"Deferred spending"--does this make sense for a resident?

[newdoc_2016]

Hi all,

Posting because I'm not sure whether mine and my SO's plan makes sense. I just matched into a 5-year residency with earning potential of $250K-$300K (academics) vs $300-600K (private). I have loans of about $160K, mostly at ~7% interest. We are going to start a family in about 1-2 years at which point SO is likely to stop working until at least when I finish residency. At that point, here is what our monthly expenses would be:

Rent: $2800 (living in very expensive city)
Utilities: $200
Groceries and shopping: $1000
PAYE: $300
Travel (mostly weddings or going home for the holidays or paying for my MIL/FIL to visit us): $700
Baby-related expenses: $500

This adds to $5,500, which is more than my take-home as a resident of about $3,500. For the remaining $2,000 does it make sense to dip into savings for the 4 remaining years of residency? My SO makes good money so we could probably save $98-100K over the next 1 year when we are both working, which would cover this $2,000 excess for 49-50 months, longer than the 4 years that we will be doing it prior to me becoming an attending. I called this "deferred spending" because our take home over the next 1-2 years will be ~$9-10K but we plan on spending very little beyond rent so that we can spend it later when we have a kid.

I realize it sounds crazy to be planning to live beyond our means. Obviously if something catastrophic happens, we can downsize our apartment, my SO could go back to work, etc. But otherwise, does it make sense to cushion our future spending with savings (i.e. save a lot when we are making a lot and have few expenses, then spend it later when we aren't making as much and have more expenses)?

We would keep a very similar lifestyle once I become an attending, so hopefully can knock out the remainder of my loans in ~2 years.

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[NERDY]

Check out White Coat Investor's website/book (he posted on the EM forums often). He has good advice.

 

[newdoc_2016]

Check out White Coat Investor's website/book (he posted on the EM forums often). He has good advice.

Yes, I read the article "Financial Survival as a Resident." It was great but it is mostly focused on living modestly (no fancy cars, etc.) to keep expenses low, and does not talk about the possibility of planning for the single-income-with-a-family situation that I've described above. Do you know of any other WCI articles that would be pertinent?

 

[HLxDrummer]

Similar situation here: 200k in loans going into intern year in July with a baby. My income is the only income essentially. Trying to find a balance between comfortable lifestyle and being a cheap ass. Will see how it plays out. May have to defer loans depending on my PAYE payments. We actually bought a house which will end up cheaper than renting even if I sell at a 5% loss (including maintenance, closing, etc).

I think your plan sounds very reasonable. I don't think it is worth being miserable to save a few grand a year honestly, especially with what your income will be. I would put away a portion of your spouses income to account for the time you will be single income, then put the rest towards your loans since they are somewhat high interest. I would imagine your PAYE payments will decrease when your spouse stops working and you have a child (can't quite remember the different between PAYE and REPAYE), so you can put that towards living expenses at that point as well if needed.

Edit: Encourage your wife to breast feed and buy diapers in bulk. I wouldn't imagine you would need $500/month for the baby if you do those things.

 

[doc05]

sounds like a terrible plan. and you can be sure that a baby will cost you WAY more than $500 per month.

 

[clausewitz2]

Similar situation here: 200k in loans going into intern year in July with a baby. My income is the only income essentially. Trying to find a balance between comfortable lifestyle and being a cheap ass. Will see how it plays out. May have to defer loans depending on my PAYE payments. We actually bought a house which will end up cheaper than renting even if I sell at a 5% loss (including maintenance, closing, etc).

I think your plan sounds very reasonable. I don't think it is worth being miserable to save a few grand a year honestly, especially with what your income will be. I would put away a portion of your spouses income to account for the time you will be single income, then put the rest towards your loans since they are somewhat high interest. I would imagine your PAYE payments will decrease when your spouse stops working and you have a child (can't quite remember the different between PAYE and REPAYE), so you can put that towards living expenses at that point as well if needed.

Edit: Encourage your wife to breast feed and buy diapers in bulk. I wouldn't imagine you would need $500/month for the baby if you do those things.

Why don't you ask some people you know who have kids if babies cost less than or more than 500 dollars a month. I can predict the directionality of their answers with 100% confidence.

 

[Wordead]

Similar situation here: 200k in loans going into intern year in July with a baby. My income is the only income essentially. Trying to find a balance between comfortable lifestyle and being a cheap ass. Will see how it plays out. May have to defer loans depending on my PAYE payments. We actually bought a house which will end up cheaper than renting even if I sell at a 5% loss (including maintenance, closing, etc).

