MtoM #128 - Podiatrist Pays Off Student Loans and Finance 101: Dave Ramsey's Baby Steps

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 one. 28 podiatrist pays off his 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 have put together a list of vetted agents who are experienced with working with the specific needs of medical professionals 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 that 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 again. Whitecodeinvestor.com insurance all right, we have got a great episode today. We have a doc who has paid off his debt. But stay tuned afterward we're going to talk about the Dave Ramsey baby steps and maybe how to think about those and how to think about Dave Ramsey and what's going on over there. So stay tuned after the interview. Our guest today on the Milestones to Millionaire podcast is Jeffrey. Welcome to the podcast.

Happy to be here, Dr. Dolley. Thank you for having me.

It's wonderful to have you here and we're excited because you have accomplished a not insignificant financial goal. Tell us what you've done.

Yeah. So main one has paid off $209,000 in 69 months.

Wow, that's just awesome. So congratulations. And you said in how many months?

69.

69 months.

Yeah. So just short of three years out of training.

Okay. That doesn't add up in my head.

Oh, so five and a half months of paying it off.

Okay.

But we finally completed two and a half years out of training.

Two and a half years out of training. Ah, I got it. So you're paying some on it during training.

Yeah, I was.

I got it now. Now it all makes sense.

Sorry about that, I should have clarified.

Yeah, the way I guess I think about it is yeah, you paid something during training, but it's hard to pay a lot during training. Did you pay off a lot of your debt during training?

Yeah, I did. I think a significant chunk. I mean in the first six months when I started with my salary, my wife was still working. She was making around 70k and we decided that that first six months of salary would go towards the debt. So I paid off my federal undergrad loans, which was like $26,000 in that six months, and then just kept going from there.

Very cool. How did that feel coming into podiatry school with a bunch of undergraduate debt knowing you were going to borrow more? Do you remember that moment when you're like, oh, man.

Oh, absolutely. And I don't think I appreciated it at the time, but we were fortunate with the setup between my wife and I as far as trying to be as conservative as possible with borrowing this debt, because we luckily had her salary. That helped us out, but we certainly didn't want to take more than we needed.

But still, when you left, when you walked out of podiatry school, how much did you owe?

Yeah, so it, you know, with Undergrad it was $209,000.

$209,000. Okay. Wow. It's. Obviously there's people that have more and there's people that have less, but it's a lot of money when you owe it, isn't it?

Absolutely, absolutely. Kind of hangs on that over your head. And there was definitely a behavioral component to trying to get this paid down as quickly as possible.

Yeah. You know, a lot of people have trouble figuring out how much to pay toward their debt and how much to invest. How did you solve that riddle?

Well, so unfortunately I didn't find you until about mid-2020. So there were three years we were advocates of following a Dave Ramsey plan. So it was a behavioral side of things of just paying it down as quickly as possible. So we kind of put savings aside and threw a lot of it at debt. Certainly my wife was saving towards her 401k, so we have a little bit of that left over when she just when she fully stayed at home, but it was all going towards that.

Very cool. Very cool. And how's it feel now that it's gone?

I guess I could share the story now. It was very monumental, I feel like, at least in my financial life when it did happen, because it was a large chunk at the very end. It was actually during tax season this past year that it happened. So there was an unknown. And obviously I'm correcting this as I go on, but unknowingly large check during tax return that just paid a lot of this off, which was exciting.

You made an interest free loan to the government for a while.

You said, yeah, I don't want to do that again.

Okay. So was this whole thing easier or harder than you thought it was Going to be.

Yeah. So it was easy when I wrote those two checks, actually. We paid off my student loans, and we also paid off our car at the same time.

Okay.

And that was a pretty significant chunk, too. We had a four Runner. That was. Our family grew up. You know, we had two girls and he had a bigger suv, so we paid that off. But it was hard looking back at it because of just some of the sacrifices. I mean, we certainly didn't live on rice and beans, but we certainly enjoyed ourselves throughout the process. But then becoming awakened in 2020 with your, you know, with the help of you, I feel like I could have done things a little bit differently, you know, as far as savings and things like that, and kind of had a better plan, but now we have a good written plan in place and. And that makes it a little bit easier than to deal with the debt.

