The Problem With Having Plenty of Cash – Episode 93

What does it mean to have financial health? Is it a thriving practice, plenty of income, or an abundant lifestyle? In this episode of Dentist Money™, Reese and Ryan approach the World Health Organization’s definition of health from a wealth-building perspective, and explore the meaning of financial fitness. They also discuss common decisions dentists wait too long to resolve, and offer advice for overcoming economic atrophy.

Podcast Transcript:

Speaker: Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor.
This is Dentist Money. Now, here’s your host, Reese Harper.

Reese Harper: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Mm-hmm (affirmative). Good morning.

Reese Harper: How are you doing, sir?

Ryan Isaac: Oh, fantastic.

Reese Harper: I think I’d like to turn the time over to you to introduce Q.

Ryan Isaac: I never get to do that actually. I never get to say, “Welcome to the show, here with Q in the studio.”

Reese Harper: Yeah, so

Ryan Isaac: Q, here we are.

Reese Harper: … how are we doing?

Ryan Isaac: Q.

Justin Copier: Yeah.

Ryan Isaac: What’s happening?

Justin Copier: I like it when you do it.

Ryan Isaac: Thank you. What’s happening?

Reese Harper: Greetings, Q.

Justin Copier: Thanks, Reese.

Reese Harper: Greetings from the corner.

Ryan Isaac: Q had a interesting question of the week.

Reese Harper: Yep.

Ryan Isaac: And he said, “Ryan, what podcast do you think would be the most beneficial to our listeners?” And you came up with this one.

Justin Copier: Yeah.

Ryan Isaac: Tell our listeners a little bit about what you spent

Justin Copier: I did.

Ryan Isaac: … over 45 hours of preparation working on for this show.

Justin Copier: The opening line in the World Health Organization’s Constitution of Health, started in 1948, it says that health is the state of complete physical, mental, and social well being, and not merely the absence of disease or infirmity.
So, the point of today is we want to explore this idea of health not being just the absence of a disease and relate it to a dentist’s finances. So, in different terms, what would the opening statement to the Constitution Financial Health be? Financial health is a state of building wealth enough to make work optional at a reasonable age, and not merely the absence of cash flow concerns, or emergencies, or-

Ryan Isaac: Or some financial emergency.

Justin Copier: Yeah. I think that’s what we would say. A lot of people feel like they’re healthy financially when they are not in pain. When there is not a problem.

Ryan Isaac: I think that’s the right word, because, yeah, I think there’s a lot of people that feel financial comfort, but they’re not in a good spot financially.

Justin Copier: Yeah.

Ryan Isaac: And the comfort could come from the fact that collections are high and growing. Or there’s just money in the bank.

Justin Copier: There’s money in the bank, and they don’t have a cash flow problem.

Ryan Isaac: Yeah.

Justin Copier: They don’t lack for their meal or their roof over their head.

Reese Harper: Or the third roof over their head.

Justin Copier: Yep.

Ryan Isaac: Or the vacation.

Justin Copier: Yeah.

Reese Harper: The Cabo trip.

Ryan Isaac: But that doesn’t mean that everything is okay. So I think that’s the content.

Justin Copier: Exactly. And I think that it’s important to think about financial planning in that context, because we get phone calls from people when there is an emergency or a pain

Ryan Isaac: Usually, yeah.

Justin Copier: … or a problem. And sometimes that is, I haven’t thought about financial planning since I graduated from dental school, but the Social Security Administration is now telling me at what age I would like to take my check.

Reese Harper: Yeah.

Ryan Isaac: 94?

Justin Copier: Am I ready [crosstalk 00:02:57] retire?

Ryan Isaac: [crosstalk 00:02:58].

Justin Copier: Am I ready to retire? Or not. I haven’t looked at this in about near 35 years.

Ryan Isaac: Yeah.

Justin Copier: That has actually happened to me. That was an actual situation that actually happened to me, and I was like, interesting.

Ryan Isaac: The prompt was the Social Security reach out?

Justin Copier: That was the pain. It’s like, I think I’ve saved enough money. I’ve never hired anyone to ask them that question up until now. But I don’t know when I should take my Social Security check.

Ryan Isaac: That’s a good question.

Justin Copier: And I also, consequently, am wondering if I have enough money to now retire.

Ryan Isaac: Yeah.

Justin Copier: But the fact that I have to make a choice about which age to take my Social Security is the first point in which I have some financial discomfort, and I’m going to address the problem now.

Ryan Isaac: Yeah. Because there’s a range and it changes quite a bit. If anyone has looked at their Social Security, go do that. Go to your Social Security login online and check it. You’ll see it at 62, 65, and 67, right?

Justin Copier: Yeah. And so-

Ryan Isaac: Maybe in your 70s, too.

