Introduction

This is Part 2 of our examination of the financial journey of John & Jane Doe, twins who have taken divergent paths in their medical careers.  If you want to read Part 1, click here.  John Doe, PA, is entering his third year of work at an Urgent Care in Knoxville, Tennessee, while Jane Doe, MD, is starting her residency in Family Medicine in Houston, Texas.  To refresh your memory, the Rules and Assumptions of this exercise and their Year 8 Net Worth Statements from Part 1 are included below.

year 8 net worth
rules and assumptions for financial journey

Residency & Early Career (Years 9-11)

John’s Financial Journey: Career Advancement

     John completed 2014 without changing his finances.  He continued to work hard at his job, and at the beginning of 2015, his pay increased to $65/hr, and his bonus increased to $3,750 per year.  He also maintained his pattern of working an average of six extra shifts per year, which brought his yearly salary to $139,470.  John diligently saved/invested 25% of his gross income, now $34,867.50 per year. 

With his raise, John’s available monthly spending increased to $6,591.35 after taxes and savings.  His emergency fund needed to be increased by $2,374.05 to maintain three months of spending, so he did this first.  He then contributed enough to his 401k to get his employer match, maxed out the available amount in his Roth IRA, and then returned to fund his 401k.  John’s pre-tax 401k contributions brought his AGI (adjusted gross income) below the threshold for the Roth IRA, which made him eligible to fund a reduced amount.    

Reaching Financial Milestones

     Since his emergency fund was complete, John could contribute more to his 401k in 2016, lowering his adjusted gross income (AGI) and allowing him to contribute more to his Roth.  Around the beginning of 2017, John reached an essential milestone in his financial journey.  He got “back to broke” by having a Net Worth of $0!  This is a major accomplishment for someone with student loans, and John celebrated the achievement by taking his girlfriend Susan to a nice dinner.  There were only minor changes in 2017 due to increased IRS income limits for the Roth IRA.  John’s contribution log is below.  

2014 (July – Dec)2015 (Full Year)2016 (Full Year)2017 (Jan – June)
Roth IRA1,6301,1451,7841,157
401K6,382.2015,779.5517,514.308,489.65
Cash Savings02,374.0500
PA School Loan Paydown7,91815,83515,8357,920
College Loan Paydown1,9593,9183,9181,962
Brokerage Account0000
John’s Total Contributions, including Employer Contribution to 401k

Jane’s Financial Journey through Residency

     Jane worked hard during her residency, becoming chief resident during her final year.  Jane made $51,586 as a PGY-1, $54,127 as a PGY-2, and $56,126 as a PGY-3.  She deferred her student loans and lived within the means of her salary.  She could not save 25% of her salary during her residency but managed 12.5%.  Jane lived with roommates in a modest apartment close to the hospital and kept her car running throughout her three years of residency. 

In 2014 and 2015, she used her savings to build up her emergency fund, which she pegged at approximately three months of spending.  Her residency hosted a personal finance lecture at the beginning of her third year that encouraged residents to start a Roth IRA, which she did.  She was able to fully fund her Roth in 2016 and used her remaining save/invest money to open a brokerage account since her emergency fund was complete.  She wasn’t sure if she would qualify for a Roth contribution for 2017, so she decided to wait until later in the year to figure it out.  Therefore, she used her save/invest money to bolster her emergency fund in anticipation of her expenses rising later in the year once she started her attending job.   She invested the rest in her brokerage account.  The contributions during her residency are presented below.   

