How can I possibly save more?

Yesterday (wrote this a few weeks ago) was my first day of Radiology. I was beyond excited to meet very friendly, intelligent people who are passionate about teaching and learning radiology. My cohort, class of 2019 includes 7 guys and 2 gals.  I already know that we will have a fantastic 4 years together, training hard to become bad-ass radiologists, who can make awesome differential diagnoses and assist with medical decisions.

 

 

During our chit-chat, a common theme that pops up in personal finances is how in the world do we save on so little income? Truth is, it is a matter of perspective, we have quite a bit of income compared to most people in our town and thankfully the cost of living is quite low in our town. We are set up for success if we WANT to save/ increase our net worth.

 

A typical single income resident household with spouse and kids may have take home income like this.

  • Gross Pay $53,533.00
  • assuming filing married with 6 exemptions
  • Monthly Gross Pay $4,461.08
  • Federal Withholding $184.79
  • Social Security $276.59
  • Medicare $64.69
  • Arizona $187.37
  • Monthly Net Pay$3,747.64

A goal budget may look like this table, allowing you to contribute 1k to ROTH IRA/ROTH 403b per month.  This budget requires some creativity to make food budget for 4-5 people around $ 400, but it is totally doable. Our family of three eats organic, non-GMO whole foods as much as possible, and can still enjoy delicious balanced meals while staying under $300 on average. This budget also allows for spending on important things such as kids’ extracurricular activities.

pgy2 monthly budget
pgy2 income 3,747.64
utilities -300
gasoline -50
food -400
home insurance -30
med insurance premium -167
car insurance -137
mortgage -925
extra mortgage payment -50
property tax -167
HOA -18
Mini Wise Money’s painting/voice lessons -200
med insurance co pay -30
house maintenance -50
car maintenance -30
cc payment -150
Roth 403 B contribution -1000
pet -30
balance 13.64

 

With this budget, a resident family can

  • contribute $1000 post tax dollars to ROTH account (the cheapest ROTH you can ever buy as resident’s tax bracket is the lowest a doc will get in his/her life time)
  • put $400 into your home equity
  • invest $200 into your kid’s experiences/ skills
  • pay credit card down $150 per month (presumably 0% interest revolving credit card debt)

That’s not too shabby. This family can increase their net wroth by $1550 per month at this savings rate. While the budget does not account for student loan payment, it does account for a substantial credit card payment.

If you have $400 or $1000 per month of payment in student loan, and you put money towards that instead of retirement, you are still increasing your net worth by the same amount.

As for putting money in ROTH or paying down student loan, I personally choose to pay off my student loan completely as a pgy1 before beginning to max out my ROTH IRA/403b accounts.

In the olden days, when student loan interests are 1-2%, leveraging student debt while investing for retirement was a no brainer. Unfortunately, since student debt is now snowballing at 7%, I find it too risky to be investing instead of paying off student loans. I also didn’t want to limit my job options as an attending by hoping for Public Service Loan Forgiveness and making  minimum student loan payments.

 

The point is not that every family needs to be counting pennies, but rather that it IS POSSIBLE to save during residency even if you are a single income household. While my peers with families think there is no way to put any money away, I want to suggest that much can put away. And it is definitely not all or nothing. While increasing net worth by 1.5k per month or 18k per year is fantastic, saving anything, a few hundreds a month would be great too. The money that you save now, no matter how little, will work for you and your offspring FOREVER (until you spend it). 

Time value of money is key. We have already dedicated at minimum 23 years (for general internists, 26 years for specialized radiologists) to training. We need to make our “limited” income work for us NOW. Don’t wait till you are done with fellowship/ residency before you start saving. Your hard earn money should work harder and longer than you do.

 

  • What does your budget look like?
  • What are your goals in building your net worth NOW?
  • Where do you see potential sources of income that could be saved instead of spent now?

Prevention is the Best Medicine

image courtesy of www.sfasu.edu
Financial fitness parallels physical fitness: prevention is the best medicine. The best pill is a healthy lifestyle. image courtesy of www.sfasu.edu

 

Yes, it is possible to pay off 400k of student debt aggressively by living like a resident for 5-years after you finish training and make attending level paychecks.

But minimizing taking out student loans in the first place will save you lots MORE money and stress in the 10- 20 years following medical school graduation.

