The Real Life Financial Experience of a Young Periodontist – Podcast #85

Intro: This is the White Coat Investor Podcast, where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahle.

WCI: Welcome to White Coat Investor Podcast #85, The Real-Life Financial Experience of a Young Periodontist. If you're like many of your peers, your heart probably drops each time you see how much you owe on medical school loans. But it doesn't have to be this way. You don't have to live life with high payments or high interest. CommonBond lets doctors take their old, expensive medical school loans and trade them in for one at a lower interest rate, which can save you thousands over the life of your loan.

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WCI: Thanks so much for what you do. Your work is important. I know it's not always appreciated and it's not always easy and you train for a long time to do it, and sometimes it feels like you're not making any progress against your student loans or against becoming financially independent. But keep fighting the good fight. You can do it, and there's a lot of people out there to support you here in the White Coat Investor community.

WCI: So don't be afraid to reach out if you're struggling and if you've been having a hard time of it lately. There are people in your situation. I know sometimes it seems like everybody's got all their financial ducks in a row. I assure you, they do not. I wish I could give each of you a quick peek into my email box just so you would know you're not alone in what you're struggling with.

WCI: Make sure you sign up for the newsletter if you haven't. You can do this by going to whitecoatinvestor.com/free-monthly-newsletter/. It's totally free to you. You get the 12 Financial Boot Camp emails for free that come with it, and you can get updates on the blog and on the podcast and the free monthly newsletter that I send out that includes all kinds of good information like a market report and an update on what's going on around here at the White Coat Investor, as well as two special things, one of which is a list of the best stuff on the web for high-income professionals that's been published in the previous month, and the second thing is a blog post that isn't published anywhere else. It's basically, I call it the Monthly Tip, but the only way to get it is to sign up for the newsletter, so make sure you do that if you haven't yet.

WCI: Our quote of the day today comes from Morgan Housel, who said, “A hard reality is that what often matters most in finance will never win a Nobel Prize: Humility and room for error.” Today we're going to be doing something a little bit unique on the podcast. We've done something similar before, but it's always fun to get a regular reader on here, even if they want to remain anonymous, and learn a little bit about their life and get a glimpse behind the scenes, so that's what we're going to do today.

WCI: All right, we have a special guest today on the White Coast Investor Podcast. I'm not actually going to tell you his name, though. This is a regular listener we've brought on. We're going to talk about some of his successes and some of his struggles now, given where he's at in his career, and maybe not put out too much identifying information for him, but enough that you can identify with him and maybe find some help with some of the things you're struggling with and find the inspiration that will help you to reach your financial goals. So, welcome to the podcast.

Periodontist: Thanks so much for having me, Jim. I really appreciate it.

WCI: Tell me a little bit about your schooling and career, just so people know where you're at.

Periodontist: Sure, yeah. Grew up, went to undergrad, and then as far as my dental training, I did both dentistry and my specialty is periodontics, so I had four years of additional training, did a general practice residency for one year, and the specialty is an additional three years, and that's where I met my wife as well. She was doing a sister program in prosthodontics, and so we're both within our selected specialties. So I've been practicing back where I'm from now for about two years.

WCI: So you're training path is four years of college, four years of dental school, one year of general residency, and three years of a periodontist residency. Is that correct?

Periodontist: That's right.

WCI: Was this residency one which paid you or one which you paid tuition for?

Periodontist: You get a bit of both. On the general practice residency, it ends up being a little bit of a stipend, so you end up with a net positive but not by much. Certainly within the specialty programs on the dental side, a big part of what makes some programs more competitive versus others is what that ratio is. In our case, we had tuition but we also had a stipend, so it was essentially a wash. It didn't quite cover all the living expenses, but you weren't in the hole a huge amount every year.

WCI: But dramatically different from being a medical resident, where you're getting paid 50 or $60,000 a year.

Periodontist: Oh, for sure. Yeah. Like I said, the salary's somewhere in the … If I had to go back, maybe 40,000 for the year, but you have tuition as well. Yeah, I know a lot of people on the medical side are shocked by that, but there are some postgraduate residencies where you're paying 70, $80,000 a year in tuition.

WCI: What's the range of incomes a periodontist can expect coming out of training?

Periodontist: Yeah, I think for a periodontist starting out, from what I've heard, it seems like the 180 to $200,000 range is about a reasonable starting salary, but like a lot of things, I think, in dentistry or medicine, within the first couple years you're expecting it to increase as you have a larger active patient base and you're quicker and you have more experience talking to patients.

Periodontist: Average income, I think, reported by the ADA is somewhere in the $250,000 range or a little bit higher. I know a lot of those statistics are skewed down because a lot of them are practice owners, so that's reportable income. I would think that average income would probably be somewhere around $300,000 range, but again, there's a pretty wide variation.

WCI: What do you do every day? What does a periodontist do?

Periodontist: I guess what I tell patients is that if you're thinking about work in the mouth, we're almost like a subcontractor, in a way. We're doing everything essentially around teeth. If there's something that you're not going to see, typically we're doing it. A lot of it is gum grafting around natural teeth or people who have active periodontal disease, taking care of that in terms of pocket reduction in a couple of different ways.

Periodontist: A lot of times when patients are getting more complex rehabilitations done on the prosthetics side, there's adjoining periodontal work as well. Then we certainly incorporate dental implants and associated procedures like bone grafts and things along those lines into the practice as well.

WCI: Now, your wife's a prosthodontist. Tell us, what does a prosthodontist do?

Periodontist: Prosthodontics is a specialty that basically covers restorative aspects of dentistry, but you just have more specific training in that area. There's definitely a lot of gray area on the restorative side between what a general dentist can do, really, and what any of the specialties can do. But prosthodontics is probably the most closely aligned on a day-to-day basis. It's just that you have specific training in more complex rehabilitations work.

Periodontist: For most people, if you just came out of dental school and started practice, you've never really done a full mouth rehabilitation or done anything super complex. You're either learning, if you're continuing education courses or continuums, or you're learning on the fly a little bit. Prosthodontics residency's just more of a, I guess, regimented way to get some of that training.

WCI: Are these like some of the other residencies, like orthodontics, where it's the top 10% of the class are the only people that can get into them, or are they less competitive than that?

Periodontist: No, I would say probably the most competitive of them is probably ortho. I think that to be into an ortho program you have to be at the top of your class. I think that all the specialties tend to skew towards the top of the class, but I would think probably the most competitive specialties to get into would be oral maxillofacial surgery and ortho. But again, all of them, I think, skew relatively high on the class rank.

WCI: Now, in medical specialties, there's a stereotype for each specialty. The orthopedists are the jocks from college, and the emergency medicine people are the adrenaline junkies, and the radiologists and the pathologists are the antisocial, hide out in the dark kind of folks. Are there these stereotypes for the dental subspecialties?

Periodontist: No. No, I wouldn't say so. I think the one … If I had to rag on one of the specialties, I think it would probably be oral surgery, because I think those people tend to have, I would say, of the specialties, probably the biggest egos among them. Ironically, every person that was in my dental school class that went to oral surgery is actually both a really nice person and a really smart person as well, but if there's anybody that's got a bit of a god complex, I think it tends to skew towards that one.

