FIRE Crossroads 035: Saving $50,000 a Month to Reach FI

Our interviewee today regularly saves mid-five figures every single month into taxable and wants an airplane.

Along the way to this success, our intrepid respondent starts a practice, discovers the perils of significant business debt during a crippling pandemic, and acquaints himself with the possibility of blocking calls from patients — but only once that FI number is reached.

And what is that magic number? Read on to find out.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

 

 

Getting to Know You

 

Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?

We are in the early stage of our financial independence journey.   We didn’t plan well the first years when my spouse started working, and we would be in a better position today if we had done things differently.

In retrospect, we should have maxed out tax-advantaged accounts and not left money on the table from the 403(b) match.  My wife also took a little less than a year off while I was in residency to take care of our child, and we didn’t make much progress at that time.

One thing we managed to get right was paying off my wife’s student loans, paying off my first year of dental school loans, and cash-flowing the last three years of dental school. We are one-third of the way to our FI number.
 

Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home?

We are a family of four.  I am 38 years old, my wife is 42 years old, and we have two children ages 7 and 10.  We don’t support anyone outside of our immediate family. 

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I am an oral surgeon and started a practice right after residency about four years ago.  I also take call at a trauma center.  My career is going well but learning to be a business owner is challenging.  There is no textbook given in residency to guide you in the process.   

Being a business owner through the pandemic made for some sleepless nights.  I carried more business debt during COVID and there was always that nagging feeling of “what if I can’t pay the bills?”.

I have since paid off all business-related debt.  The thing I like most is having full control over my schedule and getting to keep the net profit.  I certainly like call the least of all my duties.

My wife is a primary care physician who has been practicing for 12 years.  She is employed by a local hospital working in an outpatient clinic.  My wife works part-time and feels her career is going well.

She enjoys helping people through difficult situations and likes the interaction she has with patients.  The thing she likes least about her position is not having autonomy in how she practices due to being employed.

 

Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?

We are only 5-6 years away from being able to sustain our current lifestyle without alarm clocks other than getting the kids to school.   We have considered increasing our spending which would mean we need to work longer (or at least I would).

We kept our housing cost to less than 1x our annual income after my first year of practice.  Our income has increased substantially since that time, and we may look at buying a bigger house or even a second home.  Our plan is to get to the FI number that would support our current annual spending and reassess.

I also enjoy aviation which is a very expensive hobby and I’m trying to decide how much or little I want to spend later in life on the hobby.  I assume I will want to do it more, and therefore I would need to increase our FI number.  The hedonic treadmill at its best — if only there were an article cautioning against this.

 

Investing

 

How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

According to Empower, our allocation is:

U.S. Stocks: 61%

International Stocks:18%

Bonds: 12%

REIT: 5%

Cash: 4% (Mainly for paying taxes/emergency fund). This tends to increase near the fourth and first quarters.

We only use low-cost index funds.

The total amount of liquid investment on the personal side is $1.92 million.  I don’t account for the $125,000 or so I keep in the account at the practice to pay the bills in the above allocation.

Our primary residence was purchased for about $700,000 and is probably worth about $1,000,000 now.  I really don’t include this in our net worth calculation.
 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

Roth:  16%

401(k)/403(b):  14%

HSA:  ~1%

Taxable:  63%

529s:  6%

We max out Backdoor Roths, 401(k), 403(b), and HSAs yearly.  The remainder goes into a taxable account.
 

Do you have investments in an HSA? How about 529 Plans?

Yes, we have a small amount in an HSA.  We max it out every year but haven’t been doing it long.  We pay for all medical expenses out of pocket and save receipts.

I sometimes wonder if this is worthwhile.  We save $2,000 a month into 529 Plans and front-loaded some of the savings.

 

What has been your best investment?

By the numbers, it’s our primary residence.  We purchased it prior to the pandemic and it’s now worth at least $300,000 more than the purchase price.  We still owe $450,000 on it and this is our only debt.  It is a 15-year fixed-rate mortgage at 2.25%.

I really want to pay it off, but it doesn’t make much sense mathematically.  Other than that, the index funds have performed as you would expect, with market returns.
 

Your worst investment?

The worst investment I have had so far was a REIT from Rich Uncles that I found on a recommendations page on a different physician finance blog.  One of the investments focused on multi-unit housing, mostly next to universities.

This went as expected until the pandemic began and students went to remote learning.  The last of the properties are being liquidated, at least according to the most recent email I read. Since all dividends were reinvested, the entire investment is worth nearly zero.

I really haven’t ventured back into crowd-sourced real estate and hold only VGSLX since this went so badly.  This taught me a valuable lesson as to why diversification is important.  Academically, I understand this is a risk of investing but this experience made something that I perceived as theoretical a reality.

Thankfully, it was early on in my investing career and in reality, doesn’t change the math much in terms of our financial independence.  I probably should consider increasing my exposure to passive real estate and this is probably the right thing to do but I haven’t had much of an appetite for it.