 

 

A few recent changes have made it even more important to minimize taking out student loans in the first place (ie. during medical school):

  1. 2012 there is no more subsidized student loans (ie. all loans you take out during medical school starts acrruing interest on day 1 after disbursement)
  2. student loan refi rate not nearly as good as they used to be (i know of current attending doctors who have 1-2% interest rate on student loans which they refinanced upon residency completion… this nice low interest rate is unheard of nowadays).
  3. PSLF program may disappear at anytime. Last year, there was an attempt to cap the forgiveness at 57k, which is hardly anything compared to the massive balance one will accrue during residency with income base repayment programs (as the loan balance under goes negative amortization because the monthly payment sare too small to even cover monthly interest on the average amount of student loans.)

Below, I will run a scenario for a cautionary tale to medical students, you are in the best position and time to be minimizing your debt. 1 dollar you spend now will be worth 2 by the time you pay it off.

Assumptions include:

  1. attended medical school 2012-2016 at Touro University (later classes have higher tuition)
  2. take out student loans matching full Cost of Attendance at beginning of each medical school year
  3. filing as single without dependents
  4. interest rate 6.8%
  5. pgy1 income 50k, 4% growth rate, 6 training years, 1st year attending income 250k
principle interest rate balance @ year end
MS1 86111 0.068 91967
MS2 86833 0.068 190958
MS3 93500 0.068 303801
MS4 94000 0.068 424852
total loan principle 360444 total interest accrued in school 64408

This med student will graduate with 425k of student loan, before starting pgy1.  While 360k was used towards living, tuition, fees, travel during the 4 years of medical school, 64k was the interest accrued while one is studying and testing away to graduate from medical school.  From here, there are a few scenario to get rid of this financial noose around one’s neck.

I. Paying least for what you borrowed: PSLF

If all stars align and you get a non-profit employee job after residency/PSLF did not get capped or stopped: you will pay $180,178.12 for the 360k you borrowed during medical school.

 

Income-Based Repayment Calculator Results (15% version)

Total Graduating Debt: $424,851.53  
Initial AGI: $50,000.00  
Income Growth Rate: 4.00%  
Interest Rate:       6.80%  
Discount Rate: 5.80%  
Family Size: 1  
Poverty Line: $11,170.00  
Tax Filing Status: Single  
 
Loan Forgiveness  
Forgiveness Year: 10 years
    Income-Based Repayment   Fixed Monthly Repayment
Years in Repayment: 10 years 10 years
Minimum Payment: $10.00 $50.00
 
Monthly Payments    
First Payment: $415.56 $4,889.21
Max Monthly Payment: $3,241.93 $4,889.21
 
Total Amount Paid: $180,178.12 $586,704.41
NPV of Total Paid: $121,293.43 $447,398.82
 
Total Accrued Interest: $284,938.58 $161,852.89
Capitalized Interest: $0.00 $0.00
Total Interest Paid: -$145,089.75 -$161,852.89
Total Unpaid Interest: $139,848.84 $0.00
 
Total Amount Paid: $180,178.12 $586,704.41
Total Interest Paid: -$145,089.75 -$161,852.89
Payments to Principal: $35,088.38 $424,851.53
 
Total Debt: $424,851.53 $424,851.53
Capitalized Interest: $0.00 $0.00
Payments to Principal: -$35,088.38 -$424,851.53
Remaining Balance: $389,763.15 $0.00
 
Government Payments    
Loan Forgiveness: 10 years
100.00%		  
Total Unpaid Interest: $139,848.84 $0.00
Balance Write-off: $389,763.15 $0.00
Total Forgiveness: $529,611.99 $0.00
 
Net Present Value    
Total Unpaid Interest: $79,579.68 $0.00
Balance Write-off: $221,791.09 $0.00
Total Forgiveness: $301,370.77 $0.00

II. IBR during residency, but can’t find non-profit job after training or PSLF is gone or capped.

After 6 years of making minimum payments (IBR, PAYE), the loan balance of $424,852 upon graduation has undergone negative amortization and ballooned into ~600k.

monthly payments annual payment principle+ interest year end balance
PGY1 0 0 453741.4313
PGY2 415.56 4986.72 484595.8486 479609.1286
PGY3 432.1824 5186.1888 512222.5494 507036.3606
PGY4 449.469696 5393.636352 541514.8331 536121.1967
PGY5 467.4484838 5609.381806 572577.4381 566968.0563
PGY6 486.1464232 5833.757078 605521.8841 599688.127

This new attending immediately switches gear from paying minimum to aggressively paying his debt off.