WCI: Interesting.

Periodontist: But I wouldn't say that every single specialty has those kind of things going with them.

WCI: So you are a couple of years out of your training, and you've already paid off $100,000 in student loans. Tell me a little bit, a couple of things, really. Let's talk about how you got out of dental school, including a four-year residency afterward, with only $100,000, number one, and number two, how you paid it off so fast.

Periodontist: Really, the debt was a combined debt, so I've joined a family practice. Parents are in the dental field as well, so a big part of it was honestly family help. The only debt that I actually had coming out of dental school and residency was basically subsidized loans, and I think the total was about 34,000.

Periodontist: In my wife's situation, dental school we'll get to in a bit, and Mexico's a little bit less expensive, but she had part of her specialty training paid for based off a scholarship from her hometown dental school, so about 50,000 of that was basically her training as well. So that was the dental school debt, and then one other aspect of debt that we paid off which we can get into as well is I was in a condo that I still own in the city where I did my residency and we actually paid that off, which had about 50,000 remaining as well. So the total debt paydown ended up being somewhere in the range of between 130 and 150,000.

WCI: So you paid that off while she was still in residency, because she just came out this year, correct?

Periodontist: Right, so those things were incremental. In my case, I knew that I had six months of a grace period to pay off the 34,000, and I was also making the least amount at that point as well, so pretty much everything went towards that for the first six months. That was actually probably the most gratifying debt that I paid off, because I knew that we were striking towards a goal. When that one was paid off, it was pretty cool, but I never paid any interest on that loan. Then the other debts I was building up because I knew that they were coming up when she was going to be finishing her training.

WCI: Now, you did something that's very unusual for doctors. You put everything toward the debt as you came out of training. Most people have had this deferred gratification for years and years, in your case, 12 years since you started college, and feel like maybe the world owes you something. You're a doctor and now you want to spend something. But you didn't do that. Why didn't you?

Periodontist: Honestly, I think that that's one of the most powerful messages you get from a group like the White Coat Investor. Not only the podcast, hearing it from the book, but just having a community of people around you. I think for me, a couple of my close friends have done a pretty good job on the financial side as well, one of whom is a dentist in the local area that originally got me onto your information.
Periodontist: I think just hearing that and knowing that other people are doing that, you see the reason as to why you would want to get some of the debt paid off versus jumping into some of the stereotypical things. I think the ones that I try to avoid as best as possible was purchasing a home, so holding off on that for a little while, and the cars. I figured if I could do those things, I could give up on some of the smaller things at different times and you'd still be okay.

WCI: Yeah, I think that's exactly right. You just have to remember the big rocks is where you make the big difference, for sure.
Periodontist: Right.

WCI: Now, your wife had an interesting pathway. Can you tell us about your wife's pathway? You alluded to her studying in Mexico and how she ended up being able to practice here.

Periodontist: My wife is from Mexico. Small town in Mexico. It's where her dental school was. Dental school in Mexico, you go straight from high school right into dental school, so it's a six-year track instead of a four-year, but it combines some college with it and has an internship tag on the very end of it, and she got interested in prosthodontics when she was back in her hometown.

Periodontist: She had some family friends who were practicing in the States, working for a corporation here, and so she had gone and shadowed them and saw that she wanted to do it. Fortunately, she finished top of her class and got into the specialty and had a scholarship for it, so the three years of the prosth program, two of it was covered by a scholarship for her.

Periodontist: Then she finished that program. Again, we were in the accompanying classes the same year. Then for Florida, her specialty training doesn't give her the equivalent of what would satisfy the license, so certainly she had to take part one and part two national boards to qualify for that, but she did that during her specialty training and then she did a two-year.

Periodontist: For the medical people, the easiest way to think about it would be like an internship. I'm sure some of the dental folks wouldn't want to think about that, but it's probably the closest comparison, I think, to the medical side of the world. So those two years basically showed two clinical years of general dentistry that were done, so that satisfies the equivalent of the second two years of a US dental training program, and so she just did that and then just took the state boards and then she just finished up and started in practice.

WCI: Now, are you all in the same family practice, or …

Periodontist: No, no, no.

WCI: She's in a separate practice. Was that difficult for her to get a job in the US, having gone to school in Mexico? Was there a prejudice there or what kind of issues did she run into with that?

Periodontist: No, actually, that didn't seem to be too much of an issue, actually. She's Spanish-speaking, which I'm in Florida, and so having a Spanish-speaking doctor is actually a huge positive in most situations. She's working in a general practice. There just aren't a lot of prosthodontists around, so unless you're purchasing a prosthodontics practice, it's difficult to truly get an associateship of one. There are people that do it, it's just not that common.

Periodontist: So the fact that she had additional training and she was a Spanish-speaking dentist was always a positive. I think in terms of pay, though, most offices you're going to get paid based off of the production that you produce in the office, so it's not necessarily that they're going to pay you more because you got the specialty training if you're working at a general practice.

WCI: Where does prosthodontics stack up among the dental pay scales? Do they get paid like orthodontists? Do they get paid less than periodontists? What's a typical prosthodontist make?

Periodontist: Prosth, again, is the smallest group of them, so data isn't as easy to come by, but from what I've seen from the ADA data it seems like somewhere in the 200 to $250,000 range is the median, whereas perio probably runs in the 250 to $300,000 range in terms of the median once you're up and running.

WCI: Let's talk a little bit about some of this stuff, and listeners don't know I've got some more information here in front of me from some email exchanges we had. I'm just picking and choosing from the information I have that I know about you, and they're wondering how I know this information, but the reason why is I got some other information on the side here.

WCI: Tell us a little bit about how you selected your financial advisor and how happy or unhappy you are about that decision.

Periodontist: Sure. Thank goodness I read the book ahead of time to know, ironically, when you're stuck in a bad situation. I think a lot of people, you just end up in a spot. In this case, I was talking with a patient at the time of the exam, and the patient mentioned that he moved down to Florida because his daughter was a financial advisor. It was right around the time that I had just finished paying off the debt. I figured, it's about time that I get a financial advisor. I said, “Sure, I'll go to basically an evening seminar.”

Periodontist: In this case, the seminar wasn't particularly tailored towards young professionals. It was more like annuities and that sort of thing, but he said, “Look, come enjoy the dinner and meet her, and she can probably get you set up.” So that was originally how I met her, and then once you did you just get with one meeting and the next and the next, and it's hard to break away. I think that's actually going to be one of the things that I'm going to need to do here pretty quick.

Periodontist: I see I'm not that happy with her. We can get into some of the reasons why. I just don't think that she knew a lot about physician-specific or dentist-specific finance and didn't tailor the plan towards that.

WCI: Let's get into that. Let's talk about some things you're not happy about.

Periodontist: Sure. I think one of the things, and I'm not sure how this stacks on the medical side, maybe you can help me with that, but I know on the dental side, I think a couple of things that are probably really important in the first couple years out, certainly paying down the debt is important, and obviously I did that, but I also knew that if I had some kind of an emergency or something along those lines, I did have family that I think would have been able to help, and so I could put more money towards debt, not necessarily building liquid savings, and as quickly as some other people would.

