MtoM #226: Family Doc and PT Pay Off Student Loans and Finance 101: Debt vs. Investing

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This is Milestones to Millionaire podcast number 226. Family Doc and PT pay off their student loans. This podcast is sponsored by Bob Bayani at Protuity. He's an independent provider of disability insurance planning solutions to the medical community in every state and a longtime White Coat Investor sponsor. He specializes in working with residents and fellows earlier in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage or just need to get this critical insurance in place, contact bob@whitecoatinvestor.com Protuity. You can also email infootuity.com or you can call 973-771-9100. Welcome back to the Milestones Podcast. We want to feature you and your stories and use it to inspire others to do the same. You can apply@whitecoatinvestor.com Milestones also, by the way, those of you who need some help with your student loans, you're not sure what to do with them, especially with all the changes going on in Washington. Here's a deal for you. If you book a consult with studentloanadvice.com this is the company we started to help answer all these questions, you're going to get a free course. It's the continuing financial education 2024 course. It comes with CME. It's like 50 hours of content. It's a great course. Just because it says 24 doesn't mean it's like out of date. I mean, come on, what course actually goes out of date every year? Hardly anything, right? It's a great course. You get it for free when you book the console. The course itself is worth more than the consult costs, but we want you to get that advice if you need it. And if this sort of a deal entices you to do that, we want you to do so. But you know, just getting the advice might be worth thousands or even tens of thousands of dollars to you. So. So anybody that schedules a meeting with student loan advice between 1 June and 30 June, the consult doesn't have to occur during that time. It just has to be scheduled during June is going to get that course free. That's a $789 value. After their meeting, save hours of research and stress, get the answers to all of your student loan questions, let a professional guide you through the best options to manage your loans, and if you have questions afterward, you get your Free. Your answers, your questions answered for months afterward for free. All including the original flat rate for that consultation. That's@studentloanadvice.com. okay, we got a great interview today. As mentioned in the title, we've got a couple that paid off their student loans very quickly. You won't be surprised how they did it. We preach about it all the time here, but it really, really, really does work. So let's get into the interview. Our guests today on the Milestones to Millionaire podcast are. Megan, Shane. Welcome to the podcast, guys.

Thank you.

Thank you. All right, let's give a little bit of background information. Let's tell people where you live, what you do for a living, how far you are out of your school and training.

Sure. So we live in a small, rural mountain town in the southeast. I do family medicine and I do physical therapy, and I'm 22 months out of residency, so just shy of two years.

Okay. And Shane, how far are you out of school?

Just about three years now.

About three years. So about the same, really. Okay, so very cool. Now tell us what you've accomplished.

Yeah, we paid off our student loans and we have a positive net worth.

Awesome. Back to broke and no loans. That's pretty cool. So how much total did you have in student loans?

I had $195,000 for medical school, and Shane had about $90,000 from PT schools. So together, 285,000.

Okay, so. So that's actually pretty good, right? Considering what you've done. Those are probably slightly below average. What did you guys do during school to make sure you didn't rack up, you know, three, four, or $500,000 in student loans?

Yeah. So I actually ended up returning some of the money that was dispersed to me after doing some budgeting in med school, realizing I didn't need the full amount. I did that a couple times. We had very few financial lectures in med school, but there was one that stuck with me when the guy said, if you buy a $20 pizza now with loan money, by the time you pay it off, it's going to be like an $80 pizza.

Yeah, that's true. It's really depressing to run those numbers and realize that, but you do start spending differently. When you assuming you're paying back your student loans like you guys did, you start. You start thinking differently about those pizzas, don't you?

Oh, yeah.

And I worked.

You worked during school?

Yeah.

Yep.

Wasn't the funnest, but it helped in the long run, though.

Tell us about that. What did you do?

Well, I. When I changed. When I went back to school, I changed careers from firefighting to physical therapy. And I just wanted to be sure that I liked physical therapy. So I went in and I worked kind of in an office as a technician, just kind of helping around and. And doing it that way. And then I realized I could go to school and do that at the same time, even though it's a little tight at times, but. But I made it work and it really helped lower the amount of loans that I needed to take out. So.

That seems challenging. It seems like PT clinics are open the same hours that school is going on.

Pretty much, yeah.

But you worked it out and nobody threw you out of. Out of school or anything.

Yeah. School or work? Yeah, each. Everybody had to compromise a little bit, and I had to do a few extra hours here and there, but it worked out.