2014 (July – Dec)2015 (Full Year)2016 (Full Year)2017 (Jan – June)
Roth IRA005,5000
401K0000
Cash Savings3,224.136,607.0802,750
Medical School Loan Paydown0000
College Loan Paydown0000
Brokerage Account001,390.81757.88
Jane’s Total Contributions

Transition to Attending Physician

     During her third year of residency, Jane accepted a job working for a hospital-based family medicine group just outside her hometown of Knoxville, Tennessee.  Her base salary was $220,000 per year, with incentive-based bonuses that could total $30,000 per year.  The job came with disability insurance, health insurance, and a 401k plan matching her contributions up to 5% of her salary.  Jane received a signing bonus of $20,000.  She traded in her car for a newer, more reliable one, and used the rest for her moving expenses back to Tennessee.  The sibling’s net worth statements as Jane ended her residency are below.

end of year 11 financial journey

Marriage, New Jobs, & a Pandemic (Years 11-14.5) 

John’s Career and Personal Life Changes

     John continued through the end of 2017 in the same fashion as he began the year.  However, there were substantial changes in 2018.  At the beginning of the year, John left his job, feeling he had stagnated at that company after six years.  He still enjoyed urgent care medicine and accepted a position at another clinic for $70/hr for 14 x 12-hour monthly shifts, with a $5,000 bonus at year-end.  The new company continued to provide disability and health insurance, and the 401k plan matched dollar-for-dollar up to 5% of his salary starting on day one. 

He was not expected to work any extra shifts beyond his 14/month, and there was also talk of another increase in salary in the future.  This meant that John’s new salary was $146,120 per year.  John rolled over his old 401k plan into the plan at his new job.  Fortunately, the new plan contained the same low-cost, broad-based index funds.  Additionally, since his old 401k was a safe harbor plan, all contributions were immediately vested, so he didn’t lose any money in the transition.  

Marriage and Financial Adjustments

     There was another change in John’s life at the beginning of 2018.  He got married!  His wife, Susan, a school teacher, had no assets or debts.  The couple decided to continue saving/investing 25% of John’s gross income, and Susan would not work during the marriage.  John will now file taxes as married, filing jointly, which will reduce the amount he owes.  There were also federal tax changes in 2018, increasing the standard deduction and employee contribution limit on the 401k.  The couple’s new marginal tax rate dropped to 22%, which makes the Roth IRA more attractive.  

Tax Changes and Lifestyle Expansion

     John continued to follow Business is the Best Medicine’s Financial Vitals Checklist.  The family now saved/invested a total of $36,530 of their money per year or 25% of their gross income.  After paying his student loans, John saved/invested $17,227 per year.  His new salary allowed his family to expand their lifestyle.  The couple now lived off $94,914.60 per year or $7,909.55 monthly.  A larger emergency fund of $23,728.6 was required, so his first step was to add $3,954.55.  He then contributed 5% of his salary ($7,306), which his employer matched.  With all the changes in 2018, John was eligible to fully fund a Roth IRA for himself and one for Susan, even though she was no longer working.  John was able to max his out and contribute $466.45 to Susan’s.  

     Beginning in 2019, the government raised the IRA contribution limit to $6,000.  Since John had fully funded his emergency fund the previous year, he could contribute more to the family’s Roth accounts.

John’s Financial Journey through a Pandemic

      2020 was a strange year.  John maintained employment as an essential worker during the Covid-19 pandemic.  However, he did not receive a bonus at the end of the year as urgent care patient volumes declined.  His gross income for the year decreased to $141,120, leading to a decrease in his 401k contributions.  The government put federal student loans into forbearance in March, affecting his remaining college loans and part of his remaining PA school loans.  At the beginning of April 2020, these were his remaining balances.  

LoanBalancePayment w/ Interest
College Federal Loan9,658.96326.50/mo.
PA School Federal Loan21,080.05712.60/mo.
PA School Private Loan17,957.08607.02/mo.
                                                            John’s Student Loans as of 4/1/2020

       John decided to direct all the money he had been paying monthly to his student loans to only the PA School Private Loan, as it was the only one still accruing interest at that point.  This allowed him to make an additional principal payment of $1,039.10 monthly to the private loan.  By the end of 2020, the private loan balance was down to $4,189.37.  Otherwise, John kept his contributions the same.  