Periodontist: I think another big aspect is building a baseline of liquidity, because for dentists, getting into practice ownership in most scenarios, not always, but in a lot of scenarios, improves your ability to earn money. So a lot of people who are in the dental-specific space will say, “Look, we want to get you to the point where you can take out a loan so you can go and purchase a practice, because that may increase your income by 30%, and if you can increase your income by a dramatic number, that's much better returns than you're ever going to get with an investment. So get yourself to a point where you can do that.”

Periodontist: Most banks want to see somewhere in the range of 5 to 10% of the purchase price of a practice in some form of a liquid account, if at all possible, so they're hoping to see it outside of your 401(k) and that sort of thing. The thought process is that if you are cash loan negative for a period of time that you've got something that can float you by.

Periodontist: I would say that was one of the big pushes that I've been wanting to get to, because we knew that for my wife, maybe purchasing a practice would be something that might happen at some point in the next couple of years. Certainly, I think that her perspective was quite different. I think her thought process was not very physician- or dentist-specific. I think she pretty much just gave a plan … I think the thought process was very, very simple, and I think it was just like, “You have more income than you're spending. It's beyond X number,” and so she just wanted to go into a life insurance product, like a permanent type of life insurance product.

WCI: Let's talk about that. Let's talk about the life insurance product your advisor wanted you to get into, and have you made a decision about this yet?

Periodontist: Yeah. I think the decision that I'm going to do is I'm going to go to a different advisor pretty soon, so I think really just getting the recommendation. Really, a lot of these things have to be done before the end of the year, because we're going to want to set up a 401(k) for my wife and an HSA, which we have the plan that qualifies for it. We're going to have to get all of those things set and ready to go.

Periodontist: You can probably chime in a little bit more on the details. The policy was a variable universal life policy, and basically the way that she described it is that in a policy like this, she says that term insurance is actually the more expensive way to go, and she says the reason why is because you're just paying for the insurance and then the insurance goes away, where with this policy, there's a cost of the insurance, but if you override it by a significant amount you're going to have significant tax benefits within the policy. So it's better for you to put all of that money in the policy versus just getting term insurance and then putting the money into the taxable account.

WCI: Yeah, sounds like the classic sales lines that they give you to sell these to you. You know, I think part of it is I think most of the people selling it really do believe what they're telling you. The problem is they just don't have the financial background to really compare it to your alternatives and the actual situations where it makes sense to use a variable universal life as another retirement account are pretty limited.

WCI: Even at physician and dentist incomes, certainly anywhere near the averages, it's very hard to make a case for this sort of a policy. For the most part, these are getting sold to people that still have student loans, that aren't maxing out their retirement accounts, and to make matters worse, the policies often aren't even a good policy.

WCI: The thing with a variable universal life policy is it's not quite the same as a whole life insurance policy. There's lots of guarantees in whole life. Now, the returns are really pretty low. Even if you hold onto it for 50 years, it's probably projected to have a return of around 5% a year with a guaranteed return around 2% a year. But there's a certain number of guarantees in there that they provide.

WCI: With a universal life policy, there's a lot fewer guarantees, and with a variable universal life policy, instead of this money being invested by the insurance company and then sent, and then they basically decide what they're going to pay out as a dividend each year, you actually get to pick the investments from what's available within the policy. So there's lots of available investments, and they're basically mutual fund-like, is probably the best way to think about the sub-accounts in a variable universal life policy. So you can sometimes compare them to mutual funds.

WCI: The problem is they're often lousy mutual funds inside these policies. It's not unusual to have an expense ratio that's basically 2%, which would be a terrible, terrible mutual fund. I see a lot of people that are kind of like you and run into what sounds like a not very experienced advisor who's recommending one of these, and the one they're recommending is just the one the company they're associated with has, or that pays the greatest commission, and isn't even a good VUL policy.

WCI: I think if you're one of those rare people for which this sort of thing makes sense, you have to have a really good policy. It definitely doesn't make sense at any time if it's a lousy policy, and so if the funds that are in it aren't Vanguard index funds and DFA kind of funds, if you're stuck with lousy mutual funds, basically, inside it, it's never going to work out well.

WCI: But I just hate seeing this sort of thing get pushed to somebody, especially at the beginning of their career when they have so many other competing needs for their limited cash. It might be a home down payment, buy a practice, pay off student loans, start maxing out retirement accounts. Most of us come out of training with a beater, and honestly, it's okay to upgrade a car at some point in those first few years, and we just have all these needs for cash, and all of a sudden now we're tying it up in some big fat permanent life insurance policy premiums. That's the problem.

Periodontist: Right. You literally hit it all. Like you said, we're currently saving up for the down payment on the home. The practice purchase, we wanted to have liquid savings for that. My car is 12 years old. It has 120,000 miles on it, and I think we'll probably wait until we have kids and switch to a different type of car at that point, but even with an older car that you're planning to keep, you could end up with significant repairs on that sort of thing too. There's a lot of competing uses for the money.

Periodontist: I think one of the lucky things was there were a couple of red flags with this financial advisor that went up pretty early. One of them was I mentioned even at the initial time we were going to start investing money into it that I was personally opposed to doing some type of permanent life insurance policy. She pitched also to my wife as well. I mentioned using Vanguard ETF and stuff like that.

Periodontist: This person's name is Lauren, and she said, she literally made the joke, “No load, no Lauren.” That's what she said for the ETF. I don't mind paying somebody a fair amount for a fair amount of work, but I just want to know that there aren't biases in the way, that this person is being compensated. I think that was really one of them.

Periodontist: Another red flag, and maybe because some other people will hear this in the pitch of life insurance, but I think I was educated against, but I think could sound good to somebody who's hearing it for the first time, was she said that she has clients who are in their 50s and 60s all the time that don't need the insurance but feel they want the insurance, meaning that it never made sense. If you're financially independent and your money, if you were to die, were to go to your heirs anyway, what is the point of having life insurance at that point? It just didn't make sense to me.

Periodontist: But she literally used that as a pitch, and I was like, “Okay, I don't think that this is the fit. You know, I think we have a slightly different view.” If anything, I want my life insurance that we're going to be purchasing to go down as we get closer to financial independence, not for it to go up.

WCI: Sounds like she's not that good at pitching it, honestly, but that's probably a good thing for you. She basically told you right there, “No load, no Lauren,” right? What she's saying is, “I am a commissioned salesman. I make money when you buy things. If you buy annuities …” That's why she's having the steak dinner, pitching annuities. “If you buy annuities, if you buy a variable universal life policy, if you buy loaded mutual funds, that's how I get paid for my advice.”

WCI: The problem with that is that Lauren faces, every day of her career, this terrible conflict of interest where she has to look at something and say, “Do I do what's right for this person's finances or do I do what pays me the most?” I think even good people can't resist that for decades on end. It's just asking too much, even of very good people.

