6 Financial & Professional Advantages of the Small Fish in the Ocean

While it may seem nice to be the big fish in a small pond,

it is not at all the most advantageous position for rapid progress and ever-climatic serial successes. 

1.       Many to learn from in immediate surrounding.
While I am constantly reminded of how little I know when I surrounded by experienced and knowledgeable attending radiologists, I also enjoy the pleasure of learning from them even in casual conversations.

2.       Perceived value is elevated by the collective average.
This is why I like to purchase lower end homes in a high end neighborhood, rather than the most expensive home in an average neighborhood.
After I purchased one of the cheapest home in a highly sought after neighborhood in 2014 (as MS4), I sold it to family in 2016. (I like the idea of keeping great homes in the family.) I’m now looking for our next home. When I was faced with the most expensive home in a great neighborhood versus a low end home in an even higher tier neighborhood, I’m going for the latter again.

3.       Not perceived as a threat.
It’s unfortunate that envy is real and real at all levels and dimensions of human endeavors.  I notice that those not perceived as a threat tend to receive more collegiate support. Nurturing instead of competition.

4.       Not targeted.
The most luxurious home on the block will likely be the first to be robbed, when all other variables are held constant. Chinese saying goes, “Humans are plagued by fame, and pigs by fatness.” The fat pig is ready for slaughter, so is the famous, illustrious person, unfortunately.

5.       Abundance for all.
While it is more often than not the right mindset to know there’s always someone better than me, it’s also the right and self-fulling to operate on the presumed abundance rather than scarcity. The abundance mindset encourages collaboration rather than competition.
As many of my readers know, I’m big on “living gently on this earth.” I’d love to leave a little footprint as possible behind me, kill as few trees and cows as possible. Being the big fish in a small pond means that I’d more likely to be dumping on others, which I distaste. I much rather to be surrounded by fresh water in the oceanic immensity.

6.       The surprise element.
Mom always taught me to keep a little reserve, an art I have hard time of grappling with and practicing. I like to share all I know as quickly as I can and then move on to learning more.
But as I progress through my training from pre-med, to MS and PGY years, I am starting appreciate then surprise element. Instead of spending all my time on tutoring (which is superficially lucrative at $388/hour), I decided to cap the number of tutoring hours and invest the rest in being with my loved ones and advancing my own learning: as a radiology resident, as a personal finance blogger, and as a parent.
Sure I can put out more and make more money today, but I balance that with taking in and building the largest asset I have, my mind. I pace myself in sharing what I know while incessantly expanding what I know.

 If you like this article, you might enjoy other DWM articles on Personal Finance, Investing, Retirement, Practice Management, & Lifestyle.

All articles by DWM are for informational purposes only and not intended as a substitute for professional advice. Please consult a professional accountant, financial adviser or lawyer, before making financial decisions.

 

My Debt is Better Than Hers: 5 Reasons Credit Card Debt Trumps Student Loans

1.       Are you kidding me? Look at the interest rate!

First off the highest interest rate I have ever paid to a credit card company is 1.7%. In fact I have not paid a penny of interest other than that of my student loans (paying interest to department of education) since January 2014. I have been indeed borrowing negative interest money to pay off my student loans and max out my retirement savings. So why would anyone choose, in my shoes (I was class 2014), 6.8% interest rate over negative to 1.7% interest rate debt? I know there’s stigma and fear associated with credit card debt, but to me what’s more scary is debt snowballing at 7% interest rate while I sleep, work, eat…

Federal Student Loan Interest Rates (fixed)

July 1, 2016 to June 30, 2017 July 1, 2015 to June 30, 2016
Direct Stafford Loan – Subsidized
(Undergraduate Students)		 3.76% 4.29%
Direct Stafford Loan – Unsubsidized
(Undergraduate Students)		 3.76% 4.29%
Direct Stafford Loan – Unsubsidized
(Graduate/ Professional Students)		 5.31% 5.84%
Direct Parent PLUS Loan 6.31% 6.84%
Direct Graduate/ Professional PLUS Loan 6.31% 6.84%
Perkins Loan 5.00% 5.00%
HPSL
(Health Professions Loan)		 5.00% 5.00%

2.       The origination fees.

Check out the origination fees! It’s higher than credit card balance transaction fees. Now, the balance transfer offers I had gotten throughout medical school included 1% transaction fee for 15 months balance transfer checks at 0% APR. To put in plain language, private banks were charging me 1% up front for me to borrow money up to my credit limit for 15 months interest-free. So what is the true cost/effective interest of such a debt/offer? 1% divided by 1.25 years = 0.8%. You can see it 2 different ways to compare apple to apple.
One, balance transfer has $0 origination fee and effective 0.8% interest annually vs. student loan with 4.27% transaction fee (which becomes your principle the moment your loan disburses) & 6.8% interest rate.
Two, balance transfer has 0.8% origination fee and effective 0% interest annually vs. student loan with 4.27% transaction fee (which becomes your principle the moment your loan disburses) & 6.8% interest rate.

