Announcement

Collapse
No announcement yet.

Finishing first full calendar year of attendinghood - need solid financial plan

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Finishing first full calendar year of attendinghood - need solid financial plan

    Hi everyone. 2020 is my first full year of being an attending, so I've been trying to do some financial planning on my own this year, which has been pretty much just maxing out retirement stuff. I didn't put too much thought into planning for the future beyond that, but I figured I'd finish my first full year and then start real financial planning starting in 2021. I left residency with $25K in savings and $340K in student loans and nothing in any retirement accounts.

    Stage of Life: 1.5 years post-residency

    Social Situation: 34 years old, no spouse or dependents yet

    Annual Income: $450K to $500K

    Net Worth: $150K (cash, not including retirement accounts)

    Tax Bracket: 46.3% (35% Federal, 11.3% state)

    State of residence: California

    Insurance Policies:
    -$15K Principal specialty-specific disability insurance
    -$2 million term life insurance (30 year)
    -Occurrence malpractice insurance provided by employer
    -Renters insurance (need to check coverage, but it's not much)
    -Auto insurance (need to increase liability coverage, think currently at $150K)
    -High deductible health insurance plan with HSA option
    -No umbrella policy yet, just learned about them recently


    Debts:
    -$280K private loans at variable rate, currently 0.11% interest rate this month
    -car is paid off, but may buy in tax year 2021
    -no mortgage now, but looking to buy in 2021
    -not debt, but I give my parents $1.5K monthly

    Assets:
    -Solo 401K - $76K
    -100% in Charles Schwab Target Date Fund (2053-2057) SWYJX
    -HSA - $4K
    -currently not invested, just in the account in cash
    -Taxable account - $10K
    -currently all in TSLA, didn't purchase until after the split



    Questions:
    1. I refinanced my loans into a variable rate 10 months ago into a 5-year repayment plan. The interest rate was just too attractive to not take. It's been hovering around 0.11% since March. I pay around $5,500 monthly in student loans. Should I look into refinancing again to extend the term while interest rates are still low to decrease the payment and have more cash on hand? If I do refinance, it'd be my chance to lock down a fixed low interest rate. But this 0.11% I have going is pretty sweet right now. I'm very hesitant to touch it while the rate is so low, but it's also a big chunk of money every single month that just "disappears".

    2. What more can I do on the investment front? I'm maxing out my HSA and my Solo 401K. I keep planning on putting money monthly into my taxable brokerage account, but am afraid I'd just lose money buying stocks. How should I allocate my investments?

    3. My Solo 401K is all in a Schwab target-date fund for now since that's where I put my money initially and just kept adding to it. Should I switch to Vangard and buy some Vangard ETFs instead? Is there a reason I can't just keep my money at Schwab and use it to purchase Vangard ETFs through Schwab?

    3. I'm looking to purchase a home soon since I pay $1800 in rent monthly. Should I taper down the retirement account contributions to save that money for a down payment? My initial thought was to max out retirement since there's good tax savings there, but just hold off on adding to my brokerage account or a Roth so that the cash is available for down payment.

    4. What do you guys think about dividend stocks? I was thinking of focusing on dividend stocks for long term passive income since I'm a contractor and no pension. In theory, it'd be nice to know I have like $150K yearly coming just on dividends.

    5. Any other tips or ways to invest I haven't thought of?

    6. In my situation, with high monthly expenses mainly due to student loans that will be paid off in around 4 years and 2 months, how much should I pay for a house? To live in an an at least okay area with a good school district is going to be $600K minimum, but I feel like $750K-900K is where the sweet spot is in Southern California. The housing market is crazy right now and prices are skyrocketing. I'm hearing lots of deals are above asking with no contingencies (even waived inspections). Ideally, I'd like to be buying a $2.8 million home in a coastal Orange County area, but maybe that will be for a forever home later when I get married and have kids. For now, I'd like a place I can live for 2-4 years and then turn it into a rental. If I buy in 2021 and be really aggressive, I can probably handle a $100K-$150K down payment. Initially I was set on looking only at single family residences since I've spent my whole life with shared walls and am sick of it, but now thinking maybe a townhome or condo (end-unit) in a very good area would be a smart compromise. I listed my monthly expenses below:

    Monthly expenses:
    -$2000 rent/utilities
    -$5500 student loan payment
    -$1500 support to parents
    -$4750 Solo 401K contribution (pretax)
    -$290 HSA contribution (pretax)
    -$200 Term-life
    -$175 cellphone bill (I pay for entire family plan)
    -$100 gas
    -$75 auto insurance
    -$35 streaming services

    Total monthly expenses before groceries/restaurants/fun comes to $14,625. Since the retirement accounts are pretax, that's effectively around $12,500 monthly posttax. Sort of scary to see what my expenses add up to monthly. I guess the retirement accounts aren't really "expenses", but for budgeting for a home purchase, I figured I should know how much cash I have on hand monthly after expenses. After taxes, it leaves me with around $10K-$15K monthly after taxes to invest, save, or spend.
    Last edited by boneblancer; 10-22-2020, 12:57 PM.

