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On this episode of Dentist Money™, Reese and Ryan discuss Occam’s Razor, Reese’s true feelings toward peacocks – and why tracking your net worth is a critical part of understanding your financial health. They break down the net worth formula and explain the pace at which yours should grow. It’s a back-to-basics conversation to help you spend your energy on the fundamentals that matter most.
Reese Harper: Hey, Dentist Money Show listeners, it’s Reese Harper here. Welcome to another episode of the Dentist Money Show. Today Ryan and I talk about on often undiscussed subject that we feel very passionately about. And that is how to build a very complete and accurate picture of your entire financial situation. We think that this issue is one of the most important issues around financial health. We’ll touch on what your net worth should include. So, you can have a complete and accurate picture. And plus we’ll make sure you know how to be organized, how to track things and why it’s so important in you making incremental progress. And doing the best with what you have in your situation.
Reese Harper: Remember to join our new Facebook group and be sure to sign up there. It’s at dentistadvisors.com/group. Sign up is always free. It’s a great way to give us your financial questions and get a dialogue going around things you care about. And when you’re ready to book a free consultation go to the website at dentistadvisors.com and find the button that says, “Book Free Consultation”. You’ll be able to check out the calendar and pick an exact time that works for you. You can also just call us at 833-DDS plan. Once again, enjoy the show.
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.
Speaker: This is Dentist Money. Now, here’s your host Reese Harper.
Reese Harper: Welcome to the Dentist Money Show. Where we help dentist make smart financial decisions. I’m your host Reese Harper. Here with my trusty ole co-host Sir Ryan Isaac.
Ryan Isaac: Thank you for the warm welcome.
Reese Harper: Welcome to the show, sir.
Ryan Isaac: Yep.
Reese Harper: We had a good night sleep.
Ryan Isaac: Did you?
Reese Harper: And a big morning ahead of us.
Ryan Isaac: Describe a good night sleep for you. Is it four hours uninterrupted?
Reese Harper: A good night sleep for me is probably anything above seven.
Ryan Isaac: Oh, that’s good.
Reese Harper: Yeah. I would say seven or more.
Ryan Isaac: What’s the normal?
Reese Harper: Doesn’t happen very often.
Ryan Isaac: Okay.
Reese Harper: It didn’t used to. It’s starting to happen a lot more in the last few years. Why?.[crosstalk].
Ryan Isaac: The kids are growing up.
Reese Harper: Well trained child system.
Ryan Isaac: Okay.
Reese Harper: Of going to bed on time.
Ryan Isaac: You do?
Reese Harper: And getting them up. Really encouraging the kids to follow my instructions.
Ryan Isaac: Your oldest two are what? 12 and 10?
Reese Harper: 12 and 10.
Ryan Isaac: Okay, same with mine. Are they like getting … the bedtimes are bleeding? Like a little later and later into the night?
Reese Harper: Yeah. They read like wild dogs. Wild, dogs as you know, are some of the most voracious reader in the world.
Ryan Isaac: Yeah. Wild dogs.
Reese Harper: They read a ton. And so turning off their books actually don’t read books anymore. Now it’s the old Kindle.
Ryan Isaac: I was going to get Kindles, actually, for Christmas.
Reese Harper: My kids-
Ryan Isaac: They like their Kindles?
Reese Harper: Devour our Kindles.
Ryan Isaac: Okay. We have iPads, and they die after like 30 minutes, and they’re old.
Reese Harper: You guys are a lot more wealthy than my family though, so you guys can afford the iPad.
Ryan Isaac: I think I bought them from our company when they broke here.
Reese Harper: We used to use Kindles that we find at the old thrift store.
Ryan Isaac: [crosstalk] Kindles at the thrift store? Jeez they’re like 60 bucks.
Reese Harper: No, I know you don’t.
Ryan Isaac: Come on. All right. Well, today speaking of tools. I know this is-
Reese Harper: Speaking of tools-
Ryan Isaac: Speaking of Kindles, got a story for you here. It sounds … the title of the story sounds like a product I would use on a regular basis for my head shaving.
Reese Harper: Okay.
Ryan Isaac: Okay.
Reese Harper: For those of you have never seen sir Ryan Isaac. He is what the traditional-
Ryan Isaac: Easy now.
Reese Harper: … people would refer to as-
Ryan Isaac: Careful don’t be sensitive.
Reese Harper: He has a very short haircut.
Ryan Isaac: I’m bald, I shave my head.
Reese Harper: He’s not offended, though he owns it.
Ryan Isaac: I do own it. I have no choice either. I actually saw this tweet yesterday that said, live life with no regrets because you can’t have a Mohawk when you’re bald.
Reese Harper: Yes.
Ryan Isaac: And that hit close to home.
Reese Harper: That’s perfect.
Ryan Isaac: I retweeted that.
Reese Harper: But the beard really makes up well for a lot.
Ryan Isaac: That’s the thing. I had to grow a beard, so I felt like I had some control over something in my grooming.
Reese Harper: See, Dr. Aloha always understands your true pain.
Dr. Aloha: I appreciate.
Ryan Isaac: Dr. Aloha does know. We’re talking about something called Ockham Razor. Have you ever heard of that before?
Reese Harper: Yes.
Ryan Isaac: Do you know what it is?
Reese Harper: To be totally honest with you. I actually think I know what it means. But I’m going to pretend like I don’t. Okay.
Ryan Isaac: And I’m going to say, No, I’ve never heard of it.
Reese Harper: Wow, Ryan, that sounds really interesting.
Ryan Isaac: Actually, I think this was not … this is a random fact I actually looked up a couple of months ago.
Reese Harper: Oh, really?
Ryan Isaac: Yeah.
Reese Harper: Do you want to say what you learned?
Ryan Isaac: No, I want you to tell the story.
Reese Harper: I kind of want to know what you learned about it.
Ryan Isaac: No, go ahead and tell your story the way you want to tell it.
Reese Harper: Well, the principle of Ockham Razor, it’s not made by Mach3 or Gillette.
Ryan Isaac: No, it’s not.
Reese Harper: I use the Fusion not the Mach3.
Ryan Isaac: Okay.
Reese Harper: Okay. I just wanted to make that clear.
Ryan Isaac: It’s a good razor.
