Financial advice looking forward

[obscurehero]

Hi! I'm relatively new to the forum, and I've recently been accepted for an MD/PhD program for next year. My wife is finishing her Ed.M. in Dance Education this spring, and she'll probably be starting her Ph.D. work next year (we still have to hear back).

I currently am a research technician and my wife works about 8-10hrs a week part-time. We gross somewhere around ~$40k right now. It's enough and we have been able to stash a bit away and have around ~$10k in savings. I have undergrad loans around ~$40k that I've been paying on since graduation in spring of 2009.

My program promises a stipend of ~$20k/yr and ~$26k in my PhD years. My wife will likely not have as much time to work during her PhD program which could be 3-4 years.

We will likely take out a small loan to cover excess living expenses as $20k/yr is a bit low for two people to live off of. My wife's tuition is currently 100% covered by a fellowship, and she has zero undergrad debt to contend with.

I'm trying to consider what our best financial plan for the next 7-8 years (before residency) should be. We obviously don't have enough to buy a house. I had ideally wanted at least 20% down when I purchased one, but it could be quite some time before I have that kind of money (>32yo). I have good credit right now, but only one credit card and my wife has virtually non-existent credit as she's only had one line-of-credit assigned to her bank account. Other than student debt, we've tried to be responsible.

We have two grandfathers who have quite a bit of money (although less now, I'm sure) and have offered to help along the way. We both have chosen to try to do most everything by our own means and haven't ever taken them up on the offer. I have, however, considered borrowing the 20-30% down we need for a house from them to get a mortgage and then paying them back with a pre-negotiated interest. My thought is that, at least, we won't have thrown away rent money and improvements we may do. It will also build our credit in our mid to late-20's.

What do you all think of my idea, and is there anything else we should keep abreast of as we make our way through our 20's in graduate school?

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[TMP-SMX]

The down payment won't matter if you aren't eligible for a mortgage due to the payments being too high of a percentage of your net income. Even individuals with good credit can only get up to 40% of their income as the payment to be eligible. Often getting a cosigner on a loan can help but it is usually to improve your mortgage terms but not really for you to become eligible if you don't have the income to back it up.

Your credit is nearly nonexistent. Your wife needs to apply for some credit cards and probably student cards with a higher APR. (Maybe not a bad thing if you pay off in full each month.) You should apply for more credit and try to increase your credit limits on each card. Many cards have great rewards programs that you can use to pay your statements, cash back, or to get products. Don't use cash for anything as you lose out in the end (this is assuming you play it smart and don't use credit as an excuse to spend the cash you don't have).

 

[obscurehero]

Thanks for the advice! I did a bit more digging, and yes... I've discovered you're exactly right.

i also discovered that it might not be the wisest financial move with high taxes and overall cost of living where I'll be going to school.

I have had a credit card that i use to pay for everything, and I have since my freshman year of college. My dad was opposed to the idea, but I've been on time and I've been able to get a nice APR and some great rewards. I hope that it's helped my score. I'm using this year's reward together with a few gift cards to replace my wife's ipod. That's money we wouldn't have had w/o the card!

My wife on the other hand comes from a cash-only/envelope budget family (although they use debit/credit cards now...mostly). They have credit cards, but treat them like the last resort. Thus, she's never wanted or needed one. We'll have to start working on her credit in preparation for a house in our early 30's!

I've always felt weird about upping my credit limit as I currently have only ever touched 50% of my current limit when I had a bunch of expenses for moving. I guess I've always felt having a larger line was unnecessary, but I guess it helps right?

Anything else to be aware of as we head through our mid to late 20's? I can't see myself having disposable income to put into any type of IRA, CD, or MM account. The fact of it being I've never really had money.

Any tips to scrape money together during my medical school years to save?

 

[deleted126335]

Any tips to scrape money together during my medical school years to save?

Cutting expenses is as good as earning more.
there are all kinds of cheapskate websites out there.
-Live cheaply, small apartment.
-clip coupons, buy in bulk.
-if you need a car, buy a slightly used, reliable, fuel efficient one, take care of it and keep it forever.
-Don't eat out too often
-Brown bag it, cheaper than the cafeteria.

-as far as earning potential, when I was a med student, I participated in a number of "healthy volunteer drug trials", good money for the time for a student, but I will never forget the profound dysphoria that lasted 48 hours after a shot of IM desipramine combined with the unnamed study drug.
-Don't try day trading.

You've got the right attitude for success.

 

[ReadyFreddy]

Maxing out your credit cards is not a good thing -- thus having a higher line of credit than you "need" is actually beneficial (to an extent). Of course, no one knows the exact formula used to calculate a credit score, but % money borrowed from money available is important. Alternatively, having too large a credit line is detrimental since the banks are aware that you could easily go more into debt if you chose to. At my exit interview with my med school financial aid officer, I think they mentioned something about not spending over 25-33% of your total credit availability on any card in a given month. Please don't quote me on that. I know there is more information out there that I'm sure a bit of internet sleuthing could find.

