Hello! Feeling lost. Finance advice for a newcomer?

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ejh
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Hello! Feeling lost. Finance advice for a newcomer?

Post by ejh » Thu Aug 06, 2015 4:33 pm

Hello.
I've discovered this forum indirectly from whitecoatinvester.com and this forum has truly has put my finances into perspective so I thank everyone who has been contributing so far. I'll address the elephant now and say I am absolutely clueless about finances except for living within means. I have read through the basics so far. My background, I have been blessed with hard working and loving middle class parents who has helped me guide through my poor financial decisions in the past. That said, I feel like things are slowly coming along and now feel like I need more professional (aka anyone else but me) help. Especially since I am finally diving in and getting married in few weeks. We are both in agreement with our financial plans and our future. Both of our dare-i-say short term goals are to pay off our debts. We are currently in residency and massively in debt. Her more than me unfortunately. She went to a private undergrad and then to medical school so the loans kept piling up. Myself, I was a bit more lucky. I sat down with my parents many years ago to discuss whether to go to a private school to pursue Architecture or a public school for engineering. I chose the latter and received scholarships for both undergrad and medical school which eased the financial burden. I guess I am looking for any advice to slowly turn our finances around and probably earlier I start the better despite still being in residency.

I am only putting 10% in my 403b with mass mutual that my employer has affiliations with. Should I put in more?
My debt/med school loans is 78k. - Currently in forebearance. Hers, a whopping 302k with all her undergrad loans included and doing income based repayment.
My savings 7k. CC debt all in 0%apr until 2016 - around 4k. She has minimal savings as well. Similar but no CC debt. She is really good about spending with cash only. I could pay off my CC entirely but I was just taking my time with it for any emergencies/wedding funds.
credit score 780, no investments yet. (no money to invest! :( ) We paid off our vehicles several years ago so we have that going for us.
We are trying to maximize our savings by essentially spending less and renting in a small home.
We had a talk about opening a vangard roth ira with some of our wedding money but should we hold off and just continue to pay off the med school loans? The 6.8% interest is a big burden. I have been getting letters from SOFI and on WCI website, they did recommend it to refinance but I was not sure if I should hold off until after residency? I have two years left and her three. We are told we are in good fields and the light is at the end of the tunnel but just seems like we will never get out of this hole we are in.

This post is quite embarrassing since it seems like most people by age 31 at least started a nice little nest egg already. nothing wrong with a late bloomer right?.... We have plans to talk to a financial adviser after the wedding but I figured it wouldn't hurt to ask around here first. Any advice would be appreciated.

cliff notes:
large debt from graduate loans 300k+ His/Hers combined
clueless about finances - Where to start?
Goals to pay off debt/start retirement savings
Thank you all.

Carefreeap
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by Carefreeap » Thu Aug 06, 2015 6:44 pm

What is the saying; the first part of solving the problem is acknowledging that you have a problem? :wink:

I think the first step is doing some reading. I'd start with the Millionaire Next Door. You need to brace yourself against the marketing onslaught you are going to get because you guys are doctors and "deserve" it.

I've never had the kind of student debt you guys have because when I went to UCSD 35 years ago tuition was cheap enough I could cash-flow it by working and I lived at home. In hindsight getting some loans might have been smarter but that's history. Your loans aren't at terrible interest rates; I'd be more focused with getting a cash cushion and then starting your retirement savings even if it's a small amount. Deferring loans can really pile up the balance so starting to chip away at the balance even if it's a small amount will help in the long run.

There's older poster on another forum who is very good about reminding us that we need to focus on building wealth vs paying down debt. Yes you have $300+k of debt but you also will have 30+ years of income to service that debt. Take a guess at what your likely salary is going to be and project it out 30 years with 2% increases. You're going to be fine.

