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Transcript

Jonathan VanHorn:

Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.

Jonathan VanHorn:

Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group, that is active with Dennis, that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that we're going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing.

Jonathan VanHorn:

So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444. Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So on to today's episode, hope you enjoy it.

Jonathan VanHorn:

Hello, ambitious dentist. Today, we're going to be talking about a topic that is, you know, some people that could even maybe think is a little bit controversial. It's one that is not everyone's most favorite thing to do. For Joseph and I, being CPAs and in the financial world, it's pretty fun. It's a fun game to play. And we're talking about today, budgeting. So the big problem surrounding budgeting is that you typically do budgeting as a response to something else. And the problem that is being responded to, for budgeting, is that as a dentist, you typically have a pretty good amount of income, potential earning capacity, in your lifetime, in your professional career. And with that additional income can sometimes come life scope creep.

Jonathan VanHorn:

You've got a lot of responsibilities. You may have some extra debt coming in and you don't really know what to do with that income. And so today's episode, we're going to be talking about the personal side of budgeting for your personal income, and then we're going to have a follow-up up, so that's going to be talking about business budgeting, which is our two completely separate topics. Just as a reminder, since this is, I think of all the episodes that we've done so far, this one could be the most easily confused to be financial advice. This is not financial advice. This is two CPAs talking about personal financial budgeting, and just talking about some of the things that we do in our personal lives, and things we've seen other clients do as well.

Jonathan VanHorn:

So Joseph is a master of budgeting. I budget myself, but it's not nearly as robust and as sophisticated as how Joseph does his. Ever since I've met Joseph, the first time, I think he talked to me like, "Hey, have you ever tried to do budgeting?" And so he's been really, really deep in this world for a long time. So Joseph talk to us about budgeting and for definition purposes, let's assume no one has ever heard of the term budgeting before. What is budgeting and how does it help address the problem that we outlined?

Joseph Rugger:

Yeah. Great question. So we're talking about the B word. We're going to have people that are going to go search for our podcast, and they're going to say that we're doing an episode on budgeting, and they're immediately going to not listen to it. They're going to skip this one and go to the other ones because budget has a tendency to be a bad word. So some initial feeling. So one of the things that I always like to talk about when we talk about money is, money is amoral. Money is not good. It's not evil. It's not any of that stuff. Money is just a tool, just like anything else that you can use for anything that you want. So at a high level, whenever we hear budgeting, we think that means control. Somebody, somewhere is going to control my money and we get very emotional about it.

Joseph Rugger:

And one of the things that we try to do as CPAs is we try to remove the emotion out of it as much as we can. So knowing that this is your livelihood, knowing that this is everything that's going on, this is your hopes and your dreams, your blood, sweat, and tears, everything that you've poured into this business, into your career, into your life, we want to try to remove as much emotion as we can. So I think that probably one of the first things that I would say about budgeting, in general, is that budgeting is about being intentional. And what we want you to do is we want you to be intentional with your money, whether we're talking about on the personal side, or on the business side, which we'll get to in a later episode, we want you to be intentional with your money.

Joseph Rugger:

So at a high level, budgeting is about how much money is coming in, and how much of that money is going to go out, and who gets that money, and where does it go. So very simply, if I have income of 100 bucks in a month and $95 of it goes out the door, my checking account balance increases by $5, right? So where did that $95 go? Maybe a part of it was a tithe or some sort of charitable giving. Maybe it was some sort of a savings that you're putting money into a savings account or an investment account. Maybe that's going towards paying your house payment, paying your car payment, paying your utilities, paying for your kids' school, paying for groceries. They're all of these different categories that we have in the budgeting world. So at a high level, a budget is about how much money is coming in, and then how much is going out, and then sticking to that, or not sticking to that, and making choices along the way.

Joseph Rugger:

So whenever we say budgeting, Jonathan, what are your thoughts? Do you get that squirmy, "Man, that sounds like somebody is going to control me. I hate that word. It's a bad word." What are some of your thoughts? You're a CPA, but we're still emotional. We're still emotional as CPAs about our own money.

Jonathan VanHorn:

Yeah. So the budgeting side of things to me is always, I guess, I just initially will sometimes get frustration when I think about budgeting. And the reason is because I like to plan, and I like to have a path, and budgeting, a lot of the time, ends up not going the way you planned. Little things come up and things like that. And it requires a lot of discipline. So sometimes that can be frustration, especially whenever you have more than one person that's in your family home, that you can sit down with them, and come up with a plan, and it only takes one person to make that plan go one way or the other. So I do get a little frustration when I think about budgeting.

