Financial Planning for Optometrists: Part One (Guest Appearance on The Four Eyes Optometry Podcast)

This episode plays Evon's recent guest appearance on the Four Eyes Optometry Podcast. In Part 1 of 2, Evon joins Lainey Bokhaut, CPA in Canada, as a guest to talk about foundational financial decisions optometrists need to make - especially as they transition from school to practice.

We dive into debt decisions and how to tackle student loans, we talk about differences between retirement accounts and how to decide between them, we talk tradeoffs between investing and debt payments, and so much more!

Huge thanks to Dr. Amrit Bilkhu and Dr. Deepon Kar for havings us on. Their podcast is absolutely worth a subscribe, and stay tuned for Part 2! We'll dive into business and practice ownership, how to build your professional team, and more!

Have questions on anything discussed or want to have topics or questions featured on the show? Send Evon an email at podcast@optometrywealth.com.

Check out www.optometrywealth.com to get to know more about Evon, his financial planning firm Optometry Wealth Advisors, and how he helps optometrists nationwide. From there, you can schedule a short Intro call to share what's on your mind and learn how Evon helps ODs master their cash flow and debt, build their net worth, and plan purposefully around their money and their practices. 

Resources mentioned on this episode:

• Four Eyes Optometry Podcast
• YoungOD Connect

The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.

The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.

Transcript

Evon: 0:04

Hey, everybody. Welcome back to the Optometry money podcast, where where we're helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner(TM) practitioner and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrist nationwide. And thank you so much for listening. Today's episode is a replay of a guest appearance of mine on the Four Eyes Optometry Podcast. And I joined Lainey Bokhaut, a CPA from Canada. So we are going from the US and Canada. And, uh, as a guest on the show to talk about foundational financial decisions, Optometrists need to make especially as you graduate and enter practice. And we talked quite a bit about debt decisions, especially student loan decisions. We talk about saving for the future. Whether to invest or pay down debt. We talk about the differences between different retirement accounts and when you might use one versus another and so much more. And big thanks to Dr. Kar and Dr. Bilkhu for having us on it was a ton of fun. And if you aren't subscribed to Four Eyes Podcast, it's absolutely worth a subscribe. So go ahead and check that podcast out. And this is part one of two. So keep an eye out on their platform for the second episode, where we talk more about business and practice ownership, what a professional team should look like and so much more. So if you have any questions, please reach out to me at Evon, evon@optometrywealth.com.. And you can check out the show notes and other content and resource we've put together at the education hub on my website, www.optometrywealth.Com. And of course, while we're there, schedule a no commitment, introductory call. And we can talk about whatever's on your mind financially and how we help optometrists solve those things all over the country. Without further ado. Here is my guest appearance on the Four Eyes Optometry Podcast.

Amrit Bilkhu: 2:11

Welcome to the 4eyes podcast brought to you by Young OD Connect. We give you a clear view into the new grad optometry world across Canada and the U. S. And your hosts for the podcast are Dr. Deepan Kaur and myself, Dr. Amrit Bilku. So we're really excited for this episode because it's all about finances and we had one amazing episode in the past about finances and money but we really wanted to provide a more in depth episode with a lot more information that you guys can take home and, um, you know, finally connect with your own financial planner or accountant and really start working on, you know, planning your money for 2024. And so today we have an amazing conversation that we want to share with all of our listeners, whether you are a student OD, a new grad OD, or even a seasoned OD that just still doesn't know what to do with all that money you're making as an optometrist. This episode is so heavy with detail that we divided it into a two part episode. So we have a panel of Awesome Financial Planners and Wealth Advisors, including Lainey Bocart from Winnipeg, Canada, and Evon Mendrin from Madeira, California. So these two panel members are seriously awesome at what they do, and they just know everything about money, and Deepan and I don't. So they were the perfect people to bring on as panel members for this episode. Lainey Bocart is a CPA who caters to over 1, 000 physicians and medical corps across Canada. Evon is a CFP, and he also is a fellow podcaster of the Optometry Money Podcast, and he's also the founder of Optometry Wealth Advisors. So, in the first part of this series, we're going to sit down with these two wonderful panel members to discuss the main financial changes. when transitioning from student life to professional services, what to consider when deciding whether to pay down student debt first or to make investments, and what long term savings accounts and retirement plans are best suited for you based on your income and life goals. And without further ado, let's get into the episode. Thank you to both of you again for coming on the 4eyes podcast. We're really excited to get into the nitty gritty details about, you know, finances and tax planning and incorporation and all that kind of stuff that new grad ODs and young ODs should really, really know about. Um, can you guys both just take a little bit of time to introduce yourselves for our listeners? Yeah,

Evon: 5:10

I guess, I mean, I guess I can go. Yeah. Hi, uh, I'm Evon Mendrin. I am a Certified Financial Planner and Certified Student Loan Professional. Uh, I own Optometry Wealth Advisors, which is just a financial planning firm and investment management firm for optometrists here in the United States. So, I am excited to be here. Thanks for having me. Uh,

Lainey: 5:30

awesome. Well, I'm Lainey Bokox. Uh, I'm a partner of Bokox CPA, um, that's a tax practice that, uh, operates in Canada on pretty much all of the provinces except Quebec. And we exclusively represent professional corporations, generally physicians, uh, but we also, uh, extend our services to some other professionals like optometrists, dentists, uh, vets, etc.

