Money
Welcome to another installment of Interviews with Real Female Physicians. The goal of this series is to share their story so that you, the reader, may learn and be inspired from their experiences – good and bad. We all come from different backgrounds and have different situations. Some of you are married, some are not, some with kids, some with blended families. Let’s show other women that any of these can work financially! So let's introduce our next woman physician rockstar – Rebecca.
Tell us about yourself:
I’m an Internal Medicine physician turned Stay-At-Home/Homeschooling Mom. I met my husband the first day of intern orientation, and we are celebrating ten years of marriage (and four children) this year. Since we met while we were both in the military, we move where the military sends us, which included eight years in one of the most expensive cities in the country and now the past three years in a Southern coastal city with a moderate cost-of-living. I graduated from residency eight years ago, but I only practiced clinical medicine for five years after residency. I trained in the military and served my three-year military commitment practicing general Internal Medicine, during which period my first two children were born. At that point, I got out of the military and took a part-time civilian job for two years, until the military moved my husband (and the rest of us) cross-country when my third child was five weeks old. I planned to take an extended maternity leave to get settled and enjoy this time with my kids, but I enjoyed it so much that I never wanted to go back. We then added one last child to the mix and started homeschooling. This was not my original plan when I started my medical training, but being debt free has given us the freedom to make this choice. When I’m not making lunch, reading Charlotte’s Web, making salt dough maps, and exploring fractions, I read, knit, visit historical sites, and volunteer for far too many community organizations.Did you graduate with student loans? How much & what are the interest rates?
I had about $50k worth of loans from my first year of medical school (before I joined the military) that were consolidated at around 2%. My husband had no loans. I paid them off as quickly as I could, and finished paying them sometime before I graduated from residency. That may have been a financial mistake, given the low interest rate, but I wanted to be free of them.Financial aspects of kids
When did you have them?
We have four kids, ages 4 mos to 7 years. My first child was born about seven months into my first attending job, and the second child less than two years after that. I was active duty military and only entitled to six weeks of maternity leave, but it was fully paid at my usual salary. I had my third child at the end of my part-time work, with no benefits, and my fourth child while I was already a SAHM.Are you planning to fund their college expenses?
We feel strongly that we want to pay for four years of undergrad education for our four children because our respective parents did that for us. The finances on 16 years of college are daunting. We have 529 funds for each kid in each of the two states where we have a state income tax obligation and get a tax break. My husband transferred his post-9/11 GI Bill, which would cover the full cost of state school for one kid or about half the cost of private school for one kid, although that benefit is subject to political maneuvering and we are not counting on it. Knowing that we hoped for multiple children, we started funding the 529 account for my oldest as much as we could when he was born, and have been able to slightly increase the total amount saved with each kid, but our current contributions are only about double what we started, not quadruple. We currently save a little more than 10% of our take-home income for college and that puts us on track to be able to fully pay for all four kids for state schools. All the money in the 529s belongs to me, not to the child, and we treat it as a single pot of money to move among children as needed. We will reassess as they get closer to college and see if we will be able to pay for private schools as well, maybe via our taxable account, cash flowing from income, if grandparents offer any money – we’ll see, but even if we can just offer a state school, that would be fine.What are your child care expenses?
Childcare for the first two was initially on the order of $1800/mo for center-based infant care, until we were able to get them off the waitlist into the subsidized center on base. That was about $1000/mo for two kids, so a significant savings. Childcare once we had kids #3 and #4 is either really cheap (free!) or really expensive (the entire amount of my potential wages). We decided on center-based care because we were more comfortable with a group of caregivers instead of a single caregiver, cost, and the availability of on-base care with hours that worked well for our usual schedules.Financial aspects of marriage
How and why I became a SAHM – I had no flexibility with the length of my maternity leave or my work hours while I was active duty. When we learned that we would be moving cross-country with a 4.5yo, a 2.5yo, and a newborn, I decided to take advantage of the last year before my oldest would start kindergarten and keep everyone home with me and enjoy exploring our new city. It was significantly more satisfying (and more fun) than seeing patients and filling out pre-auths for generic drugs. While I liked practicing medicine before I had kids, I loved staying home with them. Part time work was not the best of both worlds for me; it just made me feel like a bad doctor and a bad mother. Once I paid for taxes and childcare and funded my retirement account, I was only bringing home about $500/month, which we haven’t particularly missed. I’ve managed to replace some of the solo 401(k) contributions by picking up some consulting work. Financially, staying home was a wash when we had three kids; now that we have four, I’m saving money by not working. Since I was already staying home, we decided to homeschool kindergarten to maintain flexibility in our family schedule when my husband was deployed. Homeschooling proved to be a wonderful fit for our whole family, meeting the academic and social needs for our children better than we feel any of our local schools would. At this point, with lots of soul searching, I decided that – barring a major change – I don’t want to return to clinical practice while my kids are young, so for a good decade or so. I maintain my licensure and board certification, but if I return to clinical practice, I plan to do a formal re-entry program. If we don’t need the money, I might become a park ranger instead.Are you married?
Being married and having finances is the key to our financial lives, especially as a one-income family. This is the only marriage for each of us, and the only children we have are ours together. We met at intern orientation, and married just over a year later. We were both military physicians of the same rank, without significant assets and with only a relatively small amount of debt from medical school and a car loan.Did you get a pre-nuptial or post-nuptial agreement?
