critiquing finances

[hospitalist md]

I am new to this site and overall just new to having my own income in general . I would appreciate it if any of you insanely informed folks would assess my finances and provide feedback.

Me and My husband are both 30 yrs old.

I started as hospitalist 2 yrs ago . income about 300,000$/yr +/- depending on shifts. husband is a fellow . making about 65,000$/yr. He will be starting full time attending job next yr at about 320,000 a yr. All my savings so far, over the last 2 yrs went into buying a house worth about 200,000$ in India for investment purposes. I will be done with the payments for this house by December this yr.  no med school loans .I have absolutely no savings right now other than  about 70,000$ in tax deferred retirement accounts including 403 b and 457 b . no other retirement accounts . we rent a house at 1000$ a month now. plan to buy a house next year once he starts working. my budget for that is 500000-600000. car loan of about 40000$, we have another car that is paid off. no credit card debt .

we have one kid . 1.5yrs old. college saving plan with 9000$ in it so far. I contribute about 500 dollars a month into this account.

long term disability insurance provided by work place. life insurance 3 times salary provided by workplace. In the process of getting another 1,000,000$ policy for life insurance right now.

Monthly fixed payments-

car- 950$

Rent- 1000$

college fund- 500

food/purchases/utilities/- 5000 a month .

Have no financial advisor but I do plan to get 1 once we both are working full-time next year.

now for the questions, so many questions !!!!

1) what kind of investments should I be thinking of other than retirement accounts. I maximize my 403/b but not 457/b . should I do that as well or should I be thinking of putting it in another investment.

2) Is it beneficial to do a back door roth investment. we will be in high tax bracket once my husband starts working. I read that roth is beneficial if you anticipate that your retirement tax is going to be higher that what your current tax situation is . is that the case?

3) This might be a really stupid question,  but how do I go about opening backdoor roth? do I open a IRA and immediately transfer out money from there to roth. I have no other retirement account currently other that 403b . should I be buying some funds in the new IRA and then sell them and then transfer the money into Roth IRA or can adjust put the money into a new traditional IRA and immediately move it over to roth.

4) is it advisable to do trading  on my own through 1 of the treading web sites like E trade.

5) with 2 income family, how to set up expenses, payments and investments. is it advisable to have a joint account and individual accounts.

Please bear with me if the above questions sound very amateur, it is cause I am a novice when it comes to earning , saving and investing

 

 

 

[hightower]

I would recommend you pick up a copy of WCI's book and read it cover to cover.  A lot of your questions will be easily and more thoroughly answered.  Your questions are not stupid, you just need to spend some more time reading up on the basics.

[jsr52]

1) I would just mirror investments that look similar to Vanguards 2055 retirement fund https://personal.vanguard.com/us/funds/snapshot?FundId=1487&FundIntExt=INT#tab=2

-open up a free account on personal capitol, to keep track of your finances

2) yes do backdoor roth, max your work place accounts first with automatic contributions, then read about backdooring on this site for details on how to do it

4) What do you mean by trading on your own? Buying and selling stocks? No just purchased mutual funds through your retirement accounts, if money is left over which it looks like it wont be since you don't have a downpayment for your home, than open a taxable account at vanguard or fidelity to save even further

5) personal preference

[Hatton]

congrats on a high income.  Make sure that those life insurance policies are term and not whole life.  Make sure the disability is adequate also.  I do not know anything about real estate in India.  I hope that is a good deal because you are really a long distance landlord.  You need to start reading.  WCIs book is a good start.  Mike Piper has several good books also.  Anything by Bernstein or Demuth.  Will you and your spouse be staying or moving when the fellowship is over?  I always recommend that you spend at least a year or two at a new job before buying a house.  In the mean time read and accumulate a down payment. Make that the last car you ever finance.

[hospitalist md]

Thank you for all your suggestions.

yes,  I am brushing up on the basics. we will be living in the same area after fellowship. He is getting a sign on bonus of 100,000 which we plan to put completely towards down payment for the house. I plan to add 50,000 by july next yr to that amount so we have atleast 150,000 down payment towards the house when we are ready to put an offer.

@hatton1 - the reason I am  ready to buy a house is because I have no loans other than the car for now. what additional benefit is there to waiting to buy a house ? it looks like the housing prices are going up for now so I am worried that if I wait too long, I might have to pay more for the same house?  should I be putting more down payment than 150000 for a 550000 house?

I also do anticipate that money will be left over once we have 2 full incomes. with mortgage being the biggest monthly expense. so was wondering on where I should look to put that money .

@jsr52- thnx for the recommendation about vanguard. will look into it.

Now for the car.... I am trying to convince my husband to not go and buy the priciest car he can find as soon as he starts his job... wish me luck with that !!!!

[Hatton]

The reason I say wait on the house is the turnover rate for new docs is tremendous.  A House is very illiquid.  Many people get stuck with a house if they change jobs and become an accidental landlord.  If you both work at your jobs a while before buying you are much less likely to make a big mistake.  Really there have been lots of posts about this.

[Gamma Knives]

karturi wrote:

 

Monthly fixed payments-

car- 950$

Rent- 1000$

college fund- 500

food/purchases/utilities/- 5000 a month .

Click to expand...

Not a response to your questions but just a quick observation: $5000 per month on food/purchases/utilities is a lot. That is $60,000 per year. Sure that is what WCI put on his recent budget but he is making seven figures and has built up more wealth. You can afford it with your income and certainly when you get a double attending income but it may be worth looking at where that money goes each month. I would recommend this so you know where your money is going and you don't start letting that number get even larger when your husband completes his fellowship.

