Author Topic: Reader Case Study: Going to med school on one income  (Read 8122 times)

brandino29

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Reader Case Study: Going to med school on one income
« on: April 30, 2014, 08:13:38 PM »
We're finally on solid financial footing, so I've decided to eff it all up and go back to medical school, meaning we need to figure out a way to get by for the next 4 years while taking out as little in student loans as possible, although I will have to take out loans for tuition.

Income: Currently, I make $51,000 but that goes out the window in mid July so we're stuck with:
$40,008 (wife's total salary state job, so won't change one way or the other)
$9,600 (rental income from small SFH we bought last summer)
Total Income: 49,608

Current monthly expenses (on current annual income of $100k)
Fixed:
Mortgage, inc PITI (residence): $551
Mortgage, inc PITI (rental): $393
Health Insurance: $131
Student Loans: $227
Auto Insurance: $106
Internet: $35
Retirement Savings: $963
529 savings: $50
Taxes withheld (fed, state, local): $1,335
Daycare: $602
subtotal: $4,393

Standard Variable: (this is what we've spent on average for last 12 months pulling from Mint for typical expenditures)
Groceries: $487
Restaurants: $134
Utilities: $234
Cell phones: $146
Gasoline: $193
subtotal: $1,194

Variable variable: (this is the 'average' monthly expense from last year but most of these, e.g. travel, aren't regular monthly expenditures)
Home improvement/furnishings/lawn&garden: $114
Alcohol/bars, fast food, convenience stores, coffee shops: $78
Kids activities/supplies: $41
Travel: $280 (includes two trips to Mexico to visit family, typically go twice per year)
Shopping/clothing/books: $154 (most of this was Amazon purchases that would have probably fit into a different category under "home")
Doctor visits/contacts/pharmacy: $82
Race entries/sporting goods/bike stuff: $52
subtotal: $801

Total Monthly expenses: $6,388
(you may notice that these monthly expenses are a good bit below our current annual income, however we've only recently reached this level of income, with my wife starting her newer higher paying job last July and buying the rental house in August with a renter moving in in September)

Assets
Checking: $1,216 (this is our account for daily use, bills etc, fluctuates regularly between ~$300 and $2,000)
Liquid Savings: 7,180
Retirement (IRA, 457): $22,500 (wife also has a defined benefits pension plan waiting for her after 25 more years of working for the state)
Equity (residence): ~$25,000
Equity (rental): ~$30,000
Brokerage account: $1,009

Total Assets: ~$87,000
(Total liquid assets: $9,405)

Liabilities:
Mortgage (residence): $65,000
Mortgage (rental): $51,500
Student debt: ~$90,000

Total Liabilities: ~$206,500
Net worth: -$119,500


Specific Question(s):
I do expect a few changes in our expenses in the coming months.  We'll be canceling my wife's cell phone in 3 weeks when her contract is up and she has a work phone, that will save about $50 a month, then in September my contract is up and I intend to drop to a pay as you go plan, hopefully cutting that $146 down to under $50/month.  My portion of retirement savings will drop to zero and we're thinking about lowering the wife's substantially.  I'm planning to defer a large portion of the student loans while I'm in school again and our taxes will drop significantly as well.  (I recognize that those aren't "wins" by any means).  Other odds and ends should drop too (marathon/race entries, bike stuff) and of course restaurants/bars&alcohol.  Gasoline will go up though as I'll be commuting 100 miles round trip 4 days a week for the next two years.

Specifically, I have a few questions:

- Is it worth it to cut retirement contributions now to help build up our emergency savings before I quit my job?  I do plan to open a HELOC in the next few weeks (currently shopping around for the best rates) just to have that as a safety net for the next few years, no plan to actually use it unless there's a true emergency. 
- Seeing as I'll be earning a salary again in 4 years (as a resident, around $40,000 is what I understand to be the going rate) and substantially more 3-5 years after that as a physician, is the $50/month currently going to college savings better spent elsewhere?
- Is it feasible to plan at least one annual trip to visit my wife's family in Mexico?  A typical trip costs us around $2,000-2,500 and it's obviously something very important to her.

I know that many of you get by easily on $50k or less a year and find ways to live a good, enjoyable life and still save money.  I feel we do a pretty good job but obviously there's fat we can cut.  We'll have a lot going on with a young daughter, a working wife, and with me back in school and I don't want to add the stress of finances on top of it if we can avoid it.  Thanks for taking the time to read this and I look forward to your input!

Gimesalot

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Re: Reader Case Study: Going to med school on one income
« Reply #1 on: April 30, 2014, 08:39:43 PM »
I would cut a lot of the retirement savings because I just don't see room in the budget for them. 

I suggest that you try to trim the fat from your utilities, food (both groceries and eating out), Mexico trips, and cut out almost all of the variable variable category (not medical expenses).

For utilities, try to find out if there is a time of use plan in your area, this could save you a lot on electricity.  Look into simple solutions like low-flow toilets and shower heads.  Also, consider a timer for your hot water heater.  Raise and lower thermostat depending on season.  Cancel cable. 

There are a ton of threads about cutting food expenses.  Just search.

As far as travel goes, you need to find a way to do this much cheaper.  A couple years ago, my husband and I flew to Mexico and stayed for ten days.  We stayed at fancy hotels and ate every meal out with lots of alcoholic drinks.  We spent $2100.  Depending on your location you might be able to drive to Mexico.  Perhaps you can get your wife's family to meet you somewhere less costly.  Given your current budget, you need to make this costs less or you won't be able to go at all.

Just a couple more thoughts, try to carpool for your commute.  Also, your last two years of med school will be slightly easier.  You should make some plans to earn extra income. 

MDM

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Re: Reader Case Study: Going to med school on one income
« Reply #2 on: April 30, 2014, 10:03:46 PM »
Ditto Gimesalot.