I can't help but think, given your background, that, you know, pulling a fire shift on the weekend might have been a better option. Did you consider that?

Well, if I didn't have, I. I got out of firefighting for an injury, otherwise I would have done that. It would have worked out pretty well with the way the shifts work and firehouse and everything and school and everything. But I'm had to do it the hard way.

Very cool. All right, well, listeners want the details. Tell us what your net worth is now and what it's made up of.

Sure. So our net worth now is a little over $300,000.

Okay, and break it down for me. How much is investments? How much is home equity, you know, et cetera?

So we rent. We have zero home equity. It's mostly investments. We've tried to max out our 403s and Roth IRAs since becoming attendings. Right. Shane had a decent IRA prior to us getting together. Savings accounts is less than investments. I don't know the exact amount, but we don't have any liabilities. We have no car loans, no student loans, no mortgage. So it's actually all.

You owe nothing. You're totally debt free.

Correct.

Awesome. That's pretty cool. Only three years. Two plus years. Not even two years for you out of training. That's pretty cool. Okay, give us a sense of what income looked like for you. I hear small town in the southeast, and I think, well, that might not be very well paid at all. And then other times I'm like, well, actually, some docs make a lot in small towns. What's your income look like over the last two to three years?

So with 20, 24 being the first full year out of residency at this job, I made about $225,000.

Okay. So that's probably if I looked at a family medicine salary survey. That's probably less than average. I would guess. Now your cost of living is probably much less than average, but certainly the answer was not income to how you guys did this so quickly. And how about you, Shane? How'd you do in small town physical therapy?

Yeah, I actually came out a little above average, around $80,000 last year.

So between the two of you, it's a $300,000 income or so. Okay, so tell us how you managed to pay off basically $300,000 on a $300,000 income in less than two years.

Yep. So, first, creating our financial plan and sticking to it was probably the biggest piece. What we decided to do was to figure out our monthly budget, and we were able to set aside $3,000 from every paycheck to a separate money market account, one that we don't really see or do anything with. And that's where we grew our student loan fund and let that sit there until we had enough to pay chunks off. I will say that we stuck pretty closely to a residency budget, spending about $6,000, give or take per month.

Mm.

So that we had that extra to put towards the loans.

Yeah. And anytime we came in under budget.

Well, that's boring. You just lived like a resident. And it worked, huh?

Pretty much, yeah.

Did you all hear that in podcast land? Living like a resident. Student loans gone in less than two years. That's all it took. All right, very cool. But you also were putting money away, it sounds like. Cause you've built substantially positive net worth. It didn't all go toward loans. How did you decide how to split it up, how much toward loans and how much toward investments?

So we kept our investments pretty consistent just with plans to max out the 403s and then have enough for the IRA to do the backdoor Roth. So that came out to be about 20%. It was 19.75 was our savings rate last year. Anything that we didn't spend from our monthly budget that was extra, we skimmed off the top and put into that separate money market account. And so that puffed it up a little bit. Besides just the six grand per month that was going in there.

And that was after we already kind of made a good emergency fund for ourselves and kind of stocked up for something like that. And then after that, it was certain amount for retirement and a certain amount for loans and anything else. Just went to loans.

So I mean, you wrote down a plan and you followed it?

We did, yeah.

That's boring too. Extremely effective, as you've now learned. Did either of you consider looking for a job that qualified for public service loan forgiveness or a contract program that would have helped pay for school because you were going to go to a small town or anything like that?

Thought about it, I didn't know for sure where I wanted to go after residency and so I never wanted to be stuck with having to go to a certain town or doing one of like the military tracks or something like that. So I left my doors open. Looking back, it would have been great to do the. So there's a two year program. I can't remember what it's called.

The, like the National Health Service Corps or something.

Yes, something like that would have been ideal for my situation. I have colleagues here that are doing it. But as far as the pslf, I couldn't do it mentally. I hate having debt hate. And it was something that I thought about on a daily basis were my student loans. And so I couldn't imagine carrying that for 10 years knowing that I owe something. So it came down to not as much necessarily the numbers and how they worked out, but I just, I couldn't do it.

Yeah, it would certainly be another five, five and a half years anyway. You'd done everything perfectly before you received that forgiveness. Now knowing the pathway you were going down or maybe you'd completed it by this time, how have you felt with all this discussion in the media, social media changes going on in Washington with the federal student loan program? How has just deciding to just pay our loans off made you feel when you heard those sorts of things going on?

