Entering last year of residency, small family, no student loans. Advice?

[friedmeister]

Hi!  I'm entering my last year of psychiatry residency and am seeking some advice.  I'm married, we have three young kids, and my wife is staying home with the kids. I have no student loans, making a resident's salary in mid $50s, and have about $30K of savings. We're renting for $1800/mo, and currently budgeting our tails off. Only thing keep us afloat are financial gifts from family that might end this year, prior to my finishing residency. Yes, it's a financially ridiculous and irresponsible situation, but there it is.

Our plans at this point are to keep budgeting, keep studying, shore up a job ASAP, and move after residency.  Wherever we end up, we'll rent for a year (at least) prior to thinking about a physician's mortgage. And keep budgeting like a resident for at least five years.

Question that I have:

If our flow of family financial gifts (which are the only things keeping us from financial collapse) fall through sometime this year, would getting a loan to bridge the time-gap to an attending salary (for expenses, moving) make sense?  If so, which loans would people suggest?

Thanks!

d

 

[High Income Parent]

How much do you need per month extra to make ends meet? Would the 30k you have saved float you through that?
Where is the 30k located? If it's in a checking account that's a lot easier to access than a retirment account.

Could your wife pick up som extra work on weekend or when your not on call? Could you look into moonlighting?

I would look at opportunities to make more money and live off savings before borrowing. You might get a cheepish personal loan but if you can keep from borrowing now you'll be that much better off when you start making an attending salary.
You probably need to save up some moving money for next year too unless your new group pays a sign on bonus.

Tom @ HIP

[DMFA]

friedmeister wrote:

Hi!  I’m entering my last year of psychiatry residency and am seeking some advice.  I’m married, we have three young kids, and my wife is staying home with the kids. I have no student loans, making a resident’s salary in mid $50s, and have about $30K of savings. We’re renting for $1800/mo, and currently budgeting our tails off. Only thing keep us afloat are financial gifts from family that might end this year, prior to my finishing residency. Yes, it’s a financially ridiculous and irresponsible situation, but there it is.

Our plans at this point are to keep budgeting, keep studying, shore up a job ASAP, and move after residency.  Wherever we end up, we’ll rent for a year (at least) prior to thinking about a physician’s mortgage. And keep budgeting like a resident for at least five years.

Question that I have:

If our flow of family financial gifts (which are the only things keeping us from financial collapse) fall through sometime this year, would getting a loan to bridge the time-gap to an attending salary (for expenses, moving) make sense?  If so, which loans would people suggest?

Thanks!

d

 

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None of those things sound that ridiculous or irresponsible.  On the contrary, it sounds like you're really doing your best, and are way ahead with zero student debt (please tell me no CC or car debt).  It can be difficult (though possible) to support a family of 5 on $55,000/year.

You should hardly be paying any income taxes: $20,250 in 5 exemptions and $12,700 std deduction gives you taxable income of $22,050, meaning annual income taxes 4.32% and payroll taxes 7.65%, so a 12% total tax burden...meaning (55000/12)*0.88 = $4,034.79/mo to live off of.  You may need to adjust your W-4 accordingly to ensure that hardly anything is withheld; you might even need to go as far as to withhold max exemptions to get it down to 4.32%.

$1800/mo comprises about 45% of that, which is a pretty big chunk, about twice what's generally recommended for spending on housing...but 5 people are a lot to house, and some areas have high cost of living.  That might be as good as you can do.

You are miles away from "financial collapse."  That's a very apocalyptic view. You have about 7.5 months' income in savings to live off of, if need be.  That's pretty solid, all things considered.  You are about to quintuple your income in 12 months.  So, basically, you've just got to stick it out for a little while.  You're already 75% done with psych residency, and you've made it this far.  You can do one more lap around the track to finish out your mile.

Things to do are:

• spend less (though it seems like you're already doing this to the maximal extent)


• make more (consider moonlighting as that gives you the most money for least time away from family, and you can likely earn way more per hour than your spouse)


• use savings if absolutely needed (that's why they're there, but don't make a habit)


• accept family's gifts!  I'm sure you'll pay them back manifold with your doctor money.


