PM&R Resident Gets Back to Broke - MtoM Podcast #208

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 208pm and R resident gets back to broke with Weatherby Healthcare. You choose your own healthcare career path. Our Locums experts then support you every step of the way, helping you find the right opportunities at the right times. We understand your professional and personal goals and are experts at helping you achieve them. Let's keep your career interesting with new locations and settings and diverse patients and cases. And just importantly, let's make sure you get more free time for your hobbies or to just relax. We'll help you find that balance with more jobs in more locations. Weather be gets you where you want to go. Whether whitecoatinvestor.com WeatherView welcome to the Milestones to Millionaire podcast. We sure think this is a fun time. We love having you guys on this podcast. Every time I interview somebody, I'm like, now, have you listened to any of these episodes? And most of them say, I listened to all of them. And so they kind of know the drill. Granted, there might be a little editing between the interviews we record and what actually gets published on the podcast, but for the most part, there's very little editing that takes place in the content that we're recording as we do this podcast. You're hearing the interviews we're having, and I think they're interesting discussions. I like talking finance with doctors, though, so if you like listening to me talking finance with doctors, you should like the podcast, too. But we do need support doing it. We gotta have guests on the podcast to do this. So if you've accomplished a milestone, maybe you're a deca millionaire. Maybe you're a millionaire. Maybe you're financially independent, maybe you're retiring, maybe you paid off your car or your mortgage or your student loans or you got back to broke or, you know, you did something unique. You donated $100,000 to charity. I don't care what it is, we're going to use it to inspire others to do the same. You can sign up whitecoatinvestor.com Milestones all right, for you students out there, that time of year has rolled around again. I do some speaking gigs every year. I like doing speaking gigs while I'm there. I don't like traveling to come do speaking gigs. I don't really get a kick out of driving to the airport. I don't like hanging out in the airport. I don't like, you know, finding my bag at the bag claim I don't like, you know, finding an Uber over to the hotel, sleeping in a hotel, eating in restaurants. You know, get another Uber to wherever the speaking gig is. That part I can do without. Because of that. I only do, like, 6 to 12 of these a year. Okay. I cannot get to all of the medical schools only doing 6 to 12 of these a year. And I'm not going to all the medical schools. What I can do, though, is put on a student webinar every year. This is the talk I would give if I was coming to your medical school and talking to you for an hour in person. And afterward, we do a Q and A session. I stand around like I would if I was at your medical school, and I answer questions. As long as you guys have questions. Sometimes it goes an hour or two hours. Now, I say we because I'm bringing somebody with me. I'm bringing Andrew. Principaludentloanadvice.com because I know a lot of you have questions about student loans and student loan management. And frankly, it's so complicated these days that you really have to be an expert in it to give all the right answers. So I'm going to get part of this webinar. Andrew's going to get part of this webinar. We're going to cover student loans and everything else applicable to students and their finances. If we don't cover what you think is applicable, we're going to stick around afterward and answer your questions. Okay? This webinar this year is live. It's going to be February 12, 6pm Mountain, so that's five Pacific, seven Central, eight on the east coast, sometime in the middle of the night, if you're living in Paris, whatever. But it's live, so please come. You can sign up. Whitecoatinvestor.com studentwebinar now, if you sign up, we're going to send you the video afterward. But it's way more fun live. So come live. We had hundreds of people on last time we did this. In fact, I think our counter broke and started telling us the wrong number of people that were there. But it was a lot of fun. We're going to talk about what medical and dental students need to know about money. It's free. It can literally make a difference worth millions of dollars over the course of your career. You really can't afford to wait until the big checks start to learn about money.

You.

