What Dentists Want to Know — Listener Q&A #22 – Episode 307

On this listener Q&A episode of the Dentist Money™ Show, Ryan and Matt answer questions on topics dentists are currently wondering or even worrying about. As an associate, should you work as a 1099 contractor or a W2 employee? What questions should you ask when looking at a private investment? Student loan deferment is almost over, what decisions will you need to make in the near future?

 

 

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Podcast Transcript

Ryan Isaac:
Hey everybody. Welcome back to another episode of the Dentist Money Show, brought to you by Dentist Advisors, a no commission fiduciary comprehensive financial advisor just for dentists all over the country. Check us out at dentistadvisors.com.

Ryan Isaac:
Today, on the show, Matt and I are tackling some of your best questions from the awesome Dentist Advisors Discussion group on Facebook. We’re talking about 1099 versus W2, we’re talking about questions to ask when getting involved in specific types of private investments, and we’re talking about student loan repayments and refinancing.

Ryan Isaac:
Thanks for submitting these questions. If you’ve got more, post them, we’ll answer them directly, and we’ll probably use them on the show. And if you want to chat with us, go to dentistadvisors.com.

Ryan Isaac:
Click the book for your consultation link, and have a chat with one of our very friendly dental specific advisors today. Thanks for being here, thanks for tuning in, and enjoy the show.

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

Ryan Isaac:
Welcome to the Dentist Money Show, where we help dentists make smart financial decisions, and avoid the bad ones along the way.

Ryan Isaac:
I am Ryan Isaac, and I’m here with the man, the Hollywood mountain, Matt Mulcock. Good morning, Matt.

Matt Mulcock:
Morning, Ryan, it’s earlier there for you in sunny California. I’m happy, but I’m also a little sad today, on this Friday. We are recording on a Friday. The happy news is that it’s not raining today here …

Ryan Isaac:
Okay. And it’s Friday.

Matt Mulcock:
It’s been raining for five, six days straight.

Ryan Isaac:
Yeah.

Matt Mulcock:
It’s sunny today, which is great.

Ryan Isaac:
Okay.

Matt Mulcock:
A little chilly still.

Ryan Isaac:
Okay. I know.

Matt Mulcock:
Why I’m sad, why we are sad …

Ryan Isaac:
We, collectively.

Matt Mulcock:
Is because this is the first Friday in a while that there is not a new T Lasso coming out.

Matt Mulcock:
Season two’s over.

Matt Mulcock:
If I could be anybody in this world, it’d be the love child of Ted Lasso and Roy Kent.

Ryan Isaac:
I kind of …

Matt Mulcock:
To me is the perfect human together.

Ryan Isaac:
If people that haven’t watched Ted Lasso, they’re just, “What is going on?” but if you have …

Matt Mulcock:
“What’s happening?”

Ryan Isaac:
I want to be the Roy of Dentist Advisers as the senior old guy here. Hopefully I’ve earned a little bit of my attitude, but I just want to just grunt and say, “oy, oy”. When I’m turning someone’s attention.

Matt Mulcock:
It is interesting, how in our internal slack messages and internal communication. I’m hearing a lot of “Oys” from you lately.

Ryan Isaac:
His body’s a little broken. He used to be cool. I don’t if that’s…

Matt Mulcock:
He’s way cool. He is awesome.

Ryan Isaac:
Anyway, it is a Ted lasso-less Friday If you’re caught up, if you’re not, man, you’ve got a wild ride in story. You’ve got some stuff…

Matt Mulcock:
If you have No idea what we’re talking about, go check it out. Apple TV…

Ryan Isaac:
Watch Ted Lasso

Matt Mulcock:
Quick little side note on this, the origins of Ted lasso, It was a one little skit on SNL I believe.

Ryan Isaac:
Really?

Matt Mulcock:
Yes. Started out as a side little thing just as a fun little story, one minor skit. And then it turned into what it is today.

Ryan Isaac:
No way. I have to go find the origin of that. That is really cool.

Matt Mulcock:
Pretty cool.

Ryan Isaac:
See folks, this is what you can accomplish. Little starts produce big futures.

Matt Mulcock:
Yeah, exactly.

Ryan Isaac:
And that’s our lesson. Thanks for joining us today.

Matt Mulcock:
Thanks everyone. Yeah, we love you. Thanks for joining us. See you Ryan.

