For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
Buy a home.
Approximate Cost:
$250k
How do you plan on paying for this item/experience?
Mortgage
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
A) 8 B) 8
Age:
30
Gender:
Male
Occupation:
Pediatrician (Finishing up residency)
Marital Status:
Married
Any Children (If so please provide ages)?
4 year old, 5 month old, and 3rd one on the way.
How Many Years Till Planned Retirement?
25
What is your total household income?
$180k
What is your % Annual Savings Rate? (savings/gross income)
25-30%
Estimated Annual Living Expenses (Current):
$45k
Estimated/Desired Annual Living Expenses (In Retirement):
$45k
Market Value of Primary Home [For Renter =$ 0]
$0
Additional Real Estate Holdings Equity (Market Value-Debt):
$0
Current Liquid Asset Value (Savings, Checking, Etc.):
$10k
Retirement Assets (401k/IRA/HSA):
$4k
Brokerage Account (Taxable):
$0
Miscellaneous Asset Value (Please elaborate):
$0
Mortgage Balance:
$0
Student Loan Balance:
$0
Additional Liabilities:
$0
Unfunded Future College Costs & Years Left Till Needed:
Not sure. Plan to fund for children but for in state colleges only.
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$0
Any other pertinent information not addressed?
I am still a resident and will be starting first job in 6 months requiring me to move out of state to Pennsylvania (with no local family there).
I will be a salaried (W-2) employee with no possibility of partnership and no significant increase in salary expected.
Retirement benefits are that the employer will match 25% on the first 8% of compensation elected as 401(k) contribution and an additional 3% of annual compensation as a safe harbor contribution.
After reviewing the above financials what are your thoughts?
Does a new crib for this pediatrician become a place of sanctuary or will he instead find himself trapped financially inside those walls?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
NOTE: The website XRAYVSN contains affiliate links and thus receives compensation whenever a purchase through these links is made (at no further cost to you). As an Amazon Associate I earn from qualifying purchases. Although these proceeds help keep this site going they do not have any bearing on the reviews of any products I endorse which are from my own honest experiences. Thank you- XRAYVSN
I would wait at least 3 years and rent as cheaply as possible, and invest the proceeds of what you “would spend” on a house in a efficient frontier tangent 20/80 portfolio. I’m not impressed with that job and its prospects. It has huge burn out potential and once you buy in with a house you’re pretty screwed. 3 years gives you a chance to understand the local market from a place of leisure. If you’re a pediatrician that needs to attend deliveries for example you may want to live close to the hospital. You may want to find out… Read more »
I should add you to the Doctor’s Bill panel Gasem. Really good advice with lots of pearls in there. Pretty much hit my sentiments exactly
That was an awesome comment, Gasem! Thank you for taking the time to share your experience.
Money aside, moving to a new place, where you do not know anyone taking one’s first job (which has a high failure rate) are “no-brainer’s” to rent. I would tell you this if NA’s salary was 5x what was indicated. It’s hardly even a money issue, IMO.
Great points Vagabond. The home price was not so exorbitant an ask in this case. This is more about a better practical approach of how to approach going to a new place out of residency. Everyone uses the “rent is throwing away money” defense but it is much better to rent and find out if this job has long term future (and then buy) rather than being locked into a place with a big commitment (another form of sunk cost fallacy)
Thank you for stepping in, Vagabond – always appreciate hearing what you have to say.
Honestly this ones a no more for the psychology then the financial. I’d never recommend moving somewhere new and immediately buying a house. You never know if you’ll end up liking or hating it. A home is too permanent with the cost of transaction too high to take that risk.
I agree FTF with your assessment. Too many unknowns to jump and buy a home right away (did you really find your forever job the first time out? (very rare occurrence), do you know traffic patterns, nearby amenities, commute times, etc based on a couple of days with a realtor?, etc.)
FTF, so glad you mentioned psychology. Money decisions are rarely ever just about dollars and cents.
I agree that this doctor should not buy a house at this moment. Wait until you are sure you are going to stay, one to two years from now. Moving to a new part of the country with no family raises the risk of moving again in the next few years. I disagree with two parts of the advice. First the notion that the doc needs to moonlight doing locums. This budget is making plenty of money to meet their current and future needs. There is not need to work “extra hours” to earn money that is not needed. Now… Read more »
Thanks Cory for your input (I was hoping you would chime in as you have written a wonderful book on this very topic). Good point about still prioritizing a good work-life balance. A lot of people chasing money sacrifice way too much in terms of quality home time. Especially with a new addition about to come into the fold, I am sure Mrs NA would like a breather from Dr. NA pitching in every now and then which he couldn’t if always gone.
