Pay off med school loans vs. save up and buy a house first

[Messerschmitts]

Dear all, I'd like to solicit some advice for my current financial situation.

I recently graduated from psychiatry residency and I'm working as an attending now (salary ~182K, but we are getting a raise soon, may go up to almost 200K).

My dilemma is this: Like most people I want to own a house, preferrably sometime this century before I'm old and decripit. I'm 31 yrs old, and I'd like to own a house before I'm 40 yrs old. That would just make be very sad, finally owning a house at age 45 or something. My wife and I are trying for a child as well, so having a house would be great for that. (Wife currently going to school to become a dental assistant, she won't be able to contribute much money)

I own a substantial amount of medical school loans, about $240,000 in consolidated Stafford loans at 6.62% interest and a private loan of ~$20,000 at 2.0% interest. My consolidated loans are currently on a 30-yr pay plan and I pay $1500/month. The other one I pay about $100/month.

My original plan was to pay off as little of the loans as I can, then save up money for a down payment for a house. I've already got about $100,000 saved up which would be substantial anywhere else, but I live in California, and unfortunately a typical 3-4 bedroom house in my area is about $500,000-1 million (Gilroy, CA). However, am I not so sure anymore and I'd like some different views.

Plan A (paying off loans first): Dump the $100,000 I've saved up into the loans, then aggressive pay it off (I estimate I could do it in ~5 yrs or less), then start over from scratch saving up for a down payment, which may take another 5 yrs. I estimate for a home in my area, I'd need to save up at least $140,000, probably $200,000 would be a safer bet. It is completely a seller's market right now, multiple bids drive the final price far above list price.

-Advantages: Over long term save a lot of money. If I eliminate my loans, then that's also $1600/month I won't have to pay and can afford a higher montly mortgage payment.
-Disadvantages: If I do this, then it'll take ~5 yrs to pay off the loans, another 5 or so to build back up a down payment. Thus, I'll be 40+ years old when I finally own a house. If we have a kid next year, he or she will have to live in a 900 sq ft 2 bedroom apartment till age 9 or 10, despite having a doctor as a father. Kind of ghetto... What if we have 2 kids? Sure, eventually we can have a bigger house with this plan, but life is short, and for a good chunk of it, I get to live as an attending physician in a 2 bedroom apartment.

Plan B (buy a house first): Continue paying off my loans as slowly as humanly possible, and save up as much cash as I can until I hit around $150,000-200,000 in 4-5 yrs, then buy a 3-bdrm house hopefully in the 500-600,000 range with 30-40% down payment (to reduce monthly mortgage). I'm working for the County in an underserved community. I will try to apply for some loan forgiveness programmes that can pay off some small amounts (applications don't start till the fall), but it's not a guarantee.

-Advantages: my family and I get to enjoy a house in 4-5 yrs (maybe sooner), more space to grow as a family, stop "throwing away money" into rent, start building home equity, etc.
-Disadvantage: End up paying a lot more money over the long term. Monthly income will be reduced for the rest of my "working life", 1600/month for loans + mortgage until I'm in my 60's, instead of just paying mortgage. Thus, my "effective income" will be much less for most of my life.

Thanks everyone, sorry for the long post!

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[krl7044]

I vote for Plan A. You might want to try to refinance your debt - you can probably bump it down to 5% or even less.

Then I also vote for not going through with Plan B even if you complete Plan A. If you have to spend $1M on a house, rent for quite a while until you can buy a house with cash or pay a substantial portion of it with cash. You can live with 2 kids in a rental without a problem. Minimize your debt if you can because a house is not an investment, and if you buy an expensive house, you will be buried with debt. Would you rather be financially independent by 50 or own a house by 50? A house is like a rock to keep you down, and inflation adjusted, it is a pretty bad investment (Doug Carlsen wrote about that in his free book). What if you decide to move in 5 years and you are upside down and/or real estate prices go down?

Here's an article I wrote on debt repayment:

http://litovskymanagement.com/2014/02/debt-repayment-basics

You might want to do some calculations to appreciate the amount of money we are talking about here. Debt can be used as leverage or you can be buried in it.

