Beyond the Paycheck – Financial Planning & Wealth Strategies for Physicians

Daniel Wrenne: A financial plan doesn’t need to be complicated. Actually, simple is good. It’s really just like going through the exercise of talking about where getting your finances organized, clarifying what your goals are and your values, and coming up with action items to start to make sure you’re making good progress towards those goals and values. And so that’s really all it is.

Welcome to Finance for Physicians, the show where we help physicians like you use money as a tool to live a great life. I’m your host, Daniel Wrenne, and I’ve spent the last decade advising physicians on their personal finances with the mission to help them understand that taking control of their finances now means creating a future where they can practice medicine where, when, and how long they want to.

Daniel Wrenne: Hey everyone. Today I’m going to be talking with Jordan. Jordan is currently in training and has his finances pretty well together. However, he recently reached out to us because things are about to be changing pretty drastically, in a good way, now that he’s getting closer to finishing up his training and is looking at his first attending job.

And he reached out to us hoping that we could review his finances and maybe provide some considerations on how he can set him and his family up for financial success as he makes this big transition into practice. So we’re going to talk through all that today, and I’m excited to share that with you here in a moment.

But before we get into that, I needed to go through some disclaimers here real quick. This is not advice and everybody’s situation is going to be different. So if you want advice that is specific to your situation, make sure you consult your own advisor. Also keep in mind, this conversation is based on what Jordan shared with us about his situation.

And so I’ll be zeroing in to areas I thought were most relevant for him and we’ll be skipping areas that are not. For example, I know Jordan already has a very solid handle on his spending and doesn’t really struggle with credit card debt. So I’m not going to be covering that at all. Also, if you’re a physician transitioning into practice, whether you’re still in residency or maybe even a new attending and have questions about creating some strategy and financial planning, and maybe even want to be a guest on the podcast, make sure to reach out to us using the email address in the show notes.

We can have a conversation like we’re having with Jordan today, or you can let us know questions that you have and we can connect outside of the podcast. And gather some information, maybe some financial details, and then we can share your scenario. We can even keep it anonymous if you prefer as part of a future episode.

So keep that in mind. All right. We’ll jump into the show now.

Jordan. How’s it going, buddy?

Jordan Read: Good afternoon. Thanks for having me.

Daniel Wrenne: Maybe I thought before we get into things, it’d be helpful, Jordan, if you could kind of give everybody listening just a quick little snapshot of about you, kind of where you’re at and life and career and all that. 

Jordan Read: Sure. Yeah. So, I’m a second-year categorical internal medicine resident in the Southeast. I’ve got a little over a year and a few months left of training. I’m not planning on doing fellowships, so once I finish my IM residency, I’ll be in practice with that.

I went ahead and started looking at some jobs in the outpatient internal medicine sector and then hospitalist roles for inpatient medicine. I’ve got a wife and an 18-month-old at home. We’re probably going to have, or hopefully going to have, a second one in the next couple of years. And then after that, we’re looking at either living here in the Southeast, where I moved for residency, or looking at going back to our hometown because my wife and I are from the same town.

Daniel Wrenne: So you got a lot going on with young kids and work and training, and your wife stays at home, right? 

Jordan Read: Yep. 

Daniel Wrenne: Okay. That is a huge blessing. My wife stayed at home, stays at home, works at home, works hard at home. So it’s been, I don’t know how it would be possible if that wasn’t happening.

Your wife stays at home. You’re in second year of training. I assume—is your compensation around $60,000 a year or $55,000, $60,000, $65,000? 

Jordan Read: Yeah, right at $62,000 and then we get about a $2,000, $2,500 raise each year. 

Daniel Wrenne: Okay, got it. Do you have a job offer? I know you’ve looked at jobs. Do you have a job offer finalized or are you signed on the dotted line yet?

Jordan Read: So I’ve got two executable contracts that I’m weighing between. I’m looking to make a decision in the next week or two. Most likely, or kind of the plan is taking the contract here in the Southeast market instead of going back to our hometown in Kentucky. So I think we’re going to stay here for the foreseeable future and then look at either moving back or just seeing where the Lord takes us in the next few years after we have a second kid possibly. 

Daniel Wrenne: Okay. So you know the numbers, is that the job? So just for you guys listening, we kind of talked beforehand. This is impossible to do in like one setting. So we kind of talked and got a little bit of information together and kind of strategize beforehand.

But we’re going to still kind of go through some of the things today to make sure we’re zipped up on everything. Is this the job that’s $300,000 in the first year, probably, and then roughly, and then maybe in the second year, bumping up to $400,000, or that’s like the full capacity? Is that the one you were talking about?

Jordan Read: Yep. Yep. So it starts off right under $300,000 for your guarantee. And then it’s a, like a 12-month guarantee. And then it bumps up to what you should be expected to hit between $400,000 and $410,000. 

Daniel Wrenne: Okay, perfect. So at this point, I know we didn’t talk about this prior, but I’m assuming your lifestyle, your budget is in the ballpark of like $4, 000 a month.

Is that pretty safe to? Given your income, I would assume it’s in that ballpark at least. 

Jordan Read: Yeah. I would say on most months of the year, it’s right around $4,000 to $4,500. And then if we like take a big vacation or something and we overspend a little bit, it’ll be right around $5,000. 

Daniel Wrenne: Yeah, the whole budget buster.

And then you have the $300,000 in student loans. Jordan provided us with the details. You sent the email that everybody sends. You’re like, “I don’t know if this is the right document. Cause like, I’m not sure why anyone would ever look, want to look at it. It’s like this text file that like no one in their right mind would ever think that it makes any sense to look at this.”

