I want Freedom, but I'm Debt-averse
speak with many people who are playing it safe today when it comes to financial planning for dentists, retirement and more.
They want to stay in a comfort zone.
You could say they’re debt risk averse – kind of Dave Ramsey-esk.
Are Dave Ramsey’s teachings good or bad?
He's neither, or more specifically, it depends. I think Dave Ramsey does a lot of good in helping people who are working paycheck to paycheck, and never learned how to budget and how to use credit appropriately. He helps them get out of consumption debt.
On the other hand, the proper use of debt is one of the biggest leverage points that one can make in gaining equity, acquisition of assets, growing investments and growing an estate. In the end it’s all about turning that growth into buying back time.
For those who want to be conservative, not utilize debt, be disciplined, and save, save, save —all of that is good.
But when it comes to financial planning for dentists and others, just implementing that very “safe” model doesn't get people to where they want to go.
I have the privilege of looking over the shoulders of hundreds of hardworking, relatively high income professional practice and business owners. These individuals work hard to provide wealth for their families, but the problem is, there's no exit off the hamster wheel.
They've never ventured out to learn how to acquire and invest in other assets besides the asset that is themselves.
Eventually, you need to be able to translate the equity you’ve built up through years of hard work into passive income that creates Freedom of time.
The conventional wisdom focuses on piling up assets, putting money in a 401k, annuities, whole life insurance, and the stock market. It’s all about accumulation of assets, crossing your fingers that one day you will have “enough.”
But how much is enough? Most have no clue.
What is your financial advisor telling you?
Many will tell you that you need six, eight or ten million dollars. Maybe more, now with inflation kicking in.
For many of the average, hardworking, professional practice owners out there making half a million dollars a year… you’re not going to get there.
Taxation is stripping away your W2 income. The higher taxes go the harder it is. It's a slippery slope.
You need a different plan.
That's why I love real estate, what we do in Freedom Founders.
I started building my portfolio back in 1980 when I was just 22 years old. I built that portfolio up to the point where I could escape the chair and leave my practice when my daughter was sick back in the early 2000’s. I've been financially free ever since.
Now, I get to help other people. I can take my experience, my network, my relationships, and help others.
Being averse to debt is not necessarily bad, but if you don’t know the difference between good debt and bad debt, you're never going to get to where you want to go.
Here’s a quick example. I talked to a couple yesterday in their early forties. They would definitely like to have a game plan to be “free.” He is a dentist and she is a nurse. They want to be able to leave their respective practices within 10 years or less, but their plan was to always pay off debt very quickly.
Is paying debt off as quickly as possible a bad thing?
Well, it might let you sleep better at night, but what's the trade-off?
You sleep better at night but continue to work on the hamster wheel for 15-20 more years?
I don't know if that trade is worth it. You have to decide that for yourself.
They did one thing I consider to be smart. Hint: This is my takeaway from this blog.
A few years ago, pre-COVID, they had some land that they had acquired. They took $70,000 of a HELOC (a loan against equity in your home), debt financing from a bank, plus that land and constructed an eight door apartment complex.
The total cost of acquisition, building it out with the debt financing, was about $1.2 million. They manage it because it's small enough. They do it well and that’s perfect. No objections there. It cash flows a little bit.
But I asked him, “What do you think that's worth today?”
We took the value of it today and subtracted the debt that they have on it. They have about $1.2 million in equity right now.
Now they've got choices with that equity.
They could just leave it be, manage the property, take the small cash flow that they get, and wait the next 15 years until it pays off.
But wait a minute…
They didn't want to wait 15 years.
When you build equity the way they did, cleverly leveraging to invest in a capital asset like an apartment complex, and with inflation, the value they added, and the cash flow that's coming from the tenants, it doubles its cost basis.
Their base is $1.2 million. It's now worth $2.4 million.
You can leave that there and wait until that pays down to where the whole thing is free and clear OR…
You can harvest that equity.
You could sell it, take the equity, and re-leverage that into more properties.
You could do a 1031 exchange where you actually take the profit and move it to other properties without paying any tax.
There are so many ways to do this, and I said to this couple…
“You took one great step, which has given you the greatest jump in your net worth you've ever had in your 20 years of adult life. If you knew what you were doing and you had been doing it with safety, not speculation, why wouldn't you do it again? If you jumped, leapfrogged your net worth, and therefore accelerated your freedom plan by that much in just a few short years, why not do that again?”
They’re response was, “Well, we're not sure what to do next. We don't have another piece of land.”
I completely understood. It's what we do in Freedom Founders. We provide the implementation.
We provide the opportunity to take your buckets of money and deploy it safely with low risk, wherever your money is — retirement plans, equity in a home residence, practice building, other real estate, vacation homes, or whole life insurance.
We show you how to multiply that capital base many times over compared to leaving it where it’s sitting, hopefully paying off all your debt to someday be free and clear of it.
You can do that but the problem is “someday.”
Financial planning for dentists and orthodontists -Someday vs. Date Certain
Do you want it sooner than someday?
You’ll need to learn how to find the inflection points, the leverage points that move the needle.
That’s exactly what we do in Freedom Founders. That’s what our members get on their Blueprint Day, where we build a customized plan to show them exactly how to make the most of what they currently have. That's what transforms lives.
If you've heard about us, but just aren't sure, there's no harm. You can jump on a discovery call with my team.
They'll walk you through some basic frameworks to give you clarity.
Whether or not our group's right for you, it matters not to me. But I’d like to leave you with some clarity so you have at least an idea of what you're looking for.
Once you do, you can make changes now rather than wait till later when it's too late, when you've lost the opportunity, when you're too old to make a change and you have to settle for what you have.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with My Team:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest. www.freedomfounders.com/schedule
2. Become a Full-Cycle Investor:
There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.
3. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.