In my work with dentists and residents in training, I am frequently approached by students who need help with creating a financial foundation. Most are unsure where to start. If you feel the same way, you’re not alone. Chances are that for the past decade of your academic life your focus has been 99% on dentistry and perhaps 1% on business. However, as you approach the transition to the professional world, these numbers are about to drastically change. Today, I will highlight some of the key actions a new practitioner needs to take in order to build a sound financial foundation.
First things first: while you are in your final year of dental school or residency you should acquire disability income insurance. This is essentially insurance that protects your ability to generate income. Why is this important? As a dental professional your ability to create an income is completely dependent on your ability to work. For example, if I as a financial professional were to break my hand, I would have no trouble going straight back to work (I may have a hard time typing, but I’d still be able to make phone calls, and meet with students). However, if you, as a dentist, were to break your hand, it would put you out of work because you need your hands to hold your instruments and tools. The fact is that about 20% of today’s 20-year-olds will experience a disability before retirement1. Why is it important to get this insurance now, as opposed to later? Getting disability income insurance at a young age will not only lock in a favorable rate for you, but it will ensure that you get coverage while you are still young and healthy, and will help you feel financially safer.
What else should you be thinking about as you look to transition to your career? Almost all states require you to have professional liability insurance (often called “malpractice insurance”). This is insurance that helps protects your work, assets, and reputation in the event of a lawsuit by a patient under your care. Dental practitioners can and do routinely get sued. This is precisely why you should absolutely purchase this insurance as soon as possible. But what should you look for? The options are sometimes overwhelming. It’s important to choose a company that is financially strong, has a strong record for winning lawsuits, provides a favorable consent provision, and is experienced in the world of dentistry. I frequently see dentists make the mistake of going out and buying the cheapest malpractice coverage they can find because they believe all of the companies are the same. This is far from true. When it comes to defending your reputation and personal assets, would you want the “cheap” company who has worked in the industry for 3 years or do you want the company who has been solidly backing its clients for fifty years? You get my point.
So many students need to take on loans in order to undertake their training. If you had to borrow to finance your education, you should put into place a plan for paying back your debt. Do this now, while you are still in school! Know exactly when and how you will repay your loans and factor it into your budget. Speaking of budgets: you need one. Simply put, a budget is a list of all your expenses for the month, added up, and compared to what you expect to earn during that same timeframe. You should make sure you are not overspending, as this is a common problem with new practitioners. It’s understandable: you’ve been living very frugally for the past eight years and then one day you’re offered a job with over $100K in salary. Who wouldn’t want to go out and enjoy this well-deserved reward? It’s one thing to celebrate your new career, but you shouldn’t get into the habit of spending more than you earn. A good rule of thumb is to try to save about 30% of your income, and make sure you have at least a 3-6 month reserve fund saved up in the event of an emergency.
Some, but not all students may have a need for life insurance. If you have private loans, children, other dependents, or are married then you should look into getting a policy. At this stage in your career term life insurance is probably the way to go, because it’s the most affordable. Talk to an insurance professional though, to identify what’s most suitable for your situation.
I hope this article helped answer some of the questions you might have about building a sound financial foundation as you transition from training to practice. If you have any questions please feel free to reach out to me!
About Treloar & Heisel
Treloar & Heisel is a premier financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering the highest level of service.