Help paying off student loans

[pharmerjohn]

Wow, well paid tech. 40 hours and 52 weeks thats like 26/hr. I believe the cap is 75k.

I'm a pretty well compensated tech, but I wish it was 26/hr. It's worth mentioning that I had a decent chunk of OT pay on top of my regular pay to hit the 50k mark.

---

Members don't see this ad.

 

[pezdispenser]

I think in the year that you graduate and start working, you can claim the Lifetime Learning tax credit up to $2,000. It's 20% of the first $10k of "Qualified Education Expenses" (tuition, etc) you paid in that year only. It phases out when your Modified AGI is $53k-63k for singles, $107k-$127k MFJ, and MFS is ineligible. I looked back at my own tax return for that year and my AGI was 102k lol, so I couldn't claim it, but was anyone else able to claim it?

 

[homeslice]

I think in the year that you graduate and start working, you can claim the Lifetime Learning tax credit up to $2,000. It's 20% of the first $10k of "Qualified Education Expenses" (tuition, etc) you paid in that year only. It phases out when your Modified AGI is $53k-63k for singles, $107k-$127k MFJ, and MFS is ineligible. I looked back at my own tax return for that year and my AGI was 102k lol, so I couldn't claim it, but was anyone else able to claim it?

I was just coming here to post this exact thing.

I graduated in May and am now a fellow, so last year's income is pretty far off the phase-out level. Should be getting close to the full 2k. It's nice that's it's a credit and not just a deduction.

 

[Muse600]

seriously!!!

I never claimed it...another opportunity missed because I didn't know crap

 

[Momus]

If you are eligible, adding this credit is easy to do, just amend it yourself. It's a simple fix to get $2000... probably just take 1 hour of your time to copy, paste and do simple math. If you use Turbo Tax and read everything, you wouldn't have missed the credit.

I couldn't claim it coz the first year I made more than the limit and only did tuition deduction 4k instead =(

 

[Muse600]

but I graduated in 2011...I can't do it if it's been that long, right?

 

[Momus]

You can if it's not over 3 years from the filing date. If you filed in 2012, you could amend that.

"The statute of limitations prohibits you from filing an amendment that increases a refund amount beyond three years of the original filing date or two years of the date you actually pay the tax, (basically whichever one is later).

As an example, if you filed your 2011 taxes on April 15, 2012 and did not discover a calculation error until April 16, 2015, the statute of limitations bars you from claiming a refund."

 

[pharmerjohn]

I think in the year that you graduate and start working, you can claim the Lifetime Learning tax credit up to $2,000. It's 20% of the first $10k of "Qualified Education Expenses" (tuition, etc) you paid in that year only. It phases out when your Modified AGI is $53k-63k for singles, $107k-$127k MFJ, and MFS is ineligible. I looked back at my own tax return for that year and my AGI was 102k lol, so I couldn't claim it, but was anyone else able to claim it?

I was able to claim the American Opportunity Tax Credit while doing my undergrad, and that was pretty sweet. Got the whole $2,500 for several years. However, now that I'm done with the bachelor's and starting pharmacy school, the best I can do is to go with the Lifetime Learning Tax Credit. Still pretty nice.

 

[pharmerjohn]

If you are eligible, adding this credit is easy to do, just amend it yourself. It's a simple fix to get $2000... probably just take 1 hour of your time to copy, paste and do simple math. If you use Turbo Tax and read everything, you wouldn't have missed the credit.

I couldn't claim it coz the first year I made more than the limit and only did tuition deduction 4k instead =(

I second the Turbo Tax part. It's given me pretty nice returns for the past several years.

 

[Muse600]

are the costs of license renewal, CE's, tax deductible?

 

[sakigt]

are the costs of license renewal, CE's, tax deductible?

Yes, if the cost is more than 2% of your income.

