I see so many medical students using income as a way to choose a specialty. After all, orthopedics is one of the highest-earning specialties in medicine at over $500k a year. Look at family medicine, averaging something more like 250k a year. At half the income, it seems a no-brainer which one to choose.
And these students then try to fit themselves into a profession they don’t like, trying to be good, caring physicians, but winding up hating what they do, burning out, and leaving medicine early. That’s not to say orthopedics, or any other specialty, is bad. Just that you better love doing orthopedics if you are planning to go into it.
To be clear, that’s a medical example, but this kind of thing happens in many high-income earning professions where there is the opportunity to specialize. The income is important, but vastly less than people think.
I’ve said this before – high income earners often fall into the trap of spending more each time they get an income increase. Get a bonus? Take out a loan on a new boat. New higher paying job? Upgrade the house. And so they increase their debt as they increase their income. When they inevitably cannot work any more (hopefully retirement), their income sharply drops and they are left with a lot of expensive toys with low resale value and a lot of debt. For those in the worst situation, they can’t leave the profession for fear of not being able to pay off debts. It happens much more than you would think for a highly-paid doctor.
Additionally, to get more pay, they have to put in more hours. So they can do less financial planning, investing, spending time with family, and so on. They keep collecting things and taking out loans until the music stops, and they have very little to show for it. Not so for those with high net worth.
Net worth is a way better method to measure yourself. Sure, it reduces you to a number, which is a bad way to measure a life, but you were doing it anyway when you were looking at your income. I’m going to show you how to calculate net worth in a future post, but for now, let’s talk about why you should use it.
Net worth is the value of all the things you own minus all the debts you have. Many orthopedic doctors have huge income, but due to debt, have relatively low net worth. Only 28% of orthopedic doctors have a net worth over $5 million. That’s a big number, and many would be happy with a tenth of that, but look at the other 72%. They are lower, some much lower, because they don’t know how to manage their finances.
How do you get the value of the things you own to be high? What things can you buy that don’t lose value right away? Real estate. Commodities (like gold). Certain other collectable items are there but have a higher risk. This could be rare artwork and I’ll lump cryptocurrency into this as well. All the fun toys doctors buy lose their value immensely the instant the purchase is made. That’s a net worth killer.
We will talk more about how to maximize net worth. For now, understand that your yearly income has little impact how successful you are or even your ability to retire when you want to. It’s incredibly more important to be maximizing your net worth. I’ve been tracking mine at least twice annually for many years and when I get an increase in pay, it barely moves the needle, but when I buy a new piece of real estate it always takes a jump up (that’s partly because I buy undervalued real estate). As rental income increases, it also jumps. It’s much more significant than my physician income. So stop worrying about your income and think about how you can increase your net worth.
