Musings about debt, savings, finance, and psychology

[Queue]

Just some thoughts from someone young, less than broke, and probably with too much time on his hands.

1. I wonder if young people don't fully appreciate the size of student loans for medical school, especially if pursuing PSLF. If your loan balance is $200-$400k but your minimum payment is $80/month, it hardly feels like a problem. Might that cause them to be less debt averse for future decisions?
2. I wonder if people who have made big financial mistakes aren't better off for them than those who never had that "opportunity". Are you doing better financially now because of a past mistake vs. someone who never made that blunder but did not receive that kick in the pants to start on the road towards FI?
3. Does it matter if one doesn't "enjoy" saving for retirement as long as money is going into retirement accounts? One partner can't wait till pay day to see their retirement accounts grow while the other partner just "tolerates" it.
4. How much time thinking about finance is too much before it becomes unhealthy? How many clicks of the refresh button does your personal capital webpage get? Did you eventually settle down and just let time do its thing?

Anyone have any thoughts? I put this in the lounge as it felt too vague/broad to fit into the other categories. Are there enough threads to warrant a Financial Behavior forum?

[adventure]

Great thoughts here.

 

Queue wrote:

1. I wonder if young people don’t fully appreciate the size of student loans for medical school, especially if pursuing PSLF. If your loan balance is $200-$400k but your minimum payment is $80/month, it hardly feels like a problem. Might that cause them to be less debt averse for future decisions?

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I don't think most folks rationally approach taking loans to medical school. 5k, 50k, 500k, I think most folks would still sign and go. I'd love to read some psychology/economic research on this. Planet Money has this podcast episode, but I think they could do another one.

Queue wrote:

2. I wonder if people who have made big financial mistakes aren’t better off for them than those who never had that “opportunity”. Are you doing better financially now because of a past mistake vs. someone who never made that blunder but did not receive that kick in the pants to start on the road towards FI?

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Running out of money, and scraping by on ramen from couch cushion money had an impact on me, for sure. Later in my professional life, burning out on my job, and wanting to take this job and shove it also really fueled my desire to reach FI.

Queue wrote:

3. Does it matter if one doesn’t “enjoy” saving for retirement as long as money is going into retirement accounts? One partner can’t wait till pay day to see their retirement accounts grow while the other partner just “tolerates” it.

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Perhaps some more psychology here - the ability to set rational goals, and follow a plan is important. Delayed gratification is a balance.

Queue wrote:

4. How much time thinking about finance is too much before it becomes unhealthy? How many clicks of the refresh button does your personal capital webpage get? Did you eventually settle down and just let time do its thing?

Click to expand...

I paid increasing addtion to finances as we put things (401k's, mortgage refi, student loan refi and some pay off, buying car, moving, etc), and less and less attention now that we're on autopilot. That reduction in time spent was quite intentional, so better spend my time elsewhere, to move the big rocks first, as Covey says.

[q-school]

1. Yes.  I wonder as well if making too much too soon causes similar problems.  Used to be few years of income transition as you were considered for partnership

2.  Share that thought.   People generously want to spare others suffering, but sometimes that pain teaches lessons.

3.  Definitely matters.  Happiness optimization is a priority to excessive savings by age 45 or 50.  Especially if early retirement is not a priority.

4.  My wife was totally happy with how much energy we devoted prior to my finding this site.  Now she is somewhat perplexed why i’m investigating ways to reduce spending and optimize credit card use.  The point of FI is not to have to do those things—unless you want to.  Suddenly there are lots of itches to scratch.  We may not have been the most efficient, but we brute force saved a lot.  For most, the incomes will allow that if you just max retirement accounts and index fund investing and save a little beyond that, you will be fine.  Certainly better if you can start earlier because of compounding.

[Hatton]

1.  Agree with q-school  that many young posters are debt numb.  Also the starting salaries are eye-popping.  I do not know if these trends are sustainable.

2.  I think we all should learn from our mistakes.  2000 taught me about asset bubbles and individual stocks and diversification. 2008 taught me how to hang on and the importance of prudent tax loss harvesting.

3.  Not everyone enjoys investing but probably most people posting here do.

4.  I am not sure about how much time on finance is unhealthy.  I am probably there now.

[White.Beard.Doc]

The student loan situation right now seems kind of crazy.  But the starting salaries are high and can compensate for the debt.  On the other hand I often ponder how the salaries are not sustainable because the crazy state of our health care "system" is not sustainable.  I would hate to take on the burden of debt for an MD degree just at the wrong moment in time when the house of cards of our health system comes crashing down along with the high salaries that are currently being offered and that compensate for the crazy levels of student loans.