So basically, no. lol

 

[Muse600]

mother effer...that's like $2-$3,000

honestly, there are NO tax tricks that really help with student loans. The only way to get out of loans is what I posted in the original thread.

you know what also grinds my gears? when real estate professionals and other experts say "well that's a tax deduction!"

examples:

-"You lost $2,500 in the stock market last year? That's awesome! It's a tax write-off!" ----- in reality I lost $2,500, then gained an extra $100 in my tax return. Net loss $2,400 - Not worth it!
-"Get your real estate license...you can start writing stuff off and help with your taxes." ---- Cost of getting/maintaining a real estate license in CA - at least $3,500/year, potential tax return increase - $500??? - Net loss - $3,000 - Not worth it!
-"Buy a house! The mortgage interest is a write off! " - Cheapest 2BR condo in my neighborhood in Long Beach - ~$350,000 - out of pocket expenses: $~8,000 (closing costs/taxes/insurance/legal fees), 20% down payment - $70,000, monthly condo fee $300/month + yearly taxes. Increase in tax return? ~$5,000...The $70k you put down you can get 94% back by selling the house (3% goes to buying agent, 3% to selling agent), but the closing costs/lawyer fees/condo fees/taxes you do NOT get back - net loss ~$10,200 (which doesn't even include any repairs/maintenance/furnishing costs...so maybe more)

that's it...no tricks...just rent the cheapest apt you can get, live frugally, and pay your excess into your loans...with every $50k you save up, buy a single family home in an area you can rent it.

 

[BMBiology]

here's a way for you to reduce your tax liability: marry someone who doesnt work and you get to deduct your student loan interest and pay less income tax.

 

[Momus]

here's a way for you to reduce your tax liability: marry someone who doesnt work and you get to deduct your student loan interest and pay less income tax.

Taking a dependent wife is a fantastic idea. Support her for the rest of your life (>45 years), gov will give lots of money back!

 

[Jibby321]

I think in the year that you graduate and start working, you can claim the Lifetime Learning tax credit up to $2,000. It's 20% of the first $10k of "Qualified Education Expenses" (tuition, etc) you paid in that year only. It phases out when your Modified AGI is $53k-63k for singles, $107k-$127k MFJ, and MFS is ineligible. I looked back at my own tax return for that year and my AGI was 102k lol, so I couldn't claim it, but was anyone else able to claim it?

I just did my taxes and claimed it.

Can I claim it every year I'm in school? It tripled what my return would have been. Haha

 

[homeslice]

You can if it's not over 3 years from the filing date. If you filed in 2012, you could amend that.

"The statute of limitations prohibits you from filing an amendment that increases a refund amount beyond three years of the original filing date or two years of the date you actually pay the tax, (basically whichever one is later).

As an example, if you filed your 2011 taxes on April 15, 2012 and did not discover a calculation error until April 16, 2015, the statute of limitations bars you from claiming a refund."

You, my friend, just made my day. For whatever reason, I didn't claim it in 2012.

 

[confettiflyer]

RE license isn't $3500/yr to obtain and maintain in CA...

 

[Muse600]

LOL...get married - gain $1,000 more in tax return, spend hundreds of thousands of dollars in your lifetime because you got married: net loss - too much to count!

confetti - I might be wrong, but this is what I've read about -

RE license in CA:
-$250 every 4 years
-Being a realtor (required by most brokerages, access to MLS and CAR forms) $800-$900/year
-Access to key boxes (supra) $175/year
-E & O insurance (varies) - roughly $1,500/year
-signs for holding open houses - $250-$1,000
-desk/printing fees from brokerage - $25+/month
-website: $75+/month
-----------------------------------
~$3,987/year

now selling a house part time when you're working full time as a pharmacist...especially in socal, is tough. expect to put 100-200 hours into the sale of a single house...and new brokers usually get a 50% split - 8% brokerage marketing fee - $350 for transaction coordinator = < $3987/year

unless you're a super good salesman, good at working fast, and can close houses in less time than anyone else...chances are you're not going to be an effective real estate agent...so $3,987 is going out per year, to save less than that in taxes...and your audit risk goes up a TON. I don't think I can pull it off...

some of my pharmacist friends have parents' who own businesses...so any start up costs are abosrbed by their parents...they have an effectively lower tax bracket...IMHO - it's just EOC...and out of our control

 

[xiphoid2010]

here's a way for you to reduce your tax liability: marry someone who doesnt work and you get to deduct your student loan interest and pay less income tax.

