MtoM #141: Doctors Pay Off Student Loans Before Even Finishing Training and Finance 101: The Importance of Saving

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 141. Doctors pay off student loans before even finishing training. 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 gets 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 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@WhiteCodeInvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this. The White Coat Investor can help. All right, welcome to the Milestones to Millionaire podcast. This is the podcast where we use your accomplishments to inspire others to do the same. We call those accomplishments milestones, and they can be highly variable. Sometimes it's as simple as getting on a retirement committee. Sometimes it's paying off some student loans or becoming a millionaire or just getting back to broke. I think we even celebrated somebody that just bought a car with cash. We don't care what the milestone is. We will use it to inspire others to do the same and to reach their own milestones. So if you'd like to apply, come on. Whitecoatinvestor.com Milestones all right, our guests today have taken their student loans into a corner and dropped an anvil on them. You'll love the story. Let me bring them on. Stick around. Afterward, we're going to talk about the importance of saving and really what the secret to being rich is. Our guests on the Milestones to Millionaire podcast today are Vivek and Kinjal. Welcome to the podcast.

Thank you, doctor. Thank you.

Tell us a little bit about you, what you do for a living, where you're at in your career, what part of the country you live in.

Okay, so I am currently a hospitalist, I'm three years out of residency, and we live in Central PA and I'm.

A second year cardiology fellow.

Okay, very cool. Tell us what you've accomplished.

So we have paid down our student loan debt, both of ours, total of $400,000.

$400,000?

Yes.

And you're not even out of training yet. That's awesome. This is so Cool. So I'm guessing your salary, Vivek, is not the one that paid off these loans? For the most part, nope. Okay, well, for the last three years, Kinjal, since you've been out of training, what's the combined household income we're talking about here?

So I can tell. So Kinjal's income has been around $250,000 for last three years. My fellowship income is ranging between 60 to $70,000. So our family income has been around $300,000 to $320,000.

Okay, so $300,000. And somehow in the last three years, you carved out $400,000 to send to your student loans. How did you do that?

Basically, what we did. Coming out of med school, our student loan was around 400, and then during residency, we paid some amount of it off. So coming out of residency, it was around three fifths. And then I, thankfully, because of COVID I was almost. I had the government loan, so I was on a pause, the interest rate rate pause. So I kind of put all that money that I was making into a high yield savings account. And then Vivek had. His was a private loan. So we paid off his first, and then we paid off my 180,000 that was left over just in August.

Wow. Wow. So you took advantage, really, of that student loan holiday, earned a little bit of money in a high yield savings account. But let's be honest, that's not where most of that money came from. Most of that money you just carved out of your earnings. It's money you didn't spend.

Yep.

You know, this is really hard for a lot of docs not to grow completely into their income, because when you finished residency, you had a pretty significant raise. But sounds like most of that raise, at least, was carved out and sent to the. To the. You know, into the savings account first, but eventually to the. To the lender.

Yeah.

How did you keep from inflating your lifestyle?

Well, it was partly intentional and partly accidental. So we. We were not big spenders to begin with. So our savings rate was high when we came out of residency, but we were not financially savvy. We didn't have a real plan to pay down the student loan debt fast. But then we read your book, we read your blog, then listened to your podcast. We gained some financial literacy, and we realized that the student loan debt can be a huge burden. It can be a huge obstacle if we want to build wealth going forward. So we got our acts together. We wrote down a financial plan, we put down a budget on paper. We reduced our spending even more and so that increased our savings rate and so that allowed us to have the cash flow to pay down the student loans. And I think it happened faster than we anticipated.

So did you feel deprived during the last three years or do you feel like your lifestyle was fine?

I think our lifestyle was okay, thankfully. Like I think the biggest contributor to our paying off our student loan in three years was that we lived in a low cost of living areas. So being in Central PA we didn't spend a lot of money. And then we were still able to travel a lot in the past three years.

Yeah, yeah, I don't think we felt deprived. We did a few really long trips. I mean we, for our honeymoon we went to Bali and Australia. It was a good two week vacation. We also went to Europe. So yeah, I don't think we felt deprived. I mean, we didn't spend much on materialistic stuff, so because we are not into it. So we didn't feel deprived, but we still have a good lifestyle.

No designer scrubs, huh?

Nope, just the hospital scrubs.

So did you, did you, you know, were you saving for retirement at the same time or is pretty much all your wealth building activity for the last three years been paying off debt?

So we were maximizing our 401k, but that's about it. So I think 20 to $22,000 for each of us. We were putting it in our 401k, we were maximizing it, but outside of that we were not doing much else. So we would not put doing the Backdoor Roth or the Mega Backdoor Roth which is available to us. We were not putting much in the taxable brokerage accounts. So so basically I'm maximizing our 401k and rest of it all just went to paying off student loans.