Ryan Isaac:
Today on the show. We have some good questions. This is a shout out to our illustrious, I always use that word. I don’t know why. Dennis adviser’s discussion group on Facebook, so I meant to say and people post questions in there, they post good questions and sometimes we’ll answer them right away. Or sometimes we’ll say, “oh, that’s a great question for a show. We’re going to use it if you don’t mind”. And that’s what we’re doing today. So if you were not…

Matt Mulcock:
Often times we don’t ask, because it’s in Facebook. It’s public. Sorry guys we are taking it.

Ryan Isaac:
We’ll keep it anonymous though if it’s personal, but honestly the more specific and personal the question can be, then the more detailed we can jump into an answer and we’ll keep it anonymous for sure. But it’s really helpful because if you’re thinking it then other dentists are thinking it and let’s answer it together. It’s one big happy community. Alright. Okay.

Ryan Isaac:
First question, Matt, this is…

Matt Mulcock:
Hit me.

Ryan Isaac:
I’m going to hit you with it. I was going to say, this is generally for the younger audience, maybe associates, but this applies to really both sides of the coin, business owners as well. The question is, Do I go 1099? Or Do I go W2 as an employee of a practice ? To kick it off, let’s describe what those mean. Start Matt, what does 1099 mean?

Matt Mulcock:
Yeah. So 1099, you are technically an independent contractor. So you’re not really an employee of the business. In this case, in this context of practice..

Ryan Isaac:
but you are loved?

Matt Mulcock:
You’re loved, you’re accepted.

Ryan Isaac:
You’re included.

Matt Mulcock:
We see you, you’re not an employee in the technical sense.

Ryan Isaac:
Can you please leave the room When we are having team meetings ?

Matt Mulcock:
During team meetings?

Ryan Isaac:
Exactly. We can’t force you to be here.

Matt Mulcock:
You are technically again, an independent contractor, not an employee. So what that means for you logistically is that when you get paid, you are paid at what we call a gross level. So like gross pay, meaning they’re not deducting any payroll taxes, they’re not deducting any federal state, no benefit deductions, if you’re 401k or anything at the practice, none of that happens because you are not an employee. So they pay you whatever that pay is, and then it’s up to you to take care of all your taxes. So generally speaking, you’d want to have most likely an entity set up, LLC, whether your taxed as an S corp or whatever, but you’d be an independent contractor, not an employee.

Ryan Isaac:
Talk to CPA folks.

Matt Mulcock:
Talk to your CPA

Ryan Isaac:
When you set up that entity or attorney maybe, and, or maybe both,

Matt Mulcock:
maybe both, CPA J.D.

Ryan Isaac:
CPA, J.D. Get that combo on your plate, combo play. Yeah. Then the other side of the coin W2, pretty common. I mean, most friends and family that we have that are not business owners are W2 employees of a company. You get a paycheck, you get your taxes deducted, payroll, federal state, however you do it, 401k benefits, HSA, health benefits, whatever. And that’s the other side of the coin. What are you seeing these days, Matt, on kind of the ratio of 1099 to W2 employees ? Do you see many associates even having the chance to be 1099 anymore ?

Matt Mulcock:
The numbers dropping a lot, basically a lot of states are kind of, I don’t know if you’d say wising up to this, but a lot of states are getting stricter on this because again, in the technical sense, California for example, really strict in California as they will shower with everything.

Ryan Isaac:
Shocking

Matt Mulcock:
Shocking, weird.

Ryan Isaac:
It’s my new home and I love you California.

Matt Mulcock:
Yeah. As you say you can talk about it because you live there, I used to live there, so I’m going to talk crap about it.

Ryan Isaac:
Talk crap but I still love you and I still pay…

Matt Mulcock:
Obviously there’s 55 million people there for a reason. It’s amazing. We always call California the exception, say, it’s always this rule applies except for California. It’s always California, but there are a lot of states getting stricter on this kind of stuff. Because if you think about it, again, technically you’re an independent contractor. So really, your practice can’t dictate schedule, you are a business basically that is just consulting or contracting with that practice. So if someone else is setting your schedule, telling you when you have to be there, they’re setting your pay, all that kind of stuff. It makes it pretty hard from a technical sense to be an actual 1099. So the numbers are actually dropping. I don’t see them very often anymore.