If I read the OP correctly, you will be cash flow negative even with zero retirement and 529 savings unless you reduce other expenses.  See attached if interested for one way of looking at your upcoming budget.  Had to make some assumptions beyond what was in the OP so no doubt there are incorrect numbers - but you can insert your best values and see what there is to see.

It will likely be harder than easy but easier than draconian to make the changes you'll need to make.  Best of all you are going into it with open eyes so the chances of success are very high.  Good luck!

Weedy Acres

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Re: Reader Case Study: Going to med school on one income
« Reply #3 on: May 01, 2014, 05:25:10 AM »
To answer your specific questions:
Retirement savings:  I would cut, since basically if you keep it you'll need to borrow more.  I wouldn't borrow to invest in retirement.
College savings:  If you're going to be a doctor, you should be able to cash flow college for your kid.  I wouldn't worry about setting money aside now, again given that it means you'll be borrowing more.
Travel:  I think cutting it down to once a year is a good compromise. And try to make it as cheap as possible.  If you're going to see family, it seems like all you should need is travel costs, as they'd be providing you room and board while down there.  That should be well under $2500.

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #4 on: May 01, 2014, 08:13:02 AM »
Thanks for the responses so far guys!

I suggest that you try to trim the fat from your utilities, food (both groceries and eating out), Mexico trips, and cut out almost all of the variable variable category (not medical expenses).

For utilities, try to find out if there is a time of use plan in your area, this could save you a lot on electricity.  Look into simple solutions like low-flow toilets and shower heads.  Also, consider a timer for your hot water heater.  Raise and lower thermostat depending on season.  Cancel cable. 

As far as travel goes, you need to find a way to do this much cheaper.  A couple years ago, my husband and I flew to Mexico and stayed for ten days.  We stayed at fancy hotels and ate every meal out with lots of alcoholic drinks.  We spent $2100.  Depending on your location you might be able to drive to Mexico.  Perhaps you can get your wife's family to meet you somewhere less costly.  Given your current budget, you need to make this costs less or you won't be able to go at all.

Just a couple more thoughts, try to carpool for your commute.  Also, your last two years of med school will be slightly easier.  You should make some plans to earn extra income. 

Food expenses are definitely something we hope to get down.  My wife loves to cook so we mostly eat at home but we also eat a lot of meat, and I'd like to cut down on that for a number of reasons (wallet, health, environment).

I never realized just how high our monthly utilities are until putting this together yesterday.  I went back this morning and looked at it to see what the breakdown is.  $73 electric, $51 water, $53 gas, $63 sewer/fire/refuse.  We have old appliances including a fridge that runs nearly non-stop, although our water heater and central heat are gas so the electric bill strikes me as very high all in all.  We are very likely replacing our fridge in the next few weeks which hopefully should reduce the monthly costs.

The biggest cost with our trips to Mexico (driving definitely not an option, we live on the East Coast, her family is on the Pacific Coast 15 hours south of the border) is the cost of plane tickets.  Usually they run $600-$750 per ticket for two people, plus the last two trips we've had to pay taxes for our daughter which is another $100.  Once we're there our costs are generally pretty low but the most recent trip was for a wedding in a different town and we piggybacked a couple of other visits on it so we had hotel and rental car costs as well. 

Carpooling may not be an option, it's a relatively small class (about 75 students) and I suspect most will live near campus. Of course, if there is someone else commuting from my area I will be more than happy to carpool to reduce costs.

Any suggestions on ways to earn a little side income?  We have a plasma donation center just down the hill from our house and I've never really considered it because I've heard it takes 2-4 hours a week to donate and you'll only pull in around $150-200 per month.  I think it may be worth it now though with our new financial situation and I could utilize that time to study.  The whole thing sorta creeps me out however, especially seeing the sort of riff-raff that frequent that particular place as I pass by everyday. 

If I read the OP correctly, you will be cash flow negative even with zero retirement and 529 savings unless you reduce other expenses.  See attached if interested for one way of looking at your upcoming budget.  Had to make some assumptions beyond what was in the OP so no doubt there are incorrect numbers - but you can insert your best values and see what there is to see.

Thanks for sharing this file, MDM! I'll fiddle around with it. Being cash flow negative is my biggest concern. Although I'd greatly prefer not to have to cut savings to nothing, knowing that it's a trade off for a significantly higher income a few years down the road is the whole reason for it.  If we could essentially 'break even' for the next four years (outside of loans for tuition), I would be happy.  If we could manage to save a couple hundred a month to be able to afford one trip a year to Mexico, I'd be ecstatic.

To answer your specific questions:
Retirement savings:  I would cut, since basically if you keep it you'll need to borrow more.  I wouldn't borrow to invest in retirement.
College savings:  If you're going to be a doctor, you should be able to cash flow college for your kid.  I wouldn't worry about setting money aside now, again given that it means you'll be borrowing more.
Travel:  I think cutting it down to once a year is a good compromise. And try to make it as cheap as possible.  If you're going to see family, it seems like all you should need is travel costs, as they'd be providing you room and board while down there.  That should be well under $2500.

I think my question about cutting retirement contributions may have been a little confusing. I know we'll have to drop them once I start school but I'm wondering if we should drop them immediately and take that extra money for the next 2.5 months to help build our emergency fund while we can.  I'm expecting to have built the liquid savings e-fund to around $10,000 by the time I quit, but if we cut our contributions now we could add an additional $1,500-2,500 for a little extra buffer.  The trade off though is not having that money tax-free and losing out on investment gains for the next 20-40 years.

I like your point about not borrowing money to invest, I hadn't really considered it that way. 

La Bibliotecaria Feroz

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Re: Reader Case Study: Going to med school on one income
« Reply #5 on: May 01, 2014, 12:19:40 PM »
Other posters have made good suggestions about retirement savings and ways to cut costs.