Amrit Bilkhu: 5:52

Awesome, and so if you listeners didn't notice yet, we have experts that are from the U. S. and Canada because we have a lot of listeners from both sides of the pond, um, and so we'll just kind of like get right into it because I think we, Deepon and I are excited, we got a lot of Would you guys mind just sharing little details on, you know, what are those main changes that we typically would experience from student life to professional life? Um, just when we're transitioning into practice, what do people most likely

Lainey: 6:29

experience? The biggest change for moving to being a student and into practice is first of all, having money. Starting to earn income is an enormous life change because suddenly this adulthood that you've been waiting to, to be thrust into is there. Uh, and there's a lot of goals that you are expected to, whether it's personal expectation, family expectation, or societal expectation, there's a lot of different things that you generally want to accomplish, uh, once that lifestyle change hits. So you might want to pay off your debt, start investing, buy a house, uh, all of these things that you've anticipated are finally coming to fruition. Now, once you start practice, uh, you're going to start to make very different financial decisions. You're going to have a significant amount of income and you're going to have to, uh, decide what to do with that income. You're going to start to collect advice from different professionals on how to make those decisions correctly. So I think the biggest transition is really starting to take responsibility for your finances and learning where to get advice and where to get the tools to do that effectively.

Evon: 7:35

Yeah, I agree. I mean, uh, Lainey, you had hit it right on the, on the nail there. Um, you graduate, you've been in school for quite a long time and now you graduate and now you have A higher income than you've ever had, uh, maybe your first, your first job out of school, and you're going to have a lot of decisions that can easily take cash from you at that point. Um, family decisions, marriage, having kids, wanting to buy a house, uh, wanting to live a little bit. Now that you've graduated from college, you have student loans to deal with, which can be one of the first big decisions you have to manage is, is what to do with your student debt. Um, career decisions. Do you want to work in private practice, in corporate optometry, as an associate, is practice ownership on the horizon? So, uh, there's, there's a lot of these little decisions that, that you need to make, right? As soon as you graduate and you've got an income and trying to make the best decisions you can with the cash flow you have is important in keeping expenses relatively, uh, reasonable, trying to increase your savings rate, the amount you're putting away. Getting the foundational stuff like building up a cash buffer in your life, uh, an emergency fund. So trying to, to make the best decisions you can with the cash flow you have, it becomes really important right out of the gate.

Deepon Kar: 8:55

Well, both of you kind of touched on this a little bit. Um, but if you guys can go into more detail about when we're getting into more professional service, what should we consider paying off first? Like student loans, debt, or should we start investing

Evon: 9:08

first? Yeah. I mean, this is a. This is a good question. Um, some of the things you think about are like, what is going to give you the best likely, uh, mathematical return out of these two decisions? Is it going to be investing or is it going to be paying on the debt? And When you're looking at the debt, the cost there or the return that you would expect if you paid more on the debt is saving interest. You can almost think of that interest rate as sort of the return you're getting and it's, it's certain, you know, if you're paying into the debt, you're going to be saving on interest on the amount you're paying into it. If you're investing, there's an uncertain return. Um, so you're really looking at. Potential outcomes, right? What is the expected return? What is the return you're expecting over that time horizon? And, and you have to look at that potential and try to make that best decision there. And that's, that's purely from the, uh, the finance standpoint. If you have a really long time horizon, like in, in the us, if you're looking at. And I guess it's important to say, like, I know nothing about Canadian laws or financial accounts or anything, right? So this is for you, the U. S. ODs out there. Uh, if you're in the U. S. and you're looking at like a 30 year mortgage and wondering whether to pay into that or to invest, well, 30 years is a pretty long time horizon. You can look at the returns more reliably when you're investing there. But if you have a really short time horizon, it's really hard to know what to expect in, in the investment returns year to year or month to month or within like a three year period. So. Um, so that has to be kept in mind as well as like, what's the actual time horizon you're thinking about? Uh, but part of it is looking at that interest rate versus what is the potential return that you can get? The other part of that is just like, how do you feel about debt? I feel like with debt decisions, maybe like in no other financial decisions, values and emotions come into play a whole lot. There are people just have a certain way of thinking about debt. It can come from families. It can come from the experience around it. Um, so you, you just have to, like, if that debt is causing you stress and it's keeping you up at night and you're always anxious about it, I mean, you have to take that into consideration. It's sort of like there's, there's on one hand, what's mathematically optimal and what's on the other hand, what's most values optimal. And you kind of have to find that middle ground between the two of what makes sense. You