Reese Harper: I do have actually good bald man shaving tips like I’ve gone through … I know a lot of-
Ryan Isaac: What about all these cheap ones that are out online, Harry’s and all of them.
Reese Harper: Don’t buy the monthly products. They will irritate your skin. Don’t use a gel cream, you have to use the Badger hair brush-
Ryan Isaac: Going old school.
Reese Harper: You have to use a dish of actual soap. Either you put in another dish with a badger hairbrush and roll it around until it foams up. That’s the perfect coverage and then the Gillette Fusion with the little roller ball.
Ryan Isaac: See, Gillette’s been-
Reese Harper: Those razors will go I’m not kidding, I tested one it went six months, and it still was Okay. That’s [crosstalk] quality.
Dr. Aloha: I’m not feeling an analogy for a podcast here.
Reese Harper: We can bring this in another time.
Dr. Aloha: Oh, yeah.
Reese Harper: I’m just saying I’ve given advice to two bald men on shaving their heads and that’s that’s the way to go.
Ryan Isaac: Yeah, I think that’s a great segue.
Reese Harper: To Ockham razor. Ockham razor has nothing to do with that. Occam’s razor, okay, says the principle is that the simplest solution to something is often the right solution.
Ryan Isaac: That’s all I was going to say.
Reese Harper: You were?
Ryan Isaac: It is the easiest thing, or the most direct path. The least resistant path is usually the one that is [crosstalk] outcome.
Reese Harper: Usually, not always. But that’s the principle it’s free. This guy named William of Ockham. Ockham is this town, they think it’s attributed to him. There was a writer that wrote something about him later, but I think it comes from this guy named William of Ockham. You where Ockham is?
Ryan Isaac: Yeah, that’s England, isn’t it or something?
Reese Harper: I don’t know.
Ryan Isaac: Yeah. It is.
Reese Harper: He was an English friar and scholastic philosopher and theologian.
Ryan Isaac: Yeah.
Reese Harper: That’s on your LinkedIn profile, isn’t it?
Ryan Isaac: Yeah. Okay. But it came from these two thoughts, these two school thoughts. One was the principle of plurality, which meant that the … The principle of plurality was like, Don’t add more complexities if it’s not necessary. And then the principle of parsimony, which is, it’s pointless to do things with more when you could do things with less. These were these two philosophical ideas that he kind of put in his idea that became Occam’s razor.
Reese Harper: The reason I was researching this is because it was an influence for a lot of software development theory.
Ryan Isaac: Yes.
Dr. Aloha: Okay. I’m going to bring up the razor, the razor is slicing off, what doesn’t need be used.
Reese Harper: Yes.
Dr. Aloha: So there you go.
Reese Harper: That’s the metaphor.
Dr. Aloha: [crosstalk] Google, yeah.
Reese Harper: That doesn’t have to do with shaving one’s head.
Ryan Isaac: Thank you, doctor Aloha.
Reese Harper: Yeah, you just kind of getting rid of the excess that doesn’t need to be there. We’ve been talking about this a lot lately. How does this apply to a dentist finances? How does this apply to getting some kind of financial clarity and getting a financial plan? A lot of times, people tend to take a really complicated approach to finding financial satisfaction. Well, maybe let’s talk about that for a second. What are some of the complicated approaches some of the complicated complex ways that people take to try to get some kind of financial clarity or satisfaction?
Ryan Isaac: A lot of times they’ll do something right out of the gate, that violates the Hippocratic Oath of finance, which is first Do No Harm.
Reese Harper: Did you take that?
Ryan Isaac: Okay, no, that’s a medical term. I wish I was a doctor.
Reese Harper: Okay. Me too.
Ryan Isaac: [crosstalk].
Reese Harper: Instead of doing something that’s an incremental step towards progress. They’ll make a wholesale change, right? I just had a conversation this morning with an associate who is working for his dad. And both of them are struggling in this practice, to kind of pull things together and make it all work. The solution was, let’s sell it, right? Just liquidate the whole thing. I was like, wait a minute. What about, let’s identify where, what the real problem is.
Ryan Isaac: Could have hired a consultant. Well, or just let’s … even if we don’t hire consultants let’s ask ourselves the question. What’s the thing that’s actually wrong here?
Reese Harper: What’s really wrong. No, no, no skip that just sell it.
Ryan Isaac: I want to sell this thing.
Reese Harper: Just get rid of it.
Ryan Isaac: It’s like, well, you said that you’re just frustrated that your commute is too long.
Reese Harper: Sell the business.
Ryan Isaac: Is that the solution? Or is it just like … let’s just focus on the pain, where the real pain was. I just say, a simple example of that is we often jump to a big conclusion when the real solution is an incremental step. We a lot of financial pressure in our life. The financial pressure it creates … we often pinpoint the thing that we think is the problem and in this case, this morning, they want to sell the practice. The real problem, honestly, was that their office manager isn’t qualified. That was the more real, and so they need to replace their office manager. That’s the real solution.
Reese Harper: I was thinking of investing. When I think of this principle, usually, the tendency to have some kind of like investing solution, it ends up being like really complex, really complicated, a lot of moving pieces. That’s not usually what even helps in the long run either.
Ryan Isaac: Yeah, for example, there is a product that came out about 12 years ago, that was very, very, very popular, called-
Reese Harper: Xbox.
Ryan Isaac: Overlay manager.
Reese Harper: Okay.
Ryan Isaac: All right?
Reese Harper: The overlay manager.
Ryan Isaac: In overlay manager, what you can do is you can open up a brokerage account. And from that, you could actually, and it’s still .. I’m not saying it’s not helpful in some circumstances, but you can go into this brokerage account, and you can pick from hundreds of different strategists, and the strategist can come in, and they’ll run separate strategies in one account.
Reese Harper: It’s like the inception of investment strategies.
Ryan Isaac: Yeah. It’s like-
Reese Harper: There’s a strategy in a strategy in a strategy.
Ryan Isaac: Yeah. So you’ve got an account, managed by a financial advisor. And in that account, the financial advisor can pick other financial advisors to come into the account-
Reese Harper: And then pick other financial … and then pick fund managers.
Ryan Isaac: Who pick managers that pick other managers that come in and trade stocks. In an account, you’ll have, a manager, managing manager, managing a manager, managed by a financial planner.
