MtoM #157: Dual Income Couple Pays Off Mortgage Among Other Financial Milestones and Finance 101: Dividend Investing

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 157. Dual income couple pays off mortgage, among other financial milestones. Still not sure what to do with your student loans? Overwhelmed with how to tackle that giant debt in an ever changing political climate, the experts@studentloanadvice.com are here to help guide you through the best options to manage your loans. Our experienced staff have consulted on over $250 million in student loan debt, and the average studentloadvice.com client has saved over $190,000. You will receive a customized student loan plan using the principles of the White Coat Investor. Get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. Book a consult today@studentloanadvice.com you can do this. The White Coat Investor can help. All right, it's good to be back with you. It's good to be here celebrating another milestone. This is the podcast where we celebrate what you've accomplished with you and use it to inspire others to do the same. If you'd like to be a guest on this, you can apply whitecoatinvestor.com milestones. By the way, if you're looking for the best credit cards out there, not to carry a balance on them, but for convenience, maybe to get a little bit of rewards back, maybe to get a little bit of protection on some purchases, that sort of a thing, we actually have a recommended credit card page now. It's@whitecoatinvestor.com creditcards. Check that out. Helps support the site if you apply for them through there. You can see some of the best credit cards on the market there. All right, we're gonna get into our interview now, but stick around afterward. We're gonna talk about what you need to know about dividends and about dividend investing. Let's get Susan on the line here and talk about all these milestones that she and her husband have accomplished. Our guest today on the Milestones to Millionaire podcast is Susan. Thanks for coming on the podcast.

My pleasure. I'm so excited.

Tell us what you've accomplished. Actually, I think there's multiple milestones here, but let's list them off.

Well, the main thing that I wanted to come on for is that we paid off our house. We paid off about $560,000 in the last four years, and in the process, we became completely debt free. We also cash flowed. A new Roof on our house. We paid cash for four cars, two for me and my husband, two for our teenagers, and we became millionaires and we became multimillionaires.

You've had a good run recently.

Yeah, it was worth it.

Yeah, that's pretty cool. You could have brought any one of those to this podcast and we would have celebrated it with you. And you have accomplished all of them in the relatively recent past, it sounds like.

Yeah, the whole thing, the debt free, we started about five years ago. So the house, we paid off our student loans and our cars. And then four years ago, we decided to start on our house.

So was this a conscious decision? You're like, we don't like debt. We want to get rid of debt. We're going to pay it off.

Yeah, we kind of, you know, we graduated over 20 years ago, 20 years out of residency. My husband's 16 years out of fellowship. He's a cardiologist. And we were 10 years at our attending jobs. And I always run the numbers every month, keep track of our net worth and our spending. And I realized that we really didn't have. We had like almost a million dollars in assets, but our net worth was barely positive, and it didn't make any sense to me. We were making attending salaries for 10 years. So we kind of did some soul searching and realized that it was our debt payments. You know, our student loans had an interest rate of 0.8% when we came out in 2001. So we were given the advice never to pay them off early because they were so low interest. But there we found ourselves 17 years out of med school and we were still making a $1,500 a month payment. Payments on other stuff, we never had credit card debt, and we were always savers. So I really expected us to be a little further ahead. So we decided to do the snowball method. And we paid off all of our student loans, our consumer debt. It only took about nine months. And then we were starting to think about saving for our kids college, which was coming up in the next five years. And I had an idea that if we continued on the, you know, to be debt free, if we paid off a house, we could cash flow our three kids in college at the same time using the mortgage money. So we pretty much worked backwards, saw how much, you know, we needed to pay off, found little spots of, you know, revenue that we get through our work, and we kind of allocated it towards the house. And as we did, it kind of got faster and faster. We got kind of stronger and stronger at it. And, yeah, we paid it off pretty quickly.

Yeah. It's amazing when these dominoes start falling, how quickly the next ones come, isn't it?