Yeah. The nice thing about this riddle, however you solve it, you know, you put some toward investments and you put some toward debt or whatever, is that when you're done with the debt, you can then go all toward investments. So it's not like. Yeah, it's not like you really lose either way. It's just different folks for different folks, so.

Exactly.

So tell us about your income over the 69 months. I mean, part of it. You were in training still, I assume, some sort of a residency fellowship.

Yeah.

Weren't getting paid that much, but tell us about your range of income over that 69 months for your household.

Yeah, sure. So I was in residency for three years, so 2017 to 2020, and it ranged from 55 to 60,000. My wife was in the technology business, and she ranged from 70 to 100. So combined, you know, looking at that range and through that time, you know, we were again, just trying to save or put that money towards debt as much as possible, but it was a significant chunk. I was happy that my wife was able to find a good career for herself and work during that time period.

So you were paying off debt. Were these federal loans or had you refinanced them?

My undergrad was federal loans. My medical school was actually private loans. It was like a family loan.

You weren't on the federal 0% plan like a lot of people have been the last three years?

No. And even though the interest rate was extremely reasonable, it was still a behavioral component of getting that paid off, and I didn't want that hanging over our head.

Very cool. So any family money? Did you get an inheritance? Did your parents help you pay for school? Or was this kind of all on you. First generation wealthy person.

Yeah. So the undergrad loan was helped from parents a little bit. They took out some federal loans as well, and then I had academic loans going into undergrad.

They borrowed money and they paid off the money. Or they borrowed the money and you paid off the money?

No, it was 50, 50. So they borrowed a little bit, paid it off. That was their gift to us. But certainly looking at that scenario and what I want to do for my kids, trying to be more proactive and hopefully not being in that scenario where we may not have to borrow. Hopefully we have a UTMA or we already have our 529 set up and then being able to cash flow, hopefully some of it too.

You say you're the last generation that's going to borrow for school.

I don't know about that because we don't know what the future holds for us. But it's crazy talking to these high school students going into undergrad and what they're paying for school too. I just, you know, it's nice. We get. I'm in private practice, so we do get some high school students that come in and learn a little bit about podiatry. And I give them the financial talk too. You know, give them that right mindset and hopefully inspire them to think about that as they move forward into undergrad and eventually into medical school.

Hopefully you don't talk them all out of medicine and into, you know, going into business and finance.

It's up for debate.

Yeah, that's what happened to at least one of my nephews and one of my kids. You know, they saw, they're like, wait a minute, dad. You have two jobs and one of them seems better than the other one.

Yeah. I do have to say, now that we got this taken care of, I mean, a lot of things happened in the past three years. I had two kids, I got board certified, and we paid off the debt. And I just feel like I'm on, you know, the top of the world right now, being able to feel free to kind of make my schedule and being in private practice. And that's one of the things that I would advise is considering private practice or at least a group setting versus a hospital setting. But it's been freeing for sure.

So tell me nuts and bolts, how'd you do this? It sounds like you're working pretty closely with your spouse, but tell us how you actually did it. I mean, you managed to carve out a pretty. A pretty good chunk of your income and just throw it toward debt. The last Five years. So tell us how you managed to do that, because it's hard for a lot of people.

