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  • What To Do With Extra Savings

    I've been working in a really high paying state for a while now, and living nicely, but not to the extreme. We've always put away (at least) 20% gross toward retirement, and add to that an emergency savings and college savings. All in all, we save about 25-26% gross every year. That is in addition to paying off student loans (7 years out of residency).

    I've had a side job for the past few years that is going away now. I knew it wouldn't last, so I took advantage of their 401k and kept anything else I got in the bank and never touched it. Now I have $30k saved up as cash in the bank and am looking for ways to use that money.

    With the closing of the side job and the fact that we feel ourselves getting caught up in a rat race of our big city, my wife and I have decided it's time to move home. I've taken a new job in a different state that will essentially mean a pay cut of about 25%. But, the job is great, it's home and it's a life decision, not a financial one. So we are excited.

    We've always budgeted, and we've figured out how to maintain a great lifestyle (albeit with a smaller house) in the new place on the new income, but there isn't much extra room in the budget like there used to be for big cash expenditures, which is something we've grown used to with my current income. I'm not worried about the change in income too much - the budget allows for all the things we care about, keeps the same savings rate, and I'm actually looking forward to living a little more simplified life and not having to play Keeping Up With The Joneses nearly as much (we are moving to a smaller town with a lot more relaxed lifestyle where house size and car model doesn't define you, unlike where we live now).

    But, I was looking at my student loans today. I am paying down on $98k right now (started at >$200k) and forecast to be paid off at age 42. My goal has always been to be done with them before age 40, which would require a substantial amount/month more than I'm currently paying. That may be hard to do with my new job.

    IF I'd been more disciplined, I would've been paying more aggressively for the past few years. But, I was really focused on saving as much as possible and avoiding any other debts (a very reasonable mortgage and student loans are our only debts). I wish I'd focused on loans a bit more, but it is what it is at this point.

    I always want to keep a reliable side hustle going, with a goal of being able to decrease my clinical work slowly. It's possible I can find another similar to the one I had which just closed, but no guarantee, so I've been looking at taking my $30k and starting in real estate or some other non-medical business venture.

    But, I also really want to get rid of debt. So, I calculated the scenario if I simply made a one time payment toward my student loan principal. If I did that, I would save $5600 in interest and 23 months of payments, just making it to my goal of pre-40 payoff.

    If I just put that $30k into investments, I'd only need a 4.5% real return rate to yield the $5600 savings in interest over the same time period. When I consider that, in addition to the potential income I could create with that $30k over the next 4 years, I tend to want to use the money toward a business or investing rather than as loan payment.

    BUT, I'm so ready to be done with loans, and it's sort of a personal defeat to see that I won't be done by age 40. I really built that age 40 thing up in my mind!

    Of course, if I can find a side hustle in my new state or additional income vs what I think I'm going to have, I'll use it to pay off loans faster (I'm sure of that about myself), but that just isn't a guarantee at this point).

    So, questions to the WCI followers:

    1. Would you use the $30 to make a lump sum payment to student loans, or

     

    2. Use it to invest into something else, accepting the possibility that I may have to pay on loans for an extra 2 years (and miss my goal) and lose that interest savings?

    ...and...

    2a. If you would invest it, where would some of you go with it? I'd love to put it into something that can start a business that could begin to generate income, slowly supplementing my clinical work over time. My concern is that, as I said, extra cash may be hard to come by in this new job - at least for a while. It worries me that I won't have extra capital to inject into a growing business, other than the capital that business may generate.

     

    Thoughts?

  • #2
    What % are your loans at?

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    • #3
      Forgot to include that: three loans, weighted average currently 3.02%. One fixed at 3.5%, two variable after a refi a few years ago.

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      • #4
        You're going to get a bunch of different answers here, but a bit more info on not only your student loans, but any other debt you have (balances, interest rates, term).  How much do you actually have saved for retirement? Approx what do you bring in each year? How old are you now? It helps to gauge how well you're doing overall.

        My personal feeling on this is to get rid of your loans faster.  You sound like someone who, at least up until this point, is not bothered too much by debt.  If you make as much as most ER docs, there's little reason to hold on to 98k of student loan debt 7 years out of residency.  I mean, it's good you're saving 25% gross per year, but it could be much higher if you weren't still paying student loans.

        This is coming from someone who is very much averse to debt right now.  I'm working my butt off to get rid of the rest of my 88k of student loans this year. I'm about 6 years out of residency as well and did not do much saving or debt pay down the first several years I was in practice.  Something I regret now, because I'm sick of dealing with it and want some freedom from owing people money.

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        • #5
          I'm almost 36, out for nearly 7 years. I don't have any other debt besides a mortgage (which has an outstanding principal well under my total annual salary). At the rate I'm saving and the amount we live on, I'm on track to retire within 20 years assuming average market return rates.

          We basically budget to live on 50% of our gross income. (we plan for 25% of gross to taxes and anything we save in taxes we save, so savings total is usually > 25%. Student debt is included in that "live on" amount. And, when I say live on, we budget EVERYTHING from mortgage and house repairs to gifts, kids, eating out and grocery money, saving for a new car, etc.. It's pretty anal, and I'm not sure I'm doing it right, but it works for us and doesn't let my wife start spending out of control without realizing it. I'm naturally a saver, she's not, but is trying hard to be more thrifty and is on board with our financial goals.

          My mortgage is lower than most people I know. Aside from spending a lot on restaurants and vacation, so is the rest of our spending when you analyze it by category vs most docs I know. (I hate playing that game, though, because most docs I know are more broke than they seem).

