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The inspiration for this post comes from a Robert Kiyosaki quote, “My banker never asked me for a copy of my report card.” In his book Rich Dad's Guide to Becoming Rich Without Cutting Up Your Credit Cards, he claims his “rich dad” (yea, yea, I know) taught him that after you finish school, your report card becomes your Profit and Loss Sheet or Income Statement (and perhaps also your Balance Sheet or net worth).
I thought it might make for an interesting post if we discussed a “report card” for the rest of your life. Now, this is a financial site, so we're only going to talk about the financial report card. Obviously, there are things in life that are far more important than money such as health, relationships, and spirituality. But today we're only going to look at finances.
In this school, there are six grades:
- Investments
- Debt
- Insurance
- Savings
- Income
- Financial Literacy
Let's see if your financial GPA is good enough to get into med school. Maximum grade for each category is an A, minimum is an F.
Investments
Here's how to grade this category. If you are financially independent, give yourself an A. If you have a liquid net worth of $1 Million or more but are not financially independent, give yourself a B. If you have a six-figure liquid net worth, give yourself a C. If you have a positive net worth, give yourself a D. If not, start with an F. Raise your grade by one if you're maxing out all available retirement accounts including Backdoor Roth IRA(s) and an HSA if you are using an HDHP. Subtract one if you are investing in individual securities or actively managed mutual funds AND these are not legacy investments you're stuck with due to low basis. Also, subtract one if you own any real estate properties that did not have positive cash flow over the last year. Subtract one if you have more than 5% of your investments in cryptocurrency, precious metals, or options. Subtract another one if you use any technical analysis or market timing method beyond a simple moving average in a tax-protected account. Subtract another one if you believe whole life insurance is a good investment or if you are paying 1% or more of your portfolio a year in investment fees.
Debt
If you are debt-free, you get an A. Consider the debts you have – mortgage, student loans, car loans, medical debt, and credit card debt (not including a card on automatic payment for the full amount each month.) For each of these that you have, drop your grade by one. For example, if you have a mortgage and student loans, you get a C. If you have no debt at an after-tax rate over 3% and have consciously made a decision to invest that money instead of paying off the debt AND are actually doing so, you may raise your grade by up to two grades. If you have a mortgage over 2X gross income or student loans over 1X your gross income or expected gross income if still in school/training), lower your grade by one grade for each. If you owe the IRS money or have a debt you would be embarrassed to admit (like pet debt or lawn mower debt) subtract another grade.
Insurance
If you have (or do not need) disability insurance, term life insurance, health insurance, and liability (including malpractice and umbrella) insurance, give yourself an A. For each of those you do not have (and need), subtract one grade. Also subtract a grade for each type of insurance you are carrying that you do not need – permanent life insurance, cancer insurance, accidental death insurance, iPhone insurance, and consumer warranties you paid extra for with a minimum grade of F.
Savings
In this section, we're going to discuss your financial muscles and ability to save money; think of it as the Physical Education of personal finance. If you are financially independent or saving 30% or more of your gross income, give yourself an A. If you are saving 25-29%, gives yourself a B. 20-24% gets you a C. 10-19% gets you a D. Below that, you get an F. If you have a written budget, add one grade. If you are a student add two grades. If you are a resident or fellow, add one grade. Add another grade if you are in training and have a written plan for your first twelve months of attending paychecks.
Income
If you are financially independent, give yourself an automatic A. If your income is in the top 10% for your specialty/profession, give yourself an A. Top 25%, make it a B. Top 50%, make it a C. Top 75%, a D. Lowest quartile, that's an F. Add one grade if your income has increased each of the last five years. Add another grade if more than 25% of your taxable income comes from a source that is taxed at a lower rate than your earned income, such as qualified dividends, long-term capital gains, real estate income mostly sheltered by depreciation, or a small business where you do not materially participate (and thus save payroll taxes on that income.)
Financial Literacy
There are dozens of financial literacy tests out there. If you could write your own, give yourself an A. Likewise, if you are the go-to person in your social circles for financial questions or if you could write a financial book that somebody unrelated to you would buy. If you routinely ace financial literacy tests, give yourself a B. If you would miss a few questions, give yourself a C. If you would miss a lot of questions, give yourself a D. If you would be embarrassed by your performance or have never read a single financial book, give yourself an F.
Figuring Out Your Financial GPA
Okay, let's add up the damage. For each A, give yourself 4 points, each B 3 points, each C 2 points, and each D 1 point. Add them all up and divide by 6. What is your GPA?
- 3.5-4.0 – Congratulations! That would actually get you into medical school.
- 3.0-3.4 – Not too bad, other professional schools are still an option!
2.5-2.9 – That's not bad. Perhaps you could get an MBA.- 2.0-2.4 – We're not going to throw you off the basketball team.
- 1.0-1.9 – You're on academic probation.
- < 1.0 – I hope this isn't the only post on this site you read today.
