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Paying Back Principal During Residency?


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They (MD Financial) offered up a lower-risk mutual fund using pretty much the same argument. There's some logic there, in all honesty - the historical average rate of return (and likely future rate) is above the prime rate we're paying on our LOCs. There's always a risk the fund loses money, but it's low, and there's a greater risk it earns less than the prime rate on debt (so becomes a relative loss), but the most likely outcome is coming out ahead.

 

And while I agree that the "practice" angle is a bit silly in general, I think it has some small merit here. Once we start up in practice, the optimal investment strategy will involve large amounts of money in higher-yield, higher-risk vehicles, and the sooner that starts up, the better. That's a perfect opportunity for costly mistakes to be made for those who have no idea what they're doing. That said, there's plenty that investing in a low-risk mutual fund won't teach and most of what it will teach can be learned just by reading about finances.

 

Still, I'm considering putting a small amount of money towards this. It'll be a tiny fraction of what will go towards debt payments, since I'm pretty debt-averse too and I'll learn as much from having hundreds of dollars invested as I will with thousands.

 

sure in the long run it would make perfect sense to invest - the counter argument at this point is the cash flow issue depending on how much you owe on your LOC. The risk of losing money in the long term is low, but the risk of it losing money in the short term it actually quite high. For most residents the short is pretty big concern as in a few years your income rises quite a bit. 

 

but that low risk mutual fund - if truly that term makes sense. I would argue (again purely from an education point of few) there is very little reason to invest in that at all for more residents/early staff as it doesn't meet most peoples' logical objectives. In effect that is the wrong lesson to learn. There are better things to invest in with the same objective and much lower cost. 

 

All for learning but I would suggest at the early stage that means reading a couple of books to achieve the level of knowledge to master what you are doing (the foundation is not that hard). Then you are actually when you are investing - no matter the amount - practicing good habits :)

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sure in the long run it would make perfect sense to invest - the counter argument at this point is the cash flow issue depending on how much you owe on your LOC. The risk of losing money in the long term is low, but the risk of it losing money in the short term it actually quite high. For most residents the short is pretty big concern as in a few years your income rises quite a bit. 

 

but that low risk mutual fund - if truly that term makes sense. I would argue (again purely from an education point of few) there is very little reason to invest in that at all for more residents/early staff as it doesn't meet most peoples' logical objectives. In effect that is the wrong lesson to learn. There are better things to invest in with the same objective and much lower cost. 

 

All for learning but I would suggest at the early stage that means reading a couple of books to achieve the level of knowledge to master what you are doing (the foundation is not that hard). Then you are actually when you are investing - no matter the amount - practicing good habits :)

 

Even for the shorter run, I see an argument. The idea of this low-risk mutual fund is to constrain variability at the expense of average return, meaning at best outcome will be a gain of a maybe 5-6 points over prime, the worse being a loss of maybe a percent or two, and that's in a single year, all after fees.

 

Again, nothing I would put any real money towards, but would I risk losing $50 to dip my foot in the water? Sure. That's basically the cost of paying for some investment reading material, and that's a worst-case scenario. Gives me an opportunity to start practicing the habits you mention on a small scale, then increasing the amount once starting practice (and adjusting the nature of the investment vehicles to increase expected return with the trade-off of greater risk, away from the low-risk mutual fund). From my perspective, I've done the readings, I understand the theory, but I'm not going to learn much more without some skin in the game.

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Even for the shorter run, I see an argument. The idea of this low-risk mutual fund is to constrain variability at the expense of average return, meaning at best outcome will be a gain of a maybe 5-6 points over prime, the worse being a loss of maybe a percent or two, and that's in a single year, all after fees.

 

Again, nothing I would put any real money towards, but would I risk losing $50 to dip my foot in the water? Sure. That's basically the cost of paying for some investment reading material, and that's a worst-case scenario. Gives me an opportunity to start practicing the habits you mention on a small scale, then increasing the amount once starting practice (and adjusting the nature of the investment vehicles to increase expected return with the trade-off of greater risk, away from the low-risk mutual fund). From my perspective, I've done the readings, I understand the theory, but I'm not going to learn much more without some skin in the game.