Yeah. Yeah. And you kind of get stronger and stronger, more disciplined, I guess, over time, seeing the goal at the finish line.

Yeah. So 10 years, essentially, to get back to broke or a little bit beyond.

Yeah, basically, I think it was.

How depressing was that to add it all up, 10 years out of residency and realize that you were basically still broke?

It was pretty shocking, especially because our assets, we had saved. Our 401k balances were high. We had savings, but it was the debt. In the end, we realized that that was the thing holding us back. And I still believe that's definitely true based on everything we accomplished in the last five years.

And so you've made mindset shift. You pay cash for stuff. You still buy stuff. We do, you save up for it.

Yeah.

And so now interest works in your favor instead of against you.

Exactly. Our house, our mortgage interest was 4.3%. So we kind of reasoned during the pandemic that that was a pretty good return on our money, you know?

Yeah. Back then, when you can only make 1.1percent in a high yield savings account, 4% is pretty good return.

Exactly. And the other thing is that I guess I didn't calculate that, you know, saving 4,000 or 30 500amonth in a mortgage payment is one thing, but we were saving so much every month, putting it towards the house, I forgot that we were going to have that money back as well.

Yeah. Pretty cool.

So we wound up with a lot more on our cash flow than I actually predicted in the beginning.

Yeah, it's pretty awesome how much money you have to spend or invest or do whatever with when you don't have payments.

Exactly.

You're both docs.

Yeah, he's a cardiologist and I'm a family doc.

Okay. So range of income throughout your careers, total household income, what do you think it's been throughout our careers?

Yeah. About 400 to 600.

400 to 600 throughout your career?

Yeah, I work part time. Yeah.

All right.

I've always worked part time.

Okay. Very cool. And so I'm guessing, based on how this has worked out, that you're actually spending less now than you used to.

Yes, that's exactly right.

Or at least over the last four years, you were spending less than you were in the 10 years prior to that.

Yes, exactly.

Did you feel like you were being punished? Did you feel like you were struggling? Did you feel like this was a big sacrifice to change your lifestyle in that way.

Not at all. I mean, I think originally we. We've always been more savers and spenders, naturally, so that's fine.

But what.

What? I. I never could really budget. I would just do. I have a spreadsheet of what we spent, but we never budgeted in advance. So I started using an app, every dollar. And that really helped us actually find more money to both pay down debt and do the other stuff with. I mean, we put a $76,000 roof on our house a year and a half ago, and we cash flowed it. And I use the app to make sinking funds and just kind of save up and kind of knew when we were ready to do it. And so we actually felt like we found more money, believe it or not, instead of cutting back, we really didn't deny ourselves. We went on vacation. We have a housekeeper. We didn't really deny ourselves. But, yeah, we did kind of see where the dollars were going, and we did feel like looking at it actually helped us optimize where the money was going.

Yeah, I mean, the dollars were there before, right? Yeah. It's not like you found them out of thin air. You stopped spending on something you didn't care about that wasn't affecting your life, that wasn't making you happier.

Exactly.

And told those dollars where to go.

And the pandemic helped because we got big refunds from trips that we had had planned, and we decided to, you know, to make something happy out of a sad, canceled trip, and we were going to put that money towards the house, and it kind of accelerated things for sure.

Yeah. Very cool. Yeah, it's amazing. If you spend a lot on travel and then you can't travel, it does free up a lot of money in your budget, for sure.

Yeah.

Okay, so it sounds to me like you're the finance person in this couple. Am I right?

That is true.

Okay, so I'm guessing that you kind of came to this realization and there was some sort of a conversation involving maybe convincing your spouse. Can you tell me how that went?

