Why Your Neighbor’s Lifestyle is a Bad Benchmark – Episode 284

Making money or lifestyle comparisons with others can often be devastating to your finances and even your mental health. However, there are ways to compare that can motivate you to make good financial decisions. On this episode of the Dentist Money™ Show, Ryan and Matt talk about humans’ (and other primates) tendency to want to compare. Learn how to make good comparisons and avoid disastrous ones.

 

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Podcast Transcript

Ryan Isaac:
Hey there. What’s going on Dentist Money Show listeners? Thanks for tuning into another episode of The Dentist Money Show, coincidentally, not coincidentally is brought to you in whole by Dentist Advisors. Dentist Advisors is a no commission, fiduciary, dental-specific, comprehensive financial advisor, just for dentists all over the country. You can check us out at dentistadvisors.com. Today, Matt and I talk about a funny story involving a couple primates in cages eating some of their favorite snacks and how that relates to all of us as humans and how dentist behavior in comparing ourselves and comparing against what other people have, what other people make, what other people pay in taxes, what other people drive, all these kinds of financial decisions that we compare against each other and the implications they have in our own lives and what it means for our future. And then we get into a few areas that are smart comparisons, where should you be comparing yourself? And how can they help you make better financial decisions and prepare for a better financial future?

Ryan Isaac:
So thanks for tuning in. If you’re just joining us for the first time, honestly, thanks so much. Thanks for being here. We hope this is really helpful to you. And as always, if you have any questions, you can go to the website, dentistadvisors.com, click on the book free consultation link, and have a chat with one of our friendly dental-specific advisors. Thanks everyone for being here today. Thanks for tuning in. Enjoy the show!

Announcer:
Consultant advisor, 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. I’m your host, Ryan Isaac. And I’m here with the guy, the enigma, the man you all know as the Hollywood mountain, Matt Mulcock, what’s up?

Matt Mulcock:
What’s up Ryan? The enigma, wow.

Ryan Isaac:
Yeah, it’s new.

Matt Mulcock:
It is growing the-

Ryan Isaac:
Do you know the definition of an enigma? I don’t exactly.

Matt Mulcock:
No, but apparently that’s me, I don’t know. Are you going to look it up?

Ryan Isaac:
Enigma definition. Yeah, we’re doing it right now. Something hard to understand or explain.

Matt Mulcock:
Yeah.

Ryan Isaac:
An inscrutable or mysterious person.

Matt Mulcock:
Here’s the deal, my nickname is an enigma, that’s what it is.

Ryan Isaac:
Ooh. Okay.

Matt Mulcock:
My nickname is an enigma because I’ll have people ask me like, “Hey,” like clients or people that you know, now it’s getting around now, unfortunately, thanks to you.

Ryan Isaac:
It’s getting out there, people know. People know.

Matt Mulcock:
I talked to a client today and they’re like, “Hey mountain… Hollywood mountain Mulcock.” And I’m like, “Dang it, like why… I don’t like this.” And then he’s like, “Where did it even come from?” I’m like, “I don’t know. It’s an enigma.” There you go.

Ryan Isaac:
Nowhere, it’s an enigma. You really said that? You used the word enigma today?

Matt Mulcock:
No I didn’t but I should have.

Ryan Isaac:
I was like, whoa, no way, that was amazing. I think the good sign, we’ll start this episode out with it’s a good sign, you know you have the right nickname, if the person getting called the nickname is just a little embarrassed every time.

Matt Mulcock:
Every single time.

Ryan Isaac:
And the person saying it is laughing the whole time.

Matt Mulcock:
Yep.

Ryan Isaac:
I think that’s just when it’s the right fit and nothing…

Matt Mulcock:
Yeah and it’s not like one of those things where I secretly like it, like no, I absolutely don’t like it. I just, it makes me embarrassed every time. I don’t even know why but I’m just like, I don’t even know where this came from.

Ryan Isaac:
Yeah. It’s a bad… And there’s no George Costanz-ing here, you can’t pick your own.

Matt Mulcock:
No.

Ryan Isaac:
And it gets selected for you and it’s usually not.

Matt Mulcock:
And even if I did, like someone asked me, “What would you pick if-

Ryan Isaac:
What would you pick?

Matt Mulcock:
I don’t… I don’t, just Matt. You just call me Matt.

Ryan Isaac:
Just Matt?

Matt Mulcock:
Yeah.

Ryan Isaac:
I always thought the nickname in this industry, Capital Gainz with a Z would have been awesome

Matt Mulcock:
Dude, see that’s legit. That is awesome. I love that.

Ryan Isaac:
Capital Gainz with a Z.

Matt Mulcock:
Yeah, you can call me tax loss harvesting.

Ryan Isaac:
Tax loss harvesting. Today on the show, I’m going to start off with a story about monkeys and cucumbers and grapes.