Was there anything else? I mean, did you get a big inheritance? Did you win the lottery? Did your parents give you a bunch of money? Or was this just all you guys?

No, no, no, not really. I think so.

Just for me, like during residency, my parents helped out a little bit with a little bit of small lump sum of money and then that was kind of it.

Nothing big though.

Yeah, nothing big.

Yeah. Very cool. So what's your net worth now? Have you added it up at all lately?

Yes, we have. I mean, I kind of have an Excel sheet, so I keep a track of it and then I update it every few months. Right now our net worth is negative 130,000 and it's mainly because of our mortgage.

Okay. But that house is worth Something. Right. It's worth more than the mortgage. Right.

So, yeah, actually, so we did a doctor loan, so we didn't put down anything when we bought our townhome. So we don't have much equity. I think we have 50,000 equity and the mortgage is around $360,000.

Okay, so you owe 360,000 on a mortgage, but what's the house worth?

The house is worth about 410, 420.

Okay. And do you have any other debt?

Not really. We have a small car loan. I think there's like 18,000 left on the car loan, so we have that debt. In terms of our assets, I think we have around 300 to $320,000 in assets. And out of that, $200,000 is in our retirement accounts.

Yeah. Sounds to me like you've got a net worth of several hundred thousand dollars already coming out of med school. What was it? Negative 400. Did you have any assets coming out of med school?

No.

Nope, not at all.

So you see, you've gone from something like negative 400,000 to something like positive 300,000. That's pretty awesome. You guys are doing great. You're going to be so successful.

Thank you.

Thank you.

What's next for you? What's your next financial goal?

Well, we want to beef up our emergency savings. We have like, you know, three, four months of emergency fund. We would like to make it into a six to seven month good emergency fund. So that's next. We are expecting our first baby in six weeks.

Wow. Congratulations.

Thank you. Yeah, so our family is growing, so eventually we'll move out of this town home into a bigger house. Not anytime soon, but maybe in the next four to five years. So we want to save up a good amount of down payment for our future house. So that's next. And then just stick to our plan. We already have a written financial plan. We know our financial freedom number. So just we want to stick to our plan, grow our portfolio, and then hopefully reach that financial freedom number in next 12 to 15 years.

Yeah, that's pretty awesome. I have no doubt you're going to be able to do it. I mean, you guys have got something pretty significant happening, what, in about another year and a half, right? I mean, somebody's coming out of a cardiology fellowship and your income is going to go up dramatically and your ability to build wealth, especially with your ability to control your spending, is just going to be off the charts. So you guys are going to be super successful and be able to accomplish great things financially as well. As help a lot of other people along the way. So congratulations to you on what you've accomplished and you should be proud of yourselves. And I appreciate you coming on the Milestones podcast to inspire others to do the same.

Thank you so much.

Thank you. Thank you for having us. And I just wanted to thank you personally because we have learned a lot from you and it wouldn't have been possible if we didn't have the resources on your blog and your podcast.

It's our pleasure. Thank you so much.

Thank you.

Thank you.

