personal finance for residents · 2019-08-23 · some student loans from other federal programs...

Personal Finance for Residents

Introduction to The Basics Part 1

Matthew Jung MDAssistant Professor of Clinical Medicine

• I am not a financial advisor, financial planner, financial consultant, money manager, tax specialist etc. (this may not be a bad thing)

• None of this information should be considered individualized counseling. Double check everything and do your best to practice continued financial education

• Partial Vanguard Owner

DISCLOSURES

2

• Personal finance involves the management of spending, saving and investing habits in order to achieve a financial goal. So what is your goal?

• Your financial goal should be finding an appropriate balance of the above factors so that you and your family can live an enjoyable life, pay for education and fund your retirement.

• Financial planning is how we reach that goal

What is Personal Finance?

3

• Retiring at age 45?• Fly around the world in First Class?• Cruise around the city in your Bentley?• Own the biggest house in the

neighborhood?

One Line Financial Plan

4

Fin

1. Setting a Goal2. Decide if you have any interest in this3. Make a lot of money4. Don’t spend a lot of money5. Protect your money6. Make your money work for you

Financial Plan

6

• Ask yourself if this is something you have any interest in. Would you consider skipping this lecture if you could?

• Do you have any interest in investing?• Do you have the willingness to explore the math?• Do you have the energy to build a new knowledge base?

• CME & CFE

• Can you control your emotions and “Stay the Course”?• Are you ok with making less money (or spending more

money) to avoid having to deal with finances?

Do I need a Financial Advisor?

7

Do I need a Financial Advisor?

8

• PROs• Develop a reasonable plan• Protect you from yourself• Avoid bad investments

• Recommend other resources• Give you second opinions

• Help buy insurance• Educate you

• Manage your portfolio• Be there just in case

Do I need a Financial Advisor?

9

• CONs• Come with a fee

• May not be experienced• May have conflicts of interest• They may cost a fortune!

• They may not serve your best

interests!!

• Ask them how they get paid• Commission, AUM, Hourly Fee, Retainer

• What financial needs can they help you with?• Savings plan, investment plan/management, insurance, taxes, estate

• What designations do they hold?• CFP, CFA, ChFC, CLU (all require at least a year) or RIA (72% on 1 test)

• Fiduciary vs Suitability• Is their personal portfolio and performance similar to

their client’s• Interview multiple potential advisors• You still need to have an idea what your money is doing

Tips When Hiring a Financial Advisor

10

1. Setting a Goal2. Decide if you have any interest in this3. Make a lot of money4. Don’t spend a lot of money5. Protect your money6. Make your money work for you

Financial Plan

11

• Educate yourself and consider your profession• (Specialize? Academic/private)

• Location• Employed

• Understand medicine is a business• Negotiate your contract• Aim for that promotion• “Squeaky wheel gets the oil”• Pick up a “Side Job”

Make a Lot of Money!

12

Specialize?

13

33%

Specialize?

14

Location

15

Employed or Self-employed?

16

“Squeaky Wheel”

17

• Newly trained physicians are frequently afraid to negotiate the initial terms of their first job offers. • Don’t let yourself be under appreciated! Medicine is a BUSINESS

• Learn to negotiate ”Getting to Yes”• PLAN AHEAD (Do your research, Medscape, MGMA)• Identify your needs and interests• Identify your MUST HAVES and your “Would like to haves”• Identify the MUST HAVES, needs and interests of the other

stakeholders• Identify your Best Alternative and that of the other stakeholders• Don’t be afraid to say NO or ask for more time consider the

terms and your options.

NEGOTIATE!

