# Joining the Real World at 25... suggestions appreciated



## pedant

*About:* 25 yo female graduating from 7 years of post-secondary education this spring, and starting 4yr medical residency this summer. 

Moving this summer for residency, plan to return when it's over in 2015.

Living with, but maintain separate finances from, long-term BF.


Numbers: 
Gross annual income starting in July: $51,000 (increases about 5K every year)
(Income when residency is completed in 2015 will be ~$340K/yr)

Debts:
Student LOC @ prime: $105,000
Govt student loans: $9,000
Mortgage: $131,000 (Market value ~$200K)
Mortgage details: 5-year fixed rate @ 5.1% from August 2007.

Starting in July, will be renting for $1,200/mo in new city.

Assets:
Car $15,000 
TD Balanced growth MF (purchased in 2005) $4,300
HISA @ ING: $2,200
USD Acct @ ING: $1,100
RRSP in a balanced growth fund: $800 ($25/mo)
$10,000 cash gift from parent with stipulation that it be invested in TFSA ($5000 sitting in a TFSA account since 2010 but not invested, $5000 still in chequing account)
Will likely receive a $20K return of service agreement this summer. 

*Goals*
1. Learn more about financial planning
-Working on Canadian Personal Finances for Dummies

2. Start saving for retirement (~30 year horizon)
-Not really sure where to start with this. My RRSP room will be much more valuable to me when my residency is completed and my income skyrockets, but I still feel I should start planning now.

3. Chip away at debt while living within my means
-Could pay large chunk of debt off, depends on condo situation, see below.

4. Invest TFSA funds 
-Thinking of opening a TD e-series acct for this and following the couch potato strategy. Can the $5K which is sitting in an RBC TFSA account be transferred to the TD eseries account without "withdrawing" it?

5. Buy a house in 5-7 years
-This would likely be easier if I already own a place and *don't* sell the condo and can apply its equity. See below also.

*The Condo Issue: *As I'm moving (and already know I'm renting in my new city), I can sell the condo and take the proceeds from the sale and apply it to debt, or invest some and pay off some debt. Another important point is that if I sell the place now, my penalty for canceling the mortgage will be around $5K. The local market is hot right now, but it's hard to say what will happen next year. I hear a lot of people calling for a correction.

I could also _not_ sell the condo, rent it out for 4 years, and move back into it in 2015 for a couple of years before buying a house, which is a goal. However, the fixed costs of carrying the condo ($1344) are already higher than what I could rent it out for ($1250-$1300). I have family locally who willingly offered to maintain the property for me free of charge, though they'd prefer if I dealt with finding the tenants myself. 

Thoughts?


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## the-royal-mail

Welcome to the forum.

A Doctor? We need more of those! But I am not too worried about your situation. As long as you manage and budget your money, there is no reason you should not be able to clear away your debts in a few years and be on your way to financial freedom. You have done exceptionally well for yourself.

The only thing I would suggest is to stick around here at CMF and participate in the threads and learn more about the various aspects of money. It certainly can't hurt!


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## Four Pillars

Good on you for taking charge of your finances.

Re condo - Personally, I would sell it. Long distance landlording is a risky proposition and as you say - the rental income isn't worth it. The $5k penalty sucks, but that's the way it goes. Try to minimize it by using up any lump sum payments allowed.

"Buy a house in 5-7 years
-This would likely be easier if I already own a place and don't sell the condo and can apply its equity"

I don't see why that would be the case. It's easier to buy if you sell the condo and have the equity sitting in your bank account.

"Can the $5K which is sitting in an RBC TFSA account be transferred to the TD eseries account without "withdrawing" it?"

Yes, but there will be transfer fees. Depending on RBC rules, you might be better off doing a withdrawal and then redepositing it next year.

More info on that: http://www.moneysmartsblog.com/tfsa-institution-transfer-strategies/

I think you are doing fine - with your current income, I wouldn't go overboard trying to pay off debts etc. Once you start making the big bucks, you should be able to make some good progress.

