Listener Q&R #8 – Tracking Spending, Emergency Funds, Roth vs. Traditional 401(k) – Episode #583

How do you track your spending? What is the best way to build an emergency fund? Which is better, Roth or Traditional 401k contributions? On this listener Q&R (Question and Response) episode of the Dentist Money Show, Matt and Ryan answer part two of the 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 today. We have a part two of our Q and R episode where Ryan and I recorded from the productive dentist academy event in Frisco, Texas. This is where we had people fill out prompts at our booth And then we wanted to share them with you and respond to these questions and share Some of the advice and questions that other dentists are thinking about so we love these episodes We hope we can all learn together learn from other dentists in the community and we hope as always, you get something of value out of this and hope you enjoy the show.

Ryan Isaac: Hey Matt

Matt Mulcock: Hey

Ryan Isaac: how you doing?

Matt Mulcock: I’m great. Can we give Lauren a shout out?

Ryan Isaac: Lauren on our team, Lauren Kearl everybody on our team. Many of you have talked to her probably at some point

Matt Mulcock: Imagine. Can we just, for real, she, I don’t think I’ve met anyone who is better at an event. At a booth that’s more genuine and, has a warmness to her that is so authentic when she, like people come up and she’s just

Ryan Isaac: Like a real energy for

Matt Mulcock: Of amazing energy.

Ryan Isaac: And now you’re like, now do you think, Oh, there’s people who are good at events and you tend to wander,

Matt Mulcock: Yeah

Ryan Isaac: Get distracted.

Matt Mulcock: We like being here with the people but I can’t say I’m as good as I as Lauren is

Ryan Isaac: As Lauren. So shout out to Lauren. Matt, where are we?

Matt Mulcock: We are at the illustrious 20 year anniversary of the Productive Dentist Academy PDA event in Frisco, Texas. We’re going to acknowledge what we’re doing tonight. Ryan, do you know what we’re doing tonight?

Ryan Isaac: This has been a childhood dream of mine, even before they constructed it. Even before I knew it was

Matt Mulcock: Didn’t even know, yeah. It feels like destiny, sort of.

Ryan Isaac: A few times, magical moments in your life. Meet, destiny and you know, it just, it happens. It’s, it’s manifestation. It’s willingness. It’s the secret. We are

Matt Mulcock: It’s the secret.

Ryan Isaac: We are going to the famed. Cowboy club.

Matt Mulcock: Yep. That’s it. The Cowboy Club. That really is. The Cowboys Club.

Ryan Isaac: Cowboys club. Cause there’s more, there’s more than just one boy.

Matt Mulcock: Yes, Cowboys Club. It is a members only club at the Dallas

Ryan Isaac: We are not

Matt Mulcock: Of which we are not we I have a friend who’s getting us in. And so we’re gonna go with the team that’s here. it’s in Frisco at the Dallas training facility practice facility.

Ryan Isaac: Which is probably bigger than 95 percent of other major actual

Matt Mulcock: Yes, for sure.

Ryan Isaac: Dude, the Cowboys have an actual game

Matt Mulcock: Sunday. Okay. What are we talking today? Okay. Okay. So, we’re at PDA, and one of the things that PDA did, which was, I thought, fantastic to engage partners, was every member here, brings around a card so they give us these cards with their names on them. And the only way that we will put them in this hopper to then draw for the raffle tomorrow is if they have a meaningful conversation.

So we thought, well, we want to, share knowledge and experience and stories with dentists out there. So we said, listen, if you, you have to do one of three things for us. We give a notepad and we said, you have one of three prompts. You either can, give advice to your past self. Number two, a secret. a money secret or a money confession. And then the third one was just ask a question. So they filled all these out. We’ve already done part one of this and we filled it out or we had people fill it out. They put it in this basket. We have not seen these.

Ryan Isaac: These are sight

Matt Mulcock: So this is part two of this. Cause we part one already, we had so many submissions. We’re like, we’ll break this up. So this is part two. We are just sight unseen. You’re going to read one. Here it is. You get the paper out and we’re going to respond to Q and R.