Jonathan VanHorn:

And I think the other frustration comes from the fact that you got to do it. It's one of those things that you if you know enough about it you know it's important, but it's very easy to neglect it. It's very easy to just not really try and worry about it too much because of the amount of effort that has to go into it compared to what you can perceivably get out of it. So yeah. So frustration is probably what I think of when I think of budgeting in and of itself. But again, it's a necessary thing to do, especially on the personal side. We'll get into the business side of it in another episode, but from the personal side, yeah. It's just one of those things that if you're not managing where the money's going to, it just gets so easy for it to just go this way, that way, and everywhere in between. So I'm happy to share how I do my budgeting, but I would love to hear how you like to approach budgeting or how you have to approach budgeting for people that have never done it before.

Joseph Rugger:

Yeah, sure. So couple of things. So there's lots of different resources that are out there. There's lots of different authors that have written on this topic. I think it'd be worthwhile for me to share a couple of people that have been influential, just helping me shape the way that I look at money, and how it flows, and that kind of thing. Some of these names are probably dirty names in your household. Some of them you may hear and be like, "Oh man, that person's an idiot. I don't like them." But these are just people that I've read. One of the great things about growing up and becoming an adult, when you're a young child and you go to school, you learn this is the way it is, like the world is round. It's not flat. It's very zero and one, very right or wrong.

Jonathan VanHorn:

There are people that disagree with you, even today, unfortunately, about that being round.

Joseph Rugger:

Fair enough. Fair enough. Fair enough. But that's just the way our education system works. And then, when you get out, and on your own, and start learning things, you realize that everybody has a different perspective and a different way of looking at things. So there is no right or wrong answer with a ton of stuff. So I'm going to mention a couple of authors that have been influential in my life as I've read the stuff that they've put out, but it's their perspective. It's the way that they look at things. And it has helped shape my perspective on a bunch of different things inside of my life. So some of the names you'll recognize, I'm sure you probably will, and one of them was Dave Ramsey. He was one of the first ones that I started to learn about money and how it works.

Joseph Rugger:

I really like Ramit Sethi. He wrote a book called I Will Teach You To Be Rich. I really like David Bach who wrote The Automatic Millionaire. Dave Ramsey book is the Financial Peace. Financial Peace University has a class out there. Robert Kiyosaki wrote Rich Dad Poor Dad, which is also a really good resource and a good thing. So I've read, and learned a lot, and put a bunch of these things, in general, in place in my life to figure that out. So whenever I look at "budgeting," it's more of an art than a science. I mean, there is some science to it, but there's a lot of different things that happen. Life happens, right? Things happen in the course of a given month, and to me, budgeting is about having a plan where you can be prepared for different things.

Joseph Rugger:

So something as simple as having an emergency fund is something that I'm sure is familiar to all of our guests now. How much and where should it be and all this stuff. We're not going to get into all of that because that's not really what we're talking about, but being intentional with your money and making sure that you've got different perspectives on stuff. So I'm old school. I'm probably older than a good chunk of the people that listen to us. So I didn't grow up with all of the fancy tools that are out there now. To me, Excel was one of the first big pieces of software that I learned how to use, right? I didn't grow up with mint.com, and an apple iPhone, and all of these things. I remember getting my first flip phone when I was 16-years-old, we had allotted time of 15 minutes a month.

Joseph Rugger:

That was the max, emergencies only. So I predate myself a little bit. So Excel is where I live as an accountant. I love Excel. So I have an Excel spreadsheet, and I sit down, before the month begins, and I'm not like our current level of clients to where income is variable. So I've got a pretty good idea, not down to the penny, but I've got a pretty good idea of, let's just say within five to 10% either way, of how much money's coming in. And a practice owner, their income can be so variable within the practice, and within their W-2 wage, and their production, and all this stuff. So one of the things that I'm going to start with is I'm going to start with top line income and I've got a pretty good idea of where that is.

Joseph Rugger:

Now, if you don't have an idea, you can certainly look at six months worth of history and figure out. And then, there are things that are inside my personal household that are fixed expenses. Things that I know are going to come out every single month, something as simple as a mortgage payment, right? I know the mortgage is going to come out. I know what day of the month it's going to come out. It's the same exact amount every month. So that's a fixed expense, right? There are other expenses that are variable expenses. How many times are we going to go out to eat this month? That's variable. How much is the grocery bill going to be? That's variable. Are we going to take a vacation? Are we going to buy plane tickets? Are we going to buy a hotel room? Those are all variable expenses.

