MtoM #136: Cutting Back To Full Time and Finance 101: Home Buying

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

Milestones to millionaire podcast number 136 cutting back to full Time 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've 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. That's whitecoatinvestor.com insurance all right, we've got a great guest on the podcast today with a new milestone we have yet to celebrate on the podcast, but stay tuned. Afterward, we're going to talk a little bit about home buying. Our guest today on the Milestone to Millionaire podcast is going to remain anonymous, but I'm still excited to have her. Welcome to the podcast doc.

Thank you.

All right, tell everybody this is a unique milestone. We haven't had this milestone on yet. In 136 episodes or 135 prior episodes, we've never had this milestone. Tell us what milestone you recently accomplished.

So my milestone is that I've cut back to 1.0 FTE.

Awesome.

I've only got one job.

I love this milestone because when I think about it, yes, this was a milestone. I got to. I guess some people start out their career like this, but a lot of us, especially in those work like a resident years, live like a resident years are not only spending like residents, we're working like residents too. You know, we're moonlighting, we're working a lot of hours, we're taking extra call, et cetera. And so there comes a time when we often go, this isn't worth it anymore, and cut back. And it sounds like you hit that time recently.

I did, yes.

Yeah. Okay. So tell us a little bit about your career. What do you do and how far you are out of training and what you've done so far with your various jobs.

Sure. So I'm a pathologist and I work in academics. I am six years out of training and I Spent five of those years working in a different academic institution and then one year my full time job was a non clinical position. Now I have just started a new position back in April at another academic job. And you know, this was a really exciting job for me to take because it feels like a very long term sustainable, great success both for me and also from the hospital department side.

Awesome. So tell us a little bit, are you single, are you married, kids, what kind of situation are you in?

I am married. I have been married for almost 12 years and I have three children who are all school aged. My husband is a stay at home dad and has been since our youngest child was born about five years ago.

Okay, so for the most part for your career it's been a one income household. Were you working more jobs out of interest before or primarily for financial reasons?

I would say it was a mix of both. I started doing moonlighting when I was a resident in my state. At that time, pathology residents were allowed to work as medical examiners. Even if you were not a fully board certified pathologist and you hadn't done dedicated forensic pathology fellowship, you could still be granted medical examiner credentials. So I started doing that in 2015 when I was a third year resident. Did that for about a year. Usually it would be going in on a weekend, on a Saturday morning for a few hours to do exams that were really just external exams. If a decedent needed a full autopsy, then that would be handled by the forensic pathologists and not by, you know, the weekend medical examiner. So I started doing that because at the time my older two kids were both very young, they were both in full time daycare. My husband was working and he had basically a resident salary. So we pretty much had a two resident household. But it just always felt like we never had enough. And so when this opportunity came up, it felt like a reasonable way for me to spend a few hours a week that wasn't going to be overnight, it wasn't going to be doing something that I wasn't comfortable with or that was particularly out of my area of interest. So that was the first side job that I had. And then when I was a fourth year resident, I started doing some teaching for a third party educational company where I was teaching mostly online for step one pathology related content. And then that kind of lasted me through the first couple of years of my attending position as well. That teaching job ranged anywhere from, you know, 5,000 a year to about 17,000 a year in my highest take home year, which was a lot for us at the Time, you know, that's almost, that was almost 20% of our income when I was a resident. So it made a huge difference for us to pay both kids in full time daycare and diapers and bottles and all of that. But at the same time, you know, teaching is, is an important part of my career as an academic physician. And so it was also building a skill that I've now got hundreds of hours teaching online. And that was a skill that came in very handy when the pandemic started.

Wow. So was this a goal that you had for some time to cut back to one fte or did just something that came up?