Ryan Isaac: Q and R, what I liked, when we did the first one is how all of the advice that people wrote down anonymously was advice we needed to hear. It was like personal

Matt Mulcock: Very personal. Like, I was kind of like, did someone talk to you about this? About what’s going on in my life

Ryan Isaac: Yep. All right. I think we have, it looks like a mix of Maybe advice and some questions here. There’s three, three different points here. So I’m going to read these to you. Number one, you can tell me if this is the advice or maybe just the goal, I don’t know what this is saying. Make a budget with savings goals,

Matt Mulcock: I think that’s probably the advice they’d give their past self

Ryan Isaac: Self. Yeah.

Matt Mulcock: Make a budget with savings

Ryan Isaac: Uh huh.

Matt Mulcock: Okay.

Ryan Isaac: Budget with savings. So I’m going to pause there for a second. We had some discussions at, one of the activities here. It was like a round table style. Every 12 minutes, people would like shift tables. So we were having financial conversations with like five different groups. And, a really common thing that kept coming up, was just the lack of money left over in today’s world. Like how little money there is to actually, and it’s frustrating because people are like, where do I start with investing? Where do, and we’d have these discussions, like build an emergency fund, put money away in your company retirement account. But when someone’s like, but I don’t have money left over, I make good money, Life is just so expensive. A lot of these were teams. Yeah. I know a lot of dentists feel this way too, especially in the early part of their career. What do you say to that, Matt? When, when you’re trying to give like budgeting and savings advice and someone’s like, I don’t know where there’s leftover money. That’s like, it’s a hard place to begin,

Matt Mulcock: So yeah, for sure. So this is tricky, right? Because if we’re talking about it, we got to be realistic here. We’re talking about a staff member at a practice making, there’s a difference of a, let’s say, someone in the front office 50, 60 grand a year versus a owner’s making exactly. So I guess the first thing I’d say is if it’s a staff member, I would be like, I get that, right?

Ryan Isaac: It’s all scale, I guess. Because it’s like, do you have 50?

Matt Mulcock: So that was the other thing I was going to say is like, I would say pretty much like everyone out there, anyone listening to this, I’d have a hard time Believing that they can’t start with something. And it’s just about getting started. I think maybe one of the disservices that we do that we want to kind of clear up here is, We talk a lot about the idea of a savings rate, right? And a savings goal.

Matt Mulcock: Yeah, and we say 20%. And I do think, just to give some context to that, I think people hear that and they feel maybe a bit discouraged. So, I think, to take this a little bit further, we’re saying, look, that’s a goal.

Ryan Isaac: Yeah, That’s an endpoint.

Matt Mulcock: It’s an end point. Don’t let that stop you.

Ryan Isaac: Start at 4%.

Matt Mulcock: Think people are like, well, I can’t do that, so I’m not going to start. It’s like, you know, that, but how about we just start

Ryan Isaac: Like, I’ve got 7%, so I’ll just wait until I fix that somehow, then I’ll

Matt Mulcock: It makes, it doesn’t make any sense. Although I do understand the sentiment where people are listening to us and they’re

Matt Mulcock: Oh, 20%, 20%. I can’t, I can only do three. It’s like, great, do three, but it’s not 20. It’s like, but do the three. So just start. And like you said, if it’s a staff member, it’s at scale. So maybe it’s 50 bucks a month. Start the habit. That’s what you’re trying to do is start a habit and then build upon that

Ryan Isaac: I love that. I guess it’s something we tell people to do all the time anyway. It’s the basis for what we define financial planning as, which is be organized. So, if right now you’re like, there’s no money left over, well then, okay. One place to start is just start tracking things then. Because it’s highly likely you’re

Matt Mulcock: We don’t know. It feels like there’s not. There might not be.

Ryan Isaac: Then we don’t know. We don’t know. Yeah, it feels like there’s not there might not be, but technically there could be.

Matt Mulcock: Weird fitness, and nutrition, uh, pivot. But, truly, this is something where someone’s like, I just can’t lose

Ryan Isaac: Yeah, yeah,

Matt Mulcock: Or, I’m not seeing improvement in this area of my life in fitness. And then the next question is, well, are you tracking your

Matt Mulcock: Then you don’t,

Ryan Isaac: We have no have no data to work with. So that’d be a good place to start if you’re feeling that. Start with organization. Okay, alright. The next thing they put in here was, Why do I feel like I live paycheck to paycheck? So there you go. That’s the same

Matt Mulcock: Same thing. So, just to re emphasize what you’re saying, if this is a practice

Ryan Isaac: Mm hmm.

