Overall Timeline of Events in the Life of a Dental Associate

Hey associates. We're going to kick off the Associates on Fire video program by talking at a high level about the stages of your experience as an associate and new practice owner coming out of dental school. And I've divided these stages into six areas. Number one, graduation, we'll call them mile markers. Graduation. Number two is your associate years one to three years, maybe a little bit more. Number three is the point in time when you buy or start up a dental practice. Number four is when you buy a home. Number five is when you then fund your retirement plan such as an IRA 401k, pay off bad debt. And then number six, you is finally refinancing out of your student loans into a private loan. Now these are in by design, chronological order in the sequence of events that we believe is the best approach as you make all of these decisions over the first five to ten years as a, as a dentist. Let's start off by looking at number one. So you graduate out of dental school. Now I'm going to tell you to continue to live like a dental student and to avoid releasing the pent up consumerism as I call it. You've been living so frugally all of these years and now you come out and you're actually seeing some money perhaps landing in your bank account when you get that first job and it's an amazing experience. But don't go and just fire away with your expenses. And there's a lot of reasons to stay budgeted, live well below your means and not go and buy the fancy car and definitely don't go buy the big house or even a house as you'll see in my sequence of events at all yet now choose your appropriate student loan program. Keep your payments low. As you know in dental school you have different types of student loans and you have the standard program which by default you're placed on to, which is a 10 year program if you don't do anything. Or you can do a income Driven Repayment program, an idr and that's Pay and Repay and ibr. And we've got a lot of modules on the student loans, really important decisions to be made there that can make or break many thousands, if not hundreds of thousands of dollars for you as you tackle your student loan problems. But in the beginning you want to keep your student loan payments as low as possible. Don't be trying to accelerate those unless you just have cash falling from the roof from an inheritance or something. Don't be paying off your student loans any earlier than you need to because it's more important that you keep your monthly outflows low and you build cash, what we call liquidity, you build a cash reserve. So we're going to talk about that here. So keep your student payments low. And the number three in this phase is find a well paying associateship. And we're going to have more on this to come, but focus on production and experience. But at least target income of around $140,000 or so of annual income. Now this is 2020, so over, you know, years that's probably going to go up because of inflation. But at least for now that's where you want to target. Really dig into your clinical, get that mastered, learn how to do dentistry, good dentistry at a more accelerated pace. So that when you own your dental practice and it's almost just second nature the way you deal with the clinical and allows you to have attention to focus on the business and the processes and the culture and all of that other stuff that we're going to talk about in the associates on Fire program. So master that clinically in those first as you, as you start to come out of years. And this also applies here to phase two, which is now these first few years out of dental school. So again, continue to live like a dental student. Keep your expenses low. Also keep your student loans low. As I mentioned, you may need to consolidate them. Consolidation is an important part, I think of managing your student loans, keeping it simple and moving to an income driven repayment plan. And we have a module specifically on debt consolidation for dental students. And also we talk about how that relates to refinancing into with a private bank, your student link, student loans. And we compare and contrast those right now consolidation, as you come out of dental school in these first couple years, you might even do it right at the point of coming out of dental school. Consolidate your student loans. Number three is save up cash in a savings account. It's going to help you through the remaining steps and in this overall timeline. The other thing that you got to watch carefully is your credit score because you're going to be taking on more debt, more debt to buy a practice, more debt to buy equipment, possibly a build out. If you don't buy, maybe you're going to start up a dental practice, you're going to be buying, you know, a car, eventually your house. And your credit score matters. And the better the credit score, A, the more eligible you are to even get a loan, but, but B, the lower the rate might be on those loans. Also really focus on getting your production up. I would recommend you target around 600,000 per year as an associate. Now you may not know, but you can ask your employer to share with you the amount of production that you're doing. The reason why this matters is because A, when you buy your dental practice, you are going to need to produce a certain amount in order to cover all of your overhead, all of your debt, all of, of your