I think it was really a goal that I had. When I first left my first attending job, I actually didn't completely leave. I tried to give notice to my department chair and he asked me to stay on part time. So I remained on at 20% effort at my old clinical job while I was also doing a full time non clinical job. And I made that decision because I didn't think I was ready to completely walk away from clinical medicine. I didn't feel like I was done. So I wanted to keep a foot in the door and make sure that if there was going to be an opportunity in the future, in the near future, in the longer term, that I wouldn't have a big gap on my CV. So I did do that for six months and then after that 20% effort contract expired, I took a position as a laboratory director where I was an independent contractor for about four hours a week and again as a pathologist. That is part of our clinical work is the laboratory director side of things. So for most of that non clinical year, I was doing this lab director position on the side as well. Once I had applied for what is now my current job, I was feeling like I was ready to only have one job. It felt like I had been juggling so much and really the benefit that I was getting of keeping a foot in the clinical opportunities that was no longer going to be necessary. And the money that I was earning from it was about $1,000 a week, which is not nothing. But at the same time, you know, with where we are currently in our financial life, it didn't feel like it was a big enough percent of what our income was to justify, you know, continuing to do a side job. So once I started on in this new position back in April, so about four months ago, I did let the laboratory director job go as well. So that was my last side job. And here we are.

Awesome. You know, it's Interesting. I talked to lots of docs who are trying to get more side gigs, you know, clinical and non clinical. Not very many that are trying to cut back from them, but it is an important milestone. So what happened? I assume you're taking a pay cut. By cutting back, you're actually going to have a lower income. Is that correct or is that not correct?

It's actually about the same as I was making in my non clinical year. I did take about a 5% pay cut when I left my first attending job to do the non clinical work. But with the side job with the lab director position, it was maybe like a 2% pay cut to do that. And then my salary now in the hospital I'm in is essentially the same as what it was in my previous attending job. So it's slightly more than what I was making last year during my non clinical year, but kind of back to what my baseline was before I left the first job.

Understood, Understood, but certainly. So part of this was making sure that your new gig paid you fairly. It sounds like some contract negotiation and evaluation and making sure you're being paid well. How much effort did you have to put into that?

Yeah, that was definitely a big part of kind of our thinking through this decision, our being me and my husband. But when I was interviewing and when I was, you know, reviewing contract paperwork, my now department chair was remarkably transparent with how, you know, folks in our department are compensated and he was very free to share benchmarks and ranges. So I did feel like I was coming into this position with eyes wide open and I tried to negotiate a little bit. And actually there was no negotiation in the end because it's a very large academic system and I understand that. And that's kind of part of the price of admission to be working in a prestigious institution. And it wasn't to the point where I felt like I was being unfairly compensated.

Okay, so what else did you do in your financial life that allowed you to feel like you didn't need to work more than full time anymore?

Yeah, so I think about four years ago at this point was when we were back to broke. So when I graduated residency, we were probably at about negative $100,000. And so two years later we were back to broke. And at that point we really decided, discovered this world of personal finance. And I became a little bit obsessed with learning as much as I could about taking control of our money. And, you know, I felt a lot of responsibility as the primary breadwinner for our household to make sure that we were not Going to squander an opportunity that, you know, most Americans would kill for to have this kind of income. So got really tight with our budgeting. Not tight in a sense of cutting back, but transparent, I think is probably the better word. We started using YNAB, which was absolutely life changing. Paid off about $40,000 in student loans in that first year of using YNAB. And then that just felt like it set us up for being able to contribute more to retirement, to be aware of what our kind of long term known expenses are, planning for vacations or new cars or computers, anything like that. It felt like we kind of had the spending side really well under control. We had the investing side really well under control. So everything kind of felt like it was known variables at that point and there wasn't a big scary financial mess that we were kind of dealing with anymore.

I understand you had a few other changes in your finance that had an effect on how much you needed. Really?

Yes. So my youngest child had been attending a private school. He was identified as gifted when he was three years old, which is a wonderful thing, but it's also a challenging thing when the child is not able to really thrive in a typical preschool atmosphere. We needed to change where he was going to school. Unfortunately, we have an all gifted school in our area, so he was able to attend preschool there for two years, which was amazing, and he's really flourished. But he's about to start kindergarten and we needed to make a decision as to whether we would continue him in this private school or if we were going to put him in public school. And when we did the math, it was going to be $500,000 over the next 13 years to keep him in this school, which just felt like an impossible pill for me to swallow knowing that the public schools in our area are very, very good. It's like one of the top five school districts in the state that we live in. So, you know, with our older two children already in the district, we were familiar with some of the guidance counselors and with the gifted educators. So we were really able to have conversations with them about what will kindergarten look like for this child who has basically different learning needs than what the typical kindergartner does. And so I feel really good about our decision to put him in public school for kindergarten. Their main point was that it is much easier for them to meet the academic needs of a child who's in a socially appropriate place. So that meant for him not starting him in first grade, not doing any kind of acceleration or anything. Like that, keeping him with same aged peers, but then, you know, having the confidence that there was a plan to meet his needs, even though he was not no longer going to be in a dedicated school like he was previously.

