Year: 2016

Common Expenses Incurred by non-Financially Independent Doctors

Posted on by SmartMoneyMD

lifestyle inflation methodsThrough observation of myself, my colleagues, and reports from other physicians through the grapevine, I’ve compiled a list of examples of lifestyle inflation that occurs among professionals who ultimately grow into their incomes. Some are modest. Others, not so much. What large expenditures have you witnessed or are actually guilty of in your growing lifestyle?

  • Purchase of a large television. This is not uncommon, especially with “curved” TVs, super-hi def LEDs, surround sound systems, and home theater systems. Costs can range from $4999 for a “modest” flat LED set to $20,000 for a home theater with reclining movie theater seats and surround sound projector system.
  • Fancy car. This is also not uncommon. It seems like every other new residency/fellowship grad springs for a new set of wheels. I actually have a tough time assessing whether this lifestyle inflation is simply due to a sudden increase in income or longstanding family money that they were hesitant to flaunt during training. I was shocked to see one of my cardiology friends spring for an $125,000 Mercedes AMG within a month out of fellowship, but I suppose that his income can still support the car through a lease. Cars I’ve seen out of training include an $80,000 Tesla Model S and a used Lambo (no idea how much that would cost).
  • Increased restaurant tabs. Again, a common finding among everyone I know. Weekly $20 beer tabs (alcohol only) grow to $50 a week, along with eating out for lunch every day, and Michelin star restaurants on a regular basis. There is probably some satisfaction in building a refined taste in food, but that easily can grow your waist as well.
  • Fancier grocery purchases. It starts from eating store-brand yogurt in medical school to Fage in residency, to Noosa as an attending. Waist inflation will come with eating Whole Foods $24.99/lb salmon and $49.99/lb special grocery store porterhouses.
  • Fancy furniture for a fancy home. You can really go crazy in this category. Think interior designer mandated custom dining rooms with marble-top formal dining tables with chairs starting at $2000 apiece. Lawn design with feng shui elements that cost $60,000.
  • Upgraded work and formal attire. Add in a couple pairs of Loubutin’s, several sets of $300 work outfits, fine jewelry, custom dress shirts and suits, and you’ve got a money pit in your wardrobe. Worst yet, these costs are easily recurring as you cycle through new outfits.
  • Upgraded outfits for your kids. Children’s clothing is big business, especially at the age where kids will easily outgrow their clothing. A hip outfit including a baseball cap, t-shirt, shorts, socks, and shoes from Under Armour for your 5-year old can easily run you $200! Don’t worry, he’ll outgrow it after a year or even sooner when he gets new clothing a few weeks later.

These expenses actually aren’t morally reprehensible if you actually have a self-propagating bankroll to fund it, but I find it hard to imagine that any of these expenses translate into true happiness.

What other lifestyle inflation examples have you experienced?

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(Photo courtesy of Flickr)

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Are LED bulbs worth the cost?

Posted on by SmartMoneyMD

are led bulbs worth costAs part of my cost saving habits, I started looking into changing out my lightbulbs to LEDs, since I’ve read that they are more akin to incandescent bulbs in tones yet are as energy efficient (or more) than CFLs. Many of the local hardware stores also have rebates subsidized by the local utility companies (maybe they have governmental subsidies as well?).

Many of my fixtures are already using old CFLs from years ago—they take about 30 seconds before becoming sufficiently useful. I’ve found that with my short amount of patience even thirty seconds can irritate me. Moreover, none of my CFLs support dimmer switches. I still have a few residual incandescent bulbs for those fixtures.

Let’s look at the energy consumption of the three bulbs:

Incandescent CFL LED
Power consumption 60W 14W 10W
Initial cost free (already using) free (already using) or $2 $4
Energy cost $0.12/kwh $0.12/kwh $0.12/kwh
Extra hours of use needed to equate cost of Incandescent — 4.3x + $2 (cost of new bulb) 6x + $4 (cost of new bulb)

If you look at the extra number of hours of use needed to justify the cost savings, there is no way that any energy-saving bulb is worth the cost. Sure, incandescent bulbs blow out and you have to replace them yearly, but most of us have boxes of them in storage.

