One House, One Spouse, One Job: Avoiding the True Pitfalls in Personal Finance

FEBRUARY 24, 2015
James M. Dahle, MD, FACEP
Couple buying homePersonal finance writers often spend far too much time on the little things in personal finance, and far too little on the things that really matter. Consider how many articles you have read discussing the Latte’ Factor, choosing the correct cash-back credit cards, avoiding restaurant meals, buying used cars, and using coupons. The truth is that for most physicians most of what you need to know to avoid the real pitfalls in personal finance is encapsulated in a single phrase: One House, One Spouse, One Job.

One House
Physicians fall into the Multiple House Trap in 2 different ways. One is to have serial houses, and the other is to have parallel houses. First, the serial house issue. This is when you change houses every few years. Buying and selling a home involves some serious transaction costs. A good general rule of thumb is 5% to buy and 10% to sell. Don’t believe it’s that high? Go back and look at your closing statements for your last home, and then look at your credit card statement for the 3 months before and after. Sellers tend to pay for upgrades, repairs found on the inspection, closing costs for the buyer, and realtor fees. Purchasers pay for loan costs, upgrades, and maintenance items such as snow blowers, lawn mowers, and power tools. For a $500,000 house, the 15% round trip cost of purchasing and selling a home is $75,000, or more than many physicians save toward retirement in a single year. Do that a few times and you will find yourself way behind the 8 ball compared to your “one house peers” when it comes to retirement savings.

The second way physicians end up in a multiple house situation is with parallel houses, i.e. a vacation home. It might be a beach house, a mountain house, a lake house, or simply another house. A second home generally doubles all your housing-related expenses: Mortgage, taxes, maintenance, upgrades, furnishings, utilities, etc., not to mention those same transaction costs and the cost of traveling between your 2 homes. To make matters worse, many physicians mistakenly think this expensive consumption item is an investment. They envision selling it after it appreciates a great deal to pay for their retirement. Or perhaps they expect to rent it out a few weeks a year. The truth is an investment property is very different from a vacation home. If you actually run the numbers on your vacation home as an investor would, you will quickly see the return on your investment is likely to be terrible. If you wish to purchase a second home, view it as a pure consumption item. That means you should have retired your student loans, paid off your first home, be saving 20% of your gross income toward retirement, and be able to pay cash for the vacation home. If you cannot afford to do all that, you probably cannot truly afford to buy the vacation home. A recent thread about vacation homes on Sermo, a physician-only forum, contained advice from many doctors who have owned a vacation home in the past. See if you can see the common theme:
  • 1st Doc: At first it was great when everything was new and later became a real money pit and expense. We started using it less and eventually sold it.
  • 2nd Doc: Every doc I know, who purchased a vacation home, eventually regretted the decision. They became financial drains, and more importantly, became one more chore and obligation that needed tending, and a time suck.
  • 3rd Doc: You can take a lot of vacations all over the world for less money and aggravation than owning your own vacation home will be.
Like most things in medicine and personal finance, it is better to learn from the experiences of others rather than making all the mistakes yourself.

One Spouse
Divorce is personally and financially devastating. Whatever expense may be required to maintain your marriage should be considered as pennies compared to the cost of divorce. The truism, “It’s cheaper to keep her,” really applies here. In a bitterly contested divorce, not only do the lawyers for both sides walk away with tens of thousands, but your assets are also split in half. Then you may find yourself paying alimony and even child support. You are basically buying yourself a second house, except you don’t even get to vacation in this second home. To make matters worse, many physicians find themselves in serial marriages and divorces. Some of the least happy physicians I have ever met are working way too many shifts and taking far too many calls late in their careers as a result of alimony payments and devastated nest eggs.

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