Measuring Wealth: How Long Could This Doctor Last Without Working?

The traditional way of measuring wealth is net worth. However, like any measurement, it is imperfect. Robert Kiyosaki argues that the true measurement of wealth is how many days one could last without needing to work for a paycheck to cover expenses. One measurement is more clinical and one is perhaps more practical.

Either way, I am intrigued by Kiyosaki’s definition.

So let’s take a moment to review both methods of measuring wealth. And then let’s look at how wealthy I am using the Kiyosaki test!

How does net worth measure wealth?

I’ve talked about this a bunch and stand by my definition as net worth as the score card of wealth.

Keeping things simple, that’s really what net worth is. It helps you gauge your wealth. It’s a measurement tool. Too many physicians and people in general still equate income with wealth. And that causes a huge amount of problems as we know. So, the correct measurement tool for wealth 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)

You can even learn to calculate your own actual versus expected net worth right here.

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. And that is really the important thing that new north teaching you…the rules of the game to build wealth.

But still, net worth is not exactly wealth. It just measures it. Confused yet?

As a former chemistry major (who remembers shockingly little about chemistry for the recently refinanced $200,000 I paid in loans for that degree), I do recall professors beating into our heads that measurements are estimations. Estimations that are informed, but also inherently flaws. They paint a picture for us regarding the subject that they are measuring. But they themselves are not truth.

Let’s use an example to show why net worth can be deceiving

Dr. Net Worth is a plastic surgeon (oh no!) living in a moderate cost of living area. He makes $500,000 each year in salary in private practice and has been in practice for 20 years.

This plastic surgeon is financially educated and tracks his net worth. He saves 20-25% of his gross income. This allows him to put aside a good amount of money in retirement accounts like his 401k and a taxable investment account. However, he owns no cash flowing assets like real estate, passive businesses, or dividend paying stocks. He owns his primary residence with a mortgage that, including his initial down payment, is 50% paid off. The property has also appreciated significantly since he bought it 20 years ago.

His net worth is $4 million. But 75% of that net worth is tied up in his:

Primary residence
Age restricted retirement accounts
Taxed stock holdings
Things in his garage (like cars, golf clubs, furniture, etc.)

So, in this regard, if he decided to retire today, he wouldn’t be able to last very long while maintaining his current lifestyle.

And this is where Kiyosaki’s definition comes into play

Robert Kiyosaki’s ideal way of measuring wealth is via cash flow. That’s essentially what once measures in figuring out how many days they could go without working while covering their expenses.

Now, I do think that he takes it a bit far in suggesting that cash flow is all that matters. He is very anti-401k for instance which I disagree with.

But overall it is a good point and one we need to consider when figuring out how long our road to financial freedom lasts.

So, let’s use myself as an example!

How long could this plastic surgeon last without working?

Well, to begin, let’s look at measuring my wealth in the cold laboratory vacuum via the net worth calculation.

You may recall from this recent post that Selenid and aI recently became millionaires. And yes, that is what we are. Someone in the comments suggested that we were not because we don’t earn $1 million annually. But this again is conflating wealth with income, the huge mistake we already addressed above.

And by way of radical transparency, here is an updated list of our assets and liabilities:

But again, we know this is just a mathematical calculation and we need to translate this into actual financial freedom.

How many days could I last without working clinically in medicine?

First, a few rules of the game…

In this illustration, I am eliminating my clinical income. I will include income from side gigs. Why? Because that is leveraged income where the time and effort requirement are much less than clinical work. Plus, I can do them on my own terms.
We will assume that our real estate portfolio will stop growing. Real estate cash flow is now used to cover our expenses, not reinvest in more real estate or pay off debt.
I still have federal debt. However that is to be forgiven once processing on the part of StudentAid is completed. Therefore, those payments aren’t included.
I am performing this experiment in real time. As I wrote this sentence, I have no idea what the outcome will be. Makes it more fun!

Ok, with that laid out, let’s get into it.

First, calculating our average monthly expenses…

In looking at our budget using the template here, our average monthly expenses include (and remember this is maintaining our current lifestyle):

Mortgage on primary home
Kid’s education/daycare
Groceries
Eating out
Entertainment
Utility bills
Landscaping/Snow Removal
Cell phones
Gas for cars (our cars are paid off)
Vacations
Health care

Things that will not be included are:

Disability or life insurance
Payroll taxes
Retirement contributions

Because remember, we are going all out here. Using everything we have to cover our expenses and see how long we could last.

Based on our budget averages and the categories above, our monthly expenses come to roughly $22,000.

You can see a full breakdown of our monthly money flow here.

And now to calculate our cash flow…

Our cash flow in this calculation is derived from:

Rental income from cash-flowing real estate properties
Side gig income
4% yearly withdrawals from our investment accounts (see how this all works here)

So, let’s take these one at a time:

Rental income monthly comes to about $10,000. Probably a bit more but want to be conservative and also leave an emergency fund here for any repairs etc.
Side gig income comes also to about $10,000 monthly. But, although this is in a S corp and more tax friendly due to deductions etc, it is not as tax advantaged as real estate. So let’s shave 24% off the top as that would roughly be the tax bracket we would be in. So this comes to $7,600 monthly.
And finally investment income. This is the most complicated to calculate given differing tax treatments between say our 403b and Roth IRAs. So, what I am going to do is lump all the investment accounts together, withdraw 4% and then take 25% off of that withdrawal amount o account for 10% penalties and capital gains taxes. This will result in an underestimate of the amount. All told, this comes to just about $1,000 monthly for the rest of our lives.

In grand total, with our clinical work, we would cash flow about $18,600 monthly.

So, how many days could we last without me working clinically?

Welp, we could cover about 85% of our current monthly expenses. So, we could last about 26 days or 85% of a month I suppose!

Some take aways for us and for you

This was pretty fun I have to say.

I was slightly hoping to find that we could cover all of our expenses. Basically meaning that we are financially free. But we are not quite there yet. However, being this close only 4 years out of practice shows just how well the simple financial habits we picked up are working!

We are on the way but there’s still a ways to go. Thankfully I love my clinical work and have no immediate aspirations of leaving clinical medicine. But not every physician is in that situation…

Either way, here are a few observations from this measuring wealth experiment that are particularly interesting to me:

To cover $22,000 in monthly expenses, we would need a nest egg of $6.6 million to withdraw from at 4%. That’s a lot to save up and invest to.
Without our real estate cash flow, we would be much further behind and last many less days.
Buying “things” that have some inherent value like primary homes, cars, or the like to build your net worth is useless. They don’t help at all if you want financial freedom at your current lifestyle. You would need to sell them to derive any benefit. For instance, our primary home counts net $300,000 towards our net worth. But it’s effectively useless in helping us last a day at our current lifestyle without working. Let that sink in!
If we had more debt to pay off, we would last way fewer days as well. That’s why paying off debt should be a top financial priority.
Having side gigs also goes a long way to covering expenses.

I encourage you all to run this same experiment yourselves to practice measuring your practical wealth! Don’t get bogged down in getting the numbers perfect. Just estimate and see what you can learn from the experiment.

It might help you to shape your financial plan that fits you even better!

In the meantime, check out these posts that I think are especially relevant to this discussion of measuring wealth, cash flow, and financial freedom:

What do you think? How do you measure your wealth? How long could you last without working clinically? Would you change anything about your plan as a result? Let me know in the comments below!