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723: Financial Freedom VS. Financial Independence – Dr. Jim McKee

Financial independence is your ultimate goal. But it won't happen if you don't plan for it! To help you achieve financial health as early as possible in your career, Kirk Behrendt brings back Dr. Jim McKee, founder of Chicago Study Club, to share great advice that you didn't hear in dental school. To learn how to make smart investments, be debt-free, and enjoy your life, listen to Episode 723 of The Best Practices Show!

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Main Takeaways:

  • Understand the difference between financial freedom and financial independence.
  • Financial independence won't happen unless you start planning for it.
  • Be smart about all of your investments, especially equipment.
  • Quality CE is one of the best investments you can make.
  • Keep your office and personal overhead low.
  • Know the 1:1, 2:1, and 3:1 concept.
  • Get in the habit of saving.

Quotes:

“Financial freedom is basically having enough money to live on so you don't have to dip into savings. So, you can afford to pay your monthly bills. You might have a little left over. But basically, you're free, financially. You're not having to take loans out or borrow money to live on a month-to-month basis. Financial independence is something completely different from that. Financial independence is where you don't have to go to work. Basically, what it comes down to is you've either saved enough money, or you've got enough money in your investments that are coming back to provide you income so that it doesn't really matter if you work or not.” (4:15—5:03)

“Some people will get to financial freedom early in life. Some people will never get to financial freedom. Same thing with financial independence. Some people will gain financial independence early in life. To be honest, most people — especially dentists — don't realize that till later in their careers. And the part that I want to emphasize is, it doesn't happen without planning. It's not just an accident that you got out of bed one day and you're 60 years old, and you go, ‘Hey, I've got enough to retire. I think I'm done.’” (5:05—5:39)

“I think there's a glamorous part of investing where you think you're going to put your money in and you're going to double your money in three years. And you know what? I saw a lot of people double their money in three years. I saw a lot of people lose their money in one year. So, my advice to younger dentists is, don't go for the huge return immediately. Basically, if you look at what Albert Einstein called the greatest invention of the 20th century, it's compound interest. If you can build a balance of a retirement portfolio that's going to grow on an annual basis, it doesn't have to grow a ton the first year. What you want it to do is to grow a little bit, a little bit more, a little bit more, a little bit more.” (8:54—9:46)

“There was something that I heard when I was young that was called 1:1, 2:1, 3:1 . . . Basically, it comes down to the return you get on the money that you invest. 1:1 is, let's say you invest $100, and the return you get back from your investment is $100. So, you're putting in $100, you're getting back $100. It's a 1:1 relationship. Roughly, that takes, depending upon your interest rate that you're getting your investment on, generally eight to ten years. So, you have to be willing to put the time in when you're young to get to a point where you can build up a nest egg that's going to spin off a return that's equal to the amount that you're putting in each year. What I learned is that that meant I couldn't go for the huge return — because if I lost it, I never got to the 1:1 point.” (9:47—10:55)

“When I look back at my friends in dentistry who've had a difficult time financially, it's always, they went back and forth between zero and 1:1 because they never got the nest egg big enough to get to 1:1. The beauty of 1:1 is, let's say if it takes you 10 years to get to 1:1, it might only take you another five years to get to 2:1. 2:1 is, now you're investing $100, and your return is $200. Now, that may not sound like a lot. But here's where it gets exciting because we're used to thinking about it like a linear line. This is a parabolic line. If it takes you 10 years to get to 1:1, it takes another five years to get to 2:1. From there, 3:1 is probably three years away. 4:1 is probably another three years away. 5:1 is another, and it starts going up, and up, and up. When you get to that point, you don't have to work as hard because now the money is doing the work for you. The problem is you have to have the discipline, a) to put the money away and, b) to make sure that you can manage your portfolio so you can get to 1:1.” (10:56—12:24)

“The faster you can get to 1:1, the faster you're going to be financially independent. For me, that was a huge thing to learn because I think as a young dentist, you're thinking, ‘Oh, there's always time to save money,’ And there is time to save money. But the problem is you lose the ability to generate interest from money you've already saved if you push that off deeper into life.” (12:25—12:54)

“I'm really lucky my wife and I feel the same way, because sometimes you'll get one spouse who wants to spend more, and one spouse who tends to want to save more. So, if you're married, I would make sure you talk to your spouse and come up with an agreement on how you want to handle your finances. We're both savers, so it worked out well. If you've got two people that are spenders, you’ve got to be a little bit careful with that. I've had a lot of friends who are in that situation. Now, you can do that, but it causes some complications in the practice.” (12:55—13:32)

