What Financial Rules Should Dentists Take Seriously?

What are the financial rules of thumb dentists should be following? On this episode of The Dentist Money Show, Matt and Will look critically at some of the most common financial guidelines for dentists. From housing costs and debt-to-income ratios to budgeting frameworks and insurance planning, they discuss where popular money guidelines can be helpful and where they fall short. They challenge conventional advice, popularized principles, and emphasize why personalized planning matters more than following rigid formulas. Tune in to learn how to make smarter, more nuanced financial decisions throughout your dental career.

Related Readings

10 Financial Principles Dentists Can Still Count On – 10 Years Later

---

Podcast Transcript

Matt Mulcock: Welcome to the Dentist Money Show, where we help Dentist make smart financial decisions. I’m a guy named Matt. I’m here with the brain, Will Gochnour Will, how are you?

Will: Pretty good, good morning so far. got snow outside, so we’re living life.

Matt Mulcock: Winter is finally here in Utah. ⁓ Crazy fact. One of the craziest facts I’ve heard in a long time is that in the month of January, this will come out, I think probably in March, but in a month of January in Utah, we had ⁓ less snow than the state of Florida, which is wild. I’ve lived here outside of a few years in California, lived here my whole life. I’ve never seen a winter like this. It’s just crazy. So.

Will: Yeah. Yeah, yeah, it’s crazy. made up ski resorts got four feet last night, so we’ll take it. Yeah, we’ll take it.

Matt Mulcock: Yes, I saw that. saw that. I know. Yeah, it’s which you’d know it’s a bluebird day. It’s beautiful. You’d think it’d be like a great ski day. However, everything’s going to be shut down. There’s no way anything’s open today. So this weekend is going to be wild at the resorts.

Will: Yeah. Yeah, Utah weather is pretty bipolar. This is the most bipolar that I’ve seen it.

Matt Mulcock: Yeah. Finally have some snow. Finally. Welcome to winter in mid February. okay. Let’s jump in. ⁓ well, we wanted to talk about this. This was from, thanks to Taylor. ⁓ you know, shout out Taylor, you know him and love him. ⁓ and we’ve talked about this before, but we have, ⁓ an internal, you know, Slack for the team, for advisor team. And then every week we get together as advisors, to brainstorm ideas, share client cases, ⁓

Will: Hahaha Shout out.

Matt Mulcock: I like to share this because oftentimes we get these questions on my consult calls and whatnot around like, like, you who’s
my person, who do I work with? How does this work? And I like to share this because like you, you actually have access when you work with us at Dentist advisors to our entire team and really the collective knowledge of our whole client base, because we’re always sharing these ideas with each other. The brain trust exactly led by the brain.

Will: brain trust. Yeah, no, not led by me. I’ve had countless times where I’ve had a question that I didn’t, or like ⁓ a question I didn’t
have the exact answer to or a scenario that a client was explaining to me that I said, well, I haven’t seen that exactly the same, but let me
take it to the other advisors and get their take. And there’s been plenty of times where somebody else has dealt with a similar situation and a similar state specific rule or something like that. That is awesome. It’s really powerful.

Matt Mulcock: Hahaha. Yeah, it really is. this, so this comes from that. Taylor this past week sent a message to the group he’s presenting here pretty soon at an event. ⁓ and I think the main, his presentation is around debt. And so he wanted to share some rules of thumb that are out there around debt. And so he asked the group, he was like, Hey, what are your guys’ thoughts? What have you heard about these rules of thumb? You know, we’re all CFPs and he’s just like, what, what do you guys think about these rules of thumb? specifically around like how much house can you buy around your specifically to your cashflow? It’s like what percentage of your income should go towards a house? So this started a whole conversation with our group in Slack. And then we met together as a team and this conversation continued. And so we thought how this would be good. think a lot of dentists want to hear this around what are general rules of thumb? What do we think about these rules of thumb? Where are they, what’s good about them? Where maybe are they limited? so we just have a, a list of these rules of thumb that we hear a lot, whether it be from the, you know, the CFP material or whether it just be like social media type things that get out there, industry standards, whatnot. So we thought it’d be good to go through this, but let’s first start. Well, let’s talk about just generally around rules of thumb. Let’s start with like, what’s good about them. Like what are, what are the positive, what are the pros of having like these kinds of generalities? to follow. Any thoughts on that?

Will: Yeah, just like with anything, rules are in place for a reason and they’re probably put in place to help protect you from doing something
that you regret, right? So all of these are guardrails and guidelines that are cookie cutter guidelines to hopefully help you make your own decision. We’re going to say this probably 10 times this podcast, but you should never just follow a blindly follow a generic rule of thumb.
Personal finance is much more personal than it is finance. And so for me, I think these are super helpful to get the conversation started, but
frankly, they end there, right? Like at that point, you need to know like exactly, you you got to have a really good idea of what your life looks like and the context and all the moving parts that go into this decision to see if this, you know, the rules of thumb fit your situation.

Matt Mulcock: Yeah, totally agree. ⁓ Ryan and I did an episode a while back, but I’m remembering we, the intro, I don’t even remember what the topic was, but the intro we did was around like, ⁓ old wives tales that we all believed like back in the day pre social media. And so things like, ⁓ gum, like you, you, if you swallow a piece of gum, it lasts in your, it’s like it stays in your body for seven years. ⁓ you know, the whole, ⁓

Will: Yeah. you

Matt Mulcock: You can’t swim 30 minutes, for like, know, 30 minutes after you eat these types of things. And what we, what we determined, I think, as we went through those, there was several, we were like, wait a second. We think these were just moms getting together and trying to like protect their kids from doing dumb crap. And I think so to that point, I think there’s actually, there’s these are good to your point. Like they give you a starting point. They’re generally protective of like, if you did nothing else, if you follow these things, you’d be better off not.

Will: Yeah.