Matt Mulcock:
Perfect.

Ryan Isaac:
And I heard this story and you don’t know any of this, which is… you’re just looking at me like, “What?”

Matt Mulcock:
This is like our new trend.

Ryan Isaac:
This is, man. I heard this story and it’s something I’ve been thinking about. It’s something, it’s related to a subject that affects all of us, especially with money. Oh man, especially with money. It affects all of us and all of us differently but man, it hits home to all of us. So I’m going to start with the story first. So I had to look this up because… and I’m not going to say this probably right. No, I’ll probably pronounce it right. Two doctors were doing this study, okay. What they’re trying to do is they’re trying to… the study was focused around trying to figure out responses to inequality, okay? So these two doctors, Sarah Brosnan and Frans de Waal. I think that’s probably pretty correct.

Matt Mulcock:
Oh, good old Frans de Waal, yeah.

Ryan Isaac:
You know Frans. You and Frans go way back.

Matt Mulcock:
I know his work well, yeah. Fantastic work.

Ryan Isaac:
You’re familiar with his work?

Matt Mulcock:
Yeah, not the monkey work but I’m more familiar with his lizard work, yeah.

Ryan Isaac:
His liz… later in life.

Matt Mulcock:
The lizard work he did in yeah, the later part of his career was incredible.

Ryan Isaac:
Okay. Not his monkey work. All right. So these two did this experiment. So it goes something like this. There’s monkeys in cages. This is where it begins. And I’m assuming, when did this take place? Cause I just in my head want to assume this is all very humane and good. I can’t see what year this was done. It was over a decade ago I think though. Cause sometimes I hear of some of these experiments and they’re really fascinating. They’re implications to psychology. And then I hear it was done in like the sixties or seventies and it was inhumane. It wasn’t like good treatment, like there’s this really great experiment with dogs, but then it’s like, not that cool.

Matt Mulcock:
Or humans. Depends.

Ryan Isaac:
I say treat dogs better than humans.

Matt Mulcock:
I agree.

Ryan Isaac:
Okay. So anyway, two monkeys in cages and they’re doing this exercise, they’re kind of training the monkey to do this little quick exercise. The exercise is, the monkey has a little token or little rock or pebble and they hand it to the person through the little cage. And when they hand it to them, the monkey gets a treat. They get a cucumber. And I do not know these things, but apparently monkeys like cucumbers.

Matt Mulcock:
I was going to say is that a treat?

Ryan Isaac:
It’s a treat. Which was… It’s funny, one of my children loves cucumbers.

Matt Mulcock:
You could do this with her. You should try it.

Ryan Isaac:
Yeah, I should try this, I actually know how this would work out. So they do this. And so they kind of go back and forth and the monkeys can see each other, they’re right next to each other. And you know, monkey one passes the token gets a cucumber, totally stoked starts eating the cucumber and munching down, is really happy.

Matt Mulcock:
Dancing.

Ryan Isaac:
Yeah and they’re actually like really excited.

Matt Mulcock:
Taunting the other monkeys.

Ryan Isaac:
And they watch monkey two. So monkey two does the same thing, hands the token, and then the person gives the monkey a cucumber. And monkey one’s watching monkey two and vice versa and monkey two eats the cucumber. So they kind of do this so that it’s like the repetitions in and the monkeys know what’s going on. They just hand it over, they get a cucumber, they’re excited.

Matt Mulcock:
I think I know where this is going. And I’m super excited about it.

Ryan Isaac:
So on one of these rounds here, they hit a certain round monkey one does it, gets the cucumber, they go to monkey two, monkey two hands the rock or the pebble, whatever token, and instead of a cucumber, they get a grape.

Matt Mulcock:
Boom.

Ryan Isaac:
And monkeys apparently LOVE grapes.

Matt Mulcock:
Even more than cucumbers.

Ryan Isaac:
Now do monkeys, love grapes more than bananas?

Matt Mulcock:
I don’t know, man. That’s tough.

Ryan Isaac:
We’ll have to figure this out later. So anyway, they give monkey two a grape. They go back to monkey one, now monkey one’s thinking, oh, the game’s changed. I mean, they’re pretty smart. So it’s like… I’m assuming it’s thinking this because of its reaction in a second, but it hands over the token and it gets handed a cucumber. Which two minutes ago it was excited about the cucumber.

Matt Mulcock:
Oh hell no, I don’t want that cucumber.

Ryan Isaac:
Now, after seeing the grape be exchanged, now the cucumber is like dirt and the monkey actually… And you can see the YouTube videos on this, I think there was multiple experiments of this, there’s YouTube videos, the monkey is upset. It’s mad. It’s like throwing a little monkey fit and then they give the grape again to monkey two, and then it’s over, it’s over. And so the whole study, so here’s how this is going to break down.

