Dentists, like any other professionals, need to understand the benefits and essential elements of financial planning. Whether you have just set your foot in the profession or planning for your retirement, financial planning is indispensable.
A solid financial plan can help you in wealth accumulation, business expansion, and retirement planning. However, an immediate benefit is a financial freedom that comes from managing your inflow and outflow of your cash.
Lets us learn more about the things should know about financial planning for dentists.
- The sooner, the better
Most young dentists fail to plan their finances in the early years of their careers. The main reason for such procrastination is a lack of awareness about its importance.
Many young professionals believe that financial planning is only related to a retirement plan and should be done in the last few years of their career.
However, this is not true. Financial planning is a much broader term that includes planning for your current as well as future financial goals. Hence, you should commence planning your finances at the earliest.
- Know where you are
The first step to planning is knowing where you stand in relation to your finances. Having a clear picture of your current finances is essential in setting future goals.
Check your tax returns for the past few years and check the registry for the past year. Determine your cash flow every month. This includes taking into account both inflows and outflows. Also, see the areas that can be improved to enhance your positive cash flow.
- Set your future goals.
The next step is setting clear goals and a timeline to achieve these goals. This will set the overall direction for your financial plan. To ensure that you are on the right track, the goals should be broken into subgoals with shorter deadlines.
These goals must be achievable and have a well-defined timeline. Note down these goals and revise them periodically. People change with time, and so does their financial requirement. Hence, revising your goals ensures that they are congruent with your financial needs.
- Know your retirement needs
Most dentists are unaware of the exact amount of money they need for their retirement needs. Financial planning in such a case will prove to be futile.
The average post-retirement life for most people is around 20 years or even more. Hence your retirement plan should be able to provide you with a comfortable life in these years.
It is also important to note that monthly expenses post-retirement will not be the same as your current expenses. Post-retirement years may require a greater investment in your health, and you must account for those expenses in your plan.
- Use the right saving vehicles
There are numerous alternative retirement plans that can help you in your retirement years, like an IRA or a 401(k) account.
The benefit of these plans is that they help your finances grow at a compounding rate and provide you tax benefits. Hence, it is important to invest an adequate amount in these funds to cover your retirement expenses.
- Make sound investment decisions
When it comes to investing, many dentists fail to strike a balance between safety and growth. Having a diversified portfolio can help you manage your risk and achieve steady growth.
Investing in high-growth shares has a greater risk factor attached to it. Hence, if you are in the later years of your career, you should not risk your capital by investing in such shares.
Also, it is essential to look for other investment opportunities apart from the stock market. For example, dentists can invest in real estate and earn through capital gain or even rentals.
These are some of the things that every dentist or any other professional, for that matter, must know to enjoy financial freedom and achieve their future goals.
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