Rph just called Dave Ramsey

[fauxden]

292k in student loan, making 120k....

Dave Ramsey just chuckled....

Shot down IBR.
Then went on to say how "dumb" that is.
Then said if you have a kid planning to go to pharmacy school and they are going to graduate with debt like this, TELL THEM NOT TO DO IT!

Just had to share.

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[deleted480308]

292k in student loan, making 120k....

Dave Ramsey just chuckled....

Shot down IBR.
Then went on to say how "dumb" that is.
Then said if you have a kid planning to go to pharmacy school and they are going to graduate with debt like this, TELL THEM NOT TO DO IT!

Just had to share.

generally like dave ramsey but on every single phone call he's answered about medical/dental/pharmacy school, he has been very uninformed about how it works

 

[RxMonkey]

 

[trailerpark]

292K!? No way all that debt came from pharmacy school. Any links to watch/listen?

 

[fauxden]

generally like dave ramsey but on every single phone call he's answered about medical/dental/pharmacy school, he has been very uninformed about how it works

I agree that he is not fully informed, but do believe the advice was sound. He was also misinformed because he was under the impression that this guys pay would go up over time, which will not happen.

292K!? No way all that debt came from pharmacy school. Any links to watch/listen?

Well it just played today about 30 minutes ago, so I don't know of a link. Probably could hear it tomorrow on the dave ramsey iheart radio channel. Not sure. It was a quick call. Not a lot specifics. This guy did have 4 kids with one on the way... so that certainly would play a role.

 

[BMBiology]

He is a pharmacist. He can pay it back.

 

[trailerpark]

This is on Dave's website from another RPh

QUESTION: Eva’s husband will graduate from pharmacy school in May and has worked part-time for several months. They have $120,000 in student loan debt. He is about to make $130,000 a year, and they will probably move to another state and buy a home. Should they refinance and put the student loans on the new house? Dave doesn’t like that at all.

ANSWER: You’re $120,000 in student loan debt. You don’t need to buy a freakin’ house! You are used to living on nothing, so keep doing that while you clean up the student loan mess. Rent and live on nothing until that happens. Don’t keep these student loans around too long. Keep paying the price like you’ve been paying to sacrifice and win.
Clean up the mess fast, and sacrifice to do that. You know how to sacrifice to win, and if you can do that for one more year, you can win. Sell the house and pay down on the debt, and rent while you finish off the student loans. With those 2 things, you’re out of debt by next year.

 

[sakigt]

According to Dave Ramsey unless you can pay for college with cash you shouldnt go.

If I followed Ramsey's advice Id be making half working double. Forever. In 7 years when the debt is gone Ill be making double what I would have made in another career path with PT hours. Ill take the debt for that everytime, but thats just me.

 

[trailerpark]

I'm sure he's just talking about undergrad. 2 years at a CC and 2 at a state university with saved funds is definitely doable. Things are a little different for health professional training so don't just dismiss all his advice. Just overlook the parts that don't apply to you.

 

[owlegrad]

Is renting really a sound choice? Aren't you just throwing your money away? I don't pretend to be financially suave but recommending that someone sell a house so that they can RENT seems unbelievably stupid to me. What am I missing?

 

[owlegrad]

According to Dave Ramsey unless you can pay for college with cash you shouldnt go.

If I followed Ramsey's advice Id be making half working double. Forever. In 7 years when the debt is gone Ill be making double what I would have made in another career path with PT hours. Ill take the debt for that everytime, but thats just me.

I know a pharmacist IRL who pointed this out to me. It just seems like very uninformed advice to me. So I shouldn't become a pharmacist unless I can pay for all my schooling without incurring debt? How many people can possibly do that?

 

[trailerpark]

The guy is moving for his job so I think Dave means to use the money from selling his house to pay down debt instead of buying a new house, His philosophy is to get rid of debt ASAP. He would want them to just rent a very cheap place while they hit loan payments hard.

 

[sakigt]

I know a pharmacist IRL who pointed this out to me. It just seems like very uninformed advice to me. So I shouldn't become a pharmacist unless I can pay for all my schooling without incurring debt? How many people can possibly do that?

