Set Yourself on the Path to Financial Success

Financial success is at the forefront of many young optometrists’ minds after graduation. We work so hard for so long before reaching a point where we can finally start earning that coveted six-figure salary. Undoubtedly, the fun thing to do at this time would be to splurge. Who wouldn’t want to go on a shopping spree in a fancy new BMW after all that hard work? However, the journey to financial independence involves disciplined saving, strategic investing, and careful planning. This can seem especially challenging for young optometrists, most of whom are burdened with astounding student loan debt—not to mention the pressures of establishing a new career.

The inspiring news is that financial success is within reach. This article explains four key steps for young ODs to keep in mind as they start their professional journeys.

STEP NO. 1. DEVELOP A FINANCIAL PLAN

The first and most critical step toward financial freedom is developing a comprehensive financial plan tailored to your specific circumstances, goals, and timeline. This plan will likely include budgeting, debt management, and an emergency fund. To accomplish this, start tracking your budgets, expenses, and income to ensure you are living within your means. It’s important you do not succumb to lifestyle creep at this early stage of your career. Keep your long-term financial goals in mind and resist the desire to “keep up with the Joneses.”

In making your financial plan, carefully allocating funds to account for your student loan payments is vital. It’s often a good idea to make additional or higher payments to attack your loan principal and accelerate the payoff timeline—as long as there are no prepayment penalties. Refinancing can also be a good option in some cases to lower the interest rate on your loans.

When it comes to an emergency fund, there is no one-size-fits-all approach. However, a general rule of thumb is to establish a fund that covers about 3 to 6 months of your living expenses. This safety net allows you to handle unexpected expenses without derailing your long-term financial goals.

STEP NO. 2: MAXIMIZE INCOME

Fitness gurus like to use the axiom that one cannot out-train poor eating habits. Similarly, it is not likely you can out-earn inappropriate spending tendencies, although it is certainly still beneficial to maximize earnings as much as you’re able.

Salary potential for optometrists can vary widely based on many factors, such as geographic location and practice setting. To maximize income as a young OD, try to select the best type of practice, consider honing your specialty skills, and negotiate your wages. Many private practice owners lament that the hiring environment is becoming increasingly challenging, and one reason is that the gap in salary between private practice and corporate/retail settings is widening, with the latter often paying more. Regardless of salary, however, there are distinct pros and cons for any optometry practice setting that must be considered—the specifics of which are beyond the scope of this article.

You may also consider becoming skilled in an optometric subspecialty, such as dry eye disease, myopia management, specialty contact lenses, etc. Specializations can enhance a practice’s standing in the area and allow the owner to charge higher fees, which can increase OD production and, in turn, earning potential. In addition, as an aspiring associate OD, you may not be aware of your true earning potential unless you explore your local market and learn what other colleagues in your area are being compensated. This discovery can lead to a position of leverage from which you can negotiate for a higher income.

STEP NO. 3: INVEST WISELY

Investing is arguably the most powerful tool at your disposal for building wealth. As a young optometrist, time is on your side, due to the benefit of compounding interest. Although this article does not delve into specific investing advice, there are a couple of investment vehicles that every young OD should be aware of.

Employer-Sponsored Retirement Account

It is worth considering contributing to a retirement account sponsored by an employer, such as a 401(k) or an IRA. If your employer offers a matching contribution, it usually makes sense to take full advantage of it. Note that not all employer retirement plans mandate employee contributions.

Health Savings Account (HSA)

The notorious HSA is commonly referred to as the financial vehicle with triple tax benefits. This nickname stems from the fact that HSA contributions may be tax-free, the monies invested can grow tax-free, and the withdrawals are not taxed if used for appropriate medical expenses. Be sure to check your employer’s policy to see whether you are HSA-eligible.

STEP NO. 4: PREPARE FOR OWNERSHIP

Owning a practice can be the accelerant needed to jump-start your path to financial success. A practice owner’s income is not capped like an associate OD’s income is, allowing a successful business owner to earn a far higher income due to their ability to directly grow the business, control costs, and optimize operations. Moreover, practice ownership provides opportunities for additional income streams, such as expanding to several locations and owning real estate. Better yet, equity built into the practice can add to your net worth, offering substantial financial security and the potential for a lucrative sale in the future.

Despite these potential benefits, many young ODs tend to feel that practice ownership is out of reach. However, based on my conversations with associates, employers, bankers, and consultants nationwide, it is clear that private practice ownership is alive and well. In fact, I fully expect the number of optometry coldstarts and practice transitions to increase in the coming years.

Keep in mind that many banks tend to want approximately 7% to 10% of the practice purchase price from the buyer in reserves. For example, if you are interested in a practice that is selling for $1M, a bank may expect you to have approximately $70K to $100K in reserves before approving a loan for the purchase. This begs the question of whether young ODs should aggressively pay off their student loans or save those funds to put toward buying their own practice. Like most financial decisions, the “correct” answer depends on your individual situation. It may be worth reaching out to the appropriate financial advisors and/or practice consultants to engage in planning discussions that best suit you.

STAY ON TRACK

The road to financial success is not necessarily easy to travel, but the actions necessary to get started on the right path are fairly straightforward to implement: Develop a strong plan, maximize your income potential, invest shrewdly, and consider practice ownership. Most importantly, enjoy the journey and reap the rewards when the time is right.