MtoM #214: Medical Student Finishes School with a Positive Net Worth and Finance 101: Buying a House During Residency

Summary

White Coat Investor Podcast
Episode: MtoM #214: Medical Student Finishes School with a Positive Net Worth and Finance 101: Buying a House During Residency
Release Date: March 17, 2025

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Introduction

In this enlightening episode of the White Coat Investor Podcast, host Dr. Jim Dahle dives deep into the financial journey of Alex, a fourth-year medical student who is set to graduate with a positive net worth—a rare achievement among his peers. The episode not only celebrates Alex's financial milestone but also offers valuable insights into managing finances during medical school and residency, especially when considering major financial decisions like home buying.

Interview with Alex: Achieving a Positive Net Worth in Medical School

Alex's Background and Financial Milestones

Alex shares his impressive financial trajectory, highlighting how he is projected to graduate medical school with a positive net worth of approximately $270,000. This accomplishment is particularly noteworthy given that most medical students graduate with significant debt, often ranging between $200,000 to $400,000.

Notable Quote:
"I am going to be projected right now to be graduating medical school with a positive net worth."
— Alex [05:08]

Managing Student Loans and Asset Strategies

Alex details the multifaceted approach that enabled him to achieve financial stability. Key factors include:

• Parental Support and Scholarships: His parents assisted with college expenses, and he secured a substantial scholarship as a Resident Assistant (RA), allowing him to enter medical school debt-free.

• Dual-Income Strategy: During his pre-med years, Alex lived frugally, residing in his parents' basement, while his wife, an accountant, saved diligently in her own capacity.

• Inheritance: An inheritance of approximately $150,000 provided a significant financial cushion.

• Intentional Saving: Both Alex and his wife made a concerted effort to save aggressively throughout medical school, leveraging high-yield savings accounts and cautious investment strategies.

Notable Quote:
"We made a pretty big intentional effort to save as much as we could in medical school."
— Alex [05:50]

Financial Conversations and Decision-Making

Alex emphasizes the importance of early and honest financial discussions with his spouse. These conversations laid the groundwork for their shared financial goals and strategies, ensuring that both partners were aligned in their approach to managing debt and building wealth.

Notable Quote:
"Talking with my wife about what's important to us and having that security for at least a couple months before we start residency, I think that is really important to both of us."
— Alex [17:15]

Decision Against Public Service Loan Forgiveness

Despite the availability of Public Service Loan Forgiveness (PSLF), Alex and his wife opted to pay off their student loans in full rather than rely on loan forgiveness programs. They believe that eliminating debt swiftly provides greater financial freedom and security.

Notable Quote:
"We just want to be rid of debt. We don't want to worry about it. We want to move on with our lives."
— Alex [13:58]

Advice to Fellow Medical Students

Alex advises his peers to take advantage of their unique financial opportunities by becoming financially literate, saving intentionally, and preparing to seize favorable financial circumstances when they arise. He underscores the role of preparation in turning luck into success.

Notable Quote:
"Luck is when preparation meets opportunity... work hard to make sure that you understand just the basics of personal finance."
— Alex [19:25]

Dr. Dahle's Insights on Home Buying During Residency

Dr. Dahle transitions to discuss the popular trend of purchasing homes during residency, particularly through strategies like house hacking. He offers a cautionary perspective, highlighting the inherent risks and challenges associated with real estate investments during this financially unstable phase.

Real Estate Investing Risks

Dr. Dahle outlines several risks involved in buying a home during residency:

• Market Volatility: Property values can fluctuate unpredictably, making it difficult to guarantee returns.

• Financial Liability: Owning a home introduces ongoing expenses such as maintenance, taxes, and insurance, which can strain limited residency incomes.

• Time Constraints: The demanding schedule of residency leaves little time for managing rental properties effectively.

Notable Quote:
“House hacking is a pretty high-risk proposal that it wouldn't be that hard to come out behind doing this.”
— Dr. Jim Dahle [15:49]

Renting vs. Buying: Strategic Recommendations

Dr. Dahle recommends that new graduates consider renting during residency to maintain financial flexibility and avoid the complications of homeownership. He argues that the transient nature of residency may lead to scenarios where owning a home becomes more of a burden than an asset.

