MtoM #154: Psychiatrist Pays Off $460,000 in Student Loans and Finance 101: Rebalancing Your Portfolio

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 154. Psychiatrist pays off $460,000 in student loans if you're like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school, or residency. Even though your family and perhaps even your business rely on you to be the chief financial officer, you've never been given the tools to succeed. Enroll in WCI Financial Bootcamp, a free educational email series, and learn to convert your high income to wealth. You'll learn the basics of investing, saving, insurance, and more. Your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. Go to whitecoatinvestor.com financialbootcamp to sign up today. You can do this, and the White Coat Investor can help. Welcome back to the Milestones to Millionaire podcast, where we celebrate the milestones on the way to being a millionaire and beyond. In fact, we'll celebrate any milestone with you. I don't care how small it is. Maybe it's paying off a bicycle loan. Maybe it's getting back to broke. Maybe it's paying off credit cards or a mortgage or student loans, or hitting $10,000 in net worth or $100,000 in net worth. We'll celebrate it with you. Maybe you're on the other end of the scale. You've become financially independent, or you hit $40 million in net worth. We'll celebrate that with you, too, and use it to inspire other people working toward those same goals to do the same. If you'd like to come on the podcast, you can apply whitecoatinvestor.commilestones. i'm also going to put a plug in for our other podcast, the White Coat Investor Podcast. Both of these podcasts are driven by you. While this one is focused on you and your experiences, the other one is focused on you and your questions and people you'd like to hear from. So if you'd like to leave a question to be answered on the White Coat Investor Podcast, you can leave that@whitecoatinvestor.com speakpipe all right, one other thing you ought to know about is that we have a partner, and for the next week, you can still sign up with this partner. Her name is Dr. Gretchen Green and she teaches doctors how to be expert witnesses. You can sign up for her course@whitecoatinvestor.com expertwitness and if you sign up through the White Coat Investor link, We will give you one of our courses, the CFE Continuing Financial Education 22 course. This is an $800 value, but the point of the course you're buying is to start an expert witness practice, not in months or years, but in just a few weeks on your schedule with skills that you already have. And if you're a physician looking to start an expert witness practice to make more money and create financial security, this is your opportunity. Again, that's whitecoatinvestor.com expertwitness. Okay, we got a great guest. If you saw the title, you know what's coming. This is a psychiatrist, and he's actually really personable. I think he ought to be a podcaster himself. But he's been listening to this for a long time and listening to all these other psychiatrists who paid off $200,000 or $300,000 in student loans. And he's like, I can't wait till I come on, because I can beat that. And he has. He's paid off $460,000 in student loans. Let's get him on the line. Stick around. Afterward, we're going to talk for a few minutes about rebalancing your portfolio, which is a mystery to lots of people, but we're going to make it crystal clear. My guest today on the Milestones to Millionaire podcast is Matt. Matt, welcome to the podcast.

Thanks so much. Glad to be here.

Tell us what you do for a living and how long you've been doing it.

So I'm a psychiatrist. I got out of training about 2020, so I've been here about three and a half years or so.

Okay, very cool. And tell us what milestone we're celebrating today with you.

Yeah. So just last month, I got the payoff letter from my student loans, and I paid off $459,900, $460,000 in student loans. That's right.

This is just last month.

Just last month, yeah. In fact, I got the letter in the mail just, like, a few days ago.

Are you just absolutely thrilled?

I mean, it's surreal. I was telling my wife, it's the first time in, man, since we started residency in 2016, that seven years or so that I haven't had a month where some kind of amount has been taken out of my account for. For student loans. So it seems weird to kind of have some of that money back. I haven't really experienced it much yet since, like, this will be the first month that I haven't had something come out. But it seems weird to go forward to Know that that's not coming out anymore.

So about how much a month were you paying most of the time?

Yeah. So the. I refinanced pretty much. I did everything opposite of what you say to do at the start. I refinanced.

And you still won. Congratulations.

Right. I refinanced in 2021. Right. When, when effectively the interest was zero and I got a 10 year fixed at 3.75. And so my student payments were about 4,660 every month. I was just, just my wife and I, my fiance at the time. And so I was doing that amount for a few months, but I had a decent amount that I was accumulating. So we had a discussion and I was just like, you know, I could probably throw more at these things if I really just kind of concentrated on this loan and didn't do much else. And so probably about six months into it, I would increase the payments from about 5,000amonth up to about sometimes $25,000 a month.

$25,000 a month, right.

