my situation and your advice/thoughts

[scbunker]

Joseph wrote:

Wow.  More than $130,000 in automobile debt?! Seriously?

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G-pathy wrote:

Holy luxury cars Batman!  Are those beasts giving you enough pleasure to pay another mortgage?

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Not helpful, guys.

You'll discourage others from sharing their stories/situations out of fear of ridicule.

[noraz123]

Congrats on the soon increasing family!

A few thoughts:

• Max out your tax deferred accounts as much as possible. This means max out your 401k. You have 1099 income, and are using a SEP IRA.  That is great. But consider moving current SEP IRA and future contribution to a solo 401k.  You will likely have more room for investing, and the solo 401K will allow you to do a backdoor Roth.  I would recommend a low cost provider for the solo 401k, such as Vanguard or Fidelity.


• Consider dumping the Variable Life Insurance Policy.  These are notoriously bad investments, with high (yet hidden) fees. Read this site's blog article, "How to Dump Your Life Insurance Policy".  If you need more assistance, checkout EvaluateLifeInsurance.Org, a website highly regarded by Bogleheads, and recommended in the comments in the above mentioned blog article.


• Consider dumping your financial advisor. If your financial advisor sold you a variable life insurance policy, s/he wasn't a good advisor. The majority of the really good advisors don't charge a % of assets, but rather charge by the hour.  Don't be scared by a high hourly rate.


• Consider going it alone (no financial advisor).  Chances are you don't need an advisor.  Read the Bogleheads website wiki, this site, and check out If You Can - https://www.etf.com/docs/IfYouCan.pdf.


• 
  
  And last, this is just me being judgmental, get tens of thousands of dollars of enjoyment from your cars, or buy more affordable ones.

You are doing well, and way ahead of many others.  Keep reading this site, and you'll be in great shape in no time.

[noraz123]

Congrats on the soon increasing family!

A few thoughts:

• Max out your tax deferred accounts as much as possible. This means max out your 401k. You have 1099 income, and are using a SEP IRA.  That is great. But consider moving current SEP IRA and future contribution to a solo 401k.  You will likely have more room for investing, and the solo 401K will allow you to do a backdoor Roth.  I would recommend a low cost provider for the solo 401k, such as Vanguard or Fidelity.


• Consider dumping the Variable Life Insurance Policy.  These are notoriously bad investments, with high (yet hidden) fees. Read this site's blog article, "How to Dump Your Life Insurance Policy".  If you need more assistance, Google "Evaluate Life Insurance James Hunt", to find a website highly regarded by Bogleheads, and recommended in the comments in the above mentioned blog article.


• Consider dumping your financial advisor. If your financial advisor sold you a variable life insurance policy, s/he wasn't a good advisor. The majority of the really good advisors don't charge a % of assets, but rather charge by the hour.  Don't be scared by a high hourly rate.


• Consider going it alone (no financial advisor).  Chances are you don't need an advisor.  Read the Bogleheads website wiki, this site, and check out If You Can (google "ETF If You Can").


• 
  
  And last, this is just me being judgmental, get tens of thousands of dollars of enjoyment from your cars, or buy more affordable ones.

You are doing well, and way ahead of many others.  Keep reading this site, and you'll be in great shape in no time.

 

[jfoxcpacfp]

@luckbeatsme - with all due respect, your colleagues have pointed out that your car loans appear to be out of proportion, given your other debts, so I won't go there. Sounds like you are a major car enthusiast, anyway, so it might be worth it to you if all your other ducks are in a row. I disagree with not paying down your student loans - the psychological burden of having so much in debt would be overwhelming for some, you're not getting any tax break, and that is your highest rate loan. Your biggest asset at this point as your future earning power, so my first concern would be disability. Do you have a good policy? Critical in your situation - the chance of becoming disabled is greater than the chance of dying for every age up to 65.

My next question is, what are you getting for your 1% fee? Sounds like NOT a personal financial plan, active or on canned. You can do this on your own, I guess, but that makes the fee you are paying your advisor a glorified commission on simply buying you a bunch of stocks. Do you get tax planning and preparation? Estate planning? Before buying more life insurance, you need a better financial plan to use as a roadmap for making these kinds of decisions.

