Joining the Real World at 25... suggestions appreciated

[pedant]

Hi Causalien, Thanks for the reply!
I'm actually in a field of medicine in which I would never own my own practice, and don't pay any overhead. Pathologists are often paid a salary or are contractual employees of the provincial government. Those on salary can expect $320-340K per year with benefits on top of that, and those on contract a bit more than that, scratching at $400K, but without benefits, of course. Once they're out of debt or in a place where they can leave money in the corporation, many do incorporate. In any case, saving to start a practice is not necessary for me. I'd like to buy a house within a few years of finishing residency, however.

I'm weary of having stocks peddled to me, and I definitely appreciate that doctors are vulnerable to this. I always felt my parents (who were not doctors, but had healthy incomes) were being taken advantage of by brokers and "advisors", who sold them anything they could, regardless of whether it is suitable. I'm hoping to gain enough knowledge to be able to manage my own financial life, but, to be honest, I think this will be a challenge. Not only do I have very little time, but I'm finding that finding information for medical professionals very challenging.

Hmmm, I am interested in budgeting for pedant. Such a weird income progression compared to a normal career.

There are two things that immediately stood out from my own memory about this:
I think when you have your own practice, the actual net income is around 140k (according to my doctor friend with his own practice).
Doctors, are known by the investment world as the fat sheeps. You are generally ignorant about the shady practice of finances and have too much money and too little time to care about the money. So you are the best type of cash cow for milking. When there's no one else to sell the stocks to, they are peddled to the doctors. Beware.

$51000 * .6 (40% tax rate worst case assumption) = $30,600
30600 - 14400 = 16200
Living cost ~ 300/month = 3600/year. 16200 - 3600 = 12600
Groceries ~=200/month => 2400/year
Lunch ~= $15/day => 5475/year
Coffee = 5/day => 1825

$2900/annum surplus
Student LOC ~= 2115/year
$58 student loan = 696/ year

Final surplus = $89 per year
__________________________________________________ ________
89*4 = 356

4 more years of residence with $5000 increase per year with the expectation to start your own practice in 4 years:
5000*4 + 5000*3 + 5000*2 + 5000 = 5000*(4+3+2+1) = $50000

Assets:
NG HISA (1.35%): $12,000
e-series TSFA: $7,475 (20%CDN-index/20%US-index/20%INT-index/40%BOND-index)
RBC TFSA (in cash, still haven't done anything with this): $5128
Chequing #1 (0%): $4700
Chequing #2 (0%): $5200
RRSP (balanced growth type mutual fund): $1500 ($25/mo payments to this, set up by my banker).

50000 + 12000 + 4700 + 5200 + 5128 + 1500 = $78528

__________________________________________________

So you want to establish your own practice at age 30 and you have $78528 by the end of the 4 year residency.

I am pulling some numbers out of thin air here so this part is very adjustable.

Rent/squarefoot $2. You probably need a 1000 squarefoot place to start off with and that's about $2250/month. = 27000/year
Receptionist ~= $35000/year
Equipment for first year: <insert your numbers here>
I guess you need, inspection bed, table, two chair, scale. Everything multiplied by two for two rooms.
Waiting room chairs * 12. Receptionist table. PC. 10 file cabinets.
Doctors tools

I am just going to put $30000 for equipments.
You'll also need a nurse, so that's another $50000 per year?

$27000 + 35000 + 30000 + 50000 = $142000
Minus assets = $63472.

First year's operation cost can be covered with a bank loan. $63472 is a reasonable amount and the banks should be able to lend you this without problem.

Yes, so if you are able to stick to this general plan, it shouldn't be a problem.

[Causalien]

Oh wow, I am in the wrong profession, that's the pay of a CEO in my field. Then again, I never could've remembered all the disease names. So you have nothing to worry about if what you say is true and you'll end up wtih ~70k surplus by the end of residency.

The only thing that matters is whether or not you want to retire a millionaire or deca-millionaire (with investing) or broke(listening to banks). I think the best option is just ask this forum. The advice here is better and does not have conflict of interest (only opinions from different risk tolrances and styles). Read, find people with similar temperament as you and follow their way.

[pedant]

For my own records. As of today, May 1:

Tot assets: $38,766
Total debt: $77,737
Net worth: ($38,970)

[MoneyGal]

Other forum members will know me as something of a broken record on this point, but if you include the value of your unmonetized human capital on your personal balance sheet, your current net worth is in the millions. Sure, you can only convert that human capital into financial capital slowly and over time, but it has a real value - which (1) should be protected and (2) should be included in your assessment of your holistic net worth.

[Four Pillars]

Other forum members will know me as something of a broken record on this point, but if you include the value of your unmonetized human capital on your personal balance sheet, your current net worth is in the millions. Sure, you can only convert that human capital into financial capital slowly and over time, but it has a real value - which (1) should be protected and (2) should be included in your assessment of your holistic net worth.

I think it's worth thinking about future earning power in terms of insuring it (ie disability insurance).

I don't really agree with including future earnings on a current net worth - holistic or otherwise. Yes, it should be considered, but counting future earnings is like ignoring debt because it will be paid off in the future.

The debt is there now and the future earnings aren't.

[MoneyGal]

Yabbut it has an impact on how you invest, so it's worth thinking about (and even calculating), IMO.

[Sampson]

@ M_Gal

But what does the empirical data show? Do individuals with potential for higher human capital (HC) have 'better or worse' finances? Surely there are lots of high potential HC that begin overspending because they assume they will earn enough to cover future expenses.

If someone incorporates future expectations and sticks to their plan, it could be done successfully - does it work in the the real World?

[MoneyGal]

To be honest, it was just meant as a comment on the relative impoverishment of the OP's financial statement. Physicians or other high-earning professionals will outearn the average Canadian, and strategies that "work" for average Canadians won't apply as well to them (and vice versa). So, for example, it is *rational* for physicians (just to use this one example) to take on relatively high amounts of student debt - but this doesn't mean that "taking on a lot of student debt" is a strategy that the average Canadian should adopt.

At the same time, physicians' (future or unmonetized) human capital is relatively bond-like, as opposed to stock-like, as it would be, for example, for an investment banker or a stockbroker. So physicians have a higher risk capacity (all other factors held constant) than an investment banker, CEO, or stockbroker with similar earning power. So the investing advice for a stockbroker (for example) earning $320K per annum and the advice for a physician earning $320K per annum would be different - because their holistic personal balance sheets will look quite different, although their financial net worth and their current earnings might be very similar or even identical.

And that's before you even get into considerations around professional incorporation.

I don't know what people "in the real world" "should" do. Lots of high-income earners overspend. Lots don't. My comments were simply meant to include human capital and its relative bond-like or stock-like nature into an overall consideration of the OP's financial picture.

[Sampson]

Hope my comment didn't come across as too critical. I'm just actually really curious.

My hunch is that those with high potential human capital tend to overspend, but maybe I'm just jealous I think that info (psychology of spending) may lend a lot of credibility for you argument that human capital be considered. It really is the basis of this thread. Planning 5 years down the road, would the OP continue sticking to the prescribed plan, or is it easy to lose a little control when more money comes in and get into trouble?

[MoneyGal]

Ooh. Good questions (and I hope my response didn't come off as snippy - I was writing quickly at work). The whole premise of the "are you a stock or a bond?" argument comes from the notion of consumption smoothing - and that's what your hypothetical high earner will need to stick to in order to maintain their plan over time.

(perhaps I should make it an explicit goal to get as many Milton Friedman references on this board as possible)