Debt Free Pharmacists

[RogerWilco]

I'll make the case for why we paid off our home early.

Don't regret paying off our home. We still invested through it just not as much. With no consumer debt and no mortgage, it's protection against a sometimes fickle job market, unexpected sickness, untimely death, career apathy and/or set backs etc. Your income is typically your most powerful wealth building tool. Income unconstrained by debt permits faster wealth accumulation and downside protection. Since housing is typically your biggest expense, knocking out a mortgage can be transformative. We also live in an aggressive housing market, so we have also gotten some really fast appreciation. We also have a guest house on the grounds that we rent out, so our home is also an investment. For those with the discipline to invest everything into paper or alternative assets instead, I am not saying that doesn't work or isn't reasonable. However, last year when it looks like layoffs were abundant and the stock market temporarily dropped off a cliff, we were so happy that's our fixed expenses were so low. We had financial peace. It was freedom. We did a significant amount of stock investing (for us) during the depressed market last March and April because we had so much downside protection (i.e. reduced fixed expenditure). I am also convinced that when you do a direct comparison of investment returns of asset classes, almost no one includes the risk of keeping a mortgage in their analysis.

Lastly, if you pay off your home and decide you don't like it, you can almost always get another mortgage.

+1 for the positive cash flow potentially made available when a mortgage is paid in full and the various courses of action/freedom said cash flow allows for.

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[grizzlesgrizzlies]

So all the debt free pharmacists here paid off their mortgage? I keep debating paying it down vs investing.

you can always max out all of your tax sheltered accounts and use whatever is left over to pay down the mortgage

 

[mentos]

you can always max out all of your tax sheltered accounts and use whatever is left over to pay down the mortgage

That's what I meant. But 8-10% in an index fund is way better return than a 3% mortgage.

 

[grizzlesgrizzlies]

That's what I meant. But 8-10% in an index fund is way better return than a 3% mortgage.

It's a preference based on risk tolerance. You can't go wrong either way IMO

 

[StockPharmD2020]

So all the debt free pharmacists here paid off their mortgage? I keep debating paying it down vs investing.

You're kidding, right? Investment.

 

[rickyroxy]

I have enough on my taxable account to pay off mortgage. If things go south as far as job or health is concerned, I can always pay off mortgage from taxable account. There is still a chance were stock market crash, I loose job and have health issues simultaneously but I am ok with taking that risk.

 

[owlegrad]

If things go south as far as job or health is concerned, I can always pay off mortgage from taxable account.

This mirrors my feelings on risk as well. if anything paying off the mortgage is the larger risk. If the money is setting in an investment account somewhere you have maximum options of how to use it, including making mortgage payments while unemployed. Once you pay off the mortgage you no longer have that freedom.

Don’t get me wrong, I’m sure not having a mortgage payment feels amazing, and I don’t knock people for wanting to be debt free but I do question framing it as being lower risk. If anything it seems higher risk to me.

 

[grizzlesgrizzlies]

This mirrors my feelings on risk as well. if anything paying off the mortgage is the larger risk. If the money is setting in an investment account somewhere you have maximum options of how to use it, including making mortgage payments while unemployed. Once you pay off the mortgage you no longer have that freedom.

Don’t get me wrong, I’m sure not having a mortgage payment feels amazing, and I don’t knock people for wanting to be debt free but I do question framing it as being lower risk. If anything it seems higher risk to me.

If I had not spent 5 years (2015-2019) in paying off my mortgage and investing in index funds instead, I would probably be much closer to FI than I am today. Still no regrets though.

 

[TranslationalRPh]

This mirrors my feelings on risk as well. if anything paying off the mortgage is the larger risk. If the money is setting in an investment account somewhere you have maximum options of how to use it, including making mortgage payments while unemployed. Once you pay off the mortgage you no longer have that freedom.

Don’t get me wrong, I’m sure not having a mortgage payment feels amazing, and I don’t knock people for wanting to be debt free but I do question framing it as being lower risk. If anything it seems higher risk to me.

You could pay it off and just have a HELOC. Without a mortgage, your expenses would be dwarfed anyway compared to if you had a mortgage in most cases, so limited reason to use a HELOC.

A paid off home is consistently less risky of foreclosure than a home with a mortgage.

