Understanding small savings, interest and taxes

Time is money. It’s true. Realize that though you may be shouldering debt, most new dentists are young and can take advantage of money saving techniques and the power of compounding interest. Small savings early can really help with BIG decisions later!

Dr. Moon

Dr. Moon

As soon as possible:

  • Learn to manage your limited money to have fun when you need to relax without breaking the bank, or putting $200 at a time on a credit card.
  • Make a goal to save $2,500 cash for moving expenses after school so you can get to that better job. Saving for this transition helps with your personal psychology to travel for a better opportunity.
  • Establish that retirement savings is a budget line item and figure out how to do it sooner. If you can budget $500 yearly when you are taking out student loans, you should be well prepared to max out your retirement savings when you are earning more. Consider $500 in a retirement account at age 23. If you retire at age 65, that is 42 years of compounding interest.
    • At 5 percent average interest, that $500 is $3,880 at age 65; at 10 percent average interest, that $500 is $27,381 at age 65…..and that’s only the first year of contribution of only $500!

Your first professional years:

  • “Real paychecks” mean you will be in a tax bracket that you have never had the privilege of being in before. This means that to put $10,000 per year toward your student loan, you will have to allocate earnings of somewhere from $15,000-$20,000 per year to do this. Keep this in mind if you consider a loan repayment program.
  • If some loan repayment program is going to pay your student loans, that grant or other money is often not taxed, so $25,000 goes straight toward your loan balance. To put $25,000 toward your loan balance yourself you would have to allocate earnings of $35,000-$50,000 income to make that “dent” in your loan depending on your tax bracket.
  • Considering the above, a $90,000 per year job with loan repayment may be a better decision for some than a $130,000 per year job without. You’ve got to understand the numbers.
  • One option is to secure loan repayment and contribute the max yearly to your Roth IRA when you are 26 instead of putting that toward your loan: Compounded,
    • $5,500 into retirement at 26 years old is worth the following at 65 years old:
      • 5 percent interest average compounded 39 years it is $36,876.
      • 10 percent interest avg. compounded 39 years it is $226,296.

Controlling small amounts of money early is key! Look for more ideas in future blog posts. Note that ADA members can access retirement planning tools and resources from AXA Equitable, the only retirement program endorsed by the ADA for its members. Additionally, members may access loan repayment calculators on the Center for Professional Success. State and local dental societies may also have financial and retirement resources available.

Dr. Brenden Moon is a New Dentist Now guest blogger and currently serves as Chair of the Illinois State Dental Society New Dentist Committee and sits on the Board of the Illinois Academy of General Dentistry. He began practicing in western Illinois after completing dental school at the University of Mississippi in 2007, and enjoys participating in organized dentistry on the state and national level. Dr. Moon practices in both Public Health and Private Practice settings and is a Fellow of the Academy of General Dentistry, International College of Dentists, Academy of Dentistry International, and the Pierre Fauchard Academy.

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