18

• There are plenty of side jobs that are available to physicians to help boost their income. You have to decide whether it’s worth your time. • Moonlighting (Locums, concierge, government physicals)• Consulting• Telemedicine• Expert Witness• Guest / pharmaceutical lecturer• Advisory board member• Entrepreneurship

• Write a book / blog / online course / study guide• Sell a product• Learn a skill (Aesthetics)

Pick up a Side Job

19

1. Setting a Goal2. Decide if you have any interest in this3. Make a lot of money4. Don’t spend a lot of money5. Protect your money6. Make your money work for you

Financial Plan

20

1. PAY YOURSELF FIRST

2. MAKE A BUDGET

3. AVOID THE CREEP

4. MANAGE YOUR DEBT

5. OPTIMIZE YOUR TAXES

Don’t Spend a Lot of Money!

21

PAY YOURSELF FIRST• Automate your savings (20% GROSS) before any

expenses and discretionary spending & save early!

• Create an emergency fund of 3-6 months of expenses

• Maximize your tax advantaged retirement accounts

Don’t Spend a Lot of Money!

22

PAY YOURSELF FIRST• Automate your savings (20% GROSS) before any

expenses and discretionary spending & save early!• Take advantage of the “magic” of compound interest

Don’t Spend a Lot of Money!

23

RESIDENT A• Saves $200/m x10 years then stops• 25 years • Total saved is $24 000

• 8% Annual investment Return

• After 35 years = $270 361

RESIDENT B• Decides save later (after 10 years)• Saves $200/m x 25 years• Total saved is $60 000

• 8% Annual investment Return

• After 35 years = $191 473

PAY YOURSELF FIRST• Create an emergency fund of 3-6 months of expenses

• Stored in easily accessible accounts

ACCOUNT INTEREST RATESavings Account 0.01%Online Savings Account 1.00%Online Money Market Account 2.00%1 year CD 2.70%

Don’t Spend a Lot of Money!

24

PAY YOURSELF FIRST• Maximize your tax advantaged retirement accounts

• Defined Contribution Accounts (401k/403b, 427, IRAs)

Don’t Spend a Lot of Money!

25“...but in this world nothing can be said to be certain, except death and taxes.”

~Benjamin Franklin

PAY YOURSELF FIRST• Maximize your tax advantaged retirement accounts

• Defined Contribution Accounts (401k/403b, 427, IRAs)

Don’t Spend a Lot of Money!

26“...but in this world nothing can be said to be certain, except death and taxes.”

~Benjamin Franklin

PAY YOURSELF FIRST• Maximize your tax advantaged retirement accounts

• Defined Contribution Accounts (401k/403b, 427, IRAs)

Don’t Spend a Lot of Money!

27“...but in this world nothing can be said to be certain, except death and taxes.”

~Benjamin Franklin

MAKE A BUDGET• Easy to do, but hard to live with.

• Start with your monthly income (after paying yourself)• Calculate your monthly expenses

• Housing, Food, Transportation, Health, Personal, Finance, Debt• Don’t forget to include irregular expenses that aren’t monthly

• Compare your monthly income to monthly expenses• Are you spending more than you make, or making more than you

spend?

• Review your budget monthly

Don’t Spend a Lot of Money!

28

MAKE A BUDGET

Don’t Spend a Lot of Money!

29

MAKE A BUDGET

Don’t Spend a Lot of Money!

30

MAKE A BUDGET• What do I do with it?

• Get a picture of where your money goes• Determine if you are achieving your goals

• Saving enough? Future plans?

• Identify your needs vs your wants• NEED: food, clothing, shelter, health• WANTS: new phone, fashion, cable, dining

• Understand your financial behaviors• Impulse buy, name brand, credit card decoupling

Don’t Spend a Lot of Money!

31

MAKE A BUDGET• The importance of FINANCIAL BEHAVIORS

• Analogous to weight loss• Most people know the concepts, but behavioral tendencies prevent

them from actually losing weight.

• You must identify your maladaptive behaviors • Procrastinating your investment decisions• Going into unnecessary debt• Being compliant about debt• Cost decoupling• Emotional spending

Don’t Spend a Lot of Money!

