Around this time last year had saved close to 2m AUD, of which about 10% was inaccessible in Super (similar to US 401k) and a little under 10% in shares which I’d only just recently dipped my toes into – the rest was in cash, as for years I had been focused more on getting through psych training and then building up a private practice as opposed to thinking/reading/contemplating investing.
Due to circumstances outside my control, I ended up purchasing a property which by all objective accounts was a bad investment as it was essentially at the peak of our seemingly never ending property boom and during covid when there was not a lot of stock on offer. It was also uncharacteristically impulsive, as before the bank had approved the loan I’d already inspected, made an offer and had it accepted. Having a lot saved makes it easy to make unconditional offers and take a no BS approach to negotiations. Fortunately the vendors and I both valued our privacy, so an auction situation was never on the cards. The process was all over in about a week which shocked quite a few people, but then again, when you only have 60 days to find somewhere to live…
So while I wasn’t happy with the timing, it was still affordable relative to my income. The location was ideal and I wasn’t planning to move again so long term changes in supposed “value” were less of a concern – the paper valuation has jumped up 25% in the last year, but it doesn’t really mean much. More importantly, by using an offset loan facility I was able to keep the bulk of my previous savings as an emergency fund which also served to keep me relatively immune from interest rate fluctuations. Here, the most common type of home loan has a variable interest rate, so the repayment rates can potentially fluctuate wildly, although up until recently they have remained at historic lows. Fixed term loans are usually only for 5 years, and there’s starting to be plenty of hysteria as our Reserve Bank raise rates, fixed terms end and people have to refinance. Some of my colleagues are now getting a bit antsy as their fixed term loans starting with a 1 or 2 are due to expire, and with one of our major banks lifting fixed rates by 1.4% the choice is to go with something starting in the high 4s, or try and ride out the variable rate rollercoaster.
Over the last 12 months I have saved enough to offset 100% of the home loan (so avoid the above rate related drama) whilst also building up my savings again outside of that. So far the loan interest “saved” is about 5 months of extra repayments. I had calculated that if I can resist touching that offset money and don’t decide to discharge the loan, there will be no further interest payable ever. It gets paid off in just under 20 years with the total outgoings (annual service fees, insurance etc) working out to be about 1% of the total amount borrowed.
With debt under control, the process to save a new nest egg continues. This is coming along nicely and more evenly distributed, with about a third in cash, shares and Super. It’s not quite where I’d like it to be yet, but should get to 7 figures again before I turn 40 so there isn’t really any impetus to work more than my current part time hours. On current projections I should have about 3m by my 50s (a conservative estimate), but how much I need to retire on is harder to calculate and in all likelihood this is probably overkill. If anything, I could get away with doing it much earlier as I have been fortunate to not develop a taste for expensive hobbies or succumb to lifestyle creep (so far).
I do feel like an outlier though. I can remember some years ago before sitting my final exams, I was at a dinner and was speaking to a psychiatrist who complained about busting his gut working 6.5 days a week to pay off a bunch of investment properties, some of which had turned sour as well as leasing fancy cars, paying private school fees etc. As a proxy to enquire about debt, I asked him how long he’d think he could last if he stopped work, and the answer he gave me was that his savings would last a month! At the time I wasn’t even close to my maximum potential earnings, but had estimated that on my current lifestyle my savings I had would last at least 10 years.
At other times I wonder if I’m just not ambitious enough and simply too risk adverse. One friend who graduated at the same time took on a huge mortgage, as well as borrowing to purchase a medical specialist clinic. To afford this debt, he was working 4 different jobs and travelling during his lunchbreak and on the brink of burnout. To add to the stress, the occupants of the clinic were on a very cheap rental arrangement, so he had worried what would happen if he tried to raise the rates and they left. I think he’s doing ok now and has come to accept the level of debt he has, and once it’s paid off it should deliver a dividend well into retirement.
Another friend started his own telemedicine business catering to rural areas, this was based on government subsidies and taking a cut from the work of other doctors. The way it worked was that the patients wouldn’t be charged, the doctors would earn the medicare rebate and the company would take the 50% bonus loading as a service fee for all the administrative tasks. At the start he was travelling and marketing to regional areas, and had enough psychiatrists from his graduating cohort who were happy to work with him and initial demand was ridiculous. However, with more competition in this space (I swear every year I get an email from a new graduate psychiatrist wanting to recruit to a new telehealth provider) and the bonus subsidies ending it’s not really going to be viable moving forward.