Matt Mulcock: ⁓ it’s kind of this whole idea, like we think about investing people are like, ⁓ just buy the S and P and just do nothing else. Buy and hold the S and P that’s better than day trading, but it’s like, there’s this good, better, best type of thing. So these rules of thumb are probably fit in the category of like, yeah, good. They give you a starting point, but they’re not the best thing to be doing. There’s much more. You got to get more nuanced if you’re trying to like apply these to your, to your specific life.

Will: And I would say most of these blanket statement financial rules of thumb that we’re going to cover today that maybe some of you have heard, or again, if you Google them, it’s going to be what pops up. Most of them were created for the general public, ⁓ which most, would say, whatever, 90 % of people are W2 employees or something, know, something where it’s non-business owner, single income salary households, where that rule of thumb probably fits a lot better.

Matt Mulcock: Yes, yeah, good point.

Will: for that specific type of person. Again, the general public, what they’re mostly talking to, it doesn’t fit as well for dentists. And again, that’s why we’re bringing color to this podcast, to see it through the lens of a dentist rather than just a regular person.

Matt Mulcock: Yeah. Great point. And that’s the value that we bring, right? Of only working with dentists is being able to understand those nuances of a dentist’s life. And to your point, dentists lives are just more complicated. Let’s just be real. They have more debt loads. have way higher income than most people. It’s a really good point that these rules of thumb are for the general public and the dentist, the dental
industry, dentists as a whole are just usually don’t fit that category. ⁓ so let’s jump into this first rule of thumb. We’re going to hit is the one that Taylor brought up, which is What’s, what is the, what are your guys’ thoughts on the rule of thumb around how much home someone should buy specific to cashflow? So to give an idea, like what, I guess to back up a little, ⁓ we have a, ⁓ approach to financial planning. We call it a financial hygiene chart. The OGs might remember it as elements, but it’s just indicators of your financial health. And one of those rows of, that we look at all the time is your cashflow. There’s only four places your money can go. You can save it, spend it, goes towards debt, it goes towards taxes. So when we look at these figures, it’s what percentage of like as the rule of thumb, what percentage of my income should go towards housing costs. And so let’s break down a couple of things here. There’s banks rules of thumb, like what a bank will go up to. Then there’s the CFP, the certified financial planner curriculum rule of thumb. Let’s start with the banks. Banks will say, banks will go up to somewhere like 40%. Of income. It’s insane. The certified financial planner curriculum will say 28%, ⁓ 28 % or, know, that’s the max that we would recommend as there’s a CFP, you know, group. So 28 % of your total income going towards housing costs. And then I like that you added this will, ⁓ 36 % total debt to income ratio is what the CFP says. What are your thoughts on this rule of thumb around again?

Will: Yeah.

Matt Mulcock: banks, what they say, what CFP says, and just all these numbers.

Will: Yeah, banks are happy to give you as you know, a mortgage. They’re thrilled to make the interest off your payment. So they’re going to be a little more aggressive to say like, yeah, we think you can get approved for more house than you maybe can afford on paper. You know, we get this question all the time. This is probably every single client has asked us this question in some way, or form at some point in their life. And I think every human who goes to buy a house will ask this question in some way, shape or form, right? How much house can I afford? And it’s a good one because it’s something that you’re always trying to figure out. I think you’re right. the 28 % for the CFP threshold is the maximum. Anything below that is obviously good. And then the 34 % was it for the debt tank? 36 for the max debt that you can have. again, you’ve got to include the 28 % housing in that 36 % number. So just quick thoughts on that is like, think.

Matt Mulcock: 30-36.

Will: It’s high for dentists. Right. And the reason being is if you have to fit a hundred percent of your, what you just talked about, your savings, you’re spending your debt and your taxes into income and you’re already giving away 30 % of your house. We haven’t even started talking about student loans. We haven’t started talking about business loans. We haven’t even started talking about car loans yet, which we’ll get to. Think of like adding these percentage points, right? So maybe 20 % goes to your business loan and another 5 % goes to your car loan. Another 5 % goes to your student loan. All of a sudden you’re at like a 60 % debt to income ratio and it happens quickly, right? And so, you know, the, the, guess I would say just rule of thumb for dentists is you got to shoot for a lower percentage. There’s some caveats there, which I’ll let you hit maybe early in career and those kinds of things when your income is just getting started. Those are my initial thoughts.

Matt Mulcock: Yeah, let’s put some numbers to this. Let’s say you’re making $250,000 a year and we’re always going off of gross. So before taxes, when we think about this, but if you’re making $250,000 a year, um, as a dentist, what the CFP curriculum would say 36 % total debt to income ratio, that’d be $7,500 a month total going towards debt. So I’m going to guess most dentists are going to hear that and be like, Ooh, that’s like my house payments more than that. Like early on in career, you’re making in that two to 200,000, 250. That’s what the numbers actually look like in real life is that. And to your point, well, it’s that student loans, that’s car, that’s house total 30 % and only 28 % going towards, uh, housing. if we look at that figure, 250, we’re saying 28%. Uh, that’s Let me give this to this in, that’s $5,800 a month at $250,000 a year in total housing costs, just to give some real numbers there. The caveats that you talked about that we went over as a team, so I guess let’s back up. Our rule of thumb at Dentist Advisors would be closer to 20%, right? So we’re saying closer to 20 % for housing costs, 20 % of your income going towards your home would be a safe to us, a figure. And again, the reason being is you’ve just got so many other things to worry about student loans. If you’re a practice owner, all the debt that comes from that. If you want anything leftover to save, we need to keep that, that percentage lower. The one caveat that you referenced that we talk about is if you’re younger, chances are your income’s going up over time. Let’s say your early practice owner or even early associate. I’m comfortable personally having that percentage be a little bit higher, like in the higher twenties, knowing that it’s not like once your income grows, that percentage comes down. So I’m okay with that early on, but just not pushing it too, too, too high.

Will: Right. The one thing that I hear people regret all the time is like, wish, well, twofold to this conversation. One is like, I wish I would have bought more house when I was younger because now my income’s higher and I can afford a larger house, but I’m kind of in this smaller house that doesn’t fit our family very well. And now it’s going to be tougher to make the jump to a larger house.