The only issue I can think of is disability insurance? Do you have any with your job?


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## pedant

Thanks for the responses!

*royal mail:* Thanks for the welcome! I definitely will stick around. I've done a lot of lurking (and exam-procrastinating) reading through the investing, real estate and money diaries forum over the past week. The money diaries were particularly inspiring which is why I decided to start my own. I think, for us medical students anyway, as our debts grow overwhelmingly large-- and we really don't have any ability to make payments on it--there's a tendency to put our heads in the sand. 
There have been a lot of financial adviser / investment advisers coming to speak to us this last year, and everyone says their plan is best for us. That they know professionals. Hopefully, though this I become aware about my own situation and options so* I* can have a better idea about whats right for me.
*
Four Pilars:*
So would you suggest _not_ applying the proceeds from the sale to the student LOC? I figure it can't really help me buy a house in the future if it's been applied to debt and is gone. 
Regarding the TFSA, since I'll have a year of unused contribution room, I guess I could withdraw the 5K from RBC and simply make a 10K contribution to TD, avoiding the transfer fees. 
As for disability insurance -- great suggestion. Though it costs what feels like a fortune, I have it, and find great security in that. I can increase it (with a multiplier in the premium) annually as my income increases without proof of health, and has an own-profession type rider.


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## Four Pillars

pedant said:


> ...
> 
> Four Pilars:[/B]
> So would you suggest _not_ applying the proceeds from the sale to the student LOC? I figure it can't really help me buy a house in the future if it's been applied to debt and is gone.
> Regarding the TFSA, since I'll have a year of unused contribution room, I guess I could withdraw the 5K from RBC and simply make a 10K contribution to TD, avoiding the transfer fees.
> As for disability insurance -- great suggestion. Though it costs what feels like a fortune, I have it, and find great security in that. I can increase it (with a multiplier in the premium) annually as my income increases without proof of health, and has an own-profession type rider.


1) Tough call - Saving up a down payment for your eventual house is a good idea but that purchase might be quite a few years in the future. 4 years residency plus you might want a year or two after that to pay down debts/save up cash etc. Once you start earning the big bucks and get your debts paid off - you should be able to save up a good down payment in a reasonable amount of time.

I don't think either choice is bad and it might depend on the timing - will you buy a house the minute you come back to your original city?

2) Make sure RBC doesn't charge the transfer fee if you empty the account (I know TD does this). If that is the case, you might as well just do a proper transfer and pay the fee.


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## GeniusBoy27

Having been in your exact situation. I would suggest to sell your place and pay down your student LOC. It'll give you the safest situation, and long-distance landlording really isn't a great idea at all. You can't easily fix problems for many miles away.


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## the-royal-mail

Good to hear back from you pendant, on the part about you wanting to be the person who controls and decides what's best for you, I LOVE it. Who are those people that are coming around? Are they bankers? What sorts of outcomes are your fellow students seeing?

FWIW, it's my personal opinion that an interactive forum of this type offers the best chance at figuring out what's best for you. I certainly welcome you here and look forward to your posts. 

Any idea where you will eventually be located? Any chance you'll be going to a smaller or rural community?


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## steve41

This is a tentative plan. It requires that you go on a severe $10K "diet" prior to 2014, and then once your "real" salary kicks in, you can look forward to a $97K lifestyle.

This is based on your 340K salary staying constant and you retiring at age 60. 5% rate, 2% inflation, dying broke at 95 and living in BC.

I paid off your LOC and student loan at 2018.

All this goes to show that your $340K salary extending out from age 28 to 60 will deliver you a 97K lifestyle, so plan on owning just one Bentley rather than 2. 

Oh.... I didn't bother to futz around with the TFSA.... I simply let it run.

Future Doc


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## atrp2biz

I would hold off on the RRSP contributions.