  • #2
    Originally posted by boneblancer View Post
    I left residency with $25K in savings and $340K in student loans and nothing in any retirement accounts.

    Social Situation: 34 years old, no spouse or dependents yet

    Annual Income: $450K to $500K

    Net Worth: $150K (cash, not including retirement accounts)

    Tax Bracket: 46.3% (35% Federal, 11.3% CA)
    -- yup

    Insurance Policies:
    -$15K Principal specialty-specific disability insurance
    -$2 million term life insurance (30 year)
    -Occurrence malpractice insurance provided by employer
    -Renters insurance (need to check coverage, but it's not much)
    -Auto insurance (need to increase liability coverage, think currently at $150K)
    -High deductible health insurance plan with HSA option
    -No umbrella policy yet, just learned about them recently
    -- easy to get, cheap, get 1-2MM to start.

    Debts:
    -$280K private loans at variable rate, currently 0.11% interest rate this month
    -car is paid off, but may buy in tax year 2021
    -- another tesla thread....
    -no mortgage now, but looking to buy in 2021
    -not debt, but I give my parents $1.5K monthly
    -- watch out for gift rules

    Assets:
    -Solo 401K - $76K
    -100% in Charles Schwab Target Date Fund (2053-2057) SWYJX
    -- fine
    -HSA - $4K
    -currently not invested, just in the account in cash
    -Taxable account - $10K
    -currently all in TSLA, didn't purchase until after the split
    -- bdrIRA.....
    -- efund....


    Questions:
    1. I refinanced my loans into a variable rate 8-9 months ago into a 5-year repayment plan. The interest rate was just too attractive to not take. It's been hovering around 0.11% since March. I pay around $5,500 monthly in student loans. Should I look into refinancing again to extend the term while interest rates are still low to decrease the payment and have more cash on hand? If I do refinance, it'd be my chance to lock down a fixed low interest rate. But this 0.11% I have going is pretty sweet right now. I'm very hesitant to touch it while the rate is so low, but it's also a big chunk of money every single month that just "disappears".
    -- depends what you would get for fixed rate.
    -- however, assuming its <2% for all 5 years i would just plan to pay it off in 5 years and that be all the brain power i put towards it.


    2. What more can I do on the investment front? I'm maxing out my HSA and my Solo 401K. I keep planning on putting money monthly into my taxable brokerage account, but am afraid I'd just lose money buying stocks. How should I allocate my investments?
    -- bdrIRA. assuming you are doing 57K in solo.
    -- stop messing around with individual stocks and do some reading to come up with a plan....

    3. My Solo 401K is all in a Schwab target-date fund for now since that's where I put my money initially and just kept adding to it. Should I switch to Vangard and buy some Vangard ETFs instead? Is there a reason I can't just keep my money at Schwab and use it to purchase Vangard ETFs through Schwab?
    -- its Vanguard.
    -- no because you dont understand that sentence you wrote.
    -- what ETFs are you going to buy? why dont the schwab ETFs work instead?

    3. I'm looking to purchase a home soon since I pay $1800 in rent monthly. Should I taper down the retirement account contributions to save that money for a down payment? My initial thought was to max out retirement since there's good tax savings there, but just hold off on adding to my brokerage account or a Roth so that the cash is available for down payment.
    -- goal is 20% to retirement. thats 100K. you dont seem there yet.
    -- then you save for a house/car/vacation after that.


    4. Any other tips or ways to invest I haven't thought of?
    -- read the entire blog, boglehead books, etc, etc

    5. In my situation, with high monthly expenses mainly due to student loans that will be paid off in around 4 years and 2 months, how much should I pay for a house? To live in an an at least okay area with a good school district is going to be $600K minimum, but I feel like $750K-900K is where the sweet spot is in Southern California. The housing market is crazy right now and prices are skyrocketing. I'm hearing lots of deals are above asking with no contingencies (even waived inspections). Ideally, I'd like to be buying a $2.8 million home in a coastal Orange County area, but maybe that will be for a forever home later when I get married and have kids. For now, I'd like a place I can live for 2-4 years and then turn it into a rental. If I buy in 2021 and be really aggressive, I can probably handle a $100K-$150K down payment. Initially I was set on looking only at single family residences since I've spent my whole life with shared walls and am sick of it, but now thinking maybe a townhome or condo (end-unit) in a very good area would be a smart compromise. I listed my monthly expenses below:
    -- goal is <2x income:mortgage.
    -- your goals sound......wrong to me.