So every extra amount that I get with call with other positions that I was taking up, if I was doing like telehealth appointments, everything was just thrown into it.

So what were you living on? Were you living on her salary or what? No.

Yeah, I mean she makes good money too, but I didn't. I had told her when we first started dating that I didn't want my student loan to kind of be her student loan either. So I used only my income on it. But we still had enough to buy a house, get married. We did a few international trips during that time. We've been together about five years. So you know, we didn't go crazy. But I won't say that there wasn't some lifestyle creep, which of course is the thing that you always hound against. You know, I bought a car, you know, I had put money in stocks because my idea at the time was like, hey, you know what, I'm going to put some money in stocks. I'll have those appreciate. And at a certain point my loans will get down slow enough where I kind of meet in the middle and have that be paid off. Right. That didn't work. So I lost a decent amount of money on that too. But in the end it all worked out.

What car did you buy?

Tesla.

How'd you pay for it? Loan.

It's not a lease. Yeah.

So do you still have a car loan on it?

I do, it's like 17, but it's a 2% so there's not much left on that one.

Is it fun to drive?

Yes. And it was especially nice to drive. It was especially nice to drive when the gas prices were going pretty crazy. But It's a Model 3.

Model 3. Okay. Very cool. Very cool. Well, despite all these mistakes you. You say you made, you somehow came up with $25,000 a month to build wealth with. Is that what you paid? Last month was 25,000?

Last month was 28. That was kind of.

So you just got a $28,000 a month raise.

Right, right, right.

What are you gonna do with that?

Well, I mean, we just had our son about a week ago, actually, so he's just a week old. And so I know a lot of that's going to go to a good amount of diapers that we have to buy because it seems like you can never have enough.

But I don't know, with $28,000 a month, you can probably have enough. You can probably have a whole room in your house full of diapers.

Yeah, barely. Formula is expensive. That's new to me, but yeah. So, you know, I think the goal now is to kind of start making that appreciate even more. I made some mistakes. Like I said with stock market previously, I think I'll be a little bit more risk averse this time and do things that are a little bit more logical, like more inde funds. Unless. Hey, this stock sounds good. Let's try this one. So, you know, and, and that way, my dad's a financial planner, so he'll be able to help out. That too.

So did you tell him what you were doing with your stocks?

Yeah. So he. Well, I mean, he would laugh at this because he, he's the person that, that invested it for me. So now he's going to get a bad name. But I had told, I had told him what stocks to buy, and much to his chagrin, he had agreed. He was like, listen, you're really kind of chasing smoke here. I don't think this is a good idea. But if you want to buy this one, we can buy it. And that's what we did. So I've learned my lesson.

Yeah, well, it's good to learn them early with relatively small amounts of money, I'll tell you that. Okay, so what does your spouse do?

She works in it. She was an engineer for a while and then switched over to IT position.

Okay, so what's your household income been over the last three years or so?

Starting out of residency, my first position was about 260. That was in the Philadelphia metro area. And then I had had this desire for a long time to kind of make a go of it out in Seattle. So we moved out to the West Coast a few years ago, and I took a new position out there at about 3:10 with a decent amount of call I was doing at the same time. So I would say that, you know, as I've accumulated raises and I took an outpatient medical director position, that increased my salary even more so. So in total, I was probably clearing 500 a year myself.

Wow.

And then on top with her, she's about 130, so we're about 630.

Okay. So I look at salary surveys all the time. Right?

Yeah.

The average psychiatrist is not making that much money.

Right, Right.

What advice do you have for somebody who's making average psychiatrist money and wants to make money like you were making or you are making?

Well, the good thing about being a psychiatrist is that it's one of the professions where if you want to work more, there's always opportun and you can do a lot with time that you have. Which is kind of one of the reasons why I enjoy the specialty as it is, just that it affords you a lot of flexibility. So one of the things that I did is that we have set numbers of patients that we have to see per day, a census that's required. Like you do have internal medicines like Hydra. Everyone's got a census. And I was seeing those people relatively quickly per day. So I would find that I would have a decent amount of time the rest of the day that I felt idle. So these student loans were just burning a hole in my pocket. So I was like, you know, let's take on another position to get some extra money to kind of throw at it. So I took a position on a telehealth platform that allowed me to just kind of whatever hours I had, I could just put in and start seeing more people. So, you know, I know a lot of people that go into academics and such. You know, they start with lower amounts. But with psych, your time is kind of your best asset because we're not working crazy hours, we're not doing calls, we're not doing 14 hour shifts all the time. And so for me, getting done at 12 in the afternoon allowed me the rest of the day to be able to, if I wanted to pick up some extra hours to earn a decent amount with telehealth too.

