For dentists just starting out, give some thought to your career and earning arcs.
Dentists just embarking on their careers in dentistry are likely to face a host of financial challenges, headlined by the battle that will likely define your early years: paying off student debt. Even as your income rises and your debt ratio shrinks, however, you may face another challenge known as “lifestyle creep,” which we covered previously.
Put simply, that is the tendency to spend more aggressively as you earn more, thus leaving you with less wiggle room in your monthly expenses—and your money to save and invest for your future. As noted in that column, there’s nothing fundamentally wrong with a little lifestyle creep. As you earn more, you should feel free to spend more and improve your quality of life. But you also should be aware that the tendency to do so may mean that waiting for your “peak earning years” to start really kicking up your investment percentage isn’t the best idea. A better one is to start saving aggressively now, and then ramp up those investments as you begin to earn more.
Sounds easy, right? But how do you do it?
Set Some Long-Term Goals
Short-term goals are easy to set and stick to, because they provide the immediate gratification of a daily to-do list. “Clean out garage,” written on a Sunday “honey-do” list, can be crossed off in a couple of hours, giving both the satisfaction of finally being able to put that SUV in the garage and being able to cross an item off your list. Long-term goals lack that immediate sense of task-accomplishment. These goals are, by their nature, more difficult to set and stick to.
How do you get past this? One strategy is to break the long-term goal into a series of short-term goals. If you have a retirement savings finish line in mind, for example, that’s great, but projecting out 40 years may bring less utility than, say, establishing a yearly or even monthly goal. If the rewards are more frequent, that will likely make the behavior more sustainable.
Splurge Every Now and Again
Single-minded devotion to a long-term spending goal is admirable, but is it exciting? It is not. The same reason many of the best diets include a “cheat day,” during which you can eat those baby back ribs, is also effective in long-term planning: Total deprivation can lead to resentment and could actually derail your whole plan.
Going off budget for an impulse buy may seem like it would circumvent your long-term goals, but going a little impulse-y, as long as it doesn’t become a regular thing, provides a series of little rewards that make the bigger picture worth pursuing. No matter how you feel about the potential for an after-life, there’s something to be said for making this one as good as it can be.
Balance the Business and Personal
Dentists who run their own practice face very difficult choices when it comes to income. Let’s say the practice is going well, patient numbers and visits are up, and higher-revenue services are driving business forward. But as a good small business owner, you see needs in future development, perhaps an expansion of your practice, and the need to upgrade to some newer equipment.
Do you stash away your revenue surplus now for future retirement, or reinvest it in the practice? There is no simple answer, of course, but the key is to consider the question in the context of your larger business and personal goals. Carefully analyze the risks and potential benefits in both approaches before deciding, and consider that a “middle of the road” strategy, in which you build the business slowly while also diverting some money to your future self is a kind of hedge that gives you some protection in both your personal and professional life.