Would you like to buy a jumbo jet to get free peanuts?

 

[xiphoid2010]

Muse, have you look into being a landlord? I.e, buy a quadruplex, live and run it out of one, rent out the other 3. Rent counts as income, but you can deduct mortgage interest, utilities, property tax, depreciation, repairs, home office, etc...

 

[pezdispenser]

I just did my taxes and claimed it.

Can I claim it every year I'm in school? It tripled what my return would have been. Haha

Sure, you can claim the Lifetime Learning Credit while in school. However, it is a nonrefundable tax credit, so once your tax liability reaches zero, any excess credit will not be refunded to you.

 

[Jibby321]

Sure, you can claim the Lifetime Learning Credit while in school. However, it is a nonrefundable tax credit, so once your tax liability reaches zero, any excess credit will not be refunded to you.

When would my tax liability go to zero?

 

[Momus]

When would my tax liability go to zero?

If you don't make any income or less than standard deduction income, that should put you at 0 tax liability...

 

[BMBiology]

Like Mitt said, 53% pay little or no taxes (not including social security and medicare taxes which are not really "taxes" but more like saving accounts assuming they will be there when we retire)

 

[Jibby321]

If you don't make any income or less than standard deduction income, that should put you at 0 tax liability...

Thanks. I don't plan on that happening. Haha

 

[pezdispenser]

Yes there is a $6,200 standard deduction and $3,950 personal exemption.

Then a $2,500 'above the line' student loan interest deduction.

That's $12,650 that you can earn tax-free already.

The $2,000 Lifetime Learning Credit can take care of taxes for an additional $16,358 of income above that, so as a student you can earn at least $29,000 and not pay any income tax.

 

[Ackj]

Yes there is a $6,200 standard deduction and $3,950 personal exemption.

Then a $2,500 'above the line' student loan interest deduction.

That's $12,650 that you can earn tax-free already.

The $2,000 Lifetime Learning Credit can take care of taxes for an additional $16,358 of income above that, so as a student you can earn at least $29,000 and not pay any income tax.

For my 2012 return (based off of income as a P3-P4 intern) I was in that boat. Unless you're working a ton, or get paid really well, I think most students would fall into that range and have no federal tax liability.

 

[Dr. Bubblebutt]

Enslaving the Next Generation

http://armstrongeconomics.com/2014/02/03/enslaving-the-next-generation/

 

[Muse600]

xiphoid: I want to!

here's the plan I was playing around with:
1.) pay off all student debt
2.) debt free? now start saving $5,000/month
3.) search single family homes and condo's near my parents' house in central MA - you can buy them for $50k, collect ~$500/mo in rent...my parents will manage them...buy 1 property/year for 10 years...in 15 years, retire! I know that you can mortgage them...but the interest you pay will make a $50k purchase $75k when the loan is paid off...plus if you pay the property in cash, it's low risk if your tenants miss payments: you don't owe a bank a mortgage payment. Plus when you mortgage it, the property is "cash flow positive" because the mortgage payment cancels out the rent you're getting. I'd like to put $50k down, and start collecting $$ from it.

okay fellas...I also finally updated my withholdings for 2014 - I used the calculator on my employers website (can anyone claim you as a dependent? Do you only have 1 job? # of dependents? are you head of household? what's your child care expenses? child tax credit? eligible children? income?)

so if you guys are single, no kids, head of household, no dependents, you'll have the same as me: set withholdings to 3

 

[homeslice]

xiphoid: I want to!

here's the plan I was playing around with:
1.) pay off all student debt
2.) debt free? now start saving $5,000/month
3.) search single family homes and condo's near my parents' house in central MA - you can buy them for $50k, collect ~$500/mo in rent...my parents will manage them...buy 1 property/year for 10 years...in 15 years, retire! I know that you can mortgage them...but the interest you pay will make a $50k purchase $75k when the loan is paid off...plus if you pay the property in cash, it's low risk if your tenants miss payments: you don't owe a bank a mortgage payment. Plus when you mortgage it, the property is "cash flow positive" because the mortgage payment cancels out the rent you're getting. I'd like to put $50k down, and start collecting $$ from it.

