MtoM #116 - ER Doc Builds Wealth and Pays Off $344,000 in 2 1/2 Years

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.

This is Milestones to millionaire podcast number 116. Emergency physician pays off student loans. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status. And one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this, and the White Coat Investor can help. All right, we've got a great interview today. I'm not just saying that because he's an emergency physician, but he's accomplished two milestones, which are very impressive. I'm not going to say he did everything right, but he did enough right that he's doing really, really well together with his spouse, who's now a stay at home mom. Well, soon to be mom. By the time you hear this episode, she'll be a mom. And it's a great interview, but stick around afterward. I want to tell you a little bit about mortgages afterward. Our guest today on the Milestones podcast is Alex. Welcome to the podcast, Alex.

Hi, thanks for having me, Jim.

Tell us what you do for a living, where you're at.

I'm an emergency physician in the upper Midwest.

Okay. And tell us we're celebrating two milestones today. Tell us what they are.

I paid off my student loans, which is about $344,000, and during that time period also accumulated about $300,000 in net worth.

Awesome. So how far are you out of residency?

Graduated residency in 2020. So coming up on three years, not.

Very far out at all. All right, and you're married? Single, Married, married. Any kids?

Not yet. No one. Possibly on the way here in about a week or two, but no kids yet.

Oh, it's exciting. Exciting. Okay. Well, hopefully not during this recording.

I hope not.

But before it goes live, certainly you're going to be a father. So that's awesome. Congrat. Congratulations on that.

Thank you.

What does your spouse do?

She stays at home. Now, shortly after we were engaged, she was a teacher for seven to eight years. And shortly after we were engaged, she was having kind of a miserable time teaching due to a lot of the changes. And so she decided to stay home. And we talked about it, and we get a lot of value out of her being home.

Cool. Okay, so tell us about where you sat financially in 2020. Middle of the pandemic is raging. All of a sudden, emergency department volumes are dropping like a rock. We're down 40% nationwide. You come out of residency, and it's a scary time. And where were your finances sitting? I mean, what was your net worth then when you came out of residency in 2020?

So it would have been. Boy, it would have been right around $320,000 in the hole, I think. I had a small Roth IRA with about 23,000 in it. And other than that, it would have been just the student loan debt.

Did you know that at the time? Did you know that's where you were sitting?

Yeah, I did.

How'd that feel?

It weighs on you a little bit. You know, fortunately, I was able to find your book my second year of residency and kind of came up with a plan. And, you know, I definitely didn't do things completely by the book. You know, I. When I signed my attending contract, I did buy myself a truck. Mine came on time. I know yours has been a little delayed.

Yeah, it must be nice. I think I ordered a truck in about 2020. I still don't have it. Actually, it was the end of 2021, but truly, I still don't have it.

Yeah. So I did buy a new truck, which is something I'd wanted for a long time.

On credit, I assume, because you didn't have any money, right?

Yeah. So I had signed a contract early in residency. So about a year and a half into residency, I'd signed a contract, and I had a BO at sign and a bonus at start, and part of my bonus at sign went towards my truck, and then the rest was on credit.

Okay, so now at this point, you owe 350 or something instead of just $320,000. Okay.

Yeah.

All right. Well, then what happened? I mean, what kind of job did you take?

So I took a job, like I said, in the upper Midwest, interviewed at a number of places as a job in kind of a rural type setting, and started early. I know most people, when they come out, usually start in about August, but I didn't want to really wait around. I didn't have any plans or goals and obviously no money. So I decided to start kind of right Away.

You had a truck payment to make.

Yeah, exactly.

Okay, so this is an employee job. This is a pre. Partner job. What kind of job is this?

I'm an employee.

Okay, Employee job. And approximately what have you been making over the last two and a half years?

The first year coming out, combining the residency and then what would have been about six months of an attending salary was about 260 in this last year, due to working a lot, I was about 525.

Wow. It's a great income. You have been working hard. Awesome. Well, that gives you lots of power to do some things. I mean, it makes you pay a lot of taxes, too. How'd you like that? Paying your first attending tax bill?

That was a shock. I had heard people complain about taxes as attendings when I was in training, and until you really see it on your first tax statement, it's a bit of a shock.

Yeah, it's painful. Painful, for sure. Okay. All right. So you have a plan. I mean, you read the book halfway through residency, so you had some sort of a plan. Let's talk just about the student loans. What was your student loan plan?

Yeah. So, you know, when you first start to see those attending checks come in, you know, obviously it's a. It's a massive difference in what you've been making in residency. So my plan from the beginning was to use one of those paychecks and just put it towards student loans. So I was living off of one of my paychecks a month, getting paid every two weeks, and that seemed to work out pretty well. And then fortunately, you know, moving forward, I was able to take the paychecks and kind of increase the. The amount that those were due to, you know, some staffing shortages and bonuses and working more nights than other of my colleagues. And so I was able to increase the amount that. That one of those paychecks is worth.