So you guys are making about 600,000. You're probably paying $150,000 in tax. You're putting $300,000 towards student loans. So you're living on something like what, $150,000 a year or something like that?

Yeah, thereabouts. Thereabouts, right.

So back in medical school, you're borrowing money, right?

Yeah.

Starts adding up. What were your thoughts about it?

Avoid the website at all costs.

What, the student loan website or the White Coat Investor website?

No, the student loan website. I think at the time my servicer was through like nelnet and I was making an effort every day to not log on to that because I just couldn't stop stomach how much it was taking up. I went to a do school, so I had a pretty significant loan amount I was taking. Plus I was in Los Angeles, so I was taking out the max loans which still weren't covering my living expenses. So I took on loans on top of that to help cover living in Los Angeles. So as, as you know, the years wore on and I got into residency and then, you know, it came time to start paying some back. Once I started seeing that number go from 350 to 4, up to the max of 460, I was just like, I don't know how I'm ever going to do this. I saw a statistic once online that the average doctor kind of pays off student loans maybe around 13 years. And so I just assumed that it was part of me for a long time and that it would just kind of, maybe in my late 40s I would be able to pay it off. But once I started throwing significant chunks at it, it was like, well, all right, this is doable. If I really just kind of make a concerted effort for a few years and get it out of the way.

When was kind of your financial awakening when you decided, you know what, I'm going to take control of my finances. I can spend less, I can pay off debt. When did that happen?

I would say probably my late third into fourth year of residency, believe it or not. A friend of mine, her husband was a physician, we had went to college together and she had told me, hey, have you ever heard of the White Coat Investor podcast?

That's what did it, huh?

No, I haven't. And I started listening and I remember I had taken my first job. You get this nice paycheck, and you start having these ideas of like, well, I've waited so long to be able to do these nice things, like I can do all these things again. And I was listening to a Milestone to Millionaire podcast on the way to work, and I was at the same time just thinking about, like, you Know, lifestyle grief. And I started to think, you know, like, this is a really bad idea. This will feel exceptionally worse to start, like spending money on frivolous things when I know that I have this giant looming debt figure ahead that I had to take care of. So I was like, you know what, I'm just, I gotta start really putting my head to the grindstone and just kind of getting it done. And so there's about a six month period after I started the first job where I was like spending probably what I shouldn't have. And then around January of 2021 is when I got serious about it. That's when I refinanced and I made my first loan payment in February of 20.

Okay, so there's somebody listening right now that is like you were in 2021, sitting there looking at four or five hundred thousand dollars in student loans, feeling a little hopeless, a little desperate, thinking maybe I'll have these till my late 40s, at least 13 years anyway. What do you say to that person?

It's easy to make mistakes and it's okay to make mistakes. You know, there's no perfect way to go about paying off loans. But I think, you know, as I tell my patients all the time, especially in psychiatry, consistency is key. And I think as long as you stay, stay the course and keep doing the same thing over and over, pretty soon it's going to start making some headway. And I think with loans that's especially true because that number gets insurmountable at a certain point. When you take a look at it, this massive figure, that is laughable. I mean, it was laughable once I saw it, I was just blown away. But I think once you start making additional payments, you see and going straight to principal and you're like, okay, this isn't as bad as I thought. And it starts to take down. My biggest goal was like, I want to see four go to three and then three go to two, and then two go to one. And then it was like, hey, I'm not in six figures anymore. I like went out to dinner with my wife. I was like, we're not in six figures of debt anymore. So it seems bad at the start, but I feel like it's the first initial payments where you can pay a chunk. It's starts to feel like you've taken off a lot of that armor that was on there and it starts to feel a little bit more doable.

How much alcohol did it take to steal your nerves, to add it all up the first time?

Yeah, that's a good question. You know, I think again, I avoided the website forever. And we did those recertification sheets that you had to send in to. I was doing income based repayments. So the amount of money that I was paying during residency was like 150amonth. I don't even know if that, like, it was pointless, realistically. So by the time I finally like updated my password and logged into Nelnet, I remember just like my heart sinking, being like, oh my God, I had no idea it was this bad. Which is the problem because if you don't stay on top of it, it can kind of get away from you really easily.