Joseph Rugger:

So understanding the difference between fixed expenses and variable expenses, I think is important. And the other thing that I would also say that is inside my Excel spreadsheet, Jonathan, I'm tracking every single dollar that goes on our credit card, every single dollar that goes on our debit card, every single money that comes out for this. I'm monitoring our balances on all of our different things, and I'm updating it daily, and I've got a scheduled net worth out, and we've got all of this different stuff. And I would imagine, as I describe these things, probably gives you some heartburn, and even though you're a CPA, I know you're just such a tech guy. So this is like the basics. I feel like I've got a stone and chisel out and I've got my little Excel spreadsheet that's tracking my money as it comes in and out. What are some things that resonate with you there that you guys do, personally, when you look at something like this?

Jonathan VanHorn:

Yeah. So for me, there's the way I used to do it and then there's the way I do it now. The way I used to do it was pretty similar to what you do. I used mint.com to aggregate the data coming through, in terms of what our spend was and things like that. At one point I used accounting software, which was like QuickBooks Online and Xero. I actually had a complete P and L and balance sheet set up for myself or my family. So that can tell what our net worth was, the balance sheet, and see our income spend. I'll have a budget add-on built into it and things like that. And those things for me, the way that I work, and the way I'm wired, they really only lasted probably six to nine months at a time.

Jonathan VanHorn:

And I would probably just... something would happen and I'd be like, "I don't have the ability or time to do this right now. So I'm going to put it off." And then what happens is we put it off for too long, then it just gets to be where it's such a big mole hill to get over. I was just like, "I don't want to do this." What happened, happened. I can't change what happened at this point. So I'm not even going to worry about logging the transactions and doing all these other types of things. So I've used Clarity Money, which is an app through I believe Wells Fargo. That is a really good one, too. I really enjoyed that one. That one was probably the most automated and the best aggregator of everything that I've used and was all done in your phone.

Jonathan VanHorn:

And even that, even as simple as that, I stopped using it just because I've eventually got to a point where I was like, "Oh, there's so many things going on with this." That it ended up not being what I... It didn't do exactly what I wanted it to do every time, so I got tired of messing with the nuances of it. And so now, what I do is I use a spreadsheet, and I have different categories of what I do, and what it is. And like you said, you have your, I labeled it as monthly expenses. I have a monthly amount of money I'm going to spend, whether it be through mortgage, or my kids' school, or health insurance, or utilities, or car payment, or whatever it may be. They're the knowns.

Jonathan VanHorn:

I know we're going to spend this much money on these things, and that's our monthly dollar amount. And let's say, "Okay, well, this is our monthly dollar amount on this." And then, I have our variables, like you said, our meals, how much are we going to spend on gas? How much are we going to do on these other things? And I just lump those into a big category of all the variables, if we could spend less than this amount. I honestly don't even at this point track if we hit those things or not. It's just an internal thing in my head I can try to keep up with. There's also just the one-time things that just come up, like something happened with the roof, or something happened with this, or something happened with that.

Jonathan VanHorn:

And then we'll use our other personal funds to take care of it. So whenever we were doing the other things, the purpose of that, to me, was for us to build up our cash reserve, so we could withstand some little things here and there. Luckily, we'd done it for long enough that we'd saved enough where we have a six to 12-month saving account. So we over-fund that already. The one-time expenses don't... I don't think we've ever had a $10,000 one-time expense. Hopefully, that never changes. But funded that up pretty quickly after that. That is how we currently do our budgeting, so I don't go in and look at every single line item detail.

Jonathan VanHorn:

I almost never look at every line item detail. I usually just look at the total amount we spent in a month, compare that to the here's our monthly definite amount. Whatever's the difference of those two things must be the variables. Is that number super high? If so, then why? Do we need to change something about what we're doing? If there's nothing we could do, then I'm just content with it to be honest with you. So that's how I currently do it. And I probably do that once every couple of months. I don't do it enough. I would say the most effective time we have when we were budgeting was whenever my wife and I would carve off 45 minutes every Sunday night, before the week began, to talk about what was going to happen over the course of the week. But three kids sometimes... At some point we didn't even have Sunday nights to do that with, so.

Jonathan VanHorn:

So how do you do budgeting? What do you recommend people do in terms of that? Because I'm sure my history with it is similar to a bunch of different people's paths with budgeting, but what do you do? What do you recommend? Things like that.

