Forum Mailbag: Overspending Physicians, Using Emergency Funds, Buying a $2,000,000 Home, And More!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. This is a roundup of my favorite discussions happening around the internet.

1. White Coat Investor: Overspending Physicians

Question: WCI forum regular Vagabond MD was reconnecting with some physician acquaintances back from college and medical school. When the subject of finances came up, both seemed surprised that he was preparing to (or at least is financially able to) retire in his mid-50s. Both of these physicians, while earning a ton of money as an orthopedic surgeon and radiologist, respectively, did not appear to be financially independent. Vagabond MD shares their stories as a cautionary tale to younger physicians.

WSP’s Take: One of the big financial decisions young professionals (physicians or non-physicians) have to make is what kind of lifestyle they want to live. Once your income is locked into a certain level, your finances become a trade-off between your spending and when you want to be financially independent (i.e. have the money to retire).

Both of these physicians have chosen high spending levels and therefore must work into their 60s (or longer). Vagabond MD has spent much less (i.e. saved much more) and can retire in his early 50s. Physician on FIRE has spent even less, and can retire in his early 40s. There’s nothing wrong with spending more, but hopefully, it is a deliberate decision, with an understanding that it will require you to work longer before retirement. 

2. White Coat Investor: Tapping Into An Emergency Fund

Question: SPlum unfortunately recently had a medical emergency, which required him to be out 2-3 weeks and his spouse to be out for 8 weeks. Because of this, there is a cash flow issue and he is reluctant to tap into his emergency fund. He has a 6+ month emergency fund in cash, but is instead considering using 0% interest rate credit cards to finance the emergency, because he likes to have the cash cushion. He has no debt except a mortgage.

WSP’s Take: I’m not a big fan of emergency funds for physicians in practice, because I think you can cash flow through many emergencies, including through the use of 0% interest rate credit cards. However, I can’t fault anyone for having a sizable emergency fund, because sometimes it’s more important to sleep well at night in the case of a job loss or medical illness than to maximize your returns.

That being said, if you’re going to have an emergency fund, use it when you have an emergency! You should be able to replenish the fund relatively quickly once you’re back to work. And if a second emergency were to suddenly strike, it’s not the end of the world to remove money from taxable investment accounts to handle this very rare scenario.

3. Bogleheads: Affording / Buying a $2,000,000 Home

Question: Salmon and his wife are both physicians who live in a high cost of living area and are considering purchasing a $2,000,000 home. They are both 35, currently make $900,000-$1,200,000 a year, have completely paid off student loans, have $500,000 in retirement accounts, and have $430,000 in cash reserves. The wife may stop working in a few years. They are looking at building a semi-custom home for approximately $2,000,000, or alternatively purchasing a $1.2-1.5 million home that would need some renovations.

WSP’s Take: They can definitely afford the $2,000,000 home. Almost everyone on the Bogleheads thread can agree on that. The debate becomes whether they should be purchasing that type of home. In my opinion, if a home like that is important to them, then they should buy the $2,000,000 home.

In some high cost of living areas, $2 million will buy a great home (but only a 1 bedroom apartment in the West Village neighborhood of New York City), but potentially not an extravagant home. There is a discussion of whether living in such an extravagant home may cost them a few years of financial independence, but the fact is that the wife is about to stop working (i.e. retire early), and they will still be making enough money to afford the home.

This physician couple has paid off their student loans and accumulated $930,000 in cash/investments by the age of 35 while being relatively frugal (i.e. renting a home for $3,000 a month). They have done their “financial fellowship” and can now live prosperously.

4. White Coat Investor: Splurging on Vacation before First Year of Medical School

Question: Strider_91 is planning an epic backpacking trip in the Pacific Northwest for 23 days prior to medical school. The trip will cost approximately $1,500 and he will pay cash for the trip.

WSP’s Take: I am with all of the other WCI forum members in saying to go for it. This sounds like a once-in-a-lifetime trip and he should enjoy it. You’re only young once, and we all wish we could be his age again and enjoy that kind of vacation.

Wall Street Shares: 5 Articles I Enjoyed Reading This Week

1. White Coat Investor: Academic Paper About Resident Financial Illiteracy — fellow physician blogger Rogue Dad, MD surveyed the residents of two universities about financial literacy and published some surprising results.
2. Future Proof MD: Mega Backdoor Roth IRA Without a High Income? Yes I did! — Dr. Liu, a radiology resident, describes how he was able to do a mega-backdoor Roth IRA.
3. Passive Income MD: The List of Physician Side Hustles — there are a lot of money-making opportunities for physicians outside of regular clinical work. Skim through the list and see if any of these opportunities interest you.
4. The Happy Philosopher: Adventures in Full-Time Work – While most of us toil away every day in full-time (or longer) jobs, this part-time radiologist shares his experience with the full-time grind.
5. Physician On Fire: Make Your Declaration of Financial Independence — PoF encourages readers to declare financial independence and start on the path to financial freedom.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?