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Why do good processes always beat persistence and good intentions?
In this episode of the Dentist Money™ Show, Reese and Ryan discuss how to establish processes that can ensure you finish all of the financial planning jobs you need to do.
When it comes to holistic financial planning—debt, savings, insurance, estate planning, personal spending, income growth, practice equity, retirement accounts, real estate—you can’t knowledge power your way to getting everything done. Find out why it takes order and structure.
Ryan Isaac: Hello Dentist Money Show listeners. We interrupt your regularly scheduled programming of holiday joy and cheer, and food, to talk about something more serious, like year-end taxes. How’s your checklist going? Do you know what actions you need to take before the end of this year, the end of the decade? Before 2019 is all said and done? A reminder to book a free consultation by going to our website, DentistAdvisors.com. You can check out our calendar, book something that works for you and have a chat with one of our trustee, handy, helpful, always ready to go advisors, or you can call us at 833-DDS-PLAN. We’d love to hear from you. Thanks for listening, thanks for being here. Peace out, 2019. 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.
This is Dentist Money. Now, here is your host, Reese Harper.
Reese Harper: Welcome to the Dentist Money Show, where we help dentists make smart financial decisions. I’m your host, Reese Harper. Here with my trustee old cohost, Sir Ryan Isaac.
Ryan Isaac: That’s me. It’s good to be here. And the decade is almost over. The decade.
Reese Harper: Isn’t that something?
Ryan Isaac: That’s weird.
Reese Harper: Isn’t that something?
Ryan Isaac: Yeah, that’s really weird. We started Dentist Advisors at the end of the last decade, about. You know? Last couple, three years of the last decade, and this one’s done. That just feels … I’m old.
Reese Harper: That was a dark time in our nation’s history.
Ryan Isaac: Yeah, it was.
Reese Harper: Not only because it was the first few years of the Great Recession, which most people would probably remember. But it was also the first … it was about the time where, if you remember Bernie [Madoff 00:01:57] …
Ryan Isaac: Oh yeah. Same time.
Reese Harper: One of our nations heroes.
Ryan Isaac: Yep.
Reese Harper: Yes. Bernie Madoff actually, his … I was listening to a book this morning, for those of you who haven’t listened to it, the new Malcolm Gladwell book called Talking To Strangers. I’ve been reading a lot lately. I feel great about my reading. I’ve been through like five books in the last couple weeks.
Ryan Isaac: You’re on it.
Reese Harper: I feel like a new man because I’ve been brought out from the shadows into the [crosstalk 00:02:29]
Ryan Isaac: Well finish … I want to ask you about your reading, actually. I think this would be valuable, but finish your thought on the-
Reese Harper: Bernie Madoff actually, Malcolm Gladwell tells about how many people were just assuming too many things about Bernie. And the SCC had so many chances to discover this Ponzi scheme way earlier than they did. And we’re going to talk about that in a future episode. I’m excited to bring that to light.
Ryan Isaac: Oh, cool.
Reese Harper: People are probably going to be interested about it.
Ryan Isaac: Yeah. Tell me about your reading. Do you do audio? Do you read multiple books at the same time? Are you physical book guy? Kindle? Electronic?
Reese Harper: Well, in order to really read a lot, I’m glad there’s multiple sources. Because you have to be able to handle a lot of mediums if you want to read a lot these days, right?
Ryan Isaac: Yeah, that’s true.
Reese Harper: So, you have to have your Audible. When you’re traveling in the car. Luckily for me, my Sonos shower speaker that’s installed in my ceiling, in my shower, is also running every time I’m showering so it’s a multitasking shower every day. For some people, that may not be the way they think of a relaxing part of their day, but for me, I always kick on the … whatever book I’m reading. So, I probably get an extra 20 to 25 minutes a day there. Because who doesn’t like a 10 minute shower, right?
Ryan Isaac: Yeah.
Reese Harper: And, is this awkward or uncomfortable to talk about people showering now? It’s on podcast? Because I was comfortable with that until you started getting quiet about it.
Ryan Isaac: I felt good. I had to clear my throat and be like, “Oh, this is weird.” No, I think that’s interesting, because I find myself … I’m just curious because I find myself-
Reese Harper: And then, iPad at night. I read a iPad at night on the Kindle, and then I also, once I start the book via audio, and read it on my Kindle, because I don’t like listening at night on my bed, I like looking at my iPad. I only buy the hard copy once I know it’s something I want to have on my shelf longterm. And then, so ultimately I always have the Audible, and I’ve always got the Kindle version, and I have the hard copy, if it was worth it. But if it’s not worth it, it only stays Audible and Kindle.
Ryan Isaac: So, you need to probably snap a pic and put it in the group, the shelf, so far.
Reese Harper: Yeah, dude.
Ryan Isaac: I’ve seen the new shelves in the office.
Reese Harper: Thanks, man.
Ryan Isaac: Yeah, they’re good shelves.
Reese Harper: You don’t have enough time in a lifetime to get through all the books in the world, so you got to be selective.
Ryan Isaac: Do you read multiple books at the same time? Like skip back and forth?
Reese Harper: Yeah. Yeah. I at least have two going at once. But I don’t usually like to get three going. I just like to get two.
Ryan Isaac: Solid.
Reese Harper: I’m not a fiction reader, though. I love movies, and I love shows, as you know.
