Month: May 2017

Should you encourage your kids to attend college?

College is an experience that most parents encourage their kids to consider. It is a means to advance in society, get a good job, and become financially stable.  Likewise, my parents fortunately emphasized college as a necessity in life—you need to get into a good college in order to succeed in life. Period.

But should college be an option for everyone?

As a physician, it would be hypocritical for me to even suggest that kids should consider bypassing college completely.  I certainly encourage students whom I mentor to get the best grades possible and challenge themselves in any way they can.  If college is a possibility, I encourage them to go for it.  The problem is that many people end up in careers that don’t necessarily require a college degree. You might have “wasted” several years of your life in college for naught.

College is not necessarily free.

The problem with implicitly mandating college is that someone has to pay for it.  You. Uncle Sam. Your parents or family. Everyone.

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It seems like most students become involved with student loans at some point in their lives.  I certainly was.  I am sick of hearing about student loans.  They’ve been a necessary burden for many of my colleagues, and some of my colleagues are still repaying their medical school loans from a decade ago.  College is no different.  Last I checked, tuition at Stanford University in 2016 was around $45,000 a year.  Room and board will tack on another $14,000.  Big numbers add up quickly.

I view colleges in the same light as I do with medical school.  There is a trade-off between cost and perceived quality.  Top-tier schools are difficult to become admitted into. Many of them are also expensive.  Many parents whose kids are admitted into a top-tier school will likely make sacrifices for their kids to attend.  Even if your daughter’s art history degree from Yale cost you $260,000 and delayed retirement, it might still be worth it to you.  Your kid will have gone to one of the top Ivy-league schools in the country.  A top college will likely have high cost, high prestige, and likely high quality education.

The problem with an expensive degree is exacerbated if neither you nor your child gets anything out of it.  An art history degree from a no-name private college may still cost you $260,000 after all is done.  As a parent, you’ve go no bragging rights for your child. If your child doesn’t find a decent job, she is also stuck without a means to build her own financial future.  You don’t want colleges with high cost, low prestige, and low-quality education.  Everyone loses.

College does not guarantee a secure financial future.

A college diploma certainly doesn’t guarantee you a means to generate income, but your experiences in college can certainly create opportunities for you to acquire a job.  Fortunately for our society, the unemployment rate for college graduates over age 24 is lower than 5 percent (perhaps 2-3%).  By going to college in the U.S., you’ve putting yourself in a good position to become employed.  Not bad, but someone should compare income rate to the cost of obtaining the education. I suspect that it is lower than one would expect.  Sure, going to college may help you get a job but it still might not be enough to pay your bills.  Someone needs to solve that conundrum.

You’ve still got to play your cards right even if you go to a good college.

You life still isn’t set if you go to a good college even at a good price.  Not everyone is suited to learn in a classroom.  Not everyone will be able to take advantage of the social interactions in college.  Some kids who opt to live at home during college in order to same money may even miss out on some of the experiences they would have otherwise gleaned from living in a college campus.  There are many variables at stake. No one will be able to offer you or your child a clear strategy to win in school.  That’s what makes life so unpredictable.

Who should actually go to college?

If your kids want to enter professions that require college degrees, they don’t have much of a choice.  In actuality, if you attended professional school there is a strong likelihood that your kids will end up going to college.  Most parents who went to college will at least encourage their children to go to college.  Unfortunately, not every child whose parents went to college will actually benefit from a college degree.  That’s a fact.

Better to burn money on a less expensive education if you’ve really got to burn it.

The problem is that no reasonable parent would actually discourage her kids from attending college, no matter how poorly suited the kids are for the classroom. In these cases, you just have to cut your losses. Lay out the facts, offer options for your child, and what you would be able to contribute to their education. For instance, if your child got into NYU and has her mind set on attending (even though your parental instinct tells you that it’s a six-figure mistake), make it clear what you can contribute to their education.  Give them the freedom to make their life choices.  You might be pleasantly surprised.

What are your thoughts on college?

(Photo courtesy of Flickr)

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How much do you love money?

This is a loaded question.  Most of us opted for a career in medicine not because of the money.  I knew that doctors made a decent living when I considered applying for medical school, but my main goal for becoming a doctor was to be able to do something really cool.  Cool stuff like saving lives or eradicating disease.  Activities related to money were not on the radar.  Tax lost harvesting? Indexing? No way! As a doctor who went through the hellish initiation process of medical school and residency, I should be immune to dealing with the toils of real life!

