A Blueprint to Tackle Net Zero, Part I

Presenting a fictional but realistic situation where someone with a plan defies the odds and starts her healthcare career with a positive net worth. Without rich parents.

Meet Sonya. The boar isn’t Sonya, and it wasn’t supposed to look so friendly, but whatever. Sonya is from Arkansas, where her mother is the state’s only female free hand wild boar wrestler and her father is an engineer at a doily plant. Sonya is exceptionally intelligent and driven but is not interested in her parents’ careers. In fact, it only takes her a year of college at Little Rock University before she decides she wants to become a physician. She has the unique background and talent that all the med schools crave, and she also had the good fortune of reading a blog or two about personal finance, productivity, and early financial independence.

I’ve chosen to include the plan that Sonya creates and could execute to perfection in her quest to become an excellent physician, achieve positive net worth before 31, and have fun the entire time. Because Sonya is exhibiting exceptional discipline from a young age, you can safely assume that she is based on…well, no one I’ve ever really met, but that’s okay.

For those who don’t know what a doily is. I don’t know if this is a good one or not.

Undergraduate years : Despite no interest in how her dad used CAD to create doily sewing machines, Sonya recognizes that engineering is one of the educational sectors that translates well to many fields, offers excellent salaries for undergraduate-only degrees, and features some of the best paying internships and co-ops during school. She majors in biomedical engineering and scores sweet internships that pay $10,000 each summer (as a Biology major, my best summer job paid $3,500–and that was because it was in Germany and I was paid in Euros). In her third year of college she studies for and takes the MCAT, and she stops her engineering classes in her fourth year to focus on pre-reqs and medical school interviews. She chooses her state medical school, where she was offered a scholarship and her in-state tuition is $29,0000 a year, and coasts for the last half of her senior year of college. Her parents paid her undergrad tuition and her sweet summer gigs mean she was able to pay for her car in cash. Ideally, she would have also contributed to retirement, but we’ll assume her parents weren’t so generous as to pay for all of her living expenses. There were a couple of lean wild boar hunting seasons and they’re living entirely off of doily profits.

Nope, we’ll never see Sonya’s face.

Sonya finishes college with no debt. She also has no savings, either, because she took a month-long sojourn through Europe with friends after graduation. Worth it.

Medical School : Sonya works enough in the summer before medical school to contribute $5,500 to her Roth IRA. This could be a carryover from an engineering internship, or driving for Lyft, or dog-sitting other people’s dogs, or as a Virtual Assistant for an entrepreneur her parents know…the list goes on. She doesn’t make much, but she doesn’t need to. She automatically invests the $5,500 in an index fund.

In her first semester she focuses entirely on creating a healthy schedule that includes sufficient time to study, work out, and be social. She takes all of the loan money the feds offer her to live off of, but she’s ahead of the game because she’s saving for retirement already! With good first semester grades and a solid routine, she wants to start working again in her second semester, just enough to max out her retirement for the following year. She knows she needs to make an average of $458 a month to do this. She reaches out to people she worked with on her internships and some business owners from home, advertising herself as a remote virtual assistant with experience in biomedical engineering, premedicine, medical school, English fluency, computer skills, and proficiency with organization and communication. She finds a business owner who needs help with internet research, data entry, setting up appointments, dealing with customer service, and maintaining her business’s social media presence. Sonya can do all of those things! She spends 4-5 hours per week, charges $30 an hour, and easily makes her monthly goals. Meanwhile she continues doing well in medical school–not gunner-well, but in the top third of her class. She is still taking out the maximum in loans because she wants to eat healthy, live in a safe area, and travel on breaks. If she makes anything beyond her retirement savings goals, she can comfortably spend it any way she wants; she knows she is ahead of the game.

Sonya continues this pattern throughout medical school. She decides that she wants to do internal medicine with the aim of a GI fellowship–for some reason she loves colonoscopies. (To each their own–I work in people’s mouths.) She maxes out her Roth IRA each year and ends up with the average debt for a medical student in our era: $183,000. However, she now has a retirement savings of $26,573. She continued to work her VA job as a fourth year medical student, and with all of the free time that fourth year provided, she was able to make a little bit more on the side. She used this to pay for interviews and save up for the end of the year hump. She knows that her first residency paycheck will not come until the end of July.

Intern Year : Sonya matches into internal medicine at the University of Wisconsin, which is a three year residency.

Photo via <a href="https://www.goodfreephotos.com/">Good Free Photos</a>
Apparently this is Madison, Wisconsin.

Home: She is undecided on whether she should buy a house or rent, so she does some research on the real estate market in Madison using free data where she can use her sweet Microsoft Excel skills to see that it is appreciating at an average of 8% a year, though that growth is expected to slow. Rents in the area are high (average $1500), and she knows she has average medical debt and above average retirement savings, so she decides to take a bit of a gamble and purchase a two bedroom condo within walking distance of the medical center. In a process that could/should/will require several blog posts to explain, she purchases her condo with a physician’s loan from a local bank where she doesn’t need to put any money down. It is a 5/1 adjustable rate mortgage, meaning that the initial rate (in her case, 3.7%) is fixed for 5 years, which is perfect, because that is the longest she would possibly stay there (three years residency + two years fellowship). At the end of five years she will move and either refinance with her new income levels as a gastroenterologist to rent the property to other residents, or sell it. This all makes sense because of leverage: she made an initial investment of nearly nothing (0% down), has a relatively favorable interest rate of 3.7%, and a property that will probably appreciate at 3-8%, or more. The mortgage is based on her salary as a resident. The potential pitfalls of her strategy include depreciation due to market conditions (unlikely in her area as there is always a need for adequate housing for healthcare professionals and trainees), taxes, and cost of repairs and upkeep.

