Insurance and Income Protection Every Doctor Should Know

Transcription – WCI – 461

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 461.

This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.

If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob at www.whitecoatinvestor.com/protuity today. You can email [email protected] or you can call (973) 771-9100.

 

IS WHOLE OR UNIVERSAL LIFE INSURANCE A GOOD IDEA FOR ULTRA-HIGH NET WORTH INDIVIDUALS?

Dr. Jim Dahle:
All right, welcome back to the podcast. Let’s get right into your questions today. First one, it comes in by email. It says, “I was wondering if you could go over the possible utility of whole life insurance or universal index life insurance for ultra-high net worth individuals. I’m currently 35 years old with an income of around $1.5 million and a net worth of around $5 million.” Wow, must be nice.

“I love my job and anticipate a long career. I have a very aggressive asset allocation. Based on my income and net worth I anticipate I’ll have an estate tax problem. I’ve been looking into strategies and I’ve always been against whole insurance, but I’m wondering if this is a case where it might be useful. I have $5 million in term life, but do you think it’s beneficial to also purchase a whole life insurance policy within an irrevocable life insurance trust or ILIT to get the assets out of my estate and help with any estate tax due at the time of death? What are the pros and cons of life insurance in an ILIT versus a SLAT or intentionally defective grantor trust? Thanks.”

Okay, there’s a lot involved in this question. A few things we ought to talk about right from the beginning. First of all, you don’t have to use life insurance in your irrevocable trust. You could put regular investments in there and probably get a higher return. You could put index funds in your irrevocable trust, but putting insurance in there has a couple of advantages.

The first one is the death benefit. If you die next year, life insurance provides a great return because it’s going to pay out that amount out no matter when you die. Whether you die now or whether you die in 50 years, it’s going to pay out. It’s really good if you die young to invest in life insurance.

The other advantage though, and the one that causes a fair number of people to use life insurance, like a whole life insurance policy inside an irrevocable trust, an ILIT, irrevocable life insurance trust, is that it isn’t taxed as it grows.

Trusts not only have to file tax returns when they have taxable income, but they start getting taxed at a relatively high rate with a relatively low amount of income. It’s just really convenient. Not only is it growing in a tax-protected way, but you don’t have to file the tax return. Plus, you get that guarantee of if you die young, it’s still going to be funded. Lots of people do use a whole life insurance policy inside an irrevocable trust to pass money on or to fund whatever they want to fund after their death with this irrevocable trust. It’s a totally reasonable choice to make.

Are you probably giving up a little bit in return even after tax? Yes, you probably are, but you get that guarantee, which has value and maybe a little bit less hassle, although you do have to get the life insurance up front. Obviously, you have to be insurable and those sorts of issues as well. That’s the first issue to talk about there.

The point is, you don’t start your estate planning by talking about whole life insurance. That’s not the first question. Maybe there’s been a whole bunch of estate planning going on in the background here. This is just an appendage question to that. When I get this, what I feel like is somebody’s been getting sold a whole life insurance policy. “Oh, you should get this for estate planning reasons.” Well, there are some estate planning uses for whole life insurance. There are some asset protection uses for whole life insurance. There are some business uses for whole life insurance, but just being a doctor or just having a lot of money or just having an estate tax problem is not mandatory you must buy a whole life now. That’s not the way it works.

You have to start your estate plan at the beginning. Where do you want your money to go when you die and how much do you think that’s going to be? For example, if you’ve got a $50 million estate, clearly above the estate tax exemption limits, but it’s all going to charity, you don’t need to do a bunch of fussing with trusts and with whole life insurance policies or anything like that. Nobody’s going to be paying those taxes anyway.

You have to ask yourself, “How much money do I actually want to go to people versus charity?” Because the money going to people is going to count toward that estate tax exemption amount. The amount going to charity really isn’t because it can go directly to charity or you could give it to charity in advance or whatever.

I think there’s something to be said when you’re in this position. This person is making $1.5 million a year. They already have $5 million at 35. This is the person the book Die With Zero was written for. You have to start asking yourself, is your goal really to be the wealthiest doctor in the graveyard? It probably isn’t.

You got to start using your money, using your time, using your health in the way that’s going to lead to the most happiness for you, the most good done in the world for you and for other people and balance all those things. You’re not necessarily trying to optimize for maximum amount of money at your death. That’s probably not your goal when you have this level of wealth.

I caution this sort of person to make sure you’re spending on everything that’s going to make you happier now. There’s no point in depriving yourself unnecessarily. You make $1.5 million a year. You’ve already got $5 million at 35. Even if you don’t save another dime, you’ve probably got $20 million at 55. You’ve probably got $40 million at 65. This is not a person that still needs to save for retirement.

Start asking yourself, “What causes in the world do I support? What else could I enjoy spending money on now?” Maybe it’s time to go get yourself a new car or to be flying first class or whatever else you want to spend money on, giving money to family or friends or whatever. Those are the things to be thinking about in this sort of a situation.

All that said, yeah, a whole life insurance policy does certain things. It has some guarantees. If, for instance, you want your nephew to get $2 million when you die, whether you die next year or whether you die in 30 years, whole life insurance will do that. You could open up a trust, put the whole life insurance policy in there every year. Put it in there and fund it every year with the gift tax amount, your $19,000 a year this year or whatever it is to go to that nephew. It would accomplish that goal and you wouldn’t have to be filing a bunch of complicated trust tax returns. It does have uses in that sort of a scenario.

Other estate planning uses for whole life insurance are to provide liquidity at death. For example, say there’s a family that’s worth $35 million or maybe not even that much. Let’s say they’re worth $20 million, but $18 million of it is in the family farm and there’s four kids. They want to divide the estate evenly among the four kids. Well, now that farm is going to have to be sold at death. Maybe one of the kids wanted to keep running that farm, but you got to have some money to pay off the other kids.

Life insurance can do that sort of a thing. You can provide liquidity at death, whether you use that liquidity to pay out inheritances, whether you use that liquidity to pay taxes, whatever you need that liquidity for, it can provide that in death. Within a couple of weeks after you die and you’ve got cash on the barrel head when you have a whole life insurance policy. It’s a reasonable use for it.

But you have to keep in mind, a reasonable use is not just being a doctor. The people out there trying to hawk this whole life insurance to you, “Oh, you’re a doctor, you should get this. It’ll help you protect your assets. Or you might need it for estate planning down the road.”

Well, you don’t even have an estate plan made yet. Don’t just buy whole life insurance because you might need it for estate planning or it might be useful in estate planning. Buy your term life insurance if there’s other people that depend on your income. This person might not even have anybody else dependent on their income. They’ve already got $5 million. How much life insurance do you need when you die? There’s $5 million already for whoever you’re leaving behind. You might not need any insurance. You might already be financially independent at that level of wealth. It really just comes down to how much you’re going to spend and whoever you’re leaving the money to is going to spend. I hope that’s helpful.

In today’s episode, we’re going to be talking about all kinds of insurance stuff. Insurance might be a little bit boring. I find it a little bit boring. There’s plenty to talk about. It’s obviously important. We have a staff member that all he does is insurance and he loves it. He makes all kinds of insurance content. This is Travis Christy. He works here at the White Coat Investor. He interacts with all of our insurance partners and manages those relationships. He’s great. He loves insurance. He thinks it’s super exciting. I don’t think it’s super exciting. You might not think it’s super exciting either, but we’re going to hit the high yield points today about insurance.

 

QUOTE OF THE DAY

Dr. Jim Dahle:
Before we do that, let’s do our quote of the day. This is from Jim Rohn. He said, “Formal education will make you a living. Self-education will make you a fortune.” I think there’s a lot of truth to that. For most people, the vast majority of your financial education is self-education. That’s why you’re listening to this podcast while you’re out running or while you’re out walking the dog or on your way to work or home from work or whatever. By the way, if nobody said thanks for that work today, let me be the first. It is not easy work that most of you do. I’m very much aware of that.

Speaking of insurance, we have a new insurance partner called Rate Insurance. The reason we have a new partner is because the old one was not meeting your needs. Let’s just be totally flat out honest. We tried to find a way to help you with property and casualty insurance. We’re talking about car insurance. We’re talking about homeowners and renters insurance. Umbrella insurance is usually thrown in there.

We tried to figure out a way to try to automate it and make it really easy for you. What we discovered is that you guys, like me, have complicated insurance situations. You’ve got umbrella policies. We couldn’t figure out a way to automate that. I was doing almost everything online when you have an umbrella policy. A lot of you, like me, have a luxury home. You couldn’t do that either in an automatic way.

We found a company, a brokerage really. It’s an insurance broker that can handle White Coat Investor insurance problems, White Coat Investor insurance issues. You’ve got a luxury home. You need an umbrella policy. You’ve got two teenage drivers. You’ve got four cars and a boat and a plane or whatever. You have this complicated issue. You’re not going to be able to do it in 10 minutes online with a couple of forms. You’re going to have to get on the phone with somebody.

I think it’s really awesome. I got on the phone with them just a few weeks ago. They’ve helped other White Coat Investor staff members. We did a blog post about them a few weeks ago as well. A whole bunch of White Coat Investors went and used them and have been getting great service. We think we’ve really hit it out of the park this time.

The partner is Rate Insurance. If you go to whitecoatinvestor.com/rate-insurance, you can get more information about that or you can go to the recommended tab and you’ll see it up there at the whitecoatinvestor.com site.

