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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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).