Dental Financial Planning: Turning Chaos into Financial Freedom - Part 3

Welcome back to The Dental Board Room Podcast! In this episode, we continue our multi-part series on financial planning for dental practice owners. Phase 1 covered building the right financial team. Now in Phase 2, we shift the focus from the business to you personally — developing a Personal Plan for Financial Independence.
In today's episode, we deep dive into Step 2 of Phase 2:
Creating a Personal Spending Plan – or how to design a smart, sustainable approach to how you use your money today.
You’ll learn how to separate your business cash flow into short-term personal spending and long-term savings, why most dentists mistakenly reverse this process, and how you can proactively plan for both your current lifestyle and your financial future.
🔑 Key Points:
• Phase 1 was about constructing your financial team.
• Phase 2 is focused on your personal financial independence, not the business side (which comes in Phase 3).
• Step 1 of Phase 2: Create a long-term financial plan (covered in the previous episode).
• Step 2: Complete a Personal Spending Plan to manage today's spending.
• There are two main outflows from your business checking account:

→ Personal spending today (checking account)
→ Future savings (investment or savings accounts)
• Dentists often save what’s left after spending — but this should be reversed. Prioritize savings and plan spending based on what remains.
• Understand your business cash flow:

→ Collections → Minus Overhead = Profit
→ From Profit, subtract Debt, Taxes, and 401(k) contributions
→ What's left is your take-home amount
• Owners (S Corp) take money out either via W2 (payroll) or owner draws/distributions.
• Importance of separating operating costs from debt payments and understanding the tax implications of draws vs. dividends.

Transcription:

Wes Read: [00:00:00] Welcome everybody to another episode of the Dental Boardroom podcast. I'm excited to carry on my series on financial planning for dental practice owners turning chaos into financial freedom. We are on phase two, so phase one was to construct your team. We talked a lot about a healthy team dynamic, who should be on your team, and how often you should be meeting with those team members.

Now we're in the middle of phase two, and phase two is developing a personal plan for financial independence. So we're really focusing on the personal side right now, not focusing on the business side. That's gonna be phase three. What is, what is business financial planning mean for a dental practice owner?

We're gonna, we're gonna dwell a little bit longer on the personal side. Just a recap from my last episode. We talked about the three steps within this. Personal plan for financial independence. These sort of three steps within phase two. Step number one is creating a long-term financial plan that is planning for the future you.[00:01:00]

So I just spent an hour and a half almost talking about that in my last episode. Today we're gonna talk about the second step inside of this, which is completing a personal spending plan, which is really financial planning for you today. How you spend your money today. And then number three is identify your financial equilibrium.

We'll see if I get to that in this episode or make that a separate episode. So let's dive into step two, complete a personal spending plan. How do we plan for the current you today? Alright, a personal SP spending plan. I wanna start off by you conceptually understanding this concept that there's a flow of money.

From your business to you, and there's the flow of the money to you today. And then there's the flow of the money outta your business account for you in the future. And so for those of you watching on YouTube, you see my screen. Step two, create a personal spending plan. And I have on this screen a, a sort of a box that represents your [00:02:00] business checking account.

So whether that's at Bank of America. Wells Fargo, chase, a local bank, fifth Third Bank, whichever bank it is you, you have this checking account in your business. Even if you're a sole proprietor, you should still have a separate business checking account. So we all have this. It's on your balance sheet, and many of you have more than one business checking account.

You may have business savings account, but for purposes of this concept, just think of that as all one bucket, your business. Cash we'll say, and then your business cash. Once you pay, of course, off your overhead, your debt, your taxes, and you sort of fund your 401k, if you have one, then the money comes outta the practice and it goes to you, and it can go into a personal checking account for your spending today, or it can go into a savings account for spending in the future.

So try to lock that in your head visually, that you've got your checking [00:03:00] account and the money. You got two arrows coming outta that. Your business checking account. You got two arrows coming out. One going into your personal checking account for spending today and one going into savings accounts, whether those are investment accounts, education funding accounts, you know, IRA accounts, uh, even like CDs perhaps, or treasury, uh, things like that.

