physician 2.5 years out of training

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avenger
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physician 2.5 years out of training

Post by avenger »

Edited/deleted on 2/28/2014 for privacy sake (related to my screen name - didn't quite realize how google-able this forum was until after the fact). PM me and I will forward this post requesting help to you. Am grateful for all of the responses.
Last edited by avenger on Fri Feb 28, 2014 6:07 pm, edited 4 times in total.
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Re: physician 2.5 years out of training

Post by technovelist »

You have an enormous amount of student loan debt. What would happen if you or your partner became sick and couldn't work?

My opinion is that you should get the private loan, at least, paid off as soon as possible; those loans are the most dangerous type of debt to have because you are stuck with them even if you declare bankruptcy, and the rates can go sky-high.
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Re: physician 2.5 years out of training

Post by avenger »

[/quot
technovelist wrote:You have an enormous amount of student loan debt



It is rare the new doctor just out of training doesn't have this. Another post today on this board emphasizes that. To answer your specific question, I have a $10k/mo own occupation disability insurance policy.

Also, while still high,the private loan has an 8.95% cap.
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Re: physician 2.5 years out of training

Post by Ged »

Yikes. Not only have you a lot of student debt, but you have taken on just as much personal debt as well.

I'm assuming your partner and you do not commingle your finances at all.

How about selling the condo and using the proceeds to wipe out a lot of that debt? It will take you forever plus to pay that off given what you are renting it at. Then you will be in a position to really make progress on getting rid of the student debt.

Any chance that you've realized the car is really just empty consumption that will delay your eventual retirement, and that you should sell it and buy something more attuned to your life goals?
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Re: physician 2.5 years out of training

Post by avenger »

Ged wrote:Yikes. Not only have you a lot of student debt, but you have taken on just as much personal debt as well.

I'm assuming your partner and you do not commingle your finances at all.

How about selling the condo and using the proceeds to wipe out a lot of that debt? It will take you forever plus to pay that off given what you are renting it at. Then you will be in a position to really make progress on getting rid of the student debt.

Any chance that you've realized the car is really just empty consumption that will delay your eventual retirement, and that you should sell it and buy something more attuned to your life goals?
Correct, we do not comingle our finances.
Can't sell the condo - would have to take a loss on it - not willing to do that.
Yes, car is admittedly an empty consumption. Could consider selling it, yes.

I have $6000/mo to put toward any financial goal. I am getting the sense that just paying off debt rather than contributing any more to taxable accounts is recommended. Given that, is the recommendation really that I pay off lower interest student loan debt than mortgages? Tax-wise I think it might be a wash or in favor of the higher interest mortgages.

I have done the calculation - if I put the additional $6k toward debt (and continued to snowball payments into future payments), I could have all of my debt paid off in 5 years.


I appreciate the honest and straightforward feedback. Haven't really talked to anyone other than my partner about these sorts of issues. Incredibly helpful to bounce this off everyone on the forum.

Thanks.
Last edited by avenger on Thu Feb 27, 2014 7:47 pm, edited 1 time in total.
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Re: physician 2.5 years out of training

Post by icefr »

mwille wrote: I have $6000/mo to put toward any financial goal. I am getting the sense that just paying off debt rather than contributing any more to taxable accounts is recommended. Given that, is the recommendation really that I pay off lower interest student loan debt than mortgages? Tax-wise I think it might be a wash or in favor of the higher interest mortgages.
I'm not trying to be mean. I'm just looking at the facts. This is really hard to express over the internet...

You can declare bankruptcy and get mortgage debt gone, but you can't do that for student loan debt. Even if you declare bankruptcy, you're still stuck with it. That's why it's generally recommended to pay off student loans aggressively.

Does the rental income cover the mortgage payments, HOA dues, property taxes, insurance, etc. on the condo? If not, how much would you have to bring to closing in order to sell it? If your income on it doesn't cover expenses, you're losing money on this every month. Do this math: ($ needed to bring to closing to sell it) / ($ you lose each month) -> this gives you after how many months keeping it would be more expensive than just selling it now.

That car is pretty darned expensive for someone with $285,000 of student loan debt. You could probably sell the car and buy a $20k car and throw the rest of the funds at your student loans.

I would clear out your student loans ASAP.

I would keep your emergency fund and sell the rest of your taxable funds. Use those to pay down the student loans, which will make a nice little dent in it. Stop contributing anything to your taxable account until the student loans are gone. Re-evaluate your strategy once the student loans are gone. I would continue with the 401(k) and I'm assuming Backdoor Roth IRA though.

I might pay off the land loan first and then the student loans only since it is a higher rate and variable. If you empty your taxable investment account, that would cut your land loan down to only $31,485, which you could pay off in a little under 6 months with $6,000/month and then start attacking the private, variable student loan.

This is hard. I've never had student loans, so I'm not quite sure what I would do in your situation. Hopefully my ideas helped somewhat.
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Re: physician 2.5 years out of training

Post by avenger »

icefr wrote:
mwille wrote: I have $6000/mo to put toward any financial goal. I am getting the sense that just paying off debt rather than contributing any more to taxable accounts is recommended. Given that, is the recommendation really that I pay off lower interest student loan debt than mortgages? Tax-wise I think it might be a wash or in favor of the higher interest mortgages.
I'm not trying to be mean. I'm just looking at the facts. This is really hard to express over the internet...

You can declare bankruptcy and get mortgage debt gone, but you can't do that for student loan debt. Even if you declare bankruptcy, you're still stuck with it. That's why it's generally recommended to pay off student loans aggressively.