But it’s actually the perfect thing. It has all the details you could possibly ask for on your student loans. And that’s important because we can quickly like find exactly what we need. So he got us that info and I’ll reference some stuff from that in a minute. And then you have 401k with what’s the balance? About $4,000 and the 401k you’ve been funding through training.

Is that right? 

Jordan Read: Yeah. So we got the annual match in January. So right now it’s a little over $5,000, but at the beginning of January, it was right at $4,000. 

Daniel Wrenne: Okay. And then some cash, maybe close. Was it close to about $10,000 between the cash accounts? 

Jordan Read: Yeah, we have a high yield savings and then just our regular checking, uh, the kind of that we keep a positive balance in each month.

So around $10,000 liquid cash. 

Daniel Wrenne: Okay. And then mortgage, what was the balance of the mortgage you have?

Jordan Read: So the principal loan like initially was $339,900, but we put $10,000 of our own money down for that. And so we’ve got that plus the mortgage payment that we’ve been paying on since I started residency about 18 months.

So I think the loan on a 30-year fixed, we got it at five and three quarters back in summer of 2023. The principal I think it came down about 4 or 5 grand. So not as much as I was hoping.

Daniel Wrenne: That’s how those 30-year mortgages work. And physician loan, right? You got the zero-down deal?

Jordan Read: Yeah. So we ended up putting $10,000 down because we had an opportunity to either put it towards closing costs or put it towards the mortgage principle or the mortgage amount.

And so we decided closing costs are just unnecessary expense in my opinion, I guess. We’re lucky enough to have the builder cover the closing costs. And we just put that $10,000 towards the house price. 

Daniel Wrenne: Okay. And the most impressive thing, or the thing that’s really important, I think about your situation that’s good is that you don’t have any other debts, like you have no credit cards and you have some cash, so that’s excellent.

And it’s not always the case in training. It’s kind of a difficult time to avoid that. So good job there.

Jordan Read: Thank you. Yeah, I’ve been driving the same truck since I was 16 years old, so.

Daniel Wrenne: Listen, that is huge. Yeah, that’s a huge part of it. What year is your truck? You told me.

Jordan Read: It’s a 2004. 

Daniel Wrenne: You know, I had a 2003 Avalon until like a few months ago and it was a good run.

Jordan Read: You drove until the wheels fell off?

Daniel Wrenne: Well, no, the problem was it wasn’t going to die. Like the car literally was never going to die. So I had a good reason to—it’s a kind of a long story, but I came across a really good reason for giving it away to somebody and it made sense. And I’m like, all right, I guess I’ll transition.

So, and then you have some life insurance and disability insurance through work, right? You got, I have you at $566,000 of life insurance and then 60% of your salary for disability for long-term disability?

Jordan Read: Yep. That’s correct. 

Daniel Wrenne: Okay. Any other numbers-type things like financial info you can think of that would be important to point out? We’re going to circle or get into goals and values next, but any numbers-related things you can think of?

Jordan Read: I don’t think so. You’ve got all the foundation. I think the biggest thing for us in the, in the short term is like, like you said, avoiding credit card debt, like that high-interest stuff and then trying to avoid car loans. We don’t really have a reason we have two paid off vehicles, so no reason to trade them in or get a new car.

So that’s helped our budget when we may have bought too much house going into it. Our monthly budget has been assisted by the fact that really the only big loan that we’ve got is the house. And as you guys know, loans right now, they’ve been in forbearance and or I’m like interest-free since I came out of medical school pretty much.

And so I’ve been really blessed with a principal loan that’s not really accrued and not really expected to make payments on.

Daniel Wrenne: Yeah. And another important thing. Your residency is one of the few that is not nonprofit or not qualified for PSLF, right? 

Jordan Read: Yeah. Yeah. And that’s something they didn’t really advertise until I got in here and I kind of got more financially literate and recognized it.

But man, if you’re in a five-year surgery residency or something that’s longer than just a few years, it makes a big difference if you take a job or a residency position that qualifies versus doesn’t for PSLF. 

Daniel Wrenne: Yeah. Okay. So I’m sure you’ve heard like, what’s the quote, “Don’t tell me what’s most important to you. Show me your checkbook and your calendar and I’ll tell you what’s most important to you.” So like values or your money is a good representation of your values I think.

And so I thought we could kind of spend a little bit of time talking about what’s most important to you and your wife. So if we started to look at that, what sort of things come to mind is like top values for you and your family?

Jordan Read: For my wife and I think the biggest thing for us is our faith. So we believe in living within our means and we want to tithe and give charitably, but also understanding that like money isn’t everything. And so recognizing that experiences in time with family is going to be first and foremost.

That was one of the biggest reasons I decided not to fellowship. One, I just want to be able to enjoy more time with my daughter instead of going to the fellowship while she’s young. But two, there wasn’t anything in medicine that I loved so much that I wanted to spend an extra two or three years pursuing.

Having the opportunity to start my career, go work less hours starting, in just about a year and a half, and then spending more time with my daughter, with my wife and traveling the world is something we really, really enjoy. Those are all really important things to us.

Daniel Wrenne: Nice. If you’re hearing this and you’re like, “Man, I hadn’t thought about my values.”

That’s not uncommon. So that’s okay. Jordan’s on the ball. He’s very in touch with his values, which is a good thing too. But you know, it’s something you can always work towards. So we got like faith and family time, charitable, being charitable, experiences, travel, any others that I miss?

Jordan Read: No, we love being outdoors. And so I think where we’re at in residency has really helped us do a lot of free stuff just because there’s so much beach and hiking trails nearby. They’re all free. So that works out to our favor as well.