Ryan Isaac:
I think there’s a few lessons here to take away, but we’ll get into what we’re going to talk about. The whole study, the point of it is to just illustrate how comparative fairness, I think that’s what they call it, is just really subjective. You know? Like, you’re really excited for what you have until you see the person next to you do the same thing and then get more than you have or better than you have. And then all of a sudden the thing you have that you once liked is no longer good enough, and you’re just like, this thing sucks I want that thing now.

Matt Mulcock:
Hedonic adaptation is like the psychological term for it.

Ryan Isaac:
So explain that cause I’ve heard you say that before.

Matt Mulcock:
Yeah. So hedonic adaptation is in the scientific, psychological definition of basically our tendency to adapt to our surroundings. For an example would be, take any material thing, house, car, whatever, let’s take a car for an example, you get a new car, you’re super pumped about it, and you’re excited for whatever period of time, let’s say a couple of weeks. Well, eventually you adapt to that, it’s just your brain adapts to the surroundings and no longer does that car after let’s say 2, 3, 4 weeks, a month, feel fancy anymore. It’s just your car, right? And it gets you from point A to point B.

Ryan Isaac:
You get used to it.

Matt Mulcock:
And you get used to it, same thing with the house, whatever it is. Basically our baseline expectations continue to increase with our surroundings and we adapt. So there’s, it’s a good thing that humans can adapt so well to your surroundings. But in today’s age, especially when you make a lot of money and you have a lot of material things you tend to adapt. So this is kind of like the scientific explanation for lifestyle creep. We continue to need and want more and more and more because we continue to adapt to our surroundings.

Ryan Isaac:
Yeah. That’s so interesting, man. I mean, anyone who’s listening, just think of… Maybe you’re in the beginning of career, so all you have is negative net worth and a mountain of debt and no income, and an apartment, and you’re like, “I don’t know what any of these things feel like.”

Matt Mulcock:
Right?

Ryan Isaac:
But think if you’re further along in a career, think about the house you currently live in now, are any of you who are living in what you described at one time in your life as a dream house or dream car or, dream salary, right? Like these big benchmarks, like oh, once we get that house and there’s people listening who are living in that house, maybe it’s a certain city, location, maybe you got the pool, whatever, and it doesn’t take that long for that dream thing to just be the new baseline, like you’re saying.

Matt Mulcock:
Yep.

Ryan Isaac:
We’re so incredibly adaptive that it kind of works against us sometimes because now we’re just like, eh, the dream house is cool, but what about the dream vacation house?

Matt Mulcock:
Yeah, exactly.

Ryan Isaac:
Or the bigger dream or whatever. So, anyway.

Matt Mulcock:
Well… And sorry, there’s one last thing to this too. So Nassim Taleb talks about this, he’s written several books and he’s got a fantastic explanation of this. He basically describes, there’s two treadmills in life that we’re constantly on. The first one we’re talking about is a psychological treadmill, hedonic adaptation. But then there’s the social treadmill, which is what you’re talking about with the monkeys. And both of those work against us all the time. So like you’re describing with this dream house. It is a dream house when we’re looking at it from the perspective before we buy it. Then we buy it, we’re in the house, again, hedonic adaptation kicks in psychologically, but then we start noticing on Instagram or whatever, these social media outlets, maybe our friend from dental school-

Ryan Isaac:
The primates next to us, in the cage next to us.

Matt Mulcock:
Yeah the primates next to us, and that’s the problem. They don’t have to even be physically next to us. They’re next to us digitally, like via Instagram, we start to see their dream house and we’re like, well, dang, their dream house looks more like a grape, and ours starts to look more like a cucumber. You start to feel… So you’ve got the psychological just natural adaptation, but then you’ve got on top of that compounding even more, the comparison to other people socially and it’s just a treadmill you never hop off.

Ryan Isaac:
We can’t. And we’re probably in a point in our society where comparison is probably more than it’s ever been. Who knows if it can get worse, like actually comparing things. I mean, there’s just a window into, everyone’s shiny, perfect lives constantly through social media. It’s tough. So takeaway number one, which is not the point of today’s episode, by the way, but it’s obvious that just acknowledging and recognizing that these things happen. And maybe actually we could take a few minutes besides the obvious, because the obvious one is, and this affects all of us. We see everyone else’s grapes, and then all of our stuff looks like cucumbers, like you just said. And that’s different for everyone. For me, I’m not a big… I don’t really care about house stuff, it’s not my thing, but if I see someone on social media doing extravagant, adventurous travels with kids, like repelling in some cave in the middle of an island somewhere.

Matt Mulcock:
You’re like, “What am I doing?”

Ryan Isaac:
I’m like, “What am I doing with life, man? My kids had never seen that cave.”

Matt Mulcock:
Yup. That cave is probably so cool, I bet that’s a life changing cave.