Also check out White Coat Investor blog post by Doug Carlsen:

http://whitecoatinvestor.com/recent-arizona-dental-grad-vs-10000-per-month-debt/

 

[QofQuimica]

Who says you have to rent an apartment? Why not rent a house while you pay off your debt ASAP? Best of both worlds, and your kid won't know the difference between renting vs. owning the house. Also, setting age 40 as an arbitrary limit by which you must own your own home or you'll be "sad" is pretty silly.

 

[wholeheartedly]

Homeowner here.....

Do the math of course, but I vote pay off loans and rent a house. After you get that squared away and are certain you want to stay put, then buy a house. You might consider it throwing away money to rent, but I'm having all kinds of fun trying to fund fix after fix for my house (and I budgeted for repairs and emergencies and the place inspected very well). I would welcome a consistent and predictable monthly payment.

 

[CliveStaples]

Rent rent rent. As others have said, even rent a house! That debt is no insignificant amount and the rate that the interest is growing isn't insignificant either. Another factor that nobody has mentioned is that for a first job out of residency, the average tenure is a paltry 2 years before leaving for greener pastures - you don't want to have a new home tying you down to a job you could potentially be ready to leave. Paying down your debt and renting provides you with freedom unimaginable in a couple years when you can reevaluate your finances (hopefully debt free!) and your job situation.

 

[Messerschmitts]

I see a general pattern of advice LOL. Thanks everyone. After talking it over with the wife, I agree with everything, I guess I will pay down the debt, and give up the dream of home ownership and luxury car ownership for now

 

[NICUfello]

I can't give advice, any better than what has been given. But I can share some info about my own life.

• I make the same amount of $ as you
• I have almost the same loan as you
• I live in same housing market as you (avg home over 600$k)
• My spouse is similar to yours.
• I have two young kids (under 3)

I did the same calculations as you, and found a middle ground which works for me

• I bought a townhouse, 1600 sq feet.
• It isn't "ghetto" if your father is a doctor and you live in an apt
• I grew up (my parents are doctors, very well off), initially in an apt, then moved to a huge house later in life
• I pay $1000 more in my loan payment than minimum.

To me your situation seems extreme (either pay barely loan or have a house). You can try to do middle ground.

Though house is bad investment as has been said, in CA and other parts of the country, rapid appreciation can build you some good equity.

I don't have great advice, as people much smarter than me have opined above, but I just wanted to share my scenario. My mortgage payment is cheaper than rent in the area. My kids are perfectly happy.

I also WILL NOT accustom them to what society bills as the "doctor lifestyle" so that all our life we are leveraged, and have no wealth, just high income and high debt.

I have a luxury car and a luxury sports car.

 

[QofQuimica]

Just don't forget that you also have to include property taxes, insurance, repairs, maintenance, etc. along with your mortgage when you're making this cost comparison. It's a bit disingenuous to look at a monthly mortgage payment versus a monthly rent payment and say, oh, well, if the mortgage payment is lower, that means owning is cheaper than renting. To be totally fair, you should also consider your investment of time with home maintenance/repairs, especially since you make a relatively high "hourly rate" as an attending physician. When something breaks in an apartment, a renter spends five minutes calling the landlord to let them know, and then it's the landlord's problem. An owner doesn't have that luxury.

OP, also wanted to mention before you dump that whole $100,000 into your loans that you shouldn't forget to set some money aside for an emergency fund. So you might want to use half of your savings for loan repayment and keep the other half somewhere liquid to cover six months' expenses in case you lose your job or otherwise need it for emergencies.

 

[Messerschmitts]

OP, also wanted to mention before you dump that whole $100,000 into your loans that you shouldn't forget to set some money aside for an emergency fund. So you might want to use half of your savings for loan repayment and keep the other half somewhere liquid to cover six months' expenses in case you lose your job or otherwise need it for emergencies.

Right, I of course wouldn't dump every cent I had. I meant I had ~100k to dump, I have $20,000 in reserve for emergencies not counting the 100,000. Perhaps I should keep $40,000 in reserve? Also, mortgage here in the California Bay Area is virtually never cheaper than rent, because of how much houses are. So that's a good point, the mortgage is more than rent to begin with, and on top of it I have to add maintenance and property tax.