We lived in a community property state and did not get a pre-nup or a post-nup, for both religious and practical reasons.Do you and your husband agree on finances?
We combined all our (non-retirement accounts) since we married and consider all of our money “ours.” Originally we shared responsibility for paying bills and managing money, but I took over all the financial management during my husband’s first deployment, and I have continued to manage all the finances since then. In general, we have similar (but not identical) attitudes towards spending and saving. We used to budget by the method of “pay ourselves first” and then save whatever was left-over at the end of the month, but started formal budgeting prior to my getting out of the military. We use YNAB (You Need a Budget), and now that we account for every penny, we allocate each spouse a personal/hobby budget that rolls over from month-to-month. I do about 80-90% of the spending since I do all the spending for the household and 5/6 of the people in it. My husband likes to complain about his “allowance,” but admits that he is in agreement with the plan and just likes giving me a hard time about it. My husband does not participate in the day-to-day budget reconciling or financial management, but we sit down for budget meetings every 1-2 months.General Finances
What’s your FI (financial independence) number?
We haven’t fully determined our number. There are several big unknowns that won’t be determined for the next 4-10 years, such as where we’re going to live when we get to pick instead of the military, and whether or not my husband stays in long enough to qualify for a pension. Our expenses will likely not decrease significantly with retirement, and may even increase. We currently have no health care expenses, we are not yet building equity in our forever home, and a good portion of my husband’s compensation is a tax-free housing allowance. Our annual expenses, after taxes and retirement contributions (but continuing college savings) are right around 100k, so at 25x expenses, our number would be 2.5mil, which does not sound like enough money to me at all. At 40x expenses, the number is 4mil, which sounds more reasonable. I will not consider us FI if we aren’t able to pay for college for the kids, and probably wouldn’t feel FI, regardless of account balances, until all the kids are through college and financially independent themselves. The kids should all be through college a few years before we hit age 60, but we are on track to have the money a good 5-10 years before that. We’ll have to see.Who handles the finances in your relationship? Are you DIY or do you have a financial advisor?
We have always done it ourselves. We both started with a solid grounding in the basics of saving and investing from our parents, but I’m more interested in the topic than my husband. Generally, I keep an eye on things and do the research and then we discuss before making any commitments. Because we started young when things were simple, as we’ve added complexity with more marriage, more investments, children, 1099/Schedule C, homeownership, etc., I’ve only had to learn one or two more things per year to manage the finances and do our taxes.What is your net worth?
Our net worth, including an estimated $50k of home equity is about $950,000. If I could include the 529 accounts, it’d be a nicer, rounder number with an extra zero.How are you saving for FI/retirement?
My dad gave kitchen-table lessons about the merits of passive low-cost indexing from the time I was about 10 or 12, and we have continued that trajectory. We essentially have a Bogleheads 3-fund portfolio replicated across 2 TSP accounts (government 401k), 2 Roth IRAs, 2 SEP-IRAs, and 1 solo 401(k). We max out my husband’s TSP at 18k/yr, both Roth IRAs (we are comfortably under the limit for being able to make direct, instead of backdoor, Roth IRA contributions), and have SEP-IRAs from prior 1099 work. I contribute all my consulting money, minus required FICA taxes, as my employee contribution to my solo 401(k), and may max it out this year although I haven’t made enough to do in prior years. We have a decent taxable account, but have only been able to contribute to this irregularly as our family and expenses have grown. All told, depending on how much 1099 income we have in a year, we are saving 38-45k/yr in retirement accounts, which is 25-30% of our pre-tax income and puts us on track to retire between 50 and 60, depending on what we decide our FI number is. Our asset allocation is 60% domestic stock, 30% international stock, 10% bonds, and 0.5% REITs. The REITs are new in my new solo 401(k), and I’m still contemplating whether I think the added diversification is worth the loss of simplicity, which is why I’m not including it in any rebalancing, just adding my solo 401(k) money there. I rebalance annually in March, and generally rebalance by changing the allocations for incoming new money rather than selling and buying, unless there’s a variance of more than 5% from my target asset allocation.One thing you wish you knew/regret:
We are not interested in real estate investing and have no interest in being absentee landlords, but bought a house when we moved to this duty station. Knowing what I know now . . . houses are expensive. And while it hasn’t been catastrophic, it’s mentally stressful to worry about moving given that we will be on the military’s time frame and not our own. We may end up “diversifying” into real estate whether we like it or not.Do you have insurance?
We have life insurance on both my husband and myself, although less than many doctors. Our only debt is a mortgage that would be more than covered by the sale of the house. We figure we are self-insured for the first $1 million, and have 30-year policies for another $1 million on my husband and $750k on myself. We made these calculations based on three kids so should probably revisit them now that there is a fourth. Our calculations assume that I would return to work after 1-2 years if we did not have my husband’s income. We do not have disability insurance as my husband is still active duty and it wasn’t on my radar before I stopped working all together. We will have to reexamine that when he’s getting out of the military, but it would be less of a concern if he has a pension. We carry the rest of the usual insurances – auto, home, umbrella.What does FI/retirement mean to you? What does it look like?
