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6 New Year Resolutions For 2006
Finance Geeks Copyright: David Catalano, 01/06
Goal Setting
Let’s say we are having a conversation three years from today and you are looking back over those three years. What would have had to have happened for you to feel really good about your results?
The answer to this question should drive your goals. The people you hire to help you will drive your strategy and execution to achieve your results. You must take personal responsibility for all of the outcomes. Here are list of resolutions to consider as you contemplate the question.
1) Create a wealth growth goal.
Why not grow your net worth 15% in 2006? Here is a strategy. Place 10% of your production in investments. Combine that with an expense reduction and normal asset growth and you may arrive at your goal. If you cannot save 10% of your production then several of the other resolutions may help you.
You must understand the difference between an asset and a liability. Assets generate cash flow. Your practice is an asset. Liabilities consume cash flow. Your automobile is a liability. What about your home, is it a liability? Yes, because it does not generate cash flow and can be a large cash drain.
Here is a trick I use to better understand the cost of a liability. The opportunity cost concept says that doing one thing makes you forego an alternative. Before you buy a liability, consider the opportunity cost of that liability. Let’s say you have a choice of a $50,000 new vehicle and a $25,000 used vehicle plus $25,000 invested in a mutual fund. Let’s also assume you buy a new vehicle every 5 years. We will assume a cash purchase to make the math easy. At the end of a 10 year period you would have exhausted the use of both vehicles. In the second scenario your mutual fund would be worth about $90,000 assuming an 8% annual return.
2) Explore owning my building.
If you live in an area that is conducive to owning your building, you need to consider doing it. Your practice will continue to lease space, but instead of leasing from some millionaire real estate investor, you will be leasing it from a company that you own. Since you can finance most of the building, your return on your actual cash invested should be high. Avoid making this too complicated by having a facility just big enough for your practice. Being a landlord can complicate your life. Simple is better.
The process of moving your office is challenging and full of pitfalls. You can read some of my other articles to better understand this. The best and least expensive way to figure this out is to attend a THE Design conference. Attendance will cost about $850 but the education is incredible. Ask anyone that has ever attended. Since I speak at these conferences I know firsthand that dentists receive an incredible value from Dr. Harry Demaree’s lecture. See them on the web at www.thedesign.com.
As a rule of thumb, your facilities expense should be about 6% of your annual collections. Keep this in mind when determining what you should be paying for rent. If you collect $600,000 you should have $36,000 in facilities expense or $3,000 per month. This does not include the cost of your equipment or technology. This rent is paid out of your practice to another company that you own. That company owns the building.
3) Properly structure my debt to achieve my goals.
This will help with resolution one. Debt is a tool and must be used wisely. Since it is a form of leverage, it can work for you or against you in powerful ways. Your goals should drive your debt structure. Since most goals require the use of cash, you need to structure your debt to allow for the cash to flow. The loan principal repayment is not an expense for tax purposes. You are using after-tax dollars to pay principal. That is one of the reasons why dentists with short term debt don’t have any cash after making tax payments. You need to have a debt strategy that is conducive to building wealth. Failure to do this may result in your inability to create wealth. This is not a do-it-yourself project. Get some professional financial help.
4) Know my lifestyle expense.
This will help with resolution one. You must understand where your money is going if you want to create wealth. The opportunity cost calculation can assist you in understanding why. Let’s say you waste $1,000 per month on frivolous items. Instead, invest that money and assume an 8% return. At the end of 10 years you will have about $180,000.
In a marriage, if either spouse is not a saver, wealth creation is doomed. If both are frivolous, plan on working forever. To get a handle of where your money goes, download your bank account into a spreadsheet. Then categorize all of the items based on their use. This can point to where the hidden $1,000 is located.
5) Hire a coach or practice management consultant. This will help with resolution one. All great athletes have a coach. You need one too. A smart consultant will have a handful of clients that are doing better than you in a similar type of practice. They know what works. They also know they will be fired if you don’t get results. Need a recommendation? Send me an email.
6) Get into physical shape.
This will help with resolution one. Studies have shown that physically fit people outperform others, all else being equal. If you want to feel good, you must exercise and eat right. I ran 10 miles this morning. I feel great. People I know that exercise regularly and eat right have a better outlook than those that don’t. In my experience, regular exercise makes you want to eat right. Need help getting started? Check out www.jeffgalloway.com.
When you start an exercise program you need to set some goals. Get your body fat tested. Set a goal to reduce your body fat by a certain percentage within a certain timeframe. You need an achievable goal with a timeframe.
A Word about Goals
It is important to measure the results we create against our old results and not our ideals. We can never hit our ideal result. If you understand this, you will be able to enjoy the success that you achieve. Let’s take an example. Assume your ideal body fat is 10% and your current body fat is 30%. You exercise, eat right and feel good all year. You then measure your body fat again. It comes back at 19%. You need to have a party. You have taken your actual body fat from 30% to a new actual of 19%. This is an incredible achievement.
In the example, you did not hit your ideal of 10% and that is okay. You made incredible gains from your original measurement. Measuring yourself against your ideal will destroy your confidence. You must guard your confidence at all times. Never measure your progress against the ideal, always measure it against your previous actual results. For more on this subject get the book “Learning How to Avoid the Gap” by Dan Sullivan. See Dan on the web at www.strategiccoach.com. You can buy the book at this web site.
Have a question or a comment for me? Send it to david@financegeeks.com.
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and expert advice to dentists that are contemplating or have
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Their strategies help dentists create and maintain wealth. David
Catalano has over 19 years experience dealing with dentists. See
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