Justin Copier: There was the first time, I guess, that this person had had income their whole life, and been stable and fine. And they weren’t in financial poverty. They were in a fairly comfortable spot, but he didn’t have adequate funds to stop working, even with the Social Security. But it was kind of the first point where there was this choice to make.
And I think it’s pain that causes it, or it’s discomfort, maybe, or it’s just some kind of big choice someone has to make.

Ryan Isaac: Mm-hmm (affirmative).

Justin Copier: Some kind of an emergency, or some kind of financial crossroads, and that’s when they reach out.
Last week, we talked a lot about being consistent, and being consistent doesn’t mean you’re putting things on cruise control and just not thinking about it. Part of being consistent is looking for ways to improve on an ongoing basis, and adapt even when cash flow is fine. Or there’s no sign of disease, right? Or problem. There’s no emergency, no fire, no problem, no pain.
So let’s frame this up with a conversation about your favorite subject. Once a year, I let this happen.

Ryan Isaac: Q worked this in a little bit, here. We related some things to … there’s actually a really cool TED Talk out there. We related this to building muscle, which is an important part of being healthy, in this theme of being overall healthy.
So, what the point of how this works, how muscles are built, is actually when muscles are exposed to stress, they undergo little cellular changes, and they experience microscopic damages at the cellular level. And so, that’s actually good for your muscles.
But we were kind of talking about the same thing happens in your finances as time passes, as things change. Little tears, little cracks, occur in your financial plan. That’s kind of a normal thing. In the context of your finances then, maybe it’s nice just hitting the gym and working your muscles out, but stress and damage still happens. And it’s part of why good planning is constantly evolving, because these things, they break a little bit, they change a little bit. They break down.
But back to muscles. So, in response, the way muscles grow is when they break down and they’re injured, there’s an inflammatory response that happens, and it kind of activates the immune system and rebuilds the muscle. And what it rebuilds, it rebuilds stronger and more resilient than it was before.
The point is that this cycle of damage and repair, or as Justin calls it, tear and repair, #trademark, that’s what makes muscles get bigger and stronger and adapt to greater, future demands that you’re going to put on it.
And so, in context of finances, we’re talking about these microscopic tears that are kind of like little gaps in the financial plan. They’re hard to see, and especially if they’re not an emergency they’re kind of hard to detect sometimes, but they definitely happen over time, these little stresses on your finances, little changes. And so, we’re talking about repairing these little tears, these little damages, that happen, these little gaps that get created so that your wealth can be more resilient, can come back stronger. Your wealth can grow faster and better as your plan and your situation changes.

Justin Copier: So, I think this is a really good analogy. It’s actually a really beautiful comparison between the change that goes through your muscles as you continue to exercise, and the change that happens with your finances as they continue to break and readjust. Just don’t get frustrated with the process. Just realize that that process is actually making you stronger, and making you more capable, and continuously seek after that improvement.
So, on the point kind of to the opposite side of this discussion is muscle atrophy, is when they don’t get worked out, and, consequently, there aren’t those little tears. And the same thing in finances. If things get left alone they don’t become stronger, they don’t adapt well to future situations and changes. We’ll talk a little bit about kind of this thought about financial atrophy.
There’s a lot of little ways that someone can maybe ignore pieces of their financial plan that they need to address in order to make stronger in the future. Today, we’ll talk about three of them that are a little bit more specific.
The first one would be a retirement plan. It’s one of the first things that comes to mind. There’s a lot of situations where retirement plans get maybe adopted or put in place, and then left for an entire career. We’ve met a lot of people that have had the same retirement plan for decades that stopped being the appropriate plan 10 years ago.
You don’t want to think about your retirement plan as a single choice that you’re going to make once throughout your career one time. Just like an 18 year old wouldn’t exercise in the same way an 80 year old would exercise. The 80 year old might be focused on maintaining flexibility, and an 18 year old might be focused on building mass. And those two exercise goals are going to be very different.
And in the same way, a retirement planning goal for someone really early in their career might be taking advantage of getting their debt to income ration in check, and getting after tax savings built up, because they don’t have a super high tax rate, because all of their business depreciation is bringing their tax rate down really low. Where someone in their mid 40s might have so much discretionary cash flow now, and so much after tax savings built up, that it’s time for them to make a big adjustment to the type of plan that they’ve put in place.
There’s different retirement plans that you should be implementing along the way, and they get more and more complex as time passes. We’ve had podcasts on this subject.

Ryan Isaac: Yeah, how to set them up, how to choose the right ones.