Notable Quote:
"Consider renting during your residency... you don't have to deal with the hassles of ownership and you can just walk away at the end of your period."
— Dr. Jim Dahle [33:XX]

Conclusion and Final Advice

Wrapping up the episode, Dr. Dahle reiterates the importance of foundational financial practices over speculative strategies. He emphasizes that building wealth is primarily about earning a substantial income, saving diligently, and investing wisely rather than relying on potentially risky ventures like real estate during residency.

Notable Quote:
"What makes you wealthy is making a lot of money, carving a big chunk out and investing it in some reasonable way."
— Dr. Jim Dahle [35:XX]

Dr. Dahle concludes by encouraging listeners to focus on long-term financial health through disciplined saving and investing, rather than seeking quick fixes or financial "tricks."

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Key Takeaways

1. Financial Preparation: Early financial planning and intentional saving can significantly impact a medical student's financial trajectory.

2. Debt Management: Choosing to pay off student loans aggressively can provide long-term financial freedom, even when options like PSLF are available.

3. Investment Risks During Residency: Real estate investments such as house hacking carry substantial risks during residency due to financial and time constraints.

4. Foundational Wealth Building: Sustainable wealth is built through consistent income growth, disciplined saving, and prudent investing rather than speculative financial maneuvers.

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Learn more about personal finance strategies for medical professionals at whitecoatinvestor.com.

Transcript

[Dr. Jim Dahle]

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

[Alex]

This is Milestones to Millionaire podcast. Medical student finishes school with a positive net worth With Weatherby Healthcare, you choose your own healthcare career path. Our Locums experts then support you every step of the way, helping you find the right opportunities at the right time. We understand your professional and personal goals and are experts at helping you achieve them. Let's keep your career interesting with new locations and settings and diverse patients and cases. And just as importantly, let's make sure you get more time for your hobbies or to just relax. We'll help you find that balance with more jobs and more locations. Weatherby gets you where you Want to go. Whitecoatinvestor.com Weatherby to learn more. All right, welcome back to the podcast. This is the Milestones to Millionaire podcast where we celebrate your financial successes and use them to inspire others to do the same. You can come on this podcast. You [e-mail] Milestones all right, it's the end of match week. This drops. I'm recording it in February, a month before, but this thing drops March 24th. And so congratulations to all of you who just matched. That's wonderful. Super happy for you. And my condolences to those who did not match. There is light at the end of the tunnel, I promise. I've got a blog post out there what to do if you didn't match. You can go to whitecoatinvestor.com and search for that. Lots of people go through this every year and a big chunk of them just match the next year and everything works out with their career just as they'd hoped. But there are other options even if that doesn't work out. Okay, but for those of you who have matched and need to figure out what you're going to do with your student loans, we have been running a promotion all week with studentloan advice.com we are giving away a free White Coat investor course. This is our fire your financial advisor resident version. They're given it. We're giving away for anybody that books a consult with student loan advice between 317 and 325. So that's through tomorrow. The day after this drops, your consult doesn't have to occur during that time period. You just have to book it during that time period and we'll give you this free white Coat investor course. That's a $300 value. You get that after you meet with the [e-mail] and the Truth is, you know, residency match day, the 21st was when medical students found out where they've been accepted to residency. And that's a common time to start thinking about what you should be doing with your student loans. So let a professional guide you through the best options to manage your loans. Our experienced staff have consulted with more than 2,300 borrowers on over $720 million in student loan debt. And you can potentially save hundreds to thousands of dollars with your custom student loan plan. The average client that's worked with student loan Advice has saved $160,000 on their student loans. You can book [e-mail] you gotta book up before tomorrow to get this special promotion though. And it's a free white coat. Investor, fire your financial advisor. Resident course. All right, we got a great interview today. Our interview today is with a medical student who I hope just matched a couple of days ago. I don't know because we're recording this a month before match day, so there's a of uncertainty there, but I'm sure he did just fine. Stick around. After the podcast, we're going to talk about a conversation I just had with my 20 year old daughter about home buying that has a lot of applicability to all of you finishing med school this year and even those of you already in residency. So let's talk a little bit about that. Our guest today on the Milestones to Millionaire podcast is Alex. Alex, welcome to the podcast.

Yeah, thank you so much. Dr. Dali, it's a pleasure, it's wonderful.