Ryan Isaac: You’re a big show guy.
Reese Harper: I love movies and TV. I do. And I don’t get to watch it as much as I like to, or I want to, but it takes the place of my fiction reading probably habit. Where some people might choose to read books more than they watch TV.
Ryan Isaac: Okay. That’s fair.
Reese Harper: I don’t want to say I’m a non-fiction reader and I’m judging people that are not non-fiction readers-
Ryan Isaac: Thanks for clarifying. It sounded that way.
Reese Harper: … because it sounds like in the past I’ve been judgemental of non-fiction people.
Ryan Isaac: Of fiction.
Reese Harper: Or of fiction readers.
Ryan Isaac: Of fiction readers, yeah.
Reese Harper: But I just really love non-fiction because I feel like I struggle in my life to get everything done the way I want to. And I feel like a book, a non-fiction book is typically the culmination of a lot of good thoughts. I hope it stays that way. I think for the most part, books are generally … the best books are a culmination of people’s best thinking.
Ryan Isaac: Yeah, I agree.
Reese Harper: How about you? Yeah, how about you?
Ryan Isaac: Well, yeah. All of the above. I read multiple books at the same time. I save Audible for my fiction. So, that’s like traveling, road trips, nighttime-
Reese Harper: You like to read your non-fiction?
Ryan Isaac: I like to read my non-fiction because I like to mark it.
Reese Harper: Because you got to process it and mark it. It’s a little bit more intense. Right?
Ryan Isaac: Yeah. Exactly.
Reese Harper: It’s harder to read, because it’s not just entertainment. It’s like …
Ryan Isaac: Exactly. I’m really into non-fiction stories that are like … they’re just really incredible stories, maybe like survival, or just really cool non-fiction stories. And I’ll listen to some of those, but if it’s non-fiction, like something I want to learn, history, or just anything, I’ll read it. Because you want to highlight, man. You want to highlight, and journal it, and have some record of it. So, anyway. Totally unrelated to today’s topic, maybe you can tie it in, I guess. But I actually had a story today about checklists. We’re at the end of the year. It’s kind of a famous … not famous. It’s kind of just a really popular time of year to look back. And go, “What did I do right? What’d I do wrong? What are some things I need to wrap up before the end of the year?”
Today in the podcast, we’re going to end this thing with something that we usually send out to clients. We’ll post it in the Facebook group, so if you’re not part of the Facebook group, some of these major points will go in there. Just go to DentistAdvisors.com/group, and go check it out. But we’ll end the show today with a checklist of you could call it tax items. This is the month, month of December is when we do our tax rate month for clients. So, we go through and report where gross income was spent and the various tax areas, and kind of just visit some tax topics and have discussions around that. It’s going to be a checklist of some tax related things to do by the end of the year, or by tax time.
So, we’ll post those in the group. But I was curious about, as I was thinking about this list, I was like, “Where did the checklist come from?” And-
Reese Harper: Okay.
Ryan Isaac: Have you wondered that? Maybe that’s something-
Reese Harper: The original checklist?
Ryan Isaac: … normal people … I don’t know. I tried to find if that was a thing. I mean, disclosure, I couldn’t find the source of the original checklist. I don’t know if you could.
Reese Harper: Okay.
Ryan Isaac: I’m sure they’ve done checklists for a long time. But one of the most frequent things that came up in searching was a story of a Boeing bomber plane that crashed, that kind of started the in-flight checklist for pilots. It kind of kicked off the pilot checklist. And this was a time, let’s see, the year was … this is in the mid ’30s. 1935. So, this is a time where planes were going from being pretty simple, to becoming a lot more complex and machinery and technology was starting to get implemented into airplanes and cars, and all that kind of stuff. But especially in aircraft. So, have you ever heard of The Flying Fortress? The B-17? Could you think of what that-
Reese Harper: Well, I know that … I just, I remember seeing a picture of it. I remember seeing like a big … something like a stainless steel looking plane, and it’s got propellers on the front.
Ryan Isaac: Yeah. Well, it’s one of the-
Reese Harper: It’s an old school-
Ryan Isaac: Old.
Reese Harper: Isn’t it like an old school fighting plane, like from like the ’20s or ’30s, or something like that?
Ryan Isaac: Yeah. Well, it became the famous bomber. World War II history buff, please correct this. But I believe this became like the poster child for famous bombers during World War II. There were those huge … they call them The Flying Fortress. They were designed to fly with engines that went out, and they’d fly in just huge groups in formations together. But anyway-
Reese Harper: That’s right. My son Gabe, I think had … that’s what it was.
Ryan Isaac: Really?
Reese Harper: He’s into planes and modeling.
Ryan Isaac: Oh, cool.
Reese Harper: He’s an aviation geek.
Ryan Isaac: Really?
Reese Harper: He posted a video-
Ryan Isaac: Self-proclaimed?
Reese Harper: … a couple days ago on … He took his mom’s phone, because he doesn’t have a phone. He started a TikTok account.
Ryan Isaac: Oh, yeah.
Reese Harper: And then started posting videos of how he’s an aviation geek. I was like, “This is interesting. I’ve never seen-
Ryan Isaac: Self titled?
Reese Harper: “… this part.” Yeah. I’m like, “Okay.” He’s like, “All of you who know me, know I’m an aviation geek.” I’m like-
Ryan Isaac: Shout out to the audience out there.
