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Need Help Getting Started with High Income

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  • Avatar Malocclusion 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/30/2018

    Hey Teefus.  Congrats on a great start.

    It’s a wonderful position to be in .  You’ll find many debt hawks on this board, and none of them are wrong.  You’ll soon find yourself in a position that debt is less of a stressor and more of a tool.  Debt that is hard to pay off is a problem.  Debt that you choose to be in to facilitate better options is not.  I’ve borrowed 5 and 6 figure sums several times just to smooth cashflow and never held them more than a month or three.  That’s the power of earning.  Everytime it worked out either financially or personally.

    Here is what I would do if I was you.

    First prioritize insurance.  You are off to a great start.

    A.  I’d go 6 million on the life insurance, just because you can, and a few hundred a year now is a lot of piece of mind for your family.  My lifestyle is scuba, road and mountain cycling, and soon to be small aircraft.  I don’t plan to die doing these things, but at least I know I’m not abandoning my family if crap happens.

    B. Disability seems good.  Same as above regarding going to $25k.  Mine isn’t that high, but I have more net worth than you.

    C.  Malpractice.  2/4 is a ton.  I’m guessing you are OMFS, otherwise that is overkill.  If so, then my opinion is useless.

    D.  Practice interruption / overhead insurance.  You need to get enough of this to pay your bills due, your rent, and your staff for at least 3 months.  You aren’t just the head of your family now, but you have an obligation to your staff to not disappear and leave them in the lurch.  This works similar to disability.  I broke my hand a few years ago and missed a few weeks work.  If I were a better patient and did what my surgeon suggested, I’d have missed 6 weeks.  Floods happen.  Tornadoes happen.  Fires happen.  Protect yourself.

    Health insurance.  I got caught up in the High deductible HSA plans for a while through the marketplace, and ended up costing myself a lot of money.  We even did the healthcare ministries thing for a while.  An HSA is great, but depending on costs and needs, it is only one factor to consider.  We do give a wellness bonus to my staff, but we don’t provide healthcare insurance.  Once you start, it is VERY hard to go back if costs become unmanageable.

    I saw that you addressed estate planning.  That is a big one.

    Depending on the number of staff you have (less is better, younger is better), a defined benefit plan might just work in your favor in a big way.  Your young age is against you.

    I would pay the max on my practice loan, but not a penalty.  2.99% on the car loan is close to a tipping point for me.  If it was 4%, it would be gone tomorrow.  If it was 1%, I’d ride it to the end.  At 3%, you aren’t wrong either way.  I suspect you barely notice the payment in your monthly budget.

    401k and DB/CB plans require a select specialist to plan for.  You just can’t do those yourself, especially if you have staff.

    Hank has a lot more experience as a practice owner than I do, but it is (I think) as a general dentist.  Hiring a specialist is SO much harder than a GP, especially to a low density area.  Hiring a specialist associate to a LCOL area is so much harder than it should be, especially if you have a large geographic area to cover.  If you know an endodontist who wants to live in an incredible place and make double or more what their peers do as an associate, have them call me.  We do put high mileage on our cars though.

     

    PS.  I’d avoid the LIRP, but may not be the most informed there.  Feels dirty though.

    Click to expand…

    Molar Mechanic: and I though you were an orthodontist…lol. In orthodontics “mechanic” refers to the force systems designed to move teeth. I guess it makes sense….you’re a mechanic fixing molars.

    #205602 Reply
    Avatar Malocclusion 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/30/2018

     

    If you know an endodontist who wants to live in an incredible place and make double or more what their peers do as an associate, have them call me.  We do put high mileage on our cars though.

     

     

    Click to expand…

    Molar Mechanic: and I though you were an orthodontist…lol. In orthodontics “mechanic” refers to the force systems designed to move teeth. I guess it makes sense….you’re a mechanic fixing molars.

    #205603 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 397
    Joined: 10/29/2017

    Yeah, really just a term I remember being thrown around for all dentists.  I figured my avatar gave me away.

    #205615 Reply
    Liked by JDG
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 12
    Joined: 04/04/2019

    While you’re making a great income, are you limited by operatories, hours, staff, size of local market? Any chance of bringing on an associate and/or opening a second office? Don’t just rush blindly into multiple practice ownership, but if you can reproduce the success you’ve had so far you should get far better returns than the 4.05% and under interest you’re paying. You’re young and hard charging now. Are you taking proactive steps to avoid burnout? Making time for date night at least once per week? Make sure to balance success with career satisfaction, duration, and happiness at home.

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    I am basically at my capacity as far as scheduling goes….I do not care to expand my hours/days working, etc. I currently only work 4 day/wk usually 8-5pm. I do take a couple vacations each year and do not foresee a burnout at this rate occurring. My goal is to make work optional in 10 yrs….however, don’t know if I’ll cut the schedule back at. I could open another office…however, unsure if added stress would be worth it. In order to do so….the office would be 80ish miles away….so I’d be a long distance relationship. Thanks so much for the advice!

