Client Case Study The New Doctor and Nurse

As I have grown my book of business through the years, I have accumulated many clients in the medical field.

It likely has to do with the fact that many of my relatives work in that field.

My wife is a Physician Assistant, I have a brother finishing residency, a brother-in-law who is a plastic surgeon.

At least I know I will have good healthcare!

Jokes aside, these relationships have enabled me to connect with individuals in this line of work.

So, to change things up a bit, I wanted to walk through a case study that resembles some of my clients. I feel that there are more people out there like the couple I will talk about, and they can benefit from this.

Meet Allison and Shawn

Allison graduated from medical school 4 years ago and just finished her residency. She went from making $60k a year to $350k.

Her husband is Shawn, and he has been a nurse making $75k a year for the last 7 years.

Allison and Shawn are married. They have no kids but big dreams. The plan to start a family soon, are actively house shopping, and have a TON of debt.

Their debt, while high, is not impossible to pay down given their income. But it is going to take time.

Allison has $400k worth of debt from medical school and Shawn has been paying his loans off since graduating but still has $120k himself.

They are anxious to start investing. Allison feels behind because she did not save much in residency. Shawn has done a good job saving but has not saved enough for them both at this point.

They also have about $3000 in the bank. They estimate that if they buy their dream home their mortgage will be about $6k each month and overall, they will spend about $15k on all expenses.

Let’s Get Started

When I meet with Shawn and Allison the first time it is important that I understand their cash flow. That is how much they are making each month versus what they are spending.

We know combined they are making $425k pretax. They plan to file taxes jointly.

Exploring first why they plan to file jointly; they tell me that it gives them a bigger tax break. While that is true, I also know that Shawn is on an income-based repayment plan for his federal student loans. Those loans are worth about half of his total balance.

If they file jointly his payments will skyrocket and outweigh the savings from filing jointly. We decide that they should file single until those loans are forgiven in 3 years.

I also know that they both plan to max out their retirement accounts each year. That will help them catch up, but it also decreases their income by $20,500 each ($22,500 each in 2023).

Now I can make an estimate of their take home pay. Allison will bring in $17,414 each month. Shawn will take home $3,383. Total that comes to $20,797 each month.

After working through their expenses, we found that they actually pay closer to $17,000 each month.

So far what you are seeing is normal for partners where one is a doctor. They make a great income, but they also have high expenses. A lot of this typically has to do with debt they incurred in residency and high student loans.

The plus side is they have nearly $4k of disposable income each month to pay down debts and save.

Paydown Debts or Build an Emergency Fund?

The first major concern I have is Shawn and Allison do not have a sufficient emergency fund. They have $3k in the bank. They are a dual income household so they should have at least 3 months expenses saved up.

Ideally that means they would have ~$51k in the bank just for emergencies. However, let’s take a look at their debts and then decide on the best course of action.

This is a huge area for concern. They make great money because they have great jobs. Unfortunately, they also have a high debt burden to get their degrees.

They have 30k in credit card debt between the two of them. This needs to go ASAP! They can invest all they want but it is going to be very hard to earn a rate above what they pay on their credit cards to make it worthwhile.

We know that they have about 4k each month in disposable income. As their planner I tell them it is imperative that debt is gone by the end of the ear. Following the Avalanche Method, we allocate $2500 of that money each month to Shawn’s credit card, paying it off in 4 months. We save the rest to increase their emergency fund.

Over the next 8 months we will paydown Allison’s credit card. At this point we will have eliminated all of their credit card debt and have saved an additional 18k in their emergency fund.

The rest of the debt we will continue to payoff, on their normal schedule because of their lower interest rates. We know half of Shawn’s loans will be forgiven two years after that because he is following Public Student Loan Forgiveness.

A Quick Note About Life Insurance

For simplicity of this case study, I am going to assume that this couple is properly insured through work.

But if they were not here is how I would calculate their insurance need.

• Add up all their debts (individually)
• Take their salary and multiply by 5
• Add those two numbers together
• Subtract their current protection

You do this separately for each because each has a different insurance need. Following this formula Shawn would need 505k worth of protection and Allison about 4M.

I normally recommend a term policy for young couples like this. It is relatively inexpensive compared to other options and will not take much to provide them protection.

Next Steps

At this point things start to look a little brighter for our couple. They should have a sufficient emergency fund if they save 4k monthly over the next 8 months.

Then they have options. At the beginning I mentioned that they were looking for their dream home. Realistically given their situation that needs to wait a bit.

They could utilize a physician loan to put nothing down and finance the entire purchase, but they would be wise to wait. I would save a little for a down payment before doing that.

They will also have money free up in their budget as Shawn’s Federal loans are forgiven and they pay off Allison’s car. Also, after the loans are forgiven, they will have some additional savings.

They could also begin investing a portion of their funds. We know that they are young and can afford to be aggressive. Putting just 1k a month into an investment account earning 8% will give them ~$1.4M in 30 years.

Needless to say, they have options. But paramount to their success is establishing an emergency fund and paying off their debt first.

How it Shakes Out

My recommendation would have been simple.

Eliminate your credit card debt, save an appropriate emergency fund, then we can invest or save for a home purchase.

In an ideal world they would be ready to buy a house in about 3 years. They would save at least 1k each month for the rest of their working years and save the rest for a down payment once Shawn’s loans are forgiven.

At that point they would likely have more money to begin investing. They will likely end up with somewhere between $6-8M by the time they retire in 30 years.

A Quick Note

This was a simplified case study. And many people have more complex scenarios. The moral of the story here is I can help.

I would welcome an opportunity to help you meet your goals. Please do not hesitate to reach out.

How can I help you on your path to financial freedom?