I track my net worth and shares it openly with FPMD readers every 3 months. Honestly it can be a bit embarrassing. Here I am a grown man in his early thirties, yet my net worth has been stuck solidly in the red for as long as I can remember. The reality is we medical trainees are faced with a very unique set of financial challenges that make the early accumulation of wealth very unlikely. Today I want to remind you to check your "White Coat Net Worth".
What is the "White Coat Net Worth"?
I have to thank Dr. Dahle of the White Coat Investor for introducing the concept of "White Coat Net Worth" in his book the The White Coat Investor: A Doctor's Guide To Personal Finance And Investing. The concept stems from Stanley and Danko's classic work The Millionaire Next Door. Stanley and Danko introduced an easy formula to determine whether you are an average accumulator of wealth (AAW), an under accumulator of wealth (UAW) or a prodigious accumulator of wealth (PAW):
Expected Net Worth = Age x Gross Income x 10%
Say if you are a 35 year old with a gross income of $95,000/yr, your expected net worth is
35 x $95,000 x 10% = $332,500
If your actual net worth is more than 200% of $332,500 ($665,000), then you are a PAW. Below 50% of $332,500 ($166,250)? Then you are an UAW. Between 50-200% of $332,500 ($166,250-$665,000)? Then you are an AAW. It doesn't take a rocket scientist to figure out why this formula is essentially useless for medical trainees - I am a good example. Luckily for us, Dr. Dahle modified the expected net worth formula to be more relevant for those who wear the white coat:
Expected Physician Net Worth = Salary x Years in Practice x 0.3 - $200,000
According to Dr. Dahle, if your actual net worth is less than 50% of the expected, then you are an UAW. If your actual net worth is more than 200% of the expected, then you are an PAW.
Say if you are 32 years old 1 year into your career as an attending physician, making $275,000, your expected physician net worth is therefore
$275,000 x 1 x 0.3 - $200,000 = -$117,500
The great thing about this formula? You can apply it to trainees as well!
Take myself as an example, I'm 31 years old making $57,500 as a PGY-5 resident 1 year away from becoming a full fledged attending physician. I can still use the formula by entering -1 as years in practice:
$57,500 x -1 x 0.3 - $200,000 = -$217,250
Compare that to my latest net worth of -$11,842, it would appear I'm doing quite well. So go ahead! Check your White Coat Net Worth!
Ryan created his virtual, fee-only practice to help young physicians take control of their finances. As part of a physician family, Ryan knows the pains, struggles and joys that come from a career in medicine. When his wife was in residency, he witnessed how vulnerable she was to poor financial advice that wasn’t in her best interest. Because of this, he shifted his practice to work exclusively with young physicians who could truly benefit from unbiased, quality financial advice. PWS seeks to provide clients with the financial literacy they didn’t received despite decades in school. He offers student loan analysis, comprehensive financial planning (starting at $200/mo.), and investment management (.75% per year) with no investment minimums. Wondering if you can save for retirement while paying off student loans? Click here.