Nate (00:13)
Hello, physician moms, and dads. I'm Nate Reneke, certified financial planner and primary advisor here at Physician Family Financial Advisors.
Chelsea Jones (00:22)
and I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family.
Nate (00:27)
Chelsea, we took a week off last week. We did an encore episode. We had some summer is upon us, and we have a lot going on, but we're back. We have some really good questions because they've been building up. β I don't think we're gonna do asking for a friend this week. Nobody asked for a friend. But maybe next week, maybe we'll get a nice, nice question that everybody is on everybody's mind, but nobody actually wants to ask.
Chelsea Jones (00:29)
Yes.
Mm-hmm.
All right. We do. Let's get into it. So the first question is from an emergency medicine doctor in Washington. They said, we have about $5,000 in credit card debt, no emergency fund, and we want to start investing. Should we crush the debt, build savings, or start investing first?
Nate (00:56)
You wanna get started? I think we have four good ones.
Well so I actually actually we were both on this call when they asked this question. And they literally said, β we feel like we're fighting on multiple fronts and like their tone and their faces, it was like they were in a they were in a battlefield. So it's always hard to feel like this. It's always hard to have these things that everybody knows they should be doing. And so β they wanna do them all. But in reality, much like life, you can only do
Chelsea Jones (01:26)
Mm-hmm.
Yeah.
Nate (01:45)
you know, the thing that's right in front of you should be the thing that's done first. So, β this may feel obvious to most that have gone through this and now that they're on the other side, it seems so easy. But β that's not the case for people who are just starting out. They have this credit card debt looming over them and yet they know they need to be saving. So this is a kind of a foundational question. But the β for for
Chelsea Jones (02:08)
Mm-hmm.
Nate (02:15)
New docks, maybe you just moved and maybe you even bought a house a little early, like before you're just ready for it, and that house needed to be furnished and you collected some credit card debt. β the credit card debt is a hair on fire kind of problem. Like you need to pay off 20% interest credit card debt. And β even even if you have a lower interest, sometimes people say, you know, I got a really good.
Chelsea Jones (02:33)
Mm-hmm.
Nate (02:43)
interest rate, so I'm not gonna pay it off until later. I think you clear credit card debt as fast as you can. I don't really care too much about the the low interest rate if you have it. If you have high interest rate, it's a the math is obvious. But even if you have a low interest rate, you want to clear that out so you're not thinking about it. It's not on your mind. That's step number one. And then you build on.
Chelsea Jones (03:03)
Yeah, because usually with credit cards
too, the low interest is for a set period of time. It's like 0 % for 15 months or something and that 15 months can go by fast.
Nate (03:08)
Yeah. Yeah.
It goes by fast and it's always on your mind. So you're gonna have to pause everything else and then go back to that problem in a short period of time. So clear it out. This isn't this is β I mean five thousand bucks is not nothing, but to a physician family you knock this out in a month or two. Seriously. I mean, you j most of the time in this situation, β
Chelsea Jones (03:15)
Yeah.
Nate (03:37)
Physicians are just entering in their their first big job. They just got out of residency and you're still used to not spending too much. So just just keep acting like you're resident for a month or two. Clear this out of the way. Right. And then build on that. So β there is this maybe, maybe I'll get β flamed for this, but there's this the part of me feels like people who
get out of residency and they have credit card debt, they're nervous because they're still used to this world where they don't have any extra money. They just don't have any money. So the fact that this really β kind of this you have to do this sprint toward another goal, but you have the extra money, in a way I could reframe this to being a good thing because you're gonna see just how quickly you can make progress on this tiny little problem that feels so big. So
Chelsea Jones (04:33)
Yeah.
Nate (04:34)
Take that mentality and move that β that kind of hair on fire mentality and move it to your emergency fund. You're gonna feel so much better when you have a fully funded emergency fund. Even if you you start with a starter emergency fund, that that you're gonna feel better about that too. I think about my emergency fund constantly, right? Like the fact that something happens, my gosh, something happened. The the car needs to be fixed, the roof is leaking.
Chelsea Jones (04:49)
Mm-hmm.
Yeah.
Nate (05:02)
And every time I just think, what's gonna happen? What are we gonna how do we adjust our play? You really don't need to adjust anything if you have an emergency fund. You know, maybe you slow down on some savings when you need to rebuild it, but it's there. So from there, which it shouldn't take too much time, right? You have this excess income, you're not really used to. The the deeper, deep rooted feelings here are that they want to do other things with their money than this payoff credit card and
Chelsea Jones (05:09)
Exactly.
Mm-hmm.
