By Josh Katzowitz, WCI Content Director
Ava’s family stayed calm as 11am approached. Her parents measured the best angle from which they could shoot video of the exact moment she would take the first step of her post-medical school career. Her brother, halfway across the country, waited for the Match Day results on Zoom while working his full-time job. The next four years of her life (and perhaps her entire professional career) were in the balance. But Ava tried staying relaxed.
Her parents’ house, where she was waiting for that residency-affirming email, was calm—until it wasn’t. The hour drew closer. Her brother was half paying attention. Her parents were slightly bickering.
“No, no,” Ava’s mom said to her dad. “Not that camera angle. We look bad from that angle.”
Then, two minutes early, the email arrived. The sense of calm disappeared; it was replaced by tears from Ava.
“Please, read it,” Ava asked her parents. “Make sure it’s what we wanted.” Her proud father began to cry.
Nearly 900 miles away, Patrick woke up early that day to go on a seven-mile run to calm his nerves. His heart had raced four days earlier when he learned that (thank goodness!) he had matched somewhere, that he wouldn’t owe hundreds of thousands of dollars in loans without the benefit of a job.
Like many medical schools across the country, Patrick’s program didn’t have an in-person Match Day celebration, complete with in-person hugs and high-fives. Instead, there was an optional online meeting. About three-quarters of his classmates logged in, and when they got their Match Day emails, they declared their future residences via the Zoom chat.
Patrick and his wife, Brittany, had already put a non-refundable $5,000 on a house before the Match, gambling that he would get his first choice, to lock in the interest rate on a home in which they might never live. The email came. He wrote the results to his classmates. It was all pretty anti-climactic.
More than 2,000 miles in the opposite direction, Danny just wanted a little bit of privacy. The father of his fiancé, Ariel, had flown in to surprise her for her birthday, and he was in their apartment as the hour drew near. But they wanted to open their emails and discover their Match Day results in private. They were couples matching, and their lives felt extra-pressurized in that moment.
They sat down, a few feet below golden balloons that spelled out “Match 2022”, and they opened the emails they had waited months to read.
They hugged and kissed, as an ecstatic Ariel exclaimed, “We’re going to be together! We’re going to be together!”
A smiling Danny said, “This is good.”
With relief and joy as she mashed her lips against her fiancé’s, Ariel said once more, “We’re going to be together!”
The Fourth-Year Medical Students Graduate and Begin Residencies
Last February, we started a new series called From Fourth Year to the Real World where I write about a quartet of fourth-year medical students (two who were trying to couples match with about an average amount of medical school debt, one who graduated with zero debt, and one who has a growing family and who has an extraordinary amount of loans to pay back).
Since they’re completely transparent with how much they owe and how much they make—and with how they’re mapping out their financial futures—we aren’t using their real names. We check in with these newly minted doctors a couple times per year, and today marks their transition from medical school to residency and how they’re dealing with life’s new pressures and rewards.
Here’s a quick introduction to the new interns:
- Ariel and Danny: This engaged couple will owe close to $400,000 in student loans, and they’re getting married in April 2023. They matched together for residency, and they’ll earn close to $100,000 combined for their intern year. Right now, life is stressful but good.
- Ava: A true world traveler since she was a kid, Ava doesn’t have much financial experience, but she enters a competitive medical specialty that has a high salary range. She also has no debt, giving her a nice jumpstart on her career journey.
- Patrick: He won’t become an attending until he’s in his mid-30s, and Patrick has plenty of money concerns now. His wife just gave birth to their third child, and they owe nearly $500,000 in medical school loans. But he stays optimistic. After all, the couple have just tripled the most income they’ve ever made before.
The Tranquility of Ava
The nearby highway is crisscrossed with idling cars, as it is on most days and most times. Construction surrounds the hospital. Streets suddenly drop from four lanes to two so roadwork can be completed, and cars back up as red lights take forever to change to green. Catty corner to the medical school, big yellow bulldozers move dirt around the huge undeveloped lot. It’s a time of growth and expansion.