However, investing exclusively instead definitely gives you options. Hopefully, in an emergency, it's not a down market.

 

[PharmDBro2017]

Why not do some of both? Pay a little extra on the mortgage and invest aggressively. Behaviorally speaking, paying off the mortgage ahead of time is wise and saves you $ on the back end.

 

[grizzlesgrizzlies]

Why not do some of both? Pay a little extra on the mortgage and invest aggressively. Behaviorally speaking, paying off the mortgage ahead of time is wise and saves you $ on the back end.

That's what I did. I paid extra on the mortgage AFTER maxing 401k, Roth IRA, and HSA. The only thing I gave up during that process was investing in taxable accounts

 

[owlegrad]

Why not do some of both? Pay a little extra on the mortgage and invest aggressively. Behaviorally speaking, paying off the mortgage ahead of time is wise and saves you $ on the back end.

Because if one is better than the other, why not do the better thing?

In general, why not have a holistic view of finances where you try to maximize your wealth while supporting whatever lifestyle you choose to live?

 

[PharmDBro2017]

Because if one is better than the other, why not do the better thing?

In general, why not have a holistic view of finances where you try to maximize your wealth while supporting whatever lifestyle you choose to live?

It's personal finance, so whatever your own personal reasons one way or another... good for you. Diff strokes for diff folks. I'll post some resources to further the debate below. Do you suggest the same for folks with student loans? Might as well pay the minimum there too.

Here's a few reasons why, w/ props to WCI:

6 Reasons the Rich Should Pay Off Their Mortgage Early

Paying off a mortgage early versus investing is a long-standing debate that won't be solved any time soon. Here are six reasons high earners probably ought to lean toward paying it off.

www.whitecoatinvestor.com

The Wrong Way to Think About Debt | White Coat Investor

Many argue it's stupid to pay off a 2-4% debt if expecting an investment return greater than 2-4%. Here's my rebuttal to the serious flaws in that argument.

www.whitecoatinvestor.com

"I often suggest people pay off their debt or that they are over-leveraged in a blog post, on a forum, on social media, and even in real life. While most agree with me, there is usually someone who pipes up to give some pushback. The argument usually goes something like this: “It's stupid to pay off a 2-4% debt because you expect your investments to do better than 2-4%.” I used to believe this argument too. It's easy to do so because mathematically it is correct. The older and wealthier I get, the more I see serious flaws in this argument, and I'd like to discuss them today because the argument is so darn common, even among people who are debt-free!

I've started pushing back on these people (and no, they don't like it) by asking them two questions:

1. • Are you rich yet?
   • If you are, did carrying debt at 2-4% while investing contribute to any significant portion of it?

The answer to number one is almost always no, but even if it isn't, the answer to number two is also almost always no. I fully acknowledge that there probably is somebody out there who would answer yes to both questions. But they are surprisingly rare. I run into so few of them that I'm not sure I can even describe them for you, but I postulate that most of them are real estate investors who maintain reasonable loan to value ratios of 50-66% on their rental properties. The person advocating for more leverage is usually a 25-year-old with lots of debt, few assets, and little experience. It never seems to be the 60-year-old multimillionaire I'd like to emulate."

Bogelheads:

Anyone regret paying off mortgage early? - Bogleheads.org

www.bogleheads.org

Pay off mortgage or invest extra funds - The White Coat Investor Forum - Investing & Personal Finance for Doctors

I am trying to decide if I should pay off my mortgage or if I should invest a large amount of cash that I have on hand. I am in my 50's but I love my work and don't plan on retiring any time soon. More likely I will just cut back my hours as I get older. I have saved diligently and maxed out...

forum.whitecoatinvestor.com

Pay Off Student Loans or Invest The White Coat Investor - Investing & Personal Finance for Doctors

While it’s a very personal decision with lots of factors at play, here’s what to consider when deciding if you should pay off student loans or invest

www.whitecoatinvestor.com

 

[owlegrad]

"Are you rich yet" is a pretty worthless question though. Who considers themself to be rich? I bet almost no one. The second question is also sort of dumb - I bet most "rich" people DID get rich by using some form of debt, even if they don't want to admit that even to themselves. He even admits that it is "mathematically correct", lol

 

[Sine Cura]

Easy to "invest" with mass quantitative easing and the petrodollar backed by the U.S. military

 

[mentos]

I think the mortgage vs investing debate is similar to tax withholding on your W4. Some people like having a nice refund at tax time cause it feels like an extra paycheck or small windfall due to forced savings. We know it's mathematically better to withhold less and get a bigger paycheck. But the average person would have spent all that money from each paycheck anyway.

