Listener Q&R #7 – 401k Options, Managing Debt, Mortgage Payments – Episode #578

What is the best way to plan for the next five years with the recession we are facing? What is the best 401k option? How do I manage debt? How to reduce monthly mortgage without refinancing? On this listener Q&R (Question and Response) episode of the Dentist Money Show, Matt and Ryan answer financial questions posed by attendees at the Productive Dentist Academy conference.

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Podcast Transcript

Intro: Hey everybody, welcome back to another episode of the Dentist Money Show brought to you by Dentist Advisors. We have another show brought to you by Ryan and I, from the PDA, the Productive Dentist Academy event in Frisco, Texas. This is a part one Q& R episode where we had people fill out at our booth some prompts and answer some questions that we could then share with you on the show. So we love these episodes where we can share, advice or, questions that other dentists are getting so we can all learn from each other in the dental community. As always, we hope to get something out of this, something of value, and we hope you enjoy the show.

Ryan Isaac: So the device in front of me, Matt, is showing recording.

Matt Mulcock: Perfect. That’s a good thing.

Ryan Isaac: Where are we, Matt?

Matt Mulcock: We are at the Productive Dentist Academy 20th anniversary show event summit, whatever extravaganza premium plus platinum gold infinity show. in Frisco, Texas. We have been coming to the show for years now. They do two a year. I’ve got another one coming up in March. They do it every March, every September. We love this

Ryan Isaac: We do.

Matt Mulcock: Really fun.

Ryan Isaac: We do love the show. Christine Uhen

Matt Mulcock: Christine Uhen everybody. She’s our biggest fan. As you get the shout out, literally almost every

Ryan Isaac: every time she walks by, we just yell Christine Uhen and she listens to every

Matt Mulcock: She listens to every episode, usually on the beach in San Diego. And then she’ll text us and be like, you guys are my favorite.

Ryan Isaac: What we’re doing today, though, is kind of cool because at the booth, the illustrious Dentist Advisors booth that is being, that is being handled by the best booth and the best people we have people putting questions in a, uh, You know, is this a box or a

Matt Mulcock: It’s a basket. I’d call it a woven basket. Yeah.

Ryan Isaac: Are these questions come from? What’s the prompt

Matt Mulcock: Okay, so.

Ryan Isaac: Attendees here at the PDA conference.

Matt Mulcock: So here’s what we did. Here’s what PDA did. Come around all the tables for a way to keep them, people engaged with partners. we know this, the importance of people getting people engaged with partners at a summit, like we did our Dentist Money Summit.

And so again, it’s a big part of it. So what PDA did is everyone walks around with a ticket with their name on it. And they have to have a meaningful discussion with each partner for that ticket to get submitted into the hopper. And then on Saturday, they’re going to pull, they’re going to do a raffle and each partner has brought a gift.

So what we decided to do is we said, Hey, a meaningful conversation. We’re so. Focused on education and sharing knowledge and all this stuff. We said a meaningful conversation means you have to submit one of three things for the people. Number one option. These are all options. You either can submit advice. You’d give your past self to share. You would submit a money confession or secret.

Ryan Isaac: Ooh.

Matt Mulcock: Or the third option is you submit a financial question you’d like help with. And they put them in the woven basket here. We have several. we have never seen these. You and I.

Ryan Isaac: So I’ll pick one and read it to you. You answer and then vice versa. Okay. So the game of today is a little cute question and response.

Matt Mulcock: And response.

Ryan Isaac: Question number one or statement number. This is What is the best way to plan for the next five years with the recession that we are facing?

Matt Mulcock: Ho ho ho! Ho ho ho ho,

Ryan Isaac: Do you want to begin unpacking that Matt? What’s the best way to plan for the next five years with the recession we are facing? Those are the words.

Matt Mulcock: Okay. So I would.

Ryan Isaac: What sticks out to you first? I know what you’re thinking right now.

Matt Mulcock: The comment that like the recession we are facing, I understand the sentiment. And I would, I actually would say there’s a high likelihood we will see a recession in the next within the next five years. That’s a pretty safe bet. If you just go off of historical

Ryan Isaac: Cycles.