To have you here. Let's introduce you a little bit to the audience. Tell us where you're at in life, about your family, which has had some recent changes and what part of the country you're in.

Yeah, so I'm a fourth year medical student. At the time of recording, I'm about three months out from graduation, living in the Midwest right now. And about 11 weeks ago I had my first child. So me and my wife are just very happy and hopefully getting enough sleep.

Very cool. And tell us a little bit about your wife's career.

Yeah, so she works as an accountant, so she's been doing that for about the last five or six years now.

Okay, so the whole time you were in school she was working as an accountant?

Yep, exactly.

Okay, now share with us the milestone we're celebrating today.

Yeah, so this is a big one I've been working towards for a while. So I am going to be projected right now to be Graduating medical school with a positive net worth.

Wow. Positive net worth. You know, most, most medical students coming out of school have a negative net worth. Minus 200. Minus 300. Minus 400,000. So let's hear the story about how you have a positive net worth.

My parents helped me a lot by helping to pay for my college. I also worked hard as an RA and got a good scholarship there. So I didn't graduate college with any student loans. I worked for about three years after college and just kind of lived in my parents basement, saved up money before school. My wife did a similar thing. So she, she was living in kind of a small apartment and was saving up a lot of money too. At the time. She was just my girlfriend. And then we got married in medical school and we also came into a fairly sizable inheritance as well from a family member passing away. And then on top of that, we just made a pretty big intentional effort to save as much as we could in medical school.

Okay, so lots of things going for you. You've got a working spouse, you've got an inheritance, you went crazy on the budgeting and becoming financially literate during school. So lots of things going your way. Let's talk a little bit of specifics, Kind of give us a sense for what this looked like. What's the cost of attendance at your school? What's tuition and fees cost there?

So cost of attendance is about $80,000. Tuition is about 60 to 65,000 for every year. And my wife and I were taking out student loans, but also working and kind of living off of her income during that time.

Okay, So I mean, 60, $65,000, we're talking about $250,000 you had to come up with to cover this cost during the course of school. So how big is the inheritance?

So the inheritance was about $150,000.

Okay, so that's a, that's a big chunk of that $250,000 to cover your tuition.

Yeah, definitely.

And you guys had some money saved up when you started school. How much did you have saved up and about how much did she have saved up when you got married?

So I had about 45,000. I was making, I think something like 30 to 40,000 before school had started. And then my wife had something like 50 or 60,000 at that point. So by the time that we got married, between the inheritance and everything we had, it was probably close to that 180 to $200,000 range already.

Okay, so you had quite a bit of assets compared to most people starting med school. And Then you had this benefit of her income, and I assume that's mostly what paid Your living expenses 100% at least since you got married. What year were you in when you got married?

Between first and second year.

Okay, so most of med school. Three of the four years anyway. Okay, very cool. Now, this was all going great until you decided to have a kid. Right. And then she's had some maternity leave. So has that been paid maternity leave? The last few months, yeah.

So through her company, it's 100% been paid. So we're extremely fortunate and grateful for that too.

Okay, so this is not a terribly uncommon path through medical school. It's not the most common path for sure, but it's not terribly uncommon to be married to another earner and to have some assets when you come into medical school. If we look at the statistics published by the AAMC, about 27% of medical students graduate without any student loans at all. And so people are doing this. People are getting through school between family help and their spouse helping and doing their own work. But everyone's got to chart their own path. So tell us about your path and the decisions you guys made along the way and what you've done to become financially literate and figure this out.

Yeah, so I think it started both of us growing up independent of each other, kind of became a little bit more debt averse as opposed to anything else. And then in high school, I had the Financial Peace University from Dave Ramsey. That kind of guided me there for a number of years. And then as I was starting to apply for medical school, I found the white coat investor and I was like, oh, I'll worry about that stuff once I get into medical school. And then when I finally opened up the acceptance letter, I was thinking, wait a minute, I'm going to how much debt to get this education? So that's when I really started diving into it more and really learning a lot more. And my wife and I just again wanted to make a very intentional effort that like, yes, we're going to be taking out student loans. We're going to be going on this journey together. And we want to set ourselves up by doing at least the big things the right way and then from there, just kind of taking it one day at a time.

Yeah. Okay, so how much do you have in student loans?

