051 PFFAP-PYP-23-0705-7 Things to Do with Extra Money
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Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement in college.
Ben: Hello, physician moms and dads. This is Ben Utley, certified financial planner and service team leader here at
Nate: Physician Family.
And this is Nate Reineke, certified financial planner and primary advisor here at Physician Family. Today we are going to talk about seven things physicians can do with extra money now. That's right now Ben,
Ben: extra money. Now. Now, now? Yes,
Nate: now. So, uh, before we get into our seven things, Uh, I wanna see if we can talk about where this extra [00:01:00] money's coming from.
Mm-hmm. So what are you seeing now you've, I've, I know we kind of discussed a few, I guess, places that people are getting all this extra cash. Um, Uh, what are you seeing out there? Yeah,
Ben: usually it's, it's, uh, it's just piling up on the bank. People are calling saying, Hey, I've got six figures in the bank.
Very occasionally, but not uncommonly. It's seven figures and it comes from places like, Oh, practice buyouts. Maybe there's private equity or, uh, occasionally, and sadly it's an inheritance. It could be from, uh, the sale of a home, like a downsize. It's surprising to me the number of places that six figure cash comes from.
And of course, there is the old standby, which is, uh, deer in the headlights. Don't know what to do with it. It's been piling up for a year or so, and I just have too much cash in the
Nate: bank. Right. Yeah. Uh, I've been seeing the second homes or even, um, just like you said, downsizing, moving to a [00:02:00] more, a less expensive part of the country cuz everyone has all that, uh, equity buildup.
But a big one too, I saw is, uh, no student loan payments. Oh yeah, for a while now. And those, you know, we, that's probably gonna change soon. But the reason that that one was, has been interesting to me is that those families generally, I mean, they haven't really experienced a whole lot of extra money. Since their student, you know, cuz their student loans have been so large for the last several years.
So this is hopefully gonna be really helpful to those folks cuz it might be the first time they have 5,000 thousand dollars laying around.
Ben: Yeah. Yeah. Just piling up in the bank, make, making the banker happy. I say it's best move is to starve your
Nate: banker. That's right. Okay, so first thing. That physicians can do with their extra cash.
Um, we got a little cute here with our names. It's buy yourself some peace of mind. Mm-hmm. So that would be fill up [00:03:00] your emergency fund. Right, right.
Ben: Emergency fund. It's, it's like our favorite topic. We talk about emergency funds all the time. Why, why do we talk about emergency funds all the time? Nate,
Nate: you know, the, the, the true reason is it's, uh, A really prudent decision to have money for a rainy day.
But, uh, beyond that, beyond having money just for bad things that could happen, it tends to give a lot of physician families peace in investing The rest. Right. That's what I, that's what I call it. You know, so if you have a good, healthy emergency fund, there's no reason not to get on track for college and retirement.
Mm-hmm. But, uh, the key is to do a little bit of planning and find out how much of an emergency fund you need so you can feel like it's done.
Ben: Right. Yep. Right. And that's a little tricky. It's a little different for everybody. We of course, have a process for that. You can listen to some of the process and some of the, uh, back catalog.
Now [00:04:00] because we have recorded enough episodes, we have back catalog. There's at least a couple episodes on emergency phones.
Nate: All right? Okay. Um, the next one that you choice you could make is to buy stuff. So I think with, from financial advisors that people aren't really expecting us to say that, but, uh, that's part of life.
Sometimes you need, you need things. So, so Nate,
Ben: you, you work with some of our, our younger physicians that are, that are often buying things. What, what kind of things consume, you know, 50, a hundred thousand dollars, uh, that need to be bought?
Nate: Yeah, so certainly cars and cars can soak up about as much as you.
Can imagine nowadays. Mm-hmm. It's kind of surprising, but um, a lot of times they need a car upgrade. Uh, and, and the other big one is al always the house. I mean, yeah, you buy a house, you need to upgrade it. It just soaks up as much as you could. You could possibly try to spend on a [00:05:00] house. You could, you can't.
So, um, those are the big ones that I see. And, um, I would say that, uh, that if a family that. That we're serving chooses to do that. I would ju I just ask them to do it very intentionally. Mm-hmm. You know, you can buy stuff. Um, we're not really huge on, on uh, spending all your extra cash cuz we don't see it improve people's lives all that much.