A few financial mistakes are inevitable for most of us.  I made a few in my younger days.  I consider those mistakes "tuition" now that I can look back from a good financial position. Hahah

Saving for retirement is so important if you don't want to end up relatively poor as an older adult, like half the population living on just SS.  So work on getting on the same page as your spouse.

I have been through good and bad financial times.  When the market is on a tear, I check the numbers (currently through personal capital) way way too often.  In a bear market, not so much.  In bad times I refuse to look for months at a time so I can stay invested and continue to buy.  Looking at the numbers when they are bad is just too painful.

[Kamban]

Queue wrote:

Does it matter if one doesn’t “enjoy” saving for retirement as long as money is going into retirement accounts? One partner can’t wait till pay day to see their retirement accounts grow while the other partner just “tolerates” it.

Click to expand...

Some people enjoy savings and consider it a hobby. Others don't want to think about it and want to hand it off to others. Those are the ones who fall prey to the insurance sharks from NW mutual or the Edward Jones brokers, buying Univ life policies, giving large AUM to manage investments that do poorly, invest in front loaded active funds and so on.

A good option would be to maximize retirement savings. Make sure that 20% of gross income is put in savings. Use total market index funds for taxable savings and contribute to it through booms and busts. If you have already contributed 30% to savings you can happily enjoy the rest after taking care of taxes, mortgage, routine expenses etc.

 

Queue wrote:

How much time thinking about finance is too much before it becomes unhealthy? How many clicks of the refresh button does your personal capital webpage get? Did you eventually settle down and just let time do its thing?

Click to expand...

I used to think more of it a couple of decades ago when I would buy stocks and enroll in dividend reinvestment and buy more of those stocks. Once I hit a FI and started investing in commercial real estate that is being managed by someone else, I don't dwell on it too much. Since many properties are not evaluated and valued except once in 5 years or so, my net worth cannot be accurately determined on a daily basis. In some way I am happy that is the case and take comfort that FI is there no matter what the stock market does.

[VagabondMD]

1. There are already debt/income conditions where the cost-value of a medical career is unfavorable. Borrow $500k to become a part-time pediatrician in San Francisco?

2. I agree that we tend to learn from our financial mistakes. There is a lot of bravado from newbies that only know a low volatility bull market. Heck, even the tech bubble of the 90’s had some hiccups- google “Long Term Capital crisis” and “Asian Contagion” for more info.

3. In every couple, someone seems to have primary control of the financial life. Saving is not just for retirement but for future purchases and goals, both planned and unplanned.

4. There is a healthy level of participation in financial activities and an unhealthy preoccupation. At times, I have been on either side of the line.

[Rando]

Queue wrote:

2. I wonder if people who have made big financial mistakes aren’t better off for them than those who never had that “opportunity”. Are you doing better financially now because of a past mistake vs. someone who never made that blunder but did not receive that kick in the pants to start on the road towards FI?

Click to expand...

 

I've often thought about that myself.  I've probably made almost every mistake possible when it comes to insurance and investing.  Around 1999-2000 I quit making stupid mistakes and am now FI.  I would not have learned to do the right thing unless I had done the wrong thing first.

 

When I talk to younger folks about financial matters it often doesn't seem to click for them, so maybe learning things the hard way is a necessary part of the process.  Touching on a topic in another thread I think this applies to handling a bear market.  It's very easy to say how you will ride out a market in which you have lost half your portfolio value, but it's very hard to do.

 

There's an old saying "when the student is ready, the teacher will appear" and that definitely seems to apply to financial planning.  The information is all out there but it's not apparent until you are receptive to it.

[LizOB]

With regards to your first question, I definitely had friends in med school and residency who gave me the impression they didn't really care about how much debt they were getting themselves into. I worked throughout med school (except most of 3rd year) and lived cheaply, though within reason, so I didn't have to take the max "living expenses" portion of the loans as I could have. In residency, I immediately signed up for IBR (this was in 2010)- not really for PSLF purposes because I didn't think I would go that route, but because I wanted to be paying something towards the loans rather than have them grow and grow. I had several resident friends do forbearance because they "couldn't afford" the IBR payments. Really? My IBR payment was something like $350. If you can't afford that on the median American income, you have some problems. I think people didn't realize the full impact of owing that much money- it almost becomes an abstract concept when the numbers get that big.