Ryan Isaac:
I don’t either. It used to be really common. Yeah. I mean, technically, you’re supposed to make your own schedule, show up with your own equipment.

Matt Mulcock:
Yeah. Your own equipment. Exactly.

Ryan Isaac:
You can’t be told what to do…

Matt Mulcock:
Roll up in your chair,

Ryan Isaac:
Unload your chair.

Matt Mulcock:
Bring your chair. I’m like a little wheelie.

Ryan Isaac:
scanners. unload your cone.

Matt Mulcock:
your backpack full of stuff.

Ryan Isaac:
Hey, I know people who have mobile dentistry vans and that’s the thing. Yeah, not as common anymore. Matt, if someone had the choice, what would you say if someone actually had the choice to pick between the two? How would you decide ?

Matt Mulcock:
[crosstalk 00:08:32] Yeah. I mean, I feel generally speaking, how I would decide is just what’s going to benefit. So I guess if you’re thinking of it from the employee, right ?

Ryan Isaac:
As an employee.

Matt Mulcock:
In quotations here, the person that’s going to work for the practice, what you’d look at is, what’s going to benefit me the most from a tax deduction, from an overall income, flexibility…

Ryan Isaac:
Cashflow.

Matt Mulcock:
Cashflow. So in that case, generally speaking, and this is why it’s not great that states are getting so strict on this, because I think generally speaking, you rather be a 1099 employee.

Ryan Isaac:
In most Cases, I think in a lot of cases…

Matt Mulcock:
I think most cases, that’s going to make the most sense because if you think about it, yes, you’re getting paid at a gross level. Yes. It’s a little bit more administrative work on you. You’ve got to take care of your taxes and all that.

Ryan Isaac:
You’ve got to file an entity, probably have a CPA

Matt Mulcock:
You have got to file all that stuff. It’s a little extra costs there, but you get all the deductions that a business owner would get, because you are a business owner. retirement plan with no employees, that’s the best way to do it is where you can Put the money away pre-tax

Ryan Isaac:
No one else put their hand in the cookie jar

Matt Mulcock:
Yeah, exactly. You’re not worrying about employees. no offense to any employees out there, we love you, but we’re just being real. But you get all the benefits of a business owner and the flexibility there from a tax perspective, but you don’t have to deal with staff. So like right now we are literally describing every dentist dream right now. I can do this and not have any staff, oh my gosh. But again, chances of you being able to do it are getting slimmer and slimmer.

Ryan Isaac:
Slimmer and slimmer. I can remember. I mean, it’s 10 years ago, but I can remember a few clients who in their early career worked at a couple offices, even three offices, sometimes, five, six days a week, just grinding. they made a lot of money and it just flowed through, into their S-corp. And they had no employees because they were just an associate 1099 at two or three practices. And the retirement planning was cool because yeah, you just slap in a big retirement plan and max fund that thing and you don’t have to pay anyone else it’s kind of nice

Matt Mulcock:
They had no life and they look up to hunchback of Notre Dame, but they were making tons of money.

Ryan Isaac:
They were grinding. Those are the glory days of 1099. I’m not sure if they’re around, but if you’re an associate and you’re kind of considering that those are the pros and cons. It might not make as much sense if you’re not getting paid too much though. If your income is not enough to actually have money leftover in the thousands where you’re able to save every month, then you might just want the employer to hire you as a W2 and cover all the employer costs.

Matt Mulcock:
And there’s still benefit to being a W2. For example, if there is a 401k at the office and they’re doing a match, that’s extra little bonus to you and also you don’t have to deal with the administrative stuff. Your tax situation is really basic. You don’t need a CPA, you don’t need to file your entity stuff. It is definitely more simple who knows.

Ryan Isaac:
Simply.

Matt Mulcock:
Simply. It is more simply to be a W2. It is definitely simple.

Ryan Isaac:
Anyway and if you’re an employer again, your hands are probably tied in what you can even offer really, depending on your state and how your business is set up and what your CPA wants you to do. Like you said, I’ve seen a lot of businesses just have to convert 1099 employees to full W2 employees over the last few years.

Matt Mulcock:
Spoiler alert. Something we’ve found out since having a nanny, which we do. Both my wife and I work full time, they are very strict on this. You cannot have pretty much, if you don’t want to pay your nanny legit, you cannot have them as a 1099. They’re really strict on this, at least in Utah, I think it’s kind of everywhere Now.