Reese Harper: Shout out to the audience he just created.
Ryan Isaac: He’s probably got bigger … more viewers than we do.
Reese Harper: Yeah, dude. He probably … I mean, it was amazing how many people started tuning in all of a sudden. I was like, “Dang.” Why won’t anyone tune into our stuff?
Ryan Isaac: Why is this so hard for us? Yeah. That’s so funny, man. So yeah, a B-17. And actually, now that I’m thinking about it, I think I have a client, shout out to Bob, that’s all I’ll say. But I think I have a client who used to fly one, and he was telling me he went and toured in one. It came through his area, and you could take flights in them. Now that I’m thinking about it. But yeah, so the B-17 Flying Fortress. Anyway, it started as something called The Model 299. And this was in the ’30s. And this was like the predecessor to the B-17. And they were just testing this stuff out.
So, what’s interesting is this Model 299, it was like an extremely advanced airplane, really well built. I mean, it was just amazing piece of technology. And so, this test piloting staff, or team were starting to take it on the initial flights to go test this thing out and push its limits, and all that kind of stuff. So, let’s see. It’s October 30th, 1935. The crew takes off, in this plane. Everything goes flawlessly, no mechanical issues, no instrument issues. Everything goes perfectly. The plane takes off, hits speed, then all of a sudden pitches, rolls, dives and crashes into the ground. Kills the pilot, and they actually saved two of the other crew members.
And later, when they interview the crew members, when they recovered, and they went back through the wreckage, what they found was really unexpected. And what they found was that there was nothing mechanically wrong with the plane. The instruments functioned, everything did exactly what it was supposed to, but what happened was the pilots, the crew, forgot to remove … I don’t know what this is, they forgot to remove something called the gust locks. It’s just something, from what I’ve read, is something that on the ground, kind of … when it’s on the ground and the locks are in place, it just keeps a few moving pieces on the plane in place. And they forgot to remove these locks, and so it just impeded its flight and its lift, and it nosedived.
So, what they found in the investigation was there was nothing wrong with the plane, but that planes had so quickly become so advanced, so many moving pieces that the pilot, the team just literally forgot something. That was it. They just forgot it. There was no process to remember all these things that were now way more complex than they were even five years earlier. And that’s what caused this whole thing. And so, that’s where the aviation checklist was born. Was they finally got to a place where they’re like, “Look, there are more things happening simultaneously in aviation now than a human can remember to do, just out of habit. So we have to form really rigid checklists, step by step, to implement. Or else stuff’s going to get [forgitten 00:13:19] and we’re going to have more tragedies like this.”
So, that was the birth of aviation’s checklist was from the Model 299. And then of course, they improved everything, implemented the stuff. And it became the B-17 Flying Fortress later. So, a little plane history lesson that hopefully I got right, but yeah, I thought that was really fascinating. And so, we’re going to take a quick-
Reese Harper: Where are you going with this?
Ryan Isaac: Yeah, exactly.
Reese Harper: Can you see your … help me see your vision here.
Ryan Isaac: Well, my vision … we’re going to take a quick break. When we come back, the vision is I want to talk about kind of high level before we jump into some of these end of year checklists that we should be thinking about around taxes. But I want to talk about how … and you’ve mentioned this before, modern day finance and investing. And especially when you mix it entrepreneurship and because ownership, it becomes really complex. And there’s so many moving pieces, that unless there’s like this rigid system of checks that are constantly being looked at and kind of checked off, it gets really, really easy to forget certain pieces. And some of those pieces become really critical. And it can crash an entire financial future, or financial plan. Kind of derail things.
So, first we’re going to talk about how a structured financial planning process can kind of solve some of these issues as things become more complex. And then we’re going to dive into some of the end of year checklist items. So, we’ll take a break and we’ll come back and hit those when we get back.
Matt Mulcock: Hey Dentist Money Show listeners, it’s Matt Mulcock with Dentist Advisors. I want to invite you to join Ryan, Isaac and me for a monthly webinar series where we tackle one of the elements topics each and every month. It’s going to feel a lot like the Dentist Money Show, but you’ll have the ability to ask questions, answer live polls, and get a behind the scenes look at how we work with clients. You can sign up for free at DentistAdvisors.com/webinar. Hope to see you there.
Ryan Isaac: All right, we’re back. Reese, let’s just jump into something you were sharing with me a couple weeks ago about this idea of following a rigid process in order to make sure nothing gets missed that’s critical.
Reese Harper: Well, I think our view is process … will always beat effort. There’s a place where effort and intention just dies, right? And you can not exert enough intention to get certain jobs done when they’re big complex jobs. Like financial planning’s kind of a multifaceted, large, multi-step kind of solution. There’s a lot of stuff going on, and so-
Ryan Isaac: Well, that was the point of that … Every article I read about this Boeing Model 299, they … every article was singing the praises of these pilots. This aviation team were some of the best in the world at the time. And that sheer willpower and the knowledge and habits, and experience they had in their human brains, which was like top of their industry, still wasn’t enough to remember one tiny devastating detail. Because it just, things became so over … there’s just too many things to remember. Even with good knowledge and effort.