No matter which way you look at it, I can’t see anyone say student loan is a better deal than credit card debt.
Nowadays, my balance transfer offers are either 0% transaction fee for 15 months of 0% interest rate, or 2% transaction fee for 14 months of 0% interest rate. Still beats the federal student loans.

Federal Student Loan Origination Fees

October 1, 2015 – September 30, 2016 October 1, 2014 – September 30, 2015
Direct Stafford Loan – Subsidized
(Undergraduate Students)		 1.068% 1.073%
Direct Stafford Loan – Unsubsidized
(Undergraduate Students)		 1.068% 1.073%
Direct Stafford Loan – Unsubsidized
(Graduate/ Professional Students)		 1.068% 1.073%
Direct Parent PLUS Loan 4.272% 4.292%
Direct Graduate/ Professional PLUS Loan 4.272% 4.292%
Perkins Loan 0.00% 0.00%
HPSL
(Health Professions Loan)		 0.00% 0.00%

3.       The rewards/incentives of charge on credit than to ask Uncle Sam.

Now, let’s talk about borrowing negative interest money from credit cards to fund your education rather than paying 4.3% loan origination fee with 6.8% interest accrual on what you borrowed + the origination fee.

In medical school, when I charge my trimester tuition of 15k every 4 months, I make anywhere between $150-300 cash back, even more if I redeem the points for gift cards, flight mileage rather than cold cash. If I were to borrow from Uncle Sam the same 15k for 4 months of medical school education, I would have been charged $600 origination fee, and have a debt principle of $15,600 snowballing at 6.8% interest rate the minute the loan disburses (it is a few days later when I get the check and cash it.) So $900 difference up front, then either I ride the 0% interest on credit cards for 18 months, or I let the 6.8% interest from Uncle Sam crush me for the same 1.5 years.

What would you choose if you were I?

4.       Banks compete, you win.

Discover, Bank of America, Wells Fargo, Chase, Citibank, American Express, just to name a few were competing for my debt, hoping to bait and switch on me (i.e. bait me with introductory promotional interest rate of 0% then switching to 17% after promotion ends.) When bank competes, borrowers win.

Now, do you know how many competitors are against Uncle Sam? Nada, zero, zilch.

As Uncle Sam monopolize “federal” student loans market, they charge whatever they like. While private banks can borrow 0% interest rate (prime rate for a while as you recall), from feds/ (tax payer dollars from you and me), Feds decided arbitrarily to charge those who want to advance their education 6.8%. You see where our national value lies, clearly in business, not in education.

Because of all the banks competing to bait and switch on me, I never ran out of offer. As I write right now, I have $0 student loans, $0 consumer/credit card debt, and the only debt I will have in a few weeks is the mortgage of my 2nd/dream home. I still get 10+ credit card balance transfer offers, as the banks hope that I will bite their bait and stick around for the switch.

While these banks are the same faceless corporations who charged my dad 30% interest rate when he missed a payment 10 years ago, I don’t feel bad to fund my education with their negative to 1.7% interest rate loans.

5.       When things goes really really badly, student loans stay, credit card debt is discharged in bankruptcy.

What’s the message here? Don’t mess with Uncle Sam. While I paid back every penny I owe (principle + interest) to Uncle Sam and private banks. White Coat Investor raised a good point… “I even thought to myself, well, what if you just left all that debt on the credit cards and just declared bankruptcy at the end of medical school? Student loans don’t go away in bankruptcy, but credit card debt sure does. By the time you get out of residency 3-5 years later, that bankruptcy is almost off your record. Unethical? Of course. But geez, I can’t say it wouldn’t be tempting when staring a $400K student loan in the face.”

While per my personal moral standards, I will not advise anyone to do the above, neither did WCI intended to encourage intentional bad debt. What I do see though if a PGY3 gets disabled and no longer can finish medical training or practice medicine at all, yet he/she has 400k of student loans at 7% interest rate from the feds. He indeed would have been better off to have these debts on credit cards and file bankruptcy.

