Living Large Anyone?

[Guest Med1soon]

Hey all you current and aspiring med school students!

 

I am about to enter 1st year Med. I read an article a little while ago (maybe a year) talking about medical students and the debts they get themselves into. The opinion of the article author was that typically students in medical school are selected for reasons that make them less able to handle the stress of large debt loads.

 

The author stated that a typical business-minded person would have absolutely no problem handling the debt loads because they would easily understand that their investment would be more than returned.

 

My question to all of you is this: Do any of you or will any of you live beyond your means more than necessary to enjoy your "youthful" days more? How many of you have bought cars before your clinical years (or, more generally, before they're absolutely necessary)? How many of you live in f#$*ing sweet apartments?

 

What would you think of someone who does? I have no money right now, but I got accepted. Do you think I should buy a new car and rent a sweet apartment if the bank will let me?

[Guest TimmyMax]

Hey,

 

So long as the price of cat food stays around 39 cents a tin, I can eat comfortably for about $20/month...

Med1soon, if you figure on having these things eventually, then I see no problem with having them sooner than later, just keep in mind that you'll have to pay for them eventually. Hooray for student loans!

Everybody sing! Student loan, VCR; student loan, rent a car...

 

Only 24 hours to go!

 

Best of luck all

Timmy

[Guest therealcrackers]

With two days to go in first year (!), I have amassed a debt of about $22K without blinking, and that's using up a chunk of the savings I had. I previously owned a car, live in a decent place here in London, and have some decent furniture. I don't live "close to the bone" since playing golf has some costs, but I try not to live extravagantly either. There are classmates who rarely go out and live in less comfortable surroundings to save money, there are classmates who live in large 1-bedrooms, buy cars, and go shopping for wardrobe bits on a regular basis. But it all gets expensive. Two things mitigate on this; one, whether you go to U of T (cost of living SIGNIFICANTLY HIGHER than any other school), and two, which bank you go to for the lines of credit. In a nutshell, Royal ($125K max over 4 years but includes OSAP debt) and Bank of Montreal ($100K max over 4 years but doesn't include OSAP) are where most classmates have gone---check with your bank and wave your acceptance letter at them when you do. That might, as an example, help you decide between buying the used Camry and leasing the new Civic. Hope that helps.

 

Crackers UWO MEDS year 1

[Guest Financial Advisor]

Well Soon to be med:

 

It amazes me how financially ignorant some MD's and med students can be. Sure you can live it up, but a car that costs 20,000 bought from a line of credit will end up costing 38,000 at current interest rates, sounds like a good deal to me! Live in a sweet apartment, that way you will have less money for a downpayment on a house or condo later, but hey at least you get bragging rights about your $2500/month apartment on harbourfront, again if this is financed with lines of credit, you will be knawing your teeth when you have to pay the amount back with interest (turning it into $3200/month) AND YOUR NO LONGER ARE IN THE NICE PAD.

 

Don't worry though your financial ignorance will suite you perfectly as an MD. I was reading this article in the Toronto Star about Doctors and their lack of financial smarts, Its just plain scary. An Ophthamologist was planning on retiring at 65, but his wife while going through the finances realized they hardly had enough to make it through one year of their retirement living on just 1050/month. So this genius had to work until he was 75 just to save enough so they could then retire on 1600/month.

 

Case 2 was a physician who was 49 and suddenly realized he was 125,000 in debt, most of it the high interest kind-credit cards at 18% interest. He blames it on living it up after he graduated to keep up the image of a rich doc, smart guy now his kids have to take 3 years off to work before they can save enough to go to University because Dad is a showoff.

 

I also recall a certain med student who posts here, blowing the "help me I'm in med school please feel sorry for me routine" in the article. Ya know what honey, no one feels sorry for you! So what, your debt will be 100,000, who cares even with the debt payments of 1000/month you will make way more than most Canadians. Most Canadians make less than you will in residency (50,000) and most will not make 100,000-300,000 which you will when you complete residency. The rest of the world has to save out of their measely salaries and plan for the future very carefully on 60,000-70,000 or less of total family income. So if you are crying because of a 100,000 debt which you could clear in the first 2 years if bothered to live and save like the rest of population, no one is listening.

