Doctor’s Biggest Financial Mistakes
by Douglas Carlsen, DDS
I purchased a home in 1980 (before the practice! ) at the peak of the housing boom for $800 per month (12 percent interest rate), bought a new car in 1981 for $310 per month (18 percent), then finally took out a practice loan in 1982 for $1,500 per month (19.5 percent). These loans totaled $2,610 per month. My net income from the new practice was $3,500 per month, which meant I had $900 per month for all my personal expenses. I had zero savings. Yes, I made the same darn mistakes I rant about today! In 1988 , I had a custom home built. The home was built on time, looked beautiful, was actually affordable, and within two weeks, all the windows and roof leaked anytime just a few drops of rain would fall.
The builder obviously hired the cheapest help once he had our money locked in. We spent two years in court, eventually netting enough to fix everything. Unfortunately, we never really enjoyed the house, even after the repairs, as whenever rain would fall, we’d become nervous. Bottom line with custom homes: Be very careful to thoroughly vet anyone from whom you’ll purchase a to-be-built home. Never again for me!
Financial mistakes from Dentaltown Townies
Here are some selected comments from a 2011 Dentaltown message board thread on financial mistakes.
♦ My biggest mistake was early on thinking that new toy for the office was only $600 a month for the next five years. Pretty soon you have about 20 of those things costing $600 a month and a whole lot of debt and a ton of crap in the office. Keep it simple early.
♦ I let my wife talk me into buying a house in 2007. We knew the market had peaked but bought anyway. The house is well within our means, but nonetheless it’s now worth about $150,000 less than we paid for it. Definitely would have been better to keep renting.
♦ At the top of the list for financial mistakes (and general life mistakes) is marrying the wrong woman. Nothing else, other than losing your dental license, will be more expensive. I totally agree with getting your practice established before buying your house. Never spend more than 16 percent of your income on your mortgage, maximum. Pay cash for your toys. If you can’t pay cash, save until you can. If you are over 35, pay cash for everything that isn’t a home. Everything: boat, CEREC, kitchen remodel … everything.
♦ My biggest financial mistake was signing a contract that stated I had to buy into the building LLC after I just finished buying the practice. I would’ve liked to get rid of a tad more personal debt before piling on more.
♦ Don’t ever fall into the trap of thinking that if you don’t buy something now, you will miss the opportunity forever. There are always more opportunities.
♦ When the market tanked in 2008 but then quickly recovered, I got spooked by all the bad news and was convinced we were headed for a double dip. I looked to find a good exit point, deciding to liquidate my portfolio once I got back close to even with what it was prior to the crash. When I hit the mark in late 2009, rumors were also flying around about Steve Job’s health, so not wanting to take any chances I liquidated a huge position that I had in AAPL that was trading at around 170. Shortly after I liquidated, Apple announced the release of the first iPad, and the rest is history. Today AAPL is trading at around 390. In the end this move cost me big bucks in lost opportunity.
♦ Stay the course, don’t try to time the market.
♦ Using someone else’s money to buy something that doesn’t make you money. (FWIW I consider the purchase of a house something that makes you money, because of the cost difference versus renting). Buy cars, clothes, vacations, all that, with cash. If you don’t have the cash, you don’t need it.
♦ My biggest financial mistake was partnering up with another dentist who I did not know well enough. More than $20,000 in attorney fees and still counting. Office expenses up close to $7,500 per month now that he is gone.
♦ Buying an individual stock. Very, very, very stupid. Do not get involved.
♦ Starting my practice in a very high-rent location with zero visibility. Having zero business/management/leadership experience or training. I had no business starting a practice at all. Running up an ungodly amount of credit card debt on the business because I had no understanding of cash fl ow management.
♦ Choosing a CPA (based on a recommendation) who probably screwed up my taxes every single year so badly that our new one (finally switched this year) doesn’t even think it’s worth the expense of trying to fix it, because it would cost so much.
♦ The number one mistake I made: Arguing with my wife way too many times about changes that should have been made. If I had listened and made the changes she thought right, we’d have gotten out of that deep hole I dug much sooner.
Financial mistakes from other doctors
♦ Automatically spending more as income goes up. Or, as one loan is paid off, taking out another automatically as all that extra money is there for the spending!
♦ Financial advisors — most will want to take control of all your money and charge you 1 percent per year, investing in funds with high commissions and expenses.
♦ Actually letting telemarketers talk to me! I get into more trouble with this. And my wife has to clean up the bill messes later.
♦ Not knowing my spouse had a balance of over $150,000 on several credit cards. Yes, we went through bankruptcy and divorce.
♦ I had more than a million saved at the end of the dot-com era. I lost 70 percent in 2001-2002. I got back into the market with large caps — was playing it safe! — in 2006. Lost 50 percent in 2008. My million was down to $600,000, even though I put in about $40,000 per year. I’ve been mostly in cash since 2008 — neither my broker nor I trust anyone anymore. I’m finally back to the million, 14 years later. (Carlsen note: Having $1 million in an S&P 500 account in 2000, adding $40,000 per year, and doing nothing, the doc would be up to $1,946,000 now.)
♦ I tried day trading for a month after taking a trading course. I did great with fake money, yet when real money was used, I lost $50,000 within a month. Back to my broker…
♦ My worst mistake is incessantly watching CNBC, listening to the hawks on the radio, and actually thinking the end is near. After about 15 years of listening to the sky falling all the time, I’m finally wising up and ignoring all the trash.
♦ I always felt owning my large building, including several offices to rent, would pay off handsomely. I did have a nice income for many years, yet upon retiring, the building was half-empty due to the recession and I couldn’t get a buyer to buy even a portion of the building. I eventually sold the practice without the building and got a fire-sale price. I made money over the long run, yet it was a mess upon trying to retire.
♦ Spoiling kids. I paid for private K-12 for two kids, then private college. The total for two kids through college was about $700,000. One is 30, never has had a steady job, and he lives with us paying occasional rent. The other is 26 and wishes to go to grad school in history. She lives with us also, and refuses to work. The office is paradise compared to home!
Dr. Doug Carlsen’s Bio:
Douglas Carlsen, DDS, graduated from UCLA School of Dentistry in 1977 and practiced in Albuquerque, NM from 1978 until 2004 He retired from active practice at age 53.
Carlsen currently writes for Dentaltown Magazine and has over 60 articles published nationally since 2007.
He speaks freely about debt, savings, investment strategies, and financial scams.