The one thing you have to remember is that there is a huge advantage for physicians and other professional in the ability to keep money inside of a professional corporation (once you're staff). This virtually makes RRSPs secondary as a means of accumulating wealth for retirement. Keep as much money in the corporation as possible, thus deferring taxes (although you still pay the corporate tax--but it's fairly low and declining) even if your post-residency income exceeds the SB limit.


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## atrp2biz

Four Pillars said:


> The only issue I can think of is disability insurance? Do you have any with your job?


Pedant: Not sure what province you're in but I know PAIRO has disability insurance for residents.


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## pedant

Thanks again for the responses!

Four Pillars: I think I would likely purchase as soon as I moved back, though it's hard to say. I'm leaning towards investing half and applying half to my debt. Though if I'm only looking at a 4-5 year window before needing the funds again, I may be better off just putting them in a HISA? 

GeniusBoy: Thanks! Definitely thinking I'll sell. The hassle of being an absentee landlord and the interest compounding on my debt makes me shudder.

The Royal Mail: The real question is who _hasn't_ come talk to us? The big 5 banks, National Bank, Investors Grp, and about 10 other wealth management companies have given talks. Up until this point, my classmates and I haven't actually earned any money, so no one (that I know of) has had much interaction with the companies. It will be interesting to see what happens. 
In terms of future location... I'm from a rural community, and if you'd asked me when I started med school, I would have told you I was going back with no hesitation. However, about half way through, I was drawn to a specialty that requires fairly specialized and centralized facilities, so I'll likely be forever-tied to academic centres. 

Steve: Wow! Thank you very much for running that! Amazing! Though, admittedly, it was a little freaky to see the years and my age run by like that.

atrp2biz: I do have disability coverage under my resident's union, but it ends when residency ends, and I want something that I can have when I'm self-employed as well.


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## Top_Spin

Welcome to the forum! Glad to see other people my age are waking up.



pedant said:


> (Income when residency is completed in 2015 will be ~$340K/yr)


Is that really how much doctor's make. I wonder if I'll be at that much by 2015...


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## steve41

Top_Spin said:


> Is that really how much doctor's make. I wonder if I'll be at that much by 2015...


 A hospitalist ( a doc who works in a hospital) probably not, a doctor in practice, most likely, but my guess is that out of that has to come office rent, paying a nurse/receptionist and paying off furniture&medical equipment loans.


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## pedant

Wanted to update: 

1. Sold the condo with closing in August. Still not sure what to do with the proceeds which should be around $50K. I'm thinking I'll put 70% on my LOC, and save the other 30%. 

2. Signed a return of service agreement worth $20K which I will see in my bank account around August. Don't have plans for this money yet. 

3. My residency hasn't started yet, and my debt continues to grow without a paycheque. LOC is sitting at $110,000 @ prime now (moving costs, licensing & malpractice insurance fees, and graduation trip pushed it up).


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## marina628

Congrats on the sell ,if you moved more than 40km away you can probably recover many of the expenses of selling on future tax returns.


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## Four Pillars

Nice work! 

Don't worry about the debt. Nothing you can do about it at the present time.

What is a "return of service agreement"?


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## pedant

marina: Thanks! I've never moved long-distance before this, so I was amazed at how expensive it is! Hopefully I'll be able to save my unused tuition credits for another tax year with all this moving expenses. Anyone know the maximum deduction?

Four Pillars: I've signed an agreement with the provincial government to work in the province for 1 year (after I complete my residency c.2015) in exchange for $20,000 now. That's my return of service agreement.


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## pedant

pedant said:


> *About:* 25 yo female graduating from 7 years of post-secondary education this spring, and starting 4yr medical residency this summer.
> 
> Moving this summer for residency, plan to return when it's over in 2015.
> 
> Living with, but maintain separate finances from, long-term BF.
> 
> 
> Numbers:
> Gross annual income starting in July: $51,000 (increases about 5K every year)
> (Income when residency is completed in 2015 will be ~$340K/yr)
> 
> Debts:
> Student LOC @ prime: $105,000
> Govt student loans: $9,000
> Mortgage: $131,000 (Market value ~$200K)
> Mortgage details: 5-year fixed rate @ 5.1% from August 2007.
> 
> Starting in July, will be renting for $1,200/mo in new city.
> 
> Assets:
> Car $15,000
> TD Balanced growth MF (purchased in 2005) $4,300
> HISA @ ING: $2,200
> USD Acct @ ING: $1,100
> RRSP in a balanced growth fund: $800 ($25/mo)
> $10,000 cash gift from parent with stipulation that it be invested in TFSA ($5000 sitting in a TFSA account since 2010 but not invested, $5000 still in chequing account)
> Will likely receive a $20K return of service agreement this summer.
> 
> *Goals*
> 1. Learn more about financial planning
> -Working on Canadian Personal Finances for Dummies
> 
> 2. Start saving for retirement (~30 year horizon)
> -Not really sure where to start with this. My RRSP room will be much more valuable to me when my residency is completed and my income skyrockets, but I still feel I should start planning now.
> 
> 3. Chip away at debt while living within my means
> -Could pay large chunk of debt off, depends on condo situation, see below.
> 
> 4. Invest TFSA funds
> -Thinking of opening a TD e-series acct for this and following the couch potato strategy. Can the $5K which is sitting in an RBC TFSA account be transferred to the TD eseries account without "withdrawing" it?
> 
> 5. Buy a house in 5-7 years
> -This would likely be easier if I already own a place and *don't* sell the condo and can apply its equity. See below also.
> 
> *The Condo Issue: *As I'm moving (and already know I'm renting in my new city), I can sell the condo and take the proceeds from the sale and apply it to debt, or invest some and pay off some debt. Another important point is that if I sell the place now, my penalty for canceling the mortgage will be around $5K. The local market is hot right now, but it's hard to say what will happen next year. I hear a lot of people calling for a correction.
> 
> I could also _not_ sell the condo, rent it out for 4 years, and move back into it in 2015 for a couple of years before buying a house, which is a goal. However, the fixed costs of carrying the condo ($1344) are already higher than what I could rent it out for ($1250-$1300). I have family locally who willingly offered to maintain the property for me free of charge, though they'd prefer if I dealt with finding the tenants myself.
> 
> Thoughts?


It's been just over a year since my original post -- figured I should update things!

I'm now just over a month away from turning 26, and just about to finish my first year of residency. 

Number as of 04/28/2012

Income: $3000/month (net). $53K/year (gross). 

Debts: 
Student LOC @ prime (currently 3%): $70,500
Provincial govt student loans: $4000 (in repayment $57/mo)
No more mortgage or condo fees. Condo sold, now renting for $1200/month. 

Assets: 
ING 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).

I feel like I made the right decision in selling the condo. I applied the proceeds directly to my LOC, and, now that I have an income, haven't racked up much more on it (the LOC made it up to $123K by the time I started getting paid, thanks to hefty moving expenses and a vacation). I haven't done a great job at living frugally this year at all. I eat out way too much (avg. $800/mo, including lunch basically every day at the hospital caf) and travel (mostly for electives but also for pleasure) has cost me just over $10K since July. 
Though I haven't needed to dig into my LOC, I received a $20K lump sum for a return of service agreement that I've basically eaten through over the course of the year. 

I've got a fair bit of money in cash at the moment, not sure if I should I apply some more of it to my LOC, or move it into my e-series TFSA. Also not sure if I should alter the distribution of my TFSA funds, perhaps with less emphasis on bonds?

My income rises from $53K gross this year to $61K for the next year (July 2012-June 2013). I'm hoping to stay afloat a bit more. I don't know how people have families on $53K/year and I can hardly support myself on it.


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## marina628

My friend is a Plastic Surgeon and we have been friends for 15 years .He was in your shoes or worst at one point ,even spent on average $27,000 a month when he got his full time practice.He is not married but divorce a couple times which is ok since he said average surgeon divorced 3 times lol.Anyway he had me put him on a budget ,even gave me his debit cards and credit cards.In two years his net worth increased $200,000 and debts were zero.He lived on $7000 which excluded his professional fees but was his car ,rent , entertainment and occasional pair of $40 socks .Best advise to you is to ignore that raise and try to live on this budget until you are debt free.You could save more in 5 years living on a reasonable budget than most people can hope to save in a lifetime.