What do you think?

In short, I’m way more scared of borrowing from Uncle Sam, the monopolizer of government issued student loans, than borrowing from credit card companies/private banks in a highly competitive market, favoring consumers.

Tax-Sheltered Savings Beyond 401k, Roth IRA, & 529-Expert Sessions with Johanna Fox CPA,CPF,RLP

It was a pleasure to have “sat” with Johanna Fox CPA,CPF,RLP this early Saturday morning (via face time, in the comforts of our respective home offices.) As I need more tax-efficient space to save money beyond (my Roth IRA, Roth 401k, pretax 401, Mini’s 529 and Mini’s Roth IRA, tax-sheltered saving space totaling $45,000) 2016, I needed Johanna’s expert help on where to put my additional savings. Johanna’s comments are in blue below. Disclaimer: Johanna Fox is a sponsor of this site.

These are the things I learned during our session.

  1. There may be an after-tax 401k component available to me from Banner (checking as we speak, the SPD “Summary Plan Description” is not completely clear on that), which allows me to save $53k total (including my 401k Roth, 401k after tax, & Banner’s employer contribution.) This would be really exciting because it will provide me an additional $33k after-tax space to save for retirement which I can then Mega-rollover into my Roth, ideally on an annual basis!
  1. For my business/1099 income from blogging, writing, book royalties, if I choose to set up SEP-IRA, I actually have until 10/15/2016 to fund my 2015 SEP-IRA contribution. You read that right! So I can actually reach into the space (which I thought was lost to me) back into 2015, here in 2016 as we speak if so desired.
  1. DWM LLC can pay Mini Wise Money up to 6,300 without Mini having to pay a penny of taxes, and that would work perfect to fund her Roth IRA. [You may have to pay state income and unemployment taxes, depending upon where you live.]
  1. If I pay Mini above $6,300, she will pay taxes when she files her tax return, but the taxes will be way cheaper than mine! Since Mini already does so much work for DWM LLC, on the blog, might as well pay her more and pay Uncle Sam less in taxes. [As long as you are not incorporated and Mini is under age 18, there are no FICA taxes due on wages you pay her. Best to have an employment contract in place specifying duties and pay. Be sure to document work done. See “How do I hire my child?”]
  1. If it comes down to 529 vs. Roth IRA for Mini, it’s more important to max out her (Mini’s) Roth IRA instead of 529. Which I don’t understand why parents don’t do more often. I’ll be writing a post on why I think Roth IRA is way better than 529 for savings for children regardless of the purpose. But the gist is,

One can withdraw money from Roth IRA (the principle investment) without any penalty or additional taxes for any reason or at any age.

529 is earmarked for higher education. You get a penalty of 10% plus taxes if you withdraw the money for non-educational costs. (What if Mini decides to not attend college and be a YouTube entrepreneur instead?) [Or what she gets a full ride scholarship?) Or what if you save too much? I am one of the few who believe college costs will eventually begin to decline in our internet-saturated world. We are already seeing students turn to less-expensive community colleges and trade schools. Did you see this debate I had with WCI?]

FAFSA counts 529 against financial aid at a higher % than it would count dollars in a Roth IRA. Since I pay plenty of taxes as most physicians do and paid a grand price/cost for my ½ dollar medical school education, I’d like to get as little EFC (expected family contribution) on FAFSA as possible when it comes time to pay for Mini’s college.

While points #1 and #2 are completely new ideas to me, the rest of the ideas are further solidified and clarified by Johanna’s expertise.

It was a wonderful session, if you are interested in seeking Johanna’s service, you can reach her here. I highly recommend her. She’s knowledgeable, personable, and most importantly she’s authentic and has her heart set in service rather than pure monetary gains, quite refreshing to find in a money-expert like herself.

Thanks for the kind words, DWM. One more point to consider on the SEP v. 401k issue: when you become an attending, you will make too much money to contribute to a Roth IRA. Actually, you are bumping up against the threshold now. But you will pay taxes on a back-door Roth contribution if you have money in a pre-tax IRA, which includes the SEP. That is why for this year (2017) you should set up a SOLO-401k and roll any pre-tax IRA money into the SOLO-k. A 401k does not keep you from contributing to a tax-free back-door Roth IRA. On the other hand, if you don’t have the funds to contribute to a SEP OR a SOLO-k this year, you have until 10/15/2017 to save enough money to contribute to your SEP for 2016! Then you could set up the SOLO-k in 2017 for the year 2017 and roll the SEP into it. Hope this makes sense – I’m sure it will to you, but you may have to sort it all out for your readers J. Looking forward to future discussions.

