Rick Willeford, MBA, CPA, CFP
I am afraid that I am starting to sound more like my father. You know, those kinds of money lectures where you shrugged off his fuddy-duddy, conservative thinking as something passed down from the Great Depression. When I speak to dental groups, my sense of urgency rises and my tone gets more strident, especially when it's a group of younger dentists.
Here's the problem: I point out that dentists in private practice have to work hard not to make money. The good news is that you can make a very good living as a dentist — but the bad news is that dentistry will not make you wealthy. I point out to younger dentists that most of them would view a net income of $200,000 within five years as the pinnacle of success.
But then I fast forward to a fictional class reunion in 30 years. In spite of all that income, I see a lot of pain and burnout. Only about five to 10 percent will be financially independent and able to retire. One classmate will have committed suicide, two will have declared bankruptcy at some point, another three should have, and about 15 percent of the group is about two paychecks away from being bankrupt or insolvent. Another 20 percent or so are headed down that path but don't know it! (See "The Dog, the Frog and You" in Dental Economics, February 2002.) The vast majority of dentists are doing just fine — for now. They think they are in the groove, but I suggest they are in a silver-lined rut.
What happened? Their lifestyles got in the way.
Consultants have told us for years that the dentist down the street is not your competition. Instead, your patients' lifestyle choices are the competition. You are frustrated and (silently) berate them for choosing a new bass boat or living room suite over quality dentistry. But you're blind to the fact that you make the same kinds of mistakes! You choose to do your share to support the US economy by spending 106 percent of what you make!
It's not how much income passes through our hands that ultimately counts. It is how much of our income "sticks" and accumulates to create wealth. This is controlled by the decisions we make once we have the money. If our income isn't high enough to support our lifestyles and fund a retirement plan, well, the retirement plan doesn't get funded.
Our lifestyles are the enemy. What kind of car is our buddy who dropped out of high school and now owns three dry cleaners "supposed" to drive? Compare that to the kind of car we professionals "deserve" to drive. As the Millionaire Next Door pointed out, the most driven vehicle by millionaires is an F-150 pickup truck! $200,000 net income just doesn't buy what it used to. After you subtract taxes, housing, two foreign car payments, and two darlings in private school, there isn't anything left — and I haven't even mentioned the second home, boat, private club, etc.
When you are sick and tired of being sick and tired, that may be a start! The sooner the better, but there is a Turkish proverb that says, "No matter how far you have gone on a wrong road, turn back." If and when you decide that you are on the wrong road, you can make changes — but it won't be easy. As with your practice, most of your personal overhead is fairly fixed. Cutting back on eating out won't make much impact if you have a $4,000 mortgage payment. After counseling, some of my clients have decided to take drastic measures like downsizing — now.
As Dr. Pete Dawson says, "signs" precede "symptoms." Don't wait for symptoms to appear before you take action.
Raymond "Rick" Willeford MBA, CPA, CFP, is president of Willeford & Associates, CPA, PC, a fee-only firm specializing in financial, tax, and practice-transition strategies for dentists since 1975. Mr. Willeford is president of the Academy of Dental CPAs, a member of the national Practice Valuation Study Group, and numerous dental study clubs. Contact him by phone at (770) 552-8500 or by email at firstname.lastname@example.org.