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Written by: Corey Janoff

“If you don’t sacrifice for what you want, what you want becomes the sacrifice.” – Unknown

Somebody in our office posted this great quote on the bulletin board above our copy machine this month.  It applies to all aspects of life, especially financial planning.  Many of the readers of this blog are doctors and doctors know about sacrifices as well as anybody.  Physicians give up a lot of fun in their 20’s to go through the rigors of medical school and training to become board certified healthcare professionals.   If you want to be a doctor, you can’t party and travel the world to “find yourself” all throughout your 20’s.   There is nothing wrong with a youthful decade of enjoyment, but you must sacrifice a lot of the fun to achieve your goal of becoming a physician.  If you do want to indulge in your 20’s, you will likely sacrifice the ability to become a doctor one day.

If I want to become a competitive marathon runner, I am going to have to make a lot of sacrifices.   First off, I will have to start running more (or running, period) to get in shape.  Training for a marathon takes time.  I would eventually work my way up to running for a couple of hours a day, several days a week.  I have a wife, two young kids, and a side job as a financial planner.  I would have to give up spending time with my family and at work, in order to improve my running abilities.  I would also have to sacrifice a lot of the food I enjoy and tighten up the diet.  Alcohol consumption would have to be cut to a minimum.  I would probably need to get more sleep too.  I would need to start getting weekly pedicures, which I have heard are fantastic, but again require time (and money).  The occasional round of golf would be replaced with long-distance runs.  I am not willing to sacrifice all those things, so I’m going to sacrifice achieving my fictitious dream of becoming a competitive marathon runner.  Sorry ladies, you won’t get to see my legs in those short running shorts.

sacrifice

What are Your Goals?

Financial planning is all about setting goals and creating a strategy to achieve those goals.  For example, your goals may be:

  1. Pay off student loans within 5 years of entering practice (or starting your career).
  2. Be financially independent and able to retire by age 55, if you choose to.
  3. Pay full cost for children to go to in-state public universities for four years each.
  4. Take an international vacation every other year (estimated cost of $10,000).

Now, creating a strategy to achieve those goals is pretty simple.  It is just math.  How much money do we need to devote to each goal in order to make it happen in the timeframe we desire?  Depending on what your goals are, the amount you need to direct towards goals each month/year could vary.  Odds are, you will discover that in order to achieve all of these goals, you will have to adjust other less important goals or cut back on some lifestyle expenses.

What are You Willing to Give Up to Achieve those Goals?

Unless you are Jeff Bezos and can pay your ex-wife $35 billion and still have $110 billion leftover, you probably can’t afford to do everything you want.  That means, you have to pick and choose what is most important.

If you are a physician about to enter practice and your goal is to pay off your $250,000 student loans within five years, it probably means you can’t afford to buy the house you want…. yet.  You may have to settle for a smaller starter-home in a less desirable location or continue to rent for a handful of years until you have achieved your goal of paying off your student loans.  Sacrifices.

If you want to be financially independent by age 55, it will require you to save and invest a substantial amount of money.  This means you may not be able to spend as much on other things, like cars, clothes, artwork, vacations, charitable donations, etc.  Tradeoffs.

If you want to pay for your children to go to college, you need to save up for that.  Every dollar saved is a dollar that isn’t spent.   Every dollar spent is a dollar you didn’t save.  You might have to forgo financing a Tesla and buy a used Honda instead, so you can afford to put enough money into the college accounts.  Can’t have it all.

If you want to take an expensive international vacation every other year, that is fantastic.  I’m a big fan of world travel.  However, that might mean you have to minimize the spending on domestic travel and direct all of your vacation dollars towards that one big trip.  You probably can’t take quarterly trips to Vegas and fly first class to Monaco in the even years if you want to achieve all of your goals.

Sports Provide Great Examples

I love sports, because it’s the best live entertainment on the planet and there are many life lessons that can be learned.  Work ethic is an obvious one.  Professional athletes make some of the biggest sacrifices in order to perform at an elite level every day.  Many of them give up any resemblance of a normal life and devote their lives to their craft during their playing career.

Most football fans can agree that Tom Brady is the greatest quarterback ever (for now, until Carson Wentz finishes his career).  In the promotions for his Tom Versus Time Documentary on Facebook Watch, there is an audio snippet of him saying something to the effect of, “I’ve given up my life for football.  Are you willing to give up yours?”  He has made football priorities one, two, and three in his life, above everything else.  Everything else takes a back seat.  If you want to usurp him from his throne of quarterback GOAT, it will require some extreme dedication and hard work.

From soft college kid in 2000 to six time Super Bowl champ in 2019

Now, you may not like the idea of having such an unbalanced life and most people wouldn’t.  There is a reason only one Tom Brady exists.   Nobody else was willing to make the sacrifices he has made over the course of his career to achieve the greatness he has achieved.  Some have come close, but nobody has been as extreme as Brady in their pursuit of excellence.

You don’t have to pursue extreme goals (unless you want to).  There is nothing wrong with being “normal.”  But the life lesson still applies.  If you want to accomplish certain goals, it will require you to make sacrifices elsewhere in life in order to devote the necessary resources towards those goals.