In student loans? I just checked before the call. It's about 270,000.

Okay, so you got quite a bit in student loans. And those are all federal or what kind of loans are those?

Yep, they're all federal.

Okay. So, I mean, you're a Dave Ramsey fan, and Dave Ramsey tells you not to borrow for your education. How'd you feel taking those loans out?

It definitely hurt a little bit, but I don't know. Learning a lot of different perspectives between the white coat investor things like I will teach you to be rich. A couple of other sources kind of showed me that it's not just that there's one way, that there's completely debt aversion. There's a lot of different ways to get to where you want to go, and there's just so much good that you can do in this profession and a lot of wonderful things that you can do with the income that you'll eventually get.

So.

So it made it worth it.

Yeah. So, I mean, you had assets coming into school. She had assets coming into the marriage. This inheritance comes along. You didn't use any of that to pay tuition. Not yet. You chose to take out the student loans. Tell us about that decision.

Yeah, so when I'd first gotten into medical school, that was in 2021. So that's when there was the student loan interest pause. And so we were looking at the High Yield Savings account rates and we were like, you know what, we could invest this money. There's a risk we might lose some of it. We could put it in the High Yield Savings and then it'll grow compared to having 0% loans. And so we decided to take out the the loans, but then our money would just kind of continue to grow on the side. And so we've had in some ways a little bit of analysis paralysis, but especially trying to do some family planning and having some moving for like clinical years and having to move for residency. We figured having a little bit more money on hand would be better than paying down the loans immediately. And so even though interest is now back and it's accumulating, we've decided to hold on to it for a little bit longer before we pull the trigger on doing anything big with it.

Yeah. So is all this money sitting in cash or have you invested any of it into longer term investments?

So at this point, it's in a High Yield Savings account for the majority of it. We do have some split between a little bit in brokerage and then some from her works, 401k and then her Roth IRA. But the majority is in a High Yield Savings account. Because we're thinking, you know what, we might pull the trigger on trying to take down as much of these student loans within the next year or two or for sure within the next three to four years. And so we wanted it to be a lot more available in a place where it might grow slowly, but it's not going to have the risk of us losing a sizable portion.

It sounds like you are not considering public service loan forgiveness. Is that true?

Yep, that's the case. So I'm going to be going to family medicine, which I know is technically a little bit lower earning, But I think with our debt aversion and kind of doing some of the math, we're like, you know what? We can just pay this all off in one fell swoop, and that might save us more money in the long term, so we're gonna go that route.

Okay, so you're expecting at some point in the next few years to write a check for $270,000 to Sallie Mae and just pay these off? Yeah.

Which is weird to think about, but we're getting there. Yeah.

Biggest check you've written in your life, I assume by far by at least.

Two or three zeros at that point. So, yeah.

Well, that'll be exciting to do that. And, you know, it's interesting to think in this situation, what would I do? What would I do if I had, you know, $270,000 in loans and $270,000 in assets? What would I do? You know, and. And I certainly get the debt aversion. You know, we paid off a mortgage that was 2.75% a few years ago. Now, money market funds and high yield savings accounts weren't paying much when we did that, you know, so I get the debt aversion, but I also see all these people out there getting free government money, right? Public service loan forgiveness, despite having substantial assets, getting three or four hundred thousand dollars forgiven, tax free. And now, obviously, they have to take a job that qualifies for that. But there are lots of jobs out there for many, many medical specialties, including family medicine, that do qualify for public service loan forgiveness. But you're just. You're just ruling that out completely? You just want to pay it off. Is that because of a philosophical position you have about, you know, receiving that sort of a benefit from the government?

I think so, yeah. Maybe you could call it philosophical. But my wife and I, as we were talking about it again, we said, kind of like you said, there's a limited number of jobs where you can qualify for that. And we were like, you know what? We just want to be rid of debt. We don't want to worry about it. We want to move on with Our lives. And I think, as other people on this show have said too, it's really once you pay off that last student loan that you're really done with medical school. And we're like, you know what, let's just be done with medical school as soon as possible.

Yeah, yeah, it certainly does feel that way, that's for sure. Okay, tell us about some of the financial conversations you guys had as you're preparing to get married. Now at this point, you're a first year medical student, you're borrowing money like crazy to pay for medical school. And she's like, what the heck am I marrying into here? Tell us about those conversations and how you guys came to work on your financial plans together.