FWIW we have mortgages on three of our five properties which total $950k. I could focus on that number or our NW which is almost 5x the mortgages. I can sleep at night. :wink:

david99
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by david99 » Thu Aug 06, 2015 7:23 pm

I would start by reading some books: The White Coat Investor: A Doctor's Guide to Personal Finance
The Four Pillars of Investing by William Bernstein (He is also a MD), and The Bogleheads Guide To Investing

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BL
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by BL » Thu Aug 06, 2015 7:40 pm

Just a word of warning regarding a financial adviser. Unfortunately, the majority are simply salesmen who have their own best interests in mind. I know there are fee-ONLY advisors who are fiduciary, which at least gets you closer to someone who is supposed to have your best interests in mind. I suggest you don't see anyone until you have done some reading and have a better idea of how to invest and know enough to judge whether the advisor has your interests in mind. Of course by that time you won't need an adviser.

The whitecoat investor sometimes posts here. He has some good information for you and has a book as well.

Investing can be simple. The 3-fund portfolio (see Wiki) has 3 funds: total stock market index, total international stock market index, total bond market index (or muni bonds if in taxable). This is simple, low-ER, and diversified. Index funds have been shown to do better over time than funds with loads, high-ERs (with kickbacks to advisers), adviser fees, and other high costs which are sold by most investment firms.

Here is just a little booklet online with some of the basics for beginners:
http://www.etf.com/docs/IfYouCan.pdf

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siamond
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by siamond » Thu Aug 06, 2015 9:26 pm

As the others said, you're on the right track, and you have many years ahead of you. I didn't start saving for retirement until I was nearly 40. Nothing to be proud of, but heck, that's life, water under the bridge, what's important is to establish (and stick to) a proper plan for the next steps.

I would *definitely* refinance your loans ASAP if you can (and if you can get a meaningful improvement). Interest rates are pretty likely to go up soon, while they are extremely low now. You may not get the same opportunity for a long time.

I would exclusively focus on paying your loans now - not saving for retirement at this stage. My guess is that you'll make very good money in a decade or so, and then be able to save for retirement on an accelerated pace. But paying all those loan interests is going to be a severe burden, and the shorter you can make it, the better. Filling a glass of water with a big hole at the bottom doesn't go very far, right... And yes, spend less for sure, as this might be the easiest lever to play on. Just don't forget to enjoy life a bit from time to time!

As to reading, yes, "If You Can" is really a great start. Then I just loved "4 pillars", this is THE book that changed my (investing and more) life.

2comma
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by 2comma » Thu Aug 06, 2015 10:42 pm

BL wrote:Just a word of warning regarding a financial adviser. Unfortunately, the majority are simply salesmen who have their own best interests in mind. I know there are fee-ONLY advisors who are fiduciary, which at least gets you closer to someone who is supposed to have your best interests in mind. I suggest you don't see anyone until you have done some reading and have a better idea of how to invest and know enough to judge whether the advisor has your interests in mind. Of course by that time you won't need an adviser.

The whitecoat investor sometimes posts here. He has some good information for you and has a book as well.

Investing can be simple. The 3-fund portfolio (see Wiki) has 3 funds: total stock market index, total international stock market index, total bond market index (or muni bonds if in taxable). This is simple, low-ER, and diversified. Index funds have been shown to do better over time than funds with loads, high-ERs (with kickbacks to advisers), adviser fees, and other high costs which are sold by most investment firms.

Here is just a little booklet online with some of the basics for beginners:
http://www.etf.com/docs/IfYouCan.pdf
This is soo true - Investing can be simple! By the time you know enough to evaluate who is a good advisor you'll know enough to do it on your own. So do a little reading, dig thru the wiki and follow some of the threads here. Just remember - you and your wife have great big targets painted on your backs by the financial industry - they will be aiming to make your wealth their wealth. Please be careful when asking for advise from other well paid professionals - senior partners and such. Many of them don't have a clue about investing, they think if they hire a broker at Raymond-James or Edward-Jones all will be taken care of. Over a 40-50 year investing life they are going to pay many hundreds of thousands of their hard earned money to join that club and all they will get in return is high fees, lower returns, an unnecessarily complicated portfolio and maybe a whole life policy, oh and a nice Christmas card once a year.

