By Jared Thompson
Implement these five techniques to help build your financial future
What will be the hot sector to invest in this year? How much do you have to squirrel away each month to be a multi-millionaire at 65? Should you buy or lease that Mercedes-Benz AMG? Appropriate enough questions, to be sure, but a market, timing or buying strategy will never displace the value and importance of implementing the five fundamental techniques that follow.
This year, instead of burdening yourself with big resolutions with small results, focus on the following five core principles from the PersonalCFO financial philosophy:
No. 1: Give before you receive
It is vital to give back generously to church, charity, or the community before accepting any of our earnings.
We are where we are today because of the generosity of other’s time, talents and resources and we need to keep this cycle going. Dental professionals are some of the highest paid individuals in the country, and giving back is a great way to show gratitude.
In return, these professionals have found the rewards to be numerous. How much should you give back? Many give as much or even more than 10 percent of their earnings. Start with a number that feels right for you and increase it over time.
No. 2: Pay yourself first
After giving back a portion of your earnings, the next step is paying yourself before paying anyone or anything else.
How does this work for dentists dealing with today’s realities? It’s easy.
Before paying your lab bill, student loans, mortgage or rent, or even the utility bills – before any bill is paid – put away 10 percent and place it out of easy reach. This becomes the foundation of your savings and your security – the very building blocks of a more customized future accumulation plan.
All too often, when a typical professional takes a draw or receives a paycheck, they have a tendency to pay everyone else first and then save the leftovers. Rarely are the leftovers enough when they make payments in this order.
The dental industry is very entrepreneurial, and entrepreneurs know how to help others and receive handsome compensation for using their skills. Dentist entrepreneurs should also know how to pay themselves.
So this year, upon receiving a draw or paycheck, immediately send a minimum of 10 percent to an institution separate from your bank or credit union.
These types of accounts should be properly chosen to potentially achieve higher rates of interest than the paltry checking and savings accounts in today’s banking climate. Work toward a liquid balance that provides 6 to 12 months of basic living expenses, then expand from there.
With an automated, guided plan of paying yourselves first, you can experience a sense of confidence and security as you envision the financial future you’re creating.
No. 3: Spend less than you earn
Come on, doesn’t everybody know this? Sure.
But who has a reasonable plan to make it work?
Many dental professionals live paycheck to paycheck. Their money is already “spent” before the income even hits their accounts. It’s unfortunate and it creates a lifestyle of stress that dentists don’t deserve.
Perhaps the habits which created those financial results started in school when spending borrowed student loan money wasn’t kept in check. Perhaps the high loan balances and leverage a bank was willing to provide after graduation quickly spiraled out of control. Regardless of the reasons for the habits of overspending, many dentists find themselves overwhelmed without a clear path to the simple axiom of “spending less than we earn.”
Balancing spending habits often changes only after a painful financial loss. Sometimes it even takes bankruptcy or the loss of years of well-intentioned financial efforts. Don’t let this happen! Our clients allow us to intervene early, being a voice of reason and an arbiter between poor habits and proper preparation for the future.
The order in which you spend money is critical. This is why you should save first and spend what’s left over.
If spending first, rarely will there be any money to put away for a rainy day, opportunities or retirement. It’s possible to see monthly savings contributions double or even triple after a simple analysis and strategic fund redirection.
No. 4: Have an asset fortress blueprint™
Strong fortresses are built one stone at a time. Their strength was the result of a firm foundation and the proper layering of materials, providing protection for thousands of people, standing for generations. But before the stones were touched, each fortress started with a plan; a blueprint.
A financial fortress must also start with a blueprint in order to provide for the people and things most important.
Whether a young associate just starting out or a senior partner nearing retirement, having a blueprint that incorporates the tools and techniques to help reach our stated value-based financial goals is critical to success.
First, the foundation of your asset fortress should be built with risk management tools like disability insurance, effective life insurance, and critical practice coverage. Building on top of that layer, longstanding asset fortresses will blend emergency funds and opportunity funds.
One of our clients asked us to help create a plan for his children’s educations, pay off his schooling and practice debts, limit his taxation, protect his assets, and still accumulate enough for retirement. A complicated web of goals like this required careful building and careful implementation. It would require a blueprint for a fortress that would protect and provide for his loved ones.
While circumstances are ever-changing, having a blueprint for the proper asset fortress, customized to the needs of the things most important to us, allows for weathering the financial attacks we’ll face.
No. 5: Use those credit cards wisely
Ah, but it’s not as simple as most would have us believe!
We always ask our potential and veteran members about their spending habits. Inevitably, the topic of credit cards works itself into the conversation. As I ask about plastic using habits the given responses are stunningly consistent:
“Oh, we just use them for the points (insert sky miles or cash back or hotel rooms) and (they say with a twinkle in their eye) we pay them off in full at the end of each month.” They then sit and wait with a grin simply knowing that I am going to compliment them on their spending savvy.
“Yikes!” is my initial reply.
All too often, point accumulation justifies unhealthy spending amounts. I typically don’t care to know if cards are being paid in full at the end of each month or which points are being earned when clients ask me to help them plan for their financial future.
What I would much rather know is if discretionary spending is consistently in check.
In other words, it matters very little how you use your credit cards this year. What matters most is how much.
Typically, dentist clients don’t pass this litmus test in our first year together. Credit card companies enamor with bonuses. Ever feel the urge that you must reach that next elite status level? It sounds like such a justifiable reason to spend more this month – but don’t fall for their tricks!
The majority of our clients slip and inadvertently shift their high incomes into high spending with justification being tied to credit card points and the ability to pay off month-end balances. The bitter reality is that the majority of their paychecks move directly toward the credit card company.
Even though you may qualify for a $15,000 credit limit and acquire enough points to “earn” a free flight – instead call the credit card company and ask them to reduce your credit limit. It may take a little time, but these new levels will help create a plan to keep spending in check. Many of our clients arrive at a monthly limit between $1,500 and $3,500.
Knowing there is a spending limit and that transactions won’t process or overage fees will be charged is a great overspending deterrent. Point earning debit cards and credit cards with “recharging” or “replenishing” features also work well.
Thrive in 2014
Every year thousands of dental professionals set and reset resolutions, but this year we fully expect to see more dentists thrive in their personal financial goals. While high net income can lead to a high net worth, it must accompany the right long-term strategy.
Jared Thompson is Founder of PersonalCFO, a firm working exclusively with dentists, helping them achieve the high net-worth they desire. You can find out more about their core principles and hands-on workshops at DoctorsPersonalCFO.com, or email [email protected]
Securities Offered Through ValMark Securities, Inc. Member FINRA, SIPC • Investment Advisory Services Offered Through ValMark Advisers, Inc. a SEC Registered Investment Advisor • 130 Springside Drive; Suite 300 Akron, OH 44333-2431 • 1-800-765-5201 • PersonalCFO is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.