CFL vs LED Bulbs

I do see the merit of having LED over CFL bulbs if you are choosing between the two. In my experience, LED bulbs only cost marginally more than CFL bulbs. However, CFL bulbs have two major downsides:

(1) Most of them do not work with dimmer switches.

(2) It takes much longer for a CFL to “warm” up and become bright. Usage for short periods of time actually decrease longevity of the bulb.

If you already are using CFLs, the energy savings difference seen in switching to an LED is negligible. The cost LEDs, while much lower than they were several years ago, still lags behind that of CFLs. It would take several years of extended use to replace a CFL in use with an LED.

What bulbs did I switch?

My pre-existing fixtures with incandescent bulbs on dimmer switches were all switched to LEDs. Costco was selling 60W equivalent LED flood bulbs for $2.49 apiece. I use these lights approximately 3-4 hours a day in the kitchen, and more on the weekends. The rest of my CFLs remained CFLs. I saw no need to replace them since they were already energy saving.

How much of your home is powered using LED bulbs?

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(Photo courtesy of Flickr)

The most expensive floor mop you can buy – Norwex

Posted on by SmartMoneyMD
norwex the most expensive swifferI recently purchased a home for the first time and have been dealing with the benefits and nightmares of home ownership. More on that in future posts. One aspect of ownership that I’ve come to realize over and over again is that you are more likely to take better care of something you own than something that you’re renting.
So true.
I was cleaning out the garage and came across a dirty floor mop. It looked like a Swiffer, except that the mop end appeared to be a reusable microfiber component. I’ve seen plenty of Swiffer knock-offs, and this one looked no different. In any case, the handle looked pretty sturdy, so I decided to keep it. The name of the company was Norwex. I looked online to see where to buy replacement cloths.
These floor mops are EXPENSIVE.
Expensive like $130 for a starter kit! You can’t even buy it at a store. You have to reach out to a design consultant to purchase it. Crazy. The refills were going for at least $20 for one microfiber cloth!
Is it any better than the average dust buster? We shall see. Have anyone in the audience ever used a Norwex?
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Reasons why you want to be financially independent

Posted on by SmartMoneyMD

financial independenceThose who are financially independent justify their desire to be free from their daily grind. This grind supposedly allows us to earn enough to retire on and enjoy our decades of hard work. In a way, it does seem ironic that we spend the majority of our lives working towards sustaining our existence for the last few decades of our life.

I started to reflect on why I go to work every day (other than that I like practicing medicine), and the ways that a full-time job negatively impacts my life.

Health

Just as how conferences are bad for your health, working through the daily grind can also be bad for your health. My consumption of junk food increases while my exercise frequency decreases during a busy work week. I am unfortunately in a field where I still have to deal with patient and administrative care outside of the normal working hours. Even though my working hours are relatively sane, the work does carry over into my personal time. I certainly experience the typical aches and pains after a long day/week of work. The most common ailments that I hear about include musculoskeletal pain (upper and lower back pain) from over working. The likely result of over working, lack of exercise, and poor dietary habits is increased heart disease, obesity, and poor health. Is that what you want to have after 30 years of hard work?

Stress from work

Along with physical health ailments from the daily grind, there is a level of stress involved. My dentist tells me that he notices that I have evidence of teeth grinding (bruxism) on my molars? Grinding? Me? No way! The truth is that there are issues that probably linger subconsciously and cause stress in ways that I don’t visibly perceive. If I didn’t subject myself to this daily torture, would I grind my teeth less? Probably.

Stress from bills 

Bills suck. Utilities, internet, cable, phone bills, car payments, mortgages, credit card bills, and various cash bills all dig into our bank accounts. Most of us keep our day jobs in order to afford these luxuries. Whether we are aware, these expenses contribute to our anxiety. I curse my internet provider every time they increase the rates. Sure, you can threaten to cancel your service, but how much of your time can you waste waiting on the phone dealing with customer service trying to talk you into upgrading your service? My blood surely boils when that happens.