okay fellas...I also finally updated my withholdings for 2014 - I used the calculator on my employers website (can anyone claim you as a dependent? Do you only have 1 job? # of dependents? are you head of household? what's your child care expenses? child tax credit? eligible children? income?)

so if you guys are single, no kids, head of household, no dependents, you'll have the same as me: set withholdings to 3

Just out of curiousity, do you actually meet all three requirements to be able to file as head of household or is there some sleight of hand going on?

I have my withholdings set at 1 for my full-time job and 0 at my prn job. May change it to 2 for the full-time position though.

 

[xiphoid2010]

xiphoid: I want to!

here's the plan I was playing around with:
1.) pay off all student debt
2.) debt free? now start saving $5,000/month
3.) search single family homes and condo's near my parents' house in central MA - you can buy them for $50k, collect ~$500/mo in rent...my parents will manage them...buy 1 property/year for 10 years...in 15 years, retire! I know that you can mortgage them...but the interest you pay will make a $50k purchase $75k when the loan is paid off...plus if you pay the property in cash, it's low risk if your tenants miss payments: you don't owe a bank a mortgage payment. Plus when you mortgage it, the property is "cash flow positive" because the mortgage payment cancels out the rent you're getting. I'd like to put $50k down, and start collecting $$ from it.

okay fellas...I also finally updated my withholdings for 2014 - I used the calculator on my employers website (can anyone claim you as a dependent? Do you only have 1 job? # of dependents? are you head of household? what's your child care expenses? child tax credit? eligible children? income?)

so if you guys are single, no kids, head of household, no dependents, you'll have the same as me: set withholdings to 3

That's one way, the most conservative way, to do it. But keep mind that real estate profit is a combo of rental + appreciation. Waiting reduces both. Mortgage is debt financing, or a leverage play. It magnifies your profit (and losses) by the leverage ratio. Too high of a ratio means too much risk, but 0 ratio generally means you are missing out on growth and profit. I think your paying off student loan part is good, but you might want to read a bit more on real estate investment.

 

[Muse600]

Just out of curiousity, do you actually meet all three requirements to be able to file as head of household or is there some sleight of hand going on?

I have my withholdings set at 1 for my full-time job and 0 at my prn job. May change it to 2 for the full-time position though.

wait...I always assumed "yes"...but am I missing something?

situation: live alone, pay all the rent, live @ 1 address year-round

Qualifying tests:
1.) Unmarried test: To qualify for head of household status, a person must be unmarried or considered as if they were unmarried for the year. Normally, a taxpayer must be unmarried on the last day of the year in order to file as head of household. Unmarried means a person is not married because he or she is single, divorced, or legally separated under a separate maintenance decree. As general rule, state law determines whether a person is married or not married.

so I live alone, not married - wouldn't I pass the "unmarried test" ?

2.) Support test: To qualify for head of household status, the taxpayer needs to pass a “Support Test.” The support test means that the taxpayer provides more than half the cost of keeping up a home for the year. The cost of keeping up a home includes such expenses as rent, mortgage payments, property taxes, property insurance, repairs, utilities, and groceries.

Again - living alone, and covering all the expenses - don't I pass this?

3,) Qualifying Person Test: To qualify for the head of household filing status, a qualifying person needs to live in the taxpayer's home for more than half the year.

I live here year-round, so don't I pass this as well?

According to those definitions, aren't I the head of household?

 

[Muse600]

That's one way, the most conservative way, to do it. But keep mind that real estate profit is a combo of rental + appreciation. Waiting reduces both. Mortgage is debt financing, or a leverage play. It magnifies your profit (and losses) by the leverage ratio. Too high of a ratio means too much risk, but 0 ratio generally means you are missing out on growth and profit. I think your paying off student loan part is good, but you might want to read a bit more on real estate investment.

heck no...I want to play it conservative!