Matt Mulcock: I mean really anybody, let’s say practice owner, the non sexy but true answer is you have to know your numbers. You’ve got to get organized in your practice, start with the P& L, start with the balance sheet in the practice, start tracking your, and get a P& L that’s well organized.

Right. Spoiler alert. We might be starting to help with

Ryan Isaac: Yeah. Hey, stay

Matt Mulcock: Stay tuned. And who knows when this comes out, but we got some news coming out. So, but get a P and L get a chart of accounts. That’s organized that you can actually start tracking and understanding where you stand month to month and a balance sheet.

You understand month to month. That’s the first thing do the same thing at home. If you feel like you’re living paycheck to paycheck, again, you might have an earning issue. You might have a spending issue in the practice or at home. But until you’ve organized, we can’t answer

Ryan Isaac: Yeah. Cool. I love that. Last thing I said here was, this would be maybe a goal or something. Pay off credit card and secret shopping. Oh, that’s probably the goal is they’re going to pay off their credit card, but they’re going to stop all this secret side shopping they’re

Matt Mulcock: Okay, I think

Ryan Isaac: Someone’s doing

Matt Mulcock: Here’s what they did, here’s what they did. So the middle one, they put an arrow down below. So they did, they answered all three prompts. so the advice was make a budget with savings goal. That’s the advice. The secret, or the confession, is they pay off credit card in secret shop. My guess is they keep it secret from their spouse or partner. And then the, the question they did was, Why do I feel like I’m living paycheck to paycheck

Ryan Isaac: Okay, yeah, very good. So, the secret there, they pay off their credit

Matt Mulcock: And hide their spending from their spouse or partner.

Ryan Isaac: Let’s go. I want to know what someone’s secret shopping addiction is. Like, what do you love to keep going and back and buying in secret? If you’re listening. Oh, I honestly, I don’t really buy stuff. I don’t buy stuff.

Matt Mulcock: Yeah, I don’t

Ryan Isaac: I have like, I have like no secret shopping habits because I just don’t. The most common item I spend money on like consistently is no, it’s like burritos and coffee.

Matt Mulcock: Food for me. Yeah.

Ryan Isaac: It’s literally burritos and coffee is the most consistent thing I spend money on. I buy two surfboards a year, a thousand bucks each, maybe two a year. And usually I sell something out of my garage to pay for at least half of it. I wear, the same type of t shirt literally almost every single day.

Matt Mulcock: Yeah, it’s Amazon.

Ryan Isaac: Amazon pack of six white t shirts for 18, 3 a piece. I wear them for about two months until they get stretched out and then buy a new pack. So I don’t really have that.

Matt Mulcock: Yeah, I don’t have anything I’m the same way. If I’m going to excessively spend on anything, it’s probably eating out too much. It’s Chipotle. Uh, it’s pretty, and that’s the thing, it’s not even like anything but basic food. I just eat a lot

Ryan Isaac: It’s not like a steakhouse or, yeah, sushi

Matt Mulcock: We’ve had a couple of good steaks this

Ryan Isaac: Uh, uh huh. What was last night? Shout out to, uh,

Matt Mulcock: Del Frisco’s in Frisco, Texas. Here’s a question. I have a bunch of extra cash. Congratulations. What should I do with it?

Ryan Isaac: Ooh, a bunch of extra cash. What should I do with it? We’re going to assume this is a dentist and let’s refer to, Something we talk about a lot, which is like the list of priorities of where money should go first, We have a podcast about this too. We’ve always, we’ve referenced it so much too.

