Reader Profile: TA

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader TA. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 25-year-old teacher living in Omaha, NE. Recently I was married to a wonderful woman who is currently attending Grad school looking to attain her doctorate in physical therapy. I am blessed to have a loving family (on both sides) and to have been brought up with a respect for God, women, and money. My wife and I talk about our financial situation often and make decisions on finance as a team. Outside of work and school, our free time is spent exercising, enjoying the outdoors, and in the kitchen. Our expensive past times include technology and food blogging. We are excited to have kids, but do not see that in the 5-year plan.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

We are a single income family currently. I make about $45k a year gross, which includes my teaching salary, 3 sport coaching income, and summer work. Currently my wife is attending grad school and earns just enough money to cover her gas to and from school ($100 a month).

In undergrad I amassed a total of about $60k in student loans, half being private loans. Interest rates on this debt range from 6.8% on the Stafford loans, to 3% on the private loans. Currently I am on the income based repayment plan for my federal loans. With the low income on our joint tax return, I qualify for a $0 dollar monthly payment and the subsidized loans have all of the interest paid for monthly. Although based on income I do not have to make payments to this loan grouping, we have chosen to continue paying the loans on a normal payment schedule + extra when available. Payment only goes to the unsubsidized portion. This has been my trick to maximize repayment of debt. The private loans have a minimum payment of $215 per month. Approximately $615 a month is put towards student loan debt in our current budget.

My wife was able to get through undergrad with 0 loans but will be taking on quite the load in grad school. Our best estimations have us taking on an additional $130k total in loans by the time she finishes her doctorate. I know, ouch.

We own two paid for vehicles, one of which will need upgrading in the next 1-5 years (1995 Lumina: 200k Miles).

We have zero credit card debt or other consumer loans.

Rent + Utilities costs us about $750 a month. Cell phones, tv and internet take up another $250. A grocery bill of $280 and gas bill of $300 a month is our other major monthly expense Including $200 that we consider our blow fund, and $200 put into an emergency fund, our monthly budget is right at $2500.

To maximize the value of the money we do have, we use cashback rewards credit cards and pay the balance off FULLY each month.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Our current financial situation is unstably stable. I will try to explain. I feel confident in my job. The school district I am working in is growing and very stable. Yes, we have massive student loan debt on the horizon. But we are FULLY ready to continue living like college students until the debt is well under control. We also do not have a very large emergency fund built yet. We add $200 a month to it, but so far it is only $1400. Our plan is to beef that up monthly. The last part that makes our financial situation unstable is my wife finding a job in 1.5 years after completing grad school. In my head this is balanced by the fact that she is 4.0 student at a prestigious university. Job offers WILL follow.

Retirement has been an important point of emphasis as of late. We did something that was very difficult after our wedding 2 months ago. We took 90% of our wedding gift money, and opened a Roth IRA, fully funding it for this year. It is a great source of pride for us that we made a commitment to our future over instant gratification. The plan is to continue funding my Roth through summer work during my school break. I also have a mandatory $300 that comes out and is put in the State retirement fund monthly. Although this all is a great step, we still have a drive to save more.

Like most married couples, we have dreams of owning a home but we are trying not to be unrealistic about things. We would really like to cash in on the great interest rates, but have a goal of putting 20% down on a mortgage as part of the deal. We also do not feel comfortable taking on more debt with our high student loan debt.

The 1995 Lumina also is going to need updating. We refuse to finance, so this will mean adding another need to our savings plan.

Planning for the future, it is hard not to take into consideration the possibility of a second income in the next 2 years. We feel that out of school she should be able to earn $80k in the right situation. Our goal is to raise our standard of living by 10% and then commit the rest of the money towards savings and paying down debt. 5 years from now our savings account and student loan debt should look DRASTICALLY different.

What are your plans for the future. (retire early, build your career, etc.)?

Our plan for the future is to make ourselves into professionals of our respective fields. We take our career paths seriously and want to find balance between our marriage and career plans. For me, this means going back to school to get my Masters and possibly Doctorate. For her, she will continue down the path she is on, while adding certifications and specializations as she goes.

Starting a family is in the 5-10 year plan and I am excited. Along with being an amazing wife, I am confident she will be an amazing mother. People say that you will never be financially ready for kids, but we tend to disagree still. Bringing a child into the world while we are forced to sacrifice in areas such as a vehicle (safety) and high quality groceries (nutrition), does not seem fair.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

By no means am I a Dave Ramsey follower but I did grab  a one liner from him that fits with what my parents have lived their entire life.

