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112: Dental Financial Planning: Turning Chaos into Financial Freedom - Part 2
Welcome back to The Dental Boardroom Podcast! In this episode, we continue our deep-dive series on financial planning for dental practice owners — turning financial chaos into true financial freedom.
Today, host Wes Read, CPA and CFP, explores Phase Two of the financial planning journey: Developing a Personal Plan for Financial Independence.
Wes shares his unique approach, combining technical expertise and life planning philosophy, to help dentists create a personalized roadmap toward their ideal lifestyle — whether it’s a simple, peaceful life or one filled with travel and luxury.
This episode emphasizes that every dentist has two financial clients: the current you and the future you. And balancing both is key to achieving long-term independence.
📝 Download the companion worksheet to help you build your personal financial plan:
👉 Financial Goals and Spending Plan Worksheet (PDF)
Wes also shares insight into his own experiences working with hundreds of dentists and introduces the proprietary planning tools developed specifically for dental professionals by Practice CFO.
📌 If you missed the previous episode on Dental Financial Planning, make sure to go back and start there to get the full framework before continuing with this episode.
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Transcript:
Wes Read: [00:00:00] Welcome back everybody to another episode of The Dental Boardroom podcast. I am continuing on my series on financial planning for dental practice owners, turning financial chaos into financial freedom. As you know, this is a lecture I've done on many occasions. I'm now converting it into a podcast format, and I just got done doing what was a little longer than I anticipated episode to, to kick off this series.
And it was on the first step of this process of financial planning and it is to construct your team, to build your financial team. And for those, those of you watching this on YouTube, uh, you can see my screen. If I just go back a little bit to the first kind of points of subject or topics, the main phases in this journey of financial planning for a dentist.
I just wanna reiterate this. It's often helpful [00:01:00] if a day or two later after we had first learned something, to just quickly review it and confirm or cement it more to memory. The phases are, number one, assembling your team. Phase two, develop a personal plan for financial independence. Phase three, once you've done phase two, is to then develop a business plan that supports your personal plan.
And phase four is to implement, monitor, revise, and repeat. And so I'm gonna have a series of probably si, you don't know, six to six to eight episodes, most likely covering these four phases and just got done doing that first phase. Assembling your team. If you didn't listen to that, check out in your podcast app, go back one episode to that episode and.
Kick off from there. I think it'll be more beneficial for you to do that before diving in to this one. And this one is on developing a personal plan for financial [00:02:00] independence. Lemme just rewind one more time, if you don't mind. Going back to your, assembling your team. I just want to rephrase that framework and maybe 60 seconds that you are the CEO of your dental practice.
Like it or not. If you want a dental practice, you are the business leader, which is the chief executive officer of that dental practice. And then my advice is to surround yourself with key people who will help oversee the decisions and the operations of your dental practice. And the three main people who are the what, what I call your thinking partners and implementers are having a CFO that stands for Chief Financial Officer.
Clearly that is a plug for practice, CFO or really. The firms out there that are like practice CFO, and there's a few of us out there. I like to think we are unique here at Practice CFO, but we meet every three to four months. That is the desired cadence to [00:03:00] provide strategic decision making around the dollar in coming in and going outta your practice.
And that financial advice will support what is the overall goals that you have for the practice. Then having a practice management consultant who you meet with regularly. I put maybe monthly and shorter meetings or maybe quarterly, longer meetings. They are the sort of strategic operational mind in your practice.
And then the most important role is that operations manager, what we call the integrator here at practice, CFO. We use the entrepreneurial operating system or EOS management system that I just absolutely have come to almost rely on to maintain order and organization and flow and vision here at my practice, practice CFO, and to meet with that person weekly in a consistent format to execute on the issues that arise in [00:04:00] the practice.
That is the meeting strategic sort of leadership team and the meeting cadence. And then of course you have your hygiene assistant, front office and associates who you should be having, having, uh, daily huddles and periodic trainings with. So now let's fast forward to a main theme I had in that first episode.
In order to make that happen, oftentimes you have to live on less personally to create the resources sufficient to be able to engage real good thinking partners. This strategic team, this board of advisors, however you want to call it, your, your, your cabinet. To help you make decisions wisely. Alright, now let's jump into this episode.
We are starting now. Phase two, develop a personal plan for financial independence. Now the authority that I will claim to have on this subject are really twofold. One is that I am a certified financial planner or CFP. It is a very specific designation. It had a very rigorous, [00:05:00] um, CU curriculum and a very difficult exam to take.
In fact, I'd taken the CPA exam and I took the CFP exam and I personally found the CFP exam to be more difficult when I took that. And so I studied intensely for that. I've been A-C-C-F-P now for about 11 or 12 years. And the second sort of credibility I will ideally claim is that I've done financial plans for hundreds of dentists now, and just like you as a dentist had your tools, we as financial planners have our tools.
There's various off the shelf tools to do a financial plan that advisors use. Money Guide Pro is a big one. I use one called Advisor. There's one called NaviPlan or E-Money. There's various softwares out there that advisors like me subscribe to, to then help do sort of that quantitative analysis and forecasting to deliver a specific financial plan.
However, here at Practice CFO, we are so [00:06:00] narrow in who we serve, IE dental practice owners that we've had to develop our own tools to be specific to the needs of our clients because there is no off the shelf tool that integrates the business. Financial planning of a dental practice owner with their personal life, their personal goals, the things that matter to them with their family.
The things that in life, if, if they exit this life and don't do, they're gonna feel regrets for not having done those, those things. And I, I always in a new relationship try to start with the, the tip of our spear is to is, is to sort of frame your life, frame your life for you, do this intentional activity.
To shape what is gonna be a meaningful and fulfilling experience for you here on this planet while you are here. And then backing into your finances, both personally and in the business to give you [00:07:00] resources needed to have that life that you desire. And I have, of course. Having worked with so many people, found that some people just want to be able to drink coffee and read a book on a Sunday morning overlooking a beach or a horizon, and have a modest home and a very simple lifestyle.
And others wanna be able to travel and more of a luxurious way and wanna have a second or third home. They wanna be able to put their kids through a private school. And the whole spectrum exists. My main focus isn't to tell you which one is right or wrong. My main focus is for you to own and author what that looks like.
That's it. And then to inform you what it takes financially to give you the, the, the, the financial resources to make that happen. You're gonna find me just sort of share some stories, some experiences that I've had as a financial planner for dentists over the past, um, 12, 15 years, uh, with, with doctors doing the financial planning side.
Before that, I was doing some, [00:08:00] uh, CPA work for them as well. And I hope you find it helpful. So let's dive into this. Develop a personal plan for financial independence. I'm gonna divide this into three steps. The first step is to create a long-term financial plan. This is what I call the future you. The second step is to complete a personal spending plan today, and that's what I'm gonna call the current you.
Now, when I talk with my clients, I've always emphasized to them that really I have these two clients related to, to them. I have them today, here, now who I'm talking to, who I'm visually seeing and talking about the things that matter right now. What do you need today to take care of yourself to do those things?
Right now, this week, this month, this year, that matter to you. What family needs do you have? That is our, that that's the [00:09:00] current you. And we need to have a spending plan. Call it a budget if you want. I personally don't like that term, but it's more of an intentional of creation of a plan for your money, uh, the future.
You is the other client of mine. And both clients matter equally, you today and you in the future. And you should see yourself this way. You yourself have this relationship with yourself today, but there's also a relationship with yourself in the future that you cannot avoid. It will be there, and as you probably know, it will be there faster than you think.
And so merging these two together in a healthy way is really step three, what I call your financial equilibrium. Let's talk about this first step. This is gonna be what my, my episode today is on, is creating a long-term financial plan or forecasting out in this sort of vision of yourself. What does the future you look like?[00:10:00]
What do the circumstances look like? What do, what financial circum situation will you be in? What will your relationships look like? What will you be able to say, looking back that you accomplished, that gave you meaning? This is the first part of this three step process of developing a personal financial plan that I'm gonna focus on today, creating a long-term financial plan, IE, the future You.
