For the past few years, my savings numbers, I think, have been pretty good. I graduated from law school back in 2013 with zero dollars in savings and $87,000 in student loans. My net worth, obviously, was well into the negatives.
Fast forward five years later and things are looking pretty different. My student loans are gone – paid off in 2.5 years after I buckled down and took action on them. I’ve also managed to sock away $120,000 into my tax-advantaged accounts. And I set up a solid emergency fund – enough to cover at least three months worth of expenses.
If you do the math, that’s a $200,000 swing over the past five years. Couple that with the fact that I took a $50,000 pay cut in 2016, then another $20,000 pay cut in 2017, and it makes that $200,000 swing seem even better.
Obviously, saving money has been important to me. And if I want to reach financial independence, saving money has to be near the top of the list of things I need to do. Over the past few years, that’s exactly what I’ve been doing – aggressively putting as much money away as I can into tax-advantaged accounts while cutting my expenses as much as possible.
Unfortunately, I have a confession to make. In 2018, I haven’t been saving very much money – at least not compared to what I used to save before. Not only have I not been saving much money, I even had to dig into my cash savings, taking basically all of my liquid cash funds down to zero. I’m sort of, kind of, maybe, broke?
So what happened?
To get to the point – my wife bought a dental practice. It was a long and grueling process for her. And as you can imagine, it wasn’t cheap.
Buying a Business
As a bit of background, my wife graduated from dental school about four years ago, then went on to do a general practice residency, followed by a three-year specialty residency. All of this school was expensive. And in contrast to medical residencies, dental residencies are typically unpaid and actually cost money to complete. I wrote a post a few months ago about how my wife’s residency basically cost us $500,000 in direct costs and opportunity costs.
Unlike a lot of dentists who work for a few years before buying a practice, my wife decided to make the leap directly into practice ownership when she connected with an adjunct faculty member who was looking to sell his practice. It’s something that should pay off in the long run – and the more I learn about practice ownership, the more convinced I am that for dentists, practice ownership is the way to go.
The purpose of this background is to make the obvious point that my wife didn’t have a lot of cash on hand to make this purchase. She’s been a student for basically her entire life. And practices come with a lot of transaction costs that you need to pay for – earnest money, lawyers, CPAs, valuations.
Without a lot of cash set aside for these purposes, we did the only thing we could do – we dug into the cash that we did have on hand, including all of the money that we’d set aside as an emergency fund. We’re now really cash light – although we still have some money set aside thanks to all of my side hustles.
Sure, I wish I had more cash on hand, but I’m still comfortable with the choice to use our cash to make this practice purchase possible. And I’ve learned some lessons along the way that I think are worth sharing.
There Are Many Ways To Invest
Like a lot of personal finance writers, I tell people that the path to wealth is to have a good income and invest as much of it as you can. If you have a high enough savings rate, eventually, you’ll have enough money that (in theory) you’ll never have to work again. If you ask me, I’ll probably tell you to max out all of your retirement accounts, then invest as much as you can into taxable accounts (everything, of course, should be invested into low-cost index funds).
Investing in retirement accounts and other traditional investments is totally fine and a smart thing to do. But, I’m starting to realize that this isn’t the only way to invest your money. Nor is it the only right way to invest.
In short, how you use your money is for you to decide. No two people will use it the same. One person might tell you that real estate is the way to go. Another person will tell you the exact opposite. The same is true for basically any investment. What’s important is that you’re investing your money in a way that makes sense to you and that has some evidence to back it up.
For me, being cash poor isn’t ideal. If something happens right now, I’ll have to dig into other sources. But, putting this cash into the business – an investment that can (and should) return much more than any other investment we could have done – is the move that made sense for us, given all of the information we have on hand.
You Can Catch Up Easily
You always hear how important it is to start saving and investing early. And that’s definitely true. But the thing you never hear is just how easy it is to catch up. The great thing about money is that you can always make more of it!
Even though we’re cash poor now, it doesn’t mean we’ll be cash poor forever. Indeed, assuming this practice purchase pans out, money will come back to us far faster than it could have in other ways. These empty accounts WILL be replenished.
