My Financial Situation

[smg]

Would appreciate your comments / suggestions on my financial situation.  I will try to make this as brief as possible.

 

42 yrs old, married, 2 kids (11, 10)

ER physician in CA, graduated from residency 2014.

My wife doesn’t work at this time.

Kids go to public school.

We rent a home.

 

As of Day 1 of being an ER attending in Aug 2014, my debt totaled $373K:

• Credit Card $25,000 (at ~13%)


• Student Loans $300,000 (Public: 240K @ 6.8%; Private 58K @ 5%)


• Car Loan #1 $14,000 (Mazda 2012 @3.2%)


• Car Loan #2 $23,000 (Subaru 2013 @ 5%)


• Parents Loan $15,000 (at 0%)

I/we had no assets besides my wife’s 401K worth about 80K.

Now you may have noticed above some crappy car loan rates.  That is due to us having bad credit.  We used to own a rental property in Arizona.  We lost money every year.  Moreover our losses occurred during the market housing bust.  So we decided in 2011 to foreclose on our property (we lost 50% of house value and were losing money every month).  At the time we were willing to take the hit to our credit.  Perhaps that wasn’t the right thing to do.  But the past is done and right now we have a delinquency on our credit.  This makes it difficult to be approved for any loans, and if we are approved the rate is not competitive.  The key thing is that I expect our delinquency to be removed in 7 years, so sometime in 2018.  The good news is our credit scores are ~ 750, hopefully higher.

I’m an independent contractor doctor. I have steadily increased my workload to 18-20 shifts/month.  Last year I worked 2000 hours, made $440K.  Fed taxes = 23.2%, CA taxes = 5.6%.  This year I will probably make about the same.

 

I am *pleased* (not ecstatic) about how much I’ve paid down. Since Aug 2014 I have reduced my debt from $373 K to $211 K.  My debts are

• Student Loans $188 K


• Car #1: $7 K


• Car #2: $16 K


• No CC debt!


• No parental debt!

Monthly expenses:

• Rent, phone, Health Insurance, TV, etc = $6.5 K


• SEP-IRA = $4K


• HSA = $550


• All Loans = $4,000 (I am basically doubling my student loan payment, sometimes more).

Some Comments:

• I’ve tried refinancing my student loan debt through a variety of companies and I can’t due to my credit delinquency.  I even refinanced one of my cars to only 3.2%!


• I don’t think I’m eligible for PSLF.  I didn’t even realize it existed until I became an attending.  I was in forbearance during residency.


• I’m maxing SEP-IRA and HSA accounts.


• I would love to live like a resident.  I hate debt and would spend little money.  But I have a family.  My wife is not a big spender but I think there could be some improvements.  It’s hard.  We put our kids in soccer, music class, summer school, and that stuff all adds up.


• We have no plans on moving out-of-state.  I could probably live in a bunch of areas around the country, but my wife wants to live out here in the Bay Area.  In fact she would like to live in SF itself!  Her family is here and her Mom is kind of stable-ill if that makes sense so she wants to be close by.  Moreover, our kids are in the school system here and they have friends, and moving makes that issue more difficult.


• I am not a car guy, but I absolutely love my Mazda and it is one of the few things that make me happy every day.  Bought it used with 21K miles.

 

Some Questions:

1. My wife wants us to have money set aside as a down payment ready when we are ready to buy a house in a few years.  I have not been saving money for that because I want to pay off the debt.  I think I know what you are going to say…debt first then start saving for a down payment.  Don’t do it at the same time?


2. Should we put aside money for our kid’s college education starting today?  They will be going to college in 7 years.


3. I might be able to get a job at Kaiser.  I would make much less each month, but they have a great pension plan.  In general, if I work there for 20-25 years and if their pension plan remains solvent, I would make $160K/yr as a pension.  Is it just a no brainer that it would be easier for us to retire if I could get a job with Kaiser?


4. I would love to just pay off the car loans.  And then use that monthly payment money towards my debt.  But that is technically not the right thing to do, right?

 

That is all I have right now.  I think the biggest way I could pay down more debt is by refinancing it.  It’s going to be too hard to significant reduce our rent.  I’m already working too much.  And if my wife works we have to get a nanny which is a big pain-in-the-butt!  (tax wise that is).

 

 

 

[huruta]

"Since Aug 2014 I have reduced my debt from $373 K to $211 K" That's amazing. Kudos to you and your family for making this happen.

It's true. Keep doing what you are doing and in two years you will be debt free. WCI has a good post about what to pay down and in what order. If it were me, I'd pay off those car loans which would be easy enough to do and then start a split approach to paying down student loans and saving for a house. The balance on the student loans is really high and it'd be nice if you could get into a home you could pay off before retirement.

