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In My Story, I talked about the life circumstances that led me here, to create this blog after achieving financial independence. I didn’t give many details as to how that happened financially. I didn’t keep great track along the way, and didn’t know 10% of what I now know about personal finance, but I’ll do my best to recreate my path.
I could go back, way back to 1st grade, when I dominated the Iowa Basics. Or the glorious junior high days, when I was a star mathlete. Sadly, that’s not a typo. But what matters is that I did well in school and rocked some standardized tests. I thought I was kind of a big deal. As a senior in high school, I received numerous scholarships, but there was one in particular that led to my first step towards eventual financial independence.
Education
Choosing a college was no easy task. I had the Princeton Review guide, a few campus tours, the US News rankings, and no idea what was really important. The fact that Vanderbilt had an on campus Taco Bell and you could use your meal plan card there carried way, way more weight than it should have. But I thought that was pretty outstanding. Plus, they offered me a merit scholarship covering 75% of tuition.
I was admitted to some other top schools too, like Duke, Rice, and the University of Chicago. I hadn’t actually seen most of them, and they probably didn’t have on-campus Taco Bells, but I thought I might like to go to a Big Name school. I also got into my safety school, the good old land-grant State U, but I hadn’t given it that much consideration. Until the phone call. The call where they offered me full tuition for 4 years. Sentence fragments. I know. Maybe I should’ve gone to Duke.
Instead, I followed in the footsteps of my mother and father and his father and went to State U. I graduated in 4 years, enjoying it so much I decided to stay for 4 more, finally leaving in 2002 with an M.D. I consider my choice of college and medical school to be an important first step towards FI.
Between the scholarships, the in-state public school tuition, and a college fund set up by my grandparents, I was able to finish undergrad with money in the bank. I took out loans during medical school, lived in shabby apartments next to campus, and was able to graduate with a hefty five-figure debt. If I hadn’t had my grandparents’ help, or had gone to private school at any point, my debt would have easily been six-figures.
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Investing and Compounding
My parents didn’t help pay for college; tuition, fees, room and board were already covered. They did help me financially, though. My Dad taught me the Rule of 72 when I was a kid. When I got a job in high school, they helped me open an IRA, and helped me fund it when the $4.25 an hour I earned at the grocery store wasn’t enough. They also covered the taxes for a Roth conversion (but not this Mega Roth conversion) when I was in a low tax bracket.
The financial help was great, but I probably benefitted as much or more from the financial education aspect. Why are we opening an IRA? What is a Roth conversion, and why should we do this now? How much might account this be worth 40 years from now if it were to grow 9% per year? Answer: 32 times as much, thank you Rule of 72 and compound interest!
I was able to save enough during my internship for a 10% down payment on a one-bedroom condo in residency. I became a homeowner, had a nice place to live, and the place appreciated in value. Hindsight being 20/20, it would have been wise to sell when I graduated in 2006, but we weren’t ready.
Frugality
I say “we” because I became engaged in 2006 as well. I bought my lovely girlfriend a ring with about 2 weeks’ worth of a resident’s salary. To this day, she still complains that the diamond is too big. It turns out I fell in love with someone who despises wasting money even more than I do, my 2nd big step towards FI.
You may have heard the term “live like a resident“. It’s a good way to jumpstart your nest egg when you get your first real Doctor job. It’s also advantageous to work like a resident to really kickstart your savings. We traveled around, and I worked as locum tenens anesthesiologist for nearly 2 years. Our housing was paid for, I got a nice daily wage and per diem, and I took very little time off. If call was available, I worked it.
In 2 years spanning 3 calendar years (July to July) I had built up a sizable SEP-IRA, and had set enough cash aside to purchase a six-figure waterfront lot with cash after taking a “permanent” job. Once again, I thought I was kind of a big deal. The kind of big deal that needs to build a half-a-million dollar house on that waterfront lot.
After a few years of every-third-night call and locum tenens work on some vacations, we were in great shape. We had 2 little boys, each with their own bedroom and 529 fund. I had been contributing the max to the SEP-IRA and I started buying mutual funds in a taxable account. I was paying down the mortgage aggressively. Life was great! Until the hospital went bankrupt!!
I returned to doing locums, took another job that ended up being more like a long-term locums, then settled into my current (and very likely final) position early in 2014, at a place where I had been a locums doc 7 years earlier.
Looks Like We Made It
We finally sold the one-bedroom condo from residency in the summer of 2014 for a small profit after having tenants renting for 7 years. In the fall of 2015, we sold the big waterfront house, for over $200,000 less than we had into it. Yeah, that stung. But ripping off that humongous band-aid made us debt-free and more importantly, financially independent.
We once again have a waterfront home on the bluffs overlooking the river. We spent a lot less on this home but it suits us very well. Having become somewhat debt averse and already paying 2 mortgages at the time we moved here, we decided to sell some funds from the taxable account and buy the home with cash, keeping my goal of being debt-free at 40 a reality.
What did I do right along the way on my path to FI? I worked hard and I saved. I did spend and lose a lot on a home, but we didn’t overspend on furniture, cars, or other big-ticket items. We’ve taken some awesome vacations, but our day-to-day living is relatively frugal. I didn’t hire a money guy / insurance salesman. I educated myself in personal finance.
I got by With A Little Help From My Friends (I prefer the Joe Cocker version, having grown up watching the The Wonder Years). Not everyone can rely on family for financial help during school. Some rough back-of-the-envelope math tells me I would have had to work an extra 4-6 months to achieve FI if I hadn’t had financial help from my parents and grandparents. I say this not to minimize what they did for me (it was huge at the time), but to dispel any notion that a silver spoon in your mouth is necessary to achieve FI at an early age.