All right. I enjoyed that interview. I love the fact that they didn't wait until they were both out of training to really get going financially. Right. They admitted that they're not particularly financially literate even, but now they've got a plan in place and they are really moving forward. It's pretty awesome. One of them came out of residency and they go, we're going to get rid of these student loans. So they just took them in the corner and dropped an anvil on them. Right? I mean, you look at what percentage of their after tax income went toward those student loans, it's like 50% of it or more. Right. They didn't inflate their lifestyle, they didn't feel deprived, still traveling to Australia and all that, but they're able to get those out of their lives. Right? I mean, he's not even out of training yet, and the student loans are gone. She's only been out three years. Student loans are gone and now they're free to do whatever they want financially the rest of their lives. And the best part about it is they're coming into another huge boost to their income, you know, in the next year and a half. So that's just going to provide so many opportunities for them to have the perfect career they want and maybe even be part time. One of them might want to stay home with that kid that's coming. One of them, whatever. Just so many options you have when you get rid of that debt early on in your career. A few weeks ago, I published a blog post that was titled the secret to being rich is to not buy anything. And that sounds a little bit extreme. That's obviously you're going to buy stuff, but that really is the secret to being rich, right? Everybody thinks they want to be a millionaire, but if you really talk to them, what they want is to be able to spend a million dollars. And those two things are polar opposites. You become a millionaire by not spending a million dollars that you could have spent. And so the real secret, the Real secret to building wealth is not what your retirement account is. It's not what the investments you choose in the retirement account. It's how much money you put into the stupid thing. And the more that you save, the faster you build wealth and the more you eventually have. Now, there's got to be moderation in all things, right? You don't want to save 95% of your income for the 40 years. That's kind of just silly. But when you're getting started and you want to build wealth in a hurry and you want to swing your Net Worth from minus $400,000 to $300,000, the secret is not go buy a bunch of stuff, right? The less you buy, the more you have. It seems obvious, right? It is obvious when you think about it. But nobody does it. They go out and they buy a truck, right? I just bought a truck. Trucks can be really expensive. You know, you can easily spend 75 or $100,000 on a truck these days. But if you don't buy the truck, what do you have? Well, you have a beater you're driving, but Also you have 75,000 to $100,000. That is now compounding, right? That's after tax money is now compounding. And by the time you retire, that won't be $75,000. That might have doubled three times since then, right? It could be $600,000. So instead of getting that truck now, you put it off, you know, a couple of years, two, three years, then you buy your dream truck. In exchange for that, you've now got hundreds of thousand dollars more in your retirement account. You do that with everything in your life for a few years and all of a sudden you're sitting very, very pretty. You know, the truth is that spending more money doesn't necessarily make us more happy. Let me give you an example I used in that blog post. I was visiting some friends in California and we were near the Santa Cruz factory and we decided to go mountain biking. So we went into the Santa Cruz, that's a brand of mountain bikes and actually rented bikes from, I don't know what it cost, 50 bucks probably, but I rented a $12,000 mountain bike, right? It's dramatically more expensive than the seven year old one I've got. And you know what? I really didn't notice the difference, right? And some people out there are upgrading their mountain bikes every year, right? Getting a new $12,000 bike and a $13,000 bike and a $14,000 bike every year. If you can just ride your $5,000 bike for seven or eight years before you swap them out. All of a sudden you've got thousands of dollars more that you can use to build wealth. It's even the same thing with traveling, right? Sometimes. And I hope everybody has this opportunity to travel until they're sick of traveling. That's happened to me a couple of times in my life and I'm like, I just want to go home and stay at home. But the truth is, sometimes you can have just as much fun and just as much happiness going on a road trip to someplace that's three hours away as you can flying across the planet. It's probably better for the planet too if you would do that. But you gotta look at everything you spend money on and evaluate it. Well, how much happiness did that bring me? And if the answer is not that much, don't make that mistake again. You know, you gotta really evaluate your spending and spend your money on those things that you care about most. But if you wanna become wealthy, the secret is to have a high savings rate. What's your savings rate? It's the money you save divided by the money you make. That's all it is. Take your gross income, take everything you saved toward retirement last year, right? What you saved is the numerator. Your gross income is the denominator. That's your savings rate. And my general recommendation for docs and other high income professionals is that you save 20% of your gross income for retirement. You know, if you want to save for your kids college, you want to save for a new truck or a houseboat or you know, fancy vacation New Zealand, that's all above and beyond that, 20% for retirement. And if you'll do that, you will retire very comfortably and you will not have to worry about money the rest of your life. If you want to retire early, you might have to save a little bit more than that. But 20% is good if you have a typical doctor career. All right, enough of that. I don't want to beat you over the head telling you to save money, but you know, it's true. If you don't save money, you don't have anything to invest. It's a required step to build wealth is you have to carve something out of your income to put away for later. You're investing by passing up on spending now in order to be able to spend more later or give more later, whichever your priority may be. All right, I mentioned at the beginning of the podcast that there's a lot of white coat investors out there who still don't have appropriate disability and term life insurance. These are really the first financial chores that you need to complete. Policies like these can only be purchased through brokers, so we put together a list of vetted agents. They've been vetted by us, they're vetted continually by other white coat investors. They're experienced in working with the specific needs of medical professionals, and they 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 policies in place. You can do this, and the White Coat Investor can help. All right, that's it. That's another episode of the Milestones to Millionaire podcast. We'd love to have you on it. You can apply whitecoatinvestor.com Milestones thanks to those of you leaving us five star reviews. They do help spread the word to other white coat investors that might not even know they're White Coat investors yet and help them to become financially successful, financially disciplined, financially literate, whatever you want to call it. But I truly believe that a financially successful, financially secure doctor is a better doctor. They're better partners, they're better parents, they're better practitioners. So let's get our financial ducks in a row together as the White Coat Investor community and we can help a whole lot more people, whether they're our family, whether it's our own wellness, whether it's our patients. We don't have to worry about our own financial ineptitude and have all this financial stress hanging over us in the exam room. Keep your head up and shoulders back. You've got this. We'll see you next time on the Milestones 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.