WCI: The other problem is, I think the advisors that aren't as educated about it, less likely to have relevant certifications, less experienced, the ones who have had most of their training in sales rather than any sort of financial planning or investment management, are the ones who are more likely to be in that model, so I think not only do you end up paying for this terrible conflict of interest, and sometimes paying a lot for it, especially if you buy some huge VUL policy, but you end up with worse quality advice, so it's just a bad thing all around. I think you're a lot better off going to a fee-only advisor than really dealing with a commissioned agent.

WCI: There are times when we have to buy stuff for which people are on commission, and that's okay. You go buy a car at the dealership, that guy gets a commission, but when you walk in the door, you know the guy is trying to sell you every upgrade on there, he's trying to sell you the most expensive car on the lot. He's not pretending that he's giving you unbiased investing advice, unbiased car-buying advice, and so you know what he is when you walk in there.

WCI: I think it's the same way if you need to buy some term life insurance, you know that agent's going to get a commission. If you need disability insurance, you know the agent's going to get a commission. It's the same with a lot of things that you buy, a lot of financial products, but I think it's important to realize the difference between a salesman telling you about their product and unbiased financial advice.

WCI: I think when people need advice, my mantra is, “Good advice at a fair price,” and the fair price is more than a lot of people think at first. It's going to be a four-figure amount, but unbiased advice, there's no price too low for bad advice, so the most important thing is to get good advice and then work on getting it at a fair price.
Periodontist: Right, yeah. There's one thing I could still say to the listeners here, is that I knew a lot of this information because I'd already read the book even when I went into those pitches. It's a lot easier to hear it the first time than when you're living through it, in terms of actually firing your financial advisor and all that sort of stuff. I know exactly what I need to do, and I think I will make that choice at this point, but it's so much simpler just to go with the flow on a lot of these things, and I think that's where a lot of people, unless they really have a framework of people around them or they've really heard this information multiple times, will really pull away. I think maybe just beating the drum with anything will continue to help people make the right call.

WCI: Yeah. Let's talk a little bit more personally about where you're at financially in your life. You're a couple years out of training. Your wife's a few months out of training. Let's talk about your income and savings rate and what you're doing with your savings right now.

Periodontist: Sure. Yeah, it was interesting going back and looking at the overall savings rate. I guess I'll start with the income. I think this is a very typical track for people coming out of residency. I was on base salary basically the first six months. My base salary was 180,000, so making about 90,000 for that first six months.

Periodontist: That was the time frame when I paid off the student loans. That was pretty much where everything went, so I wasn't doing anything in terms of a backdoor Roth or anything at that point. I think, looking back, I probably could have.

Periodontist: And then in 2017, my income rose from what would be the equivalent of a base salary of 180 to about 260, $270,000, over the course of that year. That was really where I hinted that we were starting to get our savings together for a number of different things. Certainly, the payoff on the condo was part of that. Getting money ready for the payoff on my wife's soon-to-be student loans was a big part of that. Saving for the wedding was part of that, and the engagement ring, and all that sort of stuff. My wife was going through the green card process of getting the attorneys and everything set up, for that was a big part of it.

Periodontist: Then since I was eligible at this point to begin a 401(k), I started the first two years as Roth contributions, but we started … I funded the 401(k) at the office fully, and then we did backdoor Roths, essentially. I know she could fund directly into traditional, but we did those that year as well.

Periodontist: Then I started to build some liquidity at that same time, and every time that we've had additional liquidity, because I've always heard people say that having too much liquid cash is a bad thing … Typically, when you've got a little bit of extra liquid sticking around, you usually have a good use for it. That's at least what I have found in the first couple years out, is every time that I've had a little bit of extra cash, there's always been a good place to put it, some kind of debt.

WCI: What percentage of your gross income in the last two years do you think has gone toward building wealth, either building up that cash buffer, going into retirement accounts, paying off debt? What percentage of it do you think it was?

Periodontist: Going back and looking at everything, it seems like the number's between 30 and 40% total.

WCI: So 30 to 40%. That's pretty good, considering you're paying, what, 25% of it in taxes, something like that?

Periodontist: Right.

WCI: That's about half of your net income, it sounds like.

Periodontist: Right, yeah. Obviously, right when I moved home I was literally living with my parents for the first year out of residency, and I kept costs pretty far down and avoided a lot of the big purchases, so I think that there was a lot of help there, but there's no question it was a big priority to get some of that stuff taken care of so that we'd have the freedom to do things when it comes to purchasing a practice and whatnot down the line.

WCI: Are you glad you did it?

Periodontist: Yeah, for sure. It's funny-

WCI: You don't miss driving a Tesla?

Periodontist: You know, the person who introduced me to the White Coat, to the podcast and the book and everything, I was just talking with him this morning, and he actually just purchased a Tesla Model 3, and he's happy with it, but he-

WCI: Hopefully he's in a position that he can afford it.

Periodontist: He is, yeah. He's paid off all of his debt except for, I think, his primary residence, and he's done everything, I think, just right by the book. He's got a long drive to and from work, and that's what he wanted to do, and so I'm honestly just happy for him.

WCI: I hope he enjoys the Tesla. I'm not picking on Teslas. I'm only picking on buying Teslas when you can't afford them.

Periodontist: Yeah. No, but obviously a lot of those things would be fun, and I think the biggest thing for people to hear while they're still in residency, you've talked about this on past podcasts, is that paying down that debt, it's not fun. I think the first 34,000 that I paid off, it was the first debt. I was really, really excited when I paid that one off, but even making what I think is a very fair income and having a lot of family help, it still took a while to get that stuff paid off, and when you're just paying check after check after check, you're putting it somewhere and it feels like it just evaporates into thin air. It's tougher on the back side, and I had a relatively easy situation by comparison to what a lot of people have coming out now.

WCI: Yeah, a lot of listeners are going, “Only a hundred grand? How hard could that be?” Right?

Periodontist: For sure. A lot of people, I think, are coming in with three, four, five, or in the specialty programs significantly more than that.

WCI: Yeah. We talked on a podcast a little while ago about somebody with over a million.

Periodontist: Sure, yeah.

WCI: It certainly can be much higher. Let's talk about your insurance plan. What kind of insurances have you put in place in the last couple of years, and what insurance policies do you carry?

Periodontist: This actually will be interesting. Part of this, I may ask you a question on this too. I guess I'll go with all the basic policies. Obviously we have renters' insurance on the condo unit and auto insurance for us, and we have a high-deductible health insurance plan that we're on a married plan at this point. Being in the dental field, my wife and I both have to have disability insurance and malpractice insurance.

Periodontist: One thing that's probably unique to our situation with multiple doctors, and I'm not sure how common this is on the medical side, I'm sure it happens, do you guys use key man insurance? I'm sure there's a different name for it.

WCI: No, I don't think there's another name, but it's an important insurance for practice owners. The idea behind it is that if the practice owner becomes disabled the business doesn't go under, so it's not just a matter of keeping the doctor's family going, it's also keeping the practice going while you're disabled. That's the typical use for key man insurance, and it's paid for by the business, and the nice thing about that is it's pre-tax.

