Developing your "Personal Financial System"

Welcome back, associates. We're going to carry on this important subject of financial independence. As you know, everything we do at practice, CFO and in the way we work, from young doctors, a part of our Associates on Fire program to our doctors who are approaching retirement is we are trying to enable or accept, accelerate the day of financial independence. So I like to spend more time on this so that we really think hard about this. Early on in your career. Let me explain the relationship between financial independence and stress and financial systems. In this module, all of our clients who are not retired or who are an associate or practice owner are attempting to become financially independent, or you can call that financially secure, feeling safe with their finances. They're trying to arrive at that point where they can really sleep at night and say, I feel great about my financial condition. And let's call that the wealth building process. And you're building up wealth. And during this period you're reliant on work, you have to be working, you're likely carrying on debt. And if you're a dentist, you are absolutely most likely carrying on debt for student loans or to buy a practice, to buy your house, equipment, your building, etc. And at this point, you very unlikely have enough or sufficient safe assets. Safe assets are assets that you know you can rely on to produce income in the future. And the reason why you have so few assets is, is that you've been putting all of your time and energy on preparing to be a dentist and to be a really good dentist as well. You've had to take on a lot of debt to get to that point. So if you're taking on debt, it's because you don't have a whole lot of assets. Now once you hit that point though, where you've been working and you've been saving and you've been paying down your debt and you're, you know, you've been financially very prudent with your finances. Then you hit that point and you become economically free or you hit economic freedom or financial independence. And at that point you have no debt. You have sufficient assets that produce income whereby you can live on that income without having to work. And your assets are invested in such a way that they're going to increase with inflation. So you protected yourself against the erosion of inflation on the purchasing power of a dollar. And I have found that in both sides of this continuum, the wealth building, you know, the wealth building side of the continuum to now, you're economically free. That I have seen people economically stressed or financially stressed on both sides, even those who have sufficient assets to where they don't have to work another day in their life if they don't want to.

Why would they feel stressed? Well, really the same reason the individual who hasn't achieved economic freedom feels stressed. It's because there is no financial system in place that helps them feel like everything is moving in the direction and the way it is, that the financial chaos is gone, that there's purpose to it. Now there's a lot of other reasons that can cause stress in life that are unrelated to finances. And I'm not going to address those. I'm just addressing the.

Subject of finances and how finances tie in to an individual's stress. And I wanted to emphasize that you can have stress no matter how much money you have. You can have stress and the related unhappiness that can come from that. But here's what we are working with our clients to do and what we encourage you to do to develop a financial system where even when you're in the wealth building process and eventually when you become economically free, you're feeling financial peace. In other words, you can, even when you are a new student out of dental school with five or six hundred thousand dollars of student loans, you haven't even found a practice yet, or if you just bought a practice and there's a lot of chaos or you're early in your career, you, you can still have financial peace. And the way that you have financial peace is you build a context of a financial program in your life, a financial system that has specific.

Ways and definitions of how you are going to manage your finances, your inflows and your outflows, your overhead and your taxes and your debt and your personal budget. And it's this ecosystem of cash flow in your life. Do you have a system around that that feels secure and you know is progressing you toward economic freedom? Well, let's look at what a financial system will include. Number one, a good financial system is going to include the principles that you live by. I think it's important that before you get to specifics, you define a at a high level, what are the principles that you live by? Some examples might be, for example, how much you want to save every month or every year. How much of your kid's education are you going to fund? Now there's a big one. Some people want their kids to earn their own education so they feel attached to it and so they feel the reward that comes out of doing something out of one's own initiative and efforts. Other people say education is something it's a baseline. I want my kids to have that option. So I'm going to help take care of their education. There's this continuum. What is your financial principle around that? Well, go through those financial areas in your life around maybe the size of house you live, the type of car you buy.