You've got to learn about it before you get there. You're going to learn why your patients need you to be financially Literate. You're going to learn the secret to being a financially successful doctor. You're going to learn how to not worry about student loans. You're going to learn how to save money during residency interviews. You're going to learn why buying a house during residency might not be a great idea, and more. Okay. Whitecoatinvestor.com studentwebinars where you sign up. And again, it's February 12th, 6:00pm Mountain. We try to do what we can for students, right? We know students aren't like customers. They don't buy much from us. We give away our book to students. We try to give it away via the Champions program. We try to do webinars. We try to speak to as many of you as we can because we know that if we can get you financially, literally the beginning, you become a financially stable doctor much sooner and can be a better doctor, better parent, better partner. And that's what we are trying to do here. All right, we got a great interview. It's not a student we're bringing on to resident, but a resident's been very financially successful considering the stage of career that he is at now. I want you to stick around. Afterward, we're going to talk a little bit about mortgages and specifically a mortgage when you're trying to turn the property you are living in into a rental property. Our guest today on the Milestones to Millionaire podcast is Greg. Greg, welcome to the podcast.

Thanks so much for having me.

Introduce yourself a little bit to us. Tell us what you do for a living, where you're at in your career, what part of the country you're in.

Yeah, so I'm currently in upstate New York. I'm a third year resident in physical medicine and rehabilitation.

Very cool. So not quite done with training yet, which makes this milestone you've hit all the more impressive. Tell us about the milestone.

Yeah, so I recently made it back to broke, which is pretty exciting for me and exciting to be here today. So I appreciate you having me again.

Yeah, this is exciting. Now, for those who listen to this podcast regularly, a week ago we had a doc who was back to broke, was not a resident, though, was well out of residency, had quite a bit more debt, I think, than you have. And so it took him a while to accumulate enough assets to offset that debt. Your situation is not quite so extreme as that. Tell us a little bit about your balance sheet. Why don't we start with your assets? Tell us about your assets.

Yeah, so I recently merged my finances with my fiance, and together we have about $185,000 in total assets, broken down between investments and our savings. In total, she has a retirement account with about 29,000 in it. I have a retirement account that has 33,000 through my employer, and then I have my own Roth IRA with about 27,000 in it and another taxable account that has just under 9,000. And then we've also got a pretty decent amount in a high yield savings account, 57,000 right now. And then we have another 25,000 in savings as well. So it's kind of scattered across the board.

What's that total up to?

185,000 total.

$185,000 in assets. And you say fiance, and there's a difference between fiancees when you're getting married in 30 days and fiance when you might get married in 10 years, right?

Yeah.

Which sort of fiance is this?

So we actually got engaged in April 23, and we're getting married in July of this year. So it's coming.

Okay, so you'll be married very soon, because the general recommendation, of course, is don't combine finances until you're married, for various reasons, but. Right. Okay. Let's talk about the liability side of the ledger. I assume at least one of you has got some debt, right?

Yeah. So I carry the debt burden. I've got $135,000 in student loans. And one of my goals before kind of merging our finances and putting that burden on her was to offset my debt with assets. So I was able to do that a couple months ago, and at that point, we merged our finances, and we have what I just told you.

So you're back to broke all by yourself without her assets?

Yeah, just barely.

Very cool. Very cool. Okay, so $135,000 in student loans as your PGY3 is not scaring anybody. Right. That's dramatically less than average. Right. I mean, average at graduation for MDs is like 205,000, something like that. Higher for DOs, higher for dentists, higher for Caribbean grads, higher for lots of MD grads that finished with 400. $500,000. What in the world? How do you only have $135,000?

Yeah, so a combination of things. But first of all, huge shout out to my parents for helping me out with that. So my mother worked at an academic institution. Both my parents are lawyers. And so when I selected my undergrad education, I chose the academic institution that she worked at, and that helped me out a lot. With undergrad, they had a full 529 for me. I did not utilize all that because of the tuition benefit from working where or going to school where my mom worked. And then the leftover in the 529 was used to cover about half of my medical school tuition. So the first two years were fully covered. And then that 135.

There's no such thing as a full 529. What's the most you ever saw when you looked at that 529 balance sheet, what's the most it was ever worth? A hundred thousand? One hundred fifty thousand? Something like that?

You know, I'm not entirely sure on that. I wasn't given the responsibilities.

You weren't given the keys to the kingdom, huh?

No, no, sir.

But it covered a couple of years. You didn't start borrowing until you were a PGY3, correct?

Yep.

Very cool. Well, that is a shout out to them. Well done, mom and dad. We're proud of you for doing that. You said they're both attorneys?

Yes. A lot of gratitude.