 

[Messerschmitts]

I also WILL NOT accustom them to what society bills as the "doctor lifestyle" so that all our life we are leveraged, and have no wealth, just high income and high debt.

I have a luxury car and a luxury sports car.

Good advice, we've considered a townhome, but I guess my personality is that, if I'm going to pay off the loans, I want to just do nothing but attack that and get it done. But I think the last part of your response is unintentionally humorous. :-D You will not accustom them to the doctor lifestyle...but yes to luxury car and luxury sports car. Well I guess that's not for your kids to enjoy. I guess I'll be driving my subcompact Ford Fiesta for a bit longer.

 

[NICUfello]

Just don't forget that you also have to include property taxes, insurance, repairs, maintenance, etc. along with your mortgage when you're making this cost comparison. It's a bit disingenuous to look at a monthly mortgage payment versus a monthly rent payment and say, oh, well, if the mortgage payment is lower, that means owning is cheaper than renting. To be totally fair, you should also consider your investment of time with home maintenance/repairs, especially since you make a relatively high "hourly rate" as an attending physician. When something breaks in an apartment, a renter spends five minutes calling the landlord to let them know, and then it's the landlord's problem. An owner doesn't have that luxury.
.

Agree 100%. When I did the calculation, I did exactly that.

Which is why my mortgage+tax+hoa is less than the rent locally. WHich is why I chose to buy, since it worked with me.

This is the reason I bought a 350K townhouse, instead of buying a 500k house (which would be the equivalent of doing a rent vs mortgage anaylysis only)

 

[QofQuimica]

Right, I of course wouldn't dump every cent I had. I meant I had ~100k to dump, I have $20,000 in reserve for emergencies not counting the 100,000. Perhaps I should keep $40,000 in reserve? Also, mortgage here in the California Bay Area is virtually never cheaper than rent, because of how much houses are. So that's a good point, the mortgage is more than rent to begin with, and on top of it I have to add maintenance and property tax.

Yeah, I'd say you should double your emergency fund, especially since you're starting a family and will then have an additional dependent with higher monthly expenses. $20,000 is adequate for me, but I'm single/no dependents/have much less debt than you/live in a place with much lower COL.

 

[NICUfello]

Good advice, we've considered a townhome, but I guess my personality is that, if I'm going to pay off the loans, I want to just do nothing but attack that and get it done. But I think the last part of your response is unintentionally humorous. :-D You will not accustom them to the doctor lifestyle...but yes to luxury car and luxury sports car. Well I guess that's not for your kids to enjoy. I guess I'll be driving my subcompact Ford Fiesta for a bit longer.

Yeah I gathered your personality is like that. Which is why I said in the my original post you are more extreme than I am. If I was very extreme, like you, I guess I would be a surgeon.

For me in life it isn't only either or answers, there is a lot of middle ground.

I have had sports cars since I was 16. My first one I paid 300$ for, fixed it, sold it for 3500$. SPorts cars and motorcycles are in my blood.

I am not the typical physician, who gets a check and buys a 911. I have been in the sports car world and racing cars and motorcycles before I finished high school.

My sports car, albeit expensive, is paid for in cash, as it grew from a car "fund" I had since 16. I would buy, repair, sell, and use that money to upgrade. 38 cars later, I am at the current sports car as I have

The other "luxury car" albeit NOT a Bentley Arnage Red Label, is almost paid for, and being a car person, it is the only non cash car I ever purchased (mostly needing something dead realiable with the 2 kids).

Are my kids accostomed to leather and navigation etc? They can't tell the difference. I actually plan to replace my luxury car in a few years with a Honda Fit or Honda Accord.

As my friends are upsizing, I am going to downsize and buck the trend.

In my family circle and friend circle I already got MANY of the "can't believe you bought a townhome being a physician"

 

[drcrispmd]

Interest rates on mortgages is low right now. How long will they stay this low? Who knows. I bought a house when I started residency. Some states have physician home loans that look at your student loans differently. My house payment is lower than what I would be renting. I bought a 1700 sq ft with 3 bdrms, 2.5 bath, 2 living areas and a very nice size yard. I have lived here 3 years and plan on living here another 3 at least. My interest on my home loan was much lower than my student loans. I also paid on student loans through residency. I know CA home prices are ridiculous (the price on my home was $130K, just ourside city limits so no city taxes), but it is something to consider. I also have a 9 year old vehicle that is paid off. Having $100K saved up for a down payment is a great start.