Hi, Cory – Nice to have you stop by! Thanks for adding to the discussion. I really hope our applicant is keeping track of all the comments, much better to get input straight from those who have been there and done that!
I agree with Cory on this one as that is what we did. We worked less when the kids were preschool age.
The skill of learning how to live life within one’s means is exactly that- a skill.
Most seem unable or unwilling to learn it. And then they wonder why they harbour financial anxieties FOREVER.
Great point DMB. If you don’t possess the skill to live within your means, it doesn’t matter how much you work and earn because you will spend even more.
Agree with you both. To clarify, my suggestions were directed at the long term and after the children are in school, not the present situation. I apologize that I was not clear about that. Thanks so much for reading and commenting, Dr. MB!
Johanna, this feature of yours is one of my favorite. I am glad XRV has done this. Although I am Canadian, many of your financial planning principles and insights have been very helpful. I believe that most physicians need an advisor. The rare few PF nerds can do it themselves. I find it dead easy to save. It is the juggling of the wishes of those you care about which is the challenge. It is those spending shocks which one rarely sees coming which knocks us all off our feet. Those who profess to never have that happen to them… Read more »
I was definitely lucky when Johanna agreed when I pitched this to her. It has exceeded my expectations. The main issue is hoping we continue to have a steady influx of submissions to keep it going
Aww, thank you. That makes my day!
I’d second Gasem and Vagabond on this one. You wouldn’t feel comfortable moving in with someone and putting all your money in a shared bank account after even the greatest first date. Don’t do it with your job by buying a house fresh out of residency – it’s the relationship equivalent but with work.
Brilliant analogy. Now is there a work equivalent to friends with benefits? LOL
Agree with XRAY that this really brings it home!
I would encourage those who are posting here, especially almost-grads who may be considering a similar purchase, to also take a look at the comments on the parallel thread that is running on WCI at https://bit.ly/2RzgAFS
Excellent posts and comments. I think if this pediatrician is patient, he can consider renting and then possibly using geographic arbitrage to move to a location which pays more and will even cost less in the future. The one nice thing about medicine and especially pediatrics is the areas that pay more are often cheaper as well. Double positive!
I agree that geographic arbitrage would really benefit this doc. The fact he stated that the salary is going to be flat with little chance for increase makes this job less enticing for me
It’s especially helpful to hear from another pediatrician, thanks for posting your thoughts!
I’d rent for a while, then look for a home. It takes time to figure out a new job and area. If the job works out, then I’d buy a house. It’s a proven way to build wealth for most of us. The price seems reasonable.
Good luck.
Renting I feel is definitely the way to go here. I wish I had done it during residency. Fell for the renting is throwing away money trap people try to convince you to believe
Here’s my take: In this physician’s scenario I would absolutely rent. He/she is unfamiliar with the area and has no social network. Additionally, this physician has very little in terms of liquid assets. Only $10k. That would only be enough for a 4% down payment. Definitely NOT idea. And perhaps this physician can possibly get a lender to offer a “doctor loan” with a minimal down payment but those tend to get expensive with PMI and other fees. Again, NOT worth it. If this physician knew the area and had at least $80k in liquid assets… ($50k as a down… Read more »
Thanks DMF for your detailed analysis. Also renting does not have to mean an apartment. You can rent homes out as well if apartment living is not for you. I will say that the buy and rent plan can work but adds a lot more stress if you do not want to be a landlord or move out of state and then deal with property managers lond distance, etc. When I couldn’t sell my home in Ohio when I moved, I had to pay two mortgages and got stuck with for several months before thankfully I sold it. My home… Read more »
I think knowledge of the job is far more important than any other consideration. This is a suckers job, no wage growth, no partnership track and no limit on work expectations. Yes you will take call every Christmas from now till you die! You have a mortgage! When I started I did locums for a couple years after the Navy just to experience how different practices operate, the politics and liabilities and there is plenty to learn. This may be a great job but great or not it’s a great start to get the rest of your financial life in… Read more »
I agree too Gasem. Not sure what the appeal of such a job is if they come out and say your income will not increase and you won’t advance to partner etc. Might be good to get some experience under you belt but this doesn’t sound like a long term play here and another reason to tilt towards renting