You have your. Your savings suspending in the future. So now that we've got that in your head, we need to define how much you need in the first arrow. How much is going into your personal checking account so that we know how much is left to go in the second account. Now, that's how typically financial planning occurs with dentists when they don't deliberately think through their financial life.

What they do is they spend, and then whatever's left may go into a savings account. And really it should be flipped. So we sort of define our future and say, what do we need to go there? And then we back into what we can save [00:04:00] today. And then you have to sort of work to a ground, middle ground maybe, where it is a very feasible, realistic, um, allocation between your spending today and your spending in the future.

So this is, yeah. I'm gonna elaborate on this a little bit more. And this is, this is one where ideally you could watch it on YouTube that said, I'm gonna try to explain this very clearly. What I'm showing on the screen is the way that dentists typically do their personal financial planning. We start off with collections, coming in, doing treatment, getting cases accepted, insurance monies, landing Visa, MasterCard, discover cards, cards are being swiped at the, at the terminal, at the front desk.

Maybe a little bit of cash here or there, but you got money coming in. And as we know, that's called collections. Then from there, you take out your overhead. That's your labs, labor supplies, facility marketing and admin. So you take out all of your practice overhead. Remember I mentioned this in my last [00:05:00] episode?

Debt is not overhead. Debt is separate from your overhead. Overhead are the operating costs, the things that you pay on a day-to-day basis to make your practice run. Paying off debt, that's really a financing cost. You've got financing and you're paying somebody else back. That's not an operating cost. So you have your total collections, and this is a mathematical formula I want you to just follow in your head.

Then you subtract outta your total collections, your practice overhead, and you're left with your profit. Now, that's before paying you today. This is just what we call your operating income. I'm just gonna call it profit, and it's the orange box on my screen. Then from your profit, now you gotta go pay your debt, and now you gotta go pay your taxes and now you fund your 401k.

So before anything comes out to go to you personally, you take your profit, which is your collections, less your overhead, and then you take that profit and you pay down your debt and you pay your taxes and you pay your retirement contributions into your 401k. [00:06:00] And what's left is amount that you can then take home and you can take that home assuming you are a corporation, an S corporation, which I would say.

Nine outta 10 of you are, you are gonna take that money outta your business' checking account that's left after paying your overhead, your debt, taxes, and retirement contribution, whatever's left. You're gonna take that out in one of two ways. You're gonna take that out through payroll, through what's called your W2.

As you know, that's been happening for many, many years, I'm sure. And then the other way is you take it out as a transfer from your business checking account to your personal checking account, and that's called a draw or a distribution. And owner distribution. We don't call it a dividend for S corporations.

Dividends are for C corporations, like all the big ones. So pretty much every company, I think every company on the s and p 500 and the Nasdaq and the Dow, these are all C corporations. And C corporations are tax [00:07:00] IDs. They're like separate people. They pay their own taxes. They, you know, it's like they have a life of their own.

And then the owners in those C corporations will get, uh, dividend payments to them, and then the owners will pay taxes on the dividends. So C corporations have to pay taxes at the corporate level, and then they issue dividends to the stockholders who pay taxes on the dividends. And that's called double taxation.

The corporation pays tax boom, that's once and the individual pays the tax boom. That's twice. That's called double taxation, and maybe you've heard it in the in the news or politics and commentary. Double taxation and double taxation is gonna be more costly from a tax standpoint than single taxation and single taxation occurs when the corporation does not pay taxes itself.

But instead sweeps the profits out to the owners of the corporation where they pay taxes one time on their personal 10 40 tax return. That's single taxation. [00:08:00] Now dividends are taxed less. Then the W twos and the profit, uh, the profits that flow out on these documents called a K one to these s corporations, the, the tax rate will be higher for, for income coming outta the S corporations to meaning to you dentists than if you were to receive that as a dividend from a C corporation.