Matt Mulcock: Cycles and data, and I think we’re probably are due for recession. Okay, so what’s the best way to prepare for

Ryan Isaac: Yeah

Matt Mulcock: I guess my first thought would be I’d prepare the same way whether a recession was coming or not.

Ryan Isaac: Uh huh, well I was gonna ask you in all your years of doing this job How often have you not heard that we’re in a recession or we’re about to get

Matt Mulcock: Always. I mean, it’s just, it’s constant. We’ve, we’ve,

Ryan Isaac: We’re never not in a place where we’re like, oh, there’s it’s all great

Matt Mulcock: We’re never at a place where it, it feels good to invest, right? Like people are always like, is now a good time to invest. And they’re asking from one of two angles, either things are going really well

Ryan Isaac: That’s the top.

Matt Mulcock: It’s the top, or things are really, really bad about to get bad.

Ryan Isaac: They’re always about to get really bad. Yeah. Even when you’re like in the middle of it’s bad, it’s always about to be

Matt Mulcock: Always, or things are really bad. And it’s like, Oh, we got to wait till see what happens.

Ryan Isaac: See the bottom. Yeah. We’ve got to get some clarity around how bad things are. Okay. That’s a common, it’s everyone thinks this all the time, basically.

Matt Mulcock: And it’s, and it is very valid to think this, how I’d say specifically to prepare, it would be the same way as if there was no recession happening. So recession or not the same thing we’re talking about here. When has there ever been a five year period where something bad hasn’t happened period, right? So to me, it’s following some general steps, not knowing this person’s specific situation and giving general advice like we do on the show. number one, make sure you’ve got a quality, a solid margin of safety via cash, both at home, personal emergency fund, three to six months living expenses. and in the business, I’d say one minimum one and a half up to three months breakeven, which is what we talk about all the time. You gotta be reviewing your P and L. You gotta know your numbers. So, have a quality margin of safety ready to go, would be step number one of how I prepare, prepare for that.

Ryan Isaac: No matter if the outlook is good or bad, which it’s always bad. I don’t look, it’s always

Matt Mulcock: Yeah.

Ryan Isaac: It is the same thing. It’s like, well, do you need to buy anything in the next like three to five years that you’re going to need CAD down payment, you need cash for something. Then you better have that on hand, whether investments are going to go up or down, you just need your cash on hand if you know you need to spend

Matt Mulcock: Yep.

Ryan Isaac: Emergency funds, business liquidity. You just have them no matter what.

Matt Mulcock: There’s really only two reasons to hold cash.

Ryan Isaac: Yeah. Yeah.

Matt Mulcock: Number one, emergency fund. Number two, upcoming

Ryan Isaac: You know, you got to spend

Matt Mulcock: Know you got to spend. Otherwise, that money should be invested. I think this question probably implies some type of investment. Question of like, what do I do with my investments to prepare for

Ryan Isaac: The good news.

Matt Mulcock: The good news is, nothing different than you would, right, a recession or not. Those things are more, I like what you’re saying, is thinking about it more from your personal life

Ryan Isaac: Yeah. Yeah. Like life, events happening.

Matt Mulcock: Make adjustments to your investments based on your personal life, not on what’s happening in the markets or the economy as a general rule.

Like you shouldn’t be anticipating anything. The great Peter Lynch, one of the greatest mutual fund managers of all time had at least at one point the greatest track record. Of any mutual fund manager, literally ever, he, managed what’s called the Fidelity Magellan Fund for like 25 years. He has a quote to paraphrase.

He says that more money is lost in the anticipation of a market correction or economic downturn than in the actual correction or downturn

Ryan Isaac: And how often you’ve actually seen that play

Matt Mulcock: Oh my gosh. Yeah. You’re just, you’re never gonna time this, people, if you, I get it, we totally understand the sentiment of the desire to time things.

You’re never gonna do it, with any level of accuracy or precision, and you’re gonna hurt yourself more trying to do it. So, if, I think this question’s alluding to that, like, what position should we do? The answer to that is stick to your long term plan. Now if this person is within five years of retirement,

Ryan Isaac: Long term plan. That’s different.

Matt Mulcock: We’re talking about your personal

Ryan Isaac: About your personal life. Short term. I got some cash.

