By Natalie Hayes Schmook, MBA, CFP, CVA
Needs should consume no more than 50 percent of your pre-tax profits, which in this case is $150,000 (50% X $300,000). This would include taxes, your home mortgage and maintenance (I suggest, assuming it takes 1 percent of the market value for maintenance per year), health insurance, utility bills, car payments and student loans, as well as the loan to purchase your practice.
This does NOT include any tax-deductible practice expenses such as equipment or the mortgage or rent on your office building. Those all fall under practice overhead which is paid before you take your salary and year-end distribution.
For most ODs, this number will start high and decrease as debt is paid off. This doesn’t mean you should go buy a bigger house or new car right away. As your needs shift, it’s important to balance the difference between wants and savings to avoid a “lifestyle gap,” which is when your annual spending exceeds what your retirement savings can provide.
Disclaimer: This material is for educational and informational purposes only to the best of the author’s knowledge and is not to be construed as personalized financial or investment advice. Consult a financial professional about your personal situation.
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Natalie Hayes Schmook, MBA, Certified Financial Planner™, Certified Valuation Analyst™, is the founder and owner of Hayes Wealth Advisors, a financial planning and investment management service for practice owners and their families.
Missed previous Money Talk installments?
The 50/30/20 Approach for Personal Budgeting
Do You Have the Right Liability Insurance?
The 1% Trick That Will 100% Help Your Retirement Goals
The Student Loan Conundrum: To Refinance or Not to Refinance
Is Your Portfolio On Track For Retirement? Use The 4% Rule
Personal Spending Is A Mission-Critical Piece To Retirement Planning