Lainey: 11:27

knocked that out of the park. There's absolutely a psychological element to debt. Economics are one thing. There's a purely mathematical superior outcome. And what the other outcome is simply what makes you feel better. And if you're losing sleep and going gray, then saving a little bit more money or being on the other side of the decision and having done better financially may not have been worth it. So that's a huge consideration. Now in Canada, we're operating in a pretty high interest environment. So our prime rate is 7. 2%. And, uh, generally as Evon indicated, the logic is that if you can do better on your investments, you can earn more investment income than you're paying on your line of credit, then you've profited, you should invest. but there's no guarantee that you're going to do better on your investments, but you can guarantee a reduction in your interest. So, when you're operating in a really high interest environment, the decision is a little bit easier because you know that the likelihood of doing better on your investments is lesser than it would be. if we were in a low interest environment. So if the interest rate was back to, you know, 3%, it would be a no brainer that maybe, you know, it's a good idea to pay down a little bit of debt and invest a little bit and use a hybrid approach, because there's a pretty good chance that you can do better on your investments if you have a long time horizon. And the other is your lifestyle. So you may have 250, 000 of debt, but you might also have a kid on the way, or you might have a house purchase upcoming. And You know, as young professionals, we are, we're educated later into our lives than biology would like. So, often time, we're starting families, we're buying houses, we're meeting other life goals, uh, and we have to make decisions that accommodate that as well. So, you may start setting aside for a house despite the fact that your line of credit isn't paid off because you want to have a yard for your kid and your dog. So, these are other decisions that are absolutely paramount in figuring out how to, uh, plan for your lifestyle and plan for your finances. And it's, it's important to consider all of those factors when making decisions, not just

Evon: 13:37

the economics. I mean, that's, those are, those are really good points. Like we're in a pretty high, in the US, we're in a pretty high interest rate environment that does make it a little bit simpler, you know, the higher the interest rate, the higher the hurdle that your investments have to jump in order to make it worth it. So, and if in a doubt, like if you're not sure whether to go, you can split the difference, go, go both ways and, and both decisions will, will positively impact your net worth. I'll

Amrit Bilkhu: 14:02

add to that. I remember deep on, I don't know if you remember this, uh, when we were. Students at ICO, we had ODs come and give a presentation and talk to us about, you know, their experience as ODs in the real world, as new grads. I specifically remember one of the ODs said, Oh, I paid off my student debt in, uh, three years, and, you know, I put all my money towards my debt, I worked five to six days a week, straight, took all my money, and paid it off right away, and I lived on my best friend's couch, and I ate ramen noodles, and, for like the first three years after school as a doctor. And I was like thinking in my head, I was like, Oh my, that sounds awful. Like I would not want that life. And then literally right after that OD, another one came on stage and she said, I am planning to repay my student loan debt over a 20 year period. And, and everyone went, Oh, Oh my god, like how could she do that? And she's like, I have a kid now, my husband and I bought a house. I, you know, I go on vacation and I, I eat healthy foods and like, you know, I have a normal life. I'm enjoying my life. And I'm slowly paying off my loans for 20 years. And it's just so different how people approach their student loan debt, but you could hear from the emotions in those stories who you probably want to be. Yes, yes, yes. And that was the day where I said, even my parents were like, you know, pay off the debt, pay off the debt, pay off the debt. The minute I heard those stories, I was like, I do not want to graduate being a doctor eating ramen noodles for a year. Like, you know what I mean? I think it's okay. I think it's okay.

Evon: 15:52

That's a perfect story about how different values around debt plays into it. Some people's definition of financial freedom is getting that student loans Out of their life. Yeah. Yeah. Whereas others, they, they just don't feel the same because their life circumstances are totally different. Yeah. Uh, and I think at least in the US student loans have to be looked at totally unlike any other debt, simply because of the rules around them allow you to have. So very different options and how you approach it at certain debt levels, you might be thinking about paying it all down to zero. You might be thinking about paying as little as you possibly can into it and getting a lot of it forgiven. Uh, you might be taking a mixed approach between those two, uh, those two. So, you know, with the US, my, my way of thinking about it is that when I'm going through this conversations with, with, uh, other optometrists, is that you have to take everything you know about managing dead and set it aside. While you're looking at this, this student loan decision for the first time. So you got to think about all the different things, the priorities in your life and go from there. Can you

Deepon Kar: 17:01

guys talk more about the loan forgiveness programs that are there? Like if say you graduate and you're like, Oh, I'm just going to put as little as possible towards this debt and hopefully it's

Lainey: 17:12

forgiven. Is that like after like a 20 year period, a 30 year period? And how's

Deepon Kar: 17:17

it different in the U S and

Lainey: 17:18

Canada?

