Who is Wealthier? A doctor or electrician?
In this video I'm going to explore the career path of a doctor and an electrician. As a spoiler...they both end up very well off!
Both will be starting off at just 18 years old. One wants to be an electrician, the other wants to be a doctor. After all things are considered, who do you think will be wealthier by the age of 50?
To do this comparison I'm assuming that both professions are able to save 50% of their take-home pay and they invest it at an 8% return. I'm also going to assume that their salaries increase over time with the rate of inflation.
First I look at the electrician. The electrician is 18 and starts making $12 per hour. Since the electrician never went to college,
the electrician doesn't have any debt which allows him to start saving and investing right away. I'm also assuming a 50 hour work week, which allows the electrician to make $2,400 per month, $2,000 after taxes. This means they are saving and investing $1,000 per month,
At the age of 22 the electrician is now making $60,000 per year, $4,000 per month after taxes. They are now investing $2,000 per month.
At the age of 28 the electrician makes $100,000 per year. This is $70,000 after taxes, and allows them to save and invest $3,000 per month.
At 22, the electrician is worth about $60,000 - investing $12,000 per year for their first 4 years.
At 28, the electrician should be worth around $290,000 - this is the base $60,000 + $2000 per month, 8% interest, over an additional 6 more years of their career.
At 50, the electrician is now worth almost $3,800,000.
This is awesome, the 18-year old plumber became a 50-year-old with $3,800,000 net worth.
Now for the doctor. The biggest difference is that the doctor can't start investing until later in life because of student loans.
The doctor goes to 4 years of undergrad school at $20k per year, and then 4 years of medical school at $50k per year. After these 8 years of school the doctor is $280k in debt.
After 8 years of school, the doctor will then enter 4 years of residency which pays around $60,000 per year salary.
Half of this goes to pay down student loan debt. The doctor is now 30 years young. From 4 years of a $60,000 salary, $50,000 after taxes, the doctor has paid off $100,000 of the student loan, bringing the total debt down to -$180,000.
After residency, the doctor begins to make a lot more money than most professions. The electrician is making $100,000 before taxes, but the doctor starts out making $320,000. After taxes, this is about $250,000. By the age of 32 the doctor has a net worth of $75,000. At age 40, the doctor will have a net worth of $1,575,000.
The doctor now gets a pay increase to $450,000 per year at the age of 40, which is $350,000 after taxes. They still invest half of that. By the age of 50 years old, the doctor is worth over $6.1 million dollars, or $2.3 million dollars more than the electrician.
The point of this illustration is to show that saving an investing early in your career is very important. It's more important than where you are from, what school you went to, or even what profession you choose.
Electrician image source - getdrawings.com...
Doctor image source - getdrawings.com...
Music: www.bensound.com