Daniel Wrenne: Yeah, that’s a good one financially speaking. Okay. So I know you had already mentioned to me in our prior conversation, a big priority of yours was to make sure you had a good transition plan as you went into practice, so let’s pretend like we’re talking and it’s the future and you’re—let’s just say you’re in a few months into practice and it’s like going awesome.

Like everything’s fantastic professionally, personally, financially, all the things. So what comes to mind as far as things you would have imagined would have happened over the time from now until then for all that to play out? Like you’re feeling like you’re going the right direction?

Jordan Read: I think for me, the biggest thing is having a well-established financial plan with what to do with a student loan. Should I pursue PSLF, even though I would start PSLF as an attending or refinance and just pay it down aggressively? So that’s number one.

Number two is getting our emergency fund fully. Stocked up six, three to six months of expenses. Number three is having the margin in our budget to have like really good experiences and travel. And then number four, I think would be feeling like we’re making some headway with building wealth. So right now I’m just contributing enough in our 401k to get the match that our employer offers looking in the first few months of an attending, I’d really like to try to max out all of my tax advantage retirement accounts within the first year while also still paying down some student loan.

And so those are probably the biggest financial goals that I would have the first few months of practice is having those. But I think lifestyle-wise goals, there is not really a price you can put on peace of mind. And so having those financial ducks in a row, if you will, will provide a lot of peace of mind going into my career and my practice and knowing, Hey, like, if I can put some of these things on autopilot and put some of these things on and just kind of let it ride, then I can focus on my family and my career and have more head space to do what’s important to me and what I value.

Daniel Wrenne: Yeah, no, that’s good. Okay. So making a plan, building in margin, maybe starting to build wealth, making a plan for the student loans, building an emergency fund.

All right. Another hypothetical. This is more on the end of like kind of worst case scenario thinking, because in financial planning, you want to think about ideal scenario, of course, and that’s most of the time how things pan out, especially if you plan ahead, but you also want to think about, well, what if unfortunate happens and you’ve kind of already hit on something like that with the emergency fund. That’s kind of a worst case scenario type of mentality to think about, but I wanted to kind of go through another scenario.

So let’s say we’re talking and you get some bad news from your doctor and they’re like, you have one day to live. So what thoughts come to mind like wishes or dreams or things you feel like you missed out on or things that would be unfulfilled they come to mind in that sort of situation?

Jordan Read: That’s a heavy question. Usually, I’m the one giving bad news So if somebody told me I had one day to live, the first thing that comes to my mind is, “Is my wife and my daughter protected?” And so I think that comes with life insurance, disability insurance, things that protect against those type of catastrophic events that no one can plan for.

The other thing would be, “Did I live a life that I am proud of?” And that I feel like when I die and meet the Lord that he says, “Well done, good and faithful servant. I have a place for you.” And so I think being faithful as a Christian to me is not just a financial thing.

It’s not just a spiritual thing. It’s emotional thing, but it’s how to obey the life that he wants us to live. But man, realizing that I’m so blessed and it’s easy to just think about money. I know we’re on a financial podcast. And so if somebody told me I had one day to live, my hesitation, I guess, on the financial side of things would be, “Oh my gosh, is my family protected?”

“Oh my gosh, is, you know, do I have all my ducks in a row?” But really the most important thing actually needs to be, is your soul in the right place? Because that’s something that will weigh in eternity.

Daniel Wrenne: That’s good. I didn’t have that situation happen, but I had a weird health thing that was kind of like, it could be a brain tumor could, or it could be nothing.

It turned out to be nothing. But the second the doctor said that, I’m like, Oh, you know, those kinds of things started flashing through my head. And it was basically what you just described. The financial side is important, but like you said, as well, living a right life you could say is even more important. Ideally you do both, right? That’s that’s what we’re going for. Any other thoughts come to mind?

Jordan Read: I think selfishly I would probably think of all the places I didn’t get to go that I wanted to go. My wife and I—we have kind of a pretty big a bucket list, I guess you’d call it, of places that we want to see and things that we want to do.

And we’ve already chipped away at quite a bit of it just in the last three year or four years since we’ve been married. But that would be one of the things I think about is all the places I wouldn’t get to see in the world that are beautiful. 

Daniel Wrenne: There’s so many. Okay. I thought maybe we could take the second part of our time and go through, start to get into some considerations.

Fortunately, like I said, we talked before, so I’ve had time to think about this. I’m not gifted enough to do this off the cuff right away. Because you kind of have to really sit and think about things. So we’ve already talked. I’ve kind of already spent some time thinking about this.

So, I thought, like I said, that the rest of our conversation, we could start to get into some big considerations, stuff to think about. Like I said, I’m not going to be giving formal recommendations, but these will be hopefully some relevant things for you to think about, Jordan. So I think the first thing I would really, really emphasize, I think you’re solid on this one, but just given that you haven’t signed the contract, I would big time emphasize, like you had said, the value of time is more important than money and making sure you’re consulting those values when you think about the job.

I see that mistake happen a lot. People think too much about the money with the job decision. I have a feeling you’re already thinking the right direction on that front and looking at the job, but it’s a good timing to kind of raise that point. 

The other thing you mentioned that, of course, in the values you mentioned, family’s really important. And then you also mentioned in the unexpected scenario that protecting your family was super, super important. I know it’s probably the least sought-after type of planning people do, but getting insurance, I would say, would be a big thing to think about, and like now, instead of waiting, the temptation is the wait till you go into practice to get things like life and disability insurance.

I mean, it makes sense. It’s like, “Well, I’m about to get a big income increase. So I’ll just get those things then.” And it definitely is easier to get those things then, but the nice thing is you can get term life and super inexpensive term life insurance and structured disability as much as possible to kind of delay the costs, get basically getting as much coverage as you can for the most value possible can help kind of put a dent in that and potentially cover all your future income.