Does the rental income cover the mortgage payments, HOA dues, property taxes, insurance, etc. on the condo? If not, how much would you have to bring to closing in order to sell it? If your income on it doesn't cover expenses, you're losing money on this every month. Do this math: ($ needed to bring to closing to sell it) / ($ you lose each month) -> this gives you after how many months keeping it would be more expensive than just selling it now.
Income doesn't cover mortgage payments, but actually comes pretty close (I lose only about $100/mo). The condo recently went through a major special assessment which is now over - there were a number of foreclosures as a result, but the financials of the building have increased significantly and I expect the condo prices will increase as a result. So, I am not inclined to sell as it is net neutral, and has significant future potential for appreciation. I would probably have to bring 50-60k to the table, so that makes it even less desirable.

That car is pretty darned expensive for someone with $285,000 of student loan debt. You could probably sell the car and buy a $20k car and throw the rest of the funds at your student loans.
I agree. Definitely will consider selling car.

I would clear out your student loans ASAP.

I would keep your emergency fund and sell the rest of your taxable funds. Use those to pay down the student loans, which will make a nice little dent in it. Stop contributing anything to your taxable account until the student loans are gone. Re-evaluate your strategy once the student loans are gone. I would continue with the 401(k) and I'm assuming Backdoor Roth IRA though.

I might pay off the land loan first and then the student loans only since it is a higher rate and variable. If you empty your taxable investment account, that would cut your land loan down to only $31,485, which you could pay off in a little under 6 months with $6,000/month and then start attacking the private, variable student loan.
I agree with that. What do you think about the 2.62% fixed federal debt? I am inclined to let that ride out... I haven't been totally convinced that the opportunity cost is worth it to clear this debt off the balance sheet.

This is hard. I've never had student loans, so I'm not quite sure what I would do in your situation. Hopefully my ideas helped somewhat.
Thanks. You were very helpful!

Don't apologize! I truly appreciate the help - I wouldn't have posted if I didn't want to hear it! Replies to questions above.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
icefr
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Re: physician 2.5 years out of training

Post by icefr »

Glad to help!
mwille wrote: Income doesn't cover mortgage payments, but actually comes pretty close (I lose only about $100/mo). The condo recently went through a major special assessment which is now over - there were a number of foreclosures as a result, but the financials of the building have increased significantly and I expect the condo prices will increase as a result. So, I am not inclined to sell as it is net neutral, and has significant future potential for appreciation. I would probably have to bring 50-60k to the table, so that makes it even less desirable.
That seems fair on the condo. If in say two years, you are still net neutral monthly, but you could sell it without bringing any cash to the table, I might consider that. You just mention mortgage payments - what about the HOA dues? Make sure you're raising rent the a modest 1-3% per year to help cover costs better as well.
icefr wrote: I might pay off the land loan first and then the student loans only since it is a higher rate and variable. If you empty your taxable investment account, that would cut your land loan down to only $31,485, which you could pay off in a little under 6 months with $6,000/month and then start attacking the private, variable student loan.
I agree with that. What do you think about the 2.62% fixed federal debt? I am inclined to let that ride out... I haven't been totally convinced that the opportunity cost is worth it to clear this debt off the balance sheet.
I'm not sure. But, what I would do if I were you is re-evaluate once you've paid off the land loan and the variable private student loan. I probably wouldn't let it ride out either since it's still a student loan and not dischargeable in any situation other than death.

So with rough math:
* June 2014 - land loan paid off
* March 2016 - private student loan paid off (re-evaluate)
* March 2018 - federal student loan paid off and you're mostly free!

Regardless, I'd make a plan and stick to it. Come up with a goal end of year balance for each loan, an order to pay them off in, and concentrate on one at a time. Also set dates to re-evaluate your plan, e.g. after paying off a loan or at the end of a calendar year. If you like spreadsheets, make one with a chart and watch your balance dwindle down to zero.
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Re: physician 2.5 years out of training

Post by avenger »

icefr wrote:Glad to help!
mwille wrote: Income doesn't cover mortgage payments, but actually comes pretty close (I lose only about $100/mo). The condo recently went through a major special assessment which is now over - there were a number of foreclosures as a result, but the financials of the building have increased significantly and I expect the condo prices will increase as a result. So, I am not inclined to sell as it is net neutral, and has significant future potential for appreciation. I would probably have to bring 50-60k to the table, so that makes it even less desirable.
That seems fair on the condo. If in say two years, you are still net neutral monthly, but you could sell it without bringing any cash to the table, I might consider that. You just mention mortgage payments - what about the HOA dues? Make sure you're raising rent the a modest 1-3% per year to help cover costs better as well.
icefr wrote: I might pay off the land loan first and then the student loans only since it is a higher rate and variable. If you empty your taxable investment account, that would cut your land loan down to only $31,485, which you could pay off in a little under 6 months with $6,000/month and then start attacking the private, variable student loan.
I agree with that. What do you think about the 2.62% fixed federal debt? I am inclined to let that ride out... I haven't been totally convinced that the opportunity cost is worth it to clear this debt off the balance sheet.
I'm not sure. But, what I would do if I were you is re-evaluate once you've paid off the land loan and the variable private student loan. I probably wouldn't let it ride out either since it's still a student loan and not dischargeable in any situation other than death.

So with rough math:
* June 2014 - land loan paid off
* March 2016 - private student loan paid off (re-evaluate)
* March 2018 - federal student loan paid off and you're mostly free!

Regardless, I'd make a plan and stick to it. Come up with a goal end of year balance for each loan, an order to pay them off in, and concentrate on one at a time. Also set dates to re-evaluate your plan, e.g. after paying off a loan or at the end of a calendar year. If you like spreadsheets, make one with a chart and watch your balance dwindle down to zero.
I actually use mint.com - incredibly helpful. Not sure how useful how their retirement calculator is as the assumptions are not included, but it definitely helps.

HOA are $300/mo. Actually I included the HOA in my cash flow analysis - even with HOA I'm only losing $100/mo. Plus I get a tax deduction which I didn't include in analysis.

I am an unintentional landlord and would absolutely sell if I didn't have to bring anything to the table.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
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Re: physician 2.5 years out of training

Post by robertalpert »

You mention wanting allocation of 100% stocks (equity); zero % bonds. Since your debt is considered to be inverse-bond; In order to get down to 100% stocks (equity) you would need over $400,000 in bond holdings to balance out your debt level.

