Physician Finance Interview #7: Dr. McFrugal

Financial Planning for Doctors

This is Physician Finance Interview #7.  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 Introduction: Today’s post comes from another fellow physician finance blogger, Dr. McFrugal. If I had to choose two posts of his that have stood out to me, and I feel are worth your time, it would be these two. 

First, is one that I include in my Student Loan Debt Destroyer Course when you sign up for my email updates:  Life of a Frugal Resident: Living Like a Starving Artist in Hollywood. 

The other would be about when he justified buying a Tesla.  Oxymoronic?  Yes.  Awesome.  Yep. Check him out. Take it away, Dr. McFrugal!

1. Take a second to tell us about yourself so that others can see if their story relates.  

I am a 35 year old anesthesiologist and interventional pain management physician who practices in the Southern California area. As for work, I have been an attending for almost 5 years and I have a mixed 50/50 practice of general anesthesia and pain. I am married to a wonderful wife and I’m a father to a beautiful baby girl.

3. What is your financial background?  

I learned the fundamentals of personal finance early on from my parents. They were great examples of frugality, stealth wealth, hard work, and side hustling. I further enriched my knowledge while in college by reading books like Rich Dad, Poor Dad, The Automatic Millionaire, and The 4-Hour Workweek.

And of course, I fine tuned my financial literacy even further by reading great blogs such as The White Coat Investor and Physician on Fire.

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 to come from an upper middle class family. My dad was a pharmacist and my mom was an accountant. They are both retired now. We were not rich, but we were financially comfortable and well off enough to not worry about money. I earned a full scholarship to a state public university and my parents helped pay for my room, board, and housing.

My parents did not provide financial assistance for medical school; I had to take out students loans. Fortunately for me, I went to an accelerated program that combined undergrad and medical school in 7 years, which was helpful in cutting down education costs.

4. What is your current net worth?  List the assets that compromise your net worth.

My wife and I currently have a net worth of  about $1.1 million. This is including our house, which has appreciated quite a bit.

Our assets include:

  • Prior employer 403(b): $123,000
  • Current employer Keogh plan: $54,000
  • Current employer Roth 401k: $91,000
  • Backdoor Roth IRA: $50,000
  • Wealthfront taxable account: $46,000
  • Vanguard taxable account: $27,000
  • Joint Vanguard taxable account: $24,000
  • Robinhood account: $5,000
  • Spousal (wife’s) backdoor Roth IRA: $18,000
  • Wife’s Wealthfront taxable account: $23,000
  • Spousal (wife’s) 401k: $42,000
  • Wife’s 457: $46,000
  • Money market savings: $70,000
  • Checking: $30,000
  • Home equity: $500,000

5.  When you finished training how much student loan debt did you have?  

I had $127,000 in student loan debt when I graduated from medical school.

Dollars & Debt

1.  List your current sources and size of debt.  

Past and current sources of debt:

  • My student loan debt was $127,000 (I paid it off within the first 3 years of being an attending by picking up extra shifts, moonlighting, and living frugally like a resident)
  • Mortgage debt is $730,000 (it’s expensive to live in coastal Southern California!)
  • Auto loan of $45,000 (it’s for my Tesla and I can easily pay it off, but the loan is at a low interest rate of about 3% APY, so I prefer to invest the money instead)
  • Wife’s law school student loan debt is $200,000 (it’s a lot of money, but she’s a state prosecutor who is half way through PSLF and yes, I believe the PSLF program will still be around for us)  
  • No credit card or consumer debt (we pay our credit cards in full in every month)

(TPP:  I think PSLF will be around, too, but have discussed what to do if you don’t trust it!)

2.  If you had/have student loans, what is your student loan repayment plan?  

As mentioned above, I aggressively paid off my medical student loans.

We chose to do Public Service Loan Forgiveness for my wife’s law student loans because of several reasons:

  1. Her loan is a lot of money! ($200,000!!!)
  2. She wanted a public service government job because it affords her a great lifestyle (private practice law can be a brutal grind).
  3. She contributes the maximum to her 401k and governmental 457 which significantly lowers her adjusted gross income and therefore lowers her monthly payments through for PSLF (she only pays about $250 dollars a month).

