One Doctor's Compound Interest Scorecard » The Prudent Plastic Surgeon

When I first learned how to calculate my net worth, one concept or philosophy struck me. And that is the idea that I was in a battle with and against compound interest. Further, the outcome of this battle would be decided by how well I stopped compound interest from working against me. And how well I started to get compound interest working for me. So, I began to think of my wealth as a compound interest scorecard.

This has been a really helpful framework for me to think about things. When I first calculated it, my net worth was even more negative than $-500,000. My compound interested scorecard was way tilted towards “working against me.”

But at least I now had a good way of thinking about the financial decisions that I needed to make to right the ship.

With that said, I’d like to share my current compound interest scorecard and hopefully help share this helpful framework with you!

My original net worth scorecard

But before we get to my current status in the game, let’s quickly review where I started off.

And I do mean quickly. Because this is really easy to summarize.

When I first check my net worth in 2020 – my final year of training, here is how things stood…

Items of compound interest working for me

Nothing
Zero
Zilch
Seriously…not even a high yield savings account making 0.0001% APR

Yup…this is what happens when you actively ignore personal finance, never start your education, and stick your head in the sand like I did.

Items of compound interest working against me

Credit card debt (around $50,000)
Private student debt (around $225,000)
Federal student debt (around $300,000)

Yikes!

What we did next

At this point after first grasping the concept of the compound interest scorecard – along with just how poorly I was doing at this game – I actually felt empowered. Instead of the fear I initially worried that I would feel.

So, Selenid and I started to work to increase the number of items in our portfolio that got compound interest working for us (Not a terribly difficult feat given the current zero items we had).

And we worked aggressively to decrease the number of things in which compound interest was working against us.

But that is not the whole story

Because at this point in time, we were transitioning from being a plastic surgery resident and PhD student, respectively, to becoming an attending surgeon and university professor.

Which meant that our income was about to increase tremendously. And along with it, our ability to acquire new assets as well as liabilities would increase. However, the liabilities would be (and certainly were) way more tempting to buy than any assets. If we weren’t careful, we could accrue way more items in the “working against us” portion of our compound interest scorecard.

So, we used our knowledge of compound interest along with the behavioral strategy of intentional spending to limit purchases of liabilities to those that brought us a commensurate amount of joy while balancing them with the purchase of compound interest accruing assets.

The result of this strategy (based on our written personal financial plan) continues today. We still aim to maximize assets and minimize liabilities within the confines of intentional spending if assuming liability is necessary (which it rarely, if ever, is).

My current net worth scorecard

This is the most recent iteration of the result of these strategies in the form of our compound interest scorecard.

Items of compound interest working for me

403b account (Jordan)
403b account (Selenid)
457 account (Jordan)
Roth IRA (Jordan)
Spousal Roth IRA (Selenid)
Taxable investment account (Both)
529 accounts x 3 (one for each kid)
Investment real estate (7 properties, 16 units)

Items of compound interest working against me

Private student debt ($39,000 remains)
Federal student debt (around $300,000 remains)
Home mortgage

Two quick notes here:

Notice that I only include the values of the loans in these lists. For more absolute values, you can check out this post.
I do not include the mortgages on the investment properties in my “items of compound interest working against me” list. This is because I do not actually pay these mortgages. Each month, our tenants pay for these mortgages with their rent. And the extra money (after maintenance, insurance, etc.) goes into our pockets in the form of returns (which compound as we use it to purchase more investment properties). That is the important difference between bad debt and good debt.

Plus, this scorecard doesn’t illustrate something that I am really proud of:

When we first moved to Buffalo from NYC in 2020, we both needed cars. I decided to buy a used Toyota as is well documented here. However, Selenid wanted a newer SUV since she would be driving in a lot of snow which is new for her. After a lot of research, we decided to go with a Kia Telluride. However, we did not have enough to buy the car outright. So, we leased it with a plan to buy it in cash when the lease expired. And that is what we just did! So, you will see no car debt on the “bad” compound interest list!

How did this happen

Well, it didn’t happen overnight.

And we are not where we want to be yet. Our ultimate goal is to have no items in which compound interest works against us. That means paying off our student loans and our mortgage. Both of which we are doing. And don’t get on my about interest arbitrage. I get it. But we prioritize being debt free.

But that’s not the point here. The point here is that we really turned things around. But it was not sexy. Or necessarily quick.

Reading this post makes it seem like these changes were easy and immediate. And yes, in retrospect, 3 years is a pretty short period of time to make a turnaround like this. But, as the saying goes, the years are short but the days are long.

All of this is the result of building up small daily habits that helped us eliminate bad compound interest and start accruing good compound interest.

It started by me paying off a $400 student loan and investing $750 in a Roth IRA when I was still an about-to-graduate trainee (because all we had to spare was $1,150). But these small actions build and build and build. And honestly, a lot of times it feels like not much is actually happening. Until then one day, you check your compound interest scorecard and realize that you’ve actually made a dent.

And that is a great feeling! One that is within all of our grasps as we strive for financial freedom and the ability to Iive and practice on our own terms!