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YFP 159: 5 Lessons Learned During a Home Refinance

Posted on by yfpadmin


5 Lessons Learned During a Home Refinance

Tim Ulbrich shares his recent experience refinancing his primary residence. He talks through the numbers, how they determined the breakeven point, the rationale for refinancing and 5 lessons learned along the way.

Summary

On this episode Tim dives into his experience and the numbers associated with refinancing his primary home with IBERIABANK/First Horizon. The big question Tim asks is, should you refinance your mortgage? To know if refinancing will make sense for your personal situation, Tim mentions that you have to take many factors into consideration including the current interest rate, monthly payment, PMI, the total amount paid over the life of the loan and how long you will live in that residence. On top of those considerations, you also have to assess all aspects of your financial plan to make sure this is the best move for you.

Tim and his wife Jess purchased their home in Columbus, Ohio in 2018 for $345,500 and put 20% down which left them with a loan amount of $276,400. They had a 30-year conventional fixed mortgage with an interest rate at 4.625%. Without taxes and insurance included, their principal and interest payment on their mortgage was $1,421.08. Jess and Tim began shopping around to refinance in early Spring of 2020 and chose to refinance with IBERIABANK/First Horizon. Their new mortgage is a 30-year fixed loan at 3% interest (difference of 1.625%) leaving them with a monthly payment of $1,136.22 (difference of $284.86).

Tim mentions that while they were happy about seeing the initial lower monthly payment and large reduction in interest, the math cannot stop there and that you have to dig into other considerations to decide if refinancing is right for you. In their discussion, Tim and Jess talked about restarting the clock on a new 30-year mortgage, the costs associated with the new loan and when their break even point would be. They also talked about how they could strategically use the monthly savings they would have. After crunching these other numbers they decided that it was a no brainer for them to refinance.

Tim also discusses 5 lessons he learned along the way while refinancing his home which include:

  • taking the time to weigh the pros and cons of refinancing to different mortgage terms
  • avoiding looking at refinancing your home in a silo without considering the rest of your financial plan
  • differences in the appraisal process
  • how much closing costs will be
  • always read documents closely and ask lots of questions

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. On this week’s show, I’m going to be flying solo to give you an inside look into the refinance that my wife recently did on our primary residence. Now, on Episode 139, Nate Hedrick, The Real Estate RPH, and I talked through should you refinance your mortgage? And I’m not going to rehash that episode in its entirety. I want to hit a few highlights that will help frame our conversation today. So let’s start with what is mortgage refinancing?

So really when you think about a mortgage as a bank or lender giving you money to pay for a home, and you, the borrower, have a certain amount of time, essentially the term, to pay that money back. And mortgage refinancing, a lender or bank gives the leftover amount to pay the existing mortgage, and you get a brand new one, which essentially resets your loan. Now, it’s possible to refinance your mortgage with the same lender. And people choose to refinance their mortgage typically either to reduce their monthly payment, reduce their overall interest, to get better equity in their home if the house went up in value, perhaps eliminate PMI, Private Mortgage Insurance, or to reduce the term of the loan, for example from a 30-year to a 20-year or a 15-year. Now, you likely qualify for a mortgage refinance if you already have a mortgage. And to get a good refinance offer, three main categories will be looked at: the equity that you have in your home, so the difference between what your home is worth and what you currently owe in terms of the mortgage; second is your credit score; and third would be other debt that you have incurred, whether that be student loan debt or credit card debt, for example. Now, since this is a new mortgage when you refinance, you’ll incur the same costs as you did when you purchased your home. Now they may look different if you’re using different companies, but you’ll still have closing costs, title fees, and so on. And that’s an important consideration as you’ll see here in a few moments with our example.

And to figure out if mortgage refinancing makes sense for your situation, you really have to know your current interest rate and your monthly payment, principle and interest — we’ll talk about that and an example here in a few moments — what that rate and payment will change to when you refinance, what your overall payment will end up being, and how long you plan to live in that home because as we talk about calculating a break-even point, essentially how much are you going to save per month relative to the costs incurred to refinance, obviously you want to be in the home longer than whatever that time period is. So the length that you’ll be in your house or that you project to be in your house — of course anything can change — is really important to consider when looking at refinancing, depending on the amount of closing costs you’ll have to pay with that new mortgage.

So that’s exactly what we are going to do today. I’m going to jump into the numbers, talk through the situation my wife Jess and I went through recently as we refinanced our home. We’ll dig into the weeds a little bit with the numbers, and then we’ll take a step back and look at some of the lessons that were learned throughout that refinancing process.

So let’s dig into the numbers. Now, we purchased our current home in Columbus, Ohio — Go Bucks! — back in October 2018 for $345,500. So that was the purchase price of the home back in October 2018. We put 20% down when we made that purchase, so our loan amount was $267,400. So again, purchase price, $345,500, because of 20% down payment, our loan amount was $267,400. Now, for financing, when we purchased this home back in October 2018, we had a 30-year conventional fixed loan at 4.625%. Now for those of you that know the current market of interest rates, that number should raise some eyebrows. Pretty much this was the peak of the market in terms of interest rates when had purchased back in October 2018. So bummer but it was what it was when we moved to Columbus at the time. Now, to distill all of this down to a monthly payment that is due on our existing mortgage, again, 30-year fixed, this was $1,421.08. And this is principle and interest only. So for those of you that currently own a home, you know that when you’re making your monthly payment to whoever your lender is, typically you’re paying principle, interest, as well as taxes and insurance. And then if you have a homeowners’ association fees or other things that are in there as well. So again, this $1,421.08, to be specific, this does not include property taxes and insurance. And for those that are curious, those additional monies for property taxes and insurance that were going to escrow for us totaled about $689 per month, which brought our total monthly payment due to just over $2,100 per month. So for this example of running the number to compare the existing mortgage with the new mortgage via the refinance, I will only use principle and interest — again, $1,421 per month — to be consistent, knowing that that is the fixed amount for the life of the loan with the 30-year fixed loan that is the product that I’m referring to. And that insurance and taxes can and will change over time. So even in the two years that we’ve lived here in Columbus, our property taxes have gone up, and usually that’s the trajectory. But when it comes to insurance, it may be that your insurance goes up or perhaps you requote that over time and you’re able to keep that cost down or even see that decrease over time.

So that was our existing situation. We were about almost this coming fall, we’d be two years into the home, monthly payment of $1,421 of principle and interest. So starting in early spring 2020 when interest rates were falling, we started shopping around to refinance. And at that time, our remaining balance due on the mortgage was $269,500. So $269,500. So again, our original loan amount back in October 2018 was $276,400. Through payments down on principle, when we looked at refinancing, our remaining balance due is $269,500. And after shopping around at a local credit union that I had worked with previously and getting several quotes online through various lenders, we ended up working with IBERIABANK/First Horizon. And a shoutout to Tony Umholtz and his team at IBERIABANK/First Horizon, including Cindy and Karen. Tony was on Episodes 136 and 154 of the Your Financial Pharmacist podcast where we talked about the pharmacist home loan product and considerations for home buying during a pandemic. So if you want to learn more about those topics, learn more about Tony, learn more about IBERIABANK/First Horizon, I would encourage you to check out Episodes 136 and 154.

So we moved forward with our application to refinance with IBERIABANK/First Horizon for the remaining loan balance due, again $269,500, for a 30-year fixed term at 3% interest. So if you remember, I said 4.625% was our original interest rate. And here, we were looking to refinance to 30-year fixed term at 3% interest. So our new monthly payment would be $1,136.22, to be specific, which is $284.86 less per month than the previous payment that was due. So our previous payment, again, $1,421. Our new payment would be $1,136. So about $285 less per month with the refinance. Now, that really shows the power of interest. And here again, we’re looking at an interest rate reduction of 1.625%, which is why that number per month in terms of savings is so significant. So again, 4.625% down to a refinance at 3%. Now, I’m not guaranteeing talking about rates, obviously that depends on current markets, individual factors related to the lendee, so I’m just highlighting here what was our case and our example.

Now, when comparing this from a mathematical standpoint, we can’t just stop there. So we look at that number, we’re like, great. $285 less per month. Who wouldn’t want to have $285 per month back in our pocket? But we need to consider that we were restarting the clock on a new 30-year mortgage, again, the definition of refinance, and I was incurring costs associated with the new loan. Right? Closing costs, including lender costs, title fees and insurance, and so on. And again, I’m not going to be representing or including property taxes or insurance, even if those are costs incurred at closing. And that really depends on the timing of payments that you’re making for escrow and whether or not you are even in escrow as those will even themselves out over time. And I’ll give some more information on that in a moment. So if we factor in No. 1, the costs associated with extending the loan back out to 30 years by looking at the total amount that would be paid over the life of the loan and we factor in the closing costs, we can then determine a break-even point for the refinance. Again, what’s it going to cost to do this? And how much are we going to save per month? And how long will it take to recoup those savings?

So let’s look first at the cost associated with extending my loan back out to 30 years by comparing the total amount that would be paid over the life of the loan if we stayed as is with our existing mortgage or if we were to refinance the loan. So for our existing mortgage, again, we would have paid it off, assuming no extra payments that would be made to reduce principle, we would have paid it off on October 1, 2048. It’s just even crazy to say that out loud. This means that we had 339 repayment — remaining payments, which would have resulted in about $482,000 that would have been paid out of pocket over the life of the loan with our existing mortgage. And the way I calculated that was taking the remaining payments due, 339, and multiplying it by our monthly payment of approximately $1,421. Now, with the new mortgage via the refinance, we would have a monthly payment of $1,136 and some change. But instead of 339 remaining payments, we would have 360 payments because again, we’re restarting this 30-year clock. So in this example, if we take $1,136, we multiply it by 360 months, we see that over the life of the loan, we’d pay $409,000 and some change. So this is where the math gets really interesting. And for those that like to geek out on this stuff, it gets exciting. Not only with the refinance are we saving $285 per month approximately, but we’re going to be saving about $73,000 in monies that are paid out even though the refinance would put us back on a 30-year clock. So by looking at the total cost over the life of the loan, we saw that was going to be the difference between $482,000 of the existing mortgage or about $409,000 if we refinance. So again, not only the reduced monthly payment but also over the life of the loan, we’re going to be saving a significant amount in terms of those monies that are paid over the life of the loan. Again, this really highlights the power of interest is real. But as I alluded to earlier, we can’t stop there as we have to think about and consider the closing costs.

So our closing costs, which as I look at our example included lender fees, the appraisal, title costs and the recording fees, were in total $3,204.75. And I would really encourage you as you look at the mounds of paperwork that are associated with a home purchase or a refinance to really look closely, especially at your closing disclosure document. This is where you’re really going to be able to see all of these fees itemized and if you begin to compare one lender to another or negotiate some of these fees, this is the document that’s really going to help you understand what these fees are. So again, for us, our closing costs included lender fees, appraisal, title costs, and a recording fee that in total came to $3,204.75. So again, even though there often is cash due at closing unless you roll it into the loan, which I would caution you to really evaluate — and I’ll talk about that in a moment — so even though there is often cash due at closing for property taxes and insurance, depending on the timing of when those payments are due and how escrow is handled, I’m excluding those here as those will essentially true up over time. And what I mean by that is that if you have money sitting in escrow today, accruing for your next property tax bill, for example, you will also be putting money into escrow at closing, again depending on the timing of the year and what’s required by your local area. So you will eventually receive those monies back if there’s a discrepancy in terms of the timing of when payments are made, which typically there is. So these will essentially balance out or true up over time, even if you’re fronting some more cash in the moment at closing. So yes, you have to bring money typically at closing to pay for those dollars going into escrow as they are collecting those monies in advance for future payments that are due, again, assuming you are using escrow. About 20% of people don’t. But again, these will even out over time. So we’re only looking at the other closing costs that are included in this example. OK, enough about escrow. Escrow is annoying, one of the reasons that we really want to get out of escrow when we refinanced.

So we are now at a point where we can determine break-even. So we know that closing costs were $3,204.75 and monthly savings due to the reduced principle and interest is about $285 per month, so essentially the question here is how many months of saving $285 would it take to recoup the investment we’re making of closing costs that were going to be incurred of about $3,205. So if we take closing cost number, $3,205 divided by $285, that shows us that it will take 11 months for us to break even. Now, this one’s a no-brainer because of the significant rate reduction and perhaps that is the case for many of you as well. But as you will see, when you have less difference in the rate, let’s say it’s closer to 1%. You’re going from a 4.2% to 3.2%, the time to break even extends as that rate difference collapses. And you must consider, as I mentioned before, a very important variable, which is how long do you anticipate being in the home? Because how long you anticipate being in the home is ultimately going to impact whether or not you see yourself in the home for that time period that it will take to be able to recoup those costs for closing.

Now, as I look at this math, one of the things this does not include that I think is worth considering is what do you decide to do with that $285 per month saved? So in this example, if I were to save $285 per month, that’s great. But what if I were to take that money and then have that money working for us, whether that be investing that money in a 401k or Roth IRA, some type of brokerage account, depending on what goals and what you’re trying to, or what if you were to take those monies and invest it in real estate or other business activities and that money may be able to grow for you? So just as one example, if you were to take that $285, invest that in an index fund over 30 years that was earning on average 7% growth, you’re looking at another roughly $330,000 of savings that would accrue over this 30-year period. So it’s important to ask yourself, as we’ll talk about here in a moment, what’s the goal with these savings if you’re going to incur savings? And are you strategically using those savings and earmarking those savings for another part of your financial plan and other goals that you have?

Now, here’s the good news. All of those calculations that I just did and walked through one-by-one to show you how we got to that decision point, we have a calculator available on the website, shoutout to Tim Church that helped us put this together. If you go to YourFinancialPharmacist.com/mortgage-refinance, you can put in the numbers. What do you currently owe? What’s your interest rate? What would be your new loan amount? What would be your new interest rate? What’s the term? And it will spit out essentially that break-even time period for you. But again, I can’t overemphasize that it’s not just the numbers. You must consider the rest of your financial plan, other goals you have, what the primary purpose is for the refinance, and even other factors, which takes us to the second part of today’s episode where I’ll briefly talk through some lessons learned throughout the refinance process.

So let’s talk through five lessons that were learned or reinforced throughout this process. No. 1, taking time to weigh the pros and cons of refinancing at a 15-year or a 30-year fixed mortgage. And while there are certainly other options, whether it be a 20-year fixed term, a 10-year fixed term, an adjustable rate mortgage, these two options, a 15-year fixed and the 30-year fixed, are the most popular products and for the majority listening will be the path forward. So I would encourage you, when you’re looking at a 15-year versus the 30-year — and this was a great exercise for my wife and I to walk through — is to do the math, but don’t stop at the math. Do the math plus, you know, think of variables such as visualizing yourself 15 or 30 years from now. How do you feel about having a mortgage payment? There’s no right answer to this. How do you feel about having a mortgage payment? And what else might be going on in your life that would help answer that question for you? So you know, for some people that I talk to, it might be that they’ll have kids that will be going onto college or some other variable that they may feel one way or another about having a mortgage payment for that period of time. But don’t underestimate that factor in visualizing yourself in that future state. Another factor to think about: How long do you plan on staying in the home? We’ve talked about this already, and you can’t always predict this but going to be a very important variable to understand. Obviously the longer than you’re in your home, depending on the rate differences that you’re seeing throughout the refinance, the more likely you are to be able to reap those benefits.

Other questions you want to be thinking about here in addition to the numbers: What are the savings over the life of the loan between the two options? And does that, how does that weigh against the increased monthly payment? So you know, what I mean by that is if somebody’s looking to go from a 30-year to a 20-year or a 15-year because they want to more aggressively pay off their home, they’re going to see as they run the math significant savings, likely over the life of the loan. Right? Because of the reduced monies that are being put toward interest. But typically if you’re going from a 30 to a 20 or a 15 and you’re staying in your current home, that’s going to mean a bigger monthly payment. So how do those savings over the life of the loan weigh against that increased monthly payment? And how much room can your budget handle in terms of a larger payment if you’re reducing the term of your loan? And what could change that you may or may not foresee? For example, do you have buffers in place that if for whatever reason that larger monthly payment were to become a concern? So do you have more than one income in the household. Do you have diversification of income? Do you have a good emergency fund? And what other goals are on your plate, whether that be student loan repayment, on track with investing, kids’ college savings, other goals that you’re trying to achieve. And do you need that extra margin or not? Perhaps can you focus at a greater extent on your mortgage repayment? The other thing, as I’ve alluded to once already, is what is the opportunity cost of having your money tied up in low interest debt? And again, there is no one right answer to this, as there typically is not when it comes to the various parts of your financial plan. So as Jess and I really weighed this, as we were looking at 30-year at a 3% versus a 15-year at 2.75%, if we looked at the savings over the life of the loan, and let’s just say for simplicity that is, I don’t know, $40,000 or $50,000 difference, how do we evaluate that against the opportunity cost of that additional $285 per month or whatever it would be as you do these calculations being tied up in an extra additional higher monthly payment that perhaps could be used elsewhere, if that’s a goal you have for investing in real estate or other things that you’re trying to do. And I think it’s important to talk through the pros and cons of that opportunity cost.

OK, so that’s No. 1, taking the time to weigh the pros and cons of refinance at a 15-year, 30-year or some other term. No. 2 is avoiding the silo effect. Now, what I mean by the silo effect is that looking at only one part of your financial plan at a time while you’re not considering the impact it will have on the other parts of your financial plan. This is really easy, whether it’s student loans, investing, or here we’re talking about refinancing, for example, you might see an advertisement or read a story about how interest rates have dropped and it’s a great time to refinance. You might even run the rates to see what it would mean for your monthly payment. But you’re only focused on that one part of your financial plan. So take a step back, look at the rest of the picture, look at all of your goals, look at what this means from a monthly cash flow standpoint, and then make that decision in the context of the rest of your financial plan. And that is really the value, one of the main values, in my opinion, of comprehensive financial planning and having a coach that can help you work through that process. And so shoutout to our YFP Planning team, our comprehensive certified financial planners, which for those that are interested can learn more at YFPPlanning.com. I would also encourage you as we’re talking here about avoiding to silo effect to really ask yourself what is the motivation to refinance? Is it to free up extra cash per month? So again, the example as we look at our example, stay at the current term but reduce your monthly payment. If so, do you have a plan again for how those monies saved will be allocated towards another goal and that will help prevent any lifestyle creep that may happen from those savings? Or is your goal to pay down the home faster and save some interest that would be paid out over the life of the loan?

No. 3 is, you know, one of the things that I saw that I heard often is the differences you can see in the appraisal process. And this was really, you know, eye-opening for me. And I think this is important. And why an appraisal matters is when you go to sell your home, obviously appraisals have an impact on the lending side. If you are trying to determine how much equity you have in your home for things like PMI and other aspects, understanding the value of your home relative to what you earn is very important. Or for those that may eventually pursue something like a HELOC to be able to have a HELOC for a variety of different reasons, whether that be real estate investing, whether that be having a backup emergency fund, your appraisal is really going to matter. And what we saw in the variance of an appraisal, what our home was worth based on comps, was when we had within the same year a HELOC appraisal done, that came in at our home at about $338,000. And again, we purchased at $345,500. And then when we went through the refinance, that came in around $371,000. So a really significant over $30,000 difference. And again, I think that shows you some of the subjectivity and variables that can go into a difference of appraisal. So I say that just to be ready for, you know, I think it’s easy to look at RedFin or look at Realtor.com or Zillow or some tool or have an idea of what you think it should be worth. But at the end of the day, the bank’s going to be using that appraisal number, that’s going to have a big impact on when it comes to either purchasing or refinancing a home or perhaps even taking out a line of credit.

No. 4 is when it relates to the cash that you need at closing, do not forget about property taxes and escrow. Now, I told you that I excluded those from the example. But I want you to be aware that often, you’re going to have to either front those costs at closing, again, depending on the timing of when all those are due, depending on if escrow is or is not involved, but that you may have a reimbursement, a payment that comes back if you have existing monies that are leftover in escrow from before the refinancing. So you want to consider your closing costs here. We talked about those, the lender fees, the title costs, if you end up buying any point, which essentially is a process where you can pay to reduce the interest rate. All of that is going to result in what you would owe in terms of costs that you’re going to have to bring in terms of cash at the table or that that can get rolled into the loan. But again, think about that in terms of the impact of what that means for interest that you’ll pay on that as you go to pay that money back. So I think this is a good reminder as you look at your closing costs that much of this can be negotiable, whether it’s lender fees, whether it is title expenses. We’ve talked about this on previous episodes of the podcast where we’ve talked about home buying. But really looking at closely understanding these fees and the disclosure documents are really important and making sure as an educated consumer, you have your best interests in mind.

And Lesson No. 5, which goes without saying but has always, always been a good reminder of how important this is, is read your documents closely and ask lots of questions. Read your payoff statements, read all about understanding your closing costs, understand your options with escrow, read all of it. It’s boring, it’s going to put you to sleep, but it’s incredibly important. The more you read, the more informed you will be, the more questions you’ll ask, and perhaps errors that you’ll catch along the way. And if nothing else, just have a good, better understanding of the process. And really be careful about teaser rates that are introductory types of rates or closing costs that get rolled into your loan because often, you may see advertisements for no closing costs, but at the end of the day, that may not be completely true as those costs might be rolled into the loan, which you’ll end up paying plus interest over the life of the loan. And here I would also encourage in this fifth lesson learned is to not undervalue the human element. So similar to car insurance, you know, it’s been my experience that yes, rates and fees matter. But so does being able to quickly communicate with an individual and to work with folks that can quickly get your question and can ultimately be there in your corner to make sure that you feel comfortable with the process. And I think the other valuable piece of working with an individual is that I saw rates vary by the day, even within the day. And having a good relationship with a lender is that somebody that can be there, ready to act for you and tell you when that best time to act may be based on what they’re seeing with rates.

So in the show notes, which again are available at YourFinancialPharmacist.com/podcast, find Episode 159, you can find the show notes, including the resources that I mentioned, previous episodes, and calculators that we have available on the website. And don’t forget to join our Facebook group, over 6,000 members strong, pharmacy professionals all across the country committed to helping one another on their path towards financial freedom. And last but not least, if you liked what you heard on this week’s episode of the podcast, please leave us a rating and review in Apple podcasts or wherever you listen to your podcasts each and every week. Thank you for joining us and have a great rest of your day.

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Why I’m Not Using My Health Savings Account to Pay for Medical Expenses

Posted on by yfpadmin

Why I’m Not Using My Health Savings Account to Pay for Medical Expenses

The post is for educational purposes and does not constitute financial advice

About a decade ago when I started my full-time pharmacist position after residency I made one of my biggest financial mistakes: Not taking advantage of a health savings account (HSA).

At that time, I received the same insurance recommendation from multiple colleagues, “It’s the best” and “It pays for everything.”

While there was no question that this PPO plan had its perks from low co-pays on medical visits and prescriptions to even having dental benefits, I had failed to understand all of my options.

Like many people, I had become victim to decision paralysis given there were 30+ options, and rather than spend hours trying to compare all of the features it was easier just to choose what everyone else had and call it a day.

And that decision cost me big because of the higher premiums I ended up paying for years of good health and the opportunity cost of not contributing to a health savings account.

High Deductible Health Plan

A health savings account is not a health plan per se but rather a benefit that’s unlocked by opting into a specific kind of plan called a high deductible health plan (HDHP).

In 2020 these plans, as defined by the IRS, are those with deductibles of at least $1,400 for an individual and $2,800 for a family. In addition, the max yearly out-of-pocket expenses cannot exceed $6,900 for individuals and $13,800 for in-network services.

Besides having a high deductible and out-of-pocket maximums, one of the distinct features of a high deductible health plan is that the monthly premiums are usually much less than traditional health plans. For example, when I switched from the traditional PPO plan to an HDHP for self plus one, my monthly premium went down by 38%!

Although the premiums are lower, the annual cost compared to traditional plans will depend on a few things but primarily on how much you use healthcare resources. For example, if you are relatively healthy in a given year, meaning without any accidents, injuries, or acute medical issues, and only go to an annual primary care visit (which is generally covered with an HDHP), then an HDHP will be a bargain compared on a premium to premium basis.

But obviously, you can’t predict the health of you and your family so some years you could end up paying more money out-of-pocket with an HDHP.

My out-of-pocket maximum (for in-network expenses) for my HDHP family plan is $6,850 and this is one of my favorite features. Knowing that 100% of expenses are covered beyond that is actually very comforting in the event that something catastrophic occurred. The old plan that I was on had an out-of-pocket maximum of $11,000.

The other consideration is that many HDHP plans will give you money every year toward your HSA just by being enrolled in the plan. Every year, my plan deposits $1,500 into my HSA for a self + one plan.

While you can incur more out-of-pocket costs with HDHP plans depending on how healthy you are, remember that the premiums are lower and this is the only way to unlock a health savings account.

health savings account limits, health savings account deduction, health savings account vs fsa, triple tax benefits, health savings account hsa, health savings account (HSA), health savings account limits 2020

What is a Health Savings Account?

An HSA allows you to contribute money on a pre-tax basis to pay for qualified medical expenses. These include costs for deductibles, copayments, coinsurance, and other expenses, but generally not premiums.

Unlike a flexible savings account or FSA, any amount you contribute is yours and you are not forced to spend it every year. The funds will be there until you use them (unless you’ve lost funds because of market changes). In addition, an HSA is portable, so anything you’ve contributed will still be yours even if you change employers.

An HSA is technically a tax-exempt trust or custodial account that is set up with a trustee. The trustee is typically a bank but could also be an insurance company or broker that offers investment options.

Although the insurance provider for the HDHP may suggest or even incentivize you to use a specific bank, you have the option to choose.

Health Savings Account Contributions for 2020

For 2020, you can contribute up to $3,550 for self and up to $7,100 for self + one and family. There’s also a catch-up contribution of an additional $1,000 for those 55 and older. These maximums include any contributions made by your health plan. For example, if you are under 55 and your HDHP contributes $1,500/year and you’re on a family plan, you can personally contribute $5,600 to get up to the max of $7,100.

You have until April 15th, 2021 to make your contributions for the 2020 tax year.

Triple Tax Benefits

So beyond being able to pay for qualified medical expenses, what’s with all the hype around HSAs?

It really comes down to one word. Taxes.

Health savings accounts have triple tax benefits.

Contributions Lower Your Adjusted Gross Income

First, any contributions you make lower your adjusted gross income. These are considered above-the-line deductions or adjustments because they reduce taxable income prior to applying the standard or itemized deductions.

Unlike other deductions which have income phaseouts, there are no income caps to get the full health savings account deduction. That’s why this is such an attractive way for pharmacists and other high-income earners to reduce their tax liability.

Plus, if you are pursuing the Public Service Loan Forgiveness program or forgiveness after 20-25 years, this is another way to lower the payments since they are based on your AGI.

This is reported on line 8 of the 1040 form via schedule 1 and form 8889.

health savings account, high deductible health plan, health savings account contributions for 2020

Contributions grow tax-free

The name health SAVINGS account is sort of a misnomer because you actually have the opportunity to invest the contributions in a variety of funds. And this is a big deal because any earnings you have on the money within your account grows tax-free.

Whether you invest or simply save the funds in an HSA or not really comes down to how you want it to function.

You could use it as an emergency fund for medical expenses you may incur in a given year or plan to pay for medical expenses on a pre-tax basis throughout the year. In those cases, you want the money to be available, and storing it in a regular savings account or another account that is not subject to substantial market risk would be best.

However, what if you were able to pay for all medical expenses out-of-pocket and avoid taking funds from your HSA for several years?

If that’s you, then you can essentially create another retirement account. Because in this case, an HSA is similar to an IRA and it is often referred to as an IRA in disguise.

By forgoing using the funds in your HSA for several years, you can then incur more risk over time and consider more aggressive investment options beyond a simple savings account.

As an example, take a look at all the funds that are offered through OptumBank, the HSA holder that I am currently using. You can see there are many different equity funds, index funds, in addition to fixed-income or bond funds, and money market.

Distributions are tax-free

The final tax advantage of an HSA is that your distributions are tax-free! However, there are some stipulations.

First, if you are under 65, the distributions you make have to be for qualified medical expenses otherwise you have to pay a 20% penalty and will be taxed according to your marginal rate. After age 65, your distributions don’t have to be for qualified medical expenses, but you will have to pay income taxes if they aren’t.

The key is that you still have to tie distributions to medical expenses you incur but here is the most important point:

You do not have to reimburse yourself through distributions in the same year that you incurred the medical expenses.

Because of this feature, you can max out your contributions for several years, invest aggressively, and then once in retirement or at some later point in time start taking distributions to “reimburse” yourself for medical expenses you’ve incurred throughout the years that you have been contributing.

This is the main reason why I’m not using the funds in my HSA to pay for medical expenses TODAY.

The key is keeping good records of receipts for proof of qualified medical expenses that you paid out-of-pocket in the event that you get audited after you’ve taken distributions. I generally scan in receipts to the cloud on an annual basis to help with recordkeeping.

If you’ve been fortunate to have good health for several years and have accumulated more money in your HSA than what you could reimburse yourself for, then you have a couple of options. You could use it for medical expenses during retirement, take distributions and just pay the taxes, or leave it as an inheritance.