Well, we've always pretty much been on the same track. Even when we graduated med school back then, we didn't have you. So we would sit in Barnes and Noble and take all the personal finance books we could and, you know, kind of read up on them. So we've always had an interest. And it wasn't until I started listening to you and, you know, using the budgeting app and things like that and kind of opened my eyes to what we thought we could do. My husband was always on board with paying off the debt. It wasn't something he was bothering me about, but when I pointed it out, he saw the logic in it and completely agreed. And then we were pretty much on board when I said, hey, what do you think of this idea? If we pay off the house, we'll have the money to cash flow to college for three kids at the same time and also be debt free. And he just jumped right on board and said, yes, sure, let's do it.

It sounds like it was a pretty easy conversation then.

It was not hard. Yeah.

So what was your mortgage payment? Do you remember?

Yeah, the mortgage payment. Well, it included the escrow, so it was about $5,000 a month. And it was going to increase because of, you know, the insurance rates going up. It was going to increase to about 5,500, but our actual principal was about 3,500amonth.

And how much did you owe four years ago?

Four years ago we owed like 560,000.

560,000 four years ago and your payment was 5,000. So how much did you actually pay every month to the mortgage? And how did that change over the four years?

Yeah, it was about, I mean we started off slow. The first year I think we paid probably 2 or 4,000 just to kind of get started until I could see where the money was going to come from each month and how we were going to allocate it. And then we were doing like 10 or $11,000 a month in the last, in the middle two years. And then this year it was probably like 2 or 4,000. It wasn't too hard.

And then a few lump sums along the way. It sounds like.

Yeah, I mean we're both small business owners, so we get, we own our own business and we get distribution. So we would kind of allocate from the lump su and we would also do a little bit cash flow each month. Little combination.

Very cool. Okay, so now you're multimillionaires?

Basically, yes.

So tell us about your net worth. I mean some of that's a paid off house. But how's the rest of your net worth broken down?

Yeah, the net worth, it's half the house, I guess, and half are mostly. Our retirement is about 1.3 million now. 401ks and Roth IRAs. And we've got about 160 in cash and we saved up about 300 for the kids, for college. In the end we did wind up saving some for them.

Funny how that works. The big debate I Run into in my email box on the forums, the subreddit, the Facebook group is should I pay down debt or invest? And the truth is the people that are winning, they're doing both. They're paying down debt and they're investing. You know, and if you're finding yourself in that situation where it's either or, you probably need to carve out a bigger chunk of your income to build wealth with.

Yeah, I mean, we did the snowball method and once we were done with the regular debt, we basically, you know, we maxed that. We were maxing out most of the time, maxing out our 401ks and retirement. And then we started putting money into the kids college until we realized, hey, there's 300 in there. So we could probably stop and start putting some of that money towards the house too.

Yeah, absolutely. It sounds like their college is going to be well taken care of.

Yeah.

All right, well, so is anybody out there, you know, supporting you in this? Anybody cheerleading for you? Did you keep this just to yourselves or did you share this with family or friends or.

Yeah, I mean, we live in an area where debt is, you know, well loved. And the credit card game is the number one topic of conversation at dinner parties. So that was part of why I wanted to come on because I guess your audience and talking to you, that's someone that can really understand. There's a lot of people can't really understand and they think it's weird, which it might be a little odd, but yeah, we're super excited. Only really our families knew and our kids were very excited. They wanted us to kind of announce it or do something like a debt free screen, that kind of thing.

Cool, cool. It sounds like you've had a little bit of Dave Ramsey influence there. You make your kids listen to the show.

Yeah, back in the day when we were trying to pay off our regular debt. Yeah, we did listen to the podcast and the kids, they know about the Dave Ramsey method and. Yeah, just setting them up for the future too.

How old are they?

19 and 2. Soon to be 17 year olds.

Okay, so they're on the verge of leaving home and what do you think they're going to take from being present in your lives when you kind of took control of your money in this way?

Well, I see it in my daughter already. She left to college and ironically she got a full scholarship to her school, so we didn't have to worry as much. But I see them knowing that when you have money, save a little bit of it, enjoy it. If you can, but don't rack up debt and don't owe anyone anything because you're better off. You'll move a little faster if you don't start off with payments and things like that.