At the arena nearby, a kids basketball camp has let out for lunch, and young kids bounce basketballs as they scurry through the streets and pathways searching for sustenance. In the blocks surrounding Ava’s newest workplace the day before she starts her internship, the world feels chaotic.
But step inside the hospital’s lobby for a moment, and tranquility surrounds you. The automatic doors whisk open, welcoming you into the air conditioning that provides immediate relief from the 96-degree heat. The waiting room is relatively crowded, but the voices are low and respectful.
The world outside, with its beeping trucks and its honking horns and its bouncing basketballs, is pandemonium. But inside, you can take a deep breath and feel peace.
Though Ava is entering one of the most competitive fields of medicine with about a 50% match rate, she got her first choice. She’s back in the city she loves, only a few hours away from her parents, her friends, and her new boyfriend. In the past, Ava has struggled with her work-life balance, and during medical school, her normally serene demeanor spiked with anxiety.
But not now. A few weeks before she was to move, her newly built apartment still wasn’t ready. Her residency started in late June. She was supposed to take possession of the apartment four days before her start date. The move-in date kept getting pushed back, but she remained chill. Even though she might be homeless to start her new job, even though she might have a car full of belongings with nowhere to go, even though she might soon be in a housing jam.
“Well, now that you put it that way . . .” Ava joked. “In med school, I used to stress too much. But I realized it wasn’t going to bring me anywhere. I moved around a lot as a kid. Moving to somewhere within two hours of where my parents are and my friends are, I don’t really see it as a big move. It’s not something that worries me.”
Ava was born in Argentina, and while growing up with her parents and older brother, she lived among rich people (in the UAE and Oman) and in poor areas (Bolivia and Venezuela). Her family settled in the US, and though her parents worried about her career choice (her grandparents were doctors, and they gave their lives to medicine without ever making much money), they made sure that Ava would graduate from medical school without any student loan debt.
She knows she’s privileged to be in this position. Though she has full confidence that she has the knowledge to succeed as a doctor, she’s not nearly as assured about her financial education. During the break between graduation and the beginning of residency, Ava had a difficult time sitting still. She couldn’t binge-watch TV or spend her afternoons relaxing. She felt it was a waste of time; she felt guilty about not being mentally stimulated.
So, she read Rich Dad, Poor Dad by Robert Kiyosaki, and Ava—who will earn a $60,000 residency salary in a relatively high cost of living area —wants to spend the next four years learning how to make her money work for her.
She’s been unconvinced in the past about investing. When she was in college, her brother tried teaching her about the stock market. She was barely interested. “I was very skeptical of that,” she said. “I thought, ‘I’m going to make enough money because I’m going to be a doctor.’”
But her brother explained that because she’ll have job safety in medicine that she can more comfortably invest, and he convinced her to give index funds a try. In four years, from when she was a college senior to now, she’s doubled her money from $500 to $1,000. Even on a small scale, she’s discovered the power of investing. Now, she hungers for more information.
First, though, she must get adjusted to her new life in a new city in a new apartment (fingers crossed that it’s ready!) with a new job. This is a time for growth—for the kids improving their basketball skills nearby, for the city that surrounds her, for Ava herself.
She takes a deep breath. The hospital doors whiz open to welcome her into the tranquility. She steps forward into the future with a sense of calm.
An Unexpected (and Expensive) Expense for Ariel and Danny
Ariel is running a little behind schedule today. But that’s OK. It’s fine. After four years of scratching and clawing their way through medical school, Ariel and Danny deserve a little downtime, a little flexibility where time doesn’t have to be so regimented and where he can watch a little Netflix during the day and where she can spend a leisurely afternoon getting a manicure. They deserve their moments of happiness after months of the stress that comes with what was ultimately a successful couples match.