[Hatton]

White.Beard.Doc wrote:

When the market is on a tear, I check the numbers (currently through personal capital) way way too often.  In a bear market, not so much.  In bad times I refuse to look for months at a time so I can stay invested and continue to buy.  Looking at the numbers when they are bad is just too painful.tebeardst

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LizOB wrote:

lived cheaply, though within reason, so I didn’t have to take the max “living expenses” portion of the loans as I could have. In residency, I immediately signed up for IBR (this was

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Rando wrote:

When I talk to younger folks about financial matters it often doesn’t seem to click for them, so maybe learning things the hard way is a necessary part of the process.  Touching on a topic in another thread I think this applies to handling a bear market.  It’s very easy to say how you will ride out a market in which you have lost half your portfolio value, but it’s very hard to do.

Click to expand...

Vagabond MD wrote:

4. There is a healthy level of participation in financial activities and an unhealthy preoccupation. At times, I have been on either side of the line.

Click to expand...

Whitebeards advice as quoted is exactly what I do.  I check my accounts at Personal capital frequently in Bull markets and rarely in Bears.

LizOb is giving good advice to younger docs about how to minimize the loan burden.

I agree with Rando that young docs and others who have only seen a low vol bull market may not be receptive to advice yet.

I always agree with Vagabond.

[hightower]

Queue wrote:

Just some thoughts from someone young, less than broke, and probably with too much time on his hands.

1. I wonder if young people don’t fully appreciate the size of student loans for medical school, especially if pursuing PSLF. If your loan balance is $200-$400k but your minimum payment is $80/month, it hardly feels like a problem. Might that cause them to be less debt averse for future decisions?
2. I wonder if people who have made big financial mistakes aren’t better off for them than those who never had that “opportunity”. Are you doing better financially now because of a past mistake vs. someone who never made that blunder but did not receive that kick in the pants to start on the road towards FI?
3. Does it matter if one doesn’t “enjoy” saving for retirement as long as money is going into retirement accounts? One partner can’t wait till pay day to see their retirement accounts grow while the other partner just “tolerates” it.
4. How much time thinking about finance is too much before it becomes unhealthy? How many clicks of the refresh button does your personal capital webpage get? Did you eventually settle down and just let time do its thing?

Anyone have any thoughts? I put this in the lounge as it felt too vague/broad to fit into the other categories. Are there enough threads to warrant a Financial Behavior forum?

Click to expand...

1. Absolutely there are too many people these days who are numb to debt.  It's not just a young doctor problem, it's really an American problem.  Student loans are only part of it.  People view their mortgages and car loans not by the size of the debt, but by the amount of their monthly payments.  They think as long as they can afford to make the monthly payment, that it's okay to sign up for more debt. It's a recipe for being a slave to the lender for your entire life.

2. Some people learn from their mistakes and others don't.  Those that do end up much better off.  I'm definitely doing much better now as a result of learning from past mistakes (I used to be quite debt numb when I got out of school and wasn't saving enough).  For me the wake up call happened when I realized I was completely burnt out on my job and wanted out, but realized I couldn't afford to just stop being a high paid doctor because I had too much debt to pay off first and needed to downsize my spending significantly.  It has been a blessing in disguise for sure.

3. I don't think you have to enjoy it necessarily, but you should be someone that doesn't want to spend all of your money.  You should enjoy being somewhat frugal.  A high savings rate is more important than anything else IMHO and until one sees that as important, I don't think that person will be successful financially.

4. You can think about finances all you want as long as you're happy with the rest of your life.  Anything becomes a problem when it distracts from actually enjoying the life you have now.  Live in the moment kind of thing, ya know?

[willpmd]

1. I wonder if young people don’t fully appreciate the size of student loans for medical school, especially if pursuing PSLF. If your loan balance is $200-$400k but your minimum payment is $80/month, it hardly feels like a problem. Might that cause them to be less debt averse for future decisions?

I would think it would make them more debt adverse as they will have first hand knowledge of how crushing debt payments can be.

2. I wonder if people who have made big financial mistakes aren’t better off for them than those who never had that “opportunity”. Are you doing better financially now because of a past mistake vs. someone who never made that blunder but did not receive that kick in the pants to start on the road towards FI?