taxes, and ideally save some money and for your personal living expenses. So you need to know how to produce and produce effectively. But also B, is that when you go to buy a practice, a lot of the banks are going to look at your productive ability and they're going to say can you the associate buying in produce at the same level as the selling dentist? And if the selling dentist is producing at $900,000 a year and you're producing at 3 or $400,000 a year, it's very likely that that bank is not going to lend to you because they're not confident that you can replicate the production of that seller. And lastly, start identifying a location and a practice. Now you're going to see it's better to find your dental practice before finding your house. And so as you're thinking about where you want to live, eventually don't go buy a house yet, but, but you can be thinking about the general geography, where schools are perhaps for kids, or if you want to be in near, you know, near the ocean or Southern California or some other area, then be looking in those areas so that you can start finding opportunities and sort of building a net of opportunities for you to then approach as you get to the point of buying a dental practice, which is now our next phase, buying or starting up your dental practice. And in this phase, guess what, Number one, my focus is continue to live like a dental student. Keep your expenses low, avoid releasing that pent up consumerism. Hire your team to represent you through the acquisition or the startup process. And we have a module on identifying your team and how to, how to interact with your CPA and your attorney and other team members that you might have. Keep preserving your cash. Again, banks love it when you have liquidity. When you've been able to show that I have this reserve set aside in cash that I've been able to set aside because I'm able to manage my finances effectively. And just by virtue of having the cash, the banks look at you as less risky because there's a resource that they can tap into in the event that you don't pay your loan. So a lot of important reasons to preserve your cash Continue keeping your monthly student loan payments low, even if the balance is increasing. And I know it's a painful experience to look@studentaid.gov and see your student loan balances going up. However, that's okay because we have other battles we got to face right now. We're going to just punt that down the road a little bit because if you let that go up, if you let your student loan payments go up per month because maybe you refinance too early or you're not on the right payment program, then when you go to buy a practice or, or a house, they're going to look at that monthly payment. And if you've allowed that to creep up, then it's less likely that you are going to be eligible for the amount of loan you might need to buy that dental practice or to buy that house. So keep your monthly student loan payments low, even if that means interest is accruing or capitalizing. We're going to talk about both of those and the balances going up. Lastly, plan to work overtime for the first two to four years of your practice. So now you bought it, you stepped into ownership. Just know that there's going to be a lot of bullets coming at you and you're going to need to be working on not just the clinical side, but you're going to need to be working with your staff on culture, understanding your processes, understanding the communication with your staff and the patients and the overall patient experience, and dealing with the finances and meeting with people like Wes, or practice CFO or your CPA or, you know, your practice management consultant. There's just going to be a lot of, we'll call it extracurricular work outside of the clinical that you're going to need to focus and really learn to master in those first few years as a new practice owner. All right, now we go into buying a home. As I stated, you've already bought your practice. And again, you don't want to buy your house before your practice because if you do that, you're really limiting the number of practices that are going to be available to you unless you're willing to drive really far, which you'll see in bullet point number four here. Buy a home that's within 30 minute drive of your practice. It's a lot easier to find a house within a certain radius than it is to find a practice within a certain radius. So buy your practice first. That fits what your goals are. It's this style and type of practice that is going to be a good sort of representation of who you are and then look to buy your home. But again, don't forget number one in this module. Continue to live like a dental student. Save for your house. 