Hey everyone, it’s Finance Fridays again. There was a recent blog post from White Coat Investor titled “How to Live on $350k in Hawaii“. PhysicianOnFire (PoF) tagged me in it and I promised to give my perspective on it. So today let’s talk about “Being a Doctor in Hawaii”

Stock Photo from: Pixabay

Being a Doctor in Hawaii

Edit: This post is 2350+ words, so pour some coffee and take your time.

Before we begin, I’d recommend going over to WCI’s site and reading that blog post first since I will be referring to it in my post.

First of all, I’d like to say that, as you would expect, I agree with a lot of what WCI says in his post… however, I’m going to be a little less “tough love” than he was.

Also, just to clarify, I am talking more specifically about living on Oahu, since I live here. I can’t really comment too heavily on Maui, Kauai, or The Big Island.

Let’s dive in:

“I am a senior resident in my early 30s with a stay at home partner and three kids, $225K in student loans, planning to move to take a job in Hawaii with a 2-year partner track during which I will make $350K. In preparation for a new level of income, I have been trying to make a spending/allocation plan according to your advice and I am having a lot of difficulty with it.”

So here’s the long and short of it:

• $350k income
• $225k student loans
• Single Income
• Three Kids

This isn’t too dissimilar from my situation when I moved to Hawaii. My income was less, but then I also had double the loans, a 2nd income from my wife, and only 1 child (at the time). First things first is that the “live like a resident” mantra holds true for your first few years as an attending. This is even more true when you live in Hawaii. However, you will need to temper your expectations significantly. I don’t know where you’re from, but the likelihood is that your dollar won’t go anywhere near as far in Hawaii.

Let’s break some things down:

Credit Card Debt

First things first… why do you have $15k in credit card debt?

This should never, never happen. Also, this will likely go higher since you will need to pay for moving expenses. I would try to convince your employer to help with moving costs, or potentially give you a small advance on your salary to make this debt go away. Getting rid of credit card debt is your absolute first priority, and this should never happen again.

Two Kids in Private School

Let me reiterate that private school is very much a personal preference.

However, this is problem is very difficult for people who are not from Hawaii to understand. If you’re from the mainland, the public schools are pretty decent overall. However, here in Hawaii, the public schools are chronically underfunded, the teachers are overworked, and in general, the school system itself just isn’t very good. For parents, especially doctors, who tend to prioritize education, it’s almost necessary to go the private school route in Hawaii.

That said, private schools in town can range in cost from $15k to $25k a year. The less expensive schools are usually associated with churches, such as St. Andrew’s or Mary Knoll. However, the upper end would be the Punahou School, Iolani School, and Mid-Pacific Institute.

That said, my take on this was to live in a place with a good public school, at least for elementary school. These would include (in my opinion), places like Manoa (Manoa Elementary, Noelani Elementary), Nuuanu (Nuuanu Elementary, Mae Mae Elementary), and Waikiki (Waikiki Elementary), which are close to town. Farther out to the east, there is Hawaii Kai (Koko Head Elementary) and towards the west, there is Mililiani (Mililani Elementary). This would require you to live (rent) in the cachement area. However, you can ask for a geographic exception.

For full disclosure, I am sending my children to public school for elementary school. However, that comes at the cost of buying an expensive house earlier than I wanted to. This was a decision I made long before we bought a house — either 1) buy a small condo (or rent) and go private from the beginning or 2) buy a house and go public for elementary, and private later (middle school).

New Cars

You don’t need a new car.

My 3rd car (2011 Honda Fit Sport) does just fine. It probably doesn’t make too much sense to ship your car here since it would cost between $1000-$2000, which may be more than the car is worth. I would just sell your cars for whatever you can get, and buy a cheap car here when you get here. Just pick up a reliable Honda Civic, Toyota Corolla, or something. You’ll quickly find out that having a nice car here is more of a hassle than a luxury. The parking spaces are small, and people will ding you car up wherever you go. Also, the curbs and speed bumps are pretty high, so any nice sports car will scrape. If you need “room”, then just get a used Honda Odyssey or used Toyota Rav4 or something. Trust me when I say you’re not going to be going that fast anyways.

WCI brings up the possibility of riding your bike to work. I have some colleagues that ride their bikes to work, and they do ok. However, in my personal opinion, I don’t think it’s a good idea — on Oahu at least. The city of Honolulu itself is pretty bike-unfriendly and there are always tourists driving around who don’t know where they’re going (or don’t know how to drive). As you can imagine, these are accidents just waiting to happen. My friends that work over at Queen’s basically see Car vs Bike or Car vs Moped or Moped vs Bike accidents everyday. Anecdotally, my wife’s friend rides his bike to work and has already been in two accidents — and he’s a very attentive, defensive bike rider. Don’t worry he’s ok, I think he only broke his clavicle or something. Good thing he wears a helmet.

Don’t buy “things”

I agree with WCI on this one pretty spot on.

Here on Hawaii, no one really cares about what brands you’re wearing or the watch you have on or whatever is flashy. The people who do care about that stuff are the very, very rich who literally don’t work and just seem to hang out at Ala Moana Center all day. For the most part, you won’t need really expensive clothes because the style of dress is pretty casual — even for doctors.

Costco and Amazon Prime. Learn it. Love it.

Spend less, save more.