Final-01
You can seek out Johanna’s expertise and service by clicking here. I’m sure you’d be glad to learn to maximize your tax efficiency and to optimize your investment plan for your family and your future.

 If you like this article, you might enjoy other DWM articles on Personal Finance, Investing, Retirement, Practice Management, & Lifestyle.

All articles by DWM are for informational purposes only and not intended as a substitute for professional advice. Please consult a professional accountant, financial adviser or lawyer, before making financial decisions.

My Million Dollar Mistakes, Your Free Lessons

Top 5 Mistakes Which Made Me Money Wise Today

 

There’s Chinese folktale. There is temple on a mountain so high that people believe it reaches the heaven. In the temple, sits the statue of a Buddha, which took 100 years to build, and towering at 50 feet stature. The 10s of 1000s of steps leading up to the temple where people worship and pray to Buddha is made of the same time of stone.

One day the stone slab worshipers step on to arrive at the temple said to the Buddha, “we are from the same mountain, we are the same stone. Why do people worship you and step on me day in and day out?”

Buddha answers, “Perhaps you won’t want to be where I am today if you knew how many slashes and chisels I had endured to become a statue from the stone that I once was.”

I find this story so beautiful. Perhaps our entire life is a transformation from a raw stone from the mountain into a statue. Or perhaps, we simply become the slabs of stone which become steps of ladders leading people somewhere amazing.

Would you rather be a statue or a slab? I think both have its merits and functionalities.

 

This series of posts is titled “My Costly Mistakes, Your Free Lessons.” I am 100% transparent here sharing with you my mistakes. I hope that you don’t suffer what I had to go through and that you succeed with more ease, grace, and fewer trials and tribulations J

 

Mistake #1

I did not value my time.

  1. Anyone close to me knew about my epic fail of working 7 jobs at once while double majoring at UC Berkeley and writing my Junior thesis in Organic Chemistry Synthesis. My then principle investigator tried to talk me out of my madness, “Don’t worry about your parents’ credit card debt right now. Focus on school and research. Once you graduate, I’ll get a job to pay off your parents debt much faster than your odd jobs right now.” I did not listen, to my own detriment.
  2. History repeats itself. I was tutoring and making $60/hr, so I worked like a dog, some days 14 hours/day + 3 hour commute. I missed precious time I could spend with my kid before medical school started. I should have increased my hourly rate and work fewer hours rather than working myself to death. (I learned that lesson later, now charging $388/hr and limiting my tutoring hours to 26 a year.)
  3. For a few months when Mini was 2, I would collect alumni and plastic bottles to get $0.50 each from the recycling centers.

Mistake #2

I did not value my health.

  1. Since I was 17, I slept no more than 4 hours a night. It worked well in medical school, because I was single mom with 2 jobs. Everyone was amazed at how much I could do, research, volunteer, scholarship applications, 2 jobs, my kid, all the while ranking top 10 in my medical school class. There was no secret. I worked hard and I had 20 hours/day to work… I was killing myself in the vicious cycle of rewards, incredible productivity, and taking on more challenges progressively. After 15 years of sleep deprivation, I finally sought help, pretty much forced by my PD to do so. I am so grateful that she saw that I was an extreme workaholic dangerous to self and others. I am now sleeping 6-8 hours daily and it’s the best investment ever. Sleep. Health.
  2. I spend so much time working and learning about how to manage money that I saved no time for exercise. I did not exercise regularly for a decade. Until recently (June 2016), I started and have been on track for a 30 day yoga challenge with Adrienne. I make conscious efforts to leave the PACS at work and run up and down 7 flights of stairs a few times a day.

Mistake #3

I did not value my mind.

  1. I consume junk TV shows.
  2. I waste time on Facebook. Learning how happy, successful my friends are, and wishing I were them.
  3. I concern myself with the people who makes negative comments on my life/ my effort to reach out with my blog.
  4. I live vicariously through realty TV shows.

Mistake #4

I did not know the time value of money.