I listened/watched him/read his book so Im pretty sure he even included medical careers, but I could be incorrect.

I agree shortsighted if youre careful and not borrow 2-3x your future earning potential!

 

[trailerpark]

So what would be the best personal finance book for a new grad? I just want to buy one that would be a good start.

 

[fauxden]

So what would be the best personal finance book for a new grad? I just want to buy one that would be a good start.

Dave offers good advice. Basically all about getting out of debt. He is criticized for suggesting people pay down all debt prior to investing. He also suggests people pay off smallest loans first, irrespective of interest rate. He states the emotional high is what motivates people to continue on. Obviously people will say you should pay highest interest loans first, invest, etc. Which could be good advice. But, I have heard his advice compared to physical fitness. Probably not necessary to get into in depth muscle analysis if you don't know what a dumbbell is. Same with him, he gives basic advice that applies to the masses, and it's pretty entertaining to listen to.

Another guy who has a good book is Ramit Sethi, I Will Teach You To Be Rich. He directly address young people (20 somethings). His book is a good read and has to do sections in it.

 

[Momus]

+1 I will teach you to be rich. A good starter book for personal finance.

 

[trailerpark]

If your employer doesn't start to match 401k until 1 year of employment would you recommend not doing 401k your first year and instead put it toward grad plus loans at 7.8%?

 

[Jibby321]

If your employer doesn't start to match 401k until 1 year of employment would you recommend not doing 401k your first year and instead put it toward grad plus loans at 7.8%?

Sounds like a good idea

 

[pezdispenser]

If your employer doesn't start to match 401k until 1 year of employment would you recommend not doing 401k your first year and instead put it toward grad plus loans at 7.8%?

Yes I would pay off the loans at that high interest rate. But maybe you should consider putting $5,500 in a Roth IRA since your tax rate is fairly low. Especially when you just start and only work for half a year, your effective tax rate will only be around 9%.

 

[TheWeeIceMan]

Is renting really a sound choice? Aren't you just throwing your money away? I don't pretend to be financially suave but recommending that someone sell a house so that they can RENT seems unbelievably stupid to me. What am I missing?

Depends on a number of factors. For many people, renting is the more financially sound choice.

http://www.bogleheads.org/wiki/Owning_vs_renting

 

[BMBiology]

His philosophy is to get rid of debt ASAP..

I follow this principle. When you are in debt, you are stuck. You can't invest freely and when something happens like a period of unemployment, health issues, having a kid, you are in trouble. Your debt will only get bigger and bigger.

 

[confettiflyer]

I'm in the camp about investing > paying off debt. Here are some reasons:

1) If you die tomorrow, paying off debt won't leave anything to your heirs, saving in a retirement account will (exempt from probate/creditors when a beneficiary is designated). Pretty much all loans and credit cards extinguish upon death unless someone has cosigned for them.

2) Vanguard had a report about #'s regarding two similar debtors where one person saved right out of school at age 22 vs. the same person devoting every resource available to paying off student loans. With a reasonable set of assumptions, the person who saved early reaped the benefits of compounding interest and, even when factoring interest paid, had more than the aggressive debt payor.

See article: http://www.nytimes.com/2014/06/14/y...nt-loans-can-cost-you-in-retirement.html?_r=0

I follow this principle. When you are in debt, you are stuck. You can't invest freely and when something happens like a period of unemployment, health issues, having a kid, you are in trouble. Your debt will only get bigger and bigger.

3) In a "**** hits the fan" situation -- a lower student loan balance just isn't as useful as cash in the bank (6 mo. cash reserve/emergency fund), or a relatively liquid retirement account that you can tap. If you suddenly become unemployed, if you singularly pay off debt but fail to save cash, you can't pay the rent/for food/etc...

4) This applies to me mostly, but paying off student loans is a dumb move because I'm intending to relinquish most of my balance via PSLF at year 10 (I'm about 20% of the way there). Putting away the statutory maximum $17,5000/yr lowers my AGI, which in turn lowers my monthly payments when they recalculate every year. So each dollar I put away (a) earns market returns and compounds, (b) lowers my student loan payment, which (c) subsequently increases the amount that will be forgiven.