Matt Mulcock: Actually really quick. You just said this. Cause I, we get a lot of questions around this cash for an upcoming project or investment short term. What do we consider short term? Like, what would you consider short term for that? Someone’s like, I got some cash, I have this definable thing happening within,

Ryan Isaac: Yeah,

Matt Mulcock: Is short

Ryan Isaac: I’d say anything under two years is short

Matt Mulcock: That’s what I say

Ryan Isaac: anything over two years you could maybe start exploring some conservative places to park the money We don’t need to list those with some more conservative always liquid places anything more than five plus years You can definitely explore some places to park money

Matt Mulcock: That’s how I feel, I think there’s like that no man’s land of three to five years, it’s kind of like, ugh, it’s kind of weird.

Ryan Isaac: You’ve seen that on balance sheets though where the right plan I’ll give you an example. I can think there’s a lot of people have gone through this, but, a dentist is about to build the dream house simultaneously with the new practice location

Matt Mulcock: Oh, yeah.

Ryan Isaac: You know, it’s like multi millions of dollars, everything’s stacking up into one thing.

And for 24 months you’re holding like gobs of cash on the balance sheet Holding way too much cat what seemed it felt like way too much cash for like two years But like no this this client of

Matt Mulcock: I thought you were making a subtle

Ryan Isaac: This is oh, so yeah, it was

Matt Mulcock: I remember a time, man, I was holding

Ryan Isaac: sitting on millions of dollars, but it was like a multimillion dollar house build.

It was a definitely a multimillion dollar new practice building. So we just sat on so much cash for like two years cause we didn’t know when our permits happening. When is the architect need money? When is the land being developed? So that sometimes happened. Yeah. But that no man’s land is a little bit tough though.

Cause you can, sitting on a lot of cash can be the right planning call. It can be actual strategy, although it feels weird.

Matt Mulcock: It does feel it now. Also, one of the things that of like, where there are tactics that are involved in this, I agree with you two years or less, where to hold that money changes depending on where rates are, market dynamics. So we’re not saying the market and things happening don’t impact the Strategy, we’re just saying, we think a recession is coming in the next five years.

What should I do with my investments? We’re encouraging you, you don’t make changes based on what may or may not happen in the market.

Matt Mulcock: Oh, boy.

Ryan Isaac: This might not even be a quote, But I I think there’s something famous that It’s not Charlie Munger. Maybe it was Munger who said it. but they talked about their, their time horizon is like infinity or forever. my investment time horizon is forever. Does that ring a

Matt Mulcock: I think it was

Ryan Isaac: Was that Warren Buffett actually?

Yeah, I think it was that his time horizon for investing is forever. And not literally, but that’s how he pictures it. So yeah, you would just want to encourage people to, unless they have these life events coming up that they know are going to happen, that invest forever.

Matt Mulcock: Oh, we’re going to see how many we get through. Let’s just see This is advice plus a question. So here’s the advice given by a lovely dentist here at PDA. Don’t be so hard on yourself.

Ryan Isaac: Okay. Oh, that’s the

Matt Mulcock: That’s the advice to your past self. I kind of love that.

Ryan Isaac: Yeah,

Matt Mulcock: Don’t be so hard on yourself.

So this person went one by one. And so they did advice for your past self. Don’t be so hard on yourself. Then they did the secret or confession. They said I spend too much Heard that I think everyone’s probably confession to something along those lines. And then the third All that says is under the question category Help with 401k

Ryan Isaac: Category

Matt Mulcock: I need help it’s like SOS

Ryan Isaac: It’s like SOS. don’t

Matt Mulcock: To tell me that now

Ryan Isaac: To tell me that now. I like SOS.

Someone could be running like a single location with like 60 percent profit margins and doing millions of dollars a year. And they still feel pressure to be better, bigger, more. Yeah. Don’t be so hard on yourself. Like

Matt Mulcock: Have talked about this of it’s really easy to look back I’ll take kids as an example. You have one kid and when you’re in the middle of that part of your life, it feels crazy. Then you’ve

Ryan Isaac: It’s never going to end.

Matt Mulcock: You’ve got two kids.