If I had an extra 100k laying around, I might be tempted to upgrade my kitchen or buy a Tesla or something which would negate any extra cash from investing.

I did pay off my student loans in 3 years and that was a great feeling. If I still had 100k student loan debt then I'm not sure I'd be 100k+ richer right now, I probably would have purchased a more expensive house or bought other material stuff I don't need. Or lost it from gambling on meme stocks and crypto.

 

[BidingMyTime]

Max out whatever savings vehicles I can. No debt, anywhere. The problem is that I still find it hard to spend on myself and family. Still driving beater cars and living like I have no money. I keep thinking about upgrading my car or fixing the things I hate about my house like the old gross carpeting, but then I think it would be such a waste of money.

Sounds like you are living to work. I work to live. Granted I don't do enough saving, but not knowing when I or family will die, I'd rather spend the money on us and enjoy it while we are here. You can save all your money and make someone else rich after you die, and they will probably spend through the inheritance faster than you can imagine, if that is what you want to do. Because by not spending some money and enjoying life now, you are just saving it for someone else to waste after you die.

 

[PharmDBro2017]

Sounds like you are living to work. I work to live. Granted I don't do enough saving, but not knowing when I or family will die, I'd rather spend the money on us and enjoy it while we are here. You can save all your money and make someone else rich after you die, and they will probably spend through the inheritance faster than you can imagine, if that is what you want to do. Because by not spending some money and enjoying life now, you are just saving it for someone else to waste after you die.

Agreed and good point.

I did pay off my student loans in 3 years and that was a great feeling. If I still had 100k student loan debt then I'm not sure I'd be 100k+ richer right now, I probably would have purchased a more expensive house or bought other material stuff I don't need. Or lost it from gambling on meme stocks and crypto.

Behavioral finance in action right there.

 

[Dred Pirate]

only debt is about 200k on a mortgage - my order of where to put my money each month
max out mine and spouse 403b
max out roth IRA for both of us
max out HSA
max out dependent care FSA
(you can argue the best order to do the above, but I do them all so not a big deal)
then I put $500 a month into a 529
Recently refinanced my mortgage to 2.6% 15 year - I don't pay more than the minimum since it is a 15 year
We travel a decent amount - budget probably 1000-1250 a month for it - have a two year old, so that have changed a lot of this lately (as far as big trips, and more car trips to the beach)
After this I put $300 a month into savings as a "car payment" to be able to pay cash for my next car.
After this what is still left I invest in taxable accounts

I never feel like I go without - the feeling of not having to worry about feeling stuck in a job for the money is nice, I could easily take a paycut for something better for my lifestyle

 

[DH1987]

Yep people actually have money now. 8% of Americans are millionaires, the highest ever. Plus you have banks and foreign businessmen buying up houses as investments. These bidding wars aren't happening if people don't have money. Many buyers are paying 100% cash (no mortgage) too.

Well, assuming everything else stays equal, the number of "millionaires" will consistently increase over time due to inflation.

 

[mustang sally]

Oh, I very much love Aldi. Great food and great deals. But sometimes I feel like I'm "fake slumming it" when shopping there among the people I really know have no other choice. I haven't been recently because we switched to drive up grocery pickup, but will go back when Covid variants are less of a worry.

We live a very middle class lifestyle in the middle of America, and our children are thriving on it, so we will continue. The only reason to upgrade cars or houses for us at this point is so we can enjoy life more -- my car is nearly two decades old, and so loud I can't hear any music, and it's not safe enough to drive my children in very far. My intent with my first house purchase was to convert my first house into a rental house eventually. I'd like something slightly bigger to fit our family better, with a yard for pets. That may still happen, but housing prices have jumped considerably and I'm not sure I want so much money strictly in housing. For now, this very middle class lifestyle works well for us, so we will keep doing what we normally do!

My job is of course somewhat unstable, but is about as stable as an RPh job can get. I enjoy having options though, and living this way gives us more flexibility to say no to poor work environments in the future. Interesting idea about the teaching certificate. I may look further into that; it could prove useful down the road. Thanks.