I do understand that real estate profit is rent + appreciation, but if you use a mortgage to buy the property vs. pay cash, the property will still appreciate; so you're not losing out on those profits by purchasing cash. As a matter of fact, you might lose more profits by mortgaging because now you're paying interest on the property, and (since it's a $50k property) if the value of the house doesn't appreciate as fast as the interest rate on the mortgage, you're now paying roughly $75,000 for a $50,000 house. Also mortgaging it will completely cancel out any "cash flow positive" income you would've gotten if the whole thing was paid in cash.

And yes, I know that if I took $50k, and financed five $50k properties with 10% down on each, I could have 5 properties worth over $250,000 that somebody else paid off over 15 years. However, I was planning on buying each in succession. Buy 1 property/year over 5 years...now bam, you still have $250k invested, but you just did it slowly...and after each property is paid off, the cash flow from that helps you to save up to buy the next one faster...and after 5 years, now you have 5 sources of income. The only way I'd see that "conservative play" failing, is if the houses start selling for $100k within those 5 years..then it would've been prudent to buy them all within the first year when they were still cheap.

but yes, this is all just uninformed speculation - got any good reads on real estate investment? so far I'm just reading "millionaire next door"...but all it says in the first 160 pages is "live cheap...way below your means...and setup a budget!"

 

[xiphoid2010]

heck no...I want to play it conservative!

I do understand that real estate profit is rent + appreciation, but if you use a mortgage to buy the property vs. pay cash, the property will still appreciate; so you're not losing out on those profits by purchasing cash. As a matter of fact, you might lose more profits by mortgaging because now you're paying interest on the property, and (since it's a $50k property) if the value of the house doesn't appreciate as fast as the interest rate on the mortgage, you're now paying roughly $75,000 for a $50,000 house. Also mortgaging it will completely cancel out any "cash flow positive" income you would've gotten if the whole thing was paid in cash.

And yes, I know that if I took $50k, and financed five $50k properties with 10% down on each, I could have 5 properties worth over $250,000 that somebody else paid off over 15 years. However, I was planning on buying each in succession. Buy 1 property/year over 5 years...now bam, you still have $250k invested, but you just did it slowly...and after each property is paid off, the cash flow from that helps you to save up to buy the next one faster...and after 5 years, now you have 5 sources of income. The only way I'd see that "conservative play" failing, is if the houses start selling for $100k within those 5 years..then it would've been prudent to buy them all within the first year when they were still cheap.

but yes, this is all just uninformed speculation - got any good reads on real estate investment? so far I'm just reading "millionaire next door"...but all it says in the first 160 pages is "live cheap...way below your means...and setup a budget!"

I see there is much for you to learn in real estate investing. I'm no expert myself, just remeber bits and pieces from my parents who made millions on real estate. Your estimates are off and missing a lot of the pieces. There is nothing wrong with doing the most conservative way possible but you will be missing out a lot of potential profit.

 

[Muse600]

indeed I have much to learn...and would love to someday say I made millions on real estate...probably not going to do that paying cash on everything...zero experience...and my Dad has a property, but when I asked for advice he said "if you have to ask for advice on how to succeed in real estate, then you'll never succeed in real estate."

well, I have about 1-2 years of paying off the student loans before I do...I'll read some books in the mean time (amazon has some top rated books)...and I figure my first property will be the best learning experience

 

[HouTX]

wait...I always assumed "yes"...but am I missing something?

situation: live alone, pay all the rent, live @ 1 address year-round

Qualifying tests:
1.) Unmarried test: To qualify for head of household status, a person must be unmarried or considered as if they were unmarried for the year. Normally, a taxpayer must be unmarried on the last day of the year in order to file as head of household. Unmarried means a person is not married because he or she is single, divorced, or legally separated under a separate maintenance decree. As general rule, state law determines whether a person is married or not married.

so I live alone, not married - wouldn't I pass the "unmarried test" ?

2.) Support test: To qualify for head of household status, the taxpayer needs to pass a “Support Test.” The support test means that the taxpayer provides more than half the cost of keeping up a home for the year. The cost of keeping up a home includes such expenses as rent, mortgage payments, property taxes, property insurance, repairs, utilities, and groceries.