For your question about side income, I do Leapforce At Home. It's very computer-heavy, so I don't know if it would be compatible with medical school--is that a lot of sitting at your desk?--and for the time commitment, I don't know that it would pay any better than donating plasma, but at least there are no skeezy people. Only skeezy websites! Full advantages and disadvantages in my blog: http://frugalparagon.com/2014/02/05/why-the-frugal-paragon-loves-leapforce-at-home/

ljp555

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Re: Reader Case Study: Going to med school on one income
« Reply #6 on: May 01, 2014, 03:15:08 PM »
What's the interest rate on your debts and the loans you plan to take out for med school?

Also can you clarify your net worth calculation? I think the mortgages may have been deducted twice: you included real estate equity not the full value under assets, then subtracted the mortgage amounts again under liabilities.

seattlecyclone

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Re: Reader Case Study: Going to med school on one income
« Reply #7 on: May 01, 2014, 04:06:56 PM »
Your average cash outflow in a month is $6,388, but your income will be going down to about $4,134. That means you need to cut about $2,300/month out of your budget.

How's this sound?

Fixed:
Mortgage, inc PITI (residence): $551
Mortgage, inc PITI (rental): $393
Health Insurance: $131
Student Loans: $227
Auto Insurance: $106
Internet: $35
Retirement Savings: $963 $500
529 savings: $50 As others have mentioned, your future income should be able to cover college expenses.
Taxes withheld (fed, state, local): $1,335 $300 Your federal income tax should dip down to about zero (or possibly even negative) when you're in school. Your education tax credits and child tax credit should basically cancel out the tax on $50k AGI for a married couple with one kid. This $300 figure includes $250 for your wife's Social Security/Medicare tax, plus a bit more for state/local taxes (assuming these go down quite a lot as well).
Daycare: $602
subtotal: $4,393 $2,845

Standard Variable: (this is what we've spent on average for last 12 months pulling from Mint for typical expenditures)
Groceries: $487 $270 Aim for $1 per person per meal
Restaurants: $134 $60 You won't have time to eat out much when you're in med school anyway.
Utilities: $234 $200 Be more efficient here. Can you change the thermostat by a couple degrees? Use the dryer less? Take shorter showers? Downsize your trash can?
Cell phones: $146 $30 Your wife can use her work phone and you can sign up for a low-cost carrier for yourself.
Gasoline: $193 $353 Assuming an additional 400 miles/week of driving, with $4/gallon gasoline in a 40 mpg vehicle (you do have a fuel-efficient car for all this driving you're about to do, right?)
subtotal: $1,194 $913

Variable variable: (this is the 'average' monthly expense from last year but most of these, e.g. travel, aren't regular monthly expenditures)
Home improvement/furnishings/lawn&garden: $114 $20 Fix stuff when it breaks, spend no other money on "home improvement" for now.
Alcohol/bars, fast food, convenience stores, coffee shops: $78 $20 The hectic schedule of being a student and parent all at the same time will likely cause you to slip and buy fast food once in a while, but try to minimize this.
Kids activities/supplies: $41
Travel: $280 $140 (includes two trips one trip to Mexico to visit family)
Shopping/clothing/books: $154 $50 Never go "shopping" without a particular needed item in mind.
Doctor visits/contacts/pharmacy: $82
Race entries/sporting goods/bike stuff: $52 $10 Stop entering races, run and bike for free on your own. The $10 is for replacing broken equipment only.
subtotal: $801 $363

Total Monthly expenses: $6,388 $4,121

This puts you a whopping $13/month below your target, and still budgets $500/month for retirement savings. You can push this lower if you really need to, but I would be hesitant to do so. Tax-advantaged savings is a good thing that you don't want to waste.

Gimesalot

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Re: Reader Case Study: Going to med school on one income
« Reply #8 on: May 01, 2014, 09:04:39 PM »
For side income, skip plasma.  You have to wake up super early, beat out 200 people, and it takes a few hours.  This is not a simple thing to do. 

I would think of the following, pet sitting or dog walking, baby sitting, waiting tables or bartending, leapforce, etc.  Check the side income thread for more options.

One thing that is missing from your budget is med school "necessities."  You will need to purchase your own coat, scrubs, stethoscope, about one billion study aids to help you cram all the info in your brain, suits for interviews, countless clipboards, pens, etc.  Try to get an estimate from your school now.  Start hunting for these items on the cheap.

About carpooling, be aggressive about finding someone.  You live on the East coast.  From what I understand, its like people live on top of people there.  Don't limit your self to students, talk to professors, university workers, local workers.  Medical school is so difficult.  This commute will have a huge negative impact on your ability to study.  One of my friends complained that his 25 minute commute was really impacting his ability to study compared to the people that lived 5 minutes from campus. 

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #9 on: May 02, 2014, 07:35:24 AM »
What's the interest rate on your debts and the loans you plan to take out for med school?

Also can you clarify your net worth calculation? I think the mortgages may have been deducted twice: you included real estate equity not the full value under assets, then subtracted the mortgage amounts again under liabilities.

Mortgage (residence) 3.5% for 30 years (although for the first 3.5 years we were in the house, up until last month, we were paying an extra $213/month (about 40% more than the minimum payment) in principal so we've reduced the interest a good bit)
Mortgage (rental) 4.5% on a 5/1 ARM with a 30 year term (it can't increase by more than 2% after the 5th year, honestly the expectation is we'll either have sold it by that point or we'll refinance what will be about $40k in remaining principal)
Existing student loans - 6.5% (with one private loan at $4k lumped in at 3.25%)
Future student loans - the current rate is 5.86% but it is recalculated every July 1st so it could change (it's fixed rate after its disbursed)

I did do the net worth a little funky, I guess. 

Mortgage (residence) -- original loan - $81,000.  As of today, the payoff balance is $65,029.50.  The house appraised at $87k when we bought it and we've made a number of improvements and similar houses in our neighborhood have gone for more so I believe we could comfortably sell it today for $95-100k so I estimated $90k and estimate we have about $25k in equity.
Mortgage (rental) -- original loan - $52,000.  Payoff amount as of today is $50,609. However we bought this off a friend who sold it to us at the same price they bought it in 1999 ($67k).  The bank appraised it at $80k but it's a nicer neighborhood in town and similar houses have sold for much more. I think we could easily expect to get $90k but to be conservative I stuck with the $80k value. 

