Financial planning for dentistsThe day is finally here: you did your undergraduate degree, dental school and board exams, and then you graduate with your degree and license. You are excited to finally enter the professional world and help patients and yes, finally, make a living!

Then, as you finish up school and start looking at making a lot of decisions, you realize one of them is how to pay some bills and pay your debt down.

That’s less exciting.

Unfortunately, today’s dental school graduates leave school with an average of almost $250,000 in debt. If we add buying a new practice, or doing a buy in or start-up practice, then the numbers can really soar to astronomical heights.

This is all before we even have a home to live in, car to drive, etc., which adds to the overall debt.

With that being said, and before you even start practice, the struggle begins early on in our careers to manage our finances: pay our staffs, make our loan payments and cover all of the overhead expenses. Maybe, just maybe, we might have some funds left over for ourselves. What about a retirement plan, buying a home, starting a family?

Does this sound familiar? 

Financial advice you don't learn in dental school

I graduated more than 15 years ago and, yes, I graduated with debt. Although it was less than the amount current graduates usually owe, it was a lot at that time and a huge burden. It was something that I had to learn to manage quickly. 

One of the most important things that I learned early on – not in dental school – was the importance of having a “team” to help you outside of dentistry (CPA, attorney, financial advisor, banker). This team is meant to help you define and reach your financial goals. Without a plan in place, you have no idea of how to manage your finances successfully. Worse, you may not know what is best for you now and for your future. If you don’t have a team to help you with making all of these decisions, then you need it now and not later. 

Dentists must set financial goals

Early on in our careers right after we graduate, we are now faced with taking on and paying down a lot of debt, but also paying all of our bills and then paying ourselves.  A key goal in being financially successful is this simple principal:

Live on less than what you make! 

This is where having your team in place can help you manage and develop this goal. They can help you to have some funds left over after everything else is paid. Then we have to decide what to do with it: pay down more debt or put it into a retirement fund? 

So, what do you do? Debt is such an emotionally charged subject that everyone would love to get rid of, but does it make sense? On the flip side, you want to retire at some point, right?

I learned early on to pay myself first. Why? It’s called the power of compound interest. The Rule of “72.” If you haven’t heard of it, then it is a very simple rule: You take your average rate of return on an investment and divide 72 by it. This will tell you how long it takes for your money to double based on that return. Here’s an example:

With an 8 percent return, the math would look like, 72/8 = 9 years. 

In the above example, every nine years your money doubles and, hence, the importance how time can make a huge difference in your retirement fund. Here’s another example:

If you put in $10,000 per year into a fund at 8 percent interest compounded yearly, then in 30 years you will have over $1.2 million in your fund.

Now, start just 10 years later you will have only around $500,000. That’s $700,000 difference. Even delaying your retirement funding by five years with the same numbers leaves you with $784,000, almost $500,000 less in your fund. 

If you don’t have your other team together and haven’t looked at paying yourself first via a retirement fund, then you need to start today.

Do you have your own advice or insights into helping dentists with their finances? Sound off in the comments below.

Jeff Lineberry, DDS, FAGD, Visiting Faculty and Contributing Author

(Like this article? Check out more articles by Dr. Jeff Lineberry.)

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