 

[NICUfello]

Interest rates on mortgages is low right now. How long will they stay this low? Who knows. I bought a house when I started residency. Some states have physician home loans that look at your student loans differently. My house payment is lower than what I would be renting. I bought a 1700 sq ft with 3 bdrms, 2.5 bath, 2 living areas and a very nice size yard. I have lived here 3 years and plan on living here another 3 at least. My interest on my home loan was much lower than my student loans. I also paid on student loans through residency. I know CA home prices are ridiculous (the price on my home was $130K, just ourside city limits so no city taxes), but it is something to consider. I also have a 9 year old vehicle that is paid off. Having $100K saved up for a down payment is a great start.

Yup, 3.5% mortgage rate for me.
5% student loan for me.

Your exact home in my zip code would be 550k for homes built in 1965. If you want homes built in 2005, they would be about 680k.

Though being from CA, doing undergrad, med, residency all out of state...I got sucked back in here for a job. ALMOST left the state with a job in AZ...but the CA job was great for the time being.

I would like to eventually leave for a cheaper state, or FL/TX where I dont' have income taxes at state level and big state (i.e. not a village rural) yet dirt cheap living cost.

I envy your 130K house

 

[drcrispmd]

TN does not have state income tax either . My house was bought from the first owner who built it in 1960. Built much better than the newer houses I looked at.

My parents live in southern MO. 6500 sq ft house on a 10 acre yard with a detached 3 car garage (2 car attached to the house). It will be $400k when they put it on the market (it did not cost near that much to build it 14 years ago).

 

[Scorcher31]

I'm sure it has crossed your mind and is not feasible for you guys, but consider moving unless you have strong ties to California. You have 100k saved up for a house, that would be 1/3 of a very nice house in most other states. You'd likely make about the same income in other states as well. You can pay for a 1/3 of a home, have a low mortgage because of your big down payment, and continue to focus mainly on student loans until gone giving you the best of both worlds. I would live as cheaply as possible for now, focus on your loans until your initial contract in California is done and then take off unless you are very happy.

 

[NICUfello]

TN does not have state income tax either . My house was bought from the first owner who built it in 1960. Built much better than the newer houses I looked at.

My parents live in southern MO. 6500 sq ft house on a 10 acre yard with a detached 3 car garage (2 car attached to the house). It will be $400k when they put it on the market (it did not cost near that much to build it 14 years ago).

Yeah I lived in St Louis and am from Michigan. My parents have a medical practice now in Raleigh, NC.

Definitely miss the midwest and the cheaper cost of living.

HOpefully after my initial contract is done, I can go on a search for cheaper living.

I was offered a job in North Dakota, very high pay, loan forgivness, etc. I didn't take it due to the remoteness.....

 

[Information Underload]

Is there anything particularly grounding you in California? You are rather graciously donating 9.3% of your income to them in the form of income tax and then 7.5% in sales tax (with a total sales tax of probably 8.75%). California is probably among the least physician friendly states in the nation aside from an okay malpractice climate, which isn't a major concern in psychiatry, anyway. Your pay seems pretty average for psychiatry. Housing prices are well above average.

My guess is that were you to cut your state tax burden in half that this whole dilemma would just go away. That's without even mentioning moving to a less expensive area where the homes are less expensive, anyway.

California has a way of exchanging that golden sunshine for all the gold left in your pocket.

 

[calvnandhobbs68]

Yeah I lived in St Louis and am from Michigan. My parents have a medical practice now in Raleigh, NC.

Definitely miss the midwest and the cheaper cost of living.

HOpefully after my initial contract is done, I can go on a search for cheaper living.

I was offered a job in North Dakota, very high pay, loan forgivness, etc. I didn't take it due to the remoteness.....

Sounds like you're getting the shaft two ways too...while the other guy is getting paid about average for psych (although he could probably find a better deal somewhere outside of Cali) your pay is definitely on the low end for NICU if "NICUfello" is really your specialty.

