Posted by Treloar & Heisel on Aug 7, 2023 9:00:00 AM
With all the discussion in the media about an impending recession, we thought this would be a good time to share with you our thoughts about — not whether there will be a recession or not — but how you might best weather a recession, should it happen sometime. Even if there isn’t a recession, there may be a slowing of the economy. The point is that you don’t know when it will happen and for how long, but there are some things you may be able to do so that you are not overly impacted financially by a recession.
We believe that there’s no time like the present to take stock of where you are financially. Here are a few pointers on how to prepare for a slowing economy.
8 Tips For Surviving a Recession
1. Strengthen Your Cash Position
Simply put, do you have an emergency fund? Everybody should have about three to six months of spending in a cash reserve fund, so they can draw upon it if needed. If any coming recession is like the past recessions, then there is a likelihood that your income could drop. In more severe recessions in the past, we have seen significant drops in practice income. Some doctors had to draw upon some of their cash reserves temporarily to make up for the shortfall in revenues. It makes sense to fill up your cash reserves now, if you can.
2. Increase Your Disability Income (IDI) Insurance Coverage if You Can
The type of individual disability income insurance that we advise our clients to own, is non-cancelable, guaranteed renewable or continuable. This kind of coverage allows you to lock in your disability benefit at your income level at the time of purchase.
Let’s say your income drops in subsequent year(s), you still qualify for the higher coverage, assuming that’s when you locked it in. So, if you had a good income year in 2022, you want to make sure you increase your disability insurance now. If your income happened to reduce in 2023 and if you were to become disabled, you would have locked in the higher benefits based on your 2022 income.
3. Review Personal Spending
Nobody likes to hear this, but the truth is that during good times we all tend to have some lifestyle creep, and sometimes our spending goes a little higher than it should.
Now is a good time to do an audit, to see if there’s any fat you can cut in your spending without impairing your quality of life.
4. Evaluate Your Practice Spending
Just like personal spending has creep, so does office spending. Have you signed up for services that you may not be using? Is your inventory of supplies building up? Use this time to negotiate with suppliers in an effort to manage the costs of running your practice.
5. Review Your Student Loans
This is also a good time to look at your loans. At the time of this writing (early 2023), interest rates have nearly doubled over the last year or so. If you refinanced several years ago when interest rates were at historic lows, you may never have to refinance again. But if you obtained a loan in the last year while interest rates were going up, if we do end up having a recession, there is a chance interest rates will go back down. They may not go as low as they were in the last 10 years, but they could still go down a bit, because the Federal Reserve typically fights a recession by lowering rates. That might provide some opportunities to refinance. This would be particularly true of any variable rate loans you might have, like home equity lines of credit (HELOCs) and other consumer loans.
6. Professionally Evaluate Your Investment Portfolio
Typically, a recession will take a bite out of your stock returns temporarily. In the last decade, a lot of people have been doing their own investing, with a lot of money being directed into certain areas of the market, notably in the tech sector. Many of the high-flying tech companies have become overvalued, and some have taken it on the chin as the economy has contracted.
Essentially, if it’s been a while since you had an advisor look at your portfolio, this is a good time to have your portfolio professionally evaluated. You want to make sure you have a fully diversified portfolio, including sectors that tend to ride out economic turbulence better than others.
There will always be segments of the market that are undervalued and others that are overvalued. It pays to have a professional look at your portfolio to make sure it aligns with your financial plan, which kind of brings me to my next point.
7. Develop a Financial Plan
If you haven’t yet hired a financial planner, now is a great time to find an experienced professional to help you with this.
A comprehensive financial plan will look at every aspect of your finances and identify the strengths and weaknesses in your current situation, along with recommendations on how to remedy those aspects that need help. If you already have a financial plan, you will have hopefully addressed all the potential gaps. If you own a practice, you should also use the opportunity to take stock of the full financial picture of your practice.
If you already have a financial plan, this is a good time to re-evaluate your plan. Schedule a review!
8. Work With a Financial Advisor Who Specializes in Working With Dentists
I’ll conclude this by adding that it’s worth it to work with a specialist. Find a financial advisor who understands the unique financial circumstances of dental practitioners. The more experience your advisor has with people who fit your profile, the more specifically applicable their advice will be to your given situation.
Regardless of what happens, I wish you all the very best. And if you have any questions at all, please don’t hesitate to reach out to us, we’d be happy to address your concerns.
About Treloar & Heisel
Treloar & Heisel, an EPIC Company, is a premier financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering the highest level of service.
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