With $400,000 in bonds, the rest in stock, then you will be at 100% equity.

Is the federal portion of your student loans subject to loan forgiveness (if you work for a non-profit hospital)?

Can you afford to allocate 20% of income to the debt principal (as separate from interest payments) --- and still have enough left over to allocate 10% of income to investment??? If not, you may need to consider decreasing debt by {student loan forgiveness; selling real estate property; downsizing; etc}
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Re: physician 2.5 years out of training

Post by goodenyou »

I would live very frugally and throw EVERYTHING I had at getting rid of education debt. Simple. Think about investing when you get rid of the debt.
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Re: physician 2.5 years out of training

Post by avenger »

robertalpert wrote:You mention wanting allocation of 100% stocks (equity); zero % bonds. Since your debt is considered to be inverse-bond; In order to get down to 100% stocks (equity) you would need over $400,000 in bond holdings to balance out your debt level.

With $400,000 in bonds, the rest in stock, then you will be at 100% equity.

Is the federal portion of your student loans subject to loan forgiveness (if you work for a non-profit hospital)?

Can you afford to allocate 20% of income to the debt principal (as separate from interest payments) --- and still have enough left over to allocate 10% of income to investment??? If not, you may need to consider decreasing debt by {student loan forgiveness; selling real estate property; downsizing; etc}
Never thought about AA in that way, but I appreciate your analysis.

20% of my gross income=$5,000/month. I have $6,000 at my disposal (after maxing out Roth and defined contribution)
So yes, I have $1000/month leftover on top of 20% gross income going toward debt (on top of interest payments) to use for additional taxable investment.

Unfortunately student loan forgiveness is not an option for me as far as I understand the nature of the federal debt I have - not direct loans.
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Re: physician 2.5 years out of training

Post by avenger »

goodenyou wrote:I would live very frugally and throw EVERYTHING I had at getting rid of education debt. Simple. Think about investing when you get rid of the debt.
Got it - including the 2.62% fixed federal debt?
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Re: physician 2.5 years out of training

Post by goodenyou »

mwille wrote:
goodenyou wrote:I would live very frugally and throw EVERYTHING I had at getting rid of education debt. Simple. Think about investing when you get rid of the debt.
Got it - including the 2.62% fixed federal debt?
I would prioritize the debt in decreasing order (the highest rate first). When you get down to only a 2.6% loan, you can START thinking about strategy. For now, the ONLY strategy is retire a lot of debt. I was in your shoes once. You will become an old doctor too. My eyes didn't really open to the realities of what it would be like to get older with the burden of debt until I was about 10 years out. It is exhilarating to be completely debt free. I watch a few of my partners, who have made a lot more than I over the years, struggle in their 50's over very bad financial decisions (divorce didn't help either). I learned a lot from them; what NOT to do. You get more tired as you age. Those 5 hour operations just aren't as attractive to do when you are 20-25 years out, and I don't make nearly as much as I did 20 years ago. When you get to a place where you can practice medicine with choices, and work the way you want to, it becomes more enjoyable (again).

Edited for grammar
Last edited by goodenyou on Tue Dec 10, 2013 11:48 pm, edited 2 times in total.
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Re: physician 2.5 years out of training

Post by Calm Man »

OP, I was in your spot 30 years ago with huge debt post fellowship. It was student loan debt. I paid it off as quickly as I could and NEVER borrowed a penny for anything again, not even a mortgage. You have gone in the opposite direction. You may do fine. However, I can tell you I had some friends who borrowed for cars, land and goodness knows what else and ended up in pretty bad shape. I would suggest that you look at your situation as one that can be great but that you have a "borrowing problem" and justify it in various ways and justify not getting rid of assets once you have them even if they aren't good things to hold onto. I know you can do it. it is a lot easier to take a vow to get rid of and not create debt than to do an overnight shift. Good luck.
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Re: physician 2.5 years out of training

Post by Saving$ »

What googenyou said.

And think about living more frugally. Rough calculations based on the info you provided is that you have about $14-$15k net each month after taxes, 401k & Roth contributions. Try living on $2-2.5k and throwing the rest toward debt. This should be very doable, especially if you split household expenses with your partner. You could have your more frugal car, the land and the private debt paid off in less than 2 years if you did this. Then continue to live frugally for another year to save to build a house on the land. At the end of three years, sell the appreciated (hopefully) condo, combine those proceeds with the house savings and you are good to go. After you get the house built, you focus on paying down the Federal Debt within 2 years. So in 5 years you have the house and no debt (except maybe a mortgage).
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Re: physician 2.5 years out of training

Post by jasper »

when i got out of training i had a similar outlook. my loans were capped at sub-3% rates (granted a lower total amount), and i have been paying on a roughly 20 year repayment schedule. it would be nice to be paid off, but it is also nice to now have a decent portfolio i have built up in the interim

most people on this forum are not comfortable with carrying debt. i was/am OK with low interest debt in my situation. investing the difference (i.e. not living like a resident and not paying things off ASAP) over the last 15 years has paid off for me. hindsight in this case is comforting. it was a gamble, who knows what will happen over the next 10-20 years. i personally would do it this way again. but this is assuming low interest rates on your loans

i am not familiar with your variable loan and this may need more immediate attention

and the car - another vote to ditch that. don't start bad habits
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Re: physician 2.5 years out of training

Post by White Coat Investor »

Welcome to the forum.

I'm going to be very blunt with you, because you've shown above you can take it. Here we go....

# 1 You blew it. There is one thing that is most important for a physician's personal finances. It is what he does the first year or two that he gets out of residency. The secret to doing very well as a doctor is to continue to live as a resident for 2-5 years after residency. It is very easy when you're used to not having much. It is very hard to go backward.