One can appreciate why some of these investments are restricted to accredited investors (full disclosure: Rich Uncles did not require one to be an accredited investor).  I know you can’t judge a book by its cover but when I was investing in this REIT I was thinking to myself, am I really investing in something named Rich Uncles?

 

 

Into the FIRE

 

Numerically, what is your FI goal?

Six million is our FI number.  Our annual spend is $150,000-$170,000 currently, including our mortgage.   If you subtract the mortgage, it is about $40,000 less per year.

Our combined income this year should be $1.2 to $1.3 million which will be as much as it has ever been.  We generally try to save $50,000-$55,000 per month between all tax-advantaged accounts and taxable accounts.

We don’t really use a budget any longer.  The primary goal is to keep the savings rate up, which we do.

 

When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?

If we continue saving at our current rate, it should take 5-6 years to get to FI.  I doubt we will retire once we get there.

I will probably reduce my work schedule, eliminate insurance from my practice, and stop offering some procedures that I don’t like.

Basically, I’ll work more on my own terms.  My wife will probably continue to work as long as I do.  We are thinking about retiring when our youngest leaves for college, which will be in about eleven years.  I will be 49 at that time.
 

What are your post-FI plans? How will your life change? What do you look forward to the most?

Our post-FI plans are to travel in our own airplane, assuming we are healthy enough.  My wife hates the alarm clock, and I’m sure she will enjoy sleeping in.

I didn’t exercise much in residency and it caught up with me.  I started exercising this year and look forward to doing it at more favorable times during the day rather than right before bedtime when the kids are sleeping.

The thing I will enjoy the most is not worrying about patients and complications.  I take call for my office 24/7/365 and never turn off my phone.  It will be nice to block all phone calls other than those in my favorites list between the hours of 9PM and 7AM.

 

Have you made any major changes in your lifestyle or investments to accelerate your FI path?

Yes.  Earning more money gave us the ability to save more.  Taking a risk in starting my practice obviously helped significantly.  I considered an associate position after residency and this would have had a profound impact on our net worth in a negative way.   

Saving outside of tax-advantaged accounts really increases your net worth.  I think the mindset is a bit different as well.  With the 401(k)/403(b) it is automated and a fixed amount is deferred from a paycheck.  When you focus on investing in a taxable account there are no limits and it is almost like a game to try and maximize how much you can invest.

Our lifestyle has increased over the last two years.  We eat out more and at nicer restaurants.  I really don’t buy material things.  My wife seems to enjoy those more than I do.

We still keep investing as our number one priority.  I give quite a bit of thought to our savings rate and one day I will need to change my focus to spending.

I read Die with Zero and it changed my mindset about money.  It should be obvious to all on this website that we only make so many trips around the sun.  We also have very little control over some aspects of our health, and it truly is a gift.

After reading the book, the following week it was very apparent that not all activities can be enjoyed in your 70s and 80s as I helped some of my geriatric patients into and out of a chair.

This activity alone is something I take for granted every day.  I’m not sure why this didn’t occur to me before the book, but I think the book adds some balance to the FIRE discussion.

I’m not advocating a YOLO lifestyle, but in the past, I think I had more of a destination in mind rather than a journey.  Many big life events happen for most of us on this journey.

We not only become experts in our career and likely reach peak performance in our chosen fields, but the kids grow up, our parents age and may not be able to enjoy trips to certain locations, chronic health conditions pop up requiring visits to colleagues, and life just happens.

 

Are you facing any unique challenges making FI or RE more difficult?

No. The only thing I have to add here is to use debt cautiously.  If the last two years have taught us anything, it is that there are things that can affect the economy and our income.  Owning a business with leverage increases your risk, and I really didn’t appreciate this until the pandemic.

I certainly lost more sleep thinking about how to service debt with significantly lower cash flow than any market downturn.  I haven’t lost a moment of sleep thinking about my portfolio value in the bear market but the risk with debt was much different for me, psychologically.

I’m thankful that my business survived the pandemic because many were not as fortunate.  This certainly changed my mindset as a business owner as well as my appetite for risk.

 

What advice do you have for others who are seeking financial independence?

Start as early as possible and keep it boring, especially early on.  I spent so much time trying to figure out the best or lowest-cost index fund, allocation, and best real estate fund and none of those mattered at all.  Nick Maggiulli described it very well in his book Just Keep Buying.

You need to figure out where you are on the Saving-Investing continuum.  Figure out how much you intend to save this year and figure out what your expected investment returns are this year.

If the amount you save is significantly more than your expected investment returns, you need to focus more on the savings rate.  If your investment returns are more than the savings rate, you should spend more of your time on allocation and returns.

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

Now the childish question is, when do I buy an airplane?  The smartest decision is clearly never or after we reach FI.

Do I need to increase my exposure to passive real estate?  I am unwilling to become a landlord.

 

 

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I thank today’s interviewee for sharing their story, and I’ve shared my feedback privately with them. I wouldn’t want my opinions to influence yours. Please give your take and answer any questions they have had in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.