As a new dentist, you have a lot on your mind. Perhaps you would like to purchase an existing practice or build one from the ground up. At the same time, you may be preparing for a major life event that will demand a lot of your time and money. All of these scenarios impact your financial saving and planning goals. How do you pay down student loans and invest for your future? It all comes down to budgeting, incorporating and practice ownership.
In a previous post we addressed the issue of paying down debt vs. investing, which is a key consideration in your financial planning. We know that making the right financial decision often requires help and that’s why we’re here. Below are answers to a few more of your commonly asked questions when it comes to budgeting, incorporating and practice ownership. Take this information as a starter’s guide and contact us for a more thorough analysis of what’s right for your needs as a New Dentist.
1) How do I budget for my life as a new dentist?
The first step to budgeting for your life as a new dentist is creating a monthly budget and tracking your spending. List your monthly income versus your expenses. Use the remainder to pay down your debts. Paying down good debt, such as student or practice debt and not incurring bad debt, such as car and credit card loans, are keys to maintaining a budget.
The second step to budgeting is developing a financial plan that identifies your short, medium and long-term goals. A short-term goal might be paying off debt, while a medium term goal might be saving for the purchase of a practice. When you want to retire and with how much money is an example of a long-term goal.
You might also want to consider how you can live with less expense. Food, housing and transportation are your largest expenses. So, if you can live with a roommate or your parents a little longer and drive a used car or take public transportation, you’ll minimize your day-to-day expenses. These lifestyle choices can free up extra income to pay off student and other debts much faster.
2) Should I incorporate as an Associate or when I have my own practice?
The answer to this question in large part lies in completing a comprehensive financial plan, which includes your short and long-term objectives. This may be anything from purchasing a practice to getting married. However, bear in mind that incorporation is not for every dentist. It may be effective when achieving a certain income level as well as having potential income splitting opportunities. A dentist also has to consider if they qualify for the small business tax rate in their province.
3) When does it make sense to open or buy a practice?
The prospect of opening or buying a practice might at first seem like an exciting and lucrative opportunity. However, consider your life circumstances first. How much student debt do you have? What is your credit history like? Are you planning other life events such as buying a home or getting married?
If your student debt is heavy, you might want to consider beginning work as an Associate to accumulate the money and skills required to run your own practice. However, if you choose to purchase a practice with a business loan, then set a deadline for when you can begin to pay more than the minimum on your student debt.
Another important financial consideration is your credit history. Prior to purchasing a practice, ensure you have a credit history showing you pay bills on time and that any outstanding debt balances are well below the authorized credit limits. A strong credit score will work in your favour when you need to apply for a business loan for your practice.
Whenever you decide to open or buy a practice, ensure that your practice debt does not interfere with your ability to either pay off student loans quickly or ideally save 15%-20% of your gross income/year towards retirement.
As a new dentist with a steady and growing income, you have numerous and competing options on how to achieve your financial goals. The good news is our non-commissioned investment planning advisors are happy to answer your questions at no cost and with no obligation. We are here to help.