A big campaign in medicine nowadays is to get more patients aware of each of their important health parameters. Billed as “know your numbers”, patients are urged to know their individual blood pressure, blood sugar and cholesterol levels in addition to their weight. Knowledge of these numbers allows a patient to assess her health risk in the longer term.
I think that as important as your physical health is, your financial health is also vital to your longevity. One’s finances are a common source of stress for individuals and families that can and does affect mental health, physical health, and the stability of marriages and relationships.
In terms of numbers, doctors, especially in employed settings, concentrate on annual salary. While certainly a factor in your fiscal health, salary is not everything. Whether you make $100k, 200k or more a year means nothing if you spend more than that in a year.
Knowing your net worth is critically important. Net worth requires you to know a significant list of other numbers, especially as your financial life expands. Simply put, net worth is assets minus liabilities.
Some strict accounting folks add value on property such as cars and furniture, but I discourage that practice. It’s a lot of work, doesn’t amount to a lot of money, and all those assets depreciate over time anyway.
Liabilities are obviously all money owed, including student loans, mortgages, car loans and business lending. If you followed my advice from previous blog posts, you should not have a car loan, as borrowing money to fund a deprecating asset is doubly wrong.
Once you calculate your net worth, which is the big kahuna number, at least you know where you are now or where you are starting from financially. The next number everyone should have is a goal number.
The goal number can mean different things to different doctors. For most, the goal number may be the amount of money needed to retire. For others, it may the amount of money needed to buy multiple priority items such as your kids’ college, a second home, or rental properties.
Just like your net worth will change over time (hopefully always to the upside), your goal number will change also as life goal posts are passed and your goals get more adventurous. As I have said before, some just want financial security, and some want eventual financial freedom (my choice). Security and freedom in the fiscal arena will only happen if you KNOW YOUR NUMBERS.