MtoM #94 - ER Doc Pays Off Student Loans In 18 Months

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 94. Emergency physician pays off student loans in a year and a half. I estimate that 80% of doctors need, want, and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. This is the Milestones to Millionaire podcast. That means it's all about you and what you've accomplished. And we love to bring people on the podcast and celebrate their accomplishments with them and use those accomplishments to inspire you to do the same. So whatever financial accomplishment or milestone you've reached, no matter how big or how small, we'd like you to come on the podcast and talk about it with us. You can apply@whitecoatinvestor.com Milestones. We've got a great guest on today who's near and dear to our hearts. Let's get him on the line. All right, our guest today on the Milestones to Millionaire podcast is Jake. Welcome to the podcast.

Thanks for having me, Jim. Happy to be here.

Always great to have a WCI family member here. Jake is a partner of one of our staff members, and you may have had a chance to meet him at the WCI conference last year. But he has reached a milestone and it's time to celebrate it, especially since he reached it so early in his career. Before we get into the milestone, tell us a little bit about you. Tell us about your profession, how far you are out of training.

So I am an emergency physician in Madison, Wisconsin. Right now. I am about a year and a half out of training now.

Okay, and what are we celebrating today?

I paid off my loans.

All right?

So I am loan free at this point.

Congratulations. And tell us how much you paid off.

I Left training with 181,000. I paid. Paid that off now in a year and a half. I guess I should note that there's a little asterisk next to that. Based on my income for the years that the government's counting for the forgiveness, I qualify for 10,000 in forgiveness. So I've paid off all but 10,000. But I took your advice and have a side fund with 10,000 in it where if it falls through, I can just pay it off.

Well, I got bad news for you. I don't know if you've been following the news or not, but there are now two judges that have basically said this is not constitutional. So I imagine it's going to go all the way to the Supreme Court. And I can't imagine given their current makeup that this is going to get through the Supreme Court. So you may want to watch a few more months, but I'll bet you end up using that side fund.

Yeah. Backup plan in place?

Yeah. So how much did you have when you left school?

I think I left with about 190,000 and I didn't use all of it. Everything that was distributed to me from the government. So after my semesters were done and I had money left over, I just give it back. So that's how it went down from about 190 to 181.

You didn't decide to save it for moving expenses or a new car in residency or anything like that?

No, I didn't. I just gave it back.

So this is less than average. The average debt for an MD coming out right now is about 205 and it's been around there for the last few years. It's 240 or 250 or so for DOs and 260 or 270 for dentists. How did you end up having less than average? What was your secret there?

Well, I went to an in state public medical school with a pretty reasonable tuition. Of all the options, it was the most affordable medical school. And I didn't base my medical school decision based solely on the tuition. But I'm very happy with the school I chose. I got a great education and I happened to benefit from the low tuition as well. I also didn't take out more than I needed. Well, I guess when I did, I just gave it back. So I minimized my debt to the best of my ability throughout my education.

Did you have some other source of income? Did you save up a bunch of money beforehand? Did your parents help you? Did you work during medical school? Or did you literally borrow the entire cost of your education and all of your living expenses for four years during.

Medical school, I borrowed the entire cost of my education and living expenses. I did not enter medical school with undergraduate debt, though I was able to work throughout college, get scholarship money and my parents helped me cover the rest. So I'm very thankful for them for that.

But when it came to medical school, they said, you're on your own.

Absolutely, yeah.

All right, well, tell us about your income the last year, year and a half that it took you to pay off these loans.

So Lauren and I have, for simplicity, functionally combined our finances so I can give you our household income and my individual number for this year. We're on track to make 434 gross of that minus 309. I'm currently a partner track with my group in the Madison area and Lauren obviously works for wci. Cool.

Nothing else coming in? No inheritance? No trust fund money? You didn't sell a business or a house or anything like that?

No. No other additional sources of income?

You just went to work and saw patients?

Yeah. The holidays are coming up. I suppose I can ask my family where that inheritance I never got is, but.

Okay. So basically half of your income for the last year, year and a half went toward paying off your loans, it sounds like. Is that right?

Yes.

So how did you do that?

We did not inflate our lifestyle much at all. We are continuing to live like residents, to use the phrase that is so often repeated on this podcast. But it's true. I mean, I'm very happy with my current living situation. We loosened the purse strings maybe like 10%, I think our spending went up, but we don't feel restricted at all. And the excess just went towards getting out of debt.

So did it turn out to be easier or harder than you thought it would be when you walked out of residency?