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #10 on: May 02, 2014, 07:46:37 AM »
Your average cash outflow in a month is $6,388, but your income will be going down to about $4,134. That means you need to cut about $2,300/month out of your budget.

How's this sound?

...

Total Monthly expenses: $6,388 $4,121

This puts you a whopping $13/month below your target, and still budgets $500/month for retirement savings. You can push this lower if you really need to, but I would be hesitant to do so. Tax-advantaged savings is a good thing that you don't want to waste.

Seattle, you rock!  I agree with a lot of your adjustments.  As much as I'd love to think we could get down to $270/month on groceries I'm not sure we could.  My wife loves Budget Bytes though (great recipes on there) and it's helped us, plus we've been talking recently about the need to reduce expenditures.  I've determined I spend way too much on beer (typically a $10 6 pack at least once a week) and things like Nutella.  So I'm going to make a concerted effort to drink less!  Also I want to try out MMM's recent method for homemade cider. 

I've been on the fence about whether to reduce my student loan payments or not.  On the one hand I can get in-school deferral without a problem, but the interest will still accrue and when we're talking about that much money, it's accruing a couple thousand a year.  My plan is to attack my student loan debt like a mofo as soon as I start making real money.  We live very comfortably on $100k right now.  When I begin as a physician and we're making $200k or more, my plan is to continue living frugally and throw lots of that extra money at the student loan debt to get it knocked out in just a couple of years. 

One of my biggest challenges has been trying to figure out how much to withhold.  I expect our tax burden to drop, like you point out, but I've just not gotten my mind around a way to really estimate it.

One other point worth mentioning---we don't qualify for it this year but I believe we should begin qualifying in 2015 for child care assistance through the state.  I know there are often discussions about the ethics of receiving government assistance when you can afford to get by without it but the truth is that we'll be in pretty tight financial times and getting our daycare bill reduced by half will go a long way to improving our situation.  And I know we've contributed more in taxes, and definitely will in the future, than we have received in terms of safety net benefits. 

Regarding the vehicle, I currently have a 2001 Ford Ranger, but I'm planning to get that sold in the next couple of months and finding a cheap old reliable manual Civic or something along those lines for no more than what I get for the truck.

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #11 on: May 02, 2014, 07:52:12 AM »
For side income, skip plasma.  You have to wake up super early, beat out 200 people, and it takes a few hours.  This is not a simple thing to do. 

I would think of the following, pet sitting or dog walking, baby sitting, waiting tables or bartending, leapforce, etc.  Check the side income thread for more options.

One thing that is missing from your budget is med school "necessities."  You will need to purchase your own coat, scrubs, stethoscope, about one billion study aids to help you cram all the info in your brain, suits for interviews, countless clipboards, pens, etc.  Try to get an estimate from your school now.  Start hunting for these items on the cheap.

About carpooling, be aggressive about finding someone.  You live on the East coast.  From what I understand, its like people live on top of people there.  Don't limit your self to students, talk to professors, university workers, local workers.  Medical school is so difficult.  This commute will have a huge negative impact on your ability to study.  One of my friends complained that his 25 minute commute was really impacting his ability to study compared to the people that lived 5 minutes from campus.

Interesting to hear about the plasma donation.  I did some reading on past threads here about it and didn't get a good feeling about doing it.

Very fortunately, my school is providing most of those necessities using contributions from previous alumni.  I'll still be responsible for books and additional study material of course but hoping to find used ones online.

I've worried about the loss of study time while driving certainly.  Currently my plan is to relisten to lectures while I drive.  Fortunately it's an easy drive without much traffic.  It would definitely be beneficial to find another 1st year med student so we could study/discuss together while we carpool. 

MDM

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Re: Reader Case Study: Going to med school on one income
« Reply #12 on: May 02, 2014, 09:42:04 AM »
One of my biggest challenges has been trying to figure out how much to withhold.  I expect our tax burden to drop, like you point out, but I've just not gotten my mind around a way to really estimate it.
E.g., see http://www.calcxml.com/calculators/federal-income-tax-calculator.  Numbers below are for comparison with the spreadsheet you downloaded, which is intended for an ongoing cash flow analysis.  For the 2014 tax year you could enter your total expected income (you, wife, rental, other) into one of many (e.g. Google "estimate federal taxes") online tools. 

Estimated Tax Analysis
Gross income                      $40,728
Qualified plan contributions   -   $0
Adjusted gross income             =   $40,728
Standard/Itemized deductions   -   $12,400
Personal exemptions          -   $11,850
Taxable income                     =   $16,478
Tax liability before credits      $1,648
Child tax credits               -   $1,000
Estimated tax liability              =   $648


ljp555

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Re: Reader Case Study: Going to med school on one income
« Reply #13 on: May 02, 2014, 10:09:38 AM »
Quote
I've been on the fence about whether to reduce my student loan payments or not.  On the one hand I can get in-school deferral without a problem, but the interest will still accrue and when we're talking about that much money, it's accruing a couple thousand a year.  My plan is to attack my student loan debt like a mofo as soon as I start making real money.  We live very comfortably on $100k right now.  When I begin as a physician and we're making $200k or more, my plan is to continue living frugally and throw lots of that extra money at the student loan debt to get it knocked out in just a couple of years.

If I were you, I would hit the student loans as much as you can. $90K compounding at 6.5% for 4 years becomes $116K. I have to ask: why had you been paying extra on your 3.5% mortgage rather than on the 6.5% student loans?


OldDogNewTrick

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Re: Reader Case Study: Going to med school on one income
« Reply #14 on: May 02, 2014, 10:21:47 AM »
Good for you!

