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“No one does [play fair] if they think they can get away with it.”- Lewis Carroll, Alice’s Adventures in Wonderland
Ever since the days when my older brother would torture my siblings and me with toothpaste-filled Oreos, Saran wrap on the toilet seat, or a rubber band around the kitchen faucet sprayer, I was never a big fan of April 1st. So it’s possible this article is just a way for me to redirect my childhood trauma, but in the spirit of protecting innocent “fools”, I want to warn you about some of the most common money pranks dentists fall for.
The allure of complexity
Few things in life grab people’s attention like an investment pitch. These “sure-fire” opportunities come from different sources: a rich neighbor, a brother-in-law, a “good guy” from church, a group of friends on a trip, etc. We hear about these conversations all the time from our clients who are intrigued by the promise of big returns.
If it sounds too good to be true, it usually is. Risk and return are married in investing. If someone is coming to you with a “risk free” idea, then you should probably turn and run the other way. As an investor, you are compensated for taking risks. To distract from that reality, the pitch often includes something eloquent about the complexities of the investment—going through the intricacies of the idea, and using terminology you have never heard but sounds really smart. “I might not know what they are saying, but they obviously do so I should listen.”
As an advisor, the first question I always ask clients is, “Can you explain it to me?” As a general rule of thumb, if you can’t explain an investment strategy to someone else in a few sentences then it probably isn’t a good idea, or you need to go back and ask a lot more questions before putting your hard earned dollars into something you can’t control. Complexity sells, but doesn’t usually perform.
Aggressive tax strategies
People hate taxes. If I had a dollar for every time I’ve heard some version of, “I hate taxes. How can you help me get out of paying taxes?” I’d already be retired. I’ve never met a single person who likes to pay taxes. My favorite response to this came from a CPA who once told his client, “I’d be happy to pay your taxes for you. If you pay me more, that will be a business deduction for you and I’ll gladly pay the taxes for you.”
Now it is true there are tax strategies that can save you money on your tax return. You should be taking advantage of these, but dentists can often get duped by looking for more creative ways to save on taxes. They can be all too willing to buy an extra piece of equipment or a new vehicle for the write off. If there is a legitimate business reason to make a purchase then I’m on board. But in a lot of cases for dentists, the motivation is often driven by the ability to save on taxes whatever the cost. Remember that if something is 30% off, it’s also 70% on.
By seeking more “complex tax strategies” dentists tend to get in with the wrong crowd. As a dentist, you are in the public eye. There are sharks in the water. People know dentists make money, and they are willing to sell you anything to get to it. There are entire marketing campaigns for “investments” around “complex tax strategies”. I can’t use air quotes enough in this section. Tax-saving strategies usually aren’t real tax savings where the taxes go away. For the most part, you’re just shifting your payment to Uncle Sam from now until later.
Keeping up with the Joneses
As a dentist, you typically don’t graduate from dental school until you are in your late 20s to early 30s. You watched your contemporaries start earning money and purchasing homes while you were still surviving on Ramen noodles and racking up six-figure student loans. It’s impossible not to feel behind when you first start.
One of the worst ways you can get duped is believing you somehow have to keep up with the spending habits of people of similar incomes in your early career. If you are comparing incomes with people during the beginning of your career, you are not comparing the right numbers. They probably bought their homes when prices and interest rates were half of what they are now, or with equity they built over a decade. They probably don’t have $400k in student loans, and they probably aren’t paying on a $1M practice loan. Don’t worry you will get there, but patience is hard.
I know it may feel like everybody in their 30s is already in their dream home, has millions in their investment accounts, and have their lives figured out. The secret is that they actually don’t, and you don’t have to either. Remember spending is what you see, wealth is what you don’t see. The most important thing you can do early in your career is discipline yourself enough to be able to save between 15-20% of your income.
Searching for wealth outside of dentistry
Sometimes I joke that going to dental school is the most expensive real estate license you’ll ever get. It’s amazing how many dentists only a few years into their careers are looking to get out of it. This is not unique to dentistry though—it’s the age old feeling that the grass is always greener on the other side.
There are no magic beans, silver bullets, or home run investments that will help you retire at 40. Despite this, too many people run toward real estate, permanent life insurance, DSO offers, and outside business “opportunities” as if it will solve all of their problems. The truth is that pursuing these alternative investments too early in your career can be detrimental to your long term success.
Dentistry is an amazing career with incredible earning potential, and a chance to build generational wealth. Does it have its downsides? Yes, but so does every profession. Average dentists tend to compare their situation to the top 5% of other professions, but they never seem to compare their situation to the average majority of other professions. You compare yourself to the successful business owner, but not to the 90% of startups that fail within the first year. A great dentist getting average returns tends to do much better than an average dentist getting great returns.