I think your plan sounds very reasonable. I don't think it is worth being miserable to save a few grand a year honestly, especially with what your income will be. I would put away a portion of your spouses income to account for the time you will be single income, then put the rest towards your loans since they are somewhat high interest. I would imagine your PAYE payments will decrease when your spouse stops working and you have a child (can't quite remember the different between PAYE and REPAYE), so you can put that towards living expenses at that point as well if needed.

Edit: Encourage your wife to breast feed and buy diapers in bulk. I wouldn't imagine you would need $500/month for the baby if you do those things.

Your math is invariably off. A house is always gonna cost more than you think. Especially in time.

 

[QofQuimica]

No, it doesn't make sense, because planning to live beyond your means never makes sense. You need to cut that budget down to a manageable amount based on what you can actually afford. Here's what I suggest:

1) First, you need to cut your housing costs in half, if not down to 1/3, of what you're currently planning to spend. I'll grant you that some areas of the country cost more to live in than others. However, as an attending, I make at least four times more than what you make as a resident, and I'm paying just over 1/3 what you're paying to rent my fancy, overpriced top floor 1BR apartment in a gated community. When I was a resident, I paid less than 1/3 of what you're paying to live in an (admittedly fairly dumpy) 1 BR apartment in an expensive city. So reality check here: you're spending way too much for housing given your income, and you can't afford it. As a rule of thumb, housing should cost around 25% of your income, not 80% of it. So on an income of $3500, you should be looking to spend in the $900 range.

2) Utilities will go down when you move to a more reasonable, smaller apartment. My electric bill (in Florida, where simply stepping outside your front door during half the year is like stepping into a sauna) is never over $50-$60/month. Make sure you and your partner turn the temp up during the summer and down during the winter, especially when you're not in the apartment.

3) What kind of food are you shopping for that costs $1000 per month? Two people ought to be able to eat on half that much, if not less. Even as an attending, I spent about $300-$350/month on groceries, including buying fancy organic stuff. As a resident, my bill was more like $200/month.

4) PAYE: is what it is.

5) Weddings and travel: nuh-uh, not part of your budget to this extreme. You won't have this much time to travel every month anyway. Most programs give 2-3 weeks of vacation per year. As such, I traveled 2-3 times per year as a resident, and that was primarily down to see my family, which was low-cost since I didn't have to pay for somewhere to stay or food while I was there. Total cost was probably more like $700-$800 per YEAR. Give your friends your apologies, because you won't have the time or money to be able to attend most of their weddings, especially as an intern.

6) Child costs: well, people vary in how much they spend for kids just like they vary in how much they spend on themselves. If you're going to be paying for a live-in nanny and disposable diapers and formula and brand new everything, you're gonna pay a lot, probably way more than you've predicted. If your partner is going to stay home and use washable cloth diapers and breast feed and dress the kid in hand-me-downs, your expenses will be a lot lower. And this is also barring something unpredictable like having a special needs kid or other extra prenatal costs. Is there any reason in particular why you must start your family during your first or second year of residency? If you could hold off for even one or two years longer (and ideally into your last year of residency, or at least until whenever you could possibly do some moonlighting for extra money), it would really help the two of you be on a more stable financial footing.

Bottom line is that you aren't an attending yet. You should wait until you become one before you start spending like one.

 

[Raryn]

Rent: $2800 (living in very expensive city)
Utilities: $200
Groceries and shopping: $1000
PAYE: $300
Travel (mostly weddings or going home for the holidays or paying for my MIL/FIL to visit us): $700
Baby-related expenses: $500

$2800 in rent? Are you living in Manhattan or San Francisco? Even then, that's absurd. You could probably cut this by 40% or more if you're at all flexible. Find a cheaper part of "the city".
Utilities are more or less out of your control except for making sure you don't go too nuts on the AC, and that's not an unreasonable amount if you're including your internet and such in there. If that's utilities excluding cable/internet... cut back.
Groceries and shopping? You're spending >$30/day on groceries and shopping? Does this include your furniture budget?
PAYE is PAYE
Travel is $700/month? I mean, I spend more than that in Nov/Dec and on one vacation in the spring... but wtf are you spending it on every month.

I'll leave the discussion of baby related expenses to people who have kids.

 

[mvenus929]

I agree with the above. If you are going to be living on a resident's salary, you should be living like a resident. That means cheaper housing, not the fancy organic food from Whole Foods, and minimal (if any) travel (and certainly not paying for other people to come visit).