“Live like no one else, so later you can live like no one else.”

Comments

[JimL]

I hate to be a bit hard with the first post, but that is some serious student debt (almost $200K) and you are talking about more schooling? Are you really going to get a proper ROI on that debt?

[Luis]

@ JimL I do think you are being a bit too harsh on your post. She is making her career dreams come true so it is not always about ROI. You have two young kids willing "to live like college students" to get it done and are very realistic with their 5 year and 10 year plans. Getting a degree and ahead of the crowd in this economy is essential and undertaking huge student loans is the sad fact of life today.

They say that student loan debt is the third bubble in line behind the market and housing bubble. What to do in the meantime? I don't see any real alternatives than to grind down and do the best one can. That 4.0 GPA is great, keep it up! Have trust and faith that you will be well in the end.

[Margo]

I'd actually suggest paying cash for some of the educational expense. Graduate student loan rates are pretty high right now, and with their combined income in a couple years the interest paid might not be deductible. This couple needs more liquidity, even if it means not funding a Roth right now.

[TA]

@JimL,

I cannot say you are wrong. Our debt is high, I am reminded of that every day... Many people would agree with you that waiting to go back to school is the prudent thing to do.

As far as the ROI on me going back to school for my Masters, my calculations show a 5 year break even date on income to incurred debt. Not great. When combined with the idea that we plan on having a family in 5-10 years, I worry if I don't focus on career now, I won't.

[TA]

@Luis

Thank you so much for the encouragement. When it comes to private matters of finance, it is not common to hear anything positive.

[TA]

@Margo

I understand what you are saying. We are paying out of pocket for all her living expense + books and other educational needs. Over the first 2 years of graduate school, we have taken out 3/5 of the total expense of school. Although all loans are federal, you are correct in that the interest rates are not the best. Point taken.

We are unwilling to pass up opportunities to fund our retirements though. The loss in lifetime earnings is to enourmous. IF we keep funding our retirement at a ferocious pace, and IF we weather the storm of financial hardship and IF we make it to the other side to financial success, our financial life picture looks pretty good. A lot of IFs though...

The alternative, not funding our retirement, would definitely make the short term easier. I'm just not sure it is the right route for us though.

[JP]

$130k is a huge hit for an $80k salary. Not sure that one will pay off for you guys, and you seem to be betting heavily on it.

Emergency fund is way too low, particularly since you are dependent on one salary. It needs to be more like $10k at least.

Can you cut the cable/internet/cell phone bill? Sounds like you could cut that expense down to $100/mo or so.

[JimL]

Luis,

We see countless stories of people that are loaded up with student debt. The poster will have combined debt of close to $200k and has commented on taking additional classes. I understand people have dreams, but that doesn't trump taking on debt. Those dreams can easily turn into nightmares when life happens. What if one of them loses a job, extended illness, etc?

You can have faith and trust, but the bible also warns about debt. Don't miss that part.

[tvd]

I'm on the same page with JimL: there is a lot of wishful thinking on the OP's part.

I wouldn't incur that kind of debt except for law or med school, and I'm almost to the point where I might cross law school off of that list. I would forgo the retirement contributions and pay for school with cash, even if it means it takes a bit longer to get through the program. That much debt just serves as an anchor on your overall net worth, and you have zero margin for error as it is.

[TA]

@JP

$130k is a lot for an $80k salary. Absolutely. Between our two incomes we hope to make close to $130k at completion of her degree, with a combined debt of $175k. $130k income vs $175k debt doesn't add up.

We are leaving ourselves little wiggle room.

We are excited to get rid of a few of our unneeded utilities. We are in the process of waiting out contracts now.

[Luis]

I had to look it up, the average debt for PT is averaging 150K. Maybe there is tuition reimbursement if you work at the University that provides this benefit? I agree with JimL that more classes right after the PT program is complete is probably too much, but if your employer is willing to pay for you to go back to school part time then that is your opportunity to take. Otherwise pay down that debt and reassess your goals down the road.

[TA]

You all are correct.

There is a lot of "betting" going on.

I am betting:
-No serious illness within 5 years
-No loss of my income within 2 years
-No large unexpected expenses that will ruin our emergency fund.
-Wife will find a job without problem upon completion of program.

Also, I did forget to mention. We left 40% of our Roth account in a Money market account to be used as serious emergency savings. (Being that we can take contributions out without penalties if NEEDED. But we can never go back a year and contribute to roth.)

[BZ]

If you are certain you need a masters, I say get it done now. There are diminishing returns for every year you wait.