Now, as I mentioned, there's a lot of softwares to do this. There's even some softwares online that you can just Google personal financial planning that will ask you to enter various details and maybe when you wanna retire, the amount of assets you have today. And it will produce a set of recommendations for you and give you some nice sort of charts that will forecast out in a simple visual what is gonna happen to your finances over time based on how much you're investing and market rates or return and inflation and when you're gonna hit social security age and things like, like that.[00:11:00]
And some people will attempt to DIY this or do it yourself, and that's okay. I actually think it's a great exercise to attempt to do this. It's gonna likely result in questions around how to actually implement the most efficient plan for yourself. But here at Practice CFO, we, uh, we always try to start with this.
Now, a good financial plan in the way that we approach financial planning is to, I like to think about and, and sort of set aside technology and write down, I, I prefer, you don't have to do it this way, but I prefer to do it with just a pen and paper and write down the things that are coming to mind, that coming to your kind of emotions and your psychology of the meaning of your, of your life.
I've lately been on a kick of just reading good old fashioned [00:12:00] paper books and I had a Kindle for a long time and I still love the Kindle, but I'm really back into old fashioned books and I'm finding that the experience for me is just a little more immersive. Just having that pen in hand to be able to write notes on the side, to be able to feel that page, to be able to carry that book, to be able to see the cover of that book is giving me a, a renewed love for reading and I'm reading right now about a book every week and a half or so, and I, by way more books than I probably will ever read this.
I, I dunno if any of you do this, but I hear about some great book, or I'm studying something and it recommends a book and I go on to Amazon or I go on to Barnes and Nobles and I check it out. I'm like, yes, I need to read the, read that book. And there's something about buying it that almost simulates as if I read it, which is obviously ridiculous.
But when I do that, I feel almost like a little glimpse of intelligence just by having bought the book. Like I discovered something that will enrich my life and then I buy it. I'm like, awesome. I just [00:13:00] bought the book. And it's like, I, it's like I did it, I read it, and I'm good. Then the book lands in my, you know, my front door and.
Get it, and I put it on my desk and then it just sits there. And next thing I know, there's like four other new books that I bought on top of it. And yeah, I may have opened it up, cracked it a little bit, but I can't tell you how many books I have laying everywhere around my nightstand, a reading area in my master bedroom, in my office at work here in my office at work.
You can, if you're looking online, you can see me a bunch of books over on that side. I got more books over here and some books over here. And so I've just, like, I sat down, I said, Wes, stop ordering new books. Prioritize the books you wanna read, and make it a daily activity that you don't miss. Like, you don't just like eating, you don't miss this.
And I've been doing this every day, about 30, maybe, maybe 35, 40 minutes or so that I read every day. And it has been just such a wonderful activity for me to think about, um, subjects and [00:14:00] issues in a deeper way that I. Know, I want to study, I know I wanna learn more about, and by doing this, I become intensely self-reflective about my interaction with the world, my interaction with relationships, personally, my interaction with people at work, the way I, I lead and run this company.
The way I help my clients and ultimately the way I wanna live my life. Books for me, they're like, they're like consultants in their own way that I find just super enriching. So getting back on subject here, of creating a long-term financial plan, I'm sort of using that analogy to say, do something that yeah, maybe may, may feel very manual relative to the way that we interact today.
We tend to mediate with the world so much through technology now that we've kind of for forgot, in my opinion, this is just an opinion that there's this old art from, you know, hundreds of years ago where people didn't have TV and they didn't have their podcast. Uh, well, I mean, I want you to listen to [00:15:00] podcasts, but they didn't have their iPhones to just consume everything.
Through this technology. They had to have physical forms of resources they had to go places. It was a very intentional effort just to get access to the information to then start consuming that information. And so when they got the information, it made them incredibly grateful for it, and they immersed themselves in it in a very deep way.
It wasn't just scrolling. We'd become scrollers. We are master scrollers. And scrolling is just these little nuggets, these little like Scooby snacks that you're constantly feeding your into your mind, but it's very disjointed. It's incredibly disjointed, and therefore it doesn't have this sort of throughput that has this end result that feels like it really lifted you up.
In fact, I find that after I've spent a few hours on say, YouTube sort of strolling through different videos when it's done, I did find a lot of interesting things in there, and I was definitely in entertained. Maybe you're listening to a Jubilee. Some of these Jubilee are. Really interesting, but a lot of times when it is [00:16:00] done, I put it down, I feel a little baked and I feel like, okay, did I really just get something productive and useful outta that experience that is going to make me a better person or to make me a little bit better at what I do at work, or to make me a little more caring and a better father with my kids?
All of those things, but books. That manual process where you immerse yourself in it a lot deeper, and it's not this sort of seven second moment before you swipe again. It's just so much more rich. And you as a dentist or a doctor, you've been there. You have intensely. Embedded your mind deep into learning in order to get where you're at.
And I am just wanting to encourage you to keep doing that, but do it in the different aspects of your life where you're not mandated to do it. You don't need to do it to get a degree, you don't need to do it to get licensed to go get, uh, an income producing vocation. You don't. These are the things that you have to force yourself to do and just be [00:17:00] disciplined about.
Otherwise, the world is gonna tell you what to do, which I want to talk more about that concept here in just a moment. But my main takeaway here is that you have to start somewhere with a long-term financial plan. And it doesn't matter that that plan is gonna change. In fact, it will change inevitably if you are recurringly revisiting that long-term financial plan.
The reason why we tend to not actually do this. In the same way, we may not be writing in a journal, even though studies have proven that to be incredibly helpful for the quality of our lives. The same reason why sometimes we don't eat as healthy as we want to and have a consistent eating plan or maybe going and exercise the same cause in our psychology that prevents us, where I'll say sort of, uh, arrests us from moving forward in those areas, which we know would be healthy in our lives, is simply marginal thinking.
And [00:18:00] marginal thinking is, I've said this many times, is the belief that it's okay to neglect a small but important decision because the, that neglect feels harmless because it's one, it's one small thing, it's one small decision. This one time is not gonna have an effect in the long run, however. De aggregation of marginal gains means that the sum of that, those neglects, those innocent little neglects over time accumulate and compound into a life of regrets.
And the studies have shown this many, many times. If you say, yes, I'm going to eat healthy, I'm gonna change and I'm going to eat extremely healthy, which is difficult in our country, getting access to healthy foods is a lot more difficult than getting access to unhealthy foods. Getting access to healthy foods that are affordable is even more difficult.
So you have to really go outta your way to live a healthy lifestyle. Because as much as I try and I feel pretty good about [00:19:00] my, my health, I always want to do better with it. As much as I try, I can't help it. Somebody brings something unhealthy and it just lands right in front of me. It lands in my refrigerator.
It's a gift. It's. Somebody brings takeout unexpectedly and whatever that is, you go to a church event, you go to a party, and there's just un unhealthy foods everywhere. And so it's almost impossible to avoid these. And once they're right in front of you and they smell good, they look good, well, it's hard to turn that down.
So you have to be very, very disciplined about that. So marginal thinking, this belief that it's so can neglect these small decisions, is what prevents us oftentimes from doing these, these, uh, these financial plans. And so you just gotta do it. Now, if you, if you're with practice CFO, we're gonna really try to make this happen.
I mean, this is why you pay us. So you're gonna get bit of a coaching going on to hold you accountable. That's our role here. Now I wanna talk about the challenge in creating a long-term financial plan [00:20:00] is there are so many competing voices clamoring. For your dollar, for your energy, for your thoughts.
They're everywhere. From the moment you get up to the, to the moment you go to bed, they are, they are. You are swimming in all of these voices telling you how you should define your life and. The, what ends up happening is all of these voices are presenting something that you, that you start to fill this increased desire for a lot of it is manufactured.
There's so much manufactured desired in the world today, and it's hard to distinguish between manufacture desired desires and desires that you've thought through, that you know, if you accomplish certain things or you receive or gain access to certain things that will truly enrich your life. Because a lot of the voices that are coming at you from different angles [00:21:00] are actually gonna lead you to a point where you'll realize that isn't bringing the satisfaction or that fulfillment or that experience that you were, that you were hoping for.
And so one of the ways to complete a long-term financial plan is to try to turn a lot of that off for a period of time, or at least for say, an hour or two every so often, where you dedicate your mind to this. Activity that is unhindered, that is, that is undistracted by outside voices. And so therefore, it truly becomes you.
