assets that compromise your net worth.
My husband has been wise with his money for the past decade so we started tracking our FIRE pursuit with around $400k when we moved in together two years ago.
Our current net worth is currently ~$750k. We have about $400k in taxable accounts and about $350k in tax-deferred accounts. We have a small cash balance for our working capital, but we don’t maintain an emergency fund since we both work and diversify employment risk in that way.
5. When you finished training how much student loan debt did you have?
I had $100,000 while my husband owed $160,000 for his MBA degree.
Dollars & Debt
1. List your current sources and size of debt.
This mortgage is for a house that I gifted my parents. The mortgage debt will increase when my husband and I buy our first home in a couple months.
We recently bought a car (it was used) and wrote a $19k check for it.
2. If you had/have student loans, what is your student loan repayment plan?
I had $100,000 of student loans. However, I consolidated with Capital One and started the loan payments during residency. I paid off 1/3 by the time residency was completed. I finished the rest of the balance last summer, exactly one year post residency. My husband also paid off his $160,000 loans last summer, 2 years post business school.
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?
After paying off our $260,000 student loans, we thought about tackling my parents’ mortgage next. However, with an interest rate of 4.1%, we decided to invest in the market instead.
We did some math and found that renting was better than buying in Chicago. Therefore, we rented a small studio for several years. Now that we moved to California, we will buy our first home.
Income & Spending
1. What is your household annual income and will it be changing in the near future?
We made $650K in 2017 but my husband recently took another job with a significant pay cut but better hours and less stress. We now will make about $500k annually. It will probably move up and down in the future once we start having children.
My income obviously depends on the number of shifts I decide to take on and will stay relatively stable. My husband is pretty senior but has a couple promotion levels he can go for several years out. However, that would only modestly increase our income.
2. Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending.
We budgeted $76,580 for 2018. My parents help with the mortgage so the mortgage is not too high. We also pay for my brother’s travel, car insurance, and occasional housing expenses while he’s in college. We also subsidize both sets of parents’ travels, his parents’ phone plan, and pay for all family meals. Otherwise, we would only need about 50-60k to live comfortably.
Household / personal care
Credit Card Fees
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?
We do give to charity throughout the year. This year, we are volunteering more so only allocate $1,500 for charities. Right now, we are focusing on helping our families and building a nest egg. Once my brother graduates and is financially independent then I expect to increase our charitable giving. Once we attain FIRE status, I expect to further increase our charitable giving.
Saving & Investing
1. Do you have an emergency fund? Why or why not?
We don’t really have an emergency fund, but we usually keep 2-3 months of operating cash flow in our checking account.
We have a primary checking account that services the majority of our ACH payments. There have been a handful of checking accounts we’ve opened over the years to take advantage of deposit bonuses, no fee ATMs internationally, etc.
We maintain a taxable account with Fidelity due to restrictions from my husband’s job.
2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?
We also maximize our 401k and HSA annually while also saving about 70% of our post-tax incomes.
I should also note that my husband doesn’t really have a saving rate in mind. Generally, he’s frugal year-round and saves 100% of his annual bonuses (TPP: Man, that’s like the zero percent rule.. not even The 10% Rule!).
3. You mentioned your assets above. What is your investing philosophy?
Because of my husband’s job in investment banking, there are a few rules that we have to abide by. We haven’t delved into cryptocurrency or real estate yet. Right now, we focus on index funds and own certain individual stocks such as Apple, Casey’s General Store, and CSX.
4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?
Start early. The power of compounding is impressive. The first $500k was pretty hard for us to get. We’re working on the next $500k now, and it already feels much easier to work through than the first.
5. If you have kids, are you saving for their college education? If so, describe where and how. For those with kids who don’t plan on saving for their college, please tell us why.
We are a DINK (TPP: Dual Income No Kids, for those not in the know) couple but will plan to have children in the next year or so. We haven’t fully decided what to do with their education yet. Education is an investment. We are leaning towards helping if they meet certain conditions. For example, if they choose computer science, medicine, or other potential careers with high ROI then we would subsidize their education. If they decide to pursue music, art or anthropology then most likely not.
As you can see from our budget, we currently help several family members with some of their expenses. In the Asian culture, children are expected to help take care of their parents in old age. It could potentially set our retirement age back so our FIRE goal is not set in stone.
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.
We anticipate to follow the 4% rule and will require about $80,000 per year. Therefore, our goal is 2 million by age 40. Realistically, we’ll likely continue working, albeit less, once that occurs in order to take care of the aforementioned family assistance.
2. How much will you be spending annually in retirement? Give us some details.
We will probably attempt to stick to <$80k annual budget.
3. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?
We plan to purchase coverage through the Obamacare exchanges.
Advice & Farewell
1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?
I was focused on saving and paying off loans during residency. So, I didn’t learn about 401k, Roth IRA, or HSA until I had my first job. I would recommend to learn about those accounts as soon as residency started.
2. What is the toughest challenge facing physicians who are just finishing training?
The toughest challenges were paying student loans while also trying to make up saving for retirement. For us, we were also paying for a nice wedding so it felt like we didn’t have much money left that first year.
3. What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?
Lifestyle inflation. During residency, I knew several people that bought cars that they couldn’t afford. Post residency, they started buying large and fancy homes to keep up with the Joneses.
4. What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?
Bogleheads.com for investment questions
Milevalue.com for travel hacking
5. What questions do you have that TPP readers might be able to answer?
I still haven’t delved into the backdoor IRA yet. How do you set this up?
Thanks for being willing to take the
Physician Finance Interview!
[TPP: I’ll help ya out on the backdoor Roth IRA… Read my Step by Step tutorial on your FIRST ever backdoor Roth IRA at Vanguard. Also, for those that are not familiar Smart Money and Travel, go check out the site!]