Matt Mulcock: Yep. Yep.

Will: The second, the flip side of that coin is income doesn’t go up or your income has already gone up and then you stretch yourself for a house that you maybe is a 28 to 30 to 35 % of your income and you start feeling house poor. Everyone knows what that word means. And it’s a bad feeling, right? It’s a bad feeling to feel house poor where all of your monthly, you know, all of your extra money is tied up in this house. And yeah, you like your house, but you you would, you in a way, you would hope that you have some more wiggle room and if your income is already capped out, it’s tough. It’s tough to be stuck in housework because then you can’t go backwards, you can’t move, you can’t go to a smaller house. You kind of feel stuck at that point.

Matt Mulcock: Yeah. I also think that mindset of I should have bought more house is, is like the epitome of hindsight’s 2020. Right. It’s like, well, yeah, we’re all saying that we were all saying that when interest rates were super low and houses did nothing but go up. The landscapes changed somewhat. I will say there is an argument to be made now. If you’re a younger dentist trying to buy a house that waiting longer to get a bigger, nicer house that you’ll be in longer. think there’s a legit argument for that. Like. Save more like the, the idea of the starter home for a dentist that might be changing a little bit where it’s like rent a little longer rent, maybe in a couple more years, save
a lot, save some more money to buy that bigger house. ⁓ I think there is an argument to made for that, ⁓ where before with interest rates so low and again, ⁓ housing was just doing, was going crazy. I think it’s easy to look back and like, I should have bought more. It’s like, well, yeah, if I would’ve known that I, you know, it’s like, It doesn’t help because you didn’t know that at the time. ⁓

Will: I guess I’ll just add one more thing. think that’s perfect. just, I like to look at it less as the housing ratio, that 28 % and more as the debt ratio, the 36%. And I think Dentist advisors, we probably say it’s somewhere between your total debt should be somewhere between 25 and 35. It’s a pretty big range, I would say of your gross income. So your income before you pay any business debt. And so for practice owners out there, that 30, 20 to 25 to 35 includes your business debt. So Your situation is going to be different than anybody else’s situation. If you bought a larger practice, you’re going to have a higher business debt. Maybe that means that most of your 35 % of your debt to income ratio is covered in business debt. So you can’t afford as big of a house upfront, right? Until you grow your income or until your business debt starts falling off because your business debt might be on a 10 year loan. then you get once that 10 year loan

Matt Mulcock: until you grow your income.

Will: finishes up, get $10,000 a month or more back in your cash flow. So there’s some nuance there obviously, but we like to look at it as an overall debt ratio because then you can kind of fit the puzzle pieces together. So do I have higher business debt or do I have no business debt? Then can I afford more debt on my house? Do I like fancy cars more than I like a fancy house? Those are all different things that we can figure out, right?

Matt Mulcock: Yeah, love it. So true. ⁓ that’s great. I think we’ve covered two big ones there. ⁓ let’s talk about, so with that mindset of total debt, ⁓ the next one’s a little bit unique because we don’t always fit. don’t usually fit this one in debt. We fit it in the spending side
of things, burn rate, but cars. So the CFP rule of thumb here is that you should not spend more than five to 8 % of your total income on your cars. ⁓ What are your thoughts on this one?

Will: We get this again, we get this question all the time is like, how much car can I forge? it, you know, irresponsible to buy this car with a thousand dollar payment? Um, yes, but we can also say totally depends on your income. Right. And so the percentage is helpful on this one. really liked the percentage on this one because, um, you can use it to guide your decision, of course, to start the conversation. And so we usually say, I think three to 5%, maybe two and a half to 5 % of your.

Matt Mulcock: Probably. Yes. Yep, yep.

Will: Income should go towards a car and this is all of your car expenses combined. So not just the monthly payment, it’s your maintenance, it’s your gas, it’s your, ⁓ whatever registration fees and all that annually and everything. Yeah, of course. ⁓ insurance included in that as well. So you got to calculate that as a whole, the entire car, the entire cost of owning a car and then, you know, do the percentage on your income.

Matt Mulcock: maintenance. You’re tricked out rims. Yeah. Yeah.

Will: Again, some people I sold alarms the year before I got married in South Dakota and there are people who drive very nice cars who live in trailer parks. And so maybe in the grand scheme of their debt to income ratio, they’ve chosen to have a larger percentage of their debt go to work fancier cars because everyone should be able to choose what they want to spend their money on. If they’re going to live in a lower cost house, maybe you can have a higher percentage of this ratio go toward, you know, 8 % go towards a car if you want to or whatever. But again, totally up to your situation.

Matt Mulcock: Yeah, and that’s why, again, I like this. These are rules of thumb that I think are really positive. These are the ones that we,
the number, you can kind of debate the actual percentages, but I think it’s good to at least have, these are the best ones in my mind of like, yeah, you should be thinking about this and how it applies to your income and to your point, your values and like what, I’m not a car guy.
I don’t care about cars, so I don’t need some super fancy car. So applying that to your life. And that’s why I think it’s good that you’re
highlighting. That’s like total debt to income ratio. One last thing before we move on to this, that I want to make sure we’re adding,
because I could imagine there’s people listening out there that are like, Holy cow. Where I’m at in my career, my debt to income ratio is
way higher than 36%. We see that all the time too. Like in dentistry, that’s totally okay. We know that, ⁓ this sometimes this is aspirational, of like, this is where you want to get to. And a lot of times this is an income problem, not a spending problem, right? It’s like, you just got to grow your income. And once you grow your income, that those percentages come down, you know, in lockstep. So it is okay. Depending on the stage of career you’re in, I’m looking at you early practice owners. It’s okay to have that percentage be higher. We see that we’re saying this is what you’re trying to get to over time. So, let’s move on to spending budgeting. Uh, and cash. So there’s a rule
will rule of thumb around budgeting. That’s scary word. Uh, I think this one’s become pretty, uh, big and like the financial advisor or social
media space. Um, the what’s called the 50, 30, 20 rule, uh, when it comes to budgeting. So this, what this comes down to is, uh, 50 % of your spending going towards your needs. ⁓ 30 % towards your wants and then 20 % towards your savings. Let’s just add this to another one. Cause I think these kind of go hand in hand and it’s a bit contradictory. think, even prior to this 50, 30, 20 rule, this has become, I think this is a little bit more modern. ⁓ this one advocates for 20 % savings. There’s another one that I think even more general that I think is kind of the general public believes. which is 10 % of your income should go towards savings. I want to just get your thoughts on both of these.