It’s a super-efficient risk to cover. Now that when you’re young and healthy, it’s very inexpensive and I would I would put a big emphasis on that even I mean It’s the one thing I would really, really emphasize in training thinking about because your earning potential is so high and you make all these plans around this high earning potential. And then if something were to happen, it’s almost like the worst case scenario, if something were to happen before that occurs or like worst case would be right before and then all the earning potential is kind of missed out on.

So 60% of residency income is not really much. I mean, that’s like just going to be a struggle and $500,000 is, I mean, it’s okay, but like that would barely pay off the mortgage. So ideally you say something like, okay, let’s look at the financial plan. Let’s try to replace more of the income, like the future in practice income.

So you could say, you can essentially structure it to where you maybe are, or the family is in the same spot even if something were to happen, like the plan, basically you can structure it to where essentially the plan happens as it would have had you been around or not financially speaking.

I mean, it definitely costs money, but it’s not extremely expensive. Maybe you could get a couple million dollars of life insurance for $100 a month, maybe, and $5,000 or $6,000 a month of disability insurance for $150 a month or something along those lines. That’s like ballpark.

And I would probably even rank it higher than putting money in the 401k, which is kind of crazy, but it’s the only thing I would rank higher than that. So that’s a big thing to think about. Have you thought much about that? I know we hadn’t talked a lot about that.

Jordan Read: Yeah, so the life insurance right now, that half a mil policy, that was only like $5 a month for me. So I think that financially worked out really well. But as I transitioned into third year, the goal is to get some outside employer term life and maybe kind of ladder them. Maybe like a 10-year policy, 20-year policy something like that third year, and then do some own occupation disability outside of my employer. I’m not a surgeon, so my hands aren’t as important as somebody who goes in the O.R. all day, but understanding that intellectually, I want to be able to still do something if I were to get physically in some sort of accident where I couldn’t practice medicine. So even if it’s like teaching or doing virtual stuff, having the ability to use all of the knowledge I’ve gained over the last how many years of medical school and training while still collecting a disability check.

That’s something that I really want to look into.

Daniel Wrenne: Yeah, now that you’re thinking about it, I would really try to get it done—as tempting as it is delay it—but like I would try to make that a priority and get it done pretty quick just to—because the whole by definition, the way it works is it’s completely uncertain. So you don’t know what could happen and I’d hate to have it happen in the 11th hour.

So that’s a big thing. And this is kind of along the same lines. I would encourage getting a super simple will as soon as possible. That’s a kind of a stairstep to getting a true estate plan. Ideally, you get like a trust and a will and power of attorney and all the kinds of things you need to get.

But a will, you can get a basic will on LegalZoom or something like that. Or there’s a bunch of them now that are online, like $100 for a will. You could actually, I mean, if you really want to go budget, you could Google like “holographic will template in my state.” And a holographic will is like your hand signing. Old school.

And assuming your state covers or allows for those type of wills, it would be still legit. And the main thing, right now, life’s kind of still financially speaking basic, but the big thing about the will is like the guardian, just like getting that on paper. So now that you have kids, so it’s super simple will, I would emphasize getting that like as soon as possible and then revisiting that when you go into practice to maybe beef it up a little bit.

Another thing on, you had mentioned you’re saving into the 401k. I would think about Roth conversions, if that’s a possibility while in training, especially if you can convert that to Roth. So I know your 401k was pre-tax and so pre-tax money, a lot of times you can convert that through Roth conversion to after-tax money.

And that’s a great thing to do because you’re in a low tax bracket right now. 

Jordan Read: Yeah. So our employer, just as of June 2020, I’ve got the ability to do a Roth 401k; prior to that we didn’t. And so what I’m planning to do is once the funds become available at the end of this month, during that transition period, go ahead and transition that pre-tax 401k, just kind of pay that whatever, 10%, 12% tax bracket that I’m in, and then put that into a Roth.

Daniel Wrenne: Perfect. So Roth conversion and then Roth contributions too, if they’re allowing that, that’d be much better given the tax bracket. That’s a home run. All right. And then student loans. So I’m kind of going like pre-transition and then the next stuff I’ll talk about is post-transition. So student loans.

I looked at all your stuff. And so I think PSLF actually makes sense. I would love it if I could say like pay the thing off in two years because I prefer that, but I think once you look at the PSLF numbers, you might be thinking or agreeing with what I’m saying.

So basically, so you got around, I’m just assuming $300,000 for round numbers. We’ll say on your student loan file, we saw that your anniversary date, which is the time your income-driven recertification anniversary date is March 4th of 2026. So that’s the date that you have to, the deadline where you have to submit new income information each year.

And it’s an annual thing. So it would be every March. You’ve never had to do that because all this COVID craziness has taken forever to go away, but in a normal world, that’s the annual date. You have to provide income certification information. And so the way it works actually is if it’s March, you’re probably going to be recertifying in February because you got to do it like a month early.

So your first income recertification is going to come in February 2026. So you’ll still be in training then, right? So you have to recertify income then for the SAVE plan which you’re in no matter what. And since you’re recertifying in February, you would be using 2024 taxes.

Jordan Read: Okay. 2024 or 2025? 

Daniel Wrenne: 2024. Well, it’s February. So unless you’re like super proactive and file your taxes. I would say, don’t be super proactive in file taxes, like file your taxes in April like everybody else for this, because you want it to not have been filed, like you would rather use your 2024 taxes.

And since you’re right in that transition period, you kind of can potentially use either tax, but I think the most likely the IRS wouldn’t even have your file, even if you were proactive filing in February.