 

I hate when doctors and med students embarrass this great profession with their whining and complaining. Docs are not hard done by stories, they are just really messed up if they cant even plan their finances with several hundred thousand dollar salaries. Sorry, make the sacrifice and pay off your loans before your trips to the Bahamas and S-class Benz.

[Guest Carolyn]

Well, time to defend myself!

 

Interestingly, I responded to that first article in a very very different way than I was portrayed...

 

to give others the background, the week before in the Toronto Star there had been a young resident given portfolio advice on his financial situation. He had a student debt of $40,000, was living in his parent's basement for $250, had been given $50,000 for a down payment and couldn't account for $2000 of his monthly income.

 

I wrote back that given it was a public advice column, I was disappointed that they didn't use a new MD who was more representative of many new MDs. I acknowledged that a lot of new MDs have difficulty with finances and that it would have been very helpful if they had done a profile on the "average" new grad....

 

I then wrote that the avg student debt was $70-100,000, that most would have rent in Toronto greater than $800, wouldn't be getting $50,000 and (yes this was strong) that it was ridiculous and embarassing that someone would be unable to account for $2000 of his monthly income... (esp when it is almost 1/2 of his yearly salary) I wrote that it would be helpful for them to profile someone who is average as many new MDs could learn from that....

 

Unfortunately this got very very twisted by the authors -- I'm pretty ticked actually -- the author emailed me that they'd had many, many new MDs write with similar comments to mine and that they were going to address it, would I mind if they used my name... So I got screwed - Totally twisting my words into what they called "Portfolio Envy" and made me out to be some jealous, complaining medical student, of course I'm envious of someone who gets $50,000 given to them; however, that was not my point! Just that if they are to do a public advice column why not use someone that many people can relate to.

 

I absolutely agree that MDs are going to make lots of money, and I'm not complaining about my $70-100K debt that I'm going to end up with. I am definitely going to get a bunch of advice on how to pay it off most effectively and responsibly.

 

I apologize Financial Advisor if you believed that I misrepresented medical students and the profession - I believe I was grossly misrepresented myself. I can't decide whether to write a letter to the editor, I kind of thought it would be better to just let it go - but if your opinion of the article is representative, perhaps I should.

[Guest utapp]

If any of you guys have the time I would recommend taking an engineering economics course. Its different than a 'normal' introductory economics course. It's really applied and teaches you the time value of money, how to assess investment strategies, mortgages, debts, payback periods, etc. Since its from an engineering perspective there is a lot of emphasis on pratical problems. I'm taking it right now and its really changed my perspective on money management.

[Guest marmotYVR]

Thank you SO much for pointing out that the average person does not make the "resident's measly salary" that I hear them all complain about - and never will.

 

I dated a meds resident, who commented to my friend, an engineer, that he will make "only 45K/yr" as a resident. The engineer nearly blew his lid, b/c that is what HE was making at the time as a new grad (and he didn't use the word "only" to describe his income) To top it off, my engineering friend actually had MORE student debt than the meds resident! (This was back before MD tuition skyrocketed).

 

Carolyn, I didn't read the Star articles, but it sure sounds like you got a raw deal. From your description, I agree that they should have portrayed a more typical doc in the first article. Hard to know if it would make matters worse if you wrote a letter to the editor... you might ask how much THOSE letters are edited before publishing!!!

 

Marmot

[Guest Akane200]

Living well is really up to you. It doesn't necessarily mean living beyond your means. You can get large line of credits as a med student, but really, just spend what you need or feel comfortable paying for in the future. The lending interest rate is low right now, so theoretically, if you have the ability to pay later, borrowing more at this time may be alright/better (pure economics). However, it should be reasonably spent.

 

Cost of living is different in TO. It's expensive. If you commute, then buying a car is a reasonable thing to do. If you live on Bay street, buying a brand new car would be stupid because you hardly need it to commute (even you go to sunnybrook). If you can't stand living in not so nice neighbourhoods, then it will cost more. If you don't qualify for student loans or aid, you have even less to work with (one of the reasons why I lived in residence).