Nate (05:31)
boring emergency
fund thing. So take that money, g do the boring thing for just a little bit longer, pay off the credit cards, build the emergency fund, and then you're off. You're off to the races. You can start investing and you can invest heavily just like you taught yourself to do when you're paying off the credit card and building an emergency fund really fast. And then and then how much to invest and how much to enjoy, you need a plan. So you get a retirement plan in place, maybe a college fund plan in place and
Chelsea Jones (05:50)
Mm-hmm.
Exactly.
Nate (06:00)
do some, you know, cash flow planning about how much can you spend versus how much do you need to invest and save.
Chelsea Jones (06:06)
Yep. Okay. The next question comes from an orthopedic surgeon in Ohio. They said, I have a practice partnership buy-in coming in about two years and it looks like I'll either have to pay cash or take a roughly cut and half salary for two years to fund it. Should I take the salary reduction or find another way?
Nate (06:20)
Mm-hmm.
Mm-hmm.
Chelsea Jones (06:28)
This one, I mean, that's a good question. When they told me that the, the option to pay it or like the default option was taking a like 50 % haircut on your salary for two years. was like, surprise. I was like, that's, that's a pretty big haircut. Yeah.
Nate (06:43)
I was surprised too. I've
seen this lots of times. I mean, pe these these β these buy-ins get sliced up a lot of different ways and ultimately the the practices are trying to help, but β half that's a lot. Yeah, that's a lot.
Chelsea Jones (06:58)
Yeah, two years. Yeah, for
no doubt a six figure buy-in, but ultimately this comes down, this goes to the cashflow. So, and with Physicians, I know, you know, our kind of view on budgeting and cashflow can be kind of lax, because Physicians make enough that you don't really have to budget every dollar. You need to know how much you need to save.
Nate (07:03)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Mm-hmm.
Chelsea Jones (07:27)
And then you can spend everything beyond that if you want to. β but this is one of those things where it's really important to understand what your non-discretionary spending looks like. Because if your option is taking a salary reduction or going to the bank to get a loan to effectively pay cash to the, the partners, the practice, β if the salary reduction makes more sense, you need to understand how much you need to spend.
to understand if that 50 % haircut is doable or not. β Cause you don't want to, you know, it's, it's a lot easier said than done to, to tighten the belts and spend less and say, we won't eat out for the next two years. Let's be honest. You're going to eat out at some point. You'll need to.
Nate (08:14)
Well not only that, but
yeah, not only that. β I think β a a common I don't know mistake or a a misframing of this of questions like this for physicians β is the whole eat out or or tighten your belt. You know, sometimes but w when you are a physician or or you you simply like are in this environment where these large
Chelsea Jones (08:33)
Mm-hmm.
Nate (08:43)
Amounts of money get thrown around. Like buying in is 300,000. Like, how many DoorDash meals are you gonna have to skip to pay for a $300,000 bill? Like, let's let's be more precise about this. Like, just cutting back, that's not really a thing when someone takes away ten thousand dollars a month from you. You don't spend ten thousand dollars on on eating out. But I think I think the missing piece here, and the way that they when they asked this question, the way that I heard it was.
Chelsea Jones (09:06)
Yeah.
Nate (09:12)
They were totally unfamiliar with the thought that you could go to the bank and get a loan. And so I view it as two things. Cash flow is certainly one. β but this because 24 months for a buy-in is really fast, there could be two things going on. sometimes buying in is sort of β it it it's not what you would think. Like sometimes when you buy in, it's a million bucks.
Chelsea Jones (09:17)
Mm-hmm.
Nate (09:39)
Other times when you buy in, it's a hundred thousand. And it's really just a mechanism to say, you know, you have to buy in for something to become a partner. β and then your salary goes up by maybe it's twenty-five thousand dollars a year. I saw this at Kaiser. It was a couple hundred thousand dollars. They got a salary increase of, you know, thirty thousand dollars a year. And so it wasn't really too bad. But the question if the bigger the number,
Chelsea Jones (09:42)
Mm-hmm.
Mm-hmm.
Yeah.
Nate (10:07)
The care more careful you need to be with cash flow and then and comparing that with interest rate. Like that's the other piece, cash flow and interest rate. If if the interest rate was the same, you go to the bank and take more flexibility. You could pay it off early if you want to. Usually that's not the case. The practice is trying to give you a a β decent deal and fund fund your buy-in rather than going to a bank. So there is a lot of planning that needs to be involved here.
Chelsea Jones (10:25)
Mm-hmm.
Mm-hmm.
