Justin Rust: Straight (money) talk to a new dentist

I’m frequently asked what advice I would give to a new dentist. I compiled this list based on my years of experience advising dentists on their personal and practice finances and hearing, “I wish someone had told me this sooner.” These pointers should help you make thoughtful financial decisions, largely without regret.

Establish an emergency cash fund.

This should be in a separate account from your everyday checking account, only to be accessed in dire circumstances. You want to have three to six months of spending saved in the event that you lose your job or get sick.

Buy insurance while you’re healthy and young (it will never cost less).

Protect your ability to create an income. Make sure you have your disability income insurance in place, as well as other insurances such as professional liability (also known as malpractice).

Invest in your career before you invest in the stock market.

If that means opening a practice or buying into an existing one, take care of that goal. Create a healthy and recurring income stream, then worry about investing it.

Live within your means, so you don’t have to make painful “lifestyle cuts.”

Many students come out of school with huge school loans, and most of those students end up choosing income-based repayment (IBR) plans. IBR keeps your initial payments quite low but can falsely lull you into thinking you’ve got extra cash to burn. Some dentists end up spending their (false) “cash surplus” on cars, houses and other things. You will need to pay off your loans, and your loan payments will eventually increase, and if you don’t factor that in from the start, you’re in for a surprise.

(Eventually) you’ll want to save 15-20 percent of your income for retirement.

This doesn’t mean you have to start putting away this much money toward retirement the minute you get out of school. Assuming you pay off your student loans in a reasonable time period (say, 10 years), you can then divert the money you were setting aside toward loan payments and put them toward retirement.

Pay off your credit card bills every month.

If you can’t, that’s a surefire sign that you’re overspending. Set aside money gradually for large ticket items such as vacations, so you can pay for them before you go, not when you come back.

Create a budget.

There are so many software programs out there such as Mint.com. Some of these systems can even link to your bank accounts. Make a budget on your own or find a financial adviser to help you.

Buy a house or (new) car that you can truly afford.

The last thing you want is to buy a huge house and not have any money left over after making the mortgage payment. Build a sound financial foundation with emergency reserves, proper insurance and a suitable savings program before you commit to a house or new car.

Use tax-advantaged plans to save for retirement.

401(k), IRA, Roth IRA and other tax-advantaged savings plans through your employer (or your own practice) can reduce your taxable income and help you save for the future.

Learn about the cycles of the stock market.

A good financial adviser can help guide you through the cycles of the market, so that you don’t panic and lose sight of the big picture when the bottom (inevitably) falls out.

Don’t use Facebook to measure your progress against that of your peers.

It feels like everyone lives a perfect life on social media. Stick to your own goals, live your own life, and you’ll be happier without worrying about keeping up with everybody else.

Don’t bank on retiring from the sale of your practice alone.

Dentists generally don’t earn great multiples of income on the sale of their practice, so having a solid retirement savings plans is important. Also, it’s common to underestimate how much money you will need in retirement. Bottom line: save, save, save.

Work with an experienced financial adviser on a personal financial plan.

Seek good financial advice early on with people who understand your occupation.