Matt Mulcock: Laws of liquidity number 280

Ryan Isaac: It two 80 laws of liquidity? Check it out. Laws of liquidity, two 80. It’s a longer explanation of this, but there’s a order of operations of where money should go. Matt, you want to hit the first one or start the list

Matt Mulcock: Yeah. Laws of liquidity. Uh, first one would be emergency fund. So that would be both at the personal side and then the business side on the personal side, three to six months of your monthly expenses. But coming back to what we were saying, you’ve got to get organized. You’ve got to know what you actually spend for you. What are you spending? You’ve got to know those numbers. Um, if you’re out there and you’re saying, Oh, I know what I spend, but I’m not tracking it,

Ryan Isaac: Okay,

Matt Mulcock: Let’s say you think of, okay, I spend 10, 000 a month. You’re just guessing, but you’re not tracking it. Add 25 to 30 percent to that. So take your number. If you’re not tracking it, take your number and multiply it by 1. 25 or 1. 3 to be really conservative. And that’s your actual number throughout the year. So, so that’s a quick, easy way to do guess what you think it is. And then add 25 to 30 percent on this is on the personal side, and then multiply that by three to six. And that’s what you should have for emergency fund. On the business side, same thing. You got to know your overhead. You got to know your true breakeven every month and multiply that by two to three.

Ryan Isaac: Business liquidity, personal liquidity. The next thing would be once you have those established, do you have anything coming up that you have to spend cash on? A lot of times this revolves around real estate. It’s a remodel. It’s a down payment. It’s a purchase. It’s a landscaping

Matt Mulcock: Could be hiring an associate. You want a little

Ryan Isaac: In the business. You want some extra cash for hiring. If you know you have to pay a lump sum of money, let’s say, what’s the short term we’re talking about the next 24 months.

Matt Mulcock: Yeah. Is it two years or less?

Ryan Isaac: Two years less, then you better have that on hand. This is all before you put it anywhere else. Once you’ve covered those bases and you have to keep cycling back through this list and go like, you know, once you run payroll and you buy some stuff and Oh, we’ve got some hand pieces and painted and little carpet or whatever.

You got to go back through and be like, Oh, well now we’re down to 0. 5 months in the business. We got to get back up to two months. So after you’ve established those, then you can start thinking about putting money in longterm places. investing. It could be in your investment portfolio, your retirement plan, your, rental property empire, you know, that you’re building.

It could be there. then you can start putting money in long term buckets. there’s a little bit of nuance in that long term place because there, there is a sweet spot where if it’s important to you to pay down debt faster than your minimum payment schedule, if you have a healthy amount of liquidity, not only in the business and personally, but in your kind of investment life, and you have like a healthy savings rate that has been established and is consistent, you’re keeping it up, You can start taking chunks of that and maybe paying off debt faster than it’s normally getting paid down if that’s important to you trust us There no one loves having debt But there are plenty of very very wealthy dentists who only pay minimum payments on their debts and then put all their money somewhere else Happens a lot.

Matt Mulcock: Very, very wealthy debtors who only pay minimum payments on their debts, and they put all money into the loan.

Ryan Isaac: It’s gonna go

Matt Mulcock: You have to hold

Ryan Isaac: You gonna lose everything if you don’t

Matt Mulcock: Yeah. So you like you, it’s almost like this behavioral side of things where it’s like, you have a practice debt, you have a student loan debt, you have a house more in payment, and we’re not saying go get over leveraged. We’re just saying that just keep in mind that those things have a schedule, it keeps you on schedule. You make your payments. At some point you’re paying it off. Retirement. You got to make your own schedule. Exactly. We care, Put yourself on a schedule, Put yourself on this, prioritize yourself and create your own amortization schedule, if you will, for your retirement And again, once you’ve done that, then yeah, you’ve got extra cash flow and you built up enough liquidity. You know, we start to get aggressive with debt. We’re fine with that. One thing I will say to this too, we’ve talked about this so much, Ryan. Dentists tend to think that their stress, is directly

Ryan Isaac: Hold. their debt,

Matt Mulcock: Or connected to their debt. We have seen this

Ryan Isaac: Implies? Evidence based? Evidence based

Matt Mulcock: The empirical

Ryan Isaac: Meta study

Matt Mulcock: Yeah, evidence based evidence based data the correlation actually is to, from what we’ve seen is to your liquidity. So like, again, you’re going to think, Oh my gosh, if I pay this debt off, I’m going to be so much less stress. No, you build up your cash and your brokerage account, and you start to see like multiple six figures or maybe even seven figures in a brokerage account. You will be shocked at how little stress you

Ryan Isaac: Yeah. Even with the same

Matt Mulcock: Even with the same amount of debt. So focus on liquidity more than anything in our opinion before getting really

Ryan Isaac: Yeah, I love that. we track a lot of these things. We have cute, fancy names for some of these things too, but there’s a score that we track in our clients lives that just counts how many years worth of

Matt Mulcock: Cute fancy names? Okay.

