April 5, 2018
By Erick Cutler
Even with the best of intentions, planning for long-term financial success can often take a backseat to running your dental practice. It’s understandable that you became busy once you joined or launched a practice. Before too long, a decade or two has flown by—when was there time for planning? The challenge – and the opportunity – in this is that you’d like to reach a level of financial independence that will let you retire when and how you choose. With that in mind, here are 5 tips to keep you focused on achieving your short- and long-term financial goals.
- Have a Plan
Waiting to get serious about a financial plan 10 years prior to retirement is a recipe for disaster. Start thinking about a financial plan right out of the dental school gate. Sure, you’ll readjust your plan many times over the years, but it’s critical to have an endpoint in mind. Don’t have a plan? Start one now. Your financial professional can help you get started by reviewing past tax returns and even looking through your check registry. You’ll want to examine your cash flow and have a firm grip on your personal and practice monthly expenditures.
Think about the changes you might you need to make in your practice to get you more closely aligned with where you need to be. You may need to reduce your monthly expenditures or perhaps do some marketing to build your practice. It’s better to find out now so you can carve out a financial plan that makes sense for your future.
- Take Stock.
Assess and reassess. It may surprise you that many dentists don’t have a full understanding of their net worth (total assets minus liabilities). If not every year, update your plan every few years by taking a realistic snapshot of your finances. Take into account personal changes, such as a growing family, and changes to your dental practice, such as increased income, additional expenses and changes in your assets.
- Don’t Spend It All
This might sound like a no-brainer. But let’s say you hit your stride in your practice and your assets far outweigh your liabilities. Resist the temptation to spend it all or drastically change your lifestyle. If cash flow is positive, consider increasing your retirement contributions. Keep in mind that there may be unexpected life events that can instantly change your financial outlook, such as disability or loss of income. On a more positive note, your income will more likely increase over the years—just make sure to keep your expenditures at a lower rate than the increases.
- Ride Out the Turbulence
When a hurricane is approaching, southerners put up hurricane shutters. Think the same way when it comes to your financial risk. While we’ve been experiencing low inflation rates of late, that cycle only lasts so long. You may see double-digit inflation rates again before your retirement.
Along with inflation, be prepared to shoulder interest rate hikes and general market fluctuations that result from government policy changes. Weigh all of these factors whether you’re thinking of expanding your practice through acquisition or selling your practice to retire early.
- Benefit From Tax Reform
Many dentists are in a high tax bracket for federal and state taxes. As we addressed in our blog, The Impact of the New Tax Law on Dentists, you may want to take a fresh look at your business entity structure. If you are taxed as a corporation, you pay a flat 21 percent rate, a significant decrease if you were previously taxed at 35 percent.
If you have a pass-through entity, different tax laws apply. Additionally, there are advantageous new expensing opportunities for dental equipment, office furniture, building improvements and other equipment, so read our blog carefully and check with your tax professional.
While it’s best to put these tips into practice early in your dental career, it’s not too late to plan to meet specified financial goals mid-career. To learn more, contact the dental CPAs at Goldin Peiser & Peiser or Erick Cutler at 214-635-2541.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.