“Wellth” for Dentists
Back in March we posted a blog titled “What is Your Biggest Expense?” that focused on the need to look at your financial world from a consolidated perspective. This is the first of two additional blogs whose purpose is to lay the foundations that will help, in this case, young dentists focus on a consolidated approach to their finances and which we will call “Wellth” for Dentists.
As a new graduate from dental school you might typically feel excited to take on the world; and for good reason! After investing many years and countless hours into perfecting your craft you are now ready to present those skills to the real world and get paid for them. Of course, it all comes with some baggage and for most new dentists, the biggest bag likely being student debt which in many cases will be hundreds of thousands of dollars. Add to the student debt the potential cost of starting a family and home ownership. It all starts to add up and we haven’t even mentioned the eventual reality of becoming a practice owner as opposed to an associate. The good news however, is that if you are at all financially careful and if you START EARLY you have the potential of accumulating significant Wellth at the same time as you enjoy a bountiful lifestyle.
The biggest challenge for most young dentists is managing the transition from famine to feast. You graduate in the spring, you find an associate position, you start to get paid and life is a dream . . . until the end of April. If you saved some money that’s OK, if you engaged a good accountant that’s even better, but if you spent all the money you made during your first year in practice you are in for some financial pain called income taxes. As a highly paid professional you may never have trouble making money but many of you will have trouble hanging on to it. The solution is called planning and you will need some assistance to do this properly.
Step One: Right away you will need a “dental accountant” who specializes in professionals and ideally healthcare or dental professionals. Back in 2016 we posted a blog entitled “How To Know If You Have a Good Accountant”. If you haven’t read it, you should; and if you read it back in 2016, read it again. When you pick your accountant, you need to find out if they are going to provide you with all of the services that have been set out in that blog. You may not need all of the suggested services right away, but you will eventually need them, and you will need a proactive accountant who can tell you when you will need them. Young professionals commonly make several mistakes in this area. Thinking that you will save some money and get a “good” accountant when you need one is a big mistake. Many believe the indicator that it is time for a “good” accountant is the arrival of a CRA re-assessment, however, by then, it is usually too late. The other common mistake is to use family and friends as advisors and particularly as accountants. You need professionals who understand and deal with dentists as a major part of their clientele. Family and friends usually don’t fit that criteria and once you come to realize this they are hard to fire. Don’t use friends and/or family.
Step Two: Engaging a good accountant is both important and obvious, engaging a good accredited financial planner is certainly important but not so obvious, particularly when you don’t seem to have the finances to plan. The whole point of having a financial planner however is to make sure that you do have finances to plan. The absolute jackpot is to have an accountant and a financial planner that can work together, understanding that this is different than having an accountant who is also a financial planner or a financial planner who is an accountant.
Some of the Initial “Wellth” management issues that young dentists are faced with, other than taxes, include the following:
- Graduating with Debt – No matter how many times you review your debt situation, it can seem unmanageable and hard to understand. A unified “Wellth” approach will demystify debt by showing you the details behind the interest and capital you are paying, by introducing new budgeting strategies that will leave you feeling less constricted and by examining areas where you may have room to multiply your after-tax spending/saving power.
- Having a Family – This stage of life often comes hand in hand with many personal changes that face young dentists, including marriage and young children. A unified “Wellth” approach will guide young dentists through personal protection planning and the maximization of family resources. Can a spouse be paid through the business? Can you own your life insurance through the corporation? How do you protect family from financial crisis if you become ill? These are just a few of the important issues that need to be considered when having a family.
- Early Life Investment Strategies – Your first paycheque as a new dentist either was or will be an exciting one. To use it wisely you need to know how and when to establish and maximize such instruments as RRSPs and TFSAs, and when these are fully utilized you need to plan for all of the other more complex opportunities that will be available to you. A unified “Wellth” approach should lead you to ever changing tax-efficient investment options to compliment your personal RRSP, TFSA and Non-Registered investment programs.
- Buying a Practice – At some point you will likely want to buy your own practice. Owning your own practice will involve a myriad of new skill sets, pressures and opportunities. This a definitely not a DIY project. To successfully buy your own practice you will need to combined input from your accountant, financial planner, a dental lawyer and possibly a broker and a practice management consultant. If done poorly the result will be catastrophic; if done well however the result can be intensely satisfying and extremely financially rewarding.
The whole point of the above is to make it clear that while dentistry can provide a career that is personally, professionally and financially rewarding, it isn’t usually done alone. Talk to the most accomplished and satisfied dentists and you will find that they have used expert professionals at every step of the way. If you need help in finding your experts give us a call at 866-853-5344.