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Boy I was so wrong.  You can lose out in life if you don’t know how to control your finances. Guys like RootOfGood, Retireby40, and FinanciallyAlert are the smart ones who got it right early so that they can enjoy life.

You can make a lot of money as a doctor.

Herein lies the fallacy.  Just because you can make a lot of money in the medical profession doesn’t mean that you will.  It certainly doesn’t mean that you will get rich either.  I’ve met too many middle-aged doctors who have taken one too many fancy vacations and funded their kids through one too many private schools.  I’ve met plenty of doctors who end up taking poorly compensating jobs in highly desirable places. Both of these situations aren’t conducive to building a solid net worth.

I blame the salary bump that we all get after residency.  I tripled my income after fellowship.  Sounds amazing, but I probably should have increased it by a six-fold instead if I had picked a smaller town to live in.  Nonetheless, this significant jump in income plays tricks on you.  It makes you feel really rich even though you are not.  You have to pay taxes to Uncle Sam for having such a high income.  And Uncle Sam doesn’t really care if you have a negative net worth either.  It hurts to pay high taxes on everything while you still have a negative net worth.

Realizing that the medical system puts doctors at a huge financial disadvantage has actually helped me pay more attention to finances and money.

Doctors generally work pretty damn hard.

This is also a problem.  The nature of medicine puts doctors at a financial disadvantage. The long hours that doctors have limits what can be done outside of work.  If you work from 6am until 8pm—my friend Moe often works even longer hours—you aren’t going to have time to shop for discount groceries or cook dinner.

As much as I like Tikka Masala, I will rarely have the time or energy to cook it myself like Justin @RootofGood is able to.  (j/k)

All joking aside, most doctor lifestyles aren’t conducive to saving money.  And we all know that savings rate is a key component in building net worth, especially early in your working career.  The doctor with long hours is more likely to order take-out, have a housemaid, hire out lawn services, and take fancy vacations to compensate for the challenging lifestyle. That’s human nature. It’s not possible to run at high gear all of the time.

For these reasons, I’ve learned to respect money. We work long and strenuous hours. It’s easy to burn through our earnings relatively easily due to the stress of our work.  My long term goal has been to find a work arrangement that is conducive to a reasonable work-life balance with adequate compensation.  Not easy, but it should be a goal that all of us strive for.

You can work as hard as you want.

There are a lot of ambitious people out there. The great thing about our society is that ambition, hard work, and a bit of luck can get you far in life. Without a doubt, you can earn more if you work more. I know some doctors who work two jobs.  They like it. I know surgeons who operate while they are on vacation (they are licensed and take some locums opportunities). I know some who take time to do more medical work in charity. If the money is good and your health is good, you can theoretically work until you croak.

Don’t keep rolling that rock up the hill if you don’t know what’s going to happen next!

Make sure you have an end goal in mind.

It’s important to reassess your goals frequently. If money is what you want, then just work harder and spend none of your hard earned money. Otherwise, figure out what you really want out of your day, week, year, and life. Where does free time come into play, and how much of this can you control? When you are considering your financial goals, think about how much you actually need, and how much your heirs would get out of your excess earnings and whether that would even be beneficial to them.

(Photo courtesy of Flickr)

Welcome FutureProofMD readers!

Hello everyone! I am grateful for FutureProofMD to feature one of our articles today discussing the prestige of medical schools, and whether they are worth the cost. As an overview, Smart Money MD is a physician-oriented financial and lifestyle website to help guide us through the complicated world of delayed gratification from medical training.  Once you become an attending, do you earn enough to power through any financial considerations? Or do you still have to watch what you spend?

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How much would housekeeping set back your financial plan?

I’ve been thinking about housekeeping services for a while, and have dismissed it every time the discussion has arisen.  But those mailers in the junk mail piles are enticing.

Free estimates!

$50 off first cleaning after you sign up for a subscription!

Obviously having too much house to maintain is a problem that I solely created for myself.  It’s a vicious problem that most Americans have. Land is cheap. Homes are cheap. Utilities are cheap.  Loans are cheap.  This is the perfect formula to become enslaved to your lifestyle.

The problem with home maintenance can be divided into two zones: outdoor and indoor maintenance. Both of these can be incredibly time consuming, expensive, and exasperating.

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Outdoor maintenance.

