The money habits you develop in your 20s can shape the rest of your life. As you finish dental school and
head out into the professional world, it's a good time to continue to build upon or start adopting sound
financial practices. It also helps to understand the key concepts of good money management.
Tip #1: Budget
Budgeting helps you live within your means in the present and makes it more likely you'll be able to meet
future financial goals as well.
Start by tracking your spending. Budgeting apps are useful for keeping track of how much you spend and what you
spend it on. Being aware of where dollars go can change your attitude toward saving and spending. It might even
turn you into a savvy money manager.
When you make a budget based on your income and predictable expenses, with allowance for some savings, you'll
start to notice that spending in one area sometimes means you need to compromise in another.
One solution: Don't always buy new. Deals are out there to be found. Finding used furniture or other items can
help get you through the early crunch years as you're starting your career and paying down your dental school
loans. Seize opportunities to spend less and give yourself more freedom within your budget.
Tip #2: Save
When you don't have a financial cushion, unexpected expenses can upend your life. You don't want to end up in a cycle of
falling behind and trying to catch up. As you start your career, consider your rent, mortgage, living expenses
and now dental school debt. Financial peace of mind can be achieved by letting a cushion build up.
The solution: Set aside some money in a savings account that's separate from your checking. Even if it's just
$500 a month,1 that's a good start. Personal finance experts call it "paying yourself first," because your future
self — whether in one month or two years — will be glad you did.
revealed that 51% of Americans do not have enough savings to cover three months of expenses,
and 25% have no emergency fund at all.i With your career and life ahead of you, resolving to save now — and to
keep saving — will put you in a more secure position down the line.
Tip #3: Borrow Wisely
Many of you may have already learned this lesson: beware credit card companies sending you cards in the mail and
offering you "free money." It's not free. When you use a credit card instead of cash or a debit card, you're
going to have to pay it back eventually, plus interest. Sometimes a lot of interest.
Allowing yourself to get into a deep well of debt isn't just a problem in the near term. If you're only able to
pay the minimum payments on a credit card, the balance will grow with interest, making it harder and harder to
pay off over time. What's more, your credit score can be impacted. And that has implications for your future.
Your debt-to-credit ratio refers to the amount you owe across all revolving credit accounts compared to the
amount of revolving credit available to you. Your debt-to-credit ratio may be one factor in calculating your
credit scores, depending on the scoring model used. Other factors may include your payment history, the length
of your credit history, how many credit accounts you've opened recently and the types of credit accounts you have.
Your credit score is used by banks and other financial institutions to decide how much interest to charge you
and whether you qualify for loans.
The solution: To keep your credit score high, pay cash when you can. Maintain only one or two open credit
card accounts —avoid the need to say yes to every tempting offer mailed to you by your bank.
Tip #4: Invest for the Long Term
Retirement may seem like a long way off, but now is not too soon to start investing for that time of your life.
You'll want to enjoy a comfortable lifestyle even after you stop practicing.
Investing is different from saving — with investments like stocks, bonds, and mutual funds, you may have a better
chance of your money making money over time. Bonds pay interest, and a company's stock can often appreciate — or
increases in value — as the company grows.
Investing is important because of inflation, or the rise in the cost of things over time. If you simply put money
away instead of investing it in assets like stocks, bonds, or real estate that tend to grow in value or pay
dividends or interest, your money will be worth less. In the 1970s, for example, inflation was very high —
the prices of essential goods like houses, cars, gasoline, and food rose astronomically. If you put $10,000 cash in
a safe at the end of 1971 and took it out in 1981, it would only buy you about half of what you'd been able to buy
10 years earlier.
Solution: Take advantage of the power of compounding. Simply put, compound interest means that you begin to earn
interest on the interest you receive, which grows your money at an accelerating rate. If you have $500 and earn 10%
in interest, you will have $550. Then, if you earn 10% interest on that amount, you'll have $605. The process continues
until your original $500 is transformed into progressively higher amounts by the interest you have gained. The same
principle applies to dividends and capital gains on stocks, as long as you continually reinvest them rather than
taking them out.
As your career progresses, you may find you have the resources and interest in planning for retirement. Professional
organizations like the American Dental Association offer resources on investing for retirement
and other financial necessities, like financial protection insurance plans to cover you in case of unexpected events.
Tip #5: Protect Your Earnings
Finally, don't forget to protect the most important asset of all - your income, your assets, and ultimately, your
financial security. All the best, smart money management practices in the world won't keep them at bay if you're
unable to earn an income.
The solution: Purchase the type of insurance that will help secure your income and protect your loved ones.
Disability Income Insurance can help
you and your family maintain your lifestyle if you become disabled, by replacing a portion of lost income, allowing
you to cover living expenses like your mortgage, car payment, and utilities until you get back on your feet.
Term Life Insurance
Adequate term life insurance coverage can protect your family by helping to ensure your loved ones will be able
to maintain their standard of living and not inherit your debt should you die prematurely. You can also use your
life insurance coverage as collateral for a business loan.
The ADA Members Insurance Plans provides ADA Members financial protection products to meet their personal and
business needs. If you'd like help, call us at 888.689.7154 or visit us at