I have met the, you know, orthodontist seems like are the worst. But you know that it did get away from them. They kind of ignored it for a few years as an attending and it got over seven figures right. That is a legitimate concern. Well, very cool. You should be very proud of yourself. You've done something incredible. You've worked very hard. You've kept your spending to a reasonable amount and you became not only financially literate, but financially disciplined. And you should be proud of yourself. And I'm proud of you. And thank you so much for coming on the Milestones podcast. Inspire somebody else to do the same.

Of course. Happy to be here. And I will say that about a year and a half ago, I kept telling my wife, I'm going to be on this show. I'm going to use this as motivation. I want to talk to Dr. Dali about how much I paid off because it was something that was a goal of mine. So I'm happy to be here.

That's pretty awesome. We're actually recording four of these episodes today, and you're the second person to mention that that was the motivation was to come on the podcast. So if that motivates any of you else out there to do this, please pay it off. We'll bring you on the podcast. I don't care if we got to run 20 of these a week. We'll use it to motivate you to pay off your student loans.

Definitely.

Cool. Well, thanks again for being with us.

Thanks, Dr. Daly. I appreciate all you do.

All right. I hope you enjoyed that interview. My favorite part is when I asked him what he's going to do now with his extra 25,000 or $28,000 a month and he thinks he's going to buy diapers with it. I don't think he's the one in that household buying the diapers is the impression I'm getting. I mean, don't get me wrong, diapers and formula are expensive, but they're not that expensive. So they're going to be able to do some pretty awesome stuff. That income that's now been freed up. I love the focus. I love how well he demonstrated how hard this is in the beginning. Actually, go look at your balance when you have one of these really high student loan totals. And to get started and to find that motivation and to find hope. And so I hope this podcast helps you to find that hope. Those of you sitting in a hole like this, you know the longest journey starts with one small step, right? How do you eat an elephant? One bite at a time. You got to get started. You got to get started. There is an end. There is light at the end of the tunnel. You can do this. He did it. You can do it. Yes. It's going to take hard work. It's going to take discipline. Hopefully you can make fewer mistakes than he did and maybe do it even faster, but this is doable. All right, I promised you at the beginning, we're going to talk a little bit about rebalancing. Okay, so why do we rebalance our portfolios? Well, three reasons, really. The first one is risk control, right? You're returning the portfolio back to your desired amount of risk you want to take in the portfolio. The second one is it's possible to get a rebalancing bonus, right? You know, when investing that you're trying to buy low and sell high, but rebalancing actually forces you to do that, right? Because you are putting your money toward what has done most poorly recently. And so you're buying low, and sometimes you have to sell something to rebalance. A lot of times you can just do it with new money, but sometimes you have to sell. So you're selling high and buying low. And the last thing is it gives you something to do with your portfolio. For those of us with these, know nothing, set it and forget it, static asset allocation portfolios like we know we're supposed to have, it gives you something to do. And I think that's good because it keeps you from tinkering with the investments because you're like, oh, all right, I got to do something. I get to rebalance the portfolio. And so I think there's some benefit there. So there's really two schools of thought to when you rebalance your portfolio. The first one is you rebalance it based on time. This is the way I rebalance my parents portfolio every year in the spring, we rebalance it. If it's a little out of balance or whether it's a lot out of balance, we rebalance it. I think it's usually April or March that we do it. And so you just do it based on time. Maybe your birthday, maybe the end of the year, whatever. That's the time when you rebalance your portfolio and you bring it all back. The original percentages that you set up in your written investment plan. Maybe that's 30% U.S. stocks, maybe that's 20% international stocks. Maybe it's 10% real estate, and maybe it's 40% bonds.

I don't know.