But just to play it safe, you could kind of wait. So you file in February, 2026, you wouldn’t have filed your tax return yet. It wouldn’t be in the IRS database. So when you go to do it, they pull from your IRS database. So it would pull your 2024 taxes in that case, so that’s going to be a hundred percent residence pay, $60,000, whatever.

And so your payment would be like close to nothing, like 15 or 20 bucks a month, probably under save plan. When would your job start?

Jordan Read: Late summer of ’26. 

Daniel Wrenne: Okay. So say August or September. Okay. So let’s say you get six months in under that year of recertification in the new job.

That’s PSLF qualified. Then you have to recertify again in February 2027, which you’re using 2025 taxes, which is still all residents pay. So you’re still like 15 or 20 bucks a month. And that’s 12 months in the qualified job. So we’re up to 18 months in the PSLF job and you’re paying 15 bucks a month for those 18 months.

Jordan Read: Interesting. Yeah. I don’t think I realized that. 

Daniel Wrenne: Well, you’ve never had to do it. So the third year you were re-certifying in February 2028, and you would be using 2026 taxes. So that’s when it starts to ramp up. So that would be the halfway year and it would probably be like, I mean, $180,000 I just used as an example ’cause half, and half, it’d probably be lower than that actually. But to be conservative. 

So that payment would be in the ballpark of $1000 a month. And then that would be another 12 months. And then when you’re at $300,000, that would bump your payment up to more like $2000 a month.

And then if you’re at $400,000, that would be a little under $3,000 a month. And so basically your total paid back in this kind of hypothetical I’m talking through is going to be well under the principal balance, like probably more like $250,000 paid back at the most, I would think, and so that’s a hard deal to pass on and that’s without being super strategic it versus if you refinance it, you’re going to have to pay back $300,000 plus interest.

So if you pay at 5% interest over 10 years, that’s $380,000. So $250,000 versus $380,000, I’ll take the $250,000 all day long. And then it would also provide a ton more flexibility to build wealth and cash reserves and margin, like you talked about earlier, and not have to get so—the problem with the whole strategy of pay the thing off in two years is it takes all the cash, which it’s kind of good to do, but like it doesn’t build up any margin and it all goes to the student loan.

So then, so that’s like the baseline. So the strategy I was talking about, there’s a lot of things you can do. There’s a few things you can do.

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Daniel Wrenne: Let’s take a quick break to talk about our firm, Wrenne Financial Planning.

The goal of our podcast is to empower you to make better financial decisions, but sometimes the best financial decision you can make is to work with someone who understands your financial goals and has the expertise to keep you on track to reach them. That’s where Wrenne Financial Planning comes in. We are a full-service financial planning firm that works with over 400 physicians and their families across the country.

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I’ll put a link in the show notes to schedule a no-obligation meeting with one of our certified financial planners. Wrenne Financial Planning LLC is a registered investment advisor. For more information about our firm, please visit wrennefinancial.com. That’s W R E N N E financial. com.

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Daniel Wrenne: So I mentioned Roth. Now, when you’re in practice, you would probably lean more towards pre-tax partly because your tax brackets are. But then also because they’re looking at your tax return to calculate your student loan payment by maxing out all the pre-tax accounts, and even maxing out HSAs, like all those things lower your adjusted gross income, which lowers your ultimate payment.

Jordan Read: Yeah, that makes sense. Especially if you’ve got like a 457(b) and a 403(b). Those are $20,000 to $24,000 each that you can decrease your AGI goes a long way with taxes and your student loan income.

Daniel Wrenne: Yep. So I would be shocked if—basically your income would have to be pretty high for PSLF to start not making sense, like higher than $400,000.

Jordan Read: So, that’s under the SAVE plan. Let’s just assume that it goes back to REPAYE, which is what I was in previously. Are those numbers similar?

Daniel Wrenne: No, they aren’t as good, but they’re still like, we could kind of look at it again. But I could confidently say that it would be worthwhile. 

I think you should pursue it, whether it’s REPAYE or SAVE, it’s just not going to be quite as good with REPAYE. And so there’ll be a higher or a lower ceiling. It’s all about income relative to your debt. So the REPAYE plan, the amount you would have to make to start to make it not worthwhile is a lower threshold. 

The other thing too about this approach is we have lots of clients doing this. We have some that are doing the 25-year deal, that’s even longer, but either way, you look at it every year. So if things change, you just pay it off. So it’d be one thing if you’re like, “I’m going to spend the difference.” That’s not great.

I but if you’re going to save it, then you could just save it in a margin kind of account. And then worst-case scenario, a couple of years from now, you’re making a lot more or the government decides to get rid of SAVE plan and whatever happens. And you just pay the thing off with your investments or something.

Jordan Read: Yeah. That’s that PSLF side fund that I’ve heard people talk about.

Daniel Wrenne: Yep. So those are some of the pre-in-practice, before you transition things, I think might be good to think about. The second part, I was going to talk about is post-transition, but any thoughts before I get into that, any thoughts or questions or things I missed prior to transitioning into practice?

Jordan Read: No, I think you were able to explain the complexity simply, which I appreciate. And just things I hadn’t thought about, like the recertifying the income, being able to utilize essentially three years of residency tax income while an attending, that’s what’s going to move the needle with like making it more valuable than just refinancing it to a lower interest rate and paying it off, which I was just doing the math on what the payments would be as an attending, salary versus federal versus private loans. So that makes a lot more sense.

Daniel Wrenne: Yeah. Good. Okay. So as you start to think about the transition to practice and this gets into making a plan for the higher income and some of the values you guys have, so cashflow is a huge deal. You want to be intentional with your cash flow.