It feels great. I love not having to think about it anymore and keep up with the latest news and redo my calculations in Excel spreadsheets, trying to figure out estimated time of having them paid off.

So.

So it's freed up a good bit of time and mental space.

Very cool. So if there's somebody else out there like you that wants to be rid of student loan debt within one and a half, two, three years coming out of school, what advice do you have for them?

I would say that you can still do it within a few years of graduating residency, even without being a high paid specialist. Don't forget to negotiate for your first job. And it starts with educating yourself and then based on that, creating your plan and sticking to it and staying motivated. So one of the things that helped me a ton was listening to these type of podcasts, and that kind of kept us motivated and going and then celebrating the small wins as they came.

Yeah, and just kind of making a game out of it, too. We. We both come from frugal backgrounds, I'll say. And we like to have a lot of fun. We do a lot of things. A ton of traveling even. Right after she finished residency, we took a month long road trip around the country and up to Canada and all that. And we enjoy sort of doing that while saving money. So trying to, you know, save money wherever we can meet up with friends, stay with them or. Or find a good hotel cost or find a good Taco Tuesday somewhere at a restaurant or something like that, where we were like. We enjoy that part of it. It's almost like a game to us. So that really, really helps along the way.

He has thrown some jokes about my frugality before. Like when I tear paper towels in half at home.

Yeah.

Yeah.

Even in quarters.

Yeah. Did he ever feel deprived over the course of that 20 months, though?

No, we've had a great time, like you said. We took a whole month off after residency just playing and actually worked way less than full time for three months after that. We took PRN jobs in Iowa just to be close to family, and I think I worked. Was it like nine hospital shifts a month for three months?

I think so, yes.

So we had a good time those three months. And then I've been having fun here in the mountains.

Yeah. And then if there's something that we want to do, we. We just kind of make it happen. You know, we'll let ourselves loosen up a little bit. You know, my weakness is, like, outdoor activities, so I'll get, you know, extra gear. And Meg's always pulling the reins on me a little bit from time to time, but it always works out.

You know, time spent biking or paddling or hiking can't be subtracted from your life. Right. You're aware of that.

Amen.

All right. Very cool. So it sounds like you guys were kind of on the same page from the beginning. No big money fights. No big. One person having to convince the other to do this. Wow.

I mean, maybe early on she got me on board with this. I hadn't really thought about it too much. She had done the research with your books and a few other resources and kind of convinced me, but it didn't take much, though. I like the idea of just kind of taking life kind of one thing at a time, whenever you can. And this is one of those things. I really enjoy the process and I'm glad that we're done with it.

I will say the conversation started before we got married as far as how we would do finances and decide to combine everything.

That would be good advice for some other people in our position, for sure.

Yeah, absolutely. That's great advice. Well, Megan, Shane, you should be very proud of yourselves. You have accomplished something very impressive and surprisingly not that commonly done. And hopefully it'll inspire some other people to do the same. Thanks so much for being willing to come on the podcast and share your story.

You bet. Thank you.

Thank you.