So how much are you sending in a month to the. To the lender?

So, well, I sent that start bonus was the first thing that I sent in. It was the first payment I made in August of 2020. And then that's separate from the one.

You bought the truck with?

That is separate from the one I bought the truck with, yes. And then basically it was anywhere between 8 to $12,000 a month.

Okay, well, you send them $10,000 a month, and your loans go away very quickly, it turns out. Yep. Huh. So were these federal loans?

Mostly they were.

Yep.

And then they were refinanced.

You're sitting here. These loans have no payments due and they're zero percent interest, and you're still sending them 10 grand a month. How come?

Well, so they were federal loans. I should rephrase that. They were federal loans. And then I refinanced them my second year. The timing was kind of interesting. So I had refinanced through SoFi. I did the $100 payments kind of early in my second year and then had signed my contract. And once I had my contract, I refinanced through Laurel Road, which makes sense.

It was a perfectly right decision at the time. Right?

It was. I mean, that's obviously just luck with what happened with the market and everything. And I know that some individuals that kept them in federal loans obviously had to pay no interest.

Some of them are about to see their loans go to 6 and 7%.

Exactly.

What'd you refinance to? Do you remember?

So I refinanced initially to about three and a half percent with SoFi. And then when I went to Laurel Road, it started right around there, but it was a variable loan. And obviously I just saw that interest rate decrease.

Yeah. Pretty awesome. Pretty awesome. So you didn't pay all that much in interest, despite the fact that you did the quote, unquote, wrong thing, you know, because you didn't have, you know, a crystal ball that told you your loans were going to go to zero percent, you still didn't end up paying that much. So that's. That's pretty awesome. Okay, so how'd that feel to make your last payment?

Felt great. You know, I was kind of talking to my wife about this. It doesn't really feel real yet. I think the biggest. The biggest change for me was it kind of feels like I actually graduated medical school.

Now you're finally done with your education.

You feel like you're done.

Yeah.

You don't owe anybody anything anymore, which is a big deal to me.

It's pretty cool. So what are you going to do with $10,000 a month?

So while we're increasing our nest egg, trying to increase our savings rate, and then we're putting. Putting a large chunk towards a down payment for our dream house.

Cool. So has this been kind of a live like a resident period for you the last two and a half years?

Yeah, definitely. You know, obviously with, you know, one of my two checks a month going towards student loans, that's been. That's been a live like a resident.

Period, and half of the other one going to taxes.

Yeah, right, right. But there's. There's also work with like a resident period, and I think that, you know, that's something that I pride myself on, you know, working those extra shifts and putting in the extra time and, and working the nights and maybe some of the less desirable shifts. It also grants you credibility with your colleagues and you kind of earn your stripes and. Yeah, at the same time.

Yeah, you don't have, you don't have the princess schedule I've got right now with six day shifts.

No, I'm the, I'm the guy you paid to get rid of your nights. That's, that's me. But it worked out really well. It benefits everybody. I think later in my career I'm not going to want to work nights either. And fortunately, I think with the way I've set myself up, I'll be able to do that.

Yeah, I think you probably will too. Do you have plans to cut back immediately or are you going to work this hard for a few more years?

Yeah, I actually joke with my wife frequently. So since the beginning of this year, I've actually cut back to full time. So I'm only working full time. Last year was about a 1.3, 3 1/2 FTE, which was a lot. Fortunately, with her being home though, we, we were able to, to, you know, take care of things and we were able to still travel when I have off and we don't have to wrestle two different schedules.

Yeah. And she, and, and a lot of people don't get this when they're in two earner families. That support role is huge.

Oh, huge.

You know, all of a sudden there's a lot of things at home that somebody's taken care of and it's valuable, you know, and, and sometimes we forget that, that, that's. This is often the financially optimal setup in a situation with a very high earner like you and a relatively low earner like your wife. It's, this is often a much better setup to be able to maximize your productivity.

Definitely. And then with kids on the way too, you know, you don't have to pay child care, so.

Yeah, I've mentioned before two surgeons I work with, you know, married surgeons. They're half of the surgeons on our call list, you know, so every other night there's calls coming into their bedroom and when somebody, when one of the kids gets sick, you know, they look at each other and go, who's going to cancel their cases today? You know, and it's hard, it's hard to be a 2 doc couple in some ways. Okay, well, that's pretty cool. But in the meantime, you didn't just pay down loans. You've also grown your nest egg from 20 grand to $300,000 over the last, you know, two and a half years. So it didn't all go towards student loans. Tell us about your investments.