But when you add the two together. IE, if you are a C corporation and your corporation paid taxes and then it issued dividends to you and you pay taxes on the dividends, plus of course you're W2, you pay a W2 to yourself, whether you're a C or an S corporation, that doesn't matter. But if you're a C corporation, the C corporation is gonna pay taxes, and then it's gonna issue dividends, and then you pay the lower tax rate on the dividends on the personal level, but the sum of the corporate taxes and the dividends you would pay.

If you operate it as a C corporation, it's gonna be larger than the higher rate on single taxation, but it's only taxed once. So that's maybe a little [00:09:00] TMI on the tax. On the tax code related to CNS corporations. But it's important you understand that as an as an S corporation, your S corporation does not pay corporate income tax.

C corporations do not s corporations. So it's what's called a flow through. Which is you file an S Corporation tax return with the IRS. Yes. But is it, it is an informational return only. You don't pay taxes with that corp with that corporate tax return. What it does is it issues this document called a K one, and even if you're a partnership, same thing, you get a K one and then that K one ends up going on your personal tax return like a W2, and you combine the K one and the W2 income to determine what is your total taxable income and in your corporation, your W2 and your profit distributions on your K one.

If they're like a teeter totter, if you pay yourself more W2, [00:10:00] you're gonna get a lower. K one because your profits to your corporation are lower when you pay yourself as an employee more on your W2. And if you pay your W2 less, you, then your flow through profits on your K one are going to be higher. But the sum of each tip of that teeter-totter is always gonna be the same.

That was some slight nuances, but for the most part, it's always gonna be the be the same. So from an income tax standpoint, it doesn't matter how much you pay yourself as a W2, it's all gonna flow out on your 10 40. However, W2 is subject to FICA taxes of 15.3%. That's Social security and Medicare. I've said this many times on the show, so sorry if you've heard this many times, but that's the motive to get your W2 down, is you don't have to pay as much in FICA taxes.

However, Medicare ends at about 160, 170,000. So it's real. I mean, social security does, so it's really only Medicare on anything above that. But then if you have a 401k or cash balance defined benefit plan, you actually want to jack your W2 way up. You don't care about [00:11:00] FICA taxes at that point. You care about reducing income taxes.

And so you jack that way up. So this is, you know, this is a lot of the strategy, of course, around good financial planning for a dentist. And of course, what we do here at Practice CFO every day, all day is trying to strike what is that? Optimal point where all the levers line up and you reduce the taxes to the most amount possible.

It's a fairly complicated thing in the tax code when you have all these phase outs on your personal tax return that you lose if your income gets above a certain level. So there's like these tax strategies that not only sort of get your taxable income down to a certain level, they may recapture other phased out credits and deductions that you lose.

So how you sort of construct all those levers in order to get as much of the those phase outs removed to get credits and deductions is really, really important to line all that up correctly. And the only way to do that is really you gotta get all the piece of the puzzle on the table as you can see it all, and line everything up together to create that clear picture.

Alright, so back on topic here. You are an S corporation most likely. [00:12:00] So. Going back to the beginning, you have your total collections. You take out your overhead left with profit outta your profit. You pay your debt, practice debt, you pay your taxes. Now, when I say you pay your taxes, this is your income taxes through your W2.

Uh, and, and in your W2, you're gonna have income taxes, withheld, FICA, taxes, withheld. And for a lot of our clients, we even have them. We, we try to pay almost all of their income tax, if not all of it, through their W2 withholding. And so there's a, there's an, there's a discoordinate amount of their W2 that's going to pay taxes.

And a lot of times clients will say, Wes, why are you taking so much tax outta my W2 payroll? And I say, because I'm not only paying the tax on your W2, I'm making the tax on your K one. Which you're gonna get for $300,000 at the end of the year. And I don't want you to have to write quarterly payments or to pay a big massive tax bill with late payments at tax time on your K one.

And so I sort of front load that all through your W2 'cause there's a lot of advantages of doing that, like not ever getting penalties for paying late. [00:13:00] And so we take out your taxes and then what's left after your debt, payments, taxes, retirement plan contributions is your net take home that you take out through W2 and draws.