How do I know you blew it? Because you only have a $120K portfolio despite a holding a 100% equity portfolio in a massive bull market the last 2.5 years. Not only have you not eliminated your debts, you've taken on new debts. You can't afford your car. You can't afford to buy a lot you're not even living on. Who do you think you are? How much do you think you owe? You need a new mindset more than anything else. Instead of living on $200-250K a year, try living on $100K per year for the next 3 years. Sell the car, sell the land, sell the condo (it sounds like a terrible investment anyway). Pump your retirement accounts full and pay off your loans.

If you had come out of residency and lived off the $50K per year you were making as a resident for just two years, you would own the land outright, own the car outright, have all the student loans paid off, and have a $200K portfolio. Instead of the net worth of -$400K that you have now, you'd probably be about even.

That's all water under the bridge now. The question is where to go from here. Here's what I would do.

1) Get a real emergency fund. Your job is secure, but not that secure. Sell some of your Wellesley (long term CGs only) and toss it into your savings account. The only thing worse than having to pay capital gains taxes is not having to pay capital gains taxes.
2) Sell the car. You have a net worth of minus $400K. You can't afford it. You can buy it back later when you can.
3) The land was also a splurge you cannot afford. Sell it. Well, never mind, you're not going to sell the car or the land, who are we trying to kid.
4) Since you're not going to sell the car or the land, you'll need to live with the consequences of your choice. That means either retiring later, or spending less now. Your choice.
5) Sell the condo. You're losing money on it. You don't say what it is worth, but you owe $165K on it and you say you're underwater, so let's assume $150K. Rent of $1160 a month isn't even cash flow positive on a condo of that cost especially with two mortgages. I'll bet your return on that money counting appreciation, depreciation, amortization and everything is less than 4%. You're simply feeding it. Sell it, bring cash to the table, and be rid of the albatross.
6) Your student loan rates are pretty good, so I wouldn't pass up any retirement account contributions to pay them down, but I'd still be paying them down as fast as I could. That's a lot of debt and you'll feel a lot better when it is gone. You just seem way too comfortable with debt to be honest. Those big student loans have numbed your brain so you don't feel it like you should. Your life is highly leveraged and you don't even own the home you live in. A little leverage is okay, but I think you're way out there on the leverage thing. $300K might feel like a big shovel, but you've got an even bigger hole to fill.
7) I think considering your pension contributions as a bond is fine if it turns out you are as aggressive as you think you are. How did you feel during the 2008 downturn? Oh, you've never invested through a bear market? Might want to consider the ramifications of that fact before deciding 100% equity is right for you. Not saying you can't handle it, I'm just saying nobody, not even you, probably knows if you can or not.
8) I see the land is worth a lot more than you owe on it. I'd definitely sell it and deleverage myself. My idea of a splurge is going to Europe for a week. Your idea of a splurge is to put on financial handcuffs you'll be wearing for the next 5-10 years.
9) I like what you're doing with your investments, just not what you're doing with your lifestyle/debts.

In closing, I'll offer this timeless quote from the later years of the Great Depression:

Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

It isn't the interest on your debts that should worry you, it's the darn principal. After tax, that's like 3 years of your life.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
robertalpert
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Re: physician 2.5 years out of training

Post by robertalpert »

You may want to invest in reading a couple of books pertinent to your situation:

http://www.barnesandnoble.com/w/richest ... 0451205360


http://www.barnesandnoble.com/w/the-mil ... 1589795471
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Re: physician 2.5 years out of training

Post by TroutMD »

Another doc here, 2.5 years out of training as well.

I feel bad to see my colleagues in such positions as yourself.

I just want to reiterate what everyone else has said, SALE THE CAR!

Also, Listen to EmergDoc.


Good luck...
Last edited by TroutMD on Tue Dec 10, 2013 11:57 pm, edited 1 time in total.
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Re: physician 2.5 years out of training

Post by fishnskiguy »

EmergDoc wrote:
Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.
Wow. So well said.

This needs to be in the Wiki.

Chris
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Re: physician 2.5 years out of training

Post by zebrafish »

my personal finance philosophy has been to be much more concerned about "opportunity cost" than paying off debt

Herein lies your problem, and your enormous amount of debt indicates this. Until you fix your debt problem (taking on more, getting rid of current), you won't make any traction and worrying about asset allocation, etc. is really meaningless and ignores the elephant in the room.
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Re: physician 2.5 years out of training

Post by zebrafish »

technovelist wrote:You have an enormous amount of student loan debt
mwille wrote:It is rare the new doctor just out of training doesn't have this...
I don't want to pile on, but you have a lot of excuses to justify and continue to ignore problems. The debts aren't going to go away unless you decide to get rid of them. You have some pain ahead, whether you like it or not.

I'm a physician. I had 100K in debt at graduation. Since my training ended, I've saved ~1/3 of my pretax income for debt repayment and now investing. I paid all my loans off in <3 years. You have more debt than I did, but I bet you make more than I made at the time when I paid off my loans. I drove a 10 year old Honda until I had a positive net worth (as an "attending"), then I splurged and bought a 3 year old Subaru (for cash). The janitor at my building drives a more expensive car than me.

You have a goal to retire early, but you need to make some radical changes to achieve this goal. I don't mean to be harsh, but I feel someone in my own profession deserves my (brutally?) honest opinion, FWIW. You don't focus on the ingrown toenail of the patient in cardiac arrest! There are a lot of good comments being made-- consider them carefully.
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Re: physician 2.5 years out of training

Post by letsgobobby »

i am wondering if there are *any* docs any more who can graduate without six figures in debt. I finished in 1999 with $25,000 in total debt and realize now what an incredible gift that was. After selling a condo and using the gains to pay down the debt, I only had a net debt of $7000.

