By Brian Hufford, CPA, CFP®You may hate dealing with numbers or financial matters, but to be a successful dentist, you must make peace with achieving financial outcomes by addressing these seven habits in a manner that fits your tolerance level. I think the key for dentists is getting others to do the work, with the least cost possible, while accepting the leadership role.1. Financially unsuccessful dentists don’t know where all their money goes. Were you able to save 20% of your income last year? If not, where did your money go? Each month, it is important to know where all your money goes. For your practice, this means financial statements on a “cash basis” with major categories for overhead to compare to ideal percentages: staff, lab, supplies, facility, promotion, equipment purchases, and debt payments. For home expenses merely pay yourself a flat monthly salary, rather than having to track a budget.2. Financially unsuccessful dentists don’t know where all their money should go. Even if you can track where your money goes, without having a plan for where your money should go, you are lost. Needs, wants, and savings must be properly aligned. From practice cash flow, savings should be 20%, debt payments should be 25%, taxes should be 25%, and lifestyle spending and large purchases should be 30%. Which of these is out of alignment for your cash flow?3. Financially unsuccessful dentists don’t have a retirement accumulation goal. Five retirement variables must be planned and managed: retirement income needed, savings needed, investment return assumption, risk assumption, and retirement date. These five variables must be led and owned by the dentist. 4. Financially unsuccessful dentists don’t have an annual savings goal. You should be saving 20% of your income. This number will be adjusted only if larger to incorporate the amount needed for college savings and retirement savings. Achieving this annual savings goal is really the ultimate measure of whether you have financially successful habits.5. Financially unsuccessful dentists make large financial decisions with gut instinct.All large financial decisions — building an office, buying a practice, large equipment expenditures, purchasing a home, etc. — should be made in the context of how other goals, such as saving 20% of income, will be affected. Financially unsuccessful tendencies would forgo saving in a year because of an unexpected tax bill, for instance. Savings should not be negotiable. Planning and managing is the key.6. Financially unsuccessful dentists don’t manage debt properly. Dentistry is very capital-intensive. It is not only important to get the lowest interest rate possible, but it is important to have a plan to manage overall debt payments so that savings can happen. Try this exercise: Write down the amount owed on all of your debts, practice and personal. Also write down the monthly payments. Divide the total monthly payments by the total amount owed. If this factor exceeds 1%, your debt is not properly managed and you won’t be able to save sufficiently.7. Financially unsuccessful dentists don’t protect their families with the right kinds and amounts of insurance.I cannot tell you the number of tragedies that have been averted simply due to the discipline used in having the correct amounts and types of insurance in place — life, disability, overhead, and umbrella liability.In summary, the seven habits of financially unsuccessful dentists should be a warning to you about areas in your life that need attention. Make the new, good habits as hassle-free as possible to make sure they last a lifetime.Author bioBrian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. Contact Mr. Hufford at (888) 470- 3064, or e-mail [email protected].