Matt Mulcock:
[crosstalk 00:12:28] It has to be W2 employee

Ryan Isaac:
Well this is non-dental.

Matt Mulcock:
It’s non-dental but well it sits within the same topic. And there’s probably a lot of people out there that maybe have some in-house help on the kid front and they’re really strict on it. And I say, they, I mean the government, because again, the same thing we dictate our nanny’s schedule and so we give her a schedule every week. We say, here’s when we need you. She is not an independent contractor, we need you these times. she can’t just come and go as she pleases. I guess she could, but…

Ryan Isaac:
That’s not conducive.

Matt Mulcock:
That’s not how it’s set up. we need you this day or these times and so yeah, they have to be a W2. You got to file all that. You got to do it all legit. And if this is something the IRS has cracked way down on

Ryan Isaac:
Question number two, and this is actually kind of on the heels of an episode, we just barely did. This question is, has to do with the nature of certain kinds of investments, high level. We’re just going to talk about these two types of investments, private or public investments. The question is “What should I be watching out for or looking out for, or asking when getting involved in a private investment?”

Ryan Isaac:
Matt, how about you give us a rundown. What is the difference between, let’s just keep it really simple, high-level. A public investment are stocks and bonds, right? They’re publicly traded companies and then a private investment is a private company. What’s the high level difference between the two, just off the top of your head? Just explaining the categories to people.

Matt Mulcock:
Yeah. So I mean, a huge difference probably number one difference would be reporting requirements and access to information. To be a publicly traded company, stocks, bonds, whatever’s out there. The public exchanges, they’re required on a regular cadence and the specific information they have to release. Well, again on a regular basis, everything…

Ryan Isaac:
Let’s say, we’re talking about Apple.

Matt Mulcock:
Yes. You can go on right now, you can go Google, I believe they call it a 10K or you can go Google ‘Apple 10K’ and they do it quarterly. And you get access to all the books, literally they have to report everything. Now we don’t need to get too much into the weeds but there is arguments of the way companies do accounting and there is some things they can hide, obviously

Ryan Isaac:
They still get a little tricky.

Matt Mulcock:
Yeah. Ever heard of Enron. I mean, there is ways that they can hide some stuff, but they are required to release reports every single quarter, basically just think of it as their entire business, all the books.

Ryan Isaac:
they have a call with all their investors and board and everything.

Matt Mulcock:
Exactly. Now a private investment they’re often called private placements and that is a broad category. They still fall under some regulations of reporting and things, but not to the same level as a public company. It’s a big difference.

Ryan Isaac:
It’s just transparency of information and flow and accessibility of information. And that’s the thing too. You take a company, I mean, most of these big ones and from all of the major banks and investment companies around the world, they’ll literally have hundreds of analysts. Who’s 80 hours a week full-time job is just to follow information around the world for one single company. I cover Apple. I’m an analyst in Wall Street, I cover Apple. That’s all I do, 80 hours a week.

Matt Mulcock:
Or they cover a specific sector.

Ryan Isaac:
or a sector.

Matt Mulcock:
a tech sector or whatever.

Ryan Isaac:
Extremely available information and then hundreds of some of the smartest people in the world just scouring the data constantly for good and bad news.

Matt Mulcock:
And reporting on it, right ?

Ryan Isaac:
and reporting on it. Yeah.

Matt Mulcock:
Another, oh, sorry. I was going to say another huge difference here is access. So publicly traded companies and bonds. I’ll include bonds in this publicly distributed assets like stocks and bonds. Anyone can access those. You can go today, I don’t care, you might be a 16 year old kid out there right now. If we have any young high school listeners I don’t know, but you can be literally anybody if you have a little bit of money and really you don’t even need that much anymore because you can do fractional shares.

Matt Mulcock:
You can go download an app. There is hundreds of them and you can go buy stock right now. You cannot do that with private placements. Most cases are going to have to be, what’s called an accredited investor. You have to meet certain standards to be able to even get access to a private investment.

Ryan Isaac:
And we went into a lot of detail on this.

