MtoM #95 - Emergency Doc is Back to Broke

This is the White Coat Investor Podcast. Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.

Milestones to Millionaire podcast number 95. Emergency physician gets back to broke.

At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this, and the White Coat Investor can help.

All right, we got a fellow emergency physician on the podcast today. I'm excited to get on. He accomplished something great. Let's hear about it. Our guest on today's Milestones to Millionaire podcast is Joel, an emergency medicine physician in a second year of practice out of residency. Welcome to the podcast, Joel.

Thanks for having me.

Now, it took us a few months to get you on here from the time you applied, but the milestone you reached when you applied was getting back to broke. I think you said in your application that your net worth was $1,300. So congratulations to you on getting back to broke so quickly.

Yeah, thanks.

Let's dive into the details. Let's start with the. With the numbers. How much debt did you have when you came out of your training?

So, well, we had a mortgage at the time. I probably went a little bit against what advice you would have given us, but we were pretty sure we were going to stay in the same place that we were in for residency that same town. So we actually purchased the house about, I think it was 160,000 on the mortgage initially down to 150,000, and we had 230,000 student loans. When I first graduated from med school, finishing residency, got that down about. I think it was about 215 or so. Like 210, 215 somewhere in that vicinity.

Three years of residency and you move the needle by 15 or 20,000. Isn't that amazing? All that hard work and that's all it moved and then, you know, you get out and all of a sudden things start moving really quickly.

Yeah, it was. And a lot of that was with sign on bonus. Decided to put quite a bit of that towards the interest that accumulated during residency or sorry, not during residency, during med school, all the interest that I accumulated, they wanted to capitalize. So put it on that.

Did you calculate your net worth when you walked out of residency?

It was, I think it was around negative 200,000 or so.

Negative $200,000. That's actually not bad. I don't know what order these episodes are going to run in, but I recorded one earlier morning with a doc who owed $780,000 in student loans when she walked out of residency. So it can certainly be much worse than what you faced. All right, so let's talk about, you know, let's talk about income.

You're.

You're an emergency doc, so you have a pretty decent income. Are you an employee? Are you in a partnership track? What, what, what are you doing this year?

Yeah, so right now W2 so on a partnership track, but it's, it's a little bit more, a little bit longer track. So it's about a five year track buy in. So I don't make less money to get there. We make the same amount as everybody else. We still get some of the like, you know, matching. It's not like a technically a 401k match. It's more of a. It's basically all voluntary contribution that our employer makes to our 401k.

You're allowed to match yourself. It sounds like pretty close.

Yeah. Yeah.

I had a similar situation when I was a pre partner. It's basically a carve out for highly paid employees. Sounds like you're in that carve out.

Yeah. And then we get cash balance plan too. So.

So approximately how much income in that first year out?

So half of half the year was like 107. No, a little over 200,000. It was like 210. 220,000 for the first six months plus then the 30,000 we made in residency.

Okay. You were working pretty hard.

Yeah, well, I think I was doing 140 hours a month, so not too bad.

Yeah, that's, that's, you know, 12.

12.

I guess that's full time. Ish.

Yeah. Yeah.

All right.

About that.

And is there a partner involved? Are you married?

Yep. Yeah. Married. We have. Well now we have two kids. I just had one that arrived about a month ago, so. Had one, had our first one intern year. Had one One child intern year, and then my wife just stays home with the kids.

Okay, so we're only dealing with your income here, it sounds like.

Yep, correct. My income's varied a lot from going all the way back. I actually didn't go straight through. It's actually a finance major in undergrad and then came out and worked as a bank teller because I was a. I graduated in 2010. That put some perspective on it. So there wasn't really much in the finance realm for me.

Okay. Okay, very nice. And let's break it down now. Let's break down where you're sitting. It's been, you know, a year, year and a half. Whatever your most recent, you know, calculation has been. Where do your assets sit at now and where do your liabilities sit at now?