Where does an HSA fit within the priority of investing?

When it comes to saving and investing, you’ve probably been told to take advantage of tax-favored accounts especially if you are looking at a long-term strategy. The two most common ways include a 401(k) or equivalent and an IRA. But where does the HSA fit?

Obviously, if you don’t have access to an HDHP, then it’s a moot point. But if you do, then because of all the tax benefits, it can often make sense to fund right after you’ve obtained an employer match if one is available.

Beyond the tax-favored accounts available to you, it will also depend on how you are prioritizing your other financial goals as well. Check out the chart below for additional guidance on prioritizing your investment accounts.

your financial pharmacist, priority of investing

 

Conclusion

The health savings account is one of the best ways to pay for medical expenses as it enables you to do so on a pre-tax basis. Contributions you make lower your AGI and there are no income phaseouts. Any earnings grow tax-free and distributions can also be made tax-free for qualified medical expenses. Despite the name, the contributions made can be aggressively invested giving the potential for greater returns over time. Because these distributions can be applied to reimburse for medical expenses from years in the past, an HSA can essentially function like an IRA.

Need Help Starting or Managing Your HSA?

Figuring out where an HSA fits into your plan can be tough if you have student loans and a lot of other competing financial priorities. If you need help funding an HSA or managing the funds within your account, you can book a free call with YFP Director of Business Development, Justin Woods, PharmD to see if YFP Planning is the right fit for you and your financial goals.

 

 

YFP 158: How Building a Platform Can Unlock Opportunities

Posted on by yfpadmin


How Building a Platform Can Unlock Opportunities

Mike Corvino, clinical pharmacist and creator of CorConsult Rx, joins Tim Church on this week’s podcast episode to share his unique journey in pharmacy, how he built his side hustle, and how he’s persevered through challenges along the way.

About Today’s Guest

Mike Corvino received a BS degree in biochemistry from Charleston Southern University and his PharmD from the Medical University of South Carolina. He is board certified as a pharmacotherapy specialist and ambulatory care pharmacist. He is also a certified diabetes care and education specialist. Currently, he works as an ambulatory care pharmacist at Fetter Health Care Network. In addition, he holds the position of adjunct assistant professor of pharmacology for the physician assistant program at Charleston Southern University. Outside of work, he is the host of the evidence-based medicine podcast called CorConsult Rx as well as the CorConsult Rx social media pages and CorConsult Rx Flash Briefing on Amazon’s Alexa device.

Summary

Mike Corvino, currently a clinical pharmacist at Fetter Healthcare, graduated pharmacy school in 2015 and became a Walgreens pharmacy manager right after. He chose not to do a residency but stayed incredibly dedicated and committed to continual learning after graduation. Mike shares that he spent all of his free time furthering his clinical knowledge including on his days off from Walgreens, free time in the day, PTO days, etc. This “self-taught” residency built him a reputation of having clinical insight and helped him get a clinical pharmacist position without formal residency training.

Mike realized in 2017 that he could take the content he was learning and teaching to another level by starting a podcast and Instagram page. Mike began the CorConsult Rx podcast which now boasts 350,000 unique downloads and has a following on Instagram of 21,000 people.

Mike shares that he doesn’t monetize his platforms specifically, but has had several professional opportunities that are paid come from them. His podcast has led to opportunities like getting a teaching position at a new PA school where he built the program from scratch as well as various speaking engagements. Mike is hopeful that opportunities that bring in additional income will continue to arise. Because of his side hustle, Mike brings in an extra $1,500 a month.

Mike also shares his tips for starting a side hustle and his advice for those that are interested in entrepreneurship.

Mentioned on the Show

Episode Transcript

Tim Church: Mike, thanks for stopping by and being part of this side hustle edition.

Mike Corvino: No problem, man. Thanks for having me.

Tim Church: If you’ve listened to any of the other side hustle interviews I’ve done, I like to start out with an icebreaker. And because you’re somebody who does a lot of clinical work, I wanted to ask you this: So the zombie apocalypse is coming, and you can only bring three medications with you. What are you bringing with you?

Mike Corvino: Oooh. Good question. Let’s grab some I guess naproxen because I’m most likely going to trip and fall in the woods while running from the zombies. Let’s see, what else? We’ll grab — we’ll throw on like maybe a Z-pack or two just to make sure, in case I get some upper respiratory infection or something like that while I’m running. Got to keep the lungs clear. And then probably some allergy medicine so I can keep my sinuses and stuff open too because I’ll be doing a lot of running I imagine during the apocalypse.

Tim Church: OK. I like that. You’ve got to be able to maneuver and be in good shape to be able to do that. That’s interesting. I thought you might go with like pain med — another pain medication or maybe a benzo. But I guess that’s not always going to be in the best situation, depending on what you’re doing.

Mike Corvino: You’ve got to stay sharp when the zombies are coming after you, you know? It’s key.

Tim Church: Well Mike, talk a little bit about your career path as a pharmacist.

Mike Corvino: OK. So I graduated pharmacy school in 2015. I did not do the residency track, which in hindsight, I guess kind of worked out but probably would have been easier I think if I had gone and done residency and gotten it out of the way and done all that training ahead of time. But went straight into working for Walgreens. Got a pharmacy manager job probably 3-4 months after graduation. And then during that time, I had spent pretty much all of my free time going back to the Medical University of South Carolina, which is where I graduated, and volunteering to help teach and help them with osties and working with students, going to topic discussions that the real residents were having, things like that, just to kind of continue my education. And then from there, managed a Walgreens for about three years and then got an opportunity to be a clinical pharmacist for a place called Fetter Healthcare Network and worked in their diabetes program. It was kind of in the early stages at that point. And so took that opportunity, switched roles and transitioned over into more of a clinical role at that point. And been doing that as my main job since — for the last going on two years now.

Tim Church: And was that position difficult to obtain without a residency?

Mike Corvino: So I would say normally, I think yes. And even in my case, you know, it was difficult in the sense that I had spent so much time kind of furthering my own clinical knowledge. You know, I basically had zero time off from 2015-2018. Like I used all of PTO from work to basically go and spend time at MUSC. We went on our first — my wife and I went on our first actual, real vacation three years after I graduated. I spent literally every second of free time, every day off that I had doing something to kind of further my own clinical knowledge. And I kind of built this sort of reputation around myself as being more on that clinical side of things and being somebody that you could go to for some more clinical insight in the retail world. And that kind of trickled over into some of the clinical world. And so I was able to kind of make that transition easy at the time that it was actually presenting itself. But it was a long kind of road to get there. But yeah, once it was actually time, the actual transition was pretty effortless because I’d been prepping myself that whole time to make that jump.

Tim Church: So what it sounds like is you did your own version of a residency, just not in the traditional sense.

Mike Corvino: Yeah, so that was kind of like our joke, me going to my old professors and we would kind of say I was doing a self-taught residency. And that was kind of the way I looked at it. I just basically said, I’m going to put in as many hours as I can progressing as a pharmacist, I’m learning everything I can possibly get my hands on. And I actually saw it as that even though it was kind of silly to say out loud. But I looked at it as almost like this is my residency. I’m going to do it this way. And so I just got laser-focused for a few years. And it all kind of came together.

Tim Church: Wow, that’s really cool. And I don’t know if I know anyone who has done that. So essentially, you’re working at MUSC for free just to get that additional training and experience.

Mike Corvino: I was like the weirdo sitting in the topic discussions and people were like — all the other residents were like, who is this guy? I was kind of like sitting in the back answering some questions and then fade into the background. But no, it was good times. It was hard, it was a long road. But it was fun.

Tim Church: So you said that diabetes management was one of the things that you’re doing at Fetter Health. Walk us through a typical day. What would that be like?

Mike Corvino: So on a day where I’m just seeing patients, basically — like I’ll take yesterday for instance. I came in around 8 or so in the morning, and I basically had patients that had been referred to me. Most of them have uncontrolled diabetes. Some of them have some other things going on as well where they’re just on a whole bunch of meds, and their primary care doc would just say, “Fix this.” And they’d get referred to me. So their appointment that day is just with me. The nurse takes them back, does their vitals and all that. If we need to run an A1C or something, we can do that ahead of time. And then I start my appointment with them, go through the medications, figure out if there’s something that needs to be changed, what can be optimized. We’ll go through like lifestyle management, go through some diet, some exercise type stuff, whatever that patient needs specifically. And then if I need to order labs or change medications, then I kind of have the autonomy to do that, which is great. And then if I need to have the patient come back and see me, which a lot of my patients it’s the first time I’m seeing them, they’re pretty poorly controlled and things like that. So a lot of times, I’ll have them come back and follow up with me two or three times. And then once they’re A1C is good, their blood pressure’s good, whatever I’m dealing with with that particular patient, then I’ll turn them back over to primary care and let them take it from there.

Tim Church: That’s really cool. And it’s interesting because the position that I have through the VA is very similar, almost verbatim exactly kind of how you’re describing it. So one of the things that always comes up when I talk to other pharmacists who are in a similar type of position is what’s the culture like at the facility with the physicians and the other clinicians that are there?

Mike Corvino: So when I first got there, I was — there was only one other clinical pharmacist that had ever been through there. And he was kind of like a contract pharmacist from MUSC. So he was on the payroll of the actual college. He was going there as part of a grant that was doing some professional collaboration type of thing. Plus, he’s actually one of my old professors, kind of one of my mentors. So he was a lot older than me, and so they kind of looked at him as a little differently. Other than that, the only pharmacist they ever interacted with were dispensing pharmacists, which we have some great dispensing pharmacists there. But they just weren’t used to pharmacists being in the clinic. So when I first got there, it was kind of like, what are you doing here? You know, why are you back here with us instead of being in the pharmacy? But I kind of took the approach of I’m here just to learn, I’m here to do anything I can to help you guys. If you need me to get your coffee for you, I’m cool with that too. You know, whatever it was. And I tried to be as humble as I possibly could. A lot of the clinicians that work there are much older than me, had been doing this for years and years. And so I was as humble as I possibly could going in even though I’m very confident in my ability. But took a very humble approach and then kind of just let my work kind of speak for itself. And then over the months, it’s gotten to the point now where I basically, anything I make as a recommendation, they’ll jump on it. Like I mean, a lot of times I help with the psych department as well. And they could bring me a patient case with them and if I say, “Hey, let’s try this, this and this,” they’ll say, “OK, let’s do it. We’ll go that route.” So I’ve built up really good rapport with the providers there now. And it’s just kind of taken a little bit for them to kind of get used to. And basically I had to kind of prove myself a little bit, which is good. And yeah, but now, it’s great. I absolutely love the providers I work with, it’s fantastic. They make my life super easy. I have so much time, more than I could ever ask for. And yeah, it’s great.

Tim Church: So prior to getting that position, you did your own version, you did the Mike Corvino residency track. But did you have any board certifications or any other credentials prior to getting that position?

Mike Corvino: So when I was at Walgreens, I started doing some MTM. And Walgreens was on board — they’ve gotten a lot more on board with MTM since I left, which is great. But when I was there, at least in our state in South Carolina, we weren’t doing a ton of it. And so I started kind of picking up some MTM on my own. And I was the pharmacy manager, so I had to run the actual pharmacy. But I wanted to kind of proof of concept the idea, and so I was doing MTM claims on my own. I’d go in on my days off sometimes and work on and basically showed how it could be lucrative. And my district manager finally approached me and said, “Hey, if we give you a day a week or two days a week where you can just work on this and we bring somebody else in to actually run the pharmacy, would you be interested?” And so I jumped on that and was able to end up — finally ended up overseeing the MTM for like 80 different Walgreens after like a year’s time. And basically got enough direct patient contact hours to where I was able to sit for the — it was called the CDE exam, Certified Diabetes Educator exam, back then. Now it’s — what? CDCS. They had to change it and add more letters. It’s hard. It’s rough.

Tim Church: It looks better. It looks better now, Mike.

Mike Corvino: If you say so. I had to memorize a whole new set of letters. It was rough. But and then after that, I took the BCPS, I didn’t find out that I passed the BCPS until I actually got to my new job at Fetter. I think I was there for like a month or two, and I found out that I had passed from when I took it. I was at Walgreens when I took it and that was right during that transition. And then I got the AmCare board certification a year later. But I think going into Fetter, the only one I knew for sure that I had was the CDE.

Tim Church: So let’s talk about board certifications for a minute. And this is a little bit off-topic, but I think it’s an interesting discussion. So you know, I have the same diabetes credential that you do and also the ambulatory care. And a lot of people will argue, especially in the pharmacy realm, that having those credentials makes you much more marketable when you’re looking for positions. And arguably, there’s some positions that they’re required that you have some sort of credentials like that in order to be even considered. What do you think now in terms of when you think about the time it takes to prepare for the exams, the cost to take them, the ongoing costs, what is your thoughts in terms of the return on the investment to even get to that point?

Mike Corvino: I really think it just depends on what you want to do. You know, I don’t think that I needed — other than the diabetes certification, which looked really good for this new job because they were wanting to do a diabetes program — I don’t think it would have made a difference either way. I don’t think any of them even knew what a BCPS or ACP or anything like that was. But I think it just depends on the job. As far as if it truly makes a difference as far as the person, I mean, me personally, if I was hiring somebody, I don’t know that I would care all that much. I mean, because when I passed like my board certifications, it wasn’t like all of a sudden I was this miraculous pharmacist comparatively to before. I mean, my knowledge was just basically proving that I knew what I knew. I think, you know, a test is a test, and you can only judge so much just because someone’s a good test taker doesn’t mean that they’re going to be fantastic with patients. So for me, I did it just because it was one of those things — one, I was told that I would never become a clinical pharmacist unless I had a residency. And then I was told that I would never be able to get board certified unless I’d done a residency and all of this kind of stuff. So honestly for me, it was more of like just a personal thing just to prove a point and prove that I could pass it. And it was more on that realm more so than it was I thought that it would make a huge difference in my actual career. But I definitely think like you said, some places like look at that and think that’s the end-all, be-all and if you don’t have that, they don’t even want to look at you. So I really just think it depends. It’s hard to judge whether it’s a good return on investment. I think it just ultimately ends up which employer you go with and how that person particularly sees it.

Tim Church: So does it get you a pay bump if you add more credentials, if you get another board certification?

Mike Corvino: No, not at my current job.

Tim Church: So I mean, I think that’s interesting too because obviously that’s not the incentive for most people why they’re doing it. But it could be one of the benefits, depending on where you are. There’s a lot of government organizations that that’s one of the ways that you can get extra steps or increase your pay. But I think it’s interesting. And I like that you said that that you would proving yourself in one respect because honestly, when I looked at kind of your resume before we jumped on here, I think most people would assume they’re like, OK, where’d you go to residency? Where’d you do your residency? Did you do a PGY2 or did you just do a PGY1?

Mike Corvino: Yeah. And that’s — usually when I tell people I didn’t do one, it’s like, well, what do you mean you didn’t do one? How did you get board-certified? There’s more than one path to do it, I promise.

Tim Church: Sure. So Mike, you’re doing well at Fetter Health Care Network working as AmCare pharmacist, working with patients, helping manage their chronic diseases. At what point do you say, I want to do something more, I want to do something beyond just my full-time position?

Mike Corvino: So realistically, I kind of started that part of it probably before — I guess it was probably 2017 when I first started thinking about ways that I could do more. And initially, it kind of just started off as a way of keeping myself accountable as far as continuing to learn. You know, it’s very easy when you get a job as a pharmacist, you can make great money in retail and it’s very easy to get a cushy paycheck and start watching Netflix instead of reading Medscape. And so I kind of just used that as a tool of I was trying — I like to teach even though I wasn’t in a position to teach at the time. And I like to teach, so I was like, well, how can I maybe use like social media or something like that as a way of helping up-and-coming students as well as kind of it would force me to keep accountable and keep learning and keep staying current with the newest evidence-based medicine trends and things like that. And so that’s kind of where all my side stuff started was that mentality. I had no intentions of it — I never even thought like six people would actually follow my stuff on social media or anything like that. It started off really as a personal thing just to kind of — I knew that if I started it, then I would keep going because I would refuse to stop at that point because I didn’t want to be like one of those people that start something for a month and then quit. And so it was more just that. It was more just an accountability thing. And then it just turned into a lot more as it went on. But initially, it was more so yeah, just something that was supposed to be very simple and just kind of almost for me. It was interesting how it kind of transformed from there.

Tim Church: And so what you’re talking, the things that you’ve done on social media, keeping yourself accountable for the clinical information, that eventually developed into you creating a podcast called CorConsultRx.

Mike Corvino: Yes.

Tim Church: So talk a little bit about that and how that got started.

Mike Corvino: So initially, it was just — CorConsultRx was just going to be like on social media for like posts and things like that. So you know, Instagram is the one that I use mainly. Facebook some, Twitter some as well. But Instagram is kind of like my main focus. And initially it was just that it was going to be just posts with like little clinical pearls or updates and things like that. I was also doing a little bit of like landmark clinical trial video reviews and things like that that I would put on YouTube. But my main focus was just posts on Instagram. And then the more I kind of got established with that, I wanted to try other avenues. And audio is kind of the other piece of the puzzle. Visual aids with social media, video from YouTube and then I wanted the audio piece. And so I kind of started — initially I was doing just like what they call flash briefings on Amazon’s Alexa. And so I learned how to like get a flash briefing going. Back then, like basically Amazon was like, if you don’t know how to code then forget you. Now it’s become like super easy. You just drag and click and you’re done. But back then, literally it was like me and my brother a glimpse in time looking through books on how to write an RSS code that would be able to be uploaded to Amazon. And then from there I got into the audio stuff and then I wanted to go full-scale podcast. And kind of worked my way through that. And that just kind of kept going and snowballed. And now it’s to the point where we just hit — so we’ve had the podcast now for two years. I think we’ve hit a little over 350,000 unique downloads and we’re on all major platforms and yeah. It’s pretty awesome now and something I absolutely love doing. But it started off as kind of just a let’s see if this can be something that could accent what we were doing on Instagram. And the podcast is now probably the main — the Instagram is still a big portal that we have a lot of followers and things on. But the podcast is kind of really where a lot of our listeners are and stuff. I brought in one of my old students, his name is Cole Swanson, he’s the co-host on the podcast. He had finished — he was on rotation with me initially and helped me with some of this stuff when it was early on. He was one of the hardest workers I had ever had on rotation. And so I asked him when he was getting closer to graduation if he’d be interested. And he jumped on board, and we’ve been going after it ever since.

Tim Church: Well, I think it’s awesome. And clearly people are really into what you’re doing and the podcast otherwise you wouldn’t have over 21,000 followers on Instagram and the number of downloads that you’ve had. But when somebody thinks about getting to that point or even just maintaining and keeping episodes going, I mean, was that difficult to do to keep it going, keeping things fresh, always coming up with new content?

Mike Corvino: So I think as far as keeping it going, the good thing about medicine is you can never get to the bottom of it. I mean, that’s one of the things we’ve actually joked about on the podcast is well, I mean, heck, we can just start back over at Episode 1 and go through the topics again if we want to. And it’ll basically be fresh because all the stuff, the guidelines will change and new meds will come out. You never really run out of topics. Ours is very broad. I mean, ours is pharmacotherapy like as a whole, evidence-based medicine. We didn’t want to like get only on one topic or one set specific area. So it was super broad range of topics that we’d go over, so that makes it easy. And as far as like kind of staying with it, when we were first starting, I just always kept everything in perspective as far as followers. Like I never really cared much about how many people were following. Now that I look at the number of followers and things on Instagram, it blows my mind that six people listen to what I have to say. And so I literally just kept that in perspective. I remember being like so crazy excited when we had hit like 100 downloads on one episode. I’d be like, “Cole, check this out! 100 people downloaded our podcast! That is ridiculous. Who are these crazy people? Why would they want to listen to us talk about anything?” I mean, it blew my mind. And so I always had that. I was always so appreciative of anybody that would take 5 seconds to glance at our stuff that I never even really thought about the fact that when we had 500 followers on Instagram, I was like, “Yo, this is great! 500 people.” And then it would just build and build and build. And so it never really got to the point where I felt like oh, come on, when is this going to happen? When are we going to finally get to the 10,000 or whatever? Just because I was just enjoying the fact that these people were — I mean, you think about 100 people, what that would actually look like if you put them in a room. And people complain that they don’t have enough followers. I’m like, 100 people have to care what you have to say. Like that’s huge. And so 21,000 is like unfathomable if I were to actually like line those people up. And so you know, I just always try to keep it in perspective. And I’m super thankful that anybody listens to my podcast. And so that’s always been a driving factor as far as I don’t want to let them down either and make sure the information’s good and something that’s entertaining and what they want to listen to and helpful and all that. So it’s actually been fairly easy to kind of keep the momentum going just because it’s grown and yeah, just looking back, it’s been like, I mean, the absolute best ride ever.

Tim Church: Is there anything you guys do to make it more entertaining? Because obviously, you know, not everyone enjoys diving into randomized clinical trials for hours upon hours. Is there a — how do you guys keep it so obviously you’re delivering the content but you always keep it entertaining and keep people engaged?

Mike Corvino: So like when I first was thinking about doing the podcast, my idea for it was I want high level nerd stuff, but then I also want it to be super laid back coffee shop type tone. And so we literally just talk as if we were going to sit down at Starbucks and then go over some stuff. Like you know, just hey, did you hear about this trial, blah, blah, blah, blah, blah. You know, we joke. I don’t act any differently on my podcast than I do in real life, which I joke around a lot. I’m always cutting up and stuff at work. I mean, I grew up surfing and things like that. I mean, before I was a pharmacist, I was a professional MMA fighter. I mean, I’ve had a very different non-medical background in my past. So now, it’s like, I say dude and I use a lot of slang. And so I just didn’t change any of that. I literally just brought that into my podcast. And I was like, yeah, this is how I talk. I’m not going to try to change it or try to make it sound like I’m something I’m not. What you hear is what you get. But we just try to make sure that the content was there but that it was just not in the typical dry format that usually that kind of stuff is presented in. There’s always like this you have to like have a certain tone when you talk about clinical medicine. It’s like, why though? Who made that stupid rule? And so we just kind of did our own thing. And it’s apparently — I mean, there’s definitely people who say that — I’ve gotten emails that say, “Hey, your stuff’s great, but it’s a little distracting when you guys go off on tangents.” I’m like, I’m sorry, but that’s how my brain works. I don’t know how to fix that. If I could, I’d probably be a lot more successful. But you know, we just keep it as honest as we can and you know, if — basically if you don’t like it, there’s so many other good podcasts that are more like lecture-style that they can definitely check those out too. So we just kind of — we’re trying to be authentic with it and let it go from there.

Tim Church: So obviously, having a platform like yours where you have a lot of followers, a lot of people download the podcast, that opens up opportunities to start monetizing that platform, not that that was the intention or is the intention. But obviously those opportunities come about. So how has the podcast and the followership allowed you to monetize that platform? Or if not, has it led to opportunities to be monetized?

Mike Corvino: So initially, my main focus for the podcast was to open up more professional doors for Cole and I. And so it wasn’t so much that I was ever trying to like monetize the podcast itself, not that I was opposed to that. But I just kind of wanted that to be the attention-grabber, if you will, and get people to kind of know who I was because of that kind of stuff and the free content that I was putting out. And then hopefully that would lead to more opportunities. And because of the podcast and because of my certain things that I’ve done clinically and whatnot, I basically was offered a chance to interview for a position of a new PA school that was being started in Charleston and was going to basically be the first one besides MUSC that had been done ever in this area. And they were a new program, and they said, “Hey, we want to bring a PharmD in to teach pharmacology.” And they wanted somebody that was looking to really like kind of build the program from scratch because they didn’t have a curriculum or anything. They had like a skeleton of what they needed to cover topic-wise. But they had not even a single PowerPoint slide made. And so they wanted someone that wanted to build the curriculum as well as, as they put it, somebody who was looking at more innovative ways of teaching. And so I really kind of went to the interview as just sort of like an experience thing. I didn’t think there was any chance that I was ever going to actually get to teach. And on paper at the time, I had no business teaching, to be totally honest. I mean, I was 28 years old. I didn’t need to be teaching grad school. And during the interview, I just kind of told them what I had been working on, the stuff I had done with like Amazon and the Amazon Alexa and different podcasts and the stuff on social media. And they said they liked it and they wanted to give me a chance and brought me onto the program. And so that was the first time where I really had like a big jump in my pay, if you will, just from something that had been kind of directly from the stuff I’d been doing with CorConsult. And since then, I’ve had speaking opportunities that have paid well and I’ve gotten other different thing and I’ve gotten opportunities to help teach things here and there, other schools and whatnot. And it’s given me a lot of other opportunities that I know will in the next probably 6 months to a year will lead to even more opportunities and things like that. Not to get too ahead of myself, but I see the path now that it’s opening up and all these different doors that it’s opening up. And so that’s really what I’ve been focused on now is kind of using it as that funnel, if you will, to open up doors that I can then jump through and keep it interesting for me from a career standpoint as well as find ways to supplement income and things like that.

Tim Church: And so how often are you teaching at the Physician Assistant program?

Mike Corvino: So I teach an hour and a half lecture twice a week, and I do that almost year-round. I have like December and January pretty much off. I do like a couple like review classes for the students that are going onto clinicals. But I don’t have like regular, set lecture times during those two months. But other than that, I just teach year-round.

Tim Church: And what kind of income does that bring in that’s extra beyond what you’re making in your full-time position?

Mike Corvino: It ends up being — with other speaking things kind of thrown in there and other opportunities, like all in all, it probably ends up being around $1,500 or so a month extra.

Tim Church: That’s a nice boost in pay, right?

Mike Corvino: Yeah, it’s a nice little thing of change.

Tim Church: And so when you look at that additional income beyond what you’re making in your full-time position, how do you funnel that extra income? How do you figure out what you’re going to do with that every month?

Mike Corvino: I don’t have like a set — I mean, some of it I reinvest make into CorConsult. And I mean, realistically, I feel very, very comfortable where I am now. My wife is a pharmacist too. She also works — she’s a pharmacy manager for Walgreens. And she works part-time with her cousin’s opioid treatment center and does clinical work for them. So we feel very comfortable financially. And so anything that we make at this point is something I try to reinvest back into the other future things, whether that’s savings or reinvesting back into CorConsult. It gives me a little bit more justification when I tell her I’m going to buy something for the studio for the house. In our house, she let me build a studio. So she deserves like an award for that because it’s pretty awesome.

Tim Church: We’ll have to add some photos of that in the show notes.

Mike Corvino: There you go. But yeah, it’s one of those things that I just kind of try to — I don’t have anything set each month that I do with it or anything. But we just kind of use it to, you know, further things along, if you will.

Tim Church: So you mentioned that besides the teaching position, that through your platform, through CorConsult, you’ve been able to get other speaking gigs kind of even in addition to that. So what do those look like? And what would those typically bring in?

Mike Corvino: It depends. So some of them will be — usually if I’m speaking at an event, it’s usually on a certain topic like I’m speaking in August on dislipidemia, doing like an hour talk on that. I did one in Hilton Head, South Carolina not too long ago that was on — I think it was diabetes I did there. I did one on just like how different ways of like staying current with inflammation, different techniques to kind of keep up-to-date with everything. I spoke at the Kennedy Center on innovation in your field and things like that. So just different topics. But it can range from anywhere from a couple hundred bucks to almost $1,000 to speak at something, it just kind of depends on the event. I mean, there’s some events that like I’ll still absolutely do for free. I mean, I’m not opposed to that at all. I don’t think I’m a fancy speaker or anything like that by any stretch of the imagination. So the fact that people want to hear me speak, I’m like, sweet. I’ll be there. You know, it just depends on the event. It can be a range of that.

Tim Church: So obviously we keep talking about CorConsult, your platform, the thousands and thousands of followers you have on Instagram. It’s not something that just happens overnight. So one of my burning questions I have is how much time are you spending on all these activities beyond your full-time position? I mean, what does that look like?

Mike Corvino: So when I first started, literally 2017 was kind of when I decided to do this, I had a talk with my wife and was like, if I’m going to do this — because she’s always been super supportive of me. And she knows I get a little crazy with my projects that I want to go on. And so she was like telling me to go for it and things like that, and I said, “Look, if I’m going to do this, I need” — because I wanted to be able to do posts on Instagram and different graphic type stuff, so I didn’t know how to use any of the software that I would need to, let alone do video editing and audio. But as far as graphic design, I didn’t know how to do that either. So I had to like go through — I went to the University of YouTube for hours on end and learned how to do all these different tutorials and things like that with Adobe After Effects and Premiere Pro and all that stuff. And so at the time, I mean, I was basically working like every second I was awake. I mean, if I was off, when I was at Walgreens, I had more days off during the week because I was working like 14-hour shifts at Walgreens. And so I would just treat the next day — if I was off, I would just treat that as a shift at Walgreens and I would work 8 a.m. to 10 p.m. on my stuff. And I would eat some lunch and just keep going back at it. And I would just treat it like that. And it took a lot of my time. I mean, I spent a long, long time kind of learning and building and trying new things and seeing what worked and what wouldn’t work. Richard Waithe from RxRadio, him and I used to talk about our after-hours was 10 p.m. to 2 p.m. And he would text me and I would text him at like 1 a.m. to see if we were still working. That was kind of like the ongoing joke for a couple years. And it’s one of those things, it’s probably not the healthiest lifestyle, but it was something that I knew I wanted to do and kind of build this platform. So it was just something I kind of made peace with in my mind as well as getting my wife’s blessing on it. And we just went for it.

