Debt to Dreams

One of the very first goals of our family shortly after we were married was to save as much of our excess income as we could in an emergency fund. Our goal was to have about 6 months of living expenses, which for us was about $25,000. We never actually reached this goal but we came within a few thousand dollars.

I was content to collect my 3-5% interest on this money for about the past year or so but this all changed in July.

In July I stumbled into a great business opportunity.

Peter Lynch always said invest in what you know and for the longest time time I have been looking for a great opportunity to use my knowledge to invest in medicine

It was a difficult decision but I joined a group of other physicians in creating a startup company. It has been a wild ride thus far and I can only expect it to get wilder.

What does this mean for me?

1. As usual, it means even less sleep than usual. Most of my time when I get home from work has been spent helping get this project off the ground.
2. It also means that I don’t get to spend as much quality time with my wife and daughter when I am at home.
3. Most importantly for this blog is that I have essentially invested away all of our emergency savings with no guarantee of a return.

Only time will time tell whether with is a good decision or not. I could make a very strong argument for taking those same funds and investing them in a depressed market, making a long term investment in equities at a time when many of the “experts” find them to be cheap.

A few years down the road when this all settles out I hope to do a comparison of the return on investment of these two options.

For me the potential for tremendous upside was too much to pass up. Lets hope I don’t need those emergency funds any time soon.

Here is another VERY, VERY Late post.

May was another less than stellar month for our alternative income streams.

It was due to multiple reasons, the most important of which is my resistance to taking any extreme risks in the name of increased returns.

Here are the results for the month ending May 31st 2008:

There were not any large changes in my alternative income over the first 6 months of 2008

Our interest on savings has declined as the FED has dropped interest rates.

Our income from our websites have failed to generate any consistent income.

As of May 2008 the chances of developing any serious alternative income was slim to none. The main financial goals of our family was/is to remain solvent and to keep from getting further into debt as I finish my training.

This is another catch up post intended to bring my fianicial measures up to date. I am about 4 months behind but I hope to be caught up by the end of the month.

Here are my borrowing costs ending June 30, 2008:

• We had been doing quite well at keeping our borrowing cost down right up until June. Then we essentially doubled the amount of finances charges, etc. that we have paid.

  In June I was hit with 1 month’s worth of 30% interest on my largest balance transfer. I had not paid interest like that on a credit card since my intern year when I didn’t have a clue about my finances. It was an unfortunate oversight b/c it essentially negated all the 0% balance transfers I had taken out.

• In June I also learned how much investment banks don’t like the little guys.

  Due to the falling markets I was assessed a $75 low balance fee on one of my IRA accounts. I have had a very difficult time figuring out exactly how much it costs me to invest my savings but this was pretty obvious on my statement.

So basically at this point I cannot complain about my student loan expenses. I am essentially paying twice as much in credit card interest and fees than I pay in student loan interest.

This is even before I take into account the student loan interest deduction I get on my taxes.

I will have lots of room to save money in 2009 by eliminating these careless expenses and fees.

I was not surprised at all to notice that the Dow made a nice recovery today. Almost every “expert” over the weekend felt that stocks were close to being oversold.

It will be interesting to see if this is the start of a sustained rally. My uneducated opinion is that we still have a little bit more time on this roller coster.

After watching the recent week long plunge of the Dow, it appears that people are very fearful which means if you are a buy and hold investor, now might be the time to get greedy.

The problem in our family is that we don’t have much cash left to get greedy with.

Here are the results for our family ending 10/10/08:

The $16,000+ fall in Net Worth is by far our families largest monthly decline in net worth.

The good news is that this was mostly a paper loss and did not affect the day to day solvency of our family. With years to go till retirement, I am confident we will more than recover from these losses.

We also managed to pay off the rest of our 0% balance transfer offers

I may have been lucky to squeeze a couple hundred dollars out of all the juggling when it is all said and done. I was really hurt in June by missing the expiration date of my largest balance transfer, One month’s interest charges at 30% wiped out a years worth of interest at 3.5%.

The recent events in the markets only underscores to me the risks associated with leverage and greed.