Renting

You’ll need to rent, but how you rent is up to you. Perhaps you’ve decided to rent a 3 bedroom condo in town for $3500-$4000 a month. However, you need to ask yourself — do you really need a 3 bedroom right now? Can you get away with a 2 bedroom for maybe another 2-3 years? Or, if you’re ok with it, you can share a house with another family. This is very, very common in Hawaii because renting/housing is so expensive.

I can already imagine the reactions to what I just suggested. “I’m a doctor, I’m tired of living like a college student. I don’t want roommates or housemates.”

Yes, I understand. However, I am simply explaining all the options, and ones you’ve probably never considered. I have friends (with families) that have roommates that rent a house — and they’re doctors.

When I first came to Oahu, I chose to rent close to work, and it cost me an arm and a leg. I rationalized that it was close to town and work, but the reality of it is that we didn’t need a 2 bedroom condo at the time. We would have done just fine with a 1 bedroom condo since it was just me, my wife, and Kylie in the pre-Luke era. When I think that I could have saved about $1000 a month for 2 years we rented it makes me cringe. I could really use that extra $25k right about no. For this reason, I am offering you the other options to consider.

Also, don’t even think about buying a house yet. The Oahu (and Hawaii) real estate markets are pretty ridiculous. You will want to know the nuances of all the neighborhoods and understand the traffic patterns before you even think about buying a house. You will be amazed at what $1 million buys you on Oahu.

Student Loans

$225k is a lot, but it’s not quite soul-crushing. By the time I started paying back my loans I was sitting around $350k, and my wife’s loans were about the same. That amount of student loans is soul-crushing. However, it is very difficult to pay off your student loans early when you’re just starting out and you live on Oahu.

I think it’s good to be aggressive, but you probably won’t be able to be that aggressive just starting out. Your best bet is probably to refinance your loans, and just throw them on a 20 year plan with autopay until you get on your feet. WCI and I kind of disagree here a little, because I’m not as aggressive as he is when it comes to paying off loans. However, my reasoning it that I needed to save enough money for a downpayment on a house.

Living on Oahu has a ton of financial disadvantages, the one financial advantage are its low property taxes. I think it’s the lowest in the country at 0.28% effective rate. However, saving a down payment to actually buy a house is very difficult while trying to aggressively pay down loans.

For this reason, I prioritized saving for the down payment over the loans. Was it the right decision? I’m not sure. However, buying a house in an area with a good public school was very important to me. It meant I wouldn’t need to worry about paying for private school during elementary at least — money I will move toward aggressively paying my loans down now. I think whatever you decide is fine as long as you have a long term plan in place.

Retirement Planning (401k)

It seems to me that the 401k is the last thing on your list — and that’s a problem.

You need to make your retirement planning a priority. Pay yourself first.

You can’t get this time back. Make sure you’re saving money for retirement from day 1. Don’t make the Biggest Mistake of Your Life. Also, don’t forget Backdoor Roth IRA and Spousal IRA for your stay-at-home spouse. Also, is your spouse planning to return to work once the kids are all school age? That may help your retirements plans as well.

Long story short — it won’t happen all at once.

The first few years of living on Hawaii are very difficult. I don’t know the exact numbers, but I would imagine the long term rate of mainland transplants staying on Oahu is pretty low. Usually people only stay a year or so before wanting to go back to the mainland. You can’t have it all — and to be honest, “living like a resident” doesn’t help nearly as much on Oahu as it does on the mainland when it comes to saving money.

That said, you will see that after this transition period of 2-3 years, you’ll develop a new normal of expectations. Whether you decide to stay on Hawaii or not, it’ll be a valuable experience. If you stay, you’ll see your salary grow a little every year and you’ll see your student loan debt go lower. Then one day you’ll buy a house and the student loan debt will be gone, and your 401k will have been compounding like it has supposed to.

Boxing Analogy

Being a Doctor on Hawaii is like going into a boxing match and not being able to throw a punch.

You sit there for few rounds (years) with your guard up, taking punches from Student Loans, Housing Costs, Child Care (and School) Costs, High Cost of Living, etc. Then after a few rounds, with your face all bruised and bloodied, you’re finally able to start to throw a few jabs here and there. The Student Loans start to fall and you can dodge the punches from the High Cost of Living now. Then all of the sudden you do a 1-2-3-4 combination and have the downpayment for a house. After the Student Loans have fallen, you start throwing some jabs at the Child Care (and School) Costs. Eventually, you gain momentum and go into your Dempsey Roll, throwing punches like a machine.

You look up, and there is nothing in front of you anymore… and so you look behind you and see all that money you put toward retirement in your 401k is suddenly a mountain.

Little by little. Baby steps.

The Elephant in the Room

Why Hawaii?

For many it is simply not worth it to live in Hawaii. The disadvantages outweigh the advantages by a large margin.

Why are people leaving Hawaii?

The TL;DR is that it’s just too expensive to live here. The majority of people are much probably better off living on the mainland where their dollar will go farther. Without a strong attachment to the island, like family, or really loving the beach/nature with surfing, snorkeling, and hiking — it’s a hard sell to stay here year-round. I like Oahu, but the truth of the matter is that if my job wasn’t so good, it’d probably be pretty hard to keep me here too. Luckily, my wife and kids love it here and they have an aversion to cold.

Living day-to-day on Hawaii is not the same as vacationing here for a week.

Long story short, for anyone who wants to move to here: Make sure you truly want to be here and you’re not just chasing a dream.

TL;DR

Being a Doctor in Hawaii will require different expectations.

Take stock of your priorities and be aware that you can’t have everything all at once.

Make sure you truly want to be here and you’re not just chasing a dream.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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