Tim Church: So has that scaled back after you’ve kind of gotten a lot of the pieces under your belt and got acclimated with all the tech involved with kind of running the operations?

Mike Corvino: It definitely has to a degree. Now, it depends, though. Like last week, not at all. Last week was a bad example because even my wife was like, I don’t think I saw you take a break the entire week. And I was like, I don’t even remember last week at all. It was just all a blur. And so I mean, because I was trying to get these different things done, I was trying to help a couple of my buddies start their podcast. And you know, I had to get stuff going for my class. And so it was just a ton of stuff. So it depends on the week, but a lot of times, I do take — if you’re looking at the week as a whole, I take a lot more time off trying to do more fun stuff. We’re going on vacation in July and then again in November, which was like unheard of for us before. So I’m trying to take more time to kind of have somewhat of a more normal life. It’s still not normal by anybody’s normal standards. But it feels like I’m working way less from my point of view. And so I feel like I’m trying at least to move in that direction. But I’m also having a great time with it, so it’s hard for me to like fully get into cruising mode, if you will.

Tim Church: Yeah, and I think one of the things that always comes up is people ask the question, well how do you balance these things? And you know, there was a book that I read one time by Gary Keller called “The One Thing.” And basically he kind of refutes that idea being balanced in all parts of your life because it can shift. And if you want to be mediocre in everything, then you can balance everything. But sometimes some weeks or some seasons, you’ve really got to get the grind on if you want to be successful with whatever you’re doing. And sometimes it can take time to get back. So it sounds like I’m kind of hearing a little bit of that from you because obviously you have to hustle in order to get the kind of response to get the followers, to get the downloads that you’re getting because it’s not something that’s going to happen with little work.

Mike Corvino: Yeah. And usually when people ask me that about my work-life balance, I’m like, it’s horrible. Like I know it’s horrible. I’m not going to sit here and try to give the cliche answer of like, oh I’m very balanced. I’m not at all whatsoever balanced. But that’s what works for me personally. That’s what I need to do to reach my goals. I also have no interest in pushing that life on anybody else. I always tell a story about I had a student of mine that I was — because I always talk to my students at the beginning of the rotation, I’m like, “Hey” — because a lot of them will say, “I just want to follow your exact schedule.” I’m like, “Cool. Do you want to do my clinical schedule? Or do you want to do my real schedule?” If you want to do my real schedule, you’re in for a horrible month. And you know, I always give them that choice because I don’t ever push my work — my poor work-life balance on anybody. And I always tell the story of a student that I had where I was talking to them about different things and he said, “Honestly,” he goes, “I don’t mean to sound like a slacker or anything,” he goes, “But I want to get my PharmD, I want to do well at my job, but I really just want to make enough to where I can surf whenever I want.” Like I loved him for that. Like that’s so authentic to him. And that’s awesome. Like he’s going to do a good job, he was going to make a good income, and he’s going to enjoy what he loves doing. So I have no interest in like ever pushing my personal thought process or my goals on anybody. But when I do have — when I hear somebody that’s like, “I want to be this. I want to take over the world. Blah blah blah blah blah.” I’m like, OK. Well, if that’s the case, then I better not see you at the beach this Saturday on Instagram. You better be working because that’s not how you get there. So it just depends. Like I just basically, you know, give my two cents on that person’s specific goals. And I think that’s kind of the way I look at it. So there is no right balance for anyone. I mean, there’s no blanket statement I can say, OK, now you’re balanced. It just depends on the person, what you want to do, and are you happy? And that’s all that matters to me. It’s like, is that person happy with where they’re at in life? And if they are not, then OK, let’s work and let’s buckle down and figure out what we need to do to get to the next stage. If you are happy, that’s awesome. Good for you. That’s great. I have a buddy of mine who makes a fraction of what I make, but he’s on multiple intramural leagues and he does whatever the heck he wants, living his best life. He loves it. I’m like, that’s great. I love that for him. So it just, it really just depends on the person.

Tim Church: Well, I think it’s cool — and you mentioned this a couple times — that your wife is really supportive of the work that you’re doing. And although it may seem a little bit hectic to somebody else and depending on the life that they want to live, but it seems to work for you guys and your wife is on board with helping you reach those goals and get to the next level.

Mike Corvino: Yeah, absolutely. And if she wasn’t, then we’d have to obviously have a different conversation. Maybe I wouldn’t be able to do what I do. So it all just depends. This is working for us at this point. You know, once other things, life changes happen, I’m sure we’ll adjust and change or maybe slow down or who knows? It just depends. But yeah, it’s so far everything’s smooth sailing.

Tim Church: So Mike, obviously you’re doing a lot of great things. But one of the topics that comes up with entrepreneurship is failing or failures. Would you say that you’ve had any failures along your journey or things that really didn’t work out the way that you thought they were?

Mike Corvino: Yeah, for sure. I mean, like I said earlier just kind of briefly, basically when I got into pharmacy school, so I had been doing like some form of martial arts my entire life, like since I was a little kid. And when mixed martial arts became a thing like MMA — UFC is the big one that everybody knows about — but MMA became like a thing where there was a professional league and you could make money at it, that was like, oh my gosh, I want to do that so bad. I had been working towards that from my early — I guess late teens or early 20s. And then when I was 22-23, however old I was when I got accepted to pharmacy school, literally the same week I got a contract to fight professional MMA. And I was like, oh crap. So I like had a real dilemma there, which path I wanted to go. And I ended up doing both for a little while. I fought professionally for like two years of pharmacy school. And my first year of pharmacy school went terribly. Like I mean I was completely 100% focused on MMA. I barely went to class, barely studied, and I ended up actually getting — I don’t tell this story very much — but I actually ended up getting held back my first year. So my first year was so much fun I got to do it a second time. And like the school was literally like, why did we let this kid in here? They were like totally not wanting me to be a student there anymore. And I mean, you know, at the time, people looked at me like I was going to be a terrible — I was told by some people that I would never become a pharmacist, I didn’t belong there, blah, blah, blah. And you know, when I finally got to the crossroads of like OK, I need to pick a path that’s got the longer life expectancy as far as a career goes. I’m 32 right now, that’s like 108 in MMA years. And so you know, I was like, OK, pharmacy is kind of where it’s at. And then I got focused and I kind of just put all of my focus into pharmacy and my competitiveness into pharmacy instead of MMA. And that’s when things really turned for me. But my whole first two years of — almost my first three years of pharmacy school were like all failure to the point where literally nobody was expecting anything out of me. The fact that I have multiple board certifications and things like that, a lot of that stems from stuff that people had told me I would never be able to do back then, kind of got a little chip on my shoulder I guess from it. And a lot of that came from all the times I had done so poorly in school. If you saw my GPA from pharmacy school, you’d be like, oh gees, they let you teach people? That’s atrocious. But I mean, it’s just — I’ve redeemed myself since then and obviously I have learned good material since then. But I had a very rough start or rough half, if you will, to pharmacy school. I think I got used to being — disappointing my professors and things like that. And so it was a long turnaround period that I had to go through to kind of get the respect again and things like that. So that’s one example. There’s plenty of things I could go into, but I think — personally I think failing is super important. I think it teaches you something. I think as long as you look at it the right way, I think it’s motivating for a lot of people. I know for me, one of the best things that ever happened to me was someone telling me that I would never become a pharmacist while I was in pharmacy school. I still think about it. I’ll go on a run nowadays where it has nothing to do with pharmacy. I’ll be on a run and like, I’m so tired, I think I’m going to stop. And then I’ll think about that person telling me that and I’ll start running faster. It still motivates me to this day. And since that, I have a great relationship with that person, so it’s not like I have any ill will toward them or anything. But it’s just something that really, really motivated me and gave me a little bit of that competitiveness that I needed I guess. So I think failure is super important. There’s people that would disagree with me on that and don’t think adversity leads to success. But I definitely do. I think it’s all just the way you look at things and process what’s put in front of you.

Tim Church: Yeah, I totally agree. I mean, I think for me, I look at my own career and my path with pharmacy, with entrepreneurship, and failing has really been key. I look at people that are role models or that I look up to that are more successful in things than I am, and I look at they — typically the response what I’ve come up with is they either have better habits than I do or they failed more than I have to get to the point of where they are. So I think it’s something that’s really critical. What would you say to people who — let’s talk about pharmacists or pharmacy students specifically that are interested in pursuing a business, a side hustle, something like that but that fear of failure is just paralyzing them. What advice would you give them?

Mike Corvino: Probably just one, figuring out what your side hustle actually needs to be. There’s some people that want to build a side hustle that has to do with pharmacy because they happen to be a pharmacist, but they don’t like love it. And that I feel like is a very hard thing to do. I mean, I got very fortunate to where my career happens to be the thing that I love and am super interested in. But there’s a lot of people that’s not the case. So I think that that fear of failure comes into the fact that they don’t want to have to put in all those extra hours to begin with. And so that fear of failure is kind of amplified because if they do fail, they wasted all that time versus if you’re doing something that you love anyway, like for example, the student that I said that wanted to surf, if his business is around surf lessons or something like that, that fear of failure kind of goes down because he’s doing what he loves anyway. So if the business side of things doesn’t work out, then that’s not great. But at the same time, if that whole time he was just doing that was something he’d be doing anyway, that kind of de-escalates the fear a little bit. And then ultimately, I think that you need to really kind of figure out whose opinion I guess you’re worried about if you do fail. You know, are you worried about somebody thinking you’re a failure? Like who cares what that person thinks? I mean, even if it’s somebody close to you. I mean, ultimately, who really cares? And why do you care so much what they think? I think that’s something that a lot of people have to kind of battle with is they don’t want to put something on Instagram or social media or a podcast because they’re afraid that someone’s going to think that they’re not qualified and they’re not whatever. And I just, I don’t know, I just think you just need to really kind of figure out what’s going on internally in your own head to where that bothers you, that that person’s opinion would keep you from doing what you want to do. I think it’s something that a lot of people struggle with. And the sooner you can kind of get past that and where that is a badge of honor kind of thing and be like, look, just — I have people that I looked up to that told me that CorConsult wasn’t a good idea. And that literally like made me happy because I was like, oh man, I cannot wait to prove you wrong. This is going to be amazing. And so that’s kind of my personality from the get go. But if it’s not your personality, I think it’s important to kind of look at it in that sense of like, OK, they don’t think this is a good idea, they’re going to laugh at me if I fail. OK, this is an opportunity to prove them wrong. And if they’re right and you do fail, OK. Then you’ve got something funny to talk about later and you guys can just kind of poke fun at yourself. There’s plenty of things that I’ve done with CorConsult that haven’t worked out. So you know, I think everyone takes themselves so seriously, and they’re worried about wasting time and things like that. I mean, on paper watching Netflix is a waste of time too. And yet a majority of people do that. So it just depends on the person. But I think coming down to what you really want to do, is that really what’s going to make you happy? Or are you just doing the side hustle because you think you’re supposed to? And then ultimately caring about other people’s opinions on what you’re doing. I mean, are any of them doing side hustles or working extra or putting in extra work? Or are they all doing nonsense stuff too? It just, other people’s opinions I think is something that so many struggle with and I wish that they could kind of be eliminated from the equation. But it takes practice.

Tim Church: Definitely. You reminded me of a quote, one of the great motivational speakers Les Brown. I don’t know if it was from him or somebody that he was mentored by, but he would say that somebody else’s opinion of you does not have to become your reality. And I think you demonstrated that on multiple accounts based on your story and the things that you’ve gone through, which I think is just amazing when you look at that and you look at how people, what their perception was and what they thought of you but where you are now. It’s just amazing. So any other books or resources for pharmacists, pharmacy students, who want to get into entrepreneurship, pursuing a side hustle?

Mike Corvino: I’ve got to be careful with how I word this because I don’t want to — I’m always careful with how I say this because again, this kind of stems from my personality. I’m like very anti-books about entrepreneurship. I think if you have an idea, you need to just try and figure out how you can make that work. And I am a much more of a kinetic learner. Like it would do me no good to read through a book on how to be an entrepreneur. One, I don’t think you can truly teach entrepreneurship. I think you teach like entrepreneurial tendencies, if you will, but not true entrepreneurship. And I think that’s something that some people just have and some people just have no desire to go that route. And I think that if you have an idea or you want to try something, like try it. Because the other thing is well, what if somebody’s never written a book about the thing you want to do or the idea that you had or no one’s ever — like that doesn’t mean that it’s not a good idea or it’s not innovative or not going to work or anything like that. And I think that so many people get caught up on trying to prep for their big starting moment that they sometimes get caught up in that. I — and this is just, again, this is 100% me personally and there’s plenty of people who are way more successful than me that would disagree with this, so take it as it is. I’ve personally read like zero books on entrepreneurship. I couldn’t tell you, like when you said Les Brown, like I have no idea who that is, to be honest with you. Like I read zero stuff about that. I just, I try things that I think feel right to me. And I see what happens. I roll with it. I’m like alright, let’s roll these dice and see if this works out. If it doesn’t work out, cool. If it does, then great. I’ll take that data and apply it to this next thing I’m going to try. And I just kind of go that way. And I know that doesn’t work for everybody. And you know, if books and things like that is how you learn, that’s great. I just, me personally, it’s hard for me to kind of give advice on that because I don’t really use that tactic. I just, it doesn’t come naturally to me to do that. In fact, usually when I’m reading a book about somebody who’s telling me I’ve got to do it this way and this way, my brain defaults into, I’m going to try it the opposite just to see what happens. It’s probably a flaw. I mean, it probably would be way easier if I would just go with the grain on that one, but I just, I can’t help it. That’s just the way my brain works. And it’s just very hard for me to see someone who — like I see the life coaches and things like that. I’m like eh, I mean, cool, I wish you all the best. But I just, I have a hard time getting behind a lot of that stuff.

Tim Church: Yeah, and I mean, I think you said it. I mean, you may operate in a much different wavelength than somebody else and be willing to take more failures and hits versus trying to prep for everything that you’re going to do versus just putting it out there and start. But I think a lot of people that they’re so afraid of getting started or so afraid of putting themselves out there that they never get their idea, they never get their business off the ground just because of that. So I think you shared some really key points there. Well Mike, really appreciate you coming on the podcast, sharing your story, sharing your tips for pharmacists, for pharmacy students, who have an interest in starting a side hustle, becoming an entrepreneur. What is the best way for someone to reach out to learn more about you and what you’re doing with CorConsult?

Mike Corvino: So you can email me directly if you want. It’s just [email protected]. And CorConsult, all one word. It’s like the worst branding of all time. So CorConsultRx.com is my email. You can go to the website. You can follow me on any social media platforms, Instagram, Facebook, TikTok, any of those things, even LinkedIn, Twitter, all that good stuff. All the same handle, CorConsultRx. You can reach out to me via text if you want. I have a texting platform that you can contact me directly. It’s (415) 943-6116. I do like answer pharmacotherapy questions and stuff over text in real time. So that’s been kind of fun. But yeah, any of those things you can get in touch with me. I’m fairly easy to contact, depending on which medium you want to use.

Tim Church: Wow. Are you as fired up as I am? As Mike was telling his story, I honestly felt like I was watching the movie “Rocky” and “Going to fly now” kept coming on. Has anyone ever told you that you weren’t good enough for something? You didn’t have the training or credentials to get a particular job? Or your business idea or plan wasn’t going to work? I’ve certainly heard things like that before. Sometimes, that can be the ultimate motivation to do or stick with something. But beyond that, I think Mike illustrated that building a brand or platform can take a ton of time and effort, not just hours but even years to gain a huge following and begin to start monetizing and unlocking these opportunities. While that may seem overwhelming and intimidating, just remember as Zig Zigler said, “You don’t have to be great to start. But you have to start to be great.”

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YFP 157: Budgeting Through a Pandemic

Posted on by yfpadmin


Budgeting Through a Pandemic

Tom Arasz, a YFP team member that leads the Script Your Budget service for YFP financial planning clients, joins Tim Ulbrich on this week’s episode. Tom talks about why the budget is so important, tips and tricks for effectively budgeting through a pandemic and the spending and saving trends he has observed during the past few months with the COVID-19 pandemic.

About Today’s Guest

Tom has been an Assistant Advisor for YFP for two years. He created and runs the Script Your Budget program for YFP clients. He lives in Baltimore, Maryland with his wife, Melissa, and their dog Archie. In his spare time he enjoys mountain biking, trying new bourbons, and thinking up corny dad jokes.

Summary

Tom Arasz talks all about budgeting during the COVID-19 pandemic on this week’s podcast episode. Tom runs the Script Your Budget (SYB) program for YFP financial planning clients. SYB is a 6-8 month program that’s focused on teaching and working with professionals not just about how to create a budget, but how to plan for the future by understanding your own tendencies and purchasing behaviors. Tom meets with clients almost every month to talk about their budget and future goals.

Tom explains that budgeting is more than just not spending money; instead, it’s about being intentional with your spending. He says that in order to learn where your money is going, you have to track your expenses, analyze them and then change your behavior.

Tom recently shared with Tim, Tim and Tim the trends he’s seen in his clients’ spending during the COVID-19 pandemic. Over the last couple of months, some clients cut their expenses by 20% or more. Tom explains that there are five categories that are big movers in having such a seismic impact on spending: forbearance of federal loans, reduction of daycare cost due to closures, no new travel being booked, reduction or elimination of self-care spending like haircuts and massages, and day-to-day changes such as gas, tolls, gym memberships or coffee purchases. The reduction in spending of these five categories in April carried into the month of May where clients saw similar spending trends. However, online shopping and home purchases have seen an uptick. Tom says that people are either putting the extra savings toward their credit card debt if they have it and, if not, are dumping it in their emergency fund.

Tom’s main takeaways from analyzing clients’ budgets over the last couple of months is that an emergency fund is important, dual income (if you have a spouse or partner) and/or diversity of your income can be helpful and that laying out an emergency plan to make sure you and your partner are on the same page regarding what to do if you are facing financial hardship can help prepare you for the times we have recently experienced.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tom, thank you for taking time to come on the show.

Tom Arasz: Thanks for having me, Tim.

Tim Ulbrich: So you recently shared with Tim, Tim, and I that budget trends that you’ve noticed while working with clients during COVID-19 and your predictions for the future. And I really thought that this information and your perspective was so important to share with the rest of the YFP community as everyone has experienced some type of budget shift in the last couple of months. But before we jump into that and discuss that further, talk to us a little bit more about the work that you do with YFP as it relates to the Script Your Budget program.

Tom Arasz: Sure. So the Script Your Budget program is a 6- to 8-month long engagement that I run with our YFP clients. It was initially created completely from scratch about two years ago by myself and Tim Baker. Since then, it has evolved and improved. But at its core, it remains — it’s maintained its focus to teach working professionals how to not just create a budget but how to effectively plan for their futures by understanding their tendencies and purchasing behaviors.

Tim Ulbrich: I love it. Intentional budgeting, coaching, accountability. We’ll talk more about the specifics of what you do in that service. And as a reminder to the community, if you are looking for a comprehensive financial planning services, which here of course includes our Script Your Budget program that we’re going to talk about, you can visit YFPPlanning.com. So Tom, tell me more. I mean, seriously, doesn’t budgeting just mean don’t spend the money, maybe set a goal or something. What’s the big deal?

Tom Arasz: Yeah, so budgeting is definitely more than just not spending money. It’s about being intentional with our spending by identifying what’s more important to you and then focusing on those areas. So a budget is a plan — and really, anyone can set up a budget. But it takes more than that. You need to track your expenses so you can learn where your money has been going. And then from there, you need to analyze how you wish to change your behavior. Finally, you need to set some goals to accomplish. And I do that with our clients by meeting with them every 5-6 weeks or so to go over those expenses and see how they’re doing to change any unwanted behaviors.

Tim Ulbrich: Yeah, I love that. I mean, as you mentioned, you’ve got to track your expenses. You have to know what it has been before you talk about where things can go in the future. And I know in my own personal experience or situation, which I’m guessing is true for many, we tend to underestimate our true spending in any given category. And a look back at expenses can really help expose that and even if you’re going to reduce some of those numbers, you at least have a good baseline understanding of where they’ve been. Now Tom, you know that at YFP, we talk so much on the show as well as with our clients about the importance of finding your financial why, really understanding why do we care about this topic of money to begin with and ultimately, what is the vision and purpose that we have when it comes to managing our money and the tool that we will be able to use to accomplish the other goals and dreams that we have. So here we’re talking very granular, the budget. Why is the budget so critical to helping one be able to achieve that personal vision, that why that they have for their own financial plan?

Tom Arasz: Yeah, so I think what makes budgeting a little challenging is that each person is budgeting differently and they’re budgeting for different reasons. So each one of our clients is their own individual, they could be single, they could be married, they could have kids, they could not have kids. So ultimately, it’s my job to help them understand why they’re budgeting and how budgeting can help them with those goals.

Tim Ulbrich: Yeah, it’s a road map, right? I mean, it’s the execution plan. You’ve got the vision and you set the vision, and the budget is really the month-by-month execution of that plan so you can achieve those goals. So I know this about you, that you refer to yourself as a personal trainer but for people’s finances. Is that an accurate description?

Tom Arasz: Yeah, exactly. So personal trainer for your finances. I also like to think of myself as an accountability buddy. So I hold people’s feet to the flames. I meet with them monthly to “force” you to keep track of your expenses and then ultimately, I help you the client out by adding insight where it’s needed, praising the hard work and progress that these people make. And last but definitely not least, I like to think that I bring a ton of experience to budgeting. So I’ve seen 50-100 different budgets from the 27-year-old recently graduated or resident to the married couple with 2.5 kids focusing on trying to purchase a minivan and then ultimately retire.

Tim Ulbrich: So besides working with 50-100 different budgets, which is, as you mentioned, brings that experience, what is it about your personal situation and story that gets you so excited and passionate about budgeting and helping others in this area?

Tom Arasz: Yeah, so I acknowledge that I get really jacked up about budgeting, and that’s not necessarily for most people. But I grew up in a really stereotypical suburban family: two loving parents, two older sisters, a dog, a backyard, a fence. My dad was a banker for 35 years and instilled in us to be very fiscally responsible. My mom took turns, she worked a number of different jobs while also raising the three kids, babysitting half the kids on the block kind of a thing. So we — my parents drove very modest cars. My sisters and I wore lots of hand-me-down clothing. And my mom cooked us meals five or six nights a week. I like to joke that a fancy dinner for us was that we would go to Chili’s like once a month because they had a kids’ menu, which back then not every place had kids’ menus.

Tim Ulbrich: Yep.

Tom Arasz: And they offered free refills on soda, and my sisters and I would guzzle soda down. So my entire childhood, I thought I was kind of poor. And today, you know, as a 30-some-year-old, I realize that I was blessed with that experience. I’ve never charged a purchase that I couldn’t have outright paid for. My dream working with these clients and in this budget setting is to get everyone out of credit card debt and to live a little bit more modest. One of my favorite moments so far in the program was more than a year ago, I saw that one of our clients was paying over $400 a month for DirectTV. Yeah, which is insane. So I helped her to negotiate down. And she now pays a much more reasonable amount. And that basically saved $300+ a month, which I like to tell all my clients, when you take it from a monthly amount to a yearly amount, that’s $4,000 a year. And that’s after tax money, so really, that’s like having a $5,000 or $6,000 raise.

Tim Ulbrich: Yeah, and you can extrapolate that out further. What if you were to invest that money and do other things? And I love that example too because you and I both know when it comes to those wins, it’s not just that win, which is a win in and of itself. But it’s about the longer term win of feeling empower and hopefully getting momentum towards other goals. So I heard you right that with the Script Your Budget program, you’re meeting with clients on a monthly basis, give or take. Is that correct?
Tom Arasz: Yeah. So my focus for each client is to get them, whether it’s a person or a couple, to treat their finances as if they’re their own company like Under Armour or Google. We look at your expenses in “monthly financials.” And we discuss what areas have increased or decreased. And we talk, more importantly, why they increased or decreased. And ultimately, what do they want to do in the following months to change or to improve?

Tim Ulbrich: Love the value and power of accountability in doing that. So let’s shift gears and talk through what you saw over the last couple months during the pandemic. And you know, everyone of course is familiar with the time sequence. But we’ll go back. Mid-March is when COVID-19 really started impacting daily life in most parts of the U.S. as many states went into lockdown, people started working from home if they were able to do so, businesses and restaurants began temporarily closing their doors. So mid-March, what impact did you think this was going to have on your clients’ budget and expenses? And ultimately, did that happen? What did you end up seeing in terms of spending in the month of March and why was that the case?

Tom Arasz: So I’m in Maryland, and again, mid-March everybody was sent to work from home if you could do that. I had been working from home for about two weeks by the end of March, and at that point, I really started to think that there would be a major shift in our clients’ budgets. Obviously, the country is now in this state of pandemic. But at that time, I got 40 different budgeters on my mind, 40 different households in different cities, states, incomes and ultimately, 40 different spending habits.

Tim Ulbrich: Kind of like you have 40 different kids, huh?

Tom Arasz: I’d say 40 different close friends and 40 different friends that I care about. So by the end of March, I’m going stir-crazy. My wife and I haven’t gone anywhere for the last two or three weeks, and I’m thinking, you know, my budgeters’ financials are going to be looking great. And in reality, that just didn’t happen in March. Businesses slowed down, people started working from home, but people immediately, just like me, rushed out to the grocery stores, bought up as much frozen pizza, milk, eggs, cheese, flour, sugar, toilet paper, and even wine. And really, the month of March ended with very little impact to the savings.

Tim Ulbrich: I think that’s a great observation. I mean, that reminds me as I’m reflecting back to our household in March, yeah, I wasn’t driving to work every day and minimized some expense there but our grocery bill went up, other things went up as we were trying to make sure we had the right supplies or even if we weren’t trying to necessarily overstock in anythings, some things were just going up in price. And obviously that budget line was going up. So you mentioned to me that there were a number of changes to budgets in April that had a “seismic” impact on spending and that some clients’ expenses went down by 20% or more. What were those changes?

Tom Arasz: Yeah. So there were five big categories or big movers in the budgets that I saw. Now, obviously I’m going to go through these five. Not all of them affected each and every one of us because everyone’s different. But No. 1, we had forbearance on public loans for the next few months. And No. 2 would be daycares in certain states were closed. So obviously those first two ones don’t apply to everyone.

Tim Ulbrich: Yep.

Tom Arasz: But if they do apply to you, they could be really big. The third area would be that zero new vacation or travel was really booked by my clients. And that includes in-person entertainment as well, so that would be sporting events, baseball games, concerts, things like that. The fourth area would be self-care as well as what I like to call image shopping. Those two were practically $0 as well. So self-care would be haircuts, nails, makeup, massages. Image shopping, that to me is like higher end things like clothing, purses, shoes, things that we want to be seen in. I even include cars in this category. But these are wants not needs. And then finally, the fifth one would be our day-to-day changes. So this probably affected everyone out there. This would be transportation, so gas, tolls, Uber, car insurance. This would be also be gym memberships as most states closed gyms. This would also be our day-to-day coffee stops. Many people on their way to work or at lunchtime, they go with their coworkers, they pick up a shake or coffee or tea. This would also impact bar and restaurants. And I know that after a week or two of shutdowns, we started getting inundated with those go order takeout from your local places, keep them in business, help out servers, help out bartenders. And my wife and I definitely partake in that, but those purchases in general, especially bar tabs, went to zero. So the overall impact of these five categories, I really do like to use the word seismic because it was massive. My average client’s expenses went down by 20% but in some cases a lot more. Really, the only thing that didn’t go down or that disappointed me a little bit was people who had booked flights in prior months. You know, if you bought a flight in February or early March, you did not, for the most part, get that money back. You instead got airline credits or points, unfortunately.

Tim Ulbrich: So there’s the month of April, you start to see this “seismic shift,” so talk to us about what you begin to see in May then. Were those trends similar to what you saw happen in April?

Tom Arasz: Yeah. So May, the vast majority of my clients had very similar expenses to what they had already done in April. And the clients that I met with at the end of April, I basically told them whatever you spend in April, you’re probably going to end up doing the exact same thing in May because we unfortunately lived almost the exact same life that we had from April to May. Now this is a case-by-case basis, depending on where people live. So my New York City or my California residents’ situations are much different than say someone living in rural Arkansas. I did see a small uptick in online purchases for clothing and Amazon and stuff in May. But it’s worth mentioning really one of the few categories that I saw go up both months would be home purchases and home improvement projects.

Tim Ulbrich: OK, so that’s not just us. You know, Jess and I have talked about that. We’ve done some of that, which has been nice to catch up. But is that a trend you’re seeing as well, everyone working on their houses?

Tom Arasz: I mean, almost everyone. You know, the lawns in my neighborhood have never looked better.