5 to 20% down on a home down payment. That's a pretty big range there. I know, but the reason why is that a lot of the banks have a doctor based loan program where if the loan is under a certain amount, generally about a million, you only have to put 5% down and, and you don't have to pay PMI insurance. It's actually a beautiful thing and that's only offered to doctors. Bank of America has it, believe Wells Fargo has it. Some of these bigger banks sort of have these programs that you can leverage. However, if you have saved up enough, you could go and put 20% down. But typically your interest rates are so low on that that you may get a better use. By putting the difference between 5 and 20%. You put 5% down, putting the difference in paying down cancerous debt, sort of high rate debt on consum like credit cards or even, even car loans, things like that, or funding that into an IRA or another investment account rather than doing the 20% down on your home payment. But either way you need to save to have cash as a down for your home payment. Number three, keep your student loan payments low. Again, the banks only look at your current payment, not your projected payment as income rises. Which has always been interesting to me that banks don't fully capture into their underwriting the fact that your student loan payments are going to go up over time. They're looking at your student loan payments today and they're looking at what's called your debt coverage ratio, which is how much, how many times can your income cover your total debt payments. So keep your debt payments low. Still, even though you've already bought your practice on your student loans, which again means that the balance may be going up. And don't be overly scared of that. That's okay as long as you're not out spending money frivolously on things that you shouldn't. And you're living, you know, you're living on your budget, you're building up cash. Go ahead and keep your student loans low for now. You buy your home, you put down your 5 or 20% home should be within 30 minute drive of your practice. Don't buy a house that's more than 2.5 times your annual income, otherwise you become house poor. Now an example would be if, if you're earning $200,000 per year, then you don't want to Buy a house that's going to be more than $500,000. So depending on your geography and where you live, that's going to fluctuate up or down a little bit. But just be very prudent about the amount of house that you're buying earlier, early in your career. All right, now we are on to fund a retirement plan or like a 401k or an IRA and pay down bad debt. So number one, we're accumulating an emergency reserve account equal to six to 24 months of of or six to 12 months of living expenses. Trust me, this, I call it your sleep insurance. Just knowing that you have X amount of cash in a savings account doesn't matter. That it's not invested in Tesla stock or some crazy stock that's going through the roof, doesn't matter. We're not trying to get a big return on that. This is our easy access to money in the event that something goes south financially in our life pretty significantly and you just sleep so much better. Have 6 to 12 months months of that same thing in your practice checking account. Accumulate a cash cushion in your practice checking account equal to one month of total outflows. So if you have $100,000 going out for your overhead, for your own personal budget, to pay your debt, to pay your taxes, then have one. Then have $100,000 after payroll goes out in your checking account, plus or minus a little bit and you should be fine. But don't be riding that razor thin your cash balance in your practice. And then number three, now's the time to establish and fund your personal and practice retirement plans like your personal that's going to be your individual retirement accounts or IRAs that you can fund outside of your practice or your 401k which you're going to fund inside your practice. It's going to come with some staff contributions required. But if you design that right, then it's an excellent way to be setting aside money instead of paying it to the irs. It's going to grow tax deferred, meaning you're not going to be taxes on it for a long time and then you pull that out later in life. Now, lastly, refinance out of your student loans into a private loan. Rates are at today, they're somewhere around 3.25 to 4.75%. Your monthly payments may or may not actually go up depending on the terms of your IDR or your payment plan. Before refinancing into a private loan IBR pay or repay, you may need liquidity Some of these banks like you to have some cash on hand before or in order for you to refinance your student, your student debt. Now, let me even back up and say, make sure you understand what that is. The government has lent you a bunch of money. You might have 500,000 bucks. And when you go to refinance with a personal bank, they are going to pay off the government, the Department of Education, they're going to pay off those loans. And now you owe the bank and that's a refinance. And we talk about that later in another module at more length. But some of these banks like you to have, say, 30% on hand of the amount that you're going to refinance, which can get a little steep. So again, try to save that cash as you go. And now, once you've done this, you've come out of dental school, you've lived frugally, you bought your practice, you've bought your home, you've dealt with or eradicated any negative debt like credit card debt or consumer other consumer debt. Consumer debt is debt on an asset that loses value over time. You've paid that off. You're funding your retirement plan, IRA 401K. You've now refinanced your, your student debt. You continue to sort of understand the landscape of your budget. Now you can actually add to that budget a little bit and enjoy living a life not like a dental student. That is the overall life of events in the life of a dental associate coming out of school, associating, and then buying into a practice. Stay tuned as we now dive a lot more into student loans and other great topics in the Associates on Fire program.