Ryan Isaac: How many years worth of liquidity do you have? And yeah, I would say, Matt, that threshold, as soon as people start crossing like two and three years worth of living expenses in liquid assets, stress levels and anxiety levels around money go way down, even while they’re still

Matt Mulcock: All of a sudden debt doesn’t start to feel as

Ryan Isaac: Especially if it’s like business debt, it’s some real estate, it’s some equipment, it’s like, eh, you know, and if it’s at reasonable rates. I can understand if you got a loan in the last two years and it’s at 8 percent

Matt Mulcock: There’s nuance to all

Ryan Isaac: There is nuance to all this. Matt, we hold nuance and all, we hold curiosity and nuance. after you’ve kind of gone through this list, if we’re even still on the list, you know, the leftover money, Okay. I think it’s important to say this, when you’ve been a good person,

Matt Mulcock: Yeah.

Ryan Isaac: Judgment, when you, when you’ve done a fine job of this priority of order for money and cash, it is important to make sure you’re still enjoying your life. So hitting some of these metrics are important. Like, have, hit metrics of liquidity, protect yourself, have money for upcoming purchases, carry a healthy savings rate that’s sustainable and ongoing. But, like, live some life. And we need to see our people spending the money that doesn’t have to get saved.

And believe it or not, a lot of dentists, especially once they hit their stride in their career, there’s enough money to pay down debt, pay your taxes, Save enough for your future self and then have some fun left over like splurge. You have the opportunity to get the car or the travel or the house that you want in its own time. And we’d like to see that as like the cap of, of the priorities

Matt Mulcock: We talk about investing all the time There’s two kind of broad categories of investing. there’s financial investing, there’s investing in your financial life, in your financial future. Then there’s lifestyle investing. Go invest in your life as well. Don’t

Ryan Isaac: You’re human experience.

Matt Mulcock: Like be a human and enjoy your life and don’t feel bad about it. And by the way, really quick, we were talking earlier about the savings rate goal, sometimes being discouraging for people. Keep in mind, we talk about a 20 percent savings rate on average over the course of your life.

So if you are younger, a dentist, and you’re just getting started, and again, you’re only able to do three, five, four, whatever percent. I promise you later on in your life, you’re going to hear what you were just saying earlier. You’re going to have the opportunity to save much more than 20 percent over the course of

Ryan Isaac: Your debts will be down, your, your income, your profitability will be up. Yeah, you’ll

Matt Mulcock: Yeah. Your practice loans 10 years. So assuming that you don’t over leverage the practice later on that cashflow is going to go way up. Your earning power is going to go way up. So again, I love this. Don’t forget to invest in yourself, your family, your experiences, your life as well.

Because. As Jake Elm has said, and I love this. There’s never been an award for the richest person in the graveyard.

Ryan Isaac: Jeez, did Jake say that?

Matt Mulcock: At the summit, I think. Oh,

Ryan Isaac: 40s and above who have spent, you know, and into their 50s, who have spent a lot of years building that foundation. Tons of our clients in that category, that phase of life are getting more growth out of like their investment accounts every year than they’re even saving in raw dollars. Like sometimes by a long shot, it’s just kind of wild that you can hit a point. You know, not even the end of your career, just kind of like the middle point and a little past the middle, a little above medium, not quite medium, rare, not well done.

Matt Mulcock: Like a, it’s like a pinkish middle.

Ryan Isaac: It’s a medium

Matt Mulcock: Yeah. It’s like a medium plus.

Ryan Isaac: And, it’s amazing the kind of momentum you can build and actually you get more dollars added to your net worth from just your accounts growing. Then you can even save yourself out of your practice. I mean that you can really, You can push a lot of savings in the future. Wealth growth in the future. If you’ve built that foundation.

