Perhaps this wasn’t the case for  dentists of previous generations (although it has always been important to some degree), but nowadays managing debt successfully is absolutely critical to success in dentistry.

Let’s use an analogy to get a handle on why debt management is important and how it works to help us move our financial situation forward.  Let’s suppose our financial situation is a boat.  We depend on this boat to take us to certain destinations.  It’s basic job is to take us to locations which are generally not far away where we can fish in order to get the basic sustenance we need.  Eventually, we want this boat to take us further.  We want to be able to get to our house (home ownership).  Some day we would even like to take a leisure trip in the boat in order to do some exploring of more distant areas (travel, retirement etc).

In this analogy debt is like water that gets into our boat.  It can really slow us down if we get too much in there.  Bad spending habits and accumulating interest on our debt are like holes in the boat that let more water in.  The motor (be it a simple oar, or a more advanced prop motor) is analogous to our investments and how our money can grow.

Step one is obviously to avoid getting water into the boat.  We should avoid debt if at all possible.  We also need to take care of the leaks in our boat.  Keeping a balance on a credit card or being unable to keep up with interest accumulation on a loan will lead to more water leaking in.  We can bail the water out (paying down debt) but if we don’t plug the leaks then it will never be enough.  In other words, you have to be willing to do what it takes to change the way you deal with debt in order to begin to allow you bailing efforts to get enough water out of the boat so you can be comfortable and to be able to get the boat moving again (with investments and growing wealth).  Can you hear Dave Ramsey’s voice as you read this?

For most dental students there just isn’t enough in the way of resources to bail the water out fast enough.  The large student loan balances pile up and the corresponding interest charges act like leaks in the boat to make things even more difficult.  Do everything within your power to minimize the amount of water that will get into you boat.  This means getting scholarships in college and working to make sure you graduate with a Bachelor’s degree and little or no debt if possible.  When it comes to choosing a dental school many factors will come into play, but one of the absolute top priorities should be to minimize debt.  Choose a public state school over a (supposedly) more prestigious private school if necessary.  Do your homework on costs.  Make sure you know what the true cost of attendance will be including fees, tuition and cost of living.  When you graduate and begin paying down your debt, carefully consider how best to finance this debt load.  Refinancing can help make the holes in your boat smaller by decreasing interest you pay.  Income based repayment options can help keep the debt level manageable and allow you to work on building a practice or even investing, but in many cases this means that while your boat might be getting a boost in horsepower at the engine, there is still too much debt weighing the boat down to get to your destination efficiently.  Often it is better to refinance the loans and throw all of your financial resources at that debt for a few years to bail that water out and really get things under control.  Then, you can put your resources toward an efficient, powerful motor that can really make life fun!

Step two is to start bailing debt out of your boat as soon and as fast as you can.  There are advocates for physicians’ financial well-being who talk about “living like a resident” for some period of years in order to get debt under control and to be able to direct resources at getting a more powerful engine installed on your boat (investing).  I would advocate the same for dentists.  For general dentists you too should live like a resident for a similar period of time.  In fact, I think general dentists could legitimately think of the first 3-4 years after graduation as being a dental resident.  You want to find a job opportunity that will allow you to continue to improve your clinical skills while at the same time earning enough money to pay down your debt.  If you are a specialist who completed a residency then you should continue to live like a resident for at least 3-4 years or until you have debt completely under control.  After 3-4 years of practice your income will be rising, your debt will be receding and you will be in a much better position to acquire an equity position in a practice.  Basically, you have to save more than you spend.   “Thats’s so simple,” you say?  Simple, yes.  But it apparently is NOT easy.  Just look around at your average person or even your average dentist.  Do they spend more on car payments each year than they save in the bank?  You have to be disciplined and have a plan–and stick to it!

Step three is to begin to channel a portion of your savings dollars toward investments for retirement, education and general investments.  Maximize available 401ks, IRAs and the like.  Begin to think about 529 plans to invest for your children’s future educational costs.  The sooner you begin to invest, the longer the power of compound interest can work for you.  Eventually the power of compound interest will send you on to financial freedom and power your boat to wherever you would like to be.

Of course there are many paths to financial success when it comes to investing.  They key is to choose a viable path and be disciplined enough to see it through.  That applies to investing in the stock market just as it does to real estate or even entrepreneurial adventures.  You need to have a plan and stick with it.