Yeah. It doesn't,
Ben: doesn't bring, sometimes you just need a car. A lot of happiness. Yeah.
Nate: Right. Yeah, exactly. But it's always an option and Yeah. You know, you spend money in life. So next one here is by relief, and that would be debt reduction. Oh, yeah.
Ben: Yeah. Getting out from under the, the drum beat of the, the payments, the, the monthly
Nate: hammer.
Yeah. And that monthly hammer's pretty big with a, a lot of physicians on their student loans. Mm-hmm. [00:06:00] Um, I also see, you know, some practice buy-in loans that have pretty big payments. So, um, student loan payments are more than likely gonna start back up, and those are, you know, 7% interest in a lot of cases.
Mm-hmm.
Ben: What about mortgages? What about prepaying the mortgage? Because that's, you know, we're seeing, uh, sixes and sevens in mortgage land now too. It's very true. Like if you had to choose between prepaying a student loan and prepaying a mortgage, which would you choose?
Nate: I would probably choose the student loans.
Um, as far as prepaying, you gotta pay 'em both off. Um, so I'm gonna choose the one that has probably, uh, the bigger, bigger required payment. Mm-hmm. That's basically you're buying a little bit of flexibility. Um, And with, uh, your mortgage, at least you get a somewhat of a tax write off with paying that back.
So if I'm choosing one or the other, I'm choosing the one that, uh, I know I have to pay down to zero. Mm-hmm. And, uh, with [00:07:00] a mortgage, you might move, you might downsize some, so they both need to be paid down. But, uh, student loans seems to be, uh, the, the one that you make big payments, you, you get. More
Ben: freedom, I would say.
Yeah. Especially with your tax deduction on your mortgage, you know, that could turn 7% interest into four and a half percent interest on an after tax basis and no deduction for student loan payments.
Nate: Yep. Yep. Exactly. So, So, uh, that's, uh, one choice. And I, I want to point out, uh, it's not an exciting choice, but it does, it does bring you closer to your long term goals.
You must, or you should be debt free before you retire. It's
Ben: not an exciting choice unless it's the last payment, in which case it's thrilling, right? Yes.
Nate: Yeah, very true. Okay. Next one, uh, you could buy your kids some opportunity and it guess [00:08:00]
Ben: management buy. Oh, that's, pull back the curtain on that. Let me see a little peek of what buying kids opportunity looks like.
Nate: That's right. Yeah. It's, uh, it's investing for college. Ooh.
Ben: Ooh. That's a big one, right?
Nate: Mm-hmm. Yeah. It's, uh, getting ahead for college. Uh, It, it feels impossible. Cuz honestly, when, when we do some planning, which, uh, hint, hint, nudge, nudge, you, you gotta plan for college. It, it's, it's common, common that college is the most surprising, um, planning that we do for folks because they just can't believe how expensive it is.
Mm-hmm. But, uh, do some planning and it feels like it's hard to get ahead. But if you have a hundred grand, I mean today that's public school.
Ben: Yeah, that's two years or three years of public and, uh, depending on how it goes, one or two years of private Right. For college. Right.
Nate: Yeah. I mean, I, that's almost [00:09:00] the full way to public school.
Mm-hmm. So, you know, um, you can either do it in monthly, month by month if you don't have a bunch of extra cash where you can drop down a big investment and, and sort of be done, um, if you have one child. Mm-hmm. And, um, It seems to me that investing can feel overwhelming to families. Mm-hmm. But if you invest for a specific reason, meaning you do some planning and you invest for a, a specific goal mm-hmm.
It can feel a, not only attainable, but it feels like you have some direction. So if you're, you know, if you're on track for college and then you know your other long-term goals, you can. Feel okay about upgrading your car? Well,
Ben: Nate, you're, you're, you're our college investing, uh mm-hmm. And planning specialist.
You're our guru in that department. So let's say I'm a physician. I've got a couple kids and I've [00:10:00] got 400 extra a thousand dollars that came from something and I can use this money toward college. Would I be better off kind of chunking that down right now or would I be better off investing? I. Like on a monthly, a monthly basis, like, uh, you know, just going back to my, my monthly thousand, $2,000 that I'm saving doing something else with that 400 k or, or chunking it down, like how would I begin to approach that decision?
