ISSUE 142, Special Section: Cancer Care

Know A Good Doctor? We Do.

Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

Back to Basics

Remember that old Alka-Seltzer commercial that began, “Plop, plop, fizz, fizz, oh what a relief it is?” I don’t think that I am the only one experiencing some relief from what appears to be a successful (at least at the time of this writing) rollout of the coronavirus vaccine. I have found myself lately expressing to clients and friends, “Relief is always a good feeling.” Hopefully, it won’t lead to foolish action, inaction, or reaction.

As we emerge from pandemic, now is a great time to pause and focus on the basics of our financial lives. Like many of you, we encourage an annual checkup. Two places to focus attention are cash flow and balance sheet. First, the balance sheet.

It is important to note that the balance sheet is a snapshot of a point in time and is a listing of your assets and liabilities (and your spouse’s assets, if you are married) as of a particular day. Assets are anything of value. They should be listed on the balance sheet at the current market value, not what you paid for them. Liabilities are the debts you owe and should be listed at the amount of payoff as of the balance sheet date, not when they come due in the future. The difference between the two (i.e. assets minus liabilities) is your net worth. We have found that not many people keep track of their net worth over time. If that’s you, don’t fret. If you have ever applied for a loan, you likely had to prepare a balance sheet to present to the bank. It may be stuck in that file. If you don’t have one, start today. If you are like many doctors, you may start your career with a negative net worth (owing more debt than the value of your assets). Again, don’t fret. Throughout your working years, your net worth should be growing. Later in life, it is reasonable to expect net worth to decline as you stop earning, saving, and investing, and start consuming your nest egg.

There are two dynamics of a balance sheet that often get overlooked. One is the categorization of the assets into their type. Two fundamentals to observe are 1) liquidity of the assets and 2) the way the assets get taxed if they are turned into cash. For these reasons we advocate that the assets on the balance sheet be divided into categories: Cash, Taxable Assets (i.e. those not held in a tax-deferred retirement account), Tax-Deferred Retirement Assets, Business Assets, and Personal Assets (i.e. residence, cars, jewelry, etc.).

The second dynamic relates to how the asset is owned. If you are married, it is important to note whether the asset is owned by you, your spouse, or jointly. We usually put these as columns on the balance sheet. If it is owned jointly, it is either joint with rights of survivorship (JTWROS) or joint, tenants in common. This ultimately impacts estate planning, a topic for another day.

Regarding liabilities: We list those on the balance sheet according to payoff date. Short term liabilities are those that come due within a year, and long-term liabilities are those that come due later than one year. Remember that the balance sheet value for liabilities is the payoff now, not the amount of the original loan.

Turning now to cash flow: It will come as no surprise to long-term readers of this column that I teach that there are five things, and only five things, to do with all the money that comes into your life. You use it to 1) pay taxes, 2) pay on debts, 3) give some away, 4) save and invest some, and 5) spend the rest. All your inflow must go someplace.

By now, you should be getting the picture that cash flow and net worth are related. Of those five things you do with all your inflow, only saving and investing increases net worth. Paying on debts has zero effect on current net worth (cash decreases by the same amount of the decrease in the liability) and the effect of the other three is a decrease in net worth. Savings is paramount to increasing net worth. Of course, a positive return on investments also increases net worth, but the impact of investment return to net worth is likely to pale in comparison to the impact of additional savings.

With today’s technology, it is very easy to find programs to help you keep track of net worth and cash flow, even daily. It can be automated to update regularly. We routinely setup a website that simply collects the needed data and produces a balance sheet and cash flow statement daily. It then keeps track of net worth over time.

Our more successful clients set goals for the amount or percentage increase in net worth over the course of the year, as well as targets for net worth at various points throughout their lifetime. Our checklist for performing your own financial checkup can be found at Download it now and get started. There is no obligation.

Scott Neal is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Contact him at