And sure, I’ve got $120,000 invested in my retirement accounts. And I’m pretty young, so that’s a bonus too. I’m way ahead of the game, and way ahead of my wife for sure. But will it really be that hard for her to catch up? I don’t think it will be. All she has to do is save twice as fast as I did!
Plans Change – Adjust and Keep Hustling
The thing we should always be aware of is that things won’t always move in a perfectly straight line. Circumstances change. Incomes change. We can’t guarantee that everything will work out exactly how we plan it.
I dove into this whole financial independence world a few years ago. I had a plan in place – get myself a fully funded emergency fund, max out all of my retirement accounts, save 50% or more of my income, and reach financial independence as soon as possible.
Four years ago when my wife graduated from dental school, we had no idea that she’d buy a practice so soon. The idea was that she’d probably get a job for a few years, save up some money, then maybe look around and see what was out there. An opportunity came up though, and she took it. It meant that I had to cut back on my own plan of saving as much as possible.
But that’s okay. Plans change. I just adjust. And then I keep on hustling.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the sharing economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the sharing economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps Kevin uses to track his financial accounts.
- SoFi Money. A really good checking account with absolutely no fees. It also reimburses all ATM fees worldwide. Even better, you'll get a $25 welcome bonus if you open an account and fund it with at least $500.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Dobot. This is a great microsaving app that monitors the cash flow in your bank account and saves away small amounts for you each week. It's free and you'll get $5 when you use it.
- Credit Karma. A free credit monitoring app that everyone should use. It'll notify you of any changes to your credit report and is the best credit monitoring app out there.
Feel free to send Kevin a message here.
Interesting post. I had no idea how dental residencies and practices worked. It sounds like a wise long-term (and hopefully short-term) investment. Best of luck in getting the practice up and running!
I’m at a similar point where we’re about to sink much of our cash into building a backyard guesthouse to rent out. Now that we’re at the point of interviewing contractors, I’m starting to get very nervous. I have to remind myself that we didn’t make this decision lightly and are taking a considered risk.
Thanks Frieda!
Sinking cash into anything obviously carries some risk. But you use it in the way that makes the most sense for your situation. Plus, there’s always more money out there!
Congrats on the practice acquisition!
Cheap? No, but it’s hard to put a price on being your own boss, and she’ll very likely earn a lot more as an employer as opposed to being someone’s employee.
Cheers!
-PoF
Thanks PoF! It’s a big leap for her, and hoping things work out. In the long run, it should pay off. It feels like the dental world is one of the last medical fields where ownership is more common. Much less common for doctors to own their own practice. Same is true of pharmacists, optometrists and vets.
Good luck boss – I’m seriously hoping you’re calling the practice Panther Canines or something along that line 🙂
Haha. Naw, it’s got a boring name.
Good post and a great of example of how things change. There are ups and downs and that is part of the reason I’ve been investing a little more conservatively. When you need the money, you need the money. You are basically “your own bank” and that’s a good spot to be in. Congrats. Looking forward to how you close the gap again.
Thanks Jim. The nice thing is we’re still young, so we’ve still got time on our side. It’ll be interesting to see how things work out.
That’s great! You’re right, there are going to be ups and downs over time (not just with the stock market). When you need the money, you need the money, right? You’re basically “your own bank” and that’s a good position to be in. I look forward to watching how you close the gap.
Congratulations! My wife and I didn’t have the cash available when a business opportunity arose, so we took out a loan to buy a bookstore. However, we should make enough profit in the next year to year and a half to pay off the loan. Then we’ll have to start saving for the next business opportunity, just in case!
That’s awesome! I definitely want to learn more about that – I’d love to own a bookstore! Just a note, we also naturally had to take out a loan to buy the practice, so we’re in some heavy debt here as well.
You guys will be ballin’ outta control in no time, I can see it!
Hahaha. Thanks. I like to think we’re ballin out of control even now!
just don’t get divorced. i jest. we just spent a bunch of cash on house repairs. like over 40k in the past 9 months or so. they had to be done and we had the money but i hate being cash poor. i wrote about it and said “we’re not maxing out our roths this year” in order to live our lives comfortably. the flip side is we did the right thing the past 12 years to feel comfortable with some travel spending vs. roth maxing. all that being said i can’t wait for the cash cushion to be back where i’m comfortable and i didn’t touch the e-fund.