Okay, and it also sounds like you did something with your house.

Yes, oh my gosh, we did. So we purchased the house. When I first started my new attending job, it was just a hot mess. The house needed so much work and we bought it nearly sight unseen. My husband had toured several houses with our realtor, but we were moving out of state from when I was in training to start my new attending job. And so I didn't see the house until the inspection. And at that point, it really did feel, you know, whether or not this was true. It felt like kind of our only option for being able to live in the school district that we really wanted to live in for our children and also having a reasonably short commute for myself. So we stayed in that house for three years before the pandemic fueled real estate craze kind of started. And we saw that as an opportunity to get out of this money pit without as much maybe headache or friction as we otherwise would have had. So we ended up accepting an offer for the house maybe 36 hours after it was listed. And there, you know, there were no inspections, there were very few contingencies. And so we went back to being renters about two years ago. And it is just such a flat, freeing feeling for us in addition to, you know, having a really predictable monthly expense for our housing. Right. Like your rent is the ceiling of how much you're going to pay for housing, and your mortgage is the floor for how much you're going to pay for housing. So we were always worried, okay, well, which toilet is going to break next? When are we going to have to replace the roof? When are we going to have to replace the water heater? And so, you know, taking away not only the financial burden of that, but also really the mental burden of having constant worry in the back of our minds, going back to renting for us was absolutely the right decision. And, you know, we're in a house now that we're planning to stay in long term. The owner wants a long term tenant. It's a single family house in a wonderful neighborhood, our kids can walk to school. So it, it feels like we're just maybe not people who are homeowners and that's okay, right? Like we don't, in our house, like we don't always do things in what I see as the way that most people do things right. Like we have non traditional gender roles and, you know, we had children at a pretty young age. So just, you know, we're renting when a lot of other people are at this point in their career looking at buying their doctor house. And. And that's okay with us. That's okay that we don't do what everybody else might do in what they think is their financial next step.

Okay, well, let's say there's somebody out there that's like you. They're working 1.3, 1.4, 1.5 FTEs, and they're a little scared to cut back. They're not thrilled about a decrease in income. They're not thrilled about, you know, fewer career options. What advice do you have for that person?

So I think for us, minimizing our fixed expenses as much as possible was a really big part of that equation. I felt really confident where we were with our monthly spending and monthly saving in addition to being renters, that there weren't going to be too many surprise expenses coming down the pike that we might need to have a bigger pile of cash to prepare for. So that was one of the things. I think another thing that I've heard you say on the podcast is about marrying right, marrying once, marrying right. And I think that is a huge part of where we are now. I think my husband and I have an amazing relationship and we communicate extremely well. You know, treating your partner as having a sacred relationship with you and, you know, taking care of your partner as much as you can in whatever way you can to make sure that you're on the same page. And being on the same page, you know, doesn't necessarily mean that we agree on everything all the time. But being able to discuss with each other these hard conversations about potentially making less money or potentially working more hours, being able to have that kind of conversation with confidence that you're on the same team, you're working towards the same goals. That has been absolutely instrumental.

Awesome. Well, thank you for sharing that and thank you so much for being willing to come on the Milestones podcast to celebrate your milestone, which I congratulate you on, but perhaps more importantly, to inspire others to do the same.

Thank you. And actually, I did think of one more thing. So I think being open to change and being willing to step off of the medicine conveyor belt can be really scary. And when I took a nonclinical job, it was really a hard left turn that I never expected to make. So, again, it's okay to do something that is not just continuing to put one foot in front of the other because that's what you always thought you should be doing. So I think being willing to look around and make decisions that are best for you, even if it's not necessarily what all of your colleagues or your classmates from medical school might be doing.

Awesome. Good advice. Thank you so much.

Thank you.