Perhaps I'm not the best person to give advice about college since we don't have kids, but many a financial book I've read suggests that your children have a lifetime to payoff their student loans but you do not and it's better to prioritize your retirement over their college tuition. Most friends I know are not following this course so probably harder said than done.

Can wife work outside the home? I'm a spouse and make nothing near my physician husband but over 50% of my earnings go to retirement and help to max out those accounts. Every little bit helps when digging out of a financial hole.

Good luck!

 

 

[DMFA]

1. Stop wanting things.  With spouses and children, though, that's really hard.  The first step to achieving Nirvana is the elimination of desire...and the Bleach album.


2. Max your savings - $53k to 401k (solo?), $5500 to Roth IRA (backdoor), $6650 HSA.  There's still probably 20 years or so of compound interest to be earned there, depending on how long you feel like working and your retirement goals.


3. Annihilate your loans.  The math supports killing off the highest interest rate first, but the Ramsey "snowball" plan is pretty good psychologically, and at that income and small debt levels shouldn't end up costing you too much in the long run.  You'll find that the correct mathematical answer and the correct overall answer for you and your family might not be the same.


4. Re: 529s college funds, 7 years of compound interest isn't nothing, but not nearly as good as 18 years' worth (hindsight 20/20) and your money is probably better served eliminating your debt with its probably awful interest rate and with your retirement for more years of compound interest.


5. Buying a house in CA...shoot me in the face.  God bless Texas.


6. Lots of moving parts.  Professional financial planning would be a good move.  Find a flat-fee advisor who works specifically with physicians.  This can be done in person or via VTC.  Several advertise on this site.  Through my relatively limited interactions with them, they all seem like a pretty solid bunch.  I will not state a favorite :-)

[conniebird]

Admire your student loan payments - I def have not been as productive.

I hope you have occupation specific disability insurance, life insurance, etc since you're the single earner.

Living in CA is tough..bay area....toughest. I live in NYC and I can't afford to buy a "home" (apt) here and I'm derm and my spouse makes a great salary too...best of luck.

[conniebird]

I trained in CA so I am familiar with Kaiser - ppl stay there for the pension. I personally couldn't work there but for EM it probably doesn't matter as much. For my field, I would be extremely limited in what I would be able to do and my scope of practice.

[huruta]

Have you read the White Coat Investor's book? It really helped us prioritize within our own value setting how we wanted to proceed with our debt. We started out with 250k in student loans, a few credit cards and a car loan (-300k net worth). Since end of residency (2009) we've paid off credit cards/car loan, reduced student debt by 100k, bought a house in Seattle and got lucky (it's appreciated 50%), and now have a very healthy retirement (putting in 120k / year). We also have saved a lot beyond retirement. We could pay off the remaining student loans (@3.75% interest) but would rather do other things with our money at the moment. His book was an incredible help, and so is his blog so you are definitely in the right place to be moving forward financially! You can be your own master. No one cares as much about your finances as you. We never met with a financial advisor and have been pleased with our own work with WCI's guidance. But there are many ways to skin a cat...

[jfoxcpacfp]

If you want to continue to DIY financial planning, read The One Page Financial Plan and begin implementing immediately. By your own admission, you're already working too much, so perhaps your wife could handle the planning for your family. However, I strongly recommend you at least schedule a couple of free initial consults with fee-only CFPs to see what they can offer. You only have an hour or so of time to lose and could gain more than you realize by hiring a professional. You may be just as well off by DIY, but how will you know without finding out more?

There are no scholarships for retirement. Retirement (and a financial plan) before college savings. If you have no employees (doubtful at that income level) move to a SOLO-401k so you can also add a backdoor Roth. Hire your wife part-time so that she can begin saving and reduce your taxable income. You have other options besides Kaiser - don't let the tail wag the dog.

I wish you well - you're doing a great job on the debt, btw. And I think loving a 4-y.o. Mazda is pretty harmless in the grand scheme of things.

[PhysicianOnFIRE]

You're doing amazingly well. Living and working like a resident. Your expenses are remarkably low for where you live. Subtract the rent, and you're spending less than my frugal physician family.

To answer your questions as best I can:

My wife wants us to have money set aside as a down payment ready when we are ready to buy a house in a few years.  I have not been saving money for that because I want to pay off the debt.  I think I know what you are going to say…debt first then start saving for a down payment.  Don’t do it at the same time?

In that market, you might be better off renting indefinitely. The transaction costs for a million dollar property, along with the taxes, maintenance, etc... are extraordinarily expensive. It's OK to be a renter for life. At any rate, I would continue to work on debt and reevaluate the situation when you're debt free. You should be able to build up funds pretty quickly for a downpayment if you decide to go that route.

Should we put aside money for our kid’s college education starting today?  They will be going to college in 7 years.

I am a fan of 529 funds, but you've got to have money left over to contribute to them. You won't have that for awhile. Encourage state schools; you've got some good ones out there, and pay as you go.

