Most of you have heard me tell you about my past: Divorce, cocaine, faith, and a new life. I want to take a couple of articles and discuss money as it applies to both practice and life decisions. I believe that money in the context of our practices is the best indication of the amount of “service” we render our patients. It is just a measuring stick that indicates how all of the other things in our practice and life are being done. Poor income usually indicates poor processes, ineffective systems, marginal staff and minimal business acumen. Like it or not, each of you are responsible for how this portion of your life turns out. The good thing is that for most of us it is still not too late, and all of us can improve.
As with most things, we need to consider what we want the end game to look like. So, in this case, we need to begin with the end in mind. Most of us want to retire comfortably (making as much if not more than we did during our working years), not face a divorce, raise our kids to be self-supporting and independent with a great work ethic, and have the income and savings to help our kids through the ever-increasing cost of college and maybe even graduate school. In a phrase: The American Dream. Kind like the 1960’s sitcoms like Father Knows Best, and Leave it to Beaver.
Sadly, on an almost daily basis, I hear doctors describing to me their “paycheck to paycheck” type of existence. They come in every gender, race and age and are found throughout a wide range of geography and demographics. I realize that no one ever walked across that dental school graduation stage and upon receiving their diploma, jumped up and down shouting “I can’t wait to be average”. Yet, only 5% of dentists are ever financially independent by age 62. In fact, retirement age has been extended to 70 years of age while still not hitting the mark of financial independence. You will find it increasingly difficult to meet or certainly exceed your goals if yours is an average practice: $650,000 a year with 20-30 new patients a month, with an overhead of 67%-75%. What you do today, how you look at money, and the amount of time you engage in the process will drastically change this percentage. It’s just up to you. I can’t speak in absolutes, but I’ve come to the conclusion that doing the whole “paycheck to paycheck” thing is almost always self-imposed. By omission or commission, you are responsible for your practice and your life. You are the number one reason you succeed OR the number one reason you struggle. While sometimes the culprit is a lower than average wage from your dental office, which I believe you can resolve, most of the time the problem is a less than ideal strategy set into motion early in a career and then never properly corrected. A waving white flag unknowingly replaces effort and vision so that you find yourself saying things like “it is what it is”. The good news is, it isn’t. You don’t have to be a “settler” (someone who accepts an average result) condemned to never being able to retire.
There are eight mistakes that could cost you thousands. These money mistakes can sneak up on you and before you know it these mistakes can position you to lose a pile of money. Make sure that you learn these financial faux pas and correct them early on, and you will be able to save millions and eliminate a lot of sleepless nights.
- Control your school debt before you spend it: Many students borrow for school and then use their school loans to support a particular style of living. The Student Loan Hero Survey revealed that 3% was spent on vacations, 3% spent on alcohol and drugs, 13% on restaurants, 15% for clothes, 19% for car payments and 41% of the respondents spent loan funds on monthly bills, like mobile phones. Students borrow more money by justifying it on the hope of future income. This is crazy! The average student debt is between $325,000-$500,000+ for college and dental school. Some of these same students discovered one additional huge mistake when it comes to financial health by marrying another dental student, effectively doubling this huge mountain of unneeded debt.
- Buying a house you cannot afford: Everyone knows what a great financial asset a home can be. NOT. Homes are a huge investment of money, time, and energy. Buying a house beyond your means plunges you deep into debt and forces you to turn to credit cards to catch up. It can even put you in a situation where you have to keep up with the Jones’ because after the move you find that you don’t drive the right model of car, the furniture needs replacing, your kids need to go to private schools, and you need to join a particular country club to rub noses with the right type of people. If you buy more house than you can afford, you will end up spending more on fees and interest than you can possibly make back from your “investment”. The benchmark here is to be able to make a down payment of 20% (minimally) of the initial cost. Never have your monthly mortgage payment exceed 20% of your monthly after-tax income. Never, never, never, consider buying a house with greater than a 15-year mortgage. Our second fatal flaw, as it always is when it comes to money, is our behavior. In an effort to buy more for less, we end up buying more for lots more. The bad news is that lending institutions will loan you just about any amount you ask for. Keep in mind that most of the interest paid is front-loaded. In other words, you pay most of the interest for the entire loan during the first 9 years or so. That means a 2-3% housing loan can be 200%-400% interest for those early years. The reason lenders do this is because the average stay in a home is 8-9 years. Banks know you will just go out and make the same mistake again. (HINT: Only the bank wins in this scenario)
- Not saving at least 20% of your income: When you research how much you must save to be able to retire at age 65, the average American used to have to save 10% of their income. That has changed and is now 14%. Unlike the average American, the spending habits and history of many dentists far out-strip their ability to save. This behavior will not magically disappear later in your careers unless you begin today to conservatively and consistently pay off debt and save money.
- Ignoring your investments: Too many people mindlessly save a little and fail to even watch that small amount. Financial life is saving every pay period, investing in a wider range of investments, with a conservative hunger for success. Dentists will put this off until they are in their 50’s and then start swinging for the fences to attempt to catch up. Sorry, it doesn’t work that way. Start early and if you save it and don’t spend it, it will be there when you need it later in life.
- Don’t marry if you can’t stay married: Denial is not a river in Egypt. Doctors tend to successfully end an average of two marriages in their lives. Pretty poor batting average when you consider how poor a wealth building strategy giving up 50% of your savings 2-3 times in your life is.
- Not asking for and not paying for advice from the best coaches and planners there are: This is an investment that pays huge dividends and keeps everyone on course. Always use a financial advisor that charges a fee and does not make money on products they recommend.
- Not having goals: Where do you want to be in 10 years, financially speaking? How about 20 years? If you do not have a goal, you’ll have a hard time coming up with a savings plan. That means your money will be flying out the door for expenses instead of quietly making you millions of dollars in maturing investments. If you set reasonable goals, and have a plan to meet them, you can accomplish amazing things.
This is the beginning of financial freedom and lack of stress. This is how you Summit.
Michael Abernathy, DDS
PS. I have been fortunate to meet and become friends with Dr. Ace Goerig, an Endodontist in Olympia, Washington. He is a walking encyclopedia of debt reduction and wealth building. He has even set up a web site at http://www.doctorace.com that can literally walk you through the entire process of debt reduction and habit reversal that puts you on the road to be debt free within 6-8 years. He has done this with his staff and with every dentist he has had the opportunity to talk to. I encourage you to go to his web site and start your financial life over.