I had to go back and just double check it down here. So from a liability standpoint, we just bought a new house too. Bought my doctor house, finally decided to go ahead and do that. We were in a pretty good spot and rates were starting to rise. Decided that's about as good a time as any. And we really get out, get our house sold pretty easily, too. So we have about just under 200,000 student loans, like 195. I still have 15,000 on a car. One car loan, the other car is paid off. Just actually bought a new car, cash. And then my wife still has 5,000 student loans. And then we have home equity right now, about 90,000 in our current home. It was a doctor loan, so I didn't have to technically pay any money down, but we had saved up a little bit and then took the equity we had in the other home, rolled that over, and then We've got about 155,000 total in the investment accounts. That basically breaks down about 65,000 in Roth, 35,000 tax deferred, and then the remainder in taxable net worth ends up being about $110,000. Okay.

So, I mean, you build wealth. The student loans aren't gone by any means. It sounds like you took more of a perspective that you're going to invest more rather than try to take the loans in a corner and drop an anvil on them.

How?

Yeah, how did you guys make that decision of how you were going to balance paying off debt versus investing?

I refinanced on March 8, and I got a 1.55% interest rate on my student loans.

That's awfully good for seven years. Yeah, it's awfully good. With inflation at 8% and, you know, five year treasury yielding 4% or something like that?

Yeah, that's, that's why we're doing it that way.

Yeah. Okay. All right. It makes sense. Okay. And you know, you've obviously carved a lot of your income out to build some wealth. You know, you just bought a doctor house. So you're spending a little bit more money now. But what were you living on up until that point?

Oh, we were probably. So we'd lived on, you know, 60,000 and we were actually saving even a little bit during residency. We'd saved up about 10,000 over the three years in residency. So we did about 10,000 up into the 401k during residency, and then we saved maybe another 6,000 kind of as emergency savings too, over that time frame. So, you know, we just kind of, we're doing a little bit of saving. I think we increased it to about 80,000 in, you know, living expenses last year before we, you know, bought the doctor house over the summer here.

So, you know, it's a little bit of a race, but 25% or something like that. Gave yourself 25% rays.

That's what we have to figure out.

Did that feel good? Did that feel like, hey, we got all kinds of money now. What'd that feel like to give yourself a little raise?

It felt pretty good, actually. We did a little bit more traveling. Not a ton more, but some more traveling. Got to go, you know, spend a lot more time, you know, in other cities nearby us and got to spend more time with family and things and just, just felt like we had a little bit more freedom with things, which was really nice.

Did you get any other help here? I mean, did your parents pay for your school? Did you get an inheritance from a long lost uncle? Or was it basically just you went and saw patients in the ER and that's how you're building wealth?

That's basically it. I think I had seven. So when I was started college in 2006, I had a 14,000 and a 529. It was going to be saved for my junior and senior year for off campus living expenses. And then the bear market hit and it went to 7,000 and I still had to take the money out. So that was, that was the sum total of my, you know, if you want to call it an inheritance, but that was, that was the only help I received was that that 7,000 and everything else went on student loans. Beyond that, I got lucky with my undergrad loans. I basically got three quarter tuition, scholarship to go to undergrad, and then I got a scholarship actually. I Forgot about this. I forgot. I did get a half tuition scholarship for med school.

All right, tell us how you did it. I mean, this is, clearly there's a, there's partnership here and. But you guys managed to be making 400 ish thousand dollars a year while living on 80. That is not easy for most people to do. Most people come out of residency and they have this lifestyle explosion. How did you avoid that?

So my wife and I are both very frugal. My wife was really nervous when we first started dating. She really wanted to be very frugal and everything. And a good example of that, we went on a trip to Chicago and we spent a total between the two of us of $500 for a full weekend, including gas and hotel and everything. That's just kind of, that's just kind of the people we are, I guess we live in Midwest, you know, it's just kind of where, where we are. And she still clips coupons. That's, that's what she likes doing. And so sometimes it's a little bit difficult. And my sister always jokes that I could squeeze blood out of a penny. So it wasn't for me. It wasn't always that way though. I spent a lot until college. And then for some reason the middle of college just started struggling with money. And towards the end of it, I could not find a job in finance. And so then I ended up, I got to a point once where I had about $200 in my bank account looking at a $500 mortgage, or not mortgage, rent payments. Had to find a job very quickly and got lucky. And ever since then I've been kind of, I guess, more frugal than I guess me, the average person.

