Do you want to be a rich dentist? The cost of going to dental school makes it way more difficult to make Richie Rich jealous. You have to slay student loans, conquer high prices to buy a practice, and navigate intense competition in many areas.
One Beverly Hills dentist once told me that three bad Yelp reviews would sink his practice. I’ve also had dentist clients who make a ton of money and make the profession look like the most lucrative job you could possibly do. Most dentists are somewhere in between, but most must figure out how to manage $200,000 to $600,000 of student loan debt.
No matter how big your student debt, you can follow these steps to becoming a rich dentist in less than 20 years.
Step 1: Fix Your Cash Flow
If you don’t have at least $20,000 in the bank, then you haven’t gotten past the first step on the road to becoming a rich dentist.
Most dentists I talk to don’t have credit card problems except for the first couple of years after graduation (when they’re cleaning up their finances from dental school). That’s good because credit card debt is an emergency that needs to be fixed as soon as humanly possible.
25% interest and 0 savings is a dangerous situation to be in. You have no power over your life and career until you have removed the cancer of credit card debt that doesn’t get paid off every month. After eliminating any short-term high-interest rate debt, then get to the $20,000 savings mark. Paying off your car, student loans, personal loans, and other debt can wait. Having liquid savings is incredibly important for dentists because of qualifying for practice loans.
The more savings, the better, up to a certain point. It’s a good idea to put something down on your house and to have a comfortable cash margin if you’re going to operate a dental practice.
I’d have at least 10% of the house purchase price in cash and 3% of the practice loan in cash even though you’re probably going to finance the purchase 100%.
Within a few years, you should be able to easily hit a low five-figure amount in your savings account. That’s going to give you freedom long term.
Step 2: Admit that Stereotypes of Dentists Are Dangerous
Do you watch the hit ABC series “Fresh Off the Boat”? My wife is Asian American, so we love watching it especially with her parents since it’s about the Asian American experience.
The show has a character named Marvin. He’s a 69-year-old dentist married to a woman in her
late 20s. Marvin is old, white, male, and rich. He’s your typical “rich dentist” family friend or uncle who makes $400,000 a year, works 4 days a week, and has minimal stress.
Today’s dentists are far more likely to be young, female, non-white, and in deep debt from dental school, buying a practice, a home, and a car.
That older “rich dentist” benefitted from an environment that no longer exists. Back when he started in the profession:
1. Practices sold for a fraction of what they do today
2. Insurance reimbursement rates were higher
3. Dental school costs were perhaps only 1/10th of what they are now
4. Fewer dental schools produced fewer new graduates, minimizing competition
5. The dental profession at a minimum did not welcome women and minorities
To become a rich dentist, you need to junk all the popular notions that go with keeping up
appearances. The world has changed.
If you expect to drive a $5,000 used Toyota to work, you have the right mindset to become a rich dentist and defy society’s expectations.
Step 3: Get a Student Loan Plan Built for Your Career Goals
You need a plan for your student loans that reflect your goals. I mean the goals you have for:
• How you want to practice
• How often you want to work
• How long you want to work
• How much money you want to make
• What kind of options in life you want to have
If you owe a huge amount of student loan debt that’s more than one times your income, you should consider investing in a custom plan with us.
If you owe less than one times your income and your spouse doesn’t have loans, then you’re a fairly straightforward refinancing case.
Why is it ok to ask the big questions first and then making your student loans bend to that will?
It’s because if you know the complex rules of loan repayment well enough, you can take advantage of them to maximize your financial situation.
For example, assume you work full time and your payment on REPAYE is $1,200 a month, you’re saving $1,000 a month for the tax bomb, and you’re maxing your retirement accounts. Did you know that you could work fewer hours and have your payment drop significantly?
Let’s say you went from earning $170,000 a year to $90,000 a year working 3 days a week and you had a spouse that didn’t earn an income. Your REPAYE payment would go from $1,200 to about $500 a month.
Your tax bomb savings would go from about $350 a month to $500 a month because of the higher expected tax liability.
If you could cover your living expenses on the reduced income, you would benefit from a smaller outlay from the student loans.
On the other hand, if you want to get rid of your debt as fast as possible, then your plan needs to be set up for that goal.
For example, if you plan on running a practice in the middle of the country in a smaller town to
earn 400k+, then you might want to be on the REPAYE plan. This option could save you thousands of dollars a year thanks to interest subsidies as you start out building your practice.
Step 4: Don’t Forget About Retirement Savings
Did you know that maxing your retirement accounts is almost as important as having
Dentistry is a physical career that takes a lot out of you. Many dentists tell me they don’t think they’ll be able to work until their late 60s.
Perhaps you’ll be an outlier, but you want to be prepared for losing the ability to practice dentistry or simply losing your passion for doing it one day.
In 2019, the max contribution as an employee to a 401k plan is $19,000.
However, if you are an independent contractor, then you can use a solo 401k at a place like Charles Schwab or Vanguard. With that plan, you can contribute the employee portion of $19,000 plus an employer matching contribution on top of that. I use a solo 401k for my own
If you have your own practice, you can run a 401k for yourself and everyone in your office. You might consult with your CPA to add your spouse to the plan as well if he or she is eligible.
