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Fund for Doctors: Admissions of a MBA
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Fund for Doctors: Admissions of a MBA LTC Ross Foal MD, MBA, FAAFP Profound musings on
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Finance for Physicians:Confessions of a MBA LTC Ross Colt MD, MBA, FAAFP
Deep thoughts on…Money • For the love of money is a root of all kinds of evil. (2 Timothy 6:10) • “We were so poor my daddy unplugged the clocks when we went to bed.” (Chris Rock) • I try to do the right thing with money. Save a dollar here and there, clip some coupons. Buy ten gold chains instead of 20. Four summer homes instead of eight. (LL Cool J) • "People say that money is not the key to happiness, but I always figured if you have enough money, you can have a key made." (Joan Rivers)
Take home points • Balance money, time, and life • Pay off all bad debt • Max out IRA, TSP
49% 38% 33% 24% <$30,000 $30-74,999 $75-99,999 $100,000 + Money = happiness But it helps! • Americans who describe themselves as “very happy” by household income: • There may be other factors…
TIME=MONEY • Your time has value • How much value is up to you • Some may spend time to earn money • Example: moonlighting • Some may spend money to earn time • Example: house cleaner VS
Stock A Stock A $40,000 $20,000 Good debt, bad debt • Appreciating assets vs. depreciating assets • Good debt provides leverage $200,000 $100,000 ($20,000) ($120,000) 100% gain 600% gain
A brief word about real estate • Can be very lucrative • Remember that time = money • How much does stress cost?
Bad debt is….bad • Credit card debt is very, very expensive • Example: You buy a big-screen HDTV for $3,000 on his 18% interest credit card • How much does the TV cost you if you pay the minimum each month ($50)? • How long will it take you to pay it off? $18,577.49 52 years! http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp
The power of compound interest • Resident A: starts saving at age 26, stops age 36, never saves another penny • Resident B: starts saving at age 36, commits to save for the rest of her life • When will B’s savings catch up to A’s? NEVER Each saves $6,500/yr, rate of return 8%
Running the numbers • Excel calculator • Value of A’s savings at the end of 10 years: $120,000 • At retirement, A has $1,118,073 • At retirement, B has $1,087,858
Rule of 72 • Take your interest rate • Divide that number into 72 • Resultant number is how many years it takes your money to double • Example: 9% interest doubles every 8 yrs
Different colors of money • Post-tax dollars: what shows up in your checking account • Pre-tax dollars: worth about 25% more • What stock guarantees 25% return with zero risk? Pre-tax $ Post-tax $
Tax Brackets • Marginal tax bracket (last step) is important
Civilian R1-$42,000 R2-$44,000 R3- $46,500 Military R1- $56,000 R2- $60,000 R3- $69,000 By the way…Resident salaries Staff level (minimum) MAJ (obligated) $100,000 LTC $180,000 COL $195,000
Individual Retirement Accounts (IRAs) • Traditional IRA • NOW: pre-tax dollars THEN: deferred • Roth IRA • NOW: after-tax dollars THEN: tax-free • Phase-out of deductibility (pre-tax $) • Contribution limitation: $5000/year in 2009
Thrift Savings Plan(TSP) • The military’s 401k- tax-deferred • Pre-tax dollars • Limit of $15,500 a year currently • No employer-match currently • www.tsp.gov
College savings: 529 accounts • Sort of like a Roth IRA for educational expenses, but much higher limits • State specific plans, many offer discounts on state income tax • Variable fees, variable funds • Utah is low fees, managed by Vanguard www.uesp.org
Emergency fund • Most recommend 2-3 months salary in easy access account • Military may need less- high job security
Stocks vs. Bonds • Higher risk generally associated with higher returns • Dyspepsia factor • Research time factor • Lemming phenomenon- buy high, sell low
Take home points • Balance money, time, and life • Pay off all bad debt • Max out IRA, TSP
Questions? Treasure indeed…