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Transcript

Jonathan VanHorn:

Hey everybody, Jonathan checking in here. And just so you know, this is a two-part episode. This is the second part of the episode. So if you've not listened to the first part yet, you want to go back and listen to it in the prior ways. We should have it labeled on the episode title, what part one is and part two is. So you should be able to listen to that in the ... See that in the title of the episode, what episode of episode it is. So thanks.

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 enjoyed today's content, join us on the Facebook group. 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 are 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. 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 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.

Jonathan VanHorn:

On to today's episode. Hope you enjoy it. How does someone define their intention? Because at the end of the day, we're doing budgeting for a reason. How does someone define their own intention? You have to have an intention, but what is intention for someone like us? What's the purpose of all this?

Joseph Rugger:

Sure. Well, I'll give you a couple of quotes from a couple of authors. One of the ones that I like to quote is Stephen Covey, who wrote The 7 Habits of Highly Effective People. And he said that we need to begin with the end in mind. That's one thing that I'll throw out. And then cautiously, I'll say the next quote is from a guy named Dave Ramsey, who has a tendency to get people all up in arms one way or the other. He has like this cult-like following. And then a lot of people don't like him. Anyways, he said that a budget is about you telling your money what to do, rather than it telling you what to do. So I think that's probably part of my thoughts on intention is, like beginning with the end in mind.

Joseph Rugger:

So, what is it that is the goal? That's probably a big, lofty thing to think about, well, where do you want to be in 40 years? I don't know. I just need to make sure that the kids get fed, put to bed, make it to school, they make A's and B's and everybody stays happy. So I think that you've got to think kind of long-term. So like maybe part of your long-term plan is that you want to have a vacation home. All right. Well, let's be intentional about that. We don't just wake up one day with a vacation home and an extra mortgage or pay cash for it. We got to put things in motion to help out with that. I think when I talk about intention, I talk about begin with the end in mind, like, what are some shorter range goals?

Joseph Rugger:

There are going to be some of our clients and some of the people listen to this that may have the short range goal of getting out of credit card debt. They ran up really large amounts of credit card debt. They're getting the practice started or getting through dental school or any of those things. That may be a big thing for them. There are some people that at 22 years old, they find out about an IRA and they want to save every penny they can for retirement so that they don't have to work until they're at whatever age. I think that beginning with the end in mind and just kind of thinking about what are some of your shorter term goals and some longer term goals.

Joseph Rugger:

Let's say that this idea of having an emergency fund is something that you've never thought of or you've thought about it, heard it was a good idea, but you've never set one up. So then the question to me is, okay, well, what do you want to define as an emergency fund? One month, three months, six months, 12 months? Whatever that emergency fund may be. Okay. Well, let's just say, just to use easy numbers, let's say that I've decided and determined through my own individual thoughts that $10,000 is what I need for an emergency fund. Okay. May sound like a lot. May not sound like a lot to others. Just to use it as an example. And I say, "You know what, within the next year, I really would like to have a $10,000 emergency fund." Okay. So let's back that up. All right.

Joseph Rugger:

So if we've got a year from now, how much do we need to save every single month? Well, 12 months, $10,000, whatever that is 8, $900 a month. So how do we be intentional about making sure that our budget and our money that's coming in, money that's going out, that we've got an extra eight or $900 a month that we can save to that emergency fund to get there? So I like short term goals. I like long-term goals. I like looking at the big picture and beginning with the end in mind and telling your money what to do. Because if you don't, if it just kind of flies in and flies out, one of the things that you mentioned, John, and I'd be interested kind of in your thoughts on this, when you brought it up, you brought up a life creep or lifestyle creep. So for people that may or may not understand what that term is, maybe kind of expand upon that for the people that are listening.

Jonathan VanHorn:

Yeah. So lifestyle creep is just whenever you're spending whatever you have. You live your life according to what you can afford. And then when you start making more money, you can afford more so you start doing more living than you are saving. So it's something that is very common inside of the dental industry. It's common in all industries where you have an increased amount of income very quickly, compared to what you had beforehand. It's just something that you have to be very aware of and you have to be prepared for and you have to actively fight against.

Jonathan VanHorn:

To touch on your point, the way that I did it, the reason I started doing the budgeting was because I'm a person that is very hard to define goals with because it kind of goes all over the place. So what I did is I said, I said, "Okay, here's what I want my life to look like in 10 years." And I actually pulled it up on my phone. It was in 2016 when I wrote it down the first time. And I separated the what in my life to look like from a monetary standpoint, from a work standpoint, and then from a relationship standpoint. And I found it was much easier for me to start budgeting if I did more than just the dollars amount parts of it, because to me, the numbers were important, but it was the other things that ended up making the exercise of budgeting more important, because I knew that if I didn't have the monetary element of it, that those other goals would be at much higher risk because of my lifestyle at the time.

