#20 – Building Your Financial Security | Dental Practice Coaching

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#20 – Building Your Financial Security

A. -Review federal/state withholds, social security, unemployment, banking benefits

Each time you complete a level you’ll have the opportunity to build your benefit package and increase your salary. Salary is taxed. A percent (probably around 30%) of every dollar you take, as salary will be lost to taxes. This is why wise staff members take as much of their compensation in tax-free benefits as possible. Not all benefits are tax-free.

Here are some frightening statistics (1989):
1. 22% of Americans retire on incomes of $5,000 $10,000 per year
2. 40% of Americans retire on incomes of less than $5,000 a year

Most people who work for a living think, “the more money I make, the better off I am.” This is not true, most people move from job to job always trying to make more money. Beginning with level 1, I want you to realize that it’s not how much money you make, but how much you save that determines how secure and happy you and your family will be in the future.

Did you know that 90% of dentists must work past the age of 65? How can this be? They are professionals. They have generated a good income throughout their lives. Unfortunately, they didn’t plan for their future and the money that could have provided them a comfortable retirement was either:

1. spent early
2. taken away in taxes

Financial Security (Work benefits, budgeting, bank benefits, money management)

B. Federal Benefits (Social Security)

Several benefits are provided by the federal government at your expense! Some of these you’ll be aware of and some you may not know about. This next section will describe these “benefits” in detail. Part of your salary is withheld every pay period to cover these benefits. You have no choice as to whether you want to have these benefits or not. The government tells you that you do.

Social Security (FICA tax: 6.2% social security and 1.45% Medicare tax, HealthPark pays the same amount in taxes for you)

Everyone has heard of social security, but very few people know what it is. There are three types of benefits involved:

1. Old Age and Survivors Insurance Trust Fund provides monthly checks to retirees, their families, and families of deceased workers.
2. Disability Insurance Trust Fund pays disabled workers and their families with many disqualifiers.
3. Hospital Insurance Trust Fund pays Medicare claims.

If you paid in the maximum you possibly could ($45,000 salary in 1988 above this you don’t pay any extra), you would receive $10,056 or your family would receive 17,598. You pay 7.65 % of your salary and HealthPark pays another 7.65%. You will need to work 40 quarters (about 10 years. You get a quarter of coverage for every $470 of earnings up to 4 quarters per year. If you work less than this you will receive no benefits.

If you die before your spouse, others can receive your benefit.

a. spouse (up to 50%)
b. dependent children up to age 18 (19 if a high school student)
c. parents over 62

The maximum family benefit is 150-188% of your benefit. Part of this benefit may be taxable based again on a complex formula.

You can’t start getting social security benefits until you are 62. At this age you would probably receive about a 25% reduction in your benefit. The federal government has increased the retirement age. If you were born in 1960 or later, retirement is 67 years old. If you work until you are 70, you will receive 8% more in benefits. Check with Social Security to find out when you could retire. The actual amount you receive is determined by an incredibly complex formula. Most people receive more in benefits by waiting until full retirement. If you would like to find out what your benefit will be, you can call 1 800 234 5772.

Benefits will be reduced if:
1. If you retire before your full retirement age and get a job, you will lose $1 of benefit for every $2 you earn above $12,960 (in 2007) between your retirement age and 70, you will lose $1 for every $3 above $30,000 (in 2002). After age 70 there is no reduction. In general, don’t retire if you earned income would cause a benefit reduction.
2. Windfall Elimination Provision prevents “double dipping” in some cases where someone retires from one job and works long enough to earn a second retirement income.
3. You will be taxed on a portion of your social security income.

In other words, social security is not designed to provide enough money for you to retire on. Expect it to provide 20-40% of your retirement needs. You’ll get more money if you work until your full retirement age. Always begin taking the benefit by age 70.

Federal Unemployment
Pays benefits if you are fired without cause

Medicare Part A and B

A-hospitalization and some nursing home coverage
B-optional-covers doctor’s fees, outpatient services

Ohio Unemployment Compensation

The rate that you pay increases every time an ex employee is paid a claim. The rate can be as low as .9% of your first $8000.00 of salary per year. This benefit provides you money if you are disabled while on the job.

FICA

The full name is Federal Insurance Contribution Act. This is the withhold from your paycheck for Social Security and Medicare. We  match this amount and makes quarterly deposits to the government. Full time students are exempt.

YTD – Your year to date earnings and deductions are listed here.

Deductions – Itemize medical, life insurance, disability insurance, etc.

W4 Exemptions – Are we withholding the correct amount from your checks? Here are some events that can effect your withholding.