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## Causalien

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.


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## pedant

Hi Causalien, Thanks for the reply!
I'm actually in a field of medicine in which I would never own my own practice. 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.



Causalien said:


> 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.


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## 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.


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## pedant

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

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


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## 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.


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## Four Pillars

MoneyGal said:


> 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.


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## MoneyGal

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


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## 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?


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## 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.


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## 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?


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## 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)


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## pedant

I was reading this resident financial facelift article in the Globe & Mail a few weeks ago. And with the new year, and some recent financial developments of my own, I thought it was time for an update:

I'm 27 now, and I'm still not sure I've joined the real world yet  

*Assets:*
Chequing account: $61,000 
ING "HISA" account @1.35%: $9200
ING USD account @0.5%: $1300USD
TD e-series TFSA:
-Cdn index: $2300 
-US index: $2450
-Cdn bond index: $2900
-Intl index: $2850
Forgotten RRSP in a balanced growth mutual fund ~$2000

*Debts:*
Line of credit at 3.0% (National Bank prime): $89,000

*Current situation & short-term plans:* 
-I bring in about $2000 net biweekly. 
-I don't live very frugally, and break even or fall $200-300 short of what I make every month (I know, I know). 
-I have 18 months left in residency, and they will be especially expensive due to exams and electives.
-Further, as you may have heard, many specialists these days are having some difficulties finding employment. I am hoping for the best, but preparing for the fact that I may do a one year fellowship if I can't find a job straight out of residency.
-Currently renting for $1800/month. May want to buy a place when we I'm done residency, but, if I got a job in the same city and didn't have to move, we'd likely stay put for a at least a couple more years. We really like our current place.
-My partner has finished grad school, and is working for ~70k/year, gross. We maintain separate finances but share household expenses about 60(me):40(him). He does substantially more housework than I do (like 90(him):10(me):biggrin, which is why we worked it like that. 
-Still no kids nor plans for them.

*Issues:*
1) The $61k in my chequing account is a recent development. I received some inheritance, and am expecting about $50k more in the next week. I'm thinking the best plan would be to pay off my LOC (but I'll keep it open), invest $10k in my TFSA, and park the rest in a HISA. Any other suggestions? I like to maintain $7000 in my chequing account to waive the account fee and have some buffer. 

2) The TFSA -I really need help with this. 
-I have about $8000 invested invested, so I have $23,000 of room for 2014 to max out my TFSA.
-I'd been following the couch potato strategy, and planned to stick to 40% bonds and 20% everything else. I'm thinking when I rebalance this year I will drop the bond allocation to 25% and push the equities up to 25% each. 
-How should I time my investment in the fund? I'm guessing I should not just dump $23,000 in all at once? How would you divide it up? $1000 at a time? $5000 at a time? invested weekly? monthly? 

3) My mother is after me to buy US dollars and sit on them. Thoughts? 


Thanks for reading, and any insight and advice you might have.


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## pedant

January Month End Update

Assets:
Cash $38,402
e-series TFSA $10,695
RSP $3,145
=*$52,942* (Dec 31=$85,093)

Liabilities:
LOC $58,359
Credit cards $6,893
*=$65,252* (Dec 31=$98,935)

*Net worth= -$12,309* (Dec 31=$-13,842)
_Change +$1,533 _

Notes: 
-Paid off my provincial student loan, and put $30K on my student LOC. 
-High expenses in January: had to prepay for accommodations ($2100) for the month of Feb. This is a "human capital" expense that will not be reimbursed. Also had to pay $2700 for accommodations that I need for March - this will be reimbursed in April, however. 
-Hawed and hummed instead of actually putting any more money into my e-series. 
-Ditched an unnecessary account that was just flushing $15/month down the toilet. 

