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Principles for Financial Success- Beginning your Residency. Congratulations!. Mortgages, Buying a House, Private Banking, and Basic Financial Planning. Ralph Broadwater, MD Financial Advisor The Busey Investment Group. Mortgages, Private Banking.

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Presentation Transcript
outline
Outline
  • Achieving success- Ralph Broadwater
  • Your Banking Relationship
  • Buying a Home- Susan Marlowe
  • Specific Residency Issues- Ralph Broadwater
  • Questions
achieving financial personal success during your residency11
Achieving Financial & Personal Success during your Residency
  • Setting Goals
  • Dynamic tension
  • Principles of Financial Success
goals
Goals
  • Professional
  • Personal
  • Financial
  • Family
why is it important to set goals
Why is it important to set goals?

We get used to our lifestyle

  • We all want to retire and enjoy life
  • We will all live longer
  • Inflation will affect our income needs
  • If you don’t save early you are in trouble
example income needs for retirement
Example: Income needs for retirement
  • $100,000 income
  • Age 30
  • Retire at 55 (25 yr career)
  • 2.5% inflation
  • 10% investment return
  • Live until age 85
  • Deplete savings in retirement
savings and retirement
Savings and retirement
  • At age 55 will need to generate $185,000 for same lifestyle
  • Will need $3 million
  • If start saving and earn 10% return:
monthly savings requirements
Monthly savings requirements

Start saving at age:

Per year

Per month

dynamic tension
Dynamic tension
  • Enjoying life
  • Saving
  • Maximizing retirement savings
  • Debt management
basic principles
Basic Principles
  • Develop goals
  • Take care of the basics
  • Save regularly
  • Maximize retirement savings
  • Don’t develop a consumption lifestyle
  • Start saving now!
  • Pay for professional help
    • accountant
take care of the basics
Take care of the basics
  • Disability Insurance
  • Simple will
  • Personal liability umbrella
  • Adequate insurance (life, health, home, auto)
  • Life insurance trust
principles of financial success
Principles of Financial Success
  • The rich vs. the rest of us
  • Principles from The Millionaire NextDoor
  • Specific suggestions
understand wealth creation
Understand Wealth Creation
  • The rich are different from everyone else.
  • They purchase assets.
  • Assets generate income that further increases wealth.
  • Everyone else buys “stuff”; doesn’t increase income or wealth.
pay yourself first
Pay yourself first
  • Automatic
  • Debit checking
  • monthly
successful investing
Successful Investing
  • Slow and steady wins the race
  • Power of compounding
  • Power of tax-deferred growth
  • Maximize both qualified plan and personal savings
  • Annual returns of 7-10%
slide30

“Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”The Millionaire Next Door

class of 2000
Class of 2000

Educational Indebtedness

  • 134 graduating
  • $7,042,440
  • 62,879 avg debt
  • Avg debt 77,334/109,264
class of 2002
Class of 2002

Educational Indebtedness

  • 140 graduating
  • $71,307 avg debt
  • 16 students no debt
total educational debt class of 1999
Total Educational DebtClass of 1999

UAMS

US

Mean/median debt: 62,177/60,000 (80,462/80,000 US)

credit card debt class of 1999
Credit Card DebtClass of 1999

US

UAMS

Mean debt: 14,108 (7425 US)

millionare next door seven common denominators
Millionare Next DoorSeven Common denominators
  • Live well below their means
  • Allocate time, energy, and money efficiently
  • They believe financial independence is more important than displaying high social status.
seven common denominators
Seven common denominators
  • Their parents did not provide economic support.
  • Their adult children are self-sufficient.
  • They target bargains.
  • They chose the right occupation.
creating wealth
Creating wealth
  • Set goals (have a plan)
  • Take care of basics
  • Maximize tax free earning (retirement plans)
  • Save routinely
  • Measure progress
barriers to success
Barriers to Success
  • No clear goals or plan
  • Inadequate protection (insurance)
  • Consumption lifestyle
  • Trying to time the market
  • Chasing performance
  • Acting on hot tips
  • Starting to save too late
  • Behavioral Finance Issues
specific issues during residency46
Specific Issues During Residency
  • Should I participate in my institution’s retirement plan?
  • Should I save into a Roth IRA?
  • Should I buy a home?
  • Should I consolidate my student loans?
growth of retirement savings 5 yr residency
Growth of Retirement Savings5 yr residency

Annual savings

7%

8%

10%

18,926 contributed

summary retirement decision
Summaryretirement decision
  • Take home pay only reduced by $215 per month
  • Saving $298 per month
  • U.S. government is paying for $996/$3576 of annual retirement (28%)
  • Money comes from reduced taxes
  • Choice: pay the tax or pay into your retirement (free money)
you have a choice
You have a choice
  • You can spend all of your take home pay: consumption lifestyle OR
  • You can plan to save
  • $298 per month x 5 yrs
  • Either have a few more CD’s, clothes
  • Or have between 347,000 –1.1 million dollars in retirement
consider roth ira
Consider Roth-IRA
  • tax free growth
  • no tax deduction
  • income at retirement is tax free
  • AGI

Single $110,000

Married filing jointly $160,000

roth ira assumptions
Roth IRA assumptions
  • $3000/yr during 4 yr residency
  • age 26-30
  • 7%,8%,10% returns
roth ira
Roth IRA

Age

7%

8%

10%

consider buying a house61
Consider Buying a House
  • If > 3 yr residency
  • Don’t over buy
  • Buy for resale
    • Neighborhood
    • Schools
    • Comparables
  • Don’t plan to make money on resale
buying a house
Buying a House
  • Improved lifestyle
  • More room and amenities for the money
  • Government pays part of your “rent”
  • Tax benefits
example buying a home
ExampleBuying a Home
  • 27% tax bracket
  • 100,000 home
  • 100% mortgage (no down payment)
  • 5.7%
  • 30 yrs
new home cost
New home cost

Per month

Per year

new home true cost
New home: True cost
  • Mortgage Interest and Property taxes are itemized on tax returns as a deduction ($6,948)
  • At 27% bracket you pay $1,876 LESS taxes
  • This is equivalent to reducing your monthly payment from $713 to $557
  • So it really only costs you $557/mo to own a $100,000 home
apartment vs home ownership
Apartment vs. Home ownership

apartment

Home ownership

i don t know
I don’t know.
  • Look at cost of consolidation
  • Interest rates
  • Does consolidation effect deferment or forbearance?
  • Is there a prepayment penalty?
  • Is simplification important to you?
  • Is the company reputable?
recommendations
Recommendations
  • Write down your goals
  • Take care of the basics
  • Develop a relationship with your personal banker
  • Save 10% of your gross pay
recommendations71
Recommendations
  • Save for Retirement (Roth vs. 403b)
  • Consider buying a home
  • Hire an accountant to do your taxes
  • Keep credit card debt to a minimum
  • Use a balanced no load mutual fund for investments
  • Review goals annually
wealth accumulation typical new md
Wealth AccumulationTypical New MD
  • Assumptions
    • age 30
    • 25 year career (retire at age 55)
  • Annual Savings
    • $30,000/year into Qualified Plan
    • $1,000/month
  • 7-10% investment returns
topics
Topics
  • Financial Planning
  • Money Management
  • Risk Management
  • Real Estate
  • Insurance
  • Behavioral Finance
  • Debt Management
  • Investment specifics
  • Wisdom from Private Practice
  • Seminars
individual sessions
Individual Sessions
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