The exhilaration of receiving your first paycheck as a newly minted dentist is an unforgettable milestone. After years of rigorous training and sacrifices, you finally reap the rewards of your dedication. However, to truly flourish financially and professionally, developing a comprehensive financial blueprint is essential. Here, we explore seven critical steps to navigate your financial journey effectively.
1. Celebrate Your Accomplishment
Let’s start with a pat on the back! Indulge in your first paycheck – go ahead and blow it. You’ve worked incredibly hard and have earned the right to treat yourself. Whether it’s a luxury vacation, a designer watch, or an exquisite piece of jewelry, go ahead and reward yourself. But remember, as a steadfast rule, steer clear of purchases requiring monthly payments. These can burden your financial health by diverting funds that could be better invested, used to repay debts, or saved for a property.
2. Plot Your Financial Course
Next, it’s time to chart your financial course. Reflect on your personal and professional ambitions – do you intend to obliterate your debts swiftly? Do you wish to kick-start your investment journey? Are you hoping to purchase a house or launch your own clinic? These financial goals will be the compass guiding your income allocation. For instance, a dentist aspiring to start a clinic might adopt a different financial plan than one focusing on rapid debt repayment. Before you get caught up in your career, start by visualizing the life you aspire to lead and the legacy you want to leave. This will guide your daily and weekly financial actions toward making that vision a reality.
3. Exterminate High-Interest Debt
Regardless of your goals, all financial plans should prioritize eradicating high-interest debts. This decision is the fulcrum of balancing your financial health. Pay off credit cards swiftly; remember, their interest rates hover around 19%, so repaying them offers an excellent return on your money. Also, consider reducing your professional student line of credit. Doing so provides a “4 for 1” benefit: decreasing your debts, saving you interest, forming an emergency fund, and bolstering your borrowing capacity for a mortgage or business loan in the future.
4. Protect Your Earnings
As a dentist, your income largely depends on your physical ability to work. Hence, disability insurance is crucial to safeguard your financial future. Consider an individually underwritten policy that is robust and tailored to your needs. Group plans might seem cost-effective initially but, remember, they are less comprehensive and you don’t have ownership. Critical illness insurance can also be beneficial, covering direct and indirect costs incurred due to the diagnosis of a major illness. If you have dependents, consider life insurance. However, be wary of policies with hefty premiums early in your career.
5. Secure and Grow Your Wealth
Optimize the use of Registered Retirement Savings Plans (RRSP), Tax-Free Savings Accounts (TFSA), and First-Time Home Buyer’s Accounts (FHSA) to shelter your income from taxes and facilitate tax-free investment growth. You may also want to explore setting up an investment account within your professional corporation, allowing for lower upfront taxes and quicker investment growth. A key tip for early-stage investments: Focus on making large contributions to a well-diversified, low-cost portfolio rather than trying to pick winning stocks.
6. Consider Incorporation
For most dentists, opening a professional corporation can be financially beneficial, enabling you to shelter excess income within the corporation at lower tax rates. This strategy accelerates your savings and reduces the “tax drag” on your income and investments. Remember, the incorporation only makes sense if your earnings significantly surpass your expenses. If you aim to buy a home, ensure that you are drawing enough personal income to qualify for a mortgage.
7. Revisit and Align Goals
With your financial foundation established, revisit your goals regularly, adjust your strategies, and repeat successful tactics. Your income allocation should continually align with your short-term and long-term objectives, whether that involves saving for a down payment, launching a clinic, or repaying loans. Routinely monitoring your financial plan enables you to adapt to changes, be it market fluctuations or personal circumstances, keeping you on track to attain your financial goals.
Bonus Tip: Assemble a Team
Lastly, consider building a team of financial professionals to optimize your wealth. These professionals can assist with tax planning, investment advice, and retirement strategies, among other services. They can help ensure your money is working effectively, leaving you more time to focus on your career and family.
In conclusion, the journey from the elation of your first paycheck to a financially secure future demands a well-structured plan. Following the steps outlined in this guide can help you transform from a fresh graduate into a successful dentist with a robust financial portfolio. Remember, this is a marathon, not a sprint, and every journey starts with a single step – make sure yours counts.
About the Author
Gurtej Varn BA, CFP®, CLU® is Canada’s leading Wealth Advisor for Dentists. Named Canada’s top wealth professional under 40 for 2023, Gurtej is also the host of “The Dollars & Doctors Show” and the founder of White Coat Financial, a full-service private wealth advisory firm for Dentists.