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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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Principles for Financial Success- Beginning your Residency


Congratulations!


Mortgages, Buying a House, Private Banking, and Basic Financial Planning


Ralph Broadwater, MDFinancial AdvisorThe Busey Investment Group


Mortgages, Private Banking


Susan MarloweRealtor RELO DirectorThe Janet Jones Company


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 Residency


Achieving Financial & Personal Success during your Residency

  • Setting Goals

  • Dynamic tension

  • Principles of Financial Success


Goals

  • Professional

  • Personal

  • Financial

  • Family


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

  • $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

  • 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

Start saving at age:

Per year

Per month


Dynamic tension

  • Enjoying life

  • Saving

  • Maximizing retirement savings

  • Debt management


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

  • Disability Insurance

  • Simple will

  • Personal liability umbrella

  • Adequate insurance (life, health, home, auto)

  • Life insurance trust


Principles of Financial Success

  • The rich vs. the rest of us

  • Principles from The Millionaire NextDoor

  • Specific suggestions


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.


Robert Kiyosaki, Rich Dad, Poor Dad


Robert Kiyosaki, Rich Dad, Poor Dad


Robert Kiyosaki, Rich Dad, Poor Dad


A fundamental law of finance

Expenses will expand to entire income. (No matter how much)


Pay yourself first

  • Automatic

  • Debit checking

  • monthly


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%


Lessons from the Millionaire Next Door


“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


80% of American millionaires are 1st generation rich.

The Millionaire Next Door


Physicians, in general, do not tend to be wealth accumulators.


BIG HAT, no cattle


UAMS graduatefinancial demographics


Class of 2000

Educational Indebtedness

  • 134 graduating

  • $7,042,440

  • 62,879 avg debt

  • Avg debt 77,334/109,264


Class of 2002

Educational Indebtedness

  • 140 graduating

  • $71,307 avg debt

  • 16 students no debt


Total Educational DebtClass of 1999

UAMS

US

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


Credit Card DebtClass of 1999

US

UAMS

Mean debt: 14,108 (7425 US)


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

  • Their parents did not provide economic support.

  • Their adult children are self-sufficient.

  • They target bargains.

  • They chose the right occupation.


Frugal, Frugal, Frugal


Save, Save, Save


Creating wealth

  • Set goals (have a plan)

  • Take care of basics

  • Maximize tax free earning (retirement plans)

  • Save routinely

  • Measure progress


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 Residency


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?


Consider saving for retirement


Resident SalaryUAMS 2003-2004


PGY-1 Salary$36,500/yr


PGY-1 Salary$36,500/yr with retirement savings


Growth of Retirement Savings5 yr residency

Annual savings

7%

8%

10%

18,926 contributed


Growth of Residency Retirement Savingslifetime

8%

10%

7%

18,926 contributed


Retirement Savings During ResidencySummary

No saving

Saving


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 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 a 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

  • $3000/yr during 4 yr residency

  • age 26-30

  • 7%,8%,10% returns


Roth IRA

Age

7%

8%

10%


Consider Buying a House


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

  • Improved lifestyle

  • More room and amenities for the money

  • Government pays part of your “rent”

  • Tax benefits


ExampleBuying a Home

  • 27% tax bracket

  • 100,000 home

  • 100% mortgage (no down payment)

  • 5.7%

  • 30 yrs


New home cost

Per month

Per year


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

Home ownership


Should I consolidate my loans?


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?


Achieving Success in Life: Recommendations for Your Residency


Recommendations

  • Write down your goals

  • Take care of the basics

  • Develop a relationship with your personal banker

  • Save 10% of your gross pay


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 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


Wealth AccumulationNew MD

7%

8%

10%

Age


Week 4-Last Chance Course

April 21-25


Medical Economics, Financial Planning, & the Non-Medical Practice of Medicine


Topics

  • Financial Planning

  • Money Management

  • Risk Management

  • Real Estate

  • Insurance

  • Behavioral Finance

  • Debt Management

  • Investment specifics

  • Wisdom from Private Practice

  • Seminars


Individual Sessions

  • Dr. Broadwater

  • Starting April 21

  • Call 686-5547

  • Email: [email protected]


Questions


  • Login