$200,000, $400,000, couples with $700,000 in debt. It's just crazy.
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Re: physician 2.5 years out of training

Post by White Coat Investor »

letsgobobby wrote:i am wondering if there are *any* docs any more who can graduate without six figures in debt. I finished in 1999 with $25,000 in total debt and realize now what an incredible gift that was. After selling a condo and using the gains to pay down the debt, I only had a net debt of $7000.

$200,000, $400,000, couples with $700,000 in debt. It's just crazy.
Time or money, or very rich parents. That HPSP scholarship is looking better all the time these days.
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Re: physician 2.5 years out of training

Post by jjm285 »

Surprising amount in my class have parents paying their way. I'll be dang near 300k in 2016 when I'm done. And I'm wayyyyy more conscious of my debt than the vast majority of my class. Saw pics from lots of European vacations after M1 year, must have felt the need to spend every last 6.8% interest dollar. I'm glad I found this site and yours, EmergDoc.
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Re: physician 2.5 years out of training

Post by ofcmetz »

OP, you've gotten some tough love here from some great financial minds. I'll add that I also agree that you should concentrate on the debts as well as lifestyle costs. EmergDoc's post was great.
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Re: physician 2.5 years out of training

Post by ofcmetz »

robertalpert wrote:You may want to invest in reading a couple of books pertinent to your situation:

http://www.barnesandnoble.com/w/richest ... 0451205360


http://www.barnesandnoble.com/w/the-mil ... 1589795471



I actually read The Millionare Next Door again for the second time last week. This weeks reading was The Richest Man in Babylon. I agree with the other poster that you should definitely read both with the goal of increasing your understanding of how wise people handle money.
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Re: physician 2.5 years out of training

Post by inbox788 »

I'll go easy on you compared to some of the other more critical folks here. You decide how hard on yourself you need to be. You have high debt, but also high income. The key is to budget and keep positive cash flow, and save/invest/pay back loans more than you spend. You've splurged a bit, hopefully got most of it out of your system. Don't go buy a boat or RV just yet, or go on vacation. OK, a small annual vacation is probably well deserved, but no big expensive long term holidays!

As I see it, roughly, you owe about $500,000, and I'm guessing your assets are around $300,000, so your net worth is ballpark negative $200,000. Given your high tax bracket, you'll likely taking home between $150,000-200,000 a year. Those frugal types can live on less than $50,000, so savings of over $100,000 a year are possible. I'll be more moderate and say you can reasonably save $200,000 in 3 years, so you should be positive net worth by then. Selling investments to pay off loans, or selling the condo to pay off mortgage might make a small difference one way or the other, but will not significantly alter your net worth. After you reach positive net worth, you'll still owe over $300,000, which will take another 5 years to be debt free. I'm not counting the amounts you'd be adding to your 401k (yes, do max it out!), and any additional savings as recommended by others would accelerate your path to being debt free sooner. In the mean time, none of your loans seems to be that bad, and several have very good interest rates that are probably worth keeping till the end. As long as you can manage the cash flow, and you can handle the volatility of your investments, I see potential for positive expected returns from keeping investment plus debt rather than cancelling it out early.

1) You're not going to alter your skewed AA overnight, so don't sweat it. As your debt load falls, and you increase your investments, you'll be improving your AA towards your goal. You're still young, and have the time to recover if things get hairy. Revisit the AA question in 3 years after you have positive net worth, and see where you are comparatively and where you should be. Take some time to decide where you want to be, and what less conventional adjustments you're going to make (i.e. debt = negative bond, pension = bond, real estate = ???, etc.)

2) It's not a bad idea paying back debt, especially the higher ones that need more than 7-8% market returns to offset the interest, but be sure you have sufficient cash and liquid assets for a long downturn. Usually 6 months is a recommended minimum emergency fund, but in you case, 12-24 months would be prudent. Not all need be in cash, but understand the worst case when you need cash in bad times.

3) Tilt your AA per your risk. Don't think it will make a huge difference over the long term, just optimizing risk/reward.

4) Your car is already a big expense done. I'd say keep it, but don't do it again. So, how much is it going to cost to build on this property? In the next 4-5 years, you'll still be in debt, so aside form another mortgage, where do you expect to get funds? Cash out your equities? I expect if you wanted to spend the money, the financial answer is probably a mortgage over selling equity. You could take on the debt, but that would put you back a few years from financial freedom. Are you willing to do that?

5) You can't have everything. Choose financial independence or spending. Striking the right balance is going to make you happier and stress free. Some folks here can be too extreme in the lack of spending that they'll die with a ton of cash left over. You can't take it with you so it's ok to spend some as you have, but it's easy to over do it if you're not careful and conscious about it.

6) Wellesley income isn't a great emergency for 2 reasons. First, the performance dipped a bit during the last crash. So you say 9 months, but is that current value or distressed value? Take it down 25%, and you have about 7 months emergency cash. Second, the dividends are taxed high in your bracket. Consider treasuries or munies depending on what risk you're more concerned about. Still, if you don't wish to take the tax hit, especially the short term taxation, then by all mean just keep it. You could always add to another account for improving risk profile.

Final note, with your rental property, what is the business case? How much will it cost you to get out now? How long will you have to supplement negative cash flow? Make a decision to continue the investment or pull the plug based on your best expectations and see how it goes. Over the long run, it doesn't appear to be a large issue either way.The biggest difference will come from the disposable income that's used to invest or pay down debts. You may be able to do more than $72,000 a year ($3,000+$3,000 per month x 12 months), but even if that's all you do, and don't overspend, in less than a decade, you'll be debt free and own or have significant equity in several assets. That may be the right time to spend some small fraction of what you'll have accumulated.
Last edited by inbox788 on Wed Dec 11, 2013 4:21 am, edited 2 times in total.
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Re: physician 2.5 years out of training

Post by inbox788 »

zebrafish wrote:my personal finance philosophy has been to be much more concerned about "opportunity cost" than paying off debt

Herein lies your problem, and your enormous amount of debt indicates this. Until you fix your debt problem (taking on more, getting rid of current), you won't make any traction and worrying about asset allocation, etc. is really meaningless and ignores the elephant in the room.
OP, track your net worth as a guide. Be conservative. Use debt plus interest (add 1 or more years) for liabilities. Use conservative values for your assets. Trade in value of your car in fair condition. Consider sale of properties with some stress/distress. Value of equities expected on next correction? And if we have another great recessions? If you distress assets can cover your liabilities, you're in fair shape.

