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Top 3 common financial mistakes

in Managing your finances

Top 3 common financial mistakes

 

Stuart Wemyss is a director of financial advisory firm ProSolution Private Clients. In this article he explains the top 3 common financial mistakes made by young dentists.

Arguably, the first 5 years practising dentistry are your most important from a wealth accumulation perspective because you will reap the benefits of your good decisions in the following years (or rue the consequences of your poor decisions – or perhaps indecision). Also, you can create some habits (good or bad) which generally set the tone for the rest of your working career. Here are the top mistakes we commonly see.

Any property is good property
Probably the most common and costly mistake we see is young dentist’s buying the wrong type of property. In fact, very few get it right. Quite often dentists will buy a property that is convenient or affordable. Maybe the property is close to work or where they have grown up. Sometimes it’s an off-the-plan apartment which often have very limited growth prospects. I recently met with a young dentist with 3 to 4 years of experience who didn’t make this mistake when he bought his first property. In fact, he paid for professional advice to ensure the first property he bought was a good one. He is now in a position where he is currently looking for an owner-occupier home in a first-class suburb using the equity he’s enjoyed from the first property. The first property you buy is the most important – without a doubt.

Don’t  get ‘sucked in’
Dentists are targets for financial product salesmen due to their earning capacity and their almost universal distaste for paying a lot of tax. Quite often, poor quality financial products are sold off the back of promised tax-saving benefits. A good example of this is tax-effective agriculture investments that were widely sold by accountants to their clients (often referred to as tree investments). Most of these are now worthless. To avoid being taken to the cleaners you need to ask two important questions.  Firstly, is the underlying investment something I would invest in even if it wasn’t bundled into this product (most people don’t invest in tree plantations because fundamentally, they’re poor quality). Secondly, why is this product being recommended to me? Does the seller honestly believe it’s a good investment or is there some other benefit they are receiving (many poor quality products pay big commissions)? Focus on these two questions and you’re almost certain to never get ‘taken to the cleaners.’

Elastic expenditure
In the first 5 years of practising dentistry, a practitioner’s income will often double. In fact, in the first 10 years a good dentist will enjoy very strong income growth. What the dentist does with all that growth is what’s important. Unfortunately, often we see dentists adjusting their expenditure to soak up any growth in income. It is almost like anything in life, unless you actively plan otherwise, you seem to make things fit. If you only have 2 hours to get some chores done, it will take 2 hours. If you have half a day, it will take half a day. The same is true for a lot of things including finances. Therefore, you really need to have a goal and plan for what you want to do with your money and the future income increases you enjoy. If you don’t, the extra money will just seem to disappear.

If you can avoid these three mistakes you’ll go a long way for setting sound foundations for future wealth accumulation.

Stuart Wemyss is a director of financial advisory firm ProSolution Private Clients. One of its services includes a 2-Year Young Professionals financial advisory programme which mentors and advises dentists to ensure they maximise all of their financial opportunities. Visit www.prosolution.com.au


 

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