MtoM #127 - Veterinarian Starts Her Own Business and Finance 101: 457(b) Plans

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 127. Veterinarian starts her own Business. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with conventional mortgage and then later on potentially refinancing that loan to a better rate, the shorter time frame could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options. And@WhiteCoatinVestor.com mortgage you can do this and the White Coat Investor can help. All right, our guest today is not our typical guest on this podcast. We often get feedback saying, eh, too many people that are deca millionaires and make a gazillion dollars a year. How come there's nobody like me on the podcast? Well, today we have somebody that may be just like you, may even be making less money than you, yet still accomplishing great things in her financial life. We're going to get her on the air here shortly, but stick around afterward. We're going to talk a little bit about 457B plans before we go today. So let's get into our interview. Our guest today on the Milestones to Millionaire podcast is Jessica. Welcome to the podcast.

Thank you.

Tell us what you do for a living and how far you are out of your school and training.

So, I'm a veterinarian. I graduated from vet school 12 years ago, which seems like a long time now. I feel like I just graduated.

Awesome. So what's your practice consist of now?

So right now I have a practice that is mobile and in New York City, limited to end of life care of pets. 95% of what I do is home euthanasia for dogs and cats. And I also manage taking care of the deceased patients afterwards.

Okay.

And I started that business about a year and a half ago. Okay.

So somebody's dog gets really, really sick and you come out to the house, gather the family around and put them to sleep. It sounds like It's a lot of your practice.

Yeah, yeah, that's most of my practice. I came to this because I was working in small animal emergency for a long time, and unfortunately, you do a lot of euthanasia in the emergency room, and it's just stressful for the pet, it's stressful for the owners, and people often have to make these difficult decisions about when to say goodbye, because there's a lot of things we can do in medicine now, but sometimes doing more isn't necessarily the appropriate thing, and acknowledging that the end is here and doing it in a peaceful way is the best thing for the animal.

All right, so what milestone are we celebrating today with you?

So I did just start this business about a year ago, and it's been profitable, and I just hired my first veterinarian, so I'm not a solo doctor practice anymore. And so that's a milestone for me.

That's one of the hardest things in business, I think, is when it's no longer just you running the show and you have to hire.

Yes, yes. It has been quite the process, hiring person. And I think I heard you on one of your podcasts saying, like, hiring your first person is, like, so hard. But then after that. So I just wrote all the protocols step by step as I went through everything, and I'm like, okay, now I can hire another doctor, and it's not going to take four months to get them on board, you know, like.

So, yeah, definitely get easier with time, especially if you hire somebody to do the hiring. After a while, I discovered that's really the key.

Yes. The complexity seems to grow infinitely. You know, my first employee was like, oh, gosh, I gotta manage a human.

Yeah, okay. Well, you've had a pretty interesting, you know, I don't know, financial career is the right description, but let's kind of hear your story, because it's one that I think will give a lot of people, both veterinarians and people in medicine, dentistry, law, whatever, some hope in their situation. So let's talk about, you know, take us all the way back to school and kind of bring us through your financial life over the last 12 or 15 years.

Sure, sure. As many people who go to vet school do, it is a career chosen out of passion. It's often an irrational financial decision based on the fact that when you're 20, 22, you're like, I don't care at all about money. I just want to be a vet. It's the only thing I want to do. And in my case, I wanted to Be a horse vet. And I was a horse vet for the first few years of my career. And it is so easy to take out student loans. So I ended up taking out $300,000, just under $300,000 of loans to cover my education between college and vet school. So, you know, then you graduate. And my training, my first job was $28,000 a year. So I tried to make payments on my student loans, but was not that successful. And this was really at the height of the recession. And so once I finished my internship in horses, I was getting job offers offering me $40,000 a year, seven days a week, on call all the time, and you better never complain. And I applied to all those jobs and I did end up getting a job as a horse vet. But after a couple years, it really wasn't for me. It's very physically demanding and I never cracked feet $50,000 a year, even with all that debt. So I went back and I trained more because I. And I ended up liking in my small animal internship, emergency medicine. So I actually went into emergency medicine after some more training as a small animal veterinarian. And I did what you guys would call locum tenens, we call it per diem, where you're just an independent contractor and work at different hospitals. And then my finances changed doing that. You know, the industry started to grow, the economy started to grow. Veterinary medicine got huge and my salary doubled, tripled. And then I was able to really make a dent and I paid off all my loans by 2019. I am pretty frugal by nature. Like I'll eat rice and beans in order to, you know, pay off my debts. And so that's kind of my financial story. And then something possessed me in the middle of the pandemic. I think partially it was getting pretty exhausting, exhausted from really long, tough ER shifts, and partially because I feel passionate about end of life care and pets. I started this business doing mobile end of life care.

