Debt Free Doctors: A Series: Dr. Cory S. Fawcett
In this series, I want to highlight doctors that are completely debt free, including their primary residence. Who better to kick off this series than Dr. Fawcett? Dr. Fawcett is a champion of being debt free and building wealth. You might remember him from the book review I did on his book, Doctors’ Guide to Eliminating Debt.
Dr. Fawcett and his wife paid off $500k of debt and were debt free, including their mortgage, by the time Dr. Fawcett was 39! Then, he was able to retire by age 50!
I’m so excited to feature Dr. Fawcett and his family here today.
So without further adieu…
Welcome, Dr. Fawcett!
Please introduce yourself and tell us a little about your family.
My name is Dr. Cory S. Fawcett, the author of The Doctors Guide book series. I blog at DrCorySFawcett.com. I spend my time writing, speaking and working one-on-one with doctors to achieve a total financial makeover.
I grew up in Southern Oregon and graduated from Stanford University with a degree in biology. My medical degree came from Oregon Health and Sciences University in Portland, Oregon followed by a general surgery residency at Kern Medical Center in Bakersfield, California. I then returned home to Southern Oregon to practice 30 miles from the house I grew up in, where my parents still live.
After spending 20 years as a general surgeon in a single specialty private practice in a small town, I wanted to cut back to part time. Since my medical group contract didn’t make it economical to cut back my workload, I left the group and started doing locums, two weeks a month, for critical access hospitals that only had one or two surgeons, giving them much needed time off. My wife was able to accompany me to every assignment since our kids were then in college. After three years of locums, I tapered off the practice and retired from medicine all together in February of 2017 as my new mission was starting to take off. In fact, it was winning an award for “non-fiction book of the year” that encouraged me to move to the next phase of my life. Now I am teaching doctors about finance through my business, Prescription for Financial Success and my award winning and bestselling Doctors guide book series.
I married Carolyn during my internship year and we celebrated our 30th anniversary last October. We have two boys in their 20’s who have both graduated from college debt free.
That’s amazing! Debt free college is an amazing gift you have given your boys. Did you have to take out any student loans for your education?
My wife graduated college with $6,000 in student loans and bachelor degrees in both finance and computer science from an in-state university. Six months after graduation, interest was to start accumulating on her student loans, so she paid them off. She came into our marriage with no student loan debt. I finished college with $6,000 of debt in a federal loan program with an interest rate of 3%. During my first year of medical school I borrowed $12,000. That was a lot in 1985. I didn’t like where that was headed so I joined the Navy and finished the rest of my medical school training on a Navy Scholarship. I entered my Residency $18,000 in debt.
My loans were deferred, including interest, and each one came out of deferment at different times during my residency. Every time a loan came out of deferment, and interest would start accruing, I would pay off the loan. Except for the 3% loan which I had a stupid hang up about paying off. I mistakenly thought it would be a good thing to keep such a low interest loan.
During residency, my wife worked as a corporate accountant and brought home the same salary as I did on less than half the hours. We lived on my income and saved hers. That is how I could pay off the loans when they came out of deferment.
I left residency and started my surgical practice with that $6,000 low interest student loan. Three years later I had accumulated more than $500,000 of debt. It seems that when you start making the big bucks, people want to loan you money.
That sounds like a typical attending “Debt Typhoon” (we’re coining a new term here ya’ll- you heard it here first!). New attendings tend to take on a ton of debt quickly. What kind of debt was it?
The $500,000 I owed included the purchase of my share of the private practice, and the building the practice owned, a motor home, a piece of land to build a future dream home, as well as my home mortgage.
Paying Off Mortgage Early
Tell me more about your home mortgage.
In 1993, right out of residency we put 5% down on our first house, which cost about $150,000. When we set out to become debt free in 1996 we used all our left over money, after maxing out my work retirement plans and our IRA’s, for debt repayment acceleration. During the process, we found a new “doctor house” and bought it in 1997 for $365,000 by putting 20% down. That put us farther into debt. We sold the first house and the property we were going to build on and used it to pay down debt.
Our final debt, the home mortgage, was paid off in four years and we have been debt free since 2001. We do not regret paying off the house early. If we thought it was better to have the debt, we could have refinanced the house in 2009 when interest rates were way down. I have found no one who regrets paying off their house enough to remortgage their house and go back into debt. I have lived with a mortgage and without a mortgage and without is the clear winner.
Wow! You paid off your mortgage in 4 years!?! That’s amazing. You allude to the common argument in the financial community of whether it is better to pay off a mortgage or to keep it around. What motivated you to pay off your mortgage so quickly?
My wife was uneasy about being $500,000 in debt. She worried that if I couldn’t work, she could not pay the debt. She bought a book called “Debt Free and Prosperous Living.” She told me we should give it to a friend of ours who was having trouble with his debt. I thought I should read it before giving it to him.