And when income goes up, that’s especially important time to be intentional. And so you already mentioned margin. I think margin’s huge. You don’t have to have every dollar accounted for. Margin is just kind of extra that could end up ultimately going towards something like us paying off a student loan or travel or investing or saving for retirement or whatever, but it’s basically money that’s not spent.

And I think margin is huge when you start in practice, because a lot of things, there’s a lot of uncertainty, you don’t know about the job. A lot of these hospitals overwork physicians, or they like kind of lock you into these guaranteed contracts. And then they’re like—I’m not assuming your place will do—but like, you don’t know.

And so after a year, they’re like, “Oh yeah, you got to get these RVU deal going up higher,” like it needs to be higher, so you got to work more. And it becomes harder to maintain the income that you thought you were going to earn. So there’s a bunch of reasons I think to have to build in a lot of margin.

I think that’s a good thing. So in general, so if you’re making about a $300, 000, I assume maybe that’s around $25,000. Well, that is $25,000 a month pre-tax. And so big thing, you mentioned 457(b), 403(b) retirement plans. If your new job, do you know if it has a 457(b) by chance?

Jordan Read: I do, yeah, so it’s a non-governmental, but it is still in the plan.

Daniel Wrenne: Okay. Non-governmental is not as good, but the whole PSLF and pre-tax kind of makes it, I mean, that’d be something the way that pros and cons, but I would definitely give it a good look to max out the 457(b) and the 403(b) and if they have an HSA, those are all great to do as soon as possible, starting day one or whatever.

I did some estimates, this is ballpark napkin-type math, but assuming you’re maxing out those type plans and paying for tax, I would ballpark, maybe you take home $15,000 a month. Let me take a step back. I would encourage, as you get closer and you know the numbers to kind of map out all these numbers and fine-tune them, but for now we’ll talk ballpark.

So let’s assume your take-home pay, like the actual check you get is $15,000 a month. And that would be, if there’s pretty good pre-tax savings going on, and then you’re withholding for taxes. Maybe you let your lifestyle go up a little, I think it’s fine to be intentional and allow yourselves to spend a little more on some certain things that are important or travel or lifestyle-related things.

That’s all good. So I would just say like set the goal or the target and so maybe $7,000 a month. That would be fantastic if you could. And that’s higher than what you’re used to know. Also, remember it’s much harder to decrease than it is to increase. So if you’re when in doubt, ease up. So maybe you set it at $7,000 and that would leave $8,000 a month surplus after taxes and saving for retirement plans. 

So as far as that surplus, what I would encourage doing is number one, give. Give whatever you charitably, whatever that would ideally look like for you and your wife. Start it from day one, because it’s a challenge to do, especially most people don’t have that nice income increase that happens. It’s like quick.

So it’s like a great opportunity to make sure that you’re zipped up on that. And you just kind of carve it out and get it out of sight, out of mind first. And then I think it might just be pretty simple to save the remainder. I don’t know what your giving goal would be.

Do you have that in mind? What you might be setting for a given goal or? 

Jordan Read: First and foremost, we just want to be more consistent with the tithe. That’s something that I know that we have been lacking in. And so I think being more consistent with the tithe is our first financial giving goal. And then after that, we want to identify, I think, people that are in our life that could really use some of the blessing that the Lord’s given us.

Daniel Wrenne: Yeah. I wrap all that in giving. So not spending it, like not saving it, not spending it. And so maybe it’s a couple thousand or whatever it is. The other thing that’s important about giving, to mention while we’re talking about it, it’s interesting.

The science, the research around it is that giving has the best bang for your buck, like happiness return. Like, it’s just a good thing to do. But it’s also probably the hardest thing to do, ’cause you’re giving it up. So anyway, say it’s a couple thousand a month, if that’s the target, whatever you guys decide, carve that out first.

And then the remainder, I would say same sort of thing. So we said $8,000 a month surplus. So if we are assuming you give $2,000, that’s $6,000. I would try to automate that if possible to get it out of sight, out of mind, and then, start dedicating it. Maybe it goes first to the emergency fund, which you build up really quick at that level, like you’ll get it in a few months.

And then maybe you say build up for a car, if that’s more most important, or timing-wise, if that’s a big deal. And then you might just, especially your first couple of years in practice, I wouldn’t stress over like, I got to invest, I got to invest. It’s more about cashflow than it is about investing.

Now you don’t want to wait 10 years to invest, obviously, but if you can get in the routine of carving the money out and not spending it and just letting it build up, you’ll be ahead of the game and you can kind of circle back to the investment.

So I wouldn’t get too hung up, especially the first year, on making the best possible investment and maybe lean towards building up cash. Especially at first, cause you got to build up the emergency reserve. And then that’ll build a ton of flexibility for in case student loans don’t work out or whatever.

And then as your income goes up, it sounds like you might have potential to bump up again. You same sort of thing. You kind of use that approach every time income goes up, you just make an intentional effort to like, say, here’s where the money needs to go ideally. That’s cash flow. Thoughts on cash flow, questions on?

Jordan Read: So you’re mentioning the cash flow, just kind of representing the margin in the life was more important than investing. So I guess being the devil’s advocate, what do you say to the early career physician who’s maybe in their thirties? That hasn’t had as much time in the market as somebody in the twenties where the old adage is like time in the market is better than timing the market.

And so putting as much money as you can into either taxable or pre-tax or Roth accounts your first few years of attending-hood. Does that not pay dividends later on? Or do you feel like the margin is more important to set up in the first couple of years, just margin representing the ability to say no, if the first job doesn’t work out?

Daniel Wrenne: The compound interest is huge.

The earliest dollars you put in are always the most productive. So completely agree with that. And it’s very efficient to get the money in as soon as possible. Always like that’s always the best approach is. When in doubt, get it in as soon as possible. But I guess this kind of goes back to your, the point you raised about like life over money. 