 

[NICUfello]

your pay is definitely on the low end for NICU if "NICUfello" is really your specialty.

Yes my specialty and my forum name is the same.

The three jobs I was offered (AZ, SF, LA ) were all within $5000 of each other.

The Academic job I was offered (where I finished fellowship) was about $50k less.

The 3 fellows who graduated before me, one took a job in LA, one in SF, and one in Boston, all making the same as me.

I get bonuses which are 7% of the practice profits in addition to my salary.

I have a short contract. So if you have further info on NICU salary etc, feel free to post or PM, as I would like to make more money on my next contract.

 

[calvnandhobbs68]

Yes my specialty and my forum name is the same.

The three jobs I was offered (AZ, SF, LA ) were all within $5000 of each other.

The Academic job I was offered (where I finished fellowship) was about $50k less.

The 3 fellows who graduated before me, one took a job in LA, one in SF, and one in Boston, all making the same as me.

I get bonuses which are 7% of the practice profits in addition to my salary.

I have a short contract. So if you have further info on NICU salary etc, feel free to post or PM, as I would like to make more money on my next contract.

I have no better info than just talking to fellows and general salary numbers but I have an idea of why you're making in that area if the cities you're looking at are SF, LA and I'm assuming the only big city in AZ based on those other two. Also, your friends are all working in LA, SF and Boston...so in the same boat of working in big city, highly desirable areas which is bad for compensation in general in medicine.

The 7% of practice profit bonus isn't anything to sneeze at though.

 

[Perrotfish]

Dear all, I'd like to solicit some advice for my current financial situation.

I recently graduated from psychiatry residency and I'm working as an attending now (salary ~182K, but we are getting a raise soon, may go up to almost 200K).

My dilemma is this: Like most people I want to own a house, preferrably sometime this century before I'm old and decripit. I'm 31 yrs old, and I'd like to own a house before I'm 40 yrs old. That would just make be very sad, finally owning a house at age 45 or something. My wife and I are trying for a child as well, so having a house would be great for that. (Wife currently going to school to become a dental assistant, she won't be able to contribute much money)

I own a substantial amount of medical school loans, about $240,000 in consolidated Stafford loans at 6.62% interest and a private loan of ~$20,000 at 2.0% interest. My consolidated loans are currently on a 30-yr pay plan and I pay $1500/month. The other one I pay about $100/month.

My original plan was to pay off as little of the loans as I can, then save up money for a down payment for a house. I've already got about $100,000 saved up which would be substantial anywhere else, but I live in California, and unfortunately a typical 3-4 bedroom house in my area is about $500,000-1 million (Gilroy, CA). However, am I not so sure anymore and I'd like some different views.

Plan A (paying off loans first): Dump the $100,000 I've saved up into the loans, then aggressive pay it off (I estimate I could do it in ~5 yrs or less), then start over from scratch saving up for a down payment, which may take another 5 yrs. I estimate for a home in my area, I'd need to save up at least $140,000, probably $200,000 would be a safer bet. It is completely a seller's market right now, multiple bids drive the final price far above list price.

-Advantages: Over long term save a lot of money. If I eliminate my loans, then that's also $1600/month I won't have to pay and can afford a higher montly mortgage payment.
-Disadvantages: If I do this, then it'll take ~5 yrs to pay off the loans, another 5 or so to build back up a down payment. Thus, I'll be 40+ years old when I finally own a house. If we have a kid next year, he or she will have to live in a 900 sq ft 2 bedroom apartment till age 9 or 10, despite having a doctor as a father. Kind of ghetto... What if we have 2 kids? Sure, eventually we can have a bigger house with this plan, but life is short, and for a good chunk of it, I get to live as an attending physician in a 2 bedroom apartment.

Plan B (buy a house first): Continue paying off my loans as slowly as humanly possible, and save up as much cash as I can until I hit around $150,000-200,000 in 4-5 yrs, then buy a 3-bdrm house hopefully in the 500-600,000 range with 30-40% down payment (to reduce monthly mortgage). I'm working for the County in an underserved community. I will try to apply for some loan forgiveness programmes that can pay off some small amounts (applications don't start till the fall), but it's not a guarantee.

