6 MONEY MISTAKES THAT WILL COST YOU THOUSANDS
Regardless of your age, money mistakes can sneak up on you. You may not realize how much of an effect these mistakes can have on your finances until you’ve already lost a pile of money. Take note of these common mistakes and don’t make the same mistakes as many dentists that have gone before you. I have the opportunity to research dentists of all ages. In this process, I keep seeing mistakes that even the best dentist is continuing to make. Here are the top six mistakes that will cost you thousands.
- Not having goals. I feel like well thought out financial goals along with consistent execution of them is the only way to insure financial security and a stress-free retirement. Where do you want to be in 10 years, financially speaking? If you don’t have a goal, you’ll have a hard time coming up with a successful plan. If you set reasonable financial goals, and have a plan to meet them, you can accomplish amazing things. Always begin with the end in mind. Ask yourself these two questions: How much is enough and how long do I want to take to accomplish it?
- Not saving at least 20% of your income. Setting aside a reasonable chunk of your income on a regular basis can reap huge rewards for you. This strategy has to begin in the first year out of school. After paying your debt each month save 20% of what is left after taxes. It is a huge myth believing that you will ever be able to retire by saving 10% of your income. This is a quarter century old failed strategy that will not meet the actual needs you will have in retirement. Currently you can plan on spending 4-5% of the money you save at retirement each year without running through it prior to your death. For most dentists, that total savings plus being completely out of debt will run between $3,000,000 – $6,000,000. Start early and stick with it. Here is another strategy: Save your age in thousand dollar bills each year. Do this and you will be one of the 4% of dentists that will actually be able to retire by age 62.
- Buying a house you can’t afford. Everyone knows what a great financial asset a home can be. However, buying a house is not like buying some shares of stock. It’s a huge investment of money, time, and energy. If you overextend yourself financially to buy that house (the epitome of the entitlement syndrome) it will most likely end up being a pretty lousy investment. It often comes down to this: It isn’t the price of the house alone, but the ancillary expenses of belonging to the “right” country club, driving the “right” car, sending your kids to private schools, taking extravagant vacations, etc.
- Ignoring your investments. A buy and hold investing strategy has a lot of advantages, not the least of which is that it requires far less time and effort on your part to maintain. However, that doesn’t mean you can set up an automatic investing plan and then ignore it for the next 30 years. At minimum, you should review your investments once per year and decide whether or not you are happy with their performance. This engagement in actually knowing where your money is going and what kind of return you are getting is only the start of replacing your current income with an equal or greater passive income someday.
- Keeping all of your money in savings. If you just stick all your money in your savings account, your bank will love you, but inflation will eat away at that money over time until you have nothing left. Because inflation averages about 3% per year over the long term, you need to make at least a 3% return on your money just to break even. It is safe to say that there are no savings accounts in existence that even pay 3% interest.
- Timing the Market. I guess it is possible to time your investments perfectly. However, it’s also possible to make a fortune by winning the lottery. Timing the market turns investing into gambling, pure and simple. Every year Fortune Magazine contacts the top asset managers and asks them to pick one stock for the coming year that they know will outperform the pack. Next, they have a monkey throw a dart at the Wall Street Journal’s S&P 500 page. In twenty years, no one “financial guru” has beaten the monkey. If the smartest people in the world can’t be reliable enough to pick one winner, how do you think you will fare?
The secret to wealth building and financial success is to start early, be consistent, and don’t spend it. That is how you Summit.
Michael Abernathy, DDS
PS — Here are 2 excellent resources well worth your time to investigate. You’ll be glad you did!
- Jonathan Moffat — 858-752-8396 — email@example.com You can also check Jonathan out on some podcasts that we collaborated on. www.theoptimizeddentalpractice.com
- Doug Carlsen, DDS — Very informative short financial videos from a retired dentist that really knows his stuff. https://www.youtube.com/user/DrDougCarlsen