As far as paying off debt or investing that is a common question and great point of debate. Some of us would say pay it off - it's pretty unlikely you'll beat 6.8% return in the markets, others would say at least put money into Roths and/or tax deferred now while your income is low - you'll never get that space back once you start making more money.

Start studying, it's not difficult or time consuming and it will pay big dividends throughout your investing lifetimes.
If I am stupid I will pay.

Allixi
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by Allixi » Fri Aug 07, 2015 10:33 am

Welcome to the forum!

At this point, the big decision you guys need to make is whether or not you want to try for Public Service Loan Forgiveness (PSLF). This is not an easy question and it depends on everyone's own situation. If you want to go the standard repayment route, 380K of loans between the 2 of you should be manageable once you both finish with two physician-level incomes. In that case you should refinance as soon as possible to lower your interest (probably with DRB since they're the only ones allowing for $100/month payments as residents).

If you decide you want to go through PSLF to get some loans forgiven, then obviously you can't refinance with a private lender. Sign up for the PSLF program ASAP and start making qualified payments, plan to look for 501(c)3 programs for fellowship/first attending job, and hope the rules don't change by the time you get there. Either way, forbearance is NOT a good idea unless you are truly having trouble paying the bills.

At this point, paying down your loans will get you the best rate of return for your money, so you really don't need investment advice. Unless you're sure you want to do PSLF, in which case you should keep your loan payments to a minimum. If you are going to invest, you should first contribute to a Roth IRA (you and your wife) before a 403b, since you're not likely to get much benefit from tax deferral on a resident salary.

Whitecoatinvestor is your friend and you might get more applicable advice there instead

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dratkinson
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by dratkinson » Fri Aug 07, 2015 1:08 pm

Some of us started much later than you, so don't sweat the small stuff. Once you are out of residency, then things will begin to pick up speed and you'll quickly get ahead.

Avoid all FAs until you know more about investing. Once you do, then you won't need a FA.

To be conservative, expect 7%/yr market grow going forward. Your student loan interest rate is approximately that, so investing or repaying debt should be approximately the same. Except short-term debt repaid vs. long-term retirement compounding gives the edge to investing. Still, being debt-free is priceless. Your choice.

If you can refinance the debt to a lower rate, then that's a plus. Be aware of what it will cost you to refinance as it could make it a bad deal. Maybe better to keep what you have, and just pay the minimum and invest the rest.

Read The Boglehead's Guide to Investing for a structured walk through of the topic: account types and appropriate investments for each. After this, you'll probably know more than most FA/salesmen.

If you have good mass mutual 403b options (low cost, broad index) and employer matching contributions, then better to get the max match than to start a Roth IRA. If bad 403b options, get the match, then start a Roth IRA with the rest of your annual contribution. Doing a little something good for our future retirement makes me feel better.

If you could restructure your original post (OP) in the format requested by the sticky "Asking Portfolio Questions", it would give us a clearer picture of your financial situation and options. If you want the forum's recommendations on investment options, then we need this information.

Ultimately from what I remember from the WCI, you want to be able to invest in:
--6-12 month emergency fund
--Employers retirement plans
--Roth IRAs (back door Roth IRA when your income rises)
--Defined benefits plans
--Children's 529 plans
You just need to wait 2-3 years to be able to afford it all. So no biggie. Until then, come up to speed on your investing knowledge, pay enough to satisfy your debt obligations or more, and invest enough to feel that you are getting a little ahead or not. Your choice.

