Six years ago, I was working in corporate finance when my sister called me crying. Luckily, they were tears of joy. She had been interviewing at dental schools across the US and had gotten her first acceptance at Midwestern University, a 10-minute drive from our newly remodeled townhome.
My sister had already earned her MBA and had decided to pursue a career in medicine, which meant investing another two years studying premed and passing the DAT exam, only to embark on another four years of dental school! I was happy for her but also mortified because her dental loans would be higher than my mortgage.
What I didn’t understand at the time is that going to dental school is one of the best investments someone can make in their future. Not only are dentists among the highest paid professionals year over year, but dentistry is one of the “best professions” according to many news articles. Dentists can control their schedules, and if you enjoy serving people and helping them improve their oral health, dentistry’s a win-win.
The reality for many new dentists who try to navigate both their busy career and personal finances is that they become overwhelmed, and this can lead to procrastination on important financial decisions. Thanks to the internet, financial information is abundant, but financial wisdom is knowing what applies to you and when to act on it.
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Then there’s the time factor. We all have 24 hours a day, so trying to do all things, and well, is tempting. You’ve heard the saying, “A jack of all trades is a master of none.” Many dentists love managing their personal finances, but they forget to factor in what their time is worth. How many hours do you spend on your finances, and what is each hour worth? It’s not uncommon to spend 10 to 20 hours a year on your financial plan. If your hour is worth $200, that time costs you between $2,000 and $4,000 per year. What would you do with the hours you can save by hiring a financial planner?
If you’re a new associate, you’re probably overwhelmed with student loans. The dentists I work with typically have upward of $200,000 in loans. They’re just beginning to make money and figure out how to manage all their conflicting priorities.
Here's a look at four financial priorities of new associates.
1. Comparing employment offers
At some point you must choose between employment offers. There are many factors to consider, from total compensation package (salary, bonus, W-2 match, health insurance, and other perks) to other qualitative factors (the commute, the location, the office culture). As a new associate you might be tempted to look only at the dollars and cents. As someone who has worked four corporate jobs, I urge you to look at the quality-of-life factors; trust me, it’s not just about the money.
Another factor to consider is whether you’ll be an employee (W-2) or a 1099 contractor. A W-2 usually comes with employee benefits (disability insurance, 401(k), health insurance) versus a 1099 where you’re basically a contractor, so you must get benefits on your own and you’ll pay more self-employment tax. As a 1099, you’ll most likely need to seek a CPA to help with your taxes.
Whichever route you choose, get a written contract! When I investigated one of my former dentist client’s pay stubs, we found a 20% discrepancy between his agreed-upon base salary and his actual paychecks. Since he had no contract, there wasn’t much he could do about it.
2. Paying off student loan debt
The default standard debt repayment plan is what most graduates end up with, and this plan will have you pay off the loan in full over 10 years. Although this can be a good option for dentists who have a manageable student loan balance, live at home, or have low living expenses, this is the highest payment option. I am not a big fan of paying off loans as quickly as possible if the student loan to income ratio is more than 2:1. The reason for this is that you also need to enjoy life, and many income-driven plans (REPAYE and PAYE) with forgiveness at the end of the period make more sense in today’s dollars.
It’s not a one-size-fits-all strategy, so seeking advice for repaying your student loans in conjunction with any other life goals makes sense. My sister graduated with student loans two times her income, so we set her up on REPAYE to start. But as things have changed, she will now be on track to pay those off within five to 10 years, depending on what happens with the administration and the current federal forbearance.
3. Enjoying your new salary
You have to acknowledge and celebrate all your hard work to get to this point. Becoming a dentist is no easy feat, and enjoying your new income is something you deserve to do. I often see dentists who are so ingrained in “college student frugality” that they have a hard time splurging on anything nice, from replacing their junker car to leasing a nicer apartment. I say life is short and you deserve to spend some money on things that bring you joy, within reason.
4. Making sense of all the financial advice
Which brings me to my last point! Managing your money and being smart and responsible is very important. Many of you have spent many years in school and are starting your investing journey in your 30s. Because time and the amount you invest are the two biggest determinants of building sizeable wealth, it’s important that you take advantage of your high income and time to start building wealth.
You will surely encounter many insurance agents with agendas. Recognize that there is a difference between a certified financial planner who has education and experience and is held to a fiduciary standard (meaning must act in your best interest) and other advisors and insurance agents.
Get started early. Start with understanding your employee benefits and how to use those to your advantage. Create a rough budget to understand where your money is going. Think about any future goals that you have and plan how to save and invest for those. Make sure you’re building a solid credit score to help with keeping insurance costs down and qualifying for low interest rates on future loans. Surround yourself with friends and colleagues who talk about money management, and then seek assistance when you’re ready.
Editor's note: This article appeared in the November 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
