[I know it's technically July 1st, but hey I got to keep to my posting schedule!]
Welcome to the June 2017 edition of the FPMD Net Worth Update - a quarterly post where I put my money where my mouth is and tell you all about how I manage my finances. Over time, it has become the most popular series on FPMD. I talk the talk, but do I walk the walk? You be the judge. Here is what I've been up to for the last 3 months.
- Cash - There has been a big decrease in the amount of cash I hold, for 2 reasons:
- I got hit with a huge tax bill by Uncle Sam. I failed to adjust my W-4 withholdings adequately to account for the increased income thru moonlighting and FPMD. In April, I had the biggest withdrawal out of my bank account EVER. I suppose that's technically a good thing really since it means I'm making more, but it sure felt awful...
- I executed a Mega Roth IRA. See Mega Backdoor Roth IRA Without a High Income? Yes I did! for more details. A large portion of that money came from the idling cash.
- Emergency Fund - I had a change of heart regarding the emergency fund. I decided it's not necessary to hold 6 months' expenses because there is really no reason I would need an emergency fund to last that long. If a situation does arise that would necessitate such a long period without income, I expect my health & disability insurances to kick in. So I drew down the fund to $1,000 and used the rest for the Mega Roth IRA.
- Roth IRA - Well, I've talked about the Mega Roth twice already, so you probably figured out that accounted for the biggest balance increase you see here. Luckily, the market has been cooperative as well so I'm sitting happy. Within the Roth IRA, I only invest in the Vanguard S&P 500 fund. I know many of you have differing opinions as to whether that's a good idea. But that's my story and I'm sticking to it.
- Roth 403(b) - I set my paycheck deduction to max out the $18,000/year limit. So far, so good. In addition to serving as a pit-stop for the Mega Roth mentioned above, my employer's 403(b) plan recently received an upgrade that makes me downright giddy - they're going to start matching contributions for resident physicians! I've got only 3 words - COUNT ME IN!
- Pre-tax 457(b) - This is a new addition this quarter. See Why I Started a 457 Plan for reason why. While my employer does not offer a Roth 457(b), the pre-tax version will still allow me to deduct up to $18,000 from my taxable income in 2017. I'll still count that as a win.
- SEP IRA - I moved my SEP IRA provider from Betterment to Fidelity this quarter. I will explain why I did so in a future post. As to why I started an SEP IRA in the first place, check out this post.
- Health Savings Account (HSA) - I'm currently scheduled to max out the annual contribution limit of $3,400 from paycheck deductions. While it's not a large amount, it's still a nice bonus since that money is entirely tax-invisible. If you are curious why I switched from a traditional medical plan to an HSA, see my previous posts here and here for the benefits of an HSA.
- Car - I went with the Kelley Blue Book value for my 2009 Honda Fit which is a very optimistic estimate as the car has quite a few cosmetic blemishes thanks to a hail storm in mid-August. (Yep that happened. Thanks Missouri!) I'm not a "car guy". To me, a car is just a tool to get from point A to point B. Whether my attitude toward cars will change in the future is a mystery but for now, I'm perfectly happy with my trusty Fit.
- Credit Cards - I'm a big fan of financial guru Dave Ramsey however I disagree with his attitude toward credit cards. I believe there are responsible ways to use credit cards and I routinely take advantage of credit card rewards and bonus offers. My credit card balance took a step in the wrong direction due to recent and upcoming travel expenses. But it is well within my manageable levels.
- Student Loans - I'm currently making income-based payments on the REPAYE plan. See why I Switched to REPAYE and I Like It. My overall goal remains unchanged with the intention of qualifying for Public Service Loan Forgiveness (PSLF) in 2024. I understand the future of the PSLF program is uncertain but I have faith that current borrowers will be grandfathered into the program. Loan balance reported above reflect principal + accrued interest.
My financial goals for the last 3 months were:
- Minimize cash drag
- Maximize tax-advantaged investment accounts.
I believe I achieved both of those goals via the 457(b) plan and the Mega Roth IRA. My overall net worth increased by 25% in the last quarter - not too shabby. I hope to continue this consistent pace going into my final year of residency training and achieve "net worth zero" by graduation.
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