32

MAKE A BUDGET• Popular “Gurus” on FINANCIAL BEHAVIORS

• Suze Orman• Million dollar coffee• When not to get the “match”

• Dave Ramsey• Snowball Plan

Don’t Spend a Lot of Money!

33

MAKE A BUDGET• Popular “Gurus” on FINANCIAL BEHAVIORS

• Dave Ramsey• Snowball Plan

Don’t Spend a Lot of Money!

34

Debt Amount Owed ($) Interest Rate (%)

Car Loan 2000 2

Personal Loan 3000 10

Credit Card 3500 20

Student Loan 150 000 8

Behavioral motivation is more important than the math

AVOID THE CREEP

Don’t Spend a Lot of Money!

35

LIFESTYLE/SPENDING CREEP• The personal behavior of increasing our spending and

standard of living to match our increases income. • Income raise• Promotion• Year-end bonus• Graduation• Tax refund

• Lifestyle creep will silently steal earning potential from your income and adversely affect your financial goals.

Don’t Spend a Lot of Money!

36

Don’t Spend a Lot of Money!

37

LIFESTYLE/SPENDING CREEP• What do I do?

Don’t Spend a Lot of Money!

38

LIFESTYLE/SPENDING CREEP• Tips to help prevent spending creep

• Continue to budget to monitor your spending• Allow yourself some fun

• You can have almost anything you want, but not everything you want

• Reevaluate your financial goals• You may be able to be more aggressive with your goals

• Reevaluate your wants vs needs and what brings you joy• Revisit your financial plan on a regular basis.

Don’t Spend a Lot of Money!

39

MANAGE YOUR DEBT• STUDENT LOANS

Don’t Spend a Lot of Money!

40

MANAGE YOUR DEBT• STUDENT LOANS

• Do you qualify for Public Service Loan Forgiveness?• Is your employer a government organization or a Not-for-profit

organization that is tax exempt under Section 501(c)(3)• Do you work full time?• Do you have DIRECT LOANS• Are you repaying your loans on an INCOME-DRIVEN PLAN• Will you make 120 qualifying payments under these circumstances?

• If you don’t qualify, LIVE LIKE A RESIENT AND PAY THOSE DOWN ASAP• (Especially if you have high interest rates)

Don’t Spend a Lot of Money!

41

MANAGE YOUR DEBT• STUDENT LOANS – PSLF and your loan types

• Only Direct Loans are eligible for PSLF. Some student loans from other federal programs include:• Federal Family Education Loan (FFEL)• Federal Perkins Loan

• These loans do not qualify for PSLF, but may become eligible if they are consolidated into a Direct Consolidation Loan

• Only payments made on the new consolidated loan count towards PSLF (under an income-driven repayment plan)

• Previous payment credits for direct loans may be lost if those direct loans are consolidated.

Don’t Spend a Lot of Money!

42

MANAGE YOUR DEBT• STUDENT LOANS – PSLF and your loan types

FFEL Perkins Loan

Consolidate

Direct Consolidation Loan

Private Loan Private Loan

Refinance

Private Loan (↓APR)

Don’t Spend a Lot of Money!

43

MANAGE YOUR DEBT• STUDENT LOANS – PSLF and your repayment plan

Don’t Spend a Lot of Money!

44

MANAGE YOUR DEBT• STUDENT LOANS – PSLF and your repayment plan

• Example of PAYE/REPAYE plans of 10% of discretionary• Assume household of 3 and salary of $62 000

• Discretionary = Income - 150% of Poverty• Discretionary = $62 000 – 150% of $21 330• Discretionary = $30 005• 10% of Discretionary = $3005• Monthly payment = $250 ($366 for HH of 1)

Don’t Spend a Lot of Money!

45

MANAGE YOUR DEBT• STUDENT LOANS – PSLF

Don’t Spend a Lot of Money!