All right. I hope you enjoyed that interview. You know, we get feedback all the time. We're like, we need more regular people on the podcast. Not gazillionaires, not people with super high seven figure incomes or people that hit financial independence two years out of residency. Well, here's some real people. They did something that's completely reproducible. They went and got jobs. Right? In a reasonably small town, the jobs didn't even pay better than average in the case of the family doc. Right? This was less than average given family doc salary surveys I've looked at showing the average salary is like 275. Her job paid 225. But what did they do while they lived like a resident? Right. For two years. That was all. And not only did they pay off the loans, they built some significant wealth as well. Right? This stuff works. I don't want you living like a resident forever. Right? That's not the point. The point is to do it, to get a head start on your financial journey. Right? Knock out the student loans, save up a down payment, catch up to your college roommates with retirement savings and just kind of front load your financial life a little bit, and then you can grow into your income, at least 80% of your income. You still got to save something. And it'll be amazing because every year you'll feel wealthier and you'll be wealthier and every year gets better and better and better throughout your career and throughout your retirement. All right, I promised you, or I don't know if I did promise you. I probably didn't promise you at the top, but I wanted to talk today for a few minutes about debt versus investing. There are two really common questions that don't necessarily have right answers that we get in this community. The first one is, should I make Roth contributions or tax deferred contributions or should I do a Roth conversion? Okay, we're not going to talk about that one today. We're going to talk about the second most Common one, Maybe it's the first most common one. It's hard to say sometimes. And that's should you pay off your debt or should you invest? And there's no right answer, right? It's a great big fat. It depends. Let's talk about some of the things that it depends on. The first thing I want you to think about when you think about this question. Question though is that you probably ought to avoid the extremes, okay? For example, if somebody decides I hate debt, I'm going to pay off my mortgage before ever saving anything and they've got a 2.75% mortgage, right? That would be extreme to spend a decade or more paying off that mortgage with every bit of cash flow you can come up with and not invest in anything, meanwhile missing out on employer matches, missing out on tax protected growth, missing out on what are likely higher returns than 2.75%. Right? That would be an extreme thing to do. On the other hand, carrying around 30% credit card debt is extreme, right? That's a huge debt emergency. You ought to be running around like your hair's on fire. If you're carrying around credit card debt like that, right? And carrying that while trying to out invest your 30% credit card debt in your Roth IRA, it's probably not going to happen, right? So avoid the extremes when you're trying to figure this out and recognize that both of these things are good things, right? They both increase your net worth. The less you owe or the more you have, the higher your net worth. And that's the real measurement of wealth. It's everything you own minus everything you owe. Both paying off debt and investing increase your net worth. So don't beat yourself up on trying to get this exactly right. It doesn't have to be exactly right because they're both working toward the same thing. So here's seven principles to keep in mind when you're trying to decide whether to pay off your debt or invest the money. The first one's your attitude toward debt. Some people hate debt, right? I mean, we just heard from Meg, right? She hates debt. She does not like debt. She doesn't want to have debt. Getting rid of it quickly is very important to her. That's not the case for everybody. Other people are like, well, debt's a tool. And you know, as long as you have a reasonable amount of debt, debt with good terms, low interest rates, maybe it's not crazy to carry it for a little while while investing on the side, but you got to figure out your attitude toward debt because it Matters, right? This is personal finance. It's only 10% finance. The rest is personal. Number two is risk tolerance. Okay? One of the beautiful things about paying off debt is it's a guaranteed return, right? If you got 30% credit card debt, that's a guaranteed 30% return. But if you've got a 7% mortgage, it's a 7% guaranteed return. If you got 5.5% student loan, that's a 5.5% guaranteed return. Now, you might have to adjust it for taxes. Maybe your debt's tax deductible, and so it's a little bit less than whatever those percentages are, but it's guaranteed. And if you look around and look at other guaranteed investments, buying a Treasury bond for a couple of years or putting your money in a money market fund, well, what are those guaranteed things? Paying after tax. And sometimes your best guaranteed investment is just paying off your debt. So keep that in mind. All right. The next factor is your available investment accounts. Money just grows faster in a retirement account or an HSA or even a 529 or a UTMA than it does in a taxable account. Right? So what a lot of people do is they max out their accounts, you know, their retirement accounts, their backdoor Roth IRAs, and their 401k at work. And then everything else goes toward the debt because your returns are going to be a little bit lower when you're investing in a taxable account. And so that's the way a lot of people split the difference. Okay, the next factor, the fourth factor that you ought to be thinking about is what you're going to invest in. If you're going to invest in a bond fund and you've got 6% debt, well, paying off the debt's probably going to do better than that. On the other hand, this is the greatest investment you've ever seen. You're being offered sweetheart terms to get in on a dialysis center. Maybe you were okay carrying debt a little bit or even taking out some extra debt in order to be able to invest in that early in your career as a nephrologist. So the investment, you're going to put the money into matters. And the better the investment, the higher the expected returns, the more likely you should be to put money into the investment rather than