Tim Ulbrich: Yeah.

Tom Arasz: And I wish, you know, we track expenses in this program. I wish we tracked numbers of rooms painted since March because that’s definitely been a popular trend. But yeah, again, a little bit different if you’re living in an apartment that you rent versus living out in the countryside in an owned house with a backyard. Some people just have more ability to do more projects than others.

Tim Ulbrich: Yeah, and I can see that going either way. Obviously if there’s a financial hardship or a time period such as the pandemic, you want to be cautious. But also, I think people had time to catch up and do things or multiple Amazon packages that are showing, right, per week or per day. Or trying to do things at home that you might otherwise go out and do, you know, whether that’s cutting hair, nails, etc. and so forth. So you know, I’m going to put you maybe in an uncomfortable position, but I like to think that through your assistance, navigating a difficult period such as this, that our clients working with you on Script Your Budget perform better than say, you know, those that aren’t doing that. Can you speak to any anecdotal evidence or successes that you’ve had along the way?

Tom Arasz: Well, I mean, yes. I don’t obviously track the expenses of people who don’t work with me. But I would like to think that I’ve helped our clients save money. And especially in this pandemic, I’d like to think that I’m helping people navigate holding onto their savings more so than without us. So I’ve been spending countless hours reading articles and blog posts about COVID-19. Not so much about like, you know, number of hospitalizations and cases, but how does this affect the day-to-day things? I realized that people were buying more toys for their kids and activities for their kids because you can’t take your kid to daycare. All of a sudden, you’re also the daycare. So we definitely saw prices go up there. We also saw price go up — you said it earlier — but with food. So even if you were buying the same amount of food as you were before COVID hit, prices in the grocery store have gone up.

Tim Ulbrich: So Tom, here we are now, most state lockdowns are starting to dissipate and businesses, restaurants, bars — of course depending on the state — are opening back up with some restrictions. So with that in mind, what do you expect to see happen to people’s budgets in the months to come?

Tom Arasz: Yeah, so we’re — first off, we’re entering summer months. And in the last two years that I’ve ran the Script Your Budget program, one of our most significant trends has been that expenses go up in late spring/early summer. You know, the weather’s nice, the days are longer, people want to be outside. Plus, people go on vacations. So I would expect my clients’ numbers to go up in the coming months no matter what. The only months where expenses are higher than in the summer in the past two years has been November and December.

Tim Ulbrich: Ah, holidays, right?

Tom Arasz: Yeah. So holidays, gift-giving, going to see family and friends, attending parties and of course, for people who don’t live at home, traveling to and from.

Tim Ulbrich: Got it. Got it. So states open back up, what happens? I mean, I assume every person will of course react differently. But generally speaking, what do you think will happen?

Tom Arasz: Yeah, so I suspect people will generally seek outdoor and less crowded areas. And I know that’s like a big “Duh, no kidding, Tom,” but you know, hiking, biking, being outside boating, fishing, those will continue to see popularity. Cookouts in backyards with friends versus going to a dining area or restaurant that’s crowded. Sporting events, when they do open back up, if they even allow people, they’ll be less crowded than if COVID hadn’t ever happened. People will even rethink going to big events such as graduations, weddings, to a certain degree. Outdoor dining in general will change. So crowded bars and restaurants will recover a bit slower. Places with outdoor seating will do a little bit better. I’m risk-averse, so I think people like me will start going to dinner on like weekdays instead of weekends. I don’t live downtown anymore, I have a backyard and a grill. But I’d rather go out on a Wednesday night with less people around and then make a fancy grilled dinner at home on the weekends. I’d rather take my wife out midday on Saturday for a drink to a cool new place when it’s less crowded than on a Saturday night. You know, so literally when places and times become crowded or popular, that’s what I’m going to avoid. And I think people will still go out, it will just be more intentional.

Tim Ulbrich: What about other areas of a person’s budget?

Tom Arasz: So I cut my hair last month, and that’s the first time I’ve cut my hair in a couple years, since meeting my wife.

Tim Ulbrich: How’d it turn out? How’d it go?

Tom Arasz: Better than you would expect. But I used to cut my hair back in the day, which if Tim Baker’s listening, he’ll start laughing.

Tim Ulbrich: Experience, yes.

Tom Arasz: Yeah, because I used to do that. So I’m a little bit different than, say, my wife, who’s like counting down the seconds to getting her hair done for the first time in awhile. So everyone’s different. For vacations, personally, I’ve been saying this for months that I’m not ready to go on airplanes or in crowded airports and that I — when this first hit, I thought to myself, everyone’s going to vacation through car. So you know, pack the family up and drive somewhere versus if you have like a 4-year-old and a 6-year-old and they put their hands on everything in an airport, you know, put them in your car instead. And then where you’re going. So going to more remote places. So backpacking, camping, things like that. Going to a more secluded beach versus going to a boardwalk or a big park.

Tim Ulbrich: That makes a lot of sense. And you know, I’m reflecting on your haircutting comment. And I decided to invest with four boys — now, one is just a year old so my wife won’t let me cut his hair yet, it’s still the baby hair — but my three others, I normally take them to a barber, it’s fairly expensive. And I was like, this is a great opportunity to invest in some equipment, watch some YouTube videos. And the lesson I learned — even though it’s gone fairly well and each cut gets better — I learned that watching somebody on YouTube can quickly instill overconfidence in the process. So you’ve got to practice. You’ve just got to get in there and do it. And it’s been a fun family experience. So are there budget categories, any other categories that you think will remain the same as they were in the middle of the COVID-19?

Tom Arasz: Probably not. You know, I think this is kind of like a hopefully a once-in-a-lifetime experience. You know, loan forbearance for those people will stick around for a few more months to September, which is nice. But daycares will open back up, self-care will open back up. I know my wife has a hair appointment coming up in a few weeks. And travel will tick back up no matter what. I do expect home expenses to go back down because we just did a whole bunch of projects. And hopefully there’s nothing else to do in the foreseeable future. But ultimately, even if numbers don’t stay the same, I really do hope that people have taken some positives away from obviously, you know, not to say the COVID-19 was positive — it was a negative thing. But some people can take some positives away from this. It’s really shown how much material possessions add up in your budget. You can save significant money by changing just some of your behaviors. And another lesson is that cooking food and eating in is way less expensive than dining out. I think a number of my clients have learned that the past few months. Even when you’re going out, you’re buying the alcoholic drinks or if you’re getting delivery, you’re tipping the drivers whereas it’s much more economical to just pick the food up yourself.

Tim Ulbrich: So I’m curious, as we talk about savings and as you call them, seismic, significant savings, where did people put the savings that they have had with such a significant drop to expenses due to student loan forbearance, you mentioned reduction of travel, perhaps dining out less, daycare? Have you heard of — I’m sure — clients accelerating other areas of their financial plan over the last couple months because of these savings?

Tom Arasz: Yeah. So I definitely can group these people, our clients, into two categories: people who are in credit card debt and people who are not in credit card debt. Anyone that has any sort of credit card debt has just been aggressively paying it off.

Tim Ulbrich: Love it.

Tom Arasz: Yeah, which is great. It really makes me happy to see. The other group, people who might not have credit card debt, the biggest thing I’ve seen is emergency fund, socking money away, keeping cash at hand. If they don’t have an emergency — if they don’t have enough of an emergency fund, they’re adding to it. And even the people who have an adequate emergency fund have been adding even more on top of it.

Tim Ulbrich: Got it.

Tom Arasz: The last couple months have been kind of stressful, to say the least. The last thing you want to worry about is money.

Tim Ulbrich: So main takeaways, Tom, that you’ve had while working with clients during this time. How adaptable were people to changes in income that they may have experienced? And ultimately, you know, what have been those big takeaways as you’ve worked with clients?

Tom Arasz: Yeah. So I mean, first off, I think that our clients have handled this tremendously. It’s not easy to deal with something you’ve never dealt with in your life before. And so even just on our monthly calls with people, they’re just happy to talk to somebody new, to have some assurance that what they’re doing is correct and is working for them. And so the main takeaways for those people, No. 1, the importance of the emergency fund. I can’t state it enough. I probably sound like a broken record to my clients. But it’s just — it’s so important. So No. 2 would be the importance of either dual incomes for couples or diversity of incomes for individual. So not putting all your eggs in one bucket. You could even think about some of my clients who own investment properties, people who have invested in dividends, stocks, things like that. The ability to crosstrain yourself or your spouse in your career, whether picking up a certification, really just making yourself more attractive to more companies and more industries. My wife and I have been very fortunate that we’re in opposite industries. So two complete industries, she’s in healthcare, I’m in business. We work for two different companies. If my company or her company were to be hit the hardest by the pandemic, we have the other one to fall back on. Now, that would put us still in a tough spot like anyone, but that’s where my third takeaway comes into play and that would be having an emergency plan. Different than an emergency fund. This is where, especially for couples, having both partners on the same page, having a shared vision, a shared understanding that if something out of our control happens, what do we do? What do we prioritize? And ultimately, how long can we weather a storm?

Tim Ulbrich: I love that concept of an emergency plan and the difference from an emergency fund. Great thing for our listeners to be thinking through as they reflect on everything that we’ve just gone through. So Tom, looking even further into the future, do you think that clients or people in general will be able to remember how to trim their budget and live off of less if they are really needing to? Or do you think that people will go back to their old ways of living and spending and not really remember what it was like to have a 10-30% reduction in their expenses?

Tom Arasz: So I don’t think that our numbers will stay the same. I think it’s pretty — it would be an impossible task to ask people to duplicate April and May’s numbers. But that’s just human nature. I mean, we’re going to go back out. We’re going to go do things. But I do truly think that people will take away some valuable lessons here. You know, is that $100 massage or that $100 bar tab with your buddies, is that really what means the most to you? Or would you rather invite some friends over in the backyard for a cookout or do something different with that money? Ultimately, I think for me, you know, what I want out of the next few months is I want to be able to see my family, and I want to be able to see my friends. And it doesn’t really cost a whole lot of money to do those things. And that’s what I’ve taken out of it. And you know, I think in the last two months, especially some of my spender clients, I think that they’ve really seen what the best month possible could be. And I think that excites a lot of people. I think that kind of instills some pride that — and some confidence in like hey, this is what we really could do.

Tim Ulbrich: Absolutely.

Tom Arasz: You know, if we locked it down.

Tim Ulbrich: I appreciate you, Tom, not only the work that you’ve done with so many of our clients and the Script Your Budget program, which I truly believe is transformative. We always talk about when it comes to achieving your long-term financial goals and ultimately achieving that why, you know, your budget is really the plan that’s going to help you get there and so the work that you’re doing I truly believe is having a significant impact on many, many lives and families. So thank you for that work, but also thank you for taking the time to join me on the show this week.

Tom Arasz: Thank you, Tim. Thanks for having me. And a quick shoutout, thanks to my parents for really instilling all of this in me. And I think we can laugh about this — thanks to my wife Melissa. She really puts up with me putting in the countless hours in the evenings to hang out with strangers on the internet.

Tim Ulbrich: That’s awesome. And I’m sure we’ll have many listening that are folks from the community that have worked with you one-on-one and so I’m sure they’ll enjoy hearing from you as well. So for those that are listening that want to learn more about our comprehensive financial planning services, which includes our Script Your Budget program led by Tom, head on over to YFPPlanning.com where you can book a free discovery call today to learn more. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating or review in Apple podcasts or wherever you listen to the show each and every week. Have a great rest of your week.

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YFP 156: Should You Refinance Your Student Loans Right Now?

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Should You Refinance Your Student Loans Right Now?

Tim Church, YFP student loan guru, joins Tim Ulbrich to talk about all things student loan refinancing. Tim discusses what refinancing is, how it differs from consolidation, the benefits, the potential drawbacks, what to look for when choosing a company, and whether or not borrowers should refinance while the CARES Act is in place.

Summary

Tim Church and Tim Ulbrich dive deep into all things student loan refinancing in this episode. Tim Church explains that refinancing student loans is similar to refinancing a home mortgage and that the general goal of refinancing is to lower the interest rate so that you’re paying less on the loan over time. Refinancing can also change the type of interest you have on a loan and the terms of the loan.

Tim explains that there are several benefits of refinancing student loans including reducing the interest rate, removing a cosigner, getting out of a variable interest rate on a loan, accelerating or catalyzing your payoff, and also the potential to get paid by a company to refinance. Since refinancing federal loans pulls them out of the federal loan system and into the private sector, there are several drawbacks to refinancing including that your student loans may not be discharged upon death or disability and that you may not be able to receive help through forbearance if you are experiencing a financial hardship.

However, with COVID-19 and the CARES Act in place, Tim says that federal loan borrowers in general should not refinance their student loans. This is because the CARES Act has allowed for a pause on making federal student loan payments without interest accruing, late fees or a reporting of a delinquent status until September 30, 2020. During this time, pharmacists with qualifying federal student loans can take the money they would normally use on their student loans and apply it to other financial priorities, like paying down credit card debt or bulking up an emergency fund. If someone is facing financial hardship, then The CARES Act is beneficial for them as they don’t need to worry about making any payments at this time. Additionally, if a pharmacist is pursuing a forgiveness program, these $0 payments are counted as a qualifying payment.

Tim also discusses the protections the federal loan system offers its borrowers, when refinancing might make sense, and why and how he refinanced his loans multiple times.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Church, welcome back to the show.

Tim Church: Thanks, Tim. Always a pleasure to be on here, whether I’m doing the interview or the interviewee.

Tim Ulbrich: Absolutely. Well, I appreciate you coming on. And so here we are, and Episode 149, we heard all about the journey you and Andria took to pay off $400,000 of debt in five years. So what’s new? The debt-free life is what? Give us the update.

Tim Church: Well, in general, it’s feeling pretty darn good. I mean, just having that massive amount of disposable income now, it just feels like that weight is off our shoulders. So anything that comes up that we need to purchase, like it’s never like, oh, do we have enough to cover that? Do we have enough to hit our other goals? But I’ll tell you, what’s interesting is it feels like there’s so many things right now competing for that disposable income. So even though the student loans are gone, it’s like, OK, let’s go onto the next thing. So we’re really looking at replacing our vehicles, we want to save for a down payment on a home, we built up our emergency fund pretty well, but all of these things are kind of going right in a row.

Tim Ulbrich: Absolutely. And we were talking a little bit before the show, I was reflecting back on the journey that Jess and I took and now looking with our four boys at home and the expense that they are, especially as we get into our grocery budget lately, my gosh, with the four of them. It’s real, though. I mean, there’s just competing priorities. And I think it’s a good reminder the value of being debt-free if that’s a possibility as it relates to your student loans, you go into that next phase of life, which is exciting. So Episode 149, we talked about the journey that you and Andria took to pay of $400,000 of debt in five years. And then we followed that up in Episode 150 and we gave our listeners a sneak peek of our newest book, authored by you, “The Pharmacist’s Guide to Conquering Student Loans.” And here we are, still in the midst of the COVID-19 pandemic and considering the impact of that pandemic and the passage of the CARES Act, which we talked about a little bit in Episode 146, questions have been popping up about refinancing student loans, when it does or does not make sense given the current situation. So we wanted to bring back onto the show our student loan guru, our very own Tim Church, to dig deeper into this topic. So Tim, back on Episode 149, you mentioned that although not the most important thing that you did to knock out your debt, one that did help in a significant way was refinancing your loans. So remind us, what is refinancing? And how does it differ from consolidation?

Tim Church: When you refinance student loans, you’re really changing or restructuring those terms. And it could be one thing or it could be a combination of things. But in general, when you refinance, you’re changing the interest rate, but you could also be changing the type of interest, either going from a fixed rate to a variable rate or variable to a fixed or some kind of a hybrid rate. Or you could also be changing the terms. So maybe your loans are 20 years or could be 30 years, and maybe you’re changing it to a 5-year, a 7-year, a 10-year. So really, what you’re doing is just, like I said, you’re just changing or restructuring what those terms are. Now, one of the things is that you can’t refinance within the federal system. And I know that there’s big talks about being able to do that one day in the future. But for a long time, especially those with graduate loans or professional loans, they’ve had very high interest rates, including myself. Most of mine were in the realm of 6.8%, so really encroaching that 7% mark. And refinance really differs from consolidation because you’re actually — your goal is to try to get a better interest rate than what you currently have or what exists whereas consolidation in general is just taking multiple loans, which could have different interest rates, combining them into one loan, and then really you get the end result of one weighted interest rate. And then usually when people are referencing consolidation, they’re talking about a direct consolidation loan, which is through the federal loan system. And sometimes that’s done to make it easier if you’re going through one of the forgiveness programs or maybe you’re trying to convert loans that didn’t qualify that you want to qualify or just overall make it a little bit easier having one servicer, one payment per month. But in essence, you’re not really changing the structure of the loan because you’re still paying the weighted interest rate of multiple loans.

Tim Ulbrich: Yeah, good distinction, Tim. One of the most common questions that we get — and I think a lot of confusion — is this difference between refinancing and consolidation. And so just to reiterate, when you’re refinancing, the goal is to actually reduce your interest rate. When you’re consolidating your loans, bringing them together, combining them into one loan, it’s a weighted average interest rate across those loans. So you’re not effectively lowering the overall interest rate but rather getting a weighted average of the interest rate of those loans. So talk to us then about the benefits of refinancing student loans. Why would one consider this path?

Tim Church: Well, it’s just kind of like refinancing a home. Your overall goal for the most part is you’re trying to get a lower interest rate than what currently exists and what you’re paying because over the course of the loan, depending on how fast you pay it off and depending on your term, you’re generally going to save more money over time because each and every month, more of your payment is going towards the principal instead of interest. So if you are making a certain payment on a loan at say 7% interest and you refinance and continue to make that same payment at a lower interest such as 5%, you’re going to pay the loan off faster because, again, more of that payment is going toward the interest. Now, there are a couple other reasons why you might consider it, so if you have a cosigner on a loan and you’re trying to remove that and take full responsibility, that might be one reason to do that. Maybe you have a variable loan. So obviously not currently — we’re not in the realm where variable interest rates on student loans are going to be tremendously high. But in some situations, that’s one of the reasons why people would get out of a variable loan because they don’t want to pay such high interest and get more toward the monthly payments. One of the interesting things that I did that I think really made a big impact when I was paying off my loans is I thought it helped accelerate or catalyze my payoff. So we already talked about in past episodes that I made some mistakes along the way, should have went for forgiveness, but sort of once I was on that path of OK, let’s get the student loans out of my life, let’s go for it, when I refinanced to a 5-year term — at one point I think I was paying like $3,200 or $3,300 was my automatic payment drafted every month, I had to make that payment. And so what it did was I knew that I had to basically shift my budget around that payment because it was such a large payment. But it forced me to make it. And so I think everybody has experience at least some point in their life, maybe not every day, but present bias where we really care more about spending our money today versus saving it or putting it towards debt or something else. And so I knew that when that payment came up, I had to have money in my bank account in order for it to process through and not default on it. So for me, it was kind of a way that I was going to get after it, I was going to accelerate and make it happen. And then one of the other benefits that is out there certainly is actually getting paid by one of these companies to refinance. So it’s a very competitive market out there, there’s a lot of players. And they’re trying to get your business. And so the nice thing is unlike a home mortgage refi where you might have to pay closing costs or some kind of fee, there really is no cost to you other than the time it takes to fill out the paperwork in order to do it. But you might actually get paid some kind of welcome bonus or new customer bonus as a result of refinancing with a particular company.

Tim Ulbrich: Yeah, great summary, Tim. And your example of your own story and having larger forced payments I think is a great one for especially — I mean, in general — but especially our new grads that are hearing this where I see that as one of the areas where income-driven repayment plans can get people in trouble where they may start off as a smaller payment and naturally expenses and lifestyle creep and other things may rise your expenses around that versus one of the benefits of a fixed, larger payment such as in your situation is it forces you to really prioritize that debt repayment and then budget around that.

Tim Church: Yeah, and I think, Tim, that there’s a couple ways to look at that. I think one side of the camp is kind of what I talked about as like we are our own worst enemy. So we need some things in place in order to protect ourselves from ourselves. But then obviously you have the other side where people say, “Well, I don’t want to have to force myself to make that payment. I’ll just choose a plan where I have to make a lower payment, and then I’ll pay extra every month.” And sometimes that works, but not always.

Tim Ulbrich: Yeah, and I think too is you do a nice job talking about on this topic in general, you’ve also got to consider the opportunity cost as you’re thinking about other priorities with your financial plan. And I think you do a great job of this in the book, “The Pharmacist’s Guide to Conquering Student Loans,” where you talk about all of the different options that are out there and really take the reader through from beginning to end, understanding those options and then determining for their own personal situation what is perhaps the best option for them to move forward based on all of these different variables that we’ve been talking about thus far and have talked about previously on the show. So certainly as you outlined, there are some perks or some benefits with refinancing student loans. But with everything going on with COVID, potential income hits in the CARES Act, is this still something, is refinancing pharmacists should even be considering right now?

Tim Church: In general, I would say no.

Tim Ulbrich: Alright. So thanks for joining us on this week’s episode. We’ve got nothing else to talk about, Tim! I mean, what do you mean, “in general, no?”

Tim Church: We answer the question.

Tim Ulbrich: So why should most pharmacists not refinance their loans right now?

Tim Church: Well, let’s look at this through the lens of what kind of loans one has. And I understand you may have federal and private, but let’s consider the majority of your loans is in one of those buckets. So if you have federal loans, one of the reasons why I would say no at this point is really because of the CARES Act. And that really was something that was just huge benefit that the federal government rolled out as a way to help students deal with their loans during this time, knowing that a lot of people have been hit with either a reduced income or completely loss of income. But essentially what this did was it allowed those who have federal loans to pause all of their payments until Sept. 30 of this year, something that is really done automatically by the servicer. But any qualifying loan such as direct federal loans, direct subsidized, direct unsubsidized, direct consolidation loans and FFEL loans and Perkins loans owned by the Department of Education, all of those qualify under that. And not only did they allow you to stop making payments, but they’re really — there’s no interest that accrues during that time. I mean, which is a huge benefit for a lot of people that are struggling financially.

Tim Ulbrich: Yeah, and I think it’s really important, we talked about this a little bit before on the Financial Considerations for COVID-19 when we talked about the CARES Act, but through Sept. 30, 2020 — and the Department of Education, for clarification, does have the option to extend this for three months if they choose to do so. That has not been done yet. But they do have the option to extend this through the end of 2020. But on qualifying loans, so as you mentioned, Tim, direct federal loans as well as those FFEL loans and Perkins loans that are owned by the Department of Education, those essentially you have a $0 payment that’s due as well as 0% interest. So the only thing excluded from this would be FFEL and Perkins loans not owned by the Department of Education, health professions loans, and private loans. So no interest, $0 payments on qualifying loans, so also talk to us about the PSLF provisions or those that are pursuing even non-PSLF, whether or not those payments count towards forgiveness.

Tim Church: Right, so those who are on the track for PSLF or non-PSLF forgiveness after 20-25 years, as you probably know, you have to be in an income-driven repayment plan and make qualifying payments during that time. Now, normally, if you’re in forbearance, those loan payments do not count towards either the 120 or depending if you’re going for 20-25 years. But because this is an administrative forbearance, any of these $0 payments, they essentially count towards the number that you’re trying to qualify for. So even during this time, it’s kind of like you’re getting a free pass without having to make that income-driven repayment but still getting the credit. So it’s actually a great time where you can shift whatever you were paying towards forgiveness in one of the income-driven plans to some other financial goal or having fun if you still have the income.

Tim Ulbrich: So Tim, you mentioned and clearly articulated that for those that have qualifying federal loans, obviously in this time period, $0 payments, 0% interest, doesn’t make sense. I think it’s also worth noting here that, you know, when you look at the major benefits of refinances, as you mentioned earlier, you’re often going and shooting for a significant reduction in interest rate that hopefully is going to save thousands and thousands of dollars over the repayment. And sometimes in doing that, you’re willing to take on some things that private lenders, even though these have largely been very, very competitive with the federal offering, in doing that, trying to accomplish that goal of reducing your interest rate and saving that money, you’re willing to take on some things with a private lenders that are different than what the federal program offers. So remind us of what those protections are that not all private lenders offer that somebody will get in the federal system.

Tim Church: Sure. So I think one of the biggest ones is the option to immediately opt in for a income-driven repayment plan. So essentially, if you have federal loans at any time, you can say, “I want to go into an income-driven repayment plan,” and they’re going to base that off of your last year’s tax return or if your income has significantly decreased since that time that you filed, that they’re going to base your payments upon that, which is really I think is a huge deal because if you are somebody who has significant income change, that is a great benefit. It’s essentially a safety net in order — if anything happens to your income. And then I think some of the other big ones are forbearance, so even if you couldn’t make the income-driven repayment payments on a particular plan, you could basically push pause. But you would be responsible for income as it would — or I’m sorry — the interest would accrue during this time on anything that was unsubsidized. And then you may not get the benefit of having your loans discharged if you happen to pass or you became permanently disabled, which is another benefit. Now, some private lenders will have those options in place, which is good. So I think that’s something to really know when you are signing that over, especially if you’re going from federal to a private lender when you refinance is know about those because if it’s something that they don’t offer, if anyone is essentially on the hook for any of those loans or if they try to cede your estate, you definitely want to have those insurance policies to really protect you in case that would happen.

Tim Ulbrich: Yeah, great stuff, Tim, too. And I think it’s also worth mentioning here, as we talked about on Episode 153 with student loan attorney Adam Minsky that there are some forgiveness provisions that are on the horizon that are being proposed in the legislature. To be clear here, nothing has been passed. This is all hearsay at this point in time. And we talked about several of those that might come to be or may not come to be, everything ranging from potentially an extension of the $0 payment, 0% interest or perhaps some forgiveness that could be happened in there for federal loans, some of those proposed legislations do and do not include private loans. So I think there’s a whole host of things that may or may not be coming. Again, at this point, nothing has been passed. But as we’ve talked about on Episode 153, one of the benefits I think for staying put if you have qualifying federal loans in addition to everything we’ve talked about, is to see how this plays out for the foreseeable future as they look at perhaps the next coronavirus relief bill that may or may not come to be.

Tim Church: Yeah, and I saw on I think it was the Facebook group and on our page, there was some people that were pretty upset about these forgiveness programs and whether or not they would go through after they’ve either paid off most of their loans or paid it off completely. So I think the bottom line is that you can’t always time when these things are going to happen, but if you have an opportunity, it might be worth waiting a little bit to see if it does come through. But I think one of the biggest things when you look at whether when you’re making that decision to refinance, there’s one huge assumption that you’re making. And I think it’s so critical. It’s that you’re assuming that when you refinance, that your income isn’t going to change or it’s going to go up, that you’re not going to have any change in your income. And I think that is such a key thing because again, those protections to either push pause or go to an income-driven repayment, that’s not necessarily going to be there depending on the lender that you’re working with. So you may have a pretty secure job or you may be in a situation where you’re not quite sure or maybe you’ve had reduced hours. And so especially in those situations, I think you’ve got to be really careful because if all of a sudden your income takes a big hit, well then you could be in a very unfortunate situation.

Tim Ulbrich: So to that point, Tim, for those that are listening that have private loans and are thinking, what the heck? I’ve been left out of all this. I was trying to do my due diligence and make payments and perhaps they’re in a financial hardship, maybe not, what options do they have? I remember seeing some states that were moving things forward, trying to work with private lenders. But as I understand it, that’s not really the same as the provisions of the CARES Act in terms of what that offers borrowers. Talk to us a little bit more about that.

Tim Church: Yeah, so there’s a number of states that believe — at the time of this recording, there’s about nine or 10 states that have stepped in to work with private lenders, including some of the big players like SoFi, Lendkey, Earnest, Navient. But basically, these provisions kind of mimic the CARES Act in that they’re also allowing borrowers to temporarily suspend payments for 90 days. They’re also waiving late fees. But I think one of the biggest things is that the interest does not stop accruing if you’re not making your payments. So that’s really the one big key distinction. And I would say that obviously, even if they’re giving you the option to suspend payments that that’s not necessarily something you should do if your income hasn’t changed and you still are able to make the payments. The other thing that they mentioned is that they’re not going to report delinquent payments to the credit bureaus if you’re going to stop making your payments during that time. Although that is an issue, actually, with people with federal loans under the CARES Act as there have been some cases reported with that.

Tim Ulbrich: Yeah, and we talked about that on Episode 153. And from everything that I can tell, that has been resolved. So some people saw a short-term ding on their credit. And that has been I think corrected. But always a good reminder to be checking your credit and your credit score. And hopefully those issues have been resolved. So Tim, based on what we’ve talked about, to be clear, what we’ve said here is most pharmacists should not be refinancing during this time period where we have the provisions of the CARES Act. Assuming that the majority that are listening have qualifying federal loans. So is there any subset where in this time period, refinancing may make sense?

Tim Church: Yeah, I thought about this myself in terms of if I was in this position and I had already refinanced my loans, which I did a number of times, you know, is that something possible? So I think those who have already refinanced once or another time and they have private loans, I would say maybe. OK? So the stipulations that would go along with that is that obviously, whatever you’re going to refinance to, that those terms are manageable. Obviously, you’re looking for a better interest rate.