 

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Decreased time with other activities 

If you’re working, that means that you aren’t at your kids’ baseball games. For that matter, any time that you are at work or dealing with work-related issues, you probably aren’t doing anything that you would other be doing, whether it’s reading a book, shopping, research, or exercising.

I consider the luxury of time to be a good motivator to strive for financial independence. The more time I want outside of my normal job, more I should aim to become financially independent. Am I there yet? Not even close. Will I get there? Absolutely.

Financial independence affords you the time to do what makes you happy. If happiness involves working at your normal job, then consider yourself lucky. For everyone else, stick with your financial plan. 

(Photo courtesy of Flickr)

Other ways to get money for your house – Doctor Loans

Posted on by SmartMoneyMD

doctor loans alternative mortgage

This post is the fourth part in the series on mortgages and my experiences:

My local mortgage lender reintroduced me to the notion of getting a doctor loan. I had heard about these options from financially savvy doctors back in residency, but I never really learned whether these loans were actually prudent options. In general, the perks are as follows:

  • Option to put down less than 20% of the purchase price of your home without having to buy private mortgage insurance. I would estimate that this would save you about $1,000 – $3,000 a year.
  • Ability to borrow up to 95% of the purchase price of your home. This means that you’d only have to put down $50,000 for a $1 million home!
  • Approval of loan with only proof of an employment contract.
  • Better rates than traditional loans if you are going for a jumbo mortgage

 

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Depending on your lender, there may still be other options. All of the lenders who I spoke to stated that borrowers would still need to have a good credit score above 700.

When should I consider a Doctor Loan?

In the most extreme case, no financially cognizant person should obtain a doctor loan with the intention of overextending your earning power. For example, if you are a neurosurgeon starting your first job that brings in $1.4 million of income annually, you could reasonably get a doctor loan on a $1 million house with a $50,000 downpayment. Assuming that you can hold your job for the next few years, you should be in decent financial shape.

In contrast, everything else belong is a questionable situation. The average white-collar professional whose salary is in the $50,000 range may actually own a house that’s five times his annual salary ($250,000). Similarly a doctor who earns $250,000 annually  might be able to “afford” a $1.25 million home. Through a doctor loan, you might be able to buy this home without having to cough up $250,000 for a traditional mortgage downpayment.

Will the lender underwrite such a loan for you? Probably. Most likely. Prior to the housing crisis, doctors could get approved for loans easily with very little oversight. It’s a little bit more difficult now, but is still easier than what the average consumer will experience simply because you as a doctor, you should have a stable job.

Should you use the doctor loan in this scenario? Probably not.

Ultimately it depends on what lifestyle you need to live at the moment and how you would fare otherwise.

You know that you’ll definitely be living in the same place for the next five years.

If you are a high income physician who knows that you’ll definitely stay at your job for at least the next five years, you can entertain the ideal of buying a house. Let’s say that you really don’t have enough in your savings account just yet to make the standard 20% downpayment…perhaps the doctor loan is for you. I knew an orthopedic surgeon who used a doctor loan on a house that was priced significantly below market value. At the time, he was planning to stay in the area for at least the next few years, but putting down  20% would have been a stretch for his purchase. (He found another job two years later in another state).

You’re an investing superstar.

Not having to plop down a significant chunk of your savings on a house allows you to invest the difference to your liking, whether in the stock market, real estate investments, gambling, bonds, P2P lending, or under your mattress. Most mortgage rates run in the 4.5% or less range, so there is some merit in hedging your investing luck/skill elsewhere.

Should you do it? I’d have to argue that most doctors should not get a doctor loan for this reason alone—there are more financially naive doctors than business shark doctors. It’s probably unwise to think that you are an anomaly.

What are some other reasons why doctors should get a doctor loan?

 

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(Photo courtesy of TaxRebate.org.uk)

The Marginal Utility of Saving – When is it not worth it?