Will: Yes, I, know, the 10 % one I think is the more prevalent myth that you just save 10 % of your income forever and you’ll be fine. And again, that was maybe over the past 30 years, that was okay. If you had a pension or you just saved a little bit and you, know, you’re a W-2 employee your whole life and you just put away enough 10 % to kind of, you know, pile up some money and let it do its thing. And then you had social security and a pension and you were fine. Dentists are different.

Matt Mulcock: And you’re good. Yep.

Will: We know that dent of the life career of a dentist is you get started a little later. So you already are kind of behind the eight ball because you got to go to school and you got to go, you know, get your income kind of ramped up. It takes a handful of years. ⁓ so we, you know, we, we are closer towards the 20%, which that new modern ratio talks about, right? Is 20 % savings. That’s where we try to have all our clients be at a minimum is 20 % savings. And we believe if you do save 20 % savings consistently throughout your career. You’re going to retire and be fine. You just got to do it for 20 to 30 years and you’re going to be great. Um, so it’s not rocket science. It’s more just, um, having the discipline to do it. The 50, 30, 20, 50 % on needs, 30 % on wants 20 % savings. I mean, I don’t know. I think it’s a little overkill. Like if you need those guardrails to help you spend money on things that you want. then that’s great. But I sort of think the 30 % to once is kind of dumb to spend money on whatever you think is important to you. You’re obviously going to cover your needs. You shouldn’t like blindly spend 30% on what you want just because if like, you know, it’s not bringing you purpose and joy. So I think 20 % savings is great. We, we always say it is like a reverse budget. So save 20 % first and then the other 80 % let’s call it that you have left over. Spend on whatever the heck you want, your needs, your wants, your groceries, your golf clubs, whatever you want to make sure that you fit the rest of it into wherever you needed to go. But of course you’ve taken care of your savings, you’ve taken care of your taxes and your debt already. ⁓ So you’re good.

Matt Mulcock: Yep. Yeah, totally agree. And even this has some nuance to it, right? The personal part of personal finances, because we’ve talked about this a lot around the 20 % savings kind of rule, if you will, or goal. And I’ve talked to a lot of dentists over the years at events and when we speak or clients being like, you know, that’s hard depending on where you are. sometimes it can like create some level of guilt or, you know, this feeling of like, they’re not dentists aren’t doing the right thing. So the nuance here is the 20 % savings goal is a goal. First of all, it’s aspirational and it’s over the totality of your career. So if you’re a young dentist who, and again, young practice owner, let’s say, or even, you know, an associate, you’re probably not going to be there. Like you, and you probably shouldn’t be like, you should be putting more time, energy, focus and capital into ⁓ your career, like into your skills, into your practice. There’s a decent chance. that you’re early on in career not going to be hitting a 20 % savings rate. But you should be doing something. Let’s maybe say it’s a one, two, three, four, five percent something to get that habit going and building that momentum. And then on the backend of your career, we see this all the time. Debt’s paid off, cash flows, income super high. And now all of sudden our late stage career dentists are saving 30 to 40 % of their income later in life.

Will: Right.

Matt Mulcock: And so over the totality of their career, they’re hitting that 20 % average. So I just wanted to hit that nuance there because I don’t want people to walk away from this being like, okay, well my debt to income ratio is 45%. I’m saving 2 % of my income and I’m a loser. Like we don’t want people thinking that these are aspirational things to be shooting for over a career.

Will: Yeah, agree 100%.

Matt Mulcock: Anything else you want to add to any of that?

Will: No, that’s good.

Matt Mulcock: ⁓ another one, when it comes to liquidity, a rule of thumb, hear a lot, is three to six months emergency savings. This would
be on like, again, for the general public, usually where you don’t have a, ⁓ you know, business, a practice, three to six months emergency
savings. The, the nuance to this one is oftentimes you, you’ll hear, ⁓ if you have a single income household, it’s going to be closer to six
months. ⁓ then if you’re a dual income household, it’s going to be closer to three months. Will, what are your thoughts on this rule of thumb?

Will: This one’s a good one. I don’t have any issue with this one. I don’t necessarily think we tell people not to follow this one. Most clients that come on board, we’re just having them set up, you know, a good little cash buffer emergency fund. Some clients will decide that they don’t care to have as much cash on the sidelines and that’s okay too. It’s again, it’s kind of your preference, right? So I always think of this as like a practice owner dentist has multiple areas where they’re going to store liquidity. ⁓ one is their personal emergency fund, would be, three to six months in cash. One is their business emergency fund, which would be two to three months of overhead. Right. And a lot of times that’s plenty of cash to be almost like dual acting personal and business emergency fund, where if you got into trouble on the personal side of things, your business liquidity could shoulder the load on the personal side for a little bit. You probably still want to have again. Good little buffers on both ends. The third place is like if you’re saving money into a brokerage account, you’ve got some liquidity there as well. So if you’ve got a couple hundred thousand dollars that you’ve piled up just from having the automatic savings draft, the 20% savings we just talked about, you can in an emergency, that’s the second line of defense or whatever. If you run out of cash that your liquidity, then you’ve got a brokerage account. lot of dentists have lines of credit for their businesses, things like that. That’s another wave of emergency fund call it. Right. So. It’s good to have the baseline three to six month emergency fund and the guideline there, but it’s not all important that you, you know, put it there and never touch it. Emergency fund is there to be used if you need new tires or whatever, like use the money and then refill it if you need to.