[Rick Francis]

TA,

It sounds like you are have a reasonable plan, but that debt load will be rough. I suspect it will delay major life events down the road- buying a house, having kids, etc. until you can pay it down.
>she is a 4.0 student at a prestigious university. Job
>offers WILL follow.
A lot of that depends on what her specialization is- there are actually fewer PhD level jobs than bachelors level jobs, so the job search may not be as easy as you assume it will.
Investigating job prospects now might be a good idea- get to know older students that are graduating and find out about their job searches. If she keeps in contact with them they could provide her with job leads after graduation. It also wouldn't hurt to talk to recruiters early- and find out what skill they value. That may suggest different classes or projects that your wife could use to improve her chances of getting a job at graduation.

-Rick Francis

[Old Limey]

The risk you run by taking on so much debt for a doctorate degree and postponing the time when your wife will be able to make a large contribution to your total earnings could be damaging to your financial future.

When I was working I knew quite a few engineers that had their MS and were going to Stanford to get their PhD while still working. In these cases the company was also paying their tution and allowing part time day release for their studies that had to be made up every week. The problem always seemed to be with the required Thesis. Some professors liked the idea of having a graduate student, working on his thesis but doing very valuable research work for the professor for zero or very little remuneration. I would estimate that about half dropped out of the PhD program after completing all of the course work and the oral exam and settled for what is known as the "Engineers" degree which is a PhD but without spending another year or two to do a thesis.

You might want to do some estimates of your future finances as far into the future as possible, including time off for having children, for two scenarios. One scenario where your wife settles for working as a PT right now and you take on no more debt, and the other scenario where she doesn't work until after she receives her doctorate and you take on an additional $130K of debt that has to be paid back with interest. Don't forget to include the high cost of childcare if it's applicable.

I think the results will be dramatically different downstream because NOW is the time you should be saving as hard as possible and accumulating wealth that you will need later for a home of your own, for raising children, and for a secure retirement. The earlier that you can start compounding wealth the better it works. It's all about having that snowball of money, rolling down the mountain non stop every hour of the day, getting bigger and bigger as it goes.

Sometimes you just have to sacrifice your educational dreams for more practical considerations. Few people are fortunate enough to realize all of their dreams. In our situation my wife made the sacrifice. We had our children early, she stayed home until the youngest was about 16, and then had a 16 year career in a lesser job than her full potential if she hadn't made the sacrifice. Of course she would have loved to realize her full potential but in our day and age it was customary for the husband to be the major breadwinner, though these days I hear the term "Stay at home Dad" more and more.

[Sandy]

One important note is that you can't work as a PT with a bachelor's degree. The entry degree at this time is at minimum a clinical doctorate. In my area of the country, the therapies are highly in demand (PT, OT and ST) to such a degree that there are many hiring bonuses being offered just to get someone in the door in skilled nursing facilities and hospitals.

[TA]

@Rick Francis

You are 100% right on all accounts. Our major life plans are going to be delayed. No getting around it.

You also nailed it as far as investigating job prospects. She has been very active in organizations which will benefit in getting her name out in the professional community. She also has been part of multiple career fairs and events.

We are taking the job search seriously, hoping to leave nothing to chance.

[Rehab Doc]

$80k salary starting off as a DPT sounds a bit high, unless it's in home health or a nursing facility. I'm a DPT in the midwest with 4 years experience in sports medicine and earn just a shade under $70k/year (sports med pays a bit less because it's a popular setting among therapists. You couldn't pay me enough to work in home health) With overtime/extra hours at a hospital, she may be able to earn $80k starting out but she needs to make sure the setting is desirable.
The discrepancy between the doctoral physical therapy degree cost (plus extra time in school) and median salary can be laughable. You don't become a therapist (or a teacher) to get rich in a hurry.

[Dee]

@TA

How do you not have to make any monthly payment on your loans? I didn't even know that was an option through IBR. Just curious.

[TA]

@Dee

ibrinfo.org is a good reference.

The program takes into account your last years tax return and plugs it into some formula to get a minimum monthly payment. If you qualify for a payment below the monthly interest of the loan, the amount is subsidized on your subsidized loan, and accrued on your unsubsidized loan. We are choosing to continue paying amount according to normal payment schedule, BUT putting that money ONLY towards the unsubsidized loans.

Hope that was clear, as I read back, I'm not sure.

[TA]

@Rehab doc

My wife is more realistic than I in regards to starting salary. As a 3rd year student in the program, she is starting to lean heavily towards a Neurological emphasis. From research, I have seen a higher starting salary.