Periodontist: In our case, we have a policy like that, and the business is paying for half of it and we're paying for half of it, so that's an expense as well on our end of things. We do have an umbrella policy, and then, let me think. Then I've actually got a couple of staggered life insurance policies.

Periodontist: I think the questions that I will end up having is, I actually asked the person who I was buying the umbrella policy, how do you choose how much? She really didn't have a great answer. For the life insurance, I basically have three policies. One's at 20 years, one's at 15 years, one's at 10 years. The idea is that as I get further along a financial path, that I'll need less and less term insurance.

WCI: Yeah, and I like that idea. Let's walk through each of these individually. Let's first talk about an umbrella policy. How big's your umbrella policy?

Periodontist: It's 1 million at this point.

WCI: Mine's 2 million. I may up it a little bit, but the key to an umbrella policy is to have a seven-figure amount. You know, these things aren't that expensive. They're 2 or 3 or 4 or $500 a year, and you want to have a seven-figure amount, because you want, if something bad happens, you want the insurance company on the hook for enough money that they're going to send you very good representation. You want to get their best attorneys and they're defending you from whatever it is you're being accused of.

WCI: I don't know that you can get that for the $50,000 that a lot of people are carrying around on their auto insurance policies. That might be the minimum in your state. If you actually look at the requirements, it might only be 50 grand. About 80% of the umbrella policy claims are auto-related. Most of these, it's like extra auto insurance is what it is, for your liability when you run into somebody that's worth a lot. So I think that's the key.

WCI: I keep seeing people trying to relate the amount of umbrella insurance to your net worth. Like if you're a net worth of a million, you need a million in umbrella insurance. If you're a net worth five million, you need five million in umbrella insurance. But there is no reason I can think of to put those two numbers together. There's no relationship there. The only relationship you have is between the liability and the amount of insurance you have.

WCI: Having more doesn't necessarily give you additional liability. I suppose it makes it a little more easy to afford a more expensive policy, but the truth is is you need enough for whatever the claim's going to be, so if you get a $2 million claim, you need $2 million. If you get a $20 million claim, you need 20 million. It doesn't do a whole lot of good if you have $2 million in net worth and $2 million in liability coverage if you get a 20 million claim against you. You're just as bankrupt as if you didn't have the policy in the first place. So I think the key's a reasonable amount, and I've defined that as one to five million.

Periodontist: Sure. Do you know, and you probably have some information on this, then, for those types of claims … Because like you said, it's mainly auto. Disability insurance and malpractice insurance, those really cover pretty much every scenario that would happen in a professional environment, other than something criminal, I think.
WCI: Which there's a lot of things that could happen in a professional environment.

Periodontist: Yeah, right. But what is the average number, then, for a claim? Do you have any idea in terms?

WCI: I don't know, but we can make a few assumptions based on the cost of the coverage, right? My malpractice coverage is … I get a little discount now. Before I went to half-time, I think this was about 15 or $16,000 a year. That's in a state where liability's relatively low. Even among emergency physicians, it's a pretty good environment as far as malpractice liability.

WCI: So I've been paying $15,000 a year for 1 million coverage. It's a 1 million/3 million policy, so basically for $1 million coverage, and that costs me $15,000 a year. My umbrella costs, I don't know, $300 a year for 2 million in coverage. I think that tells you an awful lot about how often this coverage is used. You know what I'm saying? If it was getting used all the time, it would cost $15,000 a year, whereas the fact that it's pennies, almost, pennies a day, dollar a day, whatever it is, that tells you it doesn't get used very often.

WCI: So I think there are probably a fair number of claims in the low six figures, would be my guess, and some people may not be able to cover that if they only get minimal coverage or no auto coverage whatsoever. I think it's much less likely to have larger claims. But can they happen? Sure. That's why we buy the insurance.

Periodontist: One thing I guess we're a little bit luckier on on the dental side, our malpractice is a little bit less expensive, I think, than a lot of the medical colleagues. I think for most of us we're running somewhere between 2 and $3,000 a year for-

WCI: Yeah, wouldn't that be great. I'm not sure there's any medical specialties that are paying that little. Maybe in peds and family practice you can get that low, but I don't think so. I think even most of them are paying 5, 6,000.

WCI: A quick Google search on the average umbrella insurance claim, it says 13% of personal injury liability awards are a million or more, is what … This is somebody trying to sell you umbrella insurance, of course, so I don't know how accurate that is, but if you Google around there you'll see that there are some larger ones, but they're definitely small percentages. It's certainly not as big of risk for the typical professional as malpractice is, but is there risk there? Sure, and it's cheap to insure against it, so you might as well.

Periodontist: Right.

WCI: All right, so the next policy is, you are laddering your term life insurance policies. How big are each of these policies? You said you had a 20-year, a 15-year, and a 10-year?

Periodontist: Yep. Three policies. The longest-term one is for 2 million, the one for 15 years, the second, the middle one, is for a million, and then the one for 10 is a million. So right now I have 4 million in coverage.

WCI: 4 million on you?

Periodontist: Yeah, and then it'll drop to 3 million, then drop to 2 million at 10 and 15 years out respectively, and then at 20 years it'll just drop.

WCI: And how much on your wife?

Periodontist: Right now she doesn't have any, and that's actually one of the discussions that it would be interesting to have. She's only been out a couple of months. We knew we still needed to get something. Honestly, though, at least right now while she's an associate in a practice, I'm not dependent on her income in any way, and so I actually … If she were going to stay an associate long-term, I wouldn't be completely opposed to not having life insurance on her, but I do think that when she purchases a new practice, that debt is still going to be there, and so I'd imagine that we're going to need to get some probably term life insurance on her, relatively soon as well.

WCI: Yeah, this is an interesting question I get fairly frequently that really has no right answer. I get a two-doctor couple writing in going, “Do we need life insurance? Do we need disability insurance? Can't we just be each other's life insurance and disability insurance policy?” I think you can. I think you can actually justify having no insurance at all.

WCI: The big risk there, of course, is that you both become disabled or you both die. The truth is that a lot of us are spending enough that it really would have a pretty significant hit on us if we lost one of those incomes. So I think what most people end up doing is rather than having both partners buy a policy that is as big as a single doc married to a stay-at-home parent would have, I think they pick something in the middle, something between zero and what I would call full coverage for each of them, and so maybe they both carry a million dollars or they both carry $2 million or whatever.

WCI: But how much life insurance you carry really comes down to your spending. You basically, if the goal, if one spouse dies, is for the other one never to work again, at its biggest need that you could have, you want to be able to take what you get from the term life insurance policy plus your portfolio, and have that partner that's left behind be financially independent between those two. You can't really come up with a number unless you know how much you spend to determine how much you need to be financially independent.

WCI: But the usual answer for most docs is a seven-figure amount. One to five million, somewhere in there. If you're married to another doctor, you can probably get away with less. But I think in your situation, I think I would put a policy in place for her. It's so easy to get a million-dollar policy for 20 years that you might as well get it in place.
Periodontist: Yeah, I think … Honestly, she just finished residency, so I do think that we'll do something relatively small. Like I said, once she gets into a practice ownership position, if she were to pass away, there's likely going to still be debt on it, so if for no other reason than just for that, it's in place.