Evon: 17:20

So in the U. S. essentially the way it works is that you can use a certain type of repayment plan. It calculates your payments based on your income and your family size. Essentially, those are, those are the two variables. And depending on the level of federal debt you have, Versus your income or expected income or, or, and your family size. Um, what essentially you can do is you can get on these, they're called income driven repayment plans and, and pay as little into the debt as you possibly can, and then over either 20. or 25 years, depending on which of these plans you're on, that debt balance will be forgiven. So that's one of the ways you can do that. And according to current tax laws, um, after 2026 and beyond, like whatever amounts of debts forgiven is taxable income. So you, you sort of need to save on the side a little bit in order to really invest on the side in order to build up some dollars for that tax in the future at a certain level of debt. You're looking at it more like a tax on your income, more so than a debt that you're trying to pay down, which can mess with your brain. Cause again, if you're all of you heard is it throughout all of your life is you got to pay down your debt, pay down your debt. This sort of. Totally turns that on its head. There's also for those working at a nonprofit or a government agency or military or, um, certain nonprofit hospitals, uh, you can also get a tax free forgiveness within 10 years. That's, that's another way you can do that too.

Amrit Bilkhu: 18:53

Oh, yes. So that's like for optometrists that work at like a VA. exactly, military base. So they pay, they can pay minimum or more for 10 years and then it's forgiven tax. Yeah,

Evon: 19:05

exactly. Using one of those income driven repayment plans. Um, as long as you make 120 payments. on certain type of loans and a certain type of repayment. Yeah, as long as you're working full time, uh, at least 30 hours for, for one of those employers, it's, it's 10 years and then it's tax free.

Deepon Kar: 19:21

Is that the same for phys, or for doctors who work in like academic institutions as well?

Evon: 19:28

Teaching or? Yeah, I mean, if they're, if they're working for a school, that's a non profit that qualifies for that, then yeah. Okay, got it. And anyone can go to the, uh, to the studentaid. gov website in the U. S. and can enter in their employer's, uh, EIN, Employer Identification Number, and see if they're, they're one of those qualifying employers.

Lainey: 19:50

My knowledge, in Canada, we don't have such sophisticated debt repayment structures. Um, What happens is debt is oftentimes, uh, if you guys have federal and student loans in Canada, for the most part, those are, sorry, federal and provincial loans, they're for the most part, interest parked. A lot of interest has been parked due to COVID, due to the economic slowdown, due to inflation, uh, just to ease some of the financial burden on students right now. Now, debt repayment, or sorry, debt forgiveness is in some. areas, for example, for physicians, you can get debt forgiveness for working rurally. So if you go work rurally for an extended period of time, they'll forgive a portion of your debt for the period of time that you're working rurally to a maximum. I'm not sure if that's available to optometrists, but generally once your debt starts accumulating interest, you need to repay it. Um, On a line of credit, there's, you know, a minimum, and for the most part, at the interest rate of, um, 7. 2%, it's pretty wise to start paying down that interest, that's my opinion, as aggressive repayment is sensible, um, whether or not you have to start paying it, but obviously, you need to make minimum payments. Uh, Oftentimes, depending on the program you're in, you don't have to start making payments against the principal up until a certain threshold. So once you graduate, or once you're up, finished a year of practice, you have to start making payment on your line of credit. Uh, once that starts, it's basically like a run of the mill debt. Interest is what it is, and we don't have such sophisticated structures to determine how you pay it off. It's not income tested. It is not based on your family size. It's simply As long as you leave that debt outstanding, the bank is happy to collect your interest on it. So, um,

Evon: 21:46

Sophisticated is putting it, putting it nicely. It's overly complicated and unnecessarily complicated, but thank

Lainey: 21:52

you for that. Well, at least you have options. For us, it doesn't really work that way. It's just, it is what it is. If you have debts, uh, you just have to repay them according to the, the repayment schedules. It's dictated by the federal and provincial programs, or by virtue of the bank's minimum repayments, and you pay the interest on it, and the longer you leave it outstanding, they're happy, so, um, forgiveness is not as common in Canada as in the States, and I think that's because you guys have much higher tuition, uh, and much bigger student debt crisis than we do. Yeah,

Evon: 22:25

I mean, that's, that's an unfortunate part of the accessibility of student loans and the ability to get now more of it forgiven, uh, is tuition is likely to increase to meet that, that extra cash you'll have available to you when you go to college. So, uh, it's, it's definitely a part of it. I, you know, I should say it's the forgiveness route is not for everybody. I mean, the, the higher your income is expected to get. especially if you're expecting to go through private practice and successfully, the less likely that's going to make sense. You're, you're more likely to, uh, to go down a road eventually of paying it down. But, um, for those with really high student loan balances relative to their income or expected income, it's, it's an option and I think it's a legitimate option. Evon, can I

Lainey: 23:09

ask, because I'm not familiar with this, uh, process through the states and their tuition, uh, repayment structures, sophisticated or not, um, does it, do you mean by inclusive income, like, would it not be the case that let's say you're in the highest tax bracket, and I'm not sure what that is in different states, but in Canada, it's about 50%. It's actually 54 percent in Nova Scotia. Um, so I get tripped up every time I think about it. Um, so. Would it not always be the case that you'd be better off getting forgiveness, because even if you're in the highest tax bracket, you'd rather pay tax at 50 percent on 100, 000 of debt than repay 100, 000 of debt. When would it not make sense just to, uh, accept the income inclusion?