All right. I hope you enjoyed that interview. By the way, for those who aren't familiar, YNAB is Y N a B you need a budget. It's an app people use to track their spending. There are some similar apps out there. Dave Ramsey's everydollar is one. But most people who use one of these find it works a whole lot better than just using Mint or using what Katie and I used for many years, which was just an Excel spreadsheet to track our budget. So if you need an app that will help you to keep track of things and allow you to and your partner to, you know, enter information independently as the month goes on, check those out. They're great options. But I think what I like most about this particular milestone is that the first thing I tell burned out docs is why don't you cut back to full time? Because so many of us are doing one job, two jobs, three jobs, looking for a side gig, you know, taking extra call. Right? Full time in this country is generally defined as 40 hours a week. And there are many, many docs working more than 40 hours a week. What would it take in your life for you to be able to cut back to full time? Would you be happier if you're only working 40 hours a week? That means if you have a hard call, you're not working banker's hours the rest of the week. What would that look like? And how much would you have to adjust your finances? How much more would you need to have in savings to feel comfortable doing that? These are all questions worth talking to yourself. And if you have a significant partner in your life to your partner about because it might dramatically improve your life. You can get an unlimited amount of money in your life, but you only have a limited amount of time and you can't get any more of that. Like I've mentioned on other podcasts. Would you trade places with Warren Buffet? Very few of us would because he doesn't have that much time left and the time he has crippled by living in a 90 year old plus body. And I bet he would give a lot of money to get a 20 year old body back. You know, and time's more valuable than Money in a lot of respects. All right, I told you at the beginning of the podcast that we're going to talk about home buying. And indeed we are going to. You know, I often talk about home buying with regards to residents, and I kind of tell them, hey, you don't have to buy a house during residency. Because most of them don't even consider that as an option because. Because they got this burning desire to own a house. Well, the default option for people in training probably ought to be renting. Honestly. And the main reason for that is a financial one. It just takes time for a home to appreciate enough to overcome the transaction costs of buying and selling. Generally, think about buying a home costing you about 5% of the value of the home and selling a home to cost you about 10% of the value of the home. So that's a 15% total round trip. So 15% of a $500,000 house is $75,000. So if your home doesn't appreciate $75,000 while you're in it, then you're coming out behind. Right? You know, it's not throwing money away to rent. It's okay to rent. You're trading money for housing. And guess what, homeowners do that too. You throw money away on property taxes, you throw money away on insurance, you throw money away on mortgage interest, you throw money away on repairs that your landlord would cover if you were renting. So there's lots of throwing money away. No matter what you are, don't let that be a reason that you buy a house. And maybe it's not the right time to do it. You got to do more of the analysis than just mortgage payment versus rent payment. People are like, oh, well, I can get a mortgage that's less than my rent payment. Well, of course you can. You're supposed to be able to do that. Think about it as an investor, right? What does an investor have as income? They have rent. What do they have as expenses? Well, they have a mortgage plus everything else. Taxes, insurance, repairs, upgrades, all those other things. Plus they want to make a profit. So of course your mortgage should be less than rent. That's just kind of a given. I mean, if your mortgage is more than rent, then you're really not getting a good deal. All right, so those are all the reasons that people really think twice before buying a house during residency. Does it never work out? No, I'd say for a three year residency, it probably works out a third of the time. For a five year residency, it probably works out half the time. That you do. Okay. So if you really want to own a house and you're okay with that risk, knock yourself out, Go buy one. I don't care. It's not my money. But at least think about just renting during residency. But as a general rule, I'm a big fan of ownership. I know our guest today was not. And that's fine for some people. They want to be lifelong renters or renters for long term, or maybe in a different stage of life. They buy whatever. That's fine. I'm a big fan of ownership. I want you to own your house. When you're in a job that's stable, when you're in a personal situation that's stable and looks like it's going to be stable for five plus years so you can get appreciation more than the transaction costs. I want you to own a home. Home ownership's great. I love owning my home. You can do whatever you want to it. You can renovate it, you know, although I guess technically you could still lose it to the government if you don't pay your property taxes. The bank can't take it, especially, you know, once