And in there you had some personal challenges as well that led to a little bit more financial difficulty. Can you tell us about that?

Oh, I did go through a divorce. I think that was 2017. One of the good things about not having many assets is divorce is a little easier in many ways. We had a small amount of money in a 401 and $70,000 of equity in a house. I was like, you take the money, I'll take the house. Bye, bye. It's all good. So it wasn't that much of a financial challenge, but it did actually kind of light a Fire under me because I realized I was just sort of coasting along, paying what I could on my debts, being like, I don't care about money. And I realized that I really needed to get my finances under control or I was going to be poor when I was 60. So I really started aggressively paying on my loans, working a lot, taking overnight shifts, which pay more. And between 2016 and 2019, I paid off the remaining balance of my debt. I took a roommate into my house so that I had no payments. My mortgage was like nothing, and lived very, very, very frugally and then paid off my loans. And that was probably during those, er, years. I was probably making about $150,000 a year, 200 maybe, depending on the year, but it was working hard shifts and working a lot. And I was like, I'm just gonna pay off these loans. And did it in three years pretty much.

Now, you mentioned in your application to come on the show that you failed a lot. Can you tell us about some of your financial failures and what you learned from them?

Yeah, I mean, I, you know, I don't know if my failures are really all that financial. I went to vet school because I wanted to be a horse vet. It was the only thing I wanted to do in my life. And. And I hated it. Like, I really didn't like it. It was extreme physical labor. I got kicked in the face at one point, I hurt my back and I was making no money and I was exhausted all the time. And I. It was really difficult when you. You get some pride when you're really committed to one thing and you have to admit that that's not actually a good thing for you. So I felt like a failure when I failed as a horse bed and moved on to something else. But a lot of failures are really opportunities and it's just hard to see them that way. I mean, I think a much happier as a small animal vet because I really like the bond between humans and their animals and. And horses are often for sport or money. So there's not that connection. There's not the love that you see between dogs and cats and their owners. So. So, you know, I also spent a while training. When I went back to training, I wanted to become a veterinary ophthalmologist. I applied to that several times and I failed three years in a row. I failed to get an ophthalmology residency. And. And I was like, you know what? I think I like ER better anyway. I'm not really the specialist type of person who wants to just, you know, do cataract surgery all day long, day after day. So I think it was a blessing in disguise.

So now that you've moved kind of from the realm of being an employee or, you know, independent contractor to actually owning your own business, having employees, what lessons do you think you've learned there that you could pass on to other white coat investors?

Lessons I'm definitely still learning. Yeah. So, I mean, it's such an eye opening experience. I love learning new things for running a business is like a totally new skill set. You start to see money differently when you run a business. It's kind of strange. And I sort of wish every employee could see that so they could advocate for themselves better within a business and know how they can contribute to the business and, and get something out of the business. I wish I'd known that when I was an employee, like really understood what my value was. And I think people could negotiate better salaries if they knew just what they bring to a business. I think a lot of the times you're like, well, I'm just the doctor. I'm just gonna doctor. And that's my job. But there are many ways that you can contribute to a business as an employee that can bring value to the business. And then if your employer is happy with that, you can get more money. You can be more fulfilled in your job when it's viewed less. It's just this transaction between employee and employer.

And when you're contributing, you have a lot of chance, more opportunities to kind of control your work environment and influence it as well.

Yeah, absolutely.

Well, this is pretty cool. You've accomplished a lot. I mean, it's no small feat to start out with $300,000 in debt. Just paying that off is a huge milestone, you know.

Yes, that was. I had a party. The only downside of that was I paid that off at the end of 2019, right before the debt moratorium. And I was so happy I did it. I had a big party and I was like, I'm going to do one month of student loan payments and throw a really good party. And it was. And then. But I'm still glad I paid it off because then I'd still have that looming over me right now if I just sat on all that money for 2020 through 2022.

Yeah, you know, it's interesting. People used to do that a lot more. They would throw a mortgage party and they paid off their mortgage. And that was kind of the guideline was what you were paying for the mortgage is what you spend on the party.

That's so funny.

You don't see it anymore. I don't know if that's because nobody pays off their mortgage anymore or if it just feels like humble bragging or what when it happens. But that was a big thing, you know, for the generation before ours, but very interesting. Well, this is cool. You've done a lot of great things. And I think probably can demonstrate, I think, to a lot of physicians out there that think they have it hard. You know, they just don't look around at other professions and realize that human medicine has it pretty good still compared to a lot of professions. As far as debt to income ratios go, a lot of vets end up with similar debt to physicians and obviously usually significantly less income. Now, let's say there's somebody that's kind of back where you were 10 or 15 years ago. They want to go to vet school. They're in vet school, they've got lots of debt, They've just come out and they've got a terrible debt to income ratio. What advice do you have for them?

