September 2014
Volume 10, Issue 9

The Truth About Debt

5 strategies for minimizing liabilities and monitoring net worth

Jay Geier

When dentists identify their measure for financial success, they often think of their production or collec­tion numbers, their practice’s cash flow, or their take-home income. But all of these numbers fail to calculate the true value of your wealth because you are overlooking the one measure you should actually be tracking regularly—your net worth.

The Scheduling Institute works with thousands of dentists a year and, before coming to us, many didn’t track their net worth at all! And those who do are rarely doing so often enough. Your net worth fluctuates every single day, so when you aren’t tracking those changes regularly (we recommend at least once a quarter), you aren’t truly holding yourself accountable for your own financial well-being, which directly impacts the financial security of your loved ones as well.

So how do you calculate your net worth? It’s simple. It’s all of your assets, (home, jewelry, furniture, cars, investment accounts, etc) at their non-inflated, current values. If you bought a house for $250,000 and it’s worth $200,000—then your asset is $200,000.

On the other hand, you have your liabilities. So, if you have a house worth $250,000 with a $100,000 mortgage loan, the $100,000 is the liability cost. Ultimately, your net worth is everything you own, minus everything you owe. And that is the dollar amount that most accurately reflects the state of your finances.

The trouble really starts when you let your liabilities build up without maximizing your assets. We’ve created five defense mechanisms designed to help you create self-accountability and minimize your debt.

Strategies for Managing Net Worth

The first strategy for successful financial management is being alert and paying close attention to your finances. It might sound simple, but there is a surprisingly large category of people who don’t notice debt creeping up on them until it is piled on top of them, and then they are stuck facing a seemingly insurmountable situation. There’s an easy way to prevent that—just make yourself aware. Daily status reports, email notifications for account balances, and apps or websites like Mint.com make monitoring your spending habits incredibly easy. So there really isn’t an excuse to be caught off-guard when your checking account starts to get low, or your credit card balance gets too high.

The second strategy is something you’ve probably heard of (and often avoid)—it’s called the truth. The truth is that debt is an indicator you’re spending more than you make. Every time you take on debt, there is a fundamental problem occurring. But we’ve built a society that tells us to live beyond our means, regardless of repercussions. To combat that notion, you have to retrain your brain to ask yourself a few questions when making decisions regarding your finances, such as, “Why am I doing this? What is going on? Am I investing in an appreciating asset or a depreciating asset? Why is this debt occurring?”

Your third strategy is to set up an account reserved solely for major purchases. This will help to keep you prepared for the inevitable large purchases you are going to make, both personally and professionally, and prevent you from taking on more debt. When you steadily add money to this major purchases reserve, you are prepared for those large expenses when they happen. And once you use those funds, you immediately begin rebuilding that reserve for the next big thing!

Strategy number four is to build up a solid savings account. That doesn’t sound revolutionary, but you have to consider the power that a strong savings account gives you. If you don’t have the money for a major unexpected expense in your major purchase account, but you have it in a savings account or a liquid investment account, you’re much better off to borrow the money from yourself than you are paying the bank plus interest. Plus, if you’re investing that cash into your practice, it will produce a better return for you in the long run. When it’s sitting in the account, it will gain 1% interest at best, plus you have to pay taxes on it as well.

The last strategy you can use for your financial success is your line of credit. You need a line of credit to grow your practice. Growing requires making investments, but that doesn’t mean you have to constantly use it. Again, this is mind shift for most people who have a “buy now, pay later” attitude. So actively make yourself aware of your line of credit and where it stands.

Making a Strategic Plan

Now if you are reading this and thinking about your pile of debt, just wondering how you will ever pay it off, here is a solution that will work for you. First, list your debts from smallest to largest. Every single day (starting today), transfer money out of your account and start paying the very smallest one off. It can be any amount, just pay something on it every day. Once you’ve knocked out the very smallest debt, start on the next one. Here’s the most important part — allow yourself to celebrate and feel a sense of accomplishment as each debt shrinks. Soon you’ll work your way up to the largest debt and you’ll feel good because you’ve celebrated your success all along the way.

Now I want to be clear, because I don’t want you to misinterpret my advice and refuse to take on any debt. There are going to be some times that it is essential to do so. For example, if you have a teeny-tiny office producing a teeny-tiny amount of money, and you’ve already accumulated a massive amount of debt—it may be necessary to go further in debt to build the kind of practice that would ultimately allow you to pay everything off.

Above all else, the biggest strategy for financial success is an accurate perception of debt, a strategy, and an incredibly aggressive method of paying it off. So many people get trapped because they don’t pay off their debts, and they let one string into another. Debt itself is not the end of the world. Debt is only catastrophic if you don’t pay it off, or only make minimum payments. So whatever your plan, go out there and execute it. Start paying off your debts one by one, and don’t allow them to rule you.

About the Author

Jay Geier, president and founder of the Scheduling Institute, has spent 25+ years helping dental practices develop solutions for sustainable, long-term success. With thousands of dentists already enrolled, the Scheduling Institute has helped practices of every shape and size from around the world obtain the financial success and security outlined in this article. To learn about the first step these dentists have taken to reach financial freedom call 844-242-1992 or go to www.SchedulingInstitute.com.

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