Reese Harper: I’m sure that’s inexpensive. But the story is, look at all this access to capital you get, and it was really popular, right? You have this small cap value trader, you got 30 stocks flowing through the account. And to even complicate things more. Okay, you got this, you got five strategies, you got a bunch of bonds over here being run by an analyst, you’ve got a bunch of small cap value stocks over here, you got a bunch of large cap growth stocks, you’ve got some [inaudible].
Ryan Isaac: This sounds like- [crosstalk] something I need to buy.
Reese Harper: It’s freaking awesome.
Ryan Isaac: Yeah. There’s literally like 400 position in the account.
Reese Harper: This sounds like what the Smart Money does. This is what the big money does.
Ryan Isaac: Yeah, you’re looking at your account, you’re like, Oh, my gosh, like, what’s this company? Sweet. I own that, and just every day, there’s trades happening, right? Dozens of trades go on all over.
Reese Harper: Of course.
Ryan Isaac: Now, the complicated things. What’s actually happening is none of these managers are actually trading in the account, what they’re doing is they … one guy lives in Connecticut, one guy lives in Wisconsin, one’s in Texas, they’re submitting trades online, to an overlay manager, like another computer system, that’s the one that’s actually placing the trades in the account for all these people so that these people don’t have to get in your account physically, and do anything. It’s like, all these managers are submitting their brain, right? Of their trades every day, they wake up and they say, “Well, this is what I’m going to do.” So they tell the computer, what’s going to happen. And the computer goes and does it in your account. And all of this is supposed to be managed by your financial advisor who tells you what’s going on? It’s a lot.
Reese Harper: Meanwhile, the dumb guy just held six funds in a globally diversified low cost portfolio for 25 years and then retired wealthy.
Ryan Isaac: Well, yeah, I’m not saying that this solution doesn’t have a place, there is a place for-
Reese Harper: Well that complexity doesn’t ever have a place.
Ryan Isaac: Yeah, this was.
Reese Harper: But this was … the nuanced point I think I’m making is that the performance of this type of a strategy, and all this complication, and all this activity, may have been almost identical to what could have been achieved from three very simple ETFs holdings that were rebalanced in a similar way. It’s a massive amount of complexity for a very teeny, teeny, teeny potential payoff. And in fact, it’s not likely that there would have been one. It may not have resulted in any additional game. It’s a lot of show, right? It’s like the peacock at the [inaudible] zoo. I love seeing this animal.
Ryan Isaac: But you like the peacock. What are you really?
Reese Harper: It makes a big, flashy show.
Ryan Isaac: It’s a big [crosstalk].
Reese Harper: It’s a small bird.
Ryan Isaac: It’s a small bird with a big perimeter tail.
Reese Harper: I’m just saying it complicates it a little bit. I’m just like, every time you walk around, you don’t need to show this big thing. You could just be a normal bird, but your dang tail, just like [inaudible] That’s how I feel sometimes.
Ryan Isaac: I’m never going to look at a peacock the same any more, Reese’s mad of this peacock. When I see you at the zoo, you’re mad with your kids, you’re like, “Chill Out bird.”
Reese Harper: It looks at you and then it does it’s thing and then it walks away like it’s just all casual, no big deal. It’s just one of those animals that-
Ryan Isaac: We just went hard after the animal kingdom.
Reese Harper: Just one of those days.
Ryan Isaac: Okay, but alright, so to bring this back then, a peacock story is amazing. The whole point then is this Occam’s razor principle is, there can be a more simple way to getting satisfaction out of our finances. And you and I have been talking about this a lot lately. That out of all this complexity, out of all the stuff that can go on in money and investing in accounts and strategy, there is-
Reese Harper: A few things. There’s a few things that are really basic. Really frequently overlooked, but maybe have the biggest impact. Out of all those things, which is-
Ryan Isaac: Well, I was at this event last week. And I asked the audience, a bunch of questions.
Reese Harper: What’s your favorite animal? Do you hate the peacock? Does the peacock instill anger when you see it?
Ryan Isaac: I focused in, we did talk about upland game and waterfowl, and a variety of birds. But mostly, we talked about financial principles. I asked them, I said, “What’s the thing that stresses you out about your money the most?” I would say by far the majority of the responses relating somewhat to I’m just not sure if I’m okay, I’m not sure if I’m heading in the right direction. I don’t know. I’m I doing okay?
Reese Harper: I’m lacking clarity about whether I’m doing all right.
Ryan Isaac: Okay. Some version of that statement. I think that’s a really, really common feeling that people have. Everyone feels that way about their money. I’m doing the best I can I think. I’m working really hard. I’m pushing really hard. But I don’t know if I’m doing okay. And I want to know, if I’m doing all right. Because, like in … that’s why we go to the doctor, right? We go to the doctor to assess our overall health so that we can know if we’re okay. When I go the dentist, I go the dentist to be able to know, am I okay? I’m not going there for any other reason. And we’re kind of like happy to pay to get nothing back. I actually … it’s funny to say that I went to the dentist recently had some tooth pain. And I was like, Oh, for sure something’s wrong.
I paid to go see my guy. And he’s like, No, I think you’re just grinding your teeth, you don’t have anything wrong. I was like, this is really interesting, I’m really happy to be paying for nothing right now, to get nothing back. I want to hear nothing. What I think is interesting that I’ve always thought, since we’ve been in this business is that’s not just a question that people early in career with lots of debt and low income ask.
Reese Harper: No.
Ryan Isaac: That’s a question that people who are making personal incomes of seven figures are still asking. They have the great lifestyle. They save an incredible amount of money. They have liquidity and big businesses and tons of income. And they’re still wondering.
Reese Harper: We did a … for those of you who understand our periodic table of financial elements. We did a TT calculation in the audience. And we pulled and figured out where people’s TT score was. There were people with a 40 TT score or more. That was people with a lot of wealth. That means you could live for like, even if your money didn’t grow at all, they could go for 40 years or more, right? It was like 29%, were under 10, maybe 15 to 20%, or between 10 and 20. The people that were 40 plus TT scores that really wealthy people, I could kind of tell who they were based on the types of questions that they were asking, right?
Ryan Isaac: What is my [inaudible]. What do I do with my third Porsche? I don’t know my [crosstalk].