I'll probably get shot down here, but I think you should sell ALL your assets and move into an apartment. Your mortgages are low and manageable now, but what happens if you lose your tenants for 6 months to a year, or the heat pump and roof both start to leak in your main residence? By renting you keep ALL your options open.

However expensive you think med school is, it is that x2.

Even after, what do residents make? About $3.00 per hour, LOL.

My daughter's best friend is just finishing up med school so I've been sharing her journey. She did get married last year and they both wisely decided to rent since there was no way of knowing where she's end up for either residency or her first practice.

seattlecyclone

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Re: Reader Case Study: Going to med school on one income
« Reply #15 on: May 02, 2014, 10:31:28 AM »
One of my biggest challenges has been trying to figure out how much to withhold.  I expect our tax burden to drop, like you point out, but I've just not gotten my mind around a way to really estimate it.
E.g., see http://www.calcxml.com/calculators/federal-income-tax-calculator.  Numbers below are for comparison with the spreadsheet you downloaded, which is intended for an ongoing cash flow analysis.  For the 2014 tax year you could enter your total expected income (you, wife, rental, other) into one of many (e.g. Google "estimate federal taxes") online tools. 

Estimated Tax Analysis
Gross income                      $40,728
Qualified plan contributions   -   $0
Adjusted gross income             =   $40,728
Standard/Itemized deductions   -   $12,400
Personal exemptions          -   $11,850
Taxable income                     =   $16,478
Tax liability before credits      $1,648
Child tax credits               -   $1,000
Estimated tax liability              =   $648



You also will be eligible for the lifetime learning credit (up to $2k), and might even be eligible for the earned income tax credit if your investment income (from the rental property and any other investments) is below $3300 (remember to deduct mortgage interest, property tax, depreciation, and other expenses when computing this number). Using the fine calculator from excel1040.com, it seems extremely likely that your tax before credits will be less than $2k, which will be canceled out by the non-refundable lifetime learning credit. Then the refundable "additional child tax credit" will make your net federal income tax be approximately negative $1,000.

studentdoc2

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Re: Reader Case Study: Going to med school on one income
« Reply #16 on: May 02, 2014, 10:42:42 AM »
A few thoughts from a fellow med student:

1) First year med school isn't terribly hard, and you usually have a free summer between 1st and 2nd year. Consider using that summer to earn a little money -- working in a lab is popular among med students at my school, but obviously you can do whatever suits your skills. Second year med school can be pretty rough as you prepare for your Step One exam at the end of the year. Once third year starts, you will have a crazy schedule -- don't plan to have time for anything else. Fourth year will be a light year, but you'll have the extra expense of flying across the country interviewing for residencies. Thus, there are a few places to earn a little extra money, but not many.

2) Definitely consider TAing if the opportunity presents itself. The extra $$$ is good, and it's a good review of material for you. You might also want to look into AJE for possible side income.

3) Never buy new books. Always get them from older students. The books the school will recommend for classes are often not even worth purchasing, and older students can tell you about that too. And then there is obviously your medical library. Get a few good review books and you'll be set. It's tempting to buy all sorts of books, but you really, really don't need to!

4) You may want to look into programs that offer to pay for medical school in return for your working in an underserved area. There are quite a few out there.

5) There are a lot of hidden costs to medical school -- the books, the equipment, the clothes (both scrubs and any "professional wear" you may need), the interviewing expenses. They can be really hard to plan.

6) Given the long and some times erratic hours, you may want to consider moving closer. Just being in the community of medical students can be a big help -- lots of shared resources. But if you commute and try to double-up study time by listening to lectures, finds Goljan's lectures on pathology -- pure gold :)

Good luck!

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #17 on: May 02, 2014, 01:21:24 PM »
You guys are awesome!

Thanks for that resource, MDM, I have only tried the IRS withholding calculator so far and determined it's a pain in the ass. Part of the challenge for 2014 is that I'll have worked 7 months of the year. I just need to spend more time running through these calculators.

If I were you, I would hit the student loans as much as you can. $90K compounding at 6.5% for 4 years becomes $116K. I have to ask: why had you been paying extra on your 3.5% mortgage rather than on the 6.5% student loans?

Maaan, I was sorta hoping nobody would ask that. My plan had been to seek the Public Service Loan Forgiveness after 10 years of repayment on an income based repayment plan.  I've worked for state and local government and now a non-profit.  The PSLF program will forgive any student loan debt if you've worked full time for 10 years in some public service field.  I had no incentive to try to pay down that debt down because it was to be forgiven, so I just paid the minimum required based on my income.  But since I decided to go to med school, it throws all that down the drain.  It was a tough decision but medicine is what I've always wanted to do and we felt that this was the last real opportunity to go for it, and in almost any scenario other than long-term unemployed physician, we will come out ahead financially by going this route, even if I have to bite the bullet of previous student loan debt plus new student loan debt. Plus, I really couldn't imagine spending another 5 years sitting and staring at a screen 40 hours a week.

Good for you!

I'll probably get shot down here, but I think you should sell ALL your assets and move into an apartment. Your mortgages are low and manageable now, but what happens if you lose your tenants for 6 months to a year, or the heat pump and roof both start to leak in your main residence? By renting you keep ALL your options open.

However expensive you think med school is, it is that x2.

Even after, what do residents make? About $3.00 per hour, LOL.

My daughter's best friend is just finishing up med school so I've been sharing her journey. She did get married last year and they both wisely decided to rent since there was no way of knowing where she's end up for either residency or her first practice.

Thank you!  We sorta considered it, and we also considered downsizing to a smaller house (even checked out a few places in person) and then renting out our current home, and using rents from the other two places to cover all three mortgages plus allow for some savings.  We decided it was a risky proposition in the event of major home repairs or extended vacancies. 

Tuition is $20k per year and my goal is to only have to take loans for tuition and nothing else.  Enough people on this forum get by on $50k per year that I feel like we can get it done, with some help from you all!

