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CYAI - It’s Back! Afford both college AND med school for the kids?

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  • CYAI - It’s Back! Afford both college AND med school for the kids?

    Yep, this week’s analysis is about a family physician who bases his financial decisions on gut instincts, has no 529s, kids 3 and 5 yrs away from graduating HS, AND who hopes to pay the full cost of college and med school for both. I’m not sure if the goal is as surprising as the facts of the case - see for yourself!

    For those new to CYAI, I prepare this bi-weekly analysis for personal enjoyment only, no remuneration involved other than the ad that XRAYVSN asked to post. Not sure how much longer I’ll be able to spare the time to do so as our practice continues to grow pretty rapidly, but we have submissions for at least the next several months and I don’t intend to leave any submissions hanging. Click here if you’d like me to analyze your own financial dilemma.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

  • #2
    Nice.  Kind of same thread of the paying for daughter's education and PSLF.   I'm sure Dr. Don is thinking that already.

     

    'Dr. Don has first world problems. Currently maintains a highly conservative balance after 'winning' the real estate game and positioned to double down with that high cash balance. He continues playing the interest arbitrage credit card floats despite this and that's fun to see him doing that

    Like Johanna's assessment, his largest benefit would come from optimization of his current assets and planned spends.

    529 funding for the kids for both college and grad - every penny earned now -- even if continued cash funds, is 2%+ tax free then it's now sitting in taxable funds. One for each child and each parent front loading their funds.

    DAF for ANY of the appreciated stocks (if any) since they tithe regularly.

    Plan and protect current RE assets with planning for generational transfer. This is the probably the single largest benefit they can do for their kids beyond the straight funding of their education.

    CYAI? Resounding yes. Optimize it for tax and wealth transfer---have opportunities there.'

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    • #3
      This is an easy one. He can afford it and should do it. QED

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      • #4
        He has a net worth of 13-15 million now and plans to work another 21 years. Spending $800k on education is only 1 year of savings. In any circumstance, this is an estate planning scenario.

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        • #5
          Thanks for the summary Vagabond!
          I don't feel compelled to drive any more traffic to that site.

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          • #6
            Of course he can afford it. I bet he does not work 21 more years.

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            • #7
              I just had to comment on the emergency fund. I don't know what exactly to call what he has but it's something much more than an emergency fund.

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              • #8
                Why even mess with credit card or car loan when you have almost 2 mil in cash? I mean I know the math works out OK but just seems like hassle for little gain to me.

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                • #9


                  Yep, this week’s analysis is about a family physician who bases his financial decisions on gut instincts, has no 529s, kids 3 and 5 yrs away from graduating HS, AND who hopes to pay the full cost of college and med school for both. I’m not sure if the goal is as surprising as the facts of the case – see for yourself!
                  Click to expand...


                  When I read your intro... I thought "A typical FP doc makes about $250K... no way when they have not saved anything in 529!" Then read the story... wow... they have done very well.

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                  • #10
                    I think this is still an aggressive allocation at this age.

                    The liquid funds you need to net out in terms of asset allocation. He has 1.8M cash but 2M in loans. So his net cash position is 200k debt.

                    So his AA is (according to my reading):

                    Home : 2M (with mortgage 375k)

                    Real estate : 3.5M (with debt 1.5M)

                    Liquid assets 1.8M

                    Taxable brokerage : 250k

                    Other liabilities (auto, cc): 125k

                    Business: 4M

                    This to me is a more aggressive AA than a 110% index ETF allocation.

                    With property, you can be required to save a significant amount to fund a property so it can be lumpy and cash will often need to be accumulated.

                    As an example, I currently have 900k in cash equivalents in a retirement account. My plan is to buy a property with this at some stage. I have a loan on another property in my taxable account with 450k loan. So in my mind, my net cash position is 450k. This may seem like a lot, but it is less than 5% of assets. To me, my portfolio is more risky than a 100% ETF stock portfolio, despite what seems to be a large dollar amount in cash equivalents, due to the inherrently higher risk in the properties I have and also the undiversified risk. I would view the OP's portfolio as possibly riskier than mine, although it depends on the nature of the business and real estate.

                     

                     

                     

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                    • #11




                      Why even mess with credit card or car loan when you have almost 2 mil in cash? I mean I know the math works out OK but just seems like hassle for little gain to me.
                      Click to expand...


                      It's like clipping coupons.   Hard habits on money savings are hard to break.

                      I continue to have to limit myself to do every credit card churn opportunity--it's really easy free money to do during commercial breaks.

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                      • #12


                        our practice continues to grow pretty rapidly
                        Click to expand...


                        Congrats. Well deserved.
                        Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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                        • #13
                          Congrats to the doc for his incredible financial success, especially as a FP.

                          The 800K for tuition represents only 5% of his gross income over the next 12 years, during which time he could cash flow this expenditure. Alternatively, he could set aside 6% of current net worth to pay future education costs. These percentages are a very small amount of his net income/wealth. So yeah, he can obviously afford it.

                          Ultimately this is not question about math, but of psychology and behavior. It is fascinating to ponder what drives a true one percenter, in both income and net worth, to ask the question in the first place?  Fear, ignorance, insecurity, something else? This is not to impugn the good doctor, he seems to have a good head on his shoulders, and that is what makes the question all the more curious. He doesn't seem to be a miserly Scrooge McDuck type either, amassing money just for accumulation's sake. After all, he gives generously, spends a lot, though not compared to his income, and invests the rest. Seems reasonable. It would be interesting to hear what he has to say about his motivations for the question.

                           

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                          • #14


                            Congrats. Well deserved.
                            Click to expand...


                            Awww - thanks!
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • #15


                              When I read your intro… I thought “A typical FP doc makes about $250K… no way when they have not saved anything in 529!” Then read the story… wow… they have done very well.
                              Click to expand...


                              I know - pretty amazing, huh?
                              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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