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It's easy to let a couple of unexpected expenses break your budget. To keep that from happening, expect these costs to be higher than expected.
We write often on building a solid budget and how doing so is usually the foundation of any good financial plan. Dentists generally earn well, of course, and for some, not living paycheck to paycheck means less urgency in building and adhering to a budget. A dentist’s income may have more variability than is true for those in other positions or other industries. On top of that, building a good budget can be hampered by underestimating certain categories of expenses. Below, we’ll discuss two types of expenses that often prove difficult to pin down.
Advisor, Broker, and Transaction Costs
Working with an advisor has its pros and cons. We have written many times on the benefits of working with one, but one of the drawbacks is the cost. Many investors don’t keep close track of how much their advisor or broker charges. Even when going it alone, there are transaction fees with any online broker. The key to properly estimating these costs is to understand the structure and frequency of any payments you’re making, look at previous years’ costs, and check your statements periodically to make sure there are no unauthorized or out-of-whack costs.
Some financial professionals work by receiving commissions or transaction fees when you sign up for financial products like mutual funds or insurance, with the commissions being paid by the company or companies behind the products. Commission-based advisors often get a bad rap with consumers, in part because their fee structure means the products being recommended may not be fully aligned with your investment goals. There is nothing inherently wrong with this structure; just make sure you know what you’re being charged and when.
Fee-only advisors. These advisors charge an hourly rate or flat fee to create and perhaps implement a financial or investment plan for you. These fees are often accompanied by a small percentage of the invested assets he or she is responsible for. Fee-only advisors may have less incentive to engage in unnecessary or excessive transactions. Still, you should be aware of how much you’re paying.
Mixed model. Some advisors charge an hourly rate or flat fee for developing a financial or investment plan for you and also earn commissions for signing you up for products to implement that plan. No matter the model, commissions, fees, and transaction costs can add up. Get the cost structures up front, and get them in writing.
Home ownership has tremendous pecuniary and non-pecuniary benefits, of course, but it can also be an expensive proposition. If you’re new to homeownership or are considering buying a home, it is easy to significantly underestimate the costs associated with purchasing and, ultimately, maintaining your home. Costs related to the purchase of the home can include surveys, inspections, closing costs, real estate agent fees, appraisals, and even title fees. Once the home is yours, there will be ongoing maintenance, mortgage taxes and interest, property taxes, mortgage insurance, and homeowners’ insurance, among many others. If you’re new to this process, budget more than you think for home maintenance.
Neither of these expenses should be crippling for the typical dentist, but every little bit adds up. Keep your budget up to date and relevant by accurately reflecting these and other expenses. The budgeting process doesn’t stop when the budget is completed. It’s important to keep accurate records of what the actual costs were as well.