1. Marriage – The marital rate applies for the full year – even if you get married in December!
2. Divorce – Just because you pay child support doesn’t mean that you can automatically claim a child as an exemption. The courts decide this.
3. Birth of a child – You get a full year’s deduction, no matter when the child is born.

c. Bank benefits

It’s amazing how many dentists in their 50’s and 60’s don’t have enough savings to retire. Our bank  will work with you so that, over time, you’ll be able to relax in a comfortable retirement. Okay, let’s start!

First, look at this copy of your total pay statement. Often staff doesn’t realize how much money the practice pays to have them work with us.

TOTAL PAY STATEMENT – For entire Calendar Year –
(Employee Name)

We want you to know the total pay benefits that we
provided for you during the entire year.

They are as follows:

Wages/Salary……………………………………………………………………….$________

Special Bonuses…………………………………………………………………….$________

Social Security Payroll Taxes………………………………………………………$________

Unemployment Payroll Taxes………………………………………………………$________

Health Insurance……………………………………………………………………$________

Medical Reimbursement/Cafeteria Plan……………………………………………$________

401K………………………………………………………………………..$________

Other:___________………………………………………………………………..$________

Other:___________………………………………………………………………..$________

Total Compensation and Benefits for the year……………………………………..$________

Total Hours Worked in the year……………………………………………………$________

Total Compensation and Benefits Per Hour in the year……………………………$________

We are delighted that these compensation and benefits could be provided
And hope that next year will be an even better year! Let’s begin by helping you to understand the federal benefits that you receive. These are paid for by the practice and began the first day you started work.

B. Budgeting – Before you decide how much you can save, you need to decide how much to spend each month. Fill out the budget worksheet below. You don’t need a computer program. If you aren’t sure of the exact amount, guess. The more accurate you are with your numbers, the closer you will be to what you can actually save. For example, add up all your electric bills and divide by 12 for the average. Put a small notebook in your pocket or purse and learn to note every expenditure. Even a daily cup of coffee adds up. Try not to wait. Take a couple minutes right after the expenditure. If you go to Wal-Mart, break down the cost into categories.

Now add up all your expenses and subtract this number from your total income. What’s left is your savings. If the savings are less than 10% of what you earn, then divide all your expenses into 2 categories – needs and wants. Decide which “wants” you can do without to increase your savings.

Answer the following statements to see how far you’ve come on controlling your financial future.

Personal Data
Yes No
1. _____ _____ I am frustrated with the amount of money I am making.
2. _____ _____ I live from paycheck to paycheck.
3. _____ ______ I do not pay my taxes on time.
4. _____ _____ My personal spending is out of control.
5. _____ _____ My personal debt is not under control.
6. _____ _____ I do not pay off my credit cards monthly.
7. _____ _____ I would not be able to cover 3-5 months living expenses in the
event of an emergency.
8. _____ _____ I have not funded my children’s college education.
9. _____ _____ I have stress in my life because of my financial situation.
10. ____ _____ I have no written financial goals.

Investments
Yes No
1. _____ _____ I do not save and invest money on a monthly basis.
2. _____ _____ I do not have a good knowledge how to invest my money.
3. _____ _____ I am afraid to invest in stocks/equities.
4. _____ _____ I have no knowledge or understanding of the following terms:
5. _____ _____ Time Horizon, Risk Tolerance, Investment Objective, Asset Allocation.
6. _____ _____ I have not adequately prepared for my retirement.
7. _____ _____ My spouse and I do not have an IRA.
8. _____ _____ I do not have a Qualified Retirement Plan.
9. _____ _____ I do not contribute to my retirement plan annually.

Estate Planning
Yes No
1. _____ _____ I do not know if I have provided ample protection for my family and assets.
2. _____ _____ I do not have any plans or strategy in the event of:
_____ _____ -my disability
_____ _____ -my death
3. _____ _____ I do not have disability insurance.
4. _____ _____ I do not know if I have enough life insurance.
5. _____ _____ I do not have term insurance.
6. _____ _____ I do have whole life insurance.
7. _____ _____ My spouse owns my life insurance policy.
8. _____ _____ I do not have a Will.
9. _____ _____ I do not have Durable Power of Attorney.
10. _____ _____ I do not have a Living Will.
11. _____ _____ My Will has not been reviewed every two years and updated.
12. _____ _____ My dependants would not live comfortably in the event of the unexpected.

Okay, how did you do? You don’t have to show this worksheet to anyone (particularly your dentist), but if you have more than 2-3 “x’s”, then you’ve got some work to do! By the time you finish level 5 all the “x’s” should be gone!

