Practice Management Toolkit
Give Direction to Your Financial Future
If you managed to work your way through the processes presented in the first
article, you now have your banking organized and an emergency fund in place.
The next thing to consider is what you’d like to do with your money. What
are your financial goals?
By taking the time to outline what you wish to accomplish with a savings and
investment strategy, you give yourself a road map to financial success. Don’t
rely solely on your memory for this exercise. It is far better to take the time
to establish a written record of your decision-making. Like everything else
in life, your objectives will change over time. Simply be prepared to make revisions
as your income increases, your family expands, you change jobs, and so on. In
other word, be flexible.
Goal-Setting Techniques
You may find it extremely helpful to use the following basic techniques to establish
some financial goals for yourself. These guidelines are simply general parameters
you can modify to fit your needs and personal situation. Again, think of this
as a fluid process. Set aside an afternoon or evening to record your goals.
Do the same thing periodically to monitor your progress toward achieving the
financial objectives you’ve established for yourself. If you are married
or have a partner, this should become a joint venture. Here are some simple
steps you can follow to get started.
- Establish goals over a wide range of time - Don’t
limit your goal setting to just a few common, generalized outcomes. Think
about what you want to do with your money over a long time horizon. Your goals
can range from a near-term objective like buying a new car to a long-term
objective of putting more money away for a comfortable retirement.
- Set short-term, intermediate-term, and long-term goals
– Take all your goals and categorize them as short term, intermediate
term, and long term. Objectives you’d like to see realized in the very
near future (say within six months to one year) are short-term goals. For
many, retirement is a great example of a long-term objective as is paying
for a college education for a young child. Then everything in between can
be listed as intermediate-term goals.
- Rank the goals in each category – Write down all
your short-term, intermediate-term, and long-term goals on a piece of paper.
Review each list carefully and rank every item from the highest to the lowest
priority. Couples may first want to do this individually before conferring
to compare lists. Sort out those items where you do not overlap but share
those individual objectives with your partner, so he/she is aware of them.
Now rank your joint goals from highest to lowest priority. Some of your individual
goals may not wind up becoming joint goals. Because they are personally important
to you as an individual, keep them on your list but prioritize them accordingly.
- Be specific – Avoid being too general or vague in
defining what it is that you want to achieve, otherwise you may not know if
you actually reached a goal or not. For example, if you want to save money
for a child to go to college, don’t write down “save money for
college.” Focus on a more specific outcome, instead. Turn “save
money for college” into “open a 529 Plan for Michelle’s
college education,” “establish a Uniform Gift to Minors Account
(UGTMA) for Michelle for college,” or turn it into a dollar amount -
“save $50,000 for Michelle to use for college.” If you aren’t
certain what type of account might be best or if you even want to open a college
specific account, then choose a numerical value as your target ($50,000 in
our example). The $50,000 figure is simply an estimate on your part. You are
assuming Michelle is likely to attend a local university or college, lives
at home, and you have to pay for tuition, books, and fees. If she has her
heart set on an out-of-state school or private university, be prepared to
reset this goal well above the $50,000 level.
With a long-term goal like retirement, you can find out what the maximum contribution
limits are for an individual retirement account (IRA) and your retirement
plan at work (if there is one). Do a realistic assessment of your budget,
and then set contribution goals for yourself. That will get you started. Later
on you’ll probably discover that to obtain the income stream you’d
like to have in retirement, you’ll have to maximize the contributions
to any retirement plans, and put money aside in personal (taxable accounts).
But more on that later.
- Revise your goals as needed – Don’t be afraid
to reset your goals if you later discover you have more accurate information
on which to make your projections. For example, say you decided that you wanted
to raise $10,000 for a down payment to purchase a home. But once you actually
started your home search it quickly became apparent that $10,000 simply would
not cover everything. To avoid costly mortgage insurance, you must put down
at least 20% of the purchase price as a down payment, and you have to factor
in all the added closing costs. You may not have been aware of these expenses
at the time you set this goal. So simply revise your estimate to $20,000.
The amount of money you need to come up with just doubled. That leaves you
with a few options: 1) try to save twice as much as originally planned, or
2) postpone buying a home until you have enough money for an adequate down
payment. Some people turn to a third option – obtaining a loan for the
down payment from a family member. But be advised you may be asked by your
lender to document how you came up with the down payment. Financial institutions
want to make certain you are able to afford the added debt of a home mortgage.
- Set realistic goals – Be realistic with your expectations
and establish financial goals that are attainable given your personal circumstances
(employment situation, salary, lifestyle, spending habits, etc.). In other
words, if you estimate you can save a maximum of $100 per month, then no one
would expect you to amass $3,000 in 12 months. The math isn’t working
there. What is realistic is that you might be able to save at least $1,200
over the next year plus any interest income that money might earn. Likewise,
you could also set your sights on having $3,000 within the next 30 month,
or even less time, if you can find new ways to save more money.
- Monitor your progress – If you do not periodically
reevaluate where you are, you are less likely to get where you want to be.
Take time to sit down, review your progress (or lack thereof) toward your
goals. Keep a written record of those efforts, and work on refining your goal-setting
technique. If you take two individuals who have specific financial objectives,
the person who monitors their progress is more likely to be successful and
reach their goals.
If goal setting is not something you have given any thought, now is the time
to see if this process can help you achieve financial success and security.
Give it a try.
About the Author
W. Patrick Naylor, D.D.S., M.P.H., M.S. is an adjunct professor at the Loma
Linda University School of Dentistry where he lectures on personal finance and
investing. He is author of the book, 10 Steps to Financial Success, A Beginner’s
Guide to Saving and Investing (John Wiley & Sons, Inc.). Dr. Naylor
also wrote a dental text, Introduction to Metal Ceramic Technology
(Quintessence Publishing Co.).
Together with Loma Linda University he created a self-paced personal finance
CD-ROM entitled “Personal Finance Series for Health Professionals”
based on 16 hours of lecture. The CD-ROM consists of four parts: Series #1 -
Savings and Investment Basics, Series #2 - Investment Selection
I – Mutual Funds, Series #3 - Investment Selection II –
Stock Selection and Investment Tracking, and Series #4 - Investing
in Tax-Deferred Accounts. The topics in all four of the series are of general
interest, but Series #4 contains a section devoted to retirement plans for the
dental office.
The personal finance CD-ROM can be purchased from the Loma Linda University
School of Dentistry for $35.00 (including shipping in the continental U.S.)
by calling (909) 558 - 4685 or sending a check for $35.00 to Continuing Education,
Loma Linda University, School of Dentistry, Loma Linda, CA 92350. Loma Linda
School of Dentistry also has several dental CD-ROM programs available for sale.
Dr. Naylor’s personal finance book can be obtained from any of the large,
online book retailers, such as www.Amazon.com, or ordered by a local bookstore.
His dental textbook is available through the Quintessence Publishing (800-621-0387
or 630-682-3223).
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