It is very, very difficult to separate our wants and need and this holds true even in investing. Although we all want 30% annual returns, most of us don’t NEED annual returns of 30% if we have been planning carefully. When those 30% returns come with occasional 50% declines, steady growth is difficult to achieve. Every 50% decline will need a 100% return just to get back to even.

Our time in recent months has been spent looking for jobs starting next July. I have contacted various groups of physicians and hospitals in areas of the country that my wife and I would consider living as we finalize where we want to spend the next phase of our lives.

It is very exciting to be 9 months away from the end of 13 years of education. This excitement has helped buffer the recent financial turmoil for us.

thanks for following along.

August has come and gone and our net worth continues to tumble. There is hope that we will soon be able to slow the loss thanks to some new help. I have officially handed over the reigns of budgeting and expense management to my wife! She has embraced this role and done a spectacular job, much better than I have been doing.

In our small family it made perfect sense for her to assume official control over these issues because she is dealing with them 90% of the time. With her in control of the budget, our actual expenses came within $50 of our budgeted expenses for the month which is a record for me.

Here is the carnage for the month ending August 31st, 2008:

We continue to watch as our net worth has continued to tumble each month since April of this year. The confluence of factors contributing to this decline are largely self inflicted and not unexpected.

• The birth of our child and my wife’s gradual withdrawal from the workplace are an obvious contributor to this gradual decline. The majority of the time you remove a breadwinner from the workplace and you add a new family member your household financials will feel a bit of a pinch.

• My decision to pursue additional(again) training in my career, in a new city(yet again!) only delays what I hope will be the eventual raise I will get as an independent fully trained physician. My fellowship has been great, thus far a busy, yet very rewarding year. In financial terms however, it could prove to be a very expensive year since the fellowship I have chosen to purse will not immediately improve my financial outlook.

  The move and reestablishment of our household in a new city has been slightly more than I expected. It has given me some insight on what to expect in 9 more short months when we get to do this all over again.

• The final and largest factor in the decline in our net worth has been my participation in a new business venture. This new business venture will likely consume all of our cash savings before it becomes profitable.

With the confluence of those factors working against us, it is very likely that we will see our net worth falling to close to -$90,000 by July 2009. This is a far cry from what we were expecting when I laid our our goals for 2008.

We are almost at my worst case scenario with our family’s most financially difficult quarter left to go.

I have finally managed to update our financial records after doing little more than paying bills for almost 4 months. The reason behind this delay is that I have managed to complicate our financial life in the name of being more orgainzed.

If you too want to complicate your financial life, here are my suggestions:

Step 1: Open up multiple accounts of every form of finacial product available in order to save a few bucks. To do this right will need multiple

• credit card accounts
• checking accounts
• savings accounts
• Investment accounts

Step 2: Borrow money from as many different institutions as possible Student loans, car loans, credit cards, mortagaes, HELOCs, personal loans, payday loans.

We haven’t done as good of a job here but the possibilities are almost endless.

Step 3: You must create multiple tracking systems to follow your infomation in the name of organization. This will make it almost impossible to keep anything up to date. You can create such a confusing situation that as soon as you get behind you will almost never catch up.

This Just a quick summary of what was going on the past few months. Life goes by fast and does not appear to be slowing down any time soon. My fellowship has been great but leaves little time for other interests. I have some time off and hope to have our finances up to date by the end of this weekend.

Thanks for following along.

After 2 months of turbulent times following our cross country move, our household has finally settled down in our new surroundings and we are now catching up with our finances.

We knew we had a difficult 2 months in June and July but I wasn’t sure just how bad it was until I ran the numbers. Here are the results for the month ending June 2008:

My Guidance to these numbers:

• Cash & Savings- I made a huge mistake in missing the closing date of my largest balance transfer. The accumulated interest for that single month was enough to wipe out most of my gains from my 0% balance transfer arbitrage for the year. We still have about $30,000 in outstanding 0% balance transfers that will come due in the next few months.
• Investments - The fall in our cash accounts was minor compared to the drop in our equity investments. June was a rough month in a rough year and there has not been much we can do about it. We have have not been able to offset these declines with new contributions due to the budget constraints of our expanded family. If we do make a contribution for 2008, it will likely be lump sum around tax time to help offset our tax burden.
• Student Loans - There have been no real changes in our student loan burden. We continue to slowly pay off two of our smaller loans and the bulk of my loans remain in forbearance, accruing interest but delaying the payments. I hope to start paying off this loan later this year if my income allows.

