What three habits do financially successful dentists always have? This article will examine that question in a way that can transform you. Beyond the three habits, every financially successful dentist displays a distinguishing trait underlying the habits that I have identified as “consciousness.” To me, consciousness is about aligning all the financial moving parts — production, overhead, debt, taxes, family spending, and saving — efficiently to produce wealth. “Unconscious” dentists don’t have this trait of connecting income and spending to bigger life goals, such as retirement.
Habit 1 — Financially successful dentists save 20% of income. Do you define financial success by the amount of your income or the amount of your savings? Most dentists define success by achieving an annual production goal. Having a goal of saving 20% of income forces an alignment of overhead, debt, taxes, and spending every year so that the dentist can truly pay himself first and avoid the Breakeven Syndrome, which is “No matter how much I earn, there is nothing left over to save.” Every year there will be a “consciousness” reality check. One year it may be a needed expenditure for remodeling. The next year it may be college tuition or paying for a wedding. The key is not to allow these occurrences to prevent savings.
Habit 2 — Financially successful dentists manage financial needs. I love the classification process of needs vs. wants. The problem is defining what a need vs. a want is! Is private school for your children a need or a want? A better way to think about needs is as external obligations, which are only two things: loan payments and taxes. You will not be able to achieve the first habit if all monthly loan payments (excluding the dental office building) exceed 25% of income. This includes all monthly loan payments, practice and personal. Likewise, all tax payments — federal, Social Security, and state income taxes — should not exceed 25% of income. This means that loan payments and taxes, or needs, should be 50% or less of your income.
Habit 3 — Financially successful dentists manage financial wants. Wants are only two things: lifestyle spending and large purchases. A large purchase is a discretionary expenditure of more than $3,000 and can include college tuition, for instance. Wants should be no more than 30% of income in total and include both lifestyle spending and large purchases.
Well, there you have it — the three habits of financially successful dentists. It’s simply about a conscious alignment of needs, wants, and savings. A lifetime of good habits leads to freedom from financial worries.
By Brian Hufford, CPA, CFP®