Justin Copier: But I think I would like to just say, you can save anywhere from $500 a year right now up to almost $300,000 a year, depending on your income level and age. And so, you need to just be aware that at every phase of your life, and every phase of cash flow, there’s going to be a retirement plan design that a dentist is best suited for.
And if you are not allowing yourself to take advantage of the largest tax deduction possible, as you have that excess cash flow, you’re basically just minimizing the amount of net worth growth, or we’ll call it your muscle growth, you’re just not going to have as much growth over your career.
Yesterday, I had a conversation with someone that we were able to put in place a plan in their early 40s that was allowing them to defer almost $150,000 away towards retirement because of the cash flow that they had, the debt to income ration that he had, and the staff composition of the practice. And this person has been very proactive reaching out and being involved in our ongoing planning process. And it’s amazing to me how much different someone’s net worth is at age 55 when they’re constantly making adjustments to that retirement plan, as opposed to just setting it up and keeping the same in place throughout their entire career.
If no one else is coming to you telling you what adjustments you can make to that plan, you probably don’t have someone who’s being very proactive in that area. Because you shouldn’t just set up a plan and assume that it’s the same plan is going to work for the next 10 years. Because it’s every year, you need to be looking at this.

Ryan Isaac: Well and in the crucial years, probably starting in someone in your 40s, those are probably the crucial years. And a lot of it, like you said, is dependent on how many staff you have, the demographic of ages, and disparity of age between the owner and all the other employees. But somewhere in your 40s it starts to become really crucial where the type of plan and how much money can go away pretax fluctuates a lot.

Justin Copier: Yeah.

Ryan Isaac: And you fire one person and hire someone of a different age, it changes the plan completely. What might have made sense last year could be really inefficient the next year based on a couple of hiring decisions.
I just kind of wanted to hit some of the more common times that happens. One of them would be something gets set up early in career and just kind of left that way for a long time. Another situation that I see when people call in are when they purchase a practice from a retiring doc where a certain retirement plan made a lot of sense for him because of his age and income level, but doesn’t for the person who’s 25 years younger and has a different income level and different age disparities. Those are probably the two situations where I’ve seen them be the least efficient.

Justin Copier: Yeah. Well, I think this is a good area and something to continue to think about. If you’re not looking at your plan design every year you may actually be missing out on an opportunity to grow your net worth at tens of thousands, if not hundreds of thousands, of dollars faster per year.
And that really adds up over time. And it’s interesting to me, looking at two people who just make different choices in how engaged they are at actually caring about their retirement plan design. Someone who’s a client of ours might be in a different situation, because we’re proactively doing that every year.

Reese Harper: Probably something we do every year.

Justin Copier: But when I just observe the market generally, there’s a really common tendency to set up … whatever you’ve set up the first time is the thing you kind of stick with.

Ryan Isaac: Mm-hmm (affirmative).

Justin Copier: Yeah.

Ryan Isaac: You mentioned that we did an entire episode on this. I was just going to mention that’s Episode 53, for anybody that’s interested in listening to that. Called Everything You Need To Know About Retirement Plans.

Reese Harper: That’s right, yeah.
Let’s go ahead and hit a commercial break, Ryan. And when we come back we’ll talk about two more areas where dentist get complacent with their finances.
Hi, this is Reese Harper. I’m the host of the Dentist Money Show, and CEO of dentistadvisors.com. I want to take just a minute and explain why dentistadvisors.com is different than your average team of financial advisors.
We help you plan, invest, and retire better using a unique tools you won’t find anywhere else. First, we use our proprietary methodology called Elements to asses your financial health. The Elements framework enables us to give you data driven objective advice based on a comprehensive picture of your personal and practice finances.
We maintain that picture in a custom dashboard that tracks all your assets, debts, and accounts, so you know what you’re worth anytime and anywhere. And because we work with dentists and specialists we can leverage our industry expertise to weigh your progress against your peers.
We are the premier wealth management firm for dentists and specialists, and we’re ready to put you on a more predictable path to financial independence. Start now by booking your free consultation today at dentistadvisors.com. Thanks again for listening. Now, let’s get back to the show.

Ryan Isaac: And we are back with a chime and a good time.

Reese Harper: Always a good time with the chime.

Ryan Isaac: Yep.

Justin Copier: Let’s go into the second item where dentists get complacent.
This one is one where when we think … it’s a related issue to this muscle development.

Ryan Isaac: This one is a sleeper. But it’s a sleeping giant.

Justin Copier: It is. This one is a sleeper. And this is the issue of PPO negotiations, or insurance contracts. The idea of having to deal with this is kind of overwhelming, and it’s not that easy to put your finger on.

Reese Harper: No.

Justin Copier: And it involves someone else helping and sometimes it doesn’t seem like … it’s kind of an art, it’s kind of a science, and it also means raising prices, or it could mean letting patients go. And that just seems like such a pain to deal with.