Subdivisions can be great. They are often somewhat planned communities with shared amenities.  Some neighborhoods have shared swimming pools or organized neighborhood events.  We pay into these associations depending on what amenities are provided.  However, these associations also impose restrictions to each household in order to ensure that its neighborhood is presentable.  This can often mean that your house has to be painted a certain approved color. Your lawn has to be groomed and watered, even if your water bill has to take a hit.  It means that you have to eradicate lawn pests, weeds, and any other element that would otherwise thrive under no supervision.

That’s right. We pay extra to have more land, and more to maintain it. That is the American way.

Indoor maintenance.

The same principles apply indoors.  The more space you have in your house, the more space you have to fill your house with “things”. Do you actually need these “things”? Probably not, but who wants to have an empty house? These “things” in the house get misplaced, disorganized, and dusty too.  I keep my windows open often to circulate the outside air in the house.  This brings in a lot of dust, insects, and various pollen in the house as well. What a mess!

How do I deal with this?

Currently everyone in the family pitches in to organize and clean. Pulling weeds, Mowing the lawn.  Cleaning the bathrooms.  Dusting the windowsills.  I’m suspecting that when all is done and over, I’ll probably have spent a shocking number of months of my life organizing.  Yikes!

Despite the number of hours I spend on cleaning and home maintenance, my home still isn’t spotless by any standard.  I just don’t have time to do all of this.

Will hired housekeeping help lengthen my working career?

Most likely.  I asked around several services, and got baseline yearly quotes on common tasks that I currently complete myself:

Damn housekeeping! No one really likes to clean either.

So I’d probably spend an extra $10k annually on doing most of the things that I am currently doing myself.  Over a decade, I will have saved about $100k, and have it grow through investments.  This isn’t exactly pocket change.

The biggest question that I have yet to quantify is whether the lost hours I spend cleaning the house could be better spent generating income.  Sure, I’d have a higher tax burden, but in theory I should have a much higher hourly earning wage than what hired help should charge even after taxes.  I am still not sure, since most of my maintenance tasks occur on my days off, so it would be challenging for me to be able to bring in extra income without taking on more work.

What do you guys think of doing your own chores?

How many investment accounts are you willing to open?

Having too many open investment accounts was never a problem that I ever fathomed facing.  I don’t think that I have too many active accounts right now, but presumably the longer we remain investing, the more confusing accounts we will end up with.

Over time, I find myself signing up for accounts whenever custodians end up offering savings or cash back.  I think that I started my E-Trade account years ago when they offered $100 for signing up and a few discounted trades.  I opened a Fidelity account when my residency offered a 401k/403b plan.  I had another 401k custodian through an employer that lasted for a year.  When I finally became more educated on index funds, I opened a Vanguard account.  I went back to Fidelity when they offered some airline miles and marginally lower expense ratios.  I’ll probably open a Schwab investment account in the future since they now advertise expenses even lower than that of Vanguard and Fidelity.

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It’s also easy to rack up bank accounts. As a student, I opened quite a few bank accounts for minimal bonuses like a free mp3 player, $100, or free tickets.  Was it worth my time then? Absolutely.  I had a negative net worth with essentially no income.  I even had to shuffle around my money to make the minimum balance requirements.  It was worth spending my free time to get “free” stuff.  Is it worth it now? Probably not, unless the sign-up bonuses are huge.  I still have most of my old bank accounts open, but it’s relatively easy to manage since I have very little money in most of them.  I don’t receive any 1099 interest forms at the end of the year, so I don’t really have to track them during tax season.

Fixed income deposits like CD’s also result in accumulation of excess accounts.  Some banks require you to sign up for a savings account so that any interest accumulated can be deposited into an account outside of the CD.  Other banks allow you to keep open a CD by itself without ancillary accounts.  As you get older, you will inevitably open accounts, whether through the Treasury, banks, or even brokerage firms.

I have about twenty accounts of some sort under my name, including one from Macy’s that I opened while in college.  It is too much that I can’t handle? Not yet, but it is becoming more difficult to track, especially when I get occasional mailings from banks that I have no recollection working with (yes, that is also a factor from age)!

It all of this worth it in the end? I still think so.  I squeak out some marginal earnings that I otherwise would not have, and over my working career, I will likely squeeze out a few extra bucks.  Once my CD’s start maturing, and these banks no longer offer great deals for renewing fixed income vehicles, I’ll start transferring out my funds and shutting them down.  I still keep track of my accounts through Personal Capital, which does require some maintenance (I hate the login failures).

Do you have a threshold for the number of open accounts to deal with?

(Photo courtesy of Flickr)