I've been saving since 2005 -- had I not done that and just attacked my student loans (undergrad + grad) and saved zero in retirement, I would have missed out on 35%+ market gains over that period of time. Extra dumb if you're chasing my 3-7% student loans. From 2005-2012 this was done exclusively through a Roth vehicle while my taxes were low and an AGI-lowering benefit of a traditional IRA was not advantageous.

So, as with all things money, dogma is stupid, and there are lots of nuances to what's best for anyone. Advice that works for you won't necessarily work for the next person.

 

[trailerpark]

I don't know when you went to school, but student loans are nowhere near 3% anymore. Us folk nowadays are saddled with 6.8-7.9%

 

[BMBiology]

1) If you die tomorrow, paying off debt won't leave anything to your heirs, saving in a retirement account will (exempt from probate/creditors when a beneficiary is designated).

What if you don't die tomorrow?

(4) This applies to me mostly, but paying off student loans is a dumb move because I'm intending to relinquish most of my balance via PSLF at year 10 (I'm about 20% of the way there).

I have a feeling the government is going to cap how much they will forgive. What is your plan if the government does this?

 

[trailerpark]

I found online the limit for roth was 120,000 AGI so what exactly is adjusted for a single guy? My offer letter is $58 once licensed (half grad intern) so lets say 40hrs per week times 52 weeks x 58 = 120,640 But what if I only get paid 37.5 hrs/week

37.5 x 52 x 58 = 113,100 (which is less than 120k)

So is there a chance some pharmacists may still qualify for Roth?

 

[Momus]

I found online the limit for roth was 120,000 AGI so what exactly is adjusted for a single guy? My offer letter is $58 once licensed (half grad intern) so lets say 40hrs per week times 52 weeks x 58 = 120,640 But what if I only get paid 37.5 hrs/week

37.5 x 52 x 58 = 113,100 (which is less than 120k)

So is there a chance some pharmacists may still qualify for Roth?

There is always backdoor roth... http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

 

[Gombrich12]

You can do a backdoor Roth contribution so your income doesn't matter either way.

 

[trailerpark]

But then are you stuck with a new roth ira every year with 5,000 in it or when you convert will it add to my first roth of 5k? I'm kind of confused if these stay separate. I'll definitely have my first roth from being a grad intern and only working 6 months this year.

 

[Momus]

But then are you stuck with a new roth ira every year with 5,000 in it or when you convert will it add to my first roth of 5k? I'm kind of confused if these stay separate. I'll definitely have my first roth from being a grad intern and only working 6 months this year.

There are 2 accounts to hold retirement money in question here: Roth IRA and traditional IRA. Whatever you contribute to IRA or ROTH IRA stays in 2 separate account.

1. Put money into IRA account, could be in the form of individual stocks, money market, or mutual fund
   
2. Next day, convert everything in IRA account to ROTH IRA account
   
3. Repeat next year. You are just keep adding money into ROTH IRA account every year. These can hold whatever you want to invest in: stocks, bonds, mutual funds. All of stocks, bond, mutual funds, money market combined are in 1 account (ROTH IRA account). You don't open a new ROTH IRA account every year unless you go to different brokerage next year.

 

[mustang sally]

I'm in the camp about investing > paying off debt. Here are some reasons:

1) If you die tomorrow, paying off debt won't leave anything to your heirs, saving in a retirement account will (exempt from probate/creditors when a beneficiary is designated). Pretty much all loans and credit cards extinguish upon death unless someone has cosigned for them.

2) Vanguard had a report about #'s regarding two similar debtors where one person saved right out of school at age 22 vs. the same person devoting every resource available to paying off student loans. With a reasonable set of assumptions, the person who saved early reaped the benefits of compounding interest and, even when factoring interest paid, had more than the aggressive debt payor.

See article: http://www.nytimes.com/2014/06/14/y...nt-loans-can-cost-you-in-retirement.html?_r=0



3) In a "**** hits the fan" situation -- a lower student loan balance just isn't as useful as cash in the bank (6 mo. cash reserve/emergency fund), or a relatively liquid retirement account that you can tap. If you suddenly become unemployed, if you singularly pay off debt but fail to save cash, you can't pay the rent/for food/etc...

