The 5 Biggest Mistakes that Wreck Building Wealth as a Dentist

1.) Not Tracking what you Spend.

You can’t fix what you don’t measure. Tracking what you spend is key to achieving financial security and making sound decisions about building your wealth. Your expenses shouldn’t increase as your income increases over time. Instead, extra income should be put toward retirement, debt, investments or if you are young dentist those pesky student loans.

Use an app to track your expenses.

Make sure whatever app you choose to track your expenses it allows you to see exactly how much you’re spending by integrating your credit card and bank transactions. For Instance, mint.com will automatically categorize transactions for you. For example, a Gas Fill up at a Shell would automatically be filed under the “Gas” category.  Store this data so you can review trends and know where you need to make changes to.

2.)  Don’t Live Out of Your Practices Banking Account.

Make sure you are paying yourself a fair salary per year for you to live on.  Any K-1 dividends distributions at the year end can then be added to your back accounts and deployed to pay down debt or save for retirement.  Try to make it through the entire month without dipping back into your practice checking account. This will prevent you from overspending.

3.) Paying off debt without a strategic plan.

Don’t just choose a loan to pay and assume it is the correct way. As your income, and account balances change, so should your strategy for debt reduction.  If you debt strategy is to eliminate all personal and practice debt, that is not a great way to structure a financial plan for a dentist.  I mean it!  Maintaining a low debt to income ratio helps maximize your cash-flow and future investment income.

A balanced debt repayment plan will leave you debt-free before you retire and will exponentially help your nest egg compound long the way.

4.) You Buy Whole Life Insurance

Nothing is more of a cripple to cash-flow and optimization of your business taxes and personal taxes than that of a whole life insurance policy.  Stay clear of whole life insurance if you are trying to build walk away wealth. 

Instead, buy term insurance.  Evaluate your term life insurance program annually to make sure you are keeping your family adequately protected and keeping costs down. Make periodic adjustments to your death benefit if need be.  Life insurance is a personal decision, and it should take into account what your spouse does for a living and what life looks like after passing.  It stinks to talk about it, but if something happens you will be glad you had the death talk with your spouse.

“Remember, as your net worth increases, your need for life insurance decreases.”

5.) You Make Uninformed Financial Decisions

It is very tempting to try to “Google” everything or ask a friend or family member for advice.

You can’t make sound financial decisions if you don’t have a comprehensive view of your finances. The busier your practice gets and your life gets, the harder it is to gather all that information. It is very time consuming to do it on your own, and you have more important things to consider, like your family.

Create a streamlined financial planning system, that helps automate the process.

Get a second opinion before you make a big decision. You’re emotionally attached to your money – we all are. Before you make big decisions, talk to a financial advisor.  I mean, even I have an advisor helping me think through decisions I have for my business and personal life.

How many of these five mistakes are you making?

We’ve given you some basic fixes, but there’s much more to talk about. Do you know how to grow your wealth most effectively? Are you ready to buy or sell a dental practice and want help navigating the waters?  Are you paying down your debt in the most strategic way possible?

Contact White Coat Wealth Management and we’ll help you with the answers.  We work with dentists and specialists to track both personal and practice finances. We are in the business of teaching you how to make smart decisions with your money.  Schedule a Free 15 Minute Introduction Phone Call here.