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Net worth positive - what's next?


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Finally went net worth positive as of this month, between the remaining LoC and my TFSA. I had a low debt load bcz of grants in med school, but regardless, it's been a frugal journey thus far. I'm buying myself an extra meal out this week to celebrate. Yay /humblebrag

What's a good next step? Continue as now and mix the LoC paydown with building the TFSA? The TFSA is, as it should be, all equities and could send me crashing back into the red tomorrow. Or should I start saving for royal college costs...or is that too far away? What'd everyone else do around this time of their lives? I am all ears for your wisdom.

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  • 3 weeks later...
On 9/30/2019 at 3:28 PM, Hanmari said:

Finally went net worth positive as of this month, between the remaining LoC and my TFSA. I had a low debt load bcz of grants in med school, but regardless, it's been a frugal journey thus far. I'm buying myself an extra meal out this week to celebrate. Yay /humblebrag

What's a good next step? Continue as now and mix the LoC paydown with building the TFSA? The TFSA is, as it should be, all equities and could send me crashing back into the red tomorrow. Or should I start saving for royal college costs...or is that too far away? What'd everyone else do around this time of their lives? I am all ears for your wisdom.

Hey, I'm kind of in the same position as you too though my husband helps with the LOC paydown as he started work earlier

I follow this instagram account called breakingbaddebt who is a resident that posts about finances, some of them in the context of medical training

In one of her earlier posts she talks about saving up for an emergency fund first which helped her cover exam costs etc but also is a cushion for if you're in the red. After having this emerg fund, then she started investing with the cushion in place 

There's also the physician financial independence group on FB but sometimes the posts are more staff level related but might be worth posting your questions there as well

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On 10/17/2019 at 11:14 AM, MomInMed said:

Hey, I'm kind of in the same position as you too though my husband helps with the LOC paydown as he started work earlier

I follow this instagram account called breakingbaddebt who is a resident that posts about finances, some of them in the context of medical training

In one of her earlier posts she talks about saving up for an emergency fund first which helped her cover exam costs etc but also is a cushion for if you're in the red. After having this emerg fund, then she started investing with the cushion in place 

There's also the physician financial independence group on FB but sometimes the posts are more staff level related but might be worth posting your questions there as well

I don't think having an emergency fund is necessary for a physician. For the average Joe, yes, having an emergency fund is essential but not for a physician.

 

1) physicians have extremely stable jobs with excellent job security. That means having a stable income

2) They have access to LOCs from the bank at prime-0.25%. This should be used as your "emergency fund"

3) Most physicians have undergrad/med school debt. I'd much rather pay off the debt than have cash lying around in a chequing account doing nothing. 

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Congrats on becoming net worth positive, that's a huge accomplishment and it requires a lot of financial discipline. I'm a Master of Finance student and was fortunate enough to work in the high finance industry. I'm not a portfolio manager, but took a portfolio management course last semester. I would personally pay off the remaining LoC and any other debts (car payments etc.) asap, then max out TFSA. Afterwards, start saving for an emergency fund -- account for royal college costs in this. I can't tell you how much to save because that really depends on your own personal situation, which I don't know enough about. Also, how much you invest in equities versus fixed income securities using your TFSA is entirely up to you and your risk tolerance. Are you going to feel tempted to try and time the market if you see small fluctuations in your portfolio? A very risky portfolio tends to have a higher return, but if it's going to tempt you to try and time the market (which is virtually impossible) this could lead to high transaction costs from frequent trading and decrease your overall return. If you feel you are disciplined enough then I would invest in index ETFs, they have lower fees and track an index. I would personally use these for long term investments (40+ years) and reinvest the gains. Compounding interest is a beautiful thing. Personally, I would stay away from mutual funds because after fees they tend to underperform the benchmark (S&P 500). There is a ton of literature on this.

 

At the end of the day, I would be patient as there really is no huge rush to invest. Take the time to learn so that you feel comfortable. Try to find a good financial advisor -- someone who teaches and challenges you rather than either (a) being a yes man/woman or (b) giving you advice without backing it up. There are a lot of bad financial advisors and portfolio managers out there and it is a lot easier to lose money than it is to make money. Take your time to seriously vet them before investing your money. Don't trust anyone who promises extraordinary profits on your investments. Investing is a long game centred around minimizing loss rather than maximizing gain. Always remember, it is YOUR money and YOU worked hard to make it. They are your potential employee and you should not feel obligated to invest with them. Feel free to DM me if you have any questions. Always happy to help.

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On 10/28/2019 at 6:21 PM, DarkRoastBlaq said:

Congrats on becoming net worth positive, that's a huge accomplishment and it requires a lot of financial discipline. I'm a Master of Finance student and was fortunate enough to work in the high finance industry. I'm not a portfolio manager, but took a portfolio management course last semester. I would personally pay off the remaining LoC and any other debts (car payments etc.) asap, then max out TFSA. Afterwards, start saving for an emergency fund -- account for royal college costs in this. I can't tell you how much to save because that really depends on your own personal situation, which I don't know enough about. Also, how much you invest in equities versus fixed income securities using your TFSA is entirely up to you and your risk tolerance. Are you going to feel tempted to try and time the market if you see small fluctuations in your portfolio? A very risky portfolio tends to have a higher return, but if it's going to tempt you to try and time the market (which is virtually impossible) this could lead to high transaction costs from frequent trading and decrease your overall return. If you feel you are disciplined enough then I would invest in index ETFs, they have lower fees and track an index. I would personally use these for long term investments (40+ years) and reinvest the gains. Compounding interest is a beautiful thing. Personally, I would stay away from mutual funds because after fees they tend to underperform the benchmark (S&P 500). There is a ton of literature on this.