We are not FI, but we are on track. I call my stay-at-home/homeschooling life a “sabbatical” from medicine, but financially I think of it as taking some of my retirement years now, while I am young and while my children are young and at home. Our days are full – but joyful – and I feel very lucky to have this time to raise my children, explore our area, support my husband’s difficult schedule, bake muffins, and read good books. I left clinical practice at age 33, and I anticipate returning to paid employment in some capacity in my mid-to-late 40s and work 10-15 years. Whether or not I’ll return to medicine depends on a number of financial and non-financial factors, but I’m really considering the park ranger idea.Do you give to charity? If so, where and why?
We give regularly to charities including our church, our almae matres, and various charities that meet basic human needs like food, shelter, and clean drinking water. This is a line item in our budget, about half of which goes to regular contributions to our church and the local food pantry, and the other half we donate in larger sums as we see fit. In December, we take whatever is left and divide it up for the children to decide which charities they would like to support and we help them find and research charities working in areas that interest them. We also observe a Lenten fast where we eat more simple meals and give up treats (like ice cream and Amazon Prime), and donate the extra money that frees up in our budget.Any parting words of wisdom?
Although we are a dual-doctor couple, our finances more closely resemble those of non-doctor professionals than those of most doctors. We didn’t have significant loans, we started earning a decent salary at age 26 right out of medical school, and has increased more-or-less linearly to a low six-figure salary. We paid off our debt and started saving and investing within a few years. We did not max out all out of retirement accounts every year (hindsight!), but we were at that point by about age 30. Like many non-doctor professionals, we have benefitted significantly from income smoothing, earning the same amount of money across a longer time period. There was one year we were (barely) in the 28% tax bracket, but every other year of our married lives we’ve been in the 25% tax bracket. Our annual income is a fraction of many of our peers, but this does two things: 1) it prevents lifestyle inflation so it keeps our FI number lower (as a multiple of lower expenses) and 2) we got an 8-10-year head start. We live (and enjoy) a decidedly middle-class lifestyle rather than a “doctor” lifestyle – We have a nice house with a nice yard, but it’s 30 years old. I drive a new Honda Odyssey, my husband drives the 11yo Volvo sedan that I bought when I graduated from medical school and only has air-conditioning sometimes. We get our movies from the library and occasionally Redbox. I’m still wearing several pairs of shoes I bought over ten years ago. I sew patches over the torn knees of my boys’ pants and hand them down to the next kid. I even wash and reuse Ziploc bags. We are frugal and aim to keep expenses down so that we can spend our money on things that matter to us – date night, all the books we want, swim and piano lessons, at least one nice family vacation a year, a few long weekends, and several other trips to visit family. The power of compounding: Here’s my Vanguard balances graph (numbers removed) over the past 10 years. This is our taxable account, but our Roth IRAs show a similar graph. We married in 2007, finished paying off our loans, and started investing in 2008. The green is contributions, the blue is investment returns. We have now hit the tipping point where our compounding is really compounding on itself – you can see that we’ve continued to make contributions at a much slower rate than before (4 kids!), but that the investment returns keep going up.
And … that's a wrap! If you're interested in doing this please send me an email – I'd love to hear from you!
I loved reading Rebecca's story and I hope you did too. Definitely a different life than most women physicians.]]>
Before any big change in your life (hello, moving!), it's important to get your finances in order. We consider the cost of a move, and we compare our current salary with our future position. But what about saving for your future? It's probably not on your mind when you're thinking about moving. But for my recent move, a Mega Backdoor Roth IRA was something important to consider.
our move to a MCOL. I had less than 2 months before my planned maternity leave to figure out how to make sure I was maximizing benefits, particularly my work-sponsored retirement accounts.
My Work-Sponsored Retirement Accounts
To recap, here are the retirement accounts I have through work:
- 403(b) – I max out my contribution at $18,000 and receive a generous employer contribution + match. I am currently 40% vested in employer contributions.
- Private 457(b) – I max out my contribution at $18,000. There is no employer contribution.
- Cash Balance Plan (aka small pension) – Unfortunately, I am 0% vested, so I will lose it all.
In addition to these work retirement accounts, my Roth IRA for 2017 was funded in January.
Planning Ahead for a Move
Since the leave was planned well before our move to a MCOL, I had already increased contributions to my work's 403(b) and 457(b) so that my contributions would be maxed out by the end of September.
I was unable to get a straight answer from HR if I can continue to make contributions when short term disability pay kicked in for my maternity pay, so I played it safe. I also could not get a straight answer if I would continue to get employer contributions plus the match match if I front loaded the 403(b) and 457(b).
Thankfully, the employer contributions + match have continued!
Now, I will be separating from my job (I am employed until the end of December), some things will change. I am starting a new job in 2018 that only offers a 401(k). That means I'm losing my 457(b) and cash pension plan.
Because of that, I decided to take advantage of the Mega Backdoor Roth IRA (linked to excellent article by Mad Fientist).
What is a Mega Backdoor Roth IRA?
You might be wondering what exactly is a Mega Backdoor Roth IRA?
It is the ability to contribute an additional $36,000 a year into a Roth IRA. This is in addition to the regular or backdoor Roth IRA of $5,500 annually.
I knew this was an option through my work's 403(b) since they allow non-Roth after-tax contributions (aka NRATs). This is not the same as being able to contribute to a Roth 403(b) or 401(k). These contributions are in addition to my $18,000 employee contribution. You can contribute NRATs up to the total limit of $54,000 (for 2017).
