My Path to FI: Part 5, Finally, A Real Job
Well, it’s about time to wrap up 2019. This will be my last blog post for the year. I thought I’d end the year by telling a little more of my own story.
These My Path to FI series of posts share my experiences on the road to financial independence. One of my main purposes in writing this blog is to share my own journey with you and what I‘ve learned along the way. Let’s pick up where Part 4 left off.
I graduated from my neurosurgical residency in June of 2014. Adding up all of my schooling and training to that point, it had been 4 years of college (with a 2 year church service mission in the middle), 4 years of medical school, and 7 years of residency. I was 35 years old. And despite having some various part time jobs here and there, I was yet to have a “real job.” Sure, I was paid during residency, but this was still part of my training and didn’t feel like a “real job” yet. Looking back, it’s kind of crazy to think I had 4 kids with my oldest being 14 years old, and I still hadn’t had a “real job.” But all of that was about to change.
The New Doctor Salary
At the end of my 7 year residency I was making about $60,000 per year. While this is not a bad salary, it is important to remember that with the amount of hours I was putting in, it broke down to not much more than minimum wage.
After 15 years of hard work and training, not to mention living on student loans or working for barely more than minimum wage, we were SO ready for the financial light at the end of this long tunnel. It wasn’t the luxuries we looked forward to. Rather, we looked forward to not having to worry when someone had a cavity, or how we would afford a car repair. We were so excited to be able to buy fresh produce at the grocery store and stop using hand me down furniture in our home.
Despite the new salary, there were financial consequences to living on student loans during medical school, as well as the years of deferment and forebearance. I was finishing training with more than $220,000 in student loan debt. And now that I was done with training and actually getting a real job, the lenders wanted their money back. I remember the shock of the first bill that came with a minimum monthly repayment of ~$1200.
Trying to Take it Slow
When I started my new job as a neurosurgeon there was, needless to say, a significant jump in salary compared to what we were used to. My wife and I tried to take things slow and see what our income was really like. We knew the annual salary based on the contract we had signed, but we really didn’t have a sense of how much that translated to in biweekly paychecks after taxes and deductions.
During this transition time we definitely did some things right. Rather than moving into a big doctor home like many recent graduates I knew, we moved our family of six into a 4 bedroom town home we were renting for $1325/month. I elected to make the maximum contributions to my 403(b) and 457(b) retirement accounts at work, getting my full employer match. We also continued to drive our well used cars from residency: a 1999 Chevrolet Suburban and 2003 Chevrolet Impala. At least for awhile.
Lifestyle Inflation Starts to Creep In
We also made some choices that probably weren’t the best financial decisions.
After several months of driving our old cars, we were getting a little fed up with some of the problems, especially with our family car, the Suburban. For example, a pin that holds one of the hinges on the driver’s door kept falling out, which would cause the door to be out of place just enough that it couldn’t be shut (which is unacceptable in Midwest winters). In order to fix it you would have to wedge your thighs under the door, leaning against the car with your back, and then basically do a seated calf raise to get the 150 lb door lifted up enough so the hinge was aligned. You could then use your hands to put the pin back into place. It was a pain in the rear, and it was happening more and more often. Not to mention the dozen other little problems like broken latches, some locks not working, some windows not working, and the alternator that kept breaking. So we decided it was time to buy a new car.
It’s interesting to look back at our financial paradigm at the time. We didn’t really think twice about buying a new car and financing it. We both thought that having a car payment was normal . . . just a part of life. So what did we do? We went out and bought a brand new 2015 GMC Yukon XL Denali, with most of the bells and whistles. In retrospect, probably not the most responsible financial decision. But at the time, we felt it was well within our means since we could afford the monthly payments. The way most Americans think.