 

If you have done the readings then you have done the homework. You really would be practicing then - and that is fine. We could argue about the investment or approach (like a low volatility ETF vs a low volatility mutual fund for the boost from substantially lower fees) but we would be arguing from a position of knowledge which is awesome. At that point it really does become a personal finance - and actually that is the point I find things kind of fun as everyone is different and thus has a somewhat different approach :)

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If you have done the readings then you have done the homework. You really would be practicing then - and that is fine. We could argue about the investment or approach (like a low volatility ETF vs a low volatility mutual fund for the boost from substantially lower fees) but we would be arguing from a position of knowledge which is awesome. At that point it really does become a personal finance - and actually that is the point I find things kind of fun as everyone is different and thus has a somewhat different approach :)

 

Yeah, and I'd like to get a better grasp of ETFs, but they don't work with small, regular investment volumes. Like $50 a month small. With per-trade fees being standard for ETFs, each costing at least a few dollars, those end up being pretty high fees  :lol:

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ETFs often replicate actual indexes, and can be brought and sold like stocks. In general, indexes are better than mutual funds for passive investing, since they have a lower cost fee structure, and mutual funds are based on a manager doing stock selection. So there are ETFs that replicate S&P, TSX, and specific industries. On average, stock picking is difficult and a lot mutual funds are outperformed by indexes.

 

Transaction fees do add up, so it's best to buy units in bulk for a long period of time. The historical returns of a lot index funds is higher than bonds, but no guarantee on the short term. I think rmorelan's play into property has probably more attractive long term returns, but requires more experience and management.

 

The big Canadian Banks are for example one area where buying individual shares could make sense, as a safe, solid, investment. They are essentially protected from competition and have had high historical rates of return and pay good dividends.

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I guess to return to the original subject of the thread, if you owe like 100 K and you can only pay off...say, 50 K during residency, and you can essentially make 100 K relatively quickly as a staff, my question is why bother trying to pay off 50 K and reduce lifestyle and comfort during residency over 5 years versus that of paying it all at once as staff in one year? 

 

I know this is only assuming that you'll get a job as a staff one day, as well as if prime stays this low.  But I want to be able to justify to myself as a staff one day as "oh wow I'm glad I hustled through some of that debt" versus "why the heck did I torture myself" 

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Yeah, and I'd like to get a better grasp of ETFs, but they don't work with small, regular investment volumes. Like $50 a month small. With per-trade fees being standard for ETFs, each costing at least a few dollars, those end up being pretty high fees  :lol:

 

that is true if you are trying to do it on a month to month basis (getting into the habit of paying yourself first - ha, my favourite approach :)

 

of course when the time comes and the amounts are larger you can consider switching. I mean as you know in the long term those mutual fund fees will eat up 30-40% of your returns vs an equivalent ETF. 

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I guess to return to the original subject of the thread, if you owe like 100 K and you can only pay off...say, 50 K during residency, and you can essentially make 100 K relatively quickly as a staff, my question is why bother trying to pay off 50 K and reduce lifestyle and comfort during residency over 5 years versus that of paying it all at once as staff in one year? 

 

I know this is only assuming that you'll get a job as a staff one day, as well as if prime stays this low.  But I want to be able to justify to myself as a staff one day as "oh wow I'm glad I hustled through some of that debt" versus "why the heck did I torture myself" 

 

that is a perfectly valid argument - if you actually follow through with it. The trouble is often instead people will say now I am graduated and I am making good money I will buy car, house, vacation........because you can always pay it off later.  The temptation to do it later is one of the major reasons people get into trouble in medicine. It is how you end up with no retirement money. It is a cliche in fact. 

 

Put it another way - it is like going to the gym and exercising, and getting healthy. You can always do it tomorrow. You will have more time to do it when you are a staff as well as you aren't working 80 hours a week. You can even afford personal trainers and help preparing a better diet, afford to go to the best gyms.... Yet I don't see a lot of people suddenly getting fit when they graduate. Either they are developing things as they go along or they aren't. Developing a lifestyle or they aren't. I don't think it is much different with money either. My approach to money IS my lifestyle and not separate from it. It isn't right or wrong, it just is.

 

and to be clear I don't honestly feel I am sacrificing with the saving I am doing. That is a major point. I found a place were my lifestyle financially is simply where I want to be - what is beyond that won't make me really any happier. I am not really reducing my comfort. I know that if I just go and get a nicer apartment that I will just get used to it in 6 mos and really there would be no difference (other than the rent I am losing). There really isn't anything looking around that I am dying to go buy. 

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that is true if you are trying to do it on a month to month basis (getting into the habit of paying yourself first - ha, my favourite approach :)

 

of course when the time comes and the amounts are larger you can consider switching. I mean as you know in the long term those mutual fund fees will eat up 30-40% of your returns vs an equivalent ETF. 

 

Yeah, that's the basic plan - get into the good habits now when playing on easy-mode, ramp things up pretty quick in a few years once practice starts up when it actually matters  :D

 

I guess to return to the original subject of the thread, if you owe like 100 K and you can only pay off...say, 50 K during residency, and you can essentially make 100 K relatively quickly as a staff, my question is why bother trying to pay off 50 K and reduce lifestyle and comfort during residency over 5 years versus that of paying it all at once as staff in one year? 

