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foundations
11/10/98

Personal Finance and Investment 
Strategies: a low-budget multimedia presentation :)

This session deals 
more deeply with personal financial strategies - this is how you will 
make your budget. 

This is going to be a very depressing experience. 
Especially if you are >80,000 in debt. If you are over 120,000 in debt, 
you will be really really really depressed. 

starting on p 70 of notes


Making money, paying bills: the financial side of veterinary medicine


Government service (non military): 
USDA: APHIS, FSIS, Extension, other 
misc
Other - EPA, NASA, Smithsonian, Nat'l marine fishing service

Dept 
of Health and Human Services: FDA, NIH, CDC, other
Dept of Interior

contact number for these people is in the notes.

Pay and benefits for 
gov't non military vets:
< 1 yr out of school: GS-9 step 1: $30,257/yr
> 
1 yr out or new grad top 25% of class GS-11: $36,609
Year 5 GS12 step 5 
$49,278
phenomenal benefit packages with lots of vacation and holidays.


Military service: salaries starting around 40k, after 5 years about 50k, 
and base pay of 12,488 isn't taxable. huge benefits. 


Corporate/industrial service: pet food companies, pharmaceutic companies, 
biologic mfrs. look for ads in JAVMA. two career tracks: scientific or 
sales/marketing/tech services. 

pay/benefits for corporate vets - vary 
widely: new grads $33-40,000 up to $65,000/yr - by year five if tech 
services manager position is held, can make 50-80k/yr. most industry 
positions in the sales/marketing/tech side only want people with 3-5 yrs 
private practice experience, and then you can start at about 50-60k/yr. 
benefits highly variable. these jobs require immense amounts of work. 
over five years probably make the most money in these jobs. benefits not 
quite as good as gov't and military, unless you get stock options :). 
Pfizer, Merck, Merieux employees have cleaned up that way.

Academics, 
advanced study: about 2700 faculty in the 27 US vet school
about 1500 
additional interns/residents

clinical side: internship, residence, 
boards, assistant prof, associate prof, full prof, dept head, ass't dean, 
dean (most unrewarding position).
also nonclinical side.

problem with 
academic side is salary - interns make under 20,000; residents make 20 
until sr resident then 25. full prof up to 86k. benefits are good - worth 
about 32% of salary. so if salary 50k, really 65k with benefits. 


Private practice:about 77% go into private practice, with 18% into 
advanced study. find jobs in JAVMA, newsletters, etc.
avg starting 
salary, new grads: $34,468 as per JAVMA. penn - $42-45,000 reported.


read JAVMA "economic notes"

so, you plateau at about 50k-60k after 5 yrs 
as an associate.
benefit possibilities are remarkably variable. 

what 
are benefits worth?

health/disability/life insurance p 81:
assume: 25 yr 
old single DVM (well, that's not me); AVMA group insurance; first year, 
area 1: $1412/yr. after that, most people fall into areas 5 or 6 where 
rates are $2100/yr higher.

major medical: Plan C - $500 deductible, 
80-20 coinsurance; higher deductible has lower premium. premium also 
depends on age and health status. AVMA program is really probably the 
best for new grads. 
longterm disability: plan 2: 30 day waiting period - 
$1000 monthly benefit - cost $278.

AVMA rep now speaking: phone 215 233 
9233
email: ls128@juno.com
enroll before graduation! plus you need to be 
SCAVMA member!
the underwriter is New York Life. you get a big discount 
at graduation and the opportunity to defer payment for a year at 4% and 
then pay in installments. they also offer a waiver of pre-existing 
conditions if you enroll at graduation. even maternity, diabetes, 
anything. 

most employers will pay for this plan, and the plan belongs 
to you so if you move jobs it's ok, you still get the coverage. your 
disability coverage premium will never change, btw. 

if you don't know 
what you'll do you can always sign up for the plan, and then cancel it. 
also AVMA will defer start of coverage til 9/1 when the Penn plan ends. 


life insurance - $100,000 minimum, nonsmoker - for noneducational debt - 
about $75/yr. this is cheap. but you don't need life insurance for 
student loans. if you die, the loans go away. if you're disabled, the 
loans do not go away. that debt is yours to keep.

continuing education 
benefit varies widely - usually $350/yr. cost for a national meeting 
usually about $1250. this is really important. 