Your "...future so bright [you] gotta wear shades". 8-)



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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jabberwockOG
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by jabberwockOG » Fri Aug 07, 2015 2:01 pm

The simple answer is that you need invest in paying off your debt before you do anything else. Sorry to be blunt but I suggest you and your fiance pay most of her debt off before you get married. Note that once you get married you also marry that $300k plus of your wife's debt. And divorce won't change that responsibility. I'd be extremely cautious about legally tying myself to $300k of someone else's student debt no matter how bright the future looks at the moment, things can change very quickly,....don't do it.

guitarguy
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by guitarguy » Fri Aug 07, 2015 2:15 pm

jabberwock wrote:The simple answer is that you need invest in paying off your debt before you do anything else. Sorry to be blunt but I suggest you and your fiance pay most of her debt off before you get married. Note that once you get married you also marry that $300k plus of your wife's debt. And divorce won't change that responsibility. I'd be extremely cautious about legally tying myself to $300k of someone else's student debt no matter how bright the future looks at the moment, things can change very quickly,....don't do it.
So instead pay it off, together, before getting married?? Or are you suggesting she pay it off herself?

Sounds kind of strange coming from what sounds like the perspective of "if it doesn't work you're screwing yourself..." . Paying it off with/for her before getting married is still tying yourself to it, even if not legally. :wink:

DFWinvestor
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by DFWinvestor » Fri Aug 07, 2015 4:11 pm

So are you both new graduates from residency programs? Or still have a year or two left?

You are not as behind as you think. Many people you graduate will be paying off credit cards for the first six months after graduating, going on expensive vacations, and spending their paychecks as quickly as they roll in. Get started on the right track and in a couple of years you will be way, way ahead many of your colleagues. When I was a resident we had a financial planner come talk to our class. One of the things he told us was, "there will be some you graduate with who will not have saved a penny five years out of training. Don't be one of them."

-Take advantage of tax deferred savings as much as possible
-Once those accounts are maxed out, start paying extra on student loans
-3 month emergency fund in a secure cash account
-NO big ticket purchases for the first 2-3 years out of training. If you are in an absolute beater of a car and awaiting a new one, buy a modest one.
-Don't go overboard on the wedding expenses. It is only one day.

For a couple of years you will have a negative net worth despite your efforts, even if you do everything right. Don't get discouraged. Set some concrete goals. And by the time you are 3-4 years out of training, start to look at career earnings and net worth to see if you are on target or lagging behind. Most people don't think in that fashion but I find that it is useful.

czr
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by czr » Fri Aug 07, 2015 5:26 pm

As someone in their 30s, just stick to most of the advice on here and don't go extreme one way or another. Just be realistic with you and your significant others lifestyle. Just set up a fair budget. With the awareness and being proactive here, you will be in great shape! Good luck!

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unclescrooge
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by unclescrooge » Fri Aug 07, 2015 5:35 pm

Have you looked into Public Service Loan Forgiveness?

If your wife is in a "low-paying" speciality like pediatrics or family medicine it's worth looking into.

Also, you shouldn't be forebearing your loans unless the government is paying the interest. If not, make sure you're paying at least the interest-portion.

My opinion of Mass mutual is pretty low. YMMV.

How exactly did you score a scholarship for Med school? Maybe you could write an ebook!

heyyou
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by heyyou » Fri Aug 07, 2015 8:09 pm

These days, you can look someone in the eye and say "I can't afford that." Don't ever stop saying it, regardless of your combined incomes. You will be tested on that often, but especially at car dealerships and real estate offices.

Millions of couples live happy lives on $100K of annual income. Try that until you two get all of your debt paid off. Studies show that those couples think that 10% more income would be better, even after they get that much more income! Celebrate your debt payoff, by escalating your spending to half of your combined incomes, effectively living on one paycheck, saving the other one, living as if you are going to have kids, who might go to college, then grad school. If no kids, then you will reach financial independence early. You can then work at whatever you want to do, regardless of the pay.

As mentioned, do contribute to retirement savings and Roth IRAs during the years that you are paying down the debt. There is no make up for skipping the longer compounding of those tax sheltered savings. Wait until you have a kid to buy life insurance, then buy term life, not whole life. The complexity hides the fees that pay for high rise corporate headquarters and company advertising on stadiums . Do whatever WCI suggests about disability insurance for a double doctor couple.