-Advantages: my family and I get to enjoy a house in 4-5 yrs (maybe sooner), more space to grow as a family, stop "throwing away money" into rent, start building home equity, etc.
-Disadvantage: End up paying a lot more money over the long term. Monthly income will be reduced for the rest of my "working life", 1600/month for loans + mortgage until I'm in my 60's, instead of just paying mortgage. Thus, my "effective income" will be much less for most of my life.

Thanks everyone, sorry for the long post!

When I read this post I imagine a man barefoot, on a hot summer day, standing on an asphalt road. He stands first one foot, then on the other, but however he stands one foot is always burning on the road. Bereft of ideas, he calls to passers by to solicit advice, and asks each one "which foot would you rather have burned, your right or your left?" When they each, in turn, ask him why he doesn't just step off the road onto the cool grass, he does not respond.

Move the f--k out of California.

 

[Messerschmitts]

So much California hate! I admit, if the weather weren't so nice, I'd leave. But the weather IS THAT NICE. I grew up here. I went to Ohio for medical school, suffered through 4 Midwest winters, and 4 humid Midwest summers with mosquitos and all kinds of no-see-um bugs. It's too dry in California for there to be that many bugs, and I don't get bitten here. However, in the Midwest, every summer is an itchy nightmare. In the winter, a different kind of nightmare. One time, freezing rain encased my car in ice armour, and I had to use a stick from the ground to crack the ice so I could access the key hole. And this is Cincinnati, which has relatively mild winters by Midwest standards. My attending from Cleveland joked that Cincinnati was "the tropics" compared to Cleveland. If Cincinnati was the tropics, I don't want to find out what it's like in Cleveland in the winter. Never again. If I want to see snow, I will drive to Lake Tahoe, or to reference Mr. Smithers from the Simpsons, I want to see snow, "I will observe it through a powerful telescope". (The original quote was if Mr. Burns wanted to see a homeless person he will observe him through a powerful telescope). I did consider the Pacific Northwest, but 6 months of clouds? No thank you.

My wife and I just went whale watching yesterday, saw a pod of 10 Humpback Whales in Monterey Bay. The sunshine and ocean are not free, and I accept that, and am willing to pay for it. Also my parents are in Los Angeles. I want to keep some distance from them, but not too far, just far enough so that if I wanted to, I could drive to visit them on a long weekend. Where I am is perfect for that.

 

[freaker]

You asked the question on a finance and investment forum. California deserves all the venom spewed its way on a finance forum given its decades long history of fiscal management and near criminal taxation policies. That said, it is beautiful, and many are held captive within its confines by the scenery and the weather. Just realize that by doing such, you're maintaining this dilemma between student loans and a home. I'm not going to praise Ohio, either, as their tax rates--while not as bad as California's--are pretty horrible, as well. At least home prices there reflect reality.

I happen to think the Monterey-Pacific-Grove-Carmel area (with Big Sur not far off) is one of the most beautiful places in the nation. I happen visit it periodically. Enjoy it. If you can take all the enjoyment out of your surroundings and family and forego the nice restaurants and shopping malls, well, that's a nice step in the general direction.

 

[Perrotfish]

So much California hate! I admit, if the weather weren't so nice, I'd leave. But the weather IS THAT NICE. I grew up here. I went to Ohio for medical school, suffered through 4 Midwest winters, and 4 humid Midwest summers with mosquitos and all kinds of no-see-um bugs. It's too dry in California for there to be that many bugs, and I don't get bitten here. However, in the Midwest, every summer is an itchy nightmare. In the winter, a different kind of nightmare. One time, freezing rain encased my car in ice armour, and I had to use a stick from the ground to crack the ice so I could access the key hole. And this is Cincinnati, which has relatively mild winters by Midwest standards. My attending from Cleveland joked that Cincinnati was "the tropics" compared to Cleveland. If Cincinnati was the tropics, I don't want to find out what it's like in Cleveland in the winter. Never again. If I want to see snow, I will drive to Lake Tahoe, or to reference Mr. Smithers from the Simpsons, I want to see snow, "I will observe it through a powerful telescope". (The original quote was if Mr. Burns wanted to see a homeless person he will observe him through a powerful telescope). I did consider the Pacific Northwest, but 6 months of clouds? No thank you.

