Investment advisor Michael Zhuang shares his experiences from working with physicians.
Thomas Stanley, the author of "The Millionaire Next Door," coined two terms: Prodigious Accumulator of Wealth (PAW) and Under Accumulator of Wealth (UAW). Here is how he defines them:
Take your income from all sources, multiple by your age, and divide by 10. Let’s call the number X. If your total net worth is less than half of X, you are a UAW. If your total net worth is twice X, you are a PAW. Now you can do the exercise yourself and determine if you are a UAW or PAW.
What Stanley found that should serve as an alarm to all doctors is this: For every one doctor in the PAW group, there are two in the UAW. This leads him to conclude that among all high-income groups, doctors have the least tendency to accumulate substantial wealth.
This finding is not at all surprising to me. My wealth management practice focuses on physicians, so I’ve seen this happen firsthand.
Here are the top five reasons I think physicians don’t accumulate substantial wealth:
1. They start making good money later in life. Medical school takes years and a lot of money; after that, there is residency. By the time they can practice on their own, they are in their late 30s, while their C+ classmates who went into sales have been making money for 10 years.
2. They have to live a lifestyle that befits a doctor, which usually means big houses and luxury cars.
3. They are very busy. After work and family, they have no time left to take care of finances.
4. They think they can do it all by themselves.
5. Unlike successful entrepreneurs, they can’t sell their practices for good money.
Numbers 1 and 5 are impossible to overcome; they are the nature of the beast. However, 2 through 4 are within a doctor’s control.
If you can make the following adjustments, substantial wealth is not beyond your reach.
1. Live a lifestyle within your means.
2. Focus on what you do best and delegate the rest. John Bowen, my practice coach, likes to say: “Focus on bringing home the big check.”
3. Dedicate at least one hour per month to family finances. Stanley has found that people who do that are far more likely to be PAW.
If you do not have the inclination to do 3, you should delegate that to a highly educated, trust-worthy financial advisor. Since this is so crucial, my next post will shed some light on the financial advisor business and how to evaluate financial advisors.
Michael Zhuang is the founder and principal of MZ Capital Management, a Washington, D.C.-based investment advisor firm, offering financial planning, investment advisory and wealth management services. You can e-mail him here.