Sonya’s condo, it if were a fake building in Florida.

Sonya’s mortgage payment includes payment on the principal of the loan, the interest of the loan, and a separate account (escrow) for her insurance and property taxes. From a budget perspective this counts as an expense, but since part of that expense is going to the principal of her loan, it is really more like an investment.

(The math involved in choosing whether to buy or rent during training is extremely individual and location-specific and will be elucidated in future posts. Classic wisdom says not to buy a house if you plan to be there less than 4-5 years, but I think that is too broad of a recommendation: it really depends on your financial picture, future plans, and the real estate market in your area. We live in a time where many markets are growing and/or emerging from the depths of a relative abyss, so in general, I am currently pro-purchasing, but there are many other details to consider.)

Sonya’s choice of a condo, however, is undeniably a good one. The time she spends in cleaning and upkeep will be minimal, especially when it comes to yard work, and as we will see, time will be her most valuable asset as a resident.

One of Sonya’s many options if her car breaks down.

Car : Even though she’s now making a salary, Sonya keeps the car she bought with cash in college. If it starts to have problems or require significant repairs, she could consider selling it and using ridesharing apps or subscribing to a service like Zipcar. Her medical center also offers free rides on post-call days or if needed late at night when working.

Investments : Sonya continues to max out her yearly Roth IRA contributions, still buying index funds, from her resident’s salary. She doesn’t need to worry about investing more time or money into her retirement at this point.

That Europe trip Sonya took at the end of undergrad? Still worth it.

Debt : In her intern year she is barely able to scrape by after her retirement contributions. If her loan servicer allows her to be in deferment as an intern (as some schools do by creating a class schedule and classifying her as a full time student), then she should just make payments on her interest if she has any income left over. Otherwise, she can make the minimum payments or opt for an income based repayment plan (IBR). Of course it would be better in the long run to make the standard minimum payments, but during her intern year, she doesn’t bother with the details.

Budgeting : Sonya doesn’t have time for an exhaustive budget. She really only needs to make big-picture decisions with her three main expenses (housing, car, food) and make sure that nothing else creeps up into the top-three category. Her housing and car costs are now relatively fixed, she uses Personal Capital to track her restaurant spending, and she forgoes expenses like getting a pet at this time in her life.

As long as she is able to pay her mortgage, make a minimum student loan payment (if not in deferment), max out her IRA, and not carry a credit card balance, she knows she’s in the clear and ahead of almost all of her peers.

Side Income : As an intern, Sonya barely has enough time to eat, sleep, work, and exercise. She focuses on keeping some semblance of a healthy schedule by exercising for 20-30 minutes five days a week and cooking healthy meals when she isn’t working. Her mom sends up frozen wild boar from Arkansas every once in awhile.

Residency Years 2-3 : Sonya focused on her training as an intern and stayed within the bounds of her big-picture financial goals: healthy retirement savings, average debt load, and a growing stake in her condo. She has managed to avoid major expenses like a car payment, credit card interest payments, or pet costs.

Now is when she can make some real headway. Her schedule is much better than it was last year, and now she has some knowledge that is valuable. It’s time to start making some real financial headway with a moonlighting gig.

What most of the world thinks when they hear “moonlight.”

Car : no change

Investments : Sonya still maxes out her Roth IRA each year ($5,500 per year; she can use a back-door Roth IRA if her income exceeds the threshold). With a high debt load and interest rates between 5-7%, and the “diversification” of also owning her condo, she doesn’t feel the need to investigate further investment opportunities yet.

Side Income : Luckily for Sonya, her hospital supports moonlighting (they also benefit financially: residents are universally less expensive than attendings). After intern year, mid and upper level medicine residents can cover overnight shifts on wards. The pay is a flat rate per night worked. (I have no idea if any of Wisconsin’s hospitals do this. Hospitals in our medical center do; the pay is $2000 per night.)

For obvious reasons, Sonya never turns down a shift. She got used to difficult hours while on call as an intern, and $2000 for 12 hours of work seems ludicrous. She accepts shifts even when she has a lot of housework to do or errands to run–she uses various services that charge her $10-15 an hour for laundry, grocery delivery, etc., while she’s making $167 per hour. She averages three shifts a month and uses her spare time to work out, sleep, read, and hang out with friends. Her resident salary also increased, but not by much. She makes $52,000 as a resident and earns another $72,000 moonlighting.

Debt : With all of the services she is paying for, Sonya’s cost of living did go up a bit, but not by much. She has the same car, same mortgage, no pets, and minimal other expenses. After taxes, her take-home pay is around $98,000 (she may have some deductions from mortgage or school loan interest payments). She lived off of $44,500 perfectly well as an intern. So she could put $30,000 a year towards her education debt, still invest in her retirement, still increase the principle in her condo, and account for the services she is paying for. She does this for the last two years of residency. Since she is predictably able to pay them off, she decides to refinance her student loans after the second year, so her interest rate drops from an average of 6.8% to 4.8%. Nice.

And…..Europe was still worth it.

At the end of residency, Sonya applies for a GI fellowship (2 years of additional training). She has paid off $60,000 in student loan debt (which will still leave her with around $135,000 because it is also accruing interest at 4.8%) and has $43,126 in her Roth IRA (assuming 7.7% appreciation, which is historically accurate). Between the principal in her condo and how much it appreciated in three years, its net value to her is $22,000. She’s 29 and has a net worth of -$69,874


Continued in Part II: see how Sonya navigates the transition through fellowship, and whether she tackles the debt boar or folds like a poorly-made doily.



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