          I honestly have a hard time looking at my budget and finding places to add cash to my loan payments without disrupting vacation spending and time eating out - pretty much the two things my family likes to do for fun. I wish I'd done it earlier, but I guess it is what it is.

          I want to find a way to start easing out of medicine - slowly - with supplemental income. The $20k I would save on loans wouldn't really be considered supplemental income because I plan to parlay that money into college savings and use it to pay for college (in addition to the 529s I'm putting in now) for the three kids. That's why I'm contemplating using the cash as capital for a different investment/business avenue rather than pay down the loans.

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          • #6




            I honestly have a hard time looking at my budget and finding places to add cash to my loan payments without disrupting vacation spending and time eating out – pretty much the two things my family likes to do for fun. I wish I’d done it earlier, but I guess it is what it is.
            Click to expand...


            Well I think that is the problem there.  Lifestyle inflation crept in before you got rid of your loans.  That's where I'm sort of at too, but right now since it's just my wife and I, it's pretty easy to cut back and focus on just debt.  Overall you're doing fine and I can't really critique your situation much because you're a good saver and careful with your money.  I guess the only thing to consider if you wanted to get rid of them a lot quicker, and you can't find cash elsewhere, would be to cut back on savings for a short time.  It's up to you to decide which is more important for you and your family though.

            But, yes, if it were me I would take the 30k and throw it at loans.  Then I would find a way to attack the remaining balances as well.  I would cut back on things like vacations/eating out until the debt was gone, but I understand that might be hard to sell to a family already accustomed to those things.  I've tried holding on to investments in a taxable account while still having debt and it didn't work.  The debt bothered me too much, so I'm getting rid of it first. That's just me though

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            • #7
              Do you have an emergency fund already? Do you have equity in your current home? Perhaps when you sell and move to the new place you could rent for a time and use the equity from your house to pay off student loans? Just depends on your priorities. I'm not business minded at all so I don't think I can really give any advice on if you should use the 30k for that. Perhaps hang on to the 30k for a year after the move so you can see how well you actually do with the pay cut? Then decide what to do with it?

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              • #8
                Since you don’t have a business to invest in I would pay down the loans now.  During the next year you can look around or brainstorm a business idea.

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                • #9
                  I'm not really following your numbers (i.e. you're saving enough to retire at 56 but are finding a hard time what to do with 30k).

                  I typically suggest treating yourself to a nice dinner, but it sounds like you already do that...so invest 15k in VTMSX or VTSAX and throw the rest at one of the loans.

                  As you suggest, the "most docs I know" is not a good game to play.

                  Good luck with the change in venue!

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                  • #10
                    Throw it at the loans. My loans were at 2.5% but it was a life goal to pay them off before 40. I paid the last $10k on the day before my 39th birthday. It-felt-soooo-good!

                    Unless you don’t have an emergency fund, then that should be your emergency fund (we use our taxable investment acct as our emergency fund which may be “wrong” but i don’t care... we can get to that money fairly quickly)

                    I know “dave Ramsey” gets a bad name sometimes but his financial peace class got my spouse and I on the same page and knocked down our “lifestyle creep” or “docitis” as dave calls it.

                    Not all side hussles are profitable. I’ve made money and lost money in real estate. I no longer invest in real estate besides my home. The student loan is a guarantee return. Being debt free just feels so good (we carry a mortgage on our home still).

                    Congrats on the move.

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                    • #11


                      Being debt free just feels so good (we carry a mortgage on our home still).
                      Click to expand...


                      Paging PoF!

                      Debt free as in no debt at all feels even gooder!   

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                      • #12
                        i'm a little bit softer here.  i think your spending has been fine.  it's about happiness.  i don't personally think it's a big deal whether the loans are paid off at 42 versus 40.  having said that, since you don't know what to do with the money, i think either way is fine-loan repayment or investing.

                        student loans have a low rate.  don't forget the (hope you never need benefits of the loans)--for severe impairment or death, the loans can be forgiven.  if you rush to pay them off, and something bad happens, your family has lost that potential value.  i know this is very conservative and not how most people here think, so feel free to ignore.

                         

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                        • #13
                          +1 vote to throw it towards loans.

                          slight Ramsey influence here, I just get less and less enamored of debt the longer i do this. i know your rate is low and you can probably make more with the money but i would infer that you are struggling with this based on your long post.

                          paying off your loans feels amazing. you feel like you've cut lose an anchor that is holding you down and the sense of accomplishment is incredible.

                          we're the same age in the same specialty so i know right where you are.

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                          • #14
                            EM here too but only 2 years out of residency. Married with a kid. I put $70k to loans this year despite filling bdRoth/HSA/i401k. Will do the same this year to finish the loans. I hope 10 years out I'll have the option to slow down / opt out of medicine if I'm not enjoying it.

                            If you are saving any in taxable, could you not do this the next few years and with this $30k finish up these low interest loans? I bet you one of the top reasons you won't feel comfortable getting into a new business is this loan hanging over your head.

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                            • #15
                              Move first and settle in; unexpected expenses may happen.  New job, new location --- uncertainty were 30k quick access maybe worthwhile to be had.

                              AFTER that, reset the budget and run the numbers for rebalance to decide where whatever dollars are there once uncertainty is resolved.

                              I'm an advocate of diversity and taking 'free' leveraged dollars and letting your money work for you over time -- hence real estate.  One could also say the same for the Option market too.

                              Play it safe?  Pay off the loan.

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