Revisiting the 10% Rule...Again Kirk Behrendt ACT Speaker & Coach

The golden financial tip of all time is something that dentists hear all the time...yet so few ever put it in place.

PAY YOURSELF FIRST by saving 10% and living on the remaining 90%.

Why is this so hard? Maybe the answer ties into February's Recommended Read: The Automatic Millionaire by David Bach. He talks about making every financial decision in your life AUTOMATIC in a way that you will "protect you from yourself". So how do you do this in your practice? I've learned a lot from some great financial teachers (Mike Schuster, Peter Dawson, Greg Stanley, Jim Rohn, David Chilton, and a few others). This is what they taught me:

THE RULES:

1. The only and everlasting source of profit is the CREATION OF VALUE. If you are not creating value in your practice, you will never realize the true and persistent existence of profit.
2. The key to lowering your overhead and being cash solvent within your business is to eventually transition from being SPENDING CONSCIOUS to SAVING FOCUSED. Once you change your focus to creating value and saving….overhead expenditures will soon fall into place (provided the right systems are implemented).
3. Always Pay Yourself First.

THE STEPS TO TAKE IN YOUR BUSINESS:

• PAY YOURSELF FIRST. At the end of every week, total your bank deposits and immediately take 10% off the top and put it into business savings account #1. If you bank electronically, make sure your business savings account is linked to your business checking account and just transfer the money after the deposit has posted. For example, if your practice collects $15,000 in a week, take 10% ($1500) and put it into your business savings account #1. Learn to make your practice work on the remaining 90% ($8500).
• If you can't save a full 10% every week, start with a lower percentage and work up to 10%.
• THE IMPORTANT POINT HERE is that you CANNOT THINK ABOUT THIS….IT HAS TO BECOME AUTOMATIC. Our students who are the best savers never think about this, they just do it.
• Designate business saving account #1 to PROTECT YOUR BUSINESS. This is your slush fund or "cushion account." Grow this account to equal 3-7 times your normal business expenses (including your salary). Once this account reaches the desired amount, start putting the overflow in business savings account #2.
• Business savings account #2 is to PROTECT YOUR FUTURE. This is your financial independence account. You have worked hard to create your practice. This is where you start to repay yourself. The same principles apply to this account…work up to a full 10%.
• Once you establish these disciplines, you are saving a full 20% of your practice gross collections. Now you are making your practice work on the remaining 80%. When you get really good at this, and your overhead gets under control, try to pay your taxes in that remaining 80%.
• You will have TAX IMPLICATIONS on this money you have saved. This is where a really good accountant can help you. Just prior to the end of your fiscal year, a great accountant can look at the cash you have saved and best advise you how to maximize your savings while reducing your tax liabilities.
• My best advice is to pull as much of it out of your business at the end of your fiscal year…pay taxes on it…put it into a money market account and earmark it as your "business cushion fund". I would much rather see a dentist practice with peace of mind by HAVING THE MONEY and paying taxes on it, rather than doing what most dentists do, which is to justify why they don't have it.
• CASH IS KING! WRITE OFFS ARE JUSTIFICATIONS. At the end of the year, I don't care what your production was or how much you wrote off. I just want to know how focused on quality you were, how balanced was your life, and what did you KEEP.
• Just think, if your practice production is $500,000 and you saved 10% ($50,000) continuously and never touched it for 20 years and got just an 8% return on your money, you would have accumulated $2,471,146. If you did it for 25 years it would be $3,947,721. If you did it for 30 years it would be $6,111,293. The power of AUTOMATION is incredible!
• If you don't think you can do this regularly, call me and I will show you how you can do it.

THE STEPS TO TAKE AT HOME:

• PAY YOURSELF FIRST! The same principles apply to your home spending.
• One of my greatest mentors used the say, "The only righteous and peaceful stewardship of our finances is to Tithe 10%, Save 20% and Live on 70%." Easy to say…harder to do.
• Whatever your value system tells you…set up automatic transactions to reflect that.
• For example, we pay ourselves on the first of every month based on the previous month's activity. My wife and I have all the transactions that are important to us debited from our accounts on the 5th of every month (the church, personal savings, house payment, our children's education accounts, insurances, etc). We don't make any decisions on what or how much to save. It is done without us consciously thinking about it. The only thing I have to do is make sure the right amount is in there to cover these debits. The rest of the month is incidental spending (utilities, groceries, entertainment, eating out, clothing, gasoline, etc). Basically, what is left in the account is what we live on for the rest of the month.
• Don't get me wrong, this can be very hard at times, but the most difficult obstacle is taken out of my financial independence plan…………ME!

Money is not the most important thing in life….not by a long shot! However, it is important to apply the proper disciplines to money in order to ease the life tensions that will eventually come our way.

As a great friend said to me a few weeks ago, "A financial surplus doesn't do anything truly meaningful for you….except RELAX you to be who you really are."

How valuable is that to your patients? Your staff? Your family? Your health?

So get busy making your future work for you...AUTOMATICALLY!

Kirk Behrendt