Yeah, I think it was really. It really probably started happening even before we were engaged where I kind of said, hey, you know, I'm pursuing this path that obviously will open a lot of financial doors, but in the short term, there's going to be a lot of loans and the tuition will be high. And, you know, we might have to do the beans and rice that Dave Ramsey says. But I think talking about it early and often was, again, sometimes a little bit hard to have conversations on how do we live our life? Do we live in cardboard boxes for the next couple of years or do we. Do we try to increase our lifestyle a little bit so that we can really work hard during those years to pay that off? And so I think trying to build a plan and trying to get on the same page was extremely important and something that we wanted to do even before we got married. So once we did that, I think it was a lot easier to kind of have a shared vision of where we're going. And that makes it a lot easier to take some of those next steps to get there.

Yeah. Now, she's obviously had some professional financial training, being a cpa. What did you do to become financially literate? I mean, you mentioned you at least knew about the White Coat Investor before starting school, but what's been your process in kind of developing your financial literacy?

Yeah, I think so. Again, as I said, I started with Financial Peace University in high school and then really got into the White Coat Investor. And then you also had, I think it was an interview with Ramit Sethi from How I Will Teach youh to Be Rich. And that sort of opened my doors saying, like, oh, there's other perspectives, there's other things to learn about. And. And so I started looking at other books and then the little Book of Common Sense Investing and just really finding these Other things. And I remember somewhere along the line you said that your piece of advice was listen to a new blog or read two books every year, something along those lines. But that kind of inspired me to say I need to really continue to pursue a lot of different perspectives, get a lot of education for myself, because it's not necessarily something that they teach you in medical school. So it's helped me learn a lot more about this complex topic and get a lot more financially literate myself over time.

Now somebody out there is listening to your situation. They're like, this Guy's borrowing at 8 or 9% right now and earning 4% in his high yield savings account. And they're like, what's he waiting for? He's not going to go for public service loan forgiveness. Why not write the check today? What would you say to that person?

What I would probably say to them is that especially in fourth year medical school, with having a baby and with a couple of other sort of uncertainties in life, sometimes having that cash on hand for at least a little bit longer is really useful. And so we're looking at probably a cross country move. We're looking at daycare, which is going to be expensive. And while I will be getting an income, will that income cover those things? And so we're holding off on just a little bit before we pull the trigger. But I don't think there's 100% a right answer now. Would it be probably money wise, smarter to pay it off all at once? Probably. It might be smarter even to just pay it off today once I'm done with your call. But talking with my wife about what's important to us and having that security for at least a couple months before we start residency, I think that is really important to both of us. And so that's right now. That's our plan. That's what we're going to do.

Yeah. It is more complex than I think it looks at first glance. Right. I mean, match days in a month. It's not a month from the time they hear this podcast, but it is a month from the time we're recording it. You don't know where you're going, if you're going even really. I mean, technically, that's always a possibility. I hate to remind 4th year medical student about that. And presumably she's got to change jobs if this family's going to stay together and you're going somewhere else. Well, she's swapping jobs and there might be a significant gap in earnings in addition to those higher expenses. You move to a new place. So I don't think holding on to at least some bit is a bad idea at all. You know, there are some things that you really need cash for, and even if that means you pay a little bit in interest to retain that optionality, it's probably worth doing. So I can certainly agree holding on to some of that, at least until you get settled in your new positions. Well, is there somebody out there like you? Right. They've got some assets, they got a spouse that's making money, they've got an inheritance, they've got some money saved up. They want to get to the end and kind of be in a similar situation to where you are, you know, a net worth of 0 or better, and feel like they're not starting off in a big, huge hole. What advice would you have for them.

To people listening to this? They might hear the things I've said and they would say, you know what, this guy, he's really lucky to have been put in the situation he's in to be fourth year medical school, positive net worth finishing and, you know, all that. And I'd say that that's probably right. But one of the things I really appreciate and that I really like is that luck is when preparation meets opportunity. And so there have been a lot of opportunities have come our way and unfortunately would have been easy to squander an inheritance or not really save up before coming to medical school, or not really being intentional about saying, we're going to save X amount while we're in school. And so I think really working hard to make sure that you understand just the basics of personal finance, your loans, maybe read the White Coat Investor and some other books along the way that really helps you to be prepared for those opportunities that do come. And even if you don't take the perfect approach to all of them, you can take a really good approach to set yourself up well for the future. So that would be my biggest advice is that piece of advice is that my wife and I worked really hard to prepare ourselves and then when these opportunities came, we were really able to take advantage of them.

