This is an important post. Truthfully, people often get trapped in the numbers game when it comes to personal finance. Yet, there are many important aspects to being wealthy. This post, which was originally written on Passive Income MD, serves as a good reminder of that.
Is Physician Wealth a Feeling or a Number?
That is because wealth is something you define for yourself, and it may change depending on your age, who you talk to, and the stage of your career.
That brings me to the topic of today: What is wealth and who defines it? Sure, there is a poverty line, but not necessarily a “wealth line” to guide us.
Interestingly enough, Charles Schwab did a survey to find out at what dollar value Americans felt that would make them wealthy.
According to the respondents, it would take a net worth of $1.4 million to be considered financially comfortable, and $2.4 million dollars to be considered “wealthy.”
Your net worth is simply the combination of what you own (assets) minus what you owe (liabilities). To increase your net worth, you need to increase the amount of assets you have while trying to decrease your liabilities.
Now are the individuals who have a net worth of $2.3 million, so much worse off than those with $2.4 million? Certainly not.
Wealth, in my opinion, has more to do with time freedom, meaningful work, and quality relationships, rather than merely income or net worth. That’s why wealth cannot merely be defined by your net worth.
What Makes You Feel Wealthy?
There are many things that can make you feel more or less wealthy.
The top three descriptors of wealth according to the same survey are:
- Living stress-free/peace of mind
- Being able to afford anything I want
- Loving relationships with my family and friends
This certainly goes along with my own train of thought. Only one of those three things is actually something that you can afford with money, the others are just feelings.
Does having a high income allow you more opportunity to accomplish those goals? Yes and no. If you are overworking yourself to get the extra hours in, to feed your income, you will be missing out on crucial family time and your stress levels will likely skyrocket. Burnout begins to creep into the picture. This is what we should be trying to avoid at all costs.
So, how is it possible for doctors to hit that sweet spot of gaining wealth without burning out?
Here are some simple (but not easy) steps to take in order to help you get closer to your goal of becoming “wealthy.”
1) Control Your Debt
Since net worth is your assets minus your liabilities, if you would like to see your net worth increase, it helps to also decrease the number of liabilities you have.
With the average medical student graduating with nearly $200,000 in debt, controlling debt is quite the challenge. However, refinancing those student loansmight be extremely helpful. Couple that debt with the burning desire to buy a home as soon as possible, and that might put you further in the hole.
I’m a huge fan of the White Coat Investor’s recommendation to “live like a resident” when first becoming an attending and paying off your student loans off in 5 years.
Controlling your debt also means carrying less “bad debt” like personal loans and credit card bills and only having “Good debt” like loans used to purchase cash-flowing real estate.
Ultimately this will allow you to have more money to work with, whether that be to invest or to justify you spending more time with your family instead of at work. Whichever you choose, both qualify as increasing your wealth and freedom!
2) Manage Your Spending
Increasing your wealth also has a lot to do with decreasing your spending wherever possible. Less spending means more money in your bank account. More money in your bank account means you can worry less about what money your job is bringing in, and more on things that make you happy, like spending time with your loved ones.
I mentioned “wherever possible” in the paragraph above because I’m not a huge fan of being frugal to the point of deprivation. I do believe life is short and that you should be okay with spending on things that bring you a lot of value. This is what’s known as being “selectively frugal.”
Personally I’m a huge fan of spending on travel, but am careful with how I spend my money on luxury goods that come and go with time.
Knowing what expenses you can cut out with decreasing your quality of life is so important, but takes a little bit a work. However, if the end result is increased cash flow per month and a life of financial freedom, it’s worth it in the end.
3) Create Additional Income Streams
Lastly, you have to unlink your time from your income.
If your time is the only thing that increases or decreases how much you make, you would have to spend more time at work to make more money.
Unfortunately for most physicians, the system isn’t set up to create opportunities to leverage your time. In fact, we often find ourselves in situations where we’re putting in more time (usually dedicated to paperwork) but are getting paid the same as before.
Well, more time at work leads to less time with friends and family, and eventually more stress. Thus, you would be sacrificing wealth indicators #1 and #3.
By having multiple income sources, you can figure out ways to increase net time. This can help you figure out what the optimal amount of clinical time is for you. Being in medicine can even become a hobby.
This is why I am such a strong believer in passive income to supplement your career as a physician. You can unlink time and salary, allowing yourself to make more money, and ultimately allowing for all three top wealth indicators to be fulfilled.
So in my opinion wealth is a feeling, but it helps to have the numbers to help allow for those feelings.