I’ve benefitted from the Nike swoosh market from the end of my residency in July of 2006 to where we currently stand at the end 2016. Why do I call it that?
By buying on the way down and the way back up, I was able to buy more shares for my money. There have been a few short-lived corrections, but we’re in the midst of the third-longest bull market in modern history. If you are relatively young, don’t be discouraged by big drops. As long you keep investing, and the market eventually recovers, you will be better off than if it had never dropped at all.
The fees are quite low and the funds are tax efficient. The only oddball investment in the mix is a small ownership share in a local craft brewery. It represents less than 2% of my portfolio and pays dividends in beer, so I’m more than comfortable hanging onto that one.
Today, I’ve got more than 50 years worth of expenses in the nest egg, a number that qualifies me as financially independent. I wasn’t interested in retiring at the tender young age of 40, when I first published this post, but I eventually pulled that trigger at age 43.
Have you defined your path to financial independence? What stands in your way?
18 thoughts on “My Path to Financial Independence”
What advice would you give to a premed student who doesn’t have any parental support and will likely attend a medical school where the cost of attendance is anywhere from 50-70k a year? It’s easy to say “Get a scholarship!” but in 2020 there are very little full ride scholarships being given out, and I may not even have the choice to attend an in-state medical school.
Keep your costs closer to $50k a year by living in college housing near campus with roommates and drive a beater. That’s what I did (although costs were much lower, obviously).
I would never say “get a scholarship” for medical school as they’re few and far between, and rarely a full ride unless you opt for an MD/PhD program.
The good news is if you put your nose to the grindstone when you get out, you can pay that debt back in a couple of years.
Cheers!
-PoF
Great post! I had similar kind of help from my parents during school. This has helped me stay debt free. I have never considered buying a house as I don’t think that real estate is truly sound as an investment. I’m jumping over to your portfolio post next to see that!
Nothing like finding a woman that hates wasting money. I can relate to that. My wife also dislikes spending time shopping at the stores. I like the beer dividend. Is that a quarterly distribution? 🙂
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SO right about Joe Cocker! Who’da known that he’d blow the Beatles out of the water? Great blog.
Thank you for this practical article. Every premed should read this . Too often we tell ourselves that since we study/ work hard we “deserve” expensive private schools, fast cars and big houses. Despite their income , many of my physician colleagues are in debt due to their high consumptive lifestyle and unrealistic expectation of their family members. Most physician nowadays earn a comfortable middle class income not enough to justify the fancy lifestyles.
Lin
I certainly agree. I have no problem with people spending money, but when the outflow matches or exceeds the inflow, there’s a problem. As I’ve demonstrated in the 4 physicians posts, a $120,000 annual budget can leave a typical physician family in good shape. That’s more than double the typical American family’s spending. 4 physicians posts
Best,
-PoF
Schooling is very interesting topic – I remember my first job out of school after my bachelors degree (I am not a physician). It was a great job making 70-90k per year (back in 2002) with great benefits like company car, 401k match, pension, etc…at training I met another person with the same position. She went to a private school for $120k at undergrad level – I did state school and had $12k left in my college fund after 4.5 years of undergrad studies (2 majors and 3 minors – I couldn’t decide!). Long story short – my $30k spent and her $120k spent yielded the same job and same pay. Only I was able to max out my 401k plus some and buy a home at 22 years old while she had a $1000 payment per month on her student loans alone…my financial status 15 years later I can imagine is dramatically different than hers. Yet, have a neighbor now that is a VP of major company and he first looks at a ‘pedigree’ of the candidate – Penn State, Michigan, Ohio State, Florida, USC, (not to mention the Yales/Harvards/Stanfords/etc). He wouldn’t have even considered my resume had it crossed his desk…
Choices….
The importance of the Name Schools certainly varies by industry, and even the hiring individual. Your VP neighbor seems to have a thing for the B1G TEN. 🙂
There’s a saying in medicine: “What do you call the person who finishes at the bottom of the med school class? M.D.” Which is not to say you have dummies graduating as doctors; it’s quite difficult to be accepted and get through, but you don’t have to be the best to do the job. Most of us were used to being at the top of the class, and found ourselves eating humble pie with alongside a bunch of other overachievers.
Great post!
As someone who also went to a state school, I am very happy with that choice. Now I see my colleagues who went to fancy private school with their fancy private school loans and I feel even happier with my choice.
I love the part about your wife complaining about the ring being too big. As someone not in the medical field, I hadn’t heard of the two-week-resident-salary ring rule until now!
I wouldn’t stencil that “Rule” into stone. Many a doctor’s wife would be up in arms! But not mine, fortunately 🙂
I went to a state school (University of Rhode Island) and got a free ride. It wasn’t the best school, but it did the job and got me out of there with no debt. You don’t have to pay top dollar for your education, you just have to take it seriously. If you have drive, a work ethic, and are willing to pay your dues, you can achieve anything. Here is my advice:
1) Don’t borrow money that you can’t pay back.
2) Get a job while in college.
3) Major in an actual useful area so you can get a job.
4) Graduate.
5) Get a job when you graduate.
6) Don’t party and buy a new car and giant TVs… pay your load.
7) Cut your expenses! Bring your car insurance to $25/month (check Insurance Panda), cut gas to less than $50/month (check Gasbuddy), get rid of cable TV (check netflix and aereo), and look to TMobile for cellphone ($20/month).
8) Get a government job so you don’t have to pay taxes and can’t get fired… or actually work hard to succeed in the private sector.