Matt Mulcock: Yeah, that we’ve said this so many times and you look at a compound and calculator. From year 20 to year 30 in a compounding time horizon. This is why sticking to something for a long time is so critical. But from year 20, when you turn that corner of year 20, and we understand it’s a long time, we get it, but we promise you the magic of compounding happens at year 20, as you turn that corner. So to your point, all of a sudden you see insane growth, in those last 10 years and beyond where, yeah, you’re saving your savings rate is so critical at the beginning. There’s a point where, there is a mathematical point where clients stop

Ryan Isaac: There is a mathematical point where clients could stop saving if they wanted to. Now, I would never say that because if you’ve got leftover money, park it somewhere and have it keep growing for you because having more in the future will be great if you can do it. But there’s a mathematical tipping point where like you don’t have to save anymore. Like you have enough. So I told people

Matt Mulcock: Clients where it’s like,

Ryan Isaac: They’re like, Hey, for a while, we want to shut this

Matt Mulcock: Well, we have clients who get to a place where they’re so I’ll give you an example. My brother, my brother’s at a place where he’s, we just talked to the day and he’s like, man, I’ve got like four or five years left with my kids in the house. And you had this kind of like something changing your brain of like, I got to start dedicating more time and living this up for the last couple of

Matt Mulcock: It’s ending quick. So again, we have dentists who have built a good foundation, put away a ton of money and there’s safe, their savings rates. Great. But they’re like, can we turn this down a little? And I can use this to go invest in my family and these experiences. And I’m like, please, let’s do it. Cause you still have that. Big pot of money you put away that’s now at that compounding level of, like you said, you don’t need to save as

Ryan Isaac: Yeah, it’s at a tipping point. And, if you are thriving in your career, you don’t hate it. You’re not physically, mentally, emotionally broken. You have some, like, sustainability. Like, you enjoy what you’re doing for a living. You have runway. If everything, you know, works out for you, then, You have like earning power that stretches quite, I mean that’s one of the greatest things about the field of dentistry like you you Can earn money for a long time in this thing

Matt Mulcock: And it is incredible the mindset shifts we see with dentists when they are financially stable and secure and Like have that harmony with their money and they’re organized It’s incredible that all of a sudden, they may not even be financially independent officially, right? They’re probably not. But they’re, they have a system in place.

They’re feeling so good about where they’re headed. All of a sudden they’re like, I don’t hate my career actually. It doesn’t own

Ryan Isaac: And then they just like double production and they open another location. They’re just like mentoring all these younger dentists and partners and associates and they’re loving it like new energy for it. It is kind of amazing. Next question, Matt was along the same lines. So we’ve already kind of hit this one. Great question though. I’m very bad at balancing my checking account. Teach me how please teach me how period please.

Matt Mulcock: Wow, very bad at, did I just hear balancing my checking account?

Ryan Isaac: Yeah, you know,

Matt Mulcock: Like balancing a checkbook?

Ryan Isaac: That phrase is just referring to

Matt Mulcock: a figure of speech. Yeah. Yeah.

Ryan Isaac: Yeah. I mean, when was the last time you had to write a check for something? What, like, organization demanded a check from you? Can you remember? And it’s insane when someone does you like, are you being serious right now? You want a check?

Matt Mulcock: I haven’t written a personal check. In, I mean it’s been years, and it was probably for like a water heater or

Ryan Isaac: You’re like, you

Matt Mulcock: But even those guys now like use

Ryan Isaac: Venmo me tax free.

Matt Mulcock: I have not, tax free, I haven’t written a check in like literally, I honestly would probably forget how right

Ryan Isaac: We had to do something for one of our kids. I think it might have been for school college or something and We had to like go to the bank and say can you just give us a check and they can give you like a pack of like five checks and then we write on a piece of paper the amount and we sign our name and date it like I, it’s insane that

Matt Mulcock: But don’t, so you have to put in the dollar amount, like in the numerical

Ryan Isaac: Oh, then you have to write out the

Matt Mulcock: have to write it out and I put like zero slash a

Ryan Isaac: Do you, were you taught how to write checks in like elementary school?

