New Attending, minimalist lifestyle, how to plan financially?

[Medstud21]

Hi guys,

long time lurker. I’m a little more than one year in practice. Come from a very humble background with little financial knowledge/planning. My parents were working poor people who lived paycheck to paycheck with no savings/retirement. Wife has a similar background. In addition, we don’t plan on living large and are kind of minimalists. We do want to have a rather secure and sound financial plan, I hate financial advisors and rather do it myself.

Background:
- one year into practice, a surgical sub specialist
-Married with 3 very young children (under 5)
-wife was working until the last child a few months ago but has now decided to be SAHM for foreseeable future (made about 75k).
- I made about $600k my first year, this year is likely gonna between $650-$750k.
- No credit card or car debt
- owed 425k in student loans, I’m now down to 125k (paid 300k the first year).
- wife has no student loans
- Live in a suburban area with average-above average COL in a modest rental.
- only savings so far is my 401k from last and this year, roughly 50k with employer match. Wife has another 50k or so in her 401k.
- planning on paying my loans on the next few months on full, maximum by summer of 2021.
- have term life and own occupation disability insurance

Now what should I be doing once I am done with loans? I plan on starting 529 for my children and a 457b from my work. What else? We are likely to buy a house probably in 400-500k range in next 2 years if this job keeps working out. Have no plan on extending our lifestyle more than what it is. Planning to shoot for 700k-800k/year for income if all goes as planned (so far working out well). Would appreciate any advice.

[CordMcNally]

You should be maxing ALL of your tax advantaged retirement accounts today. ALL of them. Then you can pay off the rest of your loans, etc. Make sure you have a proper emergency fund as well as a personal investment policy statement that will help guide you. Make sure you're insured for appropriate amounts.

All you have to do is not muck things up. That's it. With your income and lifestyle, you'll have plenty of money to do what you want. Make sure you treat yourself/family along the way.

[wideopenspaces]

Wow, you're killing it! Sounds like you'll need to open a taxable account after you pay off your student loans. Also a good idea to have a 6 month EF on hand since you are the sole earner. I know you want to keep your lifestyle to a minimum but maybe consider increasing your budget to include a sitter, housecleaner, someone to do lawn care, etc to give you and your wife a break and so you can spend your freetime doing things together. Maybe you don't want to start that during covid, but after we (hopefully) get a vaccine. Anyway, keep up the good work!

[Lithium]

You should be maxing ALL of your tax advantaged retirement accounts today. ALL of them.

This. If you want to do the 457b (which is not a straightforward decision if it's non governmental), you have less than two months to take advantage of it. If the answer is YES, dump most of your paycheck here.

If you have an HSA and want 2020 contributions to come out of your paycheck, you may have the same issue. Technically you have until the tax deadline to make those contributions but you'll have to see if your employer plan will allow it, or if that has to be done by the end of December.

Have you not done the backdoor Roth yet?

[EntrepreneurMD]

Everyone is going to take their own path but I did things similar to you so I'll give you an idea how I got to an 8 figure NW by about 40, now mid-40's. We have two teenagers. I'm a PCP so I probably started a little younger than you, but our initial household income was not as large a cannon as yours.

We always retired any debt within 3-5 years as a rule. Seems you like that too. That included homes, commercial properties. student loans and automobiles, all pleural. Two were 7 figure loans, at higher loan rates than today so it's certainly doable. All credit cards were/are/will be paid off monthly, unless they have 0% intro periods.

While aggressively paying off any recurring debt, we simultaneously maxed out tax advantaged retirement accounts. I went a bit more aggressive than indexing. 20 years later, this year is the first time we hit a 7 figure 12-month return in our tax advantaged retirement accounts. Building blocks for a secure retirement in 20 years. These accounts currently represent about 15% of NW. Hopefully more milestones to come, compounding on this one.

Now midway into our career, our current household income has quadrupled from our starting, post-training. Hopefully another quadrupling by retirement. This is hard to do salary wise. In our case we did it thru business ownership, taxable investment accounts, real estate ownership, etc. Another reason we did all this is that it is more (semi-)passive with recurring dividends versus our active jobs that only pay once for a service. As such, I only now see patients 3.5 days/week with no weekends, mornings, nights, holidays, etc. Hospitalists take hospital call for me, employed providers taking office call. May cut hours further when adding more providers, don't want to fully give up direct patient care right now.