Reese Harper: These insurance plans have a lot to do with the health of your practice, especially depending on the market you live. Some markets, and some practices, some people listening to this are like, “That’s why I’m fee for service, bud. And I don’t deal with all this.”
That’s awesome if you’ve been able to pull that off. And if you haven’t been able to pull that off, you’re probably just going, “Yeah, I wish that was my life, but it’s not.” And in the market that you live in, you’ll know if it’s viable for you or not to have that as an option, but for most people listening they’re dealing with insurance.
And depending on the state you live, you could be dealing with a lot of insurances,

Ryan Isaac: Or just a few, yeah.

Reese Harper: … or just a few. And this may or may not have as much impact depending on how simple this is for you.
But for those of you who it’s complicated for, that’s who we’re talking to. And I think it’s just interesting to see how practices’ income can vary based on how well they manage this-

Ryan Isaac: Well, and efficiency in … we’ll talk about this in a second, but I just wanted to reiterate, the reason why we say this is a sleeper, is a sleeping giant, is because this is one of the areas in a dentist financial life that isn’t going to … I don’t know. It doesn’t really rear its ugly, problematic emergency fire head, does it?

Reese Harper: No.

Ryan Isaac: This is one of those things where … you know-

Justin Copier: That sounds like a really dangerous monster that you [crosstalk 00:17:37].

Reese Harper: You just said a really dangerous monster.

Ryan Isaac: He’s on Game of Thrones, this monster is. I don’t know.
But, no, this isn’t one of those things where you go into the office and you’re like, that’s clearly a problem today. It’s kind of just like, you might notice that you’re working the same amount of hours and you’re not quite making as much. Or collections are growing but your income is not growing. That’s a slow, steady bleed.
It’s not like there’s no money in the bank, or something flooded in the office. It’s not an emergency problem, so it tends to be not super painful at any one time, and [crosstalk 00:18:10] just kind of go on for a long time.

Reese Harper: Yep. Kind of like paying too much taxes, and not touching your retirement plan [crosstalk 00:18:17].

Ryan Isaac: At least that’s once a year. At least that bugs someone once a year, but from Option A in our retirement plan example, they’re related in that most of these things that are the sleeping giants, they’re just things that just kind of bleed slowly and are unnoticeable.

Justin Copier: Yeah, okay.

Ryan Isaac: They just last forever.

Justin Copier: If you just make a little bit more money, the problem feels less painful.
So, we want to play an interview segment from Chris Taylor who actually works in this industry. We did an interview with him, Episode 44 of the show, where he gives some tips in this area that we thought would be kind of helpful. Instead of having me and Ryan jump into it, since it’s really not our area of expertise. But I wanted to just go ahead and play that for you.

Ryan Isaac: Roll tape.

Reese Harper: It’s interesting, Chris, and in our experience, we don’t see incomes, dental incomes don’t always correlate with the highest reimbursement rate areas.

Chris Taylor: We have been able to find that the variance in profitability is up around 50%. That is one dentist is literally losing 10% on insurance X. Another dentist is making 40% on the same insurance and the fee schedule. So that shows you that it is so different per actual office, that each dentist has to have this information.
It doesn’t matter whether I do it or somebody else, but somebody has to say, has to find out, here’s the profitability of each of your potential payers, especially the ones you’re actually on. And hey, by the way, here’s the net profitability of seven insurances that you don’t carry right now, that maybe are great to add in there. Not because you want to add an insurance, but because you want to play the game and find the best mix of insurances. That’s the key. The best mix of insurances for your practice, and I guarantee you, I’ve never seen it the same as far as which insurances are the most profitable for each office. Never.

Reese Harper: So let’s say we do this analysis, then, and that’s true where these insurances, they’re not consistent. What do I do? Do you guys provide my office with scripts? Do you give us emails? Does my front desk call every year? Do they call every six months? What’s the process, generally, to making sure that I’m being reimbursed effectively, and that I can prove my case, essentially, for why an adjustment might need to be made?

Chris Taylor: You can certainly negotiate with he insurances. And it’s kind of like a credit card. You might be able to get a lower interest rate on a credit card, but they’re not necessarily going to contact you and say, “Hey, give us a call. We’re going to lower your rate.”
I think it’s very similar. And I don’t know what process they go through, but I’m guessing that they run some sort of algorithm of their own. In fact, I’m pretty sure. MetLife is a multi-billion dollar company. They’ve got a lot of information, and I think they may simply say this dentist is making this much for us, so we’re willing to give a little more.
But for whatever reason, they can be contacted, and they may raise the fees. Again, to them, it may be an advantage. You don’t have to go to war with them. To me, it’s let’s find out which insurances is the most profitable, and if they have profitable patients. Are they patients that I’m profitable with that insurance, rather than look at the write off percentage, let’s look at what we’re making with each insurance. And with each procedure with each insurance, which we also figure out. And that’s important to do.
As a general dentist, you may just want to refer out root canals or whatever with insurance X. At least you have that information, because you’re not making much. You can certainly contact the insurances and see what they’ll do for you. Again, it can be a win win. Again, if you’re getting more patients that are profitable, that’s the key.
I talk to a lot of dentists that are totally, again, understandably saying, “I just need more patients. I need more patients.” And one of the things that we’re saying, and I’m working with a really bright guy named Chris [Coffrothen 00:22:38], he kind of stresses this. But you don’t just want to get in new patients. You want to get patients that are still profitable. If you’re bringing in patients with insurance X, and you’re at -20%, you are literally pulling money out of your bank account.