You are wise to start establishing a credit history for your wife ASAP.
I only recently learned that the "average length of credit" was used to calculate your credit score. I made the mistake several years ago of canceling several credit cards from college, under the impression that 1) having that potential credit would hurt my score (even though the credit lines were minimal), and 2) I didn't need them anyway. Now I wish I a few more credit cards with a 10+ year credit history to help bolster my credit record.

By the way, (I believe) it's the having and not the using of the accounts that helps with your score. I've heard some crazy talk of people having a small balance on their CC just to show that they "are paying it off" -- I think that's completely unnecessary. I don't even think that you need to use your CCs to show that you're a responsible CC owner. The credit report just shows if your account is not delinquent (30 days, 60 days, etc etc). Having a zero balance means the balance is paid in full every month! You may want to use your cards once in a while to ensure they're not closed for inactivity, though. Don't feel the need to use them a lot - and definitely don't carry a balance. Someone please correct me if I'm wrong about this.

In all, it's sometimes tricky to find a balance since you can't predict the exact formula the agencies use when calculating credit score. However, I know there are some websites out there which give you approximate percentages of how important each factor is. Happy searching!

 

[avatarftw]

http://homebuying.about.com/cs/yourcreditrating/a/credit_score.htm

The exact formula that the three major credit reporting agencies is not publicly known, but the general formula is known.

Having MORE credit is actually beneficial in most cases; it improves your debt to utilization ratio. However, I've read that having a lot of credit cards (like 6 or something) is detrimental to your score.

Credit cards are great if you have self-control; you get great cash back rewards ranging from 1-5% (in general, its best to avoid the annual fee cards) and you get an interest free loan for the length of the billing cycle, from 30-60 days or so depending on when you buy the product.

In that time, your money can be accruing interest in a high-yield savings account...its not THAT much money but the idea is correct and its a good habit to follow. Just make sure that you aren't putting too much money in those low-yield investment vehicles; invest heavily in stocks and bonds...good luck.

Maxing out your credit cards is not a good thing -- thus having a higher line of credit than you "need" is actually beneficial (to an extent). Of course, no one knows the exact formula used to calculate a credit score, but % money borrowed from money available is important. Alternatively, having too large a credit line is detrimental since the banks are aware that you could easily go more into debt if you chose to. At my exit interview with my med school financial aid officer, I think they mentioned something about not spending over 25-33% of your total credit availability on any card in a given month. Please don't quote me on that. I know there is more information out there that I'm sure a bit of internet sleuthing could find.

You are wise to start establishing a credit history for your wife ASAP.
I only recently learned that the "average length of credit" was used to calculate your credit score. I made the mistake several years ago of canceling several credit cards from college, under the impression that 1) having that potential credit would hurt my score (even though the credit lines were minimal), and 2) I didn't need them anyway. Now I wish I a few more credit cards with a 10+ year credit history to help bolster my credit record.

By the way, (I believe) it's the having and not the using of the accounts that helps with your score. I've heard some crazy talk of people having a small balance on their CC just to show that they "are paying it off" -- I think that's completely unnecessary. I don't even think that you need to use your CCs to show that you're a responsible CC owner. The credit report just shows if your account is not delinquent (30 days, 60 days, etc etc). Having a zero balance means the balance is paid in full every month! You may want to use your cards once in a while to ensure they're not closed for inactivity, though. Don't feel the need to use them a lot - and definitely don't carry a balance. Someone please correct me if I'm wrong about this.

In all, it's sometimes tricky to find a balance since you can't predict the exact formula the agencies use when calculating credit score. However, I know there are some websites out there which give you approximate percentages of how important each factor is. Happy searching!

 

[touchadream]

Here is a little book "Making Ends Meet" I updated which might really be helpful--its for people who are interested in saving and investing, but don't have anything to do it with--how to get from here to there. We used the concepts when we were "poor students" and it really was helpful, click on "family goals" link and it will download for free. Hope it helps. Curious why you want MD and PhD? Seems a little nuts to me. Either one can steal your youth and I wonder about it, because you know, if Charles Darwin had waded through that before setting sail...he might have been too specialized or jaded to keep his eyes open? Just a contrarian thought.