Nate: Yeah. So it's a tough question, uh, because dropping it all in seems scary. Mm-hmm. So just getting it out there right now, but the best way that I have seen or, uh, the, the way. To go about this that I've seen the most physicians feel comfortable investing or doing something with all of it at once. Mm-hmm.
Is by identifying all your long-term goals. That's college and retirement generally, and sometimes paying down debt, and then identifying some of the needs that you [00:11:00] have for spending, and then honestly doing a bit of all of it. Uh huh. A bit of all of it. So you pay down a little bit of debt, you get on track for college and retirement, and maybe you buy that thing that you've been holding off on for several years.
Mm-hmm. So when, when I see people spread it out, but with intention, they feel really good about it. Now, let's imagine that you have been doing that monthly savings for college and you don't need a new car, and sort of the only thing you're behind on is retirement. Just for example, I. I have no issue with you investing that $400,000 all at once or maybe over a small period of time, six to 12 months or something, just to drip it into the market.
But the, the, in theory, it is always best to get this money working for you as fast as
Ben: possible, right? Sometimes we have a little regret if we drop it in and then the market, you know, bottom falls out of the market. Yeah. So basically what I'm [00:12:00] hearing you say is spread it out over mm-hmm. Over time, over, you know, uh, several months or something.
Nate: Yeah. Several months is no big deal. Um, yeah. And even if you did want to drop it all in, like I said, theoretically that's, that's sort of. It is the best decision, but it's so painful when you see the market go down. So like you said, over 12 months, no big deal. You could do that Theoretically.
Ben: We would, we would hold through all ups and downs and theoretically we, we wouldn't have feel any
Nate: regret.
That's right. That's right. There's no feelings in theory. Yeah. Okay. So, but that kind of, uh, brings us nicely into the next thing, which is you could invest for retirement. That is buy your future self, some security. Right.
Ben: Not Nate. Today. It's Nate. 20 years from now, it's not physician. That's right. A today it's physician.
A 20, 30, 40 years from now. Like almost like having a friend, but a friend in the future.
Nate: Yeah. Yeah. Yep. [00:13:00] You have any thoughts about that? About uh, you know, let's say you just have an extra a hundred thousand putting it into retirement.
Ben: Yeah. Do it. Do it. Yeah.
Nate: Yeah.
Ben: Invest it. Exactly. Um-huh. But, you know, after clearing the decks with all the other six issues that we're gonna talk about today, it's, it's tricky because, you know, you can't just give a formula like, well, I mean, you can a little bit, uh, you know, fill up your emergency fund first period.
Right? That's, that's the thing you gotta do. But after that, whether it goes to college or retirement, depends on how much you've got saved for those, how far along you are. You know how aggressively you're going to invest with those things, what your tax status is, whether or not you have student loans, whether or not you've bought a house or your house has paid off.
I mean, there are a lot of factors that go into this, which is I'd love to just come out and say, uh, all physicians in America should do this. Mm-hmm. But, but you know, it's, uh, you, when you do these things, some of them are permanent, like paying off student loans. Some of them are quasi permanent, like putting money in a 5 29.[00:14:00]
Some of 'em are reversible, like investing for retirement. Right. But you should kind of think of all investments as, as permanent, you know, something you're gonna stick to for five years, at least in maybe 20 years, right? So this, right, these are, these are revocable, irrevocable decisions, right? Mm-hmm. So I, I would say that, you know, um, again, you know, planning what you're gonna do with your money before you do it is the thing that's gonna alleviate the risk and also make you feel good about things.
Nate: Love it. Yeah. Okay. So now we have filled up our emergency fund. We've bought May maybe purchased some needs. Mm-hmm. Maybe even a want or two. Mm-hmm. Um, paid down debt invested for college retirement. If there's still could be left still money left over. Yeah.
Ben: You're kidding me. Is there anything else? Is it, it's paying off debts and saving for college.
Is there anything else in the world? I can't
Nate: imagine. There is, and it's actually the fun stuff. Uh, first one is buy memories. [00:15:00]
Ben: Ooh. How does one buy a memory? Is this like total recall?
Nate: Not exactly. No. Uh, you could go on vacation with your family. No, that's like a swear word in some physician households. But vacation, I mean, extend your working career.
Take some time off. Make memories with the fam.