Evon: 23:58

Yeah. So the, when you look at the math between the two options, what the cost of the debt, if you're just paying it down is essentially the principal you're paying in plus your interest, right? That's like your total cost of the debt. Uh, when you're comparing it to forgiveness, the cost of going the forgiveness route is the amount you have to pay into it, as well as the tax at forgiveness. Right? So that tax is a part of the cost. So because of those income driven repayment plans are based on your, they calculate your payments based on your income and family size. The higher your income, the higher your payments are going to be, which makes your costs of paying down the debt higher. Because you're, you're having to put more money into it. So at some point, the, your income can get to a level where the, the cost, uh, you know, the costs are comparable between the two. Or, uh, if your income gets to a high enough level, depending on which of these payment plans you're in, um, your payments can get high enough to where you're just going to pay down the debt anyways before you get to forgiveness. So at some point, it just doesn't benefit you to go the forgiveness route. You're, you're better off at some points. My name is Carl T Everyone. At Vielleicht rental weddings I'm from disguise I have a six FT Bwrken Instagram, so you can find me on Instagram, I'm on Facebook basically at that YouTube has my studio at i'm always at And so I MT at CN I'm at Mt Eilton. I'm a living a company. Like I'm new to the character of cars, but I'm a sort of experienced participant and financially strongly directed financial planner myself, so um, you know, I'm not running the show. Like you can use one of these income driven plans to, to keep your payments to a really low minimum, give yourself more breathing room in your cashflow until your, your practice has grown. And then once you have cashflow, that's, that's stronger and more reliable, you can start to pay down more aggressively. So like there's, there's a way to use those plans, even if it doesn't make sense long term as sort of a stepping stone, um, sort of strategically to, to get you to the next, next point in your career. And this

Amrit Bilkhu: 26:05

is why you need to hire professionals. To do your calculations for you.

Evon: 26:12

I mean, honestly, like again, you go back to sophisticated, like that, that makes it seem like there was a, a thinking, like our government thought out the way to do this most appropriately. It's not, it's rules layered upon rules, layered upon rules and it's overly complicated. Yeah. There's no way for any optometrist to really understand unless you spend. And tons of time digging into this and seeing it play out with other optometrists. Like, there's, there's really no expectation that you know, the ins and outs of every parts of this. And that's unfortunate because it's, it's overly complicated. I mean, yeah,

Deepon Kar: 26:45

I was thinking what Lainey was thinking, like, that was a really great question, Lainey, when you asked Evon that because I was like, Oh, why don't you just get it forgiven? Like what? you know, when's the point? Would you, when would you switch over?

Lainey: 26:56

But

Deepon Kar: 26:57

then that makes sense. So what

Lainey: 26:59

Amrit said, that's why you need professionals to help you with this. I am

Amrit Bilkhu: 27:03

in this part of my life. I have realized I am all about hiring professionals for any task that has been educated in that area of that task to get it done properly, no matter what it is, because you know what? We're not happy when other people are pretending to be optometrists doing online refractions. So why am I happy pretending to be my own accountant and financial planner? I'm not. I'm just not. And it's way better just hiring someone who's educated to do it.

Evon: 27:38

Hey, everybody just want to say thank you for listening to the podcast. If you've enjoyed the podcast. It would be so helpful. If you can leave a review at apple podcasts or wherever you listen to podcasts. It gets the word out to other ODS that may benefit. And it helps me to learn how to make any more and more valuable resource for you. If you have any suggestions or topics for future episodes or questions you'd like answered on the podcast. Shoot me a note at podcast@optometrywealth.Com. Again, thank you for listening. And back to the episode.

Lainey: 28:11

I want to echo something that you're saying in that. It's so critical. And not just from a standpoint of being like, okay, well, I don't know as much as other people. You guys are all very smart. You're optometrists. You, there is a, an IQ requirement. You have to be smart enough to get to where you've got. Uh, it's not the same with you guys too. Like, I feel like finance people

Deepon Kar: 28:33

are some of the most like, yeah, it's like a whole different.

Amrit Bilkhu: 28:36

area of the brain working. Yeah, it's

Lainey: 28:38

like different

Deepon Kar: 28:39

intelligence completely because sometimes when people are talking about money to me, I'm like, I don't know, ask my accountant.

Lainey: 28:44

Well, I think there's a fear component as well. But yeah, despite the fact that other people might know more and be able to do better, your time is very valuable. And I can't tell you how often people have said things to me, like, you know, I have many. uh, clients that own clinics. And they say, well, Lainey, bookkeeping is just data entry. I'm a doctor. I can do data entry. And then I say, okay, how much do you bill per hour? And they say, I bill, I don't know, 100 an hour. And I say, how much do you think? A bookkeeper Bills per hour, I don't know,$40 an hour. Okay, so would you rather spend your hour Yeah. Billing a hundred dollars and paying a bookkeeper 40 and making$60, or would you rather lose a hundred dollars an hour and save$40? Yeah, the math is simple

Evon: 29:32

and in order and you know the books are actually accurate and yeah, they were done correctly. Please practice owners. I