Well said, Alex. Well said. All right, well, thank you so much for being willing to come on the podcast, inspire others with your milestone, and hopefully they can reach your milestone as soon as they can and is appropriate in their lives as well. So congratulations to you and thank you so much.

Yeah, thank you to you and the rest of the WICO investor team. You guys are amazing.

All right. I hope you enjoyed that interview. You know, I know A lot of you are out there going, oh, this guy had an inheritance. Oh, this guy married an accountant. Oh, this guy had some money coming into med school. Everybody's got advantages in their life, right? I mean, you could be saying, oh, this guy's going to match into orthopedic surgery. Well, he's not, he's going to be a family doc. Okay? Some of you out there are back surgeons or you are, you know, cardiologists or you're, you know, something that makes more money than a family dog, right? Everyone's got their advantages and their disadvantages when it comes to your finances. And what you need to do is maximize the benefit of your advantages and minimize the benefit of your disadvantages, whatever they might be. And they're all unique for all of us. So if you're coming out with $400,000 in student loans, hopefully there's something out there that will help offset that. One of your advantages, maybe you'll be in a low cost of living area, maybe you will be going into a high income specialty, maybe you're in a residency that pays particularly well. You know, everybody's got their advantages, so take advantage of what you have and work forward. Remember, this is a single player game. It's you against your financial goals. That's it. You don't have to beat your fellow medical students, you don't have to beat your fellow doctors. You don't, you're not, you don't even have to beat the market to reach your goals. It's you against your goals. So keep that in mind as you work on your own personal finances and investing. Now, at the beginning of the podcast I mentioned we're going to talk about my daughter. My daughter called me up yesterday and she said, dad, what do you think about me going to do summer sales next summer? You know, for those who aren't familiar with summer sales, this is basically people that go out and sell something door to door. Pest control, sometimes that's a common one and sometimes some other sorts of products, but they get paid very well. It's all commission sales. And if you're good at it, which I think she would be, you can make tens of thousands of dollars in the summer before you come back to college. She's like, well, what do you think if I go do summer sales, make a whole bunch of money and buy a house? This is my 20 year old, right? Buy a house and live in the basement and rent out the top and then have that be my first real estate investment. This is what she tells me Right. I was proud that she said, go earn the money to do this rather than take my 20s fund and do this. But we had to talk about some realism when it comes to house hacking. When it comes to real estate investing. The first thing I asked her was, well, where are you going to live when you get out of school six months after you buy this house, where are you going to be? I don't know, dad. What's your job going to look like? I don't know, dad. How much income are you going to have? I don't know, dad. But you think buying a house now and starting your real estate empire now is the way to go, Is that right? And she's like, well, okay, it doesn't sound so smart when you put it that way. That's how it sounds when I hear lots of new residents talking about buying their homes. Right? You sound just as foolish. Now, to be fair, lots of people out there have made house hacking work, right? It's worked in medical school, it's worked in residency. Right. The idea is you buy a house and you rent out all the rooms, right. To fellow residents or fellow med students. Right. And they're paying for all the costs of ownership. The problem is this is an extraordinarily risky time in your life to begin real estate investing. I mean, real estate investing has enough risk in it anyway, right? You've got leverage risk, you've got some market risk, you've got some vacancy risk, you've always got that in real estate investing. But to take that on when you don't have any real income at all, it's a very risky time to be doing that sort of thing. Can it work out? Absolutely, it can work out. If your tenants are all great, nobody destroys your place, you don't have a bunch of vacancies, your loan works out, you stay cash flow positive and you enjoy what you're doing and you keep this property for 5 or 10 or 15 or 20 years. Years maybe. This all works out wonderfully, but there's a lot of potential for badness to happen. And I think this sort of thing happens when people get in a rush. They get in a rush to be financially successful. Well, you don't have to rush financial success. Most of you listening to this are high income professionals or you're in school or training to become a high income professional. And the truth is, if you can apply the basics of financial literacy and a little bit of financial discipline to your life, you're going to be financially successful without any tricks. You don't have to do any tricks to do this. You don't have to have the perfect credit card hacking strategy. You don't have to have the perfect house hacking strategy in order to be financially successful. You're gonna be financially successful by making a lot