Bottom line, we’ve got a new partner. They’re awesome. You’re going to love it. If you have a need for insurance, property and casualty insurance, check these folks out. Here’s the deal. The truth is most of us probably need to reshop our property and casualty insurance. I went and did that as part of this blog post. I hadn’t done it in a while. I was actually surprised how much money I could save basically changing insurance around.

When I went and did it myself, I found that my insurance, I was paying a little over $10,000 a year for property and casualty insurance. Auto with two teenage drivers, I was up to about $5,000 a year. I’m not real happy by the way. My son got a ticket the other day. That’s probably not going to be going down soon. At least we don’t figure out something to do about that ticket. I’m paying about $2,300 in homeowner’s insurance. My umbrella, this is a $5 million umbrella. I was paying about $2,800. Then I had a few hundred dollars in boat insurance to total up over $10,000. $10,433 I think is what I totaled it up to.

After spending some time on the phone with a great broker who taught me all kinds of interesting things about property and casualty insurance in the process, basically got a quote from three different insurance companies for those three different products. It was $8,900. I came up with $1,100 plus in savings.

I’m reasonably financially savvy. We sent other people there. One of our staff members has a complicated situation, has a home in an area that is I guess more likely to burn than some other areas, and had a really hard time getting insurance. They were able to get her not only insurance, but insurance at a really great price. That was pretty awesome.

She said what stood out most was the high-touch service. The agent took the time to walk through the future scenarios, including how to handle auto insurance as children leave for college. Rather than rushing a switch, actually recommended waiting on the auto policy since rates in that area were expected to come down in the next few months. Then the agent also committed to shopping those policies proactively.

This is part of the cool thing about rate insurance, is you get an agent. You got an auto claim, you call the agent. You get a homeowner’s claim, you call the agent. They help you talk through it before you put a claim in. If you just call up your insurance company, they start a claim. Whether you actually completely file it or not, you’ve got a black mark on your situation.

That stays on there for a little while, so they know that when you go shopping your insurance. Whereas if you went to your homeowner’s insurance and your bike got stolen out of the garage, it’s a $3,000 bike. They’re like, “Well, your deductible is $5,000. It’s probably not worth putting a claim in.” You go, “Oh yeah, that’s right.” Well, now the insurance company doesn’t know that bike was ever stolen. Much better situation.

Not to mention you’ve got a relationship with somebody. You can call them up once a year or whenever and go, “Hey, you want to shop my situation again? Nothing’s really changed. You already have all my information. See if you can get me a better deal.” They come back and say, “Hey, yeah, now we can save you $400. Your kid’s a year older or whatever.”

I think there’s a real benefit to having a broker on your side. I’m pretty excited we’re getting a new boat this spring to just call them up and say, “Hey, give me some boat insurance. I’m thrilled to do that.”

A more impressive case was from a family member of one of our WCI staffers. He apparently owns a lot more stuff than I do, but he was paying about $30,000 a year on property and casualty insurance. After going through this process with the broker, he was able to cut that by $11,000 per year. $11,000 is a lot of money. You compound that out for 30 years and all of a sudden we’re talking about the amount of money more than most people retire on.

Go check that out. You can find it in our recommended tab. Also, you can just go to whitecoatinvestor.com/rate-insurance.

 

INSURING AGAINST FINANCIAL CATASTROPHES

Dr. Jim Dahle:
Just as a general rule, insure against financial catastrophes. When it comes to property and casualty insurance, shop it around once a year. You’re probably not shopping around your disability or your life insurance once a year because it just gets more expensive as you get older. Your property and casualty, shop around periodically.

My point is you only insure against catastrophes. What’s a catastrophe? If you die and people depend on your income, that’s a catastrophe. You probably need millions of dollars of term life insurance. If you die and you depend on your income or if you get disabled and you depend on your income, that’s a financial catastrophe. You cover that with disability insurance.

If your house burns to the ground, for most of us, that’s a financial catastrophe. We just can’t come up with that kind of money to replace the house. You need to insure that with property and casualty insurance.

If your kid hits some CEO driving their Porsche and it’s $150,000 in damage to the car and that person’s out of work for a year and has $400,000 in medical bills, that’s a financial catastrophe you need to insure against. That’s where auto insurance and umbrella insurance comes in.

If a patient sues you for a million bucks, financial catastrophe, you need malpractice insurance. If you fall off a mountain while you’re climbing and you need a $44,000 helicopter ride to the trauma center, then you need to sit in the ICU for three days with your head upright so your CSF leak can stop. That can be a financial catastrophe. So, you buy health insurance.

Make sure you’re buying insurance against true risks, true financial catastrophes. Don’t go insuring your iPhone. Don’t go buy the insurance at Home Depot on your leaf blower. You can afford to buy another freaking leaf blower. You make $20,000 to $50,000 a month. Just go buy another leaf blower. It’s no big deal. You’ll save a little less money for your kid’s college that month. You’ll be fine. But make sure when you do need insurance that you insure well.

Okay, next question off the Speak Pipe.

 

UMBRELLA LIABILITY INSURANCE

Speaker:
Hi, Dr. Dahle. I’m working my way through your financial boot camp course. I’m really enjoying it. I’ve just come across a question while making my insurance plan. I currently am about two years out of vet school, so still working on my student loans and still with a negative net worth.

My question is the rule of umbrella liability insurance in my situation. I currently rent, so I have renter’s insurance, and I also have comprehensive auto insurance. I have a group of disability policy through my work, and because I do significant 1099 work, I’m getting an individual disability policy.

I’m thinking that I probably don’t need to consider an umbrella liability policy until my assets exceed about $250,000. I’m not sure what your thoughts on this is, if I should consider it sooner or later. Would love to get your thoughts. Thank you again for all that you do and for the big impact you’ve had on my financial life.

Dr. Jim Dahle:
Okay, great question. As a general rule, most people listening to this podcast need a seven-figure umbrella policy. That stacks on top your personal liability policy as part of your auto and your homeowners or renters. You probably have to increase that to like $300,000, and then they’ll let you buy an umbrella policy to increase it to a million or $5 million or $10 million or whatever.

In fact, I see a lot of discussion now, people talking about ten million umbrella policies, which is an awful lot of money. There cannot be very many liability kind of situations that are not covered by five million but would be covered by ten million. Really, you’re getting pretty out there when you’re starting to debate $5 million versus $10 million.

But a lot of people get confused about umbrella policies, and they think you need an umbrella policy equal to your net worth. And that’s not really the case. What you need an umbrella policy equal to is whatever the judgment that is made against you and not reduced on appea.

If your kid hits somebody and the judgment’s for $460,000, and you’ve only got $50,000 of auto policy and no umbrella, well, guess what? They’re coming after personal assets, and you may end up, if it’s enough, having to declare bankruptcy to get rid of that debt. That’s the end game of any asset protection situation.

When you get beyond insurance, the question is, well, do I declare bankruptcy at this point? They take everything that’s not protected in bankruptcy in my state, which is typically retirement accounts and maybe some of your home equity and maybe some whole life insurance or annuities or that sort of a thing. And then a few unique things, depending on the state. But that’s the real end game, is you declare bankruptcy, they take everything that’s not protected, and you start over.

The idea behind having a high liability policy, whether that’s malpractice or whether that’s personal liability or umbrella insurance, is that you’ve got enough to satisfy them, to satisfy the judgment that they’re not going to go after your personal assets, and you won’t have to declare bankruptcy. So you get to keep all your stuff that wouldn’t be protected in bankruptcy. That’s the point of the insurance policy.

Then we get to this scenario where we have somebody like this particular caller, where they don’t actually have a positive net worth. That doesn’t mean they don’t have anything to lose. Imagine you got $300,000 in student loans, and you have $100,000 in cash sitting in your bank account, and you get sued for $400,000 and you have declared bankruptcy.

The student loans aren’t going away, you get to keep those, but that $100,000 in the bank account is sure going to be gone. The liability insurance would protect that. And there’s some benefit to having liability insurance for that.

Now, maybe you don’t need a $1 million umbrella policy when you’ve only got $10,000 in the bank, and you got a whole bunch of student loans, and you can lose your car or something. Maybe you don’t need a $1 million umbrella policy. Maybe you just ought to bump up your auto coverage and your homeowners or renters coverage to $200,000 instead of $50,000 or whatever it is now.

But at a certain point, most people listening to this podcast are going to need that seven-figure umbrella policy, or at least want to have it. You might not need it. You’ll probably never need it in your life. These things don’t get used that often. But in the event that you do need it, you’ll be sure glad that you have it.

What would I do in your scenario? I don’t know that I’d buy it quite yet. That $250,000 mark is probably reasonable. When you start having that amount of assets, it’s probably a reasonable time to start going on how to be thinking about umbrella. But it really isn’t connected to your assets. It’s connected to your liabilities. And it sure is nice to not only have an insurance company paying for your defense, but also taking care of any settlements or judgments you want to make.

The truth is most people, if you hurt them in any sort of a reasonable situation, if your insurance company is offering them policy limits, million dollar payout, most people are going to walk away and be happy with that and not feel like they got to take you to the mat and spend six years in court going back and forth trying to get your assets and forcing you to declare bankruptcy.

Most people are going to walk away and be glad they got a million bucks. But you know what? If they’re walking away with $50,000 and you wrecked a $90,000 car, they’re probably not all that happy. Something to think about when it comes to umbrella insurance.