Yeah, so my investments are located within a 403B, a 457 that's non governmental Roth accounts for both my wife and I and then a savings account that fortunately I inherited from my wife. Even though she was a teacher, she saved religiously throughout her seven to eight years of teaching and was able to accumulate almost $70,000 in a saving count on a teaching salary. So, you know, we were able to, to bring all of those things together and, and you know, that's, that's where an estate came from. And I think that the big point of that was the, the non governmental 457 and the 403B, they're automatically taken out of my paycheck along with, you know, an hsa. I never saw the money. So you didn't feel like you were losing it. You maxed it out every year with your distributions and, and you know, you just let it accumulate.

What kind of houses are you looking at?

So we're hoping to get a nice five bedroom, four bath house, kind of a dream home in a neighborhood that unfortunately houses don't seem to go for sale in very often. But that's kind of what we're looking for and we're in no rush. You know, fortunately, I bought a kind of a modest starter home and did that in late 2020 and it's big enough and works for us now, but I think it's going to get pretty small when kids start coming.

Well, Alex, you've done everything right.

Thank you.

And it worked. It's amazing. You're doing awesome. What advice do you have for others who are maybe coming out of residency? Maybe they're sitting there, $300,000 in the hole plus. What advice do you have for them?

I would say get educated coming out. Fortunately, I stumbled upon your book. I actually went to your speaking lecture in San Diego at this Italian restaurant where I think there were about 150 people slammed in a 50 person restaurant. But you know, I, I would say get yourself educated. And, and my wife and I talked about this yesterday and she said, well, you're passionate about this type of stuff. You know, you like to read these books. And what about somebody who's not? And I said, you know, we all went to medical school. I don't know too many people who are passionate about the Krebs cycle, but we had to learn about that, you know, and, and I think that this really affects your future and your family's future. And I think it's really important to, to get yourself educated, go to your conference. It was excellent. I'm going back in, in Orlando next year, so.

Yeah, it's going to be great. Looking forward to seeing you there. And you know, bring your spouse, bring your newborn. And I don't know how much your newborn is going to appreciate Disney World or anything, but it'd be great to see you again anyway, for sure.

And I also want to say, you know, I think background definitely plays an important role. You know, my wife and I both grew up in modest middle income family homes. And you know, we talk about what, what were things that really influenced us. And I think it was really commitments were really important to us, you know, whether that be a job. We were both, you know, three sport athletes and, and whatever you were committed to, that's really important. And I think it really builds that type of mindset moving forward with finances. You know, I had a plan. I was committed to it. Just like, you know, you're committed to not missing practice or showing up to work. And I think that, you know, we really have our parents to thank for, for distilling those kind of values within us.

Yeah, sometimes those parents aren't able to give us as much money, but what they do give us can be even more valuable, especially once you apply it to a high income you get after coming out of residency.

Definitely.

Awesome. Well, thanks for so much for coming on the podcast and sharing your wisdom and your experience, and hopefully it'll inspire others to do the same.

Thanks, Jim. Thanks for having me.

