Doctor's Bill: Eat, Pray, Love Verdict ⋆ XRAYVSN

Johanna’s Take

This week, we have another travel inquiry from a low saver.

Applicant would like to take a trip to India that, on the face, appears to be a fairly reasonable and affordable request.

The positives:

* Somewhat high annual income

* Relatively low-cost goal

* Planning to work until age 61

* No children (is there a spouse? Don’t know and don’t have an email to ask.)

The negatives:

* Low annual savings rate

* High student loan balance

* No home equity

* Costs 43% of your emergency fund

Assumptions (I will use conservative estimates wherever there is an uncertainty.)

* 6% average long-term returns on savings (Assuming no emotional mistakes in upcoming bear markets and corrections)

o By my calculations, you will have < $1.750M at retirement

* Average inflation

* You retire in 28 yrs

* No children

* You have plenty of appropriate life and LTDI in place.

* No divorce

* Savings of $21k/yr for 28 yrs

* No significant financial assistance for other family members

* Reasonably good health

My thoughts:

* The projected retirement savings may improve after student loans are paid off but I have not made that assumption in calculations.

* The applicant may start a family in the future, adding an extra financial burden.

* Reading between the lines, I am concerned about applicant’s spending habits. I’m happy to get the request for analysis, however, as that tells me there is also a question in applicant’s mind.

* I realize this is a small splurge for someone earning $350k/yr. but consideration of the whole picture, not just the income, gives me pause:

o Doctor loan for a house when applicant has $220 in student loan debt

o Very little savings while in training (assuming we are reviewing a doctor family)

o An employment gap could put applicant in jeopardy of losing his/her house.

I recommend vigorously attacking debt, increasing savings rate by cutting spending, and inviting your family to visit your new home in the US until you can comfortably afford to visit India.

Verdict:

Can you pay for it? Yes.

Can you afford it? No.

Thumbs down

Xrayvsn’s Take:

This submission is a great case study for a lot of young doctors coming out of residency and earning the first couple of big paychecks.

Just looking at the relatively low cost of an experience and the sizeable household income there is a knee-jerk reaction to go ahead and approve it.

Like Johanna, I feel, however, that there are many factors that would make this trip feel more like a financial anchor.

Similar to a previous Doctor’s Bill submission for a trip to Maui, this submitter has a low savings rate of 6%.

A savings rate that low is concerning.

Because of the delayed start a physician has (assuming submitter is a doctor), it is even more of a priority to have a high savings rate to make up for the lost time.

The savings rate I like to see early on in a young attending’s career is 15% with continued increase to get to at least 20% or more.

Although this trip would be paid for in cash, which is a great thing, it would deplete the only liquid asset available to this submitter by almost 43%, leaving him or her with only $20k.

Given the high debt balance, this would not leave much wiggle room for any emergency that may pop up (I feel the emergency fund would be underfunded at that level).

Thus with a high student loan balance, high mortgage balance, low savings rate, and potential for an underfunded Emergency fund I will have to side with Johanna on this one and say…

Verdict:

Denied