Reese Harper: But they were asking the same questions. I want to know if I’m going to run out of money, or I want to know if I’m going to be okay, with the amount of spending I’m doing. We’re trying to figure out is, if you’re in the accumulation phase, you’re trying to say, am I making enough progress? Or am I kind of stagnant? When you’re in the downside of spending down your wealth, you’re going, am I spending it too fast? Or it’s going to last me enough time? It’s that simple, right? The crazy thing is, they don’t know how to get to that answer. They don’t know how to get the answer, because there isn’t a good … there isn’t training and there isn’t a standard set of education concepts in school.
Ryan Isaac: There’s a lot of inputs to that equation too.
Reese Harper: There is.
Ryan Isaac: Like, do I have enough?
Reese Harper: Dentistry has been around for … I don’t know, the exact origin of dentistry that’d be an interest look up.
Ryan Isaac: William of Ockham I think probably had a dentist.
Reese Harper: Dentistry I think has been around for hundreds and hundreds of years and it’s established some norms for what you’re okay is. You’re okay means you have no decay, you’re not having the same level of recession and your gum tissue that maybe they see with other people.
Ryan Isaac: There’s not a huge spot on the back tooth.
Reese Harper: Your measurably above the median in terms of lack of decay of your pH levels, the recession of your gums, I don’t even know all the … you track out there, Mr. dentist. But there’s a standardized procedure where you take a set of exams, you have a hygiene visit, you do a comprehensive oral exam, and you know what good is, and you can give that feedback to people. I will say right now that the financial planning community does not really have that-
Ryan Isaac: Set of standards.
Reese Harper: … standard behavior.
Ryan Isaac: Yeah, there’s not a really [crosstalk] set of standards.
Reese Harper: That’s why so many people in the audience are asking this question, because it’s very subject.
Ryan Isaac: Despite the fact that many have a financial advisor or they have 401k. Is they have financial products.
Reese Harper: Almost all of them did.
Ryan Isaac: They’ve bought financial product.
Reese Harper: Everyone there was like-
Ryan Isaac: They have investment accounts.
Reese Harper: Yeah, they just don’t feel like-
Ryan Isaac: They’ve seen reports.
Reese Harper: They know if they’re doing okay. We’re going to tell you today, why we think about the simplest reason why we don’t think they are doing okay. It has to do with not understanding a complete and accurate view of your entire picture. If you don’t have a complete and accurate view of your entire financial picture, and you leave things out of that view, and you don’t regularly review that, and you’ll have confidence that you’re looking at everything you have, then you won’t really know if you’re doing all right. We’re going to kind of explain today a little bit more about this, and why we think it’s so important for you to have a complete and accurate picture of your entire financial situation. And why your financial advisor’s probably not doing that for you. What you can do to sort of make sure you feel like you’re progressing. Let’s talk about the, what is a complete and accurate financial picture look like? And what people often leave out of it. Let’s talk a little bit about that.
Ryan Isaac: Let’s start there. What should I organize? Or what should somebody have organized?
Reese Harper: Well, let’s start with the basics. It should be all of your bank accounts for sure.
Ryan Isaac: Know your balances in your bank accounts. That’s the first thing that people will be aware of.
Reese Harper: Yeah, they would check bank accounts, right? You’d want to make sure you included, I think what is usually missing is they don’t include all of their bank accounts in their analysis. You’ll have a rental property or your building that has cash in it from the rents. You’ll have a tax holding account. You’ll have-
Ryan Isaac: A personal savings account.
Reese Harper: A personal savings yeah, kids savings accounts, you’ll have your personal account, you’ll have your business checking account. All of these bank accounts need to be in part of your picture. If you’re building your picture a snapshot today of your picture, it needs to include all business and all personal accounts.
Ryan Isaac: You’re speaking of Microsoft Excel.
Reese Harper: Name every account that you possibly have and then write all the balance down.
Ryan Isaac: The balance. Okay.
Reese Harper: What would be the next thing?
Ryan Isaac: The next thing would be investment accounts. The one at the office, the 401k, the simple IRA, the profit sharing plan, the pension, whatever you have. For you and your spouse. If that’s [crosstalk].
Reese Harper: And all of your after tax accounts. Brokerage accounts, a little stock account, any type of investment account you have.
Ryan Isaac: The old Bitcoin account?
Reese Harper: You’re going to list all of those.
Ryan Isaac: The Coinbase account, the Roth, the kids Roth’s. The kids’ [inaudible], the cash, the coins you keep in your house, right? Any kind of-
Reese Harper: [crosstalk].
Ryan Isaac: Any kind of physical asset that you keep. A lot of people keep coins. Make sure that all those are included. Next, what do you want to include?
Reese Harper: Next. Now we’re getting to some of the things that get forgotten. Which next would be, the real estate you own.
Ryan Isaac: Okay. Yeah, you got to add up all the real estate values. Just do it an appraised value of your property, of every property you own. Write that down in that same column. A lot of times people are like, Well, why should I? It’s kind of just a paper number. Why should I put that on there? How do I know what to put on there? Should I be aggressive with it? Should I like undershoot it? I would just try to write down the actual number you believe that it’s worth.
Reese Harper: Would someone buy from you today.
Ryan Isaac: When you don’t plan on things, I know that feels conservative. You don’t want to bank on something that you feel like is tentative. But it makes you … you’re forced to make other decisions with your other assets then that aren’t normal. We need to put, so you put down the real estate for sure. Any second residence, any primary residence, any condos, it needs [crosstalk] personal. And then what’s next?
Reese Harper: Business assets. Business, the practice you own.
Ryan Isaac: Anything that you own, any stock you own in a business? Your practice value, any money that you’ve given to anyone for ownership in anything.
Reese Harper: How do you value a practice on a balance sheet then?
Ryan Isaac: I think you just got to give it your … most of the people listening, I think if you just take the collections that you have, and I hate to give rules of the thumb, because every states different. Just put down the value of what you think it’s worth. And if you have no idea, then just take your last 12 months collections and use 60% if you’re a GP and maybe 70% if you’re a specialist, that’d be really conservative.
Reese Harper: Yeah, that’s normal. Okay.
Ryan Isaac: I think that you’d want to make sure that you give yourself credit. Now here’s the point is-
Reese Harper: Is there anything else we are missing?