Ben: Now you've, you've got young munchkins do, do you? Mm-hmm. Have you always taken them on vacation? Do you take them on vacation? What's, how's that been for you? I
Nate: usually, I would say there's one time per year so far. Mm-hmm. Cause they're pretty young. Where. My wife and I go, just US and that's our anniversary.
Oh yeah. But other than that, I take 'em and it's a heck of a ride. But it's, it's making memories for us, if not them, cuz they're so young. Mm-hmm. My oldest who's five now is starting to remember everything. Mm-hmm. And yeah, I take 'em, I mean, it is a terrific, terrific experience going from. [00:16:00] Vacationing on our own to vacationing with kids.
A little stressful,
Ben: but So you, you got youngsters? I have. My kids are college age and mm-hmm. We have pretty much always taken our kids on vacation and the bigger the vacation, the more likely we are to take the kids on it. Like if it's an anniversary, we have a staycation. Of course, we don't take kids there, but.
You know, we've gone to overseas a couple times and taken the kids and the memories that that makes and the experiences and the bonds that we form are just indelible, you know, they're mm-hmm. They're always there, and you can be sitting around the, the dinner table and say, what was the best meal that we ever, we ever had out?
Oh, is that that little restaurant in, you know, Italy or whatever, or mm-hmm. You know, what was the. What was the best time we ever had at a hotel? I remember that time we were downstairs at this place and we were playing Scrabble and you know, it's like it's, the memories that you make are just priceless.
And so I don't, you know, this is one of the, the last things that we're covering here, but it's not necessarily the last thing that you should spend your money on. In fact, it could be [00:17:00] among the first things that you spend money on just agreed. You know, you get compassion fatigue in in work. And just find out burnout.
And I think that, uh, you know, having time with your kids, that's unfettered. You know, I'm not talking about a work vacation where you fly out to Hawaii and you go to a conference, right? Cuz that's not vacation. But, uh, you know, going someplace with the intention of just relaxing and having some experiences that, that to me has been priceless.
It's been money super well spent in my life and it's brought a lot of happiness.
Nate: Agreed. Agreed. And, and you don't have to take a big chunk outta that a hundred K to do it. I mean, you can go on a nice vacation if you, if you have a lot of other goals to attend to, um, then you can, you know, you can spend a few thousand bucks.
Ben: Yeah. You can, can rent an RV and drive through the national parks, you know. That's right. And you could do that for probably five grand and just have a fantastic time.
Nate: That's right. Okay. Last one. And it's, it's sort of a [00:18:00] good tip because, uh, these other ones are, uh, essential. This one is, uh, buy yourself some quality time.
Mm-hmm. So think, uh, most physicians, the way that they grew up, or at least the ones we, we speak with, um, they wouldn't think to do this, but you could hire someone to help you. So hire someone, let someone pick up the groceries while you're out on a date with your spouse. That's what you and I were thinking of.
Um, give yourself back some time. Mm-hmm. Cause that is the most valuable resource that you have as a human, but also as a physician and how busy you are. We
Ben: had a physician on, on the podcast not too long ago when we talked about, uh, mom guilt, and she said that she routinely schedules massages. Like it's, it's just part of her monthly calendar.
I think it's like every other month that she, uh, every other week she was talking about. It could be that it could be manicures, it could be pedicures, it could be [00:19:00] some kind of sporting event that, uh, you go to on a regular basis. You know, maybe it's a, maybe it's a basketball game, something like that. It could be.
Something that's something that you really don't like doing that's repetitive? Like, uh, I don't know, mowing the lawn. I, I figure, uh, many physicians already have someone who's doing their lawn care, but look around your house and think like, what, what is it that's here that, you know, I could spend money on that would, that would not just be something done, but it would free me to be able to spend more time.
With my children or with my wife or at the gym or on my hobby. You know, what, what can I do that would, would free me up some. Mm-hmm. Yeah. So you can have some quality time with, with yourself or with the other people that are in your life.
Nate: Yeah. Money well spent. Yeah.
Ben: So Nate, what is the big takeaway today?
Nate: Yeah. Uh, the big takeaway is having a bunch of money in the bank can make you feel good. [00:20:00] But with a little planning, you can feel great. Knowing that you're putting that money to work in your life.
Ben: Awesome. Well, that's all for now. Until next time. Remember, you're not just making a living. You're making a life.
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