Okay, our next question comes in by email, and says “I’m a fan of the books and slowly catching up with the podcast. I’m on episode 41.” You might not hear this for a while if you’re listening to them in order.

 

IT IS NOT UNCOMMON FOR DOCS TO BECOME DISABLED

Dr. Jim Dahle:
“I’m the one out of seven physicians who became disabled at work in 2016 and have not yet been able to return. I miss my peeps and I’m working back to being a clinician and educator. It would appear that I won’t be able to do the same as I did before, but I haven’t given up. Learning to drive and read again has been a real hoot.

The disability income is keeping me and a family member afloat. I wish I knew how to shop around for it before. I live at home with this family member, and unfortunately, most of my medical bills are not covered by insurance. It’s difficult to put more than 10% of my income away. I’m slowly paying off my student loans, I have $150,000 left, and recently began to be able to do some writing again. I started writing prior to my workplace injury, but it wasn’t lucrative and negotiations have been dragged out by my former employer.

I recently received a few hundred dollars for a published piece, and I’m wondering what I should do with this windfall. Should I put it in Roth or savings or my investments, which are really non-existent outside of a small retirement account I can’t contribute to?

And by the way, I tell all the medical students and residents of the specialists who I’ve been seeing to please think about disability insurance probably more than once, because after my injury, I can’t remember things very well.”

Well, I share this email not necessarily to answer the question being asked, which was what to do with the windfall, and this person’s self-employed. They could actually open a solo 401(k) and put the money in there, probably a Roth solo 401(k), and if you want to save for the future, that’s the way to do it. I think a lot of people living on disability that had some additional income would probably spend it, and I think that’s totally reasonable to do.

This person could also just use a Roth IRA, though, until you’re saving more than $7,500 a year if you’re under 50. There’s no point to messing around with a solo 401(k). You can just put it in an IRA. That answers the questions they asked.

One question they didn’t ask is it sounds like they’re permanently disabled, and typically when you’re permanently disabled, your student loans go away. Certainly federal student loans go away, and many times your private student loans go away.

Now, maybe this person isn’t quite disabled enough. They’re still doing a little bit of writing or whatever, or they have private loans with different provisions, but I ask this person to really look into that as well, because typically you don’t need to buy enough disability insurance or enough life insurance to cover your student loans, and this would be a huge boost for this person to not have that $150,000 in student loans anymore.

But mostly the reason I wanted to share this email is for the rest of you. I wanted you to hear what it’s like to be living on disability insurance. Now, this person bought some disability insurance. It doesn’t sound like it was quite as good a policy as they wish they’d bought, maybe not quite as much as they wish they’d bought. It’s not just them, it’s them and a family member, depending on the policy.

And I think the lesson there is to realize that this is not unusual. Lots of White Coat Investors are right now, this instant, living on disability insurance policies, sometimes even on social security disability, although it’s obviously much harder to qualify for.

The statistics suggest that one out of four people at some point between age 20 and age 65 are going to have a disability that lasts at least three months, and for most of those, if it lasts more than six months or something, it’s highly likely that it’s going to last at least five years.

I had a disability for a couple of months. I couldn’t go to work. I fell off a mountain. Obviously, I didn’t have any disability insurance by that point. We already canceled it, and I wasn’t disabled long enough that it would have paid anyway, but it can happen very suddenly. It’s usually not trauma like it was in my case. More often, it’s a medical issue. It’s a neurologic problem. It’s a tremor. It’s MS. It’s myasthenia gravis. It’s who knows. It’s chronic back pain kind of issues or degenerative disc disease. Those sorts of problems are the reasons why people get disabled.

Sometimes, it’s a psychiatric issue. You develop bipolar disorder. I had a family member, a very high-functioning professional, developed bipolar at some point in his 30s or 40s, and became disabled from his work.

Make sure you’re buying a policy that covers as much as possible, even if you think you’re not going to have a psychiatric issue, even if you think you’re not going to have a substance abuse issue. You never know.

Buy one with the strongest possible definition of disability. Buy one that’s actually going to not only cover your expenses that you currently have, your living expenses, but also allow you to continue to save for retirement. Because disability insurance payments typically stop at age 65 or 67. So, you’re going to need something probably besides Social Security if you want to maintain anything like your current lifestyle in that sort of a situation.

So, keep that in mind, and get out there and buy some disability insurance. Again, we have partnered with people that can help you do this. Go to whitecoatinvestor.com/insurance, and they will help you do this. They will help you make sure you get the best possible policy you can get for your age, and your gender, and your state, and your specialty, and your medical conditions, and get that protection in place as soon as you can.

Apparently, I need to repeat this message more frequently. I know a lot of you have listened to 460 episodes of this podcast. You bought disability insurance years ago. But the truth is there are some people who listened to this podcast for the first time today and no one ever told them to get disability insurance. So, if you’re one of those folks or you just haven’t gotten around to it yet, go get your disability insurance.

Next question, also about disability insurance and a little bit related to a situation where maybe you don’t need insurance or maybe you don’t need as much.

 

DO TWO DOC HOUSEHOLDS NEED DISABILITY INSURANCE?

David:
Hey, Dr. Dahle. This is David in the Southeast. Appreciate all you do, long-time listener, first-time caller. Couple unrelated questions. My wife and I are very fortunate that we’re both in medicine. I’m a resident. She’s about to start residency this summer. And I don’t think I’ve ever heard you talk about how to think about disability insurance when both partners are potentially going to have high-earning careers. Does it make sense to insure ourselves to the health against disability? Or should we skimp out a little bit on that considering that we could be each other’s disability insurance policy, so to speak, or would that just be cutting off our nose to spite our face? I’m curious what you think about that.

The second question, we’re also very lucky that my parents have given us a 20s fund like you have for your kids. And there’s a decent enough amount of investments in there that we could buy a starter home for ourselves in cash, which seems like a very appealing option because I’d love to avoid paying a ton of mortgage insurance over the years.

But what are your thoughts on paying for a home in cash versus doing traditional down payment and keeping the rest invested in equities, especially since we’re so early on in our career? And if we keep more of that in index funds could potentially grow a lot faster than what we’d be saving in terms of interest payments. Thanks so much.

Dr. Jim Dahle:
Okay. Wow. That covered a lot of space. Why don’t we start with the two earner situations? And this is an episode where we’re focusing on insurance. Let’s do the insurance first. You don’t necessarily need disability insurance. What you need is a plan in case you become disabled. In this case, two earners, in case one earner becomes disabled, in case the other earner becomes disabled, in case both of you become disabled. Obviously a lower risk that you both become disabled, but it’s not zero.

What is the plan in each of those cases? And if the plan is acceptable without disability insurance, great. If it isn’t, then buy the disability insurance that’s needed to make that plan work.

Maybe your plan, if one of you gets disabled, is you’re just going to spend less money and live off the other person’s income. Fine. Works fine for the other partner as well. Doesn’t work if you both get disabled. It also doesn’t work if you get divorced and now you’ve got some medical problem that causes you to not be able to buy disability insurance. That could be an issue as well. Are you going to try to go back to court and try to get more alimony or something? That might be kind of awkward.

There’s certainly a case that can be made for basically three different scenarios. One, buy insurance on both of you to the hilt. You’re two earners, you can afford it. And presumably you’ll get to FI a little bit faster and you’ll be able to cancel it. Maybe you just get one of these graduated premium policies, so you don’t end up paying that much anyway. You cancel it in eight years or 10 years when you’re FI and fine, you’re covered for now. You could do that.

Another option that some people choose is they just do partial insurance. And sometimes they go, “Well, I’m probably going to be a stay at home mom in a couple of years, so let’s just insure dad’s income.” Or they look at the two of them and they say, “Which one’s a higher earner?” And they go, “Oh, let’s insure the interventional radiologist’s income instead of the preventive medicine doc’s income.” Or sometimes they go, “Well, let’s just buy kind of half a policy on each of us. We’ll both get a $7,000 a month policy. We both have a small policy. If one of us gets disabled, it keeps the family income up pretty good. And if we both got disabled, well, we’d have $14,000 a month to live off of.”

There’s all kinds of these in-between approaches between full hilt and no insurance at all. And of course the last option is no insurance at all. You’re depending on your spouse to be your insurance policy. And that’s not crazy, but there is some risk there. And you have to be okay with running that risk.

I get it that disability insurance is expensive. And obviously you get sticker shock when you go to buy it. But I think most docs probably ought to have some sort of a policy, at least for the first decade of their careers. And at that point you can start going “We have a few million dollars saved. Now maybe we’re comfortable with being each other’s disability insurance policy or whatever.”

It’s an individual situation. Certainly if you’re in the situation Katie and I were in, where we had one income, it was my doctor income, and that was it. That’s the sort of situation you want to buy disability insurance and plenty of it.

I think we’ve dealt with the first question, which is how two high earners deal with disability and disability insurance. The second part of the question also gives us a lot to talk about. You mentioned a 20s fund. When I talk about a 20s fund for my kids, this is money I saved up for my kids to blow in their 20s. Not to blow, but to use in their 20s.

The idea behind it was “When would an inheritance be most helpful to you?” Well, it’s most helpful to you in your 20s. When you don’t have any money, you have all kinds of great uses for money, and you really can’t turn your time into money at a very high rate. If you think of a time when you could have really used some financial help, that time was probably your 20s, if you’re like most of us.