All but 1 of our 4 current cars are over 10 years old but low mileage reliability. 3 paid in cash, the fourth (>$150K purchase) paid off within 1 year.

We've stayed in our current home for 15 years now. I would say for a family of five, you may want to spend a little more in a MCOLA+ for a well functional home in a good school district, unless you are not planning to stay in it into the kids teenage years (recommend each have their own bedroom and separate bathrooms as teens).

Buying more time/shared family experiences and less stuff is more important to us at this stage. Looks like you also ponder what you want in life carefully. That usually changes a bit over time. Looks like you married someone who is financially astute as well. Stay married, stay happy, stay healthy, be generous.

Good habits make for a good recipe of accomplishments in life's journey, even beyond finances.

Wish you well.

[WorkforFIRE]

401k Max
457 max
backdoor roth for you
HSA max
529 max per kid

12 months EF - this is personal choice, and this is what I would do bc you are sole provider of family, but 6 months is fine.

taxable - everything else (minus expenses)

Figure out your investment strategy, typically some ratio of stocks to bonds. Two options:
- total stock market index (VTSAX)
- bonds (VBTLX)

I think if you do this for 10 years with your current lifestyle, you will likely FIRE.

congrats on your life choices. Hopefully your kids have the same mindset like you when they grow up, which I think they will.

good luck!

[racelari]

well done man!!! for somebody who says he has no financial knowledge, your ability to make high income and save a bunch of it while paying off debt is impressive!!! Your are knowledgeable and you didn't even no it. your so money you don't even know it!!! that being said I echo WorkforFIRE above but would prioritize putting money in a taxable account before funding the kids 529, making sure your are putting away 20% of your income for retirement. also, make sure you have term life and true own occ disability insurance, as well as umbrella insurance. Have you read the White Coat Investor book yet? Great place to start, and also read the second White Coat Investor Bootcamp book as well.

[Tim]

401k Max
457 max
backdoor roth for you
Taxable. You need to hit 20%-25% Retirement savings per year
HSA max
529 max per kid
.

12 months EF - this is personal choice, and this is what I would do bc you are sole provider of family, but 6 months is fine.

taxable - everything else (minus expenses)
THIS is your separate investment account. If down the road you diversify outside investments, that is fine. If you stash house savings, cars ,whatever here in short term equivalents that works too.

Figure out your investment strategy, typically some ratio of stocks to bonds. Two options:
- total stock market index (VTSAX)
- bonds (VBTLX)

I think if you do this for 10 years with your current lifestyle, you will likely FIRE.

congrats on your life choices. Hopefully your kids have the same mindset like you when they grow up, which I think they will.
good luck!

https://www.whitecoatinvestor.com/th...irst-paycheck/

You need to work on your insurance.
Own occupation DI(adequate?)
Term life- you/spouse , probably 2 each different lengths (one for kids needs and other in case of spouse).
Personal Umbrella on top of either renters or auto.
You need a will and trust for you and spouse to take care of the kids, and POA’s.

I see your WAR (wealth accumulation rate) being most advantageous if you hold off buying a house as long as possible (5 yrs), even if you rent higher and it fits your needs. The strategy is to get financial capital planted and growing ASAP.
You don’t need to get fancy with investing. Put your retirement savings on autopilot an tax efficiency is the only other complication.

Mortgage max at 2x gross. I doubt you will need it from you plan.

Now, the biggest adjustment in 5 years for you and your spouse will be how to live within your means. Seriously, life is more than saving. You both need to learn how to plan on spending, at least some. It’s ok to spend on experiences or things of value to your family. Hold off on the boat, rent it! You will be fine with your plan.
Set your goals and make them happen.