Lainey: 29:42

couldn't agree more. It is, save yourself the heartache because as a CPA, uh, I see people come to me when I have a client or new clients often that come because their books are a mess and they say everything is haywire. I tried to do it myself or I hired a CPA Examiner. Uh, I, I have a clinic, but I didn't want to hire a CPA, because I wanted to save on the funds, so I hired a bookkeeper to do my tax return, and everything is wrong, and now I'm getting audited by CRA. So, um, even things as simple as investing. Over contributing to your registered accounts can create huge issues, penalties, um, and unwanted costs. So things that seem really simple sometimes aren't, and for the peace of mind of knowing that somebody who does this every day, it's their bread and butter, and they know exactly what they're looking at, is overseeing what's happening, provides a lot of peace of mind. And you know, I'm a CPA, I've, I have an undergrad, I did CPA, did three years post CPA of tax specialization, and I have an investment advisor. Like, I know how finance works generally. I could invest, I can buy Apple shares as well as anybody else, but I know that I don't have the time or the interest to spend doing the research required to do this work regularly. Whether or not I have the capacity, it doesn't matter. It's do I want to do it actively? And if you're not going to do it actively, then paying somebody else to do it well provides me with a ton of peace of mind. So, uh, whether or not you can, doesn't mean you should.

Amrit Bilkhu: 31:15

So true. Actually, let's kind of transition a little bit because we were just also talking about not just paying your debts, but, you know, saving up cash or building up cash and what else we can do with that, such as saving or investing. So let's kind of talk about that now from the U. S. perspective and then the Canadian perspective. There's so many different ways to save, um, you know, tax free savings accounts, um, you know, different retirement plans, like, um, What is the best route to go for people at different stages of their lives? And, um, yeah, just kind of guide us through maybe those options.

Evon: 31:56

Yeah, I mean, from the, from the U. S., it's, it's, I think, similar themes to, to Canada, but much different account titles and acronyms and stuff. So, uh, purely from the U. S. perspective, you've got. You have several different options. You have retirement type accounts, uh, things like your 401k accounts or simple IRA accounts. Those are, those are inside of a practice. Your employer is going to provide those. or there's IRAs, Individual Retirement Arrangements or Accounts, which you can personally open and handle yourself. Um, there's also, also things that are not actually retirement accounts, but can be used as really good ones, like health savings accounts. If, uh, if you have an eligible high deductible health care plan. So let's, and there's also just non retirement type investment accounts. So just taxable investment accounts, brokerages accounts that don't have the tax advantages, but, but give you the flexibility. So you have all these different options and, and you have different flavors of retirement accounts. So you have retirement accounts that give you a pre tax benefit. So like traditional IRA or, um, or traditional type accounts or pre tax accounts, where when deposit the money, when you contribute to these accounts. You get a deduction in this year, and then when it comes out, when you withdraw it in retirement, it's taxed at that point. You also have Roth type accounts, which are sort of the flip opposite in that you don't get a deduction today, but it grows, and as long as you follow the rules as you retire, you can withdraw all that growth tax free. So you've got all these different accounts. I think it makes sense to just start. Simple, meaning if you work somewhere and your employer is giving you a matching percentage inside of the 401k account or simple IRA, contribute to that account first, at least to get those free dollars in the match. Uh, those are dollars you lose out on if you don't contribute to that. So that's, that's the first place I'd start. Roth IRA can be the next place. So it's your own Roth IRA retirement account. Start to fill up that bucket. HSA if you get there. And then you can start to fill up the, the workplace retirement accounts with, with much higher, uh, maximums that you can start to, to contribute to. Yeah, there's a lot we can dive into, but I'd love to hear what Lainey has to say and we can, we can talk more on all that.