Ryan Isaac: That’s a great interview, and-

Reese Harper: Shout out to Chris.

Ryan Isaac: Shout to Chris.

Reese Harper: Thanks, buddy.

Ryan Isaac: But, one of the things he mentioned there is variance, or standard deviation in profitability, and how it can swing. In his experience, that standard deviation of profitability swings 50%. One dentist can be losing 10% on one schedule, and another could be making 40% on the same schedule.

Reese Harper: Yeah, it’s crazy.

Ryan Isaac: And for some of you, that applies perfectly. And for some, you might be looking at your situation going, there’s not that much flexibility. But you’ve got to be able to asses this in your own practice to determine if that’s really happening.

Reese Harper: Yeah, and one of the points he made, I think, that is really important, you hear this a lot is, sometimes the answer to financial pain in a practice is just get more patients. I just need more patients. I’ve just got to grow, have got to get more patients.
But he makes the point that if you’re bringing on more patients in a way that’s not profitable, it doesn’t matter how many you bring on, you’re still losing money, or not making any money out of these new patients. It could be that if you made an adjustment here to some of your fee schedules, the insurances that you accept, or the way you’re accepting the procedures that you do on certain plans, could mean that you don’t even need that many new patients to actually grow. You could need fewer new patients than you think to grow if they were just done in a more profitable way.

Ryan Isaac: Yeah. I like how he mentioned looking at the write off percentages … don’t look at the write off percentage but look at the profit you’re actually making. Because sometimes that can be deceiving. Like, “I charged this, but I have to write off this much. That’s terrible.” But it actually could be really profitable for you if you’re doing it in the right way, the right procedures and everything.

Reese Harper: Yeah. Well, it just depends on each practice how much money you’re going to make from one additional procedure. And you just need to look at the dollar amount you’re actually collecting, and determine if that’s worth the time that you’re allocating to that, sometimes, rather than just eliminating things based on the percentage.
Also, I think, no two practices are the same in any given area. Sometimes, there’s a best mix of insurance for you and your area, and no two perfect mixes are the same either. It just depends on-

Ryan Isaac: The perfect mix of insurance for one person could be totally different for the person that’s down the road that has a different patient demographic or

Reese Harper: Yeah.

Ryan Isaac: … doing different procedures.

Reese Harper: Listen to the entire episode if you want on that one. We won’t dive into it a lot more, but Episode 44, if you go to dentistadvisors.com/listen. Or you can just find Episode 44 in iTunes with whatever podcast app you’re using. It’s called Improving Profit Margins With Better Fee Schedules.

Justin Copier: Okay, the third item that we’re going to talk about, which is one of your favorites, which is sitting on a large pile of dollar bills.

Reese Harper: Yep. Just like my childhood hero, Scrooge McDuck.

Justin Copier: You swim around in your money.

Reese Harper: Basically.

Justin Copier: And it’s a giant pile of it.

Reese Harper: Yes. That’s how I spend my free time.

Justin Copier: I love the opening of that show. Did he swim in money or cold coins?

Reese Harper: It’s gold coins.

Ryan Isaac: I think it was bitcoin.

Reese Harper: Yeah.

Ryan Isaac: He was swimming in bitcoin.

Reese Harper: He’s swimming in …

Ryan Isaac: Bitcoin.

Reese Harper: When they reboot the DuckTales cartoon series, it’ll totally animated and really action packed, and he swims in bitcoin.

Ryan Isaac: (singing).

Reese Harper: He’s swimming through [crosstalk 00:26:03] of zeros.

Ryan Isaac: He just goes into the matrix and swims around in bitcoin. Oh, man. That was a good show, DuckTales.

Reese Harper: Anyway. I showed my kids the DuckTales movie.

Ryan Isaac: You did?

Reese Harper: And they were like, “What is this? It’s just weird.”

Ryan Isaac: It’s so weird. It’s so weird.

Justin Copier: But it was cool.

Reese Harper: Anyway.

Justin Copier: So, sitting on-

Reese Harper: Just like Scrooge.

Justin Copier: Sitting on too much Cash in your business checking account, I’m not going to say it’s a bad thing. It’s a dang good thing. If I see it, I applaud you. What does this tell me? It tells me that you didn’t spend it,

Ryan Isaac: You could have done something … yeah.

