Set for life insurance ad
[Editor’s Note: This is another in our ongoing series aimed at dentists by columnist Doug Carlsen, DDS. The principles espoused are useful for high-income professionals of all persuasions.]

Two months ago, I wrote of a recent dental graduate who has $10,000 per month payments for school loans, a mortgage, an auto, a new dental practice, and credit cards.  His total debt is $1.175M.

The responses on The White Coat Investor blog ranged from outrage to resignation to recognition.  This month I’d like to provide figures on what a new dentist can expect to pay for various expenses with an average income. After interviewing young dentists over the last five years and cross-referencing to BLS income quintiles of those with incomes matching what young dentists may make in a corporate environment, we can understand better how some dentists are able to pay down student loans quickly and how others may struggle.

Douglas Carlsen, DDS

Douglas Carlsen, DDS

Dentist Income

Let’s look at income and expenses for the young dentist:

Income for young dentists in the corporate environment, according to glassdoor.com, averages $111,000 at Western Dental, $167,000 at Pacific Dental Services, and $138,000 at Heartland Dental.  For this article, I used $125,000 income for all young dentists, whether working for a corporation or in an associateship. Of course, after owning a practice, either in start-up or after purchase, net incomes vary widely.

Sample Dentist Budgets

The table below has five columns: the single doctor with expenses average for his BLS quintiles, the married doctor with average expenses, the high spending single doctor, the high spending married doctor, and space for you to place your expenses and income.  It is assumed that the dentist’s income is $125,000 annually and his spouse’s income (included in parentheses) is $50,000.

 

Item Avg. Single Dr. Avg. Married Dr. Couple High Spender Married High Spender Couple Your Amount
 Autos (includes loan, depreciation, fuel, insurance, service)  500 800 800 1200
 Donations  50 50 50 50
 Clothing  100 200 200 400
 Hobbies  (Sports, art, etc.)  100 150 100 150
 Entertainment:  Dining out  250 500 500 800
 Entertainment:  Night clubs, theater, sports, concerts  100 150 100 150
 Gifts:  (50% is for holidays)  150 200 200 300
 Groceries  250 400 400 700
 Rent or Mortgage  1000 1300 2500 2500
 Household cleaning, maintenance, home improvements  100 100 1000 1000
 Hygiene (haircuts, nails, etc.)  50 100 200 300
 Utilities (cable, phone, internet, gas, electric, mobile phones, trash, water)  400 500 600 700
 Insurance:  Medical  300 400 300 400
 Insurance:  Life  0 0 200 300
 Vacation  200 400 600 1000
 Other 
 Total Spending Per Month  3550 5250 7750 9950
 Total Annual Expenses (12 months)  42600 63000 93000 119400
 Income per year  125000 175000 125000 175000
 Total Annual Expenses (12 months)  42600 63000 93000 119400
 Federal Taxes, Social Security, Medicare  34401 44561 26901 37061
 State Taxes   6000 9000 4500 7500
 What’s Left to Pay Off Loans and/or Save  41999 58439 599 11039

Differences between the average spending dentist and the high spending dentist are listed below. It is assumed the spouse spends as does the doctor.  Expense differences not commented on below reflect differences in overall lifestyle.

 

Average dentist High Spender
Owns a five-year-old used car Leases auto and renews every three years
Dines out weekly at a nice restaurant High spender spends double on dining out
Shops for groceries at a typical market Shops at Whole Foods only
Rents an apartment Bought a home with $600,000 mortgage
No cash value life insurance $300,000 whole life policy
Vacations are all road trips One resort trip and several fly-in get-a-ways annually

Average Spender vs High Spender

The average-spending single dentist ends up with $42,600 annually and $59,040 if he or she is married, to pay down debt or save.  The high-spending dentist ends up with near nothing annually and about $11,000 if married.

It’s possible to live with expenses lower than the $42,600 found for the average single young dentist.  $3,000 per month is not unusual for a single dentist; $4,000 for a couple.  This implies that dentists, even without a great salary, can pay off $50,000+ per year in loans.  The best pay down I’ve seen has been $9,000 per month on a $273,000 debt, which required 30 months of payments by a married dentist working in a corporate clinic in Texas.

Assumptions

If you like to dive into the details, here are the assumptions I used:

All expenditure figures are taken from interviews of young dentists under age 40, cross-referenced to BLS 2013 quintiles of income before taxes (top two quintiles).  First column is average expenditures whether renting or owning home. Dentist in second column bought $600,000 home. Tax estimates provided by moneychimp.com.  With home purchase, it’s assumed the couple will take itemized deductions.  The interest deduction is assumed to save taxes of approximately 25% of interest paid on $600,000 home, or $7,500 annually for federal taxes and $1,500 for state taxes.  State tax of 5% is used, but obviously can vary widely.

medical student loan refinancing
Your Own Budget

You can use the form above to estimate your own expenses. Use these links to estimate federal taxes and state taxes. Remember these tables may not include all of your expenses. You may need to add other insurance, pets, legal fees, country clubs, and other expenditures.

The difference between various budgets can be amazing, but controlling spending is a key to wealth accumulation. Earning a high salary while spending similarly to others at that high salary as illustrated above helps. It can be even more effective to earn a high salary while spending at the level of someone with a much lower salary.

What do you think? Are these budget numbers realistic? How fast do you think a dentist should pay off student loans? Comment below!