Lainey: 34:19

Uh, so, in Canada, there are similar retirement accounts. Uh, you can have employment, like your employer might have pension plans. Uh, generally for doctors, uh, perhaps if you're an associate, you might have, have options for that, but generally doctors aren't necessarily employees and they don't get that type of retirement plan. So. We're usually saving for our own pensions. Uh, if you're self employed, um, whether you do that through a professional corporation, that's a way to save for retirement. Uh, the other thing that many people are familiar with are registered accounts. So, your RRSP, essentially, what the government wants to incentivize is people setting aside for their retirement because we have a very aging population. an enormous deficit. So, uh, they're basically trying to figure out how to pay out OAS and CPP. Um, they're hoping that we start saving for our own retirement so we rely on the government less as we get older. So, it's not fair that people who are, you know, teachers or government workers get pensions and they can have, um, money set aside for their future that's tax deferred and the rest of us don't. So, RRSPs are basically the answer to that issue where they say everybody's entitled to a certain amount of room that they can put into their, their retirement savings, uh, up to a maximum. So the maximum is indexed to inflation, but it's about 30, 000 a year. And each person's entitlement is Also, speaking of overly complicated, 18 percent of their earned income, up to the maximum. So, to max out on your RRSP room, you need about 170, 000 of income in Canada. Now, RRSPs are great, but they are really inflexible outside of buying a house. So, RRSPs are a plan that generally makes sense to invest in that account heavily when you don't need flexible access to that money. When you contribute to an RRSP, you get a tax deduction, so it's made with pre tax dollars. You, if you bill a hundred dollars and you contribute it to an RRSP, you get to invest that full hundred dollars pre tax, and it's only taxed when you withdraw it from the account. So all of the annual investment income in your RRSP is tax deferred. And the goal is that you take it out, you know, in your seventies, when you are retired and you're in a lower tax bracket. So you'll presumably be paying even lower tax when you withdraw it than you would had you paid tax on whatever you ended up contributing in the current year. So RRSPs, that's generally how they work. They're generally really good for people in high tax brackets because you get a tax deduction. TFSAs are kind of the opposite. There's no tax deduction, so whenever you make a contribution to a TFSA, it's with after tax dollars, uh, and the amount that you can contribute is not based on your income. It is a prescribed amount each year, right now it's 6, 500 per year, and you can contribute that. That amount, and any income earned annually in a TFSA is also not taxed, but it's not taxed either when you withdraw it, so all of your investments in a TFSA are after tax, but they're never taxed again. So TFSAs are ideal for somebody in a low tax bracket because you want to pay tax on income when you're in a low tax bracket and invest it and never pay tax on it again. So if you're a student or new to practice and they're earning not that much, that's a good time to use your TFSA. On top of that, TFSAs are highly flexible because you can take money out of your TFSA and regain the room in the following calendar year. If you withdraw money from an RRSP, You don't get that room back to re contribute the money. So, Evon, I see a, a, a look to the skies. Essentially what happens is contribution I'm trying to keep up here. This is interesting. No, no, no. It's, it's, it's great. So, RRSPs and TFSA room is highly coveted because these are our best tax shelters, really. RRSPs are, like, the best tax shelter. You pay 0 percent tax now, 0 percent tax on your income. earned in those investments over the many years they're invested, and you pay tax when you retire and you take the money out of the account. TFSAs are the opposite. You pay tax up front on your income, and you can contribute an after income after tax amount to the TFSA, but you never pay tax on it again, whether it's the investment income or a withdrawal. So, if you're saving for a house, for example, a TFSA's great because you can borrow from your TFSA and you can get that room back because you want to put money back into your TFSA so it gets that sheltered status. With an RRSP, if you take it out to do anything other than buy a house, it's taxable to you when you take it out and you don't get that room back. The RRSP has a program where you can borrow up to 35, 000 from the program to fund the down payment of a house. What happens is if you have 35, 000 in your RRSP or more. You can borrow up to 35, 000. Put it towards your house, down payment, and then repay it over 15 years. So this is really nice because you can use pre tax income to fund a down payment. A new program was actually announced this year called the First Home Savings Account. And this is the absolutely superior account because you don't defer tax, you save tax by virtue of using this account. So if you put 8, 000 per year for up to a lifetime maximum of 40, 000, so it takes five years to max it out, you can borrow that money or any amount that you've contributed thus far to pay for a down payment in a house. Your contributions are deductible. Meaning, if you bill 8, 000, you can contribute it to a, to a FHSA and you don't pay tax on that 8, 000 and then you can ultimately put that against your down payment on your house. You never have to repay that money to the FHSA account. That's cool. Yeah, it's really interesting and, and another really, I'm a tax geek, so the managers of my office

Amrit Bilkhu: 40:41

and I are sitting I can see

Lainey: 40:42

the stars, like, in her eyes. It was fun, dude. I know, I'm literally like the last person you'd want to bring to a party, but, um

Evon: 40:51

Unless it's a tax party, then Yeah, those are awesome.

Lainey: 40:56

So they announced the rules in drips and drabs, and they started changing the rules throughout. The thing with Canadian tax is that it's rarely well thought out before it's announced to the public. So they announce it, and then we Speculate, and then they clarify the rules, and then we strategize, and then they re clarify them, and then we re strategize. One thing that we anticipated that they would take away that they didn't, is that you can roll over whatever contributions you've made to your first home savings account. into your RRSP. And it does not utilize your RRSP contribution room. So even if, you know, deep on you say, Lainey, I hate home ownership. I don't want to mow the lawn and I don't want to shovel the grass or shovel the snow. I love renting and I plan to rent forever. You could put 40, 000 into your first home savings account. Get that 20, 000 of tax savings, roll it into your RRSP, and now you've just, out of thin air, created 40, 000 more room in your RRSP, and now you can shelter that money for the next 60 years. So, even if you never intend to use the program, if you qualify, It is a slam dunk. It is a fantastic program.