Jonathan VanHorn:

I want my lifestyle to be a certain way. In order for my lifestyle to be a certain way, I know I need to have at least some type of these funds. And then that allowed me to then pull it back and be like, "Well, okay, if that's my goal in 10 years, what do I need to accomplish in five years? What do I need to accomplish in a year? And how do I get started on that now?" So that helped me with my intentionality, is writing down those goals, again, those monetary, relationships and work, how do I want that all three ... What are my goals for all of those things. What do I want to achieve also was in there. So that helped me with my intentionality as well. So I wanted to touch on that really quick.

Jonathan VanHorn:

But in terms of lifestyle creep, if budgeting is a way to hold yourself accountable, then that doesn't happen in my mind, because you can tell very quickly is my spending higher just because I have things that I want or is it because of things that I need. And this is something that is, I hope my wife never listens to this, but I've talked to her a bunch of times about what is want versus need. And we've had many arguments on what we need versus what we want. And it's something that, budgeting will allow you to do that. Whenever I'll look over that list of expenses every month, I kind of think of them as like subscriptions. How much am I spending on subscriptions to everything? Because when I think about it in those terms, it helps me decide like, here's what I'm going to stop the subscription of, or here's where I can lower the cost of the subscription in this way to be able to optimize this spend in a better pattern in some way.

Jonathan VanHorn:

So in terms of that budgeting, I guess if I'm putting a better, bigger bow on it, to me, budgeting is a component of goal setting in your personal life for the longer term aspect of it. So when you're being intentional with these things, and this is one of those things that someone could construe this as financial planning, talk to your financial planner about these types of things, I would say. These would be things that we would be able to have a conversation with you about, I would assume. And if you're having problems quantifying like a dollar amount and things like that, I think financial planner could probably help you with getting that number idea started. Your CPA might be a financial planner, but if your CPA is not a financial planner, this is not what CPAs typically do.

Jonathan VanHorn:

I want to just make sure that that's said just so that expectation is ... Your CPA may have some things to say about this, but this is 100% a financial planning thing that gets done here. So Joseph, if we came back to you, whenever you're being intentional with us, you're trying to find a home for all the money that's coming in and you're trying to put your money to work in the way that you want to be put to work. What are the components of that? We've talked about spending money, we've talked about income. How do you do something like that? I mean, is it ... Because debt is basically negative money. There's all different types of debt. Someone's decided, okay, I'm going to set goals. I'm going to be intentional. I'm going to budget. What do I do next? We talked about categorizing expenses and monthly expenses and variable and things like that. What about things like that? How does that go into this whole spectrum of budgeting?

Joseph Rugger:

Yeah. Good question. I think that you probably have heard the terms like good debt and bad debt. And this is going to be an oversimplification, but any kind of consumer debt, like money that you didn't really save up for it. And like all of a sudden I owe a whole bunch of money, that's consumer debt. Something like a credit card, like, oh, I ran up a $25,000 worth of credit cards and I can't pay it off. That's a consumer debt. I think that most people would classify that as bad debt. If you look at things that are typically classified as good debt, it would be in things that are going to have a higher return for you. So whenever you look at hopefully when you buy a home, you purchase the home for X amount of money. And between now and 30 years from now, the value of that home has increased. That would be a good debt. We have an increasing asset that's going to increase in value.

Joseph Rugger:

When we talk about the idea of you getting a chance to go to a school and have a higher education, you're investing money that you're going to get some future return, we hope so, from that education. So if you went to dental school, you know that that was very, very expensive. But as a result of taking on that debt, you have the ability to go out and earn a good living for you and your family or your future family. We're looking at business debt. We talk about our practice owners that are out there that they have a wing and a prayer and they start a practice from scratch, or they buy an existing practice. They oftentimes have to use debt to leverage themselves.

Joseph Rugger:

But hopefully what that's going to do is that's going to be an increasing value asset that's out there. So kind of where does debt fit in to this whole kind of budgeting piece? So you've got, again, your fixed expenses and your variable expenses. If you've got a payment on a piece of debt, that's going to be fixed. And then what you've got to decide is, do I want to get more aggressive in paying off this debt or do I want to do something different with this money each month? There's lots of different people that would tell you something different, but one of the things about debt is that it has a very emotional ring to it. And a lot of us have some kind of deep seated emotion around debt.

