MtoM #125 - Psychiatrist Pays Off Half a Million in Loans and Becomes a Millionaire and Finance 101: The Savings Rate

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 125. Psychiatrist pays off half a million dollars in student loans and becomes a millionaire.

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. You're really going to enjoy this. We're bringing on somebody who had a lot of debt, lived in a high cost of living area, and still has become very financially successful. So let's get her on the line here and we're going to chat about that, but stay tuned afterward. I want to talk a little bit about a concept we call the savings rate around here. Why it's important for you to actually calculate yours and how to do that. Our guest today on the Milestones Familiar podcast is Christina. Welcome to the podcast.

Thank you for having me.

Tell us a little bit about yourself. What part of the country do you live in? What do you do for a living, how far you are out of training?

Sounds good. I live in Long Island, New York, so in the Northeast. Born and raised in New York, which is, you know, not great for me for cost of living. But I am an adult psychiatrist and I'm an addiction medicine specialist. I finished my training in 2017. I did my training at Columbia University. I was a resident there and then did their public psychiatry fellowship, which is like a one year fellowship program.

Okay, very cool. And tell us what milestone we are celebrating today.

So we technically have two milestones. We paid off. Me and my husband paid off about 5, 520,000 of student loans that I had from going to just GW medical school for training. And then subsequently we've reached over a million dollars of net worth since then.

Oh, very cool. And I understand you got a house recently too.

Yes, we did get a house so that kind of a bit delayed. We could have paid off our loans quicker, but we decided to do the house first and we're happy, we're happy with how we did that.

Tell us about the family. There's you, there's your husband, there's a few kids.

Yeah. So I have one nine year old son who's going into the fourth grade this year. I have one four year old son who's turning five. He's going into kindergarten and I'm nine months pregnant with our third son right now.

Oh, wow. Congratulations. That's exciting.

Thank you.

And what does your husband do for a living?

He works. He's an electric engineer. He works for EV company, that electric vehicle company.

Okay. And so these student loans, these were all, I mean it was $520,000. This was all just your medical school?

Just medical school. When I went to GW, it was about the first two years I think were around like 85,000 a year. The last year was a little bit more around closer to 90,000 a year. And you know, my family, I'm a first generation American, so you know, they didn't have the ability to support me through medical school. So I took out all loans for the school and for cost of living while I was at medical school in gw. And then so when I graduated I think it was around like 375. Like around like that was the total. But then I did the public service loan forgiveness or I was planning to do that when I went into residency and so I did that and consolidated the loans and so it just kept growing. So like just the interest alone just kind of compiled on top of it. And I believe my interest rate at that time was around like 7 to 8 from the federal government.

Wow. So it's just compounding and compounding and Compounding grows from 375 to 520. During your training.

Yeah. And like when I remember being a resident and like having nightmares about how it just keeps growing and I'm like, what am I going to do? Like this keeps, this just keeps getting larger and larger.

Yeah. What do you, do you remember back in medical school, I mean, and you're taking out these loans. How do you feel about loans in medical school? Do you remember?

So yeah, it was a good question, I think. And you know, I listen to your books, I listen to your podcast and so I think a lot of people were just like, hey, you're going to be a doctor, you'll be able to pay this off. Like you'll be able to pay it off. And it's like, I wish I was just a bit more conservative about how much loans we took out during that time. Me and my husband were. We've been together. We've been married for 12 years, but we've been together for, like, almost 20 years. And so we were together during that time. He was working. And so we would talk about, like, hey, how much loans I'm going to take out, what we're going to. You know, how much I need. And I just wish people were just more like, hey, take out the minimum necessary amount of loans that you need, because it's just going to compound over time. And I remember I had. I had. I got accepted to a state medical school in New York, and my advisor was like, no, go to gw. Like, don't go to state school. And I'm happy with where I am right now in my career. So, like, I don't. Like, I think I made the right decision, but if I would have went to the state school, my loans would have been half the amount of loans that I had.

Yeah. Wow. Tell me about the nightmares. Do you remember any of the specifics?

