One of the first things I want to stress is one of the best ways to make money is by saving money and not spending it. So I’m going to give you a lot of great tips on how to do that tonight. Second point I want to make is no one cares about your debt except you. The medical school you go to or the job you go to, they don’t care about your debt. Pretty much, you’re the only one that can take control of that. So that’s the one thing I want to encourage you tonight, that you have to take control of your debt. Number three, I’m not an accountant, but I do have a real estate license and a math economics background so I love giving financial advice. I feel like I am an expert in this area. I was able to pay off all of my medical school debt within four years after residency and I’m currently invested about $2 million in real estate property, so love to see some of you all get to that point. Tonight I’ll be using a lot of information from irs.gov.
To start off, what was the average debt for a medical student in 1978? If you guessed $13,468, you are correct. This is equivalent to $43,754 in 2008 dollars. In 2008, medical school cost $154,607. As you can see, the debt for an average medical student has gone way up since 1978. So it’s even more important that you make wise decisions now and today’s the day to start making those wise decisions.
In 2013, the median income in the US was $52,250, the 90th percentile income was $143,00 and the 95the percentile income was $186,000. The reason I share that is I hear a lot of doctors complaining about what they make. Most doctors will make somewhere above the 90th percentile for US income. So if you make good investments, save money, get rid of your debt, it is easy to live a great life and have plenty of money to do the things that you want to do.
So my first suggestion during interview, avoid Starbucks. An average Starbucks cup of coffee costs about $5.00 a day. If you drank Starbucks 240 days a year for four years, that adds up to $4800 for four years. Now, if you’re already taking out loans to live, and you’ve taken out, let’s say $150,000, that $4800 is going to quickly add up. So if you decide to finance your medical school education through an income based repayment for 12 years, that $4800 turns in $9536 by the time you pay it off. If you take 25 years to pay that same debt off, it turns in to $14816. So again, one of the best ways to save money is not to spend it. Make your coffee at home, don’t spend that five bucks when you’re living on loans. Try to save money and it’ll add up over the future.
One of the things you need to start thinking about is how to pay off your student loans. I want to encourage you to try to pay off your student loans in three to five years. In order for you to do that, you got to make some sacrifices, you got to make some wise decisions. You may not be able to buy the house you want, the car you want. But I can guarantee you, if you pay your loans off in three to five years, you’re going to have much more money in your pocket in the future. I want to encourage you to pay interest on your students loans during residency at the minimum. If you can do more than that, I encourage you to do that because your loans won’t build up.
Another thing to think about is that the interest on your loan will only be deductible during your residency. Typically, one you start practicing, you’re going to make more than $155,000. If you make more than $155,000, you’re married, you can no longer deduct your student interest. If you’re single and make more than $75,000, you can no longer deduct your student interest. So again, take advantage of that deduction while you’re in residency.
Another tip for you is to consider converting your school loans to home equity loans. Why is that important? Well, again, once you make more than $155,000 if you’re married, and $75,000 if you’re single, you can no longer deduct the interest of your loans. However, if you have a home equity loan, the interest still is deductible. So if the interest rate is a lot better on a home equity loan than your student loan, this may be something you want to look into. But again, you want to make sure you pay this off as quickly as you can because if you don’t, it can definitely much more of a burden for you.
Number two, think about become a future scholar. What do I mean by that? There’s a website called futurescholar.com and this is what’s called a 529 plan. This is a way to invest money for going to school. And this is only a good suggestion if you’re staying in South Carolina to do your residency. How this is works is you put money into this 529 account and this money can be taken out immediately to help pay your tuition. And why is that important? Because you’re able to take a deduction on you South Carolina taxes. You can put a maximum of $318,000 into this account a year, most of you wont’ need to do that. But any of the money that you put in there, you save 7% on any of the money you put in there, but with a reduction on your South Carolina taxes. You also can have your parents gift up $13,000 a year to put money into these accounts. So think about this, again, if you’re staying in South Carolina.
Here’s an example. You can use money in this account for tuition, fees, room, board, books, supplies and equipment. So lets say, your in-state tuition was around $31,000, your room and board’s around 13,000, books 2700, this comes up to around 47,000. If you put that 47,000 into the future scholar plan, the 529 plan, then when you pay your taxes, you’re going to get approximately $2579 back that you otherwise wouldn’t have gotten back. So think about looking into this.
Number three, make an account your best friend. This is important, I think accountants can be a big help to you when filing your taxes. Most accountants charge minimal fees when you’re in medical school or residency. Many of them are only charging two to $300 for a simple tax return. I say do at least one year and they can give you a lot of great advice. You may want to do your own taxes after that. But at least one year, I think they can help you out and help you figure out the deductions that you might not otherwise think about doing. And always make sure to talk to your accountant before the end of the tax year, which is always December 31st. So if you’re going to be filing taxes in 2015, to make sure you talk to them before December 31st.
Number four, moonlight, a great way make money during residency or interviewing, is to find out about moonlighting jobs. I did a lot of moonlighting during residency and fellowship. I was able to approximately double my fellow salary by moonlighting and this helped out a lot in saving money and paying off loans. The one thing I want you to remember is that when you moonlight, you get a 1099 instead of W2. Why is that important? Because when you get 1099, they do not take out federal taxes, FICA, Social Security or state taxes out. So you have to pay those at the end of the year. So you need to save up money in order to pay your taxes at the end of the year. I’ve know many residents that did not know this and they had big tax bill that they were not able to afford at the end of the year.
This just talks a little bit about 1099 income. And the big thing about 1099 income is that you want to save any of your business expenses because this helps to lower your 1099 income and this helps with your deductions. So I’m not spending a lot of time of this slide, but just if you’re moonlighting, make sure you save any expenses that are related to your job.