My wife and I just went whale watching yesterday, saw a pod of 10 Humpback Whales in Monterey Bay. The sunshine and ocean are not free, and I accept that, and am willing to pay for it. Also my parents are in Los Angeles. I want to keep some distance from them, but not too far, just far enough so that if I wanted to, I could drive to visit them on a long weekend. Where I am is perfect for that.

All I can say is that when you work, you are selling the hours of your life. I love whales as much as the next guy. They're serene, they're majestic, and they remind me of several women I used to date. But you are talking about selling an extra decade worth of waking hours to earn the whales. Is that really worth it to you?

You don't like humidity, bugs, or snow. Have you considered Arizona? Nevada? New Mexico? Texas? There are states that are a long drive or a short flight from LA, which pay 100K/year more for psychiatrists than CA, where a home costs half as much, and where your tax burden would be two thirds what it is now. Are the whales really worth living a middle class life on a rich man's salary? Are they worth retiring at 65 rather than 50? Are they worth giving up the chance to live the same quality of life but to have a three day weekend, every week, for the rest of your career, with your wife and theoretical child?

 

[Postictal Raiden]

All I can say is that when you work, you are selling the hours of your life. I love whales as much as the next guy. They're serene, they're majestic, and they remind me of several women I used to date. But you are talking about selling an extra decade worth of waking hours to earn the whales. Is that really worth it to you?

You don't like humidity, bugs, or snow. Have you considered Arizona? Nevada? New Mexico? Texas? There are states that are a long drive or a short flight from LA, which pay 100K/year more for psychiatrists than CA, where a home costs half as much, and where your tax burden would be two thirds what it is now. Are the whales really worth living a middle class life on a rich man's salary? Are they worth retiring at 65 rather than 50? Are they worth giving up the chance to live the same quality of life but to have a three day weekend, every week, for the rest of your career, with your wife and theoretical child?

This post is pure gold, more golden than CA.

 

[RangerBob]

CA is quite overpriced. But having grown up in CA (and having lived there until moving for medical school), I have to also agree it's one of the greatest places to live. I honestly think LA is worse than Texas (I'm just not a fan of TX... like CA it's a state people usually either love or hate), but everything north of Santa Barbara and the Central Coast (and all the way up the coast through Alaska) is beautiful. People don't realize how easy access to the outdoors (not just outdoors, but actual wildness, state parks, national parks) is in CA (and the West in general). When I moved to the Midwest for medical school, the winter's weren't the hardest thing to adjust to--it was the lack of easy outdoor recreation. From the Bay Area, Yosemite is 3-4 hrs away, the Santa Cruz mountains and redwood forests are within an hour drive, and you can "get away" so easily. From Chicago you basically have to go to Wisconsin or Michigan (3+ hours) to find something that rivals what would take about 30-60 minutes of driving from the Bay Area would take. In my mind, all that easy access to natural beauty can make putting up with the high cost of living and dysfunctional government of CA (which is still better than a few other states--IL in particular...) worth it.

I will say--while CA generally has far grander state/national parks/forests, the cities themselves are far uglier, in my opinion. I live in a middle class neighborhood right now, and aside from the fact houses here cost 1/5 (at least) of what they'd cost in the greater SF/LA areas (and have much more architectural style to them), the neighborhood is far prettier, the parks far nicer. CA cities just don't compare with the rest of the country, in my opinion. It's a trade off--you can have more beautiful nature within an easy drive, or outside your window. (And people really are nicer here in the Midwest...)

Personally, I probably won't return to CA--it's just too expensive. Unless I can get a job in the Central Coast (expensive--but not as much as SF/LA) or the northern third of CA (much more affordable), it just doesn't make sense given our debt, our plan to have kids, and my wife wanting to be a stay-at-home mom. As Perrotfish mentions--I can get paid a lot more out here, and I can live for far less. I actually like the seasons (I really don't think the winters are that bad here). And if I settle in Western Michigan, Wisconsin or Minnesota, there's plenty of easy access to beautiful outdoor recreation.