Obviously, I want the free employer contribution + match, so I am limited to contributing an extra ~ $15,000 in after-tax contributions. But if you have no employer contribution then you can contribute the difference of $54,000 less $18,000, or up to $36,000.
Understanding Mega Backdoor Roths and Taxes
One caveat is that you want your plan to allow in-service distributions, meaning that you can move the NRAT portion of your 403(b) or 401(k) out of the account and into your Roth IRA. Some plans let you do this quarterly or annually. Mine only allows this upon job separation.
This is not a deal breaker, but this means that I will owe taxes on the gains only. One will still owe taxes on the gains with a quarterly or annual in-service distribution, but it will have less time to make gains, so they should be minimal.
Why This Money Move Was Right Before Our Move
I did not contribute to this in the past since I'm still paying down student loans. But now that I am leaving and losing a good amount of tax-advantaged space with the new job. It made sense to “fill up” this bucket before my move.
Final Thoughts on Mega Backdoor Roth IRAs
To summarize, here is how to tell if you are eligible for a Mega Backdoor Roth IRA. Ask yourself these questions:
- Does your plan allow non-Roth after-tax contributions?
- Does your plan allow in-service distributions? How often?
- If yes to both – you are lucky! And have an additional potential $36,000 to contribute to your Roth IRA
If you're eligible to contribute or you want more information about a Mega Backdoor Roth, make sure you swing by the Mad Fientist's article. Whether a Mega Backdoor Roth is the right financial move for you or not, before you move to a new city or simply change jobs, make sure that you think about your future money situation, too.
Have you heard of the Mega Backdoor Roth IRA? Comment below!]]>
Sometimes, the right money move means an actual move. Here's everything you need to know about making the move to a lower COL based on my very own move.
Considering the Possibilities
I put in my 90-day notice at my job (my first job out of residency) the end of September. This nicely coincided with my maternity leave, so I won't be returning. M also gave notice around the same time. Why? M was offered an opportunity he (we) couldn't refuse.
Except the job was not in NYC or within commuting distance. Let's just say my initial response was “Hell No” as a New Yorker. Our first trip to Philadelphia together–aka the “I need to convince Bonnie trip”–didn't end well.
At first, I was excited. Philly is a lot like Brooklyn (Shhh, I've been told they don't like to hear that!). But then, as the day wore on, I was sad about leaving my friends and my life here.
I was a wreck.
Exploring New Opportunities
However, it became clear to me this was a job he could not turn down for his career. So, I figured, at the very least, I should check out the job market for me and see what turned up. There was no shortage of opportunities for me. I looked into both private and academic positions.
For a number of reasons (new addition to family being a top one), I decided to leave academics and join a private practice. The deal was clinched when M said “we can retire 5 years faster.”
I found a job that I am excited about. It doesn't hurt that both M & I will also be increasing our incomes significantly and living in a lower COL area. I took advantage of the job and location transition to take an additional month of maternity leave bring the total leave to 16 weeks.
Not quite LCOL, but for us New Yorkers, Philadelphia is a significant drop in COL. So we are practicing a bit of geographic arbitrage.
So here is what I learned from by making a move to a lower COL:
#1. Don't be afraid to see what else is out there.
Explore options job wise. Obviously, I knew I was making less being in academics AND being in NYC (doctors get paid less here…). But until I saw the numbers in front of me, it didn't feel real.
#2. Don't be afraid to move.
Moving is one of the top stressful events for adults (and children). I could see us living in NYC for the foreseeable future. Once I ran the numbers living in Philly vs. NYC (incorporating our new higher salaries, less taxes, less expensive childcare), it really was a no brainer. At the very least, it can't hurt to try!
Both WCI and Physician on Fire espouse living in a lower COL to get you to FI faster. I finally listened to them.
Thankfully, my parents live in New Jersey, so Philly isn't that much further away. Also, they can still be quite involved with helping out with our newborn.
#3. Sometimes you just gotta do what's best for the family.
We would've been “fine” staying here for a while or forever. I'd be lying if I said the cost of childcare (and private school if we went that route) in NYC didn't cause some heart palpitations, though.
Both of us have lived in NYC for several years and were open to trying something new.
NYC won't be going away if we want to come back.
Final Thoughts on Making a Move to a Lower COL
It's hard to give up what you know, what feels familiar, and what you call home. However, if you're feeling a pinch financially or want to accelerate your FIRE journey, a move to a lower COL area might be the right decision for you.
Have you moved to a lower COL? Comment below!]]>
Welcome to another installment of Interviews with Real Female Physicians. The goal of this series is to share their story so that you, the reader, may learn and be inspired from their experiences – good and bad. We all come from different backgrounds and have different situations. Some of you are married, some are not, some with kids, some with blended families. Let’s show other women that any of these can work financially! So let's introduce our next woman physician rockstar – Diana .