I hope you made it through April Fools unscathed. And I hope you’ll think twice before getting tricked into these common money mistakes
The allure of complexity
Few things in life grab people’s attention like an investment pitch. These “sure-fire” opportunities come from different sources: a rich neighbor, a brother-in-law, a “good guy” from church, a group of friends on a trip, etc. We hear about these conversations all the time from our clients who are intrigued by the promise of big returns.
If it sounds too good to be true, it usually is. Risk and return are married in investing. If someone is coming to you with a “risk free” idea, then you should probably turn and run the other way. As an investor, you are compensated for taking risks. To distract from that reality, the pitch often includes something eloquent about the complexities of the investment—going through the intricacies of the idea, and using terminology you have never heard but sounds really smart. “I might not know what they are saying, but they obviously do so I should listen.”
As an advisor, the first question I always ask clients is, “Can you explain it to me?” As a general rule of thumb, if you can’t explain an investment strategy to someone else in a few sentences then it probably isn’t a good idea, or you need to go back and ask a lot more questions before putting your hard earned dollars into something you can’t control. Complexity sells, but doesn’t usually perform.
Aggressive tax strategies
People hate taxes. If I had a dollar for every time I’ve heard some version of, “I hate taxes. How can you help me get out of paying taxes?” I’d already be retired. I’ve never met a single person who likes to pay taxes. My favorite response to this came from a CPA who once told his client, “I’d be happy to pay your taxes for you. If you pay me more, that will be a business deduction for you and I’ll gladly pay the taxes for you.”
Now it is true there are tax strategies that can save you money on your tax return. You should be taking advantage of these, but dentists can often get duped by looking for more creative ways to save on taxes. They can be all too willing to buy an extra piece of equipment or a new vehicle for the write off. If there is a legitimate business reason to make a purchase then I’m on board. But in a lot of cases for dentists, the motivation is often driven by the ability to save on taxes whatever the cost. Remember that if something is 30% off, it’s also 70% on.
By seeking more “complex tax strategies” dentists tend to get in with the wrong crowd. As a dentist, you are in the public eye. There are sharks in the water. People know dentists make money, and they are willing to sell you anything to get to it. There are entire marketing campaigns for “investments” around “complex tax strategies”. I can’t use air quotes enough in this section. Tax-saving strategies usually aren’t real tax savings where the taxes go away. For the most part, you’re just shifting your payment to Uncle Sam from now until later.
Keeping up with the Joneses
As a dentist, you typically don’t graduate from dental school until you are in your late 20s to early 30s. You watched your contemporaries start earning money and purchasing homes while you were still surviving on Ramen noodles and racking up six-figure student loans. It’s impossible not to feel behind when you first start.
One of the worst ways you can get duped is believing you somehow have to keep up with the spending habits of people of similar incomes in your early career. If you are comparing incomes with people during the beginning of your career, you are not comparing the right numbers. They probably bought their homes when prices and interest rates were half of what they are now, or with equity they built over a decade. They probably don’t have $400k in student loans, and they probably aren’t paying on a $1M practice loan. Don’t worry you will get there, but patience is hard.
I know it may feel like everybody in their 30s is already in their dream home, has millions in their investment accounts, and have their lives figured out. The secret is that they actually don’t, and you don’t have to either. Remember spending is what you see, wealth is what you don’t see. The most important thing you can do early in your career is discipline yourself enough to be able to save between 15-20% of your income.
Searching for wealth outside of dentistry
Sometimes I joke that going to dental school is the most expensive real estate license you’ll ever get. It’s amazing how many dentists only a few years into their careers are looking to get out of it. This is not unique to dentistry though—it’s the age old feeling that the grass is always greener on the other side.
There are no magic beans, silver bullets, or home run investments that will help you retire at 40. Despite this, too many people run toward real estate, permanent life insurance, DSO offers, and outside business “opportunities” as if it will solve all of their problems. The truth is that pursuing these alternative investments too early in your career can be detrimental to your long term success.
Dentistry is an amazing career with incredible earning potential, and a chance to build generational wealth. Does it have its downsides? Yes, but so does every profession. Average dentists tend to compare their situation to the top 5% of other professions, but they never seem to compare their situation to the average majority of other professions. You compare yourself to the successful business owner, but not to the 90% of startups that fail within the first year. A great dentist getting average returns tends to do much better than an average dentist getting great returns.
I hope you made it through April Fools unscathed. And I hope you’ll think twice before getting tricked into these common money mistakes