They're both high income professionals themselves. You know, they could certainly fit into the white coat investor community. All of you out there saving for college, look, what is possible, you know, even if you can't come up with enough in a 529 for a full undergrad and a full medical school education, you know, every little bit helps. You didn't even have to start borrowing until your PGY3 year. So that's awesome.

Definitely.

Okay. That you said that was one of the things. What else helped you keep it down?

So I think in general I'm a frugal person. I kept my living expenses down throughout medical school with low cost of living. And that's also attributable to where I went to medical school. It's not a big city area. And then that was a big deciding factor for residency as well. I was able to stay at my home institution. But another thing I was thinking about was cost of living when I applied to residency. So I took that into account.

Did you have a choice for medical school? I mean, did you get in a whole bunch of places or were you like most of us? You got in one place and you went there.

I won the place. I was accepted.

Yeah, okay, but you did have more of a choice for residency. I mean, PM and R is not the least competitive specialty, but it's not the most competitive specialty either. No. I imagine you didn't go too. You didn't go too far down your rank list, did you?

Correct. Yeah, I was lucky to match with my number one program.

So. Yeah, yeah, okay. So you had. You had significant input there, of course. And was that your number one when you started interviewing? Was that, or were there other places that you just didn't get interviews to that you would have liked to go to?

It was my number one from the start for convenience and lifestyle perspective with my fiance. I was really happy to be there.

How much of an impact did the cost of living have on that decision, you think? Do you think that was a minor factor or a pretty significant factor?

It was. It was more on the minor side. I. I wouldn't say I was really 100% invested in staying in this area, but it was definitely something I considered. And overall, thinking about quality of the program and all the other factors that you think about with residency, it came out on top.

So very cool.

Yeah.

Okay, so you've been investing as a resident significantly. Now, are you moonlighting or anything? Or is this all just resident pay? You're investing?

So mostly resident pay. There's a couple things I've done on the side throughout. First of all, in medical school, I worked in my third year as a nursing assistant. That was when Covid kind of popped up, and they really just needed extra bodies up in the icu. So I was up there helping turn patients stock shelves, things like that. And that allowed me to start investing at that time, before I even graduated and started thinking about things there. And then intern year residency, I also had a side gig. I was a academic consultant that was completely on zoom. Picked my own hours, and I would just talk with medical students, even some residents, and other healthcare professionals about their career paths. And that gave me a pretty decent boost for a short period of time at least.

Is that like coaching? What is that? Healthcare consultant. What does that mean?

It's mostly like academic consulting, meaning talking with, like, undergrads about how to apply, helping them prepare for their mcat, doing mock interviews, for example. It was a pretty broad role, but I did that.

Were you somebody's employee or did you start this business?

No, I was employed through a corporation that did that.

Very cool.

Yeah.

Okay, so you've had a little more income than resident salary. What are you being paid these days as a PGY3 right now?

We actually just got a raise due to some of the chaos with, you know, residency programs forming unions and whatnot. But I'm now making $74,000 a year.

So that's pretty darn good for a resident. Yeah, when I signed on, it was 34, so it feels like a lot. Granted, it's been a couple of decades since I was a resident, but it feels like, you know, I mean, I guess, you know, for 80 hours a week, maybe it's not that much, but. But it's better than a kick in the teeth for sure. Okay, so what do you think you're sa savings rate is right now? Have you ever calculated that?

So I was actually looking into this and no, I haven't calculated it, but through my institution, it allows me to see what percent of my paycheck goes into my university Roth 403B. And that was at about 30%. And at this point, I'd also like to say my current living situation is quite low cost of living because I'm in my parents house with my fiance. They moved out of state, didn't want to sell the house and so we moved in. I do pay them rent, but it's definitely lower than your average. So that 30% number is high mostly because of my low cost of living.

Very cool. Well, you take advantage of what you can.

Exactly.

We've all got advantages in our financial lives and we all have disadvantages. And you take advantage of the ones you can. Right. I mean, for example, in your case, you know, your parents were able to help you out with school, you're staying in their house now. But you're also not a neurosurgeon. Right. You're not going to have the same income when you finish your training as somebody in neurosurgery residency that maybe doesn't have those same parental advantages that you have. So you do what you can with what you have. Okay, so have you maxed out this account, this 403? I mean, 30% of your salary? That's got to be pretty close to maxing it out, right?