Tell us about yourself:
My name is Diana and I am 47 years old. I am completely debt free as I type this and it feels fantastic to say that! I have been out of residency for 12 years. I trained in internal medicine and while I was considering continuing in critical care and pulmonary medicine, I realized that I did not want to be ‘on’ all the time and bailed out on an offered fellowship spot. As many of my colleagues did at the time, we took the easiest path which was becoming a hospitalist. The money was good and the jobs were all over the place. Initially, I chose to stay on board the same residency program and was an academic hospitalist for two years. While I really feel passionate about academic medicine, I am not passionate about the bureaucracy and the nonsense of being short staffed and having to work extra without being paid properly. My husband who was getting paid ‘soft money’ in academics (i.e., grant money that could run out any year) decided that he wanted to pursue medicine. We had a baby and I was quite unsure, but he got into a school he wanted and we moved to California. I worked 10 years as a full time hospitalist, and although I admit the money was better than good, my schedule was terrible. Working nights and weekends and swing shifts was tolerable when my kids were babies but once they were old enough to do stuff, I didn’t want to do this anymore. I got interested in Palliative Care Medicine (which was not a subspecialty when I was in training) and took the proper steps and became board certified. I could make a case to my group to get me out of hospital medicine and transition to PCM. Initially I did 50/50, but like you all know that was like 75/75 and I had to make a request to switch entirely. So for the last 2 years it was PCM only. I enjoy what I do, and it was a good career decision. I was also very caught up in administration, I was always the type to show up to meetings, so I ended up being chair of medicine, chief of staff and director of palliative care. I was compensated for all these roles, but the work was getting too much and I was ready to switch roles.
When my husband finished training, as a radiation oncologist, he could not find a job at the state we were living in. California being such a desired destination, it turned out what he could find was not acceptable in my opinion (no guarantee to make partner for 3 years, etc). The first year out he worked as locum tenens and being a week out at a time with two little kids got old fast.
He heard of a position in Hawaii after looking into to it deeper and we moved there!
Now I only work 2.5 days a week as an inpatient PCM and feel like I have good work/life balance. My hours are very nice and I found a family up the street that we share car pool duties with our kids.
I love palliative care medicine. I recommend people who are not gunning for top specialty to consider it, do a month and see what you think. It may not be for everyone, and in some way, it’s best to choose it after you have done other primary care type medicine, so you have a more robust experience dealing with complex patients. The pay is not what gets you to do this, but I think that the workload can balance the average pay somehow. And if you find meaning in this type of work, like I do, it’s rewarding for the work that you actually do.
Did you graduate with student loans? How much & what are the interest rates?
I did not have any loans in undergrad and my parents had paid for those. I got my masters and by the time I went to med school I was older than most. I got into medical school as a full ride scholarship as it was a dual degree with PhD. So my first year tuition was paid. It was very clear that I did not want to do bench research that year, so I asked to be pulled out of the PhD program. The following three years I accrued about 140 thousand dollars, but I will say that I could have saved more had I chosen to have roommates, etc. I lived alone in my own apartment and that peace of mind of not dealing with someone else’s drama was worth the money I could have saved.But, I still had my loan repayment on a 30 year plan. I think I had it consolidated to 3.15 percent and stopped thinking about it altogether. It is true that it was the Mom Finance Physician Group on FB that kicked my ass into paying it in chunks at the end. When my husband went to med school, his loans were not bad because ‘his wife’ had moved to CA for job so he had in-state status. While he accrued about 160,000 in loans as well, we paid 60,000 with bonuses here and there and did something interesting with the 100,000. We had saved for a down payment for a house as we were renting in med school not knowing where he may end up. We bought a home for $600,000 with 20% down and had a 15 year loan hoping to pay it all fast. As we had quite a bit of equity, our FP at the time told us to get a HELOC on our home for 100,000 and pay off his loans. It sounded crazy, but, his loans were 6.8 percent and we got no kick back on the interest of the loans. Our HELOC was 2.75 percent and helped with end of year taxes…Financial aspects of kids
When did you have them?
I am a mother of two girls, one I had as an academic hospitalist, the second one I had in the second year of my job as a full time hospitalist.Are you planning to fund their college expenses?
We have saved over $50,000 for each in scholarshare which is a CA 529. At this point our rent from the property we own (paid off), gets divided into two payments that go into those accounts indefinitely. When they are done with the school, I’ll continue contributing, but will put my grandkids as the beneficiary and myself as the primary account holder.What are your child care expenses?
As far as the kids go, when I look at my social security income history website, I am wondering where all our money went in the early years of my attending salary. I am sad to say, most of it went to childcare. Excellent child care can be expensive if you live somewhere when you don’t know anyone to watch your kids for free. I had my older one in a preschool that was $1200 a month and even though I worked a week on and off, I still had to pay the full amount. Then when my little one was born, I had a nanny that would watch her at home for the weeks that I worked the first two years. That was another $1500 a month. That is a lot of post tax income that could have gone into savings, investing or paying off debts. But, when you have little ones, excellent care trumps saving money so I am glad I had the insight to not panic.Are your kids in private or public school? What is the cost including after care if needed.
For the kids, we have chosen private school, because of the philosophy of what is being taught to them more than the experience of a private school. They go to a Waldorf school, and while it is pricy, I’ll take it over the senseless testing of the public and academically rigorous schools out there. For high school, we will switch gears and go to mainstream school depending on what they end up liking.
Financial aspects of marriage
Did you get a pre-nuptial or post-nuptial agreement?