Yes. I would just, like, get anxiety, like, checking, like, having to pay off the amount and then just seeing, like, it's more than last month and, like, I'm paying, like, a thousand dollars and it's not covering the interest and just being like, how are we going to pay this off? Like, this is a lot of money, and I'm making $50,000 a year right now. And so that was, like, the thing that I was just like, I don't. I don't know how this is going to work. Like, I don't know how. How long it's going to take. So it's during residency that I had that. And so I started listening to Dave. I listened to Dave Ramsey's book first. And then we started talking about, like, hey, how we're going to pay off our, you know, keeping our credit card low, how we're making a budget, sticking to the budget, like, coming up with a plan to save. I also had my first son during residency. So we bought. Like, when we bought our first car, it was a used car. All of our car. All of our cars are used cars. And so, like, kind of just getting that basics down. And then I read your book afterwards and just, just. I kept on reading and learning more about. We did your. We did your course as well. We had a financial advisor. I fired one and we got another one because they were making mistakes and I Was like, if I can pick up your mistakes, this is not a good. This is not a good situation. So we just put a lot of effort into it during residency. And so how we paid it off is actually when I started residency, we bought a house in 2012 and we bought the house for under market value. My husband also does real estate on the side. So we bought a house for under market value and then we sold it in 2016. We basically did a live in flip and we made $100,000 off of selling that house. Then we used that money and we flipped another house in 2017 while we lived with our in laws, we didn't make as much money off of that house. I think we made about 25,000. But then we just used that money and the money that we had been saving and we paid off half my student loans. In 2018 when I made the decision to not do public service loan forgiveness anymore, which was like a really tough decision because like I had been doing public service loan forgiveness every year in residency, I got my form filled out, I submitted it, got all my payments calculated. But then I had an opportunity to join a healthcare startup that was more money, more flexibility. And so I made the decision to join a startup and with that I lost the public service loan forgiveness. But then we did some calculations based off of like how much money that we can make that it would be better to do that than wait for PSL off and then not be sure if like, if they're even going to pay off our loans. And like, we've heard like a lot of stories about them not counting payments and that process. And so I was like a little bit, I was worried about that and not being secure. And so I always bet on myself and betting on externally, so I was like, we can just pay it off. And so that's the route that we went through.

So you took the money you'd made with a couple of flips, you took your savings, you threw half of it, wiped out half your loans, but you're still sitting there, a quarter million dollars in debt.

Yeah.

So how did you pay the rest of it off?

Yeah, so we refinanced. So with First Republic and we got, I got a really good rate. I think it was like, you have.

To say rest in peace after you mentioned First Republican.

I know. Although I still, I still have my account with them. They haven't merged with JP Morgan yet, but so I had. So I took out the loans with them, got a really good rate after I paid it off because they wouldn't they wouldn't refinance like over 400,000. So I had to pay off half of it first and then refinance the 200 with them. And then I was making essentially double payments, like I was doing the minimum payment and then on top of another payment every month.

So how big were the checks you were writing every month?

Like $7,000 a month.

$7,000 just gone in after tax money.

After tax.

You had to earn 10 or whatever just to make that payment.

Yeah.

How'd that feel to write those checks?

Not great. Thinking about all the things that I can do with that money, but I think just the security that comes with, especially when you have kids, right? Like, of like, hey, if I was to lose my job, like, we would still be okay. I'd be able to financially support my kids. And so if, God forbid, something was to happen. And so I think that, you know, when you think about like, hey, what's the. The rate was low at 2.25. But like just the emotional value that I get out of not having to worry about having to pay off like half a million dollars or a quarter million dollars important for me. And I was every, every. We made a plan, we made a budget. We set aside 7,000amonth to pay it off. Now when we were saving, we bought, we bought a House in 2020 during the pandemic. And so we had paused the double payments at that time, but we were still making the regular payments. And that was just a decision that we made together. But then once we finished, we went back to making the double payments, you know, immediately.

Cool. So all in. It took you five and a half years to pay it off?

