This is Physician Finance Interview #8, 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 post is a bit different, because we interview a doctor in training rather than someone who has finished training. Given the target audience of this site, it made sense to do this.
The focus of the interview is to investigate how other doctors have handled their money, income earning potential, assets, debts, and much more.
Tag along as we discuss success, failures, and advice that I hope will prove useful to many! Please, leave comments below about the answers and your thoughts!
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
1. Take a second to tell us about yourself so that others can see if their story relates.
I am a 22 year old medical student and am currently in M1 year. I finished undergraduate school and got married approximately 3 months ago.
My wife works as an education coordinator at the same medical center where I attend school. We have both lived in Mississippi the vast majority of our lives.
2. What is your financial background?
I grew up in a household where saving and thriftiness were highly valued. However, my father was a high-income professional and was able to provide a good lifestyle while simultaneously saving. I never worried about finances because my father handled money so well. I also received a full scholarship to college, so I didn’t even have to worry about paying for school.
When I began dating my wife, finances became a bigger concern because I knew I would have to learn to make my own financial decisions and not depend on my parents. I figured out finance very rapidly by reading books and blogs.
My background in engineering led me to start creating financial models. I got better and better at creating these models, and eventually, I created a “lifetime model.” This model took input such as savings rate, asset allocation, return on investment, cost of living, and retirement age as independent variables. Afterwards, it used hypothetical stock market returns and interest rates to calculate net worth at retirement age.
Anyone with any experience investing would tell you that this model was worthless, and they were right in the sense that no model can predict the future. However, this computer model I constructed is what really taught me about finance.
Sure, every financial blog on the face of the earth is going to tell you savings rate matters, but how much does it matter? With this model, I got to see exactly how much savings rate matters (TPP: I have a post that shows the importance of this, too).
I like to say I have lived many different lives through this model. I modeled myself as a paycheck-to-paycheck profession, avid saver, and everything in between. The most important thing I learned from this model is that wise financial decisions at a young age pay huge dividends, which explains my current passion for finance.
3. Were you given a head start in the financial world in anyway? Let us know if the opposite is true, too.
My wife and I have enjoyed a wonderful head start: no debt. (TPP: That IS a great start! Congrats!)
When my wife and I graduated from undergraduate school, we had no student loans. In fact, we had a good chunk of savings. I also received a full-tuition scholarship to attend medical school. So, in many ways, freedom from student loans has been a head start.
4. What is your current net worth? List the assets that compromise your net worth.
Our current net worth is approximately $50,000.
We are in the process of finalizing the paperwork for our Roth IRAs, which are funded with $5,500 each. We have a taxable brokerage account with $10,000 in index funds. Additionally, we have approximately $30,000 in cash.
Dollars & Debt
1. List your current sources and size of debt.
We currently have no car loans, mortgages, or credit card debt.
I take out a student loan each semester because it is part of my military incentive as I serve in the reserves. The military allows me to take out a certain amount of student loans every year, and they will pay them off when I enter residency. So, I don’t really view that as debt, but I currently have $13,500 in student loans.
2. If you had/have student loans, what is your student loan repayment plan?
The military will pay off my student loans during residency.
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?
I decided to rent because my wife and I do not know if we will stay in place for residency. Renting is convenient and protects us from the hassle of home ownership. (TPP: This is smart, man, and the right thing to do in medical school and residency the majority of the time)
Income & Spending
1. What is your household annual income and will it be changing in the near future?
Our income is approximately $90,000 per year. I do not project this to change any time soon. My wife could possibly be promoted before I finish medical school, but this is at least a couple years away.
2. Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending.
We typically budget $2,600 per month, or $31,200 per year. These are our major fixed expenses every month:
Car Maintenance $50
The rest of our budget is kind of variable and depends on the month.
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 not currently give to any charities because we are still setting up our finances. We plan to give approximately $4,000 per year by the end of the year.