How much could you have if you and your spouse invested $19,000 per year each for retirement over 25 years? Let’s assume a 7% return and that you never increase your contributions.
Contributing $38,000 a year to retirement accounts might sound daunting. However, the cost in terms of take-home pay is probably close to $2,000 per month to save $38,000 a year. That’s because you get a tax deduction for contributions and you get lower student loan payments.
Remember, pretax retirement contributions lower your AGI, which lowers your student loan payments. Would you like to have $2.6 million in 25 years solely in your retirement account? I sure would.
Any rich dentist most definitely needs to prioritize retirement savings.
Step 5: Start Your Own Dental Practice or Partner Up with Someone
One of the top three most important decisions you can make to ensure being a rich dentist one day is to become an owner instead of an employee.
If you work for a career as an associate, your compensation will likely average 33% of collections.
However, if you’re an owner or partner in a large practice, you might average closer to 40% to 50% of collections (because you have to pay overhead).
Some practices report margins even better than that. One thing is for sure. Practices pass on higher margins to owners, not employees.
In addition to earning more, you also own an asset at the end of your career that you can sell.
Right now, a typical dental practice might go for 60% to 100% of collections, depending on the market.
If all you do is buy a moderately successful dental practice and the real estate and pay off the practice loan over time, you’ll own a six or seven figure asset at the end of the loan term.
The default probability according to bankers that I’ve spoken with is about 3 in 1000. In 2 of those 3 cases, the reason for default was a substance or alcohol addiction.
While this is anecdotal evidence, it’s clear dental practices are low risk propositions for borrowing.
After years of earning more for doing the exact same work on top of owning an asset outright that you can sell, practice owners will be the ones who become a rich dentist.
Step 6: Earn a Good Return on Your Investments
You have a high income that’s not that sensitive to recessions. Every financial professional, advisor and fly by night salesperson out there knows that too.
Dentists are smart, and you are too if you’ve made it to this point in the article. This is obvious because if you weren’t sharp, you wouldn’t care about your financial future.
That said, your intelligence doesn’t carry over to managing money because investing is intensely emotional.
When I joined a large mutual fund company out of undergrad, the veteran employees told me stories of individual investors they tried to talk off the cliff during the 2008 crash. They had people crying, screaming, and panicking about their retirement portfolios falling 30% to 60%.
I heard stories of people who sold at the bottom in 2009 and bought back in the market years later. They cost themselves hundreds of thousands of dollars by making an emotional decision. Even if you think that won’t happen to you, you don’t truly know how you’ll respond until you see -50% on your statement.
I even heard a story about the crash of 1987 as an undergrad where many of the professors in the Economics department at my school pulled their money out of the market because of a one day drop that approached 20%.
After that day, the US had one of the greatest bull market runs in history.
Since smart people make mistakes, you either need to know enough to know that you should buy and hold for the long-term or to outsource your investing to a fee-only fiduciary financial advisor.
There very affordable digital financial advisors like Betterment that will invest your money for you for about 75% less than the typical advisory fee. That referral link gets you a month to a year managed for free so you can try it out, and it’s only 0.25% of what you have invested.
A typical fiduciary advisor will want to charge you 1% of your invested assets. Others will charge a flat fee billed monthly. Any of these options will cost way more than Betterment or doing it yourself at Vanguard. Beware anyone who wants you to invest your money who will not sign a fiduciary pledge. In the absence of that written pledge, you should know you’re dealing with the equivalent of a car salesperson and not a professional like an attorney or accountant.
Step 7: Make Sure Your Spouse Knows You’re Not a Rich Dentist
One of my favorite podcast stories happened on a show by Dr. Howard Farran of DentalTown. He interviewed a financial advisor who does workshops with dentists and their spouses to make sure everyone in a family understands the dental business.
After all, if your revenue for a procedure is $1,000 and you did five of those procedures in a day, a spouse might think that’s $5,000 of earnings. In fact, after accounting for taxes, overhead, and the like, your $5,000 of revenue might be much less than that.
Besides your spouse being on board with saving and investing money, if you’re not married yet make sure you “marry well, not rich.”
In other words, find someone who shares long-term financial goals like having a family, buying a house, and living worry free about finances. Be careful that you don’t work your tail off only to have your spouse spend it for you. This is true for both men and women dentists.
That said, from my experience female dentists tend to marry other high-income professionals. For men, I haven’t noticed a clear trend.
Being a Rich Dentist is About Having Options
It would be tremendous if you love practicing dentistry so much that you do it until you’re 93 years old.
Most dentists I talk with want the option to be retired much sooner than that.
Others just like the idea of being able to have control over their lives.
Getting your student loans set up the right way is a crucial piece of that puzzle, and we’d love to help solve that puzzle for you.
Follow these seven steps though, and you’ll be well on your way.
Do you think these seven steps are enough to become a rich dentist? Are there any you think I
left out? Comment below!