And these few slides just show you a few things that you want to save and keep track off. So health savings account, retirement plans, self-employment health insurance, student loan interest, tuition and fees, and if happen to pay alimony, you want to keep track of that also. Other things that you can deduct are medical expenses, state income taxes, personal property taxes, real estate taxes, home mortgage interest, mortgage interest on a second home, mortgage insurance premiums, charitable gifts, any theft losses. And there are other miscellaneous deductions that you need to think about.
Number five, think about family planning. One thing on taxes, when you have kids, you’re able to deduct your kids on your taxes and this could help on your taxes. So each child you have does give you some tax saving benefits, so keep this in mind. One think I want to stress is the difference between a deduction versus a credit. It’s very important to take advantage of all deductions, but even more so for credits. A deduction, you only get the value of what your tax bracket is. So for example, if you’re in the 15% tax bracket and you get a $1000 deduction, then you only save $150 on your taxes. However, if you get $1000 credit, then you get $1000 savings on your taxes.
Number six, during your interview, make sure to save all your receipts related to your interviews, these may be deductible. Again, this is where it’s great to have an accountant who can tell you whether or not these are deductible or not. Sometimes they will be, and sometimes they will not depending on your situation. But save them up, give them to your accountant at the end of the year and he can tell you or she can tell you whether or not these recipes will be deductible or not.
Number seven, think about scheduling your interviews after January 1st, and also pay your tuition after January 1st. The reason I say that is many of you will not be paying taxes in 2015 because you have no income. However, in 2016, you will have income and so it’s important to save all the deductions you can for after January 1, 2016. Two of those deductions are interview expenses and tuition. So these are things you might want to think about to save some money on your taxes. Here are some of the receipts you may want to save. I’ll let you read through this list real quickly. You want to save airline travel, taxi, subways, hotels, food and tips. Long distance phone calls associated with interviews, cell phone bills, postage for thank you notes, tolls, valets and parking garages, application fees and any costs associated with interviewing.
Number eight, I want you to think about whether or not you should buy a house or not. One nice thing about buying a house is you are able to deduct the mortgage interest on your taxes, which can save on your tax bill. Initially, if you get a 30 or 15 year loan, the interest on the mortgage payments are deductible and most of your mortgage payments are interest for the first few years. So again, this is going to be a tax saving help, it’ll also make it more likely for you to be able to itemize on your taxes. One great suggestion is, if you have extra rooms in your house, maybe think about renting out one. This can help, also, build up some wealth and also pay off loans. You may want to think about buying a duplex also, you can live in one of the rooms and then rent out one of the rooms also.
I encourage you to find out where other medical students are residents live, it’ll be easier to resell in a few years if you live in one of these neighborhoods. And then, most importantly, find out what you can afford. One of the worst things I’ve seen happen to residents and medical students, are to get into a house that they cannot afford and they can’t make the payments. So spend a lot of time calculating a budget and deciding what you can afford. In order to find a great house, you want to find a great realtor. And one of the best ways that you can do that is from referrals of other residents. Also, go online and read reviews. Trulia and Zillow have great resources that have multiple reviews on realtors, so you want to find one that has a lot of great reviews.
Consider being referred. What do I mean by that? Any realtor can refer you across the nation to another realtor. So my wife, for example, has great contacts with realtors who work with doctors and residents across the country. Here’s some examples of some credit scores that show you what’s considered a good credit score. Typically, you want to have a credit score above 680 to qualify for a loan. And again, this varies some with different banks, but on average, above 680 is coincided good. And if you don’t know what your credit score is, go to annualcreditreport.com and you can get a free one. If your credit score is lousy, then you want to start paying off your debt to help improving your credit score.
Number nine, keep track of your millage during interviewing. You want to keep track of the millage from your home to the interview location. You want to keep track of the millage for while you’re at the interview city and you want to keep track of the millage back and forth to the airport, and this can add up really quickly. You can get reimbursed 57.5 cents for business millage 23 cents for moving and then 14 cents for volunteer for charities. So again, keep track of it and this can add up real quickly.
Number 10, think about getting a credit card. This may not be for everyone, if you’re a person who does not pay off their credit card balances and goes into credit card debt, I would not recommend this. But if you are a person who pays off their debt every month, then I think it’s a great way to get money back. I’ve had credit cards for 20 years, I’ve never carried a balance and I’ve made lots of monies off of credit cards. Here’s some of the ones that I recommend, I have BP Visa that gives me money toward free gas, also have a Costco American Express that gives me money back to use at Costco. There are a lot of other credit cards, you can go online and Google credit cards that give you money back and you can find a lot of good options.
I decided to give you a few more bonus suggestions. Number 11, when you’re booking travel, use travel websites, two of my favorite are Kayak and Priceline. Priceline is great if you don’t have to be in a city by a certain time, you can get great deals. And then Kayak compares multiple different websites. You may want to stay with the same hotel chain and use frequent flyer programs, again, you can get free nights by doing this.
Number 12, couch surfing. I don’t know if you’ve heard of this or not but there’s a website called couchsurfing.com. You can actually go sleep on people’s couches for free. I’ve known people that have done this in the past and have met a lot of neat people. There are also other websites where you can rent rooms, homeaway.com and vrbo.com are a couple of those that do that, Airbnb are other. So again, these are ways that you can get great deals. You may also want to call residency programs to see if anyone is hosting residents.
Number 13, buy restaurant gift certificates. You can get great deals on gift certificates at restaurant.com. What I do is when I go to a city that I’m traveling in, I’ll find a couple restaurants that I want to try out and go buy gift certificates at restaurant.com. Typically, you can get a $25.00 gift certificate for three to $5.00 on this website. You may also want to look at Groupon, Ebay, entertainment.com, a lot of times you can go and buy gift certificates at discounted prices at these sites.
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