June was a very difficult month overall for our family. The logistics of moving our family 2800 miles to a brand new city in a period of 4 days was very challenging for us.

I had to place this blog and other non-essential pursuits on hold until our schedule became more stable and our family settled in our new environment. Now that we are more settled, I will be catching up on the past 3 months of financial data for our household.

Pardon my absence, the past month has been a busy one for our small family. We are finally getting settled in our new city and have re-established internet access.

Our June Monthly Update is to follow soon.

Here is what we have done in the past month.
1. Moved our family 2800 miles to a new city to continue my medical training and spent a small fortune in gas.
2. Started fellowship in a completely new system
3. Studied for my upcoming board exams so that I will be able to be a “board certified” physician
4. Spent way more money than we were able to take in.
5. Watched our equity accounts continue to dwindle.
6. Changed the mailing addresses on a million different accounts.

Hope everyone else has been having as much fun as we have this summer!

I have come to the realization that these posts about obscure details of our family’s personal finances are not very high yield.

They take time to organize, time to post and they are definitely overkill when we don’t have anything interesting to report with our finances.

But.. we are already halfway finished with 2008 so I’ll keep it up for this year.

Here is the data for the month ending May 2008:

The only extra charge in May was an unexpected yearly fee for a credit card.
The good news is that this meant that we were doing OK at containing our costs of borrowing money. I did drop the ball earlier this month when I let my largest balance transfer expire. That $557 charge will double the interest we have paid so far this year.

Awareness has been our biggest asset.
We are lucky that we have developed an awareness of how much any debt costs before we managed to accumulate any more debt than we currently have.

As a young professional, I am in a stage of life where many of my friends and family have begun accumulating the large sums of debt that they will be repaying for many years. Clothing, cars, furniture, and electronics are everywhere and most of these things are being bought with future earnings.

Items normally bought by prior generations in their prime earning years are being bought by our peers, setting an unrealistic example of what our standard of living should be.

The problem is that future earnings are theoretical while debt incurred is a reality. I believe that our view of the future may not be based on the economic reality that currently exists.

We will continue to show some restraint while safe, simple investing will be our path to success.

We continued to tread water again last month.

We are balanced on an edge, living within our means each month, but not investing in our future. We are able to keep our monthly bills within our normal monthly cash flow. Unexpected expenses force us to dip into our savings to pay for them.

Here are the results for the month ending May 31st:

My thoughts for the month:

If we owned our home, instead of renting, we would actually be making forward progress each month.

Most people are good at living within their means. They can pay their bills each month but they don’t have much left over to save and invest.

We rent, which means that none of the $800 that we spend each month goes towards our net worth.

If we owned our own home, our mortgage payment would be money being invested in our net worth each month without having to skimp and save extra!!

This is why for most people, the majority of their net worth is tied up in their homes. They need a roof over their heads and they are good at paying their bills but not saving extra.

The second point I noticed was that I am glad that we were able to save when we had the chance.

My wife and I were somewhat lucky to be able to place some money into savings and investments when we had two incomes and few expenses.

Now while our budget is tight, those investments are the primary source of gains in our net worth.

Try to save while you can, starting as early as you can to take advantage of compounding interest.

The final point is that those two actions; owning your home and saving for retirement are treated very favorably by the IRS. Not only are they two of the best ways to increase your net worth but they are two very good ways to keep your earnings out of the hands of the tax collectors.

Here are our April costs, 2 months late. When I ran the numbers it was nice to see that we didn’t spend any money in April on extra bank charges(late fees, finance charges, etc..)