I don't think I've quite gotten there. I also have an IRA that I max out every year, but I think the max for a 403B is pretty high. I've definitely, I've put a decent amount into it. I think I'm a couple thousand short of maxing it out though.

Yeah, but you've also got an hsa. You've already got an emergency fund. I mean, you're kind of doing stuff that, yeah, lots of people don't do until they're attending.

So I've spread it out a little bit here. And I also want to keep some of my assets liquid right now because of, you know, applying to fellowships. I might be moving twice in the next three years and buying a house and having a wedding, of course. So that was the reason for my high Yield savings account, keeping some of those assets liquid.

Yeah. You guys talked about how much you want to spend on a wedding?

Yeah, our goal is under 25,000. Keeping feels like a lot to me, but as weddings go these days, it's pretty low cost.

You know, a wedding is the classic it costs what you're willing to pay expense. Right. I mean, you can go down to the county courthouse for 150 bucks and get married, or you can throw the classic Indian wedding, you know, where just the flowers are half a million dollars, you know, and you ride in on elephants. I mean, you literally can't spend what you want on a wedding.

So, yeah, we have to find a balance.

I want to hear about these discussions. Right? You're coming up on getting married here. You've been together for a while already. I want to hear you got how you guys are managing money together and, you know, as you're prepared to be married as you're already, you know, together and sounds like starting to combine finances. Tell us how those discussions have gone.

I mean, we have very open communication, and I have the best fiance in the world, obviously, but we have very open discussions about our finances. We were both relatively frugal coming into our relationship, so neither of us had to make dramatic changes. But definitely, as we've grown and started looking into different investments and savings account, we've just had conversations about it. And eventually we were sick of splitting the grocery bill each month, so we decided to put it all in one checking account and, you know, merge our income in that way. But even from the very beginning, we started our relationship in medical school, so she was my sugar mama for a little a period there. But from the very beginning, we've always split everything pretty much right down the middle. 50, 50. And so it's been pretty easy in that regard.

Now you have taken advantage of some work. A friend of mine did, a friend that lives just a few miles from me by the name of Jesse did on an app called you need a budget, and he's the founder of that company. And you guys have used that. Tell us why you like that app.

I love Ynab because the role is to give every dollar a job. And I like that ideology. If I get, you know, fifteen hundred dollars, I get paid twice a week. And let's say I see $1,500 of it. I don't want to suddenly feel like, oh, I can go out and buy this, that, and the other thing. I assign that 1500 into different categories based on what I know I'll need to pay for, and that includes your monthly rent, food, groceries, gas, but it also includes those things that you're maybe paying for once a year. For me, that's disability insurance. You know, I pay one lump sum per year, but I put money into that basket every single month, so it doesn't feel like a huge burden for me. So it's been huge in that regard. And that's something that my fiance kind of was forced into adopting, but she, you know, jumped in with open arms, so I'm lucky in that regard as well.

Yeah. Okay. Well, we've talked about some of the advantages you've had, but what do you see as your secrets to success? Because there's plenty of people that have been given your advantages that haven't been as successful as you have been. So why were you successful where maybe some of them have not been?

I think definitely the advantages I've been given really helped out a lot, and I know that other people get that, too. I think that educating yourself early on is huge. Listening to this podcast, I read your book, and then just being conscious about how you're spending your money, because as a. As a medical student going to a resident, it's going to feel great to have all that money, but it's. It's easier to lose money than it is to gain it. So if you just continue to increase your income and also increase your expenses, you're not going to be where you want to be 10, 20, 30 years down the road. So I try and keep that in mind as I get these raises and especially as I transition to an attending, I'm going to try and live like a resident to keep my savings increasing.

Yeah. What a lot of people don't realize is it's just as easy to spend all your money making $74,000 a year or making $300,000 a year. It's not that hard to spend all your money. You can do it, I assure you, if you don't intentionally choose to do something else. All right, what's next for you and your financial goals?