Reese Harper: There is a management technique called OKR’s, it’s objectives and key results, that Hewlett Packard started in the ’80s that really resulted a lot of success for them. And there’s a bunch of books about it. If you look up OKR’s, you’ll just see … it’s a management style about how you set objectives and then create key results to kind of meet those objectives. And one of the reasons that these objectives and key results are so important because in a large company, when you have marketing and sales, and you have ops, and technology, and engineering, and software development, you have all these divisions, you really need a rigid process to be able to even manage the output of all these divisions. And hold them accountable and create good culture, and make sure that everyone’s headed towards the same goals and the same results.
And so, there’s this kind of multi-stepped process that they follow to make sure they’re doing all of these steps, tracking everything properly. And the logic behind … In one of the books I read about it, it’s a book called Radical Focus, that was recommended to me by Jeff Morgan who works here. So, shout out to him-
Ryan Isaac: Shout out to Jeff.
Reese Harper: … for sharing this.
Ryan Isaac: Jeffy.
Reese Harper: In the book I was reading, in that book there was a study that it referenced at the end of the book, kind of in the appendix as the validation for why these processes, why it’s so important for processes and OKR’s, and these steps to exist because of people’s finite willpower, or their finite memory, their finite ability to just will themselves to accomplishing the outcome. And it was a pretty interesting study, I thought. He took, this guy Roy Baumeister, took two groups of people, really smart people, and he assigned them some really hard math problems. Think of like a multi … for all you math nuts out there, a really long proof, for example.
Ryan Isaac: Ordinary differential equations. That was my last engineering math class. ODE.
Reese Harper: Exactly.
Ryan Isaac: Okay.
Reese Harper: Yeah, think about a very complex-
Ryan Isaac: I don’t remember anything from it. I don’t even know how to explain it.
Reese Harper: You remember math problems in college that took like 30 minutes to even get started?
Ryan Isaac: Oh, yeah. Yeah.
Reese Harper: It’s one of these types of problems, okay? But it was one that he wanted to create a math problem that would … it wouldn’t necessarily allow people to reach a solution because it was so long. And at least in the time that they were allotted, right? So, they didn’t give them … they gave them no food, and no water, right? They wouldn’t let them leave, and they were kind of like confined, and had to do this math problem till they gave up and wanted to quit.
Ryan Isaac: Which is like everyone’s math experience in college, basically.
Reese Harper: Yeah. And the group that … there was two groups, and one group had radishes, and one group had fresh chocolate chip cookies, okay? So, one group had something that was really attractive, and one group had something that wasn’t that attractive. And the group that was given the radishes, was … or the group A, right? The group that was given the radishes, was able to work almost two times longer on the math problem than the group that got the chocolate chip cookies. If you’re trying to work as long as physically possible, right? And solve a difficult math problem as long as you possibly can, and that’s the commissioned … but you create an environment where your will is now going to be put into question a little bit more … it’s a little bit harder to resist the cookies than the radishes.
The point of this study is just showing that your own will, your own personal willpower is never going to be enough to push back against an environment, right? You can’t out-will your way to success. You have to create a process, and if you put radishes in front of people, it’s going to be less likely that they will slow down and eat them, and stop, and quit, then if you put cookies in front of them.
Ryan Isaac: Oh, the test was to not eat them. Just here. Put them in the room-
Reese Harper: The test was to see who could work the longest.
Ryan Isaac: Oh, okay. That makes-
Reese Harper: Who could go the farthest? Who can continue to solve the problem without quitting?
Ryan Isaac: Eat it or not, but the cookies are sitting there like, “I’m going to take a break and eat some freaking cookies.”
Reese Harper: Yeah. Yep.
Ryan Isaac: Yeah, that makes sense.
Reese Harper: And granted, cookies have sugar and probably slowed down their blood, or increased their blood sugar levels, which could slow down your brain processing power. There’s a lot of reasons, but the point is, one process caused people to crack their will, and another process encouraged people to continue to-
Ryan Isaac: Interesting.
Reese Harper: … extend, and increase their willpower.
Ryan Isaac: Yep.
Reese Harper: And so, the way that you set up your life, the way that you build your processes, especially when it comes to personal finance, is going to have a huge effect on whether you can continue to have the type of results that you want. And if you set yourself up in a situation where your willpower is the only thing that you have holding you together, it’s not going to be enough once circumstances become difficult. If you’re faced with a difficult personal financial choice, like okay, I have a bunch of cash in the bank. A ton. Like too much, because I don’t have a good investment strategy, I just pile up cash in my business checking account. And you take two people, they have the same amount of income, the same amount of net worth, let’s say you got one person with 200 grand in cash in a practice checking account, and one person with 100 grand in cash, plus 100 grand in their longterm investment portfolio.
Still liquid, in a brokerage account, but you have these two people. Both have 200,000 but one is all entirely liquid, and one is half and half. If both of these people are presented with a cone beam purchase, at the end of a year, to replace a cone beam that they already have. Let’s say that they both are great technicians and they know that 3D technology is essential and they’re replacing a lot of implants, and they both want to be in that business. But one is given … they’re both given the same chance to update their equipment. The person that has 200,000 in cash in the bank, is probably going to use a slightly different rationale than the person that has 100 in practice checking, and 100 in their longterm savings. Right?
Because it’s a lot easier for the person with more liquidity sitting there in the bank account to go, “You know what? I can afford that.” But the person that has simply put it in a slightly different account will analyze it differently. I’ve seen that happen dozens of times.