But soon enough, their time will be limited and so will their discretionary spending. Danny has known all along that he would owe $282,000 in student loans when he completed medical school. He disclosed that to Ariel while they were dating, and since they’d gotten engaged, the two had discussed the options for how they would pay back the debt —whether they’d do so together; whether he’d pay it off all by himself; or whether they’d work on it together with the understanding that if they ever ended their relationship, he'd pay her back everything she had contributed.
The equation has changed. Thanks to Ariel’s wealthy father, she wasn’t expecting to have any debt after graduation. But her dad—who paid the first two years of her medical school tuition and then had planned to pay off the loans Ariel took out for the third and fourth years—just turned 60 years old, and he wants to retire and return to his native Vietnam for philanthropic work.
That left Ariel and Danny with a choice. Her father could pay off her loans, or he could provide the wedding of her dreams. Ariel chose the wedding. The $90,000 she owes on those loans has been tacked on to Danny’s $282,000, meaning the couple, who will earn a combined $98,000 from their residency salaries in a relatively low cost-of-living college town, now owe $372,000.
“I feel great now. I feel happy,” Ariel said. “I think it’s a manageable amount. I don’t have any worries about not paying it off. To me, what was super important was that my dad gets to retire and do what he wants. And I want the wedding that I want.”
The wedding next April might cost close to six figures, so whether her father paid for the celebration or for her loans was inconsequential in their eyes. What’s also clear is that they’ll have to stop worrying about the wealth their friends display and learn how to keep their own FOMO at bay. They have friends who work at tech companies who, in the words of Danny, are “making bank.” Meanwhile, Ariel has tried to prepare herself for the delayed gratification of becoming an attending and making the salary that comes with it.
It's not always easy. They recently attended a wedding that was estimated to cost in the seven figures, and her family has begun asking when Ariel and Danny will upgrade their cars.
The topic annoys Danny, but it’s not an irrelevant conversation. Danny drives a 2007 Honda Civic. Ariel drives a 2005 Lexus SC 430 that her dad gifted her when she first went to medical school. Her car is beginning to show its age, and the problems it’s having remind them that, at some point, they’re going to have to replace their vehicles.
For now, the two compromise on their spending habits, but Ariel admits that, after she recently got a new credit card, she got a little “swipe happy.” Danny’s response? “See? That’s what’s going to happen.”
So, Ariel has been working on a 50/30/20 budget (that includes the occasional $80 manicure). This is what it looks like at the moment.
For now, their budgets and spending are separate, and it’s unclear how or if they’ll merge their accounts. But after the wedding, she knows exactly what her dream purchase will be: a season pass to the state’s top-notch amusement park.
It will cost $500 for the lowest-tier season pass, and it’ll cost more to drive the two hours from her town to the park’s front gates, assuming her car doesn’t break down on the way there. It’s certainly not an essential need. But it will make her happy.
Patrick’s Newest (Human and Material) Additions
Sometimes, Patrick wonders if he made the right career choice. He grew up in a house where money was a topic to be feared (he remembers waking up in the middle of the night and hearing his panicked father vomit after losing his job) and where even buying an item or two from the gas station was a luxury that was out of reach.
Becoming a doctor was going to be lucrative. It would allow him to put his family in comfort. It would allow him to save for the retirement that his parents won’t get to experience. It would allow him to buy a Snickers and a Gatorade from the gas station any time he wanted.
Now that Patrick has graduated from medical school and matched into his first choice, his own stress levels have been reduced. But he still owes nearly $500,000 in medical school loans. His wife, Brittany, just gave birth to their third child. They sold all their belongings (some nice couches, a kitchen table, their beds) and moved to the new house 1,200 miles away from their family to a community in a small town where they don’t really know anyone. They could barely find a U-Haul. They sold his Toyota Tacoma for $12,000 and bought a 2015 Honda Odyssey minivan for $17,000 to transport their new family of five. They’ve just bought a three-bedroom house. He’s still waiting to receive a significant sum of tax return money from the IRS that has been tied up for months. Oh, and he’s about to start his new job.