All right, what advice do you have? Somebody out there that's sitting there, you know, mid career maybe they're 10 years out of residency, they don't feel like they're moving, they've got a little bit in saving, they've still got some student loans, maybe they got a car loan, they got a mortgage. And you know, all their friends talk about credit cards at dinner parties. What advice do you have for them?

I mean, I would say it's not too late and the earlier you start, the better. Obviously, you know, very cool. And being on board with your spouse and maybe not coveting things, but, you know, finding contentedness within yourself and, you know, pride in the things that you can accomplish without, you know, without any help or outside, you know, inheritance or anything is something that feels really good.

So what's next in your financial goals?

Well, we, we just started a taxable account for our retirement. My husband just turned 50, so we're, we're, you know, looking at maybe I work part time and it work, it's great. We're looking at him maybe backing off of a couple, you know, call situations and extra work that he does to make things, you know, to let him decide if he wants to stay in practice for the next 15 years or not.

Yeah, it's pretty awesome. Pretty awesome to have work become optional in your life or at least full time work.

Yes, exactly.

Awesome. Well, congratulations to you, Susan. You should be very proud of what you guys have accomplished.

Thank you.

You know, five, six, eight, whatever they are, milestones that you've done that we're talking about today. You're clearly winning and you should be proud of yourself. We're proud of you. And thanks for coming on the show and encouraging others to do the same.

Thank you so much. I really appreciate it.