Saving & Investing
1. Do you have an emergency fund? Why or why not?
Yes, we have an emergency fund that covers a year of expenses. Our emergency fund gives us significant peace of mind and allows us to handle unexpected expenses with ease.
2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?
We save approximately 40% of our gross income. However, we do not try to save a certain percentage.
We just save what we can and 40% happens to be the percentage. My wife contributes to a PERS plan; we max out our Roth IRAs; I intend to max out my TSP (TPP: military retirement plan) every year; and we save money in a taxable brokerage account.
3. You mentioned your assets above. What is your investing philosophy?
We believe in low-cost index funds. We prefer a riskier portfolio and are not huge fans of bonds.
The conservative part of our portfolio is our emergency fund. However, crowdfunding real estate
opportunities continue to gain popularity and may be something we experiment with in the
future. I have also considered using CDs to maximize interest on short-term cash savings.
4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?
Cut costs as much as you can and stick money in low-cost index funds. Make sure you get the market return. Be patient in bad years and rejoice in good years. Prioritize saving early because it gets harder and harder to save.
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 do not plan to have kids for several years.
However, my plan is to drop $10k into a 529 plan for each kids shortly after they are born. I will likely contribute an annual amount every year after that. I plan to shoot for a low six-figure amount, not adjusted for inflation, for each kid by the time he or she hits college.
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 never want to stop working because I believe there are serious health and mental risks that come along with halting work. I love to work and learn. However, I would love to start working half-time at age 45. (TPP: This is part of my plan, too, though I’d argue there are other hobbies you can assume to fill in as work).
At this point, I plan to have approximately $3 million in investments, no mortgage, and fully-funded 529 plans. I used my model to predict this amount with a salary of $400,000 and a variable savings rate of 20% to 30%.
I also assumed that I would aggressively pay off my mortgage. Hopefully, by the age of 45, my expenses will be on the decline, and I can work enough to cover my cost of living and max out tax-advantaged accounts. I will get the benefit of more free time but won’t have to dip into our savings, which will be allowed to compound and grow.
At age 60, I plan to fully retire from medicine and focus on some yet undecided line of work.
2. How much will you be spending annually in retirement? Give us some details.
I plan to have a retirement income of approximately $100,000 per year.
3. If you plan on retiring early (before age 65), how do you anticipate handling health care costs?
After serving 20 years in the military, I will be eligible for Tricare Prime, and my healthcare costs
will be very low. (TPP: After discussing it further with the interviewee, he plans on serving in the reserves for 20 years while working in the civilian world while not deployed)
Advice & Farewell
1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?
Minimize debt in any way possible. It is very difficult to reach financial independence, but it’s even harder with debt slowing you down. Live a modest lifestyle and save. Make a financial plan and use that plan to motivate you to stay on track.
2. What is the toughest challenge facing physicians who are just finishing training?
Debt is most certainly the hardest challenge. Student loan interest rates are currently high and tuition keeps increasing. Tackle your debt and eliminate it. Never get comfortable with debt.
3. What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?
I see many of my peers taking way too much out in student loans because they have problems living modestly. Don’t fall into the doctor lifestyle. Never get sucked into a world where you spend all your resources trying to maintain a certain lifestyle.
4. What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?
White Coat Investor is a phenomenal resource. In my mind, Dr. Dahle wears a superhero cape.
(TPP: White Coat is a great resource. I send many of my residents and fellows his way, and buy my new advisees his book. I’ve also written a couple of guest posts for him: Return on Investments for Fellowships and Medical Expert Witness Work)
5. What questions do you have that TPP readers might be able to answer?
I have never tackled travel hacking credit cards. My wife and I love to travel, so it’s only a matter of time before I have to figure this out. At any rate, I could use some tips on this subject.
(TPP: I bet some of the readers on this site can help you out for sure. I also know that Physician on FIre has written about this one and has some good resources on it).
Thanks for taking part in the Physician Finance Interview Series!
For anyone interested in taking part, shoot me an email.