 

I know this is only assuming that you'll get a job as a staff one day, as well as if prime stays this low.  But I want to be able to justify to myself as a staff one day as "oh wow I'm glad I hustled through some of that debt" versus "why the heck did I torture myself" 

 

I think the best argument I have for trying to pay down debt a bit more aggressively in residency is the money I'll put towards my debt really wouldn't benefit me much being used towards something else. I have everything to satisfy my immediate needs and my quality of life won't be increased much if at all by spending more on luxuries. More importantly, there are some larger expenses that I'd like to be able to afford coming up and the lower my debt gets in residency, the more affordable those expenses become. Paying down debt is an investment towards my future life.

 

Still, I'm not going to be paying down $50k on the principle of my debt through residency, and I doubt I'd match that pace if I was doing a 5-year residency either. Still, taking $15k off the principle over the next two years is feasible based on my current costs, which is a decent-sized dent in my debt.

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side point ralk - my 4th and 5th year salary is nearly 30K more than what I was getting paid in PGY1. I didn't save a ton in the first year at all, not like now in comparison. If you were in a 5 year residency program and happy with the lifestyle you had as a PGY1 you probably would be saving quite a bit more later on :) Or maybe not, again it is a personal choice etc. 

 

Not to labour the point but really the main thing I am always interested in is making sure people are informed. About the rules of medical school and I guess as it comes up things related to personal finance. Once you have the knowledge what you do with it is completely up to you. 

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I agree with the others - I did my budget and then allocated residual money to debt repayment, not the other way around.  I wanted to spend that money, I could probably find something to do with it that I'd enjoy, but I have everything I need, and mostly everything that I really want.

 

It won't be 50k in residency though, for me.  Maybe 20k.  However, that's still a decent dent in my total 140k debt load.

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I guess to return to the original subject of the thread, if you owe like 100 K and you can only pay off...say, 50 K during residency, and you can essentially make 100 K relatively quickly as a staff, my question is why bother trying to pay off 50 K and reduce lifestyle and comfort during residency over 5 years versus that of paying it all at once as staff in one year? 

 

I know this is only assuming that you'll get a job as a staff one day, as well as if prime stays this low.  But I want to be able to justify to myself as a staff one day as "oh wow I'm glad I hustled through some of that debt" versus "why the heck did I torture myself" 

 

I have no lifestyle or comfort to begin with in residency.

 

Also, I have a massive aversion to debt and have a mistrust of banks. I also want to take some time off after residency to go travelling, and would like to have as little debt as possible.

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side point ralk - my 4th and 5th year salary is nearly 30K what I was getting paid in PGY1. I didn't save a ton in the first year at all, not like now in comparison. If you were in a 5 year residency program and happy with the lifestyle you had as a PGY1 you probably would be saving quite a bit more later on :) Or maybe not, again it is a personal choice etc. 

 

Not to labour the point but really the main thing I am always interested in is making sure people are informed. About the rules of medical school and I guess as it comes up things related to personal finance. Once you have the knowledge what you do with it is completely up to you. 

 

Oh yeah, any informed perspectives on personal finance are welcome. It's a minefield of misinformation and people trying to profit at your expense. What little financial education we're getting in medical school these days is woefully limited, and it sounds like that's an improvement over prior years.

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that is a perfectly valid argument - if you actually follow through with it. The trouble is often instead say will now I am graduated I am making good money I will buy car, house, vacation........because you can always pay it off later.  The temptation to do it later is one of the major reasons people get into trouble in medicine. It is how you end up with not retirement money. It is a cliche in fact. 

 

Put it another way - it is like going to the gym and exercising, and getting healthy. You can always do it tomorrow. You will have more time to do it when you are a staff as well as you aren't working 80 hours a week. You can even afford personal trainers and help preparing a better diet, afford to go to the best gyms.... Yet I don't see a lot of people suddenly getting fit when they graduate. Either they are developing things as they go along or they aren't. Developing a lifestyle or they aren't. I don't think it is much different with money either. My approach to money IS my lifestyle and not separate from it. It isn't right or wrong, it just is.

 

and to be clear I don't honestly feel I am sacrificing with the saving I am doing. That is a major point. I found a place were my lifestyle financially is simply where I want to be - what is beyond that won't make me really any happier. I am not really reducing my comfort. I know that if I just go and get a nicer apartment that I will just get used to it in 6 mos and really there would be no difference (other than the rent I am losing). There really isn't anything looking around that I am dying to go buy. 

 

Completely understand and agree now. I'm going to work hard and save to pay off some of that debt. 