Ryan Isaac:
Yeah, my kids will be better humans in their future if they see that cave too, or if I teach them how to ice climb glaciers in Alaska, I have no idea what I’m talking about by the way. So we all have our different things, but acknowledging and kind of accepting that those are feelings and then not making financial decisions based on those feelings, not carrying those around and then making financial decisions, which might sound like, “Okay, who does that?” But so many of us do that.

Matt Mulcock:
Everyone.

Ryan Isaac:
We carry these feelings with us, whether it’s the house, the car, the vacations, the dream home, the practice, the career, whatever it is. And then we hold onto that and carry it with us and we make financial decisions based on these kind of weird, unreal… Like our cucumbers are fine. They’re fine. It’s just, you saw a grape and now- We liked the cucumbers before, we were happy to hand the token over for a cucumber before.

Ryan Isaac:
Just barely. He was just fine two minutes ago. And then we’ll go out and we’ll do things that maybe might not be super healthy for us financially or otherwise, in order to get the grapes. And so that’s one thing. I wanted to take a segment of this and talk about a few comparisons, like actual financial comparisons that a lot of dentists will do with each other, that are also not healthy, besides these kind of bigger, more philosophical comparisons to life in social media and that kind of stuff. And you can throw a few out here. I’ll just start with a couple that I think happen a lot that are unhealthy for people to compare to. So let’s just start with one of them would be… Well, here’s the funny thing, a lot of these aren’t even measurable, but we just hear things. So let’s just start with income. So, dentist A talks to dentist B, and before the conversation, dentist A’s feeling pretty fine about their income. “I worked really hard and built this practice, yeah I’m doing great, I have some extra money.”

Matt Mulcock:
Yeah, I drive a Subaru. I’m killing it.

Ryan Isaac:
Got a Suby. Nothing wrong with a Sube.

Matt Mulcock:
There’s nothing dude.

Ryan Isaac:
They can go anywhere.

Matt Mulcock:
I’m in the Subaru state. The Subaru capitol of the US.

Ryan Isaac:
Really?

Matt Mulcock:
Which is Utah.

Ryan Isaac:
Utah?

Matt Mulcock:
Yeah. I’m pretty sure.

Ryan Isaac:
Really?

Matt Mulcock:
Subaru is everywhere here.

Ryan Isaac:
Yeah. I mean, I would have thought maybe some Oregon or Colorado or something.

Matt Mulcock:
Maybe the Pacific Northwest has us by a little bit but it’s pretty close.

Ryan Isaac:
Pacific Northwest.

Matt Mulcock:
It’s got to be close.

Ryan Isaac:
All right. So income’s fine until you talk to your friend and then you hear that the friend’s income is a certain number, and then all of a sudden it’s not okay anymore. And you’ll see… This is kind of what I was saying before, then all of a sudden dentist A will kind of carry this negative emotion about income, where it might force them down a path of, I don’t know, building more locations than they’re really built to handle, or ready for, or cut out for. Or they’ll kind of push down a career track to be like, “I got to get my income up because it’s not good enough anymore.” And the funny thing is our experience would tell us that most dentists don’t really measure their income correctly.

Ryan Isaac:
So when I hear comparisons like this, I’ll tell you another one, and then if you’ve gotten it on your mind, I’ve got a few, but another one would be tax rate or just taxes. All the time we hear people say, my friend makes the same amount of money as me-

Matt Mulcock:
And they pay no taxes.

Ryan Isaac:
But they pay no taxes. They paid 50% of my tax bill, what’s going on? And the first thing I think of is how on earth does your friend know what their tax bill is or their income, or what that percentage will be-

Matt Mulcock:
Are you swapping tax returns with each other? Cause you, I mean-

Ryan Isaac:
Yeah.

Matt Mulcock:
Are you comparing?

Ryan Isaac:
I mean, most people don’t understand what their actual income is or their tax bill or why it’s high or low-

Matt Mulcock:
So many variables there.

Ryan Isaac:
So many variables. So, I guess the point of what I’m trying to say is, there’s some specific ways we do this financially, we see dentists do this financially, and a lot of times it’s based on information that’s not even verifiable. Or the source doesn’t really… I mean, my experience would tell me that people don’t know their incomes, they don’t know their actual tax numbers, and they definitely don’t know if the percentage of their income that they pay in taxes is normal for their situation. And it’s so nuanced. It’s so nuanced that it’s almost impossible to compare completely. So those are a couple, I was thinking of, any come to mind for you, specific?

Matt Mulcock:
Yeah. So I want to hop on your back and piggyback off of one of yours.

Ryan Isaac:
Let’s do it.

Matt Mulcock:
I just want to give the people a visual there.

Ryan Isaac:
Yup.

Matt Mulcock:
So-

Ryan Isaac:
Did we already talk about that in another episode?