So I'm hoping to pay off my loans pretty aggressively as soon as I get out of fellowship and get my attending job. I've talked with my fiance about living like a resident and using her income to kind of support us for a period of time, while my income goes more towards the student loans and potentially a mortgage at that time. So what I have written down is five years from now, I hope to have paid off my student loans.

Very cool. I wouldn't be surprised if you End up doing it in half that time, given your motivation and financial literacy level.

Yeah, fingers crossed.

All right, well, congratulations, Greg. You've been very successful. You've hit, you know, our first milestone back to broke very early in your career, before really, your career even starts. So you should be proud of yourself. I'm proud of you. I'm proud of your parents for what they did to help prepare for your educational costs. And I wish you and your fiance all the success in the world that you guys deserve.

Thanks so much. Thanks for having me.

All right. I hope you enjoyed that interview. The truth is, you can start being financially successful even during residency. Now, I tell most residents your goal is not to get rich during residency. Okay? If you can accomplish a handful of things financially during residency, you're probably way ahead of your peers, right? If you can get disability insurance in place, if you're married or have kids, life insurance, you know, figure out how your retirement accounts work, get yourself a match, learn how to budget, have a written plan for your first 12 attending paychecks. I'm happy. Right. You don't have to get back to broke as a resident to be successful. But obviously, with a little bit of time and effort and a little help from your parents, you can get back to broke even during residency and get started on your financial pathway that much sooner. I mean, last week we had a fellow that came on, was back to broke two years out of residency. Right. Here's a doc who's done it within residency. So it's pretty awesome to hit that first milestone. There's nothing better than knowing your building net worth and moving in a positive direction and actually becoming wealthier every month than you were the month before. It's a good place to be. Okay? I promised you at the beginning, we're going to talk a little bit about mortgages, particularly when you want to turn the place you're living in into a rental. Now, this happens to lots of people. It happens to lots of people who buy a house during residency because I can't talk you guys out of buying a house in residency. And it doesn't help the last five years when housing just went through the roof. So even those of you who bought a house for a year and a half sometimes are coming out financially ahead, even though historically you come out ahead only about a third of the time after a three year residency and about half the time after a five year residency. But in the last five, six, seven years, everybody's come out ahead. Nobody's had the experience I had with the house I bought in 2006 and couldn't sell when I got out of the military in 2010 until 2015, at which point I sold it at a loss. Now, what happens sometimes if you can't sell the place or just because you think it might be a good idea, is people think about turning that free first place they bought, they lived in for a while into a rental property. They start thinking, oh, I want to build a rental property empire. And that's fine if that's what you want to do, if that's one of the ways in which you're going to build wealth. I'm a big fan of real estate. I like real estate. I like direct real estate. I don't want to do it myself. I'm too busy doing wci. But I don't think it's a bad way to build wealth. You need to be deliberate about it and you need to be smart about it. And you got to put in a little bit of work to do it, but it certainly can work out very well. But what you need to ask yourself is, do I want to do that? Because if you don't want to have direct real estate investments in your portfolio, then no, you shouldn't keep the place you've been living in the last few years as a rental property. You should sell it and move on. Whether you're selling it with no gain, with a significant gain, with a loss, hopefully you've got cash to be able to sell at a loss and move on. Okay, so that's question number one is, do you actually want to have direct real estate investments? Okay, question number two is assuming, yes, you do, do you want this to be your first one? Would you buy this place as an investment? If you were looking at all the places in your city, is this the one you want? There's a good chance it's not, right? Because when we buy a place to live in, we use different eyes. And when we buy a place to rent out, we're looking at, you know, the location and how close it is to our job and where we want our kids to go to school and whether we like the colors or not and whether it's got a place to, you know, store our rock climbing gear or whatever. I don't know. You just don't think like that when you're buying a rental property. It's all about the numbers. It's like, well, what's it cost? What's it going to rent for? How much do I have to put into it? You know, are people moving to this area, am I likely to be able to raise rents? And it's the numbers game, right? You're running numbers on the place. You don't could really care less, you know, if it's like the most beautiful interior paint job ever, you know, the paint