• personal loans such as those from SoFi would be superior to credit cards.  If you *need* to do this, then this is probably the least bad option.  If you already have CC debt, then this might be a better way to restructure that debt.

Once you make your doctor money:

• eliminate any high-interest debt (above 4%) ASAP


• when you get a new house, try to limit it to 20-25% of your after-tax income (including utilities, TV, internet, lawn care, etc)


• save 20-25% of your gross pre-tax income for retirement using tax-advantaged accounts - 401(k), 403(b), IRAs, HSA, 457, etc


• continue to do your best to budget and live as frugally as possible

You may want to check out Mr. Money Mustache for any additional tips.  Even though you're not trying to retire early right now, they're all about frugality almost to the point of austerity.

[StarTrekDoc]

Is your residency in any way connected with the VA?  There's a lot of opportunities there if so.  Also, that'll get you on the inside track for good salary and support for the future too.

You're in a good spot (tight, but good) as DMFA mentioned as a balance and on average $250,000 ahead of the game with no loans.

 

[jfoxcpacfp]

DMFA wrote:

None of those things sound that ridiculous or irresponsible.  On the contrary, it sounds like you’re really doing your best, and are way ahead with zero student debt

Click to expand...

My thoughts, exactly! You might want to download our financial guides for doctors. The 2nd one is for new attendings, but it wouldn't hurt to read #1, either. They're free - you've got to sign up for our newsletter but it's very easy to unsubscribe if you don't want it.

[StarTrekDoc]

One avenue also to bridge the 6-9 month gap -- 0% Credit card offers.   These are great short term offers to leverage ---- WITH CAUTION.

With what I see, you'll be fine and not miss the deadline when it rolls over -- just pay off with new attending salary for this.  It'll get you through the transition period.

[childay]

So why aren't you moonlighting?  I suppose there are some programs that don't allow it?

[wideopenspaces]

I would use the savings to make up for whatever you need to keep afloat. 80k for a year should be plenty to live off of. If it is not, you likely need to rethink your budget. I didn't moonlight in residency (I'm also a psychiatrist) but everyone else in my program did and 4th year is typically pretty laid back, giving you plenty of time to do so. Some of my co residents with bigger families (one had 4 kids!) doubled their salary via moonlighting.

But outside of this problem of how to make it through this year, you're in great shape-congrats! I imagine most places will offer relocation money or sign on bonus and if they don't, you should negotiate for it since you won't need to ask for student loan repayment money. And once an attending you can quickly re build your emergency fund and get going on retirement.

[adventure]

childay wrote:

So why aren’t you moonlighting?  I suppose there are some programs that don’t allow it?

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Also might be tough with 4 other people at home who need him around!

[adventure]

DMFA wrote:

You should hardly be paying any income taxes: $20,250 in 5 exemptions and $12,700 std deduction gives you taxable income of $22,050, meaning annual income taxes 4.32% and payroll taxes 7.65%, so a 12% total tax burden…meaning (55000/12)*0.88 = $4,034.79/mo to live off of.  You may need to adjust your W-4 accordingly to ensure that hardly anything is withheld; you might even need to go as far as to withhold max exemptions to get it down to 4.32%.

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-5% of that for state taxes?

[adventure]

friedmeister - see attached spreadsheet. Download, and update with your information. Fill out the cells in yellow. Savings should get you there (guessed high at your expenses, and low at income, but update per DFMA, etc), even with no earnings for some months next summer.

 

[DMFA]

adventure wrote:

DMFA wrote:

You should hardly be paying any income taxes: $20,250 in 5 exemptions and $12,700 std deduction gives you taxable income of $22,050, meaning annual income taxes 4.32% and payroll taxes 7.65%, so a 12% total tax burden…meaning (55000/12)*0.88 = $4,034.79/mo to live off of.  You may need to adjust your W-4 accordingly to ensure that hardly anything is withheld; you might even need to go as far as to withhold max exemptions to get it down to 4.32%. 

Click to expand…

-5% of that for state taxes?

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Idk where he lives, that seems like a high-ish margin for a taxable income of $22k, but whatever, sure. Is it common to have a state effective rate higher than the federal effective rate? That 5% comes out to be $200, and either of those could come under the usual "fudge factor" of budgeting anyway.