February 19, 2024

3 Most Common Financial Mistakes Dentists Make

By Taylor Richardson, CRPS®, AIF, Financial Advisor

Are you making these mistakes? Learn about three common mistakes dentists make that can be a drain on both their wealth and job satisfaction.

In my years working as a financial advisor to dentists, I’ve talked with more dentists than I can count who were surprised to discover they weren’t as well off financially as they thought. Although they earned good incomes, it masked the reality that their net worth wasn’t where it should be to meet their retirement goals. These are never fun conversations, and I feel for dentists who have worked hard for years, only to learn that some of their choices have set them back financially.

In the hopes that I never have to have one of these tough conversations again, I’m sharing the three most common mistakes I see dentists making.

Mistake #1 – Mismanaged Debt

It’s no secret that to become a dentist with your own practice, you need to take on a lot of debt. Debt by itself is not a problem, given the high-income potential of running your own practice. What is a problem is poorly managed debt.

There are several categories of debt dentists have to deal with, the first being student loans. As of 2022, the average dental school grad owed $293,900 in student loans. How that debt is managed can impact your long-term financial position. For instance, paying off student loans too quickly could reduce your ability to accumulate cash, which will limit or delay your ability to purchase a practice. While paying off student loans too quickly can hurt you, not paying them off quickly enough can also be a problem.

A home mortgage is another type of debt that can get dentists in trouble if they try to buy a house that’s above what they can currently afford, if they use too much cash for a down payment, or try to pay off the mortgage too soon. Just because a bank will give you the money to buy your dream home, doesn’t mean you should do it. Lenders will qualify dentists for a large mortgage based on their future earnings, even if it isn’t in the dentist’s best interests to do so.

Managing debt is dynamic and dentists should have a financial professional in their corner who understands the dental industry and can help them make good financial decisions.

Mistake #2 – Not Considering Opportunity Costs

Some dentists try to do everything themselves to avoid the cost of hiring a professional, without considering the opportunity costs of their decision. For example, a dentist who is shopping for a dental practice may try to economize by not paying for a practice acquisition valuation. The dentist may have saved a few thousand dollars in the short term, but if they end up overpaying for a practice by $100,000 or more, they’ve hurt themselves financially in the long run.

I’ve also talked to dentists who tried to save money by having a family member who was an accountant or CPA do their taxes. Maybe they got a deal on their tax returns, but they lost the knowledge and insights a dental-specific CPA provides. There are significant advantages to working with a financial professional who can map out the best way to reduce taxes while saving for retirement and can offer practical advice about the most efficient way to run a dental practice.

Mistake #3 – Not Prioritizing the Work You Enjoy

In addition to the long-term financial benefits, a major advantage to owning a practice is that you’re the boss, so you can decide how things are done. That includes handing off work you don’t enjoy to someone else, so you can focus on doing the work you do like. If you want to wear the hat of a visionary and have lots of ideas for how to grow the practice, by all means, make yourself the chief marketing officer. If managing human resources appeals to you – then do it. I have clients who really enjoy managing their investments and we just provide strategy for them. It’s fun for them and they still benefit from our expertise.

My advice is to be selective and don’t try to do it all. Your top priority should always be dentistry. When you build a career around the things you like to do, everything is better, starting with your job satisfaction. By hiring professionals to do the work you don’t really enjoy – and probably aren’t qualified to do – your business will be better run and more profitable.

If you have questions about how to run a successful practice and have a more satisfying career, schedule a call with our team at Engage Wealth Advisors. We help dentists make smart financial decisions so they can build wealth and enjoy life.