Having a spending plan and a housing plan is an essential part of any dentist’s (or anyone’s) financial plan. If we want to be debt free, then we can’t spend too much money, especially on a house. Most importantly in our early career.
Keep in mind that your spending and housing plan will be different before your student loans are paid off and after they are paid off. They will both have similar principles, but paying off student loans increases our cash flow tremendously Paying off your student loans within 5 years of graduating dental school should be a HUGE priority. It may seem difficult, or even impossible, but I am living proof it is possible. It takes a lot of work, discipline, effort, and a plan, but it is absolutely doable . And doing it will put you on the fast track to financial success faster than anything else will.
I will start with a housing plan because that is one of the biggest purchases we will make. The first thing that should be in your WRITTEN housing plan is if you will buy or rent at any given time. Owning a home is great if it is the right time, but some people buy too early. They falsely think that renting is just throwing money away. Trust me, you throw a lot of money away in home ownership too. You need to be able and willing to live in a house for at least 5 years before you buy. If this is not the case, then renting may be better for you.
So part of your plan should have when you will buy your “starter” home, and when you will buy your “dentist”, “doctor”, or “forever” home. Sometimes it makes sense to buy a starter home when you get your first job, but sometimes it makes sense to rent. It almost never makes sense to buy your doctor home when you get your first job. Sometimes it may make sense to rent for a while and skip your starter home and save for your forever home. It is case by case dependent, but the important thing is that you don’t buy too early. Too late may not be the best either, but it is way better than too early.
Other things in your housing plan should be how much you want to pay for a house. Some say it should be no more than two times your Gross income. There are several rules of thumb, but the important thing is that you don’t overspend and become house poor. Make sure you read this plan and stick to it when it comes time to buy. More than likely you will be pressured by a lender, realtor, spouse, or yourself to buy more that what it says in your plan. Don’t do it. Stick to your plan.
Other things included in your plan will be what kind of mortgage you will use and how much of a down payment you will have. My recommendation is a conventional mortgage and at least a 20% down payment. There may be other reasonable plans. You must decide yourself, but don’t become house poor. You can also include in your plan a 15 vs a 30 year mortgage and a plan of paying off your mortgage early. As a dentist it should probably not take you more than 15-20 years to pay off your home, so make a plan for that.
Spending plan: You really need to have a spending plan for yourself if you are single, or for you and your partner if applicable. If you have a significant other; being on the same page financially is very important both for your finances and your relationship. So make a plan together and stick to it. It should include your plan for credit card use (making sure you pay them off each month and never carry a balance). Some people may not be able to handle using credit cards. But for those savvy and disciplined, credit card use has a lot of perks.
A monthly budget is essential to have for a spending plan. Car purchases should also be a part of the plan. M recommendation is to not even have a car loan. Only buy what you can afford. Yes that means you may not have your dream car for a while. Have a plan for avoiding consumer debt and only buying things you can pay off right away. Once you have paid all of your fixed expenses, paid off your student loans, and saved 20% for retirement feel free to spend the rest. But have a solid plan for it and stick to it.
As a dentist you may think spending a lot of money is what you deserve, but that’s not true. What you deserve is to be debt free and one day financially independent. So pay off your student loans quickly, and stick to a good spending and housing plan so you can reach those goals.
-Debt Free DDS
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*Nothing on my website is professional or legal advice. I am only sharing information that I have learned and it may or may not be accurate. I am not liable for any problems you may have by following this advice. Please do further research and get professional and/or legal advice about any of these topics. This post likely contains affiliate links. This site could be paid for clicks or purchases made through these links.