Financially speaking, working and living in CA is one of the stupidest moves you can make (unless like my parents you bought a home back in 84' for $150K and sold it for close to $1.3 million in the 2000's...), but life isn't just about smart financial choices. If I only made smart financial decisions, I wouldn't be married to my wife, the main source of my happiness in life. So, I would never fault someone for living where they want to live--live/work where you're happy, and just be aware of the costs. And unfortunately OP, as you mention in your post, the main costs to CA are literal (housing, taxes).

I agree waiting until age 40 to buy a home seems ridiculous, but so does paying off loans/home when you're 60 (though your student loans should be paid off in 20 years at the absolute latest--I'd actually aim to pay them off within at most 10-15). If I were in your shoes I'd take the middle ground--rent for a short while and put a good chunk of that money towards your loans now, and maybe aim to buy a home in 3-5 years if you decide you really love CA. Or buy a townhouse like some others say, and then sell that in a couple of years.

 

[NICUfello]

I have no better info than just talking to fellows and general salary numbers but I have an idea of why you're making in that area if the cities you're looking at are SF, LA and I'm assuming the only big city in AZ based on those other two. Also, your friends are all working in LA, SF and Boston...so in the same boat of working in big city, highly desirable areas which is bad for compensation in general in medicine.

The 7% of practice profit bonus isn't anything to sneeze at though.

Yeah the job offer I received from North Dakota was almost double what me and my first year friends are making on the coasts.....

 

[NICUfello]

All I can say is that when you work, you are selling the hours of your life. I love whales as much as the next guy. They're serene, they're majestic, and they remind me of several women I used to date. But you are talking about selling an extra decade worth of waking hours to earn the whales. Is that really worth it to you?

You don't like humidity, bugs, or snow. Have you considered Arizona? Nevada? New Mexico? Texas? There are states that are a long drive or a short flight from LA, which pay 100K/year more for psychiatrists than CA, where a home costs half as much, and where your tax burden would be two thirds what it is now. Are the whales really worth living a middle class life on a rich man's salary? Are they worth retiring at 65 rather than 50? Are they worth giving up the chance to live the same quality of life but to have a three day weekend, every week, for the rest of your career, with your wife and theoretical child?

Well said. I considered PHX, TX, as well, and likely will be heading that way.

I spent 4 years in Northern CA, so I know the area OP is talking about real well, it is gorgeous. I prefer the So Cal weather to NORCAL, but at this point in my life, the sacrifices are not worth it just to LIVE iN LA.

2 more years....we shall see.

 

[Spikebd]

I think CA has better options for physicians than the bay area and LA. Consider living near Sacramento (preferably north of it) and you will find home prices 50-75% less and the pay for doctors is probably just as good. You're still fairly close to SF, Tahoe, whatever it is you want to do with your time off. Still plenty of sunshine and the heat is nowhere near as bad as the Midwest humidity.

 

[Future_pediatrician]

@RangerBob why not look at Colorado? The state is beautiful and it offers just about everything you mentioned California has at a fraction of the cost of living, of course minus one large ocean.

 

[James Martin]

I vote for Plan A. You might want to try to refinance your debt - you can probably bump it down to 5% or even less.

Then I also vote for not going through with Plan B even if you complete Plan A. If you have to spend $1M on a house, rent for quite a while until you can buy a house with cash or pay a substantial portion of it with cash. You can live with 2 kids in a rental without a problem. Minimize your debt if you can because a house is not an investment, and if you buy an expensive house, you will be buried with debt. Would you rather be financially independent by 50 or own a house by 50? A house is like a rock to keep you down, and inflation adjusted, it is a pretty bad investment (Doug Carlsen wrote about that in his free book). What if you decide to move in 5 years and you are upside down and/or real estate prices go down?

Here's an article I wrote on debt repayment:

http://litovskymanagement.com/2014/02/debt-repayment-basics

You might want to do some calculations to appreciate the amount of money we are talking about here. Debt can be used as leverage or you can be buried in it.

Also check out White Coat Investor blog post by Doug Carlsen:

http://whitecoatinvestor.com/recent-arizona-dental-grad-vs-10000-per-month-debt/

I agree with him. I will also suggest you to work on plan A.