Matt Mulcock:
Didn’t we say we were going to keep it high level ? That’s my bad

Ryan Isaac:
Well, we went into a lot of detail on the last episode is episode 305. The Dentist Money Show. It’s actually called “Are alternative investments for you?”, because it’s a question, episode 305. Check that out we dove in really deep. I guess what I wanted to answer the question here too, and so thanks for the explanation between the two and the private investing world is gigantic. The public investments, you could say stocks, publicly traded companies, private investments can be anything from your next door neighbor doing a little startup out of their kitchen to some big solar project or anything, farming, oil, software development, real estate lightning, all kinds of stuff.

Ryan Isaac:
The questions you’d want to ask, which was what this person wanted to know about are just the differences that you explained, Matt, it’s the difference in transparency. So you want to know, what can I know about this thing? If anything, at any given point, Where can I go for information? Who has it ? Which leads to further questions about Who is the management team of this investment company or this private placement, whatever ?, who’s running this thing ?. Are there independent accountants, independent attorneys ? Who’s in charge ?

Matt Mulcock:
Who else is investing in it?

Ryan Isaac:
Well, yeah. Oh, secondarily, who else is investing in this thing? Who’s involved?, Who’s in charge of the data ?, How can I even get access to the data?. Other things you want to be aware of, One of the benefits of a public stock of course, is that if you don’t like it tomorrow, you can just sell it and get your money back right? Now, it might be more or less than what you put in there because that’s the nature of fluctuation, volatility, but that’s what liquidity is. You can get your money back. It’s liquid.

Matt Mulcock:
Yeah access to your money.

Ryan Isaac:
Private investments, the reason why some of them also have higher returns is because you’re exchanging some of these things you’re giving away maybe liquidity or access to information or reporting standards right? And because of that your risk goes up.

Ryan Isaac:
So your return has to go up. That’s universal law of investing 101. Risk and return are totally correlated. So liquidity access to information, the risk of permanent loss is often times different in a private investment than it will be in public investments, especially because it’s very easy to diversify public investments. So instead of just buying Apple, you can go buy a fund of all tech stocks around the world, or you can buy a fUnd of all the stocks in a certain country, right ? Or all the world’s stocks. So diversifying your risk away from permanent loss, if you bought the S&P 500 in order to have total permanent loss, every one of the 500 biggest companies in the United States have to go out.

Matt Mulcock:
And by the way, they’d have to go poof all at once.

Ryan Isaac:
all at once at the same time, in which case,

Matt Mulcock:
It’s not going to happen.

Ryan Isaac:
Well, when it does, we’re signing off and thanks for listening.

Matt Mulcock:
You won’t be hearing from us anymore. And congratulations, the world is over.

Ryan Isaac:
We don’t exist.

Matt Mulcock:
You did it. You made it.

Ryan Isaac:
we made it.

Matt Mulcock:
We made it.

Ryan Isaac:
Where a private investment, I mean, if you give your brother-in-law, we’re just going to drag the brother-in-law back into this..

Matt Mulcock:
We always do.

Ryan Isaac:
For his new startup idea. If, you give him a hundred grand

Matt Mulcock:
By the way my brother-in-law listens to this occasionally, just so you know. So we’re always ripping on him and his people. [crosstalk 00:20:34] So I guess we’re brothers-in-law as well, we’re ripping on everyone.

Ryan Isaac:
Yeah That’s true. But anyway, the risk of permanent loss can be intensified, it can be a lot higher. Also, fees and costs, You want to ask about what kind of costs in a publicly traded company, that’s arguably maybe hard to find what you pay when you buy a stock, depending on who and where you buy it from, which is a criticism of the industry that delivers it. But the information is at least transparent and it’s set.

Ryan Isaac:
Fees and costs and expenses in private investments can vary. They can change and a lot of times they’re just smaller operations. You’re often times investing in just a smaller business with a small team. And I like what you said earlier, Matt, who else is involved in this thing? Because that will tell you, are you investing money in a thing where they’re trying to find a thousand people with 20 grand or do they have 20 people with a million dollars or something?

Ryan Isaac:
I don’t know if the math is the same on that. I just saw in my head,

Matt Mulcock:
We’re just throwing crap out.

Ryan Isaac:
But you see what I’m saying, are they trying to get nickel and dimes from anyone they possibly can? That might tell you something about the nature of who they are and what they’re trying, what they believe in and who believes in them versus, and then, which is probably the next question you’d want to ask, which is , What kind of minimums are involved in this thing? And is that minimum acceptable or appropriate for the amount of liquidity I have? Is this fund or this private investments minimum, is it 40% of my total liquidity? In which case probably wouldn’t recommend you do that. That’s a layer of risk you probably shouldn’t be taking.

