Do-it-Yourself Finance,
Part II: Cash Flow by Douglas Carlsen, DDS


Dr. Bill and his wife, Jennifer, are on a roll. Quicken pays family bills automatically and Jennifer has arranged her four stacks: Bills to be Paid, To-Do/Read, File, and Shred in the extra bedroom. She purchased two filing cabinets, one for the current year and the other for more permanent files. A safe deposit box is at her local bank.

This month, we evaluate cash flow. Quicken and Mint will accurately track your cash flow, yet for those without software or who need a quick estimate, there is a cash flow estimator worksheet on the following page.

Bill and Jennifer's Expense Items

Black numbers are average for dentists; red numbers indicate items where Bill and Jennifer spend more. Averages for dentists for red items are listed in the item column.1

Dr. Bill's total family income is $300,000. Family taxes average 35 percent with Bill deducting $11,500 from his business' simple IRA. The $11,500 deduction does not show up in the cash flow sheet, as it is included on Bill's net income line.

Bill and Jennifer would like to put more than $11,500 into savings, yet their worksheet indicates they have only $2,000 left after all expenses.

Take time to fill in your own worksheet. Use the averages listed and tweak to what you feel you spend in a year. If you have software, use the actual amounts for 2013.

Here are critical areas of spending that cause the most financial stress:

Clothing: I've known some dental families to spend more than $50,000 per year with multiple unopened boxes in closets while others spend less than $2,000 per year for a household of five. Dr. Bill's family spends $12,000 a year - much more than they realized before this exercise. Jennifer is the main culprit and will budget at $6,000 for 2013.

Entertainment: Dr. Bill's family spends $25,000 on dining out, theater season tickets, professional football season tickets and their favorite country western singers. The average dentist spends about $12,000. Jennifer and Bill will cut back on dining out, cancel the theater and football season tickets, and see one or two concerts a year, saving a whopping $13,000 per year.

Home Maintenance and Improvements: Please stage upgrades, and pay with cash. This is by far the most extravagant area of dentist spending. Budget one to two percent of your home's value per year. For most of us, that's $5,000 to $15,000 per year. Sure, a new $80,000 kitchen is great, yet it will severely curtail one's ability to save for retirement and college. "But I'll get most of it back when I sell the house" is a common retort. Please don't fall into that trap, as dentists rarely downsize.

Bill and Jennifer have a large home and pay $20,000 per year for all maintenance and improvements, yet can cut back by $5,000 per year as all systems are in great working order.

Vacations: Dr. Bill's family always spends a long winter weekend in Vail and a summer week in Carlsbad, California. These two vacations alone cost more than $14,000 for upscale rooms at peak seasons. The family spends another $6,000 per year for weekend jaunts. Jennifer was horrified to see that the family pays $20,000 for about 16 days of vacation per year. Jennifer will move the Carlsbad and Vail vacations to less expensive weeks in 2013, saving $6,000 per year.

In all, Jennifer has found $30,000 savings in the listed four categories. An additional $30,000 in yearly retirement deposits over the next 20 years (Bill and Jennifer are 40) with conservative investing (3.5 percent real growth) will provide an additional $875,000 in 2013 dollars.

How does your cash flow stack up?

References
  1. Expense averages taken from dentist interviews and 2011 USA Bureau of Labor Statistics, Table 2301: Higher income before taxes. Downloaded at http://www.bls.gov/cex.


Author's Bio
Dr. Douglas Carlsen has delivered independent financial education to dentists since retiring from his practice in 2004 at age 53. For Dentists' Financial Newsletter, visit www.golichcarlsen.com and find the "newsletter" button at the bottom of the home page.

Additional Carlsen Dentaltown articles are at: www.dentaltown.com. Search "Carlsen." Videos available at: www.youtube.com/user/DrDougCarlsen. Contact Dr. Carlsen at drcarlsen@gmail.com or 760-535-1621.
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