Yeah, that's the basic plan - get into the good habits now when playing on easy-mode, ramp things up pretty quick in a few years once practice starts up when it actually matters  :D

 

 

I think the best argument I have for trying to pay down debt a bit more aggressively in residency is the money I'll put towards my debt really wouldn't benefit me much being used towards something else. I have everything to satisfy my immediate needs and my quality of life won't be increased much if at all by spending more on luxuries. More importantly, there are some larger expenses that I'd like to be able to afford coming up and the lower my debt gets in residency, the more affordable those expenses become. Paying down debt is an investment towards my future life.

 

Still, I'm not going to be paying down $50k on the principle of my debt through residency, and I doubt I'd match that pace if I was doing a 5-year residency either. Still, taking $15k off the principle over the next two years is feasible based on my current costs, which is a decent-sized dent in my debt.

I think I'm definitely starting to agree as well - I don't see much I could say, use 10 K more actually. I just want to see this number go down, but other people tell me that "you'll make it all quickly back, why put yourself through the pain?" well it's not really painful as much as reducing pain from looking at all the zero's after a digit I owe...

 

side point ralk - my 4th and 5th year salary is nearly 30K what I was getting paid in PGY1. I didn't save a ton in the first year at all, not like now in comparison. If you were in a 5 year residency program and happy with the lifestyle you had as a PGY1 you probably would be saving quite a bit more later on :) Or maybe not, again it is a personal choice etc. 

 

Not to labour the point but really the main thing I am always interested in is making sure people are informed. About the rules of medical school and I guess as it comes up things related to personal finance. Once you have the knowledge what you do with it is completely up to you. 

sorry Rmorelan, appreciate the advice, but what do you mean re: the highlighted area above? Like do you mean 30 K more lol 

 

I have no lifestyle or comfort to begin with in residency.

 

Also, I have a massive aversion to debt and have a mistrust of banks. I also want to take some time off after residency to go travelling, and would like to have as little debt as possible.

Agreed. after the whole RBC debacle in my life I don't want anything to do with banks anymore... 

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Although that being said, I personally expect a salary drop when my tax credits run out which will probably be mid-PGY3.

 

You will! Bumps you make to baseline a bit (you make say 12K more but you loose roughly 9K in tax credits so end up kind of in the same place). Annoyingly now they dropped the monthly tax credit we still got as full time residents. Oh well. That was one of the reasons that I didn't have my tax deducted at the source even though mathematically that was the wrong thing to do (why give the government an interest free loan for a year when you can start getting the month back right away?). I didn't want to have a point where my paycheck actually fell by a big chunk, ha :) 

 

Still I started with 52K a year when I started. About to make 77K and that is without a contract for ahhh 2 years? 

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You will! Bumps you make to baseline a bit (you make say 12K more but you loose roughly 9K in tax credits so end up kind of in the same place). Annoyingly now they dropped the monthly tax credit we still got as full time residents. Oh well. That was one of the reasons that I didn't have my tax deducted at the source even though mathematically that was the wrong thing to do (why give the government an interest free loan for a year when you can start getting the month back right away?). I didn't want to have a point where my paycheck actually fell by a big chunk, ha :)

 

Still I started with 52K a year when I started. About to make 77K and that is without a contract for ahhh 2 years? 

So wait rmorelan - you didn't use any of your tax credits at all from med school? 

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So wait rmorelan - you didn't use any of your tax credits at all from med school? 

 

no I used them - you HAVE TO use them as soon as you can actually by the rules. I just used them at tax filing time as opposed to requesting a tax reduction at the source (so no income would even be taken away from my paychecks). When I got the large lump sum tax refund then it just went directly on to the loan. 

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kind of yeah. Nice end of training whammy. You have to pay for the exam, then pay to get registered in a province - all up front costs before you can do anything.

 

you have no choice.....and they know it ha :)

At least the RC exam gives you a useful ability to work and make cash as a staff. Plus you can see the necessity of the exam. The LMCC part 2 was way worse. Over half the cost of the RC exam, means nothing and it's completely useless outside of checking a box.

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At least the RC exam gives you a useful ability to work and make cash as a staff. Plus you can see the necessity of the exam. The LMCC part 2 was way worse. Over half the cost of the RC exam, means nothing and it's completely useless outside of checking a box.

 

completely agree - the entire LMCC part 1/2 is about the cost of my license exam and doesn't grant me a license to do anything. The argument is that it maintains overall standards seems a bit weak to me (overall standard to do what exactly? Even if I do know at PGY 1 how to do a shoulder MSK exam do you really think as a radiologist I will remember how by the the time I am done my fellowships 7 years later? Let alone being staff after a while ha) 

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Oh my God don't even get me started on the LMCC2. It upholds the standard of residents paying pointless amounts of money for useless pieces of paper.

Only half my questions were actually medical issues. The other half were social/parenting problems.

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