And in other words, what goes through payroll and what goes through an automatic transfer or manual transfer from your business checking account to your personal checking account. Then from there, the money lands in your personal checking account and you pay all your living expenses today, like your mortgage, your rent, your food, your car, your entertainment costs, your student loans, your travel.

You pay all that, and then what's left? Is what you say, okay, I have X left. I'm gonna now put this into an IRA account, or I'm gonna pay down debt. I'm gonna pay into my 5 29 education. This is sort of the standard MO of dental financial planning. If there's not an intentional effort to actually change it to be more deliberate, it's sort of the whatever's less left strategy.

Now even in that strategy, you're still probably funding a 401k and maybe even funding that IRA and [00:14:00] maybe even automatic transfers into some accounts, but it's still not entirely a great one because it isn't thought through from beginning to end in an intentional way. You haven't defined what is the break even you need in your practice to collect each month, such that after all of this stuff, the overhead, the debt, the taxes, after all of this stuff, what is left to not only feed you today, but also to really feed your future self with the goals of financial independence that we have set.

What age do you want be able to stop working? If you so choose, how much money do you wanna have when you're in, when you're in retirement, how much money do you wanna fund for kids' education? How much you want for say a second home? All of those things have to be defined in order to back into what do you need to collect in order to meet your spending needs today and meet your future financial planning independent goals.

So this is the way, on the right hand side of my screen that we like to do it is first we say, what are your goals? We [00:15:00] define those. Now. My last episode on the podcast, I talked a lot about the importance of not giving into marginal thinking and delaying, delaying, delaying, doing a personal financial plan, but instead sitting down and finally doing that.

What cash do you need to meet those goals that you have specifically drafted and architected for your future? What cast do you need? What cash do you need to cover everything? So we've defined what our cash needed, our cash need to fund our future selves, and let's say that's. I dunno. Let's say that's $10,000 a month that you want to set aside $120,000 a year to building your personal balance sheet.

Your personal net worth statement, either paying down debt or investing in different assets like stock bonds, mutual funds, real estate holdings, index funds, paying down certain bad debt, paying off credit cards, paying off your card debt, things like that. How much do you need in order to meet your future financial goals?

[00:16:00] Then from there we add what do you need to live on today? Your personal budget, so your spending. So in the first category, what do you need to set aside for, for your future self through savings and debt? Pay down. Above debt, pay down above what is your minimum required amount. Then we add what do you need to live on today and your basic required debt?

Pay down, of course what it's gonna call this, your personal living budget and that equals the net take home that you need outta your practice. So now we have something a lot more intentional to say, what do you need outta your practice to cover not only yourself today, but also yourself in the future and your personal life?

Then from there we say, okay, I know how much we need to bring outta the practice to pay for me now in the future. Then we add to that the taxes that we're gonna have to pay. And also our retirement contributions into our 401k plan inside of the business. And now we know what is the gross amount of compensate, compensation, [00:17:00] and draws that we need, and what is that?

What do we need outta the practice to pay for us now us in the future, our taxes and our retirement plan contributions? Then you say, okay, also then what do I need to cover my debt? And to cover my practice overhead, my, my practice debt, and my practice overhead of labor lab supplies, facility marketing and admin.

Then you get to the total collections required. And as you know, I call that your goals based break even. So this concept of being intentional around defining your future and then backing into today and defining what you need in your practice. So this whole kind of flow is cohesive and correlated. Now we have a good plan for financial independence.

Now, it doesn't always necessarily work this cleanly because life is gonna throw you curve balls and suddenly you're gonna need an [00:18:00] extra 40 grand for an health issue. Or suddenly your, your parent passes away and you realize that you have to take a few months off and you need to dip into an emergency reserve.

And then you gotta come back and build up that emergency reserve. And so maybe some funding and do an IRA account or a 5 29 education savings account needs to go on pause. There's, there's things that come your way. That's why this is one of those things that you don't need to revise your personal financial planning every month.

