#311 Working Backwards From Your Number: A Reverse-Engineering Framework for Physicians ft. Peter Kim, MD

The Misleading Retirement Goal

To begin the episode, Peter recalls a memory from years ago with James, a fellow anesthesiologist who had been building a passive income through real estate for about four and a half years. Despite this, James was still working extra shifts for the money, not because he wanted to, but because he felt his retirement target was still far out of reach.

After going over his expenses and passive income, Peter helped James realize that his passive income was already covering the shifts he was working. This conversation showed Peter that many people, including physicians, don’t really know what they need financially because they’ve never broken it down into clear, measurable terms.

Shifting Focus to Monthly Financial Security

Peter talks about the traditional approach to retirement where people focus on a big nest egg number, like $5 million, and follow the 4% rule to figure out how much they can withdraw.

The problem with this is that the target feels abstract and always moves, especially when the market fluctuates. Instead, Peter suggests thinking about how much passive income you need each month to cover your expenses. This is a much simpler and more tangible goal to work towards.

How to Calculate Your Monthly Numbers

Peter explains how to calculate your monthly financial needs in a simple way. Start by pulling your bank and credit card statements from the last year. Go through each transaction and categorize your essential expenses, such as housing, utilities, insurance, and debt payments.

Then, divide the total by 12 to find your “financial security number,” which is the amount of passive income you need to cover your essential living costs.

Next, add up everything else you spend, like entertainment, dining out, and travel, and divide that by 12 to get your “financial freedom number,” which represents the lifestyle you want.

Working Backwards to Build Passive Income

Peter walks through how to build passive income by working backwards from your goal.

For example, if your goal is to have $20,000 a month in passive income, you break it down into smaller targets for each year. In the first year, the goal could be $1,000 per month. In year 5, it could be $5,000, and by year 10, $10,000.

This method creates clear and manageable milestones, making it easier to build toward your larger goal. Peter also mentions that a single real estate investment can help a physician get closer to that first milestone.

Compounding Growth and the Importance of Sequencing

The Financial Freedom Calculator

To make this process easier, Peter mentions that Passive Income MD has built a financial freedom calculator.

This tool allows you to input your numbers and calculates both your financial security number and freedom number. It takes just about 5 minutes, and based on what Peter has seen, many people will be surprised by the results. The calculator helps make the abstract process of financial planning more concrete, guiding you toward a clearer understanding of what you need to reach your goals.

Try it here now! passiveincomemd.com/financialcalculator.