Given that we had more money than we needed to spend, we saved up some money for our kids to have in their 20s. That’s part of their inheritance. Now, the other part they don’t get for quite a while because I want them to establish their own financial lives and their own careers, et cetera, but they get some money in their 20s. Part of that’s a 529 fund to help pay for college. Part of that’s Roth IRA, basically a daddy match for money that they earned as teenagers we put into a Roth IRA. Part of that is an HSA that we fund for them once they’re financially independent of us, but still on our health insurance plan, we can actually put a family-size contribution into their HSA. So, we do that for a few years between the time they’re 19 and 26 or so.

But the main part of that is a UGMA account. An UGMA, a uniform gift to minors account, or an UTMA, uniform transfer to minors account, basically the same thing, slight differences there. But that’s basically money that in our state, when they turn 21, is theirs. I don’t even have visibility into it anymore. It was moved out of my Vanguard account into my daughter’s Vanguard account within a few weeks after her turning 21.

But the idea behind that money is this is money that they can use for those great uses for money that you have in college or in your 20s, whether it’s college or whether it’s a starter home or getting married or going on a honeymoon or doing some missionary work or a summer in Europe or whatever, all that stuff you would have liked to have some money for in your 20s. Maybe it’s buying a car or something, so you don’t have to drive a $2,000 beater, whatever. But that’s the idea behind a 20s fund.

How big can that get? Well, what you’ll find with an UGMA is if you get it much above $100,000, even if you invest it very tax efficiently, you’re going to be paying taxes at your tax rate due to the kiddie tax. Typically, this is probably a five-figure amount, maybe a low six-figure amount, not a gazillion dollars.

I’m not sure that’s quite the same thing that this particular caller is talking about when they’re talking about having enough money in their 20s fund to buy a home in cash, even if it’s a starter home. Homes are not cheap these days. I guess it varies by where you are geographically. But in Salt Lake right now, average home’s like $600,000. That’s a heck of a 20s fund.

Wonderful that your family is wealthy enough to have provided this great opportunity to you that you can buy a home in cash, that that’s even a possibility. That’s great. It’s a wonderful inheritance. It is a wonderful thing. Be sure to thank the people that sacrificed so that you could have that opportunity.

Now, what should you do with that opportunity. You’re basically now at the beginning of residency. The first thing a lot of people do is they want to buy a home as a resident. It’s usually probably not the right move. You need to be in a home for maybe five years.

On average, it varies. Sometimes you can make money in two years. Sometimes it takes 10. But you have to be in a home for like five years to come out ahead on buying. And most residencies are no longer than five years. And you’re usually going to a new town when you finish. And even if you don’t, you don’t want to stay in that home anyway. And you don’t necessarily want to turn into a rental and have it be a long distance rental.

It’s usually not the right move to buy a house in residency at all, whether you do it in cash or whether you do it with a mortgage. So keep that in mind, that you just having money doesn’t mean that that decision changes of what you should do with that money.

You’ve got alternatives. You don’t have to use it to buy a home. You can leave it invested. And maybe in five years, it’s 50% larger or 100% larger than it is now just from investing it along the way. Don’t let that money start burning a hole in your pocket and feel like you have to spend it now in a house. You don’t.

The other thing to keep in mind is you don’t have to pay in cash to avoid mortgage insurance. All you have to do to avoid private mortgage insurance is one of two things. One is put down 20%. Put down 20%, you can just get a conventional mortgage, no PMI required. Or two, you can just use a physician mortgage. And then you can actually put down less than 20% and still not have to pay a PMI. There’s really no reason for doctors to ever pay PMI.

But the substance of your question, and we’ll pretend this is maybe after your residency, although every now and then maybe it does make sense for somebody to buy a home during residency. The question is, if you have the money, do you pay cash or do you put some money down, use that leverage essentially to invest? You’re really investing on margin when you’re doing this. You are borrowing money against your home and using it to fund your investments.

Your alternative here is to just avoid the mortgage. And mortgages these days are like six to 7%. So it’s not a terrible guaranteed rate of return to save yourself 6 or 7%. Now you probably need to adjust that for taxes. Some of that interest might be deductible to you. Maybe it’s only 4% for you and not 6.5% or whatever. But that’s what you’re comparing to. And the truth is that’s a guaranteed investment.

What other guaranteed investments pay? Well, if you go over to Vanguard and look at their money market account, maybe you’re making 4.5% in their money market fund or 4% or 3.5% or whatever. It’s really not dramatically better.

The only way you come out ahead by borrowing the money in order to invest is if your investment makes more money than that. And you’re going to have to take on some risk to do that, whether that’s investing in real estate or whether that’s investing in the stock market, you’re going to have to take risk. And the risk adjusted return still might not be better than what you can get paying off that mortgage.

I do think it’s worth considering just paying for the house in cash. Our house is paid off. I’m not going out to borrow against it again. I like having a paid off house. It’s nice. There’s a lot of benefits to that, psychological or financial. But there’s also a good chance that in the long run, maybe you will beat that 4% or 6% or 7% or whatever it is with your investment.

So, it’s not crazy to do this, especially if you have a significant need to take that risk to reach your financial goals. But that’s what you ought to be weighing as you make this decision. And you can split the difference too. It’s not 20% or 100% on the house. You could put down 60% on the house too. You could split the difference.

There’s no wrong answer there. There’s only a wrong answer for you. Consider your attitude about debt. Consider your need to take risk. Consider the interest rate on the debt. Consider the available investments. Obviously, if you’re able to put the money into a Roth IRA or some sort of tax protected account, that’s going to be a little bit better than if you have to invest it in a taxable account. So, consider all those factors and make the decision that’s right for you.

CLAIMS-BASED VS. OCCURRENCE-BASED MALPRACTICE INSURANCE

All right, back to insurance. Got distracted there for a minute. I got this email about malpractice. It says, “I’m a neurology fellow. I’m in the process of signing a contract at a community practice. One of the things I noticed on the contract was a claims-based malpractice insurance. Given the way it was phrased, I would like your take on it.”

All right, let’s pause right there for a second. I want to make sure everybody out there in White Coat understands the difference between claims-based and occurrence malpractice coverage.

For occurrence, you buy an occurrence policy for the next calendar year, and something happens to some patient during that calendar year while you’re taking care of them, and they sue you for it. Whether they sue you this year or next year or the year after that, that occurrence-based policy will cover the defense of that claim and the payment of any sort of settlement on that claim or any judgment on that claim, at least up to policy limits.

With a claims-made policy, if it just covers the next calendar year, it only covers claims that are brought during that calendar year. If you hurt somebody this year, but they don’t sue you until March of next year, that policy doesn’t cover it. You have to have a different claims-made policy. Or when you’re eventually done buying these claims-made policies each year, you have to buy a tail coverage or get your next employer to buy nose coverage for you to cover prior events. Otherwise, you don’t have any coverage for that claim brought after the period. In general, occurrence coverage is better. It usually costs more as well. Keep that in mind.

All right, let’s go on with the email. “To me, it sounds like it may function as an occurrence-based malpractice. And yes, I’ll have a lawyer look at the contract, but I wanted to hear your thoughts. It says, currently coverage is provided on a claims-made basis, which means it will respond to claims that are made during the policy period resulting from actions alleged or occurring after the employee’s initial date of hire by the employer.

Provided that continuous renewals are maintained, no tails are required for positions who are or have been scheduled on the policy for claims arising during their period of employment. While the employer cannot assure the future availability of continuous renewals, it will make every effort to obtain them in the event continuous renewals of the current claims-made policy are not obtained.

The employer shall either secure coverage with the replacement carrier, purchase tail coverage, or self-insure the risk of claims made against the employee all in the same terms as the then most current claims-made policy for acts occurring at any time during the employee’s period of employment.”

Okay, he wants to know, is this the same as current coverage? Well, there’s a lot of legalese in there. And so, I mostly agree with him that in that contract, the employer is on the hook for the tail, but really only while you’re working there and only while the employer actually exists. The contract doesn’t say anything about who’s going to buy the tail if the employer goes out of business, or if you quit or you’re fired, that I can see.

What I would suggest when negotiating this contract is defining all those things very specifically as best you can. If they’re saying, “Yeah, of course we’re going to cover those things, even if we fire you, even if you quit, we’re still going to cover it.” Well, why not just have the contract say that. So you know they’ve got your tail covered.

I just like to see that very explicitly stated, and if they’re planning to actually cover that risk, why would they object to explicitly stating it? If they’re not going to cover that risk, you want to know about it up front, so you can at least get an estimate of what that’s going to cost you.

This was the case when I took my job with my current partnership. I was hired as a pre-partner, and the way it was written up was that they weren’t going to cover my tail. It was a claims-made policy that it had, and so we negotiated that if I quit, I would pay the tail. If they fired me, they would pay the tail. That’s what we agreed to.

And as part of that process, I want to know how much a tail cost, and my negotiating partner, who’s later my managing partner at the job, he didn’t know. He had no idea. He had to go to the insurance company, and it turned out in that case back in 2010 for an emergency doc, a tail cost about $50,000. It wasn’t insignificant. This was back when I think my insurance was like $16,000 a year. So, it was like three years’ worth of claims-made coverage is what that tail cost. It was not insignificant.

