Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
If you’re a new dentist, you have plenty of reasons to smile about your profession. You can start practicing soon after completing dental school, and you stand to earn a healthy salary right off the bat. The average entry-level dentist in the U.S. earns $189,979 a year, according to ZipRecruiter.
At the same time, you also need to figure out how to pay off your student loans. According to the American Dental Association (ADA), the average dental school graduate leaves school with nearly $300,000 in education debt. By comparison, medical school graduates owe an average of $243,483 in total educational debt, according to the Education Data Initiative. That’s where budgeting for dentists comes into the equation.
Key Points
• Consider disability insurance to protect income.
• Establish saving and investing strategies early, leveraging a pay-yourself-first mentality.
• A good budgeting rule of thumb: Set aside 30% of income for savings, with 25% for retirement and 5% for other savings.
• Think about diversifying your investments and including HSAs, IRAs, and after-tax brokerage accounts.
• When tackling student loans, consider aggressive repayment strategies, as well as refinancing.
How Budgeting Helps
Starting a career with a six-figure loan debt may feel overwhelming, but budgeting for dentists can help. In fact, now is an ideal time to establish your saving and investing strategies, says Brian Walsh, CFP®, Head of Advice and Planning for SoFi. “When you’re right out of school and your lifestyle is already lean, you can more easily build a pay-yourself-first mentality without making any drastic adjustments,” he explains. “It’s significantly easier to do it at this point instead of when you have a house, a car, and a family and then need to start making cuts.”
Here are some strategies to help you create your budget and plan for the future.
Protect Your Income
With its repetitive motions and constrained work area, dentistry can be physically taxing work, especially on the back and joints. According to the ADA, dentists have a one in four chance of becoming disabled. To mitigate your risk, you may want to consider disability insurance, which covers a percentage of your income if you become unable to work due to an illness or injury.
If you purchased a policy during dental school, you have the option to increase your coverage now that you’re making more. If you don’t have a policy, you can buy one as part of a group plan or as an individual. Find out if your employer offers it as part of your benefits package; some do. Monthly premium amounts vary, but in general, the younger and healthier you are, the cheaper the policy.
Recommended: Budgeting as a New Doctor
Don’t Overspend
Dropping a bundle on meals out? Clicking “add to cart” more frequently? Enjoy your hard-earned income, but don’t go overboard on splurges.
To help you focus on where you put your money, consider prioritizing your financial goals — saving for a home, for example, or paying off your debt. This is an important strategy in budgeting for dentists. Walsh also recommends that early-career professionals use cash or debit cards for purchases to build up good spending habits, and automate their finances whenever possible. For example, pre-schedule your bill payments and set up automatic contributions to your retirement account.
Kick-Start a Savings Plan
Tackling student loans is likely a top priority for you right now, but just as important is creating a savings plan.
Walsh recommends early-career dentists set aside 30% of their income for savings. Of that, 25% should be for retirement and 5% for other savings, like building an emergency fund that can tide you over for three to six months. The remaining 70% of your income should go toward expenses, including monthly dental school loan payments.
The sooner you start saving and investing, the sooner you can enjoy compound growth, which is when your money grows faster over time. That’s because the interest you earn on what you save or invest increases your principal, which earns you even more interest.
You may even want to consider buying a dental practice at some point, so that’s another reason budgeting for dentists makes sense.
Explore Different Ways to Invest
As a high earner, you may need to do more with your money than max out your 401(k) or 403(b), though you should do that, too. Walsh suggests new dentists leverage a combination of different investments. This strategy, called diversification, can help shield you from risk. Here are some types of investments to consider:
• A health savings account (HSA), which provides a triple tax benefit. Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.
• An individual retirement account (IRA), like a traditional IRA or Roth IRA, can offer tax advantages. Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds, provided certain requirements are met. However, there are limits on how much you can contribute to an IRA each year.
• A Simplified Employee Pension IRA (SEP IRA) can be a good option if you’re a solo practitioner. “Total contributions can be just like those with an employer-sponsored plan, but you control how much to contribute, up to a limit,” Walsh says. Contributions are tax-deductible, and you don’t pay taxes on growth until you withdraw the money when you retire.
• After-tax brokerage accounts offer no tax benefits but give you the flexibility to withdraw money at any time without being taxed or penalized.
Two investments to consider bypassing are variable annuities and whole life insurance. Neither is a suitable way to build wealth, Walsh says.
Whatever your strategy, keep in mind that there may be fees associated with investing in certain funds. Those can add up over time, Walsh points out.
Determine a Student Loan Repayment Strategy
Since new dentists tend to start earning money more quickly than other health care professionals, they are often better positioned to tackle loan repayments more aggressively.
But your repayment strategy will depend on a number of factors. To start, consider the types of student loans you have. Federal loans have safety nets you can explore, like loan forgiveness and income-driven repayment (IDR) plans, which can lower monthly payments for eligible borrowers based on their income and household size.
Once you’ve assessed the programs and plans you’re eligible for, figure out your goals for your loans. Do you need to keep monthly payments low, even if that means paying more in interest over time? Or are you able to make higher monthly payments now so that you pay less in the long run?
If you have multiple loans and/or other debts, there are two approaches you might consider for paying them down. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball method approach, you pay off the smallest balance first and work your way up to the highest balance.
While both have their benefits, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says. But as he points out, the right approach is the one you’ll stick with.
Consider Your Refinancing Options
Paying down debt has long-term benefits, like lowering your debt-to-income ratio and building your credit. In order to help do this, you may want to include refinancing your student loans in your student loan repayment strategy.
When you refinance, a private lender pays off your existing loans and issues you a new loan. This can give you a chance to lock in a lower interest rate than you’re currently paying and combine all of your loans into a single monthly bill, which can be easier to manage. Some lenders, including SoFi, also provide benefits for new dentists.
The refinancing process is straightforward, yet some common misconceptions persist, Walsh says. “People overestimate the amount of work it takes to refinance and underestimate the benefits,” he says. A quarter of a percentage point difference in an interest rate may seem inconsequential, for instance, but if you have a big loan balance, it could save you thousands of dollars.
That said, refinancing may not be right for everyone. If you refinance federal student loans with a private lender, for instance, you lose access to federal benefits and protections, such as forgiveness programs and forbearance. Consider all your options and decide what makes sense for you and your financial goals.
The Takeaway
Dentistry can be a rewarding career with the potential to earn a healthy salary right from the start. However, you’re likely to have a significant loan debt when you graduate from dental school. Fortunately, balancing your goals with some smart saving, investing, and loan repayment strategies can help you get your finances on firm footing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
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