And a lot of people say, well, I'm gonna go and I'm just gonna, I'm just gonna go make a lot of money. I'm gonna lower my head. I'm gonna move forward and charge hard at figuring out how to make money. And that's okay. Honestly, to make good money, it requires an incredible amount of discipline where you almost have to have an extreme imbalance for a period of time in your [00:22:00] life in order to structure that making engine.
In your case, that's a dental practice. And generally can't just show up, fix teeth, leave, and run a great practice and a profitable practice. It takes very intentional effort on the business side, the cultural side, the strategic side, the financial side of your business. Now one podcast I did once with. A man named Chuck Blakeman, uh, was just super profound for me, and he, he said, really, the question we should be asking ourselves is in what is, why are we in business or what is the mission of our business?
It should be why are we in life, is what he says. And most people say, if I make money, life will be good. When in reality, the research says that anything over a certain amount, that's somewhere around 150,000, 170,000, partially, that depends on where you live and the cost of living in your area. But the research says that anything over that doesn't produce much by way of happiness.
So that concept in economics is called the declining marginal [00:23:00] utility of a dollar that every new dollar you have produces less value to you. Because theoretically, if you wake up on the first day of a month and you have no money, and you have no food, what is the first thing you need to do? You need to go find food, and you need to have lodging, and you need to have those things that protect you from death.
This is a very core sort of primal way of looking at it, but that's the first rung on the ladder. That's the lowest part of Maslow's hierarchy of needs is taking care of those things. Then eventually all of that is taken care of and you have a car, then you have a nicer car, then you have a nicer house.
Everything starts to get nicer. Now you're not just flying coach, you're flying first class and that ascension continues to go on. But every sort of step in that ascension isn't producing the same marginal value to you as that first dollar that put food in your stomach and put a roof over your head.
And that declining utility, that declining [00:24:00] value of every new dollar is a really important concept because a lot of people will think, if I get to this point where I have a, a second and third house, and I have this much money sitting in the bank account and I have this and this and this, and I can fly first class, yada yada, and they think that the.
Unit of value of that new dollar or that second home is gonna be the same as the first unit of dollar that gets them. That first car or that first house is the same. It's not. It's not. And so this, the research continually shows this that you've gotta be incredibly careful about defining when you get to a certain point of having your needs met, how much effort do you want to put into earning more money or how much give or sacrifice has to be made to earn that remaining money in order to get to those new levels?
And is it worth it? Because a lot of times you just keep going. We set all this in place and we're like, no, until I get there, until I have X, Y, and Z, I'm just not gonna feel satisfied. And if that is your driver, [00:25:00] your de, your defined meaning in your life, you're going to lift your head later and you're gonna look back and say, this actually isn't as fulfilling as I anticipated it to be.
People who try to make money don't find happiness. It's people who try to find meaning and use the money to promote that goal that are happy. Go ahead and walk, then write your obituary and then you go to work. It's not why are you in business? It's why are you in life? And, um, he said, Chuck Blakeman, we have dehumanized life because this of this fuzzy question, why are you in life?
But once we answer that question, then we ask, how much money do I need to make due to do that? How much time and money and energy to get there? How do I redesign my life? Then everything becomes a lot more meaningful. And I've shared this before, I may even share it in the last podcast. I apologize if I'm re repeating, but a lot of your success needs to be defined by the elements of loss.
And the, my, my favorite Ted talk I've, I've ever [00:26:00] watched was the very first Ted Talk I ever listened to by a philosopher named Alan de Bouton, B-U-T-O-N. And you can look that up. And it's called a softer, gentler Definition of Success. And he talks about how here in America. We sort of define success a certain way and there's definitely a strong material element to what success is.
And out of this definition of of success, we tend to have this concept of what is a winner and this concept of what is a loser. And so, you know, growing up when you're younger, you're a little bit more willing to say, oh, what a loser. As you get older, you don't say that as much necessarily, but in our economic system of capitalism, we have almost inherently built this concept of winners and losers.
By our measuring of material means. Now, not always, but that is, that seems to be a feature of the system that we operate here in a very capitalistic driven society. Now, I'm a major fan of [00:27:00] capitalism. I've started a business. Capitalism has given me opportunity to go after things that I feel passionate about.
It's given me incredible amount of purpose. It's been able to compensate me to do other things that I like in life. So please don't take it that I'm a communist out there deriding the negative aspects of capitalism. Not at all. I am simply outlining a feature that is, in my opinion, an undisputed feature of capitalism in that it creates.
A sense of hierarchy economically that oftentimes we attend to attach happiness or unhappiness to, or winners or losers to, that kind of thing, which we need to shake that as we get older and we mature into an an adult and we view the world and ourselves in the world and other people and our relationships to other people, we need to shed that way of thinking because the research consistently shows that it is not necessarily having a bunch of stuff that makes you happy.
It's how [00:28:00] aligned do you feel with those values and those beliefs that you have and the quality of your relationships. That is, research consistently shows this, what drives fulfillment and happiness in life. One phrase I think about a lot is the quality of your life is driven by the quality of your relationships.
And I'll get slightly personal with you right now for a moment. Um, I am 46 years old. I have two brothers. My older brother, Jason, he's I think 50, 51. And then I have another older brother named Joby, and Joby is about 48. And then I have a younger sister named Erin, and she is, uh, I think, uh, 43, 44. And then my mom and my dad, who are both alive, my parents separated when I was about 12.
And so I moved a lot, uh, from that, some financial hardships, whatnot. And uh, had to sort of find my feet at some point a little bit later in life. Um, in high school I was not an academic whatsoever at [00:29:00] all. I did play a lot of sports and for me, sports were a huge sort of simulation of the world, I would say, and this is why I'm kind of a believer in sports myself from personal experiences, because that's simulation for me.
In my case, I found to be even more valuable than the academic experience of going through, uh, high school and whatnot. But over the first 20 years of my adult life, I was so engaged with those things that I defined as my purpose. I defined my, my job. As my purpose, and I started off at a big accounting firm, and then eventually I started up, you know, my own firm and have practiced CFO and I've been deeply, deeply engaged in that passionately now for a couple, not a couple, maybe, maybe 15 to 16 years.
And then my, my faith, I was deeply, passionately involved in my faith. Now I've gone through a faith transitional a little bit, and a journey myself, but I was deeply [00:30:00] embedded in that experience and still find a sort of a, a faith in the sense of something more deep and valuable and bigger than yourself.
I, I find that to be tremendously valuable in, in life, of course. But these things were so. All encompassing in my life that I ne and I will, I feel, I feel that I neglected a little bit my relationship with my siblings and my parents, and I always felt that I've got to take care of the here and now and, you know, my family and all that stuff, which, which is absolutely true.
But now that I'm, my kids are a little bit older. My, my, my son is 20, my daughter is 18, and then my youngest son is, uh, my youngest son is 14. And so they're all becoming a lot more independent and I am finding that I have more time to really devote to my mom and my dad, and they have very. Different situations and my mom needs a lot more.
I think [00:31:00] love and attention and time and also my siblings and we are dramatically different as siblings. I can't, you wouldn't even imagine the disparity of the, my two brothers, my sister and me, and the lives we sort of live. But I have come to value so deeply these relationships that whatever conflict or differences we have in the way we look at life or belief systems, I've come now as I'm 46 to say, honestly they don't matter.
What matters is the connection that I have and the love that I have and the care that I have and the empathy that I have and that they have for me. And in reinvigorate these relationships, I have found so much deep joy, so much deep joy that. Y you, you could gimme $10 million and it, I could buy a bunch of stuff with that, but it would not replace the quality of these relationships that I am reinvigorating in my older life.
We use an app called Marco Polo. Some of you have used it. It's a just such a great app to essentially create a conver, an ongoing [00:32:00] conversation with people, even though you're not necessarily with them and you're, you have a busy life, but it allows you to simulate this through this app where you will take a video of yourself and, and you'll, you'll talk and then you'll send it.
You don't even send it. You, you're just done. And then they get a notification that, uh, you shared some thoughts and then they'll listen to it and they'll respond back. And it's not as if you're in the same room. Nothing will simulate that. But in our busy lives, especially if geography is a. Creates a distance between you and family members.