paying off your debt. The fifth factor is the interest rate of the debt. Right. My next door neighbor who we had on this podcast not long ago, he's a radiologist. Remember the guy who took a year off? I think he's still got Student loans. He graduated with me in 2003. It's probably a four figure amount at this point, but he refinanced them back in 2003 at 0.9%. If you've got 0.9% debt, it's probably okay to carry that for a while and invest the money at 1, 2, 3, 4% debt, it's not that hard to out invest it in the long term. In fact, if you can't out invest those sorts of interest rates, you got to worry about reaching your financial goals as it is. So the interest rate does matter. As it gets into moderate interest rates, 5, 6, 7, 8%. Well then you got a little bit harder decision. Sometimes splitting the difference or even paying off the debt's the right move. And certainly if you get to high interest rates, right, you're paying 9, 10, 12, 30%. That debt becomes very attractive as an investment to pay it off. So the interest rate of the debt does matter. Okay. The sixth factor is how wealthy you are. At a certain point, as we built wealth, we started looking at our mortgage and I think at that point we owed $275,000 or something like that and the interest rate was like 2.75%. But it got to the point where that mortgage was not a significant factor in our financial life and we just wanted to simplify things. So we took a lump sum of money and went and dumped it on and paid off the mortgage. Because we are wealthy, we made a different decision than I think we would have made if our net worth had been 400,000. If, if our net worth had been 400,000, we wouldn't have taken 275 of it and paid off the mortgage. We probably would have carried that debt for a while and continued to invest. So how much wealth you have already probably matters in this decision. The last factor is the asset protection and estate planning factor, right? There are asset protection implications of having debt. For example, let's say you're in Florida or Texas, you have this great homestead protection for your house, right? Basically, if you got sued and had the above policy limits judgment and you had to declare bankruptcy, you get to keep your home, right? So in that case you might be more likely to pay off a mortgage than you would in a state like Utah where not that much of your home equity is protected. So those sorts of decisions can come in when you're trying to make this decision between paying off debt or investing. Here's another scenario, right? Let's say you've Got Grandpa, he's 85 years old, he's not in very good health and he's got very low basis on all of his taxable assets and he needs some money. So he's going to either pay a whole bunch of money in capital gains taxes to get that money, or he can borrow against it instead and actually have more debt. But the interest might be less than the capital gains taxes, especially if he's going to die in a few months or a few years and there's not that much time for the interest to really work. But those capital gains taxes would be paid all up front. So there's not always a right answer. You got to keep these seven factors in mind as you try to decide. You know what to do, but here's some general advice. Okay? If you're weighing these factors, first, get any employer match, right? If your employer is going to match your contributions in your 403 or your 401k, that's like part of your salary. Don't leave part of your salary on the table. Put enough into that account to get your employer match, even if it means you're going to be paying off your debt a little bit slower. Next, pay off your high interest debt, right? If it's 8% plus, that's a huge priority for me, right? Guaranteed returns of 8% plus, that's really attractive. So pay that stuff off first. Next, maybe max out your retirement accounts, right? Maybe it's tax deferred accounts. If you're in your peak earnings years, maybe it's tax tax free accounts in the other years. Although as I mentioned earlier, that's a very complicated decision to make. There's a lot of factors that go into that. Maybe include other types of accounts as well. HSAs and 529s and UTMAs, et cetera. But those are the next thing you may want to do. After that, look into assets with high expected returns. It doesn't make sense to carry around 5% debt and then have a bunch of money in a municipal bond fund in your taxable account. You're not going to make 5% on that after tax. So keep that in mind as you invest. Returns matter. But if you're going to carry a little bit of debt and buy a couple of rental properties, well, you're probably going to out invest your debt, at least over the long run. Next step would be paying off moderate interest rate debt and after that investing in assets with moderate expected returns and then pay off your low interest rate debt. And then finally invest in assets with low expected returns, right? So you're kind of going back and forth between the debt and between the investing as you work your way down depending on how attractive the investments are, especially if they're in, you know, tax protected accounts along with what the interest rate is of the debt, what the terms are of the debt. So it's complicated. You don't have to get it exactly right, but it should be individualized to your situation. Hope that's helpful to you in our discussion today about paying off debt versus Investing. Okay this podcast was sponsored by Bob Baiani at Protuity. That's P R O T U I T Y One listener sent us this review. Bob has been absolutely terrific to work with. Bob has always quickly and clearly communicated with me by both email and or telephone, with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications and underwriting process in a clear and professional manner. You can contact bob@whitecoatinvestor.com Protuity or you can email him at infoprotuity.com or you can just pick up the phone and call 973-771-9100. If you need disability insurance and you don't have disability insurance, go get it in place this week. It really is important. All right. Hope you're enjoying these podcasts. You can always send feedback to editorwhitecodeinvestor.com we appreciate all of you who filled out the annual survey this year. We really do read those responses and we change things based on what you say. So thank you so much for those of you who participated. Keep your head up and shoulders back. You've got this. We'll see you next time on the podcast.

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