Every once in a while, I like to discuss resident finances because understanding how to manage money must begin early. Why? Because small mistakes as a resident become large errors later on in your career. At the same time, many of you have little or no practical know-how about financial matters. Part of it likely relates to the lack of experience. And, the other part connects to the lack of education about finances for residents. I get it. However, I will pitch to you why I think it becomes incredibly important to start tracking your budget, credit, and investments when you have less than nothing, so early in your career. In order to do so, first I will go through the definition of net worth. Then, we will discuss why it is so important to follow it. And finally, I will give you some simple tools for monitoring net worth.
What Is Net Worth?
The official financial definition of net worth is assets minus liabilities. That may not mean much to some of you. So quickly, we will define the terms.
Assets are anything that you own of value. That would include investments like stocks and bonds. Or, palpable things like real estate, cars, jewelry, baseball cards.
Liabilities are anything that you owe to others. For most of you, the first type of liability you probably think about is student loan debt. But, credit card debt, personal loans, and car loans count as well.
So, in order to come up with your present net worth, you need to subtract the liabilities from the assets. And, for a good chunk of you, that number is going to be negative. But, don’t worry! That is entirely normal any time during residency or as an early radiology attending.
Reasons For Tracking Net worth
The Trend Is Your Friend- Are You Becoming Richer Or Poorer?
Like anything else in medicine, the trend is often more important than the absolute value. What do I mean by that? Well, let me give you an example of PSA levels in a patient with prostate cancer. If you look at one PSA level without any context it essentially becomes meaningless. PSA levels can relate to prostate inflammation, other nonspecific biochemical properties of the body, as well as cancer. However, if you perform serial PSA levels and notice an increase over time, well, that takes on some significance. You worry about recurrent prostate cancer or metastatic disease. Likewise, tracking net worth works in much the same way.
As a resident, if you notice that your net worth is negative, it’s not a big deal (everyone has a negative worth!). However, just like PSA levels, if you notice that your net worth significantly declines month over month and year over year, well, that could mark that you need to change your financial habits. Maybe, you need to spend less. Or, maybe you should consider taking that moonlighting gig if available. Bottom line. You do not know what actions to take unless you begin to track your own net worth.
Net Worth Tracking Should Become Habitual
Later on in your career, not knowing your net worth can lead to catastrophe. Many attendings learn too late that they have been spending more than they earn. And, where does that lead you? You will be forced to work longer than you want with shifts that you may hate to earn extra money. Even, patient care can suffer because you become more worried about your next paycheck than what may be best for your patients. Maybe, you read more films than you should.
On the other hand, forming a habit of monitoring what you have now can help you to change your behavior. If you notice a steep decline, you can stem the outflow of assets. And, if you start tracking your net worth early, you will continue to do so later on in your career when money mistakes can matter even more. Why wouldn’t you want to form these good habits now?
Tools For Tracking
So, what are the ways that you can track your own net worth? First, you can use an old-fashioned excel spreadsheet. I have been doing that for years. And, it certainly helps to keep track of the large assets or liabilities. But, if you want to break down exactly where your cash flow goes, consider one of the online net worth and budget trackers.
The one that I have used for several years that is free is Personal Capital (Yes, I am an affiliate and if you are interested, click on this link!). I prefer Personal Capital because I have found it to be very useful for the granular tracking of net worth. It is very easy to tie/link investment accounts, credit card accounts, mortgages, and individual assets to the system to make accurate tracking of your net worth fairly easy. And, it adds graphs and easy to use interfaces to capture the trends of what goes on with your finances. That’s exactly what you want from a net worth tracker. (It takes a bit more work to do the same from a spreadsheet)
Net worth tracking should become a tool in your arsenal to prevent financial mismanagement. Consider practicing it now both to change your current behaviors as well as to maintain good habits throughout the rest of your career. As Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure”. This certainly applies to tracking your own net worth!