 

[newdoc_2016]

$2800 in rent? Are you living in Manhattan or San Francisco? Even then, that's absurd. You could probably cut this by 40% or more if you're at all flexible. Find a cheaper part of "the city".
Utilities are more or less out of your control except for making sure you don't go too nuts on the AC, and that's not an unreasonable amount if you're including your internet and such in there. If that's utilities excluding cable/internet... cut back.
Groceries and shopping? You're spending >$30/day on groceries and shopping? Does this include your furniture budget?
PAYE is PAYE
Travel is $700/month? I mean, I spend more than that in Nov/Dec and on one vacation in the spring... but wtf are you spending it on every month.

I'll leave the discussion of baby related expenses to people who have kids.

Yes I do live in one of those cities, and that is pretty standard (perhaps even cheap) for a 2 br. Now, I realize we could "rough it" a little and get a 1 br with a kid for around $2,200 or so, but the question is, do we have to if we can save nearly $100K before having kids? Otherwise, what, spend the $100K on paying my loans more aggressively over the next 18 months before we have a kid by contributing $7K/month total on loans? Sure, I would end up with only ~$20,000 in debt by the time I finished residency, but is it not reasonable to spend this surplus we have now on "buffering" our expenses later?

Utilities include internet and cell phone, which is why it's so high.

In terms of the actual expenses:

Groceries and shopping is my credit card bill (minus travel), so includes food ($200-300), furniture (amortized), haircuts, everything else (I determined this by averaging our expenses over the past 2 years).

Another thing to note is that we live very far from family (opposite coast) and either we pay to go home or to a friend's wedding, or pay for my parents or MIL/FIL to visit. One trip for 2 people across the coasts generally runs $700 ($350 flight x2). When we have a kid, we will definitely be asking our parents to come help some times, but they will probably make relatively short trips (1 week per month or so) since my SO and I both have 2 siblings with young families that our parents like to help out.

I guesstimated the baby-related expenses using some online calculator that average one-time costs (e.g. crib) over a year and added monthly costs.

 

[clausewitz2]

Yes I do live in one of those cities, and that is pretty standard (perhaps even cheap) for a 2 br. Now, I realize we could "rough it" a little and get a 1 br with a kid for around $2,200 or so, but the question is, do we have to if we can save nearly $100K before having kids? Otherwise, what, spend the $100K on paying my loans more aggressively over the next 18 months before we have a kid by contributing $7K/month total on loans? Sure, I would end up with only ~$20,000 in debt by the time I finished residency, but is it not reasonable to spend this surplus we have now on "buffering" our expenses later?

Utilities include internet and cell phone, which is why it's so high.

In terms of the actual expenses:

Groceries and shopping is my credit card bill (minus travel), so includes food ($200-300), furniture (amortized), haircuts, everything else (I determined this by averaging our expenses over the past 2 years).

Another thing to note is that we live very far from family (opposite coast) and either we pay to go home or to a friend's wedding, or pay for my parents or MIL/FIL to visit. One trip for 2 people across the coasts generally runs $700 ($350 flight x2). When we have a kid, we will definitely be asking our parents to come help some times, but they will probably make relatively short trips (1 week per month or so) since my SO and I both have 2 siblings with young families that our parents like to help out.

I guesstimated the baby-related expenses using some online calculator that average one-time costs (e.g. crib) over a year and added monthly costs.

Ultimately you are asking a kind of philosophical question that is not going to be answered for you by Internet strangers. Whether consumption smoothing is the right choice for you is going to depend entirely on your personal discount rate and your comfort level with large debts. If both are high, do what you're planning to do. If they are both low, this is a terrible plan.

That's what it comes down to, frankly.

 

[ThoracicGuy]

Yes I do live in one of those cities, and that is pretty standard (perhaps even cheap) for a 2 br. Now, I realize we could "rough it" a little and get a 1 br with a kid for around $2,200 or so, but the question is, do we have to if we can save nearly $100K before having kids? Otherwise, what, spend the $100K on paying my loans more aggressively over the next 18 months before we have a kid by contributing $7K/month total on loans? Sure, I would end up with only ~$20,000 in debt by the time I finished residency, but is it not reasonable to spend this surplus we have now on "buffering" our expenses later?

Utilities include internet and cell phone, which is why it's so high.

In terms of the actual expenses:

Groceries and shopping is my credit card bill (minus travel), so includes food ($200-300), furniture (amortized), haircuts, everything else (I determined this by averaging our expenses over the past 2 years).

Another thing to note is that we live very far from family (opposite coast) and either we pay to go home or to a friend's wedding, or pay for my parents or MIL/FIL to visit. One trip for 2 people across the coasts generally runs $700 ($350 flight x2). When we have a kid, we will definitely be asking our parents to come help some times, but they will probably make relatively short trips (1 week per month or so) since my SO and I both have 2 siblings with young families that our parents like to help out.