 

Med1soon, you should find out how much everything costs first before asking about whether you should get a new car or nice apt. What's tuition like at your school? What does rent cost in the type of flat you would want to live in? How much are your parents going to kick in? Do you have savings at present.

 

It's all pretty common sense not to be able to spend more than the amount of your financial ability (usually, the banks won't let you go over $25k a year anyways, and they'll lend you less with higher interest if you're high risk).

 

Find out what financial resources you have, and are you able to afford the things you need/want. You don't need to have a business background or financial advisor to tell you that. If you make reckless spending decisions, then no one can really help you there. (Of course, having some business background is handy for real life. I know how to calculate and do mortgages too. Hee hee.)

[Guest Lawgirl79]

Carolyn, sounds like you got totally screwed by the press. A lesson to everyone here when dealing with the media: they have no problem twisting everything you say to their advantage. My boyfirend was asked once to be on Canada AM and then they edited his interview so that he looked like an idiot.

[Guest ItsmeMelissa]

Carolyn,

Good for you for going to bat! I read that article and found myself wondering where they pulled this example from as well. Even if you got screwed in the press, we all know you aren't a whiner! We appreciate your attempts to bring *useful* advice to the med and potential med students of the world

 

My mom didn't appreciate it when I whined to her that she didn't give me $50,000 for a down payment.... God I wish I even had $2000 to keep track of :eek

 

Melissa

[Guest UWOMED2005]

Like most things in life, I think handling medical education and debt is all about balance. I've seen med students go pretty hog-wild at the start of the year mistakenly thinking "I'm in med school I'm going to be rich!" There were a few people who bought new cars, rented expensive apartments, bought all new clothes upon being accepted. Thing is, interest can kill. . . especially if it's on credit cards/other sources of funding beyond the med student credit line packages.

 

On the other hand, I've also seen medical students do the completely opposite thing. . . eating unheathily, not buying textbooks or equipment, not having a decent shirt & tie for functions & electives, etc. in the hope of graduating with no debt. I'm not sure if that's a good idea, either. Medical school itself is 4 years - a long time to be wearing the same pair of shoes or using the same shaving razor. Also a long time to be stewing along the lines of "how little money I have but I'm sure it'll be worth it in the end." Personally, I think that can lead to a corruption of the reasons you went into medicine in the first place. . . it could be an explanation for why some students who start off as idealists in first year of medicine let $$ affect the way they practice after graduation. Additionally, if they truly have no income/parental support I don't know how successful they will be in graduating without debt considering tuition. I put about $26,000 on my credit line this year (no prior savings) paying $280/month in rent (but I did buy a USED car in March - London really is a pain without a car). . . if I'd really scrimped and saved and only eaten "69 cent tuna" I think I might have gotten that down to $24,000, maybe a bit lower. Even accounting for saving that much for 4 years of medicine, and then interest (using an overestimate, at current interest rates, of the whole debt doubling) the difference is about $16,000. . . and in the grand scheme of things, the difference between a debt of $100,000 and $116,000. In the grand scheme of things. . . if you are in that much debt, that difference isn't all that great.

[Guest MD2006]

Here's a quick question...to those med students who already have student lines of credit...what's the ballpark figure for your monthly interest payments? Does anyone work partime during school to make the payments or do you pay it with savings you might already have? I'm looking into the whole line of credit process now, actually CIBC since that's where my Dad banks, but I've noticed no one here has posted that they use CIBC...any particular reason why?

[Guest Carolyn]

Each of the schools have special programmes with different Banks... At Mac, we have them with Scotia, CIBC, BofM and Royal. TD isn't providing professional programme Line of Credits...

 

Many people at Mac have LOCs with CIBC - I think it really has a lot to do with the marketing done by the banks to be quite honest as they are all pretty similar.

 

I would suggest definitely waiting until you decide what school you are going to and then go for the special LOC - much better deals.

 

Carolyn

 

PS Melissa -- thanks for your support...

