By Taylor Richardson, CRPS®, AIF, Financial Advisor
The purpose of investing is to build wealth. In our work with dentists, we take a holistic approach that challenges clients to be strategic and intentional in pursuing goals that matter to them. Here are the investment principles that guide our process.
1 – Have a Vision that Inspires You
To achieve financial success, it helps to have a goal worth working for – one that inspires and motivates you, which can help when you need to make disciplined choices. Ask yourself – what is your vision and what are you planning for? We all have different answers. If your vision relates to retirement, it could mean having the option to stop working by age 50, or practicing for as long as you like, but with a more flexible, work-optional approach. There is no right or wrong vision. But having a goal that energizes you – even if it changes over time – will help you stay on track and keep you moving in the right direction.
2 – Know Where Your Money is Going
Too often, we have no idea where our money is going – we just know it’s gone. This is a problem because the way we spend our money should reflect our values and what’s important to us. By creating a budget and following it, we can regain control. A budget helps you make choices that align with your long-term vision and allows you to be intentional about spending in ways that increase your individual happiness.
3 – Start Early
Most dentists in their 20s and 30s are just beginning their careers, not worrying about retirement, which can seem pretty far off. If this sounds like you, then don’t think about saving to retire, but as wealth accumulation. Starting early makes it much easier to build wealth because you have time on your side. Even if you’re paying off student loans, by saving and investing a modest amount, you harness the power of compound interest, which allows a sum of money to grow exponentially due to interest building on itself over time. Compound interest super-charges your savings and the earlier you begin, the bigger the benefit.
4 – Manage Your Debt
Dentists have one of the highest debt-to-income ratios of any profession, but debt isn’t really the problem. What matters is how you manage debt. For student debt, that means consolidating loans and taking advantage of the federal government’s income-based repayment programs. If you want to buy a practice, don’t rush to pay off student loans. Banks are more interested in your liquidity, so you’re better off prioritizing savings over loan repayments. You also need to distinguish between debt that has the potential to increase your income and borrowing money for the purpose of consumption. The distinction isn’t always obvious because we all have different values and ideas about what makes life worth living. The key is to make intentional choices.
5 – Protect Your Income
Dentistry is a physically challenging profession, so it’s no surprise that one in four dentists is likely to become disabled for up to a year before reaching the age of retirement. With odds like that, it’s crucial to have a plan in place that will protect your income should you find yourself unable to work due to a disability, whether temporary or permanent. If you have student loan debt, you need life insurance to protect your family from being saddled with that burden. The ultimate goal is to be able to self-insure, but until you reach that wealth threshold, it’s important to protect yourself and your family by having the appropriate amount of coverage.
6 – Increase Your Income
Dentists have a variety of options open to them that can significantly increase their income, such as becoming certified on new procedures, or buying a dental practice. Your path will depend on the kind of career you want to pursue and the amount of wealth you need to achieve your vision. Working with a dental specific financial advisor and CPA firm can help you implement a plan that fits with your goals.
If you have questions about how to establish a financially healthy practice and build long-term wealth schedule a call with our team at Engage Wealth Advisors. We can help you develop a plan that’s strategic, intentional and aligns your approach to money with your values.