I might be able to get a job at Kaiser.  I would make much less each month, but they have a great pension plan.  In general, if I work there for 20-25 years and if their pension plan remains solvent, I would make $160K/yr as a pension.  Is it just a no brainer that it would be easier for us to retire if I could get a job with Kaiser?

I wouldn't necessarily count on a pension being the same twenty to twenty-five years from now. With the salary you're making currently, you can create your own pension. I would guess you'd take a pretty big pay cut to work for Kaiser. Additionally, I wouldn't count on you wanting to work until you are in your early to mid-sixties. Those are golden handcuffs I'd rather not be wearing.

I would love to just pay off the car loans.  And then use that monthly payment money towards my debt.  But that is technically not the right thing to do, right?

Go for it. You can knock those off in a few months.

Great job and good luck!

-PoF

 

[smg]

Thank you all for your responses.

Overall, I am not trusting of financial advisers.  I hired a company last year to do my taxes to see if I could save money.  I also did my own taxes that year too as a comparison.  The company over calculated my tax by $4,000!  I did my taxes on TurboTax an it got it right.  I am not going to use that company again.

Another question:  I do have about $10K in the bank account for emergencies, I think this is a sensible to thing to do.  I currently do NOT carry disability insurance and I know I need to do it.  It is just so bloody expensive.  Plus that is another thing I need to do a lot of research on.

Someone discussed above about making snowball payments for debt.  That is a great idea, and I was unwittingly already doing that.  I found a great calculator online at http://www.whatsthecost.com/snowball.aspx?country=us that allows you to put all your debts in and tells you about the snowball method of paying them off.  I have 33 more months to go!  *ugh*

There was something else I was going to ask, but I can't remember now.

[Hatton]

If you really want to buy a house at some point have you thought about moving to a lower cost area.  In my view being an ER doc really gives you the flexibility to move.  All your costs would decrease and maybe the income would increase per shift so you would not work as much.  You would be shocked at how cheap houses are even waterfront ones if you leave the coasts.

[Lithium]

That seems like a very small emergency fund for someone who's the sole breadwinner in a family of four.  I'm single and keep at least 20k in the bank.  Do you have a second tier of emergency funds?  Some people withdraw their Roth IRA contributions, but not sure you can do that (without a penalty) when it comes to a SEP-IRA.

[RocDoc]

I wouldn't recommend enslaving yourself for 20-25 years to Kaiser for a $160,000 pension. ER Medicine gets much tougher to do as you age. However ER is one of the best specialties to custom design your work life. If you chain yourself to Kaiser's pension carrot then you've just blown up your flexibility to make your work life fit you.

You're doing just fine the way you're going. You'll have the debt knocked out in 2 years. After the debt's gone, on your good ER independent contractor income, you can pay $100 K tax per year, spend $100 K per year, save $200 K per year for retirement. Switch to an independent 401k, do backdoor Roth IRAs, and get a taxable brokerage account. By the time you're fifty you should have at least 1 million saved. That's a good start. You need more to retire but you can let the million grow and keep adding to it at a work rate that's good for you. At that point your 50 year old self can decide if you don't want to do nights anymore or if you only want to work 12 shifts a month or only work lower volume or lower acuity ER's. And then can also walk away from a bad hospital where the CEO is torturing your medical director about Press Gainey or Utilization or Time in Department or Door to Doctor Time or whatever else is currently rolling doing hill. The best advice I can give you as an old 53 doc, is that NO ER Doctor should turn age 50 without lots of money already stashed so that they can walk away from crap ER jobs. There are plenty of crap ER jobs out there. You don't want to be the 60 year old ER Doctor (or heaven forbid-70 year old ER Doctor) who HAS to take them! And there are so many great ER jobs out there that you can take advantage of, IF you can afford to walk away from the bad ones.

Bay Area houses are too expensive. Don't do that to yourself. RENT. Tell the wife (in a nice way of course) that if she wants a Bay Area house she can go to work and save for one while you save for retirement.

 

[jz]

congrats on impressive debt repayment.

"I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much"

The above is your biggest RISK to your lifestyle, health, abilities, and longevity. 18-20 shifts/monthly takes a toll.

I agree with others who stated that retirement savings trumps college savings.

 

[childay]

You are getting good advice.

Get the disability insurance today.  It isn't that difficult.  If you want I can tell you who I used.  I know a young doctor recently diagnosed with metastatic cancer, who has no disability policy.  Shit happens, don't procrastinate (from a chronic procrastinator).

[PhysicianOnFIRE]

jz wrote:

congrats on impressive debt repayment.

“I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much I’m already working too much”

The above is your biggest RISK to your lifestyle, health, abilities, and longevity. 18-20 shifts/monthly takes a toll.

I agree with others who stated that retirement savings trumps college savings.

 

Click to expand...

All work and no play makes Jack a dull boy.