Ryan Isaac: Oh yeah. Yeah. It’s very nuance. Yep.
Reese Harper: It’s very nuanced, right? But it’s like, the difference between the cookies and the radishes. It’s like, what process have you put in place that causes you to have to think twice about your next step? Or what process have you put in place that’s forcing you to make certain decisions that are healthier for you? Do you want to put cookies in front of yourself? Or do you want to put radishes in front of your face when you’re exercising?
Ryan Isaac: Yep.
Reese Harper: Right? I mean, these are critical nuanced decisions, but willpower, personal willpower, is rarely enough to solve a multifaceted problem or process. And so, I don’t know, that’s kind of-
Ryan Isaac: Yeah, I think about that a lot. I mean, if you put a few options on the table of what do I need to make good decisions, or to solve a complex problem, you’d have of course willpower if you’ve got to power through something. You need information, and you have process, or a system. And the thing about the time and the day we live in now, there’s not a lack of information on anything out there. If you think about it like-
Reese Harper: No, we got plenty of information.
Ryan Isaac: Yeah. Just think about … I think one of the best … and we do this all the time, the best ways to equate what you’re saying too, is look at the general state of physical health the average person is in. You know?
Reese Harper: Yeah.
Ryan Isaac: And as the years go by, as a country on average, it gets worse and worse. And that is not due to a lack of information on how we should get physically healthier. And it’s not a lack of willpower. I think a lot of people think that. Be like, “Oh, it’s just a lack of willpower, that’s why that person is-
Reese Harper: They’re lazy, or they just don’t care. Or they’re irresponsible.
Ryan Isaac: It’s like not even close to that. I’m sure that happens, of course, in some cases. But that’s not the thing. It’s like, without a system in place for that kind of stuff, without accountability, without tracking progress, without knowing where at my at, where am I headed, where did I used to be? Willpower and information, they just … they only get you so far. Even with the smartest, most well-intentioned people. You see it in finance, you see it in business, you definitely see it in health and fitness, and exercise.
Reese Harper: Yeah.
Ryan Isaac: I mean, it’s just such a big principle. So, I guess the big implication-
Reese Harper: Let’s bring this … yeah. Bring this back to … I think what we’re saying, we wanted to emphasize this importance around designing … You have to design … I can’t say I’m going to get in good shape, right? I have to actually have a process that encourages me to make that happen. I can do that in a lot of different ways. I can buy gym equipment and throw it into my room. Now, when I buy gym equipment and throw it in a room, I’m going to have a certain amount of willpower that I will have to … that will be required for me to stand up and go work out on that equipment.
Ryan Isaac: Did I own a Bowflex at one point in my life? Yes, I did.
Reese Harper: Yes, you did.
Ryan Isaac: Did I get jacked out of my mind on the Bowflex? No, I didn’t. You know?
Reese Harper: But it was cool.
Ryan Isaac: It was awesome. It was great.
Reese Harper: And so, but in other ways you could say, “I’m going to have an alarm go off on my alarm clock, and I want that alarm to have a … on my phone, I’m going to have Siri actually say, “Get up and workout. Because you made that goal.”” And have her actually voice record and play back to you that audio recording. Which you can do. That would help me be a little bit more powerful than maybe just walking up. But even a third thing about even more powerful, is what I you told someone in your life to call you at that moment in the day, every day, and to say, “Are you about to go work out? Why not? Are you going to go do this?”
Ryan Isaac: Who really cared.
Reese Harper: That really cared, right? You have different levels of process here that you can set up to ensure that that outcome happens. And all we’re saying is when it comes to your taxes, when it comes to holistic financial planning, broad comprehensive financial planning, you have debt and savings, and insurance, and estate planning, and personal spending and budgeting, and your practice equity, and the growth of your practice, and profitability, and your income growth, and retirement accounts, and your investments. And you have real estate, and issues to do with how much you want to pay down, and how much you shouldn’t, and I probably already mentioned insurance policies.
Ryan Isaac: Say then twice.
Reese Harper: Thinking of those two.
Ryan Isaac: Yeah, let’s hit them twice.
Reese Harper: I’m thinking of all of these things, you can’t just personally willpower or knowledge power your way to getting the stuff done.
Ryan Isaac: It’s too much. It is.
Reese Harper: It has to be a process. And people are assuming right now that if they go online to Vanguard and set up an account, and self direct their own mutual fund investments, that somehow all of this other stuff is going to get done because they think that financial planning is putting money inside of an index fund.
Ryan Isaac: Yeah.
Reese Harper: It’s like dude, that’s not financial planning. That is just investing, which is one of like 15 things you have to think about. And if you don’t have a process around your investments, then setting them up and just opening an account isn’t going to be good enough to get that job done properly. You’re just doing one step. That’s not doing it well with a process. That’s just like doing something like showing up to the gym once a year. That’s not going to cut it.
Ryan Isaac: Which, you know, great job. But that’s not going to get you what you think you want out of it.
Reese Harper: I love that you went once a year. I’m not shaming you. I’m just, I’m worried, okay? That you’re not going to get into the right physical condition.
Ryan Isaac: And so-
Reese Harper: Yeah, exactly.
Ryan Isaac: … I don’t know. These processes that we’re talking about, your current financial advisor is most likely not servicing you with a process. They are probably doing the same thing that you would do without them. Which is kind of randomly …
Reese Harper: That’s a good point.