Matt Mulcock:
We did. I think it got cut so I’m trying it again.

Ryan Isaac:
Piggy back rides.

Matt Mulcock:
I’m trying it again.

Ryan Isaac:
The producer did cut it.

Matt Mulcock:
Yeah.

Ryan Isaac:
Try to cut… We’re going to say it every week until it finally makes it in an episode.

Matt Mulcock:
We’re going to say it every week until it gets on. Like a visual of me on Ryan’s back getting a piggyback.

Ryan Isaac:
Piggyback rides.

Matt Mulcock:
So we’re just putting them to work, they’ve got to try to cut as much as the back and forth that we have. So the first thing I’d say to your point about income and that’s a perfect one, for sure. I’m curious because when I think about that, I’m like, do you really think that it’s them talking about income? Like actually swapping, “Here’s how much I make, here’s how much I make.” Or, is it perception of income?

Ryan Isaac:
That is… I forgot I was thinking about that exact thing when I was thinking about this subject a couple of days ago, and that’s exactly what I was thinking about. No. Expand on that, but no I don’t think it’s-

Matt Mulcock:
Yeah so I don’t really sense… Now maybe, maybe good friends from dental school, really good buddies are going to swap, “Hey, I’m collecting this or I’m doing this, or my income’s this or whatever.” But I think more likely is, dentist A has a perception based on external factors, like what they’re seeing on Instagram or vacations they’re taking or whatever, or car they’re driving. They have a perception of income. And the reason I bring this up is I hear this all the time from my clients, “Hey, my neighbor is a PEDO and he’s driving this and he’s going on vacations all the time. Like, what am I doing wrong?” So they have a perception, this person makes more money than them because of the way they’re acting or the way that they are flaunting their money.

Ryan Isaac:
Yeah.

Matt Mulcock:
And so it-

Ryan Isaac:
Or just the yeah, their lifestyle.

Matt Mulcock:
Their lifestyle. And they have no idea that person could be broke and spending every last dime they have. So that’s-

Ryan Isaac:
Or they could be insanely liquid and still have enough money left over for nice cars and big homes.

Matt Mulcock:
Yeah, they could be.

Ryan Isaac:
You have no way to tell.

Matt Mulcock:
You have no idea because as the great Morgan Housel says, “Wealth is what you don’t see.” So you’re seeing them being rich and have a high income. And again, you have no clue what’s happening behind closed doors or what’s in their investment portfolio. Which, brings me to my next one. I piggybacked off you on that one and then the one I thought of was investments.

Ryan Isaac:
Yeah. Yeah returns?

Matt Mulcock:
Returns, or, “Hey man, I’m crushing it in crypto or I’m crushing it in whatever, GameStop or insert whatever the hot thing is now. I just had a conversation the other day about this very thing, this again idea or perception that someone’s doing something with investments and they’re getting something that I’m not in these massive returns on something, I think that’s a big one.

Ryan Isaac:
Right. Well, I’m glad you brought up those two things. I’ll go back really fast, basing some of our assumptions on perceptions, like things that we can’t even quantify or measure at all, that is just such a human thing to do.

Matt Mulcock:
Oh totally.

Ryan Isaac:
We do that so bad. But it’s really common. And then the investment thing is really, I mean, that’s a real thing. We hear that a lot as advisors. This goes without saying, I hope, but if not, I want to make the disclaimer here that this isn’t like poking fun at people.

Matt Mulcock:
No.

Ryan Isaac:
This isn’t mocking time.

Matt Mulcock:
There’s another time for that. That’s for later. We’re going to do our mocking time later.

Ryan Isaac:
That’s for later. But no, this is what happens, and these are the kind of mental traps that a lot of dentists that we work with and talk to get into. So we’re trying to just shed some light on it and basically just say you’re not alone. And it’s a very human thing to behave this way and think this way, we’re just trying to offer some perspective. Like, this can get you into some trouble, but the investment thing is real. And there’s no education around investments. If you ask the average person out there, I’m just assuming, ask the average person out there, “What kind of returns does a stock market, does the S and P 500 or the world stocks get over a 20 year period of time?”

Matt Mulcock:
I believe it’s pronounced stonks, Ryan.

Ryan Isaac:
Stonks?

Matt Mulcock:
Yes.

Ryan Isaac:
Or what’s a good return in a stock market portfolio? There’s just no education, there’s no context around this stuff ever in anyone’s life, unless you pursue it as a career, or you spend a lot of hobby time on it. But it’s really common for clients to call and be like, “Yeah, I don’t know, what are my returns? Because my friends getting like 37% a year, and it’s just so steady and it’s so safe and there’s no risks.”

Matt Mulcock:
Yeah. Oh yeah, no risk whatsoever. It’s so nuts how he does it.

Ryan Isaac:
Or someone will be in an investment that does get an exceptionally high return, but not realize that, that return, you don’t get 40% a year for 50 years.