Yeah, about five and a half. Yeah. We started paying off in 2018. Like I graduated in 2017. I, the first year I, I thought I was doing the public service loan forgiveness, but then in 2018 we're like, no, we're not going to do it. So we started making the double payments then. And then we also, I mean the thing that helped is that we lived with my in laws for about three years and so we weren't paying, we were fortunate to not have to pay for housing or renting. And so that's how we were also able to make the double payments as well.

That's a big deal in New York, isn't it?

Yeah, I mean we did for one year we were living in Brooklyn and we were paying like 4,000 just for a two bedroom apartment that was like 700 square foot. And like that was probably not a great Decision. But we moved back to Long island and then we just continued making the double payments.

Well, you know, everybody's in a unique situation and you got to take advantage of the pros in your, in your corner and take care of the cons in your corner. You know, you had a big fat debt, but you also had some in laws that could help out. So take advantage of both. Right. Okay, well, this is very cool. And now you're millionaires, you said.

Yeah. So our net worth, our net worth right now is about 1.3, which we're excited about, but we don't feel like millionaires. That's probably because we live in New York.

But this is what millionaire feels like in New York now.

Yeah. Our goal is to get to like 3 million to be financially independent. So that's what we're working on right now.

Well, you guys are doing great. You should be very proud of what you've done. I mean, just paying off the debts, a huge milestone. Some people drag that stuff out for 25 years of their career, you know, and here you've knocked it out in five. You're into your dream house, you're building wealth, you're millionaires, for crying out loud. Right. You're doing awesome. So congratulations to you. I hope this is inspiring to other people out there who might be first generation Americans, might have had to pay for their entire expensive medical education with borrowed money, that this can be done if you just take care of your financial business and concentrate on it, make a plan, work the plan, this works. So congratulations to you. If somebody else is out there, they're sitting in the same situation that you are or you were five or six or eight years ago. What advice do you have for them?

I think the advice I would have to be patient to make a plan and know that it's possible. When I was in residency, all I thought about was, when am I going to pay this off? How long is it going to take? And we paid it off within the five years and were able to buy a house. We own half our house and we have like a net worth of 1.3. So like, I think we achieved all of that pretty quickly given what we were doing. I mean, we made sacrifices. A lot of people would be like, I would never be able to live with my in laws for three to four years. And it was just like, well, you know, sometimes you have to do what with the cards that you're dealt? And this is what we had. And so making a budget, sticking to it, understanding, like where you can save Money on where you're able to sacrifice on and what you're not able to sacrifice on. And so while we lived with our in laws for three to four years, we still traveled, and that's really important for me and for our family. And so we still went on vacations and things like that. And we tried to, like, use our points with credit cards to hack those, but, you know, that was one thing that we did as well. And then I also moonlighted a lot too, as well, in residency and afterwards, I also looked around. Like, one of the reasons why I left. I worked for a lot of academic institutions in New York, but I was. I could. I made more money not being in the academic institution. And so I. I left that and I. And that was a really hard decision that I made. And a lot of. A lot of people close to me were like, don't, don't do that, etc. But, you know, it just really helped with our financial goals because I was able to get a higher income. And I, you know, kind of went and found another job and got, you know, each time I left, I got a higher salary and was able to negotiate a higher salary. And so that was really important because, like, staying at, like, you know, some academic centers and stuff like that, your ability to negotiate a higher salary once you're there is a lot lower than when you're joining a new company for the first time. So I found that was really helpful for me, too.

Awesome. Well, congratulations to you and thank you so much for coming on the Milestones to Millionaire podcast to share your success and hopefully inspire others to also become successful like you have.

Thank you so much. Thank you for having me.

