5 Simple Rules That Create Wealthy Dentists

Too often, young dentists ask me what the secrets are to becoming wealthy as a practice owner. They seem almost disappointed when I tell them how simple it is. I think they're expecting a "get rich quick" strategy, like the ones all over social media. Having worked with over 3,000 dentists to reach their goals successfully, John McGill and I have found there are three simple habits every successful dentist started early.

1. Don’t Comingle Your Personal and Business Finances: Dentist think just because it’s all their money, they can simply pay their personal credit cards, auto loans, mortgages, private school tuition, etc., directly from their practice checking account. In theory, yes, you can do this without committing tax fraud. Your CPA will simply recategorize the expenses as a distribution. However, dentists need to be warned this is one of the most dangerous habits to create in their personal life. The damage is done over the lack of knowledge on spending and overhead. How can you tell how profitable the practice is and how much you spend each month? Not only do you lack clarity, but you now have a larger accounting bill, and you’ve given your CPA the task of deciding which expenses are tax deductions and which expenses are personal.
   
   Instead, only run legitimate business expenses and deductible doctor perks such as travel, meals, vehicle, etc., through your business. Pay all personal expenses through your personal checking account. As a bonus tip, have your CPA categorize your “doctor perks” separately. This way, you can easily identify your overhead rates and personal spending amounts.
   
   
2. Spend 1/3 of Your Profits: I once received a phone call from a retired dentist at 1 AM after catching a redeye flight back from Boston. This dentist heard my lecture and realized he messed up big time while running his practice! He hadn’t taken the right tax deductions, sold the right way, or even managed his practice well. I was on my back deck thinking, this guy is toast! He had already sold his practice and made every mistake in the book. However, I eventually asked how much money he saved, and he told me $6 million! I laughed and told him to have a drink and go to bed. While he may have screwed up a lot while in practice, by simply saving as much as he spent, he was able to achieve retirement on his terms.
   
   As a general rule of thumb, the government is going to take 1/3, you need to save 1/3, and you can afford to enjoy 1/3. If you follow this simple formula, you’ll reach financial freedom! For young practice owners who’ve recently purchased their practice, you’ll need to include your practice loan payment as savings, but don’t include other loans!
   
   
3. Save First, Spend Last: You need to automate your savings! Not you should, you NEED to automate savings. We’re all human and I often joke that I once bought a boat with two holes in it. Craigslist and Facebook Marketplace have been my kryptonite, but only if I have cash in my pocket. Every dentist needs a detailed Tax, Business, and Personal Financial Plan that tells them exactly how much to save and where. Once implemented, you will be well on your way to financial freedom.
   
   Best of all, there are two surprising benefits of automating your savings. The first is that it can be addictive like shopping. Once you see your account balances grow and the light at the end of the tunnel gets brighter, psychologically, you want to save more! The second is the freedom it provides. Buying a boat with two holes has to be one of the dumbest things I’ve ever done. However, I practice what I preach, and I had saved first and ended up with enough money for a boat, just maybe not one that floats. Life is short and you should enjoy the ride guilt free. Knowing how much you need to save and accomplishing that goal each month provides you with the freedom to indulge with the leftover funds without worry.
   
   
4. One House & One Spouse: Take your marriage seriously. A happy marriage will do wonders for you personally, and financially you get to keep all your assets! Getting divorced not only means you have to split your assets, but also means you have to keep up two lifestyles instead of one. Most couples that get divorced underestimate the additional expenses involved, leading many spouses to think they’re being screwed. The truth is, your expenses without your spouse don’t go down much and total expenses almost double. Two houses, two sets of car insurance, two health insurance policies, etc.
   
   There is a time and a place for a second home. I’ve helped many of my clients purchase them, but only after they’ve achieved their financial goals. Most dentists simply look at the mortgage payment and think they can afford it. Unfortunately, the real costs are often hidden and vary between 3% and 6% of a home’s value. Let’s use an example of a $1,000,000 mortgage. Assuming a 6% interest rate (low for today), the monthly payment over 30 years would be $5,996. With a purchase price of $1,250,000 and annual costs of 5%, there’s another $5,208 per month heading out the door for a total of $11,204 per month ($134,448 annually) to own and maintain the home. You might be thinking, Wes that’s high. It’s not! Ask anyone that’s owned one. Minor problems turn to big problems as you’re not there and many maintenance needs must be outsourced.
   
   If instead, you spent $34,448 on renting vacation homes each year and invested the difference monthly, you would have worry free vacations and over $10,000,000 in your investment account, assuming a 7% investment return. Save the money early and buy the vacation home when you have the time to use it enough to justify the expense. For those of you thinking the home will appreciate, it will! But it would only be worth approximately $3,034,000 using a 3% inflation adjustment. Yes, I know real estate has boomed in the last 5 years, but so has the stock market! We’re going to stick to long-term reasonable assumptions here.
   
   
5. Don’t Invest Or Make Any Decisions You Can’t Explain to Your Spouse In 30 Seconds Or Less: If an investment is complicated and you don’t understand how it works, it’s not you! You’re likely the target for someone else’s investment in you. More dentists lose money by falling for get rich quick schemes or permanent life insurance policies that don’t make sense!

The wealthiest dentists have kept things simple! They saved more than they needed to, invested with trusted professionals into low-cost well-diversified funds, and as a bonus, tried to keep their taxes down! Trying to get fancy will simply delay the inevitable: that you have to save your way into retirement.

Instead of falling into a trap, make the best low-cost investment you can by subscribing to the McGill and Lyon Dental Advisory. For $300 annually, you’ll stay up-to-date on everything you need to know to boost profits, cut taxes, and build wealth. Here’s a list of topics we’ve covered just this year:

How to Teach Your Children About Money
8 Steps to Protect Your Personal Finances From Hackers and Scams
Top 5 Steps to Increase Patient Referrals
Are AI Stocks Headed For A Huge Correction?
How to Get the Best Deal On Your Next Car With Less Stress
5 Marketing Company Red Flags That Could Cost Your Practice Thousands
12 Friction Points Killing Conversions In Your Dental Practice
Save Tens Of Thousands By Employing Your Spouse
Does Your Night Out Qualify As A Tax Deduction
Increase Profits Through A Structured Patient Reactivation Campaign
8 Steps To Boost Your Practice’s Sale Value
How To Turn A New Retirement Plan Into A $30,000 Tax Credit
Eliminate Payroll Headaches And Cut Costs By Hiring The Right Payroll Provider
Practice Loses $900,000 To Embezzlement; 6 Proven Steps So It Won’t Happen To You
Three DSO Trends You Need To Know