Seven habits of financially unsuccessful dentists

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For most of my life, I have been unhappy with my weight. While speaking to a group of hygienists in Hawaii, I said that I was a Dave Thomas look-alike. One hygienist in the audience said, "I think you look more like Newt Gingrich."

That did it. It’s not that I have not read a hundred books on how to maintain a healthy weight; it’s just that I have not been able to find healthy eating habits that fit who I am. I have finally figured out something that works for me.

I have lost 35 pounds, have been able to keep the weight off, and am healthier than I have been for a long time. I define success as "I never think about food, and I maintain a healthy weight." The key for me has been the daily habits of how to eat with the least hassle possible.

There are seven habits of financially unsuccessful dentists that sabotage wealth creation. I believe that the key to overcoming these habits is finding a discipline that fits who you are so you can achieve outcomes without having to stress about it.

My wife is a great cook, but she does not cook anymore. If my weight control depended on cooking, forget about it. You may hate dealing with numbers or financial matters, but you must make peace with achieving financial outcomes by addressing the seven habits in a manner that fits your tolerance level. I think the key for dentists is getting others to do the work, at the least cost possible, with the dentist accepting the role of leader. Here is my list of habits:

1) Financially unsuccessful dentists don’t know where their money goes. Were you able to save 20% of your income last year? If not, where did your money go? Each month it is important to know where your money goes.

For your practice, this means financial statements on a "cash basis," with major categories for overhead to compare to ideal percentages for staff, lab, supplies, facility, promotion, equipment purchases, and debt payments. For home expenses, merely pay yourself a flat monthly salary rather than having to track a budget.

2) Financially unsuccessful dentists don’t know where their money should go. Even if you can track where your money goes, you are lost without having a plan for where your money should go.

Needs, wants, and savings must be properly aligned. From practice cash flow, savings should be 20%, debt payments 25%, taxes 25%, and lifestyle spending and large purchases 30%. Which of these is out of alignment in your cash flow?

3) Financially unsuccessful dentists don’t have a retirement accumulation goal. There are five retirement variables that must be planned and managed: retirement income needed, savings needed, investment return assumption, risk assumption, and retirement date. The dentist must take the lead and own these five variables.

4) Financially unsuccessful dentists don’t have an annual savings goal. You should be saving 20% of income. Only this number will be adjusted greater to reach the goal amount needed for college savings and retirement savings. Achieving this annual savings goal is the ultimate measure of whether you have financially successful habits.

5) Financially unsuccessful dentists make large financial decisions with gut instinct. Big financial decisions – building an office, buying a practice, large equipment expenditures, purchasing a home – should be made in the context of how other goals, such as saving 20% of income, will be affected. Financially unsuccessful tendencies forgo saving during a year because of an unexpected tax bill, for instance. Savings should not be negotiable. Planning and managing is key.

6) Financially unsuccessful dentists don’t manage debt properly. Dentistry is capital-intensive. It is not only important to get the lowest interest rate possible, it is important to have a plan to manage overall debt payments so savings can happen.

Try this exercise. Write down the amount owed on your debts, both practice and personal, and the monthly payments. Divide the total monthly payments by the total amount owed. If this factor exceeds 1%, your debt is not properly managed and you will not be able to save sufficiently.

7) Financially unsuccessful dentists don’t protect their families with the right kinds and amounts of insurance. I cannot tell you the number of tragedies or near tragedies related to the simple discipline of having the correct amounts and types of life, disability, overhead, and umbrella liability insurance.

The seven habits of financially unsuccessful dentists should be a warning to you about areas in your life that need attention. Develop good habits to replace these areas so you can live as hassle-free as possible for the remainder of your life.

Brian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. Contact Hufford at (888) 470-3064, or [email protected].