Tim Ulbrich: Right.
Tim Church: So you have to come out on top and it has to make sense from a mathematical standpoint. But also, you want to be able to make those payments and not have to stretch your budget so far. I think the other thing you have to really think about — and we’ve talked about this I think a couple times already — is that you’re not anticipating any change or loss in your income because again, especially if you refinance to a more aggressive term where your payment may actually increase, that’s even more reason that you really have to be pretty confident in that. Sometimes what’s kind of nice is that you might even be able to refinance to a term that’s longer than what you are with a better interest rate with the intention that you’re going to pay extra in order to come out ahead over time. So that’s obviously an option as well. I think the other thing is you have to look at your overall financial picture and look at what your goals are and what the priority is because especially if you’re someone who has credit card debt or other goals you’re trying to accomplish, maybe you’re not going to be as aggressive right now with your student loans, especially if you’re going to have to make a bigger payment. So I think that’s something you have to take into consideration as well.

Tim Ulbrich: Yeah, such a great reminder that student loans are a really important part but only one part of the financial plan, right? We talk about this with investing as well. Really, really important part of the financial plan, but it’s only one part of the financial plan so really taking a step back and I think speaks to the value of a financial planner and a coach that can help you really look at the big picture and determine how you’re going to prioritize and strategize. And I would point to — and credit to you, Tim, for the work that you’ve done in building out the resources. If our listeners are not already aware, head on over to YourFinancialPharmacist.com, lots of great information not only on refinancing but also calculators for refinancing and other tools that can help you determine what your savings could be if you choose that as a path forward. So at this time, I want to shift and do some rapid-fire refinance Q&A. So while we have you here, I want to tee off some of those common questions that I get, you know, from listeners or out speaking and talking to pharmacists related to refinancing. And a couple of them we’ve touched on, but I want to really directly answer them, so we’re going to go through these one-by-one. So first question I have for you is what factors do you consider when selecting a lender to refinance? So lots of options out there and, you know, how many should I be considering? Should I only be looking at one? And ultimately, how do I get to that decision of which one to work with?

Tim Church: You’re absolutely right. There’s so many options out there in the marketplace now. I think that the key thing is really to shop around and make sure you’re getting the best deal. It would be unfortunate that if you refinance but you could actually get a better deal with a different company. Obviously, that’s not the only thing to consider. But I would say that that’s one of the most important factors because obviously from a mathematical standpoint is you’re trying to get the best deal in order to save the most money over time. And that may also help you accelerate your payoff. So I think that’s huge. I think the other thing is if your loans — if the loans are going to be discharged on death or disability. And to me, I think that’s really important and a really good thing if the lender is offering that because again, if for some reason you became permanently disabled, could not make your payments, you don’t want your disability insurance check that you have coming going all towards your student loans or covering a big chunk of that. I mean, you need it to live. And that’s why even some of those policies, they have student loan riders built in there as differing payments that you would have on top of your monthly benefit. So I think that’s a really important thing. And the same thing with whether they’re forgiven on death because if you’re married, have a spouse or significant other or a cosigner, you really don’t want to have to leave that debt to somebody else. And obviously you can have life insurance in place, but it’s just another thing that I think is a good benefit when you’re looking at the lender. And I think just making sure they’re a reputable one. You can go to the Better Business Bureau, I think NerdWallet has a watch list of predatory lenders that are out there. But there’s some really big names, obviously, and you can check some of those out on our website.

Tim Ulbrich: Yeah, and I think too in addition to the Better Bureau of Business rating, I think obviously you want to consider the consumer experience. And I would say it’s a great place to lean on the YFP community, jump in the Your Financial Pharmacist Facebook group, ask them a question about your experiences with different lenders. You know, you want to make sure that they’re going to be responsive in addition to obviously the variables we mentioned of finding a product that has the best rates and ultimately the terms that you’re looking for. So Tim, you mentioned in that last response the importance of loans being discharged on death or permanent disability, which would match the benefit that one would have in the federal system. So I’m guessing some may be wondering, well, how do I know that? How do I find out if a private lender does offer that?

Tim Church: Well, we have the information on the lenders that we’ve partnered with. But obviously there’s a lot more out there. So I think trying to find their facts on their website is a good place to check, but sometimes they don’t even have that. I know that back when I was first analyzing different lenders and trying to refinance, I actually had to send emails out to the company for them to get that in writing through an email to say like, yes, this is true, this is something that we offer. So sometimes it’s always not the easiest thing to find on their website.

Tim Ulbrich: And you know, you mentioned in your story — going to the next question here — you mentioned in your story, refinancing more than once. And you know, I think that’s something that often gets overlooked. So tell us more about not only one, that being an option, but why people should consider doing that and how often they might consider re-evaluating.

Tim Church: Yeah, I think looking back — so I refinanced mine three times and my wife did three times as well. And the bottom line was that each time that we did that, we were able to get a better rate. And so it really just made sense to do that because it just became more competitive. I think I started out going from 6.8% down to maybe 4% or somewhere around there. And eventually got down in the low 3%s and then with First Republic got down to even 1.95%. So each time we were able to get some savings. And there really is no limit in terms of how often one can do that. I have heard some cases for people that do it like extremely often, like multiple times a month or every two months, that you could experience a temporary hit in your credit score. But overall, I mean, it can be very beneficial. I mean again, you’re just shifting to a different servicer for the most part. And as long as they have good service, you’re really just making the same payment, could be the same terms, but just a little bit of a better interest rate. And a lot of times, as mentioned before, they can incentivize you that when you switch to a different lender that they’re going to reward you with either some interest rate reduction but also possibly some kind of a welcome or cash bonus.

Tim Ulbrich: And to that point about multiple refinances having an impact on credit, tell us about your experiences. Did you see that have a short-term impact on your credit score?

Tim Church: I really didn’t. I think the soonest that I refinanced after doing it, I think I want to say 2-3 months was the earliest that I did once I made it happen. So I never did it more frequent than that, so I can’t speak to those who might be wanting to do it more frequently. But like I said, I’ve only heard of some case reports where people have noticed — and typically, they’re not huge dings in their credit score. They’re typically small. But I guess technically, it could be much larger I guess if it was something you were doing like every week. And for those that are listening, especially any of the recent graduates, the new graduates, one of the most common questions I get is, you know, how soon can I refinance? So considering the variables that a lender would be looking at, what have you typically seen in terms of what might be the good time period for one to consider applying for that first refinance?

Tim Church: Well, I think you really have to get your plan down pat first. I mean, that is the key because once you pull that trigger and refinance, I mean, you’re essentially disqualifying yourself for any forgiveness programs. And that’s one of the biggest mistakes that I made and that I shared in the book is that you have to know that because you have to know what you’re giving up by doing that. Now if you’re someone who you think you’re committed to the private sector and forgiveness is not going to be an option or your debt-to-income ratio isn’t significantly high, then yeah, then maybe it is something that you consider. Generally, lenders are not going to even allow you to refinance until you’ve proven income. And I think now, especially during the COVID time, they’re actually being stricter on who they’re going to lend money to and be able to refinance because it’s — I think I want to say one of the lenders, initially they only needed like your last paycheck or last two. And now they’re upping it to your last three paychecks to make sure that you’ve had consistent income. So a lot of times, you have to wait. I mean, I really wouldn’t even consider it during this time if you’re a new graduate and you have federal loans. You have the grace period anyway.

Tim Ulbrich: Right.

Tim Church: But then on top of that, you have the CARES Act in place. You’re not forced to make any payments. So I would really just take the time, explore all of your options, make sure you know exactly what kind of position you’re going to take and how that’s going to impact your student loan options. And then, you know, once the grace period passes or you get to that point, then you can kind of decide which route you’re going to go.

Tim Ulbrich: Yeah, such a great reminder. For those that are or are not new or recent graduates, just the reminder that you want to have clarity on your repayment plan, so really determining the strategy first. And then if you get to the answer that refinance is best for you for whatever reason, obviously not in the moment likely for those that have qualifying federal loans but in the future, OK, then you start to go down the path. But you want to be crystal clear that that is the right path for your personal repayment strategy. Tim, last question I get asked all the time is how to apply with one of these private refinance lenders and I see they’re giving me fixed and variable rates to consider. Talk to me about what factors one should consider that would help them determine whether or not they may take the fixed option or the variable. And of course, we’re not specific rates here, so we don’t know what those rates are. But just generally speaking how to evaluate fixed versus variable rates.

Tim Church: Yeah, I think this is a tough one because like a lot of other products out there, even like mortgages, the variable rates are going to be very sexy, very flashy. They’re typically going to be lower than what fixed rates are available. And that can be very enticing to want to go that route. The problem is that if something happens in the market and rates significantly change, your payment can change and the amount that you pay in interest can significantly change. And it’s hard to predict into the future exactly how that’s going to fluctuate. Now, right now you might make the argument that most likely, we’re not going to see rates climb in the short term foreseeable future. But again, is that actually going to happen? It’s hard to exactly say. And if you’re even considering a variable rate, you want to know what the top end rate is going to be. Usually, there’s terms with regards to how frequent those rates can change but then also a maximum that you could pay in that situation. So I know there’s a lot of people that they’re comfortable with that level of risk and with that rate changing and the fact that they could refinance again to get out of it if needed. And certainly that’s one way to look at it. Me, I was never in that camp where I was comfortable with that risk, even if it was a small percentage improvement, I’m going fixed so I know exactly what’s coming out of my monthly budget or at least what the minimum payment is, and I’m not going to have any surprises along the way. So that made me feel really comfortable knowing that, even if it was, like I said, a little bit of a higher interest rate.

Tim Ulbrich: I think this is a good reminder for our listeners to check out our refinance calculator and tool on the YourFinancialPharmacist.com website and do the math. I mean, run the math on best case, worst case scenario of the variable rate. And, you know, to your point, really ask yourself what risk tolerance do you have but also what margin do you have in your budget? So you know, if you see that math on variable rate worst case scenario and you say, “Oo, I don’t know if I have the margin month-by-month for that difference,” then that might answer your question. But you know, if the rate difference is that significant, the savings are potentially that significant and you do have some margin, well then that might help inform which direction you take as well. So Tim Church, great stuff. And as a reminder to our community, “The Pharmacist’s Guide to Conquering Student Loans,” our latest book authored by Tim Church, “How to confidently choose the best payoff strategy that saves you the most money,” pick up your copy today at PharmDLoans.com. It’s a great book whether you’re overwhelmed with student loans or confused about repayment plans that exist, unsure if the strategy that you have in place today is the best one or perhaps a new graduate trying to determine what strategy is the best one forward or those that are feeling anxious about how to handle loans during residency or during a financial hardship, this book is for you. I can attest to it. I’ve read it. I think it does a great job of talking through all of the repayment options and strategies and really presents a very complicated topic and presents it an easy-to-understand and more importantly, actionable way that’s all customized for the pharmacy professional and written by someone who has done it. No theory, no case studies, but actual execution. So again, you can pick up your copy today, PharmDLoans.com. Again, PharmDLoans.com. And as always, if you like what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave a rating and review on Apple podcasts or wherever you listen to your podcasts each and every week. Have a great rest of your day.

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YFP 155: Why You Need Professional Liability Insurance

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Professional Liability Insurance for Pharmacists

Tim Baker talks through what professional liability insurance is, why it’s important, who needs it and what to look for when shopping for a policy.

Summary

On this episode sponsored by HPSO, Tim Baker discusses the ins and outs of professional liability insurance for pharmacy. Working as a pharmacist without professional liability insurance or malpractice insurance is a risk that could cost you your assets including your home or retirement and could also leave you bankrupt or with your wages being garnished.

He explains that insurance is essentially a risk transfer, meaning you’re moving the risk by contract from yourself to an insurance company. The company takes a premium from you and if an incident is filed, then the policy will pay you out. Tim says that facing a lawsuit for malpractice can be absolutely devastating to your financial plan and future independence, and the cost of the premium for professional liability insurance is so low that everyone should really look into being covered.

A liability insurance policy provides coverage in a number of areas, including $1 million for each claim, license protection, loss of wages, attorney fees, actions taken against you while volunteering or giving verbal advice, and claims from previous employers. If your employer offers liability insurance, Tim says that this is more of a perk and not a plan. The employer policy is there to protect the institution and not necessarily the employee. If you have an employer plan, you need to find out if the coverage is high enough to cover all of the employees and if it will protect your license or provide money for lost wages or board hearings.

Tim shares that when shopping or evaluating a policy, it’s best to work with an insurance provider who is plugged into your profession. He says that you have to also look at what is being covered, how easy it is to set up, the education provided and how good their customer service is. He recommends HPSO as they insure over 100,000 pharmacists, lead in terms of education and are sponsored by APhA. You can learn more about HPSO here.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: On the day of the incident, the patient was admitted to the hospital due to nausea and vomiting to rule out possible gallbladder disease. The admitting provider ordered Reglan 5 milligrams IV push four times per day. The Reglan did not relieve the patient’s nausea, so the nurse requested the provider change to another drug. The provider discontinued the Reglan and order Promethazine 25 milligrams IV push four times a day. After the medication order was received and reviewed by the pharmacy, it was delivered to the medical floor. The nurse administered the medication via IV push in less than one minute, and that was undiluted. The patient immediately experienced pain, complaining that his left wrist felt like it was on fire. The nurse flushed the IV site several times after administering the Promethazine and stated the pain would subside in a few minutes. About an hour later, the patient’s IV site was noticeably swollen and continued to hurt. The nurse made the decision to remove the IV and notify the admitting practitioner of the patient’s complaints. Initially, the patient’s practitioner treated the IV infiltration conservatively. However, over the next several hours, the patient developed progressive swelling, discoloration, and numbness. Once it was determined that the patient had developed compartmental syndrome, he was urgently taken to surgery for decompression of the compartments of the left hand and surgery of the left hand. After surgery, the patient developed sepsis and was transferred to a higher acuity care hospital, which had a hand surgeon who took over the patient’s care. After his physiological status improved, he underwent two additional surgeries. He was then discharged home with daily wound care and physical therapy to be performed by a home health provider. Currently, the patient has very limited motor control over his left wrist and arm due to contractures and nerve damage from the compartment syndrome. He experiences a constant aching in his extremities as well as severe burning, stabbing and electric shock-like pain, which is associate with complex regional pain syndrome. Because his injury occurred to his dominant hand, he was unable to return to work as an aircraft mechanic and was forced into disability. The nurse, pharmacist on duty, director of pharmacy, and hospital were all included in the lawsuit. Allegations against pharmacists on duty included failure to provide written and/or oral instructions on the causative effects of Promethazine when given IV as well as providing a causative medication Promethazine in undiluted form without any instructions as to how to appropriately dilute and administer the medication. Allegations made against the director of pharmacy included his failure to establish a pharmacy policy on Promethazine detailing how to administer the medication safely. The hospital declared bankruptcy prior to filing the lawsuit, leaving the two insurers as the main defendants. During deposition, the nurse testified that he was unaware how to administer Promethazine and dependent on the pharmacist and the pharmacy department to provide medication safety instructions and warning. Both insurers acknowledged during their depositions that they understood how caustic Promethazine can be if it extravagates into the tissues and how serious consequent injuries can be. Neither could explain why a pharmacy protocol had never been developed for Promethazine administration. The likelihood of prevailing at trial was estimated to be between 35-40%. A collective settlement was made on behalf of the pharmacist on duty and the director of pharmacy with indemnity payments and expenses in excess of $740,000. Wow. Tim Baker, when you hear that story, if that is your client, whether it be the pharmacist or the director of pharmacy, what are the implications for them personally and to their financial plan?

Tim Baker: Yeah, I think it’s devastating. That type of catastrophic loss is — it’s almost impossible to come back from. So you know, from a personal perspective, obviously your heart goes out to the patient that was negatively affected for the rest of their life and obviously losing a lot of function in the hand and everything. But from the client perspective, you know, this is a — obviously it’s a shot in the arm, to say the least, with regard to the ability to grow wealth. You know, this is probably looking at wiping out assets like a home, retirement savings, you’re probably looking at bankruptcy yourself, garnishes of wages, even the likelihood of return to pharmacy in some form or fashion is probably gone. So what most of us are striving to, and it’s really our mission, is to help pharmacists achieve financial independence. That’s going to be different for a lot of people. Regardless, a loss like this is going to put a dent in that no matter how you define financial dependence. So this is one where, you know, when I first read through this case study — and I’m not a pharmacist — like it gave me anxiety because you’re just thinking like you could see where this was going. And it’s devastating. That’s the word that comes to midn the most.

Tim Ulbrich: Yeah, and I think, Tim, you know, as we continue to see the pharmacist’s role expand, which is a great thing for our profession and great thing I think for patients as we know the expertise they can bring to the medical team, I think we’re going to see more and more opportunities where the expansion of that role leads to pharmacists being brought into lawsuits, right?

Tim Baker: Yeah.

Tim Ulbrich: So we’re now obviously seeing a good evolution away from just the distribution function of the medication, which in and of itself can bring potential errors and lawsuits that we have I think been well versed in and know of. But when you start to get into the clinical realms and the variety of clinical roles that we’re seeing pharmacists play, that certainly is going to expand. And I think it’s helpful to hear stories. This is one example, so I know our hospital pharmacists listening are going to hear this and say, yeah, you know, they can see this. They can visualize, they can relate to it. And I know when I was in school and we were taught about professional liability insurance, like it’s just hard to wrap my arms around like what would this be? And what are the situations? And how really significant is this risk? And so I think it’s helpful to hear examples, and this is one. You know, there’s some other examples that we highlighted in “Seven Figure Pharmacist” that have involved a pharmacist, a prostate gland suppository (?) that’s given instead of Progesterone that resulted in premature delivery of an infant that had neurological complications, a man who obtained sensitive medical information about his wife without her consent, a young child who received propylthiouracil instead of mercaptopurine that resulted in recurrence of leukemia and eventually in death. So these are unfortunate but true stories of pharmacists’ errors. And these errors obviously can result in significant financial implications. And so I think it’s important, Tim, that we take a step back and just think about what is insurance? So here, we’re talking about professional liability, but health, home, auto, life, disability, we’ve talked about many of those on the show. What’s the basic definition and purpose of insurance and the role that it plays in the financial plan?

Tim Baker: Yeah, so this — what insurance really is is it’s risk transfer. So we’re essentially moving the risk of some — so a risk is basically a condition where there’s a possibility of at least two outcomes: one being undesirable. And typically, those undesirable outcomes, you know, they’re losses. So this could be a loss of income, this could be a loss in a lawsuit where you have a liability to pay. The loss is really that disappearance or reduction in value. So what we do is, you know, we transfer that risk by contract from ourselves, the individual, to an insurance company. And basically, the insurance company is taking the premium, so this is what we pay for the policies, and they’re using the rule of large numbers. So basically the group is paying for these policies, and then if one member of the group has a loss, then you know, that’s where the policy pays out. So you know, a lot of us when we think about insurance, we use different methods to manage that risk. So you know, the big one that we’re talking about here is transfer the risk, but you know, a lot of us, we retain that or we self-insure. The example that I give for self-insurance is we have Benji the dog. And Benji, we looked at pet insurance, but we knew that those premiums would go up, so we just have an Ally account where we would have put those premiums toward that policy, we self-insure that risk.

Tim Ulbrich: Right.

Tim Baker: You know, there’s ways to avoid it. So like if you’re not in hospital pharmacy, we’ll talk about maybe some of the careers in pharmacy where you don’t need it. But at the end of the day, you know, this is something that is so — it can be so devastating. And I think the tradeoff in terms of the cost of the premium for professional liability that we’re talking about today, it’s almost — I don’t want to say it’s a no-brainer, but it’s almost a no-brainer. And if you are unsure because of where pharmacy practice is evolving and headed, I would buy a policy because it’s very cheap. And the downside is so great. So — and I think one of the things that we want to talk about here is you know, and it’s evident in this case, is there’s an over — we have an over-reliance or we make assumptions about our employer that aren’t true. So I know I’ve worked with some big companies and big organizations, and you think that walking in there that everything is pristine, there’s a policy and a procedure for this and that and your employer is always out for your best interest. And unfortunately, it’s not the case. You know, there are lots of things that we do in life, and I think that you’re going to see this just as hospital systems become more stressed where things are kind of — you wing it in some cases. There are things that change, and that’s a harsh reality. But I think in this case, it’s like, well, we never had that policy and procedure. You’re assuming the next guy down the line, maybe the nurse that is administering knows what they’re doing, but we make assumptions here. And you know what my mom said about when you assume, it’s not necessarily something that’s going to turn out well. So yeah, I mean, we can definitely go through the professional liability and why it’s important and what it is. But at the end of the day, if we look at this broad strategic part of the financial plan that is the protection of the financial plan, this piece of insurance that’s with insurance in general is going to be so important because things just happen that we don’t expect. And you can’t self-insure everything. You have to have that rule of that group to basically help shoulder that for you. So that’s really the purpose of insurance.

Tim Ulbrich: Great definition overview. And you know, I was just thinking as you were talking, in the pharmacies that I’ve worked in and many that are listening can relate if you’re working in a traditional community retail setting, the number of prescriptions you touch per day and you extrapolate that out to a week or a year and the number of patients that you interact with per day or if you’re in a hospital setting up on a floor distributing in a hybrid role, it doesn’t matter. Just from a statistical standpoint, when you talk about the risk and the things that could happen along the way, obviously there is risk that can be had there and making sure that you’re protected and the rest of your financial plan. But let’s be honest, even when we talk about a policy that is relatively inexpensive relative to the coverage it provides, nobody wants to pay for insurance. And I think for many, myself included, the thought of paying for something that may or may not bear fruit in terms of providing a benefit can be frustrating. And unfortunately, because of these feelings, I think many people forego implementing proper insurance coverage. So Tim, generally speaking, how do you work with clients to find this balance of ensuring the right insurance protection and that that is in place while they are trying to prioritize other goals such as paying down student loans, investing, or saving for a home?

Tim Baker: Yeah, I think there’s this misnomer that working with a financial adviser — and I think maybe it’s not a misnomer because I think, you know, we’ve earned it in some regard — there’s this misnomer that it’s all about growth of assets, invest, invest, invest. You know? And for a lot of pharmacists, you know, when they think about insurance, they’re left with a bad taste in their mouth because probably during pharmacy school, just like many physicians and other healthcare providers, you know, there’s this push by financial professionals like me to sell you a crappy whole life policy or something like that. So you’re already kind of from Jump Street a little bit wary of it. And to your point, Tim, a lot of people can view it as a sunk cost. So this is the idea that money that you’re spending towards these premiums cannot be recovered. And I think you’re really — it’s missing the point. And one of the analogies — or one of the examples I give is we talk about whole life, these are policies that are typically more expensive. And a lot of whole life advocates will say, “Well, term insurance, they only pay out 4% of the time.” But the point is that they did their job. Most of the — if you have insurance and you have a 30-year policy and you live beyond that policy, like you were protected during those 30 years. And it did exactly what it needed to do. And the same is true for professional liability. It’s like you don’t want to have a claim, even if you’re covered. You don’t want to have a claim. But you want to have that — the insurance is that safety net so you’re not in the poorhouse, your assets are protected, you’re not filing for bankruptcy. So what we say, you know, and kind of it’s just our messaging, every time we meet a client, like our mantra, our thing is how can we help you, the client, grow and protect your income, grow and protect your net worth, while keeping your goals in mind? And the protection is so much baked into the insurance piece, the estate plan, those types of things. But we want to make sure that we’re doing both of those things, not just growing the assets because we want to make sure that we are accounting for those dark moments. And I think we as humans, we sometimes suffer from the optimism bias, which is a cognitive bias that causes someone to believe that they themselves, Tim Baker, oh, I’m not going to experience a loss. I’ll never have anything; that’s going to be someone else, you know, a faceless person in the crowd. It’s never going to be me until it’s me. I often hear on repeat, “Hey, my employer has me covered. I’m not worried about it.” And that could be not just from professional liability but it could also be from life and disability insurance. So at the end of the day, what we say is insurance provided by your employer, it’s not a plan. It’s a perk. So we, if we’re doing this financial planning thing the right way, it’s just something that we have to bake into it. Now, when I say for things like life insurance, typically the things I say is for life insurance to make sense, it’s typically you have to have a spouse, a house and mouths to feed. Sometimes people that are single, they don’t have a house, they don’t have dependents, maybe it doesn’t make sense unless they have loans that are not going to be forgiven upon death. So the same thing with professional liability. We want to make sure that it makes sense for the scope of practice that they’re in and that they have things that could potentially be lost. But you know, for the most part, it is something that you want to take a hard look at if you’re a pharmacist. And I kind of hearken back, Tim, to the story that was done about kind of the — I know they interviewed a community pharmacist, and I’m blanking on who wrote the story, but the amount of scripts that that pharmacist filled in one day, it was like it’s crazy. So there’s potentially going to be mistakes, and those mistakes could have far-reaching effects. So you know, again, strategically it’s something that we definitely, we need to work through all those different parts of the insurance and make sure that we are properly covered in that regard.

Tim Ulbrich: So Tim, to that point, you know, just like health and life and disability, we’re trying to determine who needs it and how much do they need? So talk to us — and you alluded to this a little bit already — when it comes to professional liability insurance from your point, who needs to be evaluated and what considerations should they have as they’re doing that evaluation?

Tim Baker: Yeah, so you know, when we’re looking at professional liability, basically what this is, it’s coverage for a pharmacist that provides protection in the event a claim is made against the pharmacist involved in an actual or alleged or admission while carrying out his or her duties that are within the scope of practice for a pharmacist. And the hard part is that the scope of practice is a moving target. And it’s going to be defined by your respective state, so in your state licensing board. So again, it’s not necessarily a black-and-white issue for a pharmacist in whatever state USA. So to me, from our viewpoint is the idea is that if you are a practicing pharmacist and you’re interacting with patients, if you’re volunteering, if you’re giving advice, like I said, when we talk about side hustling a lot, there are a lot of pharmacists that they might moonlight and work in a hospital pharmacy. These are all instances that expose you to risk that you want to cover. And even policies — even claims that come up where hey, you worked at a hospital and now you don’t work there anymore and a lawsuit is filed, you’re not necessarily going to be covered under that employer plan, so having your own policy is kind of what we’re looking for. So to me, again, it’s going to depend on kind of what the day-to-day is of the pharmacist. Now, I can say — I kind of admit here most of the time, I would say probably 90% of the time, I say this is something that you really should consider if these are some of the blocks that you’re checking off. And part of that is because they are very inexpensive. But you know, these are going to be policies that for many of our listeners is going to be something that we want to have in play for sure.

Tim Ulbrich: And I’m glad you mentioned the piece about scope of practice because that is a moving target. You know, in Ohio, we’ve seen changes to scope of practice, significant changes, that have happened in the last 12 months. And I expect we’ll see that continue to happen as other states are. So in my conversations with some of these providers, I think we’re going to see these policies catch up to scope of practice, but many of them are not there yet. And so there’s a pretty standard policy that you’ll see. But obviously a pharmacist’s role in Setting A versus B versus C can be very, very different. So I think that’s an important consideration that people are thinking about. So anytime you’re purchasing a policy, again, whether it’s life, disability or home, auto, here professional liability, it’s good to know not only the purpose but what it’s going to do in the event that you need it. So if I’m purchasing a professional liability policy, what benefit would there be? What would it ultimately cover in the event that my employer, any coverage through my employer, may not be doing exactly what I need it to do?

Tim Baker: So typically, you know, the big thing here is it’s going to cover the — basically the professional liability itself. So you know, typically these policies will cover you for $1 million for each claim, $3 million in aggregate liability policies. So if you have a judgment against you, and in this case it was I think right around — what? — $750,000, you know, if you have this policy and it’s going to cover you — like your part of that is going to be covered by the professional liability. If you don’t, then that’s again when you are dipping into retirement, selling your house, that type of thing. License protection — so sometimes these issues don’t go to lawsuit, they’ll go to the licensing board. And you’re having to protect yourself with attorneys and things like that and investigation. So they’ll cover you a certain amount of money each year for those types of claims. It could be loss of wages. It could be for, again, hiring an attorney for your defense. It could be for, you know, just actions taken against you while providing pharmacy services while volunteering or giving Uncle Dave verbal advice or claims brought against you from a previous employer. So these are all things — and again, at the end of the day, the policies that your employer has are for your employer. They cover you by extension because you are an extension of your employer. So but at the end of the day, they are there to protect the institution, not you. And you know, there can be some certain instances where you think you’re covered and you’re not. So things to think about, you know, with regard to your employer’s policy is the coverage they have high enough for all your coworkers? So if that judgment that we talked about in the case study was $5 million, as an example, like would that be able to cover everyone? Does it cover your lost wages or licensing board hearings or things like that? Does it cover outside of work? Most of the time, it will not. They don’t want that liability. And what happens if you’re employed? So at the end of the day, it’s going to provide you with your own counsel, your own attorney. It’s going to pay all the reasonable costs incurred during the defense and investigation and cover for lost wages because this is something that’s going to take up time. You know, you’re going to be probably not practicing or not able to. So these are some of the things that you’re going to be looking or be covered when these policies are in place and definitely good to have your own.