Matt Mulcock: Yeah, I totally agree. Nothing to add on that. You nailed it. ⁓ this next one I have probably the most problems with it’s top three for me of worst. This one’s the worst, think of all the rules of thumb that needs to just be killed and buried in a field somewhere and never come back. This one is a run investing. So don’t know where this even came from.

Will: This one’s crazy. Yeah. You

Matt Mulcock: ⁓ I actually don’t know. It’s been a long time since I took the CFP. too. I don’t know this came from the CFP, if this is what
the CFP believes. I don’t think so. There’s a lot more nuance to the curriculum that we follow, but, ⁓ this one is your age and bonds. So when we talk about asset allocation, investing in the public markets, you know, there’s generally speak, when we talk about asset allocation, it’s your mix of stocks and bonds. Stocks are going to act differently than bonds in most cases. We tell people, you know, generally speaking, stocks are the gas bonds of the break. ⁓ again, if we’re just generally speaking, the, the, the stocks are going to be what, what grows your portfolio, but also what leads to the ups and downs bonds are much more stable. So a rule of thumb that’s been out there for a long time is when you’re trying to figure out in an account, what should be my mix of stocks and bonds. It’s you take 100 minus your age. And then what’s left is going to be your percentage of. uh, equity, you know, stocks versus bonds. So just to give an actual, uh, number here, I’m going on 40. know, I know. want to talk about it. Well, uh, in this case, I would, if I was at my age now and I was just, what do I do? How do I invest this money? My, brokerage account would say, or my IRA, whatever I’d be 60 % in stocks and 40 % in bonds as a 40 year old based on this rule. I cannot tell you how stupid this rule is, but I want to hear your thoughts.

Will: Yeah, it’s good. was curious. just looked it up. It came from Jack Bogle, John Jack Bogle. Yeah. But again, I think it was a pretty old school like thought. So he said he’s the founder of Vanguard and the origin was the rule of a hundred. So basically just said 100 minus your age is how much you should have in stocks, right? And the rest is in bonds, obviously. ⁓ And then he said,

Matt Mulcock: ⁓ now I feel bad. I’m a Jack guy. like, like Bogle. Yep. Yep. Yep.

Will: or rule of a hundred is undocumented, considered gospel that emerged over time and wealth management. Bogle popularized the specific age minus bond percent, age equals bond percentage formula as a simple way to invest. In his later years, you know that this threadbare rule worked well for him, though he eventually suggested a more aggressive 120 minus age for equities to count for increased life expectancies. 120, so you’d be 120 minus age would put you in an 80 20.

Matt Mulcock: Yeah. Okay, well now I feel bad. I didn’t know it came from Bogel.

Will: which I think we still would disagree with a little bit, obviously. ⁓ It’s closer, we’d probably be maybe 140 minus age or something like that. And I don’t think we should put like a blanket statement on it, but it’s more just your asset allocation is something that you can ⁓ move around throughout your life. It’s important to have a really good plan and path on when you are going to take your foot off the aggressive gas.

Matt Mulcock: Yep. Yep.

Will: But for most dentists that are young and getting going and even like mid-career dentists and even late career dentists, a lot of times the nuance is there to say, let’s keep our foot on the investment gas because we have all these other things on your balance sheet that are
taking risk off your plate. and it’s not a rule that can apply to dentistry as it would to the general public. One thing that I love is a lot of times when you’re a business owner and you sell your business, You can use that as a catalyst to making your portfolio more conservative. So if you sell your business for a million dollars or $2 million or whatever you’re going to sell it for, you can take a chunk of that money after tax and throw it into bonds and immediately take your overall portfolio into this more conservative allocation. So lot of dentists will use timing throughout your life to take their foot off the gas, but I definitely don’t think you should follow this rule with them.

Matt Mulcock: Yeah, this one, again, RIP Jack Bogle, he’s done so much for the industry for real. But this one is so bad. It’s so bad. there’s
just, there’s so much more that goes into this. You’ve just highlighted a bunch of it and there’s so much nuance for a specific dentist, what’s
going on in your life, your cashflow, your role, your business strategy. What are you doing with your practice? What’s your exit strategy? What are your goals around leaving money to your kids? What’s your asset location? What different types of accounts do you have? We could go on and on and on around this idea of like, what should your mix of stocks and bonds be? But this one’s really bad. And I think the reason I say that is, and I’m probably more on this now, is I imagine a 45 or a 50 year old dentist following this rule and what we’ve seen over the last three years in the markets. And let’s imagine they’re, they’re, built up a good sizeable portfolio across these different accounts. And again, they’re 45 or 50 and they’re just following this real blindly. It’s, it’s life changing money, what it’s costing you over time. We’re talking seven, multiple seven figures over time. When you have a run like we’ve had, ⁓ I just, I can’t. I cannot stress enough how much I dislike this rule. I just can’t. Did I do a good job of stressing? ⁓ There’s just so much more.

Will: Yes. That’s great. Yeah, that’s good. This should be a conversation with your advisor. If you’re not working with us, talk with your advisor. Make sure you have a good plan. We’ve interviewed so many prospective clients or new clients that are like, yeah, I don’t trust the stock market. My dad was supposed to retire in 2008, 2009, and then the market tanked and it ruined his whole retirement. My question to them is, if your dad was… you were going to retire the following year, then why were you in a hundred percent stock allocation? So there’s some nuance here, obviously, like you want to make sure that you have the right allocation that takes the right amount of risk for your age and understand why you’re taking that risk and what it’s all for. And if the market does turn, then just making sure we’ve got time to let it come.

Matt Mulcock: Yep. Yep. Yeah, totally. And by the way, I’ve got clients who are near or in retirement who are still a hundred percent allocated equities because their specific situation allows for it. They don’t need that money. It’s for, you know, there are so many things that that might be the case for some dentists, depending on what’s happening with the other assets on the balance sheet, their real estate, their, their practices, things like that. So, ⁓ don’t follow this rule, talk to an advisor. That’s that’s, that’s the message here. ⁓ okay. Next one, speaking of investing, this is kind of a rule of thumb around, ⁓ only invest in what you understand. What do you give thoughts? I have
thoughts, but I want to hear if you have a reaction to this one.