Yeah, I don’t like being cash light either – there’s some comfort in having the cash. But, gotta use it somewhere, and at least I didn’t blow it all on nothing. The nice thing is, that cash cushion will come back eventually!
Hey FP! Has your wife ever considered writing a post for your site? I think it would be fascinating to hear her story going through buying a practice and the first 6 months/ year of owning one. I’m sure she is learning a lot and would have some valuable info to share with other people who might be considering doing the same thing.
The chances of her writing a post for the site is somewhere between 0 and 0.1%, haha. She’s just not into writing stuff like this. But I’ll try to learn what I can and share it!
You should do a post on the financials of buying/starting your own practice. I think it would be incredibly interesting to learn about the ROI potential of this.
Yeah, I’ll definitely do that. My wife kept good records, and should hopefully help people out. Right now, the ROI for dental practices seems pretty legit to me.
She is smart to jump in. It isn’t that much easier later from what I can tell from friends who did that. Also working for someone else can be a paycheck drug that is hard to stop. Now is the time.
I wouldn’t see it as stopped or decreased savings. The expenses or any debt are offset by the value of the equipment or that of the practice based on future revenue streams. You are still making an investment rather than spending it on luxuries or depreciating items. You just changed the form of your asset. Your net worth didn’t suffer and probably should be assessed up a notch if anything. Best of luck to you guys.
Thanks Doc! Yeah, I definitely know it’s an investment and view it as such. It’s sort of like we’re house poor now, except “practice poor” maybe? All of our money is tied up in this business!
Sounds like a potentially great investment! Hope it works out for her. She can build it, and maybe sell it when she gets burned out!
I didn’t include dentists in my top 0.1% list, but maybe I should?
I donno!
Sam
That’s what’s great – dental practices are an asset. Not super liquid of course, but it can sell eventually! And if you are burned out, you can also do like some of the pros do and just hire associates to work.
Dentists might be on that list if they own a practice. 100% of the population has to go to the dentist and the margins are pretty high compared to other businesses. But I dunno either!
Exciting times ahead! We have also just bought into a business (though not a brick and mortar one). It’s definitely a squeeze but like you we think it’s the right move.
Awesome! Did you buy an online business? Is it one that you’ll be working yourself or is it one where you buy it and hire people to work?
I’ve been interested in and following the story of your wife’s school and career trajectory whenever you mention it or write a post about it. This post in particular really meant a lot to me. I’m amazed by her courage and tenacity as she jumps into owning her own practice, but I’m also just… idk what word to use.. grateful? inspired? heart-warmed?… by your support of her. From my own experience, I know what you two are navigating requires a hell of a lot of trust and patience, and I admire you both for it.
Admiration <– that's the word I was going for.
Soon, I will be marrying a wonderful man who, unfortunately, has a decent amount of debt and a long, non-lucrative grad school and post doc career ahead of him. Reading this blog and particularly your wife's story has helped me buckle down and hustle — with the goal of us being debt-free when we get married in a year — without feeling like a crazy person for caring about our financial stability and independence so much.
We're nowhere near the point where you two are yet, but we'll get there. In the meantime, I hope to continue reading more stories of your mutual support of one another, and your successes.
With respect,
MK
MK, thank you so much for your comment! My wife read this and had tears in her eyes, it’s really amazing to know that there are people out there reading this stuff and that, hopefully, what we’re doing inspires others and helps others. You give me way too much credit – she’s the one doing all the work, haha!
Hope to hear more of your story in the future. Sounds like you’re on the right path too. And it’s okay to feel like a crazy person – we’re all a little bit crazy around here!
Kevin
The same happened – drainage of a huge chunk off savings – happened to use when we decided to move to a bigger place. The plan was to not mortgage it with the bank but cover all the cost by ourselves AFTER selling the house that we then owned. It was a real struggle because not only did we dip our hands into our savings bucket but savings paused for at least 10 months. This was in 2016 and now we are back on track to touch FI by the time we are 40.
It happens to the best of us, but I think it’s worth it.
Thanks for sharing Jim. Glad to hear you are back on track!