The movement of this number is going to be very telling of how well or poorly you're doing.
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Re: physician 2.5 years out of training

Post by avenger »

Woke up this morning and was inundated (in a good way) with responses.

Thanks for all of the feedback - I wish I could respond to each post individually, but alas, I have a surgeon's hours.

There are varying degrees of responses but the overall response obviously is to shed the debt. So, that's what I plan to do - putting that additional $6000/mo (beyond minimum payments) toward paying down ALL of my debt except federal, which I will also re-evaluate when I get to that point. As far as future debt, at this point it is clear that to obtain my financial goals, any future debt is a no-no. Cash is king, and that's how I plan to acquire any other assets. I should write all of this down in an investing policy statement.

Will keep some monies in liquid savings for an EF.

I would need to bring about $50k to the table to sell my condo, and considering it is basically not costing me net anything I plan to keep it. Plus home prices in the building are rapidly rising at this point. Will re-evaluate, however.

Will keep maxing out DC and Roth accounts.

Currently I do keep track of things - I use mint.com. Basically net worth is -$110,000 as you look at things today. I graduated residency with a net worth of -$350,000. I am very aware that my net worth could actually be much lower considering any number of factors. Net worth is steadily increasing (assets have increased faster than debts).

While I don't necessarily agree with everything that was said, this has been a very positive experience for me - shocked me into reality to some degree. It will take me some time to process everyone's ideas. Will need to read, and re-read over the next few days. Also have wandered over to whitecoat investor. I'm looking forward to posting my progress in a few years.

Cheers
Last edited by avenger on Thu Feb 27, 2014 7:48 pm, edited 2 times in total.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
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Re: physician 2.5 years out of training

Post by Swampy »

My condolences to you.

I'll bet you didn't know you took an unwritten vow of servitude and poverty when you went to medical school,
especially now that payment to physicians is about to nosedive off a cliff next year.

From what I've read, these new insurance schemes will only be paying around 60% of Medicare rates.

I don't know any business that can survive when its cost of doing business keeps rising and income keeps dropping.

Of course you can make it up with volume working 18 hours a day, 7 days a week - and still end up making as much as a minimum wage flunky.

Even a fast food burger flipper will earn over $60,000 a year working those hours - without the fear of getting sued - and that's at $7.25/hour base wage.

Given that choice, seriously look outside of medicine to put you're talents.
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Re: physician 2.5 years out of training

Post by z3r0c00l »

icefr wrote:
mwille wrote: That car is pretty darned expensive for someone with $285,000 of student loan debt. You could probably sell the car and buy a $20k car and throw the rest of the funds at your student loans.
Selling a $60,000 car used will get you about half, or $30,000. That ship has sailed most likely, so enjoy the car.
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Re: physician 2.5 years out of training

Post by z3r0c00l »

Swampy wrote:
Of course you can make it up with volume working 18 hours a day, 7 days a week - and still end up making as much as a minimum wage flunky.

Even a fast food burger flipper will earn over $60,000 a year working those hours - without the fear of getting sued - and that's at $7.25/hour base wage.

Given that choice, seriously look outside of medicine to put you're talents.
If you expect doctors to earn as much as burger flippers next year, I think you are panicking just a bit too much. Even in the UK or other highly socialized medical systems, doctors earn a good living. Maybe the OP can update us on his change in salary next year, if there is one.
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Re: physician 2.5 years out of training

Post by avenger »

z3r0c00l wrote:
Swampy wrote:
Of course you can make it up with volume working 18 hours a day, 7 days a week - and still end up making as much as a minimum wage flunky.

Even a fast food burger flipper will earn over $60,000 a year working those hours - without the fear of getting sued - and that's at $7.25/hour base wage.

Given that choice, seriously look outside of medicine to put you're talents.
If you expect doctors to earn as much as burger flippers next year, I think you are panicking just a bit too much. Even in the UK or other highly socialized medical systems, doctors earn a good living. Maybe the OP can update us on his change in salary next year, if there is one.
I can't predict what doctor reimbursements will do. Without divulging my exact practice location, I will tell you that my salary has nothing to do with (directly) insurance companies or reimbursements. It is salaried and very stable (relative to other physician jobs).

Thanks
Last edited by avenger on Thu Feb 27, 2014 7:48 pm, edited 1 time in total.
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Re: physician 2.5 years out of training

Post by The Wizard »

I'm late to this thread, but I think the OP will be fine if he can stick to his stated plan for the next couple of years and not take on any new indebtedness...
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Re: physician 2.5 years out of training

Post by RobInCT »

I second what everyone else here says about paying off the debt. You make a high enough income that you don't have to sell anything--including the car--if you don't want to. However, avoiding new debt is key. When I was in graduate school I, too, thought of "opportunity cost" rather than paying down debt. The thing that became important for me to realize is that at a certain level, a level you are surely at, debt kills opportunity. Having paid off almost all my debt, I have a ton of career and life flexibility that I did not have when I was thinking about "opportunity cost" of debt.

It's odd to me that you're asking whether you should pay the minimum on your federal loan because of the low interest rate or pay it off early. Even if you pay the entire $6k/month "extra" you have towards debt, it will be YEARS before you have to make this decision. That you put that among your priority questions seems perhaps to indicate that you're not looking at your debt from the right perspective.