Plan for Feb:
-$10,000 from cash onto LOC as soon as I can get my banker to return my call :rolleyes2:
-Get rid of the ODP fee I'm paying in my chequing account (I keep $5000 in there to keep the account free. Don't need it.)
-$5000 from cash to e-series.
-Expecting the additional (and final) $50K from the estate any day. Will need to figure out exactly what to do with it (pay down LOC completely vs. invest some).
-There will be some additional big personal vacation expenses in Feb: ~$6000 for the air & tour charge for one trip (Scandinavia), and probably another $2000 this month to book airfare for another (Japan).


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## the-royal-mail

$8000 for two vacations at a time when you have $50K of debt? Not sure that's a good idea.

Also, please give some thought to building up an emergency fund for yourself. There is no rush to "invest" money and as long as you have that much debt the priority should really be on paying that off, followed by saving an e-fund for yourself. Once those things are established, figure out your goals (buy house, have kids, new car/s, vacations) and save for those. Save, before spending. And save for rainy day. The idea is to never again allow yourself to build up debt unless it absolutely cannot be helped.


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## pedant

the-royal-mail said:


> $8000 for two vacations at a time when you have $50K of debt? Not sure that's a good idea.


I know.
I was conflicted on mentioning it, but I posted it here to be honest (mostly with myself). It's ridiculous to plan to save $4/month on bank fees and blow $8k on travel. :hopelessness:

The advice we get in medicine often conflicts with common sense: my mentors consistently advise me to _live_ now (eg: spend money). Though I'm not completely comfortable with it... it's very hard not to take their advice, and jet off somewhere when that precious vacation time finally comes!


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## Four Pillars

I wouldn't sweat the vacation expense.

You have a very different scenario from most people, so 'standard' advice doesn't necessarily work for you.

In a few years that $8,000 might be as insignificant as the $4/month bank fee you are saving. Ok, not really - but you know what I mean.


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## the-royal-mail

Who are these mentors that are advising you to be irresponsible with your money?

Remember that folks here tend to be very careful about money and are also big into investing. I fall into both of those camps but am mostly interested in the money management side of things. You will have to make some lifestyle changes if you want to get this under control in a reasonable amount of time. $8000 per year is a lot of money to be spending in times of record personal debt. How much interest are you paying to service those debts? Think of all the things you could do if instead of debt you had that amount in your account in cash.

Ultimately the decision, rests with you.


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## nobleea

We've spent close to 100K on travel and vacations in the last dozen years, it's obviously very important to us, and likely to you as well.
However, we would NEVER consider expensive travel while still in school and without full time, career jobs set in place for both of us.
Given that you're already running a deficit and are thinking about expensive travel almost 2 years before possibly getting a full time job, it might seem like you are spending now on the assumption that you'll make plenty later to pay it off.
There's something to be said for the relaxation and joy that travel can bring. Pleasure equity. On the flip side, there is a lot of stress that can come from extra debt spent to go on holidays. You don't want them to be a wash.

In the end, it's the person who dies with the most 'pleasure equity' that wins (imo).


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## marina628

Somebody died for her to get that inheritance so I think going on a trip is fine as long as OP is prepared to get her budget in order .Running a $200 -$300 deficit long term is not a good idea with so much expense ahead of you for your education costs.I say this as my own brother died just 3 months ago and he left all of us money and wanted all of us to go have some fun so who knows her loved one could see her working hard and feel a reward is ok too.


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## Four Pillars

I think some posters here are just looking at the debt + vacation costs and having an anxiety attack.

She has enough cash/tfsa to pay off most of her debt plus she is getting $50k soon which will allow her to wipe out the debt and have quite a bit left over. The vacation is not going to affect her finances very much.

Plus, she has that medical career thing starting in a couple of years.