So, you need to know when you sign an employment contract, and the employer is providing insurance, who’s got the tail. If it’s not an occurrence-based policy, who’s paying for that tail and under what circumstances? A very important part of the negotiation of that particular contract. So, keep that in mind.

This one, I just ask them to make it a little more explicit what they’re covering, what they’re not, because it’s a little confusing to me as well. Maybe your lawyer or the person you hired to review your contract, we got a whole list of those at whitecoatinvestor.com that we recommend. Maybe they won’t think it’s that confusing, but I thought it was a little bit confusing, so I’d like to see it a little more clearly stated.

 

MALPRACTICE PROBLEM WITH STEWARD HEALTHCARE

Dr. Jim Dahle:
Okay, next question I got was, “Are you aware of the Steward debacle with malpractice right now?” Unfortunately, I’m all too aware of working with Steward. My hospital was owned by Steward, Steward Healthcare, whatever they’re called. This is this hospital company that has basically gone bankrupt. Without having to worry about getting sued for libel, I don’t want to say everything the CEO did, but a lot of it is getting a lot of scrutiny right now. Let’s put it that way.

But a lot of people are talking about this because when Steward went bankrupt, they stopped paying the malpractice carrier, and so docs are kind of getting hosed. The docs are being left liable for settlements, etc.

But basically Steward kind of raided the risk retention group that was covering these docs. And so, the docs are now being made to personally cover the stuff the insurance company was supposed to. Well, that’s fine, I guess if you don’t have a lawsuit. You get away. You gambled and won.

But if there is a lawsuit, well, you could really be hosed. And so, in that sort of a situation, you may end up literally having to buy your own tail coverage, and hopefully there’s not already a lawsuit going when that happens because obviously nobody’s going to sell you coverage for a lawsuit that’s already in progress.

Hopefully those doctors in that situation are able to find a reasonable way out of this, and that situation is taken into account when settlements are made in those lawsuits that are going on by docs covered by this.

I see this article from December of 2024 about Steward by Jessica Bartlett. This is at mellonbudwick.com. It talks about Steward in-house malpractice insurer TRACO is asking a bankruptcy judge to force the failed hospital company to fork over tens of millions of dollars in unpaid premiums and to pay back a huge investment in a Utah hospital it sold.

What may be most remarkable, though, is what the recent court filings don’t say. The TRACO boss is now looking to recoup the missing millions. Are the same Steward executives responsible for the captive insurer’s cash squeeze? It’s a circular blame game. At stake are tens of millions of dollars for former patients and people who were injured or wronged by the company. Hundreds of doctors who rely on TRACO for malpractice coverage could also be affected.

TRACO’s newly aggressive approach is on its face, perfectly rational for an entity trying to figure out how it’s going to pay off millions of dollars in pending claims, but the filings fail to mention that the three members of TRACO’s board, and it names them, were also until recently top Steward executives.

Yeah, quite a debacle there. Bottom line, this is the downside to having your employer buy your malpractice coverage. Sometimes employers go out of business, and then what? What are you supposed to do? Are you going to go out and buy your own malpractice coverage? What if there’s already a lawsuit in play at the time? Are you covered? Are you not covered?

These are some of the risks we think about. You think about all that money you can save by having a captive insurance company. Well, that captive insurance company is the business. Businesses go out of business all the time. So, keep that in mind.

As you’re negotiating contracts, please, please, please have them reviewed by somebody competent. If you go to whitecoatinvestor.com, under our Recommended tab, there’s Contract Review Services. They do this for hundreds of docs every year. It’s going to cost you a few hundred dollars. It will be worth it, I promise. You’re almost surely going to catch something in that policy or in that contract that you want to change. If nothing else, you’ll understand the contract dramatically better.

Why are we signing contracts that are worth literally millions of dollars, and not even spending a few hundred dollars getting reviewed by competent counsel? Doesn’t seem particularly smart. This is a no-brainer. Get your contracts reviewed, and we highly recommend that here at the White Coat Investor. Don’t be penny wise and pound foolish.

All right. I think we’ve talked enough about insurance today, have we not? Don’t forget our new partner, Rate Insurance, whitecoatinvestor.com/rate-insurance. Yes, it’s time for you to shop around your property and casualty insurance again. You can probably save a whole bunch of money. It might be thousands of dollars you can save on that coverage every year by having a competent broker shop it around that understands your situation, that understands your need for umbrella and coverage, that understands the you have a luxury home or whatever. Be sure to check that out.

 

SPONSOR

Dr. Jim Dahle:
This podcast was sponsored by Bob Bhayani at Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with. Bob has quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications underwriting process in a clear and professional manner.”

Contact Bob at (973) 771-9100, by email at [email protected] or by going into www.whitecoatinvestor.com/protuity to get your disability insurance in place today.

Thanks for those of you leaving us five-star reviews, telling your friends about the podcast. It really does help to get the word out. This one comes in from Charles who says, “A friend and financial advisor we all wish we had. As a physician who used my GI Bill to earn an MBA, I can confidently say I’ve learned more about personal finance from Dr. Dahle than I ever did from my own financial advisor or my professors.

He has a rare gift for delivering pragmatic, actionable financial advice in terms that are easy to understand and tailored to real people’s lives. He takes the time to answer individual questions thoughtfully and generously, and it’s clear that he pours both his energy and his own resources into helping others succeed.

Those who know him personally are incredibly fortunate, and for the rest of us, we’re lucky to have such a friendly, familiar voice guiding us. His teaching is so foundational that I give his book to every high school graduate I know so they can start building financial wisdom early. His impact reaches far beyond finance. It changes lives. Thank you, Dr. Dahle. Please continue your great work.” Five stars.

Wow, that was really nice. Thanks for writing that. I don’t know that The White Coat Investor is the best book to hand out to high school graduates. It is certainly the best book to hand out to pre-meds and med students. I highly endorse that, but when I think about what I’d hand out to high school graduates, there might be a few other books on our recommended book list that you can find at whitecoatinvestor.com that I might give to those folks.

Although I discovered one of our staffers did make her son read The White Coat Investor and he actually had to call me up and pass a quiz from me about the book to get their hundred bucks. So every family does it a little bit differently. If you want to pay your kids to read The White Coat Investor, I think that’s wonderful. I am not going to talk to all your kids and give them that quiz, but maybe you ought to give them a quiz, make sure they’re comprehending what they’re reading.

All right, we’re having a lot of fun today. It’s been a long day. I think we recorded about four podcasts today, but we’ve enjoyed it. It’s been good to be with you. I thank you for what you’re doing. It is important work.

Keep your head up and your shoulders back. You deserve to be financially successful. When you are financially comfortable, when you have your financial ducks in a row, you are going to be a better physician, a better partner, a better parent. You’re going to be able to concentrate on those things that really matter in life because you have this financial stuff taken care of. And that’s what we’re here for, is to help you do that. See you next time on the White Coat Investor podcast.

 

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

Transcription – MtoM – 264

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 264.

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Okay, welcome back to the podcast. These are some of our favorite podcasts to record because we get to meet so many White Coat Investors. And you guys are awesome. It is totally inspiring to me every time to meet you. And I was inspired again today doing this interview. You’re going to love it with Jasmine. She’s done some really cool stuff and I’m super impressed with her. And I think you’re going to be as well.

But before we get into it, I want to remind those of you out there who buy WCI books. I know there’s a whole bunch of you out there that buy it for trainees or students or colleagues or whatever.

We offer bulk book discounts. 25 plus is what you got to buy. If you buy 25 plus, you get a cheaper price on them, and we’ll ship them right to you all in one box. Email [email protected] to get that. In fact, if you buy more, we’ll even give you a better price. If you buy a hundred plus or something, we’ll give you even better pricing. But email [email protected], we’ll get you taken care of.

Okay, let’s get into the interview, but stick around afterward. We’re going to talk a little bit about mutual funds.

 

INTERVIEW

Dr. Jim Dahle:
Our guest today on the Milestones to Millionaire podcast is Jasmine. Jasmine, welcome to the podcast.

Jasmine:
Thank you for having me. I’m so excited to be here.

Dr. Jim Dahle:
I bet. I always ask people when we’re prepping them for this podcast if they’ve listened to any of these before. And the most common answer we get is actually what Jasmine told us, which is “I’ve pretty much listened to all of them.”

So, it’s your turn. You’ve listened to literally hundreds of these, and it’s your turn to celebrate your milestone. So let’s introduce you to the audience. Tell them what part of the country you’re in and what you do for a living, how far you’re out of training.

Jasmine:
Awesome. My name is Jasmine. I am a GYN oncologist. I focus on pelvic tumors. There are uterus tumors, ovary tumors, vaginal vulva, cervix. I do those surgeries and I give chemotherapy for those patients. It’s a really fulfilling job. I am currently in the DMV, which stands for D.C., Maryland, and Virginia. I live in Northern Virginia and I travel around D.C. through the Beltway, which is really challenging sometimes. And I work in the Southern Maryland area right outside of D.C.

Dr. Jim Dahle:
Okay. So, that’s a decent commute in a high cost of living area.

Jasmine:
It’s a very high cost of living area.

Dr. Jim Dahle:
Yeah. Everybody out there in White Coat Investor land you’re always like, “Bring people on with lower incomes. Bring people on in high cost of living areas.” Here we have someone in a high cost of living area. All right, tell them what you accomplished.