Wise thing to do is to refi his loan to a lower interest rate. However, 600k debt with 250k income may not qualify for a great rate. Be aware this debt/income ratio may very well NOT qualify for ANY refinancing.

Let’s say he refi to 5 year fixed term at 4%.

600k @ 4% for 5 years will be a total of 720k to pay off; this is equal to 144k/year in student loan repayments. Single person w/o depedents takes home 162k from 250k income in my state. This means to pay this debt off in 5 years, one has to live on 18k… That’s a lot worst then living as an average resident.

Alternatively, he can go for 10 year fixed @ 5%.

600k @ 5% for 10 years will become a total of 900k to pay off; this is equal to 90k/year in student loan repayments. Take home 162k of 250k after taxes. This means to pay this debt off in 10 years, one has 72k left for all expenses and savings. Not much… considering most docs start retirement savings late and need to catch up.

III. Neither here nor there…

This person may not have found non-profit job initially, or only worked 2 years of non-profit, then took a private job, only to return back to non-profit to finish off the 10 year requirement for PSLF.

This limbo is not helpful because during the years of private jobs, he will be making pretty high payments as payments are income based.

 

As you can see, none of the above scenario is close to ideal. But if that same med student minimizes his lifestyle and his student loans, he could have started with much less debt as he begins his medical career. This is why I hope that DFD will raise some awareness in personal finance in medical students and pre-med students. Prevention is always the best medicine.

This site has lots of posts on how to minimize debt, the main principles are common sense:

  1. live frugally and creatively during medical school (don’t buy a car, especially a new car, minimize retail therapy, etc.)
  2. delay and minimize taking out student loan (minimize interest accrued during school)
  3. have a side job (work study job at the school library, or something else light. you just may find working increases your focus and efficiency at school. it did for me.)
image courtesy of kirshclinic.com
I chose Apple, some choose pills. It’s never too late to start choosing the apple today 🙂 image courtesy of kirshclinic.com

 

  • What did you do to help you minimize student debt?
  • Did you have a side job? What work did you have as a medical student or residents?
  • Did you make sacrifices in medical school that pay off later?
  • How did you take out your student loan? Did you get the max at the beginning of school year like most med students did? Or did you take it out as you go?
  • Were your shocked at the amount of interests accrued just during medical school?

Comment below!

PSLF is a trap for the wishful.

Some of my friends are going for loan forgiveness. They owe 300-400k at graduation, and will probably owe about 450-600k when they finish residency. They opt to let their debt grow with the 7% interest with hopes of have this debt erased after making 120 income driven repayments 503 nonprofit W2 employee.

I considered PSLF myself since I have 6 years of training  in radiology. Residency and fellowship counts towards the 10 year payment for PSLF, which means all my federal student debt (principle + lots and lots of interest) can be forgiven as long as I make 4 more years of qualifying income-based-repayment as an employee for non-profit organizations.

At my friend’s encouragement, I even considered taking out max amount student loan during 4th year of medical school (reversing my diligent practice of taking out minimum student loan throughout the first 3.5 years of medical school) and use student loan as down payment for our first home. In my friend’s words “the money is literally free, you can get it forgiven by just working 4 more years in non profits!”

I almost joined the wagon of borrowing to my heart’s content, paying minimum for 6 years, and then 4 years paying as an attending, then poof, my remaining debt will disappear.

 

DFD DRB

Apply to DRB by clicking here, you will get $300 cash bonus and WCW will get a referral fee when you sign your contract. Win-win!

 

 

Why did I turn away from this sweet deal?

I looked closer…

4 reasons I find PSLF (public service loan forgiveness) unrealistic,

  1. The government keep talking about capping forgiveness, last year at 57k. A legislative change as such can pass anytime. if a 57k cap is executed, it would not even cover interest accrued during medical school alone, let alone interests accrued with negative amortization due to small payments in residency.

  2. The government has not (I wrote this post a few months ago, I hope they did by now) figured out the final forgiveness application for the first “forgiven” class in 2017, it’s only 1.5 years away from them being forgiven 100’s of 1000’s of dollars.  Why aren’t there more guidelines on paperwork and protocol to receive final forgiveness?

  3. 40% of my peers plan for forgiveness, and majority of these doctors have 300k of student debt now. Since the income based repayment or pay as you earn program allow you to make minimum payment that does not even cover monthly interest, 300k will easily become ~500k in 10 years. the general public is unlikely to support a program that erases 500k of student loan for a doc making 250+k annual salary .