     Please note that as of 2018, all contribution records have changed to coincide with the calendar year.  Since the twins are both out of training, it is more convenient to proceed this way.  

2017 (July – Dec)2018 (Full Year)2019 (Full Year)2020 (Full Year)
Roth IRA1,1585,9669,9218,471
401K8,489.6514,61214,61214,112
Cash Savings03,954.5500
PA School Loan Paydown7,92015,83515,83518,773.50
College Loan Paydown1,9623,9183,918979.50
Brokerage Account0000
John’s Total Contributions, including Employer Contribution to 401k

Jane’s Transition to Attending Physician

  Jane began her first attending physician job in July of 2017 at age 29.  She worked hard but could not reach her employer’s goals and received no bonus.  Thus, she made $110,000 at her new job, $28,063 during the last six months of residency, and her $20,000 signing bonus.  Her gross income totaled $158,063 for the year.  She was motivated to save at least 25% of her gross income from her new job.  She calculated that her emergency fund should contain $25,000, so the first $11,419 went there.  She contributed 5% of her salary to her 401k so she would receive the employer match.  She made too much money to contribute to a Roth IRA.  Since her student loans were in deferment until the beginning of 2018, she directed her remaining save/invest funds into her 401k. 

Marriage and Financial Adjustments

     Jane also got married at the beginning of 2018 to Derek, a nurse she met during residency.  Derek came into the marriage without any assets or debts.  They decided that he would not work anymore once they were married.  Jane’s student loan payments started in 2018 at a combined $48,285 per year.  The couple’s marginal tax bracket was 24%, and they took the standard $24,000 deduction.  This left them with $8,153.42 in monthly living expenses.  Jane felt this was enough to live comfortably as it was more than double what she had lived off as a resident.  

     Jane worked hard to receive her incentive bonus in 2018 and reached a gross income of $250,000.  A 25% savings rate gave them $62,500 to save/invest each year, but after making student loan payments, they were left with $14,215 to contribute to Jane’s 401k.  Jane was not eligible for a Roth IRA even though she now filed as married filing jointly.  In 2019, she followed the same pattern.

Jane’s Financial Journey through a Pandemic

      Jane adopted a similar strategy for 2020, but COVID-19 had other plans.  She maintained employment but was forced to work from home doing telemedicine.  She could not meet the productivity requirements and did not receive her bonus.  She kept a 25% savings rate of her base salary, $220,000.  She continued to pay her student loans through the March 2020 payment.  When the government placed the federal loans in forbearance, she applied a similar strategy to her brother’s and moved all payments to her private loans.  She lowered her loan payments so that she could contribute enough to her 401k to get the match.  Her student loan balances and payments as of April 2020 are below.  

LoanBalancePayment w/ Interest
College Federal Loan34,169.83415.73/mo.
PA School Federal Loan145,666.121,948.33/mo.
PA School Private Loan124,085.951,659.69/mo.
Jane’s Student Loans as of 4/1/2020

     Jane’s contribution record for this period is below. 

2017 (July – Dec)2018 (Full Year)2019 (Full Year)2020 (Full Year)
Roth IRA0000
401K21,58126,71526,71522,000
Cash Savings11,419000
Medical School Loan Paydown043,296.2443,296.2442,752.81
College Loan Paydown04,988.764,988.761,247.19
Brokerage Account0000
Jane’s Total Contributions, including Employer Contribution to 401k

     This was an eventful period for the siblings, with two marriages, two new jobs, and the start of a global pandemic.  They both fared well financially due to their high income and high savings rates.  Their respective net worth statements are below.

end of year 14.5 financial journey

Student Loans & Family (Years 14.5-17.5)

John’s Financial Journey Adjustments

     For John, 2021 brought another host of changes to his financial planning.  He did not receive his anticipated raise, but he did get a bonus at the end of the year, raising his gross earnings back to $146,120.  He was able to pay off his private student loan by March of 2021.  Federal loans were still in forbearance, so he decided to take the money he had been paying to his loans and invest it instead.  This gave him an additional $15,526.50 to invest in 2021 and $19,753 in 2022.  This allowed him to fully fund both Roth IRAs and his 401k account, where the maximum employee contribution had grown to $19,500 in 2021.  Because he contributed $12,194 more to his (pre-tax) 401k, he saved 22% of that or $3,486.18 in taxes.  This amount, combined with the remaining save/invest money, was placed in his brokerage account.  

