FIRE Starter 004: Fast fatFI in Five Years???

Businessman Jim Collins (not be confused with our friend Jim L. Collins) recommends setting what he calls big, hairy, audacious goals. Today’s FIRE Starter couple has done just that.

He’s in his second year of post-fellowship private practice as an interventional cardiologist. She’s going to manage their growing portfolio of properties, qualifying for real estate professional status to shelter a good chunk of his income from taxes.

If all goes according to plan, they’d be able to fatFIRE in under a decade. The stretch goal is to get there in five years. Either way, I’ve already requested a follow-up post when they’ve reached the lofty goal or are well on their way to doing so.

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 reached a positive net worth? It’s OK if you haven’t! Most of us started out in the red.

Hello PoF and blog readers!  Thank you for including our story in this survey!  My wife and I are starting year two of our financial independence (FI) journey.

We learned about the FIRE movement during the summer of 2020 and immediately decided obtaining FI was a top priority.  The timing of our introduction to the FIRE movement could not have been better.  I completed fellowship in the summer of 2020 and started working my first attending job in August of 2020.  At that time, our net worth was $145,100.

Net worth breakdown prior to starting my attending job:

 

Assets:

• Roth IRA: $5,500
• Taxable brokerage accounts: $143,000
• Primary residence: $419,800
• Cash: $146,800

 

Liabilities:

• Student loans: $175,000
• Primary residence mortgage: $395,000

 

My student loan balance was approximately $220,000 at its peak.  I made income-based payments throughout residency and fellowship and two large additional payments which allow me to finish fellowship with “only” $175,000 in student loan debt.

The cash for the larger payments came from moonlighting and selling a portion of mutual funds in a UTMA account gifted to me by my grandparents.

Since starting my attending job a year ago, we have maintained a savings rate of 50-55% depending on the month.

Our goal is to have the ability to gross $300,000 annually (spending will be less due to taxes) from passive income in 5 years (FI in 5 is the name we have given to this goal).

We are aiming to reach this goal through a combination of cashflow from direct ownership of multifamily real estate, real estate syndication/fund investing, and building a sizeable nest egg (3.5% withdrawal rate).

Realistically, based on our projections, we will likely reach our goal in 7-8 years, but we are shooting for 5 years.

 

Tell us about your household. How many people? Are you supporting anyone outside of your home? Where do you live?

My wife and I are both in our late 30s, have two dogs, and no kids. Our location will remain anonymous.  We do not provide financial support for any additional family members.

 

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 interventional cardiologist.  I enjoy my job – particularly the time I spend in the cath lab.  I completed residency and fellowships at academic medical centers before accepting a position in a rural area with a private practice group.

I didn’t realize it at the time, but we took full advantage of geoarbitrage which has accelerated our progress towards FI.

While in training, I completely took for granted the expertise of the nurses and techs in the cath lab.  Processes and procedures existed for everything which made my days run relatively smoothly.

Transitioning to private practice and a small rural hospital has required an adjustment in my expectations of the staff and countless hours spent educating to ensure competency and patient safety.

We have made much progress, so the time was well spent.  The least favorite aspects of my job are night call and the time I dedicate to charting and administrative tasks.

 

What is the most challenging obstacle to making progress towards financial independence?

We decided to “live like a resident” for two years before inflating our lifestyle.  Although we are moving along at a good clip, the process feels so slow.  We are excited to be in the home stretch of living like a resident and look forward to loosening the reins a bit in the fall of 2022.

Taxes are by far our most challenging obstacle.  Taxes are what keeps our net savings rate from rising above 50%.  We spend 8-10% of our gross income depending on the month.

Our focus in 2021 has been on real estate investing – direct ownership – to catch a break on taxes in addition to acquiring cashflowing assets.  My wife will qualify for REPS this year and we will be able to take paper losses from bonus depreciation and expenses to offset my income.

 

Investing

 

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

 

September 2021 Net worth: $924,084

Assets:

• Stocks: $484,415
• Bonds: $0
• Primary residence: $576,100
• Cryptocurrency:  $7,500
• Cash: $399,042*

 

 

Liabilities:

• Student loans: $175,000**
• Primary residence mortgage: $367,973

 

*We are holding approximately $300,000 for down payments on two multifamily properties.  By the time this is posted on the PoF blog, we will have closed on one of those properties.  The other is scheduled to close in November.  The remaining cash is our emergency fund which covers approximately 12 months of expenses.

**We have not focused on paying down my student loans as they are all federal loans at 0% interest until January of 2022.  We will refinance the loans in January 2022 and with the goal of paying them off in 2 years or less.

 

Investment breakdown: $491,915

 

• Individual stocks: $226,000 (25%)
• Total US Market Index funds/ETFs: $258,415 (29%)
• Crypto: $7,500 (< 1%)

 

Our desired asset allocation is 50% stocks, 40% real estate and 10% bonds/cash.