Dues, license, fees - 
AVMA, state VMA, local VMA - $0-500. most associations are free first 
year out, then they cost. 

vet license 100-300 bucks
DEA reg about $70


total beneft - $170-900 

professional liability insurance: AVMA PLIT 
policy - min 100,000/300,000 - about $188. if employer has AVMA 
insurance, you need to have your own policy as well. employer should pay.


Emergency duty pay: two common plans:
this may be how you balance your 
budget. standard has been $30 per call - flat rate per call is still very 
common. if 3 vets share weeknights so you're on call 2x/week, avg 1 call 
every other shift, so you make 1320 doing that. 
better system - 
percentage based: you make 50% of income generated by call.

variations 
exist - can be part of salary, can get nothing b/c it's referred to local 
emergency clinic, can get 75-100% of emergency exam fee assuming there is 
a separate emergency fee; 

can get 35-50% of emergency, exam, 
diagnostic, and treatment fees. that's a good plan for you.

or on call 
compensation - $30/weeknight, $100 weekend

Productivity Pay: this isn't 
a benefit so much as a negotiation process. but you must count it as a 
benefit b/c of how you make your budget. this is "profit sharing." there 
are many formulas. see p 86. there are two standard plans:

percent of 
productivity above base salary of $35,000/yr (20% of income generated), 
plus employee receives 10% of income generated and paid by clients over 
$175,000/yr

so say you generate 200,000
base is 35,000
you get 10% of 
25,000 so that's an extra 2500.

or, straight % of productivity: straight 
commission - he's not a fan of this. you shoudl have a safety net. 
exmaple: 20% of income produced, plus benefits.
so if you produce 200,000 
you make 40k. in specialists you can make 32-35% of productivity 
(behavior), dermatologist 30-35%, emergency practice usually 28-30%. 


section C - associate compensation options p 88 - gives you a rundown of 
this stuff. those not taking law and ethics should look at this.


Calculating your Budget!!!

Your economic needs:

step one - to evaluate 
and job offer and to make a budget, you must know what your needs will 
be.

cost of living - example
rent: 700/mo
utilities: 120/mo
insurance: 0 
- paid by employer
necessities like food, clothes, pet food: 390/mo

entertainment and lifestyle stuff like dinners out, vacation, gifts: 
220/mo
car expenses: loan payment 250/mo, ins 70/mo, maintenance stuff 
120
misc: 80/mo

total for step one: 1950 x 12 = $23,400

what's the 
annual cost of a 45 minute commute? it's high. more mileage on car.  
consider that when thinking about job offers!

MSU website: 
http://cvm.msu.edu/~judy
this is the "salary relocator"

step 2: debt 
management: for debt of $87,678
10 year payout at 8% interest monthly 
payment about 1,063 x 12 = 12,751

debt is climbing WAY faster than 
salary, btw. 
debt at penn - in 1991 4 students owed >100000. now we have 
25 with >100,000, and 26 with >120,000. 

(hmm. that payment sounds high 
to me...)

step 3 - wealth accumulation: save 100/mo - build this into 
your budget. get a bartending job or whatever. this is because you need a 
cushion.

step 4 - 
federal taxes - 1998:
standard deduction - single 
$4250, married $7100
exemption/dependent - single 2700, married 5400
no 
tax on first - single $6950, married 12,500

calculating taxable income:


example: total sample income nat'l avg: $34,468
minus the std deduction 
of 4250
minus exemption of 2700
etc.

step 5 calculating your taxes: 
single people 1998: brackets 15%, 28%, 31%
1 is up to 25,350, then up to 
61,400, then up to 128,100

for married - first 42,350 then 102,300, then 
155,950

step 8 final verdict - 
but if you own a home, you have itemized 
deductions, insurance, property taxes. 
this only works if you do not own 
a home.
i'm not writing this down then, since we own a home.
see p 97.


look at "total fixed and variable household expenses" aka TFVHE. there is 
a chart with multiplier for tax purposes to explain the gross income you 
need to meet those costs. if TFVHE is 35000, you need 49350. most budgets 
work out to about 45k in income. 


itemizing taxes - subtract out std 
deduction and exemption and taxes...blah blah. 

in 1950 max soc.security 
tax was $45. in 1980 it was about 1500...now, its over $4000. if you're 
an independent contractor (relief vet) you pay double those figures, by 
the way. 

