Physicians worst at building wealth

[notinkansas]

I'm a fan of Thomas Stanley's books. (Millionaire Next Door)

I'm currently reading his most recent book, Stop Acting Rich. In it he shows how to calculate a "Wealth Index" which is a measure of how efficiently one turns income into wealth. His research shows that physicians consistently fall into the group with the lowest wealth index (usually along with attorneys and public corporate managers) Those that are much better at turning income into wealth include engineers and educators.

Generally those that have low wealth indexes focus on consumption rather than building wealth- living in a certain type of neighborhood, driving a prestige brand car, consuming prestige brand liquor, etc. I see a lot of posts on this forum that support these conclusions. And, in fact, when I've suggested that perhaps people might not want to buy that big house, perhaps save up a big pile of cash for when unexpected badness happens, etc, I've been accused of "being negative"

Living below your means is the way to become wealthy. It's simple math. Anybody else on this forum share my thoughts?

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[xanthines]

I think you are spot on, actually. Isn't there some saying like med school teaches how to make lots of money but not what to do with it? Putting aside remarks on how that statement may 100% these days with the economy and all...

I don't think there's anything wrong with big houses and fancy cars per se, but if you're not budgeting for it you're more likely to end up in trouble. Most of those low-wealth people seem to be just poor planners.

This law professor (married to an oncologist, no less!) is complaining about the prospect of paying slightly more in taxes and seems to be genuinely surprised at the uh, negative criticism he's receiving. At least he's taking the time address them in the comments. Man, I love the intarwebs!

http://delong.typepad.com/sdj/2010/09/todd-henderson-we-are-the-super-rich.html

I mean, gardner? Private school for the kiddies? Woe is him, indeed!

-X

 

[penguin24]

I recently read the Millionaire next door and thought it was an awesome read.

Becoming wealthy is a matter of offense and defense. Of the bat doctors have a better offense than engineers/teachers. It's up to you to play good defense and avoid the pitfalls of blowing all your money on the latest luxuries. Nobody is twisting your arm to get that new Beamer.

The problem w/ physician's being UAW is that we start earning money later in life and have student loans. Yet, I still feel that physicians make up a larger percentage of wealthy than engineers and teachers. I don't see how a teacher is better off than a doctor.

Dr Stanley's formula takes income into account. Thus a physician w/ an income of 400K/yr and a net worth of 500K would be a UAW. Yet a teacher w/ an income of 50K/yr and a net worth of 400K would be a PAW. Personally, I'd rather be the UAW doctor than the PAW teacher in that scenario. The doctor has a higher income and a higher net worth, yet according to the wealth equation he is not as good as the teacher who has a lower income and lower net worth.

 

[odieoh]

NotinKansas- I agree completely. It does seem strange to me that as doctors we have been used to the idea of delayed gratification, yet don't fully take advantage of what could be even greater gratification if we only delayed a bit more. It takes so many years of schooling/residency to get to the point of making a decent salary, but once there so many people go hog wild on expensive houses/cars/whatever. I've said it many times before, if people would continue to live like a resident for 3-4 years, it can have a huge impact down the road.

Penguin- You may want to explain your acronyms for those of us who have no idea WTF you are talking about. I think I get the general gist however. If the whole point of the index is to track how efficiently people turn income into wealth then the numbers speak for themselves. I don't think he is asserting that it is more desirable to be a teacher who accumulates wealth than a physician who spends his wad month to month. I think the point is more along the lines of "imagine how much better doctors could do financially if they managed their money like teachers." And I suppose if we are going for the offense/defense angle, you could also argue the obvious "imagine how much better teachers could do financially if they made as much money as doctors."

 

[avatarftw]

I'll go against the grain and say that I wasn't a fan of "The Millionaire Next Door." It pretty much said, save money to create wealth.

That's nothing new to us in the Asian community (and fellow frugal-minded people) since we routinely save 20% of our take-home pay.

I like the motley fool investment books a lot better since they teach you how to play "offense." "Defense" (saving money) comes naturally to me so I don't have to pay as much attention to it.

I'm a fan of Thomas Stanley's books. (Millionaire Next Door)

I'm currently reading his most recent book, Stop Acting Rich. In it he shows how to calculate a "Wealth Index" which is a measure of how efficiently one turns income into wealth. His research shows that physicians consistently fall into the group with the lowest wealth index (usually along with attorneys and public corporate managers) Those that are much better at turning income into wealth include engineers and educators.

Generally those that have low wealth indexes focus on consumption rather than building wealth- living in a certain type of neighborhood, driving a prestige brand car, consuming prestige brand liquor, etc. I see a lot of posts on this forum that support these conclusions. And, in fact, when I've suggested that perhaps people might not want to buy that big house, perhaps save up a big pile of cash for when unexpected badness happens, etc, I've been accused of "being negative"

Living below your means is the way to become wealthy. It's simple math. Anybody else on this forum share my thoughts?

 

[penguin24]

Dr Stanley's equation for how much net worth you should have:

Expected Net Worth = 1/10 x Age x Income

Ex: a 30 y/o Internist making 200K should have net worth = 600K

If your net worth is higher than the prediction, you are a "prodigious accumulater of wealth" (PAW)

If your net worth is lower, you are a "underaccumulater of wealth" (UAW)

The problem w/ the example is that the 30 yr internist has been an attending for only 2 years, still has 125K in student loans, and there is no way he can have the 600K predicted by the equation. Thus many physicians by Stanley's equation will be UAW.

I have yet to read the Motley Fool book, but should get to it later in the year.

 

[odieoh]

Dr Stanley's equation for how much net worth you should have:

Expected Net Worth = 1/10 x Age x Income

Ex: a 30 y/o Internist making 200K should have net worth = 600K

If your net worth is higher than the prediction, you are a "prodigious accumulater of wealth" (PAW)

If your net worth is lower, you are a "underaccumulater of wealth" (UAW)

The problem w/ the example is that the 30 yr internist has been an attending for only 2 years, still has 125K in student loans, and there is no way he can have the 600K predicted by the equation. Thus many physicians by Stanley's equation will be UAW.

I see, I have to agree that its not the greatest model for physicians, at least young ones. For someone who has been an attending 10+ years it should start to even out and become more useful.

I have yet to read the Motley Fool book, but should get to it later in the year.

I see, I have to agree its not the greatest model for young physicians then. For someone who has been an attending for 10+ years it seems it should even out.