4) This applies to me mostly, but paying off student loans is a dumb move because I'm intending to relinquish most of my balance via PSLF at year 10 (I'm about 20% of the way there). Putting away the statutory maximum $17,5000/yr lowers my AGI, which in turn lowers my monthly payments when they recalculate every year. So each dollar I put away (a) earns market returns and compounds, (b) lowers my student loan payment, which (c) subsequently increases the amount that will be forgiven.

I've been saving since 2005 -- had I not done that and just attacked my student loans (undergrad + grad) and saved zero in retirement, I would have missed out on 35%+ market gains over that period of time. Extra dumb if you're chasing my 3-7% student loans. From 2005-2012 this was done exclusively through a Roth vehicle while my taxes were low and an AGI-lowering benefit of a traditional IRA was not advantageous.

So, as with all things money, dogma is stupid, and there are lots of nuances to what's best for anyone. Advice that works for you won't necessarily work for the next person.

Interesting post. I have a hard time each month deciding what I want to put towards regular savings, retirement, and student loans. Now I'm also trying to decide what I want to spend on housing each month, as we are interested in buying our first home.

Are you just making your IBR payment every month and nothing more (since you're looking to PLSF at the end of 10 years)?

 

[deleted480308]

So what would be the best personal finance book for a new grad? I just want to buy one that would be a good start.

whitecoatinvestor just wrote a book

 

[Ackj]

I'm in the camp about investing > paying off debt. Here are some reasons:
2) Vanguard had a report about #'s regarding two similar debtors where one person saved right out of school at age 22 vs. the same person devoting every resource available to paying off student loans. With a reasonable set of assumptions, the person who saved early reaped the benefits of compounding interest and, even when factoring interest paid, had more than the aggressive debt payor.

This seems flawed. In the "saving/investing" scenario, it seems the person has no debt to pay. Obviously the person who must dedicate 10 years to paying off debt will have less after 10 years, because they had less on day 1.

I'll assume it was just poor reporting, and the two have identical starting scenarios, so the "investor" still has the debt. They would still be required to pay the minimum balance before they are saving, whereas the "pay off debt" person is contributing zero toward the saving. Putting some money in both places is usually going to be more advantageous than an all-or-nothing, so it seems flawed again.

3) In a "**** hits the fan" situation -- a lower student loan balance just isn't as useful as cash in the bank (6 mo. cash reserve/emergency fund), or a relatively liquid retirement account that you can tap. If you suddenly become unemployed, if you singularly pay off debt but fail to save cash, you can't pay the rent/for food/etc...

It would be foolish to not establish an emergency fund regardless of what strategy you pursue. Theoretically, the saving/investing route may end up allowing you more to dig yourself out with, but you'll pay significant penalties for liquidating your IRAs. It would be a complicated analysis to see which ends up better in this case; would depend on the sudden debt incurred, current assets and their allocation, etc. If you had a medical issue that would bankrupt you, losing a higher degree of assets and still retaining a high student loan balance would be inferior to losing a small amount of savings, yet being nearly debt free post-bankruptcy. Your 401k is a protected asset, so if you're heavily investing, you will be putting money into other vehicles after you maxed out at 17500. If it's a major home repair, you may end up ahead by cashing in savings beyond your emergency fund, which you may not otherwise have if all the money went toward debt.

I've been saving since 2005 -- had I not done that and just attacked my student loans (undergrad + grad) and saved zero in retirement, I would have missed out on 35%+ market gains over that period of time. Extra dumb if you're chasing my 3-7% student loans. From 2005-2012 this was done exclusively through a Roth vehicle while my taxes were low and an AGI-lowering benefit of a traditional IRA was not advantageous.

I know they say to not time the market and all of that good stuff, but the spectacular returns of the past few years can't continue on indefinitely. Graduating today and being faced with the decision, it's harder to point toward investing as you're likely to be buying high.

So, as with all things money, dogma is stupid, and there are lots of nuances to what's best for anyone. Advice that works for you won't necessarily work for the next person.

Truth.

 

[confettiflyer]

What if you don't die tomorrow?