It's one of those things that I'd say revisit your long-term financial plan. Maybe once a year, even once a two, every couple years is probably okay, but on a regular basis at some cadence, we need to revisit that and just tailor it and customize it back, bring it sort of back on course. So that you're, you're constantly moving that needle in the direction that's gonna get you to a healthy place financially.

So this, this view, this view is how we take clients through the process. Now, what's the action plan here is to [00:19:00] complete a spending plan. I'm gonna have in the show notes, um, the same thing I had in my last show notes, which is a, it's a one. Document with a few pages that helps you define your future goals.

And then also to do a budget for today. And I do think it's a good idea. I do think it's a good idea to go line by line and say, how much am I needing for food out? How much am I needing for groceries? How much am I needing to cover my my car insurance for my kids? And you go through this, this long list of all of your overhead, your personal overhead, I'll call it to define that budget.

I hate doing budgets and I'm a financial planner, but periodically you've just gotta itemize that out. And then the reality is, whatever you come up with, it's probably gonna be somewhere around 30 to 50% more in actuality than what you just came up with. And the only true way to see what you actually spent is you've gotta feed your data into a financial planning software and let it sort of tell you what you spent.

Now, maybe your credit card company will do that. [00:20:00] Amex will do that online, and it'll sort of give you a pie chart of how you've spent your money. Uh, Quicken used to be a personal financial planning software, mint.com, which I think was now replaced by, uh, credit Karma. I think. But there's some tools out there where you can, you can do that.

I even think Rocket Mor Mortgage now one, uh, from a colleague that I, not a colleague, but a friend I had in college started one called You Need a Budget or Wine a.com. You need a budget.com. It's a more of an envelope system where you've literally envelope all of your spending, all of your money going out, goes into sort of envelopes and then it helps you be very.

Categorized in the way every dollar is allocated across your spending as well. But I think it's a great idea to do that exercise now if you're struggling to live beneath your means. And I have found that it doesn't matter if you have an $800,000 practice or a $3 million practice as a single private practice center, I've found that both those doctors can struggle to live below their means.[00:21:00]

Even though one has a lot more cash flow into their personal checking account than the other, because spending tends to ebb up and down based on how much money comes in. And so if you have three times as much money, people tend automatically without thinking to spend three times as much as the other person.

It's just, it's just automatic, like a cork on water. If the water goes up, the cork rises just as fast as the water goes up and vice versa going, going down. And so a, having that. Having that plan is really important. Now, dentist, I did a podcast on this, this concept of, of living beneath your your means, and I said, I titled it to be a little bit edgy, why Dentists struggle to live beneath their means.

It's actually been the most downloaded podcast episode I've done. I hope it was helpful and I sort of lay out why, you know, I, why dentists worked for so long in getting their academics done and wrapped up and living so frugally for so long. They come out a lot of pent up desire to sort of [00:22:00] spend.

There's also sort of keeping up. Some people really wanna present themselves as a doctor to the world. There's various reasons that I found as a financial planner working with doctors, why it's not an uncommon thing for dentists to live above their means. Really, and so few, according to the a DA, are able to retire at age 60, I think it's 63, they said, and maintain their lifestyle is just, they spend too much.

There's various other reasons. There's poor planning in the business. There's bad advice that they get. There's. Catastrophes, there is divorce, there's health issues, there's a lot of things. But at the top of that list, the most chronic issue, at least the one that's most common, is gonna be simply spending too much and not having a plan around diverting some of the money coming in into your balance sheet for, for funding your future, your future self.

So if you haven't listened to that podcast, go listen to it. Why dentists struggle to live beneath their meanings. So I've got this spending plan template. You can download it, [00:23:00] uh, online. Um, I will say if you find yourself really struggling to have surplus cash to save through your investment accounts or paying down debt, I think it's a great idea, especially if this is maybe a spouse issue.

As you know, finances are one of the leading causes of marital problems, and even divorce is just not being on the same page around the decisions decision making of the dollar. And this is therefore an activity that I strongly recommend that you do together with your spouse. When you, when you complete this budget and you talk about your spending and try to do so in a meaningful, empathetic way.