Priorities

What is important to you?   What are your priorities?  Structure your life and your financial strategy to ensure your priorities are met.  Everything else can be moved down on the priority list.  Sure, you may desperately want to put a swimming pool in your backyard and are willing to work extra shifts in order to pay for it (sacrificing time for money).  But the swimming pool isn’t going to keep your family together, so you better make sure you are devoting enough time to your family first.  Or maybe the swimming pool is the missing link to familial harmony.   Who knows?  Everyone’s situation is different.

I’m not here to tell you what your goals should be, or what you should give up in order to achieve those goals.  Only you can decide what is important to you and what you are willing to sacrifice in order to make those goals a reality.

First order of business is to write down your goals and rank them in order of importance.  If some are equally as important, you are allowed to have ties.  And it’s OK if your goals change over time.  That is one reason why reviewing your finances every 6-12 months is important.

Next step is to develop a strategy to achieve those goals, making sure the top priority goals are most likely to be met.  From there you can let everything else fall into place.

Finally, review progress periodically and revise the strategy as need be.

This is way easier said then done.  Again, we have limited resources, so odds are you are not going to be able to accomplish everything you desire in the timeframe you prefer.  But if you can make sure the important stuff is met, life will be much happier and a lot less stressful.

will likely be somewhere around $10,000/month.  Maybe more, maybe less, depending on family size, what state you live in, and if you are putting money into a retirement plan or paying for other benefits at work. Basically, half of your paycheck is going to student loans for that first decade as an attending.

Now, the average American household earning $60,000/year isn’t going to feel sorry for you, since you still have around $5,000 remaining to cover all your monthly living expenses.  But for a doctor who spent a third of their life in school and training, you better not have gotten into medicine for the money. If this describes your situation, then you should strongly consider all options for loan forgiveness before looking into refinancing.

On the other hand, if you owe $90,000 in student loans and have a starting salary of $350,000 from a private group, loan forgiveness isn’t all that attractive.  Why take a pay cut to go work for a non-profit in the middle of nowhere, when you could pay the loans off in full in your first year in practice if you want to?  You could potentially refinance your loans and cut the interest rate in half, saving you thousands of dollars per year in interest, which will enable you to pay them off even faster.

If the New Interest Rate is Lower

I feel like this is common sense, but it is worth noting.  It only makes sense to refinance your federal student loans if your new interest rate will be lower than your existing interest rate.  The only exception I can think of would be if you have a parent or relative who co-signed on your original student loans and they want you to refinance to remove them from the note.  Case-by-case basis in that scenario.

Assuming you can lower your interest rate by refinancing and loan forgiveness opportunities absolutely do not make sense for you, then you can consider refinancing.

Some Thoughts About Refinancing Student Loans

There are plenty of companies out there who will refinance medical school loans for doctors, and it seems like more and more are popping up each day.  They all pretty much do the same thing.  In a nutshell, they pay off your federal loans and create a new loan with new loan terms for you.

Some lenders have restrictions and limitations.  For example, some lenders will cap the amount they will refinance ($300,000 is a common limit).  Other companies will not cap the amount.

Some lenders require a higher credit score than others.  Certain banks are regional and you must live within a defined proximity to one of their branches in order for them to refinance your loans.

There are a handful of lenders who have special refinancing programs for residents and fellows where your minimum required payment is extremely low while in training ($100 or less per month!).

At the end of the day, there is no single student loan refinancing company that is the best in all scenarios.  Depending on your financial circumstances, different lenders might be more attractive for you than they would for someone else.

Student loan refinancing is also a highly competitive industry, so odds are there are several companies that could offer competitive loan terms for you.  If you need help getting pointed in the right direction, feel free to reach out to us.

Refinancing Medical School Loans

What if I Die or Get Disabled?

One concern some people have with refinancing loans is what will happen to the loans if you die or become permanently disabled.  Federal loans are forgiven if you die or become permanently disabled.

Most refinancing companies will also forgive remaining balances, but it is always wise to confirm and read the fine print.  If there is a co-signer on the loans (maybe both spouses needed to do a joint loan in order to get it approved), you will want to make sure you understand the provisions.  The surviving spouse may be on the hook if he or she was a co-signer.

Federal Loans Have Flexibility

One big advantage that federal loans have over privately refinanced student loans is flexibility.  Once you refinance your loans, there is no turning back.  You are now locked into a rigid loan with mandatory fixed monthly payments.  If you chose a variable interest rate, your mandatory monthly payments may increase if interest rates rise.

The new bank doesn’t care if you have a change in income, decide to go back to fellowship, are in between jobs, or have a significant increase in household expenses because you just had triplets.  You better make your full required monthly payment on time.

With federal loans, you have a lot of flexibility with your payments plans.  You can go from a fixed standard 10-year repayment schedule to an income-based payment plan and back again.  You can put your payments on hold during an economic hardship.  The federal government (who can print their own money) isn’t as concerned about getting their money back in a timely manner as a for-profit bank.  They’ll continue to accrue interest, so you owe even more money!  Granted, it is unwise to let your loans accrue interest if you can afford to pay them, but that is a topic for another post.

The point is, your federal student loans are the most flexible loans you will ever have in your life.  Refinancing can lower your interest rate, which enables you to pay off the loans faster.  Or pay them off in the same amount of time but with lower monthly payments.  So, before you give up that flexibility, make sure you are 110% certain that refinancing is the most prudent option for you.