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## humble_pie

Four Pillars said:


> I think some posters here are just looking at the debt + vacation costs and having an anxiety attack.
> 
> She has enough cash/tfsa to pay off most of her debt plus she is getting $50k soon which will allow her to wipe out the debt and have quite a bit left over. The vacation is not going to affect her finances very much.
> 
> Plus, she has that medical career thing starting in a couple of years.



all so true. Special vacations when all is said & done are not going to make a dent in the budget imho. More like a featherlike impression.

the debt is inevitable for a medical resident. The figures might make others nervous but look how this MD has already moved successfully up through levels of study & levels of qualification over a couple of years, right here in this thread. When the residency finishes & the specialization begins she will be in fine shape to tackle the debt imho.

who wouldn't like to have a doctor like this! fine attention to detail, excellent analytical skills, good sense of responsibility, sustained project management competence, an open mind, a whimsical & endearing sense of humour.


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## Nemo2

What 'shocked' me was the prospect of taking a (presumably 'organized'?) _tour_ at age 27........go there, arrive with few or no plans, and wing it. :wink:


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## pedant

I really appreciate your varied points of view. 

The mentors (who are physicians) definitely see the situation the way Four Pillars is describing. The don't advocate going out and buying a Benz or balling out in Monte Carlo, but I do get a sense from many of them that they regret not "playing" more during their youth. One of my female mentors, for example, explained that by the time she was working and had her debt paid off, she was in her early-thirties. At that point her bio-clock was ticking so the kids came. Sometimes a conference will give her a day or two abroad, but if she's travels during vacation it's to Disney World. Not saying she's necessarily right, but I can definitely understand her perspective. 

Nemo: Japan will be independent, but Europe is a tour. I absolutely *love* Rick Steves, and I've been on one of his tours before and it was awesome! (but, yes, I was the youngest person) I found it relatively economical, plus, one trip is enough to organize. 

PS, Humble Pie: You're very sweet, thank you


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## Four Pillars

And just to add to that - I always tell people to travel before they have kids. Cause after, it's really expensive, difficult and extremely unpleasant.


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## Nemo2

pedant said:


> Nemo: Japan will be independent, but Europe is a tour. I absolutely *love* Rick Steves, and I've been on one of his tours before and it was awesome! (but, yes, I was the youngest person) I found it relatively economical, plus, one trip is enough to organize.


Have fun.....my lady & I have enjoyed Rick Steves' videos, and hope you have have a blast on your trip..........(which reminds me that it's _only_ 225 days until we head out to Copenhagen!)


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## james4beach

Advice for the original poster:

As a doctor you're going to be a busy person. Financial advisors etc take advantage of this kind of person because they know you don't have the time or energy to devote to your finances.

*Watch out for the parasites*. I don't mean the ones inside the gut, but rather the ones wearing a suit & tie who want to get rich off your hard work.

When you're a busy professional, resist the urge to do too much "investing". Take it slow and cautious. Use your money to pay back debts. Put excess cash into high interest savings accounts, standard traditional things. Don't be quick to trust anyone with your money.


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## pedant

Assets:
Cash $27,251
e-series TFSA $11,175
RSP $3,147
=$41,573

Liabilities:
LOC $59,000
Credit cards $0
=$59,000

Net worth= -$17,427

As predicted, the last couple of months have been ex$pen$ive! 
I had to rent a place in another city (on top of my own rent), flight & hotel for an interview in the states, and travel again for a mandatory rotation (expecting $3000 reimbursed for that one, but who knows how long it will take to see the money). 
After much thought, I decided not to go on one of the planned trips, and will just do the Europe trip in July. I might still do a shorter trip to Eastern Canada to see some friends, but I should be able to fly on points. 

Anyway, I was hoping this year wouldn't see me deeper in the hole, but there you have it. I should probably do my taxes so I can get my (I hope) refund...


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## humble_pie

pedant you are not going to take that expensive MD degree that you sweated blood & stones over & move yourself lock stock & barrel to the US of A, are you?

tch! after all we did for you! think of our children! they're entitled to an MD like you! if you move away permanently, where ever are they going to find one?