 

At the end of the day, I would be patient as there really is no huge rush to invest. Take the time to learn so that you feel comfortable. Try to find a good financial advisor -- someone who teaches and challenges you rather than either (a) being a yes man/woman or (b) giving you advice without backing it up. There are a lot of bad financial advisors and portfolio managers out there and it is a lot easier to lose money than it is to make money. Take your time to seriously vet them before investing your money. Don't trust anyone who promises extraordinary profits on your investments. Investing is a long game centred around minimizing loss rather than maximizing gain. Always remember, it is YOUR money and YOU worked hard to make it. They are your potential employee and you should not feel obligated to invest with them. Feel free to DM me if you have any questions. Always happy to help.

Great post - a lot of what you wrote about is similar to what I've read on instagram, the physician's finance facebook group, and finance books. My husband and I are thinking of going the index ETF route next. Do you recommend buying the S&P500 index or the total market (which has like 2000+ stocks)?

 

 

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Someone feel free to correct me on any of this.

Your LOC has a very low interest rate so although you should aggressively pay it down, not every dollar has to go there. You can feel free to invest in your TFSA, RRSP and even non-registered accounts (while still holding an outstanding balance on the LoC) as you pay down your debt because you can reasonably expect to obtain higher than prime returns.

I don't have any idea if medical residents in Ontairo receive RRSP matching from hospitals, but if you do, then you absolutely have to do it each year. It's free money. That comes even before some debt repayment. 

You can delay your RRSP deductions until later on when you have a much higher income. You can delay these deductions indefinitely until they are more useful to you. In the meantime, use your tuition credits. Once your tuition credits are exhausted you can look into incorporation as well.

An emergency fund is up in the air; many people have safety nets (ie. parents), and in your case you have your LoC. As long as there's room in it, it's at such a low interest rate that holding 3-6 months of income in a HISA is not really that useful.

Pick a date that you want your LoC paid off. Something that's reasonable. As long as your investment plans (whether that be TFSA, RRSP or non-registered) do not push that date back and you can continue to budget to have your LoC at 0 by your debt payoff date, then you can feel free to do it.

The "waterfall" method as described by a lot of folks is useful, but there are modifications to it given the way medical residents take on debt (a lot of tuition, with a large LoC at a low interest rate) as well as the income progression (from a little to a lot very quickly).

Licensing/Royal College costs are minimal in the grand scheme of things and you will easily be able to budget for this upon getting your first job. There's no need to budget for it now, in my opinion. 

Personally I'd rather budget for vacations.

Lastly with your TFSA & RRSP being relatively small accounts I'd recommend doing your investment yourself with a discount brokerage like Questrade. You can use a Canadian Couch Potato portfolio if you want something simple and reliable that thousands of other people are doing, with minimal fuss and fees. I don't follow any of the CCP portfolios but in the beginning all of my investment was in index ETFs and very passive in nature. You will not "crash into the red" tomorrow. If you do, it's because the market's down, and you don't care because you're not touching that money for decades. To be frank, you should be happy. Red means it's on sale, so buy more.

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14 hours ago, MomInMed said:

Great post - a lot of what you wrote about is similar to what I've read on instagram, the physician's finance facebook group, and finance books. My husband and I are thinking of going the index ETF route next. Do you recommend buying the S&P500 index or the total market (which has like 2000+ stocks)?

Thanks for the compliment and reaching out. I think the difference is somewhat negligible between the S&P500 index and the US total market index. If you take a look at the link below and scroll down to the end of the equities ETFs you can see that the S&P500 index has lower management fees and has outperformed the total market index over the last 5 years. I chose Vanguard because they are reputable. The S&P500 represents the 500 largest companies on US exchanges. It is a market cap weighted index which means that the 10 largest companies account for approximately 22% of the index. So if you choose that, you are putting a bit more faith into the largest public companies. You'd be more diversified with the US total market but you'll likely have a lower return over time than if you went with the S&P because you are taking on less risk. Also the US total market fund has higher management fees. You could also decide to split your money between the two and see how each performs over time, then move more of your funds into the index that performs better. Overall, it really depends on you and your husband's risk tolerance and your investment horizon, but I really don't think there is a huge difference and you can't go wrong with either. Hope this is helpful.

https://www.vanguardcanada.ca/advisors/products/en/overview/etf

 

EDIT: Forgot to mention that a good book on investing is called "A Random Walk Down Wall Street: A Time Tested Strategy for Successful Investing" by Burton Malkiel 

Edited by DarkRoastBlaq
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