Matt Mulcock:
Yup.

Ryan Isaac:
Like it’s not a 50 year investment.

Matt Mulcock:
Yeah.

Ryan Isaac:
You know.

Matt Mulcock:
Also, really quick, and also don’t confuse luck with skill.

Ryan Isaac:
Luck and skill.

Matt Mulcock:
Right. I mean.

Ryan Isaac:
Well that’s what I’m saying about this basic… There’s no education around this and so it gets really, you get wrapped up in all this emotion of like comparing your cucumber to someone else’s grapes, and then you’re kind of just getting into this emotional conclusion of, well, maybe super high returns are sustainable for an entire lifetime, and why don’t we just get those instead? Or…

Matt Mulcock:
Yup.

Ryan Isaac:
I mean it’s really, really tough. So I’m glad that you brought up that point since it’s important to mention. Here’s what we want to get to, to kind of wrap this concept up though. And that is in this discussion of comparing things, there are healthy things that you can compare. Little sneaky, spoiler alert though, here, that’s just your own stuff. You’ve got to compare your own stuff. All right.

Ryan Isaac:
This is an important announcement from the dentist money show podcast system, go to dentist, advisors.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 it’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 like an emergency.

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

Ryan Isaac:
Okay. So here’s a couple things to compare that are healthy. One of them, and these aren’t, I mean anyone who’s tuned in before is going to be like, okay good, these are the things, I’ve heard this before. One of them is what we call a savings rate. So the comparison here is the amount of money that you save per year into some kind of investment, long-term investment, we could define that maybe a little bit, compared to the income that you earn. Now, why is this important? Well, we know from doing this job specifically for dentists for so long that in order for a dentist who carries more debt, has higher taxes and does spend more money than the average person, a lot more money than the average person, they’re going to have to save a higher percentage of their income in order to accumulate enough wealth for the future, to keep spending that way. Because the dentist, I think right now our average dentist among our clients, spending is like 18 grand a month, on average.

Matt Mulcock:
Yeah. I think it’s probably pretty close.

Ryan Isaac:
Which is a little self-selecting, the people who hire us might be, tend to be more successful or collect more, earn more, I don’t know.

Matt Mulcock:
Cooler. They tend to be cooler.

Ryan Isaac:
Cooler. They might just be cooler people.

Matt Mulcock:
Just all around great people.

Ryan Isaac:
Yeah. But that number is not going to go to like 5,000 bucks once they decide to stop working one day. But a retired teacher who made a lot less money in their life over a lifetime might live on five grand and some social security later and be totally fine. But those are two things that should be compared in order to know that the outcome is healthy. And I think what happens, you can go, all right, I’m going to know how much I’m saving compared to what I earn, what is my savings rate? And maybe it’s a 20%, maybe it’s a 27%. Maybe it’s a 6%, whatever. But when you have that number, then you can be kind of satisfied with your own data and your own like wealth accumulation, your own progress, financial progress, and know that, that’s a real thing to compare to that’s fruitful.

Ryan Isaac:
Like it’s fruitless to compare to your friends house and car. And vacation pictures on Instagram. Like that’s fruitless. It doesn’t matter. It’s irrelevant. It doesn’t signify anything because we don’t even know what that measurably means. But tracking your savings compared to your income every year is really helpful. And when we say savings, easy to monitor stuff is money that goes into investment accounts, your 401k, brokerage accounts, IRAs, ROS, whatever, kid’s savings, money you’re saving for your kids. That’s one thing on the top of my mind that is healthy to compare to, it is healthy to look to these things, but there it’s your own data. I have two more Matt, but any way you want to say? And if you don’t that’s okay.

Matt Mulcock:
Yeah. I think another one that I have that I think will probably be on your list as well, kind of along the same lines of tracking your net worth and tracking the progress. I think comparing when we talk about comparing, a healthy comparison would be quarter to quarter. And tracking it over time. So if you are tracking your net worth, so you’re adding up all of your assets minus-ing all of your debts comes up with your net worth, and you’re tracking that let’s say four times a year, every quarter is a pretty normal time to do it, that’s kind of what we recommend. Let’s say we’re at the end of 2020, or sorry, the end of 2021 and then you look back and you say, okay, my net worth now is X. Let’s say it’s a million dollars at the end of 2021, and you look back and you’ve been tracking that data, and you say at the end of 2020, it was $800,000.

Matt Mulcock:
Awesome. Now you’re comparing, that’s a healthy comparison. You’re comparing the progress with your own numbers internally and not with, with no other factors other than what you can control and what you’re doing to move that number up.

Ryan Isaac:
Yeah. And what’s cool about I was going to say the same thing net worth, I was going to relate it also to, I’m glad you brought it up net worth compared to previous older net worth. Because that’ll tell you something about a projection. I mean, everyone wants a projection of where am I headed? When can I retire? When is a big question, besides the can I? Assuming we can one day.

