FIRE Starter 010: New Attending Practicing Geoarbitrage in the Heartland

Much like our most recent FIRE Starter, today’s interviewee has a negative net worth. It’s more common than not for a young doctor to be less than broke.

I don’t worry too much about his future, though. I suspect his net worth will be positive by the end of next year. Living in the midwest, he gets the high pay and low cost of living (#geoarbitrage), and his student loan debt, while in the six-figure range, has been refinanced to an enviable fixed rate of just over 2%.

He shares his raw numbers below and asks where you would direct your money — he’s currently contemplating one of three options, and you’ll see those at the end of the post. I hope you’ll weigh in!

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 everyone, I am excited to be participating in this series that I have been reading since it started. I am still in the red but hope to be back to broke soon!

My financial journey was started after I read The White Coat Investor during medical school. I had always had an interest in economics and personal finance, but this book laid out the groundwork and showed me that it was something that anyone can do.

During the remainder of medical school and even in my 3-year residency, I continued to read the online blogs from The White Coat Investor, Physician on Fire, and more recently The Prudent Plastic Physician.

Similar to many others, I didn’t have a lot of extra cash flow during medical school or residency to make significant gains in my journey to financial independence, but the education from reading these great resources allowed me to avoid any big mistakes that would delay my goals.

Now I am in my first year as an Emergency Medicine attending and have a net worth of about -$100,000 (not including my primary residence). I expect my annual income will be around $350,000 with some variance based on productivity. After years of reading about other high-income earners achieving their financial goals, I am eager to start putting my paychecks to work for my family!

I have been working as an attending for four months, and in that time, I have increased my net worth by $52,000. My goal is to maximize all of the tax-advantaged accounts I have available to me for this calendar year.  I took one month off after residency and started working as a W2 employee in August, giving me five months to accomplish filling the following:

–        $19,500 in work 401(k)

–        $19,500 in work 457(b)

–        $12,000 in backdoor Roth IRA (spouse and I)

–        $7,200 in HSA

With one month remaining to achieve this goal, I have been able to fill the 401(k), Roth IRAs, and HSA. Now I plan to finish maximizing the 457(b) before starting the new year.

 

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

My household is growing. Right now it is just my wife and I at 28 years and 30 years old respectively. However, we are expecting the birth of our first son in January 2022.

We also have a 10-month-old dog that has kept us entertained during the COVID quarantine times. We do not support anyone outside of our home.

After I finished residency this past June, we moved to a medium-sized and low cost of living city in Iowa. Our plan was always to move back closer to family after residency and we now live about 10 minutes away from my wife’s parents and only a couple of hours from my family. We hope this will allow our future children to spend lots of time with our extended 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 Emergency Medicine (EM) attending at a community hospital. During COVID, a lot of community hospitals had significant decreases in their patient volumes in the Emergency Department which made it difficult for some of my colleagues graduating in 2020 and 2021 to find community spots, so I feel fortunate that my career has started the way I wanted.

The clinical variety is what initially drew me into EM and keeps me excited to go to work every day. My current job allows me to work at multiple different sites within the hospital system to add even more variety to my clinical practice.

This prevents me from getting burnt out going to the same emergency department every day as I have one site that is a single coverage rural ED and another site that is in the downtown area of a nearby city with frequent critically ill patients.

My wife and I have also really enjoyed the shift-work aspect of EM; although we recognize that as we start our family and children start to have regular activities, this could become a negative aspect of this field.

It is great to be able to go for Tuesday afternoon hikes while the rest of the world is working, but once we have kids in school and other commitments, these family activities will be more dependent on weekend days off. I hope to mitigate this negative aspect of EM by advancing my career into administration while continuing to work clinically but with fewer shifts.

I feel strongly that there should be physicians in administration so that the decision-makers in the hospital have a clinical background, and I can serve as a voice for our colleagues trying to provide optimal care to patients on a daily basis.

 

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

The most challenging aspect in working towards financial independence for me has been balancing saving and planning for the future while making sure I live in the present.

Since I started reading about FIRE and other financial topics 6 years before I became an attending, I have had a lot of time to plan and imagine what it would be like to finally have the high income we all hope for after residency. Now that I have become an attending and have set up most of my savings to be automated, I just have to wait and let compound interest do its thing while I make sure to enjoy life along the way.

I have been lucky to have a wife that has similar lifestyle goals as myself as we both prefer simple vacations to natural areas of beauty as opposed to lavish spending in expensive restaurants and hotels.

This is an area that can be overlooked when starting relationships because almost nobody wants to have in-depth financial discussions in their first couple months of dating, but differences in this realm can have a dramatic effect on the rest of your life.

 

Investing

 

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

Our net worth breaks down into the following accounts.