Tim Ulbrich: So Tim, what about those that are listening to this show that are self-employed, work as an independent consultant, or work part-time for another employer in addition to their full-time job? How does this come into play?

Tim Baker: It’s definitely — yes. Like yes, yes and more yes. So I would say definitely look at the professional liability. So you know, this is going to cover you for professional pharmacy services outside of your employer setting, as long as it’s within the regular duties and activities of scope of practice. So again, that’s the moving target, and that’s the challenge to organizations like HPSO and some of the other ones that provide because it’s — or provide these types of policies — because it is ever-changing, and it’s changing by state. So but the best thing that you can do, what’s in your span of control is to buy the policy, purchase the policies that are there and just make sure that you are operating within the scope of practice of the state that you are practicing as a pharmacist. And for some people, I would venture to say a lot of people don’t know that. So maybe the second part of that is just to say, “OK, what is in bounds? What is out of bounds?”

Tim Ulbrich: Yes.

Tim Baker: And again, it’s something that you don’t — to reiterate the point — you don’t want to make the assumption, right? You don’t want to make the assumption that you’re covered or what you’re doing is because that’s how it’s always been done because things change and assumptions are made, and that’s typically where people run into a problem.

Tim Ulbrich: Tim, one area we haven’t talked much about, if at all, on this show before is where umbrella policies fit in and don’t fit in and really, what type of coverage they provide. And here, I’m thinking, as many may be wondering, if I have an umbrella policy or if I don’t and I were to get one, is that applicable at all here in terms of additional coverage if a professional liability issue would come up? So talk to us about not only that question but maybe some intro first into what are umbrella policies.

Tim Baker: Yeah, so an umbrella policy is an extra liability insurance coverage that typically goes beyond the limits of your property and casualty insurance. So property and casualty insurance being typically homeowners and an auto policy. So I’ve heard this before where, you know, someone will say “Well, I don’t necessarily need professional liability because I have an umbrella policy that covers me.” And I would say just separate lanes here. Just like life insurance is a separate lane from disability insurance, an umbrella policy, separate lane. It’s still liability, but we’re talking about kind of the personal liability side versus the professional liability side. So you know, typically, people that have umbrella policies have maxed out their homeowners and auto liability coverages. So typically, the maximum you can purchase for a personal liability policy under homeowners is like $500,000, you know, $250,000 per person, $500,000 per accident. And then you know, the same is true with the auto is kind of along those lines. So once you reach out to your auto provider and you max out those coverages, then they might say, “Hey, because of your profession or because of this or that, you have rental properties, do you want additional coverage?” which is very, very inexpensive just to go be above and beyond that. So there’s a little bit of a misnomer that if you have an umbrella policy, you’ll be covered from a professional liability. And they’re typically separate lanes with regard to the financial plan. So those, you know, those are policies that are going to really just sit on top of what you already have from auto and homeowners.

Tim Ulbrich: Last thing I want to talk about is just the actual purchasing, shopping, evaluating process. And we’ve talked before on the show and on the blog about when you shop for life and disability insurance — and we talked about this on episodes 044 and 045 of the show — how complex that process can be in terms of the range of options that are available, you have a whole host of different riders and often, you may not feel like you’re comparing apples to apples. And I think when people go into that shopping process, they can quickly get overwhelmed and maybe never get past that to be able to actually purchase what they need or end up with something that might be more than what they need. So what is really different here in terms of a pharmacist who’s looking to evaluate a professional liability insurance policy?

Tim Baker: Yeah, so you know, I hate to say that sometimes insurance can be a bit of a commodity, you know, and I think one of the reasons that we like HPSO in particular is I think they do lead in terms of education, which I kind of hold near and dear to my heart because I’m a big believer in the better educated the client will be, the better client you will be. So but I think also, you know, you want to work with a provider here, an insurance provider here that’s plugged into the profession. So — and I can say I’ve worked with different ones over the years and I feel like I’m really looking to point clients in the direction where they’re going to be responded to and good customer service and all that type of stuff. So I think the big thing is in terms of policies is what is actually being covered? And am I educated in terms of what my risks are and what my coverage is, you know, to mitigate those risks? And then how easy are they to get to set up? And then how confident am I in the ability to — the policies to ebb and flow and evolve over time? So HPSO is for health providers, it’s in the name. So we want to make sure that we’re working with a provider that kind of checks those blocks and makes sure that our listeners, our clients, are covered in the uneventful — or unhappy time that could be a judgment against you because of a professional liability error.

Tim Ulbrich: As we wrap up this week’s episode of the Your Financial Pharmacist podcast, I want to again thank our sponsor, HPSO. HPSO is the leading provider of professional liability coverage, insuring more than 100,000 pharmacists nationwide and sponsored by the American Pharmacists Association. As I mentioned before, when I was a practicing pharmacist, I carried my malpractice insurance through HPSO. And with individual policies for qualified persons starting at just under $150 per year, it’s a no-brainer compared to the cost of a claim and worth the extra peace of mind. Plus, discounts are available for qualified students and recent grads. So head on over to HPSO.com/YFP to learn more. Again, HPSO.com/YFP. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave a rating and review in Apple podcasts or wherever you listen to your podcasts each and every week. Have a great rest of your day.

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YFP 154: Getting a Home Loan in a Pandemic

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Getting a Home Loan in a Pandemic

Tony Umholtz, a Mortgage Manager for IBERIABANK/First Horizon, discusses the impact COVID-19 is having on the housing market, the current landscape for those purchasing or refinancing a home, and the role of the Professional Loan Program (aka the Doctor’s Loan).

About Today’s Guest

Tony graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine and Mortgage Originator magazine.

Summary

On this episode, Tony Umholtz, a Mortgage Manager for IBERIABANK/First Horizon, talks through the landscape of the housing market due to COVID-19, the professional loan product and answers questions from the YFP community.

Tony begins by saying that this period of time in the real estate market reminds him more of the recession after 9/11 versus the 2008 housing market crash. In this case, real estate is fairly stable during the pandemic and, in general, folks have more equity in their home, so if they lost their job due they are more likely able to sell and walk away easier than if they had no equity in it. He also shares that interest rates are down and it’s a great opportunity to refinance or buy a home if you’re in the position to do so.

Tony then discusses the professional mortgage loan (aka doctor’s loan or pharmacist home loan) that’s available through IBERIABANK/First Horizon. First time home buyers can get a 3% down payment with no mortgage insurance, no reserve requirement and and strong interest rates. If this isn’t your first home, you’re required to have a 5% down payment. There are requirements to get the professional mortgage loan, like having a 700 or more credit score and falling into a certain debt to income ratio. If you’re interested in exploring this option further, you can find more information here.

To wrap up the episode, Tony answers several questions from the YFP community.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. And before we jump into the meat of today’s interview, I would be remiss if I didn’t emphasize that the decision to buy a home and how much home should start well before digging into the financing options. This starts with No. 1, knowing your budget and No. 2, knowing all the costs involved with home ownership to figure out whether or not you are ready. And of course, this must be considered in the context of all of your other financial goals such as student loan repayment, building an emergency fund, and investing, to name a few. So if we fast forward and you’ve determined that the decision to buy a home fits within your budget and the rest of your financial goals, now we are ready to evaluate the financing options. And one of the options that exists is a doctor of pharmacist home loan, which is some unique features that can be attractive, and we talked about that on Episode 136 of the Your Financial Pharmacist podcast, and I’ll revisit that briefly today with Tony. Now, full disclosure, IBERIABANK/First Horizon is not the only lender offering a doctor type of loan. And these loans are generally defined for higher income professionals that are at lower risk to the bank and therefore, the lender requires a lower percent down, offers competitive rates and has no Private Mortgage Insurance. And we have explored several other options that are out there, but the rate-limiting step of bringing these forward to the YFP community has the limited availability of these loans in terms of the number of states that are serviced. Therefore, as we recommend with everything else, please shop around to find the best option for your personal situation. Also, full disclosure, we do have a sponsorship relationship with IBERIABANK/First Horizon, and as with our other relationships want to be fully transparent with you. We remain committed to bringing you solutions that we have vetted and we have the chance to bring value to your financial plan. And yes, while we do get paid for promoting several of these solutions, whether that be solutions for life and disability insurance or here with a lending solution for home buying, we are committed to maintaining this approach of vetting solutions and ensuring their value to the YFP community. Alright, without further delay, let’s bring Tony back onto the show. Tony, welcome back onto the Your Financial Pharmacist podcast.

Tony Umholtz: Tim, thanks for having me. Great to be here.

Tim Ulbrich: Excited to have you back. And in Episode 136, which seems like forever ago, that was pre-COVID life, we talked about a decent amount about the types of lending options available to a home buyer, including conventional loans, VA loans, FHA loans. And so we’re not going to spend more time on that here today, but I would encourage that didn’t catch that episode or that want a refresher in that area to go back to 136. And so we’re going to spend our time together really in three areas: First, we’re going to talk about the landscape and the housing market as it relates to COVID-19. We’ll then talk about the professional mortgage loan option that’s available to folks and to many pharmacists. And then we’ll wrap up by answering questions from you, the YFP community, and I’m going to tee those questions up for Tony. So let’s jump into the landscape of the housing market as it relates to COVID-19. Tony, generally speaking, how have you seen COVID-19 impact the housing market?

Tony Umholtz: Yeah, Tim, since our last call in January, it just seems like a lifetime ago. You know, just everything we’ve went through as a country, it’s been just unbelievable in such a short amount of time. The landscape has changed very, very quickly. There’s been a lot of different things that have impacted financial markets. Obviously the stock market liquidity and the high-yield debt market, all of these came under immense pressure. Mortgages were a part of that. You know, in March when most all asset classes were selling off, many mortgages got hit hard, so mortgages on the secondary market really lost a lot of value and a lot of the REETs and aggregators that weren’t backed by the government really had gone out of — shut down operations for the most part, especially on the jumbo loans, the larger loans that aren’t backed by Fannie Mae and Freddie Mac and Ginnie Mae. Those REETs aren’t lending right now or taking loans. So been a very big hit to the mortgage market.

Tim Ulbrich: And what do you see, Tony, you know, I lived through 2008, as many of our listeners did. I was doing residency at the time and can remember so much of the housing market being tied to 2008 and that recession. What’s different here as we think about COVID-19 and its impact on the housing market? What’s different in 2020 than what we experienced in 2008?

Tony Umholtz: Yeah, great question, Tim. I started my career back in coming out of the 9/11 recession and the dot-com recession in the early part of the 2000s. And this really — as far as real estate goes, this correction and downturn reminds me more of that one in that real estate has been pretty stable throughout this. ‘08-’09 was just so devastating because of the leverage in the market. There was a lot of things that — I didn’t do a lot of the non-prime loans myself, but there was easy approvals to things like that back then. I mean, the process of getting a loan was pretty easy. It was too easy, right? And that led to this steep correction. But the big indicator in ‘08 and ‘09, Tim, was the inventory on the market. There was so much speculative building, there was so much property and vacant housing and vacant unoccupied housing that that just — and then of course we had short sales and all these things that hit. So it was the perfect storm in the real estate world where this time around, we came into this with a very healthy financial system, and we came into this downturn with a very healthy housing market in most parts of the country. Obviously every housing market is different, but on average, the U.S. housing market was very, very strong. And we were actually under normal inventory levels in the majority of the markets of the country. So that’s really been one of the catalysts for what I’m seeing is a very, very strong real estate market.

Tim Ulbrich: And do you see — you know, I know we’re projecting here a little bit — but I think of things that are unique to COVID-19 like the enhanced unemployment benefits and some of the protections that lenders have in terms of forbearance and other factors. I wonder, are we going to see challenges that may come and it’s just delayed 4, 5, 6 months from now where we might see the unfortunate situation of people that are foreclosing on homes and those types of things? Or do you see it as really a big question that’s largely dependent on what happens with unemployment?

Tony Umholtz: You know, I think it’s all about unemployment. I really think that’s the key metric here. And there has been a lot of really sad situations out there. It’s a very tough thing to go through for many, many people. And when you take a step back and just look at everything, I don’t know for sure obviously, but just kind of looking at the numbers and the data that’s out there, we have homes on average are not overleveraged like they were in ‘08 and ‘09. So most people did not have a lot of equity in their home, so it was very easy to walk away from them. This time around, you know, you may have lost your job, but you may be sitting on substantial equity in the house. So I think it’s just going to be a different situation where if you had to sell, I think you could sell and you could get out of the home. I hope that we are through this sooner than later, but obviously the more time it goes on, that’s going to cause more pain.

Tim Ulbrich: And we’re going to stay away from talking about rates in the moment because we know these can change literally by the day and sometimes within the day. But generally speaking, what have we seen that’s been unique with rates? And I know the big news obviously, the Fed cut the interest rate to 0%. I think there’s an automatic assumption that we’re going to see mortgage rates kind of hit a floor, but we’ve seen some interesting trends here over the last few months. Talk us through what we’ve been seeing, generally speaking, on interest rates?

Tony Umholtz: Well, obviously when the Fed cuts rates, the short-term rates, it doesn’t correlate exact with mortgage bonds. Mortgage bonds are calculated off the long-term trading of long-term mortgage bonds, which are actual investment bonds traded on the secondary market. So that’s really what’s going to dictate what our pricing is on mortgage, not what the Fed does on the short end of the curve. But I mean, anytime we see something like this, there’s going to be a compression in rates. And rates have come down, and I think it’s created a great opportunity for people to refinance and lower their payments and consolidate debt. And we’ve had a lot of success with debt consolidation and of course buying a home. I think it’s created just a very, very good opportunity for buyers with rates low.

Tim Ulbrich: And there’s been some interesting — you know, I’ve been reading some articles in the Wall Street Journal and New York Times about kind of the situation we’re in that’s unique that the supply, for perhaps a variety of reasons, isn’t really out there. And it’s been maintaining the prices of homes for the most part. You know, as we perhaps start to open up the economy on some level and people are getting back out, do you think part of that supply issue is just hesitancy of people listing homes and having people come in their home? Do you think we’ll see that turn around in terms of more people putting their home up for sale?

Tony Umholtz: I think so. I think as more counties and states open up, I think you’ll see that people ease up, especially into the summertime more homes will be opened up for sale. I think that will provide a little bit more inventory. But there is a lot of buyers looking. It’s a good opportunity now. And if you’re renting, you’re looking at the numbers and saying, I can own for what I’m paying in rent. You know, the other thing — I think it’s more of the major cities, I think this isn’t for sure trend, but I think you’re going to see a little bit of a move more in the suburbs just in open spaces a little bit more than the crowded cities potentially. And I think that could benefit some suburbs, newer cities and maybe even some rural areas too just as people desire more open space. It could change the desire of what people are looking for too.

Tim Ulbrich: And for those that are listening that might be struggling to make a payment or perhaps find themselves in that situation in the future, what options do borrowers have to explore? And how does that differ even between the types of loans that are out there?

Tony Umholtz: Well, the — and I’m not an expert on the forbearance.

Tim Ulbrich: Yeah.

Tony Umholtz: But that has been a great tool I think for a lot of people that are in that position. I would stress, though, that this is only something you want to utilize if you’re in a position where you cannot make payments. If you can, it can have some adverse effects potentially. I wouldn’t do it if you can make payments. But that’s been a great tool I think to help a lot of people that are in a difficult spot. But you know, as far as the tools that are out there, the fortunate thing — you know, outside of the jumbo lending, which has been hit, those, some of the options I had in March, you know, I don’t have right now. And a lot of lenders don’t have any jumbos. I feel fortunate just to have the ability to write them. But the loan amounts that are backed by Fannie and Freddie on the conventional side, some of the programs that we have that are under a $500,000 type loans, those are very, very liquid. Those guidelines are very, very strong. And that’s been a blessing that that’s intact.

Tim Ulbrich: Great. So I think that’s a great overview of some of what we’re seeing in terms of the landscape of the market with COVID-19. And I want to transition to talking about the professional mortgage loan, kind of what is it? And more specifically, what is offered with IBERIABANK/First Horizon? And you know, I think this is an area that we’ve been seeing a lot of interest among the Facebook group. We’re getting a lot of questions about it, and I’m going to bring some of those questions forward to you at the end. But what we see certainly is that one of the biggest barriers to pharmacists being able to purchase a home, you know, is typically student loan debt. And for most conventional types of loans, this greatly impacts their debt-to-income ratio and certainly could affect someone’s ability to get a loan or greatly reduce the amount that they could get approved for and often we see has a significant impact on what they’re able to save in terms of down payment. So I think that’s a good segway into where the professional mortgage loan may come in. So tell us a little bit about that loan option, generally what it is and a little bit more about the program of what IBERIABANK/First Horizon offers.

Tony Umholtz: Sure. So the program essentially allows a first-time home buyer to finance 97% of the price of the home. So you — and there’s no mortgage insurance, which is a huge benefit. And if it’s a subsequent purchase, if you owned before, it’s just 5% down. So it’s 2% more down, but the real benefit driver is that there is no mortgage insurance. There’s also not a stated reserve requirement, which is good too because a lot of these programs have reserve requirements that can be difficult when you haven’t been able to save money. I know some of our physician loan products have reserve requirements as well. And this one does not. It also carries very, very, very strong interest rates. I don’t want to get into them because everybody is different for everyone based on credit, but it tends to have some of the better rates that I can offer, even though you’re putting 3% or 5% down. But the main driver is that no PMI, I think limited reserves, and there is a max loan amount of $510,400. So that’s the cap to loan amount. You can always purchase higher than that, but if it’s more than — let’s say you found a home for $550,000 and you put 5% down, you might have to put a little bit more down to get to that $510,400 max loan amount.

Tim Ulbrich: So one of the questions, Tony, we actually had this come up in a webinar this week that we were doing with Nate Hedrick on home buying, and we were talking a little bit about this option. And as we were talking about the things that you just said in terms of competitive rates, obviously a very low percentage down that’s required, no mortgage insurance, not having to have the same reserve requirements, those types of things, the question of well, why wouldn’t somebody do it? What are the downsides to an option like this? And the only thing that I could come up with within my mind is that if for whatever reason the rate weren’t competitive, you know, with something else that they were looking at, obviously that’s a consideration or that it might put somebody in a position to buy before they’re ready to buy in terms of the low down payment. But if they’re otherwise in a healthy financial position, they’ve got a good emergency fund, they’re in a good position to buy a home, I really don’t see a whole lot of downside here. What are your thoughts?

Tony Umholtz: Yeah, I mean, we do have a debt-to-income ratios that we have to abide by. So you know, there is controls put in place. We also have a minimum credit score. It’s 700. So those would be some other things we would look at. I didn’t want to get too technical, but I guess those would be just some of the metrics. But I mean, again, it’s a very tight population that we can offer this to. It’s not everybody. So it’s got to be in these stable, this stable job position and this occupation. But yes, I think as long as you qualify, it’s not a stretch, and you’re in a good position, I think it’s a good thing as long as it makes sense for you to buy a home in your personal plan.

Tim Ulbrich: Right. Yeah, and I think it’s always a good reminder of what could be the potential downsides of having a low equity position. So if somebody were to have to move quickly for whatever reason and obviously they couldn’t use the equity to cover other costs or purchase of a new home, those types of things, but again, if you’ve got reserves or you have other plans in place to be able to account for that, then I think it’s certainly a great, great option to be looking at. Tony, one of the questions we had come forward from the community is obviously thinking about what’s happening in the economy related to COVID-19 and perhaps the lenders becoming a little bit more astringent on who they’re lending to. And even though we’re talking about a minimum credit score here of 700, do you expect that an option like this might go away in the future or change in terms of max loan amounts because of changes that might come in lending?

Tony Umholtz: I certainly hope not. I think, you know, I think — anything can happen. Risk profiles, things can change depending on how bad this downturn gets. But you know, fortunately we got through this pretty far and there’s been no changes. So hopefully it’ll stay that way.

Tim Ulbrich: Awesome. And we’ll keep our community up-to-date and we’ll provide some more information. And as a reminder, you can go to YourFinancialPharmacist.com/home-loan, get some more information about this offering. And you can connect directly from there with Tony and his team over at IBERIABANK/First Horizon. Tony, speaking of your team and what you guys have done, I want to thank you guys for giving our community members the time and attention they deserve. And I’m currently working through a refinance. It’s been a great, great experience working with you and your team. And I went on over to our Facebook group and wanted to see what some of the chatter was around their experiences with IBERIABANK/First Horizon because I knew more questions were coming up about this option, and I knew that I had seen more discussion on it. And I pulled a few of the comments from that community of people that have just posted really within the last week. And there was a lot of great, great things that people had to say. So one of our community members said, “Iberia is where it’s at.” I love the brevity of that. Somebody else said, “I’m working with Iberia now for first-time — as a first-time home buyer. They’ve been fantastic to work with. Their online system is the best, easiest I’ve used so far.” I would agree with that, very intuitive system. Somebody else said, “Iberia is great to work with, user-friendly website.” Another community member said, “We used Iberia Bank to refinance our loan last fall. Easy process.” And then I also noticed there was some feedback on RedFin that was quick, easy, great rate, and a great loan officer. So thank you for the work that you guys have done and for how responsive you’ve been to our community that has reached out to engage with you guys.

Tony Umholtz: Oh, thank you, Tim. It’s been fun. We always enjoy helping people. That’s our job, but connecting and helping people is why we do what we do. So thank you for that.

Tim Ulbrich: So I want to transition now, as I mentioned at the beginning, I want to put Tony on the hot seat. And I asked you all, the YFP community, for your questions in advance, knowing that I’d have the chance to interview Tony today. So we have several questions that have come in, and we’re going to work through those one-by-one. So Tony, the first question we have from the YFP community relates to escrow. And the question is, in addition to costs associated with title and processing of the loan, how much money does one need at closing for property taxes and insurance? And if you could briefly define escrow for those that may be hearing that term for the first time.

Tony Umholtz: Sure. That’s a great question because this can be one of the most complex parts of real estate is escrow accounts and how they work. Well, escrow what essentially is is property taxes and homeowner’s insurance and flood insurance if you’re in a flood zone would be added in then too. So property taxes can vary based upon where you live in the country. Different municipalities collect taxes a different way. I know that many states, you pay it once per year.

Tim Ulbrich: Right.

Tony Umholtz: And others, it’s quarterly. Right? There’s different counties, different parts of the country do operate differently. So we need to be sensitive to that. But you know, overall, I’ll just also give one answer to a question that comes up about escrow accounts and what they are. Banks keep escrow accounts to help pay for taxes and your insurance let’s just say on an annual basis or quarterly basis. The insurance is generally due once per year, so the bank is actually collecting typically 1/12 of your tax, your insurance payment, each month to pay that annually. Generally, you do not have the option to waive escrow unless you have an 80% loan-to-value or bullet. So if you ever hit the — most people in the audience are not going to be in that position. But if you do, if you put 20% down or more on a conventional loan, you actually can waive it and pay it yourself. Now, there’s sometimes there’s a risk grade to the loan because there is a risk if you didn’t pay those things. So there could be a little effect to the interest rate. But that is an option, and I do see some people waive them when they do have a larger equity position. But the majority of Americans have an escrow account that have a mortgage. And the taxes and the insurance and how they’re collected I think is very important to understand. When you go to closing on a purchase, you’re typically going to owe one year of your insurance premium up front. So in a case of let’s say it’s a $1,200 insurance premium, well, you’re going to have to pay and bring that $1,200 to closing. The insurance company will want their funds. And then generally the lending institution — this is really universal for all lenders in the country — they’re going to collect a two-month cushion for the account. And then depending on what time of the month you close and so forth, let’s say you close in June and your first payment is due Aug. 1, they’re generally going to collect another month to cover that one month that you’re not making a payment. So it’ll look three months of insurance, 12 months of — three months of escrow for the insurance and then 12 months of your premium. So it looks like a lot of escrow, right? But that’s how it’s done. And the same thing for taxes. So in that example, property taxes would be a couple, probably three months of taxes collected: two months to establish the account and then the one month for the month you’re missing. But and then with refinances, it’s kind of a similar situation where — not to get too technical, Tim, but I think this is important. I think if you were to go refinance and you have your current servicer, loan servicer is collecting your insurance and your taxes, they typically will refund you the full amount within 30 days of your loan payoff. So the new lender is going to come in and they’re going to look like they’re collecting, especially if you close later in the year. Because most states and counties will want payment at the end of the year, right? So like November time frame. So if you close in the fall, in autumn, it’s going to look like your lender is collecting a lot of money from you that’s being rolled into your mortgage. You know, it could be 11 months of taxes. It could be whatever, 12 months of insurance.

Tim Ulbrich: Yes.

Tony Umholtz: It’s a big number being rolled in. But you have to realize that you have almost an equal amount being sent back to you. So that’s where that idea comes into place. Do I use that check to pay down my loan? So escrow is not something that costs you anything. You have to pay them as part of homeownership, but it can look like more is being collected than — it can look like your loan is being increased on a refinance to cover that.

Tim Ulbrich: That’s a great, great explanation, Tony. I know I found that confusing as a first-time home buyer back in 2009 but also, you know, especially I think for those that are moving from one property to another, especially if you’re moving from one area to another and timing is different, I think you very much can feel like you’re double paying. And I think that definition of escrow as really the holding place and there’s going to be a refund of existing as well as receive it paying forward and just keeping that in mind. And I think that’s an important consideration because if one is paying obviously at closing for future homeowners insurance and property taxes and then that refund check comes at a later time and you forget that and you go blow it on something else, well then obviously, you know, that can have the impact that you’re trying to avoid. So is there — while we’re on this topic, I’ve often heard as you alluded to, a small percentage of people that might pull out of escrow. And you know, you mentioned that might come with a little bit of a rate risk adjustment. What are the big benefits of that? I mean, I guess the thing that comes to mind when I think about that is, you know, the downside would be it’s now on my watch, I’ve got to make sure I’m making those payments on time for property taxes, homeowner’s insurance.

Tony Umholtz: That’s right.

Tim Ulbrich: But I guess the upside would be I feel like I’ve got a better pulse on what’s going on because it’s not rolled into my monthly payment. So you know, as my property taxes might inch up or I might be more apt to try to negotiate my homeowner’s policy. So talk us through why would that move be beneficial if it’s available to somebody?

Tony Umholtz: Yeah. You know, one of the things that I’ll mention just back to answer your question but also with refinancing, a lot of people will come to me, especially right now, and they’re telling me, “Hey, my payments went up a lot because there was a shortage in my escrow account.” Right?

Tim Ulbrich: Oh, right.

Tony Umholtz: And what really happened is the bank paid your taxes and insurance more than they had collected from you, and you’re basically getting an interest-free loan and you’re just paying that back. So that’s one of the — but your payment spiked. And what we do when we refinance, we true it up. We collect the appropriate amount. But that scenario if you’re able to waive your escrow, you can control, right? You can control. And I think the main thing is a majority of people with mortgages do escrow. But if you like controlling your money and you don’t mind making a lump sum, I think that’s an advantage, just having the ability to control it yourself. I’ll be transparent, I’ve waived mine for years. I’ve always done it, but I’m a finance major. You know, I’ve been a money person my whole life, so you know, if you’re good with money and think you understand it, I think it’s fine. One thing you did mention about insurance, I mean, you have the ability to check on your insurance, even if you have an escrow account. It’s very easy. The mortgage can be changed and the insurance company can still change. But I think the main advantage is you hold onto your money, you control it. And then right now, interest rates are low and you’re not getting much on deposit accounts. But if they’re higher, you can actually earn some interest on it while you wait to pay it.

Tim Ulbrich: Yep. Great stuff. Great explanation, Tony. Another question we have from the community is what options does IBERIABANK/First Horizon have for investment properties that are not owner-occupied? Anything creative on that end?

Tony Umholtz: Well, a couple things. First thing I’ll just mention on the investment properties — and this has come up a few times with the professional produce — with multi-family, if you’re buying a multi-family property, a duplex you can still put less than 20% down. You can’t do 3% or 5%. It’s generally 15% down. There is no MI. Rates are still very, very good even though it’s multi-family. But when you get to buying a three- or a four-unit, and a four-unit is the largest residential property that we can finance. Anything above that is considered commercial. That’s a completely different type of financing. But you know, you typically have to do 20% if you’re buying a three or a four. But we still do have quite a bit of investment property options that are conventional mortgages. There is one 85% that we have for investment. It does have PMI, and PMI can be tricky and a little expensive. So I usually recommend if you’re buying investment to put 20% or even 25% down if you can because then that’s where the best rates are for investment property. But there’s a lot of liquidity still for that type of thing. And the rates tend to be pretty good. We have — we’re still doing quite a few of those purchases people are making because rents are still high. It can be a good cash on cash investment.

Tim Ulbrich: Great stuff. And so for the house hackers out there, we’ve talked about that on previous episodes, it doesn’t mean it’s not a good option, doesn’t mean it’s not something you should pursue. But it just might mean a little bit more that you have to bring down to get that purchased.

Tony Umholtz: There is one thing I will say. There are — you know, for example, FHA, you can buy a multi-unit property with 3.5% down. Now FHA does have higher PMI, but the rates are very attractive. So that can still be a good solution for owner-occupied, you know, multi-family that you’re renting the other units out.