Then you look back on having one kid and you’re like, that was easy.

Ryan Isaac: Have context.

Matt Mulcock: Of how hard two is. You have four. Like you, you said yesterday we were talking to someone and you said, what did you say? you feel like your third kid is when your life

Ryan Isaac: Yeah, that was when my life felt like it was

Matt Mulcock: Oh, cause we were at dinner last night with, with our friend and

Ryan Isaac: Just overwhelming.

Matt Mulcock: He said he’s got three under three. so I guess my point is. I like this concept of being, not being so hard on yourself. I think kind of the reverse of that sometimes is like, realize that, no matter what, in the moment, it’s always going to feel stressful.

Like I’ve got clients that are worth multiple, multiple, multiple seven figures and other clients who are not even close to that. And they both feel the

Ryan Isaac: They feel the same level of stress and anxiety about how they’re doing. I know. I like

Matt Mulcock: I’d say don’t be so hard on yourself and also. maybe have just better more, just more, try to have more empathy for everyone around you.

Ryan Isaac: Everyone around you, including yourself, you’re going to make it. You’re going to pull through. You’re going to make it. It’s going to be fine. It really will be fine.

Matt Mulcock: Oh, thank you. I actually, I truly need to hear this right

Ryan Isaac: Be fine. I get you. It’s going to be fine. You’re actually going to make

Matt Mulcock: You’re going to look back a year from now, five years from now, at some point and realize, holy cow, I was worried. Like my imagination was far worse than reality.

Ryan Isaac: Well, let’s hit the second one really fast. I spend too much money. Everyone thinks that, and it is probably, probably statistically true that you are.

And I’ll just say that the way to really know if you are or not is track your savings rate, which is what percentage of your money that you earn every year goes somewhere for your future self, gets saved or invested into something, not spent, not taxes, not minimum debt payments. And if that rate is at least 15%, you’re probably doing fine.

If it’s 20%, that’s awesome. and above that is, is great. So measure your savings rate and if it’s adequate, then you’re not spending too much. That’s what I’d say about that. Help with my 401k was the question. My answer is yes.

Matt Mulcock: Love that. Just 401k. Oh,

Ryan Isaac: Go to Dentistadvisors. com.

Matt Mulcock: We can help you with that

Ryan Isaac: Okay, here we go. Number three, advice. Advice to give you your past self. Follow your instinct. Stay on your path. Is this just for us today? Is this

Matt Mulcock: Think they’re literally

Ryan Isaac: Fortune

Matt Mulcock: Advice for Ryan and Matt.

Ryan Isaac: This is like

Matt Mulcock: Read that again.

Ryan Isaac: Ryan and Matt’s fortune cookie. This is just our self reassurance hour. Follow your instinct and stay on your path.

Matt Mulcock: Actually need these. Like, this is really good.

Ryan Isaac: So

Matt Mulcock: Is that it?

Ryan Isaac: But we can just sit with that. Um, Oh no, it keeps going. This gets better.

Matt Mulcock: This is just advice.

Ryan Isaac: Walk away from the things you feel unsure of in your gut.

That’s all we’re responding to. That is okay. Thank you.

Matt Mulcock: I feel like I needed that. I really do.

Ryan Isaac: Fortune cookies. Thank you.

Matt Mulcock: All right.

Ryan Isaac: question. Okay. Ooh,

Matt Mulcock: To get a 401k done? How to manage debt. The percentage I should put in. How do we get more productive with meeting to get a 401k done?

Ryan Isaac: okay.

I’ll hit this question, then you do the debt one. I’ll just say from again, because I don’t really know the total context here, the situation. 401k can feel like a little bit of a pain in the butt, and that’s simply because there’s lots of regulation and standards you have to meet from the government on a 401k plan.

When you offer it to your team and you have to match things and make contributions and follow rules and everything. But I’ll just say that if you have a competent 401k provider, by competent would mean they do a lot of the work for you. They’ll answer your emails and your phone calls. They have a good customer support team.

They will work with your staff and your team. They do applications, information, education. And if you have an advisor on that plan, usually outs. Not always outside of that 401k company, but if you have a competent advisor who can also field questions, it shouldn’t be too

Ryan Isaac: Meet about the 401k, figure out what kind and what structure to put in the practice and just get it going.