With all of the above considered, it is a much better deal for her to do PSLF.

The only drawback is that we have to file “married, filing separately” which reduces our ability to optimize tax deductions. But the amount of money forgiven through PSLF far outweighs any benefit from the tax benefits of being married, filing jointly.

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?

This is a classic investing versus paying down debt question. We do a mixture of both.

We plan to pay off our loan early AND invest in the market.

Since our mortgage interest rate is relatively low at 3.625%, we try to first maximize the contributions in our tax advantaged accounts (401k, Keogh, 457, Roth IRA’s, etc.). After that, we deploy our extra cash to both taxable accounts and to paying down our mortgage almost equally. To me, it’s a form of hedging. We plan to pay off our house in about 10 years.

Income & Spending

1.  What is your household annual income and will it be changing in the near future? 

My income is about $400,000. This number could be even more if I picked up extra shifts, but I have no desire to make more money at the moment. I would rather spend more time with my wife and baby.

My wife is currently on a 14 month maternity leave (her work has some pretty awesome benefits). As of now, she is not earning any income because she only gets paid for the first 3 months of her leave. At the time of writing, our baby is 5 months old. Her annual salary is about $100,000.

We have no significant income from side hustles at the moment. Any increases in income will either go toward our taxable investment accounts or paying off our mortgage.

2. Do you use a monthly budget or track your spending?   List your major expense categories for each month in your budget/spending. 

We loosely track our monthly budget and have a general idea of how much we spend. I blog about this on my monthly updates.

By far, our biggest expenses are the mortgage and taxes (if that counts). We don’t spend a lot on food, child expenses and transportation are minimal, and we rarely buy clothes or any other material goods.

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?

Giving to charity is important to us, but we can definitely make it a bigger priority. I don’t know the exact percentage of our annual income that goes to charitable causes, but it’s likely around 5%. We would like to increase this percentage to 10% some time in the near future.

Saving & Investing

1.  Do you have an emergency fund? Why or why not? 

We keep about $30,000 in a checking account as an emergency fund. This would last us about 3-4 months with our usual expenses.

I keep about $20,000 to $70,000 in a money market savings account. This earns an interest of 1.75% and the money is used to pay for my estimated quarterly income taxes. This money could potentially be used in an emergency as well.

I don’t consider my taxable account an emergency fund because equities are so volatile and I have no intention of selling shares. However, in a true emergency, I suppose I could sell shares to access more money.

As an added layer of cushioning, my Home Equity Line of Credit (HELOC) could potentially be an emergency fund too.

2.  What percentage of your income do you save towards retirement/investments each year?  How did you determine this level of saving?

We save about 50% of our after tax income. As a high income professional living in California (high taxes), it is extremely hard to save 50% of your gross income before taxes.

To us, this level of savings allows us to live well, yet still well below our means. It’s the perfect balance of frugality and enjoying life. We live on about about $100,000 to $120,000 annually.

3.  You mentioned your assets above.  What is your investing philosophy? 

In general, I prefer a simple approach to investing, so a vast majority of our assets are in passive index funds.

Some of my wife’s retirement accounts have target date funds because those are the best available investment options.

I do not invest in cryptocurrency because I don’t have a good understanding of it.

I buy some individual stocks in my Robinhood account for fun. This represents 1% of my net worth and I view this as “play money”.

4.  If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?

I would tell other doctors to live within their means and to start saving and investing as early as possible. Front loading the sacrifice and the magic of early compound interest is the key to building wealth.

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. 

So far we have one kid and we plan to have one or two more. Currently, we don’t have a 529 or any other college savings plan for our kid. We will likely open a 529 plan some time in the future. We just haven’t gotten around to it yet.

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 have no intentions to retire super early. I plan on retiring when I’m 55 years old.