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    You’re working 8-5, four days per week.  Even if you’re working straight through lunch, that’s 36 hours per week.  However, you’re paying rent or mortgage on your office for 168 hours per week.  Currently you are the rate liming step, but career duration, satisfaction, and avoiding burnout are critical over the long term.

    In declining order of expense, here are things you can do to get more production:

    1. Open a new office in another town.  80 miles away gives you plenty of time for podcasts, but it would be a rough commute.
    2. Build out more operatories in your existing office.
    3. Add hours to your schedule without any build-out costs.

    I’d look at bringing on an associate and having him or her pick up days and hours that you aren’t working.  You could have your associate cover Thursday, Friday and Saturday.  You could split your schedule so that the office is open 7 – 7 or 7 – 8.  You may have two shifts that each are on shorter hours.  You could have some support staff that work different days of the week.

    You may very well find that you can go down to 3 or 3.5 days per week and still bring in more income than you do now.  If you have a perio office (or general dentistry), aim for 30% of net production from your hygienists.  If you’re an orthodontist, keep the dental assistants busy with as many patients in chairs as possible.  If you’re endo or oral surgery, then you (and your partner or associate) probably will continue to be the rate limiting step.

    Select a good associate, preferably someone with an ownership mentality who eventually can buy into the current practice.  Take the time each week during the first 6 -12 months for a chart review and chat about philosophy of care.  You’d hate to find out a year from now that your associate was doing work that wasn’t up to your desired level of care and you have a bunch of unpaid re-work on your hands.

    Adding another doc, more staff, and having work happen under your roof while you aren’t there can be stressful.  It’s a bigger leadership challenge than just ruling the roost when you’re the sole doctor provider.  However, it can go a long way towards swamping your fixed costs, bringing overhead down (and profits up), and letting you start to scale your business beyond the inherent limits of what your own two hands can produce in a given week.  Then again, $900K to $1M per year is pretty darn good too!

    Click to expand…

    Holy cow! pretty detailed suggestions. Not everyone is built to build an empire (associates, multiple offices). Just don’t do anything risky; with that income, OP will be very well off without additional headache.

    Click to expand…

    I just received a letter from my the servicing bank of my practice loan suggesting they removed the “prepayment penalty” from my loan stipulation. I currently owe 350Kish at 4%. My only other remaining debt is 35Kish at 2% for my car, and 150Kish for my house. Since my original post, I created a vanguard account and have been saving into taxable accounts.

    My question is, if you were me…..would you just go ahead and knock off the practice loan and car loan?

    I would be able to do this without touching my retirement “Roth, IRA, and 401K accounts” and would still have right around 250K toward retirement. I would keep the home loan of 150K @3.375% on a 15 yr note (12.5 yrs remaining) advised by my CPA for tax purposes, and continually save aggressively moving forward in the taxable accounts. If it matters….I’m 31, married, no kids (planning for near future). Thanks for your time and help!!!

    #238298 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 397
    Joined: 10/29/2017

    Keeping debt for tax purposes is dumb, but you should understand the after tax cost of those loans.

     

    You are 31 and making a million dollars… or $80k per month.  If you let all of these ride 5 years, versus pay them off in 2 years, the total interest paid totals 4 days working income.  It’s trivial.

     

    Your practice and your home are both deductible, so assuming 35% rate + whatever state taxes you owe, so the rates are all similar.  Pay off whichever makes you feel best.  Personally, I’d go car, practice, mortgage.

     

    The decision is personal.  Kill ’em if you are stressed by them.  Let ’em ride if you aren’t and invest the rest.  These aren’t bad debts, but having big debt in one hand and big cash in the other is dumb.

     

    For me, I slow rolled the debts until I had savings I could live on if the crap hit the fan (lean-fat-fi?), and have since thrown a lot of money at my practice loan in the past year.  It’ll be gone this spring.

    #238365 Reply
    Liked by Zaphod
    Avatar molar roller 
    Participant
    Status: Dentist
    Posts: 45
    Joined: 05/31/2018

    Teefus,

    It took me 10 yrs longer to get to your income level, so maybe you should be giving advice to me 🙂 still, I think I do OK for a lowly solo GP.

    I was never in a hurry to retire debt of any kind.  I stayed on the regular repayment schedule (10 yr student loans, 7 yr practice loan, 30 yr mortgage refinanced to 15 when rates dropped), and invested the rest.  At 46, I still have the mortgage, but in my mind I am debt free.  My taxable accounts are 5x the amount of mortgage.  If I can write a check at any time to retire the debt – I do not have a debt.

    But I would not have been in this position if I attacked the debt aggressively.  My taxable account value first exceeded my debt around 6 yrs ago. I calculated that if I had sold everything then to pay off the debt and become truly debt-free, my net worth would have been lower by $400K.  I’m obviously pretty glad I didn’t.

     

    To me, debt is just another account on a net worth statement.  I dont see a difference between 2+2 and 8-4.  If you do, attack the debt.  If you don’t, invest the extra funds and you will come out far ahead.

    #238478 Reply
    Liked by xraygoggles
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4530
    Joined: 05/13/2011

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    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
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    #239368 Reply

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