If you want to continue to DIY your own financial plan, try following the advice in The One Page Financial Plan by Carl Richards. For an alternative view on plan-based investing for the long-term, suggest you read the most current version (2013) of Simple Wealth, Inevitable Wealth by Nick Murray. At worst, it will help you decide what to do about your current advisor and you'll understand the concept of owning a balanced equity mutual fund/ETF portfolio and how rebalancing helps.

Roll your 401k to your SEP then set up a SOLO-k for 2017, roll your SEP into it, and go forward with the 401k rather than the SEP. You'll then be able to do back-door Roth IRAs, which would be illogical with a SEP-IRA in place.

You are in the right place to get great advice, hope you and your wife can spend a lot of time soaking up the info here. Hope this helps.

[luckbeatsme]

Thanks for all the input everyone.  Yes, I have read the White Coat Investor book, and have passed it on.  Have actually bought multiple copies to give to residents/siblings.  I have also read the Millionaire Next Door....after already having the cars.  But yes, I understand what everyone is saying.  So thank you.  With regards to disability, yes, I do have a policy.  I had taken out a 15k/month benefit through Northwestern Mutual, and then the new group starting 1/1/16 also provides a group policy, for which I have 15k/month benefit as well.  That benefit is of no cost to me personally.  I have however, since reading on this site, met with an independent regarding changing my disability policy from NW to Guardian.  So, there is a chance that change given the differences in definitions, etc.

When I did mention that I save 25-30%, it is off the gross income.  Over the last few months, I had been working more, and thus pre-tax take home has been near 55k/month.  Based on all's advice, seems like the smartest thing is to get rid of variable life policy, pay way more on student loans and likely take some after tax investment funds to pay that down.  Roll over current 401k into the SEP, and then next year, set up solo 401k to allow back door Roths.  Sounds like I need to lose the advisor and do it myself.  No more cars unless paying cash.

I have done estate planning already and actually use a different person through Beard Harris for tax planning/prep.

[EnjoyIt]

Luck,

As an ED doc as well, I am going to give you advice that may be a little hard to accept.  You will notice that over the next 5 years your job will get harder.  you will have to document more, and may even get paid less for the same work.  Plus you will start getting older and flipping morning to nights and back will become more and more tiring.  You will find one day that you have 2 options burn out, or accept making less money.  I highly recommend option #2.  The only way to accept making less is to prepare for that day today by not throwing your money away and saving a nice chunk of it for the next few years while you still can.  Believe me, when you have saved $1 million you will find yourself with so many more options and choices in life.

Before I tell you what you need to do, let me congratulate you on some good things you have done:

1) Bought a home well within your means.  this is probably the best decision you have ever made and you deserve a congrats on this.

2) After 2.5 years being out of residency you have a pretty decent amount in your 403b/401k and taxable account $287K is a terrific start

Here is my advice on how you should proceed.

1)  This year you should maximize your SEPP IRA and HSA, and at the end of the year convert it to a 401K like others have mentioned

2) You should save another $100K in a taxable account or any other tax deferred location you may have.  At your income level you should definitely be saving and investing a minimum of $150K a year.

3) You should be dropping another 40-50K a year into your school loans and credit card debt. Never carry any credit card debt again for the rest of your life.   Pay it off at the end of the month.

4)  Once these cars are paid off, you should never buy a depreciating asset like a car on credit ever again, even if the rate is 1.9%.  It is much harder to write a check for $77K instead of stretching a loan out to 6 years and paying $1130 a month.  This way you will buy what you can afford to buy.  As others have said and you agree that you two have overbought your cars.  The biggest mistake people make is thinking about what payment they can afford as opposed to to actual cost of purchasing the item.  Eventually they stretch their income to afford payments and find themselves riddled in debt.  if you keep your basic necessity footprint low, you will always be financially secure.  The only debt you should even consider owning is a mortgage.  Some may recommend dropping the cars and getting something less extravagant and used.  You can definitely do that or you can accept the mistake you made, live with it, and keep both cars for the next 10 years not to exceed 100K miles if they are German.