Joseph Rugger:

Maybe our parents constantly were living paycheck to paycheck or maybe our parents declared bankruptcy because they were had too much debt. If that happened to you in your formative years, then you're going to have a very different outlook in debt and if your parents were in the flipping a real estate. They're in flipping a real estate and they're constantly kind of back and forth and signing up for loans, you're going to have a very different emotional piece to debt. So I'd say that it certainly is different for each individual person. What I want you to do is be intentional with the money that's coming in so that if early debt pay down is your goal, then you've got money to do that. If instead of paying down debt early, you want to invest that money, or you want to save it to an emergency fund, or you want to save it for a car, or you want to do anything else, or you want to spend it, have a big blowout for your kids' summer birthday party, I just want you to be intentional about it.

Joseph Rugger:

So I think that debt has just a lot of very, very emotional ties to it for everybody. That's just a little bit different. So if early debt pay down is something that's part of your goal that you've determined with your financial planner, then I think that that's a good path to go down. If you want to kind of make the difference between good debt and bad debt. I mean, I don't think there's anybody that would tell you that it's a good idea to carry credit card debt at 24.5% interest. If you've got this big, huge, credit card balance, I think that most people would classify that as bad debt. So be intentional about living within your means.

Joseph Rugger:

There's only one way that you're going to get to the place where you're going to have freedom from having to work every day, if that's part of your goals. Maybe some people want to work until they can't work anymore. That may be part of it. I think most of our listeners probably at some point want to retire and put the handpiece down. Only way you're going to do that is if you spend less than you make. Pretty simple.

Jonathan VanHorn:

So what about the people that make money and there's no money leftover? They pay the minimum payments. They pay for all the necessities. And it's just barely getting, maybe they can save 1,000 bucks a month more than what they're spending. What are the solutions for them? What can they do?

Joseph Rugger:

Increase income, decrease expenses. I mean, as simplified as that is, that's really your two options. Go out and make more money or spend less. Where do we go for that? Where can you make extra money if that's what you want to do? If you're already working 85 hours a week and you're emotionally drained and you don't have anything left over for your family when you get home, working more hours is probably not the best solution. I think that to get a chance to go through expenses and see what's going on there, you may or may not be in too big of a house and too nice a house. You may or may not need to have a $60,000 car. You may could do just fine with a $15,000 car. So increase income decrease expenses, and where can that come from?

Joseph Rugger:

For most of the people that are going to listen to our podcast, if they want to change their equation that you just mentioned, it's going to be through a practice ownership that they own, that they're going to become more profitable as a business, which is one of the things that we hope you start out at a certain level and you hope that you invest your blood, sweat, and tears into this practice and it grows over time and it makes more money. There certainly are always expenses to cut. There's always additional side gigs to try and to do, but at the end of the day, if you can increase the value of the business and the cashflow of the business that you're pouring everything that you got into, I think that's probably going to be a big chunk of the things that the people that listen to this podcast will be able to do.

Jonathan VanHorn:

Yeah. It's hard sometimes to think about it in those terms of we'd love to be able to ... Well, we can do without Netflix and we'll save that $12 a month, all of our problems are solved. Wouldn't that be nice if that was all it took for all those problems to be solved? In terms of the dentists that I speak to almost every day, I see more and more are searching for that mix of lifestyle and financial independence. There's a term that I've heard called FIRE, Financial Independence Retire Early. And I think that's what that stands for. And I speak to more and more young dentists that are trying to reach that type of a lifestyle eventually. And I don't know.

Jonathan VanHorn:

And again, I'm not a financial planner at all by any shape, form or fashion, but I don't know the best way to reach FIPE for a dentist. I don't know if it is to keep seeking it out as an associate and just have the steady income or if it is to take on a lot more debt early on and to increase your earnings potential. It sure seems like based off of the clients that we have, that it's the latter. It's get your own business, increase your income capacity and a lot of those expenses and the Y that I was talking about before, not the W-H-Y, but like Y as in the variable and the spend, those numbers shrink down so much compared to your X. There's a lot of Z left over.

