Net Worth: The Simple Number That Every Physician Should Know

Your net worth as a physician should show up on your personal dashboard somewhere.

It should not be the most important indicator of your well-being because the quality of life, meaning in work, and work-home integration is more important. But too many physicians ignore net worth calculations until too late in the game.

To many of us, it just seems uncomfortable to track this, because it’s not the reason we went into medicine.

I was one of those people. Beyond simply enjoying my role as a rural family doctor, my first goal was to get out of debt.

Back in 2005 with all of my debt paid off, I placed a 2nd mortgage on my paid-off home and invested in a series of “angel investments” with the hope to create some passive income out of those leveraged funds. The results were mixed, and I wished I had never taken this step. I should have had my eyes on the Net Worth dashboard.

The Net Worth view would have led me to avoid more debt, and it would have led me to save money by placing it in more secure market-based retirement funds. But since my employer-based retirement funds were maxed out, I thought it would be wise to invest in something that would lead to more future passive income. Angel investments seemed wise because I was not dependent on the income, so slow growth was ok with me.

Passive income-creating projects are good for both income and growth if chosen wisely. But, they should be organized around their impact on net worth, short and long term, My mistake was that I had no idea what my net worth was at that time. The other mistake was that these investments offered no expected return, just speculated growth. Speculation is not an effective way to grow net worth.

15 years later, I have learned a lot from those mistakes. Had I been organized as a PC then (I was not), I would have simply grown my net worth through diversified retirement options afforded through my PC. My financial decisions as an employed physician were hampered by the blind spots that were built into that type of contract.

The good news is that I have arrived at a state of no debt for the 2nd time and this time it’s associated with Financial Independence. Digging out of debt takes behavioral determination. But the secret sauce of Financial Independence for a physician is using your own PC to grow your net worth.

Here is the most common playbook that many of us follow, after becoming an attending physician, and ignoring net worth.

1. We sign up to be a healthcare employee and start collecting a nice paycheck
2. We reason that we are earning plenty of money so we don’t need to think about personal finance and money management any longer. We can enjoy the the resources that flow into our bank account regularly, and focus on being a great doctor.
3. We choose to live the good life, make sure we have maxed out our corporate retirement planning benefits, and use what is left over to pay down our debts while living the American Doctor Dream. We often become consumers rather savers.
4. From the start, we put our head in the sand, because who wants to be reminded of our negative net worth due to those student loans? We tell our self, tracking net worth will make more sense when the loans are paid off. Of course by then, we have often acquired more debt, so the same logic is applied. The can is kicked down the road again.

I did this, and many of you are in the same boat.

But what you don’t know is what you don’t know.

Net worth is something many of you don’t know and don’t even fully understand. Here is a suggested calculator or formula.

But it’s not a complicated equation, and it should be an important vital sign for assessing your financial health.

There are many variables that affect your net worth:

1. Your Debt(s)
2. Your Income
3. Your Taxes
4. Your Benefits
5. Your Savings Rate

What most employed physicians don’t know is that your maxed-out employer retirement programs will only meet about 25% of your projected retirement needs.

You gain control over 5 of the 5 variables by organizing yourself as a PC. You now thoughtfully manage your income, taxes, and benefits through your PC. And with the larger retained income in a PC, you can pay down your debt faster, and save more with retirement planning. A PC is like finding the golden egg.

This brings us to another number you need to place on your dashboard, the desired annual retirement income number.

How much do you need for your desired lifestyle during retirement?

You can simply follow the multiply by 25 and 4% rules for retirement. Until the more recent years, I never even considered any of these numbers, because I had no intention of early retirement. Therefore, they seemed insignificant. I was wrong.

Most physicians have the potential for a net worth of 8-10 million dollars during their careers. Yet sadly, 25% of physicians in their 60s have a net worth less than 1 million dollars, forcing them to work into their 70s in order to catch up, if they ever do. I have seen this in my own rural county.

Standard employment contracts result in giving away millions of dollars during your career.

By tracking your net worth, and seeking to actively manage the variables that influence it, you will find that forming your own PC provides you with all of the needed tools.

The fact is that you are a business, and you waive your right to organize yourself as a PC by engaging in a standard contract with your employer. In this arrangement, you are giving up far more than you realize, including multiplying the time it would take for you to reach your desired net worth destination.

Dr. Inc.