Ideally you would learn from others mistakes.  My dad lived his entire life in credit card debt and that has definitely informed my way of living for the better.  My-father-in-law mistimed the market in the 2000's because of a misunderstanding of his risk tolerance and an inability to ride a bear market.  It cost him over a million dollars, I would hope that I don't need that kick in the pants in order to avoid that mistake.  As long as you learn the lesson, I don't think it matters whether it comes from personal experience or watching someone else.  I'd rather watch the mistakes than live them if at all possible (I have made plenty of mistakes, just saying they don't feel any more informative than others' mistakes that I learned a valuable lesson from).

3. Does it matter if one doesn’t “enjoy” saving for retirement as long as money is going into retirement accounts? One partner can’t wait till pay day to see their retirement accounts grow while the other partner just “tolerates” it.

I think if you have reframed the issues so that you enjoy saving it makes it much easier than if you constantly harp on what you are missing.  It's like the marshmallow psychology experiment...kids who were able to visualize the marshmallow as something else were much better equipped to defer gratification than those who saw the marshmallow as a treat and had to use will power to avoid it... Start turning your thoughts to the benefits of saving and ignoring the "cost" of missing consumption.  Thoughts are changeable, so change them

4. How much time thinking about finance is too much before it becomes unhealthy? How many clicks of the refresh button does your personal capital webpage get? Did you eventually settle down and just let time do its thing?

Hard to answer this one for me.  I try to be as blissfully ignorant as I can because checking up on things more than once a week just leads me to perseverate on things I can't change and causes angst.   I want to be engaged enough so that I have a plan in place, but not attentive enough that it distracts from life.  That works out to doing a brief financial check up about once a week and a more through one every 3-6 months.

 

[adventure]

Vagabond MD wrote:

3. In every couple, someone seems to have primary control of the financial life. Saving is not just for retirement but for future purchases and goals, both planned and unplanned.

Click to expand...

One of the greatest (non-medical) lessons we learned from mentors during residency was that every house has a CEO, and a CFO, and they should be different people. Works for us.

[Queue]

adventure wrote:

I paid increasing addtion to finances as we put things (401k’s, mortgage refi, student loan refi and some pay off, buying car, moving, etc), and less and less attention now that we’re on autopilot

Click to expand...

I'm at the stage where I'm trying to get everything on autopilot, so that probably explains why I feel I've been spending so much time thinking about our money. Been at it since April 2017 and still don't have everything where I want it. Hopefully once I have everything in its place I can flip the autopilot switch.

willpmd wrote:

Start turning your thoughts to the benefits of saving and ignoring the “cost” of missing consumption.  Thoughts are changeable, so change them

Click to expand...

Unfortunately it's my better half whose thoughts I'd like to change. If she'd let me, I'd put all discretionary spending on hold and see just how fast I can fill up our retirement accounts

willpmd wrote:

Ideally you would learn from others mistakes.

Click to expand...

Actually taking the time to reflect on why I have the money beliefs I do, I can easily point to the behavior of my parents. My dad had the view of "invest early and often and forget about it". My mom had the view of "spend money and hope your dad doesn't see." Speaking recently to my dad, he told me that they could have retired 5 years ago if my mom would have kept her spending in check. Ouch.

Another thought that crept in my head was the idea of conscious and unconscious mistakes. I don't think my wife and I have made any big conscious financial mistakes yet, but we made a relatively large unconscious financial mistake by not fully understanding the consequences of taking out loans to live off of during medical school or realizing that we had other options besides loans. The idea that I could have worked to support both of us wasn't even something we thought of.

Thanks for all of your input everyone!

[Kamban]

Queue wrote:

Actually taking the time to reflect on why I have the money beliefs I do, I can easily point to the behavior of my parents. My dad had the view of “invest early and often and forget about it”. My mom had the view of “spend money and hope your dad doesn’t see.” ???? Speaking recently to my dad, he told me that they could have retired 5 years ago if my mom would have kept her spending in check. Ouch.

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In many situations like these the solution may not be on either side but right in the middle. There are as many hyper savers as excessive spenders.

We hear of people who are so laser focused on savings for FI and cutting out any discretionary spending that they let life pass by without enjoying it. And then they get to their amassed savings and FI and they don't know what to do since they have never spent anything on themselves. And the wealth grows, the health worsens and they die, with the wealth being given away to children and charity. All their their travel plans become fantasy.

My Dad was so much into buying and selling shares in retirement even though he had a good pension and the children did not need a penny of it and wanted him and my Mom to spend the money. Instead of using the discretionary income on travel and other life pleasures he invested it into the stock market for God knows what reason. My Mom could have enjoyed with that extra income but it was not to be.

So don't be too hasty to place the blame on one person or the other. The answer is usually somewhere in between.