Yeah, I mean, I think that one, you know, educating yourself financially about how to take care of your finances is really, really important. You know, it's easy to just sweep it under the rug and say, I just want to be a vet. I don't care about money, and then just kind of let the problem go away, but then it stays with you forever, and I think kind of tackling it head on, making smart decisions. I mean, before I think I found your podcast, I had money in a. In a little 401k account. I didn't even move it out of the money market account because I just thought that it just went in there. I didn't invest the money. It sat there for like eight years because I didn't even understand what a 401k was like. There's. There was so little financial education for me. And if I had understood how money works, how, like, purchasing a house could get me leverage to do other things with my money from an earlier stage in my career, then I would have done much better. So I would say educating yourself financially and not just sort of pretending you don't care about money because you do, like it matters, and it'll make your life better if you are sensible about it.

Very cool. Well, I appreciate that advice. I appreciate you coming on, and I know your experience will inspire others to do the same. So I thank you for that and I wish you the best of luck in your career and in your finances.

Oh, thank you so much. Thanks for having me on.

All right. Hope you enjoyed that discussion. You know, I think a lot of you, your jaw dropped when you heard $300,000 in student loans for a job that paid $28,000 a year. Obviously that's a terrible debt to income ratio, a terrible financial decision to borrow that kind of money to get a job that pays that sort of an income. But that is the case in many professions. It's not all that different from what happens to many attorneys. It's not that different from pharmacy. It's not that different in some ways from dentistry and podiatry. And a lot of physicians don't realize that as much of an uphill battle as they may face, sometimes they're sitting pretty compared to lots of these other professions. And they can have a lot more difficult time with their financial careers, building wealth. Lots of physicians, yes, they come out owing 200, 300, $400,000, but very few of them, once they're attendings, are making less than $150,000. The average physician these days is making 275. And you know what, Borrowing a couple hundred thousand dollars for a job that pays you 275 is still a very good financial move. And the truth is, because of that income, physicians, honestly, they can screw up a lot. You don't have to do everything perfectly right and you'll still build wealth and be okay. That's not necessarily the case in lots of other professions. She mentioned a lot of times how she lives frugally. You know, rice and beans, all our money going toward debt. And, you know, that's what most people in this country have to do if they want to be millionaires and multimillionaires. They have to live very frugally. They have to work very hard. That's not necessarily the case for many white coat investors out there. Yes, you work hard, yes, you're relatively frugal. But you know what, you add up what you spent last year and it was a couple hundred thousand dollars, you know, that's just not the same as living on 40 grand. It's a very different life. And I think a lot of us, if we spent a little bit more time talking to and reading and listening to people like that, it would probably help us to focus a little bit better on our finances and be a little bit more successful. You know, I always find it interesting to read fire blogs, you know, financial independence, retire early bloggers, and see just what kind of sacrifices they're making to essentially get the same financial freedom that most doctors can get. While spending six figures a year. And so I think it's good to have perspective, it's good to be grateful for what we have. And of course, optimize whatever your situation might be, whatever your income, whatever your debt to income ratio is, do what you can to optimize it. But you can see from this example that it's possible to be financially successful on just about any income and on just about any kind of financial situation. Whether you've been divorced, whether you had a terrible debt to income ratio, whether you had to change careers, go back for more training, whatever, whether you didn't even know how a 401 worked, you can still be financially successful. Alright, I promised you we were going to talk about 457 plans, so let's talk about those 457. This is different from a 401 and a 403. Think of a 457 as deferred compensation. It's technically still your employer's money. They just haven't paid it to you yet. Because of that, you haven't had to pay taxes on it yet. Most of the time they also have a roth option for 457B's, but most of the time it's a tax deferred investing account. The nice thing about it is, despite the fact that the employer hasn't actually paid it to you yet, you still get to control the investments, just like you would in a 401k or a 403. And most of the time they're similar mutual funds. They're all getting better over time. Lower costs, more index funds and these sorts of plans, and you can control the investments. Then the money grows in a tax protected way, like any other retirement account, until you take the money out, at which point you pay taxes on it. Unless it's the Roth option. But the difference between a 401 and a 403 and a 401.57B is that it's not your money yet. So it's technically not available to your creditors. So that's great for your own asset protection, not so great for your employer's asset protection. Technically, if your employer were not doing well, we're going bankrupt, there's a possibility you could lose that money because it goes from your employer to some other creditor. Now, I have yet to meet a physician that this has actually happened to me. And there's lots of docs out there whose employer is not in a good place and they have a 457 with them. So if you know anybody that actually lost 457 money due to an employer issue. I'd actually love to hear from them or at least hear about them because I haven't met one yet in all my years doing this. But it is a risk. It's really only a risk with non governmental 