So it doesn't create contention. It shouldn't, it, shouldn't it. And I find, you know, I won't get into, I won't get into spousal conflict. I won't get into. Communication strategies, and I'm not a therapist that way. I'm not a a a family therapist. Um, however, I will just say [00:24:00] that don't avoid trying to constantly give advice or show irritation or nag when it comes to this issue of money.

Try to be deeply empathetic. Listen to your spouse's comments, let them finish, and then empathize and share the way that you feel about it and do so in a loving, caring way. You can work through those differences. Don't let money become a cause for marital complications. It will like gravity naturally happen almost just automatically if you're not careful about that.

Try to do this activity with them, and then if you're really struggling as an individual or as a couple to have your finances under control, then what I'm gonna say is do something that's incredibly irritating, but incredibly insightful and valuable is actually get your receipts. When you spend money, ask for a receipt.

Yeah, we don't do it much anymore, but ask for a receipt. Come home, put it. In a box someplace where it's visual. [00:25:00] Don't just put it in a drawer, put it in a place that's visual. Then once a week, sit down and start looking at these things and literally add 'em up with the manual calculator. I know there's more efficient ways to do it, but sometimes it's not the efficiency, it's the thought process that creates results, and so sometimes a manual inefficient process forces your mind to dwell on the subject and see it right in front of me.

Your. Face long enough that it enacts changes in your psychology and in your behavior. And I hate doing manual activities like that, but sometimes if you just can't get it under control, you gotta force it by doing a manual process like that. Now, at practice CFO, the way that we will institute a spending plan is we will do that one time budget.

We will agree on the amount needed to fund personal spending, and then we deposit that through payroll. Then we don't take extra money outta the practice and then unless there's a designated reason for doing that, and in our QuickBooks accounting software, we literally [00:26:00] have in line item on what's called the chart of accounts or general ledger that says surplus draws.

We have a line item that says. Designated purpose draws. We have a line item that says fixed draws. And all of these, these, these are all equity accounts. It's money leaving your practice to go to you personally for spending and savings. And we like to categorize when money's going out that wasn't planned for.

We call that a surplus draw, and that's basically you dipping your hand into the cookie jar. And saying, I need some extra cash, so I'm gonna go into my backup ATM, and just randomly, I'm gonna transfer money over to my personal checking account, or I can then spend it because I need it. And without a plan around that movement of money from business to personal, it ends up being chaotic and unplanned for, and it ends up creating intense amount of financial and economic stress because you're always writing too thin on your cash in your checking account, in and outta the [00:27:00] business because you don't have a plan around it.

So when that happens, we like to call that out and call it a surplus draw and say, look doctor, I know I'm asking you to make a $15,000 tax payment. I know you're not happy about that. I was trying to withhold taxes, but we couldn't withhold enough 'cause you didn't have enough cash in the account because unexpectedly you took out $50,000 more over the past six months than we had planned for.

And the consequence of that is there wasn't enough cash to take care of these mandated. Action edits. Now we've done a ton of tax planning and you would've paid 40% more in taxes, but even then, we still have to pay a basic amount of taxes. And because we pulled that money out as a backup, ATM unplanned for, it's really put us in this financial bind that we now have to climb out of.

So we call that, we call that surplus draws or basically unplanned distributions out of your practice. The fixed draws are what we plan for. We are going to take draws from your business, checking out to your personal checking [00:28:00] account in a very systematic way that is aligned with our financial planning that we've done.

And we like to meet every three or four months to sort of revise this. What, what's going on in your personal life? Do we need to bump your budget up? Can we bun? Can we bump it down a little bit in your personal life to be able to save more? We have all those conversations and then we adjust the payroll so that we deposit the amount needed every payroll.