Just yesterday actually I found data from the American Association of Medical Colleges that found the average starting salary for a first year resident nationwide is $49,000.  A pittance when you look at the hourly wage but essentially my salary now, so I'm thinking of it as a 4 year financial challenge.  And hell, if we can make it 4 years on $50,000, we'll be living the highlife when we're back to making $100k.

You also will be eligible for the lifetime learning credit (up to $2k), and might even be eligible for the earned income tax credit if your investment income (from the rental property and any other investments) is below $3300 (remember to deduct mortgage interest, property tax, depreciation, and other expenses when computing this number). Using the fine calculator from excel1040.com, it seems extremely likely that your tax before credits will be less than $2k, which will be canceled out by the non-refundable lifetime learning credit. Then the refundable "additional child tax credit" will make your net federal income tax be approximately negative $1,000.

This is great info.  That would be incredible.  I'll check out that calculator. Thanks.

bugbaby

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Re: Reader Case Study: Going to med school on one income
« Reply #18 on: May 02, 2014, 01:37:16 PM »
I did this 11 years ago except our income was <15k/year and tuition 35k a year which is the only loan I borrowed (but much higher variable interests).... So here's my thoughts:

1. I agree the first summer is a chance to work - just make sure you focus more on a research type job that's good for your CV.

2. Don't do *ANY* side job beyond this summer. Focus on your grades, especially if you are gunning for a competitive specialty. It's not worth the extra couple grand. Also remember you have a family that needs your time and energy.  Also you need time to get to know people and form study groups, it makes a huge difference. .... It's much easier to cut your expenses to bare-bones.

3. I had a commute only because I couldn't afford to rent downtown where school was. Use the audio reviews from day one on your commute. you come out way ahead. This includes your lectures (I believe most schools record the lectures these days?)

4. Your retirement savings: I think 10k Emergency fund is enough, I'd cont to contribute until July since it's use it or lose it deal.  But either way the 2- 2.5k difference isn't the end of the world


brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #19 on: May 02, 2014, 01:45:52 PM »
A few thoughts from a fellow med student:

1) First year med school isn't terribly hard, and you usually have a free summer between 1st and 2nd year. Consider using that summer to earn a little money -- working in a lab is popular among med students at my school, but obviously you can do whatever suits your skills. Second year med school can be pretty rough as you prepare for your Step One exam at the end of the year. Once third year starts, you will have a crazy schedule -- don't plan to have time for anything else. Fourth year will be a light year, but you'll have the extra expense of flying across the country interviewing for residencies. Thus, there are a few places to earn a little extra money, but not many. I've been planning to try to find some way to earn money, even if it's waiting tables or cutting grass during that time.  I may be able to contract with my current employer for a couple months, which would be excellent.

2) Definitely consider TAing if the opportunity presents itself. The extra $$$ is good, and it's a good review of material for you. You might also want to look into AJE for possible side income. What is AJE?

3) Never buy new books. Always get them from older students. The books the school will recommend for classes are often not even worth purchasing, and older students can tell you about that too. And then there is obviously your medical library. Get a few good review books and you'll be set. It's tempting to buy all sorts of books, but you really, really don't need to! Good to hear, I have an awful tendency to always want to get the book and keep it so I can reference it later if I need to but I almost never do.  The good thing is I know a couple of guys in the classes ahead of me that should be able to give me the inside info on what's really needed

4) You may want to look into programs that offer to pay for medical school in return for your working in an underserved area. There are quite a few out there. I've very much considered this and it's a big possibility.  The problem is that it's only repayment and not up front scholarships.

5) There are a lot of hidden costs to medical school -- the books, the equipment, the clothes (both scrubs and any "professional wear" you may need), the interviewing expenses. They can be really hard to plan. Frustrating.  I would say that it's pretty likely I'll end up staying around here for residency.  We have quite a few hospitals here and I'm probably going to end up in a primary care field since my background is public health and I'd like to continue to be involved in public health and health policy.  I don't think it's "hard" to get a primary care residency around here.  However, I'm fully intending to keep an open mind and if I really take to a certain field then I'll go that route even if it requires relocating.

6) Given the long and some times erratic hours, you may want to consider moving closer. Just being in the community of medical students can be a big help -- lots of shared resources. But if you commute and try to double-up study time by listening to lectures, finds Goljan's lectures on pathology -- pure gold :)  We talked about moving closer but it presents a problem with my wife's job.  We could split the difference and move to the suburbs halfway between but then we'd both be commuting and in opposite directions so we'd have higher auto expenses and still a 25 minute commute. Otherwise my wife would be stuck with the hour commute (and worse traffic). Plus, here we have my parents who help out a lot with my daughter which we'd lose if we moved.  Fortunately it will only be two years, I should be able to get most of my rotations around my hometown for years 3 and 4.  A couple months ago I was looking around on the StudentDocNetwork forum and read a little about Goljan.  Sounds like a lot of people speak highly of it but from what I gathered it's better used to review material you've already studied than to learn new material.  In other words, it'd be useless for me to start listening to it now, or do you think it might be helpful?  Any audio resources come to mind that could help me prep now before starting school?

Good luck! Thanks!  And I really appreciate hearing your perspective as a med student!!

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #20 on: May 02, 2014, 01:55:32 PM »
I did this 11 years ago except our income was <15k/year and tuition 35k a year which is the only loan I borrowed (but much higher variable interests).... So here's my thoughts:

1. I agree the first summer is a chance to work - just make sure you focus more on a research type job that's good for your CV.

2. Don't do *ANY* side job beyond this summer. Focus on your grades, especially if you are gunning for a competitive specialty. It's not worth the extra couple grand. Also remember you have a family that needs your time and energy.  Also you need time to get to know people and form study groups, it makes a huge difference. .... It's much easier to cut your expenses to bare-bones.

3. I had a commute only because I couldn't afford to rent downtown where school was. Use the audio reviews from day one on your commute. you come out way ahead. This includes your lectures (I believe most schools record the lectures these days?)