All right. I enjoyed that interview. That interview was really great. We didn't get a chance to get into as much as I wanted to because she's accomplished so much. Right. We talked after we stopped recording about, you know, the importance of boosting income, and that was what caused her to kind of abandon the PSLF plan for those student loans, was that she saw opportunities to really increase her income. Not only has she, you know, left academia and gone into industry, but she's also opened her own practice. And all these things have helped her to increase her income. And while you lose out on the free money from PSLF when you do that, that income lasts through your whole career and can make a huge difference. You know, doctors, as a general rule, dramatically underestimate, or rather overestimate the difficulty of doubling their income. There are doctors just like you, same training, making much more money than you're making. If you can figure out what they're doing and see if that's how you want to structure your practice, your financial life, everything else gets easier. It's easier to pay off debt. It's easier to buy things you want. It's easier to build wealth. Everything becomes easier with a higher income. So pay attention. When you see doctors who aren't all that different from you, making lots of money and see what you can take from what they're doing that you can benefit in your life, not only will that help you be more financially secure, but it'll help you to be a better doctor. You'll be able to concentrate more on what your patients need because you won't be worried about your own finances. Plus, as you build wealth, you'll find ways to be ridiculously generous and be able to help other people. You can really help other people a lot more from a position of strength than you can from a position of financial weakness. Or you're worried about just keeping the lights on and the food on your table. All right, I promised you we were going to talk about savings rate, and this is something I throw out there a lot. I tell you to save 20% of your gross income for retirement. We say this all the time, right? Why is it 20%? Well, that's what it takes for a high income professional. Because you start earning later, you don't get as much of a benefit from Social Security as the average American. But even the average American needs to be saving 15% for retirement. And most people, including most doctors, under save. You just gotta put the money in the account. The key to being a successful investor is being a successful saver. If you put 20% of your income into your investing accounts every year throughout your career, you will retire with a similar standard of living to what you had during your working years. That's the way the math works. You just got to run the numbers and you'll see this. You don't even have to have spectacular returns in order to do that. Just the average. Easy to get returns by investing in index funds and staying the course will get you that result. But you have to save 20%. So how do you calculate your savings rate? Well, it's gross income that we're calculating. So if you're making $400,000, that's the denominator. But include things. You got to include your spouse's income, for instance. You should include your investment income. If you've got a bunch of investment income coming into your taxable account or your rental real Estate income, things like that should be included. If your employer is giving you matching dollars, that goes in that denominator as well of this calculation. Right. A matching dollar is part of your income. Leaving that on the table is like you didn't even want your whole salary. So always make sure you're getting the match. Now, in the numerator, you include everything that's going toward retirement? Nope. Paying off your student loans doesn't count. Nope. Putting money in an HSA doesn't really count. Unless you're really using that HSA for retirement savings. $529,000 contributions doesn't count. Saving up for a down payment or a Tesla or a fancy European vacation, that doesn't count. Matching dollars count. Those are going into your retirement accounts. Money saved in a taxable account that you plan to use for retirement, that counts. Anything you're putting toward a pension, for instance, that counts. That sort of stuff all counts. So that's your numerator. You divide it by the money you made, and if it's 20% or more you're there, you're going to be fine, assuming you work a full career. Now, if you want to retire early is mostly a function of your savings rate. The more you save, the sooner you can retire, because the more you save, the less you spend. And you're working kind of. You're burning both ends of the candle there. One of the most insightful blog posts in the fire community over the last 20 years is the one Mr. Money Mustache threw out there that he called something like the surprising math behind early retirement. Let me see if I can find the shockingly simple math. I think he called it. All it was really was a table. And the table used some reasonable assumptions and basically says this. If you save 5%, and he used net income, by the way, on this table, not the gross income that I typically use. So these are net income, savings rate. But if you save 5% of your net income, you should expect to work about 66 years until you can retire. So if you're coming out of residency at 30, that's working until you're 96, probably not very attractive. Right. And so that's not adequate savings rate. You bump it up to 10%, you retire after 51 years, you bump it up to 15%. 43 years, 20%, 37 years is what they're saying. So that's kind of a full career. 