it's paid off. Plus, it's a bit of a hedge on housing costs once that mortgage is gone, right? We bought this house many years ago. It was probably worth half or a third of what it's worth now. And that's before the renovations put enough money into it. It's probably worth substantially more than that now. But the point is, that mortgage payment doesn't go up over time. If you're on a 30 year fixed mortgage, it's the same mortgage payment, at least principal and interest for 30 years. So if rent skyrockets, you've hedged against that. And once the house is paid off. Shoot. All we got to pay now is property taxes and insurance and repairs and that sort of thing. There is no rent payments. There is no mortgage payment. And that's nice because it kind of helps control housing costs down the road. So I'm a big fan of ownership. I want you to own a home, but you need to buy it at the right time in your life and in your career to do it. Now when you go to buy it, here's a couple of guidelines, and I think these are becoming more important now that people aren't getting 2.5% mortgages. I just saw an article saying mortgages are at the highest rate they've been since 2002. They're. They're up over 7% for a 30 year on average. I think it was 7.1% is what I saw. And that reminds me of my first mortgage in 1999. It was 8%. And my second mortgage that we took out in 2006 was 6.25%. Those are more normal mortgage rates, right? This 2.5%, 3% kind of stuff that people have been seeing the last few years is not normal. Right. Expect to pay more than that on mortgages in general. Sure. If rates fall and you can refinance to that, do it for sure. But you got to keep in mind that that's not really normal. So here's my recommendations. I recommend you don't spend more than 20% of your gross income on housing. I include everything in that. Right? That's your mortgage payment, your principal and interest, your taxes, your insurance, maybe even throw utilities in there. Keep that to less than 20% of your gross income and that will help you to build wealth. I also throw out a more useful figure sometimes, which is to keep your mortgage less than two times your gross income. Okay, so let's say you got a $100,000 payment. You're making $200,000 a year. I would suggest you don't have a mortgage more than $400,000 and don't have a house that's more than $500,000. 2x your income plus the down payment that you have now in some high cost of living areas, you're probably going to have to stretch that a little bit. But stretching is like going to 2.53x, maybe 4x, not 10x. That'll just make your house poor. You don't want to do that. So follow those guidelines when you're ready to buy a house, when you're in a position to buy a house, and then the house will be a blessing in your life and not a curse. Mortgage payments or down payments are great. They help you to get a conventional loan, which generally has a lower rate, lower fees, more people competing for your business. But if you have a better use for your money, like maxing out retirement accounts, paying off student loans, building up an emergency fund, whatever, Right. When you're coming out of, you know, you're training. A doctor mortgage is not a crazy thing to do. A doctor mortgage allows you to put down less than 20% and still not pay that private mortgage insurance, that PMI, that insurance the bank forces you to buy to protect them from you defaulting. It doesn't do you any good to pay PMI. But if you don't get a doctor mortgage and you don't put 20% down, you're going to have to pay PMI. So it's okay to use a doctor mortgage to buy your house, that's fine, but recognize your payments will be higher because you're borrowed more of the cost of the house and you'll probably have a little bit higher interest rate and probably have a little bit higher fees. But it's a reasonable route to go if you have a better use for your money. Hope that's helpful in your decision whether to buy or rent, when to buy, how much to buy, what kind of mortgage to use to buy, and will help you to build wealth in your life, build your way toward financial independence, and have an enjoyable life at the same time. Our sponsor for this podcast is the White Coat Investors Recommended Insurance Agents and getting high quality disability and life insurance should be the first financial chore for a doctor to complete. That's why it's the first chapter and the second chapter in the White Coat Investors Financial Bootcamp book. Too many docs don't have disability insurance at all. Lots of them don't have the best policy for their gender, specialty, state or health status. Statistics are that about one out of seven of us get disabled at some point during their career. So you want to buy this from an independent insurance agent like those on our recommended list. They can help you to get the right policy for you to get the right amounts to understand the various different options. If you do this right, you'll probably only have to do it once or twice during your career, so do it right the first time. 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. Alright, that's it. We'll see you next week on the podcast. Keep your head up, shoulders back. You've got this and we can help. If you want to come on the podcast, we'd love to have you apply@whitecoatinvestor.com Milestones and we will celebrate whatever milestone with you and use it to inspire others to do the same.

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.