Ryan Isaac: You know? Randomly giving attention to things. You need to have … your financial advisor should be very engaged in a process that allows you to make sure and get a lot of things done. We have that process-
Reese Harper: It’s a good point.
Ryan Isaac: … it’s not perfect. And I know there’s a lot of things I’m trying to improve with it every day. And so is Ryan, and so is our whole team.
Reese Harper: Yep.
Ryan Isaac: To the point where we’re having to build technology that we feel like is the only solution to help us even do this job-
Reese Harper: The best way.
Ryan Isaac: … better than what we’ve done before.
Reese Harper: Yep.
Ryan Isaac: I think it’s just really important for people to remember that with complex jobs, that have a lot of different moving parts, it’s important to setup structure and a process to make … to give yourself a shot. Even if it’s just someone telling you, “Hey, think about this for a while.” If that’s as simple as the process is, is like there’s a lot of value in just the person sending you a text in the morning and telling you that you need to get up and work out. There’s a lot of value in that. They don’t have to … you don’t have to get a physical trainer, necessarily. I’m not saying that that’s required.
Reese Harper: The one way. Yeah.
Ryan Isaac: But there’s got to be some kind of process that you’ve put in place.
Reese Harper: We know there are listeners who want to know what Dentist Advisors can do for them, but they’re a little reluctant to reach out. Stop hesitating. Let’s just chat. Our consultations are completely free, you can just call 833-DDS-PLAN. Or go to DentistAdvisors.com and click book free consultation. We’ll see you soon.
Ryan Isaac: Well, you make a good point and I think this will become obvious. We’ll jump to, let’s kind of go through some of these things that should be done before the end of the year, and things that should be done before tax time. But it’ll become very obvious really quickly that even this little list of things alone, I mean, there’s bigger questions behind it. So all right, we’re going to start, section one of this would be things you have to do before December 31st. These are end of year deadline issues. And you’re going to see right away that all of these have 10 other questions behind them. Well, wait. What about this? What about that? And that’s what you’re talking about. Well, that’s a whole process. That’s what planning is. This shouldn’t be December 3rd conversations. This should be like six months ago, you’re asking these other dozen questions. But we’ll start here.
Things to do before December 31st, and I’ll say this. A lot of these have to do with things anything related to payroll, because anything related to payroll, things funded through payroll or paid through payroll, they have to be done before a calendar year. Like recording before a calendar year.
Reese Harper: Yeah, so this is one example of a process you would set up to just make sure that you get all the basic tax stuff done before the end of the year, right? This is an example of a tax process.
Ryan Isaac: Exactly. Number one on my list here, and these aren’t in order of importance, these are just the way I wrote them down. Retirement plan contributions, any plan that is funded out of your paycheck through payroll. These are things like 401Ks, simple IRAs-
Reese Harper: Profit sharing accounts.
Ryan Isaac: Yeah, well that-
Reese Harper: In profit sharing, you’ve got to run it prior to year-end.
Ryan Isaac: Yeah. And you can fund … we’ll go through … that’s in the other section of things you can fund or do by the tax deadline. But yeah, anything that’s funded through your payroll deductions, it’s got to be done before year-end. But see, even in that question, right? Fund your simple IRA or 401K. Well, there’s a question. Which one should I have? And when do I move from one to the other. Or when do I add the profit sharing to the 401K? But that’s number one. Number two would be charitable contributions. They have to be in before the end of the year. This would include, and this is kind of important, some people like to make stock. They’re called in-kind stock transfers from their brokerage account to a charitable organization that’ll accept in-kind stock or mutual fund transfers.
Usually, like at TD Ameritrade, usually those deadlines to submit those are like the 19th or the 20th of December. Just so they can get it in the institution. But that definitely has to be done before the end of the year. Number three would be, it’s another payroll item, paying … like if you have a spouse or kids on payroll, especially since the kids’ limit got bumped up in the last year, that’s another big one that you have to get done before the end of the year. Most 529 plans, for most states, some states allowed it all the way up to tax time. But for most states, 529 plans, or education plan contributions have to be done before December 31st.
Reese Harper: Yeah.
Ryan Isaac: Medical expense deductions, so Reese, you’ve been eyeballing that surgery. For a while.
Reese Harper: You know what? Bicep implants.
Ryan Isaac: I was actually going to say that. I was actually going to joke about bicep implants. I don’t know why that’s the first thing that came to my mind. I think you have … your biceps are fine. So, medical expense deductions. Number six would be … this is kind of an interesting one but I’ve seen this a few times. Income deferrals. So, that is definitely a CPA question, but with certain entities and certain types if income, you can choose what year you’re going to take that income. Or sell an asset. And choosing to do it this year or next year, obviously the deadline is the end of the year. Number seven would be reporting or taking, or realizing any losses in any kind of asset, if you’re going to do any tax loss harvesting, or you want to realize losses on any assets for any kind of tax situation. That’s end of the year.
Number eight, I was just having a conversation about this. Not only buying anything for the practice, like equipment or something, but there’s rules about placing it in service, not just buying it. It has to be placed in service.
Reese Harper: I got a client right now that’s moving from one location to another location, and he probably won’t be like actually moving into his new space until like early next year. Like maybe January some time. But he wants the deduction this year. But, so it’s like he’s trying to buy all of his equipment and move it over to the other office. But then the CPA’s saying, “You’re kind of-
Ryan Isaac: Got to be in service.