But, point taken. I think highly of my wife and what she is doing. Probably should be a bit more impartial.

Can I ask your opinion of DPT programs in regards to financial direction through the program? Insight from someone who has experience would be very valuable.

[TA]

@Old Limey

I am still in the process of digesting your thoughts. I will try to work through them as I respond. Thanks for taking the time to post.

PT programs have shifted to DPTs. There is no getting around it. Without experience and a matching undergrad degree, you do not get hired. She definitely could have found work in other places and saved. By my estimates, it would have taken us 4 years to save the money. She then enters the doctoral program and graduates debt free at age 29.

I can debate whether this would have been a good idea for us, but the fact is, we went a different route. Now deep into the program, our direction is mapped out.

Upon graduation and finding a job, we look forward to saving $20k the first year for our long term goals, and putting $30k towards our student loan debt. In a perfect world (I am ready for someone to say it is not perfect), we will be well on our way to be out from under our student loans by age 30 w/ a sizable savings account for long term goals and expenses.

Finally,I may be reading into your post to much. But others have stated it as well. Putting off our retirement savings until debt is under control is not something I am willing to do. I have spent enough time with an IRA calculator to know the loss of long term growth is immense. In dire circumstances, contributions can be withdrawn penalty free, but I cannot make up for the missed years.

[TA]

Rereading a few of my comments, I wanted people to realize that I am making no attempt to come off defensive or snarky.

I truly am internalizing your thoughts, and am only trying to put the care in responses that those of you posting are doing so with your comments.

Thanks

[Ben E.]

TA, I don’t think you’re in a bad spot and it looks like you have a plan for both of you once your wife finishes the program. A couple of things I want to point out. First, your salary as a teacher is likely to increase over time. The 45k you pull now will move upward three years from now. Second, it may be possible for your wife to hold a part time job while working to help bring in some extra income. Going into this program eyes wide open is important. Finances, obviously merits close scrutiny as to expenses and income, and I would bet that both of you will consider your options and strive to maximize your potential as much as possible. Networking plus grades will be important in landing that first job. The way I see it, it looks very possible to look down the road and see your total debt at <175k and your total income at <130k.

[Old Limey]

@TA
I admire your candor and I think everyone appreciates your many replies. I always thought that you could work as a PT assistant, a PT, or a DPT but I see that's not an option in most states. The good thing is that you're "on the ball" and actively analyzing all of your options and how they affect the long term outcome of your children, your working life and your retirement life. I wish you all the success you deserve. My wife has had two very successful hip replacements and the PTs in the hospital and that later came to the home were very helpful in her rehabilitation. The surgeries were a Godsend for her, as unless you have experienced severe arthritic pain you have no idea how debilitating it can be.

[TA]

@Ben

Thank you for the encouragement.

I see everyone's point about being realistic, planning for the unexpected and better safeguarding our life. The plan I have is not set in stone, but it will be a start.

I do hope that our income to debt ratio is better when the time comes.

Staying focused, leaving under our means, and enjoying the process is all I can do for right now.

[KH]

Thanks for sharing your situation....I was wondering why your wife doesn't consider other related career paths that might be less expensive. Your wife is a good student and therefore likely has many options available to her.

For example, she could probably get accepted into a clinical translational research PhD program in the area of exercise therapy or health care delivery--at Univ of Nebraska Health Sciencies or the Mayo Clinic for example--where they waive tuition and pay the student a stipend while she is doing the PhD. Her background in PT would be an advantage to gain entry into these programs. It would mean a slightly different career path, but PhD researchers working on how to improve health care delivery, or how to improve exercise program adherence, especially among underserved and rural populations, are very much in demand right now at most major medical centers. She would also have the option of getting into health care administration with such a PhD. It's a big advantage to get a PhD for free even if you have to move to a different part of the Midwest temporarily.

[TA]

@KH

It is a wonderful thing that she has many career paths available to her. I am glad she chose her current one though as that is where her passion is.

[Jim]

Median pay nationally for physical therapists is around $76,000. That includes many PTs with experience so starting wages will be lower. Its pretty unlikely she'd make $80k right out of school, especially if you plan to stay in Nebraska.

[TA]

@Jim

Could be. After a recent career fair, we have reason to believe otherwise.

[Luis]

I think you'll do fine, unlike others I think your wife is an exceptional young lady and will be successful in her career choice. That to me is enough to say the student loan debt is all worth it. Don't worry about these "bets" that may psych you out, all they are is calculated risks with overarching benefits.