  4. There are not as many non-profit employee position as doctors who hope for PSLF. Working for a nonprofit organization (most hospitals) as a contractor does not count.  For instance, most radiologists, ER docs, and anesthesiologists work for hospitals as contractors and belong to a private group. It can be highly competitive and tricky to get a true W2/Employee position from a 503 organization. I would rather not chase a nonprofit employee position all over the country.  I like having as many options as possible when it comes to getting a job.

 

300x250_10_143

Apply to Earnest by clicking here, you will get $300 cash bonus and WCW will get a referral fee when you sign your contract. Win-win!

 

Bottom line is, I don’t think our government can afford to absorb this much debt.  Our national financial state is insolvent as it is.  PSLF basically is a unsustainable and unpopular program. It can be stopped, capped, at any time, and leaves its debtors, heavily indentured servants for several decades.

On the other hand, if the interest rate is more reasonable, like at 2-4%, then student debt will grow much more slowly than it would under current student loan interest rate and negative amortization of income driven repayment.

The combination of high interest and low payment and time  is disastrous.

These are just my concerns for PSLF, but I would be really happy for those who are able to get forgiveness for 100’s of 1000’s of dollars, too 🙂

You can take your financial destiny into your own hands, instead of hoping and waiting for forgiveness by managing your debt actively.

 

  • Are you going for PSLF?
  • Does your specialty offer lots of non profit employee jobs?
  • Are you going to refinance as a resident and forgo PSLF since forgiveness is uncertain, and interest saving (2-4% instead of 7%) is certain?

A Refreshing and Rewarding Side Job

Say what? Why would you ever want to work more than you already do in med school, and or residency?

From my personal experience of always working at least another job in addition to my full time work as a student or as a doctor in training, I see many positives in doing so.

I started working as a tutor unofficially when I was 12 years old. 2 weeks before mid terms or final exams, many classmates would start camping in my parent’s 1100 sq apartment in Taipei. I alternated between teaching at a tiny white board and working along side each individual to help my peers prepare for the exams.

Aside from learning steadily and tutoring my classmates throughout the semester, these review sessions I gave were as beneficial to my academic performance as others’. I always felt I had plenty of time to slow down and teach a classmate, and I believed that each time I taught someone else helped me master the concept even more.

 

Shortly after my family immigrated to the US, I started tutoring high school science subjects: AP biology, AP chemistry, Physics, etc. Tutoring high school science and math was my first paying job, $10/hr back in year 2000. I utterly loved tutoring my classmate. I taught what I learned in morning lectures to my classmate after school. Being tutor made me study proactively, and on top of my game. By the time I tutored a concept the teacher taught in the morning, I already knew the concept in side and out.

I was very encouraged when one high school sophomore student said, “Did the teacher really say this morning? How come when she said it, it sounded like Martian? I don’t understand her language, but I understand what you are teaching me.” I enjoy bridging the gap between new knowledge and learners. I also relish helping someone reach a higher level of understanding of each concept.

 

From then on, I kept tutoring throughout my own schooling and training. As I aced each standardized exam, from SAT, MCAT, to USMLE/COMLEX steps, I added each subjects/tests to my repertoire. I find helping others excel on exams and progress in their career path quite gratifying. Additionally, tutoring provides meaningful outlet from the stress of practicing medicine–where decisions about life and death are made on a daily basis.

 

There are several advantages to having a side job I love,

  1. It refreshes me from my primary job as a doctor/student doctor. It grounds me and gives me more perspective.

  2. It allows me to give back to society via another venue other than medicine.

  3. It provides an additional source of income.

  4. I always believe that teaching and learning enhances each other. Helping others excel on their high-stake exams not only gives me a sense of fulfillment, but also sharpens my analytical and communication skills.

5. I enjoy being my own boss, sometimes. Residency is highly structured but not always efficient. I relish maximizing efficiency and being extremely efficient in my side job recharges me. For example, I kept increasing my hourly tutoring rate throughout the last 17 years and arrived at a happy equilibrium price where I’m fairly compensated for my exceptional work rather than overworking. While I can tutor twice as many clients and charge 1/2 of my current hourly rate, I much rather charge higher and work less, saving the extra time for studying (making myself a better doctor and a better teacher) and spending time with my family.

Side jobs (including tutoring) in college and med school helped control my total student loan debt and allowed me to pay them off completely as a mere intern.