Monthly Budget Worksheet
Income
Take home pay (self) $__________________
Take home pay (spouse) $__________________
Other Income $__________________
Total Income $__________________
Expenses

1. Housing expenses
Mortgage/rent $__________________
Homeowners Insurance $__________________
Real estate taxes $__________________
Maintenance/Repairs $__________________
Electricity $__________________
Gas $__________________
Water $__________________
Phone $__________________
Home improvements $__________________

2. Food
Groceries $__________________
Dining out $__________________
3. Church, Charities $__________________
4. Loans
Credit card interest $__________________
Student loan payment $ _________________

5. Clothing $ _________________

6. Retirement Plan
Debt reduction $__________________

7. Medical $ _________________

8. Taxes federal, state, property $__________________
social security)
Other $__________________

9. Insurance
Life $__________________
Health/Disability $__________________

10. Personal Allowances
Household purchases $__________________
Entertainment, memberships $__________________
Vacations $__________________
Childcare $__________________
Other $__________________

11. Car
Auto Insurance $__________________
Payment $__________________
Gasoline $__________________
Maintenance/Repairs $__________________
Licenses $__________________

12. Other
(Magazine Subscriptions, Gifts,
Cable, Computer) $__________________

Total Expenses $__________________

Figure your Monthly Savings
Total Income $__________________
Total Expenses (-) $__________________
Savings Potential (=) $__________________

If your expenses are greater than your income, you’ll have to stop this before you can budget to create some savings. Our bank representative can discuss consolidating your debt through second mortgages, home equity lines of credit or reducing credit card debt.

An important part of developing a successful professional career will be organizing your financial future. Step by step, level-by-level, you will build your future. By the time you are ready to retire, you will be able to look back on a great career that helped 1000’s of people and then look ahead to a new life with many exciting opportunities – all funded by the wise financial planning you accomplished here.

Each level will show you new ways to organize yourself financially so you and your family’s future will be secure.

1. Financial benefits you could incorporate as you move through the levels

a. Federal benefits
b. Car insurance
c. Money management
d. Life insurance
e. Major medical hospitalization
f. Disability insurance
g. Child care
h. IRA (retirement)
i. Insurance Mistakes
j. Buy a house
k. Financial security
l. Dental Benefits
m. Flexible Spending Account
n. 401K Retirement Plan
o. Vacation, holiday, personal day pay

2. Benefits that are hopefully always available
a. Nice environment
b. Working to help people
c. Good hours
d. Great group of people to work with
e. Personal contact with people
f. Being an important part of the team
g. Doesn’t require large wardrobe
h. Social security
i. Workmen’s compensation
j. Unemployment compensation
k. Free dentistry for you & family
l. Modern, attractive work area
m. Working with and for people who care about you

3. Bonus Possibilities
a. Tickets for movie, play
b. Weekend Trip
c. Lunches
d. Hairdresser
e. Item of clothing
f. Special food, wine
g. Day off
h. Car washes
i. Anniversary, Birthdays off
j. Dinner theatre
k. Picnic

4. Tax Free Benefit Possibilities
a. Activities sponsored by corporation sports softball team, bowling spouses join? social events recreation
b. Food (Lunches, dinners)
c. Physical exam
d. Financial counseling
e. Legal counseling
f. Accountant counseling
g. Dues for professional organization
h. Subscriptions
i. Paid seminars
j. Malpractice/ Liability coverage
k. Disability insurance
l. Major medical/ hospitalization
m. Childcare credit of up to the lesser of 20% of the childcare expenses or 20% of your wages. Qualifying expenses are: day care, baby sitters, summer camp expenses, etc. for kids under 15 or older if disabled.
n. Hair care

Confused? Most people feel these economic decisions are so involved and they understand so little of it that they just ignore them and do nothing. That’s easy to do as long as you get a paycheck every two weeks and you have limited financial needs, but what happens when your children are ready for college, or you want (or through a disability are forced) to quit working? If you have not put your financial house in order and planned for the future, you may be facing some very sad times.

One of our primary goals in our practice is to help you meet all your future financial goals. Over the coming years we’ll get to know each other well, and, when the time comes for you to stop working, its important to us that by then you will have organized your personal finances so you have accomplished everything you want for your family and you can retire to a new life filled with the satisfaction of having worked hard, helped thousands of our clients, enjoyed yourself at HealthPark, and now are financially able to spend the rest of your life enjoying your family free of economic worries.

D. Getting out of Debt

Many people can’t save because they can’t get out of debt. If your debt is more than 10% of your gross income, you are in trouble. Look for warning signs. Do any apply to you?

1. You rarely pay more than the minimum monthly payment on your credit cards.
2. You are often late on regular monthly payments
3. You and your spouse argue about money
4. You don’t know how much your total debt is and you have no plan to pay it off.
5. You have recently taken a cash advance on your credit card t pay a monthly bill.
6. You have recently paid overdraft bank fees.
7. You buy what you want with little thought of how you’ll pay for it.
8. You buy things because “you deserve them.”