         John received a raise to $72/hr. at the beginning of 2022, his yearly gross income increased to $150,152.  Otherwise, he followed the same path as the previous year, investing any money previously paid towards his student loans.  He maxed out both Roth IRAs and his 401k, where the employee contribution limit increased to $20,500.  Any additional money from his 25% savings rate went into his brokerage account.  

Investments, Retirement Contributions and Parenthood Preparations

     Federal Student Loan Forbearance ended Sept. 1st, 2023, so John resumed payments on his two remaining student loans.  Faced with another change, John followed the Financial Vitals Checklist as a guide.  After accounting for four months of student loan payments, he contributed 5% of his salary to receive the employer match, maxed out his and Jane’s Roth IRA, and then continued contributions to his 401k.  He came up just short of maxing out his 401k.  Susan is now pregnant, and the couple is happy and looking forward to the future.  Their contributions for this period are presented below.       

202120222023
Roth IRA12,00012,00013,000
401K26,80628,007.6027,889.2
Cash Savings000
PA School Loan Paydown4,226.5002,850.4
College Loan Paydown001,306
Brokerage Account3,486.187,896.330
John’s Total Contributions, including Employer Contribution to 401k

Jane’s Financial Journey Paying Student Loans

     In 2021, Jane continued aggressively paying down her private student loan while her federal loans were in forbearance.  Fortunately, her practice site returned to in-person visits, and her volume and productivity rose.  She got her bonus in 2021, achieving a gross income of $250,000 again.  This allowed her to pay the same amount toward her private student loan and contribute enough to her 401k to get the match.  She followed the same pattern for 2022.  Towards the end of 2022, Jane reached her own “back to broke moment,” which she celebrated with her family.   

Preparing for Parenthood

     Jane paid off her private student loans in January of 2023, allowing her to increase her retirement savings.  The 401k employee contribution limit increased in 2023 to $22,500, which she reached.  Additionally, she saved a large amount in her brokerage account before resuming payment on her remaining student loans in September.  Jane received wonderful news, finding out she was pregnant!  The expecting parents are excited about the new addition to their family, scheduled to arrive in January 2024.  Overall, Jane is happy with her life, choices, and career, but she is concerned she has not received a raise after six years.  She plans to continue her career full-time after the baby is born, with Derek becoming a stay-at-home dad.  She realized that she might have to make a job change to make a higher salary in the coming years.  Her contribution log for this period is below.  

202120222023 
Roth IRA000
401K26,71526,71535,000
Cash Savings000
Medical School Loan Paydown48,28548,2857,793.32
College Loan Paydown001,662.92
Brokerage Account0030,543.76
Jane’s Total Contributions, including Employer Contribution to 401k

     The siblings are now 35 years old and firmly entrenched in their careers.  They both are married, have a child on the way, and are on solid footing financially.  Their net worth statements are below.   

end of year 17 net worth

Conclusion Part 2

     It has been 17 1/2 years since this financial journey with the twins began.  As of December 2023, John has a substantially higher net worth, nearly 3x his sister’s.  But she is catching up now that one of her student loans has been paid off.  Jane makes more money, and since they have the same savings rate, she saves and invests more each year.  She also spends more money on her lifestyle than her brother.  Their asset location is quite different; while they both have the bulk of their assets in their 401k, John has more money in his Roth, while Jane has more in her brokerage account.  This will benefit John when it comes to retirement, as he won’t have to pay taxes on his gains, while Jane will.  Stay tuned for the conclusion of our story in Part 3, coming soon.