So I have watched, witnessed, worked with lots of physicians that have had challenges in their first few years in practice. And there’s nothing worse than they’re locked down or they feel like, and it could even be from investing. It’s not usually as much that lifestyle is the biggest thing that locks people down.

It’s really nice when they have had the discipline to build up a bigger nest egg of cash when things don’t work out and it probably might. There’s a good chance it’s, it only takes six months for you to get to the more secure spot. I’m more talking about because of all the uncertainty, the unknowns, when in that phase, maybe you lean more towards the cash reserves and you also need to build up an emergency fund anyway, and you also mentioned maybe you might want to be transitioned into a newer car and the student loans and new location, new job, new everything, not new house. You’re not changing houses. So there is a little bit of certainty, but given all the uncertainty, I would probably lean towards that in the first six months.

And then you take it, at the six month mark, you just always take it time out and say, okay, how are we doing? And then it’s like, I got plenty of cash. Then it’s like that’s time to invest. And then that’s when you start doing the backdoor Roth IRAs and then put the rest in the brokerage account.

That’s the basic, easy, simple game plan there is you just max out the backdoor Roth IRAs, take advantage of the tax shelters and then put the rest in a brokerage account and, and maybe think about education funds for college, that kind of thing.

But six months. Okay. So going back to the original question, six months of not being in the market is of course, a value or a consideration, a big consideration, but I would put the security aspect of having a decent reserve and having available as a higher value than the added six months, just given what I know about what you’ve shared, but like I said, I would not let it go too much further. And it may happen faster. You may get to three months. You’re like, I love the job. Nothing’s changing. Everything’s going great. I got my emergency reserves. I got whatever big ticket things I need to save for then rock and roll with investments. 

Jordan Read: Yeah, that makes sense. I think going back to your initial point of letting your values drive your money decisions or your financial decisions, if your value, or I guess if I’m stating that I’m valuing time and margin and the ability to have kind of autonomy of my life. 

Having that cash flow available up front is more liquid than putting it in a retirement account or where you can’t access it or a taxable brokerage where you got to sell it and then pay the tax on it in six months.

Is that really going to make a difference? Probably not, but I might sleep better at night.

Daniel Wrenne: Right. And so, yeah, that’s all important. The ultimate though, is the discipline of not spending as much. The key is the margin, the cash flow margin. Cause that’s what really gives you choices. Cause you can say, well, the job’s not working out.

I’m going to take a lower paying job because it’s just taking too much. So that’s kind of the key to all that. And that’s the first thing you do. And then once you have a margin, you’re going to start to build up wealth really fast. Yeah, so emergency reserves, I think, if you’re spending in that $7,000 a month range, I think a good target might be around $20,000 or something like that. 

That’s roughly three months of expenses. I think that’s sufficient for someone with a super high-demand type job. And you can find a job pretty easy. Now there is a little time. It’s kind of hard to transition.

It takes time I know to get like credentialed and all that stuff. But I think three months is adequate for like just purely emergency reserves and setting that aside and you’re already kind of doing the high-yield savings. So that’s great. And then above and beyond that, if you do feel like you want to be having some trips and stuff like that, I would start a secondary savings account, that’s like the big ticket items, just to kind of carve it out and set it aside, or even if saving for a car or whatever, like separate that out from the emergency fund.

You don’t have to, but I think it’s good to kind of have them separate, start to build that up. And then for investing, there was one thing as you start to kind of get that, say you’re six months into practice and you feel good about the cash reserves and you’re starting to invest and you’re doing the backdoor Roths and you’re funding the brokerage account.

You’re starting to put a lot into that. One thing I would think about, I noticed. So just relative to your current investments, your 401k is in 100% S&P 500?

Jordan Read: Yeah. So I think once I transitioned to practice, what I had planned to do was do like a 90-10 kind of every decade, dropping 10%, going from stocks to bonds.

So in my thirties, 90-10, in my forties, 80-20, in my fifties, 70-30. Just kind of getting a little bit more safe as I get older, but understanding that with the time horizon I have in my thirties, it’s more advantageous for me to go broadly diversified index funds in the market with a high percentage of equities in my portfolio.

Daniel Wrenne: Yeah, that’s generally good game plan. The one thing I would just throw out there to also think about is S&P 500. It depends on your approach or how you view things, but I believe that the most efficient approach is to be passive with your investments and like spread them out over the entire market And so if you truly go the passive route, that would mean like, okay, trying to own all the stocks in the entire world.

And so the S&P 500 is like, I mean, it’s a big piece of the world market, but there’s a lot more to it. The S&P 500 is basically the big US companies, but then there’s also like the small US companies. And then there’s like the international companies and then there’s developed markets and emerging markets.

And so the simplest way to diversify a ton is to, instead of having S&P 500, you have Vanguard total stock market. That’s US all the stocks, and then Vanguard international, some sort of Vanguard international fund that covers it like thousands of international stocks by having those two, it’s way diversified.

And then you can have the bond part as the 10% or whatever, based on where you’re at in life or what the risk level you want to take. That’s not a huge deal. I mean, when you’re getting started, as long as you’re taking some risk and investing, that’s the big thing.

Jordan Read: Yeah, I think early on the more things I can keep simple, the more that’s going to help me out. And so I’ve looked into like the Boglehead three-fund portfolio or the four-fund portfolio, something to cover the total U. S. stock, maybe like large cap, small cap, and then like a small portion of bonds. 

Daniel Wrenne: Yeah, for the first few years, I think that’s completely sufficient. And the thing about, well, I’ll circle back to this in a second. Maybe this might be a good time. I think the big thing with your financial plan is, well, first of all, a financial plan doesn’t need to be complicated.

