[Editor's Note: I've written before that feeling wealthy can be different from actually being wealthy. Today, Passive Income MD talks about feeling wealthy. While a high income helps, a high net worth likely helps more. By the way, if you want to meet PIMD and I in LA on October 26th, sign-up for his Real Estate Investing Conference.]
Remember when you were a kid, and you might have gotten a birthday or graduation card with a little bit of cash in it? I bet it felt like you just won the lottery. Compare that feeling to now: if you get an extra few dollars, you might be happy, but I doubt you would feel truly wealthy.
That brings me to the topic of today: What is wealth and who defines it? Sure, there is a poverty line, but not necessarily a “wealth line” to guide us.
Interestingly enough, Charles Schwab did a survey to find out at what dollar value Americans felt that would make them wealthy. According to the respondents, it would take a net worth of $1.4 million to be considered financially comfortable, and $2.4 million dollars to be considered “wealthy.” Your net worth is simply the combination of what you own (assets) minus what you owe (liabilities). To increase your net worth, you need to increase the amount of assets you have while trying to decrease your liabilities.
Now are the individuals who have a net worth of $2.3 million, so much worse off than those with $2.4 million? Certainly not. Wealth, in my opinion, has more to do with time freedom, meaningful work, and quality relationships, rather than merely income or net worth. That’s why wealth cannot merely be defined by your net worth.
What Makes You Feel Wealthy?
There are many things that can make you feel more or less wealthy.
The top three descriptors of wealth according to the same survey are:
- Living stress-free/peace of mind
- Being able to afford anything I want
- Loving relationships with my family and friends
This certainly goes along with my own train of thought. Only one of those three things is actually something that you can afford with money, the others are just feelings.
Does having a high income allow you more opportunity to accomplish those goals? Yes and no. If you are overworking yourself to get the extra hours in, to feed your income, you will be missing out on crucial family time and your stress levels will likely skyrocket. Burnout begins to creep into the picture. This is what we should be trying to avoid at all costs.
So, how is it possible for doctors to hit that sweet spot of gaining wealth without burning out?
Here are some simple (but not easy) steps to take in order to help you get closer to your goal of becoming “wealthy.”
1) Control Your Debt
Since net worth is your assets minus your liabilities, if you would like to see your net worth increase, it helps to also decrease the number of liabilities you have.
I’m a huge fan of the White Coat Investor’s recommendation to “live like a resident” when first becoming an attending and paying off your student loans off in 5 years.
Controlling your debt also means carrying less “bad debt” like personal loans and credit card bills and only having “Good debt” like loans used to purchase cash-flowing real estate.
Ultimately this will allow you to have more money to work with, whether that be to invest or to justify you spending more time with your family instead of at work. Whichever you choose, both qualify as increasing your wealth and freedom!
2) Manage Your Spending
Increasing your wealth also has a lot to do with decreasing your spending wherever possible. Less spending means more money in your bank account. More money in your bank account means you can worry less about what money your job is bringing in, and more on things that make you happy, like spending time with your loved ones.
I mentioned “wherever possible” in the paragraph above because I’m not a huge fan of being frugal to the point of deprivation. I do believe life is short and that you should be okay with spending on things that bring you a lot of value. This is what’s known as being “selectively frugal.”
Knowing what expenses you can cut out with decreasing your quality of life is so important, but it does take a little bit of work. However, if the end result is increased cash flow per month and a life of financial freedom, it’s worth it in the end.
3) Create Additional Income Streams
Lastly, you have to unlink your time from your income.
If your time is the only thing that increases or decreases how much you make, you would have to spend more time at work to make more money.
Unfortunately for most physicians, the system isn’t set up to create opportunities to leverage your time. In fact, we often find ourselves in situations where we’re putting in more time (usually dedicated to paperwork) but are getting paid the same as before.
Well, more time at work leads to less time with friends and family, and eventually more stress. Thus, you would be sacrificing wealth indicators #1 and #3.
By having multiple income sources, you can figure out ways to increase net time. This can help you figure out what the optimal amount of clinical time is for you. Being in medicine can even become a hobby.
So in my opinion wealth is a feeling, but it helps to have the numbers to help allow for those feelings.
Is wealth a feeling or number for you?
It’s both. The funny thing is no amount of money makes you “free from stress.” Once you have some money, you have to spend a lot of effort to keep it and keep the government off of it. I have seen doctors with more than five million in investment accounts still slogging away, thinking they need ten million.
I saw a question on SERMO once that asked doctors this “retirement number” and 60% of the 1300 doctors who answered the survey said >$3,000,000 with 33% saying >$5,000,000.
As to wealth being a feeling or a number. Clearly it varies and about 15% of the doctors listed <$1,500,000. In this survey it was a “number”.
If you have 1.5 million dollars and you draw off the 4% that is lauded as sustainable (I know this 4% might be off), you can have $60,000. Add in max social security and you will be close to $100,000. This is close to the number above which you get no further emotional or well being bump from money (right at about $90,000).
Wealth is freedom. But it’s also health. If you trade an extra your life for money, then have an extra million at age 75, who cares? You’re not globetrotting at age 80. You’re at the doctors office getting tablets and stoking someone else’s early retirement.
I ran a Geriatric Psychiatry unit for a decade. The decade of decline leading up to death for most men is 70-80. For most women, it’s 75-85. I suggest you live it up before then. Rate of dementia are ~25% at age 70-75, and 35% at age 85.
When we hiked 110 km through the Peruvian Andes to Machu Picchu at age 50, we were the oldest people on the trail. The elders we saw took a bus. Wealth is health. Not a number. Counting up the last million you need might be your last preoccupation. You might choose health, life and family connections instead.
Last night I saw a 60 year old Psychiatrist give a drug company lecture from 6:30 to 8:30 pm. He worked for the VA for 20 years and retired…for three months. He went back to work (bored) and left the party at 8:30 and “was on call” to work after the shindig. I’d rather be in Europe walking across Spain on the Camino de Santiago.
Great comment, thanks.
One of my favorite quotes from this year: “Enough is a decision, not a number.”
Interesting tidbit about the Machu Picchu hike. You’d find plenty of peers on the Appalachian Trail (and much older).
Great thoughts “YOURHUCKLEBERRY” and I agree 100%.
I plan to be in a position to retire in 2030 and it’s not about the $$ I’ll have but I will be a nice young 43 years old at the end of 2030. My priority until that time is to keep myself in tip top shape. I don’t actually think I’ll be 100% percent retired clinically at that point but it is more the mental satisfaction that I could and youth to still do so much if i want. Anyone can do this. I had a low 6 figure student loan which thanks to lots of moonlighting my last 2 years of residency I was basically able to eliminate shortly after graduation.
As an attending, my monthly lifestyle budget was residency monthly income in year 1 which was already 800-1000 more than I spent and felt like WOW. Every attending year I increase the ratio to 1.1, 1.2, 1.3 etc and of course it won’t work at some point but so far it has been fantastic.