Personal Finance Tips From White Coat Investor
The Financial Residency Community is full of incredible physicians wanting to achieve a high level of confidence in their finances. Not only are they pursuing the right things to get that done, they ask questions when they need to fully understand a rather complicated finance-related issue. The Curbside Consult brings some of the industry’s leading experts in the finance space to help physicians better position themselves for success. This time around, we gather personal finance tips from White Coat Investor, Jim Dahle.
What You Will Learn
- 1 Personal Finance Tips From White Coat Investor
- 2 When is the Public Service Loan Forgiveness program an option?
- 3 What resources are available to establish a positive relationship with a financial planner?
- 4 Should I Change Banks?
- 5 Journal Club: WallStreetPhysician.com
4 Personal Finance Tips From White Coat Investor That Will Change The Way You Think About Money
Jim comes back to Financial Residency to answer some of our community’s most pressing questions. These 4 personal finance tips from White Coat Investor revolve around the Public Service Loan Forgiveness program, establishing a relationship with a financial planner, switching banks, and investing extra money.
But first, what were the listener questions?
Here you go:
- When is the Public Service Loan Forgiveness program an option?
- What resources are available to establish a positive relationship with a financial planner?
- Should I change banks?
- What do I do with my extra money?
Now, let’s keep on keepin’ on.
Here are Jim’s answers.
When is the Public Service Loan Forgiveness program an option?
The White Coat Investor says the Public Service Loan Forgiveness may be an option if:
- You were fully employed for a 501c3. Those employers would need to be a non-profit, the military or the Veteran’s Administration.
- You must have enrolled in Income-Based Repayment (IBR), PAYE, or REPAYE and made two to four years of low payments while in training.
An example is a person who is seven years into an emergency medicine residency, it would be worth extending your residency the three years to get $100,000 or $200,000 of tax-free money through loan forgiveness.
This program is also for a single earning resident who wants to go into academics. Jim emphasized that even payments that are $0 still count toward the total required 120 payments.
He stated the 120 payments don’t have to be consecutive, but they must be logged with the servicer. He suggests saving up a fund that you could use to pay off your loans, in the unlikely event that Congress discontinues the public loan forgiveness program.
Setting aside an amount of money in an investment, a taxable account or simply saving the money in your bank account is a good plan, in the event you decide to take time off or change jobs.
However, if you are married to another resident, attending physician or dentist, this program would not work.
What resources are available to establish a positive relationship with a financial planner?
Call me a bit biased on this one.
For those in our audience who like to handle things for themselves, there are a ton of great books and blogs available to begin planning your financial future.
One of those resources is this podcast, where we attempt to put people on the right path.
Another resource is the White Coat Investor blog, which provides an outstanding framework to help people plan their finances.
For a medical student dealing with the intricacies of managing student loans, meeting with a financial advisor early to create an effective plan is optimal.
An advisor will set up a written plan with a long-term view to financial success. The important thing is to consult an advisor before any bad habits become entrenched and derail your finances.
Don’t let that happen!
As an intern or a resident, consulting a financial planner will help you deal with life and disability insurance plans. What about the free advisor who wants to sell you whole life insurance? That advisor and his advice are not free. An advisor selling insurance is a red flag indicating a conflict of interest.
There are two types of advisors, the fee-based (who sells insurance), and fee-only. A NAFA study indicated that 97% of all advisors are fee-based. You need to choose a fee-only advisor, who has their fees listed on their website. You should know prior to your consultation how much you will be spending. Only makes sense!
What financial advisors should you avoid?
- Any fee-based financial advisor
- An advisor whose fees are not readily available
- An overpriced advisor who charges five figures
The journey to wealth starts with knowledge, whether you’ve decided to find your own resources as a starting point or you choose to consult a financial advisor.
We want our podcast to be a resource for your continuing financial education.
Should I Change Banks?
Our next question involved an individual who asked if she should change her bank from Wells Fargo to a local or online bank, she was concerned about the timing due to her plans to buy a house in the next nine months. White Coat Investor agreed that leaving Wells Fargo is advisable and is based on all the negative reviews and publicity surrounding how they treat clients and their unethical banking practices.
What are some things that a listener might look for when setting up a checking account in a new bank?