Again - living alone, and covering all the expenses - don't I pass this?

3,) Qualifying Person Test: To qualify for the head of household filing status, a qualifying person needs to live in the taxpayer's home for more than half the year.

I live here year-round, so don't I pass this as well?

According to those definitions, aren't I the head of household?

you fail the qualifying person test. the IRS is very strict on who is a qualifying person. wiki HOH and they actually have a colorful flow chart. as far as I can tell, it was the same as the flow chart on the IRS website

also, I'm barely starting out also and want to get in real estate. but the technique called leverage is what I would probably use. "using other people's money"

 

[Muse600]

ahh, got it...I don't have any qualifying children, parents, or relatives living with me...not going to be HOH....so I will likely drop by withholdings to 2

and I googled leverage - and I get it; so if I put $50k down on a $250k single family home, and it appreciates 10%, I just got $25,000 in equity vs. buying a $50k house for $50k, appreciate 5%, and get $5k in equity. Over time, it can have a significant impact on growth.

however, the issues I see (which are difficult to calculate) is: what if the property doesn't increase 10%? What if it stays relatively stagnant? Worse yet, what if the value of the house drops? Now 3 things can happen (1.) you're still paying interest on the full value of the initial loan you took out, and it can outpace any profits you can have with the appreciation in the value of the property (2.) if the value of rent drops (or a tenant misses a payment, or moves out), you still owe a mortgage payment to the lender, again on the full value of the loan (3.) if that $250k drops in value 10%, you just lost $25,000 in equity vs. just losing $5k in a $50k house

I want that conservative play...

 

[HouTX]

there's no clear cut answer to real estate investing. find out what is best for you and what your risk tolerance. I've been lurking over at www.biggerpockets.com, forum for REI. and don't go hunting on the MLS for your investment purposes, you'll be buying high

 

[pezdispenser]

If your company has an Employee Share Purchase Plan, I would strongly consider it. The Walgreens one has been very good for me over the past several years. (Of course that is no indication of future performance). Basically you can buy up to $25k per year and they give a 10% discount, which I think of as 10% downside protection. WAG pays a 2.3% dividend as well.

 

[owlegrad]

If your company has an Employee Share Purchase Plan, I would strongly consider it. The Walgreens one has been very good for me over the past several years. (Of course that is no indication of future performance). Basically you can buy up to $25k per year and they give a 10% discount, which I think of as 10% downside protection. WAG pays a 2.3% dividend as well.

The CVS ESPP has been good to me so far.

 

[BanBidil]

you're only making $6,000 a month in SoCal.. something isn't right there

POST TAXES.

 

[Muse600]

Ill look into it, but I'm certain my company doesnkt have one...

 

[veneto1]

Long time reader, first time poster (I feel like I'm calling into a radio station). I second the www.biggerpockets.com website...it's really good if you have no clue on real estate investing, and are interested. $50,000 house $500/mo rent isn't really a good investment in general, lots of other factors in there such as vacancy time, advertising, repairs, taxes (I know it was just an example). Also, if you were buying 50K houses, you would probably have to pay cash anyway...I don't think you could get such a small mortgage very easily...at least conventional financing. Don't get me wrong, there are lot's of other ways to put deals together, but this requires a lot of knowledge/risk/time.

 

[mentos]

Hi OP, I have enjoyed your thread. I will be in a similar situation soon after I graduate this year. I was wondering how much your emergency fund is?

 

[Muse600]

According to my original thread, it should be $13,122 (6 mo's x "mandatory expenses" & loan payments)

I keep it around $15-20k

did not know about biggerpockets.com...will have to look into it more!

on a side note, I will be helping out a family member with $$...so I won't be making early payments on the loans for the next 5 months...

 

[pezdispenser]

ahh, got it...I don't have any qualifying children, parents, or relatives living with me...not going to be HOH....so I will likely drop by withholdings to 2

Hey I think your withholding allowances will be too low if you have a lot of itemized deductions.