Will: Yeah, I just think it’s not, it’s just not even remotely true. ⁓ Part of the beauty of the global stock market today is you don’t have to
understand everything and you can just coexist with the global stock market and take the returns as they come and the good with the bad and know that over time, over a 10, 15, 20 year period, the market is going to go up. You don’t have to be an expert. You don’t have to be a genius. You don’t have to a rocket scientist to invest in. you the maybe upcoming SpaceX IPO, who knows? Like you don’t have to understand it all and you don’t have to drive a Tesla to invest in Tesla. So it, it, it’s all just to say that’s a dumb rule. ⁓

Matt Mulcock: Yeah, I totally agree. And you’re speaking in the talking about public markets. think this is a good chance to say, we’ve mentioned this many, many times, but I think it bears repeating. There’s really only three places to invest your money, right? There’s private
markets, real estate, and then public markets. And a dentist should invest in all three. They generally have.

Will: Public market terms. Yeah.

Matt Mulcock: private and public, sorry, private and real estate down by the time they’re in their mid career, because they, they own a practice, they own a business. That’s a private investment. They own a home. They sometimes own their building, whatever. They’ve got that down where they, where this rule I don’t think applies very well is in the public markets to your point. I think this can lead Dentist down a road of like, especially like in the private space, making some big mistakes. I will, I will say where I speaking of the private space where I do think this can apply and where we kind of pushed Dentist to, to think about this is when we talk about invest in what you understand, if you’re going to really over index in the private markets, again, your practice being a part of that, I would say invest in dentistry, like build up
your, build up your practice, buy another location. Don’t go out and, ⁓ And, you know, we’ll, I’m not going to mention anything specific of
recent, uh, from recent clients. I don’t want to call anybody out, but we’ve seen a lot of big mistakes in dentists reaching for, let’s just be honest, horrible investments in the private space that they know nothing about. And I guess my thing is if you’re going to over index in the private space, it should be in what, know, which is dentistry in the public markets. don’t think this rule applies at all.

Will: Yeah, I agree. The cool thing about dentists is your dental practice is a private investment. It’s a business that you own, right? Just like any other private investment out there, a business that’s not publicly traded that you own. Yeah, you’re the CEO. So yeah, I agree with that. We see a lot of dentists have a lot of success investing in dentistry, like maybe another location or other tangential.

Matt Mulcock: You’re a CBO. Yep.

Will: dentistry related investments because you have access to them and you do understand the products or the things, right? It doesn’t mean go invest all your money in like these up and coming loops that are getting created or like, you know, going in to try to chase all these private opportunities inside the dentistry. What it does mean if you, if you’re driving the car and you’re in the practice, then you have a much higher chance at a larger ROI on the private side than you do the public side. So we were huge advocates of like reinvest in your business, grow your business. It’s gonna be the best thing you ever do. It’ll give you more income. It’ll create a larger asset value for yourself. So invest in what you know in that sense, your dental practice, but yeah, from a public perspective, don’t.

Matt Mulcock: Yeah. Yeah, exactly. Well, and I think this brings up kind of another nuance that you’ve referenced here that’s not on the list,
but this tension between, you get rich off of concentration or do you get rich off of diversification? know, advisors like us and our team,
advocate, you know, we advocate very much for, ⁓ diversification, but where I think it’s sometimes gets lost in that is this nuance around.
Concentration is actually what makes you rich or builds your wealth. Concentration in what you know and in your skill set and in your private business, growing your income. That’s actually the engine that is going to build your wealth. What you use to protect your future and to protect that wealth and to remove yourself eventually from practice is going to be diversification of things like public markets, which means inherently, if you’re properly diversified, You’re not going invest in what you know, it’s just not possible. That’s not the idea of it, but
concentration in your private business absolutely is the foundation of you being able to build wealth. So it’s not, it’s not these things that
are, they’re not competing with each other. ⁓ okay. Moving on. Got to finish these up. life insurance, the general rule of thumb here, if you
just kind of hear out there, industry standard or CFP, a lot of times we’ll say I’ve heard 10 to 15, but

Will: Yep. Love it.

Matt Mulcock: What I found online was generally the 10 to 12 times your income is the rule of thumb for life insurance Will what are your
thoughts?

Will: Yeah, we think this is a little backwards. We usually predicate your insurance decisions based on how much money you need, not how much money you’ve historically had. And what that means is we usually start the calculation with how much money you spend and the lifestyle that you live rather than how much money you make. So the life insurance calculation, we have an entire fancy spreadsheet that Matt put together around what you know, a lot of inputs that you can enter to show you how much life it spits out of life insurance need. And there’s lots of variables, right? There’s how much money you spend. There’s if you want to pay your house off or not. There’s, you know, if your spouse that you’re leaving behind is making any income. ⁓ What else am I missing? Your current net worth, your current insurance coverage, and you plug all of that in and it spits out a number that we think you need. And it’s predicated more around how much money are you going to leave behind to make clearly make sure your surviving spouse does not have to go back to work. ⁓ And we predicated off this financial independence number that we talk about. And that’s based on how much money you spend, right? So that’s, I know that was kind of a lot, but.

Matt Mulcock: No, that I think that’s great. I think what you’re highlighting is this rule of thumb gives you a general direction, but it’s so this is the word of the podcast. It’s so much more nuanced than that. ⁓ and I’m looking at our, our calculation right now. We’ll use you’re right It’s, know, I’m just looking at the inputs, annual spending, annual spouse earnings, your annual mortgage payoff, depending on if you want to pay off your house, your spent, your adjusted spending, the multiplier, which is the years of support you want to leave for your kids. Then it comes up with your lifestyle, retirement need or replacement need. But then you’ve got to add back your mortgage payoff, other debts, college funding, legacy and lump sum gifts, total gross income need. That’s what it comes up with. Then you’d subtract out your existing life insurance and then your usable net worth, which would be your liquid assets. So just going through that right there really quickly. It’s like, you can’t use a 10 to 12 times your income. There’s it’s, it should be so much more specific that we’ve gone through this with clients before where it’s like, Nope. You don’t need it. You don’t need life insurance. You just don’t need it based on this calculation. So, ⁓ lot more details on this one than just following this, this general rule of thumb. ⁓ same thing, disability insurance. This is a big one in the dental space. ⁓ the, the rule of thumb here, the industry standard is starts at 60 % of your income would be what you’d need for, for, ⁓ disability. I’d say that’s far too low, but well, what are your thoughts on this?