Whatever your asset allocation is, you should have those percentages written down and you rebalance back to those percentages. This is just a little spreadsheet problem, right? And if you don't know how to use a spreadsheet, open up Excel, open up Google Sheets, figure this out. It's not that complicated. If you truly can't figure it out. If you cannot use a spreadsheet, you honestly have no business managing your own portfolio. You need to go hire a financial planner. We have a list of good planners, good Investment managers@whitecoatinvestor.com Recommended you should hire one. But it's not that hard to figure out a spreadsheet. I mean, you got through medical school or dental school or law school or something, you can figure out a spreadsheet. You don't have to know everything about Excel to figure out a simple spreadsheet that will tell you how much to buy of one thing and how much to sell of another thing in order to rebalance your portfolio. All right, the second one, right? One is you rebalance based on time. The second one is you rebalance based on events. For example, your portfolio gets so out of whack, that's an event. Now it's time to rebalance. Okay, so here's how it works. A lot of people use what's called the 525 rule. So if any asset class is out of its target allocation by a gross 5%, right? So if you're saying you're supposed to have 30% in US stocks, and you have 35% in US stocks, that's a trigger to rebalance the entire portfolio. The 25 part is a relative 25. So, for example, let's say your portfolio calls for 10% in REITs, but REITs have fallen in value more than 25%. So now only 7.4% of your portfolio is in REITs. It's time to rebalance the portfolio. So those are kind of the two schools of thought. As far as time goes, you're not supposed to actually do it that frequently. The studies show that the best frequency for rebalancing is actually every one to three years. So you don't have to be doing this every month. It just doesn't matter that much. And you're probably hurting yourself. You're losing a little bit of the momentum of a typical asset class. Okay, so how do you do it? Well, first of all, it's generally not a good idea to have the exact same asset allocation in all of your accounts. You don't want to rebalance your accounts individually. You want to look at it all, all the money geared for retirement anyway as the whole enchilada, one big portfolio, and do it all together. Step two is make the chart. Make the chart in that spreadsheet, right? Maybe one column lists the asset classes. The next column lists your target allocation. The next column tells you your current allocation. And then the final column tells you the amount to buy and sell. And then the next thing you do is you got to do the actual put in the actual trades to rebalance. The first thing to consider, especially if you have a taxable account, I guess only if you have a taxable account, is any possible tax losses you can harvest. If you have money that is in a taxable account that has a loss, you're probably making a mistake. You should sell that investment and buy one very similar to it, but not, in the words of the irs, substantially identical. Right. And capture that tax loss. You'll find that useful on your taxes. Up to $3,000 a year of capital losses can be used against your regular income and an unlimited amount of capital losses against capital gains. And then the next thing you do is you use new contributions. And I'm halfway through my career, maybe more. I'm still just rebalancing with new contributions. I almost never sell anything to rebalance. I just aim the new contributions at whatever isn't doing very well. And you can do that. I'd say most of the time, certainly in the beginning, your contributions are going to be enough that you can do that. The next thing, particularly in a taxable account, if you don't reinvest your dividends and capital gains, you can use that money to rebalance. You do need to be careful about the cost of rebalancing, Right. If you're paying a bunch of commissions to do this, you want to minimize how often you're doing it. And beware of taxes, of course. When you can, you want to rebalance inside IRAs and 401 s tax protected accounts because there's no tax consequences to buying and selling there. Whereas if you sell something with a gain in your taxable account, there can be a substantial tax cost to doing that. Okay? Another thing to keep in mind with this rebalancing is don't go crazy about perfection, because the day after you rebalance, you're not going to be perfectly balanced. So does it really matter if you got perfectly balanced the day before? It really doesn't. So just get them back close to your original allocation. Really, a portfolio that's 60% stock is not going to perform significantly differently from one that's 61% stock. All right? So you don't have to go too crazy about doing this. You can also take advantage of automation. For example, if you only have a single investment account, all your money's in a Roth ira. For instance, you could use something like a Vanguard Target Retirement Account Fund or a Life Strategy Fund that will automatically do the rebalancing for you. Now, I wouldn't recommend that in a taxable account, but in a retirement account it works great and you never have to do the rebalancing yourself. Alright, hope that's helpful and taught you what you need to know about rebalancing your portfolio. If you're like most docs, nobody taught you anything about personal finance or investing during your undergraduate, professional school or residency. And even though your family and perhaps even your business relies on you to be the Chief Financial Officer, you've never been given the tools to succeed. But we'd like to give you the tools to succeed. Enroll in WCI Financial Boot Camp. This is a free educational email series. Kind of a 12 step program. There's 12 emails and it'll teach you how to convert your high income to wealth. You'll learn the basics of investing, saving, insurance and more. Your high income alone will not lead to financial success. But as always, we want to help you on your financial journey. So go to whitecoatinvestor.com financialbootcamp to sign up today. Don't forget, as I mentioned at the top of the podcast, if you're interested in that expert witness course, you can learn more. Whitecoatinvestor.com ExpertWitness like most of these online courses, there is some sort of a money back guarantee so you can kind of try before you buy and get your money back. So look into that and no risk to you. Check it out, see if it's right for you. If you're interested in doing an expert witness side gig. All right, that's it. That's it for this episode. Hope you enjoyed it as much as I did. It's been wonderful to be with you and I hope you enjoy this podcast listening to it as much as we enjoy making it to you kids in the audience. Hope you stuck it out and got to the very end and that your mom or dad lets you now listen to something a lot more interesting than this podcast. We'll see you next time on the Milestones Millionaire 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.