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.