Yeah, absolutely. The very first thing was getting on the same page with my wife. At the time we were still dating and then eventually married. But you know, we had the same mindset. We came up from a similar upbringing. So we verbally had this idea of wanting to pay down the debt as much as possible, but there was nothing concrete, of course, following some of the steps of Dave Ramsey. But, you know, it didn't come to a good, solid written plan until 2020. But, you know, the majority of the debt being paid off, or I should say half of it, you know, was those first first three years. But I mean, just behaviorally just hating that hanging over our head. So month to month we would budget and we did do a written budget, and that certainly was extremely helpful. And seeing those large chunks just being thrown at the debt and seeing that go down. We since 2017, 2018, we had a paper written list of the 209 debt and it hung on the refrigerator amongst our various rentals. And we would just cross off every time we would pay off those big chunks and just see that number drop and drop. And another fun thing that we did, my wife and I, we were in. We love wine, so every $25,000, we would have a nice bottle of wine picked out to enjoy together, you know, so it was definitely a team.

And now looking back, you're thinking you should have done it every 5,000.

Yeah, exactly.

Yeah. We don't celebrate milestones as much as we should, and then all of a sudden all milestones are gone and you're like, now we have nothing to celebrate.

Exactly. So it was the little wins. You definitely have to appreciate those little wins to get through it.

Yeah, for sure. Okay, Advice for someone that wants to do what you did. Let's say they're sitting here coming up at the end of medical school or dental school or podiatry school or pharmacy school or whatever, they know they got a big chunk of debt. They hate it, they don't want to have it, they want to wipe it out relatively quickly. What advice do you have for them?

Yeah, absolutely. I definitely took time to think about this because I wish I could tell myself some of these things back when I first started to just a little bit be more well rounded. But definitely the team approach, like being on the same pace with your same page with your spouse and going through a specific written plan. And I am definitely the one who's the Excel spreadsheet. Guy, and my wife is not, but she's also the one who introduced me to Dave Ramsey. So luckily we had coming from a similar area, but working that out, having conversations, having an open line of communication throughout the entire time, minimizing unnecessary debt. So I'm sure you had classmates too, who maybe took out more than what they really needed and they're enjoying it, nice restaurants and trips and things like that. But I feel like we, you know, stay pretty modest throughout schooling and then frugality, you know, and that's going the same lines that's going throughout all of, you know, paying off the debt, enjoying yourself, enjoying the little wins, and don't put your life on hold. You know, there was a time when, after my wife and I got married as far as, like when we were ready to have kids and things like that, and you know, that that huge amount just looming over your head and that can sometimes cloud your judgment of the big picture of you living your life. And of course it's easier now that that's gone, but putting that in perspective, you really got to think about that. So whoever you're with or if you're by yourself, have a game plan for yourself to be able to get through this. And one thing, at least in my field, is ownership. That has become a big thing for me shortly after these events during these three years, I also became partner at my practice too. And that opened up my eyes to ownership. And I know you're a big proponent for ownership too. So those are on the horizon, you know, moving forward for other things. And I'm so glad that I did that because I loved your recent blog about it's not a vacation, it's a lifestyle. And that it was just eye opening and even though not necessarily traveling as much. But I have no problem looking a month in the future, taking, blocking that day off and just let's, let's go down to the Baltimore Aquarium or let's go here, there or there and not think twice about it. You know, it's. I don't feel like certainly we got to keep the lights on in this practice, but we still need to worry about ourselves and take care of ourselves. And that's the final thing that I would say is through this journey of financial wellness, I found personal development and putting time and effort into reading books and listening to podcasts. I then looked into more personal development things and just trying to have a good flow through the day, through the months, and really working on relationships, making our family stronger and moving forward that way.

Awesome. Well, congratulations. I mean, this is really significant. You should be proud of yourself and what you've done. You have started your career on the right financial foot. You're going to be incredibly successful financially in your lives. You have basically changed, you know, in the words of Dave Ramsey, you've changed your family tree.

I appreciate that.

You know, your kids certainly almost surely aren't going to be borrowing for their education and this sort of stuff gets carried forward generation to generation, and you've done this, so you should be really proud of that. And I hope it inspires others to do the same. But thank you so much for coming on the milestone podcast.

Yeah, thank you so much, Dr. Olay. I appreciate it. All right.