So yes, life is still stressful.
“I’ve thought a lot about, ‘Why did I do this?’” Patrick said. “Why didn’t I just become a nurse instead? With both of us making money as nurses, we could have made really good wages. A lot of what-ifs and some regrets. Now, it’s kind of weird, because technically, I’m a doctor, but I’m going to make $20,000 less than my wife who’s a nurse.”
Naturally, she pokes fun at him sometimes (“I make more than a doctor,” she playfully says). He probably laughs at that.
But most of their recent decisions have not been easy. They thought about renting during residency, like Ariel/Danny and Ava are doing in their respective cities, but the rental market in Patrick's new town was sparse and expensive. Instead of paying $2,200 a month in rent, they ultimately got a physician mortgage and bought a 2,000-square-foot house for $300,000 with $0 money down. The good news: they got an interest rate of 3.5% just before the mortgage rates began increasing, and their monthly mortgage payment is about $1,400. The bad news: property taxes are $8,000 a year, and Brittany has had to return to work, meaning childcare will be expensive.
More good news: his starting resident salary is $58,500, and Brittany will make $75,000 per year as a nurse along with a $10,000 signing bonus and a $7,500 moving stipend. Before now, the most they’d ever made between the two of them was $50,000. This year, they’ll crack more than $150,000.
It’s more—much more—than his parents ever earned.
“It’s sort of mixed feelings. I don’t want to feel like I’m better than them. But in some way, I feel like I did it right,” Patrick said. “They should have done something else. My dad was in the trucking business and is a hard worker, man. He just didn’t pick the right field, I guess. He got used and abused by his employers often. He never quite made it. And I think he feels that way. He’s stuck in an older home that’s not very nice. He doesn’t have a lot of money even now. It makes me want to help him out, take him on a trip to Europe or something.”
First, though, Patrick needs to get his own newly bought house in order. With the combined student loans of Patrick and Brittany, they owe $460,000. Add to that their new mortgage, and they’re three-quarters of the way to a seven-figure debt. Before graduation, that debt was just some nebulous figure floating in the air around him. It was too big and too hazy to seriously contemplate.
Now, it’s real.
“But looking at our income and our debt, it’s starting to feel like maybe we can do this,” he said. “We can make a dent in this.”
Here’s their plan for now: save $10,000-$20,000 for an emergency fund, and anything extra they earn, they’ll start throwing it at the debt. But he’s unsure about where to start paying first: the medical school loans, the undergraduate debt, or the car payments. Or maybe he should pay as little as possible and plan on going for Public Service Loan Forgiveness. Or maybe they should start working on building up their retirement savings. “It’s all these little details,” Patrick said, “that are tough for me.”
Other costs have snuck up on the family. Pest control costs $100 per month. A security system costs $50 a month. A kitchen table bought from guy moving overseas cost $300. A washer and dryer purchased from a sketchy-looking dude out in the country who initially messed up the wiring on the appliances cost another $500.
Patrick and Brittany had banked on getting their $14,000 tax payment from the IRS to help pay the first couple of months of mortgage and utilities. It hasn’t arrived yet. He calls the IRS, and the phone just rings and rings. He has no idea when that check will come. In the meantime, they’re putting their expenses on an Amazon credit card where they’re receiving 2% back on Amazon purchases and 1% on everything else.
“Right now,” he said, “we’re just patching it all together.”
Yet, Patrick is optimistic. They’re going to make a ton of money this year. Yes, the debt is real. But his path to a financial future isn’t as rocky as he once might have believed.
Yes, becoming a nurse wouldn’t have landed him in so much debt. But he can take solace in this: being a doctor can lead him to the kind of life his parents never got to live.
Make sure to get caught up on part 1 of our From Fourth Year to the Real World series.
[Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at content@whitecoatinvestor.com.]
The post From Fourth Year to the Real World, Part 2: Transitioning from Med School to Residency appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.