Then great, I've started saving for retirement the maximum allowed in a workplace account. That's money no one can really touch except 59.5 year old me.

I have a feeling the government is going to cap how much they will forgive. What is your plan if the government does this?

Then I guess I pay more. I have to pick one assumption or the other on this one and proceed...so I choose that it'll be around in 8 years. If I'm wrong, then I'm wrong...not losing sleep over it.

It's like buying a house and making the assumption that mortgage interest and property tax will remain deductible in the future...or that prop 13 in CA won't be repealed.

 

[confettiflyer]

Interesting post. I have a hard time each month deciding what I want to put towards regular savings, retirement, and student loans. Now I'm also trying to decide what I want to spend on housing each month, as we are interested in buying our first home.

Are you just making your IBR payment every month and nothing more (since you're looking to PLSF at the end of 10 years)?

Tough decision to make...there are good rent vs but calculators out there, but none really take into account going from a small rented apartment to a larger home very well (they're better at comparing renting vs. buying an identical property).

I personally max out retirement ($17.5k) and use a Roth/back door Roth as my main emergency fund--I keep a month's expenses in a regular savings account. I take the risk that if I need more, I'd be subject to the 10% penalty at <5 yrs. Consider your job security when doing this.

I pay the minimum on IBR to maximize forgiveness benefit...I'm looking forward to switching to PAYE when the DOE releases guidelines next year.

 

[BMBiology]

It's like buying a house and making the assumption that mortgage interest and property tax will remain deductible in the future...or that prop 13 in CA won't be repealed.

There are powerful interests protecting those tax breaks. I don't see anybody lobbying to forgive 6 figure student loan debt to doctors and pharmacists.

 

[confettiflyer]

There are powerful interests protecting those tax breaks. I don't see anybody lobbying to forgive 6 figure student loan debt to doctors and pharmacists.

It's still an assumption subject to future legislative/initiative action...however remote the possibility.

You're also forgetting the lawyers in this lobbying equation (they benefit more than health professionals, at least those in public sector). But I'm really banking on congressional inaction more than anything....that and things like ICR still exist, plus the DOE expects existing proposals to only affect new borrowers, so I'd likely be grandfathered in. So I think my comparison to prop 13 is appropriate.

Damn you're up early, btw.

 

[xiphoid2010]

If your employer doesn't start to match 401k until 1 year of employment would you recommend not doing 401k your first year and instead put it toward grad plus loans at 7.8%?

The $17k annual contribution allowed is use it or lose it. Same for backdoor Roth. You can't contribute more next year.

Calculate the student loan interest you saved by paying an extra $13k ($17.5k after tax), vs how much that $17.5k is worth compounded to your planned retirement age.

 

[trailerpark]

The $17k annual contribution allowed is use it or lose it. Same for backdoor Roth. You can't contribute more next year.

Calculate the student loan interest you saved by paying an extra $13k ($17.5k after tax), vs how much that $17.5k is worth compounded to your planned retirement age.

Seems like the IRA with compounded interest comes out ahead, but what about an emergency fund? How would that factor in because Suze Orman says to get your 8 month emergency fund in FIRST before you do anything. I think Suze says first do 8 month emergency fund, then pay off credit cards and then you can start investing/paying student loans.

 

[confettiflyer]

Seems like the IRA with compounded interest comes out ahead, but what about an emergency fund? How would that factor in because Suze Orman says to get your 8 month emergency fund in FIRST before you do anything. I think Suze says first do 8 month emergency fund, then pay off credit cards and then you can start investing/paying student loans.

I think it depends on your situation. A floater rph with a family with 3 kids and a part-time employed spouse will need a more accessible emergency fund than a single guy who lives at home.

See my previous comment regarding Roth IRA as an emergency fund if your situation is appropriate.

If money is tight and you need an accessible (cash or cash equivalent) emergency fund...I would contribute to a 401k/403b up to the match, then devote your remaining resources to building a cash cushion.

Once you hit your savings target, shift to max out out your retirement and debt pay down as appropriate to you.

 

[Ackj]

Seems like the IRA with compounded interest comes out ahead, but what about an emergency fund? How would that factor in because Suze Orman says to get your 8 month emergency fund in FIRST before you do anything. I think Suze says first do 8 month emergency fund, then pay off credit cards and then you can start investing/paying student loans.