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## Pennypincher

pedant said:


> The advice we get in medicine often conflicts with common sense: my mentors consistently advise me to _live_ now (eg: spend money). Though I'm not completely comfortable with it... it's very hard not to take their advice, and jet off somewhere when that precious vacation time finally comes!


I have a friend who, during med school, spent like crazy. He figured he would easily pay his debts off when he was working as a Dr. in the US. I understand the mentality and in some regard, yes, you should live now as you never know what the future holds. When/if you have kids, you won't be able to travel as much until they are older. He still only makes like $40,000/yr at a Canadian hospital with a family of three kids because he can't find a job in his specific field and he is very adamant on working only in his chosen field. He has been offered jobs in the US but turned them down based on pride. ( didn't like the HMO structure). I don't doubt he will make good money one day, but it has been a long road of sacrifice for his family.

I have another Dr. friend who honestly believes she should be making an even bigger salary than what she earns because she was in school for so long. She is envious of people who are engineers that make the same as her, when they were in school only for their undergrad. She spends like crazy and is in debt. 

Not bashing Dr.s!! Just pointing out some of the situations of the ones I know.

You can spend how you want, absolutely. But debt costs money and to many, it's a waste of money on the interest. You also mentioned you wish to retire around age 55. Just keep that in mind when you are spending. Learn how much you need to save for retirement.

Do you really want to work hard to pay off debt and the interest associated with it.


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## pedant

I'm overdue for an update!

Assets:
Chequing: $13,400
Non-reg savings acct $55,544
US cash: $3351
e-series TFSA $11,730 (Cdn bond $3125; Cdn index $2545; Intl index $3050; US Index $3000)
RSP $3,300
=$87,325

Liabilities:
LOC $59,600 (interest at prime, which is currently 3%)
Credit cards $0
=$59,600

Net worth= $27,725

Back in the black for the first time since becoming a student! However, it looks like i'll be staying a student a wee bit longer: when I started this thread, I thought I'd be working at the end of this year... however, I've received an amazing offer for a year of extra training in the USA, that I've decided to pursue. In ways I was so looking forward to being done with my training and working, but the opportunity is too great to pass up! My salary there will be $55K USD for the year; so a pay-cut from where I sit now (70K-ish)... and even more painful compared to what I'd be making if I'd just gone to work... sigh.

Anyway. I've had all this cash squirrelled away in a Tangerine account since Sept. Since the 3% interest offer ends today, I should probably figure out what I'm going to do with it! I was thinking I would put $20,000 on my LOC, invest $20K, and hold $15K in unregistered cash to deal with my many upcoming expenses.

I am planning to reconfigure my investment strategy a bit. Instead of topping up the bond fund, I think I'll open a People's Trust TSFA account and hold the top-up equivalent there. Also going to open an e-series RRSP, and move my international and US funds in there. 

So it should look like this (25% for each domain):
TFSA: 
1. TD e-series Cdn Index: ~$7900
2. TD e-series Cdn Bond Index: $3100
3. People's Choice Savings: $4800

RRSP: 
1. TD e-series Int'l Index: $7900
2. TD e-series US Index: $7900

I'll save the tax deduction for the future when I've got more income. 

Does this seem like a decent plan? Appreciate any thoughts.


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## pedant

Assets:
Cash: $82,446
TFSA: $12,609
RRSP: $3,346
=$98,401

Liabilities
LOC: $67,000
Credit cards: $0

Net worth= $31,401

Haven't made much progress, but finding myself too busy too think about it. Lots of expenses over the winter.

I'm moving to the USA for 1 year, paid $60K USD in that time span. Any idea how much I should net? Trying to figure out how much I can spend on rent, etc. 

Will I be paying Canadian or US tax? My future-state's income tax is 7% in that bracket. 


..Anything else I should be planning/setting up to maximize the benefits and/or minimize the pain of cross-border finance?


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## CalgaryPotato

Wait, why do you have so much cash & a LOC? Why not just pay it off? Even that low 3% adds up over time. 

Congratulations on the positive net worth though!


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