  1. I’ve worked and pay taxes since I was 16 in the US. I should have put my $ to work then in ROTH IRA. I waited until I was 30, that was the first time I put my money to work.
  2. I had money sitting in bank accounts bearing less than inflation rate (2-3%) interest rather than investing it.

Mistake #5

I did not know/use the power of corporations.

I thought being employed as W2 worker and get defined (selected by my employer) benefits and health insurance coverage is the better than being my own boss. At 32, I finally learned the power of corporations. Business make money, spend it in investment/buying assets, then pay taxes on what’s left. Employees, make money, pay taxes, and spend what’s left. Without knowledge in tax codes and appropriate deductions, self-employment seems costly, the tax rate is much higher than that of an employee. But if you have a good accountant or just follow TurboTax, you could keep much more of your income being your own boss.

Plus, as an employee, you are trading your time for money. As your own boss, you likely will trade your employee’s time for money and using your assets to make you money even when you vacation.

I’ll be sharing more mistakes in the next post. I hope these are helpful. If you don’t avoid my mistakes and you practice mindful financial practice, you will be much more successful and faster than I am.

 

This series of posts is titled “My Costly Mistakes, Your Free Lessons.” I am 100% transparent here sharing with you my mistakes. I hope that you don’t suffer what I had to go through and that you succeed with more ease, grace, and fewer trials and tribulations J

5 Tips to Reach Your First 100k

As I’m targeting a net worth of 75k (~125k in assets) by the end of 2016 tax, I thought it’s good to reflect back on how I managed to build up 100k in assets as a PGY3.
Old Chinese saying goes, “10,000 things, to start addressing them is the hardest.” The 1st 100k is often harder than the 2nd 100k; first million harder than the 2nd million.
There are many things and people that have helped become educational-debt free (as a PGY1) and on tract to become financially independent by the age of 38. These 5 tips, however, are what I found most impactful and widely applicable.

1.      Be realistic.
Make realistic goals. I’ve always done better than my goals, financially. Money matters are just numbers, much more straightforward than medicine and family life.
Make goals and set yourself up for success by leaving a little wiggle room so that when life happens, you don’t fall behind so much that you feel despondent.
Robert Kiyosaki said, “Failures inspire winners; failures defeat losers” Not making your financial milestones as planned provide opportunities to reflect and do better next time.

2.      Be resourceful.
Make an extra dime.  Learn another skill. Always rise up to more ownership and greater responsibility. Trust me, on one hand it may seem like, you are doing so much more than your peer PGY3 who gets the same W2 pay from the residency program, the truth is by doing more and taking ownership, you are building priceless skills and knowledge that will catapult you to greater income and wealth without you going after the money.

3.      Be creative.
Don’t follow the crowd. Be confident in your frugality. Just because you don’t hop on amazon to buy whenever you need something, doesn’t mean that you should feel ashamed or deprived.
Get in the habit creating rather than consuming. Look at the super duper rich of the America, the ones with wealth so vast to last generations and ability to donate away 99% of their wealth and still live comfortably (i.e. Facebook founder), they create rather than consume, consequently, they build wealth rather than spend money.

4.      Be disciplined.
How many times have all the big name physician finance bloggers like White Coat Investor told us to live within our means? It’s that simple. I don’t need to keep harping the same few important ground rules of building wealth.
You know it all. Putting it into practice and sticking with it is what counts, towards your first 100k or first 10 million in assets.

5.      Have fun.
As you focus your energy on creating rather than consuming and your discipline rewards you with exceeding your anticipated goals, celebrate!
I personally enjoy celebrating with loved ones, whether it’s a small vacation with family to a new place, or a staycation close to home, visiting museums, going on a new hike (plenty of beautiful hiking trails in Tucson), try out a new restaurant or new experience such as sitting in a plane flown by my 8 year old kid with the instructor in her passenger’s seat.

These same 5 principles will get you to your first 100k like it will to your first 1 million. The only difference is that if you practice these tips today while you have “little,” you will master money matters when you reach your first million.
Financial intelligence compounds your income when you make more, lack of it dissipates your income no matter how much you make.

“If they think [making more] money will solve the problems, I am afraid those people will have a rough ride. Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.” ― Robert T. Kiyosaki, Rich Dad, Poor Dad

 If you like this article, you might enjoy other DWM articles on Personal Finance, Investing, Retirement, Practice Management, & Lifestyle.

All articles by DWM are for informational purposes only and not intended as a substitute for professional advice. Please consult a professional accountant, financial adviser or lawyer, before making financial decisions.