By: Dr. James Pitts
As a practicing Dentist, your career will last around 30-35 years on average. During this time an average Dental Practice will have about $30,000,000 pass through collections.
One would think that this would be enough for all Dentists to retire Financially Independent and debt free. However, ADA statistics tell us that less than 10% of Dentists can afford to retire at age 60 and stay at the same standard of living.
Why does this happen?
Certainly, most practices produced and collected enough money. The problem lies in a lack of systems and strategies to capture the revenue when it’s made.
5 Secrets to Building Wealth in Dentistry
Let’s look at 5 secrets that a Dentist can use to help build wealth and retire Financially Secure.
Secret #1
Pay yourself first.
I could write a whole book on the importance of this strategy. Most Dentists pay themselves a small salary to keep payroll taxes low and take corporate distributions from the profit of the practice. The trouble is there is not much left over after all bills are paid.
If, however, you pay yourself enough in salary to not only take care of your present personal expenses, but also save enough for your future needs, you ensure all your retirement accounts are fully funded. By paying yourself first, you make sure you save the correct amount for Financial Independence.
Every other bill gets paid afterwards. It’s amazing how this works.
Secret #2
Save both pre-tax and after-tax money for your future needs.
Most Dentists save pre-tax through their office retirement accounts. However, they don’t generally save enough after-tax money. This is because they don’t understand the importance.
Saving pre-tax money gives you a tax break now. This is helpful while you are in the high earning years. The money grows tax deferred for years. However, when you pull the money out in retirement, it is 100% taxable. With the money you save after-tax, you only pay tax on the interest, dividends, or capital gains on sale.
Typically, every year you pay a little tax depending on the performance of your investments. By doing so you have a very tax efficient account to draw from early on your retirement.
Secret #3
Put all your saving and investing on automatic.
Create an Automatic Investment Plan to monthly fund your accounts. By doing so you are dollar cost averaging into the market.
In the months when the market is down, you buy more shares of your chosen investments. When the market is up, you are buying less. This is being smart as an investor without even trying. You can never time the market. This is an impossible task. The important strategy is time in the market.
Secret #4
Work with a team of Professionals to help you reach your goals.
Most Dentists are very good at Clinical Dentistry. They go to 8 years of college. Most take a lot of clinical continuing education to be the best they can. None of us are great at everything. Find a great team of Professionals to help you achieve your financial and business objectives.
Who should be on your team?
- A great Financial Advisor who knows and understands Dentistry. He can help you plan, save and invest for success. The best Financial Advisors will help to increase your performance and guide your decisions at the proper times.
- A Dental CPA. This person will help reduce the drag of taxes and help to keep you legal and complainant.
- A Practice Management Consultant. When you grow the top line revenue of a practice, it makes it easier to save for the future. Work with a firm that knows Dentistry.
- An attorney to help with contracts, legal questions and estate planning needs.
The very best team has all these professionals talking to each other and all working for your benefit as a practicing Dentist.
Secret #5
Don’t worry about the wrong things.
Most Dentists will spend a lot of time and energy worrying about things that they either can’t control or don’t matter at all.
Here are some (not all) of the things that we worry about that we shouldn’t.
1. The economy and the market
We have no control of our country’s economy or the direction of the market. Concentrate on your own economy, your Dental Practice. Implement the strategies that will improve your practice and make it more profitable. Work with your Advisor and save and invest regularly. Over time, your results will be much better.
2. The price of Dental supplies, labor costs and investment costs.
You can’t control the prices of goods. Work with a good supply rep who can help you daily and in a pinch. There will come a time when your compressor or vacuum goes out. You need someone you can call and have them there that day.
Your Financial Advisor should save you a tremendous amount of money by keeping you from making emotional decisions about your investments. He should help you make a Financial Plan which you stick with. This keeps you focused on your long-term goals and not any short-term noise. Statistics show Dentists that work with a Financial Advisor do 3-4% better in performance on average. Stop listening to the news, it’s usually negative and has no real value.
3. Keeping too much in cash in savings.
While it’s prudent to keep some cash in reserve for unseen circumstances, most Dentists hoard way too much in cash. It sits in a business savings account earning next to nothing. Some of this cash could be better invested. Even a money market type of account earns more than a savings account. Large businesses manage their cash this way. They always have their money working hard for them.
4. Worrying about when to buy an investment or which one is the next tech magnet.
Successful long-term investing is not about timing the market or picking the next big stock. Investing with a carefully thought-out plan based on the Dentist’s goals, objectives and timeline is always best. Set the plan on automatic and adjust periodically.
In Conclusion
These are only 5 of many secrets to building wealth for Dentists, but they will help you to get started on your financial journey.
Photo by Photo By: Kaboompics.com