Periodontist: I think the tricky part for young people like ourselves is, how do you project what our spending is going to be in a couple years? One of the knocks that this old financial advisor that I had said was that our savings rate was basically too high. What I wanted to say was, “Look, our savings rate is high right now, but what happens once we buy a home and have a couple kids and get some new cars and stuff like that?”

Periodontist: Likewise, when it comes to term insurance, you almost have to project out what you think you're going to be spending in five to seven years and then base it off of that, because obviously your spending's never going to be lower than it is right now when we're a two-doctor couple living in a one-bedroom apartment.

WCI: For sure, and here's the thing, too. It should be a seven-figure amount. This isn't something you figure out and “I need a 740,000 versus 780,000,” you know. It's like, “I need 1, 2, 3 million.” If you could calculate out a number, round up to the next million. This stuff just isn't that expensive, so get it in place and that way if, heaven forbid, you actually need it, you got plenty. I think that's the goal when it comes to term life insurance.

Periodontist: Sure.

WCI: Let's talk about disability insurance. You mentioned you each have a disability insurance policy. Let's talk about yours first. What do you have?
Periodontist: It's linked to income, and so basically when I went for the disability policy initially, you had to have proof of income in your contract and then they basically base it off of that. I want to say, the last time I looked at it, that it went up with 7 or $8,000 a month or something like that in disability, but they link it based off of your prior W-2.

WCI: You mean how much they'll sell you?

Periodontist: Yeah.

WCI: So this is an independent policy? This is an individual policy that you can take with you to any job, correct?

Periodontist: Right.

WCI: Which company did you get yours through?

Periodontist: I'm trying to think. Let's see, Brown & Brown's for malpractice.

WCI: It's probably Standard or Principal or Ameritas or Guardian.

Periodontist: Yeah, I want to say it's through Principal.

WCI: Principal, okay.

Periodontist: I think it's two policies, and they did it so that you could increase both and one's through Principal and one's through Mass Mutual.

WCI: Sounds like you saw an independent insurance agent and put a pretty good plan in place. It's probably not very cheap, but it's probably your most important coverage you have right now.

Periodontist: Right, and this will be interesting too. I think, especially when we're young, it's really important that we have it. What are your thoughts as people get older? Let's say you're a 55-year-old doctor and you know that if you were disabled you're pretty much financially independent? Do you think you doctors taper it down or do you think you leave it in as long as you practice?

WCI: I'll tell you exactly what I'm doing. Today, as we record this, it's October 29th, and I just got letters in the mail yesterday from the Standard, who has my individual insurance policies, and is basically telling me they're going to take money out in about a month out of my account to pay for them for another year. One of my chores for today is to call them up and tell them I don't want them to take that money out, because I'm done. I'm 43 years old. I don't need disability insurance anymore.

WCI: Now, in my case, it's a little bit unique, because I've got this other source of income with the White Coat Investor, and so the truth of the matter is even if I was disabled from being able to practice medicine, I'd still have most of my income. So I'm canceling a little bit earlier than I probably would have otherwise, but I see little reason to carry this thing to the grave for a couple of reasons.

WCI: Number one, it's expensive. Most of us are spending thousands a year on disability insurance, and that money can be used for other stuff. That's the number-one reason why you want to get rid of it. Number two, if you're financially independent, if you have enough money to live the rest of your life, you don't need to insure your income anymore. It just doesn't make sense. Insurance is not a profit-making enterprise for you. The only person making profit off the insurance is the insurance company, and that's because they can charge you enough that they can cover all their expenses, make all the payouts they need to, and still have a little bit left over for profit. Any time you don't need insurance, you probably shouldn't be carrying it.

WCI: But the last reason is because these policies only pay until you're 65 or maybe 67, and so if you're 61, you're still paying the same amount in insurance that you were paying at 35 for 30 years of coverage for only four years of coverage. It's only going to pay for four years, so the closer you get to retirement, yes, the more likely you are to be disabled, but also, the less you're going to get paid out from it. At a certain point, you got to go, “This just isn't worth it anymore.” I think for a lot of people, that happens in the late 50s and 60s.

Periodontist: Yeah, it's actually the situation my parents are in in practice, is they're right around that age and they're beginning to ask themselves that question. A piggyback onto that question, too, is what happens with doctors who have not taken care of their personal finances well and they're in their 60s, because now their ability to get that kind of insurance … If you're 67 and you say, “I'm going to work until I'm 80,” what happens if you have a back injury?

WCI: Yeah, the problem with those policies is they usually only pay for two years and they're expensive.

Periodontist: Right.

WCI: So it's not nearly the deal you're getting at 30.

Periodontist: Right. I think that's one of the reasons why taking care of finance on the front end's so important. I think a lot of people say, “I like my job. I'll work until I'm 75.” At least on the dental side of things, a lot of the policies won't even … They won't let you go past about 65 or 67, so after that you're riding on your own.

WCI: Let's change subject a little bit. I wanted to get into a few of the topics we talked about on email that are unique to you. A lot of this disability insurance and term life insurance is the stuff that all our listeners are dealing with, but you wanted to talk a little bit about some considerations when purchasing your doctor home and a practice, and I wanted to get into what you meant by that. What were some of the considerations you've been thinking about the last couple of years as you look into these two big purchases?

Periodontist: I think the biggest one for most dental people, although we want to get the home first, it seems like you should actually get the practice first, because-
WCI: Totally agree with that. Absolutely.

Periodontist: Yeah. I think one is, when you purchase the practice … Practices can be bought and sold, and I think as more corporations are doing it, they're doing it more quickly, but typically when a dentist or dental specialist purchases a practice, it's pretty much a decision to anchor down on that area, more so than a home would be. When you've bought that practice, the likelihood that you're going to move, unless something major happens, is pretty unlikely.

Periodontist: Now, a lot of times, the purchase is actually going to cost more as well, and so you want to make sure that your financing is available to do that. I think the big consideration there for young doctors is making sure that we have the ability to certainly get enough leadership and management training so that we can take on a practice like that, but the big thing is making sure that we can get the loan, because there's a lot of, I think, young dentists who want to purchase a practice that aren't going to necessarily be given a loan for … Some of these practices go for 1.5, $2 million. It's not uncommon to have a large practice selling for that amount, and so getting ourselves in a financial situation where a bank would be willing to lend you that money is the biggest consideration there.

WCI: I think what happens is people come out of school with half a million dollars in student loans, and then they get a half million-dollar mortgage, and then they try to get a half million-dollar loan for the practice, and then just, at a certain point, they go, “You want all this on an income of 150,000?” It's just not going to happen.

WCI: A house is mostly a consumption item. Yes, there's some investment aspects. You get the saved rent is a dividend, and maybe the house will appreciate, so in some ways it has some investment aspects, but for the most part a big fat doctor home is a consumption item, and the practice is actually increasing your income, so it's an investment more so than a consumption item. So I think it's important to buy the investments before you buy the consumption items.