    Monthly expenses:
    -$2000 rent/utilities
    -$5500 student loan payment
    -$1500 support to parents
    -$4750 Solo 401K contribution (pretax)
    -$290 HSA contribution (pretax)
    -$200 Term-life
    -$175 cellphone bill (I pay for entire family plan)
    -$100 gas
    -$75 auto insurance
    -$35 streaming services

    Total monthly expenses before groceries/restaurants/fun comes to $14,625. Since the retirement accounts are pretax, that's effectively around $12,500 monthly posttax. Sort of scary to see what my expenses add up to monthly. I guess the retirement accounts aren't really "expenses", but for budgeting for a home purchase, I figured I should know how much cash I have on hand monthly after expenses. After taxes, it leaves me with around $10K-$15K monthly after taxes to invest, save, or spend.
    live.like.a.resident.

    Comment


    • #3
      Why do you have life insurance ?

      Comment


      • #4
        You say your net worth is $150k, but then say that’s cash outside of retirement accounts, so I think you may misunderstand net worth, or I misunderstand what you wrote.

        Net worth is total assets -total liabilities

        So it sounds like your total assets are 150k cash + 90k 401k/HSA/taxable brokerage = 240k

        total liabilities=280 student loans

        so total net worth is 240k - 280k = negative 40k

        I think peds gave you good initial advice above. First step is to read more. I would personally put a lid on that house fever until your NW is at least +100,000 and you have a better understanding of your overall financial plan, and better comfort with investing (hint—you can do index fund investing in your taxable account too...and you need to get comfortable with investing in your taxable account as you are probably not going to reach 20% towards retirement without it at your income)
        Congrats on finishing residency and working towards coming up with a plan.

        Comment


        • #5
          Are you in a serious relationship? I'm just wondering what the rush to buy a house is all about. Rent one if you don't like sharing walls but you need to pay off those student loans before racking up mortgage debt. You've got a healthy income but you are spending quite a lot for a single guy and not giving yourself much room to grow in your spending should you have a family in the future. To put it in perspective, you spend more in a month than we do with 2 kids, a nanny, a mortgage and a cabin. Our income is higher as well. This is your chance to set the stage for real success if you'll get your debt squared away before buying a home. And personally I'd really reconsider buying a $3M home on 500k income. . . Ever. But I know everyone in CA thinks 4-5x income on a home is normal so I may not convince you on that one.

          Glad you are here, stick around and you'll learn a lot!

          Comment


          • #6
            You are making an admirable record. At some point, please at least consider interviewing a few fee-only financial planners to get some perspective on the difference between DIY and tracking your balances and true financial planning and achieving true clarity on the multiple intersecting decisions you need to make to optimize your path to FI. Should you get married, the complexity goes up about 50%. When you have kids, it goes up another 25% - 50%+ (depending on the cost and education goals).

            Really not trying to “sell” a service, just hope you will consider finding out the gaps that may be in your current plans - that you will be frustrated by or (even worse) completely unaware of (bad sentence structure, I know!) At your income level, you have a lot of free cash flow and many planning alternatives. Financial planning is about making good choices, not gathering assets for investment (at least in the firms I think of as “planning” firms). The biggest reason to consider planning now rather than 10 years from now is the opportunity to avoid looking back and wishing you had made decisions that would have had significant impacts on your path to FI and retirement. Actually, even moreso, on your current peace of mind and a clear perspective on your future path. It doesn’t take long to interview 2-3 planners recommended here and, even if you continue to DIY, I bet you will learn some helpful info. You really have nothing to lose.

            fwiw - the “best financial advisor” list of 10 is not in the order of the vetted “best” to lesser “best”. It is in the order of those who are willing to pony up an amount to be listed in order of cost of placement. I don’t doubt that the list contains excellent advisors from 1 - 10, but the ranking indicates only the cost of the number. Truth be told, when it came out, I asked for #10 and took the next highest placement that was still available “for sale”. Nothing wrong with the way WCI structures it and very typical of other websites that have these kinds of lists, but at least Jim’s advisors are all held to a somewhat similar standard.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7
              Don’t save for a house. You have no reason to own right now, especially in a good school district. Pay down your loans, Backdoor Roth, max retirement and HSA, live like a resident (not the one who recently bought a Tesla), and save the rest. At this stage in your career without a family I’d stay flexible from a living situation perspective. You need to be nimble with living arrangements re: significant other and re: job.