20%. Right. That's 20% in net. So the number I'm telling you is a little bit higher than that at 25%, 32 years. At 30%, it's 28 years. But what if you get really crazy? What if you save 50% of your income? Net income, right? 17 years. At 60%, it's 12 and a half years. At 70%, it's eight and a half years. Obviously, if you're saving 100% on your income, you're already financially independent, you're retired. But the point is, the sooner you want to be financially independent, the more you need to save. And the more you save, the sooner you will be financially independent. So this is savings rate, and it's an important number, and I think you ought to calculate it every year and write it down. Compare it to the year before, and if you find yourself consistently struggling to get to 20%, well, there's a few things that you can do that you can use to increase your savings rate. The first thing to do is recognize that the easiest time to boost your savings is when your income goes up. You know, the biggest jump for most doctors is when they leave training and become an attendant, right? If you can just avoid growing into that income all the way, boom, you've done it. You can have a very nice life on 80% of an attending physician salary. Trust me, it's really nice. You can do lots of fun stuff, buy lots of fun stuff, have a great time, never worry about money, all right? And you just never grew into that income. So likewise, when you get other raises for whatever reason or windfalls, right? Save that money and all of a sudden it becomes relatively easy. No sacrifice required at all, okay? Another thing you can do to boost your savings rate is just by taking advantage of tax deferred retirement accounts. When you're using retirement accounts, right? That money is basically saved pre tax, so it lowers your tax bill. And all of a sudden, instead of giving money to the tax man, money is now going into your retirement accounts. And so that's a great way to boost your savings rate. Another important thing is to just watch the big items, right? It's not the daily latte that's killing you. It's the fact that you're paying $4,000 in New York City for your apartment, right? It's the fact that you've got this $1,500 a month Tesla car payment. It's the big items that sink you. It's the fact that you got three of your kids in $30,000 a year private school. That's why you're struggling to save money. So watch those big items, and you can not have to worry about the Little items, nearly as much. Okay. A fourth thing you can do to boost your savings rate is to simply make more money. Earning more money makes everything easier. I promise. It does. And to a certain extent, obviously at a certain point, more money, more problems. But it's way easier to save 20% when you're making $400,000 a year than it is when you're making $250,000 a year. It just is. Even though it's more money you're saving and you're paying more money in taxes, it's just easier. So that's an option is to boost your income. You can also work on the other side of the equation, right? Decrease your expenses, particularly fixed expenses. And I love seeing people reduce their fixed expenses because when something bad happens, you can't change your fixed expenses. You can change your variable expenses. You can stop going on vacations, you can stop paying $300 for a round of golf. That's easy to drop when something happens to your income or some new expense comes up. But it's a lot harder to cut back on something that's fixed. Your housing costs, for instance. Your transportation costs, much more fixed than most things. So be careful as you add fixed expenses to your budget. Another great way to save money if you're having trouble saving 20%, cut up your credit cards. It's amazing how much easier it is to spend when you just whip out a piece of plastic and spend with it. Maybe you need to go all the way to using cash. If you have to hand over the green stuff every time you want to spend, it's amazing how much less you spend. So watch the credit cards. I tell people all the time that are kind of miserly Scrooge types naturally like I am that if you need help spending more money, use credit cards. Because it's less painful to spend, it's easier to spend, it's more convenient, you know, don't carry a balance either way. But what I'm saying is don't even use those credit cards. If you're having trouble getting to 20%, don't use them at all. Go to Cash System. And then lastly, just track this thing. Track it once a year. What you measure improves. It's a well known tenet of business. If you track your savings rate each year, you're likely to improve your savings rate each year. So do calculate it, do track it. And you'd be surprised what a difference it will make in your life. These are the things that really matter. Everyone's focused on investment returns. What they should be focused on is their income and how much of it they're saving and putting it toward their financial goals.

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 special 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 Code investor can help all right, we've.

Come to the end of another great podcast. I hope you're having a great summer. I think this drops the week of July 4th, so happy independence Day. Thanks to those of you out there who are helping us to maintain our independence. Thank you for your service and for the rest of you. Man, I love the middle of summer and I hope you do too. I hope you get a chance to get out and enjoy it with your family or those you care about. And good luck with your careers and with your finances. Keep your head up and shoulders back. You've got this. See you next time on the podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your 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.