Ryan Isaac:
So I don’t know, those are kind of my top questions. Again, episode 305 we dove a lot deeper into the nature of private investments and kind of how they’re different from a lot of other sectors and how coincidentally most dentists without really knowing and it was a surprise to me too the definition of a private investment or alternative investment. Most dentists are already heavily involved in private and alternative investments. They’re kind of just used to it.

Ryan Isaac:
So anyway, check out 305, but those are kind of the top questions I think I would want to really know and ask, I guess one more I would ask Matt is sometimes the allure of private investments come because of a potential higher than average return compared to other asset classes or tax breaks. And so I would just want to ask myself, I would want to just back up and be, Do I really want this investment? Do I really want to do this thing? Or is there a part of it that’s maybe drawing me in that maybe, is a little shiny and do I really want this thing? Does it really have a place where I want this thing

Matt Mulcock:
I mean I think you’re hitting it perfectly from both sides of the coin here. When you’re talking about these investments, there’s your side, your specific situation as the investor what’s driving this decision ?. Does it even make sense for me from a liquidity perspective and my cashflow and diversification ?, those are very investor specific questions. I think you’re spot on. And then the investment specific questions being exactly what you’ve heard, fees, access to funds when I need it. What’s the liquidity structure? What’s the actual entity structure? These are usually set up where you’ve got, what’s called the GP, the general partner, and then you’re the what’s called the LP or the limited partner.

Matt Mulcock:
One other thing I’d want to know from the investment standpoint is okay, you’ve got a GP, the one, actually making the decisions and doing this. It’s usually a company or a group of investors that are all fall under the GP. What’s their track record? Is this their first shot at whatever this investment is?

Ryan Isaac:
totally.

Matt Mulcock:
Or do they have 10 years or 15 years doing this exact thing that they’re doing?

Ryan Isaac:
Yes.

Matt Mulcock:
You’d want to vet the GP and know what are they actually doing. What’s their structure from a Debt-to-equity ratio? Are they only raising equity? Are they raising some debt? Are they over leveraged? I’d want to know some of those things of the actual structure of the GP themselves.

Ryan Isaac:
I’m glad you bring that up because more times than I could remember or count, I have seen and have tried to vet through private investments. let’s say it’s a person who has some success in one industry, they make a lot of money, let’s say they sell a software company right. They build a software company, they sell it and they make a lot of money in. Right. And then they retire and they’ve got this grip of cash they’re sitting on. That person might then go, yeah now I’m retired, I’ve got $50 million and I’m going to be a real estate developer.

Matt Mulcock:
And yeah, has no clue what I’m doing, but I got tons of money. Yeah.

Ryan Isaac:
And so to your point, you just want to know, well, where did you begin and where did you get the funding from? And where did you start in? that was another question I wanted to throw on the pile was, which is a difference in some types of investments depending on what you’re involved in, is the control you have over it, and it’s probably out of your control and in someone else’s. So what’s their background and why did the software developer who sold their company start developing real estate in the middle of Montana? why did they…

Matt Mulcock:
And who do they have behind them?

Ryan Isaac:
And who is helping ?

Matt Mulcock:
And then from an expert standpoint to actually do it, is it just them ? And they’re, “I just watched a couple of YouTube videos. This looks cool.” Or do they have a professional investment team with them that can show you a track record?

Ryan Isaac:
Yeah, I think that’s a big one. So again, go listen to episode 305, this isn’t do it, don’t do it. these are questions that you need to ask and these are questions that take hours of digging. And these are questions that you really want to know.

Ryan Isaac:
I’ve seen some clients dig through these questions with companies before and opportunities before and get to the point where they actually feel really uncomfortable with it, where they were really excited on the beginning and they dug and they’re, you know what? I’m not really comfortable with this. And I’ve seen some of those investments actually just stop, go belly up.

Matt Mulcock:
absolutely

Matt Mulcock:
Because that’s the nature.