I hope you enjoyed that. It's always beautiful to see someone pay off student loans. You know, I always feel like you're not really done with school until you've paid off the loans. And it feels like you just have a whole lot more, not just financial freedom, but career freedom. Once that has taken place, you got options to take different jobs, lower paying jobs, take a risk on a business or an entrepreneurial venture that maybe you couldn't before when you had these big fat student loan payments. So I always like seeing those gone. All right, I promised you we were going to talk about the Dave Ramsey baby steps. Now, for those who have no idea who Dave Ramsey is, it's probably not very many of you, but there's probably some of you out there. Dave Ramsey is a TV radio host, I guess more radio than tv, who's been kind of dispensing financial advice over the airwaves for the last 25 years or so. He's kind of at the tail end of his career, trying to figure out how to pass his empire on to his daughter, it sounds like. But over the years, he's come up with a relatively simple plan. Some might describe it as simplistic or overly simple, but a simple plan to help people to make some progress in their finances. And the nice thing about a simple, straightforward plan is it's easy to remember, easy to implement, and relatively easy to do. The problem is, when it comes down to something like this is kind of what Einstein said, that you want to make things as simple as possible, but not simpler. The problem with the baby steps, sometimes it makes things maybe simpler. There's always this issue of trying to decide between the proper behavioral solution and the proper mathematical or intellectual solution. Because the truth is, most people that get into debt trouble have got a car loan and four credit card loans and a personal loan and a Mortgage and a heloc. And the reason they have debt is not because they can't do math. The reason they have debt is because they have bad financial behavior. And so I think Dave recognizes this, that there's a whole lot of people out there with just bad financial behavior. And the nice thing about these baby steps is they're pretty good at correcting bad financial behavior. If you follow them, you will get wealthy eventually. It might not be the very best way, it might not be the most mathematically correct way. You might leave a little money on the table following the baby steps. But they're going to work. It's not like doing this doesn't work for doctors. It absolutely does. So let's talk about his baby steps. His step one is to save $1,000 for what he calls a starter emergency fund. This is something you could use to replace a dryer that goes out or you blow a tire and you need to replace the four tires on your car. That keeps you from having to borrow more money. You can now use your emergency fund to pay for that and then rebuild your emergency fund. Once you have $1,000 sitting in your checking account, he moves you on to step two where he wants you to pay off all of your non mortgage debt. Everything, student loans, personal loans, car loans, credit cards, whatever, anything that's not a mortgage, he wants you to pay it off in step two before doing anything else. That's right, before investing, before putting money in your 401, before getting your 401 match, before doing anything else. And the nice thing about doing it this way is you have this intense focus on the goal, right? Every spare dollar you can get. I mean, this is kind of his beans and rice stage. He doesn't want you eating out or he doesn't want you seeing the inside of a restaurant unless you work there and everything's going toward your debt. And that's great. Does it work? Yes. Is it more harsh than maybe you need to be? If you're making $375,000 a year, probably. But it works. Once you've paid off all that debt, you move on to step three. And this is where you get a real emergency fund, which is the classic three to six months worth of your expenses, sitting in checking or savings or a money market fund, et cetera. Once you've got that emergency fund in place, you've paid off all your debt, you've got your emergency fund in place, now you can invest. And he recommends you save 15% for retirement. 15% works for the average American For a couple of reasons. One, their career is relatively long. You know, if you start working at 18 and you work till you're 65, that's a lot of years, right? That's 47 years. That's a long time. And so 15% works for that. The other reason 15% works for the average American is because Social Security will make up a bigger portion of of their retirement spending than it will for most high income professionals. My recommendation on retirement savings is 20% because you're starting later. Most of you aren't starting saving for retirement until 30 to 35. That first 12 years gone. You spent that in undergrad, medical school, residency, fellowship, et cetera, it's gone. And Social Security, while it's going to be there for you in some form or another, isn't going to make up as large of a percentage of your retirement income as it will for the typical American. And so 20% is the number. And if you do that, if you carve out 20% of your income from the time you get out of your training and you work a typical career, you know, you work 