Building Wealth: Personal Finance Steps To Grow Your Net Worth

30 Year Professional Life

The journey to financial well-being is a marathon, not a sprint and for many of you this will be organized over a 30 year span. The unique financial challenges peculiar to your medical life can benefit greatly from intentional and strategic financial planning at the onset. In this blog post, I will explore a set of personal finance steps specifically tailored to help you grow your net worth over time-the sooner you start these the better. From maintaining an emergency fund to strategic debt repayment, these steps offer a roadmap to financial independence.

For example, I recently spoke to a first-year attending urologist who was busy organizing his plan to achieve financial independence. He made it clear that his intention was not to retire early, but rather to enjoy the freedom of FI. He was structuring his income channels using a job stacking method that I teach, with his core income streams including W-2 professional income, 1099 professional income, and real estate professional income. The W-2 job was going to help him pay off his remaining PSLF requirements in the next 3. 5 years. We had a great discussion about downshifting his W-2 job to 0. 8 FTE, which would still satisfy the PSLF requirements. The additional 0. 2 FTE could then be used for 1099 side work through a professional micro-corporation. I love his plan because he is focused on his net worth meter. The sooner he reaches his net worth magic number, the sooner he will achieve the freedom that comes with financial independence.

Live Like A Resident

To maximize savings early in your career as an attending physician, some refer to this as learning to "Live Like a Resident." Essentially, during the first decade of your career as an attending physician, you focus on eliminating debts and learning how to save money. Living like a resident physician requires careful management of personal finances. As a resident, you may have a limited income and high student loan debt, so it is crucial to prioritize financial stability and make smart decisions. One key aspect of living like a resident physician is creating and sticking to a budget. By tracking your income and expenses, you can identify areas where you can cut back and save money. This may involve making sacrifices in certain areas of your lifestyle, such as dining out less frequently or finding more affordable housing options-for example your housing costs should not supersede 25% of your post tax income. This may force you to lean into apartment or townhouse living, but it’s all part of the necessary mindset needed to reach financial independence faster.

By carefully managing your personal finances as a resident physician, you can lay the foundation for long-term financial success while still enjoying the present. It's all about finding the right balance between living within your means, paying off debt, saving for emergencies, and investing in your future.

If you are interested in an up close and personal insight into the practical challenges of what this looks like in the life of a young doctor couple, check out this post from The Motivated MD.

In the mean time, lets look at some practical personal financial elements that every physician should implement—especially at the launch of their career.

Personal Financial Steps To Grow Your Net Worth

1. Establish an Emergency Fund:

One of the fundamental pillars of financial security is having an emergency fund. For doctors, whose income may be subject to uncertainties, maintaining a fund equivalent to approximately three months of living expenses acts as a financial safety net. This ensures that unexpected expenses or periods of income volatility can be weathered without resorting to high-interest debt.

2. Maximize Retirement Contributions:

Doctors, like anyone else, benefit from the magic of compound interest. Maxing out retirement accounts, such as 401(k)s or IRAs, allows them to harness the power of compounding over the long term. This disciplined approach to saving for retirement not only builds a robust financial cushion for the future but also takes advantage of tax benefits associated with these accounts.

3. Regularly Invest:

Consistent and disciplined investing is a cornerstone of wealth accumulation. Doctors can leverage their earnings by consistently investing a portion of their income. I recommend you shoot for a minimum of 20% of should be saved, and as much as 30% if you are a super saver. This could involve setting up automatic contributions to investment accounts, taking advantage of employer-sponsored retirement plans, and diversifying investments to manage risk effectively.

4. Plan Ahead for Big Purchases:

Big-ticket expenses, such as a home or significant renovations, require careful planning. Doctors can grow their net worth by thinking strategically about such purchases. Planning in advance allows for a substantial down payment, potentially reducing interest payments over the life of the purchase.

5. Buy Used Cars in Cash:

While the allure of a shiny new car is strong, buying used cars in cash is a financially savvy move. It eliminates monthly payments, reduces depreciation costs, and frees up cash for more strategic investments. This approach aligns with the goal of maintaining financial flexibility and avoiding unnecessary debt.

6. Keep a Debt-Free Lifestyle:

Doctors can significantly boost their net worth by embracing a debt-free lifestyle. This means paying off high-interest debts and avoiding accumulating new ones. Being strategic about debt management contributes to financial peace of mind and creates more room for wealth-building endeavors.

7. Purchase a Home Below Your Means:

Home ownership is a common financial goal, but the key is to purchase a home well below what one can afford. This not only minimizes mortgage payments but also allows for greater financial flexibility. Doctors can channel the saved funds into investments or paying down other debts, contributing to overall net worth growth.

8. Invest in Index Funds:

For doctors looking to diversify their investment portfolio, index funds offer a cost-effective and low-maintenance option. Index funds provide exposure to a broad market index, spreading risk and capturing overall market growth. This passive investing strategy aligns with a long-term wealth-building approach.

9. Limit Luxury Spending:

While the temptation to indulge in luxury purchases or frequent lavish vacations may be strong, disciplined spending is key to growing net worth. Doctors can allocate funds strategically, focusing on experiences and items that bring lasting value rather than fleeting enjoyment.

10. Accelerate Debt Repayment:

A significant step toward wealth accumulation is paying down debts aggressively. Doctors can allocate a substantial portion of their income toward debt repayment annually. This not only reduces interest payments but accelerates the path to financial freedom.

11. Stick to a Financial Plan:

Creating a comprehensive financial plan is crucial, but equally important is sticking to it. Doctors can periodically review and adjust their financial plan as circumstances change, ensuring it remains aligned with their goals and aspirations. Consistency and discipline are key to long-term financial success.

12. Start A Business:

The smartest business move you can make is to incorporate yourself professionally. Why? Because it offers tax efficiency and wealth-building tools that are unavailable to W-2 employees. Through strategic business structuring, you can retain up to 10-15% of your professional earnings each year. Schedule an inexpensive business consultation with me here and let’s discuss your situation and whether starting your micro-corporation would be a good idea. I’m of the opinion every resident should do it as a capstone to their training and provide you 20 reasons here.

Conclusion

If you have never created a personal financial plan, I believe the gold standard would be to pay for The White Coat Investor’s “Fire Your Financial Advisor” course where you will learn how to create your own financial plan. But if you are looking for a free guide from a physician, you should check out the Prudent Plastic Surgeon’s personal financial plan that encourages you to copy and update with your personal goals.

One other thing, having a budget or spending plan is a cornerstone element to a personal financial plan, you can check out these 10 personal finance habits to help you get started if you don’t have one.

Growing net worth is a gradual process that requires intentional decision-making and disciplined financial habits. Implementing these personal finance steps—maintaining an emergency fund, maximizing retirement contributions, investing regularly, planning for big purchases, buying used cars in cash, living a debt-free lifestyle, purchasing a home below their means, investing in index funds, limiting luxury spending, paying off debts annually, and adhering to a financial plan—can pave the way for a secure and prosperous financial future. By adopting these practices, you can navigate the complexities of your profession with financial confidence and build a lasting legacy of wealth and well-being.