Matt Mulcock:
Yeah.

Ryan Isaac:
When is that going to happen? There’s a lot of ways to do financial projections. There’s no shortage of calculators or software that you can go online and plug in numbers, and if you don’t like the outcomes, you can just fudge the numbers, change them.

Matt Mulcock:
Yup.

Ryan Isaac:
Change the inputs.

Matt Mulcock:
No, I’m not going to spend that in retirement. I’m going to go ahead and spend $5,000 less. Oh, wait, I can retire right now. Weird.

Ryan Isaac:
Change the spending, oh it looks better. Or, you know what? I kind of, I’m going to juice up that rate of return a little bit. I’m going to lower inflation.

Matt Mulcock:
Yeah. My neighbor’s getting 17% every quarter. I think I’m going to get that. Yeah.

Ryan Isaac:
Let’s assume.

Matt Mulcock:
Yeah, let’s assume.

Ryan Isaac:
Yeah let’s assume that. So there’s no shortage of those things, but one thing that’s cool about comparing, again we’re just judging ourselves here, this is healthy comparison.

Matt Mulcock:
Yeah.

Ryan Isaac:
And so comparing your current net worth to your previous net worth, especially if you’re doing it at regular intervals or iterations, because you can see patterns and progress. And of course life will change. I mean, at some point you’ll change your assets, your debts, your spending, whatever, but it does start to tell a story. And so if we know, let’s say by the math, because the other thing I was going to say is comparing your net worth to your spending is something that we do a lot, it’s one of the most important indicators that we track for people. We call it total term. And it’s just net worth divided by spending, which will tell you how many years of net worth, or how many years of spending you have in net worth.

Ryan Isaac:
What multiple of spending do you have in your net worth? And when it’s high enough you can be done working. And so when we know the target, let’s say the target’s a $5 million net worth. We know that net worth will cover your expenses indefinitely, and that’s a comfortable way to retire. And you’re currently at a million dollars of net worth. Well tracking like you said, every quarter, do that for a few years and you’ll get a good sense on how fast that’s growing every year. And it’s going to grow by new cash added to your investments, investments growing just in capital appreciation, and debts going down, those are the three ways your net worth’s going to grow. So if you’re at a million and you know you’ve got to hit five and then you’re tracking this thing and you can see every quarter, you’re growing $87,000 on average every quarter, then you can kind of project a little bit based on actual past behavior that has nothing to do with guessing market returns, tax rates, inflation rates, future spending.

Ryan Isaac:
You’re just saying today’s dollars, today’s spending, how fast is my net worth growing? So comparing net worth to your own spending and comparing your net worth to previous net worth is one of the most important.

Ryan Isaac:
And I was just going to mention three here. I’ll just give our last one and then you can pile on any more that you want, but I think these were in my mind, the three most important comparisons you should do. So again, savings rate, income and savings. Number two is net worth and net worth and spending, so you can get that kind of multiple.

Ryan Isaac:
All this stuff by the way is at dentistadvisors.com. If you’re listening, and you’re like, “What on earth are you talking about?” If you’re new…

Matt Mulcock:
If you’re new-

Ryan Isaac:
First welcome.

Matt Mulcock:
Yeah we give you a welcome. We always have to throw a welcome out to the new people.

Ryan Isaac:
Should have welcomed you in the first place, but really thanks for being here and if this all sounds a little confusing or a little bit much, just go to the website, it’s all there. Tons of education and content. But we’re talking about the last one I was going to say though that has one of the greatest impacts on your financial life and future as a dentist is comparing your actual gross income to the amount of money your business collects, revenue. And if you have multiple businesses or real estate properties, all that kind of stuff, it gets even more complex. And it’s, by the way, your income is not the number that goes on your tax return that you pay taxes on.

Matt Mulcock:
Yep. We did an episode on this a while back, not too long ago.

Ryan Isaac:
Yeah, somewhere in there. I wonder what, I don’t know what that episode would be, go to dentistadvisors.com search in the education library, and you can find out all about how to calcu… Oh, I think it was on how to calculate a dentist income, right?

Matt Mulcock:
Yep.

Ryan Isaac:
Something like that.

Matt Mulcock:
Yeah.

Ryan Isaac:
Yeah, check that out on the website. But this is maybe one of the most impactful things, because basically we’re talking about profitability, and we’re talking about how healthy your practice is and is enough gross cash coming out of this business? And if that number is off, even a few percentage points for a sustained period of time, I mean, if you’re running, three to 5% too low of profitability for decades, that is probably millions of dollars of net worth that didn’t get translated to you.

Matt Mulcock:
Adds up real quick.

