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Finance for Physicians: Confessions of a MBA LTC Ross Colt MD, MBA, FAAFP Deep thoughts on…Money For the love of money is a root of all kinds of evil. (2 Timothy 6:10) “We were so poor my daddy unplugged the clocks when we went to bed.” (Chris Rock)

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Finance for physicians confessions of a mba l.jpg

Finance for Physicians:Confessions of a MBA

LTC Ross Colt

MD, MBA, FAAFP


Deep thoughts on money l.jpg
Deep thoughts on…Money

  • For the love of money is a root of all kinds of evil. (2 Timothy 6:10)

  • “We were so poor my daddy unplugged the clocks when we went to bed.” (Chris Rock)

  • I try to do the right thing with money. Save a dollar here and there, clip some coupons. Buy ten gold chains instead of 20. Four summer homes instead of eight. (LL Cool J)

  • "People say that money is not the key to happiness, but I always figured if you have enough money, you can have a key made." (Joan Rivers)


Take home points l.jpg
Take home points

  • Balance money, time, and life

  • Pay off all bad debt

  • Max out IRA, TSP


Money happiness l.jpg

49%

38%

33%

24%

<$30,000

$30-74,999

$75-99,999

$100,000 +

Money = happiness

But it helps!

  • Americans who describe themselves as “very happy” by household income:

  • There may be other factors…


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TIME=MONEY

  • Your time has value

  • How much value is up to you

  • Some may spend time to earn money

    • Example: moonlighting

  • Some may spend money to earn time

    • Example: house cleaner

VS


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Stock A

Stock A

$40,000

$20,000

Good debt, bad debt

  • Appreciating assets vs. depreciating assets

  • Good debt provides leverage

$200,000

$100,000

($20,000)

($120,000)

100% gain

600% gain


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A brief word about real estate

  • Can be very lucrative

  • Remember that time = money

  • How much does stress cost?


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Bad debt is….bad

  • Credit card debt is very, very expensive

  • Example: You buy a big-screen HDTV for $3,000 on his 18% interest credit card

  • How much does the TV cost you if you pay the minimum each month ($50)?

  • How long will it take you to pay it off?

$18,577.49

52 years!

http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp



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The power of compound interest

  • Resident A: starts saving at age 26, stops age 36, never saves another penny

  • Resident B: starts saving at age 36, commits to save for the rest of her life

  • When will B’s savings catch up to A’s?

NEVER

Each saves $6,500/yr, rate of return 8%


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Running the numbers

  • Excel calculator

  • Value of A’s savings at the end of 10 years: $120,000

  • At retirement, A has $1,118,073

  • At retirement, B has $1,087,858


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Rule of 72

  • Take your interest rate

  • Divide that number into 72

  • Resultant number is how many years it takes your money to double

  • Example: 9% interest doubles every 8 yrs


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Different colors of money

  • Post-tax dollars: what shows up in your checking account

  • Pre-tax dollars: worth about 25% more

  • What stock guarantees 25% return with zero risk?

Pre-tax $

Post-tax $


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Tax Brackets

  • Marginal tax bracket (last step) is important


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Civilian

R1-$42,000

R2-$44,000

R3- $46,500

Military

R1- $56,000

R2- $60,000

R3- $69,000

By the way…Resident salaries

Staff level (minimum)

MAJ (obligated) $100,000

LTC $180,000

COL $195,000


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Individual Retirement Accounts (IRAs)

  • Traditional IRA

    • NOW: pre-tax dollars THEN: deferred

  • Roth IRA

    • NOW: after-tax dollars THEN: tax-free

  • Phase-out of deductibility (pre-tax $)

  • Contribution limitation: $5000/year in 2009


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Thrift Savings Plan(TSP)

  • The military’s 401k- tax-deferred

    • Pre-tax dollars

  • Limit of $15,500 a year currently

  • No employer-match currently

  • www.tsp.gov




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College savings: 529 accounts

  • Sort of like a Roth IRA for educational expenses, but much higher limits

  • State specific plans, many offer discounts on state income tax

  • Variable fees, variable funds

  • Utah is low fees, managed by Vanguard www.uesp.org


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Emergency fund

  • Most recommend 2-3 months salary in easy access account

  • Military may need less- high job security


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Stocks vs. Bonds

  • Higher risk generally associated with higher returns

  • Dyspepsia factor

  • Research time factor

  • Lemming phenomenon- buy high, sell low




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Take home points

  • Balance money, time, and life

  • Pay off all bad debt

  • Max out IRA, TSP


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Questions?

Treasure indeed…


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