Is My Debt Really an Emergency?

[dayman]

I'm in my first year out of training, making low 300s currently. We have some significant debt - about 275K left in student loans (refinanced on 5 year plan at 3.5%, we are 6 months in), a little under $300K on our mortgage, and an expected partnership buy in a couple of years away. I've got about 150K saved in retirement plans so far.

I strongly dislike debt. There are lots of personal finance articles about how it should be treated as an emergency - here is WCI's version: https://www.whitecoatinvestor.com/your-debt-emergency/

However, our future is promising. Our income is already good and expected to increase more with partnership. We live comfortably on 70-80K year. We drive old cars and will never need a bigger house than the one we already have. I mostly like my job. I made a detailed spreadsheet projecting our finances going forward - assuming 4% real return and no major disruptions to income, the student loans and partnership buy in will be gone within 5 years, and we'll reach a FI number of $2M in about 10 years (in my early forties).

So here's the issue. I would very much like to take my family on an extended overseas vacation, with an estimated price of $10K. I'm between two schools of thought. The first says it's foolish to spend $10K on a vacation when I have all that debt. The second says it's foolish to deny myself something that will increase happiness just to save more money, when we're already on track to be FI in my 40s.

I imagine I'm not the only one who has been through this sort of debate. Any guidance from the veterans about finding the right balance?

[Donnie]

No, it’s not an emergency. Take the vacation, but don’t take 5.

[jhwkr542]

When you've done all the other things right, spending $10k for a one-time vacation is reasonable.  Have a good time!

[q-school]

only 10k?  take the vacation.

 

[hightower]

I agree, the vacation is no problem.  Don't think twice about it.  Even if it ends up costing more than 10k, it's worth it for that awesome life experience with your family.

Otherwise, when you get home, focus on the debt pay down as it sounds like you already are.  You're already on WCI and have a lot more awareness to your finances than I did when I finished training.  You guys will be solid.  Enjoy!

[Kamban]

I wish I could find an extended overseas vacation for $10K. Most of mine cost three times as much if not more.

OP, take it. Take regular once a year vacations. Those are memories. Later in life you will have all the money but time and health may be an issue.

[dayman]

Thanks for the feedback everyone. The trip should be awesome. The 10K estimate is housing and eating out, we have been hoarding credit card points to pay for the flights.

[docnews]

Debt with interest rate near the rate of inflation with a plan to not let it fester while also saving heavily for retirement is not an emergency.

I am in a similar boat. I bought my wife a 1yr old nice car when my old one died. Last year I still saved > $70k in retirement accounts, paid >$70k in low interest student loans, traveled like once a month for cheap vacations (weddings/family outings/road trips).

[MPMD]

The only emergency is if you start deciding that you "deserve" $10k vacations x 3 per year and then creep into deciding that it's really no big deal to get a couple of new cars etc etc etc.

One thing I tell my residents is to reward yourself at debt payoff milestones. Plan to take your next big vacay after you knock down another $100k in loan debt!

[The White Coat Investor]

dayman wrote:

I’m in my first year out of training, making low 300s currently. We have some significant debt – about 275K left in student loans (refinanced on 5 year plan at 3.5%, we are 6 months in), a little under $300K on our mortgage, and an expected partnership buy in a couple of years away. I’ve got about 150K saved in retirement plans so far.

I strongly dislike debt. There are lots of personal finance articles about how it should be treated as an emergency – here is WCI’s version: https://www.whitecoatinvestor.com/your-debt-emergency/

However, our future is promising. Our income is already good and expected to increase more with partnership. We live comfortably on 70-80K year. We drive old cars and will never need a bigger house than the one we already have. I mostly like my job. I made a detailed spreadsheet projecting our finances going forward – assuming 4% real return and no major disruptions to income, the student loans and partnership buy in will be gone within 5 years, and we’ll reach a FI number of $2M in about 10 years (in my early forties).

So here’s the issue. I would very much like to take my family on an extended overseas vacation, with an estimated price of $10K. I’m between two schools of thought. The first says it’s foolish to spend $10K on a vacation when I have all that debt. The second says it’s foolish to deny myself something that will increase happiness just to save more money, when we’re already on track to be FI in my 40s.

I imagine I’m not the only one who has been through this sort of debate. Any guidance from the veterans about finding the right balance?

Click to expand...