This app, Marco p, is just a great app to stay what feels like connected as if they were your neighbor. I found that very valuable. And then of course, I'm now traveling more to see them in person and just highly valuing these relationships. The quality of your life is determined by the quality of your relationships.
Alright, let's come back on subject here for a long-term financial plan. I just wanna kind of share a few of the reasons [00:33:00] why we should be developing this per personal financial plan. The first one is that it creates clarity and direction. It defines where you are and where you want to go and how to get there.
Secondly, it is a exercise that forces you to prioritize your goals and in the world we live in today, I feel like our biggest challenge. One of our biggest challenges is prioritization. If you're like me, you experience the world and you see things, you learn things, you meet people that inspire you, and you want to accomplish things coming out of that inspiration.
So I'll just give some real life examples for me. I really want to become great at the guitar and I play some chords and I can strum pretty well, and there's some songs that I can play, but I am definitely a beginner. I wanna become a good surfer. I live here in San Diego. I've been going out regularly [00:34:00] with my son surfing.
I grew up in Ventura, California, a little bit surfing, um, as well. I'm good, not great. I want to have deep, meaningful relationships with my family. I wanna learn how to sing. Yes, I would love to learn how to sing a few basic songs and feel good about that. I want to be healthy and exercise, maybe do a triathlon.
And I want to read books. I want to be a great leader and I wanna be a great father, and there's all of these things I want to do and accomplish and develop and skills and yada yada, all this stuff. The reality is, it is impossible to accomplish all of these things that I wish I, I could be great at. And so sitting down and prioritizing those things that matter the most is the really the only way to channel your energy to get the most result in becoming that person or the developing those skills that you want to, you want to develop.
So goal prioritization is incredibly important and valuable and [00:35:00] something that comes out of a good financial plan. The other thing about that aspect of goal prioritization is that this is also a personal financial plan. Now, you'll hear me sometimes almost swap out life plan in the way that I talk about financial planning with.
Uh, a financial plan. And even though a life plan and a financial plan are not necessarily the same, they're so tethered together. Because unless you want to be a homeless monk and, you know, travel with a large stick and wear a robe and sleep on the streets, you're going to need money to do the things that give you purpose.
And, and, and that's okay. But you're gonna find me oftentimes really talk about life planning as a part of this financial planning, or even better said, financial planning is a subset of life planning. And so financial planning is gonna get very concrete about goal [00:36:00] prioritizations. And what I mean by that is when you have surplus dollars after paying your overhead in your practice, after paying you know your taxes, and we do everything we can to mitigate taxes.
And after paying your debt and after of course paying your, your rent and. You have to decide where does your next dollar go? Does your next dollar go to paying down your student loans faster? Does it go toward a down payment on buying a home? Does it go into education 5 29 accounts for for kids? Does it go into planning that vacation?
Does it go into just spending more than nice restaurant this Friday night? There are a million things that you could use that extra dollar to go toward as you move forward with your, with your life day to day. And so this goal prioritization isn't just saying what are these sort of big picture skills and life experiences that you want to have, but also more tangibly, what are the things you're going to buy or save or invest in that will help you, [00:37:00] uh, have a security around your life, uh, financially speaking and be more healthy financially speaking?
And that's very. Important to do that. So goal prioritization. It turns these vague wishes like to retire at a buy a home into really actionable, measurable milestones. Alright, the next reason to do a personal financial plan is wealth and tax optimization. And that extra dollar that you use, you may say, Hey Wes, I hate debt.
Debt just makes me feel like I'm in chains and I wanna remove those chains. So I'm gonna go and pay down my Bank of America practice loan. And so I'm gonna look at your balance sheet and I'm gonna look at the loan agreement and I'm gonna say, okay, that is a four point a half percent rate of return. Now, four point a half percent was very realistic for a long time.
In fact, some for a few years [00:38:00] there got sub four into the threes. In fact, my home loan was at like 2.95%. Practice loans were somewhere around three point half to four low fours for a long time. Now they've risen now, and they're more around six to 7%, maybe even 7.5%. This is a little bit unusual for the past decade and a half that we've been living in, primarily since the 2009 Real Estate Lehman Brothers crisis.
Interest rates have been remarkably low, and so they've come up a little bit lately, but even then, I'm gonna look at that. I'm gonna say, okay, you're at a 4.5% tax deductible loan from Bank of America, and by the way, it has a prepayment penalty. So you're gonna pay, I don't know, 2% as a prepayment penalty.
How bad do you want to get outta debt? Because that 4%, 4.5% loan that is getting CL because it's tax deductible, and let's say your marginal tax bracket is 40%. That is as close to free money as [00:39:00] you'll ever get, and probably ever have an opportunity again to get, even if you're at 6.5% after the tax deduction, you're closer to 4%, three and a half, 4% on that, and that is still a very low cost to have that money.
If you were to take that money and you were to go and invest it in an s and p 500 index fund, and let's say that gets you seven to 8% over time. Now, it may get you a negative 40% in one year and then a 60% the next year, but just over time, if it's gonna get you that seven to 9% rate of return, and yeah, you'll pay some taxes on that, but a lot of these.
Index funds or mutual funds are sort of tax deferred unless they're issuing dividends or you sell them is tax deferred and deferring tax is a major strategy to create efficiency of wealth building. Then the better decision mathematically is not to go pay off your practice loan. The better decision mathematically is to go and invest that money.
But a lot of people will say, yeah, [00:40:00] but when I pay off that debt, it is a fixed guaranteed rate of return. To me, if my debt is at a 4.5% after the tax deduction, it's 2.75%. Great. You're getting a 2.75% rate of return by paying down your practice debt. That's one way to do it. It is not gonna be the most efficient way to do it.
The reason why isn't just that there's a two to 3% spread between paying down the debt and investing in the stock market is because that two to 3% spread is gonna compound, which means it's gonna give you growth. That on itself will create new growth. That concept of compound interest is so important. I gotta understand this.
If you do, great, maybe skip forward a minute here as I explain this. If you don't, please understand it. If I give you a hundred dollars and you go and you invest that a hundred, a hundred dollars into a treasury bond and that treasury bond gives you a 10% rate of return, now that's very high, but I'm using this for simple math [00:41:00] in that first year on that a hundred dollars, you just got 10 bucks.
10% on a a hundred dollars is 10 bucks. If you took that 10 bucks and you went and you bought it to go, I don't know, to go buy a Labu Boo Doll, which, sorry to use Labu Boo Dolls, but they seem to be everywhere these days. So you use it to go buy yourself a Labu Boo Doll for 10 bucks and you're still left with a hundred dollars in that treasury uh, bond, which is great.
The next year you get another 10 bucks. Great. You use that to go buy your second labu doll. Well, every year you're just getting 10 bucks. That is called simple interest. However, if you take that $10 in that first year and you buy another treasury bond with that $10. Now you have $110 in the treasury bond.
So what is your interest income in that second year? Well, it's going to be $11 now, $10 off the original a hundred dollars and $1 off that new $10 because again, it's a 10% rate of return. That $1, which [00:42:00] is interest on the interest is called compound growth. Now, that may not sound like a lot in that second year because you're saying Wes, it's one buck.
Okay, so I'm at 111 bucks of the 111 bucks. $11 is my rate of return, and $1 of that came from compound growth. That's true. But then if you go to that next year, now you're getting interest on your $11, which is gonna be $1 and 10 cents, and that's gonna be added to it. And then every year that compounded amount gets bigger and bigger and bigger, and you fast forward to 10, 15, 20, 25, 30 years.
The compound is so large that it completely dwarfs. What is the simple version of the interest that you would have got on that significantly, that compound growth is just one of these, it's almost difficult to comprehend it. I think I, I've heard this many times, I haven't actually validated it, but Einstein saying that one of the wonders of the universe is compound interest.
Well, it's because that geometric curve gets so steep [00:43:00] over time as the interest gains interest on itself, or the accumulation of returns gets a more accumulated returns on itself. And so when I say let's invest rather than paying down your debt, it's because you're, you're kick-starting that compound interest sooner, which then has a magnifying result as you go down the road of your life.