              Comment


              • #8
                Comp-taxes-retirement (20%) = spending
                That includes your SL and savings for a house AND any wealth building.
                •You are broke !
                • Now you want to make a purchase so you will be more broke. And spend more on a depreciating asset as well. Investing you chose a story stock with zero diversification. And you don’t have an umbrella nor designated EFund.
                • The best thing going is the income, short on retirement (by half) and paying on the student loan. Learn how to diversify and manage your spending to achieve your goals. Specific financial goals
                Sounds harsh, not the intent. VHCOL and high tax rates limits what you can accomplish and how soon. Shout out for helping your parents, but that is spending.
                You will need a taxable account. Stock/muni’s
                Total world or S&P 500 index is a good place to start. 10-20% bonds max. Make your big shovel work for you for the next 5 years. Hint, get out of debt before you take on more. Live like a resident.
                You can have anything you want, just not everything.
                • Find the new attending waterfall and the investment policy statement. Congratulations on taking your first steps. You need a bdRoth by the way.
                If you don’t know where you are going, you’ll end up someplace else.” (Yogi Berra)

                Comment


                • #9
                  Agree with others that now is not the time to buy a house.

                  Buying a rental property vs primary residence involve two different strategies when it comes to evaluating whether or not it is a good purchase, and most often there is not much overlap.

                  Comment


                  • #10
                    Simple:

                    Rent. Cancel life insurance. Keep a small but reasonable cash balance (25-50k?). Pay off your loans in the next 12 months. Convert all single stocks into index funds. Max deductibles and coverage on all insurance. Save 20% of your gross, as much as possible into tax preferred. Select an aggressive asset allocation for the near term. Marry someone frugal. Drive your car until at least 150k miles. Move out of California.

                    That’s it.

                    Comment


                    • #11
                      Is the parental support for the rest of their lives or a few months? No dependents...no life insurance needs. Get an umbrella now.

                      Comment


                      • #12
                        4. What do you guys think about dividend stocks? I was thinking of focusing on dividend stocks for long term passive income since I'm a contractor and no pension. In theory, it'd be nice to know I have like $150K yearly coming just on dividends.

                        this might be a good choice if you want to pay higher taxes when you are young , if this in a broker account. I would stick with a Total market fund, unless you put it in a tax advantaged account, but then you should not worry about dividends now, I would worry more about total return , esp while you are young

                        Comment


                        • #13
                          Originally posted by Peds View Post

                          live.like.a.resident.
                          Thanks for the point-by-point comments! The tax bracket here in CA is definitely a bit crazy. I knew it was high, but I've never added up the two parts together to see what the full amount is. And I'm a contractor so I pay both halves of FICA tax.

                          I definitely need to get on the backdoor Roth. I"ve been reading a bit on it and, am I right to say that there are no limits to how much can go into it? That it's not limited to the $6K since it's a backdoor anyway and I'd just put any amount I want into a normal IRA and then convert? Would dividends be tax-free in the Roth as well? Since you're saying 20% should go to retirement, I guess it would be beneficial to put around $40K here yearly versus in a taxable account if that taxable account is meant to be used in retirement anyway.

                          My housing "goal" was sort of tongue in cheek. I doubt I'd ever afford that kind of house nor would I really want the headaches of a house that expensive. But I definitely want to own property since paying rent seems a waste and I've been paying rent for so long now. My thinking was to take advantage of the low mortgage rates and buy something affordable that would result in a monthly mortgage payment about equal to my monthly rent. After utilities, my 600sqft apartment runs me $2K monthly. And that's on the low end around here. Renting a house is usually $2500-3500 monthly before utilities, and that is what a mortgage payment would be on a $700K home.

                          Comment


                          • #14
                            Originally posted by Random1 View Post
                            Why do you have life insurance ?
                            I originally signed up for the insurance at the end of residency when I signed up for disability insurance. It was because I kept hearing about how it's cheaper to buy while young and you never know when you may not be insurable.

                            I don't have dependents now, but I do expect to in the future. I felt like buying term life was a small price to pay to have the policy there. Plus, I had a large student loan burden ($340K), was anticipating having a mortgage, and parents still have a mortgage. So I figured I should have a policy that could pay out to cover all of that.

                            Comment


                            • #15
                              Originally posted by Hatton View Post
                              Is the parental support for the rest of their lives or a few months? No dependents...no life insurance needs. Get an umbrella now.
                              Sounds like his parents *are* his dependents?

                              Comment

                              Working...
                              X