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How Doctors Can Calculate Their Expected Net Worth

One of the biggest financial misconceptions and mistakes for doctors is that we think our high income equals high wealth. But this is not how it works. Income does not equal wealth. If you make $1 million and spend $1 million, your wealth is still zero despite your income. Instead, net worth is your measurement of wealth. So, how can doctors estimate their expected net worth?

The rules of the net worth game

Net worth is the measurement of your wealth. It is the rules of the game of personal finance. Understanding net worth therefore teaches you the rules of the game and lets you start playing…and winning.

What then, is net worth?

In very simple terms, net worth is equal to your assets minus your liabilities. So then, what are assets and liabilities? Many definitions of assets and liabilities exist including some that are unnecessarily long and complicated. Simply put, assets are anything you own that put money in your pocket. This includes things like stock or bond investments and cash-flowing real estate. Conversely, liabilities are anything that takes money out of your pocket. The most common liabilities are debt and non-cash-flowing real estate like our primary homes.

Net Worth  =  Assets (Put Money in your Pocket) – Liabilities (Take Money Out of your Pocket)

Again, what is interesting to note in this calculation of net worth is that your income does not come into play. You will not find income listed anywhere on any net worth calculator. 

So, this equation teaches us how to calculate our current net worth. Thus, we have an accurate measurement of of current wealth.

And you can see how I’ve calculated my net worth here: Net Worth Update: From -$400K to +$400K in 14 Months

But we need context

Without context, we can’t know if our current net worth and wealth are where it needs to be given our life circumstances.

One way of doing this is comparing our current net worth and nest egg to our goal nest egg. You can learn to estimate your goal nest egg here or download a calculator to help you calculate it using the form on the right side bar.

But nest egg and net worth are not exactly the same thing. Ins one ways, the nest egg calculator may be more functional as net worth and wealth are not exactly 100% correlated.

However, net worth is still the best measurement we have for wealth and so it is worthwhile to use.

Calculating your expected net worth

We can put our current net worth in better perspective is we have a way our estimating our expected net worth.

In this way, we can compare our expected and current net worth to see where we stand. We can see if we are behind or ahead of schedule.

Then, based on where we stand, we can adjust our written financial plan to make sure we end up where we want to be – reaching all of our financial goals.

Related Post:
Guide to Creating Your Financial Goals and Priorities

But, is it possible to estimated your expected net worth?

Thankfully the answer is yes. So let’s look at a couple methods.

Watch Jordan’s Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!

The Millionaire Next Door method

The Millionaire Next Door by Thomas Stanley was one of the first personal finance books that I read when starting my financial education.

It introduced me to the concept of financial freedom and helped me realize that I could actually achieve it. That’s was so liberating and facilitated a huge mindset shift for me.

Anyway, in his book, Stanley gives the following formula for expected net worth:

Expected net worth = (Age x Pre-tax annual income)/10 – Inherited wealth

For example, for a 61-year-old with an annual income of $235,000, her net worth should be $1,433,500 ($235,000 X 61 divided by 10) using this equation.

But does this make sense for doctors?

The doctors’ adjustment to the expected net worth equation

The criticism of the Millionaire Next Door method of caulking expected net worth for doctors is that we start out more behind the eight ball. Due to debt and a later start at making a good salary, doctors tend to have lower net worth at the start of their careers.

Therefore, Jim Dahle at The White Coat Investor has suggested an adjusted formula for doctors:

Expected net worth = Annual salary x Years in Practice X 0.3 – 200,000

Let’s use me as an example to examine the difference between these two net worth estimation equations.

The difference between the 2 equations

For reference, I am currently 35 years old (young, no – old) and my annual base clinical salary is $490,000.

Therefore, using the Millionaire Next Door equation, my estimated net worth is:

Expected net worth = (Age x Pre-tax annual income)/10 – Inherited wealth

Expected net worth = (35 x $490,000)/10 – $0 = $1.715 million

Now, let’s examine using the doctors’ equation:

Expected net worth = Annual salary x Years in Practice X 0.3 – 200,000

Expected net worth = $490,000 x 3 X 0.3 – 200,000 = $241,000

Well, now let’s look at where my net worth stands compared to these estimates.

How am I doing?

My actual net worth currently is approximately $410,000. Again, you can get an inside look at this calculation here.

Compared with the Millionaire Next Door equation, that means my net worth is about 1.3 million less than what it should be.

Now, compared with the WCI doctors’ formula, my net worth is about $170,000 more than expected.

That’s a big swing and could represent a huge change in attitude and mindset regarding your path to financial freedom.

These equations give a difference in expected net worth of nearly $1 million! This begs the question…

Which expected net worth equation is best?

I hope the above example illustrates the answer to this question. But kudos to Jim Dahle for created his adjusted calculation of expected net worth.

This equation takes into account the average student debt taken upon by doctors. Further, it uses years in practice rather than years in age to reflect doctors’ later start in wealth building.

As a result, there is a slow start followed by an expected exponential growth in net worth using this equation.

For instance, using me as an example again, here is the estimated net worth through my first 10 years in practice:

expected net worth

This provides a much more accurate estimation for physicians to estimate our net worth.

What should we do with this information?

I think net worth is a really powerful tool. Because it teaches us how to play the game of wealth building and traveling down the path of financial freedom. Once you know the rules, you can play the game.

Remember, when I first checked my net worth, it was <-%510,000! I expected to feel fear upon making this first calculation. But I surprised myself and actually felt empowerment! Because now I could play the game. And it has paid off.

But, we still need context to understand where we are in the game relative to where we should be.

I recommend checking your actual and estimated net worth every 3-4 months. That way you always know where you are (and can adjust as necessary) on your path to financial well-being and freedom!

As you look to incorporate the simple financial strategies to improve your net worth and reach financial freedom, here are some helpful resources!

What do you think? Do you track your actual or estimated net worth? How are you doing? Is it helpful? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    1 thought on “How Doctors Can Calculate Their Expected Net Worth”

    1. awesome post man. problem is when you make more money or get a raise, the expected net worth climbs pretty high! My wife 3 years ago went from making $300k to $500k! our expected networth definitely changed then and showed we are behind!

      but then again, just a guide and still I like Jim Dahle’s equation despite not being very popular or used extensively.


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