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The Trick To Wealth In Dentistry - Part 1
 As a financial
consultant, I have seen financial statements from hundreds of dentists. When
judging success from a purely financial perspective, there is a definite
pattern to what the successful dentists have done versus their unsuccessful
counterparts.
In this two part article, I will share with you my observations and provide you
with some strategies that you can apply in your own practice.
My observations are from my work providing commercial lending and financial
consulting to dentists across the United States, from all specialties, from 1996
until today. All of my clients must expose all of their financial information
and are subject to in-depth analysis of their practice and personal lives.
While there are many ideas and concepts that can be gleaned from the data, I
will write about what I feel are the 20% that comprise 80% of the results.
Wealth Creation Tip # 1 – Live far below your means.
You cannot consume all of your household income and later expect to live
without a household income while maintaining your lifestyle at current levels.
Sounds like something Alan Greenspan would say. In English this means that you
need to save part of your monthly income so you will have a nest egg when you
decide to retire.
You are probably saying something sarcastic about my first observation. Who
doesn’t know that you need to take in more than you spend? Congress doesn’t. The
American people as a whole don’t. They spent more in July 2005 than they
earned according to the Bureau of Economic Analysis of the U.S. Department
of Commerce.
This is amazing to me. We live in the most abundant nation on the planet and our
citizens cannot earn enough money to pay cash for their personal expenditures.
This also implies that saving from current income may be near zero or
negative. Where did people get the money for July’s expenditures? Borrowing
(credits cards, home equity), savings from previous periods (this is a paltry
amount) or by selling investments or other assets.
Dentists, on average, earn more than 95% of all Americans. Real median household
income in 2003 was $43,318. The 80th percentile of household income in 2003 was
$86,867. The 95th percentile for Household Income in 2003 was $154,120. Source:
U.S. Census Bureau.
All of the wealthy dentists were living below their means. Some started
doing so from the very beginning of their career. If they waited, it was not
long enough to cause great financial harm. In another article I will discuss
where these shrewd people put their money.
Another interesting observation that I made about lifestyle is that if one
spouse spends too much money, the couple is very likely to not get ahead
financially. If both people spend too much, they are doomed.
Here is an example. Our Financial Health Assessment is designed help dentists
discover their current financial capabilities. Part of our process forces you to
understand what you spend on lifestyle expenses. One of my clients discovered
that his spouse spent $30,000 on clothing last year. Oops. You want to
discover this as you see bags coming in the door. I would imagine he saw new
clothing or an empty bag just about everyday.
For the financially curious, $30,000 invested once and left to compound for 20
years at 10% equals $219,843. The Opportunity Cost of those clothes is
huge.
Wealth Creation Tip # 2 – Seek expert advice.
The wealthiest dentists hire me the fastest. This used to be interesting to me.
Then I realized that they understood the concept of Opportunity Cost.
Opportunity Cost is an economic concept that says “doing this does not allow me
to do that”. What you give up doing has a cost to it. A wealthy dentist thinks
in terms of dollars per hour or dollars per day. He protects his time and
only engages in activities that he is uniquely qualified to complete.
You should not hire an expert if you can complete the task yourself, equally as
well, for less money. Compare the expert’s price and potential result to your
cost. Assume that your cost is your daily rate in the office. Wealthy dentists
do not consider their day off as free, they apply the same daily rate for
calculation purposes. Why? Because without time off your productivity will
plummet. The mind must have time away to be at its creative maximum.
Another interesting point to consider is that experts do things for a living.
They spend 2,000 or so hours per year focused on an activity. You cannot
replicate their acumen. The question is do you need their level of expertise?
The wealthy dentists seem to believe so. The majority of them have a practice
management consultant or some expert helping them depending on the situation.
If you are going to do a project yourself, just remember that the people you are
negotiating with, do what they do for a living. You will likely not have
an edge. For example, as a dentist you will likely borrow money. You can assume
that the lender you are speaking to will know far more about what they are doing
than you do.
For instance, if you change the way you calculate interest on a $500,000 real
estate loan from monthly to exact days your monthly payment will be $35 higher.
You will pay an additional $10,557 in interest, but the quoted interest
rate will be the same.
Wealthy dentists always seem to have experts helping them. If you are producing
$2,500 per day and want to produce $6,500 per day, don’t spend any time trying
to figure this out yourself. A wealthy dentist would spend his time finding the
methodology or approach that makes sense to him and hiring someone to help
implement it.
This ends Part One of this article. In the next installment I will discuss
additional wealth creating lessons gleaned from my experience helping
dentists.
I want to leave you with an exercise that many people find helpful. Most
banks will allow you to download your personal account into a spreadsheet. I
want you to download at least three months of account information. This will
include all of the ATM withdrawals, checks and bills paid. Make sure you
download your personal credit card too.
Once it is in the spreadsheet you can easily sort it by who you paid.
What you want to do it determine where you spent your money. Do not make
this complicated. Create some simple categories like utilities, mortgage,
groceries, etc. Then sit down with your spouse and discuss it.
In the next article I will tie all of my observations together to create a model
for developing wealth as a dentist. Please feel free to contact me with comments
or questions at david@financegeeks.com..
For a more printer friendly version of this article click here.
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