Now that said, as much as I try to let math and probabilities and statistics guide the way in your financial decision making, I also empathize with the fact that there is a huge psychological element to the way that you relate with your money. And for a lot of people debt, it isn't just about how do I accumulate my net worth faster?
It's more about filling a sense of security along the way. And for a lot of people, riding the ups and downs of the stock market is difficult. Psychologically and emotionally. It's difficult because you work [00:44:00] so hard for that money, you put it to work and you see it loose, you see it drop, and it's difficult to stomach that for a lot of people.
A lot of financial advisors, honestly, they make their money, money just on helping you avoid bad decisions that are coming out of the emotional reactions that we have as human beings. And that in some sense pays for itself. They're investment advisors. I mean, for example, we use a lot of index based investing and indexes because we want to keep the cost really low, but we still will charge an investment advisory fee.
Now, ours is very competitive. It's lower than the industry standard, and a lot of our work is around 4 0 1 ks and defined benefit plans that have a lot of work attached to those. And so there's huge amounts of work that goes into properly managing a portfolio of assets for dentists. That said, in some ways our greatest value is that when the market falls and there's huge volatility, it's helping people stay the course because a tremendous amount of wealth has been lost.
Because the [00:45:00] stock market doesn't just slowly ebb and flow. No, it is like scale, uh, when an earthquake happens and it's just scratching up and down. I forget what that thing is called, but it's just up and down and erratic and jagged and it creates a lot of psychological backlash at coming out of this.
And so, so much of wealth building is about maintaining the course even when it's difficult to do that. And discipline is easy to say when the market is good and all boats are lifted by a rising tide as the statement goes. But it's when it gets challenging and the stock market is falling 8% in a day, 15% over a few weeks, 30 or 40% over a three month period, that's so difficult for people to, to stay invested, especially if they're getting closer to retirement, where they're seeing years of hard work evaporate right in front of their eyes.
Staying that [00:46:00] course is difficult and yet a lot of people then will sell out and then the market does what it always does. It comes back and it usually comes back as fast, if not faster than when it fell. Now, not always, but it will rebound. As long as history repeats itself, it's going to rebound. I mean, we essentially would've to go into World War II to not see a rebound, like Great Depression may take longer to rebound, but it will rebound, and if you hold the same shares, then you essentially are never losing the underlying value if it comes back and if you're invested in a very broadly based index based.
Uh, strategy where you literally own access to hundreds, if not thousands of companies. You're basically banking on the markets coming back. And if the markets come back, which they will, you're eventually gonna hold the same amount. And eventually you'll hold a lot more if you do stay that course. So financial discipline is a real thing and it's a lot more difficult to do when you're in the moment.
And a lot of what a good financial advisor will do is they'll [00:47:00] try to help you simulate that experience of a, of a market decline as much as possible. And it's hard to simulate it when you're not really in it. But a good risk analysis will put you in that moment of crisis and try to question how are you gonna react in that moment?
And so we, you know, we do that a lot with our clients. We actually have a software, uh, called Nitrogen, formally Riskalyze, that will try to simulate that, that effect. Okay, so going back to this wealth and tax optimization, this strategy, a personal financial plan, it sort of like gets the pieces of the puzzle on the table and starts bringing them together.
And you start then having the ability to create specific strategies around your money. And I talked about this in prior episodes, but those strategies matter a lot in the efficiency of your path toward financial independence. Not all paths are the same. You may invest money in a [00:48:00] CD giving you three and a half, 4%, and you may feel really good about that because it's very predictable, it feels very safe.
Uh, and maybe FDIC insured, yada yada. Or you may go put some of your money in emerging markets, uh, stock, which is incredibly volatile, but historically has a actually a phenomenal rate of return. And those two things are gonna have a very different effect. 15 years from now, one helped you feel okay and secure along the way.
The other one was a bit of a roller coaster, but you ended up having a much, getting much more a result out of that. And you have to make that choice. But I, as the financial advisor, I'm always gonna be advocating for those strategies that will get you there faster. And then I try to get you in many ways to not look, just don't look every day.
If you're trying to look every day and constantly opening up your investment app and constantly looking at your stocks, that actually, and this is one of the few areas in life where an [00:49:00] inattention to something actually makes you better at it. That is often the case when it comes to investing. People will back me on that.
Warren Buffet will absolutely back me on that because that is his strategy in many ways. Warren Buffet is a buy and hold strategy. He doesn't make wholesale changes or he doesn't make big changes very often. He makes subtle changes. We do that as well. That's called asset allocation. What industries do you want to be in?
What geographies do you want to be in? What's your strategy? Uh, more, more, uh, globally, not necessarily day-to-day stock picking when to buy and sell and beating, beating the market as they say, that is an incredibly difficult game. Not even, he really tries to do that. He will invest in great companies and then he will hold them for a very long period of time.
That is good investing. Okay, so good financial plan. It gives you this financial x-ray of all of your resources that you had to work with, and then it helps you customize a strategy [00:50:00] that you then revisit on a regular basis. That will help you get there faster. In some ways it's like you go to the gym and you just sort of repeat the same things.
We tend to do that because it's kind of comfortable. We like to run or we like to do bench press or we like to do those squats and you sort of repeat through the same set of maybe eight to 10 exercises on a regular basis and it can be therapeutic for us. And I fall victim to this strategy all the time, and that is a lot better than doing nothing for sure.
However, science has proven that some variation and rotation to your exercise pattern actually can produce a better output for you. And it's a little bit that way as well when it comes to your financial strategies, life changes. You have to revisit and restructure the way that you invest and pay off debt and use your dollars in order to get the goals that you have set for for yourself.
Okay, let's now go on to the next one, which is risk protection. This is another really important thing that comes out of a good [00:51:00] long-term financial plan, is you are exposed to risks that you cannot avoid. And a lot of those risks are around your own health. A lot of those risks are around the health of those around you, and maybe people that you rely or depend upon those risks are involved at work, um, as well.
And so the two primary ways that financial advisors will help. People. And the way that we try to help dentists minimize that risk is really to protect against it. Now, there's a lot of things you can do to prevent these things, like of course, exercising and attending to your, uh, to your business needs, not overspending.
There's a lot of things you can do to try to prevent these things, but there's a lot that you, you can't prevent out through just good decision making. As, you know, health being a major factor there and accidents being a major factor as well. And so risk protection is about really two things. A, it's about having [00:52:00] sufficient emergency reserves to buffer the storm that will inevitably come in your life.
And there's two areas where you need a good emergency reserve fund. It is in your business, and I call that your working capital base. What do you need in your business checking account? After credit card. So imagine if you paid off your credit card, balance what's left and how much you need is a key decision as a business owner.
For dentists, I typically will say to have at least one month of full cash outflow, not just one month of overhead, because overhead doesn't include debt. Technically, debt is not on your p and l. Interest is, but not paying off of debt. So when you say overhead, it's important, you distinguish that overhead is, does, does not include your debt.
Those are expenses that show up on your profit and loss statement. And then you had your debt in addition to overhead and then you pay yourself and out of that payment you pay the [00:53:00] IRS and you pay your state tax agencies and social security and income tax and all that stuff. And you should be funding money into a retirement plan for dentists.
The ideal retirement plan if designed right, and if designed and, and operating in context of your global. Financial ecosystem. 4 0 1 Ks are amazing ways to accumulate wealth in a tax deferred way. Now, there are some pundits out there, we'll say four oh, Ks are terrible and they're expensive, and all this stuff, and there's some truth to all that.
But when designed right and expensed and expenses are managed properly, not only is it a benefit to your staff, but it's a huge tool to accelerate your own financial independence by diverting money away from the IRS back into your future pocket and getting compound growth on that. And so these strategies will help you construct all of that in a way that produces that output that we really want.
And so I always say about one month of total outflows, including paying your future self, [00:54:00] is usually what you should be sitting on. And for most doctors, once you get to that target, pretty much a hundred percent of your dollars should be going out the door to a productive use. So let's simulate, for example, you have a, let's say you have a $2 million practice.
And your monthly overhead is, let's say you're doing about one, one point, let's say you're doing 180,000 a month in collections, and your total overhead is before paying you and before paying your, your four one k, let's say your total overhead is around $120,000. So that leaves $60,000. Now this is a fairly flush, this is a very healthy practice going on.