Assets total: $131,000

  • $30,000 cash
  • $60,000 Vanguard Roth IRAs
  • $25,000 Fidelity 401(k)
  • $4,000 Fidelity 457(b)
  • $12,000 HSA

 

Liabilities total: $218,500

 

Primary residence

  • $573,000 purchase price
  • $543,500 total mortgage
  • $33,000 current equity

 

Our investments are 80% domestic stock, 15% international stock, and 5% real estate index funds.

I refinanced my student loans with Laurel Road in August 2021 when I started as an attending. They are all federal loans so were at $0 required payments due to Covid but I wanted to take advantage of the low rates and now have a 2.05% rate locked in.

We plan to use $9,500 of the cash to pay off my wife’s student loans before payments start again in January 2022.

The family loan is from help we got during medical school for various one-time expenses that included our wedding, an engagement ring, and a new vehicle. We are fortunate to have received this help from family and plan to pay this back in the next 2 years.

For our primary residence, we ended up only putting 5% down and having one loan for 20% from a local bank and a mortgage for 75% of the home value. This allowed us to avoid paying PMI while also remaining under the Jumbo loan amount giving us a lower rate. The rate on both of these debts is 3.35%.

 

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

Our investments are primarily in tax-advantaged and Roth accounts. We do not have a taxable account set up yet, and that is one area I have questions about and am hoping to get some help with from the comments below!

 

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

We invest almost all of our HSA funds but leave $1,000 in cash within the account for any unexpected medical costs. We plan to start 529 accounts once our child is born in January 2022.

 

What has been your best investment?

My best investment has easily been the ~$20 spent on The White Coat Investor Book. This book laid out the steps to take along each stage of a physician’s career to achieve financial success. It introduced me to the White Coat Investor blog and then exposed me to many other great online resources from there.

The recent additions of the FIRE Starter, FIRE Crossroads, and Post-FI Notes as well as the White Coat Investor podcast Milestones to Millionaire have been my most valuable recent time investments in showing me examples and giving me the motivation to pursue FIRE.

 

Your worst investment?

I have been fortunate to learn from others’ financial mistakes and to stick to low cost index funds for my investments.

I did end up spending more on my primary residence than I initially planned. When starting our search for a home near my employer I was aiming for <1.5x my annual salary and we ended up getting a home that was about 1.65x. I don’t count this as a bad investment because we love our new home and are living close to family.

The low mortgage interest rates in 2021 also helped us to extend the amount of debt we were comfortable taking on. This could end up setting us back if I end up disliking my job and we need to move, but so far it has worked out well.

 

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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?

I am most attracted to the financial independence aspect of the FIRE movement. My financial independence goal is $2.5 million dollars based on a 4% safe withdrawal rate to get $100,000 annual income.

Once I am in a position to retire early, I will most likely continue working. I do expect that I will work less than I currently do, and it may be in a different role, but that depends upon what career developments happen in the meantime.
 

How do you anticipate your life changing post-FI?

FI still feels far away, but I am pretty happy with my life even at the current level of spending so I don’t anticipate a lot of changes post-FI.

I plan to work part-time to be able to attend my children’s activities as they grow up and go on family vacations. I do want to be able to pay for extended family to join on some of these vacations.
 

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

The biggest steps to hastening my time to FI have been first educating myself with all of the resources I’ve mentioned throughout this article. I am currently taking the “Fire your Financial Advisor!” online course from The White Coat Investor to develop my written personal investment plan so that future investment decisions will be easy.

I also try to automate as much of my investments as I can so that FI will happen without me doing anything more after the investments are set up.

I have also been learning about real estate investing and may get involved in a more active form to accelerate my investments beyond what can be expected in the stock market.

 

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

My wife and I discuss finances frequently so we are on the same page.

I do have a brother who I discuss my financial goals with frequently, and he has been fortunate to be successful in property management and real estate. I expect he will be able to reach financial independence as well, creating the opportunity for great extended family vacations in the future.

The rest of my family probably isn’t as aware of my financial goals; however, I am the only physician in my family so they now assume I am “rich” even though I’ve only been making the “doctor salary” for a few months.

I have started asking some coworkers about how they invest their money to learn how they have been successful, but I have not specifically discussed my goals.

It has been interesting to hear some of the older members of the group say they don’t know anything about investing and just let their financial advisors do everything, while other members have been able to nearly replace their clinical income with other income streams while they continue to work.

 

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

My biggest piece of advice would be to educate yourself and automate your savings.

The basics of financial success are easily understandable with a fairly minimal time commitment for someone smart enough to make it into medical school, and the returns are immense.