Justin Copier: … and you had the discipline to just hold on to your money and let it sit there. Thank you for being so disciplined.

Ryan Isaac: Totally agree. Totally agree.

Justin Copier: That is not the worst problem in the world. But if you hold too much cash in your business checking account, it gets harder and harder to invest it.
The same thing happens inside your investment portfolio. A lot of times, we’ll see people have a very conservative investment portfolio, and then a very aggressive investment portfolio. But they’ll switch it. They won’t be able to stick with something. And we recommend not going through these periods of time where you let too much cash pile up.
You have to think of your investments as what we call an expected return. Or an opportunity cost. Let’s talk about what this means. If there’s an expected return, what we’re saying is we don’t know at what point in time we’re actually going to get that return. No one does. We just know that a particular investment has an expected return. Meaning, if we’ve got an investment that’s going to get 3%, we know that by putting it in there, our expectation is we’re going to get three.
We won’t actually get three. We might get positive five or negative one, but a 3% average return type of investment will have some variability, they’ll move up and down. And if you can just expect that you’re going to get three, you can treat your money that way, then you don’t have to be in the game of comparing whether what you’re about to put it in is better than the bank or a mortgage.
You wouldn’t want to take money out of a bank account that’s perfectly fine sitting there not losing money, and then put it in an investment that’s expected return is two, if it could lose you five and maybe gain you seven. You’d want to put your money in something that actually gave you an expected return that was a meaningful difference from where it was at.
Or, instead of paying down a mortgage you wouldn’t want to say, “I’m not going to pay off a mortgage. I’m going to invest money in somebody that’s giving me 3.5%. That’s not enough of a difference to be worth making that trade off.

Ryan Isaac: Yeah, it isn’t worth the trade off.

Justin Copier: But I think, too many people think about their investments in terms of actual moment to moment returns, rather than thinking about their investments in terms of expected returns. Because we have no idea what the moment to moment return of an investment is going to be. If your 401K plan is in a portfolio that is going to average 10%, we don’t exactly how that’s going to show up.

Ryan Isaac: This year or the next couple, yeah.

Justin Copier: But the fact that the market is “expensive,” is not a reason to avoid investing in that. You can’t say, “Well, it’s safer in the bank right now, because

Ryan Isaac: The market is high.

Justin Copier: … if I put it in my 401K, the market is high and I might lose money. Well, the expected return of your 401K is 10% a year.

Reese Harper: Not 12 months from now.

Justin Copier: We just know that that is the average return we’re going to expect. So, why would you allow money to pile up in an account where the expected return of the bank account is zero to point one,

Ryan Isaac: Or negative from inflation.

Justin Copier: … and the expected return of the investment you could put it in is much higher. At least pay off a piece of debt, right?

Ryan Isaac: Sure.

Justin Copier: At least pay down a mortgage. Utilize your cash in an effective way.

Ryan Isaac: So, why does this happen? Why does cash sit around? I think there’s a few reasons. What are some that you would think … why do people leave it there?

Justin Copier: Number one, I don’t think that people have 100% closure on what their options are.

Ryan Isaac: Okay. I would agree with that totally.

Justin Copier: I don’t think they know what their options are.

Ryan Isaac: Yes.

Justin Copier: Second, I don’t think they really know which option is best. Number one, they don’t know what options they have. Number two, they don’t know which one to pick. And it’s hard picking pay down debt, invest money, let it sit here.

Ryan Isaac: I might buy a building.

Justin Copier: I might buy a building. [crosstalk 00:30:33].

Ryan Isaac: Kind of want to move.

Justin Copier: I might remodel my house. We might need a down payment. There’s all of this uncertainty that makes you hold on to cash. And I’m not saying you shouldn’t have any. I’m just saying the work of financial planning is wading through those choices until you actually earmark specific dollar amounts of money for specific goals.
So, let’s just talk about the option of I might buy a building. Okay, you might buy a building. You have $400,000 in your checking account and you might buy a building. What does that mean?
Well, the building is going to cost what? I don’t know. Why do you not know what the building is going to cost? I haven’t thought about yet. Okay, are you going to have a multi-tenant building or is it just a condo for yourself? Or are you going to buy a condo in an existing building? I don’t know. What do you think the maximum cost would be that you’d want to spend on something like that.

Ryan Isaac: Talk to someone who knows, yeah.

Justin Copier: Okay, you get to a number. You get to a dollar amount of an actual number. The market that I live in, it cost $300 a foot and I’m going to need 3,000 square feet. I need $900,000. Okay, you need $900,000. How much money do you need for that building? Well, I don’t know. How are we going to finance it? Are you going to put 40% down? Are you going to put 50? No, I’m not. Okay, are you going to put 10% down?