I wouldn't and didn't take a $10K vacation in that situation. I was living like a resident and residents can't afford a $10K vacation. Did we take vacations the first year out of residency? Yes, lots of them. But all of them together didn't add up to $10K. Now, could you take this vacation and still be all right eventually? Sure. Could you buy a brand new car on credit and still be all right eventually? Sure. Could you move into the "doctor house" right out of training and still be okay? Sure. Could you put the kids in private school and still be okay? Sure. Can you do it all and still be okay? Almost surely not.

You're only 7 months out of training, you have a negative net worth, and you're already having trouble living like a resident. It's your money, you can do what you want, but there are consequences to your decisions.

https://www.whitecoatinvestor.com/choice-and-consequences/

Situations like yours illustrate why I preach "live like a resident" so much. Because it's hard. A resident makes $50K. You're already spending $80K, a 60% raise and now you're talking about going to 80% in your FIRST year out of residency. If you continue to inflate your lifestyle at this rate, you won't be FI in 10 years. If you can somehow stop the hedonic treadmill at some point, then sure, $10K isn't going to significantly change anything. But this is how lifestyle inflation/hedonic treadmill works. The future starts "looking promising" and all of a sudden you're spending money you haven't even made based on that promise, all while you're still in actuality poorer than the bum living under the aqueduct. Earned income isn't wealth, don't confuse the two.

Good luck with your decision.

[sthealth_wealth]

Financial samurai argues to spend $2 on something beneficial for every $1 on something unnecessary. It might help with your decision:

https://www.financialsamurai.com/if-you-want-to-be-bad-follow-a-good-spending-ratio/

[VagabondMD]

The White Coat Investor wrote:

dayman wrote:

I’m in my first year out of training, making low 300s currently. We have some significant debt – about 275K left in student loans (refinanced on 5 year plan at 3.5%, we are 6 months in), a little under $300K on our mortgage, and an expected partnership buy in a couple of years away. I’ve got about 150K saved in retirement plans so far.

I strongly dislike debt. There are lots of personal finance articles about how it should be treated as an emergency – here is WCI’s version: https://www.whitecoatinvestor.com/your-debt-emergency/

However, our future is promising. Our income is already good and expected to increase more with partnership. We live comfortably on 70-80K year. We drive old cars and will never need a bigger house than the one we already have. I mostly like my job. I made a detailed spreadsheet projecting our finances going forward – assuming 4% real return and no major disruptions to income, the student loans and partnership buy in will be gone within 5 years, and we’ll reach a FI number of $2M in about 10 years (in my early forties).

So here’s the issue. I would very much like to take my family on an extended overseas vacation, with an estimated price of $10K. I’m between two schools of thought. The first says it’s foolish to spend $10K on a vacation when I have all that debt. The second says it’s foolish to deny myself something that will increase happiness just to save more money, when we’re already on track to be FI in my 40s.

I imagine I’m not the only one who has been through this sort of debate. Any guidance from the veterans about finding the right balance?

Click to expand…

I wouldn’t and didn’t take a $10K vacation in that situation. I was living like a resident and residents can’t afford a $10K vacation. Did we take vacations the first year out of residency? Yes, lots of them. But all of them together didn’t add up to $10K. Now, could you take this vacation and still be all right eventually? Sure. Could you buy a brand new car on credit and still be all right eventually? Sure. Could you move into the “doctor house” right out of training and still be okay? Sure. Could you put the kids in private school and still be okay? Sure. Can you do it all and still be okay? Almost surely not.

You’re only 7 months out of training, you have a negative net worth, and you’re already having trouble living like a resident. It’s your money, you can do what you want, but there are consequences to your decisions.

https://www.whitecoatinvestor.com/choice-and-consequences/

Situations like yours illustrate why I preach “live like a resident” so much. Because it’s hard. A resident makes $50K. You’re already spending $80K, a 60% raise and now you’re talking about going to 80% in your FIRST year out of residency. If you continue to inflate your lifestyle at this rate, you won’t be FI in 10 years. If you can somehow stop the hedonic treadmill at some point, then sure, $10K isn’t going to significantly change anything. But this is how lifestyle inflation/hedonic treadmill works. The future starts “looking promising” and all of a sudden you’re spending money you haven’t even made based on that promise, all while you’re still in actuality poorer than the bum living under the aqueduct. Earned income isn’t wealth, don’t confuse the two.

Good luck with your decision.

Click to expand...

As much as I love travel, I did not take big trips like that for at least ten years after training, and I emerged from training with no debt. Now, 20+ years out, I take big trips at least once per year and without thinking twice. My today self thanks my past self for allowing me to live well today.

Make decisions that the future you will appreciate as much as the today you. That may or may not be an endorsement to take the trip, Grasshopper.