Yeah, it's funny how those early lessons in independent life can really have a very long standing impact on us. Yeah, I think I got a very little bit of help during college. Essentially my mom helped me pay rent for eight months during college. And you know, and that was about it. Otherwise it was whatever I could earn in the summer, whatever I could earn during the school year, whatever plasma I could donate. And about March every year I'd run out of money. I was literally donating plasma for grocery money. And if that sort of thing stays with you for a while, you learn that, you know what, I can be frugal. And that's an amazing strength. It gives you an amazing amount of discipline to help build wealth. No matter what your income, whether you got a five figure or six figure, seven figure income, those lessons stay with you. So I don't know that I would wish them on anybody.

No.

But are they beneficial? Yes. The problem is I keep trying to come up with ways to give my kids this experience without giving them this experience. It's very tricky.

Yes. If you have a good book on how to do that, I love it because I'm still, still looking for that book. I've not figured it out yet.

Yeah, for sure. All right, well, let's, let's go back a couple of years. Two years, three years. There's somebody in residency right now that wants to do what you did, that wants to hit the ground running, wants to build wealth rapidly. It's a dream to be in their doctor house, you know, a year out of residency, be back to broke, be making progress on loans, have, you know, six figures investments, be off to the races like you are. What advice do you have for that person?

So it really is the stuff you, I think you always preach, you know, make sure that we're living within our means. I, I think just taking a little bit of money and setting it aside every month, even if you don't, you know, high cost living areas are tricky. You know, it's going to be tough in places like New York, Chicago, you know, Louisiana. But I think you can still try to set aside a little bit of money and just, you know, getting that habit going, that was something I always struggle with growing up was getting that, that little bit of savings going. My parents tried to do that every, every month or trying to get me to save a little bit. And once you start doing a little bit here and there, it seems to make a big difference. My residency actually allowed us to put Money in the 401k and automatically increase contributions every year. And so we just went ahead and did that. And that was very easy to allow that money to just come out with my paycheck and I didn't even notice it. So doing something along those lines, where you can do that during residency and then try to convert that 401k money over to Roth if you can, sometime later on in residency before you graduate may be helpful too. But just getting that habit going early on I think is really, really helpful.

And you're a finance major, you're looking at debt and interest rates and going, I can refinance to 1.55%, I can get a mortgage that's low rate. And how much of that do you think played into your success story in the last year? Year and a half?

Maybe some. I, I'll be honest, I've actually learned more. I Did a. My third year of grand rounds for residency. I did kind of a finance talk, just kind of basics. Just kind of tried to go through some of the white coat investor and some other resources and just try to really, you know, summarize things for. For the other residents. Just a quick, you know, overview of investing and all that. And since then, I've learned so much more than I really learned in four years of finance. It's unbelievable. And it's been. It's been 10 years and things have changed a ton. I did, I guess I did do two semesters of. Or one semester, two classes of a master's in securities analysis as well. I forgot about that. And that. That class, one of those classes we actually had to sit down and really go through individually two companies and compare them on a book basis, like get them down to their book, their enterprise value. And I learned about index funds at that time. So it wasn't even during my undergrad that I finally learned about index funds. It was after that. So I've learned so much more since then. The finance degree probably helped some, but I think more of that muscle of just saving and getting used to saving probably helped me the most.

Awesome. Well, you've done fantastic work. You swung your net worth by $220,000 in your first year of being an attending. You should be proud. And I appreciate you coming on the Milestones to Millionaire podcast to share your experience with others, to inspire them to do the same.

All right, well, thank you for having me. It's been a lot of fun.

All right, Lots of lessons there. One is different strokes for different folks, right? We get people on here that every dime they make goes towards their student loans until they're gone. We get people who kind of make the minimum payments and put all their money into investments. Neither one is necessarily right or wrong. The key is the percentage of your income, this new high attending income that's going toward wealth building activities. That's either paying down debt, going toward a house down payment, or going toward longer term investments or even, you know, in the beginning setting up an emergency fund, that sort of a thing. The key is your savings rate, not necessarily what you're investing in, not necessarily how you split it up between paying off debt and investing.

The key is just carving out a.

Whole bunch of money and using it to build wealth for those first few years out of residency makes all the.

Difference in the world. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help.

Keep your head up, your shoulders back. You've got this and we can help. We'll see you next Monday on the Milestones Millionaire Podcast.

The hosts of the White Coat 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.