As a dentist, choosing the profession is not just about having a stable and profitable career, but it also encompasses the potential for growth and financial success. Many dentists dream of building a thriving private practice and expanding their client base, leading to higher revenues and ultimately achieving financial independence. But what does it truly mean to become “rich”? How much income is necessary to attain true financial freedom?
In this article, we will explore these questions and provide insights to help you understand and achieve your financial goals as a dentist. Whether you are just starting out or have been in the field for years, this article will give you a clear understanding of where you stand and what it takes to achieve true wealth.
Determining whether or not you are rich is a matter of understanding your own financial situation. To determine your wealth status, you need to consider two key factors: your monthly expenses and your passive income.
First, calculate your private monthly expenses, by adding up the costs of necessities such as rent, transportation, utilities, food, and debt repayment. Take note of any additional expenses that are necessary for you to maintain your desired standard of living. If, for example, your current lifestyle is already satisfactory, calculate how much it costs to maintain it. Review your recent bank and credit card statements for the last 12 months, then take the total amount and divide it by 12 to arrive at an average monthly expense.
Second, consider your passive income, which is income earned without actively working for it. Examples of passive income include interest earned on savings accounts, rent collected from properties you own but do not live in, and dividends from investments in stocks or businesses. Be sure not to include your salary in this calculation, since you have to work for it, and therefore it cannot not be considered a passive income.
By comparing your passive income to your monthly expenses, you can determine your financial status. If your passive income exceeds your expenses, you are considered rich, as you are able to maintain your desired standard of living without actively working. According to Robert Kiyosaki in his book “Rich Dad Poor Dad”, this is the true definition of financial independence.
If, however, your passive income is not enough to cover your expenses, you will need to continue working in order to maintain your standard of living. In this case, the question to ask is for how long can you financially survive without an active income (deriving from your work). The longer your reserves can cover your expenses, and the longer you can survive without actively working, the better off you are.
Many individuals face challenges if they experience a prolonged unemployment period. In the United States, for instance, many people who lose their jobs may struggle to pay their mortgage and may risk losing their homes. It highlights the importance of financial planning and having a buffer of savings to fall back on during difficult times. Your financial stability, in this respect, is simply measured in months: how many months can you survive without earning active income? How long will your savings last?
Which brings us back to the question we started with: what does it truly mean to become “rich”? The surprising answer is that you become truly rich when you can afford yourself not to work for endless months while maintaining your desired standard of living. Note that this does not mean you will not work from that point and on. It only means you don’t have to work if you don’t want to, since you have the freedom to pursue your passions and interests rather than working solely for the sake of earning a paycheck.
To become rich, according to this definition, you must proactively pursue it. The key is to have a plan, stick to it and be disciplined in financial management over time. The recommended path is to invest in income-generating assets, such as rental properties, stocks, or a business, that will provide passive income, and also to minimize personal expenses as much as possible. With careful financial management over time, it may be possible to accumulate enough assets to achieve financial independence and be free from income worries for the rest of your life.
We wish you all the best in pursuing and achieving your financial and professional goals, and hope you found this article useful. At DentQ, we are proud to be the business partners of thousands of dentists around the world, and to provide them tools, technologies and insights that can help their business grow. Whether you work with us or not, feel free to re-visit our blog and join our Facebook page to read similar articles that can help you improve your own dental business.