And, I don’t know if the, how much to put in there was part of the 401k question or part of the debt question, but I would just say max out your 401ks.

Matt Mulcock: I can’t take much more questions, but I would just say max out your 401ks.

Ryan Isaac: They feel overwhelming.

Matt Mulcock: It’s actually not that bad to get it once you get it going if you have a quality office manager as well Who’s helping with payroll? To put those to submit those every two weeks. It shouldn’t be a big

Ryan Isaac: It’ll become just a seamless kind of process that runs like 10 minutes a

Matt Mulcock: Yeah, and by the way, it’s not that expensive anymore go to Dentist advisors comm slash 401k we can help you with that All right, how to manage debt, the percentage I should put in. I’m guessing the percentage I should put in meaning, how much maybe cash to put into

Ryan Isaac: Yeah, or like, what should your debt to income ratio maybe would be a helpful metric? How much to pay down extra might be a helpful

Matt Mulcock: So let’s first say how to manage debt. I think this first step of this, of how to manage debt is to get organized, understand your balance sheet breakdown, how much debt do you have? First of all, where is your debt being held? Categorize your debt between what I’d call kind of like productive debt versus nonproductive debt. So for example, productive debt being, practice debt, something that’s going to help produce and create wealth for you.

Ryan Isaac: It’s funding

Matt Mulcock: it’s funding assets. It’s, it’s helping you grow your net worth, versus like unproductive debt would be credit cards. It’s just like things on even cars, things that are just consumerism would not be. And I think, again, categorizing that, understanding what that looks like to understand then what percentage I’m guessing of cash to put into this debt.

Maybe like, should I be paying extra payments towards debt? Anything that’s like, let’s say you are, let’s give an, like, the most extreme example, you are carrying credit card debt, meaning you’re rolling debt over month to month. That, top, top priority, you should be paying, paying down. things like, again, like a productive debt to like practice loans, I wouldn’t be as focused on that, or I wouldn’t be like, just automatically, I gotta pay those down.

It’s, there’s things that are, that come before that, I’d say from a priority standpoint. For example.

Ryan Isaac: The

Matt Mulcock: What’s your top line collections numbers look like? Are there other areas I should be thinking about? to bolster cash flow first before you start putting money towards

Ryan Isaac: over before you start putting money towards debt? Yeah.

Matt Mulcock: Yeah

Ryan Isaac: you want liquidity paying extra on

Matt Mulcock: No, definitely not definitely not That’s a great point obviously again that’s why I’d say the first step is to categorize your debt understand your balance sheet because Again credit card debt as an example. You might be sitting on You If you’re carrying that 25 percent rate on that interest rate on that debt, that’s a very different story than saying I’ve got a 4 percent or 5 percent mortgage on

Ryan Isaac: so organization

Matt Mulcock: Organization first, then from there,

Ryan Isaac: Yeah

Matt Mulcock: loans is a big one, right? Where we have dentists all the time saying I’ve got to pay down my student loans. Great, let’s do that, but you’re hitting something really important. Before you do that, I want to see probably one year’s worth of

Ryan Isaac: liquidity. Yeah

Matt Mulcock: across

Ryan Isaac: Meaning if you spend 150 grand a year, I want 150 grand in accessible money You

Matt Mulcock: Which doesn’t have to be cash. Probably shouldn’t be brokerage account.

Ryan Isaac: checking savings brokerage

Matt Mulcock: Yep. And from a savings perspective. ideally you’d be closer to that 15 to 20 percent mark of savings, going to longterm accounts before you start getting, paying off debt. I would, I’m willing to actually work with a client and say, let’s bring that down a little

Ryan Isaac: I’m fine with that Yeah, well I would say like all right if you have a 20 percent savings rate if you’re very hyper focused on this We let’s split it in half 50 50, you know, you got a 20 percent savings rate 10 percent is going to save you like investing 10 percent can go to debt reduction if it’s Really bothering you I want you to sleep at night.