Will: Yeah, same thing. This is based off of income where we would base this off of how much money you spend. So what your need is, right? Like if you were to be disabled tomorrow, what does your life cost? And what do you need to do to keep up with that cost of living, right? If you spend $12,000 a month, maybe you make, I don’t know, $18,000 a month and you spend $12,000 a month. That’s close to 60 % of your income, but it’snot always the right answer. You could make… $25,000 a month and you only spend $12,000 a month. Well, that’s more like 50 % of your income or 45 % of your income. So track it. We say track your disability coverage more closely to your monthly need via spending minus whatever other like passive cash flows you have. Um, so that it gets you to that point where you could theoretically live until, you know, it’s 67 or whenever your disability policy runs out and not have to. rely on anything else and then social security kicks in.

Matt Mulcock: Yeah. Yeah. I, nothing to add there. think 60 % is just too low for most dentists and some dentists to be fair will max this out. So if you’re spending goes well above 20, 20, 25,000 or above disability policies only go so high. That’s usually where they cap. So you got to factor that in as well.

Will: The other thing with disability that we talk about a lot, which this is again, nuanced, but you know, if you have a dual income household, then you don’t need it maybe as much disability coverage. If you get disabled, your spouse, if they’re high income earner or a
dentist as well, ⁓ they’re a built in disability policy. Yeah, you’re going to lose some income off the top and maybe some savings percentage, you know, some savings potential and those kinds of things. But a lot of times you don’t need as much disability coverage if you have a spouse who’s also earning.

Matt Mulcock: Yeah, I love that you added that. Where’s the income coming from matters because I’m thinking of specific clients who are no longer chair side, run their business, own their asset outright, no partners, or even if they have partners and they’ve got a ton of income still coming in, they rely on their hands and their body 0 % now. And so I’m like, yeah, you don’t need disability insurance. Like you just don’t even need it ⁓ in those cases. So.

Will: They get disabled. Yeah.

Matt Mulcock: Before you drop disability, that’s not what we’re saying. Don’t go drop it. That is the idea is to be self-insured at some point
for both life and disability, but please don’t do that. Talk to an advisor, but it is, there is some things you got to think about in your
own personal situation beyond this rule of thumb. ⁓ last couple here, we’ve done a whole episode on this, but we could not do this episode
without talking about Dave Ramsey. ⁓ I think this is the epitome of Dave Ramsey is not talking to you.

Will: You

Matt Mulcock: dentist. He’s talking to the general public. I’ve seen some episodes or some clips from Dave Ramsey actually talking to dentists and it’s literally embarrassing. I’m like, you know nothing about dentistry. He shouldn’t. I’m not saying he should, but the things he’s saying to that dentist and I just, we all know I can’t stand his attitude towards people and how he treats people. ⁓ but he does not understand dentistry. And so, ⁓ some rules of thumb around Dave Ramsey that I think a lot of dentists have followed.

Will: Yeah.

Matt Mulcock: ⁓ is one number one is all that is bad. That’s a rule, a Dave Ramsey ism that just all that is bad, get rid of debt no matter at
all costs. Will, why does this not apply to dentists?

Will: You just can’t be a dentist without debt in today’s day and age. You have to go to school. I mean, maybe if your school’s paid for, then great, but then you’ve got to go get a business loan and there’s no way to do it without getting debt. So debt is a tool in this case to help you become a dentist. yeah, that’s okay. Dave’s not talking to you. You just have to realize that the Dave’s advice doesn’t apply to you. It
applies to the journal public. yeah, like to a certain extent, what Dave’s saying is not. bad. It’s just that it’s too much generalities around all debt is bad where yeah, credit card debt and you know, maybe having too high of a car payment where you can’t even afford to pay off
like your monthly credit cards and things like that. Yeah, that’s bad. Obviously business debt, student loans even to that extent to help you
become a dentist. That’s not all bad. That’s that’s just part of the process to have a high income as a dentist and you’ll go paying it off as you go along.

Matt Mulcock: Yeah, I agree. ⁓ but there’s this concept I heard on a podcast a while back called, ⁓ it, that’s just theory of like advice, hyper responders. And here’s what, here’s what it means. And here’s why I think sometimes I’m not going to say his advice is I’m not going to use the word dangerous, but here’s where it can be concerning sometimes. And this kind of involves this theory of hyper advice, hyper responders is especially in dentistry. The, Dentists who has the mindset who’s going to listen to Dave Ramsey are the ones who probably are all ready, like the ones that are gonna respond to that are probably the ones that don’t need to hear that advice. Like they’re gonna feel guilty, they’re gonna be like, they’re gonna at all costs pay off their debt at the risk of their business or the risk of their overall, you know, to wealth. The ones who are not gonna listen are not gonna listen anyway. So.

Will: Yeah.

Matt Mulcock: That’s where I get a little bit worried sometimes of dentists who follow this is if taken too far and like, let’s say you don’t build up enough liquidity or you’re not investing. Again, I’m not going to say it’s dangerous. Like I’ve said that before in a podcast and I had some dentists come at me, but it certainly can cost you over time, a ton of money, a ton of wealth. So just something to think about there to your point. ⁓ you can’t be a dentist in today’s age without debt.

Will: Yeah. Yeah.

Matt Mulcock: And probably hold that for a long time. ⁓ couple more nuances here to the Dave Ramsey stuff. pay off debt before investing.
Like you have to pay off all your debt before investing. I think we’ve just kind of highlighted that most dentists can’t do that. And if you do, it’s going to be a problem. I think in most cases.