25, 30 years, you will have enough money to maintain your lifestyle in retirement. Same lifestyle you had before you retired, you'll be able to maintain in retirement. So 20% is the number there. Dave Ramsey's step five is to start saving for your children's college. And I like that this comes after step four because it's true. You should prioritize retirement before college. You know, you got more options for college. I mean, if you don't have any college savings for them, what can they do? Well, they can work in the summers, they can work during the school year, they can get scholarships, they can go to a less expensive school, they can even borrow. You're not going to get student loans for retirement, but they can still get student loans for college to pay for an inexpensive private or state university. You can still borrow for that. So I like that where that step comes in after you've got kind of retirement on track. Not your retirement fully funded, but your retirement on track. Step six for Dave is paying off your home early. This is where the mortgage debt comes in. And he likes to see a free and clear. I kind of feel similarly, our mortgage is pretty paid off after seven years. After we got in the house, we had it on a 15 year. I just don't like carrying mortgage debt into retirement. Yes, I know how leverage works. I know that if you're borrowing at 2% or 3% and earning it 10%, you're coming out ahead. But you know what? You just have a lot more ability to take risk in your career, your finances, when you don't have that mortgage debt sitting over your head. So I don't have a problem with that one coming in at this point because step seven is where it gets all vague. He calls it build wealth and give. Well, okay, that's just everything else in your financial life. Maybe you're mixing some of that in with the other steps. Life can be a little bit more complicated. You don't have to follow this exact formula to become wealthy. Will it work? Yeah, it'll work. And if you're having trouble with debt, if you keep finding yourself getting into debt over and over again, maybe you need this rigid of a plan. But most doctors, most dentists, most podiatrists, whatever you are, attorney, small business owner, tech worker, whatever high income professional of some kind, you're going to be able to take care of this stuff. You can just afford to make more mistakes, if you will. I don't put mistakes in quote, in quotes and still be successful. So if you've never heard of that, I think the baby steps are useful to know. But you don't have to treat Dave like he's some sort of guru or somebody that can do no wrong. Lots of people criticize Dave and his business practices for various reasons. I don't like the fact that he refers you to financial advisors that are really commission salesmen, for instance. Other people don't like the way he runs his business with a bit of an evangelical focus. I think he got into some trouble recently with one of his partners that was helping people to get out of timeshares. And it turned out this timeshare exit team was kind of a scam too, which was unfortunate because lots of people don't want to be in their timeshares and they can't get out of their timeshares. And anybody that will help them seems like doing a good deed, but maybe not always. So. There's plenty of things you can criticize Dave about, but I think it's worth learning the baby steps. Take what you find useful. Leave the rest like anything else in personal finance, including everything I say. All right. Don't forget about quality disability and life insurance. If you're not financially independent yet, you need disability insurance. If anybody else depends on your income besides you, you need term life insurance. These should be the first financial chores for a doctor to complete. That's why they're the first two chapters of the White Coat Investors Financial boot camp. Lots of docs don't have the ideal policy for their gender, specialty, state or health status. And the reason disability insurance is so expensive is because doctors actually use it. Statistics show about one out of seven will be disabled at some point during their career. These policies can only be purchased through brokers or agents. So we put together a list of vetted independent agents who are experienced with working with doctors and other medical and high income professionals. They've got your best interest at heart. They sell hundreds of these policies a year. They know them inside and out. They can help you find the right one. Answer all your questions. So if you have questions about insurance, want to go over your current policies, see what else is out there, See what may be best for you? Check out our insurance recommended list, that's@whitecoatinvestor.com insurance and you'll get that peace of mind that comes with knowing that you've got this chore not only done, but that you have the optimal policy in place. That's whitecoatinvestor.com insurance. All right, if you want to come on this podcast, the Milestones Podcast, you apply@whitecoatinvestor.com Milestones and we'll celebrate what you've done and use that to inspire somebody else to do the same. Until next time, keep your head up, shoulders back. You've got this. We can help. 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.