Joseph Rugger:

Sure. Sure. So I think that in general, I want to use the word intentional a lot in this podcast episode, because I think it's important, especially when we're talking about money. I want you to be intentional with your money. I think the other thing that you need to do is you need to be consistent with it. So Jonathan just described like, "Oh, well, we used to do this and we kind of do this. And on our own, we look at it every couple of months." The more complex that you make anything in life, the less the chances are that you're going to be able to stick with it. So if I say, "An Excel spreadsheet," I've already lost half of you. You're like, "I don't even know how to use Excel. That's for accountants." I've already lost half of you. The other half of you are like, "Oh, I think I've heard of Mint before. I've used that before. I know how that works. It's a data aggregator, right?"

Joseph Rugger:

So I think, in general, we want you to be intentional with the different stuff that you have. I want you to figure something out that you can stick with. And it may be the end thing that Jonathan ended with there, which is we just have this number that we need to spend and go through every single month. And if it's more than that, we know that we've got an issue. If it's less than that, then we know that we're in good shape. So just having just, in general, how much money went out of your bank account. That's a simple, simple thing. If you have one bank account that all your money comes in and out of, it's very, very simple.

Joseph Rugger:

What was the beginning balance on that checking statement? And what was the ending balance? And what was the Delta there? What was the change there? So I think that that's probably a good first place to start is understanding are you increasing your cash each month? Are you decreasing your cash each month? What's something simple that you can stick with? What's some things that you can be intentional about? So one of the things, I mentioned, David Bach, The Automatic Millionaire, one of the things he talks about is that how in the history of the United States, the most successful saving program we've ever had has been the 401k, right? So that's an automatic deduction from your paycheck. So that may or may not apply to all of our listeners here, but if it's on you to remember at the end of the month to write a check, to send it to a retirement account, that may or may not be something that you can stay consistent with, and stay intentional with.

Joseph Rugger:

But if it's an automatic paycheck deduction, then it's out of sight, out of mind. So I'm not here sitting here saying that you need to save for a year and a half or none of that stuff, what I'm saying is what are the systems that you can set up? What are some things that you can put in place that you can be intentional about your money, something that you can stick with? I have good friends that are interested in making sure that they do a certain amount in charitable deductions each month. And I say, "Okay, well, when do you get paid?" "Well, I get paid every other Friday." "Okay. Well, why don't you set up an automatic donation to that charity every other Friday? They draft money out of your account the same day that your payroll comes through."

Joseph Rugger:

So again, if charitable donations is your thing and that's one of the things you want to do, be intentional about it. So this is how much I want to do every two weeks, or every 15th and 30th, or on the first of every month, or the 10th of every month, or any of that stuff. It's like on your mortgage payment, do you have the... And this is probably going to sound silly to a lot of our listeners at this point, but 10 years ago, there were tons of people that would sit down, and they would write a check, and they would mail a check to the mortgage company, right? So how do you remember? "Oh, well, I got my paper statement in the mail." Well, now it probably comes via email. A lot of you probably have it set up on auto-draft.

Joseph Rugger:

So what are the different systems that you can set up to set yourself up for success? Whether it be with how much you're spending on meals, entertainment, or travel, or if it's something like how much is my house payment? And what day of the month does that come out? Or how much is going to... We've mentioned a couple of times in emergency funds, how much do I need to have in an emergency fund? Well, I'm not here to tell you how much needs to be in there. What I'm telling you is you need to have an emergency fund. How much, that's really up to you and your comfort level. So how are you going to set up systems in place to have an emergency fund, right? The other thing that I would say is there are things that qualify as an emergency. Back to school shopping for the kids is not an emergency. Christmas presents are not an emergency.

Joseph Rugger:

Those are things that you need to be intentional about throughout the course of the year, throughout the course of November, December, or July and August, when it's time to go back to school shopping. If we're going to spend $1,000 on back to school clothes for the kids, we can't also spend X amount of dollars on vacations or eating out. All of these things, money comes in, money goes out. It's a zero-sum game. If you're looking at it from a budgeting perspective, I just want you to be intentional about it. I think that's probably my thing there. So Jonathan, I would say, what systems can you set up? What are some things that you can stick to? And what are some things that you can be super intentional about? What are your thoughts there?

Jonathan VanHorn:

Do you recommend people do the automatic payments to things like with the mortgage and even credit cards can set up automatic payments now? For me, personally, it's all set up whenever I get a medical bill in that can't be paid online, I get frustrated because I'm like, "Oh, I got to find a checkbook somewhere in my house to write one of these archaic notes to someone." So everything I do is done... And also, if it's not done automatically, then I have a chance of not paying it. So do you recommend people do that or are you asking for the intentionality of the payment to be missed if you do it that way? I don't know if intentionality is the word.

