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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 l.jpg

Principles for Financial Success- Beginning your Residency


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Congratulations!


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


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Ralph Broadwater, MDFinancial AdvisorThe Busey Investment Group


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Mortgages, Private Banking


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Susan MarloweRealtor RELO DirectorThe Janet Jones Company


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Outline

  • Achieving success- Ralph Broadwater

  • Your Banking Relationship

  • Buying a Home- Susan Marlowe

  • Specific Residency Issues- Ralph Broadwater

  • Questions


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Achieving Financial & Personal Success during your Residency


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Achieving Financial & Personal Success during your Residency

  • Setting Goals

  • Dynamic tension

  • Principles of Financial Success


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Goals

  • Professional

  • Personal

  • Financial

  • Family


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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


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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


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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:


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Monthly savings requirements

Start saving at age:

Per year

Per month


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Dynamic tension

  • Enjoying life

  • Saving

  • Maximizing retirement savings

  • Debt management


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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


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Take care of the basics

  • Disability Insurance

  • Simple will

  • Personal liability umbrella

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

  • Life insurance trust


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Principles of Financial Success

  • The rich vs. the rest of us

  • Principles from The Millionaire NextDoor

  • Specific suggestions


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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.


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Robert Kiyosaki, Rich Dad, Poor Dad


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Robert Kiyosaki, Rich Dad, Poor Dad


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Robert Kiyosaki, Rich Dad, Poor Dad


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A fundamental law of finance

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


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Pay yourself first

  • Automatic

  • Debit checking

  • monthly


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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%


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Lessons from the Millionaire Next Door


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“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


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80% of American millionaires are 1st generation rich.

The Millionaire Next Door


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


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BIG HAT, no cattle


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UAMS graduatefinancial demographics


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Class of 2000

Educational Indebtedness

  • 134 graduating

  • $7,042,440

  • 62,879 avg debt

  • Avg debt 77,334/109,264


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Class of 2002

Educational Indebtedness

  • 140 graduating

  • $71,307 avg debt

  • 16 students no debt


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Total Educational DebtClass of 1999

UAMS

US

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


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Credit Card DebtClass of 1999

US

UAMS

Mean debt: 14,108 (7425 US)


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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.


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Seven common denominators

  • Their parents did not provide economic support.

  • Their adult children are self-sufficient.

  • They target bargains.

  • They chose the right occupation.


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Frugal, Frugal, Frugal


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Save, Save, Save


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Creating wealth

  • Set goals (have a plan)

  • Take care of basics

  • Maximize tax free earning (retirement plans)

  • Save routinely

  • Measure progress


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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


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Specific Issues During Residency


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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?


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Consider saving for retirement


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Resident SalaryUAMS 2003-2004


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PGY-1 Salary$36,500/yr


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


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Growth of Retirement Savings5 yr residency

Annual savings

7%

8%

10%

18,926 contributed


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Growth of Residency Retirement Savingslifetime

8%

10%

7%

18,926 contributed


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Retirement Savings During ResidencySummary

No saving

Saving


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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)


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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


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Consider a Roth IRA


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Consider Roth-IRA

  • tax free growth

  • no tax deduction

  • income at retirement is tax free

  • AGI

    Single $110,000

    Married filing jointly $160,000


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Roth IRA assumptions

  • $3000/yr during 4 yr residency

  • age 26-30

  • 7%,8%,10% returns


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Roth IRA

Age

7%

8%

10%


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Consider Buying a House


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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


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Buying a House

  • Improved lifestyle

  • More room and amenities for the money

  • Government pays part of your “rent”

  • Tax benefits


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ExampleBuying a Home

  • 27% tax bracket

  • 100,000 home

  • 100% mortgage (no down payment)

  • 5.7%

  • 30 yrs


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New home cost

Per month

Per year


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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


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Apartment vs. Home ownership

apartment

Home ownership


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Should I consolidate my loans?


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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?


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Achieving Success in Life: Recommendations for Your Residency


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Recommendations

  • Write down your goals

  • Take care of the basics

  • Develop a relationship with your personal banker

  • Save 10% of your gross pay


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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


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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


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Wealth AccumulationNew MD

7%

8%

10%

Age


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Week 4-Last Chance Course

April 21-25


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


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Topics

  • Financial Planning

  • Money Management

  • Risk Management

  • Real Estate

  • Insurance

  • Behavioral Finance

  • Debt Management

  • Investment specifics

  • Wisdom from Private Practice

  • Seminars


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Individual Sessions

  • Dr. Broadwater

  • Starting April 21

  • Call 686-5547

  • Email: [email protected]


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Questions


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