Ryan Isaac: Yeah. It’s not uncommon that doctors have notes receivable that they’ve been the lender on a vine. Add a note receivable that will be like a reducing balance. We call that … that’s going to be … that could be included up in your investment section [crosstalk] note receivable section. Yours is going to get tax on that just like you would a taxable brokerage account. That needs to be there. If someone owes you some money write down that in the asset section.
Reese Harper: Would you throw in your cars or your boat? What kind of material possessions would you actually want to see on a balance sheet that .
Ryan Isaac: I would only value … it’s not valuable unless you feel like at one point you might consume the equity in it. I don’t track cars personally because there’s never a point where I’m going to be like, I’m going to get some economic value out of this car.
Reese Harper: You don’t think the Chevy Silverado is going to be like your retirement plan- [crosstalk]
Ryan Isaac: It just always-
Reese Harper: … hold the equity in another.
Ryan Isaac: You got equity in one car, goes to equity in another car, it’s just a constant car recycling moment.
Reese Harper: Let me shout out to the Silverado.
Ryan Isaac: I love my Silverado.
Reese Harper: Timeshare ownership?
Ryan Isaac: No.
Reese Harper: Okay. That’s a fast, no. It was a hard fast-
Ryan Isaac: It’s not an asset.
Reese Harper: Piece of crap. Okay, that’s those are the things that you should have on a balance sheet or just an Excel spreadsheet. We would say that the two most common things that get left out of there are business and real estate values.
Ryan Isaac: Yeah accurately. The business guys get left out. Business accounts get left out. Here’s the thing that people do, is they just track their-
Reese Harper: 401k balance, [crosstalk].
Ryan Isaac: 401k balance with their retirement account, right. On the debt side, you also have to have debts on this column in excel. We want debts there too. We want every debt that you have to show up in that.
Reese Harper: What do you want to know about your debts too? If you’re going to just try to track this at a high level, is it important to know your amortization schedule? Do you want to know if it’s a variable fixed rate if you have a balloon payment?
Ryan Isaac: Well, now you’re getting into financial planning. Yes, all these things are mission critical. But today’s scope of what we’re going to-
Reese Harper: Occam’s razor.
Ryan Isaac: All we’re saying is-
Reese Harper: What’s the balance?
Ryan Isaac: Yes. What’s the balance? Just put down the balances of all your debts, every debt you ever have on that sheet?
Reese Harper: What are some debts people miss? Do people miss debts? I feel like that’s a little bit more focused.
Ryan Isaac: No they catch almost all the debt.
Reese Harper: People who give their debts.
Ryan Isaac: Yeah.
Reese Harper: Get down to the smallest one.
Ryan Isaac: Down to the teeny credit card, you remember it?
Reese Harper: Yeah.
Ryan Isaac: It just has a different psychological kind of [crosstalk]. I don’t think we need to go through all those. You know if you got a debt, you know what it is? Got a mortgage, you’ve got practice loans. If you owe your parents money for a piece of equipment that you-[crosstalk].
Reese Harper: That’s actually common too. Yeah.
Ryan Isaac: Keep track of everything.
Reese Harper: The undefined terms of family loan. Got another. There isn’t really no interest rate or term on it, but it keeps me up at night.
Ryan Isaac: We have a lot of clients that … this happens a lot. Lot of clients have loans to their family that they want to track. And there’s nothing wrong with that. But they don’t … not that they want to track they have a lot of loans on family, and they usually don’t want to track.
Reese Harper: I just don’t want to know. I kick pops a few thousand a month and-
Ryan Isaac: Do you want to pay that down?
Reese Harper: I hate seeing?
Ryan Isaac: I don’t know. Yeah, we do. That becomes a priority in debt reduction. I know, that dad is not charging you any interest, which should be imputed and reported on someone’s tax return but that’s not. But let’s just get rid of that thing. It’s a psychological wait.
Reese Harper: Here’s the thing that we’re saying though, if you add up all those assets, and you subtract all those debts, you get your net worth number. And I really think that for most people, it is this simple. It’s literally as simple as, do you understand that you used to be here, and now you’re there?
Ryan Isaac: Yeah, that’s a second principle of this is, Principle number one that you’re saying would have answered a lot of people’s questions in that room was just know what you’re worth and know what all your assets are. What are your debts? The second principle is how is it changing? That’s the other part of the question is, am I headed in the right direction? What progress Am I making? Let’s talk about that.
Reese Harper: Well, when I started my business in 2000 and … my first entry, I think, was 2008. I was feeling the same struggle, right?
Ryan Isaac: Great year, that was a great year to start.
Reese Harper: It’s a great year. Lehman Brothers, Bear Stearns, Washington Mutual-
Ryan Isaac: [crosstalk] financial planners.
Reese Harper: Do you remember these companies? They used to be a thing?
Dr. Aloha: Sorry, I remember them. Sorry [crosstalk].
Reese Harper: You do. Dr. Aloha was like-
Ryan Isaac: Remembers everything.
Reese Harper: … he still has an account there.
Ryan Isaac: No, you don’t have an account. It doesn’t exist anymore.
Dr. Aloha: No.
Reese Harper: He’s like, where did that account go? Anyway, I remember sitting down one night and I think I had lost my … I think my first assistant actually left. This is prior to … you were the first real person that came and joined. There was an hourly rate.
Ryan Isaac: Yeah.
Reese Harper: A very temporary solution for three months. I think you were still part timing. I don’t remember.
Ryan Isaac: I was showing up in the evenings. I had another job and I was showing up in the evenings like, “Hey, how can I pitch in? And you’re like, “I don’t even know what this is. I just got a lease since I left my real job and now we’re going to do something. I remember feeling very depressed about what I was starting. Feeling like, oh my gosh, this thing is … every day the Dow is going down 700 points. And I’m like, “I got my CFP and I’m a smart financial advisor.”
Reese Harper: No one’s calling.
Ryan Isaac: No one’s calling though. I just remember like going home and just feeling like, man. I would go week after week and month after month of just kind of feeling our debt’s going up. And cash is the same and I just never felt good about what I was doing. I just felt like-
Reese Harper: Not headed anywhere.
Ryan Isaac: I was making enough money to survive, but I felt like I was going into debt like crazy, right? My debt kept racking up, and this is something that … this is a long, long, long time ago. And I was barely [crosstalk] finishing the CFP curriculum.
