Personal Finance: Strategies for Personal Finance: Strategies for SuccessSuccess

J. Norman Patton, M.DJ. Norman Patton, M.DCardiovascular DiseasesCardiovascular Diseases

Mayo Clinic – JacksonvilleMayo Clinic – Jacksonville

David L. Dahlen, David L. Dahlen, Director of Student Financial Aid/RegistrarDirector of Student Financial Aid/Registrar

College of Medicine – Mayo ClinicCollege of Medicine – Mayo Clinic

Now that I have REAL moneyNow that I have REAL money

What options do I have?What options do I have?

BMW 528iRetail: $44,745 @ 5% interestMonthly Payment: $721 for 72 months

#1 The very expensive BMW #1 The very expensive BMW

In 25 years this will be worth $0

#2 Try saving for the same time… #2 Try saving for the same time…

-$721 per month at 7.5% return

- In 72 months value = $65,307

- No Additional contributions

- In 25 years $65,307 will grow …

$423,377 for the BMW? $423,377 for the BMW?

For Sale: 2000 Silverton 453 Motor Yacht$364,000

(You’d have $59,377 remaining for fuel!)

Delaying your gratification will pay off!

OverviewOverview

• What this talk will do:What this talk will do:

• Present an organized overview of the Present an organized overview of the financial issues faced by physiciansfinancial issues faced by physicians

• Suggest appropriate resources to aid in Suggest appropriate resources to aid in decision makingdecision making

OverviewOverview• What this talk is What this talk is NOTNOT::

• An investment seminarAn investment seminar

• A primer on insuranceA primer on insurance

• A “how to get the best mortgage” talkA “how to get the best mortgage” talk

• A sales pitchA sales pitch

• A “we’re going to cover everything you need to know” A “we’re going to cover everything you need to know” talktalk

Physician financial timeline:Physician financial timeline:

• Debt managementDebt management• Home ownershipHome ownership• College PlanningCollege Planning• Investment PlanningInvestment Planning• Retirement PlanningRetirement Planning

Medical School

Residency Consulting Staff Retirement

Educational DebtEducational Debt

know you debt – know your options know you debt – know your options

Types of loansTypes of loans

Subsidized Loans: no cost to borrower during grace and deferment periods

- Federal Subsidized Stafford- Federal Subsidized Direct - Primary Care Loans (PCL)- Loans for Disadvantaged Students (LDS)- some institutional loans

Unsubsidized Loans: loans which accrue interest from disbursement

- Federal Unsubsidized Stafford- Federal Unsubsidized Direct- most private loans (in-school and residency/relocation loans)- some institutional loans

Deferment and ForbearanceDeferment and Forbearance

• Both options suspend payment for a set Both options suspend payment for a set period of time if certain conditions are met.period of time if certain conditions are met.• DefermentDeferment• Interest that accrues is paid on behalf of Interest that accrues is paid on behalf of

the borrower (subsidized loans only)the borrower (subsidized loans only)

• ForbearanceForbearance• The student is responsible for interest that The student is responsible for interest that

accrues on the loan (subsidized and accrues on the loan (subsidized and unsubsidized loans)unsubsidized loans)

Two New ProgramsTwo New Programs

• Income Based RepaymentIncome Based Repayment• Monthly payments are driven off of income Monthly payments are driven off of income

rather than amount borrowed, interest rate and rather than amount borrowed, interest rate and loan term.loan term.

• Public Service Loan ForgivenessPublic Service Loan Forgiveness• Portions of loans can be forgiven after making Portions of loans can be forgiven after making

10 years of payments.10 years of payments.

• Please contact me! Please contact me! • Simply not enough time to explain in detail in Simply not enough time to explain in detail in

this setting by I am happy to visit with you!this setting by I am happy to visit with you!

Planning for the future:Planning for the future:

College Savings PlansCollege Savings Plans

Saving for CollegeSaving for College

• Education IRA (Coverdell Account)

• Uniform Gift to Minors Act (UGMA)• also known as: • Unified Transfer to Minors Act (UTMA)

Minnesota

• 529 Plans

Education IRA (Coverdell Education IRA (Coverdell Accounts)Accounts)

• Similar to a Roth IRA: Non-deductible contributions Similar to a Roth IRA: Non-deductible contributions grow tax freegrow tax free

• Allows you to save money for your children’s Allows you to save money for your children’s educational costseducational costs

• $2,000 per year per child maximum contribution$2,000 per year per child maximum contribution

• Funds can be used for primary or secondary school Funds can be used for primary or secondary school as well as post-secondary expensesas well as post-secondary expenses

• Is controlled by the student when they turn 18Is controlled by the student when they turn 18

UGMA and UTMAUGMA and UTMA

• Allow parents/grandparents to save for their children Allow parents/grandparents to save for their children

• Tax Free until “earnings” are over $750 in one year Tax Free until “earnings” are over $750 in one year

• Each parent can contribute up to $11,000 per year Each parent can contribute up to $11,000 per year without the “gift tax” without the “gift tax”

• No income limitationsNo income limitations

• Child gets “legal” control later…depending on the state Child gets “legal” control later…depending on the state (21 in MN; 18 in other states)(21 in MN; 18 in other states)

