7 financial foul-ups
Veterinarians make some basic errors when it comes to money in their pocket and in their retirement fund. Budget? What budget?
Whether you’re a seasoned multipractice owner or just out of veterinary school, personal financial mistakes can occur at any point of your career. Here are seven common errors, each of which can affect your financial well-being equally.
1. Not Having an Emergency Fund
You hear the expression “rainy day fund,” but in reality what you need is an interest-earning savings account to be used only in a dire emergency. Finding room in your budget to save money is one of the most important aspects of being financially independent. By placing a predetermined amount in an emergency fund, you greatly diminish the chances of having to max out high-interest credit cards or borrow money, thus saving yourself from a nasty spiral of bad debt.
Younger veterinarians might have trouble finding money to put into an emergency fund, but I recommend doing it before you engage in any non-vital spending. For veterinarians who are higher earners, you should save at least six months’ worth of living expenses that you will not touch unless absolutely necessary. Again, putting the money in a savings account earning a bit of interest is the prudent choice. Do your research because some banks pay much higher interest rates than others.
2. Putting Yourself Second
Plowing profits back into a practice to pay for marketing, equipment or vital supplies is usually a good idea. If your clinic generates enough cash flow and you can maintain the same level of pay, you are in the golden zone. However, too often veterinarians invest a disproportionate amount of their earnings into their practice without accounting for their personal finances.
Yes, the practice’s profitability can directly impact an owner’s bottom line, but being able to invest your money is another way to pay yourself. As you build up your nest egg, the money will generate a rate of return, similar to what you put into your practice. Over time, the goal is to have a dual investment strategy for you and your business.
3. Not Accounting for Taxes
Because of revisions to the IRS tax code, working with a tax professional to make sure you have done everything you can to maximize tax savings is crucial. Even better, paying a certified public accountant who specializes in the veterinary profession is smart.
I will not go into the intricacies of tax planning, but understand that your choices can either save or cost you lots of money over the course of your career. Simply forecasting expenses and developing a systematic tax plan that works in unison with your investments can do wonders for your financial future.
4. Having a Broad Budget or No Budget
Budgeting is the root of good financial health. Not having a budget is like sailing without a rudder; you can’t dictate which way you want to go. When you put a budget in place, you can start to create goals. These goals can pay down certain debts and help you save predetermined amounts of money.
A budget is a roadmap to being financially successful. By understanding your personal finances, you can determine what you can and cannot afford. People without a budget can easily overspend and find themselves playing catch-up, which is never a good position.
If you think you are financially comfortable and are able to slowly build a nest egg after paying monthly expenses, you can do even better with a budget. You will be able to eliminate the messy spending that inherently occurs when you have no budget. Plan your expenses as best as possible and stick to it.
5. Not Prioritizing Student Loans
The majority of aspiring veterinarians take on student loans to get through four years of graduate school. The reason is understandable, but not having a plan to pay off the loans can seriously delay a young veterinarian’s quest for financial independence.
Many veterinarians refinance their loans to obtain lower monthly payments, but the interest accrued when spreading loans farther into the future is expensive. Numerous companies can consolidate loans and potentially lower the interest rate. Failing to take a hard look at these companies’ offerings can cost tens of thousands of dollars over the life of the loan. How you deal with student loans should be factored into your budget. (See Point 4.)
Lastly, understand that interest rates on student loans can increase, costing you thousands of extra dollars. Getting your student debt paid off as soon as possible has to be at the top of your priority list. Your financial health depends on it.
6. Not Thinking About Retirement
Delaying investments in your future can be the most detrimental aspect of your long-term financial health. Investing is not about scattering your finances into different accounts. Rather, it’s about making sure your money is working to secure your future in an organized and disciplined manner.
Waiting for your next raise or for “a better time” to invest in retirement cuts into the single most important determining factor when building wealth: time. Every day that goes by without invested assets hurts your retirement goals.
Check out the chart below. (Thank you, All Financial Matters.) As you can see, for every year you neglect to start a retirement fund, the amount of money needed to catch up and meet your retirement goal grows exponentially.
7. Not Having a Financial Plan
For many busy veterinarians, personal finance takes a back seat to other important tasks. Between continuing education and a busy work-life schedule, investing in your financial future is easy to overlook. Creating a financial plan is imperative if you want to achieve your financial goals. As the saying goes, “If you fail to plan, you plan to fail.”
Seeing where you stand relative to your short- and long-term goals will allow you to understand what you need to do now to get where you want to be later. Investing and financial planning are similar to physical health — they’re easier to do tomorrow but better for you if done today.
Hopefully after reading about these seven common mistakes, you will avoid the barriers to financial independence.
Miles Saunders is the founder of Westport, Connecticut-based MNS Wealth Management. Learn more at www.mnswealthmanagement.com.