This is a very frequent question and topic on the finance blogs. I like how the White Coat Investor made a nice and easy to follow order of things. Basically pay off any consumer debt and other high interest loans first. Then he prioritizes saving for retirement over lower interest loans. Then in this post he says most docs should have their loans paid off within 5 years of graduating.
I’ve struggled with how fast I should be paying off my student loans. If I really wanted to, I could wipe them out in 3 years (possibly less with bonuses) but would require more than a decent amount of sacrifice. How awesome would it be to be student loan free in < 3 years? I’ve changed my mind countless times about this. At least I was maxing out all of my available tax-advantaged accounts while flip-flopping. Currently, I fully fund my job’s 403(b) (+ generous employer contribution), 457(b), and a backdoor Roth IRA. This amounts to $62,300 this year. I don’t have a taxable account yet.
I think for the average physician (although even this definition is quickly changing) who becomes an attending physician around age 30 (and funded a Roth IRA during residency) the WCI’s general plan is a good one to follow. For folks like me however, who became an attending much later in life (38)- I’ve lost valuable time. Remember, time is a huge part of how compound interest works. If you have less time, then you need more money (saved) to make up for it. The same could be said for folks who have children and other priorities that require money. This late in the game, brute savings is what will get me to financial independence. Instead of the suggested 20% saved for docs, I need to save at least 30%.
I recently took advantage of First Republic Bank’s amazingly low interest rates for student loan refinancing. This forced me into a 5 year maximum pay off period with a fixed interest rate of 2.25%. I’m ok with that. I also have another $80K loan with my mom and will pay this off in < 5 years.
What am I doing with my “extra” cashflow? Saving. We hope to start a family soon and will need to pay for childcare and the kid him/herself. NYC daycare can be between $2,000-$3,000 a month easily! We also need to beef up our emergency fund with more at stake.
M and I have picked $5 million as our FI number. We probably don’t need that much. I prefer to save more, just in case, to be prepared for medical costs, possible long term care etc. Picking $5 million puts us in the position to help our children and our parents too if need arises and still remain secure.
We want to get there in 20 years (2037) or less. Not a small feat. The first milestone – the first million – is set for June 1, 2023. I’ll let you know how that’s going year to year.
What do you think? How fast are you paying off your loans? Have you picked your FI number? Comment below.