Financial planning may be useful for professionals in a variety of industries, including dentistry. While an individual’s goals with financial planning can be varied, here are a few ways that you may use a financial plan. Learn more about financial planning for dentists as we explore some of the fundamentals and what’s important to know.
As a dentist, you have many responsibilities related to your practice and you may wonder why you should include developing a financial plan among those responsibilities. Financial planning for dentists may be helpful to you for the following reasons:
One important goal of a financial plan is to increase your current savings rate. You may do this in several ways, as noted by one blog describing initial financial planning steps for young professionals, such as:
Another component of a comprehensive financial plan is generating income through returns on equity investments. An equity investment is when you invest in a company by purchasing ownership in the company (e.g., purchasing shares of a company). While an equity investment may generate returns, there is also a risk of loss, including fees and deductions related to investing. Obviously, other things equal, you want your rate of return or ROI (return on investment) (2) to be high on any investment you make as this determines the efficiency of an investment.
To determine your ROI, you divide the amount you have yielded as a return on your investment by the amount of your initial investment. This will give you your ROI. You may generate returns on an investment in various ways, including an increase in the stock price or distribution of dividends. However, there are limitations on the use of ROI as a metric for analyzing investments, such as its failure to incorporate varying investment risks and time horizons for different investments.
If you choose to engage a Personal CFO (pCFO) (3) you don’t have to figure out what companies or funds you should invest in to seek to generate returns over time. They do the investment analysis for you and can advise you on how to invest as you seek to garner a higher ROI than simply putting your surplus income into a low interest rate savings account.
These three steps may help you to accumulate wealth over time: (4)
Financial-industry surveys, peer-reviewed studies, and other data have shown that worries about money negatively affect the health and well-being of Americans. (5) According to an American Psychological Association press release about its ongoing stress survey, “money is a somewhat or very significant source of stress” for “the majority of Americans.” Regardless of the economic climate, this has been true since 2007. (6) Even if the economy is thriving, most Americans are stressed about money, and many of them to a significant degree Therefore, financial planning, or having a goal in mind for your finances, may reduce your stress levels (7), which could help improve your health and well-being. (5, 6, 7)
Yet another reason financial planning for dentists may be appropriate in your life is that it may help you to plan for and pursue your financial goals. Often, the first question a financial advisor will ask you is, “What are your financial goals?” Whatever your goals, a comprehensive financial plan may outline a pathway to pursue your financial goals.
Retirement is a big consideration in any financial plan. You probably want to retire, travel, spend time with family and the like. Your financial plan can assist you with pursuing the goals listed above, with the purpose of seeking to retire at or near your preferred age.
Now that you have considered the many benefits of a financial plan, you likely want to know when to start. Thankfully, we have this information outlined for you below:
Don’t just wait until you are well into your practicing years to begin thinking about retirement, wealth building or general financial planning. Early in your career may be an appropriate time to begin. In fact, the earlier you start, you may begin saving and investing your money and, thereby, begin pursuing your financial goals.
Please understand your goals will mirror no one else's and that’s okay. Each dentist has different goals and ambitions. There is no one-size-fits-all financial plan, which is why hiring a financial professional may be appropriate because they can help you alter a generic plan to pursue your individual goals.
Now may be an appropriate time to begin investing in your own future. Even if you are just out of school or residency or still getting started in the field and remain neck deep in student loan repayments, it’s important to at least have a plan in place to begin working towards your financial goals now, not later.
The sooner you talk to a financial planner, the sooner you can prepare for your future. Contact us today at Treloar & Heisel to learn more about our financial planning services for dental professionals just like you.
Sources:
1.) https://medium.com/swlh/3-phases-of-financial-planning-for-young-professionals-e8eda90c26b6
2.) https://www.investopedia.com/terms/r/returnoninvestment.asp
3.) The Wealth Consulting Group, Personal CFO Services, https://www.wealthcg.com/private-client-group.
4.) https://www.investopedia.com/managing-wealth/simple-steps-building-wealth/
5.) https://www.marketwatch.com/story/one-big-reason-americans-are-so-stressed-and-unhealthy-2018-10-11 (This article reports that certain studies and surveys show that “[m]oney is the biggest source of stress for Americans.”)
6.) American Psychological Association, American Psychological Association Survey Shows Money Stress Weighing on Americans’ Health Nationwide (accessed August 17, 2020),
7.) https://www.apa.org/news/press/releases/2015/02/money-stress
8.) https://www.marketwatch.com/story/4-ways-to-get-your-finances-in-order-and-reduce-stress-in-your-life-2019-07-30#:~:text=The%20study%20revealed%20that%2073,to%20prioritize%20your%20financial%20goals