Dentaltown May 2022 - 54

This fact of
another
finance is why so
many allegedly wealthy
people never seem to have
enough money, no matter how
much they make. Celebrities are prime
examples-greed notwithstanding, they
believe that with more money comes more needs.
No, they just have more wants and meet more people
willing to extend them credit, so many eventually crash
and burn under the weight of overwhelming debt.
If you're the person described in the introduction of this
article-confused and frustrated over how your practice can be
making so much money yet you're always fi nancially stressed-you've
probably succumbed to the same and have far too much debt of the
wrong kind. Creditors encourage you to make minimum payments,
which keeps you perpetually in debt and wasting money on interest.
Instead of overpaying for something by paying credit card or
fi nance interest over time, we teach clients to have the discipline
to put money aside each month to accrue enough to pay cash for
something they really want. If you can't bring yourself to exert
the required discipline to save up for it, you should question how
important that something really is to you.
2. RESIDENTIAL REAL ESTATE MORTGAGES
Most homeowners think of their primary residence (and vacation
homes) as an investment that's virtually guaranteed to have a positive
return. If you include everything in the cost calculation over the
years you own it, that is rarely the case. Homeownership comes
with never-ending expenses and is most people's biggest debt and
monthly expense over 30 years.
Few people stay in a home long enough to build much equity,
because the lion's share of every payment goes toward interest, not
principal. That's how banks make sure they make money up front,
regardless of whether you ever do. Every time you move and get a new
30-year mortgage, you're right back to paying the bank instead of
building equity. Likewise, if you refi nance at some point to get a lower
monthly payment, you'll pay hefty fees up front or they get rolled into yet
54 MAY 2022 // dentaltown.com
30-year term
that's to your
disadvantage.
Build equity more rapidly
by upping the payment by
some amount-any amount-each
month, and make sure the bank puts the
extra toward principal. No matter how low
the interest rate, paying down a mortgage faster
than the original term will save you an enormous
amount over the years and ensure you walk away with
more in your pocket when you sell.
Another incentive to increase your equity faster is that you increase
your chances of a net gain if you sell much sooner than the loan term,
which most people do. Selling a house for $500,000 when you still
have a $450,000 mortgage (not to mention a second mortgage or
equity line of credit), plus agent commissions and all sorts of other
fees, makes for a dismal return on investment.
3. CAPITAL EXPENDITURE LOANS/FINANCING
As a business owner, you probably need to have some debt in
the category of capital expenditures. This can be good or bad,
depending on what you're spending the money on.
Smart debt is used for doing things that drive growth by impressing
patients, increasing cash fl ow and improving productivity. At some
point you're going to max out your practice's physical capacity, so
anticipate and plan ahead for growth and the capital investments
you'll need to make to keep from plateauing. For example:
* Student loans (you wouldn't be in business had you not made
the investment).
* Business loan to buy or start up and equip a practice.
* Offi ce renovation that wows new patients and generates
referrals, such as carpet, paint, furniture and décor.
* Addition of treatment rooms so you (hygienists, associates)
can treat more patients to generate more revenue.
Ideally, capital expenses should generate enough additional
revenue to cover the payment, increase cash fl ow and be amortized
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