Wes Read, a CPA and CFP, explains how doctors and dentists can reach financial independence by building assets that generate enough income to cover living expenses, making work optional. He stresses starting early to pay down student loans and build net worth through his firm's accounting and tax services.
Let's talk for a second about one of my favorite subjects, which is financial independence. In fact, that's why in 2014 I formed practice CFO wasn't because I wanted to do a tax return. Now we're very good at doing tax returns. It wasn't because I wanted to do accounting. Now we're very good at doing accounting. But it was because I wanted our doctors to accelerate the day that they become financially independent, which simply means that they have accumulated enough assets such that the income from those assets can take care of them for the rest of their life. And that's what I want to elaborate here, just for a couple minutes, that concept of financial independence. And let me state we are a CPA firm, but we are a CPA firm such that the payroll and the accounting and the tax serve as an X ray, sort of a 3D X ray for us to then do our clinical treatment planning. Financially speaking, it's really important for us in that we can't be as effective as a planner for our clients unless we have the accounting and the tax and the payroll. In fact, we won't just do financial advisory work. That's how important it is. Imagine you trying to go to a root canal if you're an endodontist or try to do an implant or even just a restoration of a crown. If you don't have any form of X ray, that becomes difficult. It's even difficult if you don't have sort of some of the modern technology that allows you to have that visual to see what you're planning and treatment plan and do your treatment accordingly. Well, that's the way that we look at the CPA arm of what we do. But practice CFO exists to help doctors thrive financially. And we do that by leveraging that data to give the right advice. Now let's talk about financial independence. Financial independence is when you have right now as a practice owner, as an associate, even, you're probably not financially independent. In all my years working, which has been 12 years working with exclusively dentists, I have found no one to be financially independent early in their career, usually not even till their 50s, 60s, and even 70s. Even then, some aren't financially independent, which is a whole other subject of why that happens, but is you are working for your living expenses and you have salary. And if you're an owner of a corporation s corporation, you're going to have owner draws. And those are the two ways that you are able to support your living expenses. Well, financial independence means you are not required to work in order to support your living expenses because you have enough assets that will provide that income to take care of you. Now, the assets might be 401k assets. They might be defined benefit plan assets. They might be an IRA or individual retirement Account. You may have some rental properties, or you have the building that you bought many years ago in your practice and now you're renting that out to the buyer. Or perhaps you sold that and converted it into stuff. Stocks, bonds and liquid assets, mutual funds, things like that. Some people might have some small ownership in some other business and that gives them distributions every year. When you're older, you'll have some Social Security income as well. Well, if you're able to sit at home on your couch and have enough income coming in that you take care of the lifestyle that matters to you, you've now become financially independent. This doesn't mean you're actually going to sit at home on the couch watching Netflix. It simply means that you could. But if you become financially independent, you're the type who's not going to do that. You're the type who's still going to find something meaningful and valuable in your life. But the great thing about financial independence is you can do that without having to worry about income and taking care of all of your living expenses. You can do it out of the love and the passion and the drive that you have to do that thing or that set of activities. And there is a world out there of interests and activities that people will do. Might involve family, might involve travel, recreation, might involve playing sports. It might involve training other people and providing education and mentoring, doing charitable dentistry. There is so much you can do that can bring you a great sense of purpose and happiness. And the sooner that you start to build your personal assets, the sooner you're going to be able to do that. It's really important that you understand that you have a net worth. And as I've stated before, that does not equal your self worth. Those are two very different things. However, your net worth has an effect at some level on your happiness. Statistics sometimes say that too much net worth leads to unhappiness and too little net worth leads to or income or net worth leads to unhappiness as well. And do you want to be somewhere in the middle? I don't know. But I will know. I do know and I do believe that having an appropriate amount of assets to take care of yourself, that gives you a sense of security and comfort, is important for a mental health and sense of accomplishment and purpose in your life. And this is what we want you to thinking about from day one. Day one out of dental school. Who knows, maybe even in dental school, you should be thinking about your finances very, very carefully. But as you come out of dental school, have a game plan. How am I going to take my personal net worth statement and build it appropriately? How am I going to build my personal assets and how am I going to reduce my liabilities over time? Now, early in your career, your liabilities are like this and your personal assets are like this. And your net worth is actually negative when you have all of these student loans because you don't have any assets worth the five or six hundred thousand dollars in student loans that you have. So you are what's called insolvent. Your debts exceed your assets. But that's okay, because there is an intangible asset of dental knowledge that you acquired by taking on that debt that you're going to be able to earn, hopefully a really good living throughout your life. And you want to start to turn that negative net worth into a positive net worth and then grow that, because that is the single biggest indicator of your ability to claim and be financially independent.
