Student Loans
A great thing to do if you know you want kid(s) and are able to is to start funding their college account now.
Why? The cost of college tuition has been outpacing inflation at an astronomical rate. I started college in 1995 at Barnard College in NYC. Tuition at that time was ~ $20,000. 2016-2017 tuition is $48,614. That's over a 200% increase in tuition in about 20 years. I qualified for financial aid and only had $16,000 in loans when I graduated in 1999. Lucky indeed.
Of course, medical school was a different story and that tacked on another $150,000 in loans, but knowing how much other students graduate with now (> $300K !), I still consider myself quite lucky. I qualified for financial aid at Columbia and received a half tuition grant ($20K) and took out only Stafford loans and a private loan from Columbia funded by alumni.
The noose I feel around my neck from these loans is enough for me to want to not have this (entire) burden for my (future) kid(s). So much so that I started a 529 account NY in 2016. A 529 account is an account that you contribute post-tax dollars into that grows tax -free and can be withdrawn tax-free if used for qualified educational expenses. Kind of like a Roth IRA for education (which btw, you CAN use your Roth IRA for qualified educational expenses, but it should not be earmarked as such!) There are numerous 529 accounts and they are state sponsored.
NY is one of the states that allows a state income tax deduction on 529 plans (up to $5,000 per year). You can also benefit from this tax break even if you live outside of NY as long as you have NY income. So I am currently funding this account up to the state income tax max deduction per year. I expect that in about 5 years, I'll be able to increase that to $10,000 per year. I should have anywhere between $150,000-$250,000 in that account once said kid attends college. Time is on my side. Note that the annual limit to contribute to a 529 is limited to $14K per person or $28K per married couple to avoid possible gift taxes and for 529s, you can actually front load the account 5 years at a time.
I do not feel the need to fully fund their college education. Mainly because I may not be able to due to my late start at my own savings (as far as I know, there is no such thing as retirement loans) and I do want my kid to be grateful and have “skin in the game” for their education. I do not think most people appreciate things given to them for free. M and I also feel strongly that unless our kid gains acceptance to a top private school (aka Columbia, NOT Colgate) then they can go to state school.
Edit: You'll need to name yourself as the beneficiary until the kid is born.
Do you have a 529 account for your kid(s)? Are you planning on fully funding their college education?
Read More
I am 1.33 years out of residency. Using White Coat Investor's net worth formula, I ended 2016 not up to par:
Expected Net Worth of a Doctor (ENWD) = Average Post-Residency Income X Years Since Training X 0.25
= + $93,100
or is it this equation from his actual book:
ENWD = Salary X Years in Practice X 0.3 – 200,000
= – $88,280
At the end of the day, Net Worth = Assets – Liabilities.
2016 ended with: – $92,000
But what that negative number doesn't reveal is that I had:
$10,000 cash savings
$85,000 retirement accounts
and of course, student loans, at $187,000. I finished residency with $200,000 in loans.
I did not count my very small 529 account.
My 2016 savings rate was 27.4%. I included retirement savings, cash savings, and extra payments towards student loans.
2017 Financial Goals:
- Cross over into positive net worth
- Knock out 50K of student loans (this is in addition to the min. payments)
- Max out all available tax advantaged accounts ($47K, not including employer contributions)
- Start a taxable account
M and I hired a financial planner just before the New Year and we are excited to start planning!
How did your net worth grow in 2016? Comment below!
]]>
Read More
I was born in Seoul, South Korea and my family moved to the U.S. when I was 2 years old. My family never made much money – I guess a typical middle class income for a family of 4. I was always adept at making money. I just never knew the other part – saving. I remember having a lucrative lemonade stand in our middle class neighborhood in Edison, NJ as a 4th grader. The gig ended when the free ice from the neighbor's house got cut off.
Not too long after, I was selling stuff from a catalog to neighbors – but my mom made me refund all the money and I remember feeling ashamed that I was trying to make money.Fast forward to 8th grade – I got a gig babysitting a boy in the apartment complex (we had downsized from a house to an apartment, and we kept downsizing to smaller apartments at least 3 more times before I graduated high school. I assume this was due to less money coming in).
Once I was legally allowed to work (age 15?), I got a job shelving books at the local public library for $4.25 an hour. Then I got a second job working at the pharmacy for $6.25 an hour. Summers I worked almost full time and also worked at a book store. I don't think I spent much of the money but did the usual $20-40 ATM withdrawals to pay for going to the movies and eating out with friends.
I cashed out my savings at the end of high school (~$900) to purchase a laptop computer for college. I also worked during college as it was part of my financial aid package to Barnard. Due to generous financial aid I was able to attend on grants and loans. I got a coveted gig working at the computer lab which came complete with plenty of paid “study time” and a vanity email address – I was [email protected].
I was the weekly date night babysitter for a few affluent couples in NYC. It was an awesome job – I showed up around 6 or 7pm – the baby or kid was put to bed before they left. My job was mainly to make sure no one kidnapped the baby. I had food and cable TV (never had cable growing up). It was a good hourly rate plus a cab ride home.
During college I opened my first credit card. Thus started almost 20 years of bad credit card habits culminating in accumulating $20,000 of credit card debt by 2010. I had to enter into a debt repayment program to lower interest rates and get on a set monthly payment.
I graduated college in 1999 and started a job at Morgan Stanley. My salary was $52,000 + a guaranteed bonus. I do remember using the 401k plan which included profit sharing. I left after about 4 years and ended up withdrawing the 401k and paid penalties and taxes on it. I was living on unemployment for almost a year while I applied to medical school. I got involved with one of those pyramid marketing companies and lost/spent at least $10,000.
I entered medical school and received generous aid again – half tuition and subsidized loans. Ironically, it was cheaper to attend Columbia than my state school. My mom would drop off groceries and prepared Korean food every two weeks during medical school. Instead of saving the saved money not spent on groceries, I used it to have fun in NYC to blow off steam during med school. Credit card debt started racking up.
Intern year – finally making money again – $59,000. Living in a 3 bedroom apartment in Brooklyn with 2 other roommates. Rent was $850 a month. Life was good. Parents relinquished their 2003 Camry to me to drive to the hospital. Credit card debt really accumulated this year.
Intern year ends and I move to Costa Mesa, CA to begin a two year research stint at a salary of $33,000. 2 months in I panic because after paying rent ($1050), gas, monthly credit card bills, almost nothing was left. I start moonlighting in urgent care but didn't realize how much I needed to set aside for taxes. I get slammed with a $10,000 tax bill the next year.
I started dermatology residency in 2012 – now making $55,000 a year. Phew. I'm still moonlighting. I'm STILL living beyond my means.
Sometime around my last year of residency, I overhear some co-residents chatting about money. I don't recall what they were specifically talking about but it piqued my interest. They suggested I read the White Coat Investor. Everything changed from there.
I honestly have my life to thank them for. As I was definitely NOT on the way to financial freedom.
Read More- « Previous
- 1
- …
- 4
- 5
- 6