I do not have a prenuptial agreement. This is my second marriage and my first one was to another physician, too. We kept everything separate, bank accounts, rent money, etc. That spoke more to the quality of marriage we had than our financial differences. When we separated, I took the things I wanted and he kept the things he wanted. Very amicable marriage and a very amicable divorce. There was no exchange of any type of money. We are good friends to this date.Do you and your husband agree on finances?
I should say that my husband and I don’t have any fights regarding finances, because he doesn’t know nor care about what is going on. I make all the decisions, and he is happy with the outcome so far. At one point, I was panicking that he had no idea of what we had and if I died he’d be screwed, so I thought having a financial advisor going through our finances and getting him involved was the way to go.Are you the breadwinner?
With my current marriage, for the longest time, I was the breadwinner. There was a calculation that I used in the beginning so that we felt that we both contributed fairly. It was something like, you add the total expenses of your home, say $5,000 and you add the total income of the family. And then what that ratio would be for one income vs the other. So for example in that case if I made 4 times more than my hubby, I paid $4000 and he paid $1000. And so on, that way we could also have our own money for what we wanted to spend it on. That was more than 13 years ago. We don’t do this anymore. All in one bucket. We save aggressively, and if anyone wants to buy something, like let’s say a paddle board, it gets paid with no question asked. We work hard and we spend on things that give us good life experiences… neither one of us is abusive with money and we both encourage each other to spend freely. Two years ago on an auction night he encouraged me to bid on a round trip to NYC to see Adele for $5000 dollars! I did it with my sister and it felt like absolute magic, but as a rule, we are Target and Costco shoppers if you need a visual.General Finances
What’s your FI (financial independence) number?
I don’t know what our ‘number’ is.
Online, I had calculated something like $4.5 million and our one time financial advisor said $10 million! He was calculating that we needed 80% of our income. Well, dude, we are saving almost 50 percent of our income now, so that can’t be right! But we don’t have a number, we keep living the way we do and saving the way we do.
It’s not like a cake in the oven, we hit the number and stop working. We both feel like you want a life that you can live comfortably so you are not looking forward to stopping the life you are living. Living in Hawaii is expensive but the quality of life is fantastic. Different beaches every weekend, people are very relaxed and we appreciate evening walks and morning hikes and the weather is predictable all year.
What’s your FI (financial independence) number? Who handles the finances in your relationship? Are you DIY or do you have a financial advisor?
It became clear to him that I knew as much in many cases not if more than our FA, and if I couldn’t get him interested neither could he, and we decided after having a relationship with the FB physician mom group to cut the ties with our financial advisor. He did help us with some things so I can’t say it was a total loss as some docs mention and because I had knowledge I didn’t ‘buy’ anything and they were only managing a very small portion of our portfolio. Having a financial advisor is good only if you know what they know and you ask questions to clarify. The FB mom group did that for me for free.What is your net worth?
$1.6 millionHow are you saving for FI/retirement?
I have been known to spend money lavishly, but that only pertains to going on vacations, eating at nice restaurants and treating my family and friends to generous gifts (I took my sister to Paris for a week as a surprise present as an intern: all expenses covered by me). But I never spend the money I don’t have. That money was saved and planned for. I also helped pull out one of my friends out of a bad financial situation by giving $10,000 dollars and never asked for the money back (update, 15 years later, that person is in a 100 times worse shape, a lesson in why you don’t give money to people with money problems…). That was a one time thing, but I am using it as an example of my extravagant spending habits. But as a rule, I am not the type of person to spend money on ridiculous stuff. I am not image conscious and I don’t care that I drive a (be it brand-new) minivan and not a high end flashy SUV. As far as saving for retirement this all was a new thing to me after I split with my first partner. I was a second year in residency and had to pay taxes for the first time on my own and I owed like $2000. Then someone told me to put away money in traditional IRA for $3000 and then I didn’t have to pay taxes since it lowered my earned income. This was all new to me. I didn’t know what retirement was and the word 401K was what older people were doing. I got a book called “smart women finish rich” and the rest is history. I read that book over a weekend in Barnes and Nobles and that book changed my life in terms of understanding compound interest, dollar cost averaging and retirement savings. I started optimizing every dollar that I could save for the pre-retirement and I became a mega savor in 2004. Even though I continued my lavish travels, now I had the notion of what paying yourself first and saving meant. Meanwhile, we have always maximized our retirement accounts. 401k and 457b (hubby) backdoor Roth IRA has been a priority. When he was doing locums we were able to put additional money $15k each year in addition due to his income. My old job had some pension which will be about $250,000 when I turn 65, which is not bad. Currently, we have about $1.3 million in retirement accounts alone which considering we started in 2004 it’s pretty amazing. We also have about $50,000 in Metropolitan (2% interest/Emergency fund) and about $250,000 in a taxable account. This will sound crazy, but I look forward to turning 50 for all the catch up contributions!! My current job also allow for the the Mega Roth IRA, which is a new option for us and I will be maxing every year to $54,000 total. As far as my investing philosophy and strategy, I am a true believer that saving trumps strategy. I am sure someone with more knowledge than I have had, could have pulled another 5 to 10% on top of what we have done so far, but I have stuck to low cost index funds and some international money in there too and cannot complain with what is happening. I probably need to dial it back a bit and not