- No checking fees
- Reimbursement of all ATM fees
- Waiving fees for an occasional minor mistake
I rarely use cash, preferring instead to use Chase credit cards and then pay them off at the month’s end and collect their awesome rewards. I have business accounts and a small personal account with Chase, so if he ever needed a brick and mortar building, he would use them.
For his personal accounts, I personally prefer an online bank with an easy account set-up system. I would use my online bank for my business accounts if they had business banking. I have both checking and multiple savings accounts with his online bank. What do I like about using an online bank?
- High yield savings account
- Easy money transfer availability
They both indicate the downsides of using an online bank, including:
- Getting cash
- Cashier’s checks
- Difficulty depositing cash
- No Notary Public available
- Depositing large checks that go over the limit for mobile deposit
Having a high-yield checking account, I indicated I didn’t see why someone would need a high yield savings account. After a discussion regarding the possible merits of high yield checking accounts, it appeared the hoops that you need to jump through to gain anything from them—might not be worth the time and effort. (O.o)
What should I do with my extra money?
In the last question, a young attending physician outlined his specific circumstances, he asked what to do with extra money.
White Coat Investor advised him to put the money in a non-qualified account, making it one big taxable account, and invest all there. With long-term money, such as retirement or extra money, a taxable account is the way to go.
However, if there are mitigating circumstances or debt then that may require two taxable accounts or a different strategy.
Where Does This Road Lead?
What is your plan for financial success? Do you have the tools to get started on the road to wealth? White Coat Investor helped us reveal how exactly to do that.
Our podcast was created to encourage and empower you in your search for financial freedom.
We are here to help you on the journey.
You’ve taken the most important step in the process by looking for answers. Take a hard look at your current financial situation, think about your end goals and create a plan to finish rich.
In taking steps to increase your financial literacy, you are building the future that you dreamed of and deserve.
Journal Club: WallStreetPhysician.com
In our Journal Club, we are going to be discussing an article that was posted on the site WallStreetPhysician.com titled: The Investing Game Is Won By Not Losing
The author, a former trader on wall street and now a physician, begins the article talking about the many ways he spent trying to make money in the market. It’s funny because when I was a kid growing up in high school, I spent many of his ways trying to do the same exact thing, beat the market. What a fools game that is… Anyways, he discusses the thrill of the winners and how we, as human beings, are addicted to that thrill. Placing money on a trade, and winning, what a ride!
He breaks down some amazing words of wisdom that I’ll share here.
I quote, “success in the investing game is more about consistently avoiding the traps that erode investment returns.”
He gives us an excellent analogy on the sport of tennis and how most amateur matches are won by the player that had the least unforced errors, not the most winners.
So what are those traps? The five he listed are:
And I quote,
Trading too much
Investors are notoriously unsuccessful at trading. When they try to time the market, they inevitably buy high and sell low instead of buying low and selling high. They get eaten up by commissions and bid-ask spreads.
Paying too much money in fees
When investors trade too much and are unsuccessful in trading themselves, they often then believe they can hire someone who can beat the market. Unfortunately, these managers also on average fail to beat the market.
Not minimizing taxes on profits
You can’t keep all of your investment gains, and you want to make every effort to keep as much of your investment gains by minimizing taxes. Some of the steps to minimize taxes include maximizing money in tax-advantaged accounts, minimizing short-term trading in taxable accounts, and placing tax-inefficient asset classes into tax-deferred accounts.
Taking too much risk
When investors take too much risk, it can be difficult to stay the course when the stock market falls. The paper losses can cause them to lose sleep at night and possibly make rash, emotional decisions to sell at the worst possible time.
Taking too little risk
For some investors, taking too little risk can be just as bad an unforced error as taking too much risk. There are some investors, whether they are fearful of the stock market or for other reasons, choose to hold all of their money in CDs or other “safe” investments.
In my experience, I see these mistakes all the time. One that I would add would be paying a financial advisor based on a percentage of your assets under management vs paying them a fixed flat fee. I guess this could go hand in hand with the mutual fund expense ratio that he referenced, but I feel like its worth mentioning.
I had the pleasure of speaking to Wall Street Physician on the phone and getting to know him and his plans for the site. He is producing an enormous amount of excellent content and is worthy of not only some amazing praise but also to gain some additional readers. Wall Street Physician, great work with this article!