 

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

Stock location breakdown:

• Taxable brokerage accounts: $292,853
• Tax-deferred 401(k)s: $146,928
• Roth IRAs: $35,443
• HSA: $9,191

 

 

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

We have an HSA.  We enrolled in a high deductible health plan in 2020 and put $7,100 into our HSA which was immediately invested.

This year, we do not have a high deductible health plan and thus have not contributed to our HSA.

 

What has been your best investment?

I purchased shares of Boeing and Tesla during the spring and summer of 2020.  These two stocks account over two-thirds of my individual stock holdings.  For full disclosure, this was prior to learning about index fund investing.

Since learning about index funding investing during the summer and fall of 2020, we now allocate approximately 6% of our total investment capital to YOLO on individual stocks and crypto (my wife’s words, not mine).  We invest the rest in index funds.

All joking aside, I would say our best investment has been in taking the time to become financially literate.  Blogs like PoF and WCI have been invaluable resources along our journey to FI.

 

Your worst investment?

I have bought individual stocks high and sold low.  Casava Sciences (SAVA) comes to mind as an example – purchased for $55/share and sold for $45/share days later.  My worst investments are all linked to one behavior – trying to time the market.

Do not do this with any substantial portion of your portfolio – as mentioned above, we dedicate 6% of our contributions to gamble on individual stocks and crypto.  I have gotten lucky more times than not, but that’s all it is…luck.

 

FIRE Kindling

 

What attracts you to the FIRE movement? Do you think you’ll retire early when you’re in a position to do so?

The main attraction to the FIRE movement is having control over your life.  We want to live life on our terms and know this is not possible without being FI.  Being able to donate time and money to causes we care about is also important to us.  We are doing this along the way, but it is not currently one of our top priorities.  We will be more charitable after reaching FI.

I am starting year two of working as an attending and already feel burnout at times.  I’m not sure if I’ll retire when we reach FI.  I envision myself cutting back to working part-time and focusing on the aspects of my career I enjoy.

Depending on how the next few years unfold, I may consider cutting back to part-time sooner rather than later.

 

How do you anticipate your life changing post-FI?

I will have more time for family, hobbies, and travel.  While on vacation, I won’t constantly be running the numbers in my head to determine how much money I am losing every day I am not working.

 

What steps have you taken to hasten your time to FI?

We live as we did during residency and fellowship.  We purchased a very affordable home.  We continue to drive the same vehicles we have driven for the past 7 years.  Our monthly expenses range from 8-10% of our gross income.

We keep our net savings rate at or just above 50%.  We read The Subtle Art of not Giving a F*ck – we stopped worrying about what others thought and doubled down on our plans to reach FI in 5 (years).

 

 

Are your friends, family, or coworkers aware of your interest in financial independence?

Our friends and family are aware of our desire to build up a substantial nest egg and multiple streams of cashflow in a short period of time.  We have not specifically discussed our rationale behind our decisions.  Most think that we have chosen to live frugally without giving much thought to the results obtainable when spending only 10% of what you earn.

My coworkers are not aware of my race to FI.  Thankfully, I work with a wonderful group of cardiologists and support staff who do not judge me based on the house I live in or the car I drive…or at least that’s what I choose to believe.

 

What advice do you have for others beginning their own FIRE journey?

Living like a resident is the fuel you need to get your FIRE started.  I would strongly encourage any new attendings to avoid lifestyle creep – live like a resident for at least 2 years.  You’ll be amazed at what you can accomplish financially during this time.

 

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

What should I do with my substantial individual stock holdings in Boeing and Tesla?  Here are some of the ideas we are contemplating:

• Sell, pay long-term capital gains tax, and reinvest the remainder into index funds

• Donate some of the appreciated shares to a donor-advised fund (thinking about starting one this year or next) then sell the rest, pay long-term capital gains tax, and reinvest the remainder

• Sell, pay the capital gains taxes, and pay off my student loans

• Let them ride – I’m pretty sure Tesla is going to go to $3,000/share in the next year or two.

 

I’m strongly in favor of the last option – the other options were provided by my wife.

 

Any other options we have not thought of?

We do not currently hold any bonds and we do not hold international stock index funds/ETFs.   We are both comfortable with this allocation (we have a high risk tolerance) and we hold 12 months of expenses in our emergency fund.

We also anticipate having additional income. Without going into too much detail, the multifamily properties we are purchasing within the next couple of months will cashflow roughly $3,000/month upon purchase (assumptions made for vacancy, repairs, cap ex in addition to monthly expenses).

When rents are increased to market over the course of the next 12 months, we are estimating cashflow to be around $5,000/month.  If we renovate some of the units, we will be able to achieve $6,000-$6,500/month in cashflow.  We plan to continue purchasing multifamily properties in 2022.

Thoughts, comments, concerns regarding lack of bonds and international stocks?

Thank you for your feedback and for allowing us to participate in the interview series!

 

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

 

 

 

I’ve shared my feedback privately with today’s guest. I wouldn’t want my opinions to influence yours. Please give your take 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.