• Can use the money now or later for many things … not Can use the money now or later for many things … not just educational costsjust educational costs

529 Plans529 Plans

• State sponsored savings plan for educational costsState sponsored savings plan for educational costs

• Each State has a plan and you can choose any plan … Each State has a plan and you can choose any plan … regardless of where you liveregardless of where you live

• Investments grow “tax free” … distributions for qualifying Investments grow “tax free” … distributions for qualifying costs are tax free (no sunset clause)costs are tax free (no sunset clause)

• Donor retains controlDonor retains control

• Funds Funds mustmust be used for educational cost for the be used for educational cost for the beneficiary beneficiary

• Funds can be transferred to another beneficiaryFunds can be transferred to another beneficiary

• Financial Turmoil has led to some solvency issues with Financial Turmoil has led to some solvency issues with some of these program. Be a good consumer. some of these program. Be a good consumer.

Personal financial management Personal financial management for physiciansfor physicians

• POINTS TO CONSIDER:POINTS TO CONSIDER:

• Understand and maintain your credit historyUnderstand and maintain your credit history

• Seek out trusted resources to help you plan Seek out trusted resources to help you plan and monitorand monitor your finances your finances

Credit ScoresCredit Scores

Payment history

Amounts owed

Length of credithistory

New credit

Types of credit used30%

35%

15%

10%

10%

MYFICO.COM

Credit ScoresCredit Scores

0%

5%

10%

15%

20%

25%

30%

under549

550-599

600-649

650-599

700-749

750-799

800+

29%

20%

16%

11%

7%6%

11%

Plan to InvestPlan to Invest

• Know yourself:Know yourself:• Understand your OBJECTIVESUnderstand your OBJECTIVES• Understand your TIMELINEUnderstand your TIMELINE• Understand your RISK TOLERANCEUnderstand your RISK TOLERANCE

• Just do it! (by paying yourself first)Just do it! (by paying yourself first)

• Use Use trustedtrusted financial experts financial experts

Planning to InvestPlanning to Invest

• Risk vs RewardRisk vs Reward

• Asset AllocationAsset Allocation• Liquidity of assetsLiquidity of assets

• Tax implicationsTax implications• TaxableTaxable• Tax deferredTax deferred• Tax freeTax free

• Re-balancing your portfolioRe-balancing your portfolio

Planning to Invest: OptionsPlanning to Invest: Options

• Savings, CD’s, TreasuriesSavings, CD’s, Treasuries

• Money Market AccountsMoney Market Accounts

• Mutual fundsMutual funds•Index fundsIndex funds

• StocksStocks

• BondsBonds

• Real Estate Real Estate

• Others (Commodities)Others (Commodities)

Least risk but lowest returns

Most risk but higher returns

Planning for RetirementPlanning for Retirement

• PensionPension• Defined Benefit vs Defined ContributionDefined Benefit vs Defined Contribution

• Tax Deferred Accounts: Tax Deferred Accounts: • 401-K/403-B Plans401-K/403-B Plans

• Take advantage of the time value of money Take advantage of the time value of money (compounding interest)(compounding interest)

Planning for Retirement: Time Planning for Retirement: Time value of moneyvalue of money

Final Thoughts…...Final Thoughts…...Next steps:Next steps:• Begin the planning nowBegin the planning now• Identify your goals and objectivesIdentify your goals and objectives• Calculate your net worth (Assets -LiabilitiesCalculate your net worth (Assets -Liabilities• Set up a budget and pay yourself firstSet up a budget and pay yourself first

• Get help: Identify a professional partner as Get help: Identify a professional partner as soon as possiblesoon as possible

• Get Started!Get Started!

Helpful LinksHelpful Links

• Loan Locator: Helps you find your loans Loan Locator: Helps you find your loans • https://www.studentclearinghouse.org/secure_area/loan_locator.asphttps://www.studentclearinghouse.org/secure_area/loan_locator.asp

• National Student Loan Data System: Details on your loans National Student Loan Data System: Details on your loans • http://www.nslds.ed.gov/http://www.nslds.ed.gov/

• AAMC: Debt Management Session – Primer on ConsolidationAAMC: Debt Management Session – Primer on Consolidation• http://www.aamc.org/students/financing/md2/phase3/start.htmhttp://www.aamc.org/students/financing/md2/phase3/start.htm

• AAMC: General Financial PlanningAAMC: General Financial Planning http://www.aamc.org/students/financing/md2/phase3/pdf/phase3.i.pdfhttp://www.aamc.org/students/financing/md2/phase3/pdf/phase3.i.pdf

Internet ResourcesInternet Resources

• Debt managementDebt management• www.bankrate.comwww.bankrate.com• www.myfico.comwww.myfico.com• www.money.howstuffworks.comwww.money.howstuffworks.com

• Personal FinancePersonal Finance• www.smartmoney.comwww.smartmoney.com• www.fool.comwww.fool.com

• College PlanningCollege Planning• www.collegeboard.comwww.collegeboard.com• www.savingforcollege.comwww.savingforcollege.com

Internet ResourcesInternet Resources

• Obtaining credit histories:Obtaining credit histories:• www.equifax.comwww.equifax.com• www.experian.comwww.experian.com• www.tuc.comwww.tuc.com