Posted on by SmartMoneyMD

marginal utility of happinessI’m sure that we’ve all encountered scenarios where we go out of our way to either save money or get a better deal. I’ve certainly had to decide between waiting in a two-hour line to purchase train tickets with credit card versus using a machine that only takes cash (I used the machine).

Likewise, I came across the discount bakery aisle at the local grocery store yesterday. A box of day-old twelve donuts were discounted to $2. In contrast, a normally priced donut was 60c apiece.

That’s right. These are the first-world problems that I have to deal with! I could either get a dozen day-old donuts for approximately the same price as three fresh donuts!

How much happiness would I have with a dozen partially stale donuts versus three fresh ones? For me, the marginal happiness I experience is simply having ONE donut. I would be happy having one donut, saving the calories, and be done with it.

Which option did I eventually choose?

I bought the dozen discounted donuts!

 

Arguably I could have done without the extra calories, but I also had extra mouths to feed.

What would you have done in this situation?

 

Happy July 4th to everyone!

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(Photo courtesy of Flickr)

The fundamentals of mortgage loans – Part 3

Posted on by SmartMoneyMD

fundamentals of mortgage loansThis post is the third part in the series on mortgages and my experiences:

 

Today I will continue where we left off previously with online mortgage lenders, considerations, and what I learned in the process.

To summarize, online mortgage lenders may actually have storefronts in other states, but are licensed to lend in your state. You can poll the top lenders online through Costco’s website or through BankRate.com. I did both in my search. Having multiple offers allows you to have more flexibility and knowledge in the process.

Most of these lenders offer very generic information such as the rate, term, fees, and credits. I would say that the majority of online lenders had very low or NO lenders fees. Many of these lenders even offered lender credit! Let’s go through these in detail:

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Lender fees.

This is the black box in most lending statements. These fees are always convoluted and often masked by terms like origination fees, application fees, processing fees, and underwriting fees. My local lender had all of the above terms. Many of the online lenders had NONE of the fees. This is quite bizarre to see such a wide range of costs. These numbers can run in the hundreds of dollars each, and total in the thousands!

That’s right. Straight out the gate, you can end up spending a few extra thousand dollars depending on which lender you are going through. I asked the online lenders why they can still give borrowers a relatively low rate and have almost no fees, but most of the answers did not seem too convincing:

“We run a very lean operation, and pass on the savings to the consumers.”

“We have a small physical footprint, so our costs are low.”

I also asked for a “Truth in Lending Statement”, which typically outlines various closing costs and fees. One online lender provided a rudimentary form with most of the blanks empty, while the others told me that they no longer provide these statements, given that all loans signed after October 2015 are not mandated to provide one. Instead, there are “Loan Estimate” statements that are provided. However, most of the online lenders were very vague—they all only provided an interest rate plus a certain lender credit given the type of loan requested.

My local lenders were, for some reason, more forthcoming with their expenses. All of them provided me with a “Loan Estimate”. There was some variability in some of the numbers, but certainly gave me a better idea of the closing costs that a mortgage incurred.

The following is a list of common closing fees and my comments:

  • Appraisal fee. This is mandatory, and is a means for your lender to determine whether the property you are purchasing is worth their risk in lending you money. This price is not negotiable as the lender typically chooses the appraiser. There is variability among lenders but I would estimate that it should cost around $500 or less.
  • Title fees. These fees are dependent upon which title company you choose. You can choose which title company to help close the sale. However, depending on how your realtor arranged the sale, the escrow company that handles earnest money may actually be the title company as well. When I placed a deposit of earnest money, the escrow company was the same as the title company. This meant that it would have been very difficult to make other arrangements outside of the predetermined company.
  • Origination fees and Lender fees. This number is negotiable. A portion (or all) of these fees will go to your loan originator as “commission”. Some lenders will be more willing to budge than others on this number depending on how they are paid.

 

What other fees have you seen on your closing cost sheets?

 

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Photo courtesy of Flickr.