4. Your retirement savings: I think 10k Emergency fund is enough, I'd cont to contribute until July since it's use it or lose it deal.  But either way the 2- 2.5k difference isn't the end of the world

Thanks babybug! 

I couldn't imagine trying to work and still spend time with my family while I'm in school.  Seems like that first summer break is really the only opportunity to do so. I'll try to talk to some of the other students and see what research opportunities there are. 

One fantastic thing is that every lecture is recorded and posted online the same day with the professors notes and everything.  I'm just hoping that the majority of the professors teach to the material they plan to test on.  I've had past professors that would test on material that was only included in the readings but was never discussed in class.  I've heard that many students don't often even go to lectures unless they're required because they prefer to study at home.  I have no intention of doing this because I know I will stay more engaged sitting in the classroom, and then I can relisten to the same lecture(s) on my way home and help reinforce the material.  It's nice to know that it's an option though in the event of weather or something else going on that I won't be able to make it to school I can stay up-to-date. 

We just decided yesterday that we're actually going to cancel a trip to Mexico before I start school and only go at Christmas so I should be able to push back my last day of work by two weeks, meaning an extra $2k in income plus not spending all the money we would have spend to go to Mexico, so I feel much better about keeping the savings as they are for the time being and reducing the contributions only once I quit.

PencilThinMustache

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Re: Reader Case Study: Going to med school on one income
« Reply #21 on: May 02, 2014, 08:46:54 PM »
you're a lot more frugal than most at this stage--don't get sucked into "the game" and start spending based on your future earnings potential.  Believe me your peers will influence you to do so.  when I was in med school (I was single then) $100 bar tabs and dinners were regular affairs.  Not one of us made a penny, but took the max in allowable loans to live a decently cush life.  Now I'm sitting on gobs of debt.  I once did a calculation where I figured out that a $5 beer would actually cost like $20 when I actually pay it off.  Wish I would have discovered this blog about 10 yrs ago...

PS: 1st year is NOT easy...don't know WTF that guy was talking about.  stay sane, study hard, and have some fun. 

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #22 on: May 05, 2014, 12:12:42 PM »
you're a lot more frugal than most at this stage--don't get sucked into "the game" and start spending based on your future earnings potential.  Believe me your peers will influence you to do so.  when I was in med school (I was single then) $100 bar tabs and dinners were regular affairs.  Not one of us made a penny, but took the max in allowable loans to live a decently cush life.  Now I'm sitting on gobs of debt.  I once did a calculation where I figured out that a $5 beer would actually cost like $20 when I actually pay it off.  Wish I would have discovered this blog about 10 yrs ago...

PS: 1st year is NOT easy...don't know WTF that guy was talking about.  stay sane, study hard, and have some fun. 

Having worked for a number of years has helped me appreciate the value of a dollar, much more so than I ever would have had I gone straight to med school from college (much like I did during grad school, unfortunately).  I'm sure I would have been just like you and most other med students had I gone that route. 

During my interview, small groups of applicants had an opportunity to sit and talk with a group of four current med students. Talking about finding housing in the area, one of the students said "If you just take the maximum amount of loans that you can get, you'll be fine."  All I could think was "Noooooo, that's completely backward!"  It was obvious though that he had no inkling of an idea that what he said was so wrong.

TrulyStashin

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Re: Reader Case Study: Going to med school on one income
« Reply #23 on: May 05, 2014, 12:25:42 PM »
How many years before your daycare costs are gone?  What if you waited out those years (2 or 3 maybe) and practiced living on one income while throwing all your salary toward the student loan?

You could start med school in a much better position if this is possible.

bugbaby

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Re: Reader Case Study: Going to med school on one income
« Reply #24 on: May 05, 2014, 06:26:28 PM »
If OP has decided to join med school and got accepted, I just don't see what delaying it further will accomplish, except to delay the income increase after school and delay if not derail the eventual journey to FI! If anything the sooner you started this the better. You already have a decent one stable income, so you're ahead of the game, not having to borrow living costs.

HopetoFIRE

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Re: Reader Case Study: Going to med school on one income
« Reply #25 on: May 06, 2014, 01:41:13 AM »
I agree that you are way ahead of the game by knowing the value of a dollar and trying to limit the amount of loans you need to take out.  I don't think there is a way around borrowing though.  Your living expenses are already covered by your wife's income, which is great.  Most of the students I knew had stay-at-home wives while in school.  I may sound really silly and unmustachian, but I would just focus on living as frugally as you can (the revised budgets are great!) and try to limit the amount of loans to take out.  Are you sure your interest will accrue with a deferment of student loans (not sure what kind of loans you have)?  I would look to see if your school had any work study program and look into the NHSC for loan repayment programs. 

I am not a huge fan of working between the 1st and 2nd year since that is really your only summer off.  Between your 2nd-3rd, you'll be going straight into clinicals.  You may get some time off after graduation before residency starts.  However, once residency starts, you'll have no more time left for anything for a while.  I really valued the time off since it gave me the opportunity to recharge.  I feel like if you try to work each time you have time off, you'll end up getting burned out.  That's only my point of view though, but I did start med school right after college so I may see things differently.  Even now, I barely have time for anything outside of work and vacation means a week off at a time.  I still look back and long for the summer off between 1st and 2nd year. 

TrulyStashin

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Re: Reader Case Study: Going to med school on one income
« Reply #26 on: May 06, 2014, 08:41:32 AM »
Between student loans and daycare costs, they're shelling out $829/ mo.  That's a lot of cash.

I was a 40 year-old single mom of 2 teens when I went to law school, so I'm not risk averse and I get the argument of "go now so you finish sooner."  But, no one else had raised the question and it's worth considering.    If they waited just a year or two, they could retire pre-existing student loan debt and continue funding their retirement while waiting for Youngster to get to kindergarten age.   Then, without the $829/ mo in SL/ daycare costs, maybe they could continue funding their retirement while he is in med school OR take out fewer loans.

