April 19, 2021
How to Avoid Financial Mistakes from the Pandemic
Just because shutdowns as a result of the COVID-19 pandemic are in the rearview mirror, doesn’t mean your dental practice is out of the weeds just yet. Now more than ever, it’s important to tighten your purse strings to keep your dental practice on financial pace to recovery. Here’s are some financial missteps to avoid.
Low interest rates
In response to unemployment rates during the pandemic, interest rates have dropped to record lows, making it the perfect time to refinance by consolidating debt to reduce the number and amount of monthly payments and even convert the interest paid to tax-deductible status, freeing additional funds to increase savings.
Now that most practices are operating bear pre-pandemic levels, it’s a good time to restart or even increase your savings plan on an automatic draft basis to get your financial status back on track until you’re back where you started before dental practices were forced to shut down for non-emergency procedures.
Rather than holding onto excess cash to protect yourself, it is advised to tap your home equity and practice lines of credit, Roth IRA, HSA, and personal investments first to cover any financial needs so only a small amount of cash is kept on hand in no-interest checking and savings accounts so you can invest the balance to substantially increase your return on investment.
Though a good financial advisor would have told you to do otherwise, it may have been a natural reaction to sell all your stocks back at the onset of the pandemic, so now is the time to develop a reentry plan back into the market.
When Congress announced the U.S. Coronavirus Aid, Relief, and Economic Security Act last May, penalty-free access to retirement funds was allowed to meet financial emergencies, providing temporary relief but negatively affecting long-term finances since you’ll end up owing federal and state income taxes if not repaid in a timely manner.
While it may be tempting to revert to your personal spending levels now that your dental practice has reopened, it’s a safer bet to maintain your pandemic spending so you can save more and reach your financial goals quicker.
Selling your practice
If the pandemic forced you to reevaluate your dental career, like 5% to 10% of dentists, now is not the time to rush the sale of your dental practice without considering the economic consequences. Yes, you can retire during a pandemic but only with careful planning.
Contact the experts at Professional Transition Strategies for more guidance on how to navigate financial matters.