It also helped me to be a better student, learner, and doctor. I recommend everyone to work a little bit on the side, even if it’s just a few hours per week (which with proper time management) will likely enhance your efficiency in learning and practicing medicine. Try to get your side job in something you love, perhaps in something other than medicine, allowing you switch gears and recharge.

Did you work a side job in college or medical school? how about residency?
What did you like about your hustle?
If you didn’t get a paid side job, what do you do in your free time?
Ever thought about turning your hobby into an additional income to build your net wroth?

Comment below!

How to increase my savings rate to 50% and more?

Since I just started radiology and got a whooping 2k raise for 2015-2016, time to revisit my budget and see if I can save more efficiently.

From my pgy2 income, not including my side job in tutoring,

  • Monthly Pay$4,461.08
  • Federal Withholding$234.79
  • Social Security$276.59
  • Medicare$64.69
  • Arizona$187.37
  • Monthly Net Pay$3,697.64

 

pgy2 monthly budget
pgy2 income 3,697.64
tutoring income 500
utilities -330
gasoline -100
food -300
home insurance -30
med insurance premium -167
car insurance -137
mortgage -925
extra mortgage payment -50
property tax -167
HOA -18
Mini’s painting/voice lessons -200
med insurance co pay -30
house maintenance -50
car maintenance -30
cc payment -280
Roth 403 B contribution -1300
pet -30
balance 53.64

 

 

I’m contributing monthly: $1300 to ROTH, $400 to equity, $280 to credit card debt (albeit 0% interest), which means my post tax saving rate is $1980/$4197.64 = 47%.

Mr. Money Mustache managed to save 75% of his income for ~10 years and retired at age 30 to start a family. Although my income is much less than his when he saved 75%, I’m still very inspired by him to live a life of frugality, resourcefulness, and relishing challenges and embracing true happiness.

 

 

 

So where can I cut out fluff and ramp up my saving rate?

The potential categories I can cut back and or save more include:

  1. I can start contributing to HSA (health savings account). Because by putting  in $80/month, I will get $60/mo from my employer’s contribution. This is a 75% match of my PRE-taxed dollars. Can’t get any better than this!  As WCI wrote “When you contribute to an HSA, you get a current year tax deduction. Your money also grows in a tax-protected manner over the years. Finally, when you pull the money out, as long as you spend it on healthcare, it comes out of the account tax-free.”
  2. Mini Wise Money’s lessons: her voice lessons is about $120/ month, I have yet to hire a regular painting teacher/find an art studio. She’s done lots of art in after school and now has plenty of art classes in summer camp (summer camp was expensive but I was able to pay for it with additional tutoring)  Once school starts, I may limit her painting lesson budget to one in home lesson/month @ $40. This will allow Joy’s lesson expenses to decrease to $160 instead of $200.
  3. med insurance copay: both Mini and I get monthly OMT (osteopathic manipulative treatment; i recently started the monthly visits). But I can easily reduce my visit frequencies to every 2-3 months with more exercise and stretching on my own. Can reduce this item to $15/mo instead of $30.
  4. house maintenance: after brand new roof and a brand new Cadillac AC system, we have not had any real house maintenance expenditure. Even though the budget has $50/mo for this category, we have hardly needed to use it.
  5. car maintenance: we have low maintenance reliable cars. Even though the budget has $30/mo for this category, we haven’t really used it except for a few times a year. John does all our oil and filter changes.

 

For item 4/5, i’m happy for the extra $80 we save each month when we don’t spend on maintaining our car or home.

I’m reluctant to really go for item 2, as Mini’s learning and experiences bring me/ and likely her more happiness than anything else. so I think I will stick with the current allotment of $200 and possibly will increase it if i have additional income.

I am very excited about item 1. Instead of paying $101 in health insurance (the other $66 of $167 was for dental and vision insurance), I can save $80 per month in HSA (triple tax free) and receive the generous 75% match from my employer. In other words, without increasing my total income, I will be saving $140 more each month, bumping my saving rate to  $2120/$4197.64 = 50.5%.

This is fantastic. I’m always happy to see additional money saving opportunities when re-evaluating my budget. I hope you do the same with your budgets. Budgets are not limitations, they are a fine and necessary tool to financial freedom.

 

 

  • how often do you reflect on/adjust your budget?
  • what are the non-negotiable’s in your budget?
  • what is your current saving rate from you take home pay?
  • what is your target saving rate?
  • any new found cash that you can stash away this year?

 

Please comment below!