Once you have a basic understanding, set up your paycheck to have significant portions go into investment accounts BEFORE it ever reaches your checking account. It is easy to continue living like a resident when your checking account looks the same as it did in residency.

 

 

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

I want to continue the momentum and savings rate I have developed in my first 4 months as an attending into the next few years. This will require investments outside of my available tax-advantaged accounts. I am trying to decide between the following three areas for the additional funds:

 

–       Taxable account

o   I would continue to invest in basically the same index funds and asset allocation as I do currently, just in taxable accounts. This has the advantages of potential tax-loss or gain harvesting. Additionally, it provides easily accessible funds if I do retire early.

 

–       Real estate

o   There are lots of podcasts/blogs that discuss the many advantages of real estate investing. I have the added advantage of a family member running a property management company so I can use them as a mentor into this space. Currently the market is “hot” so I don’t want to jump in at the top, and this would be basically an extra job that I take on that does require some time outside of my current work and would take away from time with family.

 

–       Student loans

o   My loans are currently refinanced with a rate of 2.05%. It would feel great to cross off this amount of debt and be finally finished paying for my own education. However, with current rates of inflation around 6%, I would almost certainly have a much better return on my investment in one of the other two options.

 

Student Loan Refinancing Disclosures

 

I am leaning towards putting money into a taxable account as that does not really eliminate any of the other possibilities while having a better return than the student loans and less time/risk than the real estate.

A second question I have relates to developing additional income streams. I studied engineering as an undergraduate and enjoyed this field. Combined with the medical knowledge from medical school and finance knowledge, I am interested in getting involved with entrepreneurs as a medical consultant. Has anyone reading this been able to do this and how would I get started?

 

Thank you to the Physician on Fire and White Coat Investor for all they have done in helping me get to this stage in my financial journey and thank you to anyone who can provide further feedback or suggestions!

 

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 got my 2 acres of non-leveraged, crop-producing, cashflowing farmland via AcreTrader. Get yours.


 

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.

 

4 thoughts on “FIRE Starter 010: New Attending Practicing Geoarbitrage in the Heartland”

  1. awesome man you are doing great!!! hope you are enjoying the Fire Your Financial Advisor course. I myself took it and not only did it exponentially increase my financial knowledge, but felt great having a well written financial plan.

    In regards to some advice, I would make sure you understand if your 457b is governmental or not. Makes a HUGE difference! if it is governmental, then basically it’s like another 401k. If it’s non-governmental, then that money technically is not yours but still the hospital’s and is subject to its creditors. This means if the hospital goes bankrupt, your non-gov’t 457 goes with it! You lose all that money, as technically in a non-gov’t 457 the money was never yours.

    As to your options I would favor option 1 and do the taxable account. Real estate is not passive and you are very busy with a kid on the way. Enjoy the ER and your family for now, and if you still have that itch later then go for real estate. Also, paying down debt at such low interest rate does not make mathematical sense as you can get higher returns with your chosen asset allocation in taxable. also, seems you are comfortable with debt. some people are not as it’s ok for them to paydown debt at 2% despite being able to get 10% historically in an all equities allocation. For myself, I would be F-ing pissed wasting my hard earned money on just a guaranteed 2% return when I would risk it in the market and get 10% historically, especially when I don’t need the money for another 20-30 years and can time away the volatility risk. It seems you are of the same mind 🙂

    Also, with regards to option 3, you mentioned student loans which is 2.05% but you didn’t mention your 3.3% mortgage. Are you using the debt snowball in terms of debt? Just at least consider you can also do the debt avalanche where you tackle the highest debt first, no matter how large, in order to mathematically come out ahead. Either way works fine as both will lead to debt freedom, just be aware you might have been falling into a behavioral bias called “mental accounting”. I’m sure if you haven’t heard of it you will as you are dominating this financial game and you will undoubtedly accomplish all your financial goals for you and the fam.

    man I’m jealous!

    Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Congrats on starting your new journey as an ER Attending in the Heartland of America and the tremendous insights you have developed regarding the FIRE Movement with the help of two Blogs I too have been following for some time now: Dr. Jim Dahle’s White Coat Investor and Dr. Leif Dahleen’s Physician On Fire. I completed my I.M. residency at the U. of Iowa in Iowa City although I was raised in NYC and now settled in NC.