What do you think? How did you do? Is your GPA lower than you would like? What do you plan to do about it? Comment below!
GPA = 2.83 (Two A’s, Two B’s, One C, One D)
To be fair, I am getting crushed in the debt category (car, mortgage, student loans) and the investments category (not enough time in the market, yet). Have a D in debt and C in investments.
Maybe for those of us who are less than three years out from training, the investments category should discuss a percentage of your gross income that added to your wealth in the last year. :- ) I increased my networth by $250,000 in one year while living on 20-30% of my gross, but because I started at negative $208,000 – I am still not quite to a net worth of $100,000 yet. Getting close, though! This will be done by my second year out when my student loans are gone and my investment accounts total near $175,000.
Interesting idea, and certainly a tool to see how we all are doing.
I have all Bs.
Investments- I am 3 years out and save better then most and I do not have anywhere near 1 million in investments. That is actually my goal for 10 years out.
@TPP- So we will get there just need to put the time in. Some of these we can change right now but some will take a while. I guess it could be a net worth calculation like the modified one from millionaire next door. That would give us young folk a chance at perfection. (who would want that!)
Debt- Got a 1X mortgage but I cannot deduct the interests so the rate is >4%. I will take the B because again in 15 years (10 if I keep up with the extra) this too will be gone.
Insurance- I should have more disability insurance, I really should fix this.
Savings- Solid B in this. I am not counting 529 or extra mortgage payments here. So if I make more money or when I am done funding those accounts I can bump up my savings.
Income- B I am happy with this. I see a lot of people settle for less
Literacy- Kinda squishy but I will call myself a B
Hope it motivates you to achieve a little more! Thanks for reading. Readers should be well aware that there were times in my attending life when I did not have a 4.0.
No, I purposely did that. The truth is a doc just out of training is usually in such horrible shape (even if they’re making good decisions) that they don’t deserve straight As. As you clear the debt and build your nest egg, your GPA will rise.
I’m a straight A student
Now leave me a lone as I sit by myself in the cafeteria and get picked on by the jocks 🙂
I finally got straight A’s in something. That’s a first for me.
It is interesting that the WCI recommended 20% savings rate gets only a C. Is that a change? I thought you disagreed with my higher savings rate recommendations?
I agree that 30-40% gross savings is much better. It leads to financial independence after 20 years. Many tired and stressed 50 year old doctors wish they had saved more than 10%, 15%, or 20%
I see 20% as the “standard.” If you want to retire after a “full” career (let’s say 30 years) and got a late start like most (maybe didn’t save much the first five) it takes about 20% to get where you want to be. If you want to retire early, you need to save a little more. How much more depends on how much earlier you want to be FI.
Now whether I should have given an A for 20% or a C, geez man, it’s just a fun little game. Cut me some slack!
1.0-2.9 – You’re on academic probation
Not to be pedantic, but thought you’d want to know there was a typo in your GPA levels. I think you meant 1.0 to 1.9.
Not my grade (got a solid “C” even with a savings rate of 25%), just thought you might want to fix it?.
Thanks for the correction. Even after you pointed it out I couldn’t see it for a second. My editor missed it too!
I’m going to medical school! (Wait, do I really want to do that again?). 4.0 GPA here. It was a fun exercise to do.
Just 7 years ago I probably couldn’t get into any school with all the mistakes I was making.
Great practical post from the standpoint of your mission! Doctors are conditioned to respond to grades and report cards. Hopefully, this will be motivating for some sitting on the fence about taking this aspect of their lives on. Sadly, my favourite subject wasn’t on there – making funny pictures and bad jokes about finance that more than my family will laugh at. [Note the correct Canadian spelling of favourite].
-LD
Don’t be pushing that Canadian spelling down here. We’re already having British issues.
https://gomerblog.com/2018/11/paediatricians-add-an-a/
Well… It did seem to work well for anAesthesiologists 😉
Can I get extra credit?
Not so sure dental school is easier to get into than med school. Maybe podiatry and chiropractic? (Some of the latter can “cure cancer”.)
You can look up the data yourself. The average GPA (maybe it’s science GPA) for med school is a little higher than dental school and a little higher than podiatry school. They’re not that far apart though. It’s like 3.6, 3.4, 3.3 or something. Obviously there is more to getting in than just GPA, but that’s the way it happens to stack up. I thought about taking that out because some podiatrist would get fired up, but it seemed fair to me.
Jim, Jim, Jim. As Maverick from Top Gun might say, “Your data on the DDS is inaccurate.”
Overall GPA stats:
MD: 3.71
DDS: 3.56
DO: 3.53 (Not sure how grade substitution factors in here)
DPM: 3.30
There a couple of outlier schools that have unique admissions criteria, but most schools have average GPAs in the 3.5+ to 3.75+ range for admitted dental students. I dont think a 3.0 will get you admitted to dental school unless your parents have been huge donors to the school.