46

MANAGE YOUR DEBT• STUDENT LOANS – PSLF

• Missing Information• Wrong loan type• Wrong repayment plan

• File your Employment Certification Form regularly.• Threats to eliminate PSLF are for new loans taken after July 2019• Consolidating/refinancing your loans with/to private loans will

likely make them ineligible for PSLF

Don’t Spend a Lot of Money!

47

MANAGE YOUR DEBT

Don’t Spend a Lot of Money!

48

MANAGE YOUR DEBT• Housing Tips

• Rent don’t buy (at least at first, 5 years?)• Rent is SUPPOSED to be more than mortgage

• Don’t think of your home as an investment• Consumption item, 15% round trip, insurance, taxes, upkeep, furnishing

• Aim for a mortgage less than 2-3x your income• Have enough for 20% down payment to avoid PMI• Physician loans can help you avoid PMI (higher rates)• Ideally use a 15 year term mortgage• Don’t retire with a mortgage!

Don’t Spend a Lot of Money!

49

MANAGE YOUR DEBT• Car Tips

• Is your car for enjoyment or utility?• Drive a beater car

• Depreciation (clearly not an investment)• Repairs and Maintenance• Insurance

• Pay cash (or look for a 0% APR, if need be, shop around)• Opportunity Cost

• $60 000 difference between a beater car and a luxury car• Cut that in half for beater car vs new car longevity. ($30 000)• $30 000 invested at 7% for 30 years = …… $230 000

Don’t Spend a Lot of Money!

50

MANAGE YOUR DEBT• Credit Cards

• You may spend more vs cash

Don’t Spend a Lot of Money!

51

MANAGE YOUR DEBT• Credit Cards

• You may spend more vs cash• ALWAYS ALWAYS ALWAYS pay your balance in FULL• Pay close attention to your fees

• Annual, foreign transaction, APR, cash advance

• They can HURT or HELP your credit score• Consider a simple cash back card (Citi Double Cash 2%)• Significant travel benefits for those interested in it as a

hobby

Don’t Spend a Lot of Money!

52

MANAGE YOUR DEBT• Credit Score

• Know your credit score• Used by lenders to decide whether to offer credit/loans• Certain websites and credit cards allow you access• Multiple factors of varying importance

• Payment history• Length of credit history• Total debt, credit and utilization• Number of recent accounts• Number of recent inquiries

Don’t Spend a Lot of Money!

53

MANAGE YOUR DEBT• Credit Score

Don’t Spend a Lot of Money!

54

OPTIMIZE YOUR TAXES• Understand the difference between tax credits and

deductions and have an idea of which credits/deductions you may be eligible for.

Don’t Spend a Lot of Money!

55

OPTIMIZE YOUR TAXES• Utilize your tax advantages

• Health Savings Account (The Stealth IRA)• Requires a High Deductible Health Plan

• Flexible Spending Account• For healthcare related expenses

• Tax Advantaged Retirement Accounts• Employer provided, self employed and/or IRAs

• Tax Advantageous Investing• College savings accounts (529), asset allocation, tax loss harvesting

1. Setting a Goal2. Decide if you have any interest in this3. Make a lot of money4. Don’t spend a lot of money5. Protect your money6. Make your money work for you

Financial Plan

56

Take Home Points

Personal Finance Take Homes• Decide on your goal

• (What do you want out of your finances?)

• Understand the importance of investing early• The magic of compound interest

• Live like a resident (at least at first)

• Manage your debt, don’t just autopilot• Pay it off early, consider loan forgiveness, refinance

• Utilize a budget

• Continue to learn!

Additional Resources• www.whitecoatinvestor.com• The White Coat Investor• Financial Boot Camp

• www.bogleheads.org

• The Bogleheads’ Guide to Retirement Planning• The Bogleheads’ Guide to Investing

• The Millionaire Next Door

• If You Can

Personal Finance for Residents

Introduction to the Basics Part 1Matthew Jung MDAssistant Professor of Clinical Medicine

personal.finance.jung@gmail.com