Case study: 31 yo doctor, NW > $500K, what else can I do

[Midwestache]

This is my first post on any internet forum. I have been reading MMM for the last 4 months and found this site while reading white coat investor so I could educate myself about money and finances. I have been wanting to write a detailed post for the last few months but I wanted to gather enough information via Mint to do an adequate posting along with accurate numbers. I am married with one child, we live in the Midwest. We are both 31 years old. I work as a physician and graduated residency in June 2014. My wife works as a nurse and has been doing so for the past 9 years while I have been doing medical school and residency. We met in 2001 during college. Fast forward to now, I have been working in my current field as a staff doctor for the last ~10 months. At first when I got out of residency my wife and I were very excited I was done with schooling. We were ready to live an awesome life of pure spending pleasures including porsches, luxury items etc until I put the major brakes on after finding these sites. There was some major hemorrhaging of money early.


Salary and wages:
Monthly after tax take home pay: $15.2K + $1.3K month rent check = 16.5K
Bonuses depending on productivity, this will be paid at end of 2015: projected currently $84K post tax
1 rental property total income was $4153 minus $2953 expenses (painting, new stove) net: $1.2K ($1300 a month rent check)

Pretax deductions:
53K into pretax IRA (funding ~4.4 K per month)
11K backdoor roth fully funded for 2015
18K wife pretax retirement fund (funding 2 K per month)
4.5K for child 529 (funding $375 a month)

Current Expenses:
Mortgage: $3846    10 year ARM 3.125% 557K left on mortgage
Rental Mortgage: $661 5 year ARM current rate 2.75% 68K left on mortgage
Rental condo association fee: $268
Restaurants: $616
Groceries: $380
Cars: $341 (this includes insurance (80$ per month for 2 cars), gas, new tires for both a car ($354)
Child care: $1150
Travel: $1000
Cable TV and internet: $106
Diapers: $25
Hair: $25
House Keeper: $120
Electronics: $80
Clothes: $60
Sports, gym, golf: $222
529 for child: $375
Vanguard taxable account funding: $5800
Utilities: paid for the year to earn credit card miles

Total: $15075

Assets:
Cash: 17.6K

Me pretax 401K: 41K
Roth: 25.5K
Taxable: 59.3

Wife pretax 401K: 52K
Roth: 23K

Total stocks: 200K

Housing
Primary house: 860K - 557K = 303K
Rental 129K - 68K = 61K

Liabilities:
Primary house: 557K 10 year ARM 3.125%,
Rental: 68K 5 year ARM current rate 2.75%
Credit card: 12.5K Paid off monthly, credit card churning (use it to pay mortgage, other credit cards, target prepaid redcard has stopped so I won't be doing the churning anymore)
Cars: Both paid for, one is 10 years old, one is 8 years old.

Net Worth: $569K


We have become interested about financial independence as soon as possible. And when that time comes we can decide about retiring early. I do not mind facepunches and actually welcome them.

Specific questions:
1) Is there any more tax savings I could be doing?
2) I plan on paying off my primary house mortgage in around 10 years. My calculation is that it will take 11 years if I pay an extra $2500 a month on the mortgage. I plan to use my bonus money each year to pay this. I am debt adverse and having the house paid off will give me peace of mind. Also since it is an ARM mortgage I do not want to be caught with a large rise in interest rate. I know I could refinance in 10 years.
3) From the bonus money the rest of it I will use to fund our back door roth accounts, and any remaining money I will put into a taxable account.
4) My calculated savings rate without accounting for any of the bonus money is around 50%? Is this correct? With the bonus money added it should be north of 60%.
5) Any suggestions welcome

[seattlecyclone]

1) Is there any more tax savings I could be doing?

You could contribute to an HSA if you switch to a qualifying health plan. Beyond that, you're maxing out your retirement accounts already and your income is too high for a lot of the tax credits.

2) I plan on paying off my primary house mortgage in around 10 years. My calculation is that it will take 11 years if I pay an extra $2500 a month on the mortgage. I plan to use my bonus money each year to pay this. I am debt adverse and having the house paid off will give me peace of mind. Also since it is an ARM mortgage I do not want to be caught with a large rise in interest rate. I know I could refinance in 10 years.

Much ink has been spilled about whether people should pay off their mortgages or not. The math says paying off your mortgage early is usually a bad idea, especially with a rate as low as 3.125%. You will likely be better off if you invest the extra payments and use that money to pay off the debt if the interest rate ever goes up too much. If you acknowledge that and decide to pay it off anyway because you just can't stomach having the debt, do what you have to do.

3) From the bonus money the rest of it I will use to fund our back door roth accounts, and any remaining money I will put into a taxable account.

Sounds like a good plan. Front-loading the retirement accounts is generally considered optimal.

5) Any suggestions welcome

My big suggestion is to downsize the house. $860k will buy a pretty big house in the Midwest. Your income is high enough to get you to FI pretty soon even with the big house, but if you can make do with less you'll get there a whole lot faster.

[Gone Fishing]

You mentioned you are a staff doctor. Can you get equity in the practice so you can profit off the other staff doctors?

[Midwestache]

Thanks So Close, unfortunately there are no opportunities to invest in the business.

Thanks Seattle cyclone for your suggestions.
As far as a HSA, I do not have access to that, I read those are very good for tax purposes.
The house is expensive and we are enjoying living there currently, I have spoken to my wife about the possibility of downsizing. She is on board with being financial independent. That being said the house is less than 2x our gross annual salary and selling so soon after buying will be quite costly including 6% realtor fees etc.

[DrJD]

As someone who will be a staff doctor in a few years with a negative network around what your positive net worth is, my question is, how?  How did you finish this crazy long road with all the money you already have saved!?

Good work man. 

As for mustachian suggestions, my only thought was the same as above, upkeep on an 860k house is going to be fairly large, IE, more in utilities, property taxes, etc.  So there could be some savings there, but truthfully, if it is your forever house, and it will be paid off around the time you want to be financially independent it may be worth it to keep it.

[Midwestache]

Thanks DrJD, my wife worked throughout my training, and we saved everything we were able to. I also got merit scholarships the entire way through college -> medical school. I went to a residency program in a low cost of living area and did not have high expenses. I bought a house during residency and happened to be when the market was at its low (2009). I sold that for a profit of 50K. We earned equity in our primary house since it was foreclosed upon.

A lot of my friends finished residency with debt. I know I am very fortunate to be in my current position without debt. And instead of squandering this situation I figure I can gain financial independence much earlier than most in the medical field.