The area that you live in. How do you pay? If you pay anything for adult children who are asking for pay, which I'm going to tell you in your financial system, you want to avoid paying adult capable children. I've never seen where that produced a positive outcome for either party unless there's some really good extenuating reason for that, such as maybe health or other circumstances. So define your financial principles. Document them. It doesn't have to be long, it can be a half page or one page, a bullet point format. But define them, let them sink in and live your life by those principles. Principles. Also in a financial system, it should include an understanding of your spending. Now I don't need you to save your receipts and put them in a box and add them up at the end of every day and tabulate everything. No, that's going to be a terrible use of your time. However, you can set up a system like an online financial planning software and it will feed in your bank transactions and automatically calculate those. Usually in the first month or two. You've got to spend a little bit more time to get the data feed to auto categorize correctly. But after a little while it becomes very sort of self sustaining with just a little bit of effort and it gives you a great insight into how you are spending your money. If you're a practice owner or if you have set up a separate checking account that receives all of your business income. As an associate, whether you're an S corp or a sole proprietor, you can define your spending level simply by defining how much you are going to take out of that practice or that business account and put into your personal account and say okay, that's $9,000 a month and I'm going to live on that. And if you end up having to pull another two or three thousand dollars, well you know your spending level just by virtue of how much is transferring. And we do that with a lot of our clients. That's the way that one can enforce a budget and is defining that amount. Going from business into personal number three. Run a successful dental practice. That is the heart of your cash flow. If that is languishing, then the rest of your financial body is going to languish as well. So figure that out. Have your Team make a plan. Be energetic and optimistic as you work with your team and your staff. Run a successful dental practice. The next is to focus on how much you are saving now. In your early years, it's often harder to save more money, but even then we should be setting money aside. In our emergency reserve. We recommend between 10 and 30% of your income, depending on how old you are and where you are relative to your financial independence. And that you preferably do this in a tax deductible investment vehicle such as a 401. Or if you don't have a 401k, maybe you're an associate that might be funding an IRA account. If you're eligible to fund an IRA account. Or you could set up what's called a Solo 401K or a SEP IRA. If you are just an associate without employees. When you own a practice and your cash flow is healthy, it's going to be Most likely a 401k safe harbor style of plan. Then you're moving on to number five, which is have a proper financial coach or proper financial coaching in your life. And really that's the foundation and the basis of practice. CFO is we're providing an outsourced chief financial officer for our dentist for people who typically don't have the ability to have access to a cfo, which is something that's reserved for larger corporations. We're trying to give that sort of strategic advice and coaching and goal setting and accountability to our dentists. And then the dentist who has a good financial system will be coachable. Some of the greatest athletes were the athletes who were the most coachable. They sought out good coaching. And financial coaching is one of the most important styles of coaching you could receive in your practice as a business owner and as a dentist because you have a lot going on and in the array of your, of your business and your cash flows, financially speaking. And then avoiding critical mistakes. This is, this is so important. I have seen in my career working with dentists where they work so hard to accumulate that wealth and security and then they decide to invest their assets, for example, in something that is remote, it's concentrated, it's with a brother in law or a sister in law. And it feels exciting, it feels nuanced, it feels like nobody else knows about it, like they have an ace up their sleeve. And so many times these things go south because it isn't.

It'S unusual and unusual or anomalous style investments. Don't get me wrong, they can have an opportunity for incredible returns. But you Got to play the odds. A good business owner and a good investor is going to play the odds and they're going to invest in a way that has the highest probability of the most predictable style of return. So be very careful in private investments, private placements, be very careful. If you in also getting involved in lawsuits. This is another big one that is just drained and created so much friction from a doctor becoming financially independent is they don't have a good, for example HR system to enforce breaks and lunches and overtime. And then that I see this, I've seen this a lot, trust me, that comes back to haunt the doctor. And in most states, if you don't have the evidence to show that they took their breaks and were paid for overtime and their lunches, who's going to win? The staff is going to win almost every single time. And it can become very, very expensive. Lawsuits in your practice can be devastating. So you want to have a good plan around that permanent insurance, something we're not a fan of. For young doctors. Permanent insurance is whole life insurance or universal life or variable life where the insurance has packaged within it an investment vehicle that's going to grow over time and then eventually you could borrow against it. And insurance people will tell you about all the wonderful math behind that. In reality, a very, very large percentage of these lapse and all that savings ends up going away. So we recommend that you keep your insurance and and you're investing separate. Permanent insurance is incredibly expensive and it's also funded with after tax money. We haven't found where this turned out to be a real successful scenario for any client, not a single one. In all of my time working with dentist where I've seen them have that and that proved to be a really good asset to borrow on that ended up being a better option than another option such as funding your tax deductible 401k plan. So avoid those types of decisions and really avoid getting behind in taxes. In our tax module we talk about that and how having the IRS attached to you because now you're on the radar is something that's hard to shake. So stay current with your taxes tax plan, avoid paying unnecessary taxes, don't tax evade, but just overall avoid these big sort of critical mistakes because you're swinging for the fences too much. I've seen that be devastating for a lot of doctors. These are some of the elements that a good financial system is going to include. And if you have that good financial system, it's going to bring you a lot of financial peace and mental peace even before you become financially independent.