109
Basic Concepts of Personal
Financial Planning
Revising Economic Principles
forthe New Normal
David Edward Marcinko and Hope Rachel Hetico
5
CONTENTS
An Imprecise Science .................................................................................................................... 111
Scenario ..................................................................................................................................... 111
Introduction .................................................................................................................................... 111
Why Doctors Don’t Get Rich......................................................................................................... 111
A Late Start ............................................................................................................................... 111
Challenging Sociopolitical Environment .................................................................................. 112
Lifestyle Expectations ............................................................................................................... 112
Time and Energy ....................................................................................................................... 112
Financially Naive ...................................................................................................................... 112
Lack of Trust and Delegation .................................................................................................... 112
Too Trusting .............................................................................................................................. 112
Basic Macroeconomic Concepts .................................................................................................... 113
Federal Reserve Activities ......................................................................................................... 113
Money Supply Measures ........................................................................................................... 114
Velocity of Money ..................................................................................................................... 114
Monetary and Fiscal Policies .................................................................................................... 114
Major Economic Theories ......................................................................................................... 115
Monetarists ........................................................................................................................... 115
Keynesians ................................................................................................................................ 116
Gross Domestic and National Products..................................................................................... 116
Consumer Price Index and Producer Price Index ...................................................................... 116
Chained CPI ......................................................................................................................... 117
Producer Price Index ............................................................................................................ 117
The Business Cycle ................................................................................................................... 118
Bull and Bear Markets .............................................................................................................. 118
Whither the Bear? ..................................................................................................................... 118
Economic Indicators.................................................................................................................. 119
Basic Microeconomic Concepts ....................................................................................................120
Short-Term Assets .....................................................................................................................120
Long-Term Assets .....................................................................................................................120
Short-Term Liabilities ...............................................................................................................120
Long-Term Liabilities ...............................................................................................................120
110 Comprehensive Financial Planning Strategies for Doctors and Advisors
In 1972, Nobel Laureate Kenneth J. Arrow, PhD, shocked academe by identifying health econom-
ics as a separate and distinct eld. Yet, the seemingly disparate insurance, tax, risk management,
and nancial planning principles that he also studied are just now becoming transparent to some
medical professionals and their nancial advisors, despite the fact that a basic, but hardly promoted,
premise of this new wave nancial planning era is imprecision.
Personal Net Worth ................................................................................................................... 121
Common Liability Management Mistakes ................................................................................ 121
Home Mortgages ............................................................................................................................ 121
Renancing ..............................................................................................................................123
Reverse Mortgages ....................................................................................................................124
Renting ...................................................................................................................................... 124
Automobiles .............................................................................................................................. 124
Driving Costs ........................................................................................................................125
Automobile Leases ............................................................................................................... 125
Weddings for Medical Professionals .........................................................................................126
Personal Financial Ratios ..........................................................................................................126
Current Rate of Return ..............................................................................................................127
Personal Budgeting Rules .........................................................................................................127
Verify Your Budget and Follow a Financial Plan .................................................................128
Zero-Based Budget....................................................................................................................128
Use and Abuse of Credit ................................................................................................................129
Preapproved Credit Cards .........................................................................................................129
Medical Employers and Credit Reports .................................................................................... 129
Compiling Credit Reports ......................................................................................................... 129
Reading Credit Reports .............................................................................................................129
Credit Rating and Scoring .........................................................................................................129
Correcting Credit Report Errors ................................................................................................130
Credit Repair Services...............................................................................................................130
Debt Ratios and Credit ..............................................................................................................130
Disposable Credit Cards and “Chip and Pin” Technology ........................................................ 130
Credit Card Mistakes to Avoid .................................................................................................. 131
Denied Credit ............................................................................................................................ 131
Debit Cards................................................................................................................................ 131
Reorganization and Bankruptcy ........................................................................................... 131
Basic Financial Planning Concepts ................................................................................................ 132
Marketability and Liquidity ...................................................................................................... 132
Time Value of Money ................................................................................................................ 132
Preparing a Net Worth and Net Income Statement ................................................................... 134
Cash Flow Planning .................................................................................................................. 135
A Lifestyle Plan .................................................................................................................... 135
Common Cash Flow Mistakes .................................................................................................. 137
What Should a Personal Financial Plan Include? ..................................................................... 138
Establishing Short- and Long-Term Goals and Objectives ....................................................... 138
The Abstract/Concrete Duality ...................................................................................................... 139
Assessment ..................................................................................................................................... 142
Conclusion ..................................................................................................................................... 142
Collaborate ..................................................................................................................................... 143
Acknowledgments .......................................................................................................................... 143
Further Reading ............................................................................................................................. 143

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