Nate (10:37)
Cash flow is a is a simplified way of saying, hey, if this is going to completely blunt your ability to do anything else, you need to take a more flexible option and maybe just pay a little bit more in interest. Right? You don't want to go two years with it like having no margins, no ability to save, no ability to cover things as life comes at you.
Chelsea Jones (10:50)
Mm-hmm.
Yeah. We don't need physicians living paycheck to paycheck.
Nate (11:02)
Right.
Chelsea Jones (11:04)
going into an operating room all stressed out like that.
Nate (11:07)
Yeah. w we yeah, we
we we had we need one more aspect of this is and maybe this wasn't in the question. no it is. β it's coming in two years. I mean, good God, if if you if they're gonna cut your your your pay in half for two years, why not start saving now? Like you could probably pay half of it back. Now, sometimes they the practices won't let you do this, but you can still save up a bunch of cash.
Chelsea Jones (11:19)
Yeah.
Yeah, exactly.
Nate (11:36)
And live a little bit off of that money for the two years where your paycheck's really low. This is mainly just a cash flow issue, like you like you pointed out.
Chelsea Jones (11:45)
Yeah. Yeah. Cause you could either save the money to live, to live off of, or you could save the money so that way you can finance less, like get a smaller wound from the bank. So there's a lot of ways you could slice it. just got to β think very carefully about it, your specific situation and make the decision that fits your family the best. All right. So our next question comes from an orthopedic surgeon in New York.
Nate (11:53)
That's right.
Mm-hmm.
Chelsea Jones (12:14)
They said, I'm thinking about a coast fire approach or a mini retirement so I can be more present while our kids are still at home. Is it financially feasible for us to pause or scale back mid career?
Nate (12:26)
Like, I almost laugh every time I hear a new version of fire. So fire is financial independence retire early. Coast fire is some Frankenstein version of that where like if you're coast fire is not coasting. Fire is like you treat it like it's a credit card, hair on fire, you're going crazy, you're saving every nickel, you don't see your family, you you work until midnight every night, and then you retire at like
Chelsea Jones (12:31)
Yeah.
No.
Nate (12:56)
45. Which I have yet, I mean, it's be it's let's be honest, fire people don't call us. That's what's going on. But I've still yet to see anyone do it and like be happy about it. β so Coast Fire, I understand what the question is, but I just like laugh a little bit every time we're like, we're trying to like figure out this way to still feel like.
Chelsea Jones (13:09)
Mm-hmm.
Nate (13:23)
we're being aggressive with saving and that we're like we're like these β we're going really hard at retirement. But ultimately what this question is asking is like, can I start making a life? Like, you know, our tagline, β you're not just making a living, you're making a life. Can I please just start making a life? And the answer is always yes. Like you physicians make a great income
Chelsea Jones (13:38)
Yeah.
Mm-hmm.
Nate (13:53)
And if you if you're prioritizing your life over your income, you can absolutely do it. Will it look the same? Will you make as much? Of course not. But that that what's more important? You know, having a fat fire, coast fire, fire like to the nth degree, what's more important? To me, I see most physicians be happy when they consider things like quote unquote coast fire, because they know that that deep down they they
They really know what they should be doing is spending more time with their family, but they just don't quite know how to do it. So but going a little deeper into Coast Fire, because I had look this up, right? It's like a new one. Maybe, I don't know. I Yeah. Yeah. Okay. So it's essenti essentially imagine this. You you were saving a lot for a couple decades or 15 years maybe, and then you're not quite ready.
Chelsea Jones (14:34)
yeah. Yeah, it's like a barista retirement. Another way. That's like another phrase that I've heard people call it, but.
Mm-hmm.
Nate (14:52)
To like full-blown be like retire early. Like maybe your money's not you you haven't hit your number yet in fire in the fire movement, there's always this number. We have to hit this number. But theoretically, you can kind of just sit and wait. Like if you have three million dollars, but your number's five. β if the market continues to go up, which there's no guarantees of that, but if the market continues to go up, you can kind of just
Sit on your hands and wait for it to hit five. You know? You then you get your five million and you can retire. And you can do that in two ways. You can either keep going and save like a crazy person, or you can just like slow down at work and save less. So the questi the the the nature of the question, someone asking this question, like which which way should I go?
Chelsea Jones (15:25)
Mm-hmm.
Nate (15:47)
The the fact that they even asked this question says that you should probably slow down and start waiting because you're obviously burning out at work. You're either burning out at work or you're missing your kids and your family. So this 100% you you need a rock solid retirement plan for this. Right. So let's imagine you're 50, you're planning to retire at 55, but you're a million dollars short.