Actually, simple is good. It’s really just like going through the exercise of talking about where you’re getting your finances organized, clarifying what your goals are and your values and coming up with action items to start to make sure you’re making good progress towards those goals and values.

And so that’s really all it is. Now it does look different for everybody like everybody’s life is going to look a little different. And it also changes a lot. So I would also emphasize making this a regular routine, not to say you’re going to change everything all the time, but it’s a really good exercise, I think, to go through kind of a thought process of what’s most important, what are my goals?

With you and your wife get reorganized with your finances, look at the investments, look at the insurances, see what needs to be tweaked and then come up with list of changes and to-do’s and that kind of thing. And the thing that made me think of it is with investments.

Most the average family we work with, it like changes every three to five years, like not a ton, but like things start to become more important. Like you have bigger balances. And you’re charitable, just an example, like things like tax loss, harvesting and donor advised fund. That’s an example of like a really good strategy that changes the game a little bit with your investments that you would probably want to take advantage of, and I’m sure you’re headed that direction, but that’s not going to be something to think about like in the first couple of years, probably. Estate planning, as you get into practice, I would revisit that again to like, go back to the drawing board.

If you get a basic will now, when you’re in practice, that’s when you go hire an attorney and you say, hey, help me get the full, like, let’s get a trust power of attorney will, it doesn’t need to be that complicated, but like a trust and a power of attorney and a will for both.

So you and your spouse would both have a will. And you and your spouse would both have a power of attorney. And then typically you would have like a family trust. Sometimes you decide to get individual trusts. Those are really valuable tools to kind of help protect the family, especially children in case something were to happen from the assets, you know, facilitate that transfer.

So the last thing I was going to throw out is with the work thing, I’ve already kind of hit on this, but be very guarded with what you say yes to. And you mentioned a four-day work week.

Jordan Read: Yeah. Yeah. That was important to me. Well, both important to my wife and I actually. Having the ability to only work four days a week and under a 40-hour requirement in the contract.

So I know I’m not naive enough to say that the exact hours in the contract is exactly what you’re going to be working. So recognizing that the game going back to margin, if they put in the contract it’s under 40 hours. At least I know that even if I go above it, I’ll still be not a 60, 70, 80 like residency.

Daniel Wrenne: Yeah. And I think it would be worthwhile to have a contract person review your contract if you haven’t done that already and earlier than like, if you’re going to do that, I typically advocate for doing it earlier than later. I mean, you don’t want to do it when you are like looking at 10 different jobs, but like as soon as you start to get zeroed in, that’s, I think the time to bring a company like that into cover your bases.

And some of them will help you a little bit with like negotiating certain terms, uh, as well as like looking at the legal language. So did you have a question you were going to ask?

Jordan Read: Yeah, I did have one other question. So with that, the signing bonus is planning to be paid out as a 1099.

And so I was just curious as if that’s how I’m getting that money in my second or third year of residency. Do I just need to set aside 10% to 12% with my tax bracket to pay at my next tax filing?

Daniel Wrenne: How much is it? 

Jordan Read: $30,000. 

Daniel Wrenne: 1099? Do you have to pay it back if you leave early? 

Jordan Read: It has a three-year prorated. So depending on how early you leave.

Daniel Wrenne: Make sure you’re getting taxed on it now. 

Jordan Read: Yeah. Yeah, you are. So you have to pay the tax on it during the year you receive it. And so for me, it would likely be 2025. 

Daniel Wrenne: It kind of messes up the student loan strategy a touch, but it’s all good.

It’s not huge. It still makes it worthwhile. But yeah, I would figure out the tax probably 20% at most, I would think. It’s not going to be, cause you’ll still be in a low tax bracket. Set that aside for sure. Actually, I would set all of it aside because it’s not your money.

Well, the way I would think of it is it’s not your money until you’ve fulfilled the contract. That’s how I would approach it because it’s not, so you’ll have to pay the tax obviously, but you can just pay the tax out of the chunk. I’ve worked with many people that take their bonuses and buy things with them or pay down debts and then they hate their job and then that’s yet another reason for them to not feel like they can leave.

Jordan Read: Yeah. Cause they don’t have the money to pay it back yet. 

Daniel Wrenne: Yeah, well, think about it. It’s hard to switch jobs anyway, and especially if you’re used to the lifestyle, and then especially if you got to pay them to leave, like that’s just golden. That’s why they call it the golden handcuffs. Yeah, well, the big thing, you are off to a great start.

You’ve set the baseline habits in place. You don’t have credit card debt, even in the hard phase of life. So you’re just going to basically be doing the same sort of things you’ve already work towards. It’s just bigger numbers and maintaining the discipline. You’re gonna be rocking and rolling.

Jordan Read: Thank you. Yeah, I’m a planner. I don’t know if you could tell that just by talking to me, but that’s something I really value. And I think that having a plan is integral, or I guess very imperative to me. Just having peace of mind. Like I said earlier, I can’t put a price on peace of mind.

And so being able to sleep all night, knowing that my family is well protected, knowing that I’ve got the insurance in place, that my investments are mostly on autopilot. I’m building wealth, but also being able to focus on the things that actually matter, which is like the life in front of me and the people in front of me.

That’s what it means the most. Yeah, I want to say thank you for taking the time to speak with me this afternoon. I’ve got a lot of financial literacy from your content, so I really appreciate the free content you put out for residents like myself who are just trying to navigate it in a training time where no one else teaches us about this.

Not in medical school, not in residency, so I’ve kind of taken it upon myself to share the nuggets that I pick up from this space to my fellow residents in our didactics, so.

Daniel Wrenne: Yeah. Well, I’m glad to help. And it’s been fun going through this.

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