be so stock heavy (more than 90%) but we don’t need the money anytime soon and a huge drop in the market, would just get us to investing more at this stage of our lives. In 20 years, I am sure that we would be 50/50 stock and bonds, but we are ok for now. Well, long story short, when it was time to move to Hawaii, our home had increased in value significantly and we were able to sell the house, pay off my student loans, the HELOC (essentially his loans) and the mortgage on the condo we had been using as a rental in where I trained. All that and we had about another $200,000 to keep for down payment for the next house. Which brings us to where we are now. The homes are so expensive here that we are thinking of renting for the next ten years. It’s nice not to have all the responsibility of a new home, taxes, insurances, upkeep and anything else is not our problem. The money we won’t put toward the mortgage will go into a taxable account in a low cost index fund and at that point if we need to move or go elsewhere to buy the money is there. And on a very visceral level, since we technically own a townhome in Arizona, I don’t feel like we are homeless.Financial Regret:
My one financial regret is: when our group closed the 457 we had an option of rolling it into our new 401k or cashing it out without the penalty. It was about $73,000 and we cashed it out because we had just bought a house and were remodeling. In the end, it is all gone and we had to pay taxes on it that year. In retrospect, I wish it was still in our retirement account. But on the other side, all the money we put into that house came back to us in folds.One thing you wish you knew:
I wish I had paid off all of our loans much sooner. I had no reason not to have paid it off sooner. When I had money collecting 1% in ally bank and the same amount in student loans charging me 3% interest, it makes no sense why I didn’t pay it all off then. But I think since we were always about to move etc. I didn’t want to not have immediate access to a large sum of liquid money. That will always stay with me. I rather have 12 month emergency fund sitting somewhere than riding in my fancy boat. But that is just how my brain works I guess.Do you have insurance?
In terms of life insurance, I have about a million on myself and 2 million on my husband. We decided to forgo my disability insurance, and my husband bought something over what the group offers (group offers $10,000 own individual policy, we bought an additional $13,250). We also have the umbrella insurance policy as well. We are in the process of updating our will (new state) and trust etc. It is very important to both of us that it is squared away.What does FI/retirement mean to you? What does it look like?
I can imagine wanting to do what I do indefinitely, and if the girls are gone to college I may up it to full time for three years to benefit our pension policy that goes off of highest salary of your 3 consecutive years of service the last 10 years. At the same time, my hubby loves what he does and would love to keep doing what he does, we both hope for more vacation than we have now, so we can travel more freely. Ideally, I would like 6-8 weeks of vacation a year and I think with that, I can work forever… When I was in my last practice the cardiothoracic surgeons had 12 weeks off a year. That is NICE! I’ll take that too if that is ever an option.Do you give to charity? If so, where and why?
As for charity, I have been giving locally (local NPR) and globally (Doctors Without Borders) for years. I also, pay a lot for the girls schools’ charitable events (auctions etc).Any parting words of wisdom?
I want to thank Bonnie, I think that since being in that group on FB and reading what people have shared, has really accentuated a philosophy that I have always had – which is live like a resident today so that you can live like a millionaire in your older years. It’s nice to be able to be generous and help friends and family and also benefit from years of education that has allowed us to have access to an income that we can use to live financial independence comfortably. At the end, delayed gratification, is a kick all on its own, and once you learn to experience it, going to a pre-planned and pre-paid two week European trip does not feel like a luxury but a necessity for your family’s mental health. Life is short, but if you play your cards wrong, it may feel painfully long for the unfortunate few.And … that's a wrap! If you're interested in doing this please send me an email – I'd love to hear from you!
I loved reading Diana's story and I hope you did too. Love her no nonsense attitude!]]>
I've estimated that these mistakes have cost me at least $350,000. Meaning that if I didn't make them, I'd have at least that much more money saved. Big sigh.
Here are the biggest financial mistakes I've made and survived to date:
#1. Cashing out my old work's 401(k) plan & selling company stock
I started a coveted job at Morgan Stanley in 1999 right after college. It was the height of the tech boom. My starting salary was $50,000 + a small guaranteed bonus. (I made the same as a resident in 2012!) My first 6 months was in London with all expenses paid.
I was an ex-pat there – meaning I was paid my U.S. salary but received free housing (picture beautiful 2 bedroom, 2 bath furnished apartment with marble bathtub, heated towel stand across the street from Hyde Park, neighboring the Grosvenor House) and a generous cash per diem. I did not have to spend any of my actual salary to live in London.
Now I don't totally regret this part – I was able to explore Europe on the weekends – weekend trips to Paris, Spain, Amsterdam. Priceless. Back then, friends and family from NYC could visit me in London for less than $400 roundtrip.
Plus, I had access to a 401(k) plan for the four years I worked there. I'm pretty sure I didn't max it out, but I still had a nice chunk in that account.
Still, I cashed it out in 2004. Yup, it gets worse. In addition to a company match, we also got free stock as part of our retirement plan. I sold it.
#2. Barely saving despite high earnings as a 22 year old
I listed my starting salary in mistake #1. About 1 year later, I got a $22,000 raise and a $25,000 bonus. This meant I hit 6 figures at the tender age of 23.
My only wish is that I had some savings to show for that! I lived paycheck to paycheck despite a high income. I guess I can blame NYC.
#3. Racking up $20,000 in credit card debt before starting dermatology residency
Yeah …. someone went a little nuts during intern year in NYC. I had awesome clothes, though. I paid it all off before graduating residency. Thankfully, I no longer carry any credit card debt and pay off cards in full every month.