Tim Ulbrich: Awesome.

Tony Umholtz: So that is a good tool. There’s other tools outside of our professional product too.

Tim Ulbrich: Another question we have from the community, Krista asks, “What advice for those that are considering a refi that are hesitant because of a second mortgage such as a HELOC? Can borrowers with two mortgages consolidate and still get a competitive rate?”

Tony Umholtz: That’s a really good question. Very, very good. So a HELOC is if — so there’s two ways lenders look at this. So if you purchased a home originally with a first mortgage and a second so it was part of your acquisition of the home and we refinance and combine the two together, which I think is a great decision because you get rid of a floating rate second, right? If you combine into a fixed. But that’s considered what’s called a rate and term refinance, which is going to get you the best rates. If you were to buy the home and then take out a second mortgage let’s say a month later, if we pay that off, it’s considered a cash-out mortgage. And that comes with different guidelines and can be a little bit more expensive, depending on the loan-to-value. So it is possible, but that’s often — it just changes the type of loan if it’s a subsequent, if you subsequent purchase took out the line of credit.

Tim Ulbrich: OK.

Tony Umholtz: And that comes up a lot because if you’ve done it later after you purchased, it’s a cash-out and that can change the terms of the loan.

Tim Ulbrich: Great stuff. And the last question we have, which brings us full circle to some of our conversation about what’s going on with COVID-19, from Jessica, “Does national shortage of housing units create an environment where home prices will remain high despite the economic recession?”

Tony Umholtz: You know, every market — and we touched on this a little bit in the beginning of the call, is different. Every market has different demand and supply factors. So we don’t want to completely generalize. But on average, most of the country is in a supply issue. Right? There’s not enough supply of homes on the market. And I think commercial is a whole different story. This call isn’t about commercial, but obviously commercial market can be impacted much more deeply than residential. But being that we had such a low supply of homes and interest rates being low and the housing market is pretty strong, we’re very, very busy. I’m very surprised myself. But just in the things I read and the people I talk to, now I’m kind of on the ground level with this with realtors and buyers, there’s a ton of activity. So I would have to say that the residential market is very, very well supported, very well.

Tim Ulbrich: Great stuff, Tony. And thank you to those from the YFP community who submitted questions. We’ll have Tony back on the show in the future if you have a question that we didn’t get to today. And I want to thank Tony for his time, again, for his partnership and collaboration with us for serving you, the YFP community. And to learn more steps — about the steps in consideration to getting a home loan, make sure to check out the post on the YFP site titled, “Five Steps to Getting a Home Loan.” You can do that by visiting YourFinancialPharmacist.com/home-loan. Again, YourFinancialPharmacist.com/home-loan. And right from that page, you can get the contact information to reach out to Tony. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please do us a favor and leave a rating or review in Apple podcasts or wherever you listen to your podcasts each and every week. That helps others find our show. So thank you for joining, and have a great rest of your week.

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7 Ways to Reduce Your Monthly Housing Costs

Posted on by yfpadmin

7 Ways to Reduce Your Monthly Housing Costs

The following post contains affiliate links through which YFP may receive compensation.

There are a few budget categories that eat up a large percentage of your take-home pay such as food, student loan payments, and maybe childcare.

But if you’re like most, housing costs, either as a mortgage or rent payment, will likely be one of if not the largest.

According to the U.S. Bureau of Labor and Statistics, those in the top income quintiles, which would include most pharmacists, spend around 30-32% of their pre-tax income on housing.

How does your spending compare?

You probably know many who stretch this percentage much further, maybe even up to 50% or more. This often leads to a situation known as being “house poor” and can be a huge reason many are living paycheck-to-paycheck.

And unless you are in a scenario where you can earn income directly from your living situation, this is purely an expense and can have a huge impact on your ability to direct your monthly income toward savings, retirement, debt, lifestyle, and other financial goals.

I can honestly say that one of the biggest reasons my wife and I were able to tackle our $400,000 of student loan debt in just five years was that we minimized our cost of living. Sure it wasn’t that easy living in a one-bedroom apartment for the first three years but with the overall cost of living at 15% of income, it allowed us to make some serious progress.

So whether you are house poor or just looking to unlock more disposable income, here are some ways to reduce your housing costs.

For COVID-19 housing relief info check out this post.

1. Downsize

Is your current living situation more than you need or stretching your budget too thin?

If so downsizing might be a good option for you.

No, you don’t have to sell all of your stuff and move into a 250 square foot tiny home (although, that is an option), but selling your current property and moving into a smaller house (or apartment) could save you a ton of money.

Larger expenses generally coincide with more square footage beyond just the mortgage payment (or rent payment). These include property taxes, utilities, and overall maintenance bills.

This can be tough especially if you are comfortable in your situation or used to a certain standard. Plus, it can take some time, energy, and money to make this happen.

However, this doesn’t have to be permanent and may just be a temporary move to improve your financial situation.

2. House Hack

Ah, house hacking.

It’s one of the best-kept secrets of real estate investing and can drastically reduce your housing costs while building your net worth.

The goal of house hacking is to eliminate your housing expense.

You read that right: eliminate your housing expense!

The cool thing is that there are several different ways to house hack.

Many purchase a 2 to 4 multi-family property with a loan that allows for a low down payment under 5% (like an FHA loan) and then live in the property for at least a year (mandated by the loan terms). While living there, you rent out the other units and those tenants pay down your mortgage thus greatly reducing or (hopefully) eliminating your housing expenses!

Other options for house hacking include purchasing a single-family home and renting out the other rooms or buying your dream home and living in the mother-in-law suite while you rent out the main house.

With any of these scenarios, you can drastically reduce your monthly housing expenses and even generate an income.

After your year obligation is up, you can continue living in the property or do it all over again by purchasing another house hack, ultimately creating even more cash flow.

Or, you can stash away the money you saved by house hacking to purchase a home of your own or to propel your retirement savings or other financial goals.

House hacking might not be for everyone as you have to be comfortable with sharing a wall or being in close quarters with someone else, but if you’re able to stick it out for a year or two, the savings, not to mention the tax benefits, could be huge!

To learn more about this strategy check out episode 130 where we interviewed Craig Curelop, author of The House Hacking Strategy and the Finance Guy at BiggerPockets.

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3. Get a Roommate

Maybe you thought your days of living with a roomie were over, but have you ever thought of splitting your rent or mortgage with one of your BFFs or a French couple you met off Craiglist? (true story)

Having a roommate may not seem like the most appealing option especially if they don’t have the best habits and are straight-up annoying but just hear me out for a minute.

What if your housing payment was suddenly cut in half? What could you do with that extra cash?

Similar to downsizing this could be a temporary move but a powerful one to accelerate your financial goals.

4. Geo-Arbitrage

The average rent for 703 sq. ft in Manhattan is around $4,200. Not a small chunk of change, right?

I’m no stranger to high housing costs living in South Florida, but compared to places in New York and California, sometimes it feels like a bargain.

Unfortunately, areas with high costs of living don’t always grant a comparable boost in salary forcing a huge percentage of your income to go toward this expense.

So besides getting 7 roommates just to get by, what about moving?

Geo-arbitrage is a concept that’s been picking up some steam over the years especially among those in the FIRE community. Essentially, in order to save money on housing costs, healthcare, or the general cost of living (think gas, food, taxes, transportation, etc) and get more for your dollar, you pick up and relocate to a new place.

I know this can be a really tough decision especially if it requires moving away from family and close friends and means leaving a job you really enjoy. However, out of everything you can do to reduce your housing costs, this could be the one that has the greatest impact.

5. Airbnb

Ok, so you might not be ready to pick up and move yourself or your family to a different country or even to the next city over.

But what if you could bring people from around the world to you without having to leave the comfort of your home?

Putting your house, an extra room, a finished basement, or in-law suite on Airbnb for people to rent short-term out can not only help you justify having extra space in your home but allows you to monetize the home you’re already paying on.

While this strategy is obviously not going to be very desirable or lucrative in the COVID-19 era as demand has significantly decreased, it could make a comeback and something to be on your radar.

If you are interested in this, check out Episode 121 of the Your Financial Pharmacist Podcast where I interviewed Hilary Blackburn on how she and her husband created another stream of income by becoming Airbnb hosts. The Blackburns rent out their Nashville home 14 times a year which brings in about $600 a night.

If you’re interested in seeing how much you could earn by having your home or rooms on Airbnb, check out this Airbnb earnings calculator.

6. Re-evaluate Your Homeowners Insurance Policy

If you own your home and have a mortgage, you have homeowner’s insurance. Unlike property taxes, an HOA fee, or other fixed costs, it’s one of the few expenses with a home you may be able to change.

These policies vary in price and have different types of coverage including protection on the property, your personal belongings, other people, among other features.

Since you initially got your policy in force, have you shopped around to see if you could get a lower payment?

It’s not uncommon to do this with car, disability, or even life insurance but this is one many people forget about.

One of the companies that I have personally used and YFP recommends comparing multiple quotes for life and disability insurance, Policygenius, actually now has a platform to easily compare companies that offer homeowner’s insurance.

Within 3-5 min you can find out if you are overpaying and able to get a better deal.

Now even if there is a savings, this is not likely going to be to the same magnitude as some of the ways I mentioned but every bit helps.

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7. Refinance Your Mortgage

When you refinance your mortgage, you change the terms of the loan which could be the interest rate, type of interest rate, time to repay, or a combination of those.

Reasons to refinance include reducing the loan term, eliminating private mortgage insurance (PMI), cashing out on your home equity, or getting out of a variable interest rate.

However, the most obvious reason to refinance your mortgage is to get a lower rate. Depending on the term, a lower rate could reduce your monthly payment and result in less interest paid over the course of the loan.

This year, in large part due to COVID-19 and intervention by the Federal Reserve, mortgage interest rates have plummeted to historic lows. This is good news if you are a homeowner and are eligible for lower rates.

Now often times there are some closing costs to refinance so often in order for it to make sense financially, you may have to live at your current residence for a period of time at least to break even. You can check out our mortgage refinance calculator below.

Mortgage Refinance Calculator

 

 

There are multiple lenders that offer mortgage refinancing. Unfortunately, the process for comparing rates traditionally hasn’t been an easy one.

You can go to local banks or obtain rates from individual lenders online but this requires you to submit documents multiple times and could take significant time and effort.

Or you could go to sites that partner with multiple lenders, but the moment you provide your information, it’s sold to third parties and then you get bombarded with annoying phone calls, text messages, and emails by multiple companies.

Fortunately, there is a faster and easier way to compare rates and that’s why we partnered with Credible.

Not only does Credible have an outstanding user-friendly platform that lets you compare multiple lenders within minutes, but you also deal with them directly until the final stages of the process.

Another lender we recommend is IberiaBank. They offer a 3% down loan with no PMI for pharmacists who are first-time homebuyers but they also offer refinancing options as well.

Like all aspects of your financial plan, mortgage refinancing has several considerations that need to be weighed and might not be for everyone. To help you decide whether or not you should refinance your mortgage, check out our recent podcast episode with Nate Hedrick, The Real Estate RPh.

Another Possible Option: Live the Van Life

To say that Rena Crawford took a unique and unconventional approach to combat a high cost of living is an understatement.

On episode 152 of the podcast, Rena shared her story on how she purchased a 1994 Dodge Ram van and with about $7,000 renovated it so that she could make it her home during residency. Her dad helped with the renovation and built custom fit furniture for her new 60 square foot home. The van also boasts nice flooring, 200 watt solar panels, a full size dresser that doubles as a cooktop, a mini fridge, and a full size bed.

your financial pharmacist

While living in a van down by the river may not be your answer to offset your housing costs, Rena showed that it can be done and it’s definitely an option.

Conclusion

Housing costs can take up a huge percentage of your monthly income and make it challenging to fund your financial goals. If your current living situation is not making you money and you are struggling, downsizing or moving to an area with a lower cost of living can be powerful moves. Also, getting roommates or house hacking are alternative options to have others bear some of your overall costs. Finally, comparing quotes for homeowner’s insurance or mortgage interest rates can also assist.

 

YFP 153: COVID-19 & Student Loans: What’s Next?

Posted on by yfpadmin


COVID-19 & Student Loans: What’s Next?

Adam Minsky, an attorney devoted to helping student loan borrowers and a Senior Contributor to Forbes, joins Tim Ulbrich on today’s episode. Adam talks about the student loan proposals that do and do not have momentum including The HEROES Act recently passed by the House, and what you should expect going forward as it relates to your own student loan repayment plan.

About Today’s Guest

Adam S. Minsky practices in Massachusetts and New York, and is one of the nation’s leading experts in student loan law. He remains one of the only attorneys in the country with a practice devoted entirely to helping student loan borrowers. Attorney Minsky provides counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters, including repayment management, default resolution, and servicing troubleshooting. He has been interviewed by major national media outlets including The New York Times, NPR, The Boston Globe, The Washington Post, and The Wall Street Journal, and has been named a Massachusetts Super Lawyer “Rising Star” every year since 2015.

Attorney Minsky regularly speaks to students, graduates, and advocates about the latest developments in higher education financing, and he maintains a nationally recognized student loan blog, “Boston Student Loan Lawyer.” He has published three handbooks including The Student Loan Handbook for Law Students and Attorneys, published by the American Bar Association. Attorney Minsky is also a contributing author to the National Consumer Law Center’s manual, Student Loan Law, and he is a Senior Contributor to Forbes, where he writes about the latest developments in student loan law and policy.

Attorney Minsky received his undergraduate degree, with honors, in Philosophy and Political Science from Boston University, and his law degree from Northeastern University School of Law. He lives in Boston, Massachusetts.

Summary

There have been several government proposals to help support people that are facing financial challenges due to COVID-19. Adam Minsky, Massachusetts attorney devoted to helping student loan borrowers and a Senior Contributor to Forbes, shares a recap of the student loan provisions in the CARES Act, the provisions proposed in The HEROES Act, and what student loan borrowers might expect in the near future.

The CARES Act was recently passed in March which suspended all interest, payments, and collections on federal direct student loans until September 30, 2020. These $0 payments count for those that are on a path to forgiveness with their student loans, whether that be through PSLF or non-PSLF forgiveness. However, FFEL, Perkins and private student loans, among a few others, are not covered under this provision and borrowers have to continue making payments on those loans.

The House recently passed The HEROES Act, a $3 trillion stimulus package which includes several other provisions for student loans as well as other proposals for stimulus checks among several other components. Although this isn’t law and is unlikely to pass the Senate, it’s meant to be a starting place for conversation and bi-partisan compromise. Adam discusses the student loan provisions and amendments that have already been made to the proposal.

Adam also talks about what’s next for student loans, his viewpoints on the longevity of the PSLF program and how student loan borrowers can advocate for themselves.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. It’s a pleasure to welcome Adam Minsky, a senior contributor for Forbes and attorney who founded the first consumer rights law practice in Massachusetts and New York devoted entirely to assisting people who have student loans. In addition to helping borrowers navigate the complex web of student loan repayment programs, Adam represents borrowers who have disputes with their loan holders or servicers and those who are facing economic hardship, default or collections. Adam has also provided various training and seminars on this important topic, authored multiple handbooks on student loan law and advised elected officials and consumer advocacy organizations on student loan legislation. In addition to his contributions on Forbes, he has been featured in the New York Times, NPR, Washington Post, and has been named a Massachusetts Super Lawyer Rising Star every year since 2015. He completed his undergraduate degree in philosophy and political science from Boston University and got his law degree from Northeastern University School of Law. Adam, welcome to the Your Financial Pharmacist podcast.

Adam Minsky: Thanks for having me. I appreciate it.

Tim Ulbrich: Certainly appreciate your time and your expertise in this area. And as I mentioned in my email to you, today’s pharmacy graduates, many of whom are on the frontlines of COVID-19, have a median debt load of $170,000, are overwhelmed on how to manage this debt, so when I ran across your article on Forbes — which we’ll link to in the show notes — that there are now five plans to forgive student loans, how do they compare, I thought to myself, we need to have him on the show as our listeners would greatly appreciate his expertise and insights on this topic that impacts so many of our community members. So before, Adam, we talk about what might be, let’s talk about what we already know. So give us a quick recap of the student loan provisions that were in the CARES Act.

Adam Minsky: Sure. So the CAREST Act suspends all interest, all payments, and all collections activities on government-held federal student loans from March 13, 2020 to Sept. 30, 2020. So let’s break that down. That means first of all, only government-held federal loans are covered by that. So that includes federal direct loans and a small number of other types of federal loans that the Department of Education has at some point acquired or taken over. There are a large number of commercially-held older federal loans that we call guaranteed loans or FFEL, stands for Family Federal Education Loan Program loans. Those are federal loans that are guaranteed by the government but are not held by the government. Those are not covered. Federal Perkins loans issued by colleges and universities, those are not covered. Health professions loans are not covered. And private student loans are not covered. So there are a lot of borrowers who unfortunately aren’t getting full or complete relief from the CARES Act. But a lot of people are. And the interest suspension means that basically folks have a 0% interest rate and no payments are due on their loans. And what’s more is that — so typically when you have some sort of payment suspension through a forbearance or a deferment, those months don’t count towards anything. They don’t count towards loan repayment, they don’t count towards loan forgiveness. But the CARES Act has a specific exemption in place that says that if you were already on track for a program like a 20- or 25-year loan forgiveness under an income-driven plan or Public Service Loan Forgiveness that the months of suspension, the months when no payments are made, will still count towards those loan forgiveness programs. So that’s a unique benefit of the CARES Act as well.

Tim Ulbrich: Yeah, great summary about who is included, who is left out, and a mention of those payments counting toward for forgiveness, which I know will impact many of our listeners and certainly a benefit for those that are pursuing that route. You recently released an article, Adam, which we’ll link to in the show notes, with reports about how student loan servicers are dinging credit reports for the CARES Act forbearance, even though this shouldn’t in theory be happening. And people have been assured that it shouldn’t be happening. So tell us more about this.

Adam Minsky: Yeah, so it’s sort of an evolving story. You know, so I started hearing about this from some clients, some other consumer advocates started hearing about it, some news sources started doing some investigations. But it sounds like some loan servicers were improperly reporting the loan status, either in a nonpayment or in some cases possibly even a delinquent status. And according to the provisions of the CARES Act, there’s nothing that says it should be reported that way. And the Department of Ed has actually confirmed that the loan should be reported as normal, as paid as agreed. So some folks apparently have seen a credit ding or a reduction in their score. Now, at least one of the services, Great Lakes Higher Education, put out a statement saying that they’re working on accurately reporting all credit report information and the loan status in accordance with the law. I know at least one of my clients did see a restoration of his score back to what it was before. So it looks like if there are issues, it’s being addressed. But another consumer advocate theorized that because this had to be implemented so quickly, it’s possible that some loan servicers sort of on the back end, there may have been some issues in terms of how the loans were being reported to credit bureaus for certain borrowers. So it’s concerning, but I’m hoping that it’s temporary and it will be addressed and fixed soon.

Tim Ulbrich: And I think, Adam, as you outlined in your article, this was just a good reminder for me and a good reminder for our community of why checking your credit report and understanding your credit score is an important thing to be doing, regardless of a situation like this. But obviously, it’s timely with this. So for those that do find an inaccuracy on their credit report, what steps can they take?

Adam Minsky: Yeah, so like you said first of all, it’s just good practice to periodically check your credit. Under the Fair Credit Reporting Act, you are entitled to one free credit report annually from each of the three bureaus. So at a minimum, at least once per year, you should be checking your credit report. If you see anything suspicious or problematic or erroneous, you want to know about it and you don’t want to find out about it when you’re buying a house or you need access to credit.

Tim Ulbrich: Right.

Adam Minsky: So in terms of what you can do, obviously pull your credit. Annualcreditreport.com, which is sort of the go-to place to get that free credit score under the FCRA, due to COVID-19, they actually are now offering a free weekly online credit report through April 2021. That’s a new service. So that’s a way to kind of pull your credit report on a regular basis without having to pay for a service. Now, that won’t give you your score, so that’s important to keep in mind. It’s not going to give you a credit score. It’s going to tell you what’s being reported. If you do see something that’s inaccurate, so under FCRA, you can get inaccurate or erroneous information removed. So your first step would be to contact what we call the furnisher, the entity that’s reporting that inaccuracy. That could be the lender, that could be the servicer. Try to work with them to see if they can remove it. If they don’t remove it, then you can file a formal dispute with the Credit Bureau that is doing the reporting. That can be done online or in writing through mail to Equifax, Experian or Transunion. And if that’s not successful, and you’ve experienced some sort of harm as a result of that inaccurate or erroneous reporting, that might be a good time to get an attorney involved to see if you have any path forward legally under the FCRA.

Tim Ulbrich: Awesome. And you did a nice job in the article outlining those steps, so we’ll link to that article in the show notes for our listeners to be able to go and get more information.

Adam Minsky: Great.

Tim Ulbrich: So the CARES Act is temporary protection, which as I think you mentioned the dates of through September, and I think that is igniting debate and conversation about what could be longer term solutions. And we’ll talk about that here in a moment with the HEROES Act. And to be clear to our community, I think there’s so much moving so quickly that there’s often confusion of what is reality versus what is proposals? So what we’re going to be talking about as it relates to the HEROES Act over the next several minutes might become reality but certainly has a long path to get there. So this is the beginnings of the conversation. The HEROES Act has been passed by the U.S. House of Representatives. It’s a piece of legislation that’s essentially a $3 trillion stimulus bill that’s intended to help provide further financial relief beyond that to the CARES Act to both individuals, businesses, organizations, health systems and so forth. But again, to be clear, what we’re talking about here is not yet in place and still has a way to go to get there. So Adam, the Senate is on record for saying that this will be dead on arrival. The president has publicly mentioned that he would veto it. So why are we even talking about this? Why should borrowers care when the House puts forward a piece of legislation like this, especially as it relates to the student loan provision?

Adam Minsky: Yeah, well, I mean, so this is basically viewed I think by the House leadership as a starting point for negotiations. So it’s not necessarily as if the House passed this bill and the Senate is just going to ignore it and start fresh. You know, there has to be some sort of bipartisan agreement to some extent, at least. And I think the hope is that some of the provisions of the HEROES Act — and there are many provisions — the hope I think is that some of those might make it into a final Senate version of that new stimulus bill, one way or another. And so we don’t know what pieces will make it in, whether those pieces will be changed from what they are currently in the House-passed version. But I think it’s a starting point for negotiation, and I think that’s the key point.

Tim Ulbrich: So talk to us about those provisions that are in there. You mentioned there’s many, of course student loans aren’t the only part of this, but that’s what we want to talk about here. So what are those student loan provisions that are in at least for the time being the House version that’s been passed?

Adam Minsky: Yeah, so one of the big ones is an extension of the CARES Act. So the CARES Act currently suspends payments, interest and collections on government-held federal loans through Sept. 30, 2020. The Department of Ed does have the ability to extend that by an additional three months, I believe. So they could extend it to the end of the year. But it does expire relatively soon.

Tim Ulbrich: Right.

Adam Minsky: So the HEROES Act would extend all of those provisions by a year, to Sept. 2021. So it would basically give folks a year and a half of suspended payments and interest. It also would expand the CARES Act provisions to include some of those loans that were excluded from the original CARES Act. So I referenced those commercially held FFEL program loans and Perkins loans. Those would now be covered under the CARES Act suspension and not left out. Private loans would still not be covered, but all federal loans for the most part would be covered now if this did become law. The big sort of debate when it comes to the student loan provisions of the HEROES Act was with regard to student loan forgiveness. So House progressives had originally been pushing for $30,000 in across-the-board federal student loan forgiveness, which was pretty significant.

Tim Ulbrich: Yeah, I saw that.
Adam Minsky: The version of the HEROES Act that was initially released scaled that back but still had pretty significant provisions that provided for $10,000 per borrower in across-the-board federal student loan forgiveness and, interestingly, it also provided for $10,000 in across-the-board private student loan forgiveness as well. So you know, for folks who are carrying $100,000 or $200,000 in student loan debt, it may not seem like it’s that big of a deal, but this actually would result in approximately I think 16 million borrowers becoming completely debt-free.

Tim Ulbrich: Wow.

Adam Minsky: So it would have had pretty far-reaching effects. Now after they released that version, one of the main sponsors of the Act amended it to restrict those loan forgiveness provisions. My understanding is that after the initial version of the HEROES Act was released, the CDO came out with an estimate of the cost of this, and apparently the loan forgiveness provisions would cost upwards of $250 billion. And they’re trying to find ways of trimming that overall cost of the bill. So what they did is they limited who is eligible for those loan forgiveness provisions. And they limited eligibility to someone who they deem to be in economic distress, and this is very specifically defined as someone who is either delinquent or in default on the applicable student loan or they were in economic hardship deferment or forbearance or they were in an income-driven repayment plan with a calculated monthly payment of $0. And that has to be as of March 12, 2020, the day before the national emergency was declared. So it locks out a lot of people. It still has a lot of forgiveness in there, but it’s much more narrowly defined in the final version of the HEROES Act.

Tim Ulbrich: Great summary. And I think that applies, you know, when you said it’s been limited in a significant way, that certainly would be true for pharmacists if this were to move through. I mean, there certainly are some that would fall into that economic hardship definition, economic distress category that you mentioned or being delinquent or default. And I do think there’s certainly some probably trainees — I’m thinking about our pharmacy residents — that might be in an income-driven repayment plan that has a monthly payment of $0 a month. So I think there could be some situations, again, if this were to move through, that that would apply. However, as I understand it, the biggest piece that would apply to our community would be that extension of the CARES Act provisions through Sept. 2021 and the expansion to include, as you mentioned, the commercially held FFEL loans and Perkins loans. Adam, I also recall seeing something about a fix to PSLF. Tell us more about that in terms of what was there in the HEROES Act.

Adam Minsky: Yeah, so some brief background on Public Service Loan Forgiveness, I’m sure most listeners know how the program works. But the program requires 120 qualifying payments, which a qualifying is a payment made on a direct federal loan, which is a particular federal loan program, under an income-driven repayment plan while the borrower is employed as a full-time employee for either a 501c3 nonprofit organization or a public organization of some kind. You do that 120 times, which if made consecutively is about 10 years, and your remaining balance is forgiven at the end of that. A big problem with this is to go back to those commercially held FFEL program loans, those don’t qualify for Public Service Loan Forgiveness. There is a mechanism to correct for that, and that’s through a program called the Direct Consolidation Program where borrowers basically take out a new Department of Education loan, it pays off the old loans, and what they end up with is a new federal direct consolidation loan that does qualify for PSLF. The issue is that any payments made on the FFEL loans prior to consolidation don’t count towards the 120 payments required for PSLF. There have been a lot of — there’s been a lot of advocacy to fix sort of the seemingly unnecessary complexity of this program, and so the HEROES Act does include the fix for that where borrowers who are consolidating their FFEL loans through the Federal Direct Consolidation Program would be able to get those payments previously made on FFEL program loans to count towards the 120.

Tim Ulbrich: Yeah, and I know that’s been a big point of pain and contention and certainly has gained the attention of the media in terms of people that thought they were on track and had qualifying payments and find out they didn’t. So I’m sure that would be a welcome solution for many if that were to go through. It’s important to note too — and we’ll keep bringing updates related to this and as Adam mentioned, it’s going to be an evolution. I think this was a starting point for the future debate and negotiation, but there’s other provisions in the HEROES Act that are relevant to the individual, including cash payments to households, extension of unemployment benefits, the enhanced unemployment benefits and housing assistance for mortgage and rent payments, to name a few. So if you’re not already familiar with the language that’s in there, we’ll link to it in the show notes. But again, we expect this will be a moving target in the future, and we’ll bring up-to-date to the community. So Adam, what’s next here? Obviously it needs to go to the Senate, they’re going to have debate on this. What do we expect in terms of a timeline for review?

Adam Minsky: It’s a good question. I mean, the Senate isn’t even returning to Washington until June, so I mean, nothing is happening anytime soon.

Tim Ulbrich: Yeah.

Adam Minsky: And the Senate leadership has basically said they may not even be interested in passing a new stimulus bill, at least in the short term. Now, you know, they’re saying that publicly while at the same time there are reports that they’re kind of working in the background on a potential bill. But few details have really been released. I don’t anticipate any fast movement on this at all unless we see, you know, further cratering of the economy, which is possible. I mean, we’re in such a weird, uncertain time right now where half the country is still in various states of being shut down, but things are also opening back up. I don’t know what’s going to happen. I don’t think anyone does. I think all we know is that this version of the HEROES Act is not going to become law. And I think that whatever becomes law, if anything, we’re quite a ways away from knowing what those details are going to be.

Tim Ulbrich: Yeah, and so again, just to reiterate what you said and I mentioned earlier, especially for those that maybe tuned in halfway through or have us on double speed, what we’ve been talking about has been passed by the House, still needs to be debated, reviewed by the Senate, signed by the president. As we mentioned, what has been proposed likely is not going to be what moves forward but certainly could be a starting point for the discussions of a future bill. So looking into your crystal ball as an expert in this space, what do you see as an outcome that you think has real potential to get passed by the House, get approved by the Senate and ultimately get signed by the president?