According to that book, we could be debt free in 3.5 years. I didn’t think that was possible so I asked Carolyn to recheck my figures. She also came up with 3.5 years to debt free using the debt snowball method. I was convinced that could be a life changer. Up until that point, I didn’t mind the debt. I told her we should do it. I think she was glad I thought it was my idea. We set out to become debt free and have been so since 2001.
I was right, it was a life changer. That move is what set up my ability to retire from medicine at age 50. I suspect if we had not become debt free, I would still need to work today. Debt free turned out to be a much better life than I ever thought it would be.
Dr. and Mrs. Fawcett in Rio
It sounds like you have a very wise partner! You both deserve a lot of credit for getting on the same page and making such great progress.
ETA: Dr. Fawcett was able to retire by age 50 but he actually retired at age 54.
So, how did the debt snowball work out?
I used the debt snowball method, but I did deviate from it a little as I paid off the debts in the order I chose and not exactly smallest to largest. That small 3% loan was a stupid hold out.
Yes, we’re brainwashed into believing low interest debt isn’t debt. Sure, it’s better than HIGH interest debt. But, debt is debt and interest paid to someone else is still money out of our pockets.
Dr. Fawcett's Debt Payoff Strategy
So, you decided to get rid of all your debt. Did you frugal down to pay off debt?
As a resident, we were living on only 50% of our combined income and saving the rest. We kept that same pattern as an attending. We increased our lifestyle to half of our new income. I didn’t stay at a resident lifestyle, but I did not fully grow into my new attending income either. I think it had a similar effect as living like a resident.
So, we did not have to change anything about our lifestyle to get out of debt. Since we were living on 50% and investing the rest, we just channeled part of the money going to investments (savings) into paying off debt instead.
Our frugal down was to stop buying any new stuff. It was not a sacrifice to keep using what we had. In my book, The Doctors Guide to Eliminating Debt, I discussed this issue in depth. An example from the book was the time my bike got stolen. Since our family enjoyed riding bikes together, I wanted to replace my stolen bike. It would have been a sacrifice to not replace my bike, because it would have put an end to our family bike rides. I suggested we get my wife a new bike at the same time so we could have a matching set. But she said she could keep riding hers until we were debt free, she didn’t need a new bike right now. It was not a sacrifice for my wife to keep riding her old bike, even when I got a new one.
Ah you were so smart and never inflated your lifestyle to match your salary in the first place! Wish I had done that! And again, in the bike situation, it’s clear that you have a very wise and frugal partner.
Did you do anything to bring in extra income?
I did not have any side gigs until after we became debt free. I did invest in a surgery center, but we built it from scratch, so I had no income from it until after we were debt free.
After we became debt free, we started investing our money in real estate. We began buying one small apartment complex each year for the next 5 years. These were purchased with no money down and cash back at closing. Over the years we treated the real estate debt the same way we had treated our personal debt by accelerating the mortgage payoff.
Twelve years after we bought our first investment property, our apartments were bringing in enough cash flow to cover our living expenses. The apartments’ debt had been reduced and rents had gone up over the years increasing our cash flow as time went on. My retirement plans, which we had been investing in for a longer period of time than we had owned investment property, could not match the growth of our real estate. My wife and I managed the properties while I was a full time surgeon and she was then a stay at home mom. Around 2007 near the market peak, was the first year I earned more money from my part time real estate investments than I earned as a full time surgeon. I would highly recommend doctors invest in real estate.
Today, I also earn money from my website, book sales, speaking fees and one-on-one financial coaching. Those side hustles did not begin until after I was financially independent and was looking for something to do after I retired from medicine.
Wow! That’s really inspiring. Your real estate story does sound pretty hard to beat!
Dr. Fawcett's Investing Strategy
So at this point your passive income is more than your active income and you’re retired. How have you been investing?
In 2006 we stopped putting money in our IRAs, since it was not deductible, and used the money instead to pay down our real estate loans. I put money into my corporate 401k account throughout my career until I left the practice in 2013 after 20 years. Subsequently, we have not added to our retirement accounts since we fully funded our retirement prior to leaving my practice. Now all our investment money is going toward paying off real estate loans in our real estate company. Real estate now makes up about 60% of our net worth.
I am now in the spending phase of my investment years. I have even started removing money from my IRA using rule 72(t). The money that is in my IRA, 403(b), and 401K retirement accounts are invested in stock mutual funds. I have never invested in bonds or bond funds. I still have all the mutual funds I bought when I opened my IRA account as an intern, and many of them are actively managed funds. I don’t trade funds. I buy them for the long haul.
The new funds I bought when I rolled my 401k into my IRA recently, are index funds. The money that will be coming out of my IRA over the next five years I have invested in CDs getting fixed interest. Having CDs coming due annually will allow me to not need to tap into my mutual funds, and be at risk of needing to sell them in a down market to make my required distributions under rule 72(t). I wrote about this in an article titled Guide to Taking Substantially Equal Periodic Payments (SEPP) From Your IRA Before Age 59.
Wow a lot of sage wisdom there. You have never traded funds! You have an ideal temperament for index investing. What a neat strategy to work with the required minimum distribution rule- using a CD ladder.