Um, but in that circumstance, so then you're taking 6,000, you're paying yourself tax and everything. I would say to have somewhere around 150 to $200,000 sitting in your checking account after credit card. So if you're sitting on $50,000 of [00:55:00] credit card debt, add $50,000 to that. So if I distill that down to something really simple, maybe it would be to have one month of of revenue.
Now, for some people, again, psychology kicks in and they say, you know. I actually can't sleep at night with only one month of collections. So I like to have two months of collections. I like to be sitting on 250,000, $350,000 in order for me to sleep at night. That's fine. And if that's how what you need, then I'm not gonna push back on that.
But what I will do is just inform you that that extra roughly $150,000 of cash if we're invested, and let's say we're getting you a 10% rate of return, that's $15,000 for the year, and then next year that would get you another 1,500 from a compounded growth, et cetera. And that compounding effect creates the fact that you're not getting that is an erosion of your potential, uh, financial development for your, for your life.
And so I like to say, what do we need to feel [00:56:00] secure enough? And then let's invest the rest to optimize our return on investment. Now in order to protect against things that will be incredibly expensive, like these, these, these risks you can't fully protect against maybe a car accident, a death, a disability, things of that nature.
Your emergency reserve fund isn't intended to cover those. Instead, that is insurance. And insurance is a key tool that financial planners use to prevent a catastrophic event in your finances that utterly destroys and destroys those finances and sets you back to the beginning. And, uh, at however, insurance has also been deeply abused in the financial planning world by financial planners to sell a lot more insurance or structured insurance that really doesn't align with the needs and the efficiency [00:57:00] of a well orchestrated financial plan.
And so I personally. From my study and my running of the numbers have found that term life insurance is the better insurance for a, for the, for what I call the mass affluent. And the mass affluent isn't the ultra affluent, the mass affluent are doctors are a great sort of, um, sub set or a class of this mass affluent.
It's people who are doing very well. They have a, a good house. They have a good home. They're setting aside money for their future. They're living well. They're not really struggling with finances. They are affluent enough to live a very comfortable life. So put them somewhere in between, sort of say middle class.
The ultra high net worth is sitting the mass affluent. So that's where most of, sort of the wealthy people reside is in that, is in that one, one area. And I would say for the mass affluent, especially middle class and below that life insurance, that is what's called whole life [00:58:00] or universal life or variable, universal life or variable life.
There's, there's a million variations with these things. Now, these are really structured types of products because they're structured in a way where you can invest inside of them. So it's not just an element of protection if you became, if, if you died, uh, also there is an investment happening inside of it that you can borrow against later, and you live off those borrowings to fund your life.
Now there are so many elements to these things that are not properly communicated that end up causing most of these. The vast majority, and don't quote me on this, but I believe it's somewhere north of 80% of cash value life insurance policies end up laps. Because as the holder of that policy, the, the policy holder, uh, or really the, the insured, 'cause the policy holder and the insured, although usually the same person, may be a different person.
The person who is insured will have more of a risk of dying [00:59:00] as they get older, naturally. And so the cost of the life protection goes up every year and every year you're, you're paying the same premiums for that policy. But more and more and more of those premiums are going to cover the life and not to go into the cash value investment portion of that life insurance.
And so eventually what happens is the premium isn't even enough to cover the life coverage, the insurance piece of that policy. And so it eventually has to dip into the cash value to make up the difference. And as you get into your fifties and sixties, it gets so expensive that the cash value ends up drying up that well becomes totally dry.
And a lot of times policy holders are not following it. It's just a policy that's sitting in their, in a drawer somewhere or just digitally stored somewhere, and they don't even know necessarily that policy is about to lapse. And so it does lapse. And so all of that effort, all you had was just life [01:00:00] insurance coverage for a period of time that went away.
And you had somebody who was paid a very large sum from a premium who placed that policy for you. And ultimately, you, you could have got that policy for one 50th of the cost had you just got term life insurance that didn't bake in an investment side of it. Now, conceptually, there's a lot of ways to present it to be very appealing, but I'm gonna tell you it's not what it's presented to be.
It's like an oasis in the desert, and finally you get there and you realize it's just a bunch of sand. The solid is there's no water. So I'm a, I'm, I'm really opposed to large cash value life insurance policies. Now, there may maybe some people who are listening to me who just adamantly disagree. A a lot of insurance people out there are gonna adamantly disagree with me.
But if you're a financial planner and you make your money off selling life insurance, all roads in your financial planning process are gonna lead to selling a whole value, uh, or cash value life insurance policy for your, [01:01:00] uh, clients. Now, every financial planning model, every financial planning, every financial planner is gonna get compensated one way or another.
And a lot of times people won't pay, and I mentioned this before, the cost for doing objective independent financial planning for that advisor. And so the advisor ends up making money by selling these products, which then pay them on the back end by a third party. Now every financial planning business model has a conflict of interest.
And this is important as you're thinking about if you're not with practice CFO, as you're thinking about engaging a financial planner. Lemme just run through this real quick. You have those who make money. Those financial planners who make money by selling you a life insurance policy or an annuity or a mutual fund or a stock or a bond and somebody on the backend is paying that advisor that money.
And it is very opaque. And this is why Wall Street and a lot of these banks are [01:02:00] incredibly wealthy, is they have come up with very, very creative ways to. Earn money by selling financial products and advice. And Wall Street is, I mean, the financial sector is, other than maybe the tech sector, it is the most profitable sector out there because banks and insurance companies and investment companies have become very astute at at doing this.
And two, and the clients often don't know. They don't know how their advisor is getting paid or what they're getting paid. So, and then you have an advisor who is hourly, you pay me for my time and my time is, I don't know, $150 an hour, $200 an hour, that's my time, and I'll do a financial planning plan for you, et cetera.
Now that is going to be that, that right there will probably give you the most objective financial advice coming out of that process. The problem is, the conflict of interest is that that advisor wants [01:03:00] to take a very long time. To do the financial planning process because that's how they are gonna make their money.
Even though tools and just knowledge over time allows 'em to do it a lot faster, they're going to wanna make that take a little bit longer to get paid appropriately. So even though I'm an, I'm an advocate a little bit of that, it doesn't necessarily mean that there is not a conflict of interest. So then we'll go to the, what's called the fee-based financial advisor and the fee-based financial advisor.
We'll get paid by you from your investment accounts for helping manage your investment decisions. In other words, what stocks, bonds, mutual funds, securities, et cetera, to buy inside of your 401k inside of your ira, inside of your brokerage account. But they will also then be paid by the product, the insurance product, by the mutual fund, by [01:04:00] the annuity.
They will also be paid by that as well, or they'll be paid for actually brokering the trade of that stock or bond. Those are called fee-based advisors because fee is when the investment is when the client pays. The investment advisor directly based means that it's that as part of it, but there's also getting paid by third parties and then there's fee only advisors.
And this is what we are here at Practice CFO, and the fee only advisor is only you pay us. No third party pays us. Period. And the way that we are paid is a, we charge a monthly fee to our clients, what we call the CFO fee. And that CFO fee, uh, handles the advice, but also embedded in that is the accounting as well and the payroll.
And then once a year we have the tax fee also, but that, that monthly fixed fee sort of covers sort of this all you can eat model. It covers all this accounting, it covers the meeting, it covers the emails and the phone calls, and it covers [01:05:00] the advice and all of that financial planning, both business and personal.
And, and so if you come to us, for sure, if you're in a standard bookkeeper model, it's gonna be a step up in cost. But that step up in cost is, according to my model that I've designed, is intended to give you very objective advice and then we get paid from you on this separate service of investing your assets for you, investing your 401k investing in your i a and your brokerage accounts.
And. And that sort of side of your balance sheet, we take care of that, and then we charge starting at 1% and then it drops after. As it goes up, that percentage starts to drop lower and lower and lower. And the thing is, with these 4 0 1 Ks, we lose money until that 401k gets to about six or $700,000.
Because the amount of work on these 401k plans such that it doesn't grind your time and such that it doesn't become this complex thing [01:06:00] that sits on your p and l pulling money out of your bank account while not accumulating wealth for you personally because it wasn't designed and adopted. Right? These things can be very intensive.