    My suggestion would be to consider seeing if you are able to contribute :
    1) After-tax money to your 401K account or what is known as the “Mega Back Door Roth”
    Here is a link from Nerd Wallet and Dr. Dahle has a video on this as well that I recall seeing. It’s complicated but if your employer permits “After Tax Dollar contributions” to fund a “Back Door Roth” it may be worthwhile and then there are ways you would transfer the money to a “Roth Account” but you’d want to check into the specifics to do it correctly.

    https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work

    2) As for the choices you are considering above I would favor a “Taxable Account” given that taxes would only be due upon selling securities I believe a long-term strategy that has worked for us is to invest in Mutual Funds or ETFs in our Vanguard Brokerage Account.
    As for what Mutual Funds or their equivalent ETFs you may find JL Collins perspective interesting as he is a fan of VTSAX (see details below). Anothe thing I learned from listening to JL Collins was the answer to the following question: “What investors do best in the long-run”. Two kinds: One that invest and forget they had invested and secondly those who are dead. Thus, once you have made a decision as to which Mutual Funds, ETFs and the “Asset Allocation” not tinkering with it. It is whay my wife and I have done given that we had huge six figure losses betting on individual stocks over 20 years ago when I had just started my career and in the hopes of “funding educational costs” for children we did not have at the time but in the hopes the individual stocks would take off. It was a costly lesson and the FIRE movement due to Drs. Leif Dahleen, Jim Dahle and others in the FIRE space have prevented many from such losses. Kudos to them and we owe them much for caring about the medical community and many others outside the community that also learn from their well-written and articulated FIRE blogs, videos, guest speaker and live events.

    If I may add another fellow in the FIRE space with regard to asset allocations and funds to invest in that I found interesting is a gentleman by the name of JL Collins and you may enjoy his book “The Simple Path To Wealth” and while I have not read his latest book given that you are considering Real Estate investments: “How I Lost Money In Real Estate Before It Was Fashionable, A Cautionary Tale” may be of possible interest. Real estate income is not exactly passive income as you have pointed out. However, many physicians in private practice do try and own their own real estate to practice out of rather than paying rent. With regard to JL Collins to save you some time he is a fan of Index Fund Investing and in particular speaks about Vanguard Index Funds:
    a) VTSAX (VTI IS THE ETF VERSION): US or Domestic Companies which he argues include international exposure as many US based companies have revenues and are presence in many nations around the world.

    b) Then you have VTIAX (VOO is the ETF VERSION with portability across brokerages and so you may find this as an option in your 401K or other retirement plans). Approximately, 80-85% of the financial weight of VTSAX is in the S & P 500 which is represented by the following Vanguard Fund/ETF: VTIAX Mutual Fund (VOO is the ETF).
    c) For bond expoure JL Collins holds money in VBTLX or Vanguard Total Bond Index Fund.

    3) As for a 529 Plan: You no longer have to wait to have a child to establish one although you are expecting in Jan, 2022 and so your’e not too far away from establishing one under your child’s name and SSN. Should you wish to start in 2021 you may do so under your or your spouse’s name or “another relative” and then upon the birth of your child (and obtaining a SSN) the “Beneficiary” would be changed from the Parent or an “Older Relative” to once your child is born.

    A maximum of $75,000 may be contributed in a “Lump Sum” without incurring Federal Gift Taxes as of 2021 (Federal Gift Tax Exemption increases in 2022 and so would need to confirm that the increase also applies to this). However, this amount doubles for each parent or $150,000 per child (And in 2022 with an increase in the Federal Gift Tax Exclusion of $16,000 you may contribute a total of $32,000 or $16,000 per parent per year).

    Benefits of establishing a 529 Plan now and some Tax Benefits as residents of the State of Iowa:
    1) Compounded Interest
    2) Both Federal and State Taxe exemptions (Iowa State Tax Exemption up to $6,948 for those filing Jointly and have a deadline until 4/30/2022)
    3) Iowa 529 Partners with a low-cost company, Vanguard which you and your spouse already have Roth IRAs with
    4) K-12 Education up to $10,000 per year in Tuition may be funded should you decide on a Private School Education for part or all of your child’s or children’s education -:)
    5) Should you and your spouse decide on having a second child the funds may be transferred from one child’s account to the other without any tax consequences.

    Thus, as of 2022 up to $16,000 per spouse may be contributed or $32,000 Total Per Child per year and a lump sum of $32,000 times five years without incurring Federal gift taxes or up to $160,000 per child (For those who are able to do so in a Lump Sum from exisitng savings in addition to future savings or “windfalls” of money from inheritances, etc) as noted the funds may be tranferred over to cover the educational expenses of any children you may have in the future.

    4) As you consider other income streams and when they materialize you may be eligible to contribute further to a “SIMPLE IRA” with contribution limits increased to $14,000 in 2022 and up to a 3% match.

    Wishing you the very best!

    Reply
    • Hey Prashant dominating advice but I would not recommend #4 as a SIMPLE IRA would nullify the backdoor Roth called the “pro rata” rule. Luckily seems the backdoor Roth is intact for at least another year. I would recommend opening a solo 401k for any 1099 income.

      Reply

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