Five financial planning tips for early career dentists
Congratulations! You’ve made it through dental school with flying colors and your career as a dentist is taking off with a healthy income and vision of someday buying into the practice that you’re currently part of. Your outlook on life couldn’t be brighter.
However, against the backdrop of your aspirations, you’re faced with a few obstacles such as paying down dental school debt and saving enough to buy into that practice –or even staring your own.
As a wealth management firm who works closely with dentists, we know from first-hand experiences that the financial journey during the early years of a dental career is a critical time to optimize cash flow from earnings. By doing so, you are setting yourself up to realize huge dividends down the road.
As you think about achieving financial freedom, we encourage you to put these five financial planning tips into action:
Review your savings and spending habits, in light of your income and expenses. One of the best ways to do this is to create a personal income statement by making a list of all of your monthly expenses and subtracting this from your monthly income after taxes. This exercise allows you to take a close look at your expense structure and identify any items where you may be overspending. It can also help you review how much you’re saving for retirement and other family goals. If you need help with this exercise, consider working with a financial planner to develop a solid understanding your personal income statement.
Don’t overspend on your first home purchase home. It’s rare for any early career professional to buy a home without a mortgage. While interest up to $750,000 of home mortgage loans is tax deductible, try to limit the debt on your home so that you have the financial flexibility to pursue other important goals that require disciplined savings.
Prioritize reducing student loans. Education debt is not tax deductible so it should be one of the first of your financial obligations to reduce, unless you have credit card balances or other types of consumer loans that have interest rates higher than your dental school loans. In our experience, the debt burden for dentists can be daunting. It’s one of the most important areas of their financial life to take control of.
Fully funding your retirement. This can include maximizing your ability to fund your retirement with an employee sponsored retirement plan that you can contribute to with pretax dollars from your paycheck. If your income level permits, you should also consider investing in traditional and Roth IRAs after maximizing employer sponsored retirement plans. It’s easy to think the future is bright and that you have plenty of time to save when you’re older. However, we see the physical demands that the dental profession can take on our clients. Sometimes, our later career dentists decide they want to retire sooner than planned because of the physical stress their profession has taken on their health. Saving early and regularly for retirement can provide you with greater financial freedom and flexibility later in life.
Find the balance between enjoyment and savings. It’s important to enjoy life. However, as your income skyrockets and you embark on having more enjoyment in your life; remind yourself of the importance of paying down debts and saving for your future while cash flow is strong. We encourage our clients to have fun. However, we work with them to set parameters for spending and savings so that they establish a rock solid financial foundation to build upon for their future.
As you move full steam ahead with your dental career, consider implementing our five personal planning tips to help you achieve financial independence.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit our website at www.wealthdimensions.com or contact us at 513-554-6000.