Into the personal account to meet all these, these needs. And we don't just deposit the W2 portion, we actually append. This is completely unique to practice CFO's strategy, our clinical strategy, so to speak, as we append to that, uh, W2 A, an amount in order to get you your budget needs. So if your W2, let's say is $15,000 for a given paycheck, and then after FICA taxes and the income taxes and the 401k contribution and the state disability, or whatever your local state and taxes are, whatever that is, whatever's left, whatever's left outta that $10,000, let's say it ends up being $3,000 is left, but you need [00:29:00] $5,000 in order to live.

Then we're gonna add $2,000 of what's called a fixed draw, and the fixed draw doesn't show up on your W2 at the end of the year. This is just us using the. The banking mechanics of payroll to, uh, systematically transfer or make distributions or draws out of your business. We just sort of hitch it to the back of your payroll and then that lands in your personal account to meet your budget needs.

In that case of $5,000 per paycheck, let's see, you're paid twice a month, so that's 10,000 bucks. Now your budget may be $20,000 a month. It may be $4,000 a month. A month. That's all a function of you planning how much you wanna spend a day relative to how much you wanna be able to spend later, and when you wanna become financially independent.

That's very much a personal decision that you make. Our job is to create clarity on what it means. If you spend X to day, what does that mean in terms of Y in the future and vice versa. And so that's how we kind of enforce the budget. And then we have [00:30:00] designated purpose draws, which is outside of payroll entirely, where you say, Wes, I'm going on a trip to Europe and I need 30,000 bucks for this.

I've been saving it. You know, I cashed this good in the business account. And we say, great, and go ahead and transfer $30,000 from business to personal to fund that trip. So there's a. Designated purpose behind the transfer out of your corporate account. I'm hoping as you're listening to that, it's, it's kind of creating a, a, a little bit of a clarity or visual in what a good systematic financial plan is for a small business owner, in this case, a dental practice owner is, it is orchestrated in a very deliberate way.

It is not haphazard or random. And that's, that's been our whole model at practice CFO. It is, we have tools that is sort of our secret sauce that we've developed in order to create this integration across all of these variables, uh, such that we are moving the needle every [00:31:00] month, every quarter, every year, and building your personal financial plan for independence.

And as a result. Our clients, and I'll say anybody who makes an intentional effort with a good advisor who's compensated in a way that leads to objective, independent advice, and if they're good at it, and if they understand the nuances. I think this is very important, the nuances of dental. That is gonna dramatically accelerate your path to financial independence as well.

Okay. The last thing I'm gonna say, I will cover this in this episode. This is step three, determining your financial equilibrium. So in my last episode I talked about saving for your future, doing a long-term personal financial plan to ensure that you are authoring and nobody else, what your life looks like, and specifically what are the financial resources needed to sustain that life.

[00:32:00] Now, today we've talked about what you need today, what you need to spend. Today. So the difference is the last episode was all about spending in the future, and today's episode was about spending today and doing a spending plan, a budget, having a systematic cadence to the way that you move money from the practice to your personal life for spending.

That's. Now what happens if you wanna be able to retire at age 50 and spend $40,000 a month and have all your debt paid off and fund your kids into a private school and have a second home, yada yada. Okay? What if you want all that? What if your practice is doing $80,000 a month, $80,000 a month? That's a good practice.

That don't get me wrong, that's a healthy practice, but I can tell you, unless you live in some part of the country where your overhead is like 20%. Essentially getting labor for free and your equipment costs are 3%. You pay, you pay 500 bucks a month in rent. Unless you have that circumstance, which guess what?

[00:33:00] You don't. $80,000 a year is not gonna get you to meet those future goals of retiring at 50 with that second house and all those things that I mentioned. This isn't, it's not gonna happen now. This is an extreme example, but I'm trying to draw out a point which is yourself today and yourself in the future, compete against each other for the same dollar they do.

I don't mean to pit you guys against each other or you all against each other, but that's the reality. And so we need to harmonize your future self with your current self by finding a plan where there's sort of this overlapping concentric of these circles, concentric circles, where you say, okay, here's a place where my spending today can be sustained while also my future financial independence goals can also be met, or my future spending can be sustained as well.