[Guest UWOMED2005]

I've met very few medical students who work outside of school. You can pay the interest on the Line of Credit with the line of credit (though that does lead to exponential growth.) And I have to admit I don't really look at my bank statements to check how much I pay per month (I know, I know. . . bad financial management but I find the negative balance a bit depressing), but I think it's just under $100. The interest is at prime, which I believe is currently 4.00%. It's not too bad right now, but by 4th year interest will probably be about $300-$400/month, and could be much worse depending on what happens to the interest rates. . .

 

Hope this helps!

[Guest MD2006]

Carlyon, UWOMED2005, thanks for the feedback. I had wondered if you could pay the interest with your line of credit, so now I know.....the little bit of savings I do have will definatley be long gone before I know it....oh well.....

[Guest UWOMED2005]

Seems like we're logged in at the same time! I just wanted to add one more thing I missed in my previous post. . . make sure you get a line of credit that offers interest at prime (or below!) If they offer you anything higher than prime, refuse.

 

Not sure, but that might be there's not many people posting about CIBC. . . also, I think they'll only offer $20,000/year. Not wanting to push one bank or another, I've noticed more people going with the Royal Bank, Bank of Montreal, and Scotiabank?

[Guest MD2006]

UWOMED2005: Hey! CIBC offers their interest at prime as well, and for their professional student lines of credit they offer up to $40,000/yr (if necessary, which I (hopefully) won't need that much). However, I think that they require a co-signer for the first year if you don't have any assests/savings etc., so that might be why they're not as popular.....or it could be the whole marketing aspect as well. They're supposed to be getting back to me next week so I'll double check on all of that stuff. Thanks for the tips!

[Guest mtws]

I wonder if "The Wealthy Barber" shouldn't be required reading for med students?

 

I'll tell you a story:

 

When I was 16 I joined the Army Reserves. I went away that summer (1989) and earned just over $3000. That was tones for a high school kid. The problem was, they paid us in cash so, not a single dime ever saw the inside of a bank. When I got my T4 slip that year I lost my mind. All I had to show for my summer was a new ball cap (and some great stories to tell). So, at the advice of an elder, I read 'the wealthy barber' and it changed my financial perspective and my life.

 

November 2000 - as a graduate student, earning a $15000 studentship and about $6000 in part-time wages from the reserves - I bought my first home. I put down $22500 and began paying $504/month on a mortgage and stopped paying $750/month for the crappy basement apartment I was living in. My 3-bedroom condo townhome in Ottawa is a great improvement and it's equity.

 

PAY YOUSELF FIRST.

 

The best advice anyone will ever give you.

 

I started puting away $7 / week. It adds up.

Aspiring medical students have learned to do well in school, study, and get good marks. This takes the same sort of discipline. PAY YOURSELF FIRST.

 

You know how your paycheque shows Gross income and Net income. The difference being taxes, CPP, EI, etc. Why not just make your NET pay 10% less and put that money in a fund for you. Simple concept.

 

I don't know if this was the appropriate place for a post like this?? But, whatever, what do you think?

 

Matt

[Guest Beaver]

I have to second that, when you think Phd student, you can probably picture a guy in amity clothes living under the gardiner expressway right? Well it doesn't have to be like that.

 

Very similar to Matt, I scraped up the Scholarship money that I was awarded through the years of undergrad and saved it in a large cap mutual fund RRSP (low risk) I then used to work hardcore during the summers, during the day I worked in the lab, at night bartending, saturdays landscaping. This paid for school each year so I didn't have to touch the scholarship money. At the end of undergrad my scholarship money had grown to 49,000, which I withdrew to put a downpayment on a sweet loft condo in High Park. Here's the beauty, when you take money out of a RRSP investment account to purchase a house you dont pay any tax, so I got the full 49,000 without having to pay tax! The price of the loft was 190,000 so I payed the 49,000 and with a 141,000 left my payments on the mortage were 850/month less than the grad residence at UofT. I then took alot of the Grad scholarship/excess funding money and invested again in the RRSP account earning 13% on the money and that took care of another 60,000. So I've got about 80,000 left to go on the place and my monthly payments are 600/month! for a great place that I own. The loft is so big I've brought in two roomates from UofT that each pay 400/month, so basically i live for free, with an extra 200 from rent that I put in my investment account. If I get into med school i can sell the place and get the full amount needed to pay for schooling or i can keep renting the place and when I'm done I wont have to worry about a mortgage and all that crap as I'll come and live in the loft!