isn't that nice. Well, you rent it for a little less than if you fix it up and put some new paint in there and you can paint it whatever color you want and so on and so forth. So that's the question is, are you going to buy this place? Is this the place you want? And the answer to that's yes. Great. Rent it out. Right? Perfect. Getting started. If it's not, I want you to ask yourself a couple of additional questions. And the main one is, does that change if you don't have to pay closing costs on this place? Because this is the benefit of renting out the place you already own. There's no closing costs. You already own it. So that might be as much as 5% to buy a new place. It's usually 10% or so of its value to sell a place, especially once you pay off realtors. And so there's some additional profit there if you can turn a place you already own into a rental. The other thing is you might get to keep the mortgage. Okay? And a lot of people right now especially have mortgages that are 2.5%, 3.5%, right? You go out to get a new mortgage, now it's 6.5, 7, 7.5%, whatever. You're not getting a 3% mortgage. So people like, well, this could work out really well for me. It's appreciated. While I've been here, I don't have to pay closing costs and I've got this 3.5% mortgage. Maybe I should keep it as a rental. Well, again, do you want to be in the business of renting houses? If the answer is no, that is not enough to change your mind. Right. But that might take you from going, I'd rather have a different property to let's use this property. So what do you do about the mortgage? Well, the first thing you do is you go back and read your contract that you have with the mortgage company. It might have a requirement that you tell them if it is no longer owner occupied, if it's become a rental, you might have to tell them and you might have to pay off the mortgage or refinance it or whatever. But read that carefully, they may not require that or they may be okay with you putting in a renter. A lot of people Operate on the don't ask, don't tell policy. Right. They're like, eh, they probably won't find out. Well they might, then you might be in a little bit of trouble. But the truth is I think people do this a lot. Even though the contract says they're supposed to, they don't tell anybody when it's no longer owner occupied. Some of the contracts also say it only has to be owner occupied for a year and then it's whatever. And so it might work out fine for you to keep that same mortgage on it. You know, you bought some physician mortgage with nothing down on it for 3.5% four years ago. You might be able to keep that for the next 26 years while you use it as a rental property. So you just got to read the contract and see what it says on that. Now if it turns out you're supposed to refinance it and it doesn't make sense as a rental property if you refinance it and you want to do the right thing according to your contract, well, I guess you're going to have to sell the property. The alternative of course, is to break the contract. You told them you were going to tell them and you don't tell them. Well, okay, well what's the penalty? It may not be much of a penalty. You might be surprised how little the penalty is and you might be willing to take that if that's the case. I mean the bottom line is lenders are most interested in lending to people who pay them back as agreed. And so long as you do that, there's a good chance they won't be asking a lot of questions about it. Hope that's helpful as you decide what to do with a house that you're thinking about renting out after living in it. One other thing to keep in mind about it of course, is the property tax or not the property tax. The capital gains tax exclusion on owner operated homes. Now if you've lived in the house for at least two of the last five years, when you sell it, you can exclude up to a quarter million dollars of gains. If you're married, it's twice that. So if you live in it for three or four or five years as a resident, now you're renting it out. Well, how long can you rent it out for before you lose that? You can rent it out for three years and then you've got to sell it if you want to take advantage of that exclusion. Otherwise when you sell it, you don't get any exclusion. Right. Even though you lived in 13 years ago. The IRS doesn't care. You're going to pay capital gains on the whole value, and of course anything you depreciated on it is going to be recaptured as well. Now you can avoid that by exchanging the property instead of selling it, but that's a whole nother level of hassle that it adds in hope that's helpful to you. This episode has been sponsored by Weatherby Healthcare and with Weatherby you choose your own healthcare career path. Our locums experts then support you every step of the way, helping you find the right opportunities at the right time. We understand your professional and personal goals and are experts at helping you achieve them. Let's keep your career interesting with new locations and settings and diverse patients and cases. And just as importantly, let's make sure you get more free time for your hobbies or to just relax. We'll help you find that balance. With more jobs and more locations. Weatherby gets you where you want to go. Learn more@whitecoatinvestor.com Weatherby all right, this is another great episode of the Milestones to Millionaire podcast. Keep your head up, shoulders back. We'll see you next time on the 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.