Periodontist: For sure. Yeah, I think if you look … You don't have to go any farther than looking at some of the information that people who do real estate for a living. They typically do one of a couple of things, right? They're either forcing appreciation in some way by knowing something about the market, or realistically a lot of times they're flipping it, or they're getting a very good amount of rent to what the purchase price of that asset was.

Periodontist: Typically, I don't think they're buying, like you said, big doctor homes on golf courses. They're buying duplexes and triplexes in middle areas where you get better rent and that sort of thing. The big doctor home on the golf course or on the lake is not always the best investment. Not that that doesn't mean you don't get it, but like you said, it truly is mainly a consumption item.

WCI: Now, you guys got married not that long ago, and decided to do something unique with your gift registry. Tell us about what you did and why you did it.

Periodontist: We got married just a few months ago, and one of the things we did is we didn't want to actually have regular gifts, we just wanted to ask for cash when it came time for the gifts. It wasn't that we wanted a lot of money or anything along those lines, it was really just that if you think about how the traditional registry works, Bed, Bath & Beyond or Restoration Hardware, or whatever store you're at really owes you a check because you're basically forcing your friends and family to buy stuff at retail price. Sure, they're things that you want, but they're certainly not the biggest needs in terms of your financial goals, especially in the short term.

Periodontist: In our case, we're in a one-bedroom apartment right now. We've got pots and pans and that sort of thing. There just wasn't that many consumption items that we legitimately needed, so I figured the money was much better spent on other things. Realistically, where it went, her parents helped with some of the wedding, but the gifts actually paid the rest of that off, and some of the honeymoon. Then there was a little bit that was left over and that basically went right into her student loans.

Periodontist: It just felt like it was a more efficient use of the money, which if somebody truly cares about you, that's really what they should want in a gift, to go to the most efficient place.

WCI: For sure, and that's what we tend to do as well, because in your 20s in general, and particularly when you come out of training, cash is king. You just have so many uses for it, and such a limited amount of it, that it's really helpful, so I can see why you did that.

WCI: All right, let's get into our last topic. This is a little bit more of a controversial topic. We interacted about this on email a little bit. Let's talk a little bit about biases in dental, and for that matter, medical treatment. Biases that sometimes lead us to recommend courses of treatment for a particular patient. You want to give your thoughts on that?

Periodontist: Yeah. I'd be interested to get your thoughts, too, on how that happens on the medical side. I don't know if they're more insulated, but I think one of the things that's great about your group is that you guys are very … You do a lot of … How do I put this? You're very retrospective in thinking about the biases that other professionals have. I felt like if we're going to do that for a financial advisor, I do think we should put the microscope on ourselves in the same way.

Periodontist: Really, no matter what, whether it's dentistry or different aspects of health care, I think that we're all likely to have some form of biases. The way that typically most dental professionals are paid is basically a percentage of what is essentially collected by that particular practice. A number of things will vary on that. What procedures are done, how often they're done, what the practice has the ability to bill for, whether in the fee-for-service model or some type of an insurance plan, all in some way, shape, or form affected.

Periodontist: But I know as a young doctor, there was definitely a temptation to do additional types of treatment for financial gain. Again, everybody has their own biases, but I do think that that's one of those things that comes up, I think, more often, I don't think that patients or other health care providers are necessarily aware of.

WCI: Yeah, I think for sure the medical side is more insulated from this. That's because of the role of health insurance, honestly. It's all so opaque. We don't even know the prices of half the stuff we're prescribing or tests we're ordering. So in some ways, there's an advantage there on the dental side, because you actually know what things cost and what you'll get paid and et cetera, et cetera.

WCI: The downside is I think you face that conflict of interest much more readily than a physician does. It's staring you in the face every day, and just like for a commissioned salesman that we were talking about earlier, you've got that temptation all day long that you have to resist to do the right thing for the patient, and only the right thing. Maybe that's X rays once a year instead of twice a year or maybe it's … I don't know what it is in your particular field, but I think it's something that we have to realize that we have a duty to the patient that we've sworn, and it's a duty not just to their health but also to their pocketbook, is quite frankly the way I look at it.

WCI: It's very difficult in medicine, though, because you literally cannot find out the price for a particular treatment for a particular patient in their insurance plan. Insurance really mucks it up quite a bit.

Periodontist: Sure. I think in my specialty, just based off of … Patients don't typically feel periodontal diseases happening or a lot of times they won't see it if it's in the back of the mouth, so it's pretty difficult for us to truly over-treatment plan. I guess you could do it, but it-

WCI: Because nobody wants to treat it, because it's not bothering them?

Periodontist: Right, yeah. A lot of people, it doesn't hurt them, doesn't bother them, or that sort of thing. Honestly, I think for a lot of dental practices, not everybody of course, but for some, anyway, there's the temptation to treat just what's bothering them or treat just what they want or just treat what I can do as a general practitioner. Like I said, definitely not always the case, but with some dentists I think that can happen.

Periodontist: That's true, I think, from specialty to specialty as well. I think that as a periodontist I'm going to always see the patient walks in the door. I'm going to notice all of the periodontal concerns, the dental implant concerns, but if that same patient went to an orthodontist, they might say, “Hey, we could probably do some things on the ortho side as well.” Everybody, for the most part, has some work that could benefit the patient.

Periodontist: So it's not necessarily that treatment gets truly over-treatment planned, it's more that we just have our slant towards what our background and our training is. I think that's the most common bias that tends to come out. Not necessarily something bad for patients per se, but just that if you were a general practitioner versus being a periodontist versus being an oral surgeon, you would probably prioritize some of those things slightly differently in some scenarios.

WCI: What do you personally do, knowing that you're only a couple years out of residency and nowhere near financial independence, still with lots of cash flow needs? What do you do personally to keep from over-prescribing or over-treating?

Periodontist: I think one of the things in our practice that's really helpful, we get to separate the day that we do our examination from the time that we actually make treatment recommendations, so you can really go back and think about when and why you're going to recommend treatment. I do think that evidence-based treatment's really important. In dentistry it's not as clear-cut, I think, as it can be in certain aspects of medicine, and so really going back and reviewing the evidence, saying, “Which treatments are truly needed?” and having criteria set for different classifications of things really goes a long way to eliminate some of that bias.

Periodontist: Then we have a sit-down with the patient where all we're going to do is review everything in terms of the radiographs, photographs, the whole nine, and come up with a treatment plan with the patient there, so I think some of those things do tend to help in terms of bias. But a lot of it is just having conversations with the practitioners that we're working with on the case to see if there are other needs that are out of our purview, what are they and how urgent are they and how do we make sure that we ensure that that other work gets done as well? Even if it's not necessarily something that we're going to do, we just want to make sure that it makes the most sense for the patient. So I think the split time between the initial exam and the recommending of treatment for most patients is actually the most helpful thing.

Periodontist: One of the questions was, in my 401(k), currently I'm doing it with Roth. The idea was I didn't have any Roth contributions prior. I probably want to have a mixture of both. You can effectively put more money in when you're doing it as a Roth contribution, but at some point I think probably the tax benefit … A lot of people say to switch over to traditional, and I just want to know where you think that teeter-totter point is for most dental people.