Ryan Isaac:
And you have to know going into this, that is a legitimate possibility, which is exactly why you need to start from the investor standpoint of me as an investor, does this make sense? I just had this recently, a client came to me, they wanted me to kind of go through this private investment, it was real estate. Everything looked good, it was fine on the investment level, but from their standpoint on a liquidity cashflow where they worked their practice, I just said, “Look, the investment itself, I think is fine. I think it is probably going to achieve what they’re claiming they will”, but the problem is, I don’t think it fits for you in your specific situation, because you’re giving up literally all your liquidity right now to get into this one thing. And you’re going to lock it up for five or six years. And so they decided not to do it. You’ve got to come at it from both of those angles.

Ryan Isaac:
Anyway, so this isn’t for, or against private investments. These are just the questions you’d want to ask. Check out episode 305 and talk to an advisor, talk to a CPA, talk to an attorney, trusted source someone who’s not emotionally invested in your decision making when you go through these big decisions. And again, we say this all the time, protect the practice. You’re first and foremost, a dentist, you went through years and years of schooling and hundreds of thousands, if not millions of dollars of debt to become what you are. So protect that at all costs versus that will probably be your best investment you’ll ever make. Protect that first before diving into anything that might take more risk time, money, and could put it at jeopardy.

Ryan Isaac:
This is an important announcement from the Dentist Money Show podcast system, go to dentistadvisors.com and click the big green book free consultation button. Schedule a time for your free consultation and save your financial future.

Matt Mulcock:
I mean, Ryan, don’t you think that’s a bit much?

Ryan Isaac:
Yeah, it was probably a little bit much, but I think some of our listeners might find getting a consultation should be more an emergency.

Matt Mulcock:
They probably should. I mean, we are saving financial lives.

Ryan Isaac:
Alright. Let’s move on to the last question here. Last question kind of applies to this specific timeframe. So if you’re listening to this years from now, you might remember this fondly this time of life, but it’s about students…

Matt Mulcock:
the good old days.

Ryan Isaac:
The good old days of 2020 and 2021. Student loans. Matt, what’s the situation with student loans? What are people facing here decision-wise?

Matt Mulcock:
Yeah. So the student loans, if you’re still kind of within the federal program, meaning, you haven’t refinanced your student loans, you are on deferment. It’s been deferred with no payments, no interest accruing since really the beginning of COVID. I don’t remember the exact date of when they actually put this in place, but they started doing it sometime in relatively early 2020. And they’ve delayed it a couple of times where they’ve kicked the can down the road. They’ve done it again. The most recent was they announced it was supposed to end in October, then they decided to come out and push it even further. So as of right now, the date is January 2022. January 31st, 2022 is when that deferment will end as of right now. They’re claiming from the language they use that, it’s going to be the last time, but who knows

Ryan Isaac:
We don’t know.

Matt Mulcock:
We have no idea.

Ryan Isaac:
So the question that people are having right is, Do I refinance? How do I build this back into my budget? I’ve been spending it, what do you say to that?

Matt Mulcock:
I mean, that is the first place to look at. This is A, how much of a payment have you stopped pickling? There’s going to be different. It could be a couple of 100 bucks for some people. It could be in the thousands of dollars for other people. So the first question is that you have to ask yourself is what situation are you in, in regards to, have you been putting that money aside? Or have you just kind of adapted to your little bonus you got for the last year or so? That’s the first place. And then, so I’d say figure out what that is. If you were proactive and you’ve been putting that money aside, or maybe you’ve been making your normal payments, that’s great. But if not, you’ve got to look at where has that money gone, basically.

Matt Mulcock:
Meaning what extra spending have I added that I have to now go evaluate? And I would be doing that right now. your payments are going to kick back on, looking at your spending, tracking it. We’re not talking get into detailed budget people.

Ryan Isaac:
don’t worry about it.

Matt Mulcock:
Don’t worry about it But we’re just saying [inaudible 00:31:12], if you were paying a thousand bucks for your student loans a year ago, and you’re not saving that money, it’s obviously going somewhere, you got to go figure out where that money went and what you can maybe cut to adapt.

Matt Mulcock:
Now at the same time, maybe your income has gone way up like a lot of doctors, a lot of dentists we know, that’s great. Maybe don’t have to even worry about it. You just kick it back on and it’s no big deal. The other part of this, and I’ll kind of kick this to you, Ryan, as far as refinancing, we get this a lot, right of, well, it’s coming back on. Should I be refinancing this? what should I be looking at there?