As someone with a mortgage-worth of student loans, I can attest to the fact that a lower balance is a huge advantage and might be worth waiting a couple of years.

bugbaby

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Re: Reader Case Study: Going to med school on one income
« Reply #27 on: May 06, 2014, 10:30:21 AM »
Re: Time off: You do have additional 8 weeks off to use in year 3 and 4. I took 6 weeks off summer after M2 (to have a baby & do Step 1) and took 2 weeks off after M3 (to have a baby!).. Many people take off a 4-week rotation in M4 to do interviews and still have another 4-wk vacation left.

Re: Delaying to decrease loan balance: I appreciate you particular experience TrulyStashin, since I was also a non-trad student ie started medschool later..   However you are mistaken to look at the delay from only the perspective of loans and the front-end income.  i.e if OP aims to be FI at a fixed point, by delaying school 2 years, he's basically substituted 2 years of say 200k income later with 2 years of 50k income now; for only saving 2 years of loan interest. 

PS medicine incomes may already be starting to flatten, and medschool tuition costs are going up, and bureaucracy and regulations are only getting worse every year... enough said

HopetoFIRE

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Re: Reader Case Study: Going to med school on one income
« Reply #28 on: May 06, 2014, 01:23:44 PM »
Babybug is correct in the amount of timeoff.  I didn't mean there was no other time off at all but rather, you are not going to get a block of time off like between 1st-2nd year again.   I guess if you are planning to go to a competitive specialty, it may serve you well to get a research job that will look good on a resume.  If you are at a large university-affiliated school, you may be able to get work study and do research at the same time.  Like I said, I was young when I started school so working during the summer was nowhere on my radar.  I did end up with a sizeable loan, but less than my classmates since I was careful with my spending.  Do I wish the loan magically disappears?  Sure, but the income more than covers the payment.  You need to do what will provide you with less stress.

Re: Time off: You do have additional 8 weeks off to use in year 3 and 4. I took 6 weeks off summer after M2 (to have a baby & do Step 1) and took 2 weeks off after M3 (to have a baby!).. Many people take off a 4-week rotation in M4 to do interviews and still have another 4-wk vacation left.

Re: Delaying to decrease loan balance: I appreciate you particular experience TrulyStashin, since I was also a non-trad student ie started medschool later..   However you are mistaken to look at the delay from only the perspective of loans and the front-end income.  i.e if OP aims to be FI at a fixed point, by delaying school 2 years, he's basically substituted 2 years of say 200k income later with 2 years of 50k income now; for only saving 2 years of loan interest. 

PS medicine incomes may already be starting to flatten, and medschool tuition costs are going up, and bureaucracy and regulations are only getting worse every year... enough said

brandino29

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Re: Reader Case Study: Going to med school on one income
« Reply #29 on: May 07, 2014, 02:39:04 PM »
Thanks again for all of the replies guys.

How many years before your daycare costs are gone?  What if you waited out those years (2 or 3 maybe) and practiced living on one income while throwing all your salary toward the student loan?

You could start med school in a much better position if this is possible.

I considered that and believe it's a reasonable suggestion but felt it really wouldn't drastically improve our situation and as babybug says, it would delay the significantly higher income to come in a few years time.  Assuming I want to FIRE by 50, I can work 20 more years making $50k ($1million) or 4 years making zero, 3 making $50k, and 13 making $150k ($1.97 million), coming out a good bit ahead.  Primarily though I want to do it while I still feel like I have a chance to do it well.

I agree that you are way ahead of the game by knowing the value of a dollar and trying to limit the amount of loans you need to take out.  I don't think there is a way around borrowing though.  Your living expenses are already covered by your wife's income, which is great.  Most of the students I knew had stay-at-home wives while in school.  I may sound really silly and unmustachian, but I would just focus on living as frugally as you can (the revised budgets are great!) and try to limit the amount of loans to take out.  Are you sure your interest will accrue with a deferment of student loans (not sure what kind of loans you have)?  I would look to see if your school had any work study program and look into the NHSC for loan repayment programs. 

I am not a huge fan of working between the 1st and 2nd year since that is really your only summer off.  Between your 2nd-3rd, you'll be going straight into clinicals.  You may get some time off after graduation before residency starts.  However, once residency starts, you'll have no more time left for anything for a while.  I really valued the time off since it gave me the opportunity to recharge.  I feel like if you try to work each time you have time off, you'll end up getting burned out.  That's only my point of view though, but I did start med school right after college so I may see things differently.  Even now, I barely have time for anything outside of work and vacation means a week off at a time.  I still look back and long for the summer off between 1st and 2nd year. 

I'm pretty sure that the interest will still accrue, I'll have to verify it though.  If it doesn't, then I'd not hesitate deferring them until after I graduate school. 

I do plan to find some sort of income during at least the 2 months off after 1st year but I can't imagine doing much beyond that, during other breaks or while in school especially.  I've had some people suggest I consider working part time but I would rather forego any extra income for the next couple of years if it's going to mean it's that much less time I'll have with my daughter. 

I'm hoping that we can drop our expenses, as laid out with help from some of you all before, and live off the one salary for the next few years and only take loans for tuition.  If we can do that, I'll have additional loans of $80 to $90k on top of the current loans.  I'll start throwing a good bit of money at them when I start residency and we're back up to combined $100,000 in income, and then when I go to work as a full fledged physician earning hopefully $150k or more, I can take that additional $50k in income and pay off the loans entirely in just a few years time. 

goatmom

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Re: Reader Case Study: Going to med school on one income
« Reply #30 on: May 31, 2014, 09:01:27 AM »
I am a little late to this but.....plasma center here makes appointments.  No waiting on line.  Go with wife and have a date!  Also, people in my class made money being test subjects in experiments.  Signs are up all over any medical school that does research.  Do sleep studies!  Kill two birds with one stone.  Good luck!