Chelsea Jones (15:54)
Mm-hmm.
Mm-hmm.
Nate (16:14)
β you don't need to keep working in this person's case when we spoke to them until midnight every night to do this. You can save, maybe get the tax efficient savings in, like fill up your accounts at work, maybe do your backdoor Roths and call it a day. And then work less and make less. But you need to you need to know what you're prioritizing here. You're prioritizing family. And rather than, you know, getting excited about every extra nickel going into the market.
Chelsea Jones (16:31)
Mm-hmm.
Nate (16:44)
You need to shift your perspective and be excited that you make enough to cover your bills. Because the important thing here is while you're waiting, you know, cars don't start break stop breaking and roofs don't stop leaking, kids don't stop going off to college. Like you need to reprioritize how you feel about money, how you feel about work, and start engaging more with your feelings about your family. And then you can
Chelsea Jones (16:57)
Yeah.
Nate (17:11)
most physicians can absolutely do this. And let's just imagine instead of your your goal being retiring at fifty five and you're you're close to that, but maybe you have to keep working really hard. Mm, what if we were just retired 57, but we we have a more reasonable schedule. That is what I see physicians β at least in in my experience, β when they take that route, they seem to be β just more present at home, happier in life.
Chelsea Jones (17:14)
Mm-hmm.
Mm-hmm.
Nate (17:41)
the idea that okay, I'm not gonna retire that extra two years earlier, but β I'm gonna enjoy the next five, ten years a lot more than if I keep going at this rate.
Chelsea Jones (17:53)
Yeah. Yeah. It's so important to find a sustainable work life, work schedule. Cause especially with the, the fire people, the people that, you know, are trying to retire super early and are just on all, firing all cylinders all the time. By the time that they're done, their kids could be off to college and they have all this time for what?
Nate (18:01)
Yes.
Mm-hmm. Yep. Yeah. I
Chelsea Jones (18:21)
or they're
pushing hard, hard, hard, and then they reach their breaking point at some point and they just can't do it anymore? Like, what happens then?
Nate (18:28)
Yeah. W when I when
I hear this, I just think, what what are you retiring to? Like, like l okay, so maybe, maybe there's people listening that they're like, I I love my kids, but I don't want to spend 10 hours a day with them. I mean, they're getting older, they don't even really like me anymore, they're in middle school. Like, maybe that's the case. Okay, take some time to develop like what you do outside of work. Right. Ha I'm sure you've had this moment. I've had it.
Chelsea Jones (18:34)
Yeah.
Yeah.
Nate (18:58)
Several times, but I'll be going really hard at work. My spouse will be going really hard at work. The kids are in sports. We're doing drop it's four drop offs a day. It's it's crazy. And then we get just one random like Saturday every two months where we got nothing going on. And we just all sit on the couch and look at each other like, what what are we supposed to do today? I keep asking, hey, what what what do we have today? Because I'm bad with the schedule. So
Chelsea Jones (19:16)
Mm-hmm.
Yeah.
You
Nate (19:27)
Brittany does
the schedule. What do we have today? And she has to tell me three or four times before she's like, nothing. Like, okay. Well, like, I have no, I have no hobby lined up. And that's what these people are w will experience. And don't experience that on day one of retirement. Maybe you start to develop, you know, a a hobby or something that is important to you. β you know, you can donate some of your time to things and and start to build.
Chelsea Jones (19:50)
Mm-hmm.
Nate (19:56)
out what you think retirement could look like. Then you got hobbies, and then by the if you wait a little bit longer, maybe you'll have some grandchildren and there's your retirement. But this this is really powerful. And β even if you take like a sabbatical, you know, that that would be really telling. And that doesn't cut you off from your physician identity. It doesn't mean you don't go back to work. It just means maybe for six months you rest and you and you just sit
β and meditate for a while, you know, and start thinking about what life is like beyond, you know, outside the hospital.
Chelsea Jones (20:28)
Yeah.
Mm-hmm.
All right. And then our last question for today comes from an OBGYN in South Carolina. They said, my wife and I are working on rolling over our funds from our previous respective employers to our retirement accounts at our new jobs. We were given the option of either rolling over to our new 403B or transferring it to an IRA. The rollover person was stating that the big differences were if we were to manage our funds on our own.
and be able to access all of the empower funds, which that's where their old plan is. So they're talking to this empower person and they're trying to get them to roll it into an empower IRA. Or just keep it within a four or three B with our new employer. β The rollover person said that they may qualify for free financial advice with the IRA, which seems nice, but however, it screams that there might be hidden fees. β
Nate (21:29)
Mm-hmm.