I sometimes struggle with how to invest for my kids. How did you do it?
We gave each of our kids a college education. They graduated debt free. We made a deal with them that any money they put into an IRA or other retirement account while they were in college, we would match. They both took full advantage of starting their IRA’s while in college.
We also made an investment for them in a real estate purchase 12 years ago. We put $10,000 for each of them into a partnership on an apartment complex. That complex was sold in December 2018 for a nice profit. One of them used his profits to pay off the mortgage on his own rental property, which is now free and clear, and the other is planning to use his share for a down payment on a house. We did not invest in a 529 for their schooling; we paid off our house instead. The money we used to use for our house payment was enough to cover their college costs each year.
That’s radical! You used real estate to invest for your kids, instead of a 529. The pros here are, of course, that your kids could use the money for things other than education and you get all the tax advantages of real estate investing. You have clearly raised your kids right and they seem to be using the money with finesse.
With Family and Friends After The Spartan Race in Washington
Dr. Fawcett on Using Credit Cards
How about credit cards- are you in the Dave Ramsey, anti-credit crowd?
We have one credit card that we use for most of our purchases. Each month we pay off the card because we never want to pay interest on a credit card account. Any interest charges would wipe out the frequent flyer gains. Our credit card gives us air miles for the airline that serves our local airport. When I was managing my real estate business, we also put all of those expenses on that same card. With 64 apartment units, that’s a lot of carpets, appliances, repairs, and paint that went on the card. At one point we had in excess of 800,000 frequent flier miles in the account. It takes 25,000 miles for a domestic round trip airline ticket. That was enough for 32 round trip tickets.
Once we turned the apartment management over to a property management company, we slowed the accumulation of frequent flier miles and started using them more as our traveling increased. Today our frequent flyer account has only about 125,000 miles. We got a lot of free flights out of those credit card purchases.
Holy cow! That’s a lot of miles… and apartments!
I happen to know you give a lot to charity as well. Could you please tell us about them?
We give almost exclusively to Christian charities. Everyone can give to the secular groups, but only Christians tend to give to Christian organizations. We give a tithe to our church (10% of our gross income and employment benefits), as well as supporting National and International charities, including: Conservative Baptist Northwest, Christian Healthcare Ministries, Crown Financial Ministries, and Focus on the Family. We also support a missionary couple and our college alumni associations.
Local charities we give to include the Boys and Girls club, the Gospel Rescue Mission, JOES place (help for homeless teens), and the Pregnancy Care Center. There are also a lot of programs that we have given a one-time gift for special things as they come up, such as disaster relief or Bible translations.
What a boon to your community you are! And, this is because you paid attention to money, got yourself out of debt early, and established passive income streams. To bring it home, please tell us again at what age you became debt free.
We made our final house payment and became debt free in October 2001. I was 39 years old and had been in practice for eight years. We do have some mortgages in our real estate business that the rentals are paying down in an accelerated fashion just like we did in our personal budget. I would highly recommend people stop managing their debt and start eliminating it. I would not have been able to leave medicine and retire in my 50s if I still had an outstanding home mortgage.
Debt free means you will reach financial independence sooner. Two important factors in achieving financial independence are lowering your monthly expenses and reducing the amount of interest you pay.
Yes! I couldn’t agree more.
Dr. Fawcett's Debt Advice
As we wrap up this interview, Dr. Fawcett, do you have any parting pieces of advice for the TFP tribe?
Never borrow money unless it fits in one of these three categories:
1: Student loans that will give you an education that will last the rest of your life and increase your earning potential. Do everything you can to minimize these loans; I earned scholarships, worked in the summer and had a part time job through the school year. Then when you are out of school and start earning money, pay off your student loans as fast as possible.
2: Your first house. You will likely need to borrow money to buy your first house. Work to pay your house off in seven years or less and then never have a home mortgage again. Any house you buy in the future should be purchased with cash from the sale of your last house and money in the bank. Don’t buy a house until you are at least one year out of residency. You want to wait to be sure you like your job and will be staying in that area before committing to buying a house. If it turns out you don’t like the job and move in 12 months, you are likely to lose a lot of money on changing houses. You would have been a whole lot better off if you had rented. I know one couple who purchased a house right out of residency only to dislike his job and move out of the area losing $250,000 on the sale of his house. Don’t let that happen to you.
3: Investment property that has a positive cash flow. Putting property into your portfolio that is paying you money, and that you can pay off over time with the profits, will create passive income and will allow you to retire sooner. Do not buy anything that has a negative cash flow.
Dr. Fawcett, it has been an absolute honor. Thank you for sharing here at The Frugal Physician.
Stay frugal, ya’ll!
Are you a Debt Free Doc? Would you like to be featured here? Head over to the “Contact Me” button at the top of the page and tell me your story!
Standard Disclaimer: Not meant as individualized financial advice. Photos from unsplash.com. TFP Communications, LLC has no financial relationship with Dr. Fawcett. This article contains affiliate links.