 

[touchadream]

Making money in med school. My husband donated sperm, fun job, and med student genes are/were in demand. Research studies, yes. Sell your ink cartridges. Change your own oil. Eat out at church suppers and breakfast on Sundays, they love the extra mouths to feed, especially young people and you get homemade wonderful food and meet really nice people. We always did this when travelling, poor, with little kids. House sit for professors, they love med students who are responsible and they do go on sabbaticals for periods of time. Walk a couple of dogs for your exercise, $, and sunshine treatments. It will make you both get out and can be a nice daytime date. My daughter was a part-time Nanny in college and got to study in the shade while her little charges played soccer after school. If you are a fit, another nice opportunity with significant grocery savings is a small dinner co-op. I did this for years while husband trained and I taught college. Once a week you make three identical dinners, like pasta, or something that can hold a little while, include a little extra, nice salad, or something. You are saving time, bc cooking three is just as easy as one, and cheaper. Then your friends do the same. So two nights a week you get a home cooked meal delivered to your house, and one night you cook and deliver. Wow, was that a time and money saver for us, plus we ate some stuff we wouldn't have tried otherwise. You can account for dietary issues by planning. Get creative. There is also a book I just saw at the store called something like fast cash, ways to get money in a hurry. My son "bounces" at a bar occasionally for quick cash. You have to be buff! Tutoring is great money as yuppies who want their kids to go to med school will pay you big bucks to do SAT coaching,or mcat, or gmat, or help a 9th grader with math, like $50/hr some places. Re: credit, available credit helps, shop for cards on bankrate.com, shop there also for best MM accounts, which currently is Everbank, a broker based bank, yes, highly rated, and yes, I represent them, but don't work for them. They currently have a first year rate, top one on bankrate, which is a great site for financial comparisons. Its what they do. You do need a min balance to avoid fees, but your grandfathers might want to earn that. If you use it for household $, it will earn each month you get salary, and finessing your bills to pay at last minute will leave the money there longer to earn each month. Its not much but its something to put away, just to get started. If you and your wife each open an account, you could get that teaser rate for two years, and rates aren't likely to go down. It does fluctuate. Before the crash, I had accounts paying my clients the fed funds rate of 5.75%, checking accounts! Another option is to use your grandfathers' home equity instead of a student loan or personal loan, as you refer to it. Many older folks have "paid off" their homes, so even at today's low values have equity, which can be tapped at lower rates than you will pay on a personal loan. The kicker is going to be completely protecting your family members. You will need a little life insurance policy to guarantee the payoff of the loan should you predecease your grandfather(s), which is going to be very cheap for you, young as you are, and you should have disability coverage, available to medical students to pay this. Long term care, a cash version could also work, and is really the first insurance you should own, as your death will be cheap for your family, (unless you die owing them money and have no assets) but your severe disability will mean someone is going to have to pay to take care of you, maybe for a long time. So these two things will guarantee that your gfs won't get burned. Also a home equity line of credit, requires interest only payments, which have an obvious advantage to you. You could sign as an additional borrower with your gfs, and personally guarantee the HELOC and perhaps that would give them some comfort too. That way you aren't really "taking" money, just using their assets to reduce interest, and avoid principal payments. They can borrow cheaper than you can, against assets they have. The assets still grow in value, potentially, and if you are paying interest, then no consequence to them, other than psychological. They get to stay in house, or keep assets they have. This works also if they "pledge a CD" at a bank, against a loan, which you pay the interest on. Sometimes you can get great rates on stock margin accounts, if they have stocks and will pledge a little portion of it, but you have to shop hard for exact terms from their broker. Read about the risks there. You two are smart, right? Direct it toward this problem, like you would to your work. Later when you can buy a house, you can get a "gift" of the down payment from your gf's and if you shop wisely and buy low, a house that already has a bunch of equity in it, take out your own HELOC and give it back to them as a gift, or pay high interest for their help. Or gift them an annuity for life which will pay them back more than your loan payback, although you just pay the principal. Paying family instead of a bank feels good, and is good, but takes discipline, and put the safeguards in place to make them comfortable. With this approach, so responsible on your part, they may INSIST on giving you the money, which you can later INSIST on returning. High road.

 

[touchadream]

Thanks for the advice! I did a bit more digging, and yes... I've discovered you're exactly right.

i also discovered that it might not be the wisest financial move with high taxes and overall cost of living where I'll be going to school.

I have had a credit card that i use to pay for everything, and I have since my freshman year of college. My dad was opposed to the idea, but I've been on time and I've been able to get a nice APR and some great rewards. I hope that it's helped my score. I'm using this year's reward together with a few gift cards to replace my wife's ipod. That's money we wouldn't have had w/o the card!

My wife on the other hand comes from a cash-only/envelope budget family (although they use debit/credit cards now...mostly). They have credit cards, but treat them like the last resort. Thus, she's never wanted or needed one. We'll have to start working on her credit in preparation for a house in our early 30's!