I'm your age and also very high % equity, so I'm not going to criticize your allocation, but I wanted to point out that the investment benefit of owning bonds is not just about having "safer" investments but also about allowing for rebalancing across investment classes. If the stock market dropped 50% tomorrow, people here would be selling bonds to buy stocks. You can't sell your pension to buy more stocks. So your pension is not the equivalent of a bond fund, though they do share some features. It's up to you to determine whether the absent features are important enough to you to reconsider your allocation.
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Re: physician 2.5 years out of training

Post by goodenyou »

The take home on this is that the good thing is that you have a high salary (relative to average), the bad is that you are indebted. So, your problems will be solved over time. The fortunate thing is that you CAN solve your financial problems with discipline given your cash flow without being insolvent. Sounds like you are probably VA or University staff, so you have some job security. Most of the problems for physicians today are in the private sector where our colleagues are going to see incomes go way down in the current new world order of medicine. In the good old days, physicians were able to retire their educational debt quickly and get started on the road to investing albeit late in their 30s and 40s. The exit strategy was much more attainable by the time you hit mid 50s. Now, you young doctors are amassing 2-3x average starting wage in debt in an decreasing wage environment. The "rich doctor" moniker is over. It is now only my friends in their 60s. Make a spreadsheet of your debt, and follow it every few months to watch it go down. Look at retiring debt as "investing". Set a goal. You are used to that.
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Re: physician 2.5 years out of training

Post by inbox788 »

mwille wrote:
z3r0c00l wrote:
Swampy wrote:
Of course you can make it up with volume working 18 hours a day, 7 days a week - and still end up making as much as a minimum wage flunky.

Even a fast food burger flipper will earn over $60,000 a year working those hours - without the fear of getting sued - and that's at $7.25/hour base wage.

Given that choice, seriously look outside of medicine to put you're talents.
If you expect doctors to earn as much as burger flippers next year, I think you are panicking just a bit too much. Even in the UK or other highly socialized medical systems, doctors earn a good living. Maybe the OP can update us on his change in salary next year, if there is one.
I can't predict what doctor reimbursements will do. Without divulging my exact practice location, I will tell you that my salary has nothing to do with (directly) insurance companies or reimbursements. It is salaried and very stable (relative to other physician jobs).

Mark
BH plastic surgeon? :P
inbox788
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Re: physician 2.5 years out of training

Post by inbox788 »

icefr wrote:You can declare bankruptcy and get mortgage debt gone, but you can't do that for student loan debt. Even if you declare bankruptcy, you're still stuck with it. That's why it's generally recommended to pay off student loans aggressively.
Student loan vs. mortgage

Some minor points, but things to think about if you're thinking of accelerating one or the other.

Bankruptcy discharge is one factor. However, doesn't the bank go after the property with the mortgage? Assuming you have equity, isn't it a wash?

Mortgage interest may be higher, but deductible. Some student interest may be deductible, but most likely phased out for you already. Also, mortgage interest and other deductions can be phased out as well, so check with your accountant. Further, there are proposals to further phase out deductions for the rich, which you will like be a candidate, and if they pass, it may nullify the mortgage deduction.

You should take a look at your life insurance situation. You may need more protection to cover the debts, but if you're negative net worth and don't care, there's no need to buy life insurance with Uncle Sam as the beneficiary on those student loans.
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Re: physician 2.5 years out of training

Post by zebrafish »

I think the comment about thinking also about net worth is very helpful.

One thing that has helped me is to keep an excel spreadsheet and plot various debts (mortgage, loans, retirement assets, non-retirement assets, net worth). Over the past 5+ years, this really has helped me keep things in perspective. You can really see the progress you are making. And it helps you to stick to whatever plan you formulate to see that progress over time.

And, I know a plastic surgeon that drove a 10 year old toyota corolla :shock:
I never asked him why, but it was probably for a reason!
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Re: physician 2.5 years out of training

Post by Childay »

+50 to emergdoc's post. You received some excellent feedback in this thread!
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Re: physician 2.5 years out of training

Post by inbox788 »

mwille wrote:Currently I do keep track of things - I use mint.com. Basically net worth is -$110,000 as you look at things today. I graduated residency with a net worth of -$350,000. I am very aware that my net worth could actually be much lower considering any number of factors. Net worth is steadily increasing (assets have increased faster than debts).
Good to see you're further along to positive net worth than my first guess. So the first goal of being net worth positive might only be 1-2 years away. Your estimate of debt-free of 5 years requires about $100k repayment per year, which means increasing your debt repayments a moderate amount from what's described or living with pushing that out a couple of years at current plan. Alternatively, if you purposely pay minimum debt, you may not be debt-free for 20-30 years, which is ok as long as you're investing it in something with higher after-tax expected value. I'd keep a specific account dedicated to keeping track of a virtual debt-free goal.

Once you're reached the second milestone of debt-free (or virtual debt-free), or maybe concurrently, look towards reaching your first $1-2M in assets. Using the now questionable 4% rule, that theoretically generates 40-80k income perpetually (or at least 30 years with 95-98% confidence). Whether you include your non-liquid assets and other retirement assets is optional, but understand changes in consequences. Unless your income changes dramatically, what this represents is the crossover where your expected capital gains becomes more than the amount you've been saving and paying loans ($6k/month). If you keep up the pace, your next doubling, $2-4M goal will take half as long (half your contribution, half your assets working). Finally, if financial independence can be achieved with 80% your current income, then we're talking about $6M. You'll need a little more for market fluctuations, inflation, and other factors.

BTW, you don't mention a home, so am I correct to assume you're renting? How is your living situation compared to your Condo (cost/month, sq. ft., $/sq. ft. for the neighborhoods similar or different?) Is buying a home something in the near or mid term? Or is this the same as the plan to build on the property? Both are expenses and investments at the same time, with the ability to increase or decrease your net worth (interest costs, home appreciation, etc.), but will seriously impact your cash flow for the foreseeable future if you acquire them in the short to mid term, so some things to contemplate.
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Re: physician 2.5 years out of training

Post by avenger »

More great posts.