Adam Minsky: I do think it is possible that we could see an extension of the CARES Act. I mean, frankly, at a minimum, I think that because the Department of Education already has the authority to extend the CARES Act by three months, you know, just from a political perspective, I mean, payments are going to come due again in October, just a few weeks before the election. I just don’t see that happening. Who knows? But you know, hitting millions of borrowers with a bill a few weeks before the election, I could definitely see a reason to extend that CARES Act out a bit, which could mean that we might not see a further extension of the CARES Act in the next stimulus bill, right? I mean, Congress has a habit of kind of walking to the cliff before they decide to do something. And so if this is already going to be extended possibly to the end of the year, we may not even see an extension of the CARES Act in the next stimulus bill. We might have to wait until the next next one. Who knows?

Tim Ulbrich: Right.

Adam Minsky: But I do think extension of those benefits is something that is more palatable on a bipartisan basis and less controversial if there is an economic basis for arguing that folks really aren’t in a position to be affording these payments. So pausing everything I think could be palatable to enough people to pass. I think something like student loan forgiveness, most Republicans have basically said that’s a nonstarter. It’s gaining traction with Democrats, but currently we have divided government, so I just don’t see that necessarily passing now. But again, we have an election coming up. Who knows what the makeup of Congress will be after that? And frankly, who the president will be. So you know, we don’t know for sure what will happen. But I think in the current state of things, I think that student loan forgiveness in any form is going to be tough. That being said, I think that student loan forgiveness as a concept, whether it’s $10,000 on a limited basis or $10,000 on a broad basis or something bigger than that, it has rapidly gained traction among lawmakers I think in the past year. And so that is something that I think for the first time, even though it’s a long shot right now, I think it is more realistic in some fashion than it has ever been before.

Tim Ulbrich: So while we’re talking loan forgiveness and while I have you on the line, I want to get your input on PSLF and the future of that program. You know, when we talk with pharmacists, in my estimation 20-25% of pharmacy grads qualify for PSLF, most of them because they’re working in a qualifying employer like a not-for-profit hospital. You know, the No. 1 question I get — and I can tell there’s instant hesitancy — is I just don’t trust this program’s going to be around in the future, I’m worried that this program’s not going to be around and how that might impact me, especially as they see that unknown and the potential for their loan balance to grow through that 10-year period. So talk to us about what you see as the future of PSLF.

Adam Minsky: Yeah, it’s a good question, and it’s a question that I get all the time I think from people who are in the program and are worried about it. Let me start by talking about the past, which is that in the past couple of years, there have been proposals to repeal the program. One was initiated by the White House through a budget proposal. The other was initiated by Congress prior to the 2018 midterms through a piece of legislation called the PROSPER Act, which would have repealed the program. Now, some key points here: No. 1, in both of those proposals, current borrowers would have been grandfathered in. The repeal only would have applied to new borrowers taking out new loans after those bills would have passed. There’s no absolute requirement that current borrowers be grandfathered in. Congress passed a statute that provided for the existence of PSLF, they can pass a statute repealing the program. There’s nothing that says they can’t do that. But if they didn’t grandfather people in, I think that there would be first of all, potentially viable legal challenges for pulling out the rug from people. And I think there would be political blowback from fairly powerful constituents who work in various sectors that have some political power. So I think that there is good reasons to grandfather people in if a repeal were to be passed. The other key takeaway is that these repeal proposals did not pass, they did not come close to passing, and that was during one-party control of Congress and the White House. It didn’t even garner sufficient support to even come to the floor of either the House or the Senate for a vote. So that tells me that that type of repeal at least at that point did not have enough support to really threaten the existence of the program. And certainly now with divided government, any repeal of PSLF would never pass the House of Representatives, in my opinion. Now, let’s talk about the present. I have had several clients who have gotten their loans forgiven under the program. So I can tell folks I have firsthand experience. The program does work, people do get their loans forgiven, I’ve seen their balances go to $0, it is legitimate. So despite all of the well-deserved scrutiny and bad press that the program has gotten, it also does work for people. And I think that that’s an important takeaway. Now, looking ahead, you know, again, I wish I could make predictions. We are in weird times right now. But you know, anything is possible in theory. But looking at what has happened so far, certainly I don’t think that the program is in any immediate danger. The efforts to repeal it that we’ve seen would have grandfathered people in if they passed, and they didn’t pass. So who knows what the future would hold? It is possible it could be repealed.

Tim Ulbrich: Sure.

Adam Minsky: But there’s no immediate danger of that. And I think that’s the best I can do in terms of trying to help people feel a little bit assured about the existence of the program.

Tim Ulbrich: Yeah, and connecting, Adam, something you said earlier about student loan — a concept like student loan forgiveness more broadly being acceptable. You know, it’s gaining traction, probably still a long way away from becoming reality, but it’s definitely more of a conversation now than it was two or three years ago. And I see this being connected, this idea of a change to PSLF and I don’t think that would be politically popular by any means, and you mentioned that. And so I think as this topic of student loan gains more national attention and I think it is here in the CARES Act, here in the HEROES Act, obviously we know it’s a $1.5 trillion problem and it’s impacting many, many people. I think there is a very significant political beast there constituents should have an important voice in terms of how these student loans are impacting them. Which takes me to my final question as I know you have been involved in student loan advocacy and people have looked at you as an expert. And I know many of our listeners with advocacy from the standpoint of advocating for their profession or advocating for their role as a pharmacist. But I don’t know if they have thought about really advocating for their position as a constituent as it relates to their student loans and as it relates to things like the HEROES Act that are being considered. So what advice would you have for our listeners that want to engage in the discussion on this topic in terms of how they can successfully advocate and have their voice heard?

Adam Minsky: Well, I mean, I think the best thing that people can do is to talk about it. Talk about it with your family, talk about it with your friends, talk about it on social media, and talk about it to your elected officials. I think that one of the big issues in our country is that people have debt and people have shame and guilt associated with that debt. And I think what that means is a lot of people carry this debt and then don’t talk about it. And I think that, you know, there’s 44 million Americans who have student loan debt in this country. There is $1.6 trillion in outstanding student loan debt. There’s a lot of student loan borrowers, there’s a lot of student debt. The system is really not working, or not working well at least. And I think that the only way that that’s going to change is if we talk about it and we get enough support, broadly speaking and also with our elected officials so that there can be meaningful change. And so that means sharing your story. If you just have a lot of student debt and you’re struggling to pay it back or you’re dealing with nightmare servicer issues or you’re getting five different answers from five different people or they’re not counting your qualifying payments, talk about it. Share this with the people around you. And tell your congressperson, tell your Senate office because they need to hear about it as well. Personal stories really do go a long way to kind of putting a human face — you know, I think a lot of times, elected officials are just looking at the numbers. And the numbers are important, but I think that the human stories really have to be highlighted as well.

Tim Ulbrich: Yeah, great point. I think it’s — you look at a number like $1.6 trillion — I was off by .1 — $1.6 trillion and as a legislator or even as a person, you look at that and it can have somewhat of a numbing effect. It’s just so big. So when you hear an individual story about how somebody’s been impacted or how it’s impacting their personal situation, their family situation and trying to make those payments or difficulties with working with a loan servicer, I think it resonates in a totally different way. So great advice there. Adam, where can our listeners go to learn more about you and the work that you’re doing on this important topic?

Adam Minsky: Yeah, so feel free to check out my website, easiest place to go would be BostonStudentLoanLawyer.com. You can also follow me on Forbes. You can go to Forbes.com/sites/AdamMinsky, that’s Adam Minsky. You can sign up for email updates. I publish pretty routinely on Forbes, once or twice a week, sometimes more often than that. I try to stay on top of all these developments. You can also follow me on Twitter or connect with me on LinkedIn or find my Facebook page. But I try to stay on top of everything and to post analyses of what’s going on because like you mentioned, this is changing rapidly, especially these days. And I think that it can be confusing to know what’s what, what’s law, what’s not law, what changes have been made to certain proposals. So I do my best to kind of stay on top of all that, so folks should feel free to follow.

Tim Ulbrich: Great stuff, Adam. Thank you so much for taking the time to come on the show to share your expertise and to contribute on this important topic to our community. Thank you very much.

Adam Minsky: Thanks for having me. I appreciate it.

Tim Ulbrich: As we wrap up today’s show, I want to remind you again of our latest resource, authored by Tim Church, “The Pharmacist’s Guide to Conquering Student Loans.” We will be doing a full release of that book soon, and you can sign up for the list to be notified when we go live by visiting PharmDLoans.com. Again, that’s PharmDLoans.com. As always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to your podcasts each and every week. Have a great rest of your day.

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YFP 152: Living the Van Life During Residency

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Living the Van Life During Residency

Rena Crawford, a PGY2 resident living in San Diego, California, joins Tim Ulbrich on the show. Rena took matters into her own hands after realizing how high the cost of living is in San Diego, especially on a resident’s salary, and came up with a creative solution: to buy and renovate an old van for $7,000 and live in it. Rena dives into the details of living in a van, her dreams of attaining financial freedom, and the lessons she’s learned along the way.

About Today’s Guest

Dr. Rena Crawford was born and raised in North Carolina where she received her undergraduate degree in Clinical Research from UNC Wilmington. She then moved to Charleston where she earned her PharmD from South Carolina College of Pharmacy at the Medical University of South Carolina campus in 2018. Her student work experience includes interning at Ralph H Johnson VA Medical Center and volunteering at Joint Base Charleston pharmacy. Her fourth year student rotations were completed in Jacksonville, Florida. After graduating from pharmacy school, she traveled the country for several weeks in her converted van before moving to Tucson for her first year of pharmacy residency at Southern Arizona VA Healthcare System. She now resides in San Diego, California where she lives comfortably in her van and enjoys traveling, visiting national parks, and spending time on the water. She is currently finishing her second year of pharmacy residency, specializing in ambulatory care.

Summary

Rena Crawford, a pharmacy graduate from UNC Wilmington and now PGY2 resident living in San Diego, California, has chosen a different approach to saving money on her expenses than most. When Rena realized that rent prices in San Diego are often over $2,000 a month per person, she knew that she was going to have to find a creative solution to her living situation so that she could make some progress on her six figures of student loan debt.

Inspired by her brother traveling the country in a van, Rena decided to purchase a 1994 Dodge Ram van and renovate it so that she could live in it during residency. Her dad helped with the renovation and built custom fit furniture for her new 60 square foot home. The van also boasts nice flooring, 200 watt solar panels, a full size dresser that doubles as a cooktop, a mini fridge, and a full size bed.

On this podcast episode, Rena dives into all the details about living in the van, her financial goals, how van life is helping get a head start on them even while making a resident’s salary and the lessons she’s learned this last year.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. I’m excited to have joining me Rena Crawford, a PGY2 resident living in San Diego who has developed a creative solution to the problem that many new grads entering residency are facing: high debt loads, a reduced income, and another year or two that goes by without making progress on their financial plan. Rena, welcome to the Your Financial Pharmacist podcast.

Rena Crawford: Hi, Tim, thank you so much for having me.

Tim Ulbrich: Such an awesome, unique story. I appreciate you reaching out. Excited to have you on the show to tell our listeners more about your journey as you’ve gone through residency, have a unique living situation, and I think more than anything, just really having an intentional mindset towards your financial plan, which I love and we’re going to dig into that a little bit deeper. So before we jump into your current living situation and your lifestyle, let’s back up. Tell us a little bit more about where you went to school, where you grew up, and then ultimately why you decided to make the move out to San Diego.

Rena Crawford: Right. So am I on the southwest coast now, but I actually grew up in North Carolina, on the East Coast. I went to pharmacy school at the Medical University of South Carolina in Charleston. And I moved out west for the first time prior to my first year of pharmacy residency. And I’ve actually only been in San Diego since I matched for PGY2 and started in July.

Tim Ulbrich: Awesome. And tell us about your student loan debt position at graduation. How much did you have? And how did you feel about that debt when you graduated?

Rena Crawford: Right. So when I graduated, I was at $160,000. As a student, I don’t think that really set in, what that really meant, until I got to residency and first started making a salary or any kind of paycheck at all. That was really the first time it hit me what that meant.

Tim Ulbrich: Yeah, a resident salary will do that to you, right? You see that big student loan debt number, obviously you’re excited about residency training, and all of a sudden you go into active repayment and you’re like wait a minute, how much do I have to pay on a resident’s salary? Is this realistic? And to that point, you had shared with me that for your situation, it was going to take about a $600 payment, which would be about 20% of a resident’s take-home pay, just to pay the interest alone. So I’m guessing that was a surprise. Is that fair to say? That it would take that much payment just to cover the interest?

Rena Crawford: Right, exactly. So I knew I wasn’t going to go further into debt for residency, and to pay off just the interest means making zero progress. And so by the time residency came, I’d had four years of student debt accruing, I had a low salary, and just to keep everything in check was going to take a large percentage of my take-home pay.

Tim Ulbrich: I appreciate that mentality. I always say stop the bleeding, stop the bleeding. And you did more than that. You made progress, and we’ll talk about that. But I think residency can be a time period where you’ve gone through all the hard work, you get your PharmD, obviously get to that point, you’re excited, next phase is coming, big student loan debt position often that grads are faced with. And if you go into residency, low income position for a year or two, obviously it’s easy I think to throw up your hands and say, “You know what? I’ll worry about it after the fact.” And you certainly did not do that, and we’ll talk more about that. So we have heard stories of pharmacists on this show, we’ve featured some on the blog, who have really reduced their spending in really extreme ways, whether that be eating out and really inexpensive foods for a long period of time, eating bulk foods all the time, reducing your utility payment by not using air conditioning. We’ve talked about house hacking and other creative strategies. But I’ve never heard — I’m guessing our listeners have never heard — of anyone doing what you’re doing to reduce their expenses so that they can tackle their debt. And that is, of course, living in a van for a year. And we’re going to talk about exactly what that looks like to be able to do that. So talk to us about the rent situation in San Diego, in southern California. What does that look like? And how did that help drive your decision to go a different route and ultimately live in a van for a year?

Rena Crawford: Yeah, San Diego rent prices are known for being especially high. I have friends both inside pharmacy residency as well as outside of the pharmacy world completely that are paying $2,000 and more a month in rent. That could just be their share. They may have to have one or two roommates that pay just as much.

Tim Ulbrich: Wow.

Rena Crawford: Of course that can range a little bit. I know people who are paying a little bit less than that. But compared to what I’d seen growing up on the East Coast, it was the most expensive I’d ever seen. And it seemed hard to picture being able to pay down loans in any meaningful way and have a normal life if rent was going to cost two-thirds or so of my monthly paycheck. So knowing that I found a lot of satisfaction out of minimalism and having that freedom to spend money on other kinds of things like being healthy, having a good diet, I knew that the rent was something I would be willing to sacrifice and I could be pleased living in a van.

Tim Ulbrich: Yeah, and I think one of the things we’ve talked about on the show before is we know pharmacist’s income don’t increase proportionally with cost of living, and I would say that is certainly true for residents as well. You know, there’s a range for a resident’s salary, you may see that fluctuate, but some, and it may be a little bit higher on the West Coast than it is here say in the Midwest, but typically it doesn’t go up proportionately with what we see in cost of living. So as you mentioned, that would have been a huge portion of your take-home pay when you look at rent figures that are that high. One of the things you said, Rena, which I thought was interesting — I want to dig a little bit deeper — is that you said knowing that you get satisfaction from minimalism. Tell me more about what you mean by that and how you identify that.

Rena Crawford: Yeah, so before I started living in the van, the only person I’d ever known to do anything like that was actually my younger brother. When he graduated college, he bought a cheap Chevy van and left and traveled the country for a few months. After that, that piqued my interest. I became more interested in that kind of idea. So I myself after pharmacy school graduation before PGY1 year started, I took the van and traveled. I hadn’t ever left the East Coast at that point. So I went across into the southwest, up the coast of California. So when I matched there for PGY2 residency, I’d already been there in the van. I could picture the beautiful weather, the pretty beaches and how easy it would be to pull off living in the van again. And traveling in it, I’d realized that it was something I genuinely enjoyed and got a lot of satisfaction out of.

Tim Ulbrich: Awesome. Awesome. So being able to have some of that previous experience and knowing that it could be a possibility obviously was valuable in being able to do that for a whole year. So let’s talk about the van. Tell us a little bit about how much you bought the van for and, you know, what did it look like when you got it and how much did you have to do in terms of renovation to make it livable for a year?

Rena Crawford: So I have a 1994 Dodge Ram van. The van itself was about $4,000, and it cost a few hundred extra for registration, maintenance up front and everything. I’d say to get the van into my possession was probably about $5,000.

Tim Ulbrich: OK.

Rena Crawford: When I first bought it, it looked like it was frozen in time back from 1994. Velvet lining, it was bucket seats in the back with the old stuff in the center and the bench that went down into a bed. So I had to start from scratch in terms of renovating. My dad helped a lot. He’d built a lot of the furniture custom-fit for my van. And then I had a friend out here locally in San Diego who did some electrical work, put in nice flooring. So it’s actually, it’s pretty nice inside. I have a couple 200-watt solar panels that keep a couple deep-cycle batteries charged to hook my laptop and phone into. So all said and done, the renovation was probably another $1,500.

Tim Ulbrich: OK. So roughly $7,000 all in, you mentioned the purchase, obviously the taxes, all those other fees that come with buying a car, and then some of the renovation inside. Which if we go back to your rent numbers that you shared and if we use $2,000 as a number, we’re looking at a little over three months before you would break even and obviously you then have something that you can leave with or even if it was a lesser rent value, certainly within a time period of one year, you would have broken even. So cool to think about the numbers. And for those that are saying, “I’d love to see the van. What does it look like? How did this work? And I want to see what it looks like on the inside,” we’re going to share some pictures on the show notes. So make sure you head on over to the website, YourFinancialPharmacist.com, pull up this episode, and you’ll be able to see some more of that as well. So walk us through the van, Rena. If I were to enter into your van, give us the visual of what would I expect as I walked into the van.

Rena Crawford: Yeah, so I generally walk in from the backside door. When you first open the door, you realize it’s actually pretty spacious. I have a full-sized dresser that doubles as a cooktop immediately straight across when you walk in. Then I have a mini refrigerator sitting on a bench seat that opens up into storage. I have a full-sized bed in the very back. It’s shorter than a full-sized bed, it’s actually as wide as a full-sized bed. It has extra storage under the bed as well as along the top near the ceiling. And like I said, it’s surprisingly spacious. The van itself is considered to be an extra-long version. So it’s a little longer than a typical van. But it’s tall enough for me to stand in. I have room to move around easily, getting dressed, making dinner. And even if I wanted to have a couple friends over to sit on the floor and hang out, that’s something I’ve done before.

Tim Ulbrich: That’s cool. So in terms of size, if I remember right, less than 100 square feet, right?

Rena Crawford: Oh yeah. It’s like 60-something square feet.

Tim Ulbrich: Yeah. OK. It’s just amazing, you know. I think about my own home and other homes that I’ve lived in and certainly family and how easy it is when you think of 2,000 or 3,000 square feet, it’s like oh my gosh, I need four bedrooms, 3,000 square feet. But I think all of that you put into perspective when you have an experience like this. And it really helps you determine, you know, what are the things that really matter most? And perhaps it’s not the space that really impacts those things. And we’ll talk a little bit about that at the end of the episode. So some common questions that I’m thinking of that I’m guessing our listeners may be thinking about as well is where do you park the van? And how do you shower? Where do you able to work out and enjoy some of those amenities? And what about cooking versus eating out meals? Talk us through some of those logistics that you might think about that you have to think about differently versus if you have a home or you have an apartment.

Rena Crawford: Right. So I would say parking was the biggest learning curve. You kind of over time develop an eye for places that you know you could park overnight and not draw attention to yourself but also seem relatively safe. And I say relatively because one thing about San Diego is there actually is a community of people who live in vans. And more often than not it’s actually because they have a very dire financial situation and have no other choice. So parking spots are — some of them are in high competition, especially ones that have WiFi. Those are more limited. But like I said, over time, you kind of get an eye for it. I generally look for places that are kind of off a main drag but are next to a neighborhood. And those tend to work out the best. There’s places along the beach, and there’s places near the hospital. So actually, once you get into a groove, it hasn’t really been an issue. In terms of showering, I definitely rely on fitness centers, I use the locker room at the hospital. Finding those places was a bit of a transition, having to locate which showers had good water pressure, which ones I could count on having hot water, things you wouldn’t necessarily think about. And then in terms of food, I can cook in the van. I have a stovetop and I can boil water and I have the ability to saute and cook in a pan. But my refrigerator is pretty small. Any meals that require a lot of ingredients or leftovers, those things are inconvenient. So I end up picking things up a lot such as the hot bar at Whole Foods or takeout food, something healthier like poke or something like that. And I’m comfortable doing that because one, I’d have to eat anyway. And two, I can’t sustain a resident’s lifestyle on ramen noodles.

Tim Ulbrich: Right, right. Well, and we’re not talking about — I think it’s a good point. We’re not talking about crappy fast food all the time. I mean, obviously you’re talking about healthy options that you can find at Whole Foods and others. And I would also add, you know, that it sounds like because you’re able to keep your cost of living down that that frees up some income to be able to eat out or even as we’ll talk about here in a moment, be able to pay off some more of your student loans. So do you feel like you have some of the margin and the permission to be able to do that and have that convenience of not having to cook in the van where you don’t have a lot of space and room for refrigerating leftovers because you’ve been able to decrease the rent position?

Rena Crawford: Exactly. I feel like that’s one way that the van life has really paid off is being able to be selective about what I eat and being able to comfortably afford things that I believe are healthy.

Tim Ulbrich: So one of the things, Rena, I was thinking about this from the lens of a parent perspective, you know, if this were my child, I’d be like, ‘Oh, I love the passion for staying committed to achieving your financial goals and not spending money where you don’t necessarily have to,’ but I’m worried about some of the things we’ve talked about: your safety and your wellbeing and all those things. So is there a community of people that are kind of looking out for one another? You mentioned that those that are often living in a van situation might be in a dire situation to do so. But are there others that — I’m thinking of like the FIRE movement folks or others that are in a similar situation to you that are often trying to help each other out, pointing people in the right direction about this parking spot or this food option or this WiFi? Or do you feel like you’re kind of going at this alone?

Rena Crawford: When I first got here actually, there were some people who walked up to me and started conversation. I woke up in the morning once with a note written and put under my windshield wiper just saying, “Hey, I don’t think you’ll be able to park here for very long. We get cleared out from time to time.” So at the beginning, I did feel kind of that sense of comradery, but now as I’ve identified my own locations to sleep and kind of my own groove, I feel like I kind of run into them less. But yeah, there is a community, and they definitely do look out for each other. It’s actually one of the nice sides about it.

Tim Ulbrich: That’s cool. And tell us about, you know, the progress you’ve been able to make on your student loan debt because you’ve been able to free up some of your income that would otherwise be going towards rent.
Rena Crawford: Well, I try to shoot for about a $1,600 a month payment each month. That can vary a little bit depending on if something comes up in terms of needing van maintenance done. But as a whole, you know, in the last two years making resident’s salary, I’ve still been able to take my principal from $160,000 down to $130,000.

Tim Ulbrich: Wow. That’s awesome. So again, as we talked about earlier, often residents, I feel like the goal can be status quo. But here we’re talking about making progress. And it looks like you’ve done that in a significant way. So you mentioned earlier that you’re from the East Coast. So right now you’re on the West Coast for residency. So million-dollar question, depending on where you end up for a job and where you go next, what do you plan on doing with the van?

Rena Crawford: I think by the time the year is over, I’ll probably be ready to move out of the van. I mean, I’ve been really content living in it and it’s been very satisfying because it’s accomplished what I wanted it to accomplish, which is help me pay down my student loans. But by the time this year is over, I think I’ll be ready to get out of the van or at least not have it as my home base. I want to keep the van forever and use it for weekend travels. It does feel like an asset, and it has a lot of good memories with it. But yeah, I don’t think I’ll continue to live in it after this year.

Tim Ulbrich: Is there one or two things that you miss most about more of a “traditional” living situation like a rent or a home?

Rena Crawford: Yeah. I mean, I miss the convenience of showering. And the way it is now, it requires several extra steps. And then just being able to cook. You don’t realize until you can’t cook anymore how pleasurable it actually is to make your own meal from scratch. I miss doing that.

Tim Ulbrich: Well, I can envision as you take this next step following your residency where you end up in let’s say a 1,000-square foot apartment and you’re like, what do I with this? I have more than 10 times the space I had for the last year. But obviously I think that’s a good challenge to be thinking through. So talk to us a little bit about support of family and friends. You know, I could see this going one of two ways. And I know your brother went a path of traveling in a van, so maybe this is a little bit different with the family, but I could see family and friends being like, ‘Wow, I just admire the passion,’ and perhaps it even motivates and inspires them in their own journey and their own financial plan or their own quest of finding what they actually need in terms of minimalism. Or I could see people being like, ‘What in the world are you doing?’ Like what has that been like in terms of support from family, friends and even colleagues?

Rena Crawford: Yeah. Yeah, when I started residency, I didn’t want to publicize it. But I knew it would be discovered. It’s hard for it to never come up in conversation at all. And I was worried at first, you know, that it would look unprofessional or that it would reflect poorly on me in a job setting. But actually, you know, once word got out there, it spread pretty quickly, and everyone only had positive things to say. You know, I actually have gotten that before, like, ‘Oh, that was a good idea. I wish I would have thought of it. Maybe I would have done it too.’ So far, nobody actually has moved into a van after talking to me, but maybe it’ll happen sometime because people have genuinely positive reactions and seem to really understand the idea behind it.

Tim Ulbrich: Absolutely. And I sense people listening to this, it may be that they move into a van, but more likely, it’s probably the principles that they take and apply to their own situation in terms of trying to really evaluate what they do or do not need and what other goals could they accomplish if they’re able to free up some of the expenses that come with what is usually the largest expense in someone’s budget, their living situation. So I want to read a passage, Rena, from the article that you had sent over to me and then talk a little bit about this concept of happiness related to money. So you said, “Forgoing a real home in favor of living in a van may sound extreme. But there’s something wonderful about knowing that almost all of my needs can fit into 70 square feet. Living in a van has done more for me than just save me money and allow me to pay down my debt. It allows some freedom for cheap weekend traveling and I can live in any part of the city I want, depending on my mood that day. Plus, I’ve learned just how little I need to be happy.” So talk to us about that concept of happiness and how this experience, as you reflect back on this experience, what it’s made you realize in terms of what it does or does not take to be happy.

Rena Crawford: I think a lot of my happiness right now comes from accomplishing my goal of getting further towards freedom. And you know, if that’s your priority, putting the money there first and then living on what’s leftover, that forces you to re-evaluate what really makes you happy. And I mean, I still have my laptop, I still can watch Netflix before I go to bed or a nice movie or something if I want to, I can pick up meals when I feel like I need to. But I don’t need a bunch of things. And I feel like as people, you know, make more money, the things kind of start to fill up the empty space because you have that discretionary money, you’re more likely to purchase things you don’t need. And living in a van that doesn’t allow that, you know, I don’t have a place to put anything, so I don’t buy any extra stuff. And I haven’t suffered for that at all. In fact, I feel pretty free. And a lot of my money goes into experiences like spending money on gas to spend a weekend at Yosemite or something. I feel more pleasure from that than I do just having belongings.

Tim Ulbrich: Which are the memories you’ll remember. I mean, I think the experience in and of itself is one that you’ll remember. But being able to fund those experiences I think is so cool. And I’m a huge believer that short-term experiences — when it comes to your financial plan, short-term experiences, even if they’re short-lived, have positive long-term benefits. So here I see a situation where yes, of course you’re not going to live in a van forever. But through this experience and through what you’ve learned about what makes you happy and where you can derive that value you do or do not need, even though your expenses will naturally go up, your income is going to go up, I think it really will have a long, long-term impact on how you spend your money. And I think that’s one of the coolest things about an experience like this. So Rena, if we fast forward five years from now, so what would that be? 2025. May 2025, I sense you’re someone who’s got big goals, dreams and aspirations. You know, you’ve obviously been able to tie into this concept of minimalism, you’ve had some real intentional efforts during your residency to be able to pay down your debt. So when we look at your financial plan in five years, five years from today, what would you say success looks like?

Rena Crawford: So in five years, I definitely want to be debt-free as well as have a solid nest egg of savings to maybe put a down payment on a house, maybe put a down payment on a sailboat and travel the country or travel the world. I haven’t figured that out yet. But I know for sure I will be out of debt and have some nest egg to figure out what that next step looks like for me. Some kind of investment or new alternate way of living.

Tim Ulbrich: Yeah, and I can tell for your situation, obviously having no debt and taking away that $1,600 a month payment or perhaps more as you go into the future to get that paid down plus having minimal expenses overall, even if that goes up, is going to give you lots of options to do the things that matter most to you. So Rena, thank you so much for sharing your story, for reaching out, for taking the time to come onto the podcast. And I’m confident your story is going to help inspire others to think about their own financial situation. So thank you so much.

Rena Crawford: Thank you. Thanks for having me.

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