Elements of a Financial Plan for New Dentists

Let’s walk through the fundamentals of a financial plan for a new dentist

The way you start matters.

When I played football in college as a wide receiver, we would begin every practice by working on our stance and reaction time off the snap. We critiqued the angle of our feet, the height of our heel off the turf, the position of our arms, and distance between our front and back feet.

Our goal was to achieve maximum advantage as soon as the action started. A poor start negatively impacted the outcome of the play, regardless of how fast I tried to recover.

It’s similar starting your career. Big mistakes at the beginning can have lasting consequences.

Let’s walk through the key elements to starting your dental career on the right foot.

A lot of races are won and lost because a sprinter does not react properly to the gun
— Ato Boldon, Olympic Sprinter

Build a Strategy for Student Loan Debt

On average in 2020, dental school graduates graduated with $304,824 in debt so a financial plan must include a strategy for repaying the student loans. The two paths to decide between are:

  1. Repayment. Find a low interest rate and extend repayment term to pay down the loans.

  2. Enroll in income contingent plans. Loans directly with the Department of Education can select from different income-based repayment plans that allow you to lower the payment and potentially achieve forgiveness in the future.

Building and revisiting your student loan repayment strategy can have a long-term impact on your ability to create wealth over time.

Planning for the Big Expenses of Life

Dentistry is a financially rewarding profession and over time, dentists should be able to acquire most things they want. However, the initial big money decisions can have a lasting impact.

Let’s look at an example of buying a new ($90,000) vs. used car ($25,000). If you invested the cost of each car for 40 years at a hypothetical 10% return (10% is for illustration and may not be possible), here are the results:

  • New Car Cost = $3,703,030

  • Used Car = $1,028,618

The $3.7M new car should jump out at you. If you buy a used car, you could have $3M more in your sixty’s.

What would the extra funds go towards in your sixties? Retire early? Kids college? You could buy a new Tesla and have a lot left over.

Creating Strong Cash Flow

Cash flow starts with production. Newer dentists typically need to focus in two areas to improve production:

  1. How is your clinical speed? Newer dentists need to work on their speed to see more patients in a day.

  2. How is your acceptance rate for treatment? Over time, you will get more confident recommending treatments. You can also track your acceptance rate over time to see how different presentation styles affect outcomes.

For expenses, are you practicing or living a “Ritz Carlton” style (i.e., expensive). Starting with lower overhead with give you more breathing room as you build your practice and save money.

Saving the Cash Flow Early

Now that you have money, it is time to save it. Start with an emergency fund to buffer yourself from unexpected expenses. Next, focus on building savings for life’s future expenses like homes, education, and retirement.

Check out our blog on saving.

Protecting Yourself and Your Loved Ones

In your life, you have made commitments to yourself, family, and others. If you unexpectedly lost your income, which account would pay lifestyle and student loan expenses? Therefore, we buy insurance for catastrophic events. A few common types of insurance:

  • Disability. Not all disability policies are the same. Dentists need own occupation disability coverage so if you are unable to work as a dentist, you can perform other jobs and still receive your benefit from dentistry.

  • Life. Life insurance provides loved ones with a tax-free, lump sum payment to replace future income.

  • Property. Homeowners and auto insurance can insure against property loss.

  • Liability. General liability or umbrella coverage can provide protection against lawsuits.

Start with the Right Coaches

A football team staff has coaches for each position on the field. The offensive line coach wouldn’t know how to coach the mechanics of lining up as a wide receiver or field goal kicker. Why would you hire a generalist advisor to help you start?

Your accountant, financial planner, and other advisors should have experience working on the unique challenges of dentistry.

We work with dentists across the country to help them start out on the right foot. You can setup a FREE call with us here to learn more.