And that. Is where we want to focus. And there are areas in your life that you cannot control. You can't control what Congress is gonna do with tax rates. You can't control [00:34:00] certain aspects of your health. A lot of your health you can, but there are aspects of it you can't control. You can't control certain aspects around your kids' lives that may end up costing a lot more.

You can't control. If we go into World War ii, you can't control. I don't know whether you're, you can't control necessarily whether your Apple stock doubles or goes to zero. There are a lot of things you can't control, but what you can control is what matters how much you spend on that date night with your spouse.

That matters. And if you want to go out and spend $300 at Ruth's Chris, I'm not saying no, but just know that that is competing with your future self. If you're trying to do that every Friday night, you are limiting. The amount that you can set aside for your future self. If all of your life is sort of symbolically spending in Ruth's Chris steakhouse, that's gonna be very difficult then to meet in the future.

So doing the exercise of this future planning, backing it in saying, here's how much I need to [00:35:00] set aside to fund those things, then how much can I spend a day? And then focusing on what you can control. Let me just elaborate a little bit more on that. What you can control. Earlier in my first episode in this series on financial planning for Dennis, I really talked about the concept of less is more.

This is a great area where less is more. You can control how much you spend in your personal life. Not entirely because you need to live and you need protection or with a house and you need food, but there's a tremendous amount of that that is in your discretion to control and to the extent that you can do that and free up more capital, more money to stay inside of your practice, that then can be used to invest into growing your top line.

Whether that's building out another operatory, engaging a marketing consultant, a practice management consultant, hiring associates to come in and kind of build that ne next legacy and create sort of a, I'll say a passive [00:36:00] element of income through hygiene and and associates. All of that is a function of your ability to control your spending in your personal life.

So when I say focus on things you can control, I can't overestimate enough that you really itemize out in your life. The things that have levers that you do control to create this freedom of cashflow to invest, takes money to make money, and you can create that money in order to make more money later.

Focus on what you can control, and that's the best you can do. But there's a lot in your control. Meet with your financial advisor, your financial planner, your CPA, uh, if you're in a CFO model, like practice CFO, we're sort of all here in one company together with a CFO advisor who's quarterbacking the rest of the team around payroll and taxes and accounting, and 401k to make sure that everything is, that, that the play, that everything is running right.

Collectively, make sure to do that because that will help you assess those things that you can [00:37:00] control, and then how to optimize the use of that spare dollar to get a great return on that investment. Okay. The action plan or the takeaway for this episode is to, number one, do a long-term financial plan.

Do a short-term financial plan. That's the future. You and the. Today you, and then find an equilibrium that works, that is sustainable. So when you wake up in the morning and you go to bed at night, you can tell yourself, okay, I may not have everything I want in this world, but I'll tell you what the plan that I've defined for me is, is sustainable.

And I feel really good about that. And it's given me a strong peace of mind and that peace of mind just allows me to breathe easier and to focus on those areas of life that gimme a lot of joy because financial stress can inhibit. Tremendously inhibit a lot of your enjoyment of all aspects of life. One other thing I'll say is if you have a practice management consultant really itemize out what [00:38:00] is your break even, uh.

Or if you have a financial planner, they itemize out. How much do you need to save in order to invest? And if they say it's $10,000 a month, really try to back in maybe with your CPA or somebody come to practice, CFO, whatever, and back into what do you need to collect in order to do that. Now we have a tool, it's an Excel.

Tool's called a goals-based breakeven calculator. And I have in there a YouTube explanation as well. And I'll see if with my podcast editor, if I can't put a link to that Excel spreadsheet. If I can't, it won't be there. If I can't, it will be there. And you can go in there and it give some basic instructions with a walkthrough of.

Filling out certain gray cells in that Excel spreadsheet, and it will then calculate what is your goals-based break even in your practice? What do you need to collect every month to pay your overhead debt and taxes? Fund yourself today and to fund your future self through personal savings. Thanks everybody for joining another episode of The Dental Boardroom [00:39:00] podcast.

Until next time.