 

So for those starting out, try to save as much money in the early stages because you can really set things up in your favour for the future. There are alot of good books out there about the little tips and tricks (like withdrawing RRSP money Tax free for your first home). Financial Advisors are OK but lets face it if they knew so much they would be wealthy and alot of them are stuggling. One of my roomate's parents are financial advisors and they were so great at planning the future that their son has to pay for dentistry himself after getting into 40,000 in debt from undergrad. So Carolyn before you go to an advisor, check things out for yourself, I found that the advisor I went to was more interested in selling commision funds to make money for himself and keep his job.

[Guest monkey]

beaver and Matt,

 

you guys have really great advice and experience!!!!! thanks for sharing. how did you find out about the Large cap mutual fund, beaver? i was interested in looking up the sources you did so i can do some mucho money saving and not worry too much (tho chances of not worrying are very SLIM) once i am in med school.

 

thanks for the name of the book matt. any others u'd recommend? i feel like an absolute klutz at economics and financing so whatever can help me figure out the basics of these fields (like bank-lingo) would also be greatly appreciated.

 

thanks again!

 

monkey

[Guest mtws]

Another good book is called "The Millionaire Nextdoor". It may help with changing your mind-set; an appropriate perspective is key.

 

You know that Doctor living in that million dollar home driving the lexus and eating in the fancy restaurants every night - NEWS FLASH - He's not a millionaire. He has a huge debt load and probably pays out more each month than he earns.

 

Millionaires live well within their means and don't flaunt their cash, they save it. For Retirement. Big word retirement - you need about twenty years of planning to retire nice and comfortably - I don't know about you but that puts me at 49 (55 is right around the corner from there). Retire to a small medical practice in cottage country and do research in my own privately funded lab on some lakefront property in eastern Ontario. There's a dream. (You also get much farther when you know where you are going.)

 

To learn about categories of mutual funds and different ways to invest you should do your own primary research. Search the web (a library in your own home).

 

A good place to start is at your bank. Read their literature. What they have to offer should get you going. Investing is fairly easy to do. Mutual funds are comfortable for me - even when they are ultra high risk they feel right to me (as opposed to investing in single stocks - JDS uniphase for example) - but you have to do your own risk assessment too.

 

Ask your bank about their 'frequent purchase plans' (they might call them automatic withdraw plans). This is how I started. Canada Trust (who I am no longer with) allowed me to set up a plan where every Friday $7 would be removed from my account for the purchase of units of one of their mutual funds set up under my RRSP. (I also bought my home under the Ontario Homebuyers Plan - tax free withdraw from RRSPs).

 

I didn't even notice the $7 bucks missing. You get used to saving and you gain the appropriate mindset (much like how you became a regular studier!). At the end of one year is doesn't look like much. But eventually it grows (read up on 'compound interest'). And then when you get used to the money transfers you increase their amount. And then again, when you can afford more.

 

And before you know it - you have a nest egg.

 

Good luck.

Matt

[Guest Beaver]

You should also pick up the Guide to Mutual Funds (cant remember the exact title) by Ranga Chari. Its got some great explanations about the types of funds that best suit you risk tolerance etc.

 

I put my investments into AIC large cap global fund. Large cap means the companies in the funds have 3billion+ in assests, so they are kind of like the blue chip companies you hear about. Make sure that the mutual fund is well diversified hitting on stuff from biotech to resuorce based companies. That way a downturn in one sector wont send your fund down the tubes. To give you an example I almost bought a Royal bank Large Cap Canadian fund that invests in large cap canadian companies. The fund had 80% of its portfolio weight in Nortel, well you must know what happened to Nortel and so the fund lost a huge amount of its value as a result.

 

Another tip is to watch the commisions on the mutual funds. There is front end and back end commisions and then no commisions. Front end you pay up front back end you pay when you sell the fund, both suck so watch out. If you really like a fund but dont want to pay the loading commisions, ask the sales person for a pamphlet on the fund, then look at what companies the fund has invested in and in what percentage (this gets into optimal portfolio theory, so just know that the fund calculates the optimal allocation in each company to maximize return). Then go out and buy stocks in those companies in the same proportion and make a homemade fund with no commisions!!!

