It does not matter if you are a new practitioner just starting your career, or if you are a veteran practitioner in practice for thirty years. If you rack up debt without a clear repayment plan you are asking for financial disaster.
This article will teach you what you need to know about debt, how to use it wisely and how to avoid its alluring pitfalls. Debt, according to Webster’s Dictionary is an amount of money that you owe to a person, bank, company, etc.
If you can live by the rule never borrow money you will certainly be well on your way to achieving financial freedom. However it is to be noted that if you want to get a Chiropractic education, purchase or open a practice, or, buy a home the likelihood of avoiding debt altogether is probably impossible; unless you have an uncle named Donald Trump.
There are two kinds of debt. Good debt and bad debt. Good debt by definitiont is an investment that will grow in value or generate long-term income. Taking out a loan to pay for a college education is the perfect example of good debt. Taking a mortgage that will buy a rental property that will give a positive cash flow is another example of good debt. Let’s make it even easier, good debt is borrowing money which will enable you to earn more money.
Bad debt by definition is debt incurred to purchase things that quickly lose their value and do not generate long-term income. Bad debt is also debt that carries a high interest rate, like credit card debt. The general rule to avoid bad debt is: If you can’t afford it and you don’t need it, don’t buy it. Examples of bad debt would be taking out a loan to buy a fancy car when a lower end model will get you from point A to point B just as well. Another example would be using student loan money to take a vacation or to buy fancy clothes. Let’s make the definition of bad debt easier; bad debt is borrowing money that will allow you to purchase goods or services that will not earn you more money but will lose their value. A car will depreciate and be worth less; a vacation while nice, will become a memory but the payments could live on for many years afterward.
Now that you understand the definitions of debt, let’s take a look at some strategic approaches of managing debt.
- Please be advised that student loans are one of the riskiest types of debt that you can incur. Why? Student loans cannot be discharged in a bankruptcy. Student loan debt can and will follow you all the days of your life to the tune that they can garnish your social security check if they need to for repayment. Knowing that student loan debt comes with some serious risks means that you must use this type of debt VERY WISELY. Talk to a financial planner, accountants and others in the know for advice. This article is not intended to give you financial advice but rather give you information to take back to your financial advisers to see if they make sense for you. Please do not utilize any advice before you have your financial advisers evaluate it.
- Understand that when you get out of school you can incur anywhere from $200,000 and up in debt. That number scares me too, however with proper planning it is not insurmountable. Some ideas to discuss with your financial advisers would be:
- Having a family member or friend fund your education
- Using home equity lines of credit in place of student loans
- Taking the minimum amount of student loans
- Do not defer payment of your student loans any later than you absolutely need to. Remember that your loans are accruing interest. You want to pay them down as quickly as possible.
- Be willing to live very small when you first graduate. Eat at home instead of going to restaurants. Drive an inexpensive car or take public transportation whenever possible. The little things do add up. Get a notebook and write down where every nickel is spent. You will be surprised how much waste is in your daily routine. Then create a budget and STICK TO IT. Determine what income you will have against your expenses. Any overage should go into a special fund that is segregated from your checking account. It is called your emergency or cash on hand fund. This fund should be built up over time to equal at least one year’s living expenses.
- AVOID CREDIT CARD DEBT AT ALL COSTS. Paying interest charges of 19-25% is a sure way of creating financial ruin. I am serious when I say ride a bicycle or walk if you do not have gas money. Eat at a friend’s house or go to a shelter if you don’t have money for food. In no way should you deficit spend (spending money that you expect to earn or get in the future) on a credit card. The rule that I live by and that I have taught my family and clients is this: Unless you have the money in your checking account and plan on paying your credit card purchase in full at the end of the month do not use your card.
- Live below your means. Chiropractors have the ability to earn massive amounts of money. It is very easy to carve out a rich lifestyle of fancy cars, houses, etc. I am very much in favor of living an awesome lifestyle provided that you are not deficit spending. Deficit spending is using credit to obtain good and services with the intention that the money will be collected in the near future. This one fatal tactic has caused many once successful chiropractors to go bankrupt. The problem is if the money does not get collected you have got a BIG problem. If you learn nothing from this article learn DO NOT DEFICIT SPEND!
- Get professional help. Hire an accountant, attorney, coach, insurance agent and compliance company. Every professional listed has a unique and needed function. Do not forego obtaining help in any of those categories. Choose the right professionals by asking others who are successful for recommendations. Then make sure that you do a proper due-diligence and conduct a proper interview. If you do not resonate with the professional MOVE ON. The same goes if you feel pressured or if you feel that the professional does not have the proper plan for you, MOVE ON and keep searching for the right team.
- Establish Retirement Funds. The sure way to beat debt is to accumulate wealth. The sure way to wealth accumulation is establishing a retirement account and funding it to the max every year. Speak to your advisers about what the best type of account for you would be.
Your financial future is in your hands. The government will not be there to take care of you in retirement. If this article scares you, then I hope it scares you straight; straight into the land of knowledge. If you follow these tenets you will have a long profitable career; use debt wisely, live below your means, establish retirement accounts and fund them to the max, and obtain professional guidance.
Dr. Paul S. Inselman is President of Inselmancoaching and an expert at teaching chiropractors how to build honest, ethical, integrity-based practices based on sound business principles. From 2008-2016, his clients’ practices grew an average of 150% while the general profession was down 28%. His 31 years of clinical experience coupled with 10 years of professional coaching has allowed him to help hundreds of chiropractors just like you. He can be reached at 1-888-201-0567. To schedule a free no obligation consultation, click here. His email address is inselmancoaching@gmail.com.