of money, carving a big chunk of it out and using that to build wealth to retire your debt and to invest in some reasonable way. That's how you become wealthy. It's not about the tricks of figuring out just the right credit card to use or just the right way to file your taxes or anything like that. Stop for the tricks and make sure you get the basics right. Now, if you want to play around with the tricks on the side, that's fine. Get a brokerage bonus when you move your money from Fidelity to Interactive Brokers or something. Fine, knock yourself out. But that isn't what makes you wealthy. What makes you wealthy is making a lot of money, carving a big chunk of it out to build wealth with and investing it in some reasonable way and giving it a little bit of time. That's how people become wealthy. Okay? So be careful with stuff like house hacking before you have any real income. And realize that not every real estate investment works out great, especially if you end up with a bunch of unplanned vacancies, a bunch of unplanned expenses, and you don't have a lot of income or a lot of equity already in the home to make up for that. So I encourage you to take risks in your financial life. I'm a big fan of ownership, but there's a time and a place for both of those. And that time and place is not usually while you're in college, much less medical school or residency. Now, all you people that just matched last week, congratulations on your match. Now, you all want to buy a home, and your partner definitely wants to buy a home. You may not have talked to them about this, but they want a house. They want a house and they want a fence around the backyard, and they want to be able to take pictures of it and buy furnishings for it and show it off to all their friends because they finally made it. They've been supporting you through school the last few years and. And dang it, it's time for life. We've been delaying gratification for a long time. Let's go buy a home. At least think about renting during your training. And the reason I tell you this is there's a number of reasons. One, you're a busy person. During training, you're going to be working a lot. You don't have a lot of time to be dealing with the hassles of homeownership. And there are lots of hassles of homeownership. If you've never owned a home, you may not believe this, but it's true. Stuff's always breaking. Stuff always needs to be fixed and maintained and refurnished and whatever, right? There's lots of hassles with homeownership and you don't have lots of time. The other problem is you've been told a whole bunch of lies about homeownership. And maybe people didn't intend to lie to you, but they did anyway. And they might be professionals, they might be your family members, they might be your friends, but they've told you lies. Here's some examples of some of the lies. My mortgage is less than my rent, so it must be smarter to own than to rent. Well, the problem with that is you expect a mortgage to be less than rent, right? I mean, imagine you're a real estate investor, right? So you buy this place, you got to pay all the expenses with the money you're taking in from rent and hopefully have something left over for profit, right? So if the mortgage has to be paid as one of those expenses, it's got to be less than the rent or you're definitely not going to be anywhere close profitable. And in fact, a fairly good rule of thumb is that about 45%, 45% of what you bring in as rent is going to go toward non mortgage expenses. We're talking about taxes, we're talking about insurance, we're talking about vacancies, we're talking about the other stuff. You have to have to have an investment property. And so the mortgage should be significantly less than rent in order for it to really be a good deal. Okay, here's another lie that you've been told or maybe heard or maybe just assume that owning a home is the American dream. It is not the American dream. I don't know where that comes from. Probably the national association of Realtors or maybe some national association of mortgage lenders. People that want to sell you something and they make a lot of money by you buying and selling homes. And the more you do it, the more money they make. So they're big fans of not just homeownership, but multiple homeownership. They want you buying and selling all the time. That is not the American dream. The American dream is to come and have a more successful life in America after you left your home country than you had there it's not owning a home, maybe it's owning a business more than it's owning a home, but it's just being financially successful in your new life as you come to America. Well, a lot of you have already been in America for eight generations. All right? We don't need to worry about the American dream for you. Something else that people tell you about homeownership, that's a lie, and that is that paying rent is throwing money away. That's not true. It is exchanging money for a place to live. If paying rent is throwing money away, what is mortgage interest? What are property taxes? What are realtor fees? What are all these other costs of homeownership insurance and replacing the roof? If that's not throwing money away, what is? Right. It's just as much throwing money away as paying rent. The only money that's going toward your pocketbook when you own a home and you're making your mortgage payment every month is whatever's going toward principal. And when you have a 7% mortgage, 7% 30 year mortgage, it's a