FINANCIAL RULES TO LIVE BY
Most of us are pretty active. But where you actually go in life is determined by how you see yourself. Activity doesn’t change your identity; your identity changes your activity. It will be how you see yourself (your identity) that defines your choices in life. The opposite of transformation isn’t failure, it is settling for less. You have to become the person who can set and strive for their goals. Settling is not an option.
One area I see young doctors fail to incorporate and older doctors find they can’t recapture is their ability to understand financial rules to live by. The earlier you begin the easier it is. There is nothing sadder than a 50 or 60 something doctor who will never be able to retire. They have squandered their education and countless other opportunities while living a life above their means. This entitlement mentality is the dearth of every doctor who graduates from dental school with unlimited potential only to arrive in the twilight of their career wishing they had done something different. As in most things, asking the right questions speeds you to the correct answers. How can highly educated, high-income people struggle so much with money?
To best answer the question, consider the typical vegetarian. This person has done one thing: Create a non-negotiable standard. Once they put their stake in the ground and flew the veggie flag, they never again had to make a seemingly challenging decision about meat. It’s not as though at every meal they have to recommit to not eating meat. The just don’t eat it. It’s not even on the table, and even if it were, they wouldn’t be tempted to eat it. If you are struggling financially despite being intelligent and having a very good income, I’ve learned it’s because you don’t have any financial rues in your house.
You need standards in at least four areas of your financial life.
- Budgeting and spending. This begins with a plan based on goals and guarded by systems to make sure that you have the excess to save and retire debt.
- Debt and savings. In the latest issue of Fortune Magazine, they used statistics and financial projection to come up with a formula for the average person in the US: Save 14% of your income for your entire career. This is up 4% over the past decade. The problem is that you are not an average individual. Your income and proclivity to spend just a little more than you make means you will need to save closer to 20% of your income and focus on a consistent plan to eliminate debt. All debt! The average dentist will need about $3,000,000-$5,000,000 in savings at retirement and be 100% debt-free. If you are thinking you are not average, and I hope you are not, you will need more.
- Major purchases. This category includes housing, transportation and education. Be sure your standards are higher than the bank’s standards. Nothing will compromise your long-term financial stability faster than making major purchase decisions on a whim or gut feeling and paying for it by borrowing more money at the bank.
- Your financial future. I’ve learned that setting money aside for the future is often replaced by the false assumption that high levels of income will persist in perpetuity. If your plan is that your income will outpace your sub-optimal decisions, then prepare to be disappointed. While “make more money” is an ambitious strategy, it’s a wild goose chase that leads to a graveyard of people stranded with unrealized potential. A more prudent standard would be something as simple as “set aside 15%-20% of my income for the future.”
You must set financial standards. Standards are not ideas, but hard and fast rules. If your standards can be compromised by a weak consumer moment, they aren’t standards. The higher your income, the more you need financial standards. This is how you Summit. A famous dental practitioner told me years ago that if you have debt and little savings, your integrity during case presentation is compromised. Something to think about.
Michael Abernathy, DDS
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