Normally it's:
1 allowance for the $6,200 standard deduction
1 allowance for the $3,950 personal exemption
So a typical single pharmacist should have 2 allowances.

But if you itemize deductions, you can claim additional allowances as follows:
Add up all your deductions such as:
- state taxes
- property taxes
- mortgage interest
- charitable donations

Then find out how much over the standard deduction you are by subtracting $6,200,
then dividing by $3,950 (and round down) to give how many additional allowances you can add on to the 2 that everyone normally gets.

So say you have $20,000 in itemized deductions,
($20,000 - $6,200)/$3,950 = 3.49 + 2 = you can claim 5 allowances.

 

[pezdispenser]

Congratulations on being a PAW. You are well on your way to being an actual "millionaire next door." However, being a PAW is not as easy as you seem to have led on. Let's break it down a bit to see why it's difficult for someone under 30 (and under 35) to reach that milestone.

Say a person graduates from pharmacy school at 24 with $150k in student loans and receives zero economic outpatient care (EOC). Now, let's see what it takes for that person to reach PAW status by 30. Assuming $130k salary as you did: $130k X 30 yo / 10 = $390k. If this person has $390k, s/he would be an AAW (average accumulator of wealth) according to the wealth equation. To be a PAW, the 30 year-old in question needs to have twice that amount, $780k. This gives the newly-graduated 24 yo 6 years to pay off $150k in loans plus interest while amassing $780k in net worth. That's no easy task, as it would take the person at least 2 years to pay off that $150k loan, and I'm being very optimistic with 2 years. That leaves 4 years to obtain $780k in net worth on a $130k income before tax. I understand the power of compound interest and reinvestment... But let's be realistic here, income taxes takes a HUGE bite out of that income, then there's living expenses, mortgage/rent, car/bike payment, travel expenses, and a whole host of other miscellaneous expenses that life often throws at you. Is it doable? Yes, but one needs to have 4 extremely lucky years in risk-laden investments to barely make the mark. As for reaching the PAW milestone by 35, the person would need a net worth of $910k. This is a more realistic, albeit, still a very difficult goal to achieve. In reality, many 35 yo pharmacists in the scenario given above would not have nearly half the amount to be a PAW. In fact, most would be UAW (under accumulator of wealth), having net worth less than $227k. I would even wager that many would still have negative net worth by then due to overspending on "things" that will end up in landfills one day.

Also, people tend to inflate their true net worth and incorrectly assume that they are wealthier than they actually are. Net worth is all assets minus all liabilities (including the primary home of residence, as a primary home is not an asset).

I finally got around to reading that book. According to that equation, I am just a bit over, so an Average Accumulator of Wealth. And I thought I was fairly frugal, and saving and investing lots of money, lol. So I agree that it's going to be quite hard for pharmacists to be PAWs especially in their 30s. Then, the PAW level increases by 0.2 of your annual income each year or $26k, so even if you invest about $50k per year, it might take a decade or so to catch up.

 

[Muse600]

I'm about 150 pages into it...it pretty much just says (1.) live cheap/don't get caught up in spending a lot (2.) budget (3.) invest

is there more in that book??

 

[Muse600]

Hey I think your withholding allowances will be too low if you have a lot of itemized deductions.

Normally it's:
1 allowance for the $6,200 standard deduction
1 allowance for the $3,950 personal exemption
So a typical single pharmacist should have 2 allowances.

But if you itemize deductions, you can claim additional allowances as follows:
Add up all your deductions such as:
- state taxes
- property taxes
- mortgage interest
- charitable donations

Then find out how much over the standard deduction you are by subtracting $6,200,
then dividing by $3,950 (and round down) to give how many additional allowances you can add on to the 2 that everyone normally gets.

So say you have $20,000 in itemized deductions,
($20,000 - $6,200)/$3,950 = 3.49 + 2 = you can claim 5 allowances.

I had $25,769 of itemized deductions...so I could go as high as 5 this year!

 

[Momus]

As a single guy that does not own a house, how did you have almost 26k that you itemized? Just curious incase I'm missing something

CA state tax is 9.3% + High Charity Contribution