It's not just buying a mutual fund inside of an IRA and letting it go every year. You have to determine who's eligible. You have to give your employees certain documents. You have to educate them. You are a fiduciary for them. There is a record keeper that holds it to protect the money. So it's not you personally holding the funds.
And then there's people who do the testing to make sure it's compliant with IRS and Department of Labor Laws, and that's called ERISA testing at the end of the year. And there's that process. And then there is the process of deciding how much you can't and want to fund into this 401k because there are three buckets.
There's the elective deferrals, what you put in outta your own payroll, and what your staff put in outta their own payroll. There's what's called the safe harbor, which allows you to sort of put more and [01:07:00] for you as the owner. And then there's what's called the profit share, which which is this really nice extra layer that you could put into the 401k to get you up to somewhere around 70 to $80,000 depending on your age.
And then there's a fourth bucket called a defined benefit plan or cash balance plan you can layer on if you're really cash flowing well in a high tax bracket and a little bit older. Designing those well and then administering them from year to year. My point is that it takes a lot of time. It takes strategy and organization.
And so the fee that we charge to manage assets isn't necessarily just to choose a stock or a bond. It's actually to make sure that that whole process around all of your assets in your ira, in your brokerage accounts, in your 401k, in your defined benefit plan, that that whole ecosystem is really operating in a cohesive way and compliance with the, in compliant with all of the laws around you and your employees, while not un, while not burdening you [01:08:00] as the practice owner, which is oftentimes what happens with these, with these things.
So our model is where a fee only advisor, the one area where a third party pays us is on life and disability insurance, because that's the way the industry just does it. I am licensed to place term life and disability insurance. And as you know, as a dentist, these things are required. Whether you like it or not, you get a loan.
Most banks require that you have life and a lot of banks require that you have disability in order to cover that loan in case you died or became disabled. And then of course, as you get married and as you have children, you have other people who may be depending on your income stream. And if you were to pass away, it could be catastrophic to those dependents and that's what life and disability insurance do, or you became disabled.
That's what they can do to continue to provide for you and those dependents, uh, while they sort of eventually become financially, um, independent on their own. So risk protection [01:09:00] goes back to emergency reserves and proper life and disability insurance. And then there's, of course, there's malpractice and other types of property and casualty insurance as well, which I'm not gonna go into right now.
And then lastly, the reason to have a personal financial plan is because the confidence and the accountability that it creates, it does create this confidence in you, this sense of financial peace of mind, knowing that you're on a plan that is moving in a direction that feels sustainable and healthy.
And it also helps create some accountability for you to follow these disciplined principles that you've set for yourself to make sure that your money delivers a result in your life that is happy and productive and healthy. Okay, let me just share a couple, yeah, it's a couple real life stories here. I met a client, and I'm gonna call this client Dr.
Sally and Steven Sample, but they are actual clients. Some of my early clients here at Practice CFO. And I met them, um, in a, um, in an education event, [01:10:00] um, in New Mexico actually, where I went to speak and I spoke for a few days with a relatively small group in this crowd. And we talked about all these concepts that, you know, I talked about these podcasts and they said, Wes, you know, we're around 50, it was somewhere maybe late 40, early fifties at the time, and they have three kids.
And they said, we wanna really fill financial organization up to this point in our life. Really been buying our practice, getting it really operating well over the past 10 years or so. And we've been paying down, you know, student debt and things like that and just getting established, buying a house. But what we really don't have a great plan.
Get to this next phase of financial freedom. Help us do that, Wes. And so we started a process where we did a personal financial plan and I had 'em literally write down on a sheet of paper that I have. And I will, by the way, I will include that sort of template in the show notes so you can print that down and go through this same exercise yourself.
And so I had them do that and really be thoughtful and intentional about defining [01:11:00] and architecting what their life looks like, authoring what that looks like so somebody else doesn't. And so they really talked deeply about education funding for their three kids, which was such a key part of their prioritization was that they really wanted to give their kids access to great education.
And fast forward now roughly 11 years later, and they've done that and their oldest child is now in, um. Endo school. And then they have some, a kid, one child who's pursuing a PhD and they've gone to some really good schools and become academically very, very, um, uh, accomplished. And also when they want to pay out their house, travel a huge part of their plan.
They send me pictures, often of their travels. Also a big part of their financial plan. And one thing that we talked about with them is, is they said, we really want experiences, experiences for us matter more than maybe having a second house or a third house. Is that it? It's experiences. So we wanna see [01:12:00] the world, we wanna witness things, we want to find experiences that elevate us and make us think deeper about, uh, life and ourselves and, and all of that.
So they've traveled. So many parts of the world, they've done long hikes and journeys to sort of simulate different experiences of their, their faith history. And it's been a great thing to, to see this and be a part of this as their financial and life planner and advisor and CPA all along the way. And so fast forward to here we are today, and when they, when when they came to me, I think they had maybe three to $500,000 invested.
They now have approaching three and a half million dollars invested their practices. The debt is all paid off in one prior practice. By the way, they're both doctors. One is in and on. Um, sorry. One is a pediatric dentist and one is a, uh, is a general dentist. And, um. They have just a little bit more debt in the one practice as well, and we have defined their goals-based [01:13:00] breakeven such that they know if, if they collect X per month after their overhead debt and taxes, they'll be able to pay themselves Y fund money for education for their kids.
We'll say X and then Z. They will be able to set aside the money sufficient to be able to retire at the end of next year, which is the goal that we set back then and everything we've done as we meet during the year, maybe once during the year, we're looking at the personal financial plan to make sure we're still on track to, for them to be able to retire at the end of 2026.
And then the other meetings during the year, we're looking at the here and the now at taxes now and saving taxes now, and what are we doing with the 5 29 education money now and what's going on in their practice now, and debt and all of that. Of course getting through COVID and EIDL and ERC and all of those things, uh, as well.
And so constructing this plan, this journey was, uh, an intensely rewarding experience, I think for, for all of us because now they're about to stick to landing and it just feels [01:14:00] good. And it has been easy and they've had to work very hard. And there's been a few struggles all along the way, but the journey was very sort of contained and organized because of the plan that we started out with 10 years ago.
By starting with the end, end mind, I want to just congratulate that husband and wife and their journey for being such a, an enriching experience. I'm so happy to see them here. Get ready to stick the landing and, okay. One more I wanna share, and this is a little bit more on the risk protection side. A client of mine, an endodontist also, I met early on.
Had a very successful practice and has a number of kids and just had clearly defined his life as we did the financial planning. But also one thing we did is we really protected him through proper life and disability insurance. And I always will say, here's kind of the range that I recommend of life and disability.
And the higher the range, the, the more the premium of course. And I'll kinda let them decide. I'll say, here's what I recommend. Um, [01:15:00] and he chose the upper end of the range for disability, which was $20,000 a month of disability insurance in the event that he became disabled. He was a hundred percent healthy at the time.
And so we placed these policies. There were two policies that we placed. It might have even been a third. It's been a while. And what happened was, fast forward, I think it was about four years or five years, and he was diagnosed and this is, this is a hundred percent legitimate. I know that there have been cases where people will.
Sort of pushed the envelope to claim disability on some health issue that maybe isn't necessarily a truly disabling factor, but it's a way to sort of escape the grind and get some income from a disability policy that you paid in for a long time. Now, this was a very legitimate case where he had a nerve issue, if I remember right in his fingers, that caused him to not be able to co control sort of the motor functions of his, of his hand, and he's an endodontist and you absolutely need [01:16:00] that.
And so he ended up going on disability because he had no choice and was able to actually sort of sell his practice in time to somebody else to come in and get the practice, but he was able to monetize that value of his practice. But that disability, here we are about seven years later or so, that disability has been the absolute lifeblood of the life with him and his family to sustain that life that he had without having to make these dramatic changes.
To their lifestyle and the goals that they have set. And I've seen this in many occasions and I've seen it where a doctor did not want to get life and disability. They felt that the odds were too low. It wasn't worth the monthly premium payments, and it ended up turning out to be a very devastating outcome where disability was needed or, or they passed away.