I guesstimated the baby-related expenses using some online calculator that average one-time costs (e.g. crib) over a year and added monthly costs.

If you can get by with a one bedroom place for cheaper, I'd do it and save that cost. I would bet you could probably find something even less than $2200, but it might mean a longer commute or other less desirable things.

If you are in NYC, sometimes there is subsidized housing you can get into. I'm not sure about SF or other cities. I'm not sure what kind of furniture you're planning on getting, but maybe look for something cheaper and that you can upgrade later.

As for the travel, can your or her parents not pay their own way or help to defer the costs? And for going back for a friend's wedding? Sometimes you just can't afford those trips.

You really need to get a budget together and look at what you can cut down on. By expecting to spend more than you take home and using savings, you have a high risk of significant financial issues. I would use the money you are saving to pay off any credit card bills first, as those are higher interest rates. Next, you need to have at least a 2-3 month savings as an emergency fund at a minimum. What if something happens that you hadn't budgeted for? Then, if you still can't get your spending less than your income, dip into your savings when necessary.

 

[HLxDrummer]

Why don't you ask some people you know who have kids if babies cost less than or more than 500 dollars a month. I can predict the directionality of their answers with 100% confidence.

Well I'm just going off my experience which is definitely not $500/month. I'm sure for some people it is, but not for everybody. Breast feeding is essentially free. Diapers maybe $70/month. You get a ton of clothes at the shower and can buy stuff when it's on sale. Crib and stuff like that is a one time purchase. Can buy stuff used, borrow stuff, etc.

Your math is invariably off. A house is always gonna cost more than you think. Especially in time.

Hopefully not lol! I ran two online calculators and that's what they both said so unless they are missing something big I'm OK. The area I live in is low cost of living and cheap houses compared to rent. I doubt most situations that buying is cheaper.

Ps ya, that travel budget is a little much. I thought that was a year...

 

[j4pac]

Yes, I read the article "Financial Survival as a Resident." It was great but it is mostly focused on living modestly (no fancy cars, etc.) to keep expenses low, and does not talk about the possibility of planning for the single-income-with-a-family situation that I've described above. Do you know of any other WCI articles that would be pertinent?

Read the book. Read bogleheads guide to investing while your at it. Your situation isn't special nor unique.

 

[RangerBob]

$2800 is a lot for rent, ouch. I pay less than $800 for my house with taxes/utilities! But when I had a job in SF the rent for a one bedroom was usually around $1800-$2000, so we lived outside the city (Daly City/Pacifica) and got a 2bd for $1600 (we couldn't find a one bedroom--in hindsight we should've kept looking because that place as too big for us). But I wasn't a resident at the time, so I was ok with the 30-45minute commute (which is normal by CA standards, but now I get upset if my commute is over 15 minutes!)

If I were in your shoes I'd err on the side of saving up more money so you have that buffer--if you're the sole breadwinner for the household once that baby is born you want more than just three months of savings. And it wouldn't make sense to pay off your loans now if you would just need to take out new loans to cover your costs (and those new loans would all be personal loans and higher rates). Who knows what car repairs you'll need, medical bills that might come up, etc. When you're living outside your means (sort of--if you have $100k saved up for living expenses you're still living within your means for a certain amount of time) then you need to be prepared for the additional stuff that might come up.

First step, like everyone else said, is to try and find a cheaper place if possible. I'd also much rather rent a 1bd in a nice safe area for my wife and new child than a 2bd in a less safe area. I think this is a bit more important since they'll be staying in the house and going to strolls in the neighborhood. I'd also personally be willing to pay a bit more if it meant being very close to the hospital (more time with your wife and kid--that's pretty important, especially if we're talking about 4-5 years).

In the scheme of things, if you're able to pay off your loans within ~2 years of becoming an attending, then I don't think it's that big of a deal to be sort of living outside your means and relying on savings right now--you're more likely to look back and regret not having more time with your family than wishing you had saved another $400/month. I think you just need to be very strict about following your budget because if you have $100k saved up it can be really easy to want to spend that on new shiny things.

If you can't find a way to cut your expenses (which I do think you should still try to work on), consider deferring having a baby by another 6-12 months and having your wife work a a little longer so you can have more of a safety net. If you're regularly spending $2k/month, that's almost $25k/year, which uses up your entire $100k in savings in 4 years. If it's that easy for you two to save up money right now, I'd try to save up at least $125-150--remember, not all attending jobs start right away, and most don't give signing bonuses--they give starting bonuses, so you'll need some savings to support you between residency and attendinghood (that probably isn't a real word...).