“The most important thing is getting the money in. Get the money in. And it doesn't have to be a ton of money either. It doesn't have to be a ton of money, but make sure that you get in the habit of saving and just put it in. Make it part of your office overhead that whatever percent of your profit that you can do that with, do that. Now, here's the problem. There are two areas that it’s going to impact. The first is the office, because what I have seen is I have seen dentists who actually are pretty conservative people spend like drunken sailors on equipment in their practice and they never use it. If you're going to buy a piece of equipment for your practice, whether it's a cone beam CT — regardless of what it is — make sure that you have a way that you will be able to pay for the equipment.” (14:57—15:59)

“I had a Panorex when it was really not common for people to have a Panorex. I got a CBCT early in the game. What it allowed me to do was being able to now understand dentistry enough where I could charge a fee for my services differently. So, whatever office equipment that you are going to get, make sure that you have thought it through on how you're going to, a) pay for it and then, b) create a way where now it can increase the resources in your practice so you can have enough time to take time off, so you can spend vacations with your family, so you can put money away, so you can go to continuing education.” (16:10—17:01)

“When I look back, out of anything I've done, the return on investment on continuing education has given me the best return. And second place isn't close. The reason is . . . it built the business. It allowed me to treat patients at a different level that I couldn't do earlier because, quite frankly, I didn't have the skill set. I didn't understand MRIs. I didn't understand CT scans. I didn't understand occlusion. I didn't understand restorative dentistry. I didn't understand treatment planning. Once I was able to listen to some of the giants in our profession — Pete Dawson at the Pankey Institute, John Kois, Frank Spear, Vince Kokich — I could keep going. I've been so fortunate to be influenced by so many fabulous teachers in our profession. But really, from a practice management/financial situation, it allowed me to have a return on my investment that, a) allowed me to do other things but, b) it stimulated my interest in learning because I could see the impact it was having on the practice.” (17:07—18:23)

“In terms of the office, my advice is to be careful with equipment. Now, I certainly think you need the most current and technologically up-to-date equipment you can get. But be smart about it. Make sure you're going to use it, and make sure you're going to be able to get a return on it.” (18:25—18:42)

“My advice to you as a young dentist is, you can go to commercially influenced CE, and sometimes that's not a bad thing because it does expose you to new ideas. But what you have to really be crystal clear on is that if you're going to commercially based CE, there's an implied message in the material, a lot of times. Not always, but a lot of the time, it's a CE that's put on by a company that produces products or something like that. So, if that's the case, I would look for CE that is non-commercially biased. Now, that may be hard to do, and you may have to ask some questions before you sign up. But that's okay because in my mind, today, I don't want to have to sit and think if the person who's presenting the program really believes that and this material really works in their practice, or they're saying it because they're being paid to do the presentation that day by the company.” (19:17—20:22)

“Make sure that CE is an investment in your future. If you don't implement it, it simply is an expense. Make it an investment in your future that you'll get a return on investment on. I promise you there is nothing — stocks, real estate, whatever that's going to give you a return —like investing in yourself and increasing your knowledge base through non-commercialized CE.” (22:33—23:01)

“I think that CE can be kind of intoxicating because you get really excited. You get really hyped up about doing things. CE without implementation is a nice day out of the office, but not much more. So, I'm going to really challenge you, that when you go to a CE course, you need to come home with a to-do list. No if, ands, or buts about it. It might be four things long, or it might be 40 things long, but you need to come home with a to-do list and an action plan in order to really gain the full benefit of continuing education.” (23:53—24:36)

“I've looked at friends who got out of dental school. Immediately, they bought the big house. Immediately, they had the lake house. They've got all the toys. That's great if you can afford it. I was never in a position to afford that. We lived in a really modest house for the first 20 years we were married. Then, we ended up moving to a different house. But really, my advice to you is, keep your office overhead down. Keep your personal overhead down too. You don't automatically have to have the country club. You don't automatically have to have the lake house. You don't automatically have to have the brand-new car, the big house. Keep your overhead low. Live in a more modest house, if you can. You don't have to drive a brand-new car. There are plenty of cars you can drive if you're in the saving years. So, my point is, don't put yourself in a bind at the office, because if you keep your personal overhead low, it allows you to now talk to your patients in a different way.” (24:48—26:03)