And so, uh, I, I, I absolutely believe as a financial planner, and this isn't, yes, there's an economic incentive here for me to place life in disability [01:17:00] because we get compensated for placing life in disability insurance. However, life insurance is like pennies. It is way more work than the pennies that come when you sell term life insurance.
And I don't even mind if my clients go get it on an online website for as cheap as possible, as long as it's with a reputable carrier who I feel comfortable that they will actually be able to pay out in the event of death. Uh, we don't look to make income really off life insurance. Disability pays a little bit better, but still there's a lot of work that goes into placing these things well and overseeing them.
So please protect yourself. Those are a couple stories of the value of doing a personal financial plan and the protection that came out of it and the life experience that came out of a well orchestrated plan. Alright everybody, I think that's gonna conclude what is this part of our series on financial independence or financial planning for practice owning doctors?
The last thing I'm gonna say here, this maybe the last thing I always have. A couple last [01:18:00] things, but one of the last things I'll say here, and this is a slight plug for practice orbit, my technology, marketplace technology for buying and selling dental practices inside of it, I've created this free tool.
It's called the Price Estimator. Think of it like the Zestimate for Zillow, where you can easily get a relatively good valuation of your house. That's what the as estimate does, what I call in here, the Orbit estimate. It's a feature and practice orbit where if you get your tax return, get that 1120 s if you're an S corporation, or get that 10 65 if you're a partnership, or get that, uh, schedule C from your 10 40.
If you're a sole proprietor, just get that tax return. You can create a free account on practice orbit.com and fill out your profile. It takes like. Three or four seconds. We don't use it to do mass emails, to market it and that kind of thing. And you can even go in and in your settings and, and turn off your notifica email notifications if you want to.
But once you're in there, go down on the bottom right of your my dashboard, which is just on the top right, [01:19:00] click my dashboard, and then the bottom left, it says Price Estimator. And click on that price estimator. And it will have a, just a series of a few boxes that you gotta pull from. Your tax return is about six, and it literally takes like 30 seconds.
You just need your tax return and put that in there. And then you can put in there, what is the remaining debt that you have on your practice, and if you were to sell it, what do you estimate the brokerage fee would be? And it goes from zero up to 10%, and then it will calculate. Three things. It will calculate what is a low median and high valuation.
I have to be very careful 'cause I'm not certified in doing business valuations, but I had been in hundreds of practice valuations and as a CPA doing price estimates is a very, very common part of the job for CPAs. And so this does a very good job at saying what type of practice are you and also what are [01:20:00] your income and expenses as you get them from your tax return?
And it will generate a low, medium, and high value or price estimate of your practice. The second thing it will tell you is an estimated taxes, uh, on the sale. Now most of the tax, most of the tax is gonna be in the form of long-term capital gains, which for most of you is gonna be 20%. That's federal. Then states, most states don't have a difference between a long-term capital gain rate and just your ordinary income rate.
And so, like California for example, there's no distinction. Uh, all income is taxed at the same rate as opposed to saying this is a long-term asset, like a stock I've held forever or my practice, which is a business, it's an asset that you've held for a long time. So when you sell it, most of the gains are taxed at these long-term capital gain rates.
Some of it is taxed at ordinary rates, uh, but most long-term capital gains, well the software will take it, will ask you the state you live in, and then it will create what is the estimated taxes. And I found this to be very accurate as [01:21:00] I did sort of a post-op on practices that did sell to say what did I think was gonna sell using the practice orbit technology.
And what actually, what did I think I was gonna have to, they were gonna have to pay in taxes and what did they actually have to pay in taxes? Now practice, CFO, we, we have some tools to do much more detailed analysis, but it ends up coming pretty close to what practice Orbit will give you for free. So that's the second thing that it will tell you.
And the third thing that it will tell you is after paying off the debt, the broker fee and estimated selling expenses like attorneys or accountants, what's left? So after paying your debt, taxes and selling expenses, what is left after all the debt settles? And that is the net proceeds. The net proceeds and the net proceeds is then ultimately what matters.
Because that's what goes into your, on your balance, your personal balance sheet to fund your future needs. And when you do a long-term financial plan, because your practice is an asset on your personal net worth statement, just like holding [01:22:00] Apple stock, it's an asset that you can monetize over time. It's important that you have a decent idea of what the value is.
And no, it's not just gonna be 75 to 85% of your collections, it's gonna be a function, more of your cash flow, which is your profit after collections. That's gonna drive more of the value of your practice. So you can pop into practice orbit.com, free account, delete your profile, go to Price Estimator, get your tax return, and you get that really helpful information.
Alright, the action plan or the takeaway from this part, uh, developing a personal plan for financial independence is to buckle down. Stop letting marginal thinking, prevent you from doing this exercise and do a personal financial plan. And I'm gonna have in the show notes a resource called Financial Goals and Spending Plan that can help you navigate that thought process.
And you can give that to your financial planner. You can engage a financial planner or you can reach out to here, us here at Practice CFO. If [01:23:00] you're a client at practice CFO and feel like it's time to update your personal financial plan, please reach out and do that. I will say a lot of times when we meet with clients here at Practice CFO.
We end up getting so deep in the here and now that today talking about tax planning and debt management and overhead and the things going on in your practice in your life, that sometimes it's been hard even for us to find the time to set that aside and do the less urgent, but more important activity of forecasting out on the future your life and doing this long-term activity.
So. Let's do it. Let's all make this an effort that we all get our, our long-term financial plans in place, and that will help us feel a lot more grounded. So check out the show notes to download the financial goals and spending plan. And then the next episode is gonna be on creating a spending plan today.
So we just talked about defining your life, authoring your long-term goals, structuring that blueprint, and then we're gonna back into the day to say, what is [01:24:00] now the thing you gotta do today around how you allocate your spending in and out of the practice. So stay tuned for that. Until then, have a great one.
Wes knows what's best for dental practices. He's been doing this for a long time and he sees lots of practices. He can tell me how our practice is doing, and what we can do to increase our productivity. With past CPA's, there were no ideas. It was all coming from me, saying "I think I can do better, but I don't know how." I come in to meet with Wes and he says "You CAN do better, and I know how."
PracticeCFO is in hundreds of dental offices around the country. They know what numbers should look like. They know what percentages of payroll, rent and supplies should be, and they will hold you accountable to those numbers, which will really help you stick to your plan and your path of growth and savings. That is invaluable
Whenever something comes up, whether it's building or practice related and we weren't sure where the numbers would go, PracticeCFO has been instrumental in helping us figure that out. I can't say enough of how important that is - that it goes beyond that initial partnership. They make sure this business marriage works.
When I go home from work, I don't spend a whole lot of time stressing about what my books look like, or how much I owe in taxes. By using PracticeCFO, the burden of keeping track of a lot of the big financial numbers and metrics are taken off my plate.
PracticeCFO helped me develop a plan for the future. I have colleagues that work with other accountants that don't have a plan - they just look at the numbers of the practice and that's it. There's no plan for 10, 20 years from now. But with PracticeCFO, you get that. PracticeCFO makes you feel like you're they're only client.
(In reference to his practice sale) What could've been super stressful, wasn't! When picking John and Wes, it was from word of mouth recommendations and other people's experiences from the past that really did it for me. And it turns out that those recommendations were right on the line.
Wes knows the business side of dentistry. His comprehensive plan will organize your personal and professional finances so you can focus on taking care of patients. Massive ROI.
I can’t say enough good things about everyone at PracticeCFO. Everyone on the team is professional, organized, knowledgeable, helpful and kind. They also respond to emails and phone calls immediately and are always happy to help. They have helped me navigate year-to-year as a business owner. PracticeCFO gives me peace of mind that my business is in good hands.
I love Practice CFO! They have helped me obtain a practice and maintain a practice. They are incredible people who are on top of everything and make owning and running the business portion of a practice easy. They couldn’t be better for my business and my sanity. They have every detail of the business and taxes taken care of where all I have to do is show up and follow their easy steps to success!
Practice CFO has the best tools I’ve seen for personal tax and financial planning in addition to top-tier corporate tax and accounting services. I have been very pleased with the level of quality service. They manage my monthly bookkeeping and accounts payable. It is a great system and saves me a ton of time, and it allows us to have monthly financial statements within a week of month end.
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