Generally speaking, even the most comprehensive dental school programs lack sufficient education on financial planning. In fact, they can even be detrimental to this end, as dental students often get discounts on tools and materials which can lead to a skewed perspective of actual operating costs. This can leave young dentists woefully unprepared for the harsh financial realities of the real world. What’s worse, the financial decisions made by young dentists can have the most significant impact on their lives moving forward.
One such lesson many dentists learn later than they should is to pay themselves first. Bill Schu of Dentist’s Money Digest refers to this concept as The Golden Rule of Saving. He finds that all too often, dentists look at investing and saving money as a luxury that’s nice but not completely necessary. He attributes this to the immediate urgency of things like mortgage and credit card payments or auto loans, and he warns “Your retirement day is closer today than it was yesterday, and it will be even closer tomorrow. Whether you plan to work as a dentist for another 5 years, 10 years, or 40 years, the simple truth is that the day is coming when you will want to retire. What will you have when you reach that day?”
Dentists should avoid depending on leftover funds (those remaining after bills and day-to-day expenses) to invest in themselves and their futures. They should also be wary of “lifestyle creep” – the common pattern of spending more money as one makes more money. In these cases, the number of leftover funds may not increase proportionally. Instead, practice owners should assign as much urgency to retirement and future planning as they do to existing bills and payments. This means putting aside funds and investments for retirement should come first. This can be achieved easily by diverting a portion of every paycheck into a personal savings account, retirement plan, or tax-deferred retirement savings account, to ensure that one’s present and future selves are accounted for without having to put in much thought.
Some dentists may worry that paying themselves first is easier said than done, nice in theory but difficult in practice. They have bills and payroll and mortgages that they need to pay now. Luckily, there are some easy steps they can take to help increase revenue and free up the funds they need for future planning. Outsourcing virtual billing can help increase profitability by decreasing write-offs, boosting in-network fee schedules and improving treatment acceptance rates. It can also help with collections by addressing them quickly and consistently, and adhering to state and federal regulations.
Schu offers another warning to dentists: avoid relying on selling the practice as a cornerstone of a retirement plan. He notes, “Many factors will be at play when the time comes for that sale, including the supply of dentists in your area, the success of those practices, local demographic changes such as the departure of a previously big employer or industry in the area, overall property values, local property and business taxes, and many more.”
Dentists should never be lackadaisical about their futures. It may not seem urgent now, but one day it will be.