All right. I hope you enjoyed that. The part I love about that interview was that it all kind of kicked in at mid career because I run into lots of people that feel like they got a late start. And the truth is it's never too late to do something to improve your finances. And when you have a big shovel like doctors do, particularly a two doc couple, you can do amazing things at any time. You know, even if you didn't do them right in the beginning, you can still do it now. And there is a whole bunch of whatever you Want to call it in your budget, slack, flack crap, whatever that you can find money from and take money from things that don't matter that much to you and put it toward things that do matter to you. Maybe you need one of these apps out there, like you need a budget or every dollar one of these apps to help you find it, to help you bud budget, and to help you realign your spending with what you actually care about. But you can do it. Susan did it. And you can do it, too. All right, I promised you we were going to talk about dividend investing. And, you know, this is something you hear all the time out there from these people that love dividends. All right, well, you know, maybe you shouldn't be that excited to get dividends. I actually still do get excited when I get dividends. The ETFs and mutual funds I invest in pay dividends. And in the taxable account, that's money we could use to live off of. I mean, we could live just off of our dividend income. And some people get excited about building a portfolio of dividend stocks that could provide that same thing for them. But getting a dividend really shouldn't be that exciting. You see, a company, a stock, that's what a company is. That's what a stock is, is a company. They have a choice of what to do with their profits. They can keep it in the company, find some way to reinvest it and make money off it and the value of the company goes up. Or they can send it to the owners. It's the same decision I have every month with the white coat investor. White coat investor makes some profits. I can figure out a way to reinvest that. Maybe we buy some advertising, maybe we hire somebody else to help, those sorts of things. Or I can take it as a dividend. It's the same thing that every CEO and every publicly traded company across the country has to make that decision every year. Are we going to pay out dividends or we're not going to pay out dividends? And so the company's doing exactly the same whether they send you a dividend or not. Right. They make the same amount of money. The problem with getting a dividend is you have to pay taxes on it, at least if you're investing outside of a retirement account. So rather than being able to choose, when you take money out of the investment by selling a few shares of it, you're forced to take money out of the investment and in a taxable account, pay taxes on it. Hard to be excited about paying taxes on income that you don't actually need yet. And so that's why maybe getting a dividend shouldn't be really all that exciting. But people get super excited about it out there. You know, I think the issue is they start looking at those dividends and they compare what's coming in in dividends to what they're actually spending. And they figure when the dividends equal what they're spending now, they're free. They don't have to work anymore. But the truth is they're probably free long before the dividends equal what they're spending. Because the stock market these days has a dividend yield of something like 1.5%. And so if you wait until you can live off just the dividends, instead of a 4% sort of withdrawal from the portfolio, you will actually have a portfolio that's over twice as large. That's going to take you another decade to acquire. You will have over saved. And so that is the main issue with dividend investing. If you are committed to only spending your dividends. I want to be your heir, right, Because I'm going to inherit a whole lot of money. On average, taking 4% out of a portfolio every year after 30 years, on average, the portfolio is 2.7x the value of the original portfolio. If you're Only taking out 1.5%, you can imagine how much larger that portfolio was than what it started with when you retired. But the bigger problem than just over saving, the bigger problem is people start looking for investments that pay out more than 1.5%. So they find a stock that pays 5% or 6% or 3.5% or whatever, and they preferentially invest just in those stocks. And the problem when you do that is you start taking on uncompensated risk. You're no longer diversified. You're taking risks that you're not being paid to take. And you know, it can also cause a lot of people to fail to even look at their total return, which is really what matters, because there are investments out there that will pay you more income than they're actually making. So if the return on the investment is 5% and it's paying you 8%, your investment is shrinking as you go along. That is not a sustainable situation long term. And so you got to be careful about that. A lot of people sometimes also mistake dividend stocks for bonds, right? Yeah. A stock pays a dividend, and that's income. And bonds pay coupon payments, these interest payments, and that's income, but they're not the same thing. Dividend stocks can drop dramatically in value. The stock can stop paying a dividend. It is not the same thing. There's a lot more risk and owning a stock, even if it pays a dividend than there is in owning a bond. You know, the truth is buying dividend stocks is really just kind of tilting your portfolio toward value stocks. And it turns out there's a lot more efficient ways to get a value tilt in your portfolio than investing in dividend stocks. Preferentially, you can just buy a value stock index fund. You will have a higher dividend yield, you'll have a similar tilt to your portfolio. You'll have, you will have similar portfolio performance. And you don't have to go out there and select individual dividend stocks, much less a dividend focused mutual fund. You know, the counter argument to this is that, well, if the C suite of the company has to pay a dividend, they'll manage the company better. And maybe there's a little bit of truth to that, but that's, you know, long term, when you look at the entire market, that's really not a factor that causes you to do better. By focusing on dividend stocks, all you're really getting is a value tilt. And this is not the best or most efficient way to do that, according to the studies. This doesn't necessarily hurt you so much in a tax protected account like a 401 or an HSA or 529, but in a taxable account, you're paying more taxes than you have to. If you are focusing on dividend stocks exclusively, hope that's helpful to you as you design your portfolio and don't get lured by the siren call of dividend stock investing. If you're still not sure what to do with your student loans or you're overwhelmed with how to tackle that giant debt in an ever changing political climate, check out what the experts at Student Loan Advice can do for you. They're here to guide you through the best options to manage your loans. They've consulted on over $250 million in student loan debt and the average client has saved over $190,000. You get a customized student loan plan using the principles of the white coat investor, get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. You can book a consult today at www.studentloanadvice.com. all right, we've come to the end of another episode. We'd love to hear what you thought about it. You can email us editoritecodeinvestor.com Better yet, leave us a five star review. Those five star reviews help spread the word about this. Of course. If you don't like something, send me the email. If you do like something, put it in a five star review. If you'd like to come on the podcast, Whitecoatinvestor.com Milestones is where you apply. Keep your head up and shoulders back. Keep knocking out those dividend, those dividends, those milestones. I mean knock out the dividends too, but especially knock out the milestones. We'll celebrate them with you. We'll encourage you onto the next one and and you'll inspire someone else to do the same. See you next time on the Milestones to 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.