Owning a practice doesn’t have to be one of them
Key Takeaways
- Learn the basic strategies and concepts around money, debt and savings.
- Define short-term goals that will help you achieve your long-term goals.
- Understand your financial plan will evolve over time as your priorities and goals change.
Dentistry is a rewarding profession. From the beautiful smiles to the healthy oral habits dentists instill in patients, there’s a lot to feel good about at the end of the day. For most dentists, there’s also a lot to feel good about at the end of the month, too.
A lucrative career does, however, bring its challenges. Having a personal financial plan is key to reaching your short- and long-term goals.
Owner dentists are naturally more apt to have a financial plan in place through their exposure to CPAs and planners helping guide the business. Associate, DSO and contract dentists, on the other hand, may have yet to wade into the personal planning waters.
The good news is that you don’t have to own a practice to reap the benefits of personal planning.
“With the rise of DSOs over the last 10 years, we’ve seen more and more dentists working as non-business owners,” says Dan Wicker, CPA and Partner at CWA. “We’ve also seen more associates choosing to stay as associates longer before transitioning into ownership.”
For Dan, it’s critical that non-owning dentists not only start planning early, but they do it with a planner who understands the dental industry.
“With dentistry, it’s not just personal planning, it’s dental personal planning,” says Dan. “Starting with a proper personal plan that considers this unique career puts clients in a better position to implement ownership decisions down the road.”
According to Dan, a successful financial plan comes down to three things: education, goal-setting, and execution.
“Most people doing financial planning on their own start with execution,” says Dan. “They don’t educate themselves on the right areas to focus on. They don’t set goals and revisit them. They just start, and in a unique industry like dentistry, that may not be the best path.”
EDUCATION
For all the wonderful things we learn in college and dental school, one area that’s lacking is teaching students how to manage money. With dentists often starting their careers with $300,000 or $400,000 in student loans, one of the first questions Dan often gets is simply … where do I start?
“They’re asking, ‘Should I budget this to pay down that? Should I be saving here or paying down this loan there?’” says Dan. “As they gain experience, the questions shift to ‘Should I go with a Roth IRA? Should I save after tax so I have more liquidity for buying a practice in the future?’”
Dan looks at the education part of financial planning as a little like financial coaching. Good planners start by teaching the basic strategies and concepts around money, debt and savings. As the need for more sophisticated concepts presents itself, the more advanced the education becomes.
For example, a person might elect to fully fund a Roth IRA, leaving only 3% for their 401(k) plan. What they missed is that the office is matching 5%, so 2% of that free money is being thrown away.
“Little misses like this start to add up over time,” says Dan. “That’s why education and understanding all the nuances that can go into your personal financial health comes before setting goals.”
DEFINING GOALS
Now it’s time to start thinking about what you want from both a personal standpoint and your career. While long-term goal setting is important, Dan works with his clients to define the short-term goals that will become the path to get there.
“It’s always fun to run long-term projections and say, ‘Here’s how much money you’ll have when you’re 60,’ but what’s equally important is defining where they want to be next year, three years and five from now.”
The likelihood of someone reaching their long-term goals, according to Dan, becomes much higher when they see the tangible results of meeting their short-term goals.
“The reason for that is accountability,” says Dan. “There’s always something that’s going to get in the way of a goal, but having someone holding them accountable to the goals they laid out is critical to meeting them.”
EXECUTION
With both long- and short-term goals in place, it’s time to put the financial plan into action. This is when things like age, financial situation, risk tolerance and retirement horizons come into play. While a personal financial plan will be different for everyone, they should all have one thing in common: change.
“Implementing a financial plan is not a one-time or a once-a-year thing,” says Dan. “Life happens, the economy changes, markets shift. Your personal planner should be actively optimizing the plan along the way.”
During the entire relationship, Dan says the job of a financial planner is to listen first and plan second.
“A person’s priorities and goals will change over time. Those goals may not always be saving the most money. It might be helping them do other things that balance their life.”
Whether you’re just starting out as an associate or a veteran practice owner, a financial plan can be right for anyone on any budget. To learn more, talk to a CWA advisor. We’re always here to help answer any personal finance or business planning questions you may have.
