I’ve talked a lot about how my financial life changed once I learned about net worth. Net worth is the scorecard of your wealth. Once I learned how to keep score, it was a lot easier to make the right financial decisions. I started performing a net worth biopsy every month or two. By doing this, I got immediate feedback on what was improving my net worth. And I also got feedback on what was decimating my net worth.
But…at the end of my training in June 2020, my net worth was -$412,022.
However, the knowledge from these net worth biopsies helped me to improve my net worth by thousands before I even made my first attending paycheck.
But, I do have to admit that even this 4 figure improvement in my net worth was modest at best. I still had a huge negative six figure net worth with huge amounts of debt.
But, at this time, my income had just increased 5.5x. Which means, it was time to get to work!
A high income does not equal a high net worth
A quick aside…I was shocked when I realized that income appears nowhere in a net worth calculator. This means that income actually has no role in how wealthy you are. At first, it can seem tough to reconcile this. But, it’s totally true.
If you make a million dollars a year but spend a million dollars a year, your net worth is $0.
If you make $125,000 annually, but save and invest $25,000 a year (20% of your income), you can become quite wealthy.
Not gonna lie, it stung pretty good to realize that my dog had a greater net worth than me despite the fact that I just signed a sizable contract!
A quick refresher before the net worth biopsy
Again, as a refresher, your net worth is simply all the assets you own (retirement accounts, real estate, etc.) minus all of the liabilities you own (debt, etc).
It’s a simple equation that can tell you a lot.
There are a ton of online calculators like this one that you can access to make these calculations easily.
Here it is! My net worth biopsy
Here is a graph of my net worth since I began tracking it at the end of my training:
Like I mentioned, at the end of my training in June 2020, I sat with a net worth calculator and realized that I was worth -$412,022.
It wasn’t awesome realizing this but it also wasn’t as bad as I expected. For so long I had avoided my finances for fear of looking my mistakes in the face. And here I was looking at one number representing all of the mistakes that I had made at once.
Armed with a more healthy mindset, I was actually a bit relieved. Now that I knew where I was starting and I knew where I wanted to go (because I have a written financial plan), all I had to do was get there.
Small, early gains in net worth
From June 2020 to July 2020, I increased my net worth by about $7,000
It doesn’t seem like much but I was pumped. I actually did this before I even received my first attending paycheck. This, this was an improved net worth based solely on mindset, not money. I actually hadn’t made a cent during this time. It was a proof of concept.
Between July 2020 to October 2020, my net worth increased just over $27,000
This net worth gain was mostly the result of just sound fundamental financial principles.
Selenid and I were:
- Maintaining our 41% savings rate
- Maxing out our retirement accounts
- Closing on our first investment property
- Paying off credit cards and student debt
Again, another proof of concept that our simple financial habits would lead us to financial freedom.
And then, a huge jump!
Between October 2020 to November 2020, we increased out net worth over $199,000!
Whoa!!!! How the heck did we do this?
This is where calculating your net worth every month or every 2 months comes in handy.
I got this idea from Gary Keller in his book, The Millionaire Real Estate Investor. He wrote that he used to calculate his net worth with a mentor every month. Then he would look at how each financial decision had impacted his net worth positively or negatively.
This is what I had been doing all along, but I really took an extra close look at this jump.
What did I find in this particular net worth biopsy?
These are the main points that led to this HUGE increase in net worth in such a short time. These are financial principles that I learned, enacted, and believed in. And it was awesome to see them in action working for me and my family!
I’ve said this many times over. But in case you still weren’t sure, here is the proof.
Around the beginning of this time period (October 2020), Selenid and I closed on our first investment real estate property. It is a duplex in a path of progress neighborhood. (Here is a full deal analysis for this property).
Within a month of closing, we repaired and renovated the property and rented it out. By tapping hidden value, we raised our cash-on-cash return for the property to just over 17%! After these improvement were made, hidden value tapped, and units were rented out, we could calculate the new value of the property.
Based on the capitalization method for valuing properties (which I explain here), our property was now worth $318,880 compared to our $130,875 mortgage. We had increased the value of our property by six figures.
This property is one of our assets. The mortgage is a liability. The six figure difference between them adds significantly to our net worth.
Needless to say, we can’t wait to find our next property!
2. Debt pay down can be sexy
The second big step that we took in our finances during this time period was that we paid off all of our consumer debt.
I’ve shared before that one of my big mistakes before my financial education was to buy unnecessarily on credit. This led us to having over $30,000 in high interest credit card debt by the time I graduated fellowship.
However, after running out budget on November 1, we calculated that was had over $15,000 that we could use to pay off the remainder of our credit card debt. So we did it!
I’ve caught some heat for saying that each $1 used to pay debt increases your net worth by $1. Many argue it is a zero sum game i.e. $1 in your savings account increased your net worth as much as using that $1 to pay off a debt.
But this argument misses the point. Most of the time, we aren’t deciding between debt pay down versus saving. Most of the time that $1 ends up going towards some other expense, usually a liability. We are human after all.
So, I asset that debt pay down is one of the only actions that results in a 1:1 increase in net worth. That’s why it’s a top priority in my written financial plan. And this net worth biopsy proves this to you as well!
Attack student debt
My biggest liability now is far and away my student debt, still topping out at over $400,000.
So now, our focus hones in firmly on paying off the debt as quickly as possible using the snowball method. Basically, I pay the minimum to all loans, then attack one loan at a time with all of the extra money allotted each month to debt pay down in our budget. By doing this, I pick off one loan at a time with an ever increasing amount of money as less and less minimum payments are required to our loans.
I have a mix of private and federal loans. So, I’m obviously focusing on the private loans given the interest hold at 0% for federal loans currently.
Continue fighting the good fight
While this obviously represents a huge jump in our net worth, I know that it will not always be like this. Growing our net worth is a result of all of the small right decisions that we are making. These moves add exponentially to each other.
So, we will continue to work to make the right decisions while also balancing the present and enjoying ourselves.
Once thing for sure, we will continue to do our net worth biopsies!
Are you looking to improve your net worth?
- Here are 5 steps to increase your net worth now
- Learn about real estate investing for physicians
- Consider taking up a physician side gig to pursue passive money
What do you think? Do you track your net worth? What have you seen result in positive gains in your net worth? How do you balance growing your net worth with enjoying the present? Let us know in the comments!
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