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if you are making a budget and you do not want to 
share your personal financial information with him, explain that you know 
how and you don't have to do it. 
if you are married and you own a home 
there is no formula. each home has different values, etc. you do get big 
tax savings, though.

when there are two of you, you can turn in a joint 
budget. 
if you're married and you do not know what your spouse's income 
really is...or you are engaged and you do not know...figure out a family 
budget, and pick a number - say you want to take care of 1/3 of all 
expenses. then say how much is that. 

so during an interview, ask the 
employer: what are your thoughts about compensation? the employer will 
say to you "how much money do you need?" if you do not know that, you're 
screwed. 

there is a manual budget in the handout for you to fill out.

now, if you do own a house, and you can't use the multiplier - well, 
dunno.

combined income for married people in handout - if it is >$75,000 
just use the progression...


another method of calculating budgets:


Pre-tax income calculator: in computer lab there is his program from Mich 
State. you can d/l this onto a diskette as a .zip file. can d/l off web, 
also. 

taxes - state = 2.5% for PA; local philadelphia = 4.4%

if you 
have an apartment as a part of your salary, you have to make sure this is 
in your contract as a condition of employment, so that it is tax 
deductible, otherwise it is taxable income.

the budget URL is in the 
handout. can d/l of the Mich State website.

moving on. comparing jobs to 
each other on p 99 of handout:

here we compare two jobs - one has great 
benefits, the other has crappy benefits. the one with benefits has a 
lower base pay. see handout for details.

p 102 - managing debt while 
accumulating wealth
reasons for financial failure:
-procrastination

-failure to establish a goal
-ignorance about money
-failure to learn and 
to apply our tax laws
-wrong life insurance (buy term life when you are 
young)
-failure to develop a winning mentality

absolute keys to 
establishing wealth:
pay yourself first
consistently work toward goal

start now
compounding
have a monthly savings goal
invest money
figure 
return on investment

action plan for students with high levels of debt - 
do not borrow "extra." sometimes it is worth it to consolidate loans. 
live cheaply. some people have to be very creative. 

saving while paying 
debt - assume two people both owe 54000. 
A pays 651/mo on loan and pays 
into savings each month
B is afraid s/he can't get married with so much 
debt in tow, so B pays down debt with all extra money instead of saving.


by year 5: A has saved 13,800, had a 1,786 ROI (return on investment), so 
is still 16515 in hole (has net worth of -$16515, has savings of 15000+ - 
he took slide down too fast. 

realize - law passed last year, that 
allows for credit for tuition - 1500 tax credit toward tuition, plus the 
HOPE educational deduction
you also get a credit up to 1500 for the 
interest on student loans.

B - debt elimination only no savings:
this 
person has the same net worth wbut no savings. uh oh. 
A had loan balance 
of 32000. 

compare these: 
after 5 yrs, A has 32k in debt, 15.5k in 
savings
B has 16.2k in debt, no savings
both have opportunity to buy into 
practice for 100k

A is able to borrow 85% of that from bank, to which 
she adds her 15k savings. A makes enough as partner to pay off that 85k 
loan.
seller is comfortable b/c A is risking own money

B: bank will lend 
85% b/c of great credit and little debt, but wants 15% down payment. B 
has to find 15k.  
bank isn't worried about 651/mo payment on school debt 
by A 

understanding the value of money - 
if inflation is zero, is the 
value of 100 greater today or in a year? today, because you can earn 
interest on it.

if your dad has 10k for you to give you in 5 years, it 
is worth 10k.
but if dad gives you 10k today, you can invest it and it's 
worth more when you get it. if you invest it at 8.5%, in 5 yrs you have 
15k. that's without paying taxes. 

last story - in 1982 when daughter 
was 6 yrs old, their friend mathilda - an actress in NYC with a cat named 
harriet - came to visit and asked what htey were doing to plan for 
college for their daughter. she told them they had to start saving for 
her education, and sent her 10 shares of Disney - worth $550. next year, 
sent her 10 shares of AT&T....well, now that 10 shares of disney is 510 
shares of disney and it's at 29.5 - 15,300!! wow.


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