Ryan Isaac:
Yeah. The debt refinance, as we always say, it’s a really personal decision because it affects other parts of your life, your practice and your cashflow and your taxes. And so you just want to make sure that it’s the right thing. I would say overall for your whole picture for cashflow. this always comes up to, I want to refinance my student loans. I’m going to put them to a seven year or a 10 year. And it’s 600 grand. You wouldn’t put a $600,000 house on a ten-year loan or seven year loan

Matt Mulcock:
Most likely not.

Ryan Isaac:
Most likely not. Not at your age. Not most likely not. So if you’re thinking about these refinances, I don’t know, Matt, I think I might want to wait a little bit just to see there’s some changes with student loan providers and service providers that are coming up. I kind of might want to just let the dust settle to see what happens when some of these changes happen to see what implications there might be from that before I refinance, but my advice would be sure. Yeah.

Ryan Isaac:
But I always, especially student loans, to be not a burden from a cashflow perspective, put them on longer schedules. We can pay them off faster later if we want. But again, focus on the practice. Don’t do anything that jeopardizes your ability to take money from the practice and grow it and grow your income. But what would you say about the timing , with all the changes coming up, of refinances, would you wait a little bit? Just to see ?

Matt Mulcock:
Yeah. That’s a really good point. And you’re right. There’s a lot of things happening right now on the backend of servicers that need to be figured out. So I think that is definitely a factor, but I think what you’re hitting on is exactly right. It’s so specific to the individual and again, I hate the answer, but true answer of it depends, but it’s so true, you have to look at your cashflow.

Matt Mulcock:
So a really good way to look at this. If you want a really concrete takeaway from this of your specific situation of how do I apply? Is there a formula I can apply, right ?. I think a really easy formula you can apply is a Debt-to-income ratio specific to your student loans. So meaning what is that debt in relationship to the income that I have, right?

Matt Mulcock:
We can put some actual numbers to this. If you have a $100,000 in student loans and a $200,000 income, or no, this is even easier. You have a $100,000 student loan and a $100,000 income. You have a one-to-one ratio, right? If you have a $200,000 student loan and a $100,000 income, you have a two to one ratio.

Matt Mulcock:
What we’d want to see is as that ratio gets below two, same scenario. Let’s say that your income now starts to move up to like 150 with $200,000 in student loans. As that ratio starts to drop below two, we want to start to look at refinancing because now we’re saying you’ve got the income power to start paying off that debt. If you’ve got $500,000 in student loans and a $100,000 in income, you’re going to want to keep that on probably income repayment. You’re not going to want to refinance right away.

Ryan Isaac:
just wait.

Matt Mulcock:
So I know it’s a lot of detail there, but I just think it’s important to think about your specific situation. You were saying, Ryan, what your income power is, what your goals are with your practice, protect the practice at all costs. And yeah. Maybe let the dust settle on the back end with all these servicer issues.

Ryan Isaac:
We got to make shirts in football, where they’re we must protect the house, we must protect this practice. “We must protect this Practice”.

Matt Mulcock:
I love that, I think Under Armor, that’s Under Armour

Ryan Isaac:
It’s Under Armour. We must protect this practice, guys. That is the bottom line here with a lot of decisions we’re trying to help people make is we must protect this practice

Matt Mulcock:
And sorry, last thing to your point, right? If you’re going to refinance, absolutely. Please, please, please think about going on the longest term possible. When you first refi, you can always change it. You can always change it. You can always make extra payments. Maximize flexibility. Put it on a 15-20 year to start. And I’m going to say as general advice, generally look at longer term. If you go to do it.

Ryan Isaac:
Put your debt in yoga class and maximize flexibility.

Ryan Isaac:
All right. Thank you folks. I made Matt cough and laugh at the same time. Those are great questions, everyone. Again, those came from the illustrious Dennis adviser’s discussion group on Facebook. Go there and post a question. We’ll answer it, we’ll use it as a topic. If you want to chat with one of us, go to dentistadvisors.com, click the book, free consultation link. We’ll have a chat with you. Happy to answer questions and point in the right direction. Matt. Thanks for being here.

Matt Mulcock:
Thanks Ryan.

Ryan Isaac:
on this Ted lasso-less Friday and everyone, thanks for tuning in. Thanks for listening. We’ll catch you next time. Take care.

Debt & Financing, Income, Investing