#4. Not funding a Roth IRA until 2014
The Roth IRA was enacted in 1997. I've been earning money since at least 1992, so I'm not even counting opportunities to fund a regular IRA prior to that!
I actually never heard of the Roth IRA until sometime during residency so I feign ignorance prior to that. I couldn't imagine forking over $5,500 a year as a resident, but I totally could have. This is especially true because I moonlighted most of residency.
#5. Not paying off student loans during residency
Every year during internship and residency I meticulously applied for deferment or forbearance on my student loans. Isn't that what everyone does? Apparently not.
By the end of residency in 2015, I had almost $50,000 of interest capitalized onto my loans.
Surviving My Biggest Financial Mistakes
You can always earn more income, but you can't create more time. That's why some of these financial mistakes really sting.
Despite these awesome mistakes, I should be able to reach Financial Independence within 15-20 years and pre-Financial Independence within 10 years or less.
Feel free to share your mistakes below!]]>
The blended family is defined as a family consisting of a couple and their children from current and previous relationships. Blended families are on the rise and you need to know how to prepare yourself financially.
I've already written about a Premarital Financial Checklist that all couples should consider before walking down the aisle. In this post, I'll discuss some of them in more detail. Plus, I'll share some possible legal & financial ramifications for blended families.
Please note – I am NOT a lawyer. I strongly recommend you consult with a family lawyer in your state (and the state bonus kids live in).
To kickstart your blended family finances, here's what you need to know:
1. Know your partner's full financial obligations to his/her children and ex-spouse
You'll want to know if your partner owes alimony or spousal support. Specifically, you need to know how much and for how long. You'll want to know what his/her child support obligations are and for how long.
Each state has different age limits – 18 through 21+. Generally, if the child goes away for college, support payments stop. If the child lives at home, payments continue.
You'll also want to find out what their financial obligation for college is. In general, this is split between the biological parents in proportion to their income.
I strongly recommend reading your partner's divorce decree and parenting agreement to know what the obligations are. Often, parents are required to have a certain amount of life insurance for their kid(s). This area is one big reason I recommend delaying marriage for blended families.
I have read M's divorce decree and understand his child support obligations as well as his required life insurance requirements for his son.
2. Consult a family lawyer
Just like you'd have a lawyer review your job contract, make sure you consult with a family lawyer in the state where the bonus children live (where the custodial parent lives, if not with you and your partner).
Ask them if your income could ever count and/or if there is precedent for this. They will generally say no.
This does not stop an ex-spouse from going after your money, especially if your partner is making less than usual or went back to school. Child support laws vary by state.
I consulted with 2 family lawyers and both told me to not get married!
3. Consider Delaying Legal Marriage
You may have heard that your income and assets won’t matter since they are not your biological children, but that may not be the case. This will not deter an ex-spouse from trying to get at your assets. Even if the suit is frivolous, you will still need to hire a lawyer (read: more fees) and spend time on the matter.
This is a top reason to delay marriage until the children no longer require child support and college support. The FAFSA does not ask for your income, but the college can.
If you are going to take this route I highly recommend you get paperwork in place – Wills, Health Care Proxies, and Power of Attorneys, especially if you have children with your partner.
We are delaying marriage until his bonus son graduates college.
4. Prenuptial Agreement
Prenups are essential for blended families to protect the interests of the partners (and children). This is a whole other topic and are state specific.
My advice in short would be:
- Keep premarital assets separate.
- Agree to keep retirement accounts.
- Discuss spousal support.
- Child support and custody cannot be stipulated in a prenup.
We are not married now but plan to have a prenup when we do tie the knot.
5. Estate Planning
Estate planning is definitely more complicated with blended families. I often see contention when there are bonus children and new children from the blended couple. Figuring out how to make sure the partner and children are taken care of requires gentle treading.
It is also difficult to really know what the assets and means of their ex-spouse truly is. If you are reading this post, chances are, you and your partner will have the means to be generous with everyone.
As mentioned in #1, your partner may have life insurance obligations to his/her children from the previous marriage. Take this into account when deciding on additional life insurance policies if needed.
My advice: Do not be stingy with your bonus children. Reverse the situation and see how it feels if your partner decided to cut them out if they were your children.
We have wills, POAs, HCPs and living wills. We have named each other as beneficiaries. Both children are well taken care of.
6. Financial Planning & Logistics
Blended families are often older when they marry and may continue to operate as separate financial houses. I recommend seeing everything as “one pot.” This does not necessarily mean having one joint checking account, however.
I favor the one joint checking account for joint expenses and two separate accounts. Additionally, I strongly encourage blended families, like all families, to plan financially together. This will take some additional planning to ensure everyone is taken care of.
At this time, our banking accounts are totally separate, but we operate as “one pot.” I ensure both of us max out our tax advantaged retirement accounts as it is all going towards our retirement.
Final Thoughts on Blended Family Finances
When you blend families together, things can get complicated and they also also usually wonderful. One of the ways to mitigate some of the tension and conflict that might come from mixing families is to have the hard conversations upfront. The sooner you do it, the better. Using these talking points, you and your partner can get your blended family finances in order so everyone is taken care of.
Any other tips for blended family finances? Comment below! ]]>