Personally, I split it all up. Emergency fund offers essentially zero interest, it's just there to fall back on. In my mind, building it up wasn't urgent, so a portion of each paycheck goes towards emergency fund, and a portion toward loans. Credit cards are a different story, since those can be 10-20% interest. Depending on the balances you're carrying I might suggest paying them off completely before going toward the emergency fund. Having those high monthly bills hanging over your head during an emergency will only make matters worse, but having a paid off credit card could actually be part of your emergency buffer (they are essentially a 0% 30 day loan).

 

[BMBiology]

You can only withdraw money you put into your Roth IRA after 5 years without having to pay a penalty

 

[pezdispenser]

An emergency fund is extremely important because:
- We can get laid off or fired suddenly. Even I got laid off in my first year working, and I know lots of pharmacists who have also been laid off or fired at least once in their careers.
- It can take many months or even years to find a new job, given the saturation.
- You may have to move across the country to find a new job, which means moving expenses and money to rent a place, security deposit, etc will be required.
- Some jobs will make you so miserable that you have to quit, and look for a job all over again.

 

[trailerpark]

I'm moving far for my first job at Walmart. They don't have a drive thru and I heard Walmart has a good computer system so I'm just hoping the people are great and will help me learn since my internship during school wasn't retail pharmacy. For the jobs I've had so far it's always the people that make or break it for me.

 

[BenJammin]

Is renting really a sound choice? Aren't you just throwing your money away? I don't pretend to be financially suave but recommending that someone sell a house so that they can RENT seems unbelievably stupid to me. What am I missing?

Seriously? Was 2008 too far from your memory? The same people who think renting is wasting your money in property you can't resell are the same people who didn't expect the housing market to crash. Equity is nonexistent if you can't sell your house for more than 80% of what you paid just to get the damn thing.

 

[confettiflyer]

Plus writing an offer with an additional contingency will quickly get your offer ignored in the current market in most places.

As always, rent vs. buy is a complex calculation. In San Francisco, I'm generally better off renting and pocketing/investing the difference. In Montana...it's probably reversed.

 

[confettiflyer]

You can only withdraw money you put into your Roth IRA after 5 years without having to pay a penalty

Yup...so someone utilizing a Roth IRA as a surrogate for their emergency fund has to weigh their likelihood of having to draw upon it at < 5yrs of > 5yrs, and whether it's worth risking the 10% penalty.

The catch-22 is that new practitioners would be the first to be terminated and are most likely the ones to need to tap emergency savings whereas seasoned practitioners who are > 5 yrs in will likely not need to tap the account.

The upside is earnings grow tax free, so if you do have to withdraw contributions, at the very least your market gains and dividends will continue to grow (unless you cash the whole damn thing out...don't do that).

One other backdoor way of tapping traditional IRA funds/Roth IRA earnings for an emergency is by withdrawing and then rolling it back into an IRA within 60 days (effectively a rollover). By doing so, one would avoid the 10% penalty of a "withdrawal" and it amounts to an interest/penalty free loan. The problem with that is if your cash problem lasts > 60 days, then you owe the 10% penalty + ordinary income taxes (really, you'd have to be unemployed for <30 days since you'd still have to get hired and your next paycheck probably won't arrive for a week or two).

 

[Dr Wario]

Just so people are aware, you can withdraw principle from a Roth any time without penalty, you only pay 10% on the earnings.

 

[trailerpark]

Just so people are aware, you can withdraw principle from a Roth any time without penalty, you only pay 10% on the earnings.

Are you sure? Others have said you need to wait 5 years before you can take the principal without penalty...

 

[xiphoid2010]

Are you sure? Others have said you need to wait 5 years before you can take the principal without penalty...

The principle can be withdrawn at any time without penalty. The 5 yr rule apply to the growth.

http://www.schwab.com/public/schwab.../understanding_iras/roth_ira/withdrawal_rules

 

[trailerpark]

O! So why not use roth as your emergency fund. If you're putting an emergency fund in a savings account, the interest is so low it would mostly be principal anyways.