 

[PTPoeny]

One other thing to consider, you might want to have enough saved up to cover your expected expenses even before your wife gets pregnant just in case there are any complications with the pregnancy. If she cannot work for a period of the time you were counting on to meet your future expenses that would add unneeded stress at a difficult time. And then if everything goes well you have an extra cushion from her working during the pregnancy.

 

[witzelsucht]

You could impregnate her, divorce her, have her quit her job, and have her on the WIC/welfare whatever they call it for a year or two.

 

[dpmd]

What amount of money do you currently have saved? If that answer isn't already a big number then I think your plan of spending down close to the entirety of your savings on your budget as a really bad idea. When you finish there may be a not small period of time where you earn no money at all (when I went to private practice, the only money I got the first few months was the amount I got paid to take call. If that had been unpaid call it would have been about 6 months before I was getting decent money) and you may have significant moving expenses. Add in the possibility of other unexpected expenses and you have a recipe for financial disaster. Better to save a good amount AND try to match your budget to your earnings better. First off would be the 2 BR apartment. There is no baby yet so no need to get a 2 BR now. When baby does come it wouldn't be the end of the world to share a room for a year or so. Another option would be to get the 2 BR now but have a roommate until baby comes but that isn't something most married couples want to do (and plenty of potential roommates may not like the idea of living with a married couple). However, depending on the price differences between a 1 BR and 2 BR it could actually gain you more money to do it that way (other benefit is a better place for family to stay when they come to help out rather than the living room). Utilities sounds OK since it includes phone, just keep in mind ways to be energy conscious so that number doesn't increase at certain parts of the year. Groceries and spending is another area you need to dial in. I totally get how you came up with the number as that is pretty much how I would have to come up with a number for that area, but my income vastly outpaces my spending so I don't have to nail it down further and I can afford to buy whatever crosses my mind. You however, will not. Nail down a grocery budget and try to stick to it now. Buy with coupons or at bulk stores and go generic. If you get free food at the hospital eat as many meals there as possible otherwise bring your own meals. Thrift shops and discount stores should be your go to places. Travel needs to get reigned in. I get that you want to pay for the parents and in laws to come because you feel it is your fault they are going that far. Can they actually not afford to come otherwise? If that is the case then you are going to have to cut down on their trips out (maybe they can stay longer the few times they come). If they can afford to pay then they likely will (and should-when you are wealthy you can be more generous, but when you are trying to support a family on a small salary you need to make smart choices). Baby stuff I have no idea but thrift stores and hand me downs from friends/parenting groups can help a lot, as can just deciding that you don't need to get the fanciest version of whatever for them.

 

[Slack3r]

You can absolutely get an apartment for cheaper than $2800 in NYC, especially if you consider the Bronx/Queens/Brooklyn.

 

[IlDestriero]

Sounds like a good plan. I augmented my fellowship income significantly with my own money to keep my reasonable standard living in a very expensive city when I went back to training after time as an attending. I planned for it and it was absolutely worth it. It's only money.
If you're smart as an attending, live below your means, you'll never worry about it again and still have great toys and epic vacations.


--
Il Destriero

 

[Arcan57]

Second DPMD's point regarding delay in post-residency paycheck. It's pretty common to get paid 10-15 days after end of pay period for jobs that have a productivity component (less common with straight salaried) which means in many cases you're going to be going 45 days in between last paycheck of residency and first paycheck of attendinghood. That's not a horribly long period but you'll burn through cash pretty quickly moving and setting up a new household. If you're relying on collections (private office, etc) then unless you're cash-only the delay between billing and first insurance payout can be quite a bit longer. The other thing to consider is that a baller lifestyle doesn't necessarily mean you'll be happier. You (and your spouse) will definitely be dissatisfied if you have to step down your lifestyle later if it's not sustainable, though. Barring concerns of physical security or commute times that jeopardize your relationship, living in the smallest, least expensive dwelling possible is usually a good move.

 

[ProfMD]

I agree with others - you have to cut back some of those expenses, especially travel. Plenty of people miss out on weddings. Also, why are you paying for other people to visit you?

Definitely go for the 1 bedroom place. Even with a kid you can do it - the child will barely be out of diapers when you graduate. If it doesn't work, you can move later.

Is deferment/forebearance an option in the loans rather than PAYE?

Have you thought about delaying having kids?

Why does your spouse have to stop working when you have the kid? When I was a resident and we had our first kid my wife worked. Same with the numerous resident parents I know now. It maybnit be your ideal, but if you need the money, not much you can do.

Save as much as you can now.