[jfoxcpacfp]

As a member of the hated group, I’ll assume you’ve had a bad experience that has tinted your view of the planning world and barge in with a few suggestions:

• You must buy umbrella (aka PUP) coverage. You may have low net worth now, but a settlement can include future earnings.
• Make sure you have adequate and appropriate term and LTDI coverage. Just “having it” tells us nothing. You need to run some kind of gap analysis that will let you know if you have too much or too little. Use the scenario of if you did/became disabled in the next year and if your spouse became disabled.
  • Given that she is a SAHM with 3 babes, you want to make sure she w/b able to maintain the standard of living you want your family to have in the event of your demise or disability (we typically add another $20k/yr additional support expenses in the event of LTDI). As a surgeon, LTD is a huge risk for you.
  • Given the understandable trauma your children (and you) would be experiencing in the event of mommy’s death, she needs to have enough term life insurance to allow you to do whatever you need to be available for them and grieve for as long as you need.
• Absolutely essential to have a well-considered estate plan in place and I d/n mean a DIY internet version. I’m sure you’ve heard the saying “penny wise and pound foolish”. That is a good maxim to remember for critical, life-changing decisions.

As you mature, I hope you will broaden your horizons to not paint every member of a group with such a broad brush. You have much at stake and, while I believe your and your wife’s upbringing will serve you well in spending, you don’t know what you don’t know and that can be a bad place to be, especially for high-income physician families. Spend Less, Hate Debt, Save More, Make a Lot of Money is a rather rudimentary plan and, while I am confident that you will be able to live a life not worrying about running out of money, you may want to dig a little deeper into your potential.

Some of the finer points that may impact your enjoyment of life in general may elude you when you lack clarity about what it all means to your family, given your specific goals (and even those are sometimes difficult to flesh out). Having this knowledge can provide the mental “safety net” to empower you to make earlier and more appropriate QOL decisions that will allow you and your family to enjoy your existence more now rather than wrapping yourself in the safety blanket mentality of saving everything possible until you feel “sure” you’ll be ok (which may never come) and leaving this world with $100M.

[xraygoggles]

I was in a very similar situation as you are (in terms of comp and student debt burden) first year out of training.

Here is what I did: Paid down 250k student debt, even though it was 1.95% rate since I was naive and didn't have a firm grasp of debt paydown vs time value of money. Saved only high-5 figure in combo of taxable/401k first 1.5 years.

Here is what I should have done: let the very low rate fixed debt run, and make minimum monthly payments. Plow everything else into taxable account and other investments. You really start to see compounding once you get in the high 6 figures and especially in the 7 figures.

In the end it worked out for me, since I lost very little during covid crash, and plowed 250% worth of leverage into investments afterwards. But even if there wasn't a crash at that time, I would still have plowed everything into investments vs. paying down debt.

[Tim]

The question of carrying debt is both a math and risk question. The math is easy, which after tax return is the best. Typically, one should consider the risk before the return. Jumping the gun, I speculate that you don’t want to leverage very much. Not the preference of everyone.

[Medstud21]

Thanks for your replies guys. I currently do not have a back door Roth and will start it in Jan. Loans will be fully paid off in February from what it looks like. Kind of feel burnt on not capitalizing on the bull run the last few months, but I really wanted to get rid of the debt.

[TheDangerZone]

Thanks for your replies guys. I currently do not have a back door Roth and will start it in Jan. Loans will be fully paid off in February from what it looks like. Kind of feel burnt on not capitalizing on the bull run the last few months, but I really wanted to get rid of the debt.

If for some reason you don’t have the 12k right now for the backdoor Roth for you and your spouse, you can (and should) do a back door Roth for 2020 up until April 15th. You just need to make sure you designate it for 2020. Then you can do it again for 2021.

There is zero reason not to do this.

Congrats on plowing through those loans. Sounds like you are very debt adverse. Wonder if you’ll feel the same way about your mortgage?

[JBME]

don't feel too burnt on missing out of returns. The best time to start investing is yesterday. But the second best time to start investing is today! so you got the second best time. many others behind you

[MD_Spouse]

Thanks for your replies guys. I currently do not have a back door Roth and will start it in Jan. Loans will be fully paid off in February from what it looks like. Kind of feel burnt on not capitalizing on the bull run the last few months, but I really wanted to get rid of the debt.

We felt the same way! We had prioritized student loans payoff and just started contributing to our Roth in November. We were certain the market would tank right after our contribution, yet here we are making money. I know it could all tank tomorrow, but it just shows you really don't know when the market is at the top.