I was looking at an old report for DDS. Current average overall GPA is a little higher: 3.59
You guys. Seriously, you’re killing me. Would you feel better if I changed it to 3.7-4.0 and 3.0 to 3.6?
No. If you want to be more accurate and also consistent, you could say 3.7-4.0 and 3.6-4.0. Why start the MD at the average and go up while starting DDS randomly at 3.0 (which will almost never get you into dental school) and then put the upper bound at the average. Makes no sense.
It’s your blog. If you want to be an anti-dentite that’s your prerogative ?
Fixed it for you.
Thank you! I’ll sleep better tonight knowing there is slightly less anti-dentism in the world.
i’m a gunner. The only thing i’d note is I got an automatic A for income because we are FI. That said, my current salary less than the 25th percentile AAMC, my husband’s is good now, but before this career my husband and I were probably in the 5th percentile MGMA while in the military (which was >20 year career). you can totally get to FI without being even at the 50th percentile….in fact the 5th percentile worked just fine……. i also took the automatic A in investments, but we do all individual securities and got to FI that way…….
IMO the driving force to get us “all As” was the savings rate and debt aversion …….even on crappy salaries……
So you won the game but you don’t think you deserve As? I disagree.
no i’m taking my “A”s…..I’m a gunner like I said. i was just unsure that the correlation between high income and getting an A matters. we all know plenty of “failing” high income earners……. Some of these areas like Hatton said we need extra credit or Honors. 🙂 This was a nice post which highlights “studious” financial behaviors…
Income is only one of your grades. You can certainly have a low GPA with a high income, but the more you make the harder it is to really screw everything up. A high income covers a lot of mistakes.
Many roads to Dublin.
Really enjoyed this post, Jim. Creative way to engage people and get them to think about a wide variety of topics. I also appreciated all the adjustment factors that take into consideration student status, maxing accounts, penalties for doing stupid things, etc. Would have been fun to sit around and have a beer and brainstorm this grading system!
As a fourth year resident, my financial GPA would land me 1 year of being grounded from my parents haha.
Investments: F (although contributing to the max of employer match, and maxing Roth IRA)
Debt: F- (my cheap civic is almost paid off, but my student loans… oy)
Insurance: B (I have them all except umbrella, which I’ll get when I start my first attending job)
Savings: C (got to low 20% this year)
Income: F (resident salary. Enough said haha)
Financial Literacy: B (I have given a financial talk to my co-residents the last two years)
GPA: 1.3333333
This isn’t a kind report card for residents or early practicing docs, but it’s a fun exercise to help us visualize just how bad of financial shape we are all in when we start out. Gotta treat it like an emergency, because it is. Looking forward to a few A’s at the next report card in 10 years! Thanks for the fun post, WCI.
Tough to have a good score even as a financially savvy resident. You just have too much working against you.
Agreed, it’s the nature of the beast currently. Medicine, it seems, is truly a long-term game, both in career achievement and financial standing. But I feel like I have the coolest job in the world, so that makes things easier haha.
Investments: D (soon to be F due to student loans)
Debt: A (soon to be B due to student loans)
Insurance: A? (student, so many of these don’t apply…)
Savings: I’m a student with a written saving plan, so that bumps me from an F to a B!
Income: $0 (student), but many students have no income, so what quartile does that put me in…? 😛 (fine, fine, I’ll take my F)
Financial Literacy: C
GPA: 2.33 Yikes
My GPA went up some considerably because of tutoring by WCI and others. Thanks so much both for the help and the fun little game.
What if you rent a home? What grade would you give them?
I don’t see a grade for home ownership, do you?
Investments: A (assuming liquid includes retirement accounts? or it just the taxable readily available stuff?)
Debt: C–> A (student loans and mortgage. All <3 after tax. investing instead of paying)
Insurance: A (got it all)
Savings: C ( 20% ish percent)
Literacy: B
3.4 gpa… I'll take it. Not doing too bad. Definitely a little light on the pure savings rate.
How does one know the true “going rate” or income average/ median for a given specialty due to so many varying factors such as location, benefits, etc?
If one works in that specialty, it seems rather critical information to have when choosing between jobs, no? It’s most readily available from salary surveys, but the best data is probably MGMA.
2.66 – Not as good as I expected. Appreciate the reality check! Savings rate was my only D though, and it will certainly get better in 10 months when my student loan is paid off (currently throwing 20% of gross income at it).
MGMA for private practice. AAMC for those in academics.
But why get credit for being in the upper reaches of income by field? If the goal is to analyze where one is and what track they are on, this does not matter.
As Bean points out, one can get a 4.0 with a low percentile income and one can flunk out with a high income.
Boosting your income is an important aspect of financial success. It is much easier to pay off debt and reach financial independence making $300K instead of $150K. That’s why it is on the report card. Don’t like my report card, make your own!