Joseph Rugger:

Yeah, good question. So I think I got to be careful about this because everybody's going to come at this thing from a different perspective. There are going to be some people that are going to listen to this that have $500 in their personal checking account and they're going to live paycheck to paycheck. There are going to be some people that are listening to this that keep $100,000 cushion in their personal checking account. So I think that you got to approach each situation a little differently. So I think, that in general, I think that what is the "cushion" that you have inside of your personal checking account? So some people may be comfortable with a thousand bucks, 5,000 bucks, $25,000, 50,000. Everybody's going to have a different comfort level of what they've got.

Joseph Rugger:

What I don't want you to do is I don't want you to say, "Oh, these guys told me I needed to automate everything, so I set my credit card on auto-pay." And then, all of a sudden, you ran up a $35,000 credit card bill, and you didn't have $35,000 in your checking account when the auto-pay came through. So I think that that's one of the things that we got to be careful in just saying, "Oh, set everything up on auto-pay." I love auto-pay. I have auto-pay for a lot of things, but I don't have it on everything. I think that you need to figure out what makes the most sense for you to have on auto-pay and you need to just make sure that you've got that squared away. So some people might say, "Oh, I have my credit card on auto-pay."

Joseph Rugger:

And they send me an email that says, "Hey, by the way, your bill is due. It's due on this day, you're going to get an auto-draft on this day." And they're just like, "Oh, okay, great." And they'd go say, okay, well, however much the bill is, 10,000, 20,000, whatever. And like, "I'm going to make sure that that money is in my checking account." And that kind of thing. So I'd proceed with caution on what all you set up on auto-pay. So there's simple stuff like your utility bill, your gas bill, and your water bill, and your electric bill. I would imagine that most of the people that are listening to this podcast are not living on $50 in their checking account, right? If I talked to my 21-year-old college brother, he probably needs to make sure he actually writes the check for his utility bill and make sure that the money is actually in the account.

Joseph Rugger:

But some of the smaller stuff like that... I like being intentional about charitable giving, the mortgage payment's a really, really important payment that you don't want to miss, and have fees, and associated with that. The credit card payments are something that gets a little dicey because that changes every single month, right? I've never had two months in a row where all of the expenses go on the credit card and it's the same exact amount. It's going to vary widely based on what all's going on. It's like, we're in the middle of the summer right now, so there's going to be stuff about going to the lake, and stuff about going to the beach, and hotels, and airfare, and like all that different stuff. And we're not doing a whole lot of traveling in February, right?

Joseph Rugger:

We're hunkered down because the ice was coming and the snow's coming. It's like, every single month is different. May, tons of people get married in May or graduate in May. It's like, we're going to have graduation gifts, and we're going to have wedding gifts, and we're going to have all that different stuff, right? It's like, what month is your child's birthday? Are you going to have a big, huge blowout and have the big jump jump out at the house? You going to have the DJ come and DJ the kid's birthday party? So I'd proceed with caution on setting up some of the bigger stuff, I guess, for automatic payments, and just be intentional about that. Does that make sense? This is me dancing around the question, but for the most part I think it really depends [crosstalk 00:27:12].

Jonathan VanHorn:

Yeah, I completely understand what you're saying. So in terms of the... We touched on credit card debt, but what about just debt in general? So you said the first step is to have intention. I guess, before we talk about that, how does someone define their intention? Because at the end of the day, we're doing budgeting for a reason. And how does someone define their own intention? You have to have an intention, but what is intention for someone like this? What's the purpose of all this? Hey, everybody, Jonathan checking in really quick here, this episode got a little long, so we cut it into multiple pieces. This is episode one. You can find episode two next week, or in the following weeks. So make sure that if you listen to this episode, you listen to the other episode as well, so you have the full context around everything that's going on. Thanks for tuning in and we will see you next time.

Jonathan VanHorn:

That's it for today, guys. I hope you enjoyed this episode of The Tooth and Coin Podcast. If you are going to be a practice owner, or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We have around 250 offices around the country. We would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice that are inquiring, that are about to be an owner of a practice they are starting up, or has become an owner in the past five years, that is our specialty. I would love to be able to talk to you about how we could help you in your services with your tax and accounting services. And if you enjoyed today's episode, again, go to the Facebook group.

Jonathan VanHorn:

Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things, so that we can all help each other get through these things together, so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444, reply with your email address. We'll send you instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.