“Dr. Pankey said something once. ‘It can never be more important for the dentist to have the patient accept the treatment plan so the dentist can pay their bills, versus the patient accepting the treatment plan so they can get good dental care.’ The other thing he said, ‘It's always easier to walk into a consultation with a few dollars in your pocket.’ And I have found that to be completely true. When I look at the dentists who have struggled financially, many times, it's difficult for them to give their patients choices because they need their patients to accept a certain treatment plan. If you can get to the point where you can say to the patient, ‘We have different options to do this. Obviously, I'm going to recommend the best option for you. If you're not able to do that now, we have other options. And they do come with risks.’ So, we need to make patients understand that if they can't do the option we recommend, that's okay. We can phase the treatment, but it may end up costing more in the long run, and you may end up having clinical issues that we weren't able to recognize at this time based upon the age of the dentistry that we're doing. But we'll do our best to take care of that.” (26:06—27:25)

“You have to realize that there's a time when patients are ready, and when patients aren't ready . . . The mistake I made is I came back from Dawson with a lot of information — really, really good information. And when I put a treatment plan together and put together the case, if it was a treatment planning course in dental school, I would have got an A-plus on it. The problem was I got an F with the patient because they walked out of the office without accepting care. I didn't meet the patient where they were emotionally, psychologically, financially, lifestyle wise. I just simply looked at information that I had collected from an exam, and I gave the answer. You can do that. But now, what I'm more likely to say is, ‘Is this something you might want to do all at once, or would you like to break this into different pieces? We can do it either way.’ Give people a choice. But it's easier to do that if you have choice in your life.” (27:42—29:02)

“If you're a dentist who is looking to sell their practice, now you're under a little bit of pressure. You have to find the right person. You have to get the fee that you want for the practice. If you need that money to retire, the deal has to go a structured way. If you're able to have enough resources where you don't really count on the sale of your practice, which is, honestly, when we were getting out of school, we were told not to count on the sale of the practice, so I never built that into my financial numbers. If you can, all of a sudden, now what you can start to do is you can start to figure out what you're looking for in your practice. The main thing is, if you're looking to transition, do you want to stay on, or do you want to walk out the door immediately? There are a couple of different choices there. I wanted to keep practicing. So, I wanted to stay on, and I also think that our practice was a little more unique than others, given the amount of joint reconstructive work we see. So, it would be hard for someone to walk right in who doesn't have a lot of experience in that and jump right on it. So, for me, I wanted to continue working. It all depends on what's best for you though.” (29:38—31:03)

“The reason why most practice transitions don't work if the selling dentist wants to stay on is there's not enough dentistry for both of them to do — for the dentist who's buying the practice to be able to meet their obligations. So, I'm going to suggest to you, if you can build a practice that we've talked about in terms of diagnosing joints, treating occlusal problems, stuff that a lot of people don't want to do, it really gives you a leg up on building a unique practice that patients or dentists will both seek you out as time goes on.” (32:26—33:00)

“You’ve got to have a plan. You’ve got to have a plan that you're looking to save each month. You have to have a financial advisor that you trust. And my advice, again, would be to start out relatively safe and let it build. Once it builds and you get to 1:1 and you want to try a few other things, try it. But again, the whole goal is to get to 1:1 and not slide back and forth with all that.” (34:02—34:27)

“My advice to you is to make it part of the journey. Make it a fun part of the journey. Don't be crazy. It doesn't mean you can't ever spend extravagantly. But I don't think you can do it every weekend.” (34:29—34:43)

“The older you get, I think the more patients say yes simply because you're not strained financially anymore. I think patients pick that up, that, ‘I have to do this treatment because the dentist needs to be paid.’” (35:16—35:31)

“At my age, still being able to have the excitement and the ability to practice dentistry is really fun. You may not have that, either from an excitement level or a health level, so that's why it's nice to be able to have those ducks in a row financially in case you do have something. Then, you're like, ‘Okay. I'm good anyway.’ So, that's why I’m saying I think the independence that it gives you, both psychologically and from a living perspective, really makes it a noble goal, I think, to achieve.” (37:42—38:22)

Snippets:

0:00 Introduction.

1:58 Why this is an important topic.

3:40 Financial freedom and financial independence, explained.

6:38 Why you need financial guidance.

9:46 The 1:1, 2:1, and 3:1 concept.

14:47 Learn how to save and spend wisely.

17:01 Invest in quality continuing education.

24:38 Keep your office and personal overhead down.

26:05 Give patients options.

29:02 Dentists who need the money versus ones that don't.

33:02 Final thoughts.

Dr. Jim McKee Bio:

Dr. Jim McKee is a member of the Spear Resident Faculty. He has maintained a private practice since 1984 in Downers Grove, Illinois, where he treats a wide variety of cases with a focus on predictable restorative dentistry. He is a member of the American Academy of Restorative Dentistry and former president of the American Equilibration Society. He has lectured both nationally and internationally for over 25 years and directs several study clubs. Dr. McKee graduated from the University of Notre Dame in 1980 and earned his dental degree from the University of Illinois College of Dentistry in 1984.
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