I am glad to see the variety of responses. I am grateful for the 90+% of constructive posts. Some posts seemed a little less constructive, although I believe they were typed with good intentions.

How has posting changed me? :

Certainly has put in perspective that tackling the private student loan debt, mortgage debt, and car loan will be my top priority. No more asset purchases with credit - just cash. Also won't be contributing any more to taxable accounts until the debt is gone.

Although selling assets are an option, it's not something I'm going to do. I'm just going to focus on paying them off. While I agree I could live my life in total austerity, I rather will keep the belt tight from this point forward. A this point I just don't buy that I need to put more than $6k away at this debt every month (over and above minimum payments, over and above fully contributing to my 401k, over and above fully funding my Roth every year) and sell everything I own. Yes I am more comfortable with debt than other posters. I want to be debt free, but I am not willing to kill myself just to become debt free 2-3 years sooner. Someone mentioned "hopefully you've got it out of your system." I have.

I also don't want to take the tax hit on the taxable accounts as a huge portion of them are short term gains. I'm just going to hold them.

Thanks for all of the help - much appreciated.

Signing off for now,

Thanks.

P.S. - yes, the housing situation - my partner owns our home outright - I contribute half of what his tax reduced costs are.
Last edited by avenger on Thu Feb 27, 2014 7:48 pm, edited 1 time in total.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
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Re: physician 2.5 years out of training

Post by bornloser »

Welcome mwille. You seem to have a good attitude and willingness to learn. That is a winning combination when asking for advice from this group. Physician specialist myself, 15 or so years out of training. I would consider keeping the car unless you can avoid taking a big loss and driving this car for a long time and ENJOY the damn car b/c life is short and it's actually not that far outside the optimal cost for a car IF you take care of it and drive it a long time. However, I would have to strongly agree with most of the posts re. living frugally, avoiding lifestyle creep and saving like a mutha (yes, I said "mutha" which is slang for you know). You are behind the 8ball compared to your engineer/accountant buddies and especially if you want to retire or semi-retire in your 50's. It's very doable but you must be disciplined. I would also echo the recommendations for Millionaire Next Door; it's by my bedside currently b/c I'm reading it again. In terms of the future of medicine, who the hell knows. My specialty is taking it on the chin but I'm in a financial position to easily weather the storm. Most other specialties will do okay. These things wax and wane and I would tune out the doomsday talk. Just my $.02.
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Re: physician 2.5 years out of training

Post by letsgobobby »

Live like a resident til your debt is paid off, 5-7 years. That's not austerity, that's just reality. You'll be fine if you live far below your means, otherwise you could end up in trouble. My coworker was literally broke on $200k per year with her $200k student loans, $200k mortgage, and daycare for one. After taxes there just isn't that much left. Gotta make some choices.
Last edited by letsgobobby on Thu Dec 12, 2013 1:42 am, edited 1 time in total.
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Re: physician 2.5 years out of training

Post by LowER »

.....
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Re: physician 2.5 years out of training

Post by goodenyou »

LowER wrote:9 years out in specialty practice, make mid 6 figures. Life happens. Enjoy the car until the wheels fall off, then fix it and drive it some more. I made some not-so-great financial decisions out of fellowship. They didn't seem egregious at the time; all was paid for in cash. And now I'm really paying for them….

I shop at Goodwill, haircuts at home, not even close to a "doctor's home," drive a 10 year old vehicle and will never own a new car again, no watches, not a single suit, never eat out, thermostat at 62 in the day and 55 at night, basic cable and internet and about to cancel the cable, no vacations unless driving, now selling back vacation time for cash, moonlight ferociously (like tonight), surveys like crazy, even mow lawn for my HOA for exercise that pays me, do all my own yard work and house fixes, and many car fixes, close to zero recurring expenses, and now, finally, I am more than catching up with my early excesses. I worked full-time through college and paid for 100% of it myself. Yes a divorce derailed me, but that's life for about half of us, and more so for hard working surgeons.

It's hard to not feel entitled to things when friends who work half as hard end up having more than twice as much - but you signed up for this, not them. You're a surgeon and have proven your steel - now apply one thousandth of that effort to financial discipline, and you will experience financial freedom before you know it, and will sleep better at night, and will be able to smile at the next hospital administrator in a subtle way that lets them know that you don't have to put up with their BS, because they also know that your financial steel is not tin foil. Driving a $1,000 rust bucket to work everyday is worth it's weight in titanium. If you think they don't notice, you're dead wrong. Their favorite sucker is the doc who moves to town, buys a huge house, new cars, joins the country club, etc. How much negotiating room does that sucker have when new contracts come up?

That super expensive car is really a negotiating anchor and the big house is 10 balls and a chain, and none of those balls are yours! So please take this last comment in the warmest light you can muster, and also consider my thousands of interactions with surgeons in the last dozen years (and know that it arises from personal mistakes and wanting colleagues to avoid my painful blunders), grow a pair and suck it up financially now or end up in domestic court with nothing to divide except your improbably deep future pockets, which the opposing expert will testify are going to be outrageously deep. If you think this could never happen to you, flip a coin; are you feeling lucky?
This should be an essay for medical school admissions..."The Glamorous Life of a Doctor"
Grt2bOutdoors
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Re: physician 2.5 years out of training

Post by Grt2bOutdoors »

fishnskiguy wrote:
EmergDoc wrote:
Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.
Wow. So well said.

This needs to be in the Wiki.

Chris
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"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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avenger
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Re: physician 2.5 years out of training

Post by avenger »

Brief update,

I looked further into loan forgiveness. I work at an institution that qualifies, and I looked further into my federal loans. It turns out that all of them are candidates for loan forgiveness. So clearly it makes sense to let those ride at minimum payment until I have 10 years service, at which point I can apply for discharge. Silver lining to the debt cloud.

Thanks
Last edited by avenger on Thu Feb 27, 2014 7:49 pm, edited 1 time in total.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
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