WCI: I think the teeter-totter point here is the same for everybody in that when you get into your peak earnings years, you should prefer tax-deferred 401(k) contributions. Now, in your case, your wife's just coming out of residency this year, hasn't really gotten to peak earnings yet, and that might not even be next year, but it certainly isn't this year, when for half the year she wasn't working.

WCI: So within a couple of years, though, the two of you are going to be at your peak earnings level, in which case you're going to want just about every tax-deferred dollar you can get. But in these early years when only one of you is working or half your year you're on resident salary and half the year on full professional salary, that's when you want to be taking advantage of the opportunity to get things into a Roth 401(k) at a lower tax rate. Does that make sense?

Periodontist: Sure. Yeah, a couple other ones, though. I think you've hinted on some podcasts before about minimalism and decluttering and really prioritizing just the things that you need versus the things that society says you want. You've owned a couple of homes. We're going to be purchasing a home and, at some point, having kids. What would your recommendations be on how to prioritize the things that you truly need in a home that you're going to make a lot of use out of versus the things that look really nice when you're buying the fancy doctor home that you won't necessarily use a lot of?

WCI: You know, Cindy, who manages these podcasts, is meeting with a realtor in about an hour and a half, and so she's giving me the evil eye as you ask me that question. The truth of the matter is, the vast majority of what we, as doctors, buy in a home, is a want, not a need. I had my friend, the contractor, over here, the other day, and we were talking about maybe doing some changes and stuff, and he's like, “What are your needs?” I'm like, “I have no needs whatsoever. None of this we're talking about is a need.”

WCI: So I think it's important to realize that upfront, that almost everything you're talking about is a want and it's just what you want the most. But I'll tell you what, I've got a lot of space in my basement. This place is 4,400 square feet on three floors, and the only thing I ever come down to this basement for is to record podcasts. So I don't need 1,500 square feet to record a podcast. I just don't need it.

WCI: I think being careful how much you really want and need down the road is probably my best advice, just because every square foot you buy has to be furnished and carpeted and painted and insured and heated and cooled and landscaped and so on and so forth. So sometimes I think we get these big eyes at what we really think we want, and two or three years from now we'll feel a little bit differently about.

WCI: I know one regular on the White Coat Investor forum feels imprisoned by his house. At first it was great to have a doctor house, and now 20 years later he feels like he's a slave to it because he's always doing maintenance stuff and upgrading stuff on it and landscaping it and stuff. So I think the main thing is just don't overestimate how happy the fancy doctor house is going to make you. It probably won't be as much as you think.

Periodontist: Yeah, one more, and this is on behalf of that friend, the guy who got the Tesla, the friend who introduced me to the White Coat Investor group.

WCI: Thank you so much, friend, Tesla driver.

Periodontist: He's got everything paid off except for his debt paid down on the practice and on his primary residence. He's paid everything off. I don't know all his personal details, but I would go with the working assumption that he's maxing out all of his available tax-deferred things. He's on the other end of it. He's already buying a Tesla.

Periodontist: He wanted to know if he's got additional money, where do you recommend it go? He's got … Again, I don't know the amounts on the homes and the practice, but he said that both interest rates were in and around 4%, so they're both at really good interest rates. Do you just blast money into the taxable account? Do you do equipment upgrades or do you do debt paydown? What would your recommendations be for him?

WCI: I think in this sort of a situation, it's not clear. When you've got 30% credit cards, there's an obvious answer to the debt versus invest question. When you aren't even putting enough money into your 401(k) to get the match, you've also got a definite answer to this question. The rest of the time you're in some sort of a gray zone, and I did a blog post on this recently, just because it's literally the most common question I get.

WCI: And some things to consider, like the interest rate and whether you've got other tax-advantaged accounts available to you … But assuming you don't, and your question is really, “Do I take a guaranteed 4% paying down my mortgage or my practice loan, or do I invest in taxable and hope to do better than that?” There's no right answer there, and sometimes the right thing to do when you're not sure what to do is just split the difference, which is perfectly reasonable as well.

WCI: It does take away the power of focus a little bit. If you were focused completely on the debt, you'd probably pay it off a lot faster, but it's a reasonable thing to do either way, to pay on the debt, to invest, or to do both at once. So no totally right answer there.

WCI: You mentioned equipment upgrades, though. If there are equipment upgrades you can do that will boost your income, I view that as a pretty good investment. Investing in yourself and your practice is oftentimes the best thing that you can do with a dollar, and so if it's just putting in a TV because you think people like it, that's one thing, but if it's something that's actually going to earn you more money, I would definitely look into that first before investing in a taxable account or paying down 4% debt.

Periodontist: Sure. Okay, yeah. I mentioned this before. Hopefully more people will come on and do something along these lines in terms of going through their finances, because I think that when you're by yourself, getting through this stuff without a community, you feel like you're on your own, and so I think hearing more people talk about their personal situation, I'm sure a lot of people will relate to it, for sure.

WCI: I agree. I'm waiting to get more people emailing me and saying they want to come on, so if you're one of those people out there, please do.

WCI: We're starting to run a little bit short on time here, but this is your opportunity. You've got the ear of 10 or 15,000 high-income professionals, the vast majority of whom are physicians or dentists or their trainees, but what advice do you have for them? What would you tell them that you've learned that you'd like to pass on?

Periodontist: I think in terms of if you're to say advice, I think it's more just what was my experience going through it. I think that's the biggest, the most helpful thing that I can help provide, and that is probably the most important thing you could do would be to track your spending. Get on a Mint or something along those lines and be very intentional about what your spending is and don't relate that to the level of income.

Periodontist: I think if you can do those couple of things that really will help, and that's going to be one of the things I'm going to go through with my wife here in January, is we're going to do a review of this past year and see where our spending goes. I think of any tool or anything along those lines, that probably made a bigger impact than anything.

WCI: Thank you so much for being on the White Coat Investor Podcast. It's been wonderful having you here.

Periodontist: All right. Thanks so much.

WCI: Hope you guys enjoyed that. I'd like to do more segments like that with regular listeners. We do our best to keep you anonymous if you want to be. Obviously if somebody recognizes your voice that's going to be a little bit hard, but it should keep your patients from being able to listen to the podcast when they Google your name, anyway.

WCI: Make sure you've signed up for the newsletter if you haven't yet, and when you start getting the newsletters, add our email address to your safe senders list or to your contacts list so you make sure you get them. Unfortunately, when you're sending out as many emails as we are, a lot of times some of the email services like to add us to their junk mail spam filter kind of list, so you have to actually tell them sometimes that you want our emails if you want to be getting them. Obviously you can unsubscribe at any time and there's no price for them. It's totally free.

WCI: When you sign up for the newsletter, you also get our Financial Boot Camp, which is 12 emails you get once a week for 12 weeks that will help you get your finances in line and get up to speed with the rest of the White Coat Investor community.

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WCI: Head up, shoulders back. You can do this. If you need help, we will connect you with someone in the White Coat Investor community to help you. See you next time on the White Coat Investor Podcast.

Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He is not a licensed accountant, attorney, or financial advisor, so this podcast is for your entertainment and information only. It should not be considered official, personalized financial advice.