Ryan Isaac: Are you going to put the minimum down? Right.

Justin Copier: Well, let’s decide what our down payment is going to be.

Ryan Isaac: I don’t know what I can afford. Well, why don’t you know what you can afford?

Justin Copier: We haven’t talked to a lender. I don’t know.
So, we get through these questions, and we find out, at the end of this conversation, that you might buy a building, but out of the 400 that’s sitting there you need 180,000. And out of the 180,000 when’s the likely point in time that you’ll need it?

Ryan Isaac: Three years from now.

Justin Copier: 18 months, two years. Okay, well, let’s earmark 180,000. Let’s invest it in something that’s growing at 2.5% a year, because-

Ryan Isaac: That we can grab at a moment’s notice.

Justin Copier: Because we don’t know exactly when or exactly the month we’ll need it. Don’t want to take risk, but this other amount of money, what is it for? Is there anything it’s for?
I don’t know, maybe I might want to remodel my house. What are you thinking about to do with the remodel? Or-

Ryan Isaac: Same exercise.

Justin Copier: Yeah. If you can earmark the amounts of money that you have in your checking account for specific goals, and then deploy those, it really will change the … because you could spend 10 or 15 years of your life sitting on millions of dollars of cash in your investment portfolio that you don’t want to invest, or in your bank accounts, just because you haven’t really precisely identified the point in time that you need the money.

Ryan Isaac: And like you said, what the options even are. Yeah.

Justin Copier: What the amount is, what the options are.
Let’s say you’re investing for retirement, but you’re worried that the market might crash. And so, you’ve got it in cash. I see this all the time. Do you see this?

Ryan Isaac: Yes.

Justin Copier: I’m investing for retirement, but I’m worried the market might crash, so

Ryan Isaac: I’m waiting.

Justin Copier: … I’m conservative. I’m going to wait and see.
Well, this amount of money that you’re waiting, when are you going to touch it? At what point in time are you going to withdraw the money? Okay, well, your 55 and you’re worried about it. Are you going to withdraw it at 62? Are you going to withdraw it at 65? 67? 70? 72?
There’s going to be a specific period of time that a traunch of money is going to be withdrawn. And not all of your money has the same time frame. Some of your money you’re not going to touch until you’re 70.

Ryan Isaac: Which is intuitive, but a lot of people don’t think about that in retirement. Retirement, the day you stop working, always kind of seems like this period where all of my money is now accessible. I just go grab all of it somehow. And that’s just not the case at all.

Justin Copier: No, you’re going to withdraw certain amounts from certain accounts, at certain times. And so each traunch of money needs to have a specific time frame its tied to, and a specific amount that you know you’re going to be withdrawing.
This kind of financial planning precision makes the difference between someone who’s financially independent and someone one who’s kind of almost there but a little uncomfortable. Because most dentists have the ability to save 20% to 25% of their income. And as long as it doesn’t get stolen from you, you’re going to be able to make work optional at an early age.
But if you don’t implement basic financial planning consistency, and really execute it well, like labeling dollars for specific goals, executing the right retirement plan changes every year, all of these things that we’re talking about today, they’re just the work of financial planning that has to happen. And a good advisor should be doing for you.
You shouldn’t be carrying the weight of this all on your own, unless you have the competency, interest, and ability to do, which a lot of our listeners do. There’s some people that listen to this show that just … they love doing all this stuff on their own, and we get emails all the time of how would you calculate this? How would I do this?

Ryan Isaac: Yeah.

Justin Copier: But for the majority of people that are dentists and [entreprofessionals 00:35:30], they’re going to be going, “I need someone to calculate a lot of the stuff for me, and I need someone to do the heavy lifting.”

Ryan Isaac: The reason why I know what you said is true, the first thing you said is people just don’t know what their options are. When there’s no clarity, you just kind of get stuck. You get frozen. The reason I know that’s true is because we’ll meet people that have hundreds of thousands of dollars sitting in their bank account, and it’s been there for years, and they’ll make decisions on all that money within 30 days of working with us.
And it’s not because we have some magic thing they’ve never heard of before, or we’re convincing them to do something they’ve never considered. It’s just we’re presenting options that are really clear. We’re showing people how to quantify how much needs to be sitting around still for the building. How to quantify, how much to keep liquid in your practice just for practice, just for running the practice. How do you keep in an emergency fund? How much to earmark for 40 years from now.
And just with those little bits of clarity and quantifying some of those numbers, then it’s so easy to make decisions.

Reese Harper: It’s like, oh, I’m not stressed out anymore.

Ryan Isaac: No. Someone who sat on half a million dollars for five or six years all of a sudden puts it in places in 30 days.