Here is the break down for the month ending in April:

My thoughts on this category:

• My wife and I have been able to limit our banking and credit card costs until recently

  With most cities having some form of free checking available and hundreds, if not thousands of credit cards without annual fees available it is relatively simple to keep these expenses low.

  Until I started looking, I had no idea just how much money I was sending to the banks for the privilege of being their customer.

• Our student loan payments remain a reminder of the fine education we received and the good times we had in school.

  The bulk our my loans are currently in forbearance and will go into repayment this August. We were able to get a small tax break on the interest paid on these loans so we are not in a hurry to pay them off.

• I continue to be in the dark about what my investment expenses truly are.

  The finance industry definitely doesn’t want to be to clear on how much we are paying them each year for their services.

  I know that our expenses are a little on the high side because the average expense ratios for our current batch of mutual funds is around 1.6%. I also scan my quarterly reports and I will occasionally find a $50 fee assessed for various reasons.

I was pretty satisfied with these results at the time. We had spent less than $500 on borrowing money during the first 4 months of 2008. This has obviously changed in the past two months which illustrates how quickly the tides can change.

Talk about penny wise and pound foolish.

I just wiped out most of my gains from the past 10 months of 0% balance transfer abritrage!

In the process of updating my excel spreadsheets for May I was checking my email and noticed that I had received an email from Bank of America letting me know my next statement was due.

I didn’t think anything of it except that I noticed that the minimal payment had jumped from $320 to over $800. Not a good sign! I quickly logged on and pulled up the most recent statement and confirmed that they had bumped my balance transfer rate from 0% to 19.99%. OWCH!.

I keep good records and I was sure that I had not initiated these transfers until July 2007 which I quickly confirmed. When I went back and read the details of the offer it was clearly stated that the offer ended in May 2008.

Apparently I should read some of my old posts more often. If you read the last line of this post, it is pretty clear that I knew that the balance transfer expired in May.

A phone call to customer service was to no avail.

For those that are keep track at home, the 2 results of my balance transfer arbitrage:

About $500 in interest

A much lower credit score!

I guess there is some truth to the rumors of doctors being bad with their money!

For those out there still entertaining the thought of going to medical school I have run across a couple of interesting articles on the dynamics of becoming a physician in todays environment.

• Forbes ran an article last month addressing the major concerns facing most physicians right now.

• There is a large divide between the generations of physicians currently in practice and those such as myself entering the work force.

As a resident who has yet to enter the work force I am very conscious about physicians and our attitudes towards our work environment.

I personally believe that myself and many of my colleagues made an “investment Mistake” when we entered medicine.

We thought the past performance of physician salaries would guarantee future results.

From a pure investment point of view my choice to go to medical school will likely be a poor decision compared to the career choice of others.

The current trends in medicine are creating a type of job security that no-one wants: Being relatively underpaid and overworked.

If not for the satisfaction that a physician gains from developing a skill and learning to perform this skill well for the benefit of others, the future of our health care system would be bleak.

The good news for me is that I still enjoy what I have chosen to do and realize that I have the freedom to pursue better opportunities should they arise.

Not one cent from our day jobs went into savings or investments during the month of April. To complicate matters, we also did our part to spend the US out of a recession.

Here are the numbers for the month ending April 30th:

• The key number on that chart has been our monthly living expenses

  We have been unable to get our living expenses below our critical $4000 threshold since February. We have been over budget by about $2000/month in 3 out of 4 months thus far this year.

  Each month this has been due to a large “one time expense” such as car repairs, airline tickets or hospital bills.

  Unless we can get our spending under control, it will be very difficult for our family to get ahead until I am completely finished with my training.

• I have been delaying my IRA/403b contributions for 2008 until I begin my fellowship

  Although my salary will essentially the same, my benifit plans will change when I change training institutions. Although I do not anticipate being eligible for a match this will at least ensure that all my savings for the year will go to the same mutual fund company.

• We are not doing anything really well and we are not doing anything really poorly.

  We are just living and enjoying the experience of being new parents. Because we made sure we have adequate insurance coverage and a sufficient emergency fund, we are comfortable living a little above our budget for the next 14 months.