Ryan Isaac:
So it’s such a big deal to do that. Now our job, at Dentist Advisers, we’re a no commission, fiduciary, financial planner, and we’re an investment advisor just for dentists, we don’t coach dental practices so, if hygiene’s broken or front office needs some help or you need help hiring a marketing, there’s professional people, we love and trust, and we could connect you to. There’s other people that do that job. But what we’re talking about is just measuring the stuff, and this is very much one of our jobs as financial advisors, is to just have a handle on what is gross income every year and kind of understand, is it a healthy percentage of your revenue? Because again, even if it’s a few percentage off, the numbers are so big that, that’s a big chunk of money that can be saved, invested.

Matt Mulcock:
Pay down debt.

Ryan Isaac:
Pay down debt with it over time and it just makes a big difference. So if your business, I don’t like to use the word broken, some are broken, but if it’s just not optimal, it’s not efficient, it’s not operating at the highest efficiency levels. Like you got to fix it, quick.

Matt Mulcock:
So all these things are interconnected, but the biggest thing that I’m taking from this as you’re going through all these things is, and what I talk to people about all the time, and this kind of connects with the whole theme of what we’re talking about with the monkeys in the cages, is figuring out what game are we playing here? When we talk about, so what I mean by that is there’s really two games that you can play, you can either be playing the wealth game as you call it. So that’s a game that everyone can win, it’s not a zero sum game, you can be wealthy, I can be wealthy, it’s subjective, right? So I only need a certain level of wealth as we talked about based on my spending and my values and my needs and my goals versus yours might be different, but we both can win that game. It’s like we both can get that ribbon and that trophy, that participation trophy.

Ryan Isaac:
Yup and yours might be 3 million, mine might be 10 million. I need $10 million to be wealthy because I spend too much money, you only need three because you’re a miser and you’re smart.

Matt Mulcock:
Yeah, I’m a piker, as they say.

Ryan Isaac:
You’re a piker.

Matt Mulcock:
I’m a piker. Still don’t really fully know what that means.

Ryan Isaac:
But we can both win.

Matt Mulcock:
But we both win, we both get a trophy.

Ryan Isaac:
Yeah I like that.

Matt Mulcock:
And we all know that’s important nowadays.

Ryan Isaac:
Yeah, everyone gets a trophy.

Matt Mulcock:
But the other game that people fall into and they don’t realize that they’re playing two different games, the other game is the status game. And that is a game you can’t win, you will lose it every time. Because there’s always something to compare that you don’t have or that someone else has and I’m not even talking about money.

Ryan Isaac:
I like that concept of that it’s not a zero sum game. Everyone can win it. That’s really cool.

Matt Mulcock:
Yeah.

Ryan Isaac:
All right. Well, thanks for indulging us in a little story about the primates and the monkeys and the cucumbers and the grapes. And hopefully what we’re taking away from this is there are healthy ways that you can make comparisons in your financial life to actually get ahead and make good rational decisions. And if you’re hearing some of this stuff and you’re feeling confused or overwhelmed, that’s totally okay. If you’re like 99% of the audience and you’re a dentist, then you went to school for 10 years and none of this was in it. And you have a, probably a lot of debt.

Matt Mulcock:
They did not talk about monkeys getting grapes and cucumbers.

Ryan Isaac:
If you have a busy job to do and if you own a practice then it’s even busier and you have so many things going on in your life and outside of the practice, you have a lot of stuff going on, that’s why we exist, is to take the stuff off your plate, to measure and track and organize this stuff, and then talk to you about it throughout the year for all of your years, so that you don’t have to worry about it and it gets done the right way. And so you can make smart financial decisions with data and getting the emotions out of all this stuff. And I think you were saying this earlier, Matt, maybe, maybe this is a previous conversation before we hit record, but a common response that we get from people is just how nice it is to just settle down a little bit.

Ryan Isaac:
This happens weekly, we get on a call and it’s emotionally charged for some reason or another, right? There’s just something going on this person’s feeling emotional about something, about money and decisions, and by the end of the call, it’s like, “Ah, this just feels so good to just chill out a little bit, have someone to kind of talk me down a little bit. Let’s just get back to a baseline and I feel so much better. Thank you.” That is a weekly occurrence between advisors and clients and that’s what we’re here to help you accomplish.

Ryan Isaac:
So, anyway, thanks for tuning in to another episode of the Dentist Money Show and if you are new, if you are joining us for one of the first times, and really thank you for being here, we have a ton of this stuff, been doing it for five years, go to dentistadvisors.com for any more episodes or any other platform you listen to it on. And as always, if you want to chat with us, just go to the website and click the book free consultation link, and let’s have a chat sometime. So Matt, the Hollywood mountain, the Mulcock enigma thanks for being here.

Matt Mulcock:
Thanks Ryan.

Ryan Isaac:
Thank you all for listening and we’ll catch you next time. Take care. Bye-bye.

 

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