Mike McAninch is a Practice Integration Advisor with Buckingham Strategic Wealth, where he specializes in helping dentists connect their money and their values to realize their most important financial goals.
Over the coming weeks, my colleagues and I are going to tackle 10 simple strategies dentists can use to accumulate, manage and protect wealth over time. As the name of our blog implies, this isn’t something taught in dental schools. That’s unfortunate, because a framework for making holistic financial decisions and a comprehensive plan that orchestrates various systems for achieving your financial goals not only can offer financial peace of mind, but prevents dentists, as high income earners, from being misled by conflicted or myopic financial product and service providers. To that end, the following are the 10 strategies we’ll cover.
Wealth Creation Strategies for Dentists
- Pay yourself first.
- Always know where your money should go.
- Always know where your money does go.
- Properly align financial priorities: needs, wants and savings.
- Properly align loans with your debt payment ratio.
- Design the best pension strategy for your cash flow.
- Make peace with how much you can afford to spend.
- Manage risk through proper insurance coverage.
- Establish an estate plan aligned with your objectives.
- Take a comprehensive approach to investing.
We’ll start today with paying yourself first, early and in the right way.
Pay Yourself First
I’m a big fan of Stephen Covey’s book, “The 7 Habits of Highly Effective People.” In it, he describes the four quadrants of time management in which we all live.
Practicing dentists also live in these four distinct quadrants:
- Quadrant 1: Urgent and Important. An example of a task in this quadrant might be treating a patient with a medical emergency.
- Quadrant 2: Not Urgent and Important. Efficiently managing patient treatment via block-scheduling techniques may fall into this category.
- Quadrant 3: Urgent and Not Important. For instance, delaying treatment of a waiting patient to check a recent text message (or two).
- Quadrant 4: Not Urgent and Not Important. Checking old emails and surfing the internet at work could most definitely be put here.
Dr. Covey argues that living in quadrant two is the key to personal and professional success because it creates time for us to plan while avoiding living in the other three quadrants. I can’t imagine that living from crisis to crisis, able only to focus on the next most pressing priority, is any more fun for a dentist than it is for a wealth advisor. And no one can get back wasted time.
Our financial lives, unsurprisingly, can also occupy these four quadrants:
- Quadrant 1: Urgent and Important. Spending or borrowing the funds to repair your practice’s leaking roof certainly qualifies.
- Quadrant 2: Not Urgent and Important. Planning and saving for long-term goals, such as a child’s college education or your retirement fund, would belong squarely in this quadrant.
- Quadrant 3: Urgent and Not Important. Upgrading from an iPhone 6s to an iPhone 7 (my own personal weakness is having the latest technology) might be classified here.
- Quadrant 4: Not Urgent and Not Important. Subscribing to the “Wine of the Month Club” could go into this category.
If you are like me, you face so many personal spending demands that you only save if you have anything left over at the end of the month. Funny how the months pass by where no money is left over!
Further, it seems most of my spending is of the “urgent” type, and these demands cause great stress in my life when compared to the relatively little pressure I feel when it comes to saving for my retirement.
But the most successful people I know (dentists and non-dentists alike) pay themselves first by regularly and automatically contributing to their tax-deferred retirement savings account. Only when they’ve first met that obligation do they focus on their other needs and goals. In this way, these folks live, financially, in quadrant two, accomplishing important but longer-term tasks that haven’t yet become urgent and a source of anxiety. And by starting early, investing pre-tax savings in a diversified portfolio where they can grow over decades, they’re also confident that they are on track to a comfortable retirement.