Ha ha, I love how you put it as "fake slumming it." I shop there all the time and never really thought of it that way

 

[BidingMyTime]

Aldi's is weird. Growing up, I always thought of it as the place that poor people shopped at. But once I moved to a big city, people though of it as more of an exotic grocery store.

 

[adventurepharmacy]

So all the debt free pharmacists here paid off their mortgage? I keep debating paying it down vs investing.

No. It's smarter to use the extra money to invest than pay off. A dollar today is worth more than a dollar tomorrow.

(Smart) Debt is not a bad thing. It's the secret to building wealth.

 

[lord999]

No. It's smarter to use the extra money to invest than pay off. A dollar today is worth more than a dollar tomorrow.

(Smart) Debt is not a bad thing. It's the secret to building wealth.

It depends on your risk vs mortgage. Any modern mortgage less than 3%, you’re normally better off investing. Only if you have work that has security concerns would be a reason. So, if you think Walgreens is going to replace you with a $10 an hour less pharmacist, you might want to pay down the debt. Or as noted in other contexts, federal government positions should pay down debt if you get retention bonuses.

 

[adventurepharmacy]

I'll make the case for why we paid off our home early.

Don't regret paying off our home. We still invested through it just not as much. With no consumer debt and no mortgage, it's protection against a sometimes fickle job market, unexpected sickness, untimely death, career apathy and/or set backs etc. Your income is typically your most powerful wealth building tool. Income unconstrained by debt permits faster wealth accumulation and downside protection. Since housing is typically your biggest expense, knocking out a mortgage can be transformative. We also live in an aggressive housing market, so we have also gotten some really fast appreciation. We also have a guest house on the grounds that we rent out, so our home is also an investment. For those with the discipline to invest everything into paper or alternative assets instead, I am not saying that doesn't work or isn't reasonable. However, last year when it looks like layoffs were abundant and the stock market temporarily dropped off a cliff, we were so happy that's our fixed expenses were so low. We had financial peace. It was freedom. We did a significant amount of stock investing (for us) during the depressed market last March and April because we had so much downside protection (i.e. reduced fixed expenditure). I am also convinced that when you do a direct comparison of investment returns of asset classes, almost no one includes the risk of keeping a mortgage in their analysis.

Lastly, if you pay off your home and decide you don't like it, you can almost always get another mortgage.

Side hustles. Start with one and gain over time. Invest profit back in the side hustle and the rest into the market. Use your pharmacist salary to live on. That way if something happens you have other sources of income to fall back on. Luckily, I did not loose my pharmacy job but if I did I was planning on doing some traveling with the cheap airfare.

Invest in depressed markets as mentioned. Build a "war chest" in your investment account and pounce when the market declines. Don't be the typical retail investor who buys high and sells low. Do the opposite of most people and reap the rewards of taking the path less traveled.

I disagree with paying off the mortgage debt, IF you can afford it. I can take money out of my investment account and pay off my mortgage, but then I loose all the gains I would get in the market over the years from that money.

 

[GrandTheftAutumn]

Don't be the typical retail investor who buys high and sells low. Do the opposite of most people and reap the rewards of taking the path less traveled.

What is this statement based on

 

[mentos]

What is this statement based on

Probably my stock trading account this year.

 

[Sine Cura]

Buying VTSAX is buying high most of the time

 

[PharmDBro2017]

Buying VTSAX is buying high most of the time

Going hard in VTI lately.

Someone send the invite to discord again.

 

[adventurepharmacy]

What is this statement based on

Majority of studies into the market show retail investors buy when the market is hot and sell when it cools off. I do the opposite of most people. I buy when its cool (usually when there is a big market drop) and then sell (though I rarely do unless I'm planning on trading that security).

 

[Dred Pirate]

whats all your thoughts on baba?

 

[owlegrad]

whats all your thoughts on baba?

I’m in. Sure there are risks but that’s why it’s on sale.

 

[grizzlesgrizzlies]

I’m in. Sure there are risks but that’s why it’s on sale.

Same. That company literally keeps the PRC economy running.

 

[mentos]

I bought BIDU and NIO last week. I regret not getting JD, BABA and tencent.