Reese Harper: I’ve got a story I want to tell, real quick, that was interesting to me this week. There’s a client of mine who’s going through right now. She’s older in her mid 70s, and her husband is also in his mid 70s. Really successful practice throughout his life, and just in a great financial position. Multi-million dollar net worth, and I’m not worried about them at all financially.
But they called me when she was going through surgery. Well, actually, it was an email. The first thing I got was an email. The email said, “We really need to meet. We really have got to talk about some things.” And I just had met with them six months earlier, and in my head I was like, we’re totally fine. Everything is awesome. But, “We’ve got to meet. We’re kind of worried about our finances, and need some kind of information about whether we’re going to be okay. And we just want to know we’re going to be okay.”
And it was this moment where this client, spouse, who was going through this eye surgery, and they’re both just kind of feeling like they had some needs. New cars, they wanted to buy a couple of new cars, and they wanted to potentially relocate and move into a different condo that was closer to the city instead of being out where they were at.
I get to their house, and we start talking, and it was interesting because they were really anxious about running out of money and not having enough. Because they felt like this pension plan, one of their accounts, they had finally spent down the money in one of their accounts, and they were worried that now that account was empty that they weren’t going to have enough

Ryan Isaac: One was gone.

Reese Harper: … to buy the new cars, and relocate, and remodel the house.
And within about 10 minutes of just saying you have this account and it’s invested this way, and you could use that to remodel the house. And this account is for your living expenses, and then Social Security is paying this much, coming at this level, and you’re withdrawing this much from this account. And see, of all of your accounts combined you’re still only withdrawing 2.5% of your money. There is no stress that you should have. You should not be worried, and everything okay. They just were like, “Oh, man. Thank you. Okay, we’re done.”

Ryan Isaac: But the one account ending, was the trigger-

Reese Harper: The account ending was the trigger for, oh, maybe it’s not okay. Maybe life is not okay.
It’s kind of sad at some level, and this is just accentuates the point, someone who’s in their mid 70s who has worked really hard their whole life to accumulate plenty of resources, but they’re still at a point where they’re worried and anxious about … they were talking to me about, “We’re going to cut our budget, we’re not going to travel anymore. We’re not going to keep doing all the things we were. Last year was a little crazy. We got to go on some really nice vacations, to Europe.”

Ryan Isaac: Now we’re totally not going to do anything.

Reese Harper: “We’re not going to do anything, because we know that we’ve overspent. So we’re going to cut back.” And I was kind of just taking all of this in for the first 20 minutes. I’m worried myself a little bit, because I’m going, man, if they’re so worried maybe something is wrong with the numbers.
So, I go through the numbers again in my head, and I’m looking at all their reporting, and I’m going, “No, this is going to be fine.” And my perspective on it was so different from their perspective, it just let them sit back and just kind of go, “Thank you. So, can we go on this vacation we were planning on doing this year?”

Ryan Isaac: Yeah, go!

Reese Harper: Yeah, there’s no reason. Do you want to pass on all of this money to your posterity? Or do you guys want to have some of it for yourself?

Ryan Isaac: Keep doing these fun vacations.

Reese Harper: And keep doing these vacations. I know your kids want you to enjoy this, and you have plenty.
That’s one side of the extreme. I know that there’s two sides to this. Some people have way too little, and some people have enough. But there’s still the lack of clarity around how much things cost, and what exact amounts of money do you need for specific things, that makes people emotionally carry a burden and a weight that they don’t need to carry [crosstalk 00:41:02].

Ryan Isaac: Yeah, it’s unnecessary. Yeah. And then having those answers, little bits of clarity, it goes such a long way, too. It changes everything.
Anyway, in conclusion here, we’ve hit three things that are really crucial. One, make sure and revisit your retirement plan on a regular basis. Second would be periodically analyze your insurance contracts in relation to your practice profitability. And third, don’t let all your cash pile up and miss out on growth.

Justin Copier: So what we’re saying here is although there might not be any emergencies in your finance today, it doesn’t mean that you’re totally healthy, right? That’s what we’re saying.

Reese Harper: Yeah.

Justin Copier: Just because there’s no fires, doesn’t mean everything is okay. And don’t put these things off, because they do have a really big impact on your ability to make work optional at an earlier age.
So, thanks for listening everyone. Thanks for joining us today. We would love if you would follow us on Facebook and Instagram. Just look for the Dentist Money Show.
You can book a free call with us. Go to dentistadvisors.com. At the top of the web page there’s a link to schedule on our calendar. Or you can call us on our illustrious new phone number which is 833-DDS-PLAN. If you book a call on our calendar, or if you call 833-DDS-PLAN, we will talk about your situation. We will answer your questions about your net worth and how it’s growing, and how you can make different decisions to make work optional at an earlier age.
Operators are standing by.

Reese Harper: Carry on.

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