If I ever write a book titled “30 Reasons I Didn’t Save for Retirement (During My 30-Year Dental Career),” many of the reasons would relate to how dentists handle debt and equipment purchases. There is a Jupiter-like force of gravity in dental finances that I call The Breakeven Syndrome. I once heard that, on the planet Jupiter, I would only be an inch tall because of the planet’s tremendous force of gravity. A similar force of gravity in dental finance dictates that, no matter how large your practice income is, there will be little remaining to save. Thus, you have the Breakeven Syndrome.

What is the reason for this effect, and how do you overcome it? I hear frustrated dentists grumble all the time: “My income is up 60 percent in the last five years, but I am still not able to save enough!” On average, I find that a dentist in a mature practice could increase his or her savings by $50,000 this year - without reducing expenses at home - simply by becoming more intentional about financial outcomes. In this instance, intention is contrasted with instinct. Instinct tells us the earth is flat. Improper use of “instincts” in dental finance can be illustrated with a simple example.

See if you can pass this test

Suppose that you wanted to buy $20,000 worth of equipment, as well as a new automobile this year. What are the issues related to these decisions that will most affect your financial success? I try to put all of my financial decisions to a simple test by asking, “When I take a look back at my lifetime when I am 60 years old, what has to happen for me not to regret my financial priorities?”

Suppose your definition of financial success dictates that lowering your taxes is the most important strategy. In other words, at age 60, you hope to have paid the lowest possible amount in income taxes. In this case, you could probably expense the entire cost of the equipment under Sec. 179, then determine a way to maximize the deductions in your practice to buy the automobile. Proper planning with these two purchases could greatly reduce your tax burden this year. Thus, you have greatly contributed to your overall financial success! Is there anything else you might have missed? Is this instinct or intent?

Suppose that your definition of financial success dictates that you become debt-free as quickly as possible and stay that way throughout your life. Most dentists are not out of debt completely until their mid 50s. So in this example, if you had been rapidly retiring debt throughout life, you probably would not have sufficient cash to simply write a check for the equipment and automobile. How would you proceed with this decision? You would probably pay as much cash down as possible, and finance any balance at the lowest interest rate and with the shortest repayment terms possible. So once again, you have contributed greatly to your overall financial success! You are becoming debt-free as quickly as possible! Is there anything else you might have missed? Is this instinct or intent?

Replace financial instincts with intentional strategies

Financial instincts cause decisions to be made with a vague sense of maximizing an advantage or maximizing “success.” Having a definition of financial success that views saving taxes or retiring debt as the only end is an example of using financial instincts. Financial intent approaches decisions differently. Intentional decision making has a huge difference. An intentional decision-making process looks at how each decision can be used to make maximum progress toward an ultimate goal.

At age 60, when you look back at life, you will measure financial success by the amount of savings you have accumulated. Therefore, if you want to purchase new equipment and an automobile this year, the biggest financial issue is: “Even with the tax benefits, and my desire to get out of debt, how do I structure these purchases so that I don’t eliminate my ability to achieve my savings goal this year?” An intentional process starts with your most important financial goal, which is to maximize savings or freedom, then determines how each financial decision progresses toward that goal. Reducing taxes or eliminating debt does not necessarily advance you toward your goal. Savings does!

Escape the Breakeven Syndrome! Stop saving what’s left over.

Brian Hufford, CPA, CFP®, is president of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. The company is recognized as the only strategic alliance partner for financial planning services for the Academy of General Dentistry. Contact Hufford at (888) 470-3064, or at bhufford@huffordfinancial.com.