Jasmine:
I paid off all of my student loans. I should say we, I definitely didn’t do it alone. We paid off all of my student loans. It was a total of $250,000 with my husband’s student loans. And mine was about $220,000 and his was about $30,000. So, $250,000 combined. And we did that in about 11 months.

Dr. Jim Dahle:
11 months. Awesome. Okay. What does your husband do for a living?

Jasmine:
He told me to preface and say this, that he is a high income earner, but not making a doctor’s salary. He’s in research, kind of in the private pharmaceutical world, but science and medicine adjacent, I guess.

Dr. Jim Dahle:
When my kids are asked what I do for a living now, they tell people I’m an influencer. So, you can pretty much say you do anything on here and you won’t look as bad as me. Very cool. How far are you out of training again?

Jasmine:
I am just shy of two years. I finished fellowship in 2024. This year it’ll make two years.

Dr. Jim Dahle:
Okay. By summer, it’s two years, but you applied to come on a few months ago, if you’re like most of our guests. And you paid stuff off within 11 months of coming out of training?

Jasmine:
Yes.

Dr. Jim Dahle:
Wow. How much did you make that year?

Jasmine:
Oh yeah. I calculated that because that year combined from the time that we paid off, we probably grossed or took home only around like $330,000. And so, then we lived really frugally and paid off the rest.

I will say that we were able to do that because we sacrificed and lived with my mother-in-law. And that helped, but we weren’t living rent free. We paid her rent. And because this is a high cost of living area and not always are the schools exactly the way you want them. My kids were in private school at the same time, both kids. That was about $60,000 that was going towards just childhood education.

Dr. Jim Dahle:
Wait, wait, wait, wait, wait, wait. We got to go over these numbers again. You said $330,000 net.

Jasmine:
Yeah.

Dr. Jim Dahle:
So, the taxes are already taken out.

Jasmine:
Yeah.

Dr. Jim Dahle:
Paid off $250,000 in student loans. The difference there is $80,000. And you’re telling me you spent $60,000 of that on private school?

Jasmine:
Yes.

Dr. Jim Dahle:
What did you eat?

Jasmine:
I guess probably the timeline doesn’t exactly add up because private school had already been started paying some of that off. And so, the timeline of those months don’t exactly fall in the exact trajectory. But no, we had a low amount of student living costs because we lived with my mother-in-law and then you’re right. We ate her food. She cooked, she bought groceries. We did not really go out to eat that much. And so, yes, I, some days wanted to pull my hair out. And when you asked the question later of, “Was it hard?” I really did think it was really hard.

Dr. Jim Dahle:
Yeah. Yeah. Okay. Well, this isn’t living like a resident. This is living like a student or something. You guys crushed these loans. You took them in the corner and dropped an anvil on them. Okay. So you were super motivated and you recognized, “Okay, this is going to be a short period of time. We can do this.”

Jasmine:
Correct.

Dr. Jim Dahle:
But it did feel like a sacrifice. What was the biggest sacrifice you think?

Jasmine:
I think not having space. We lived in a three bedroom townhouse. My kids’ room was right next to our room. And my mother-in-law’s room was right next to our room. So we had really just no space for about a year, actually. That was the hardest part. And then the commute was longer. I lived about an additional 30 minutes away from my job. And so, we chose to live with her to put an anvil on those loans. And that meant that we didn’t live close to our work and my kids didn’t live close to their school. We all commuted for the year.

And sorry, I guess I am leaving out a very important key. We did not put the anvil just only on our own. We sold our house from Rhode Island. That’s probably a pretty key part. And so, it was a total of $150,000.

Dr. Jim Dahle:
Okay. All right. This sounds a little more realistic anyway. You got $150,000 in equity out of that.

Jasmine:
Yeah.

Dr. Jim Dahle:
And put it all on the student loans or what’d you do with it?

Jasmine:
$100,000 we put on the student loans and then we had $150,000 left off to pay.

Dr. Jim Dahle:
But you still had to come up with $150,000 out of that $330,000 while having two kids in private school.

Jasmine:
That’s correct. Yes.

Dr. Jim Dahle:
Wow. It’s pretty awesome. Okay. The lack of privacy, lack of having your own space, not awesome. Are you now moving out separately or what’s your plan going forward?

Jasmine:
Yeah. We moved out and we are renting a house because it’s a high cost of living area. We are saving up for a down payment.

Dr. Jim Dahle:
What’s the rent cost? Give us a sense of what rent costs out there.

Jasmine:
Rent is $5,000 a month for a very average house. And so, yes, it is very expensive. A normal home anywhere else trained in Michigan and the Midwest and in Rhode Island. And my house is smaller than my home that I owned in Rhode Island. And the home that I’m living in would cost about $1.5 million to buy. So, it is not a cheap place to live.

Dr. Jim Dahle:
Yeah. Okay. Well, take us back to this conversation the two of you had. I don’t know, maybe the kids were involved too that you had as you’re coming out of training going “I don’t really like student loans. I’ve been listening to this White Coat Investor podcast and he says we should get rid of them.” How’d that conversation go? Where you guys decided we’re going to wipe these things out in less than a year?

Jasmine:
My husband is a huge fan of yours. He’s been reading your books since 2014 before I was really ever interested in finance.

Dr. Jim Dahle:
You might have been pre-med in 2014, right?

Jasmine:
Yeah, I was in my first year of med school when he stumbled upon your blog and just he inhaled it and told me not to take out as much loans because he was working, but I didn’t really listen. And so, it was him, my husband was the one who was like, “We can do this. We’re moving back to area with family. We have a lot of support. We can take the proceeds from the house, knock half of it out and then do the rest if we sacrifice for a year.” And so, after a lot of convincing, that’s what we did.

Dr. Jim Dahle:
He was convincing you, you’re not the driving force behind this.

Jasmine:
I’m not the driving force. He gets all the credit.

Dr. Jim Dahle:
Does he know you’re doing this podcast today?

Jasmine:
Yes, he’s so excited. Our schedules are sort of opposite. He’s away right now. Yes, he wanted to shout. I have to shout him out because he is the driving force for it.

Dr. Jim Dahle:
Very cool. Okay, what’s your next financial goal you’re working on?

Jasmine:
I was hoping that by the time I scheduled this, that we would actually be at a million dollars net worth. And so, we are at $850,000 right now. And that is also due to him because he read your blog ever since then. He has been doing a savings rate of about 20%. And just a lot of it was brute force for him.

I’ll shout out the University of Michigan and their residency. They give a lump sum every year to residents to put away for their Roth. And so, I got four years of a pretty substantial lump sum that I didn’t touch and I put towards my Roth. And so that’s grown significantly. And so, we’ve just done really well with saving and investing.

Prior to this year, he’s a high income earner. We were able to do a good amount of saving. And so, we’ve benefited from him working all this time.

Dr. Jim Dahle:
Okay. Well, it’s pretty awesome that you’ve been building wealth this whole time too, despite the fact that you’re in a period of career and life where a lot of us are going negative.

Jasmine:
But at some point you guys were making decisions to know we’re going to invest and take out student loans. You decided, at least one of you did, I mean, probably together, I assume, maybe I shouldn’t assume that, you decided to continue taking out student loans despite investing. Is that because the student loans seem to be particularly low interest rate? Or you knew that somehow with your crystal ball that you were going to hit those years where you didn’t have to make payments on them and payments were at 0%? Tell us about that decision back then when you decided to continue to invest despite the fact that you were also borrowing for school.

Yeah, I think sometimes when you’re in medical training, you are on autopilot a little bit. And so, part of it was probably almost just going through emotions. We had kids during that time, but I think he was really enamored by compound interest. And so, he was like, “I’m going to at least do this instead of us trying to scrimp by, and pay off the student loans.” And so I think it was just a combination of life, kids, and thinking that the compound interest would be to our benefit over the long run.

Dr. Jim Dahle:
And it obviously worked out. And what you’ve demonstrated is that even a pretty massive student loan burden, $250,000 is more than average for a graduating MD student. You can just wipe it out very quickly. If you really focus on it and turn and pivot your financial guns at this loan, you can kill it off in less than a year. It obviously worked out great.

Well, if someone calls into the Dave Ramsey show and asks, “Should I borrow $200,000 or $250,000 to go to medical school?” The host of that show would tell them no. They’d say, “Don’t go to medical school.” And yet you wiped this out in 11 months after coming out of training. It was obviously a wonderful investment to borrow that money to go to school, to get this degree and this knowledge and these abilities to treat pelvic tumors and do this wonderful thing for humanity. What would you say to someone that’s hesitating to borrow the money to go to school?

Jasmine:
I think it is an investment. I would say that as long as you have a plan and you are not borrowing an astronomical sometimes. I have friends who have pretty crushing debt. I think that if it is a doable amount of debt, I feel for the dental students and other professionals that might not have the same return on investment. But I do think that we have a high chance of having a great return on investment.

The other thing is that as long as you are wise about your spending, we didn’t take a bunch of credit cards out. We didn’t live above our means. It’s really doable. And although those 11 months, I wasn’t really living like even a resident, most of our life, we traveled a lot. We’ve been all over the place. Japan, Thailand. We had kids. So it’s not that we were scraping by for most of those times.

Dr. Jim Dahle:
Okay. Well, there’s somebody out there that’s coming out of training or their spouse is coming out of training. They want to wipe out their student loans quickly. They’re not sure how to talk their spouse into doing what you guys have just done. What advice do you have for that person?