Reese Harper: I hope you study for that.
Ryan Isaac: Yeah, I remember you giving me flashcards.
Reese Harper: I started in the library, here is your flashcards. All right. [inaudible].
Ryan Isaac: Yeah. I remember feeling like, something’s wrong with this picture. People are coming in, we are getting clients and this thing is moving. And I’m getting momentum. There was always good things happening.
Reese Harper: Well, he didn’t know for sure.
Ryan Isaac: But I didn’t know financially, this was a good thing for me. Even though I felt good about it. What kind of triggered was … I’m not giving myself credit for everything that’s happening. I’m not giving myself credit for all the good things that are happening here. There’s a business that has value and it’s got to be worth something, right? Someone’s got to think this is worth something. I’m getting customers and those customers have ongoing, value. It’s like a dentist starting a startup scratch practice. You’re racking up debt, you got the T eyes.
Reese Harper: You’re doing your own hygiene, you’re answering your own phones, and debt’s going up, but people are coming in.
Ryan Isaac: Yeah, people are coming in.
Reese Harper: They’re starting to come in.
Ryan Isaac: If the only thing you’re looking at-
Reese Harper: Is revenue.
Ryan Isaac: Right to give you an indication if things are going well, and this is all I was looking at, at the time. I was just looking at my credit card, and my bank account. And both, in the bank account wasn’t going anywhere, and the credit card was just getting worse. I was like, well, this is like really bad. There’s like nothing good about the situation. What is good? I’m the worst financial advisor in the world. Because I’m giving advice to people and I’m the worst financial manager, I’m horrible, right? That was the feeling I had. And I started realizing, well, wait a minute, I own this house and I’m paying this debt down. That’s good. That means I own that flat. I wonder how much debt I’m paying down.
Reese Harper: [inaudible] like ’07, so you have a 30 day ARM loan? Negative amortizing 30 day ARM loan.
Ryan Isaac: The ’07s like random … I was actually building, I don’t know, it’s like seven or 800 bucks a month in equity in the house.
Reese Harper: Principal reduction.
Ryan Isaac: Right?
Reese Harper: Yeah.
Ryan Isaac: All you people that are way past this point, try to think back to the point where your life was like this. Because even all of you who are at 40 plus TT right now who I know are listening, you still were at a moment in the past where you probably didn’t feel like you were making as much progress. I was making progress on this house getting paid down. But I was also making progress on my business. The business’s value was actually going up.
Reese Harper: Yeah, revenue’s coming in, it’s growing.
Ryan Isaac: When I started to place a value on that business, and I gave myself credit for the value of that asset. Then the money I spent on it didn’t feel so bad. And the credit card balance that was going up didn’t feel so bad, right? It didn’t feel so negative. I started doing this in a little sheet, just like we’ve explained today in a column, and I wrote it down every month, and every month I just … it’s kind of the birth of the entire elements system. Because you’re like, I remember that, you’d be like, well, what do I want to see as a business owner? What’s going to give me some semblance of organization? I just found that when I wrote this stuff down every month, at the end of the month, and I looked back, I saw real clarity on whether I made progress or not, some months, I didn’t make progress. Some months were like, okay, the business didn’t really bring on enough new customers to really increase the value so the value of your business is probably the same.
And in a dentist case, right? If your collections are declining, then you can’t give yourself credit for a business, it’s worth more. Some months it went down, but most of the time, I was incrementally making progress in my cash, and in debt. Sometimes my debt was going down, but because I had a big expense I had to take but the value of the business went up a lot. As my house appreciated, and as my business appreciated, and as my investment accounts grew, and as my debt got paid down, as I built more cash. And I started just keeping track of this stuff. First on, it was like, man, 5000, 7000 a quarter, right? It was like 1000 a month of benefit. I was making $2,000 a quarter in progress.
Reese Harper: In the grand scheme of things it’s like all that pointless almost.
Ryan Isaac: But at the time when I was in my early 20s, for me, I was trying to figure out am I even making any headway?
Reese Harper: Is it moving anywhere.
Ryan Isaac: I just know that a lot of people feel that way their whole life. They feel that way, their whole life, they just don’t feel like they’re making any progress and it’s as simple as just tracking everything, a complete an accurate picture, a complete and accurate picture on a sheet of paper that you review periodically. As a grownup 36 year old male.
Reese Harper: Very mature, though.
Ryan Isaac: Yeah, I look back at. I kept my spreadsheet ever since then, right. And I it’s amazing how much how cathartic that is for me to look back and just be like, Man. When I’m depressed and frustrated about my business, and maybe going through a hard time I just look at the progress.
Reese Harper: Where did I come from?
Ryan Isaac: I guess it’s been worth it. Yeah, this reminds me a lot of kind of like health and fitness and being in a gym. And seeing someone who’s like, okay, I would like to get stronger, I would like to lose some weight, I would like to feel better. And there’s a lot of all these, like different measures and if you don’t measure any of this stuff, you just might get on a scale every day and be like, “Well, my weight’s not changing.” I’m like, none of this diet is working. None of this going to the gym every day is working. But you didn’t measure that you’re squatting more than you used to, or that you can run a mile a minute faster than you used to.
Reese Harper: Or your body fat percentage is different.
Ryan Isaac: Your body fat’s going down, but your weights not changing. Now you can do pull ups more than you could three months ago, but you’re not measuring these things. All you’re doing is getting on the scale like, this sucks. Or your cardiovascular health is improving in a major way. Your blood sugar-
Reese Harper: Your blood sample.
Ryan Isaac: Your blood sugar’s lower.
Reese Harper: You have to measure where you’re at today. And you have to measure where you’re at tomorrow and you have to compare those things.
Ryan Isaac: My argument to most people listening is, this is a pretty tedious process, just like going to the dentist is a tedious process. Measuring your own stuff should it’s something you should do when you don’t have any money at all and you’re kind of struggling and you’re trying to get by. But that’s what a good financial advisor should be doing for you. If you’re paying a financial advisor, a percentage of your investments, or any kind of a fee, they should be helping you with this. Tracking things is a big part of their role, they should be providing some accountability to your actual complete and organized financial picture, and giving you that feedback on a regular basis. I think that feedback should be coming at least every three months. That’s what we’ve chosen to do in our own practice and I think it’s been really effective that way.
