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Determinations Using Rules-of-Thumb
[By Staff Reporters]
Once the value of all personal assets and liabilities is known, physician net worth can be determined with the following formula: Net worth – assets minus liabilities. Obviously, higher is better.
And, although eschewed in the past, rule-of-thumb determinations are making a comeback because of the recent financial implosion and stock market meltdown.
Benchmarks
In The Millionaire Next Door, Thomas H. Stanley, Ph.D., and William H. Danko gave the following benchmark for net worth accumulation. Although conservative for physicians of a past generation, it may again be more applicable in the future because of the current managed care environment and political turmoil.
Here is the guide: Multiple your age by your annual pre-tax income from all sources, except inheritances; and then divide by ten.
Example
As an HMO pediatrician, Dr. Curtis earned $60,000 last year. So, if she is 35, her net worth should be at least $210,000. How do you get to that point? In a word, consume less and save more. Stanley and Danko found that the typical millionaire set aside 15 percent of earned income annually and has enough invested to survive 10 years, at current income levels if he stopped working. If Dr. Curtis lost her job tomorrow, how long could she pay herself the same salary?
More:
- More on the Doctor Salary Conundrum
- MD Salary versus Net-Worth Conundrum [.ppt slide-show presentation]
Assessment
In one non-medical but stark example of inattentiveness to net-worth, John McAfee, the entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, down from a peak of more than $100 million, according to the New York Times.
Conclusion
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Filed under: "Doctors Only", Career Development, Financial Planning, Funding Basics, Investing, Recommended Books | Tagged: david marcinko, financial benchmarks, Financial Planning, HMO salary, net worth, Thomas H. Stanley, William H. Danko | 19 Comments »
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