Jasmine:
I just had to remember that we were a team and I would tell them that try to work together as a team. And if you have to pivot, then you have to pivot. If the plan didn’t work out, it wasn’t that we were locked into that plan. Worst case scenario, it didn’t work out and then we were going to rent something. And so, we were like, we’ll try it and we’ll see how long we last.

Dr. Jim Dahle:
And you said the family member you were living with is your mother or mother-in-law. Who was it?

Jasmine:
Mother-in-law.

Dr. Jim Dahle:
Mother-in-law. That’s not always an easy situation to live in the same house as a mother-in-law.

Jasmine:
No, it definitely might not be.

Dr. Jim Dahle:
Was she a supporter of this plan? Was she in your camp cheering for you this whole time or was she like, “How much longer?”

Jasmine:
No, no. I think she was sad to see us go. We had lived all over the place beforehand. She got to spend a year living with her grandkids. And before she was by herself, I think when you become an empty nester, it’s great. But then you sort of miss your adult children. It was actually quite a special time for my husband and his mom. And I got to get to know her even better. So, it worked out well. Just close quarters.

Dr. Jim Dahle:
Well, Jasmine, you are a White Coat Investor success story. Congratulations on everything the two of you have accomplished. It’s really wonderful. And thank you so much for being willing to come on the podcast and inspire others to do the same.

Jasmine:
Thank you so much for having me. We appreciate all that you’ve done. You’ve really changed our lives. Thank you.

Dr. Jim Dahle:
Hey, super fun. That was awesome. I’m so proud of Jasmine. It is so fun to hear these stories. And every story is a little bit different, how you guys are having financial success out there. And I’m so proud of what you’re doing.

I know we have so many of you applying for this podcast. And it’s great. We want you to continue to apply. We don’t get everybody on. Megan opened up some slots to record the other day. And she sent a bunch of people that had applied an email and said, “Hey, we got some slots open. Go ahead and sign up.” And they filled up right away, of course. She gets this email from someone who’s kind of sad going, “Hey, all the slots are full.” And we’re like, “Yeah, there’s a whole bunch of you out there listening to this that want to do this.”

I guess it’s a little bit competitive to get on this show now. But we still appreciate you coming on, because it’s not only inspiring to us to keep us going here at the White Coat Investor studios but we know it’s inspiring to so many of you. And it’s exciting to see what you all are accomplishing. And more importantly, what that allows you to do in your lives.

Jasmine is a relatively young gyn-onc doc. I don’t know how many of you get this opportunity. I get it all the time to tell people they have cancer. And I’m the first doctor to tell them. I’m diagnosing their cancer. And of course, when I first diagnose it, we don’t know for sure that it’s cancer sometimes or exactly what kind of cancer it is. Nobody’s biopsied it yet or anything. But there’s something that shouldn’t be there. And it’s causing their symptoms. Or it’s just an incidental finding on imaging that I did for some other reason. And I got to sit down with them and their family and talk to them about cancer.

And I cannot tell you how grateful I am to have people out there, oncologists and general surgeons and gynecologic oncologists, whatever, whoever you are that’s taking care of these people that I’m now sending to you. I’m sure thankful for it. And I know they’re thankful for it. And their families are thankful for it. It’s terrifying to be given these diagnoses.

When I got scanned for falling off a mountain, I had an incidental loma, a little adrenal thing like we see so often when we do imaging. And of course, it’s turned out to be nothing. And I knew it was almost surely going to be nothing. But there’s still a little bit of anxiety as you go to your follow-up CT scans and your labs. And I had to see endocrine and those sorts of things. There’s a little bit of anxiety.

And it’s nice to know that there are folks out there like you that spent four years in college, did a gap year or two, spent four years in med school, went to residency for four years, did a fellowship or two year. You’ve dedicated your life to something that’s really important. So, thank you for doing that. And I hope you are experiencing the joy that comes from really being able to help people in some of the worst days of their lives.

 

FINANCIAL BOOT CAMP: MUTUAL FUNDS

Dr. Jim Dahle:
All right, I promised you at the beginning, we’re going to talk about mutual funds. Let’s do that. And then I have a few more words afterward.

A mutual fund is simply pooling money together with other investors in order to invest together. By doing that, there are a number of advantages. One of which is you get professional management of the portfolio. Whatever you’re investing in, whether it’s stocks or real estate or bonds, you get a professional manager. You also benefit from some economies of scale. And as long as you’re investing in a true mutual fund that’s publicly traded, you get daily liquidity. And you can get out of that fund and turn your money into cash any day the market is open.

But one of the main reasons people invest in mutual funds is simply because you get instant diversification. Instead of buying one stock at a time, you could be buying thousands of stocks at a time. And so, your investment turns out to be much more diversified. And this is the reason why mutual funds are the main investment in 401(k)s and HSAs and 529s. And the vast majority of investors do and should use mutual funds for most of their investments.

What makes it mutual? Well, it’s just multiple people working together. That’s why it’s called a mutual fund, because we’re working together for the benefit of everybody.

There are two main strategies when it comes to mutual funds. One is an active strategy, and the other is a passive or index strategy. When you have an active mutual fund, the manager is trying to beat the market. They’re trying to have higher returns and lower risk than the market itself has. And it turns out that’s kind of hard to do, because there’s so many people out there trying to do it, making the market so efficient when it comes to pricing stocks or bonds or whatever, that it’s actually pretty hard to beat the market.

And so, for the last 50 years or so, the advent of passive funds has come along. And the strategy with a passive fund is just to buy all of the stocks and get the market return. And this is not that hard to do, so it doesn’t take a lot of resources or expenses to do it and eliminates the risk of underperforming the market.

And it turns out when you look at the academic studies, that risk is actually pretty high. Over the long term, even before tax, 90% to 95% of the actively managed mutual funds underperform a strategy of just buying all the stocks. And so, savvy investors generally use index funds, these funds that just buy all of the stocks in order to be successful.

Now, there are closed-end funds and open-end funds. And almost every mutual fund you’ve ever heard of is an open-end mutual fund. But there are a few closed-end mutual funds out there. There’s really not a lot of reason to use them. But the difference between an open-end and a closed-end fund is all the money is raised and put into a closed-end fund at the beginning.

Whereas with an open-ended fund, the fund can be bigger or smaller over the years, typically gets bigger as more contributions are made to it, at least if it’s successful. And so, that’s typically the fund structure you see out there.

These days, a much more common thing to see is an exchange-traded fund. Now, with a traditional mutual fund, you can’t trade it during the trading day. If you want to get out of it or you want to get into it, that happens at 04:00 P.M. Eastern every day.

With an exchange-traded fund, you can get out any minute the market is open. You can get back into it a minute later if you want to. That has some advantages for traders. But there are a few advantages for an exchange-traded fund, even for long-term buy-in holders, particularly in a taxable account.

Due to the way the shares of these exchange-traded funds are made, there’s an opportunity to flush some of the capital gains out of the fund to people that put these shares together called authorized participants. And so, all things being equal, you’re generally better off with an ETF-type structure if you’re investing in a taxable account.

Now, what makes for a good mutual fund and what makes for a bad mutual fund? Well, the first thing to look at is the underlying investments. What are you actually investing in? And do you want to be investing in it?

For example, if you want to be investing in U.S. stocks, you can use a simple total stock market index fund. But if you wanted to invest in international stocks instead of U.S. stocks, that’s a terrible fund to invest in.

So, you got to look at what is actually being purchased by the fund manager. That’s the first thing to look at anytime you compare a mutual fund. And you want to make sure they’re buying investments that you want to be invested in.

The next thing to look at is really who the manager is, what their track record is, and what strategy they’re using. If it’s an index fund, their strategy is just to match the market. And you can look back over the last few years and just make sure they’re doing that. It’s not that hard to do, but there’s a few index funds out there that aren’t all that good at doing it. The main ones you see from Vanguard and Schwab and Fidelity and BlackRock, they do just fine. And you’re fine to use those.

But if you’re considering using an actively managed fund, you better take a real careful look at that fund manager, what they’re trying to do, and how good they are at doing it. All of a sudden, then the track record matters a lot, even though there’s no guarantee if they’ve outperformed in the past that they will continue to outperform in the future.

Perhaps the most significant indicator of future mutual fund performance is the cost of the fund, the fees being charged to you. The more fees you’re charged, the lower your performance is what the studies show. And so, you want to make sure you’re keeping your costs low.

And the truth is, with the advent of very low cost index funds these days, investing is essentially free. So, if you’re going to pay more than a handful of basis points, a basis point is 0.01% of the money in that fund that year. If you’re going to pay more than 0.05 or 0.1, you’ve got to really be convinced that this fund and its strategy is worth the additional expenses that you’re paying. Don’t ignore fees. Don’t ignore the costs of investing. If they’re not close to zero, you need to make sure you’re getting your money’s worth out of those.

Mutual funds are just a way to work together with other investors to get a diversified, liquid investment that’s going to help you get to your financial goals.

Okay, I hope that was helpful to learn about mutual funds. Don’t forget about the bulk books. Again, [email protected] is where you email if you want to send some White Coat Investor books. And you can do any of our books. We’ll send you student books. We’ll send you the original book, bootcamp. We can even do asset protection books if you think you got 25 people that would benefit from that. We can do any of our books. And that includes in the future because we’ve got some other stuff coming down the pipeline you might be interested in.