I've always felt weird about upping my credit limit as I currently have only ever touched 50% of my current limit when I had a bunch of expenses for moving. I guess I've always felt having a larger line was unnecessary, but I guess it helps right?

Anything else to be aware of as we head through our mid to late 20's? I can't see myself having disposable income to put into any type of IRA, CD, or MM account. The fact of it being I've never really had money.

Any tips to scrape money together during my medical school years to save?

OOPS. here is link to Making Ends Meet: http://www.pinc.me/I_Need_An_Advisor.html

 

[Chirurgia magna]

I touchadream. I love your posts, every single one of them, but for the love of God, use bullets and paragraphs.

Making money in med school. My husband donated sperm, fun job, and med student genes are/were in demand. Research studies, yes. Sell your ink cartridges. Change your own oil. Eat out at church suppers and breakfast on Sundays, they love the extra mouths to feed, especially young people and you get homemade wonderful food and meet really nice people. We always did this when travelling, poor, with little kids. House sit for professors, they love med students who are responsible and they do go on sabbaticals for periods of time. Walk a couple of dogs for your exercise, $, and sunshine treatments. It will make you both get out and can be a nice daytime date. My daughter was a part-time Nanny in college and got to study in the shade while her little charges played soccer after school. If you are a fit, another nice opportunity with significant grocery savings is a small dinner co-op. I did this for years while husband trained and I taught college. Once a week you make three identical dinners, like pasta, or something that can hold a little while, include a little extra, nice salad, or something. You are saving time, bc cooking three is just as easy as one, and cheaper. Then your friends do the same. So two nights a week you get a home cooked meal delivered to your house, and one night you cook and deliver. Wow, was that a time and money saver for us, plus we ate some stuff we wouldn't have tried otherwise. You can account for dietary issues by planning. Get creative. There is also a book I just saw at the store called something like fast cash, ways to get money in a hurry. My son "bounces" at a bar occasionally for quick cash. You have to be buff! Tutoring is great money as yuppies who want their kids to go to med school will pay you big bucks to do SAT coaching,or mcat, or gmat, or help a 9th grader with math, like $50/hr some places. Re: credit, available credit helps, shop for cards on bankrate.com, shop there also for best MM accounts, which currently is Everbank, a broker based bank, yes, highly rated, and yes, I represent them, but don't work for them. They currently have a first year rate, top one on bankrate, which is a great site for financial comparisons. Its what they do. You do need a min balance to avoid fees, but your grandfathers might want to earn that. If you use it for household $, it will earn each month you get salary, and finessing your bills to pay at last minute will leave the money there longer to earn each month. Its not much but its something to put away, just to get started. If you and your wife each open an account, you could get that teaser rate for two years, and rates aren't likely to go down. It does fluctuate. Before the crash, I had accounts paying my clients the fed funds rate of 5.75%, checking accounts! Another option is to use your grandfathers' home equity instead of a student loan or personal loan, as you refer to it. Many older folks have "paid off" their homes, so even at today's low values have equity, which can be tapped at lower rates than you will pay on a personal loan. The kicker is going to be completely protecting your family members. You will need a little life insurance policy to guarantee the payoff of the loan should you predecease your grandfather(s), which is going to be very cheap for you, young as you are, and you should have disability coverage, available to medical students to pay this. Long term care, a cash version could also work, and is really the first insurance you should own, as your death will be cheap for your family, (unless you die owing them money and have no assets) but your severe disability will mean someone is going to have to pay to take care of you, maybe for a long time. So these two things will guarantee that your gfs won't get burned. Also a home equity line of credit, requires interest only payments, which have an obvious advantage to you. You could sign as an additional borrower with your gfs, and personally guarantee the HELOC and perhaps that would give them some comfort too. That way you aren't really "taking" money, just using their assets to reduce interest, and avoid principal payments. They can borrow cheaper than you can, against assets they have. The assets still grow in value, potentially, and if you are paying interest, then no consequence to them, other than psychological. They get to stay in house, or keep assets they have. This works also if they "pledge a CD" at a bank, against a loan, which you pay the interest on. Sometimes you can get great rates on stock margin accounts, if they have stocks and will pledge a little portion of it, but you have to shop hard for exact terms from their broker. Read about the risks there. You two are smart, right? Direct it toward this problem, like you would to your work. Later when you can buy a house, you can get a "gift" of the down payment from your gf's and if you shop wisely and buy low, a house that already has a bunch of equity in it, take out your own HELOC and give it back to them as a gift, or pay high interest for their help. Or gift them an annuity for life which will pay them back more than your loan payback, although you just pay the principal. Paying family instead of a bank feels good, and is good, but takes discipline, and put the safeguards in place to make them comfortable. With this approach, so responsible on your part, they may INSIST on giving you the money, which you can later INSIST on returning. High road.