5) While your wealth is kinda low, your financial advisor is not that expensive only $2,800 this year.  Over the years 1% is going to be a bigger and bigger chunk of cash and you best start learning to invest on your own and drop your advisor.  As of now I don't see him/her giving you any value for your 1%.  Actually since he is putting you into individual stocks he is doing you a massive disservice.  If you need some hand holding go with Vanguards financial advice.  They only charge you 0.30% and will keep you away from individual stocks.

 

All in all I think you are way ahead of many of your colleagues.

 

[nachos31]

Lots of good advice so far. All I would add is in regards to your comment that your advisor is telling you to invest more rather than pay down debt. He is very heavily biased in making this recommendation as you investing more raises your AUM and generates more compensation for him, as compared to paying down debt. So definitely take that advice with a grain of salt. If you need an advisor, go with fee-only who charges by the hours or some other flat fee and who does not try to get you into individual stocks for reasons mentioned by others. Best of luck!

[Zaphod]

I know you've got a lot of good advice, and some of it will be entirely dependent on temperament but I'll disagree with the majority here. First, youre young, make good money, and have a reasonable mortgage and a good savings rate.

 

Many many people on this forum will be super debt averse and for good reason. However, as you said you are where you currently are so lets start from there.

1. I would never liquidate your taxable account to pay off the student loans. This is terrible mathematically. I know, guaranteed return of x vs. risk...however, youre comparing simple and compound interest and present value levels of money, just think about this rationally and you wont do it. You will have more money in the future if you keep the taxable and pay down your student loans another way, besides, you make enough money to not cut something. Pay the loan and you get....nothing, just 190k wiped from the ledger, but do so with your taxable account and you will have wiped away future values of money over 1 million in 30 years for an even below average market and likely more, even if you never dropped another cent into it.

2. Agree you should have better tax vehicles like etfs in taxable. Even consider one of those tax loss harvesting groups like wealthfront/betterment, its an interesting idea.

3. Just because you finance a car doesnt mean you cant afford it, thats a non sequitur. I cant blame anyone for taking a less than inflation rate, it just makes sense. A more flexible rule would be to have enough money in the bank set aside strictly for that purpose, and then you can think about if you'd really like to buy it. Maybe you do, big deal. For the record I financed a car a couple years ago at 0.9% when I had planned on paying cash, too good and of course can just pay it off if need be but I am putting that money to work instead.

4. Look into saving more in tax deferred vehicles, even consider defined benefit/cash plan. Agree you should put as much away as is reasonable. Also agree that if you understand the concepts and are comfortable with the tradeoffs (stress, less flexibility, etc...) putting money into retirement will certainly be better off in the long run. Think of your net worth as your personal balance sheet. In the end its a positive or negative number only, it cannot tell the difference between a paid off loan or money in retirement accounts. Sometimes when viewed outside of the labels its easier to see the big picture.

 

In review, youre young, make a lot and now have your goals in order. Nothing rash is required at this time because in 2-3 years you'll have really crushed things and you'll be surprised how fast things turns around. It looks as if I am advocating for debt given the above, but thats not true at all. Mostly just that no knee jerk things have to occur for you to be totally fine in short order, its not an emergency so lets not make it one. I'd just run the numbers given your different options and see which makes the most sense given your situation.

[kiloaxe]

I agree with advice given.  Most importantly, in my opinion, is insure your future (disability, life), and pay off debt

I recently finished EM residency as well. I have focused primarily on paying off debt (combined my spouse and I had roughly 300k) and we now have less than 100k to go.  I expect my loans to be paid off this month!

Based on your income you should be able to pay off significant debt over next 1-2 years.

I would also fire you adviser.  at this point, I doubt you are getting a lot of benefit to justify the cost.

As an aside, where are you making 500k as an EM doc?

KA

[luckbeatsme]

Texas...but i'm also ED director