How did you decide on that price range for a house? It is less than your anticipated annual gross so you can afford that much. I would just caution against buying an expensive house just because you can afford it (speaking from experience). Going from $1000 / month rental to a $600k house will be quite an upgrade and there will be associated expenses such as higher utilities, maintenance, and property taxes. I am not saying it is a bad idea but before spending that much money make sure it is worth the cost to you. (I personally have some ambivalence about the place I bought before I found WCI but given the cost and hassle of selling I am not moving.)

Other thoughts: in the future buy cars with cash, don't buy a house too quickly until you know both of your jobs are going to work out (as hatton1 said), and maximize all tax advantaged retirement accounts before putting money elsewhere.

Overall you are in a great position at 30. You got an early start and can use that to build a lot of wealth as long as you don't give into excessive lifestyle inflation (don't buy another expensive car right away your appetites will only grow) or make another major financial mistake.

edit: I don't recall if it was WCI or another poster that said something along the lines of as a doctor you can afford nearly anything but not everything.

[hospitalist md]

yes 5000$ a month is too much. I am working on tightening that belt. its more of a worst case scenario amount. my monthly expenditure is usually less than that but no where near as low as it can be. will keep working on it .

as far as the price range for the house goes, that has been the average price for the kind of house I want , among the properties I have seen so far. I have not finalized anything yet though. Will try to cut my expectations down a little bit and be more sensible.

It has been difficult to curb my enthusiasm in finally buying my own house here,  but am working on it. I will maximize my retirement and look into back door roth IRA as well.

After reading all the forums and posts, I feel like i need to be careful about making big financial mistakes that would be difficult to reverse in the future. I am starting with a clean slate and would like to maintain it that way so that i can get to financial independence soon .

thanks for all the recs so far

[Donnie]

Knowing basically nothing about your situation, an investment property in India seems like a bad idea unless you need/want to grow assets and generate income in India.

Agree that spending $5k per month seems too high given your lack of other assets and savings.  Spending will only creep up as you buy a house, have more kids, get older, etc.   $40k car loan is also sub-optimal.

 

[Lithium]

Random thoughts:

make sure you are maxing out all suitable retirement vehicles before investing in real estate, taxable accounts, or other alternative investments.  I would cut spending if necessary to make sure you are taking full advantage of these.  What are the retirement accounts you should be maxing out?  For sure, it's your 403(b), your husband's 401(k) or 403(b), backdoor Roth IRA for 2, and HSA for 2 if you have it.  That is worth nearly 54k a year.  As for the 457(b), that is more complicated. It depends on whether it is governmental vs. non-governmental (governmental is much better), the financial health of your employer, and the distribution options after you leave.  Does your husband have a 457(b) available?  I invested in mine all through residency.  He may even have a better one than yours.  You may want to just invest in one, or invest in both.  If you have two and max BOTH out, you could put up to $100k in retirement accounts a year.

Saving that much takes a lot of delayed gratification, especially since buying the nice home is really alluring for fresh grads, but the huge tax breaks from retirement accounts to me are worth continuing to rent for a year or two.

As for how to do a backdoor Roth IRA, there's a good tutorial on this site.  You can google it.  I found it easiest to do through Vanguard.

one thing to point out - it sounds like you're counting on using your husband's entire sign on bonus for a down payment.  Regardless of whether you stick with that plan, it sounds like you aren't really accounting for how much of that gets eaten up by taxes.

overall, I think the most important thing is to read a little more, decide what your overall investing goals are, make a clear plan, and most importantly, get your husband on the same page.

[Dicast]

I dont see the issue with $5000 per month spending on your salary. Your total budget is $7500 a month or $90k a year. Total income of 365k - 100 for taxes - 90k expenses = 175k for retirement/net worth building. Add his new salary in and you can build wealth like crazy.

Just avoid the big ticket items like houses and cars as long as you can. In a couple years you could almost buy a house with cash.

I am much happier watching our net worth skyrocket each year than I would be driving a Mercedes S550.

Our income is around 600k and we build wealth without going barebones pretty easily.

[hospitalist md]

@Lithium- my 457b is through mayo, so I assumed that it would be safe in the next coming 40 yrs. my husband does not have a 457b as far as I know . He in fact has not even started a 401K which I keep pushing him about. I am working on setting this up for him at his work place. I plan to figure out the backdoor Roth soon and open one for each of us.

I did think about the taxes part of the 100,000$ . he is going to receive the money upfront . he was told that the taxes will be taken off of his salary down the line. I did not completely understand how or when they plan to do it.  We will figure that out as we get close to his fellowship completion.

@Dicast- thanks for the encouraging words,  I will keep working away at my resolutions and temptations.

[Lithium]

Sounds like a non-governmental 457(b).  I agree that you can probably feel good about Mayo's financial health; the main drawback to investing in the plan could be that they require you to withdraw it all upon termination, resulting in a tax bomb at your marginal bracket.  Unfortunately that's quite high in Minnesota.

Living in a high tax state, learning how you can reduce your taxes is going to be one of your biggest free lunches to getting rich.

 

[hospitalist md]

I had looked into the withdrawal options for the 457b and I had selected monthly payment option rather than bulk payment. I live in Wisconsin which is still a high tax state. makes me want to weep everytime I file my taxes.

need to get savvy about taxes too now   . so much to learn and so little time....!!!

[Lithium]

karturi wrote:

I had looked into the withdrawal options for the 457b and I had selected monthly payment option rather than bulk payment. I live in Wisconsin which is still a high tax state. makes me want to weep everytime I file my taxes.

need to get savvy about taxes too now   . so much to learn and so little time….!!!

Click to expand...

You'll learn a lot about taxes if you're filing them yourself.  Another good resource is WCI's podcast on credits and deductions... but while everything in there is helpful to know, it pales in comparison to the potential savings you can capture just by maxing your retirement accounts.  I'd focus on that first, second, and third.