On the other hand, money doesn’t mean happiness. Money is only a tool to reach your goals. Unfortunately, good intentions don’t mean anything. It’s what you do that counts. Learn the difference between what you want and what you need. Wealthy people have several characteristics.
1. The discipline to live within your needs.
2. They have a financial plan.
3. They set reasonable, achievable goals.
4. They save on a regular basis.

Learn the difference between good debt and bad debt.

Bad Debt (used to consume something)
a. borrowing to purchase items that go down in value
b. example – vacations, credit card interest
c. www.cardtrak.com will answer any questions about credit cards

Good Debt (helps you create wealth)
a. borrowing to maintain your job or learn new skills to build your career
b. examples – car, college education, house mortgage

E. Determine the amount you can save
Try to save 10% of your monthly income. Again, if you are spending too much, see if you can adjust your budget to allow 10% savings. Here are some ways to save money (You can’t reach your goal if you don’t start somewhere)

1. Assess your situation – a. Get a free credit card report from: annualcreditreport.com, The higher your credit number the better your credit, 760 is a great score! If you have a low score contact your bank for help.
2. rent videos rather than go to movies
3. cut down on dry cleaning
4. use grocery coupons
5. take a lunch rather than eat out
6. set up an automatic withdrawal from your paycheck.

If you can save more than 10%, that’s terrific! Here are places to invest this money.

1. Savings Account – Good for short term financial needs, You can get to the funds quickly, Insured by FDIC up to $100,000, Low interest rate makes this a poor investment (usually less than the rate of inflation)
2. Certificates of Deposit (CD’s) – Very safe, More interest than savings accounts, Locked in for 3 months to 10 years (if taken out early, pay a penalty)-The longer the period, the higher the interest.
3. Pay off your debt! Start with the highest interest rate loan first. a. get help – look in yellow pages ‘credit and debt counseling’ b. National Foundation for credit counseling

Set up your emergency account
Now, set up a bank savings account equal to 3-6 months of your average monthly expenses. Even though 40% of Americans haven’t done this, in 2002 this is your next step. This account is your unexpected emergency account. This account won’t give you a very high rate of return, but it will give you a peace of mind to have money you can have immediately to cover emergencies.

For the rest of your time in level one, confirm that your budget numbers are correct and you can actually save the money you had planned. Now is the time to establish the monthly discipline to save for your future security. Once you finish level 1 and begin the financial section of General level 2, you will have the opportunity to meet our Bank representative. He will help you plan for the future.

When you meet with your banker in level 2, he will discuss how our bank can help you. Here is a list of the various services and some added benefits you will receive as an employee of ours.

Here is a list of benefits that our Bank offers all our employees:

Staff Banking Benefits
a. Free checking – No monthly service fee, no minimum balance required, unlimited check writing and first set of standard checks free.
b. Mortgage loan – 0.50% reduction in current mortgage discount points when payments are automatically deducted from your checking account
c. Special loan rate
d. Visa/MasterCard
1. One of the lowest rates
2. No annual fee
a. Installment loans – 0.25% discount off current interest rate, upon qualification
b. Equity reserve line of credit – No closing costs
c. Certificate of Deposit (CD) – additional 0.25% bonus on interest rates for fixed rate CD’s of 24 months or less
d. Other
e. Free travelers checks
f. Free notary services
g. Standard size safe deposit box free for first year
h. Check card with no annual fee
i. Automatic savings plan – automatic deductions made from checking and deposited into savings at no cost
j. 10% commission discount on stock and bond trades through Fifth Third Securities.
k. Estate planning and investment seminars – free
l. ATM at no charge
m. Online banking and bill payment

The “Employee Benefit Banking” brochure on the next page includes applications for the benefits you wish to sign up for. www.bankrate.com will give you current rates on mortgages, cars, etc.

F. Managing credit

Use debit cards rather than credit cards.
Call 1-888-567-8688 to stop receiving offers for new cards.
See how much you owe and how much money you make weekly that can be used to pay off this debt. Always pay as much as you can.
Pick the highest interest rate debt and pay this down on a weekly basis until it’s gone.
Then pick the next highest until it’s all paid off. An alternative to this is to refinance all your debts with a single bank debt consolidation loan at a lower rate.
Start paying cash for all purchases.
Pay the bills as they come in, not all at once. This keeps you thinking about the money you’re spending.
Give yourself an allowance for your non-essentials
Many people like to put the money from their paycheck in a series of envelopes – one for each expense category. Don’t be surprised to find that your initial budget is way off. Each month you’ll become more accurate.