Matt Mulcock: So. Probably.

Ryan Isaac: still remember it was fourth or fifth grade. Like, yeah, they dim the lights. And you remember those, um, they dim the lights because they put on the projector. Where they put those, like, clear plastic things. And they write with marker on the projector. Do you remember that? And they were like, I remember my teacher, Ms. Hageman? Yeah, Ms. Hageman. Fourth grade. Was showing us how to, like, write numbers and then write out. And then if you mess up, you have to cross it out and initial it or else it’s not official. If you don’t initial, it’s not official.

Matt Mulcock: Man.

Ryan Isaac: If someone’s struggling with spending too much money and they want to be taught how to budget, that’s really what the essence of this is. What do you say when someone’s like, Matt, teach me to budget

Matt Mulcock: So our take on budgeting is that it is not an effective long term strategy. So I would tell that person, I’d first ask a lot of questions. I’d ask, tell me, tell me what you’re struggling with. what is the intention here? What are you focused on? Why are you turning to a budget first? There’s gotta be some cashflow issues. I’m guessing,

Ryan Isaac: And we can triage a little budget for a couple

Matt Mulcock: totally. And that triage is the great way to put it. The example I use is like, it’s a, it’s a crash diet. You’re getting ready to get, you’re getting ready for summer and you want to, you want to, you want to cut up for summer for a trip, maybe but it’s, it is like a crash diet. It’s like, you can use it in spots, but it’s not going to be sustainable. So I think the biggest thing is what we talked about earlier is. We got to get organized one thing you absolutely have to start doing is tracking But I think where people get intimidated by this and why this is we’re differentiating between tracking and budgeting is I don’t care What your

Ryan Isaac: Categories it could

Matt Mulcock: Look at your categories

Matt Mulcock: If you have to dig in if there’s a spending problem we’ll look at categories, but initially just start take ten minutes a month and just Say and be honest go back and look at your credit cards or wherever you’re spending first of all I’d say If you’ve got multiple credit cards, Taylor Sutterfield, outside of Taylor, we joke because he does like the hacking thing. For most people, have one credit card. Have one personal credit card. Otherwise, you’re going to get so disorganized. So, every month, take 10 minutes. Just track your spending. Do it for three months and start to see what that number looks like over a three month average. Compare it to your income and see if you got a spending problem. If you do, then start digging in.

But most categories, you either have an income problem or spending problem. It’s one of two. And so, but again, you’ve got to start tracking that, get organized before you start saying budget.

Ryan Isaac: Month three then what do you do to keep this budget going?

Matt Mulcock: Well, mean, to me, if you’re again, that first three months is the step one to just understand it. So from there, I’d say, again, most people are going to say, Oh, so now we don’t have to start getting into a deep budget and like categorization.

No, the only category you actually have to worry about at that point is savings. So one category, one category, can we start putting money away? and if we, again, if you’re like, no, there’s literally nothing left. Well, we got to do something else. We got to start figuring out what’s going on with your income or whatever.

Yeah. Possibly cutting spending but if you take care of that savings category first, it’s literally I guess two categories It’s savings and then everything else if you’re putting that away first, everything else falls in line

Ryan Isaac: You’re not spending too much.

Matt Mulcock: That is the key if you’re saving enough, you’re not spending too

Ryan Isaac: Bada bing.

Matt Mulcock: bing, bada boom.

Ryan Isaac: Matt. That’s for you.

Matt Mulcock: This person put their name. Should we give him a shout out?

Ryan Isaac: First name.

Matt Mulcock: Tally

Ryan Isaac: Okay, Tally.

Matt Mulcock: From Fort Worth. All right. Question. What type of 401k is better Roth or traditional? And how much should I be contributing?

Ryan Isaac: Love this. this morning in our little, uh, speed dating roundtable event that we did, there was a lot of 401k contribution questions. Anthony Baird, everybody. Can we keep these in? We just yell people’s names that we know as they walk by. Anthony’s a long time fan. He’s still with us. I’m gonna answer the second one first. How much did you save in a 401k as much as you can? Max it out if you can. Saving should always feel a little painful and uncomfortable. That’s my answer.