The current plan is to retire when I’m 55 years old because:

  • I can see myself liking my job enough to do it for 20 more years
  • I have great work-life balance and I don’t see myself getting burned out
  • At 55 years old, my medical group will provide free healthcare for me and my wife for as long as we live (this is important because healthcare seems to be a major concern among early retirees)
  • At 55 years old, I would earn about 50% of my annual salary through a defined benefit pension (this is a huge benefit)
  • In the next 20 years, what would I do in retirement while my kids are still in school?

2. How much will you be spending annually in retirement?  Give us some details. 

This is a tough one to answer because nobody knows how much our money in the future will be worth due to inflation.

I anticipate spending about $80,000 annually in today’s dollars for retirement. This is lower than our current spending because in 20 years, our mortgage (biggest current expense) will be paid off. Our taxes will likely be lower in retirement as well. So with an average rate of inflation at 3%, I would likely need about $150,000 in future dollars 20 years from now to fund our retirement.

I plan on safely withdrawing 3% or less from our nest egg annually. It is a very realistic goal for us to accumulate a net worth of $5 million in investable assets by the time I retire. That being said, I anticipate most of our fixed expenses coming from my defined benefit pension and my wife’s state government pension (yes, she has a pension too!). Additional expenses will come from our taxable accounts.

If there’s a good opportunity during retirement, I would like to convert our tax deferred money into our Roth IRAs.

Ideally, we wouldn’t need to touch our Roth accounts during retirement and the money can eventually be passed down to our kids tax free.  

Advice & Farewell

1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?

Money isn’t everything, but it is a great tool to buy your freedom. Use this freedom to invest in your health, happiness, and your relationship with loved ones.

Never compare yourself to others; this often leads to jealousy, unhappiness, and keeping up with the Joneses. Always be generous and kind.  

2.  What is the toughest challenge facing physicians who are just finishing training?

New physicians face the tough challenge of paying off large amounts of student loan debt in the setting of decreasing reimbursement rates. Additionally, job satisfaction and career fulfillment appear to be decreasing while burnout and suicide rates seem to be on the rise. These are very unfortunate problems in medicine today.

3.  What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?

Excessive lifestyle inflation is by far the biggest financial mistake I see in my colleagues. A lot of young physicians buy a big house, a fancy car, go on luxurious vacations while having a considerable amount of student loan debt. This behavior should be avoided if the goal is to gain wealth and freedom.

4.  What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?

They may not be new to TPP readers, but obviously The White Coat Investor and Physician on Fire are excellent resources. 🙂

Thanks for being willing to take the Physician Finance Interview!

TPP:  Dr. McFrugal is a great example of being able to enjoy a little bit of today (Tesla, anyone?) while also making the necessary sacrifices to prepare for tomorrow.  He lives in a high COL area, and is still well on his way to financial independence. Thanks for stopping by, Dr. McFrugal!  



9 thoughts on “Physician Finance Interview #7: Dr. McFrugal”

  1. Okay TPP, you must have access to my post calendar because you beat me to the punch with Hatton1 and now DMF! LOL.

    Great interview as usual. I have DMF under the X-ray Beam series but it’s scheduled for Nov 1 :).

    Well since the next one in my series is you in 2 wks I hope you don’t trump that and put out a post on you before then 🙂

  2. “At the time of writing, our baby is 5 months old. Her annual salary is about $100,000”
    Damn! You have tell us your secret! Does she have her own clothing line? Modeling? My kid is almost a teenager and he makes zero money.
    Seriously though, great job on saving, investing and building wealth. That’s the way to do it. And I hear ya about HCOL in CA.

  3. Dr McFrugal you are doing lots of things right! I like that you found a job (and your wife) that has a pension and health benefits at 55. If I could give advice to a younger generation it would be to look for retiree health benefits. The pension is a nice perk too. You will not need a giant nest egg at all. Also I like that you are prioritizing savings over paying off a mortgage. I thinks this makes a lot of sense.

  4. @Millionaire Doc
    LOL! I didn’t even notice that funny sequence there! It would be amazing if Baby McFrugal was crushing it at $100,000 a year 😉

    Thanks for the words of encouragement! It means a lot, especially coming from you 🙂

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