Chelsea Jones (21:29)
On a brief Google search, I did see somewhere that transferring to an IRA could make it more complicated to do the backdoor Roth, but not sure if this is true. β I plan to do a deeper dive of risk and benefits of each. β And I'm hopeful to gain some straightforward advice from you. So this is a great question. It's one that we get a lot. β Every physician comes to this decision when they switch jobs, because they have saved diligently into their
Nate (21:51)
Mm-hmm.
Chelsea Jones (22:00)
Workplace retirement plan at their previous job. And now they have this, this balance, which it could be big if they were there for a while, or it could be small if they were only there for a year or two. and so one thing that I asked was, how much is in this, these old four or three B's and they said it was like 200,000 each. So I was like, okay, because the initial options that I thought was.
Nate (22:08)
Mm-hmm.
Chelsea Jones (22:27)
You definitely don't want to roll it into an IRA unless the balance is really small. If it's like $5,000 or less, you could roll it to the rollover IRA and then just convert it, which you would owe taxes on, but yeah, but you would get more money into the Roth. β Or...
Nate (22:33)
Mm-hmm.
To a Roth. Yeah.
And there's no like
the th this is mainly that's not the perfect way to do this, right? Like you you could roll it into the Roth and pay the taxes on it, but it would mainly just be to clean it up, maybe get a little extra money on your Roth. But it's main mainly by you asking that question, how much is in here, you're trying to identify and calculate the cost of this decision. Which everybody's a little bit different. Maybe they do
Chelsea Jones (23:01)
Yeah.
Mm-hmm.
Nate (23:12)
If there's a thousand dollars in there and they won't put it in a Roth, it's just kind of inconsequential, is what you're saying. But this one had multiple six figures.
Chelsea Jones (23:18)
you
Yeah. So, and we do not want $400,000 worth of 403B money rolled into an IRA because it would, it would block the backdoor Roth because of the pro rata rule. β which says basically the IRS sees all pre-tax IRAs as one bucket. It doesn't distinguish, you know, your rollover dollars and your after-tax non-deductible contribution. β if you convert anything,
Nate (23:33)
Mm.
Chelsea Jones (23:50)
it'll be taxed pro rata. And so ultimately what I recommended to this person was just roll the old 403B into the new 403B because it keeps it out of an IRA, doesn't mess up the backdoor Roth, and it preserves the tax deferred status. So there's no taxes owed or penalties owed by transferring it to the new 403B plan.
Nate (24:00)
Yeah.
Yeah. This is such a classic kind of rule of thumb or I don't even know what you call it. β t it's just a typical answer when you call into places like this. And it's not because they it could be because they want to collect the assets. That would be other financial advisors. They're like, roll into the Roth. I can't help you for free. Like, right? 'Cause if
Chelsea Jones (24:28)
Mm-hmm.
Mm-hmm.
Nate (24:42)
If you roll into your 403B, how are they going to give you advice about your investing? And then that logic in their head absolves them from the right answer. They're like, Well, if you want to work with me, you got to roll your money over to me. It didn't exactly sound like that was what's going on here. What actually sounded like what's going on is that 90% of people would don't even d need to do a a a backdoor Roth. They're not even considering it. They haven't even thought of this. The and they have β summed up.
Chelsea Jones (24:51)
Yeah.
backdoor Roth.
Nate (25:11)
The answer to more control of investments, which if you're an index fund investor, like you just want some good Vanguard fidelity, like low cost index funds, you don't really care about that. There's g there's probably, most likely, a decent index fund in your in your new four three B. So like it just doesn't matter. But that's what they're trained to say. And they're just saying you you get more flexibility, you have more control.
Chelsea Jones (25:26)
Mm-hmm.
Nate (25:41)
Of what? Like you want to buy single stocks? So, I mean, most people don't want to do that. β or at least physicians. I I don't hear physicians that want more control over their investing so that they can buy single stocks with their IRA. β and so this is just a β run-of-the-mill answer from somebody that doesn't know your situation. And it's a great reason why physicians should be really careful taking
answers right off the internet or out of the mouths of some guy at a phone bank. Right? You need to be careful for what your plan calls for and how it interacts with the rest of your accounts.
Chelsea Jones (26:12)
Mm-hmm.
Exactly.
Nate (26:18)
Okay, I think that's it. yeah, thank you everyone for listening. β if you like this episode, you can rate it and subscribe to new episodes. We we release them every Wednesday. And until next time, remember you're not just making a living, you're making a life.
Chelsea Jones (26:21)
It is.