Read the books on passive investing. Over long periods, your returns will be about average minus your expenses, so buy index funds from the low cost provider, Vanguard. Higher returns have higher risks, not just the risk of lower returns but the risk of losing most or all of the principal investment. Many here have tried that path and can now see the folly of it. You can learn from others, or you can touch the glowing hot stove to learn for yourself. The worst that can happen is to make easy money on the first small high risk investment during a boom, then double up on the next one, until you lose it all when the crash occurs.

Look at a Callan Periodic Table to quickly see that there is no pattern or timing to what portions of the stock market would have risen or fallen over the past twenty years. Expect the same uncertainty to continue. Like Warren Buffet, think of your index fund investments as owning shares of successful businesses. The share prices vary daily in value but it is the number of shares that you own, that you want to increase. The daily prices this year won't matter when you are selling a few of those shares three decades from now.

ejh
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by ejh » Sat Aug 08, 2015 8:51 am

Nirav wrote:Have you looked into Public Service Loan Forgiveness?

If your wife is in a "low-paying" speciality like pediatrics or family medicine it's worth looking into.

Also, you shouldn't be forebearing your loans unless the government is paying the interest. If not, make sure you're paying at least the interest-portion.

My opinion of Mass mutual is pretty low. YMMV.

How exactly did you score a scholarship for Med school? Maybe you could write an ebook!

Thank you all for responding and boy am I learning some good tips. That link "http://www.etf.com/docs/IfYouCan.pdf" was extremely helpful BL. Thanks. I will reread that several times. I ordered the WCI book few days ago so I should receive that soon. I understand I will be marrying into that 300k debt and it does scare me; Thus I've been really trying to get our finances in order. I've been trying to get her to truly understand how that kind of debt could impact our future. The wifey is in OBGYN so she has been getting crushed with work hours to really sink all this info in. However she is on board with all our financial planning so far.

As for the scholarship for med school, my school offered a program to stay back an extra year to teach anatomy at the university, in return a year off med school loans. One can argue that that is just delaying an extra year to making some serious money but i thought it was worthwhile at the end since it helped me land my residency of choice in orthopedics. However it was difficult to see my colleagues graduate before i did.

With her loans, she is the public service loan forgiveness program. Myself, i was hoping to join a private practice once I am done so I did not look into that. I have two years left (torn whether or not to do a sports fellowship or just go general) and her three years left.

I have accrued around 12k in interest already. Any place to recommend to refinance?

IPer
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by IPer » Sat Aug 08, 2015 9:05 am

You are doing fine, not behind at 31! Read the Wiki a few times plus some of the other posts. Re post your post in the format suggested
by the Wiki with all your options and parameters so some folk can offer detailed help.
Read the Wiki Wiki !

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BL
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by BL » Sat Aug 08, 2015 9:14 am

Just a heads-up:
If she is doing income-based loan payments, this may be one of the few times married filing separately works better. There are disadvantages too ( no Roth contributions with over $10k AGI, both do either Standard Deduction or itemize, etc.) but may be worth checking out. Perhaps that will show up in WCI book or blog.

jbmitt
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Re: Hello! Feeling lost. Finance advice for a newcomer?

Post by jbmitt » Sat Aug 08, 2015 10:10 am

My partner is an OB. OB/GYNs can make good money. For example, in a smaller city in Iowa, I've seen postings for 300k base and 100k loan forgiveness with 1:4 call. Bigger cities like Chicago and DC tend to start new doctors on lower salaries because they have many more interested applicants. She is somewhere in between because we picked a place where we could happily live for a minimum of 10 years and with strong career prospects for me.

Focus on sticking to a budget, and developing yourselves as strong candidates for future employment. After residency, the loans will get paid down quickly. I would encourage you both to review disability coverage and most residency programs offer a same sex rate which could be advantageous for her.

We are about the same ages, but couple years ahead of you guys and started with a little less in loans, but as a two physician household you have a higher household income potential than we do.

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