Jonathan VanHorn:

And this is anecdotal because I speak to people from all over the country. And I would say like an average associate pay for a GP is somewhere between 130 and $170,000 a year. And depending on the location of the practice that you're in, I would say that for a dental practice ... For that same associate owning a business is not easy, but many, many, many dentists can get to a double that average in take home income with what is perceived to be a small amount of effort compared to the associate gig. It sure is a lot more simple to, if you've got $10,000 of expenses a month, to pay for those expenses with $20,000 a month of income, compared to $11,000 a month in income. It's just a lot simpler to do that.

Jonathan VanHorn:

And then there's also the people that do even better than that, and you get to 3, 4, 5, 6, $700,000 of income and they all seem to be able to pay off their debts pretty quickly and then get to that financial independence pretty quickly as well. So I think that kind of depends on the person, of what they want to do. So we talked mostly in this episode or almost exclusively in this episode about the personal side and with the assumption that you're going to have a good understanding of how much money is coming in from a dollars and cents perspective, just on the personal side. So with that note, what do you tell people that have a variable amount of income coming in?

Joseph Rugger:

Well, I think that with a variable amount of income that's coming in, I think you've got to make adjustments to what you would call your cash cushion. If your monthly spend and your personal checking account is, I don't know, $8,000, just to use an easy number, we'd probably need ... If I were to say you need to have X amount of dollars in cash cushion in your account, somebody that's got variable income probably need to have a little bit more kind of in cushion so that we can ride those ups and ride those downs. I mean, you're always going to have your fixed expenses. We mentioned kind of your mortgage payment, your debt payment, lights, water, utility, X amount of dollars kind of as a baseline for food and clothing, that kind of thing. So those are things that as money comes in, those things all get taken care of first.

Joseph Rugger:

And then it's all of the extras or we were talking about the needs versus the wants. The wants come after the needs are met, kind of in that specific order. So I think that's probably the biggest thing that I would talk about, is just understanding like how much cash cushion do we need to have in the personal checking account to ride the highs and the lows. And then how do we make sure that we take care of the fixed things first, the kind of normal, regular routine, monthly pieces that you have. And then we make sure that the wants or the wants happen in the months in which we have more income than the months that are pretty skimpy on income.

Jonathan VanHorn:

Makes a lot of sense. The income being variable usually also comes from the business side of things. If you own a business, you can have a wage and you can have like a guaranteed payment or guaranteed draw or just like an automatic transfer of funds. It's a certain amount every month for your business or your personal account. But some months there may not be enough cash in the business to do that. So that's when the real variability can come into play and hopefully if you have a lot of success, that number, that variable is because it's a lot more every month that's coming in and then hopefully we'll have an intention of where that money can go to. Can you recap for us budgeting as a whole, the steps someone should take, if they've not done budgeting before, that is most likely to lead them to getting to the point of actually doing this exercise?

Joseph Rugger:

Budgeting is about understanding how much money comes in every month and how much money goes out every month and trying to be intentional about that so that you can begin with the end in mind, have short-term, long-term goals and make sure that you're meeting those goals at a high level. Some of the specific tools that we talked about, the simplest and easiest one is to figure out and pull out a bank statement and look and see how much cash came in, how much cash came out, pull three or four months worth of them and you'll get a pretty good idea of what's going on with your cashflow. There are lots of different tools that are out there to help you figure that out. You mentioned Mint. I've used Mint in the past. Probably a lot of people have heard of or are familiar with Mint and certainly has some positives and negatives along with that. Microsoft Excel is kind of my tried and true piece about that.

Joseph Rugger:

But I think just beginning to understand your financial picture as it comes in to make sure that life creep is not something that takes over and up-ends your stuff. I think those are kind of some of the top of mind things that I would have to chat about. Where's your money going? How intentional are you? Do you have a plan? Do you have a financial planner that's helping you get from where you're at to where you want to go? What's that look like? Are you tracking progress over time? Are there technology tools that are out there that can help you do that? I think those are all kind of different places to start. Pull out your credit card statement. You want to know where your money's going every month? Pull out your credit card statement and see. You mentioned subscriptions. We're kind of in this section of our economy right now where almost everything has moved to some sort of a subscription base, whether that's getting your news every month or getting your entertainment or-

Jonathan VanHorn:

Paying for your CPA.

Joseph Rugger:

Paying for your CPA. Right. All of these different pieces are all based on a subscription. You want to know where your money's going? Pull out your stuff and see. And as you mentioned, Jonathan, maybe you use it, maybe you don't. Do you use Amazon, Netflix, Hulu, Disney Plus, whatever the new discovery channel was? I forget, I saw that the other day that came out. Do you use all of those things? If you use them? Great. Is it worth it? Yeah. If you don't use it, is it worth it? Well, no, of course not. I think those are some pretty simple, basic places to start. And just start having conversations internally about it. If you're married, have it with your spouse and get on the same page and talk about intentionality and all these different pieces. That's kind of where I would start. What are your thoughts there?