We also have vacuum guy. So not only do we have DJs, we’ve got vacuum guy back at

Matt Mulcock: Yes. Back at

Ryan Isaac: Dude, we’re just, we’re in competition for audio

Matt Mulcock: We really are. And we’re

Ryan Isaac: louder. We’re winning cause we have, we have the microphones.

Matt Mulcock: This is our show. This is our show.

Ryan Isaac: Oh, okay. Yeah. So great question. All right. Should we do like one more and then we’ll do, we’ll just do another episode

Matt Mulcock: We can do just part two. Perfect.

Ryan Isaac: have so many here. Oh, question. Okay. How to reduce monthly mortgage without refinancing.

Matt Mulcock: Ooh, I love this

Ryan Isaac: Now, I don’t know if that means payment or balance or rate, but how to reduce monthly mortgage without refinancing.

Awesome question.

Matt Mulcock: this question. So

Ryan Isaac: How do you take that?

Matt Mulcock: So I think this is a great opportunity to talk about something that not a lot of people know about. Which is called a mortgage recast.

So there’s, there’s refinancing and then there’s what’s called a recast. So, let’s say you’re out there making extra payments towards your, let’s say again, your mortgage, your residence.

Ryan Isaac: The balance is coming down

Matt Mulcock: The balance, yeah, you’ve made extra payments. You’ve started to pay it down. By whatever amount of money. Um, oftentimes it has to be, uh, there’s a threshold. So let’s say it’s like a total of like 10, 000 extra you paid over a period of time, what you can do with most mortgage companies is you can call them and say, I want to do a, or maybe it’s a form online, whatever, but you submit a request to recast the mortgage.

So just example, let’s say you’ve got a 400, 000 mortgage. You’ve been making payments. You’ve made extra payments either in one chunk or you’ve paid it down over time significantly enough that let’s say you’re now down to three hundred and twenty thousand dollars. But again, you’re faster on that amortization schedule.

You call them and say, I want to recast. What they do is they take your balance currently

Ryan Isaac: Mm hmm.

Matt Mulcock: and they basically create with the same terms a new amortization schedule on the new balance. So what this can do is actually lower.

Ryan Isaac: So before you’re making payments on a 400, 000 loan on 30 years. But now you paid it down to three 20, a little ahead of schedule. Now they’ll do the loan on three to on a balance of three 20. So your payment rate stays the same

Matt Mulcock: Everything stays the same

Ryan Isaac: And the term, the amount of time you have left stays the same, but they just re read, they do the payment based on three 20 instead of the

Matt Mulcock: Exactly. So you’re paying me 4, 000 bucks or whatever. Now it’s three 3, 500. so this can be really helpful. And a lot of times I will say, there’s always caveats here. You got to talk to your mortgage company of what they’re, there’s going to be a fee you pay all that. a lot of times how this works is let’s say you come into a big chunk of cash, like you didn’t know it was going to happen, and Whatever inheritance or a bonus that you didn’t know you had and you want to put it towards your mortgage again A lot of times it’s like I made this one giant payment, but I’m not making regular payments beyond that But I want to lower my normal payment So in that case again one chunk call your mortgage company recast it all of a sudden your future payments are now lower You So something

Ryan Isaac: A recast. you’re right. I don’t think a lot of people know about this and I have not seen very many people do it actually.

Matt Mulcock: Yeah, we don’t see a ton do it. I think mainly because

Ryan Isaac: Have been so good forever.

Matt Mulcock: So low and most of the time, Dentist, I’m kind of, we’re, we’re encouraging them to put their cashflow elsewhere. And so it doesn’t happen too often, but it is possible.

Ryan Isaac: Cool. Let’s pause there and make that part one.

Matt Mulcock: Part one of the PDA Q and R

Ryan Isaac: Q& R Woven Basket. Thanks for listening. Check out Productive Dentist Academy and all the things they have going. They have events and seminars and classes and education and coaching and groups like all year

Matt Mulcock: And what about us? What if they want to talk to us?

Ryan Isaac: I think they should probably just go to Dentistadvisors. com. Click the book free consultation button, which the color now is yellow. Until next time, DentistAdvisors. com Thanks for being here everybody. Catch you next time.

Keywords:  Recession, personal finance, 401k, debt management, mortgage strategies, economic uncertainty

Finance 101, Getting Organized