Even though the Impala was running OK, I started to feel like I wanted a new vehicle as well. After all, I had been in school and training for 15 years. I deserved it, right? A few months later I purchased a new 2014 Chevrolet Silverado, also financing the vehicle. Using similar logic, I felt this was a responsible purchase since we could afford the monthly payments. I also partially rationalized the truck since I could use it on scout campouts with my boys. But in reality, that was only a part of the reason for buying the truck. Unbeknownst to me, lifestyle inflation (when you lifestyle grows as your income grows) was slowly starting to creep into my life.
During this first year we also started to slack on tracking our expenses and budgeting. During medical school and residency, we were forced to budget and track our expenses in order to survive. Now that our income was many times higher than it was before, it became very easy to just spend on what we felt we needed (and wanted) without tracking our finances.
Hopefully you can start to get a sense of the slippery slope it is so easy to start sliding down.
Building Our Dream Home
Before putting down more permanent roots, we wanted to make sure I enjoyed my new job and our family was comfortable living in Eau Claire, WI. After just a year, we knew we wanted to stay.
We were now faced with a financial decision. We knew we wanted to build a home and that it would require a lot of money to do so. At the same time, looming in the background was our massive student loan debt. During that first year we had just been making minimum payments and saving anything left over each month in anticipation of building a home in the near future.
Option one was to keep making minimum payments on the student loans, save all the money we could, and build our dream home now that we had decided to stay.
Option two was to aggressively pay off our student loans and postpone saving for and building our dream home until the student loans were gone.
My wife and I discussed this at great length, and ultimately decided to go with option one. Before you jump to judgement, let me explain our reasoning.
We really wanted to build a home that would be a place where our kids would want to be with their friends. We wanted them to have a fun and safe place where they could hang out, and at the same time allow us to know where they were and who they were with. If we went with paying off the student loans first and then built our home, our oldest son would only have a year or two left before high school graduation (this is one of the consequences of 15 years of school and training). We felt that was too late for us, so we decided to move forward with building our new home. This is a good example of how personal finance is personal for each individual situation.
In 2015 we purchased land in a developing subdivision and spent the next few years designing and constructing our dream home. Anyone that has built a home can tell you that it will cost more than you plan for. Constructing our home was no exception. Part of that was our fault though. We chose upgrades along the way that continually increased costs from our initial plan, which ultimately consumed our cash reserves. This wasn’t something that we had planned for. As a result, we ended up buying most of the furniture for our new home on credit, rationalizing that we could afford the payments and would have it paid off in no time.
Although we had racked up quite the credit card bill with the furniture, we weren’t completely irresponsible in building our new home. We had saved all of our extra money for 3 years and paid for a significant amount of the construction costs. While the home we built is very nice (far nicer than anything my wife and I have ever lived in), we felt it was well within our means. After the significant amount we had paid for up front, we were left with a mortgage that was less than 10% of our gross income, far below the 25-33% recommended by most financial experts.
We were very excited to move into our new home in the summer of 2017 and have loved living in it since.
Conclusion
Thanks for letting me share more of my own journey towards financial independence. Here are some take home points to consider from lessons I learned during this stage:
- Beware of lifestyle inflation, it can creep up on you like a thief in the night. While I believe it is ok to make some small changes or reward yourself for a promotion or higher salary, if you want to achieve financial independence, then most of this increase in income must be used to invest for your future. This began happening to us and we had to make some changes in our financial direction to keep it from further creeping in.
- Just because you can afford the monthly payments for something, it doesn’t mean you can actually afford it. It has taken me a long time to learn this lesson, and I hadn’t learned it yet as you can see from above. It is far better to buy things with cash when you actually have the money than on credit.
- Keeping our housing expenses to less than 10 percent of our gross income has been one of the best financial decisions we have ever made. It has kept us from being “house poor” and allowed us so much more financial freedom. While 10 percent may not be realistic for everyone, I think 20 percent could be. I wrote about this more in my post 5 Unconventional Choices for an Unconventional Life.
Thanks for reading. I hope you are doing well in your progress towards reaching FI. If you have any questions or comments that might help other readers, please list them below. In the meantime, keeping working towards Freedom Through FI!
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