Jonathan VanHorn:

I agree with everything you said. The one thing I would add is I would add preset when you're going to do this. If you're thinking about doing this right now, put on your calendar when the first time you're going to dedicate to doing this. It's incredibly hard for me as a person, I own a business, have three small kids. And like I said, we used to do it every Sunday night at like 8:30. Well, one of our kids, they don't sleep very well. So sometimes it's 10 o'clock before we even get away from kids at night. Those Sunday nights, sometimes that's we get behind on doing it. But if we're available at that time, that's the time that we're going to do it. So preset some time. Preset some regularity to it so that you can have some discipline and just knowing that, hey, this is what I'm going to do at this time. I promise you, you can DVR that episode of ... I don't even watch. Lost. I don't know. I don't know how long it's been since Lost has been out there-

Joseph Rugger:

That was like 10 years ago, dude.

Jonathan VanHorn:

Exactly.

Joseph Rugger:

How about Yellowstone? Yellowstone's going to come out soon.

Jonathan VanHorn:

Yellowstone. Everything else is on the streaming. So it's not like you have to be watching ABC, watching America's funniest home videos at night with Alfonso Ribeiro. I mean, you can find that time to do that. The other thing I would say is be reminded of the big picture consistently, whenever you do this. You don't have to do it every time. I find that when I pull out that list of, like I said, it's still on my phone from 2016. It's just in my notes, on my iPhone of everything that I wanted. Because it helps you remember why you're doing it. And then also have some way of visualizing if you're hitting those goals or not.

Jonathan VanHorn:

So whether it be if your goal is to get out of debt, make sure that you have something that says, "This is how much debt we have right now." If you do this once a month, if you do it every week, whenever you pull it up, make sure that's all in the thing that you're tracking. This is how much debt that we currently have. Are we making strides towards getting it gone getting it over? I think those are the things that will help with that intentionality that you're talking about. Or is it a more defined way of looking at that intentionality and a little bit of a hack on how to be disciplined to do it because that's the hardest thing for me, is to have the discipline to continually do it over and over again. Because there'll be stretches where I just won't do it for two months, three months, four months, five months. But I know for me personally, the longer I don't do it, the more stress it builds up for me. And then I go and do it. I'm like, oh, okay, yes. We're still doing. We haven't changed much.

Jonathan VanHorn:

My wife and I are not very extravagant people that go and do a whole lot of extra stuff. So it's not super hard for us to stay within those bounds of what it is. And over the last couple of years I've taught, I'll go in there, I'll be in the lab, so to speak, catching up and things like. April, whenever we talk about it and I'll say, "Well, yeah, we're fine. There's no issues. It's just, I want to make sure that nothing crazy is going on or something like that." But anyway, so that'd be my only thing to add, is create discipline around it by creating regularity, which is by prescheduling what it's going to be. And then be reminded of the big picture very consistently so you can know if you're on track or not, if something changes. Those are things you said, but just more specific ways of going about it. And the tool that I was talking about earlier was Clarity Money as well. I think it's a really good one that some people could use as well, too. So yeah, so I think that was a pretty, without being hyper specific to any case other than our own, is a pretty good overarching class on personal budgeting. Is there any other points or pieces that we need to discuss in that?

Joseph Rugger:

I think we got it, man. I think it's great.

Jonathan VanHorn:

Guys, if you are interested in talking more about budgeting, this is something that we do pretty regularly. If you want to share, if you've got a budgeting hack or something that you use to budget regularly, or if you just have a really cool way of doing it, make sure to go into the Facebook group, make a post about it. Tell us about it. We'd love to add that to our repertoire too. Appreciate everyone tuning in. This has been a fun episode. We're going to have another episode about business budgeting, which is a complete ... Well, a lot of people can play the tune to the same thing. They are completely different and there's different reasons of doing it, there's different methods of doing it and there's different purposes of doing it. So that's going to be a different episode. This is probably the second episode of this personal budgeting content. And we will see you guys in the next one. See you, Joseph.

Joseph Rugger:

Bye guys.

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 and we'd 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 they're requiring, 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. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.

Jonathan VanHorn:

And if you enjoyed today's episode, again, go to the Facebook group. 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 long term. 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. Apply with your email address. We're sending instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.