Have you ever googled a celebrity’s net worth? The term “net worth” is often associated with the ultra wealthy, but in reality everyone has their own net worth. True, your net worth may not look as impressive as your favorite entertainer, but, as a veterinarian, it should be a figure much more important to you. Why? Your net worth represents your entire financial picture. It provides the framework to understand where you have done well (e.g. savings) and where you may need to focus in the future (e.g. debt reduction). Knowing your net worth is the first step in building a strong financial foundation and essential for veterinarians considering practice ownership because this will often be the first piece of information requested by lenders.
How to calculate your net worth
Net Worth = The total of what you own (assets) – The total amount you owe (liabilities)
To start, you can scratch out your net worth on a piece of paper or in a spreadsheet just by listing out two columns: Assets and Liabilities. In the Assets column, list out every account you have that has money in it. Checking, savings, retirement accounts. The market value of your home (if you own it). Then, list out what you owe. Credit card debt, mortgage balance, student loans. Be sure to think through even the smallest accounts and list them. Total up each column. The difference between the two is your net worth. If your assets exceed your liabilities, you have a positive net worth. Congratulations! If the reverse is true, consider this a starting point for making financial change.
Let’s look at an example below.
Kaitlyn is a 42-year old married mother of 2. She has been working as an associate veterinarian for the past 12 years and is exploring purchasing her practice from the retiring owner. Her husband, Mark, works for the government. Katilyn and Mark have been financially responsible, but with children, student loans, and a mortgage it has been difficult to save and pay off debt at the same time. They currently have $30,000 at the bank, $130,000 combined savings in their 401k’s, a home worth $325,000, and vehicles worth $20,000. They also have $75,000 in student loans, a mortgage balance of $275,000, and car notes of $15,000. They have been diligent in avoiding credit card debt.
In speaking with a lender, the first thing they request is a net worth statement (also referred to as a balance sheet). Having never prepared a net worth statement before, Kaitlyn begins to list out her assets (what she owns) in one column, and her liabilities (what she owes) in another column. She then totals them up and subtracts her liabilities from her assets to arrive at her current net worth of $140,000.
| Assets | Liabilities | ||
| TYPE | VALUE | TYPE | VALUE |
| Bank Accounts | $30,000 | Student Loans | $75,000 |
| Investment Accounts* | $130,000 | Mortgage | $275,000 |
| Real Estate | $325,000 | Credit Cards | |
| Vehicles | $20,000 | Car Loans | $15,000 |
| Other Assets | Other Debts | ||
| Total Assets | $505,000 | Total Liabilities | $365,000 |
| Net Worth (Assets-Liabilities) | $140,000 | ||
*(401k, IRA, Roth IRA, Individual Stocks/Bonds, Brokerage accounts, etc.)
Knowing their net worth helps both Kaitlyn and Mark and the lender understand and diagnose their current financial situation. With these figures and a solid understanding of monthly cash flow, they can now begin the process of discussing the vision for the practice and subsequent loan terms.
How tracking net worth helps you
You may wonder what you’re supposed to “do” with your net worth number.
Let’s fast forward another 5 years. Kaitlyn is now a partner in a practice with a 50% ownership stake. They have still continued to save systematically and pay off debt, and now have $40,000 in the bank, a combined $225,000 in savings in their 401k’s, their home value is now worth $350,000, and their cars have a value of $5,000. Their student loan balance is now $45,000, their mortgage balance is $250,000, the cars have been paid off and they still do not carry credit card debt. The practice is worth $1,000,000 with an outstanding business loan $925,000.
| Assets | Liabilities | ||
| TYPE | VALUE | TYPE | VALUE |
| Bank Accounts | $40,000 | Student Loans | $45,000 |
| Investment Accounts* | $225,000 | Mortgage | $250,000 |
| Real Estate (Use Zillow) | $350,000 | Credit Cards | |
| Vehicles | $5,000 | Car Loans | $0 |
| Other Assets | $500,000 | Other Debts | $462,500 |
| Total Assets | $1,120,000 | Total Liabilities | $757,500 |
| Net Worth (Assets-Liabilities) | $362,500 | ||
Over just a matter of 5 years, Kaitlyn and Mark have been able to grow their net worth from $140,000 to $362,500, a jump of $222,500! However, without tracking their net worth, Kaitlyn and Mark may look back and be discouraged that after 5 years, they have only paid off $30,000 of their student loans and still have $45,000 of student loan debt. Or that they have business debt of $462,500, not taking into account the current value of the practice and the increased income Kaitlyn can expect as a practice owner. They may feel that they will never pay these loans off and are not making any progress, not taking into consideration the $222,500 jump in net worth as they look at their total financial picture. *(401k, IRA, Roth IRA, Individual Stocks/Bonds, Brokerage accounts, etc.)
Keeping track of net worth over time
There are many apps and softwares which can help you automate and track your net worth over time. Some of the more popular tools are Mint and Personal Capital among others. It is less important which one of these you choose, just as long as you choose one. The best part is, once initially set up, maintenance is usually minimal (sometimes accounts become de-linked, and you need to keep up with new and/or closed accounts). These apps provide an interactive and simple way to track your net worth over time. A screenshot of one of these tools is shown below:
Periodically tracking your net worth can have many psychological benefits that keep you on track. Yes, you’ll know your net worth, but tracking will also help you realize the extraordinary gains you have made in your financial situation. This way you avoid isolating and focusing on a single aspect, such as student loans, as in Kaitlyn and Mark’s case.
Organizing your personal finances is crucial when considering practice ownership, and determining your net worth is the first step in the process.
If you’d like additional information about how you can begin preparing to become a practice owner, I encourage you to download our FREE e-book “The Veterinarian’s Guide to Personal Finance: 7 Actions to Take When You Want to Own Your Own Practice”.
You can also visit us at FivePoints Financial Planning or schedule a complimentary phone call to see how our services can benefit you.
Andrew Langdon, CFP®, EA, MBA is a fiduciary fee-only financial planner who specializes in serving veterinarians in their pursuit of practice ownership.