But my point is, that’s the that’s the pain people feel, this complete and accurate financial picture is what really makes someone feel like, Okay, I know where I’m at, and then tracking that over time, and seeing how it’s changing, and seeing how fast the progress is moving or seeing that there is progress. Man, it changes a lot. It doesn’t matter if you’re making $10 an hour or if you’re making $10 million a year. It’s an important metric for people to feel like they’ve got their arms wrapped around.
Reese Harper: Progress is progress.
Ryan Isaac: Yeah.
Reese Harper: Sometimes it’s not all about just the speed, but the direction. Let’s talk about that to maybe tie everything in together. How do you know if it is an appropriate pace? How do you know if you are going fast enough? How should a dentist think about that?
Ryan Isaac: Well, for me I’ll say one thing, and you can add to this because I know you have a lot of thoughts, a lot of thoughts. My first one is, do the best you can with what you’ve got. That’s the first step. Wherever you’re at just progress from there. Make sure that it is progress, that the direction is positive. If there’s positive direction, I think you have to applaud that. Progress is progress and do the best you can with where you’re at right now. But relative to your own lifestyle, that’s probably everywhere I go.
Reese Harper: [crosstalk] benchmark.
Ryan Isaac: To explain how you view that.
Reese Harper: Yeah, what we’re saying is a good, call it a hurdle, that you want to clear every year, or a good benchmark would be can you increase your net worth every year by as much as you spent? That’d be a good general starting point guideline. Now, the caveat to that is, in the beginning years of practicing, the answer is most likely it going to be no. Most of the time, you can make up like half of that hurdle that you got to clear. For example, if you spend 150 grand a year, when you’re coming out of school, and your practice’s new, and your debts are as high as they’ll ever be, and you just got a new house, you probably don’t have a high savings rate, you have a lot of debt payments. You might not be able to grow your net worth 150 grand every year right out of the gate. Maybe you grow up 50 grand, like you’re going like 30% of the goal.
What you’re saying though, is if like you measure year one, and you grew, if that’s the benchmark, you grew like 30% of your spending, you grew up 50 grand. But if year two you grow 75 grand, and then 100 grand, that’s important stuff to know. If someone went the first 10 years of their career and never measured those things, they might really feel like, we haven’t done anything. We haven’t made any progress, you haven’t moved the dial at all.
Ryan Isaac: I would just say this advice is very specific to higher income professionals. Because I wouldn’t give the same advice to people that were average median income. I wouldn’t give this advice to Uber high income individuals. The higher your income gets, the more that that general rule would be not be [crosstalk].
Reese Harper: At some point they’ll be doing a multiple of that.
Ryan Isaac: The difference between a median income household, let’s say, a median income household is $50,000, right?
Reese Harper: You’re talking about general America here?
Ryan Isaac: Yes. If that was the Social Security, is already claiming 15% of your income and putting it away for you? 15% of your gross incomes being saved, essentially, right? 8% of your own pay, and then 8%, from your employer on top of your salary. The closer that your lifestyle is to Social Security, the less you actually have to grow your net worth. You can actually grow more of your career not growing your net worth even close to what you spend in a year, and you’ll still be okay, because there is this safety net, [crosstalk] that Social Security, maybe a little, 401k and then Home Equity one day. If Social Security makes up 70% of your pre retirement lifestyle, then you’re able to just step right in and makeup that difference. Maybe you only need to grow your network at a third of what you spend, or even a fourth of what you spend, or half of what you spend to make up that difference. But the higher your income gets, and the more your lifestyle changes, right?
We talked about this before, we know that we’re not … you’re not happier necessarily than the person that’s making above the median. But you make more, and you’re used to things differently. You’re used to a better car, you’re used to better vacations and used to better food budget. We’re saying for the average median dentist out there whose income is in the twos, right? Two to threes, right? Then what you’re going to have to experience is you have to have a net worth growth that is literally all almost as much as what you spend on average per year in order to really replace your pre retirement lifestyle. If you want to retire at an early age, you’re going to go even faster than that. Now, early on for that first 10 years, you’re not going to see your net worth growing-
Reese Harper: By as much as you spend.
Ryan Isaac: … by as much as what you spend. You’ll just see it kind of being a half or a third.
Reese Harper: 50%, yeah.
Ryan Isaac: … 70%. Then after you get to your peak earning years, and you get through some of the more expensive parts of your life.
Reese Harper: Debts go away.
Ryan Isaac: Debts go away that. Just as they go away, but as the amortization schedule, hits the back side. You get in the backside of that practice loan. It’s like, wow, now the whole payment, right? Is building your network.
Reese Harper: I think it’s just good context. Every three months, we produce a net worth report, where we show someone’s progress quarter over quarter, and we show that four quarters at a time for all of our clients. I’m always surprised when I look back a whole year, and then go … you only make minimum payments, it’s very common to have a conversation where you hear, “I’m only making minimum payments, my debts aren’t going anywhere. I need him to go down faster.” But you look over whole year, man, you reduced $100,000 of debt across your building your house, your practice loan, your student loans, by just making minimum payments. Our goal was 150 grand of net worth growth. And debt reduction on minimum payments was 100 grand or 70, grand or 80 grand. It’s really significant but you don’t know that unless you measure it but you don’t feel that way. You don’t send in your minimum payment, and then feel like you’re doing anything proactive on your debts. It doesn’t emotionally feel that way at all. But you need that feedback loop.
Ryan Isaac: Anyway, this has been critical. I love this conversation. The more we can focus on getting people to have a complete and accurate view, like every asset and every debt, and every three months update this. It’s a huge win. And it’ll start feeling a lot like it does when you leave the dentist after a comprehensive hygiene visit oral exam. You’ll just leave feeling, I’ve done my job. I’m good. Because you’ll see the progress that you’re probably making and don’t realize it or you’ll see the flat lining, you’ll see the decline, you’ll see the struggles you’ve been having. And you’ll do something about it. It’ll just trigger in you. That’ll be the pain like, otherwise, there is no financial pain for most dentists. There’s not a point where they’re like-
Reese Harper: It’ll change your decisions, though. I mean, if you realize that, for example, if you’re reducing your debt by 80 grand a year, by just making your minimum payments, you might make a different decision with the cash sitting in your business account, rather than panicking and sending it to the student loan company right away. You might go, “Oh, well, I’m actually making quite a bit of progress in my debt reduction. Maybe I do want to invest in my business. Maybe I do want that other location, the associate or maybe I do want that to go in my brokerage account.” But without that, all you feel is the anxiety of I got to just give this to my lenders. I got to get my debt reduced faster. Because you don’t think it’s going anywhere.