[dayman]

The White Coat Investor wrote:

dayman wrote:

I’m in my first year out of training, making low 300s currently. We have some significant debt – about 275K left in student loans (refinanced on 5 year plan at 3.5%, we are 6 months in), a little under $300K on our mortgage, and an expected partnership buy in a couple of years away. I’ve got about 150K saved in retirement plans so far.

I strongly dislike debt. There are lots of personal finance articles about how it should be treated as an emergency – here is WCI’s version: https://www.whitecoatinvestor.com/your-debt-emergency/

However, our future is promising. Our income is already good and expected to increase more with partnership. We live comfortably on 70-80K year. We drive old cars and will never need a bigger house than the one we already have. I mostly like my job. I made a detailed spreadsheet projecting our finances going forward – assuming 4% real return and no major disruptions to income, the student loans and partnership buy in will be gone within 5 years, and we’ll reach a FI number of $2M in about 10 years (in my early forties).

So here’s the issue. I would very much like to take my family on an extended overseas vacation, with an estimated price of $10K. I’m between two schools of thought. The first says it’s foolish to spend $10K on a vacation when I have all that debt. The second says it’s foolish to deny myself something that will increase happiness just to save more money, when we’re already on track to be FI in my 40s.

I imagine I’m not the only one who has been through this sort of debate. Any guidance from the veterans about finding the right balance?

Click to expand…

I wouldn’t and didn’t take a $10K vacation in that situation. I was living like a resident and residents can’t afford a $10K vacation. Did we take vacations the first year out of residency? Yes, lots of them. But all of them together didn’t add up to $10K. Now, could you take this vacation and still be all right eventually? Sure. Could you buy a brand new car on credit and still be all right eventually? Sure. Could you move into the “doctor house” right out of training and still be okay? Sure. Could you put the kids in private school and still be okay? Sure. Can you do it all and still be okay? Almost surely not.

You’re only 7 months out of training, you have a negative net worth, and you’re already having trouble living like a resident. It’s your money, you can do what you want, but there are consequences to your decisions.

https://www.whitecoatinvestor.com/choice-and-consequences/

Situations like yours illustrate why I preach “live like a resident” so much. Because it’s hard. A resident makes $50K. You’re already spending $80K, a 60% raise and now you’re talking about going to 80% in your FIRST year out of residency. If you continue to inflate your lifestyle at this rate, you won’t be FI in 10 years. If you can somehow stop the hedonic treadmill at some point, then sure, $10K isn’t going to significantly change anything. But this is how lifestyle inflation/hedonic treadmill works. The future starts “looking promising” and all of a sudden you’re spending money you haven’t even made based on that promise, all while you’re still in actuality poorer than the bum living under the aqueduct. Earned income isn’t wealth, don’t confuse the two.

Good luck with your decision.

Click to expand...

Thank you for your feedback. It is helpful for me to have to defend my position. My only quibble with your post is that I would not say I am "having trouble" living like a resident. I can and did live on about $50K per year in training, and that included a two week vacation in Europe. Living like a resident is not my goal anymore. We have a goal of baseline FI in ten years, did the math and made a conscious choice that roughly 75k / year until debt free would be a good level to enjoy some nicer things while still staying on track for our goal. To me that's a lot different than being unable to stay within a budget. Even with the trip we'd probably be at about 80K annual spending, as baseline spending is high 60s and this trip would replace a couple of smaller cheaper vacations.

Your points about hedonic adaptation and new cars, doctor house, private school etc are all valid. But those things have very little appeal to me. I don't want a $10K dining table either. The relevant hedonic adaption would potentially be getting used to nicer travel, and if I reach FI at 44 instead of 42 because I took a bunch of nice vacations with my family, I think I can live with that trade off.

[MPMD]

Toe Cheeze wrote:

Dayman, are you the fighter of the Nightman?

Champion of the Sun ?

A Master of Karate?

https://www.youtube.com/watch?v=0V784AiYtG8

Click to expand...

i genuinely feel bad for people who don't get this.

[Dicast]

Doesn’t sound like you consider your debt an emergency. You are doing a good thing by making it a 5 year payback just to force the issue.

Do you have kids? No? Take the trip while you can.
Yes? Are they too young to temember? Wait until they are older.

My wife and I took a $10k trip to New Zealand while we were still in residency, pre-kid. We have no regrets but we also haven’t repeated big trips each year. I finished my loans 5 years out. Her’s will be done at 2 years post fellowship. We’re dropping 10k a month on her loans at this point.