Reese Harper: … you got to be in service, and if you’re not going to be using it until then, we can’t really take deduction this year.” And then the client’s like, “Well, I just moved to my current office, and I’ll install it there. And then three weeks later I’ll move it over.”
Ryan Isaac: Yeah.
Reese Harper: And it’s a whole much-ado process right now, to go through and decide how much headache does he want to go through to get the deduction this year? Does he just want to spread it out?
Ryan Isaac: I don’t know the answer to this. I feel like I’ve heard different CPAs, it seems like there’s a little gray area with this, because I swear I’ve heard people say, “I put it in a storage facility.”
Reese Harper: Yeah.
Ryan Isaac: Like it’s delivered to a storage facility, and technically the delivery constitutes placed in service.
Reese Harper: That’s a pretty aggressive position. [crosstalk 00:35:46]
Ryan Isaac: I’m not giving advice, I’m just saying [crosstalk 00:35:49]
Reese Harper: I’ve seen people take that position. This particular CPA is quite conservative. And wants to make sure that-
Ryan Isaac: It’s like no, that’s not in service in a storage unit.
Reese Harper: I don’t know if I’d say he’s conservative. He’s fairly-
Ryan Isaac: Following the rules?
Reese Harper: Yeah. I would say he abides by normal IRS guidelines.
Ryan Isaac: That’s okay. All right.
Reese Harper: And congressional intent of law.
Ryan Isaac: Yeah, that’s an interesting one. I was just having that conversation, too. Next one, number nine on before December 31st, I had Roth IRA conversions. So, a lot of people are doing non-deductible regular IRA contributions, and then they’re converting to Roth. So, Roth conversions have to be done before the end of the year. Here’s my list-
Reese Harper: Well, I know a couple of other … one or two other ones that-
Ryan Isaac: Yeah, great.
Reese Harper: … I know are difficult for people to do. A lot of people’s … it’s important that during the calendar … Let’s say you’re taking a home office deduction, or let’s say that you’re taking a deduction for the 14 day annual rule that … around renting out your office or a primary residence for corporate use. You have to get your expenses inside of your payroll for deductions that have to do with you either renting from yourself, so your business [PNL 00:37:13] needs to show the transactions on the PNL, during the times when you actually had the meetings and used the space. A lot of people want this deduction after the end of the year, and then they’re having to go back and manufacture …
Ryan Isaac: When it happened?
Reese Harper: Expenses in the PNL, and it’s like you need to just make sure those are all noted, even though you might and to have had cash change hands in that moment-
Ryan Isaac: Yeah, good point.
Reese Harper: … you should a have, and you need to make sure that that’s noted on your PNL.
Ryan Isaac: Good point.
Reese Harper: That’s on the home office side and the home rent, if you’re taking rent for any corporate use of your residence.
Ryan Isaac: Okay. I’ll name some that are due by tax filing deadlines, but if you think of any that go back before the end of the year, let me know. This is a little bit shorter list. HSA contributions can go all the way to you file your taxes. Profit sharing and pension, the actual contributions, those can be funded up until the time you file your business returns. Again, all this stuff, just talk to your CPA on all of this stuff. Right? But these are kind of just some general guidelines. And the profit sharing and pension, I mean, it makes sense because you can’t even run the official how much can we do until the year is over anyway. Because you have to get the exact end of year totals for how everyone got paid, and who’s working there, and who left, and all that kind of stuff.
Reese Harper: Yeah.
Ryan Isaac: You can fund personal IRAs, Roth IRAs, SEP-IRAs, kids IRA accounts. You can do that up until the time you file taxes. So, that works. Number four, making any estimated tax payments. It’s not exactly a hard deadline, but keep that in mind as you’re wrapping up the year and you’re getting ready for your tax payment that your estimated quarterlies are also coming up. And then number five was for our older listeners, our RMDs, required minimum distributions from retirement plans, IRAs, things like that. So, that’s the list of things to do before you file. Any that you can think of Reese, that could also squeeze in? There might be a little bit more nuanced, either before end of year or filing?
Reese Harper: Well, I would say that one thing that comes to mind for me is just making sure that you proactively plan your overhead expenses for the year. Because there’s a lot of things that … I like to look at where my … I like to look at my taxes for the year, and see where they were at, and try to decide if I should’ve had … A lot of times when you’re trying to expand and grow, this applies to mostly people who are trying to expand, grow, add associates, or add a second location, or continue to get their business to become larger, you want to be able to be thoughtful about the time that you bring on new overhead expenses so that you can keep your effective tax rate down as low as possible.
So, for me that has to do with it’s a good time in the year to kind of get a year-end estimate on tax due, and before the end of the year, if there is any 179 expense, or any operational expenses that you can incur, or consulting expenses that you can prepay, or if there’s any contract labor that you can obtain and advance a certain amount of compensation to that you trust, that’s a good time to do that, especially if you’re at a point where you know you’re going to have to be making those kind of expansion, or growth decisions early. Though next year, it just gets you bird in the hand. Because theoretically, you never really get to take advantage.