Matt Mulcock: And really quick on that. If you are a practice owner. Sometimes people are saying, When am I ready to do a 401k? the question or the answer is pretty simple. If you are a practice owner enough, you have to have enough cashflow to max it out as an employee for you and your spouse or partner and have money left

Ryan Isaac: And have some to save outside of it because all your money can’t be tied up

Matt Mulcock: Can’t be 401k

Ryan Isaac: You’re building. Yeah, 401k broke.

Matt Mulcock: Yep. Can’t be that.

Ryan Isaac: I like that. It should be a title of an episode. The next thing is a Roth versus traditional. There’s probably a whole other episode around like, do you try to take tax deductions today while you’re a working dentist at your peak income earning years?

Or do you take the gamble of, paying the tax today and then hoping that somehow your tax rate is going to be higher once you’re retired? We would just say, Look, if you have a strong preference, just do the preference that you have. More importantly, you’re saving money, but I, I would recommend, and this is what most people do is we are in peak earning years.

You are paying taxes on everything you earn while you’re working as opposed to retirement, where you only pay tax on what you take out. And a lot of that will be capital gains anyway. So let’s take as many deductions as we can. Today while we’re working with, this is always an interesting question to me, from dentists because of how much dentists feel the pain and hate taxes and are constantly being like, how do I lower taxes? How do I lower taxes? When someone’s like, should I do a Roth? It’s like, well,

Matt Mulcock: Why? Yeah.

Ryan Isaac: We’re trying to

Matt Mulcock: Those are two different

Ryan Isaac: man. Yeah. We need to lower some taxes. So I would suggest most dentists peak earning careers while they’re working, take the deductions you can from a traditional 401k, not the Roth. And, uh, we’ll go from

Matt Mulcock: I would agree with that. Think about this too on a deductions front. We’ve said this before, deductions are always a net negative to your current self, right? However, so meaning you go buy a piece of equipment, that’s a negative cash flow event for your current self. Please, please, please, please don’t go buy something because you don’t need just to lower taxes.

That’s a net negative to yourself. Same thing with 401k. It’s a net negative to your current self. You’re deferring income. However, it is the only deduction that you take that you actually get to keep the money.

Ryan Isaac: Yeah, where do you put it? Uh huh

Matt Mulcock: The way you put it. So you’re going to

Ryan Isaac: It’s charitable, no. If it’s a purchase, no. Yeah.

Matt Mulcock: Exactly. So, so to your point. And the other thing that we hear a lot is well tax rates are going to go up.

They’re the lowest they’ve ever been. Tax rates aren’t the lowest they’ve ever been. But two things. Raising taxes in America really freaking hard. So number two, you have no idea what’s actually going to happen with taxes. You have no clue, However, what you do know is that if you are at a place where you’re setting up a 401k, you’re a practice owner, what you do know is the chances of your income right now being the highest it’s ever going to be over the next 10, 15, 20 years, that’s pretty high likelihood. Your income now is higher than when you’re in retirement. Most likely. So take advantage of those deductions. It do what you can keep the money, but take the deductions. We tend to favor

Ryan Isaac: And especially since the retirement plan in your office will likely, as boring as this is, be likely be the biggest proactive year over year sustainable tax deduction strategy that you can take, even though that is the lamest sounding strategy ever contribute to a retirement plan. What a fun strategy. But it’s, I mean, between, if you have like a spouse or partner, two of you are on payroll. These days, you’re getting almost 50 grand, not even including a match or profit sharing before taxes. That’s a significant tax deduction on money you’re keeping. Like you said, you’re giving yourself that money. Take advantage of it, do it. Well, we got all thousand people of the PDA coming out

Matt Mulcock: The food is out. The vacuum guys, we’re going to go with some cookies. We’re going to go hang out. this was awesome.

Ryan Isaac: Thank you, Matt. Thank you, PDA. And we’ll catch you next time.

Matt Mulcock: Bye bye.

Ryan Isaac: Bye.

Keywords:   Budgeting, savings goals, financial stress, investing, 401k, Roth, traditional, emergency funds

Finance 101, Getting Organized, Saving