All right. I hope you enjoyed that interview. It's a good example of how not only living like a resident, but working like a resident can really jumpstart your net worth building. I mean, he basically went from a net worth of -320,000 to a positive net worth of $300,000, was able to buy his dream truck, getting in a position, has bought a starter home. You know, once he realized that the job liked him and he liked the job, bought a starter home, and now making plans to move at some point into the doctor home. Right. This is perfect. This is the way it's supposed to work. You know, even though you have more than 50% more than the average student loan, you can still get on top of your finances, build wealth quickly, have that life you've always dreamed about. It just takes a little bit of discipline, a little bit of planning, a little more time, and delayed gratification in some ways, but obviously didn't delay everything. Right. And you can be successful. All right, I promised you at the top of the episode, I was going to tell you a little bit about mortgages. And mortgages are not my favorite thing in the world. You know, mortgage is a pain. It's a. It's a fixed cost. And I don't like fixed costs. I like variable costs. So if something happens to your income, you can just get rid of that expense. The mortgage isn't like that. It's a fixed cost, but it's one that almost all of us have for at least some portion of our life. I took out my first mortgage in 1999. It was 8%. It's a house, a condo, really. We bought during medical school. One of the greatest idea we ever had. Didn't really make money on it once everything was said and done. But it was my first experience with a mortgage and it was an FHA mortgage, so I think we had to put like 3% down. We actually had to get my wife's parents to co sign for us. And here's a tip. If somebody else has to co sign for your mortgage, you probably shouldn't have a mortgage. You know, when we actually found a really sweet rental deal after we'd already bought the place, that would have been a way better deal for us. That's what we should have been doing in med school. But anyway, we paid on the mortgage for a few years and actually refinanced it a couple of times during those four years as rates were starting to drop. Kind of got ripped off on the refinances. At one time they tried to slip in a prepayment fee and barely caught that. So watch for that if you refinance mortgages. Second mortgage was coming out of residency and we bought a little townhome out in Virginia where I was stationed with the military. Got that mortgage at 6.25%. Actually put down 20% on that one and got a standard mortgage. The interesting thing about 2006 though, for anybody who got a mortgage around that time period, I mean, I got this mortgage in like 10 minutes online. It wasn't a ninja loan. You know, they knew what I was making because it was USAA and it was, you know, I had a military job, but boy, it didn't take much to get at all. Which is probably why we had the global financial crisis. That one we ended up turning into a rental property. It didn't Work out. Awesome. Ended up selling after nine years, still underwater for what we bought that house for. But the mortgage was okay. I think it was 6.25. And when we moved out of it, I needed to take the cash out to buy our current home. And so we actually used kind of what was supposed to be a bridge loan, ended up holding onto it for five years, and that was 6ish percent or so as well. Well, when we bought our Dr. Home in 2010, that mortgage was also a standard mortgage. We put 20% down, we'd save that up and use the money we'd essentially accumulated in the other mortgage to make this down payment and subsequently refinanced once or twice. And I think by the time all was said and done, our rate was like 2.75%, which back then, you know, you couldn't even make 1% in a savings account. So it didn't seem all that low in retrospect. It's obviously very, very low. Then paid that off in about seven years when white coat investor really kind of took off. It just seemed silly to still have that loan hanging out there. So we paid it off, wiped it out. Been mortgage free since 2017. But for most of us, you're going to have a mortgage for 10, 15, 20, maybe even 30 years of your life. And so you want to be smart about it, you know, buying a house. You know, for most of you, this is going to be your most expensive purchase of your entire life. And so you want to get the best deal you can on the mortgage. And there's a couple of schools of thought here. One is you get the best mortgage by putting 20% down. You can then get essentially a standard mortgage, lots of people competing for it. You get the best rate, the best terms, best fees. The other school of thought is, I've got a better use for my money. And it might be paying down student loans or maxing out retirement accounts or whatever. And if that's the case and you're a doc, or for many lenders, a similar profession, you can get a physician mortgage or its equivalent. They have attorney mortgages, they have dentist mortgages, whatever you want to call them, right? And these require you to put down less than 20% but still don't charge you. The main problem with not putting down 20%, which is private mortgage insurance or PMI. So you might only have to put down 5% or 10%. Occasionally you'll find one that's 0% down and then still not have to pay PMI. Now the rate's Often a little bit higher. Not always, but often a little bit higher than you would get with a standard mortgage. So the fees are often a little higher than you would get with the standard mortgage. You certainly have fewer choices. We keep a list of both regular lenders and special physician loan lenders@whitecoatinvestor.com you can check those out under the recommended tab and get people that have served other white coat investors well. But here's a couple guidelines for when you go out to buy a home and do so with a mortgage. Try to keep your mortgage to less than two times your gross income. Certainly if you're in the Midwest, you need to follow this guideline. If you're in San Francisco, if you're in dc, if you're in some expensive part of the Northeast, you know, you may have to stretch that a little bit. But when I'm talking about stretching, I'm talking about stretching that to 3 to 4x, not 10x. You do 10x, you'll be house poor. Even at 3 to 4x, there's going to be consequences. Might mean you work a little longer or don't go on as many vacations, or not drive as nice of a car or whatever. There's consequences to it, but it's probably reasonable. The other guideline I often give people is try to keep your total housing expenses, principal insurance, taxes, interest, utilities to less than 20% of your gross income. And if you'll follow those guidelines, you won't be house poor. You'll have enough of your income left over to be able to build wealth with. And I hope that's helpful. I've told you where you can get a mortgage, what kind of mortgages you ought to consider, what you ought to do with it once you have it, which usually is have a plan to pay it off at some point before you retire. Most people regret taking a mortgage into retirement, unless you're one of those people that's just like, I want to leverage my life as much as possible and build as much wealth as I can and willing to take on this risk to do it, fine, you know, knock yourself out. But for most of us, got a plan to have that thing paid off before you head into retirement. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status. And one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. We'd love to have you on this podcast. By the way, you can apply to be on@whitecoatinvestor.com Milestones. Any financial milestone you've accomplished, we will celebrate with you. In fact, I love it when we get unique ones. If you can come up with one I haven't even thought about, we'd love to bring you on. Celebrate it. Use it to inspire others to do the same. Till then, I hope this was inspiring to you. Keep your head up, keep your shoulders back. You've got this. We'll see you next time on the Milestones to Millionaire podcast.

The hosts of the White Code Investor Podcast are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.