If you wait to take a deduction till the next year, indefinitely, if that’s always your strategy is I’ll just take that deduction next year, well there’s going to become a point in time where if you add up all the times that you did that. And all the times that you deferred getting the tax savings immediately, it does have a pretty meaningful effect on your net worth, and there is a point where next year’s never actually going to happen. So, you’re going to have a time where there’s going to be transactions that you could have incurred that just won’t be benefits that you get to realize in your practice because you’re going to sell it, at some point, and during the year that you sell it, you may not be at the position to recognize the tax benefit that you could’ve received had you taken that expense prior.
Ryan Isaac: Yeah, that’s a good point.
Reese Harper: So, I like to always take the tax advantages as soon as I can unless I know that I am going to be in a better position to take the tax benefit over like a, let’s say a piece of equipment. I’d rather 179 that in almost every case, unless I’m actually going to get more of a tax savings spreading it out over five years, and I know I’m not going to sell within five years, and I know I’m not going to go anywhere it within seven years, or whatever your timeframe is that you’re going to write it off under. Because sometimes when you spread out the write-off, you can actually get more tax savings than when you take it all in one year. If it keeps your overall tax rate higher.
Ryan Isaac: Well, I mean, you’re making the point again about … that is so much more than an end of year box to check off. I mean, that’s like looking forward and ahead, and planning like that, with your tax advisor, with your financial planner. Because now you’re talking about well, maybe this year’s not a good year to do the profit sharing.
Reese Harper: Yeah.
Ryan Isaac: Maybe the expenses that you had to take, and deductions you had to take because of your expansion pushed the tax rates so low that it’s not worth the profit sharing and the expenses to employees.
Reese Harper: I just had a pretty extended conversation with a client who was not going to buy a piece of commercial real estate because they felt like their cashflow was too tight. And I said, “Well, if we resign this lease, we’re going to end up …” Basically they’re saving a lot of money, they’re doing really well, and their payment for the new building is actually going to be a little more than their lease expense, especially when you look at an after tax situation. And so, they were like, “Well, my cash flow’s going to be tight, it’s going to slow me down from saving money. So, I don’t want to buy the new building because I don’t want to cut back on my savings.”
And given their unique circumstances where they already have a significant after-tax portfolio, and they’ve got a lot of liquidity, they’ve got big retirement, my comment to them was, “You’ve done all of this right up till now, but now’s actually a time where we might want to shift from saving more money, to actually putting it into that piece of commercial space. Because we look over the next eight years, at how much your net … which scenario will your net worth be higher in, buying this building’s actually probably going to put your net worth in a much stronger position because over that eight year period, I know the payment’s a little higher, but you’re going to have equity and that building, we’re still going to be able to save some money. We’re going to get the tax benefit of buying this building, and writing down that acquisition over the next seven or eight years.”
Like net-net, let’s just slow down our savings just a little bit, and let’s make sure that we don’t end up having to resign a lease at another 10 years for three more years because this person was about between 11 and 15 to 16 years away from retirement. And so, it was like-
Ryan Isaac: And so the building was like a good business move anyway.
Reese Harper: Yeah, the building was-
Ryan Isaac: Space, location [crosstalk 00:44:47]
Reese Harper: They were already in the space. They’re in the building.
Ryan Isaac: Okay.
Reese Harper: Right? So, they’re buying the building that they’re in, it’s got four tenants in it, and this person’s going to be buying the building that they were already leasing. But their first reaction before doing some planning was, “I don’t think this makes sense because I don’t want my cash flow to go up, and I don’t want to stop saving money for retirement.” And that’s a great … I had conditioned this person to think that way, so I was really proud of them for reacting that way. I was like, “Yeah, for the most part you want to prioritize building liquidity”, especially early on in this person’s career. They would’ve been way better, they were way better off leasing until this point.
Ryan Isaac: Yeah. Someone’s going to listen to this episode and be like, “Wait, did Dentist Money just go pro-real estate on us?”
Reese Harper: Yeah, exactly. [crosstalk 00:45:31]
Ryan Isaac: We don’t hate real estate. Come on, it’s fine. All in balance and good order, my man. All right, well I think the point of today is maybe you need more radishes and less cookies in your life. Maybe you need more of a process. Maybe you have incredible willpower and you’re really smart, and you even like this stuff. But you’re getting to a point in your life where you’re like, “Man, I’m just running out of time. I don’t even have time to do all the tasks in my business every day, let alone all my personal, family, hobby life, and take care of this stuff anymore.”
So, we would just say give us a call. You know? We’ve got the process for this. This is what we’ve built. This is what we do every day. So, just give us a call. You can reach out to us probably on our website’s the easiest thing. You go to DentistAdvisors.com, click the book free consultation page and set up an appointment to talk to one of our advisors about your processes and all the things you’re trying to accomplish, and see if we can improve that and help you out a little bit. Join the Facebook group. We take a lot of questions and topics for the podcast. And we jump in there and answer questions all the time. That’s DentistAdvisors.com/group. And last but not least, we do a lot of live events, and we do now monthly webinar series on each element.
So, coming up this month, by the time this podcast is released, it might already be done, but this month is tax rate. We recently did total term, like net worth, retirement, we did spending. So, just go to DentistAdvisors.com/events. You can see if we’ll be in your city soon, or you can join one of the webinars that I believe have been really fun. They’ve been really cool. So, anyway. Thanks Reese, for sharing the stories. And thanks everyone for listening, and we’ll talk to next time.
Reese Harper: Carry on.