Evon: 42:07

Interesting. In, in, in the US, we don't have like a, a version specifically for house buying. Um, uh, I guess we can say we're, we have a housing crisis. We, we have really low houses available, inventory of houses available to buy. Prices are still pretty high. But I, I, from what I understand, Canada's much more intense. Like there, there's a much bigger issue in terms of housing and the mortgage mortgages work totally differently than, than in the U S. So, uh, and from, uh, Lenny, you brought up a lot of good points on the tax. Considerations of which of these accounts you should contribute to? For, for the, uh, the tax-free retirement accounts, you only have that single type of account that's tax free. The growth could be tax free into the future. Is that right? It's just that one, that work choice. There's the

Lainey: 42:55

two. Well, actually all three of those have, uh, tax-free growth. The income earned annually and all three of those accounts is sheltered from tax. Uhhuh, The difference between an RRSP and an FHSA is that an FHSA is after tax going in, never taxed again. RRSP is pre tax going in, taxed when you take it out. Um, so really that is it. There are other strategies that people undertake to shelter, uh, annual tax, like big life insurance policies, um, you can defer significant amounts of tax by being incorporated, um, which I'm sure we'll talk about in a little bit. Um, and there are other strategy, investment strategies that you can undertake, but those are the registered accounts that the country, um, uses to try and provide some tax benefit to people to set aside and have some savings.

Evon: 43:48

Got it. Yeah. At least in the U S with. All types of these different retirement type accounts, the 401ks, simple IRAs, SEP IRAs now, you can choose, you know, cause those, those type of accounts have much larger amounts you can contribute to versus the IRAs, which are much smaller. So in all these type of accounts, you can, you now have the choice by law to do either the pre tax. Which is exactly what you said. You get a deduction and then when withdrawn is taxed or the Roth or after tax version. You can choose to do one or both in all of them. And the, you know, the question for us a lot of times is which one should you choose? You, you brought up. Um, all the right points when you had talked about your, your accounts there is that what is your, your expected, what is your, your tax rate now versus what you're expecting it to be down the road when you're withdrawing it? And it could be taxed. Um, if you're expecting to have a lower, a lower tax rate today on those dollars, then it might be when it comes out in retirement. Well, you'd want to tax it now and have it come out tax free. So you'd want to use the Roth type account in the U S in that scenario. Okay. or if you're expecting to pay a much higher tax rate than it would be today, then it would be down the road in retirement. Well, then you would rather get a deduction today. So use the pre tax or traditional type of account. The issue is, especially when you're much, in my view, when you're much earlier in your career, it's, it's really hard to know what that future retirement tax rates going to be for a lot of reasons. We don't know how tax law will change, but maybe most importantly is you don't even know what your lifestyle is going to be down the road. You don't know what your withdrawal needs would be when you start to turn all these assets into income. So you really have no concept of what your taxable income could be in retirement 40, 30 years from now. So in that case, for me, I like to look at it, just look at your current tax rate. As your career is unfolding and take advantage of clear opportunities. And then as you get closer and closer to that point where you want to, uh, where you're getting closer to retirement, you have a better idea of what retirement lifestyle might look like, then you can start to roughly calculate like what a future. I'm not sure what your tax rate could be and then start to make some comparisons. So like, for example, if you're in your, in your career and you're, you're in situations where in the lowest couple of tax rates, well, you probably are wanting to take advantage of the Roth or after tax type of accounts in those situations. Like there it's most likely your future income is going to be higher. If you find yourself either like in residency or if you're just cold, starting a practice in your income and your income drops like those are probably clear opportunities to, to pay the tax and to allow it to go tax free. On the other hand, if you're, you're getting to the much highest tax rates, the highest few, well, then you're, you're probably in your peak earning years and it probably makes sense to get the deduction and use those pre tax type of accounts. And if you're in the middle, well, you can kind of make a decision to go either way or, or split between the two. Um, and outside of that, there might be specific tax planning opportunities that you're seeing that might cause you to go one way or another. So for example, uh, for us, like if you're at the 24 percent bracket, And you're about to go to the next one, which is 32, like, that's a pretty big jump. So you probably would want to use a pre tax to at least keep you out of that, right? So there's some opportunities like that, or there's some business deductions where you can start to phase out of if you're a practice owner that, uh, there might be specific opportunities to use those pre tax, uh, pre tax accounts at least to get you within those planning opportunities, um, and then go from there.

Amrit Bilkhu: 47:37

I was just going to say, just to comment, this is the most information I've ever gotten about Like TFSAs and RSPs and even knowing the Roth and like the other sorts of accounts, I've heard of, I've heard about all of those when I was a student in the U. S. and I'm sure DeepOn did too. Now I understand when my accountant has yelled at me every December. Did you? Did you put money in the RRSP? Did you do it? Did you do it? And I'm like, I don't know. I know. She's like, you got to do it. You got to do it. And now I'm like, okay, I

Lainey: 48:10

finally understand. Just like stop yelling at me.

Amrit Bilkhu: 48:12

Stop yelling. But no, that's why she's yelling. Cause yeah, it makes sense. for certain people. So now, now I have to apologize to her when I talk to her again. Okay guys, so this is where we're going to pause the episode and finish up part one of our finances panel. So keep your eyes peeled for when we announce. That's part two coming out next time, where we talk with the panelists about when is it best to be incorporated and when is it not, and how to just navigate the finances based on the career path that you're planning to take. So be sure to keep listening, share this episode. If you learn great things, let us know what you learned. Let us know what you loved about it. And yeah, stay tuned for next time.