 

If you go to UofT, a good idea maybe to take MGT337Y (business finance, stats is the prereq which you probably have) and MGT330H (Investments and Portfolio theory), Prof. Wang is still the prof and he's great, you will listen to him as he showed us his T4, this whiz through building financial models to predict the market, made 1.3 million from Salomon Smith Barney to consult them on his techniques, His prof salary is 180,000 and his own gains on investments were another 200,000!! I took these as my optional courses in undergrad and they are awesome, helped me more than those useless human bio courses. They will help you in life by teaching you about pricing securities, bonds and valuing investments and companies, how to read financial statements, calculate complex annutities, time value of money, mortgages and how to figure out anything using an HP financial calculator. These I would stay away from the engineering economics its too heavy on the mathematical proofs and economic theory etc, which are useless in the real world, finance is what you want, its the application of economic theory.

[Guest Liana]

UWOMed2005 raises a vaild point about the cost of living in "the grand scheme of things". I am by no means advocating an indulgent lifestyle if it's beyond your means, but I don't believe in scrimping and cutting corners everywhere just to save yourself a relatively small amount of debt after graduation. Treating yourself to a balanced diet, a comfortable (and reasonably located) living environment, and the occasional frivilous expenditures like movies, dinner out, or gifts for friends might be hard on your bank account now, but hopefully the boost in your spirits will be worth it.

 

To steal from an overused cliche, if you were to die in a car accident the day after graduation, wouldn't you rather have spent a little bit more to have been comfortable in your 3 or 4 years of medical school? That's not to say that buying things will necessarily make you happy, but I know from experience that constricting the wallet too tightly certainly won't boost the enjoyability of the "best years of your life".

 

Regarding the article that was originally mentioned in this discussion, I think it's interesting to consider the lifestyles of medical students in the context that an average med student's family economic background is a lot more privileged than that of your average undergrad. Do you think that parental contributions, and affluent lifestyles that students are accustomed to from childhood might also be contributing factors to the desire to "live large" in medical school?

[Guest marmotYVR]

I have been buying my mutual funds thru Mutual Fund Direct (http://www.no-loads.com). I pay an annual fee of $30, and after that, NO LOADS - front or back end! They don't sell every fund in the book - but I have never wanted to buy a fund that they didn't offer. This is esp good if you buy & sell a lot (not that this is recommended!).

 

Also, check out morningstar.ca for reliable fund ratings. When I went to see a financial advisor, this is where he pulled his data from - but it is free off the net! So much for needing an advisor! Just make sure to DIVERSIFY! That means checking out the specific holdings of each fund that you buy - at first, I thought I was diversified, b/c I had about 5 different mutual funds. What I didn't realize until later was that they all bought the same stock, so I wasn't diversified at all. morningstar.ca will give you this info - it is a very helpful website.

 

 

Good luck!

[Guest Beaver]

I dont think that the affluence of the family plays a role in the desire to live large during med school. I came from a family where both my dad is a radiologist and my mom is a psychiatrist, things were good growing up but when I got to undergrad, I lived like meekly like all the other undergrads as many of the friends I made in undergrad who came from upperclass families did. I think it has more to do with the desire to whop it up a bit after 4 years of living like a student. i think immaturity and being handed 30,000 from the bank can also contribute to some bone head purchases. But for the most part I think people are wise like Mr. Rader who live confortably (ie get a car etc) but dont go crazy to showoff (ie not getting just a car but a Jag).

 

And yes one should never cut out food, or new shoes, and having fun once in a while ie going out, movies, bars etc. The point is just because the bank gives you the money doesn't mean you have to blow the enitire wad. Its not free money, the banks are making big bucks off of you so sure they will give you whatever you ask for so with interest they can turn a 150,000 education into a 300,000 education cost to you and a 200,000 interest profit even at 4% for them. They are doing these loans because they make huge amounts of money off students not because they like you or think its great that you want to be a doctor, even though they will make it seem like that when you talk to them