457. Lots of 457 are governmental. The employer is the state or the federal government or actually I don't know if the federal government has any 457 BS. But it's usually a state government or a municipal government or something like that that's offering this 457 and those are a little bit better protected. They have a few other advantages as well. They're better protected because that entity usually has the ability to tax and so your municipality isn't going out of business like a hospital could. But the other advantage of these governmental 457 is when you leave because they have the option to be rolled into an IRA or another 401 or something like that instead of the only option for a non governmental 457 is to be rolled into another non governmental 457. And that just isn't always available. It probably usually isn't available. And so you're stuck with the other options to get your money out. And sometimes there aren't good options. So a plan might allow you to take all the money out over 10 years or to wait until you're 65 before you start taking it out. It might give you some decent options, but occasionally I'll run into one that somebody has where all the money has to come out in the year you leave the employer. And if you saved up $400,000 in that 457 and you have to take it all out in one year, well, you're going to pay taxes on that, mostly in the top tax bracket, if not the top top one or two tax brackets. So that's not actually a great deal for a lot of people. So the first thing you look at when deciding whether to use A non governmental 457 is what are the withdrawal options and is there an acceptable one there? If it lets you spread it out over five or 10 years, that's probably okay. If it lets you leave it in there for a few years before you have to start taking it out, that's probably okay. But the point is you want some options to get that money out. If it's a governmental 457, just treat it like an extra 401k, that's all it is. Okay. The second thing to look at is the investment options. And if they're absolutely terrible, maybe you don't want to use a 457. And when I'm talking about absolutely terrible, I'm talking about like expense ratios of 2% plus. And there just aren't very many of these left out there. Most employers and their advisors have realized that this is a serious fiduciary risk to offer terrible retirement plans to your employees. So there's not that many that are just absolutely awful anymore. But you want to look at the fees, you want to look at the expenses, you want to look at the investment options and make sure those are okay. And then again, if you're in a non governmental 457, you want to look at the stability of your employer, right? If they're already entering bankruptcy, this is probably not an account you want to be using. Just skip it. Invest in taxable, whatever. A 457 is usually one of the last retirement accounts you're going to use anyway. You've usually maxed out a 401 or 400, 403. Maybe you have a solo 401k if you got some side gig income backdoor Roth IRA for you and your spouse. If you're married, your spouse's retirement accounts, all that stuff usually comes before you would fund a 457 anyway. You could always invest more in taxable if it makes you nervous at all. Or you can just fund it halfway or fund it for a couple of years. It's not like it's an all or none decision, but keep that in mind. Now, 457 do have some catch up options. They're different from what you see in a 401 and a 403. So read your plan document carefully to see what options you might have there. But as a general rule, the contribution limit on these is $22,500 in 2023. So it's basically this is a completely separate $22,500 than what went into your 401 or 403. It's totally different. It doesn't share that limit. It doesn't share any limit with any other account. It's just another great, usually tax deferred retirement account that you can use to help you to save for retirement. Another Great thing about 457 is the age 59 and a half rule does not apply. So when you combine that with the fact that it's technically still your employer's money, this is often the first thing people spend in retirement. If you're into fire. If you want to retire early, a lot of times what you'll spend that first five years is your 457 money would be pretty typical. So if you have a 457B, you probably want to use it. But look into the details. The devil is in the details. And make sure you understand what you are investing in. All right. At some point in our financial lives, it'll be time to buy a house. While a physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than a big down payment, there are other mortgage loans out there. And here at the White Coat Investor, we want you to know about all kinds of mortgage loans that may work for you. The nice thing about a physician mortgage is you can put down less than 20% and you still don't have to pay private mortgage insurance. You know that mortgage you use that protects your lender from you defaulting? It really doesn't do anything good for you, so it's nice to avoid. And that's the great thing about a physician mortgage. The nice thing about a conventional mortgage is you just have a lot more options. Usually you get a better rate, you get lower fees, obviously you put more money down so your payment is lower and more affordable and you have a little more protection in the event the market drops and you have to sell. But a lot of times early in our careers, it can make sense to use a physician mortgage. Alright. But wherever you might be in your financial journey, make sure you use the mortgage that's going to be most financially beneficial to you. So hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com you can do this and the White Coat Investor can help. If you'd like to come on this podcast, you can do so. Apply@whitecoatinvestor.com Milestones and we will celebrate your milestone, whatever it might be. I don't care if it's paying off your car, paying off your mortgage, you know, becoming a DECA millionaire, whatever your milestone might be, we will celebrate it with you and use it to inspire somebody else to do the same. So until next week, keep your head up, shoulders back. You've got this. See you next time. The White Coat Investor 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.