It was. It was as simple as I thought it would be, but I wouldn't say it's easy. There's certainly a temptation to buy a new car and trade in that junker 2003 Corolla. I've been driving around since 2006, but it's running perfectly fine. And I guess I don't value cars, so I didn't really feel the need to spend on that. We really got into budgeting too, and I found that to be pretty liberating process before I took the white Coat investor course. Actually, budgeting was sort of a dreaded word that I hated doing every month because it felt restrictive and almost punishing. But got a software called you need a budget and every month it's kind of fun. You get to take the money you have and give every dollar a job. And the excess I got to see every month just go towards my loans. And that was motivating for the next month to not so much Restrict my spending, but be mindful of only spending on things that bring us joy.

So what was the biggest sacrifice you felt like you made over the last year, year and a half by sending half your income to your student loan lender?

I really don't feel like I sacrificed much of anything, to be honest. This has been like the best year of my life. I feel like I'm working less, I'm getting paid more than I was as a resident. I'm now out of debt and I don't feel like I had to restrict my quality of life whatsoever. I wish I had a better answer for you there, but I don't think I sacrificed anything.

Well, that's beautiful because that's the best way to do it. And you know what, that's kind of the message I tell people is you really don't have to make a huge sacrifice given your high income. You just have to do a few things right and all of a sudden you're winning with money. So, okay, well what now? I mean, what you basically you went crazy intense on these student loans for the last year, year and a half, and now you've got this high income and no payments. At least student loan payments. What are you going to do with that income now?

Well, I think now I can trade in that 2003 junker Corolla I've been driving around and not so much because I value cars, but because I just need reliable transportation to. To get to work. So I'll probably get a car in the next six months. Hopefully I have a better time with that than you with that truck you ordered.

Yeah, good luck with that. I just got mine delayed another eight months, so it might be 20 months for me to get a truck.

Oh, Lord. After getting reliable transportation, we'll probably start a taxable account. Currently all of our savings are in tax advantaged accounts. So once we maximize all those benefits, we'll probably start saving in a taxable account. And Lauren and I are going to take the real estate course and see how that might fit into our portfolio. I'm completely ignorant into that space right now, so I just want to learn more and perhaps direct some of our savings into that.

Awesome. You know, there's a lot of people out there who say you should carry your student loans and invest in something with a higher return than your student loan interest rate. Did you do any of that along the way? If so, what do you think about that advice?

I guess it's a math equation and if it works out, then great. Different strokes for different folks. I suppose for me, behaviorally, that did not work. I just want it to be debt free and experience essentially how I'm feeling right now. Very liberating. But I guess, long story short, the math works out if you can invest at a higher rate than your loans are at. But I was perfectly comfortable just paying off my loans at 6%, which is what they were essentially all at. Getting out of debt and feeling great like I am right now. Behaviorally, that strategy just wasn't for me.

How about those people in medical school that are scared to go to medical school, scared to borrow all this money because they're worried they'll never be able to pay it back? What advice do you have for that person?

I would tell them to go to the most affordable medical school that allows them to achieve their goals and not to borrow more than they need. Start thinking about personal finance early on and create a plan. I guess I give a plug for either becoming your med school's WCI ambassador or finding the person who is getting the book and reading it. That's what I did in medical school and that's sort of how I got into all of this. And then once you're out of medical school, develop good habits in residency and balance so that once you in your first year out, like me, you can redirect your increase in salary towards wealth building, paying off student loans, and you won't feel restricted.

Awesome. Well, Jake, congratulations on your success. You've done something pretty awesome that not very many doctors do to wipe that debt out right away early in your career and give yourself options. Give yourself free income to use however you like, whether that's spending or saving or giving or whatever. It's pretty awesome to feel that freedom. And I can just see this weight that's come off of you and opportunity that sits in front of you, and that's pretty awesome. So congratulations on your success. Thank you for coming on the Milestones to Millionaire podcast and using your experience to inspire others to do the same. And best of luck on your future financial goals.

Thanks for having me, Jim.

All right. It's always fun to have a member of the WCI family on the Milestones podcast. You know, we're real people here. We have financial milestones, too. And the beautiful thing, of course, is that, you know, we're a little more willing to actually come on the podcast if we're associated with the white coat investor. But we'd love to have all kinds of people on the podcast. You can apply@whitecoatinvestor.com Milestones but I think this is episode demonstrates a few things. One, that is not that hard. It's not that hard to pay off your student loans. And the beautiful thing about knocking out your student loans within 2, 3, 4, 5 years is that it's a great trial run for financial independence. If you can pay off your student loans in less than five years, you can become financially independent in less than 15. It's the same financial muscles you're using, it's the same technique. And so it's beautiful, I think, to do it early in your career and really develop those skills and that knowledge base and that financial literacy and discipline that will allow you to be financially successful the rest of your life. I estimate that 80% of doctors need, want and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors atWhite Coat Investor.com Financial Advisors. You can do this and the White Code Investor can help. All right, we'll see you next week on the Milestones podcast. Until then, keep your head up, shoulders back. You've got this and we can help.

The hosts of the White Code Investor podcast are not licensed accountants, attorneys or financial advisors. This podcast is free 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.