 

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All right, that’s it for today. Thanks for being here. Keep your head up, shoulders back. You’ve got this. You’re going to win this single player game. We’ll see you next time on the Milestones to Millionaire podcast.

 

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only. It should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

Dr. Jim Dahle:
This is the White Coat Investor Podcast, Financial Bootcamp, your fast track to financial success. How much house can you really afford? What are we balancing here? Well, you don’t want to be house poor and have all your wealth and income tied up in the place you live in.

But you also want to be able to enjoy as nice of a house as you can and as nice of an area, as nice of a school district as you can while still being able to meet your other financial goals. And so people often have this dilemma, how much should I buy? Because the sky really is the limit when it comes to buying a house. You can spend millions and millions and millions of dollars on a house. On the other hand, you

You can often rent a place, a one-bedroom apartment or a studio apartment, for really not that much money in a lot of areas of the country. So there’s a huge range. And people want to know, how much can I spend? How much should I spend? And that’s hard to say because it’s such a personal decision. It requires you to apply your values to your financial life and decide what you really care about. Because when you spend more on a house…

You have to spend less on something else, whether that’s saving for your future or giving money away or just spending on other things, cars, vacations, other activities you enjoy, clothing, whatever. So let’s provide a few rules of thumb for you. In general, I recommend you keep your mortgage to less than two times your gross income. So if you’re making $300,000 a year, that would suggest you keep your mortgage to less than $600,000 per year.

So if you want to buy a million dollar house and you have a $300,000 income, that would suggest you put down $400,000 in order to buy that house. And that’s a pretty good rule of thumb. Obviously, when interest rates are really low, your payments are lower than they are when interest rates are really high. And that’s just a rule of thumb. It doesn’t come with an interest rate adjustment of any kind. But obviously, some people do feel a need to stretch their

that rule, particularly when they live in a high cost of living area. Bear in mind, when we’re talking about stretching that rule, we’re talking about 3 to 4x your gross income, not 10x. If you buy a house that’s 10x your gross income, you’re going to regret it. You’re going to end up in foreclosure and having to fire sale that house or short sale that house. Please don’t do that.

At three to four X, you’re going to be making some sacrifices, right? You might be working longer, for instance, before you can retire. You’re going to spend less on vacations. You’re going to spend less on, you know, nice cars or private schooling or whatever. There’s going to be some sacrifices, but it may be doable. You know, when you talk about this number, this 20% of your gross income, what that is really is a debt to income ratio or DTI.

And if you look at the mortgage industry, you will find that people are willing to give you a mortgage for up to 43% of your income. In your debt to income, all of your debts together, what it costs you to service them and pay them compared to your income is up to 43%. But just because a bank will let you borrow that much doesn’t mean you should borrow that much. Oftentimes, the percentage is lower.

when it comes to just a mortgage, like 28 to 35% debt to income ratio. But I’m telling you, if you’re spending 35% of your gross income as a doc on housing, there’s not going to be a lot left over.

for you to spend or for you to save to meet your other financial goals, right? Because you got to assume 25, 30, 35% of your money is going to taxes. Okay. So you got to live and save on the rest of that. And if you’re trying to save 20% of your gross income for retirement, like I recommend you do, that’s not going to leave a whole lot for you to live on. So what happens? People don’t save for retirement, end up being house poor. You don’t want that.

Another useful rule of thumb that might be a little more useful in times of different interest rates is the 20% rule, where you are only using 20% of your gross income

for your housing costs, right? Mortgages, insurance, taxes, HOA, and utilities, less than 20% of your gross income. And I think that’s a pretty good rule of thumb as well. And that adjusts with interest rates, unlike the 2X ratio that I mentioned earlier. Okay, so what determines how much house you can afford? Well, your debt to income

matters. And your credit score does have an influence on this because it affects what interest rates you can get and whether you can borrow money at all. Now, I hate to see people worshiping at the altar of the FICO score, right? This is not your financial GPA. Your credit score is far from the most important number when it comes to your finances. Your savings rate matters a whole lot more. Your net worth matters a whole lot more.

But when it comes to getting a mortgage or borrowing money, they care about your I love debt score, AKA your credit score. So you do want to pay a little bit of attention to it. But honestly, it doesn’t take much to have a great credit score. Having one credit card that you put your gas on every month and have it paid off automatically out of your bank account is probably enough. And most doctors have far more debt than that, especially if they borrowed from medical school. So you don’t have to do anything special most of the time to have a really high credit score

other than pay your debts as you agreed to do. And that’s really the main component when it comes to credit scores. But if you’re on the borderline, you can do some research on other ways to improve your credit score to get it up a few points and get that best possible interest rate available to you when you’re going for a mortgage.

Don’t forget that there are other costs when it comes to owning a home. One of the dumbest things you can do is say, hey, my mortgage is less than rent. It must be a good idea to buy. That’s the dumbest way to think about buying a home out there. Okay. Don’t do that. There are lots of other costs associated with owning a home besides the mortgage.

Think about it like a real estate investor, right? If you’re a real estate investor, you got to pay all the expenses using rent. And then you’re hoping there’s something left over for profit. What are all those expenses? Well, if you’ve never owned a home, it’s a lot more than you might think, right? There’s closing costs and property taxes and homeowners insurance, flood or earthquake insurance in some areas. You might have to pay private mortgage insurance or PMI.

You might have to pay for maintenance and utilities. You got to get a new snowblower and a lawnmower and a snow shovel and brooms and all this stuff. It can be really expensive to own a home, you know, not even to mention furnishing it with drapes and furniture and all those kinds of things. Okay. So don’t forget all that when it comes to owning a home. Okay. The rent is supposed to be much higher than the mortgage. You cannot just compare the mortgage to the rent.

The key in deciding whether you should be buying a home at all instead of renting is how long are you going to be there? Because you need that home to appreciate enough to offset the transaction costs of buying and selling a home. Those are typically about 15% of the value of a home. Maybe 5% to get in, 10% to get out. More or less, that’s a pretty good rule of thumb for what it’s going to cost. So it’s a half a million dollar home.

We’re talking about $75,000 round trip. You need it to appreciate $75,000 while you’re in it, or else you’re going to come out behind on buying that home. And how long does that take to appreciate $75,000? Well, on average, it’s going to take about five years. So if you’re going to be in a home for five plus years, it almost always makes sense to buy it.

If you’re going to be in there for less than five years, you’re rolling the dice, right? At five years, it’s a 50-50 proposition. At three years, it probably works out a third of the time and doesn’t work out two thirds of the time. If you’re going to be in there for a year or two, you’re really gambling. Yeah, houses might go crazy in that year while you’re in it.

But you’re going to need them to just to make up for those transaction costs. So in general, buy a house when you’re in a stable personal and professional situation where it looks like you’re going to be able to stay in that house for at least five years. And that can make a lot of sense.

So what does that mean for people in medical training? Well, lots of residencies are only three years long, or a fellowship might only be one to three years long. Those are not periods of time where you’re likely to come out ahead, despite the urge to feel like you’ve made the American dream by buying a house. So don’t get suckered into buying a house for a one, two, three-year period that ended up regretting it. Now, lots of docs do this. I can’t talk them out of it most of the time.

And the truth is they usually end up being okay. But the reason why they’re okay is because their new attending salary rescues them. They can afford to pay that mortgage on the old rental house or on the old residency house and whatever new house they’re moving to just because they have this new higher income.

but that doesn’t make it a good financial decision. Don’t be so afraid to rent that you make a bad decision. You can rent a house just like you can rent an apartment. It can have a fence. You can have pets. Don’t use all these silly excuses to buy a house you shouldn’t be buying in the first place. Make an informed decision.

The New York Times has a pretty handy buy versus rent calculator you might want to plug your numbers into. But if you put in typical numbers, you’re going to find what I’ve told you is true. That three to five plus years is what it’s going to take for you to be coming out ahead on this home with any sort of reasonable assumptions. Now, as a brand new attending, you should keep in mind that about 50% of docs change jobs within two or three years of finishing their training.

That means there’s a good chance you’re going to be moving. There’s a good chance that new job isn’t going to be in the same geographic area. So it’s okay to rent for a little while when you get to that new place, six months, even a year. It’s often easier to get a contract for a year. Make sure you actually like the job. Make sure the job actually likes you. If you’re in a partnership track, make sure it looks like they’re actually going to make you partner before buying a house. And that makes a lot of financial sense.

Okay, now what if you don’t have 20% to put down? Are you stuck paying private mortgage insurance or PMI? Remember, this is the insurance you pay to protect your lender from you defaulting. It doesn’t do any good at all for you. But classically, if you put down less than 20%, you have to pay it.

However, there are doctor mortgages or physician mortgages out there, and they’re available to some other types of high-income professionals as well. We have a whole list of them at whitecoatinvestor.com you can check out, where you can put down less than 20% and not pay PMI. Maybe that’s not a good idea to put down less than 20%, because that 20% not only helps you avoid PMI, but it helps you, in case you have to sell that house in a year or two, not be underwater on it.

But if it makes sense for you to buy and you have a better use for your money, like paying off student loans or maxing out retirement accounts, it might make a lot of sense for you to get a doctor mortgage loan and use that money you have for a down payment for something else. So tread carefully, but it’s not an unreasonable thing to do. Hope that helps you understand how much house you can afford, as well as some of the best practices when it comes to buying your first or even a later house in your life.

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.