Ryan Isaac: I think it is a common characteristic for people to not acknowledge their own progress and feel like they’re not progressing. You made a comment to me yesterday about a research project that [inaudible] did, where people voted on whether they thought the stock market in the last 12 months had increased or decreased.
Reese Harper: It was shocking.
Ryan Isaac: And I think it was something like 48% of-
Reese Harper: Thought it did nothing.
Ryan Isaac: People thought that it was flat in-
Reese Harper: 10 years.
Ryan Isaac: Last year 10 year period.
Reese Harper: 48%.
Ryan Isaac: Half of the people think the stock market is going no where.
Reese Harper: This is thousands of people.
Ryan Isaac: This is thousands of samples. It’s the human condition to do that same thing with debt, my debts not going any.
Reese Harper: Nothing’s on.
Ryan Isaac: Nothing is happening.
Reese Harper: We’re creatures of comparison, we actually don’t know how to value things, unless we have context and comparison as part of our human psychology. We’re always comparing to our peers, right? Well, that guy’s richer, that better vacation, better business healthier, happier whatever it is. We never feel like … It’s just our default. Now we live in social media and on the internet, and we’re just constantly like, “I’m pretty worthless.”
Ryan Isaac: Yeah. And that’s why it’s so important. That’s why I said, “What do you want people to do?” I want people to do the best they have with what they’ve got right now and take that step. Don’t worry about anyone else, but you. It’s your plan and it’s your progress.
Reese Harper: Practically though, logistically, you said this earlier, when you’re starting out and you don’t have any money, it’s probably going to be hard to pay someone to do that. You should do this yourself. When you’re brand new, and you don’t have any money.
Ryan Isaac: We’re building an app for you that will be there in a little while. But it’ll be cheap enough. But right now the cheapest and easiest way for you. [crosstalk].
Reese Harper: But the reality is, though, except for like the rare, rare, probably less than 1% of dentists who just love numbers and tracking their own stuff. We meet them, they exist, it’s not going to be a sustainable thing you’ll keep up. Once there’s enough money to feel comfortable, once there’s enough money where like-
Ryan Isaac: It starts to evolve and it gets to the point to where it’s not just now about now … it’s like you’ve now mastered a basic skill, I track my stuff. Financial Planning is not something that most people have enough background in to give themselves accountability around all the decisions. This is just one step, this will help you but this is not financial planning, okay? This is just one piece of how can I get a complete and accurate financial picture of my progress, which is a starting point. I think that it’s really important, but eventually, the rate of progress and the percentage change and-
Reese Harper: All pieces [crosstalk].
Ryan Isaac: … the categorical change, the relationship between how much you have in real estate and how much you have in cash and how much you haven’t qualified and taxable. This is a much more nuanced conversation eventually. But yeah, when you’re starting out, there isn’t a reason to really hire somebody, you just need to get in the habits. If you have a high enough income, and you’re focused … for me, I outsourced a lot more a lot earlier, because I really wanted to build a business that was more substantial, and that helped more people and that met my vision of what I felt like success was. That required outsourcing things at an uncomfortable early age.
Reese Harper: Yeah sure.
Ryan Isaac: And that’s painful. I was just commenting last night on our dentistsadvisors.com/group Facebook channel, that, there’s an uncomfortably high percentage of my income in the early years that was going towards coaching.
Reese Harper: Coaching consulting. Oh, yeah.
Ryan Isaac: And it’s like-
Reese Harper: We’re employees.
Ryan Isaac: Yeah. I couldn’t believe. Sometimes, I looked back, and right now, it’s still hard sometimes even at this phase to kind of take the cost of one person and divide it into the company’s revenue and say, “When will that be reasonable?” Because right now-
Reese Harper: Why are you staring at me right now?
Ryan Isaac: That’s a big cost.
Dr. Aloha: Yeah, I’m in trouble over here too.
Reese Harper: Don’t make eye contact right now the boss is [crosstalk] feeling uncomfortable right now. Early on I remember my first time, when you came on board, I remember thinking there’s like 30, 40% of our sales. And it’s just crazy. [crosstalk] executive.
Ryan Isaac: Yeah. Over time those investments as a percentage of your overall net worth, they’ll shrink. As your net worth grows, you can afford more of the services and that’s the way you should pace yourself is, limit the amount of things you pay for while your net worth is small. Pick the most important stuff. Then continue to invest as your network grows into things that can help you grow faster.
Reese Harper: All right, well, shout out to Occam razor for today’s episode. We do love peacocks. I guess if there’s any like aviary fanatics out there, sorry. They’re great birds.
Ryan Isaac: I’m actually one of the founding members of the National Arbor Day Foundation. Okay, so it’s not like I’m not a tree hugger. I love animals and I’m literally a paying member of the Arbor Day Foundation.
Reese Harper: Are you really?
Ryan Isaac: Yeah.
Reese Harper: Okay.
Ryan Isaac: And I’ve been for four years.
Reese Harper: That’s trees.
Ryan Isaac: I’m just saying [crosstalk] animals.
Dr. Aloha: He loves things.
Ryan Isaac: It’s PETA. It’s like the same.
Reese Harper: Arbor Day is not.
Ryan Isaac: Arbor Day and PETA have a very close relationship.
Reese Harper: Oh, man. Okay. That was good, though. I like that. If you have questions about your organization, your financial plan, the one of the easiest things you can do is you can join our free Facebook group. Come ask us a question post in the forum. It’s dentistadvisors.com/group. Or get in touch with us if you want to talk to one of our advisors and go through your situation and see what you can do to get a little bit more organized, go to dentistadvisors.com. There’s a big button that says book free consultation. Just click that and find a time on our calendar. Or call or text us at 833-DDS plan, we’d love to hear from you. Thanks for listening.
Ryan Isaac: Carry on.Investing, Practice Management, Getting Organized