very tiny percentage of your mortgage payment that is going toward principal and that is actually building home equity for you. Yes, the property is hopefully appreciating as well. Maybe you're doing something to add some value to it. But for the most part, most of the cost of home ownership, most of the payments you make goes the exact same place your rent does. Right. You're exchanging it for a place to live. So don't believe any of those lies. So the main calculation you have to make when you're trying to decide whether to rent or own is whether the home is going to appreciate during the time you own it by more than your transaction costs. Right, Transaction costs. We're talking 5% to buy, 10% to sell, 15% total. Right, 15% of the value of the house. So if this is a $500,000 house, the transaction costs are probably $75,000. You need it to appreciate $75,000 while you're in that. So if it appreciates at 7% or 8% a year, well, you're going to make money in just two years. If it appreciates at 5% a year, you may make money after three years. If it appreciates at 3% a year, well, after five years you're going to be making money. If it appreciates at 1.5% a year, well, after 10 years, you're going to be making money. But there's obviously no guarantee. You don't know when you buy a house, how Quickly, it's going to appreciate. But on average, if you look at the historical data, historically, homes appreciate by about 3% per year. And so what? That would suggest that if you're going to be in there longer than five years, you ought to own. Because most of the time you're going to come out ahead. And if you're in there less than five years, you're probably out of rent. And residency's typically three to five years long. So most of the time you're not in there five years and you're probably coming out behind. Historically, most of the time buying a house for the three to five year period that is residency. Now, I know that's not the case. In the last few years, lots of people that bought houses did not lose money, okay? Because houses have gone through the roof since about 2010. Trees don't grow to the sky. That doesn't happen forever. We bought a house in 2010 or not in 2010, in 2006, moved out of it in 2010, couldn't even sell it, couldn't find anybody to buy it at any sort of reasonable price. Ended up finally selling it five years later. So nine years total in 2015, we bought it for $138,000. We sold it for like 116. Nine years later. There is no guarantee that you're going to make money even owning more than five years. But on average, five years is long enough. So now I know I can't talk most of you out of buying a home. Most of you are going to buy it no matter what. And here's the good news. The good news is your future income is probably going to rescue you even if it turns out to be a bad decision, because you just make so much more money as an attending that even if you got to carry that house for a while, or even if you have to come up with 10 or 20 or $50,000 to get out of the house, you're probably going to be able to do it eventually. But that doesn't mean it's not a bad decision just because you have the means to overcome it. So at least consider renting when you go to buy your house during residency. And if you want to do house hacking or something in med school or residency like my daughter is, know that this is a pretty high risk proposal that it wouldn't be that hard to come out behind doing this. You know, you don't have to become rich as an undergraduate or as a medical student or as a resident. You're all in this pathway where you're going to become a high income professional. Most of you doctors where you're going to be making 200, 300, 400, 500, $600,000 a year. If you will make that high income and you'll carve a big chunk of it out to build wealth with and invest it in some reasonable way, you're going to do very well financially and have an awesome financial life. You don't have to play all these tricks to do it. You don't have to house hack, you don't have to credit card hack, you don't have to swap your brokerage account around every year for for sign up bonuses. That's not the stuff that makes you wealthy. What makes you wealthy is making a lot of money, carving a big chunk out and investing it in some reasonable way. So if you want to buy a house, go buy a house. I can't talk most of you out of doing it anyway, but at least consider renting during your residency. You don't have to deal with the hassles of ownership and you can just walk away at the end of your period and go on to buy a house as an attending down the line. And you probably most of the time come out ahead financially by doing so. With weather Be healthcare. You choose your own healthcare career path. Our locums experts then support you every step of the way, helping you find the right opportunities at the right times. We understand your professional and personal goals and are experts at helping you achieve them. Let's keep your career interesting with new locations and settings and diverse patients and cases. And just as importantly, let's make sure you get more free time for your hobbies or to just relax will help you find that balance. With more jobs and more locations, Weatherby gets you where you want to go. Learn [e-mail] Weatherby all right, keep your head up, shoulders back. You've got this. We're here to help. We'll see you next time on the Milestones to Millionaire podcast.

[Dr. Jim Dahle]

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.