UNDERSTANDING GOOD DEBT VS BAD DEBT AND WHY HOMEOWNERSHIP ISNT “JUST” MORE DEBT

We’re back again with another rant about the traditional financial advice that’s provided to professionals at the start of their careers, especially doctors!  The traditional advice isn’t inherently BAD advice.  It’s geared toward living frugally, avoiding debt at all costs, and creating a comfortable life during retirement in your 60s.  The only problem with that…is that most physicians who are coming of age currently and beginning their careers are not satisfied to resign themselves to an ordinary life.  They’re not okay with settling for a life half-lived in their 20s-50s , in favor of finally getting the chance to fully enjoy life in their least healthy, least active years of “retirement”.

If you are okay with delaying life until traditional retirement age, you can actually go ahead and stop reading now. Call up your financial advisor and do exactly as they say.  If not, let’s talk about good debt vs bad debt. Every generation has had events that shaped their views on money and their level of risk aversion to certain ways of investing your money.  For many of the Gen Z and Millennial docs who are getting started in their career, they’ve heard their parents and family talk about the real estate crash of the early 2000s and have received the well-intentioned advice that DEBT IS A BAD WORD.  So when you come out of training with a couple hundred grand in student loan debt, the idea of adding additional “debt” is inconceivable.

Now, hear us out.  If you are going to rack up some credit card debt or buy that new luxury car that depreciates immediately…we are going to tell you to listen to your folks. Consumer debt such as credit card spending, cars, and anything else related to an asset that generally depreciates in real value is what we consider bad debt.  It does nothing to help you in the way of building your wealth over time and we agree that it should be avoided at this stage in your career (and minimized no matter what phase of your career you’re in).

NOW lets get to the good stuff, the GOOD DEBT that is.  What we consider good debt is debt that is tied to an appreciating asset.  An “appreciating asset” is a thing you own in association with that debt that will GROW in value over time. Because you own that thing, you also own that increase in value.  If you get a $100 loan (debt) to buy that item (asset) for $100 and over time the item(asset) increases in value by  $100, you now own an asset worth $200 and your debt associated with it is only $100 so you have gained $100 more dollars just by being the owner of that asset. One such asset is real estate!  So while appreciation is never a guarantee, it is historically an extreme statistical likelihood over a certain period of time!  Good debt allows you to get in the game of GROWING YOUR MONEY instead of just working for money, and often owning real estate is the most accessible way to get started on this path.  With some of the options available to Newer Docs, you can begin growing your wealth even on a Resident’s Salary. Follow along with our Upcoming Blog posts to learn more about the BEST ways for Newer Docs to own real estate (in our humble opinion).