Will: We, we, we talked to a lot of early state, early career dentists who have put all their time, energy and effort into paying off their student loan. And now they’re like five, six years into their career and now starting to think about like what’s next. And, know, their income ceiling has not grown because they’ve just been head down, you know, not, not going to be a business owner or anything, just be working as an associate paying off student debt. it’s, think it just delays the start of your career, you know, focusing on debt will delay your ability to start your career and get your income ceiling much higher.

Matt Mulcock: Yep. And by the way, there’s Dentist out there hearing this that are like, I did this and it worked great. We’re again, talking
generalities here. We’re not saying that this hasn’t been successful for some people. I know people this has worked for. just saying, generally speaking, I wouldn’t follow that rule of thumb. ⁓ and then last one on the debt is that you have to be debt free to retire. We’ve covered this many times. That’s not true. ⁓

Will: It’s fine.

Matt Mulcock: Ideally sure. Like if you’re like in general terms, you’d rather have no debt to retire, but there’s far more that goes into that.
And it’s, it’s broader than just being debt free to be financially independent or to actually retire. I’ve seen many dentists retire with debt on the balance sheet. Any, any thoughts on that one? Will.

Will: No, yeah. mean, again, it’s part of the overall math among retirement is can we afford to pay any minimum debt payments that we have to pay? And if you can, then yeah, that’s totally fine to keep them. If anything, you know, it’s the age-old conversation of do I pay
off debt or do I invest? And if you have money working for you in the market that can continue to get a higher return than what your interest
rate is on the debt, then yeah, a lot of times it makes sense to keep the debt and let the money keep working.

Matt Mulcock: Yep. Yeah. Again, word of the day, a nuance to your, you know, applies to your specific situation. the last one I hesitate to even bring up here near the end of the pod, ⁓ cause it’s a way bigger, it’s a whole episode that we’ve talked about, but maybe we’ll just mention it. then we’ll again, we’ve done episodes on this. can do more on this, but the 4 % rule is a rule of thumb, popularized by a named
William Benjen back in the nineties.

Will: Yeah. Yeah, could be a whole episode, yeah. Yeah.

Matt Mulcock: this kind of is like the North star for a lot of advisors, including I’d say directionally, including us. We actually believe in this, ⁓ directionally, right? There’s, there’s a lot of specific things I’m trying to avoid using this, word nuance, but there’s just so many more personal things to a dentist that again, this gives us some direction. This applies to our retirement readiness or again, what we used to call total term. This actually is the reverse of that. When we talk about having 25 to 30 times your, your annual ⁓ spend. So we like this directionally, but not as like a hard set.

Will: In theory, it’s impossible to get it exactly at 4 % every year. Our calculations actually tend to favor a little more conservative. And then all that’s going to do is give you more flexibility in retirement.

Matt Mulcock: Yep. Yep. the, think what’s up, but we need to highlight here is just, I think this gives us good direction for accumulation
phase, but when you get into withdrawal phase of like, actually climb that mountain and start to come down, you you’re retired. There’s, it’s so much more complex than just like, yep, 4 % we’re good to go. The withdrawal strategy is super complex. So, all right. We covered a lot of rules of thumb.

Will: Yeah. That’s awesome. Lightning round. I felt like a lightning round the whole time. Yeah. One giant lightning round.

Matt Mulcock: It was a lightning round. tried to pack in a lot of, yeah, we tried to pack a lot into a short episode. So hopefully it’s helpful.
think you said at the very beginning, well, ⁓ personal finance is more personal than finance. We’re not saying all rules of thumb are bad too, but to quote the great Taylor Sutterfield from our team, general advice is often really bad specific advice. And so I think that kind of
summarizes like what we’ve talked about here today is like. Gives you some direction, gives you some guard rails, but just be careful
following these like, you know, hard set concrete rules. ⁓ any final thoughts from you on this topic?

Will: Not really. mean, I think it’s, ⁓ I love that line, right? And I think that it’s the power of a human to talk to a human, talk through
something. know with the rise of AI and everything, there’s all different types of, I mean, you can put in all these scenarios into your AI, your Claude or your ChadGBT or whatever, and they’re going to spit out things that are specific to you. But I still think again, we’ll just use it one more time to nail it in the coffin. The nuance is a lot easier to talk through from an emotional, we believe a financial plan is both emotional. and numerical both, what did you call it? Science. What did you say? Physics and philosophy and quantitative and qualitative, right? Like there’s two sides to a financial plan. The numbers don’t tell all the stories. So you can’t be so hard and fast around these rules that may not apply to your situation when you apply it to, when you look through the lens of your life. So make sure that you’re doing both and talking to a human about it so that you can get the right advice.

Matt Mulcock: Like physics and philosophy. Yeah. Yeah, love it. Very well said. And speaking of that, if you’re hearing this and you’re like,
wow, it’s a lot of rules of thumb. Didn’t even know half of those or, I’ve been following this rule of thumb and I need help with my specific situation. This is what we do every single day with hundreds of dentists all over the country. and we’d love to talk to you. So if you’re out there wondering, how do I get help with this? You can go to dentistsadvisors.com click on the yellow book, free consultation button. And talk to one of our friendly advisors. We honestly would love to hear your story and see how we can help you. ⁓ like we do again, hundreds of dentists all over the country. ⁓ and then I’d be remiss if I did not mention the dentist money summit. I should have started with this. ⁓ I
need to get better at this hitting these at the beginning, but, we’d love to have you at the dentist money summit this year. whole new slate
of speakers up in Midway, Utah, practice on your terms is the theme. You can go to Dentist money summit.com. We’d love to have you join us in June in midway for now. Will, thanks for being here and sharing your wisdom. Everyone. Thanks for listening till next time. Bye bye.

Keywords: financial planning, personal finance, rules of thumb, budgeting, debt management, housing costs, car expenses, savings goals, insurance, retirement planning.

Finance 101, Getting Organized